Energy Prospectus

Continental Resources (CLR): An updated Net Income & Cash Flow Forecast model, based on the company's new guidance, has been posted under the Sweet 16 Tab.

My Fair Value Estimate has increased by $2.35/share to $86.00, primarily the result of increased visibility for 2015. The announcement of increasing EUR's and a new shale play are also great news, but have zero impact on my valuation model.

I know the share price is down this morning, but step back and read their press release carefully. They are now saying that their SCOOP play is almost as big as what they have in the Bakken. That is an incredible statement. A type curve that shows EUR's over 1.7 million boe per well in the fairway (where they have a lot of acreage) is INCREDIBLE.

NOTE: This is also good news for NFX. See our recent profile and you will learn why. GST also has exposure to SCOOP.

IMO the Wall Street gang is being way too short-sighted (as usual). They are looking at the increase in CapEx as a negative and missing the point. CLR is a "Core Holding" that now looks a lot better.

It looks like I'm not the only one that thought today's press release had more good news than bad. - Dan

Continental Resources: Solid Analyst Day Update
Drew Venker, CFA – Morgan Stanley
September 18, 2014 5:00 AM GMT
Continental appointed a new COO, announced higher Bakken EURs, confirmed downspacing success, established 2015 guidance above expectations, and unveiled a new play

Solid update. Continental 1) named Jack Stark as COO, an excellent choice in our view, 2) raised Bakken EURs and confirmed 660 foot inter-lateral spacing in the Middle Bakken and Three Forks 1, 3) established 2015 production guidance above our and the Street's estimates, and 4) announced a new play, the Springer.

The only burning question left in our minds is 'how has the longer term growth outlook changed'? Based on our bull case before the analyst day of 25% higher Bakken EURs (now the base case) we estimate that the production CAGR will increase from 24% to 25%.

The capex is higher than the Street estimated, but the growth outlook on much improved well performance equates to in-line multiple even on higher capex assumptions. On our new estimates, CLR trades at 6.6x 2016e EBITDA, unchanged vs. our prior estimates and above the oil wtd peers at 6.1x. In our view, for an oil focused company with multi-decade inventory and a 5 year production CAGR of 25-30%, the premium is more than justified.

Raising NAV-based price target 7% to $102 for higher Bakken EURs, and higher SCOOP EURs than we were modeling. Our new PT equates to 10.3x 2015e EBITDA, vs. 9.6x prior. We are not ascribing any additional credit for Bakken downspacing at this time. Risks to our price target include capital cost inflation.

Updated guidance. 2015 production guidance slightly above our estimates, and 1% above consensus at the midpoint. Drilling and completion capex guidance of $5.2 billion is 6% above our estimate of $4.9 billion and 21% above Consensus at $4.3 billion.

New COO. Investors should cheer the appointment of Jack Stark as COO and President. Jack is a Continental veteran and was key to the company's entry and eventual focus on the Bakken. He is a natural fit as COO given his critical role in CLR's exploration efforts.