Energy Prospectus

If you own CRL, DVN, NFX, XEC or GST you need to read what Continental Resources is saying about STACK. I am updating my forecast model for CLR now an will have it posted to the EPG website late today. - Dan

Stifel's comments on CLR Q1 Report:

1Q16 Summary, Production Guidance Boosted: CLR reported 1Q16 EPS/
CFPS of ($0.41)/$0.63 versus our estimates of ($0.37)/$0.58 and consensus of
($0.36)/$0.64. Higher than expected production (7%) and lower per unit LOE
(-17%), production taxes (-5%), G&A (-20%) and interest expense (-5%%) was
partially offset by a lower composite realized price (-4%).

CLR increased its FY16 production guidance 5% to 205-215 MBoe/d while keeping its
capital budget flat at $920 million. Management’s new guidance includes 10
MBoe/d of curtailed production from April-July (primarily in the Anadarko Basin) as
CLR manages volumes for higher anticipated prices in 2H16. During the quarter,
CLR sold 132,000 net undeveloped acres in southern WY for $110 million (and
noted additional non-core divestiture opportunities exist).

Early STACK Results Impress, Enthusiasm Remains High: CLR is currently
running six rigs targeting the Meramec in Blaine County, OK and reported three
strong 24-hour IP rates from Meramec wells brought online during 1Q16 (Exhibit
2). Efficiencies have lowered the average STACK well cost 5% to $9.5 million.
CLR’s first Meramec density pilot is currently under way and located in the
over-pressured oil window (Exhibit 3). The pilot will test eight wells/section with
four wells in both the upper and middle Meramec (Exhibit 4), versus our NAV
which currently assumes six wells/section. Management estimates the STACK
could increase CLR’s net unrisked resource potential by 25%.


Bakken Well Costs Continue to Fall: While enhanced completions continue to
generate wells exhibiting 35-45% higher EURs than direct older vintage offsets,
well costs continue to fall. Current costs are $6.3 million and management is
targeting $6 million by YE16. Should we decrease our long-term well cost to $6.5
million (down from $7 million in our current estimates), our total risked NAV would
increase 5% to $41/share. CLR is running four operated rigs in the Bakken and
plans to have six 2016 completions, boosting its DUC inventory to 195 at YE16.

CLR Expects to Be Cash Flow Positive in 2016: Based on current commodity
prices and guidance, management expects to be cash flow neutral in 2016 at
$37/bl. Should oil/natural gas prices average $40/$2.25 or $50/$2.50 we estimate
CLR’s YE16 debt/TTM EBITDA and outspend would equal 5.3x and 4.3x (up from
3.6x at YE15) and cash flow positive $68 million and $151 million, respectively.

CLR currently has $1.8B available on its unsecured $2.75B revolver and no
near-term debt maturities (2018+).

Reiterate Hold: Despite the strong initial results and long-term upside in the
STACK region, we reiterate our Hold rating based on commodity price headwinds.

As of March 31, 2016, Continental's balance sheet included $12.9 million in cash and cash equivalents and $940 million of borrowings against the Company's revolving credit facility, compared to the balance of $853 million at December 31, 2015. Continental had approximately $1.8 billion in available borrowing capacity under its revolving credit facility as of March 31, 2016, and approximately $1.9 billion was available as of April 29, 2016, after the Company used proceeds from its Wyoming leasehold sale to pay down outstanding debt. As noted in previous earnings releases, the Company expects its revolver balance to fluctuate somewhat through the year due to the timing of bond interest payments. On an annual basis at current commodity prices and current guidance, the Company expects to be cash flow positive for 2016 as a whole.

The Company's revolver is unsecured, and there are no terms in the facility that would mandate collateral or a borrowing base calculation coming back into place. The revolver's sole financial covenant is a net debt to total capitalization ratio of no greater than 0.65, and, as of March 31, 2016, the Company's net debt to total capitalization ratio was 0.59, compared with 0.58 at December 31, 2015. Under the terms of the credit agreement, the calculation of total capitalization specifically excludes any non-cash impairment charges incurred after June 30, 2014.

Any thoughts on PE and their earnings report? Raymond James upgraded it to a strong buy.

I will work on PE next.

I have updated my CLR forecast model and it will be posted to the EPG website later today. My valuation of CLR increases $1.40 to $39.40/share.

CLR has HUGE upside in SCOOP & STACK, so it probably deserves a higher multiple of CFPS. The balance sheet has a lot of debt, but leverage does work both ways and rising oil prices will significantly increase the value of CLR assets as this company has lots of Tier One leasehold in the Bakken and Central Oklahoma (SCOOP + STACK).

Again, if you own NFX, XEC, DVN or GST you need to look closely at the slides spoke from today on their conference call. Well results in SCOOP and STACK are better than almost anywhere else in the country. Completed well costs keep coming down and they get top dollar for the oil and gas because it is so close to the Cushing Hub.