Continental Resources (CLR)
Posted: Sat Aug 08, 2015 1:00 pm
I have updated my forecast model for CLR and it will be available on the website later today.
CLR had outstanding 2nd quarter results, but since none of their oil is hedged my valuation dropped $3 to $47/share. This compares to First Call's price target of $50.23.
If oil prices bounce back, CLR has HUGE upside. Below is what Morgan Stanley thinks.
Continental Resources Inc.: 2Q15: Targeting Neutrality
Drew Venker, CFA – Morgan Stanley
August 6, 2015 2:34 AM GMT
CLR delivered a big beat on higher production and lower costs and raised 2015 production guidance. Ops update was excellent, particularly for the Meramec and SCOOP. CLR plans to spend to cash flow, and will reduce activity if WTI holds below $50.
2016 outlook: focused on cash flow neutrality. CLR continues to target spending in line with cash flow going forward, which is what we expect for 2H15. It plans to cut its Bakken rig count 20% by YE-15 if WTI remains below $50/Bbl, with flexibility to drop another 3-4 rigs by mid-2016 with no rig termination fees.
We assume CLR spends to cash flow in 2016. For 2016 we assume capex will approximate cash flow on our price deck ($55 WTI, $3.75 Henry Hub), a small premium to the 2016 strip ($51.32/$3.11). This drives production essentially flat in 2016 vs. our prior assumption of 12% growth on $3.3 billion capex. We estimate net debt to EBITDA of 3.3x at YE-16 (vs. 3.6x at YE-15). On strip pricing, we estimate net debt to EBITDA of 3.6x at YE-15 and 3.9x at YE-16.
Some continue to voice concerns over the balance sheet, and argue that CLR needs to offer equity to shore up the balance sheet. While leverage is higher than mgmt would prefer, we do not believe CLR needs to make a secondary offering.
Beat and raise (what we expected). CLR raised 2015 production guidance 3% to 21% growth (the prior high end of the range) and lowered operating cost guidance on the back of a big beat. 2Q15 volumes were well above consensus estimates and costs were below the low end of guidance. The 2015 update is all directionally consistent with our expectations heading into the quarter, but is positive relative to consensus.
First Meramec test much more oily than expectations. CLR's first Meramec test, a 9,711 foot lateral, IP'd at 2,076 Boe/d with 76% oil and continues to clean up. This compares to expectations for a much more gassy mix. Off
For those of you in Gastar (GST), you really need to take a hard look at what CLR is saying about STACK and SCOOP.
CLR had outstanding 2nd quarter results, but since none of their oil is hedged my valuation dropped $3 to $47/share. This compares to First Call's price target of $50.23.
If oil prices bounce back, CLR has HUGE upside. Below is what Morgan Stanley thinks.
Continental Resources Inc.: 2Q15: Targeting Neutrality
Drew Venker, CFA – Morgan Stanley
August 6, 2015 2:34 AM GMT
CLR delivered a big beat on higher production and lower costs and raised 2015 production guidance. Ops update was excellent, particularly for the Meramec and SCOOP. CLR plans to spend to cash flow, and will reduce activity if WTI holds below $50.
2016 outlook: focused on cash flow neutrality. CLR continues to target spending in line with cash flow going forward, which is what we expect for 2H15. It plans to cut its Bakken rig count 20% by YE-15 if WTI remains below $50/Bbl, with flexibility to drop another 3-4 rigs by mid-2016 with no rig termination fees.
We assume CLR spends to cash flow in 2016. For 2016 we assume capex will approximate cash flow on our price deck ($55 WTI, $3.75 Henry Hub), a small premium to the 2016 strip ($51.32/$3.11). This drives production essentially flat in 2016 vs. our prior assumption of 12% growth on $3.3 billion capex. We estimate net debt to EBITDA of 3.3x at YE-16 (vs. 3.6x at YE-15). On strip pricing, we estimate net debt to EBITDA of 3.6x at YE-15 and 3.9x at YE-16.
Some continue to voice concerns over the balance sheet, and argue that CLR needs to offer equity to shore up the balance sheet. While leverage is higher than mgmt would prefer, we do not believe CLR needs to make a secondary offering.
Beat and raise (what we expected). CLR raised 2015 production guidance 3% to 21% growth (the prior high end of the range) and lowered operating cost guidance on the back of a big beat. 2Q15 volumes were well above consensus estimates and costs were below the low end of guidance. The 2015 update is all directionally consistent with our expectations heading into the quarter, but is positive relative to consensus.
First Meramec test much more oily than expectations. CLR's first Meramec test, a 9,711 foot lateral, IP'd at 2,076 Boe/d with 76% oil and continues to clean up. This compares to expectations for a much more gassy mix. Off
For those of you in Gastar (GST), you really need to take a hard look at what CLR is saying about STACK and SCOOP.