Energy Prospectus

Notes below from BofA Equity Research. Note that their price target of $65/share is based on an oil price of only $65/bbl. I think WTI will average $85/bbl this year with a spike in Q2.
----------------------------------------
From BofA:

Beat on realizations: but eyes on new portfolio guidance
CLR adj. EPS of $1.79 beat consensus / BofA of $1.70 and $1.61 respectivey with the
main delta vs our estimate on price realizations. Oil & gas production of ~ 340 Mboe/d
with oil of 166.7 Mbbl/d were both slightly ahead of the Street noting volumes include
10 days from the acquisition of PXD’s Delaware assets (closed on 12/21/2021). It's
acquisition of CHK’s Powder River basin assets ($450mm) is still expected to close by
end-1Q22. With all of the portfolio changes 4Q21 is backward looking: however CLR has
also provided a four year look of cumulative free CF and portfolio depth that in our view
defines value and underlines our PO of $65/sh and our Neutral rating of the shares.
["PO" = Price Objective]

2022-2025 free cash flow outlook anchors fair value
For 2022, CLR has guided to spending of ~$2.3bn and oil and gas production of 195-205
Mbbl/d and ~1,040-1,140 MMcf/d which includes its second (Powder River) acquisition
closes at end 1Q22. The street / BofA is already at the high end of the oil range on
slightly lower capex of ~$2.2bn; although note that CLR's capex plan includes $500mm
for leasehold and mineral acquisitions. Between 2022 and 2025, management has
provided a range of cumulative cash flow and free cash flow estimates of $20.7bn and
$11.6bn from 2022 through 2025 ($80 WTI / $3.50 HH) and $16bn / $6.7bn ($60 /
$3.50), noting it expects to grow total oil & gas production at a ‘low single digit’ CAGR
on relatively flat capex. Over the period CLRs sees its oil cut increase slightly to ~55% vs
52% in 2022; Critically management suggests a total portfolio inventory depth of over
two decades with a break-even of $30 WTI taking full account of cash taxes and
rounding out a framework for disclosure to define a range of value for CLR.

Reiterate Neutral rating, PO unchanged at $65
Looking forward, CLR is focused on improving its B/S and increasing returns to
shareholders. By its projections, it could achieve < 1x net debt to EBITDA by the end of
this year and it has increased its share repurchase program to $1.5bn from $1bn which
includes $441mm executed to date and the balance of ~$1bn equivalent to ~30% of its
free float. However, by our estimates management’s disclosure confirms a range of
value under our DCF framework between $50 - $106 per share for sustained WTI oil
prices between $60 and $80 WTI; it also reaffirms our view that at current strip / BofA
outlook of $65 Brent, CLR has modest upside vs peers. Neutral PO unchanged at $65.

Per Continental's 10-K the Company's PV-10 value of just their Proved Reserves (P1) increased from $4.6 Billion as of 12-31-2020 to $16.6 Billion as of 12-31-2021.

The valuation as of 12-31-2021 is based on $62.19/bbl for oil and $3.46/mcf for natural gas and NGLs combined.

I have updated my forecast/valuation model for CLR and it will be posted to the EPG website later today.

My valuation increases by $3 to $75/share.

My valuation is much higher than TipRanks' consensus price target of $59.18 because all of my forecasts are based on WTI averaging $85/bbl in 2022 and $80/bbl in 2023. This may sound counter-intuitive, but because CLR has not hedged any of its oil the Wall Street Gang sees that as a RISK. Obviously, there is also upside potential if WTI prices go higher.

I also don't think that the Wall Street Gang cares much about stock buyback programs. They only reduce the share count in their models as the buybacks happen. My model assumes that the outstanding shares decline to 350 million by the end of 2023.

I believe that there is upside to my forecast because:
> I think we will see a spike in oil prices in Q2
> I think CLR's production guidance is very conservative. My model assumes the mid-point of CLR's guidance, but the high end is probable more likely.
> When the Powder River Basin acquisition closes, CLR will have a lot of high-quality development drilling inventory.