Continental Resources Announces Second Quarter 2020 Results and Updates Guidance Responsible Stewardship of Assets & Capital

Source Company Press Release
Company Continental Resources, Inc.
Tags Corporate: Corporate Results, Guidance, Country: United States, Financial - Costs & Metrics: Capital Expenditures, Hedging, Operating Area: Bakken, Upstream: Drilling Activity, Upstream News
Date August 03, 2020

Curtailed Operated Oil Volumes in 2Q20 Estimated to Generate $90 Million in Incremental Cash Flow from Operations at $40 WTI
•   Approximately 55% of Oil Volumes (7.8 MMBo) Curtailed in 2Q20
•   202,815 Boepd Average Daily 2Q20 Production

2020 Full-Year Average Production of 155,000 to 165,000 Bopd & 800,000 to 820,000 Mcfpd
•   3Q20 Average Production of 280,000 to 300,000 Boepd
•   2020 Exit Rate Production of 310,000 to 330,000 Boepd

Forecasting Approx. $1.3 Billion Annual Cash Flow from Operations and $200 Million Annual Free Cash Flow (FCF) (Non-GAAP) in 2020 at $40 WTI
•   $615 Million Cash Flow from Operations and $500 Million FCF in 2H20

Targeting Total Debt of $5.4 Billion to $5.5 Billion by YE20

Low Cost Industry Leadership: Reinstating Original per Unit Cost Guidance
•   $3.58 Production Expense per Boe in 2Q20; in Line with Original Guidance even with Production Curtailments

On Track for Previously Revised $1.2 Billion or Lower Capital Spend in 2020
•   Est. $1.2 Billion D&C Maintenance Capital to Hold Production Flat YoY in 2021

Operating Efficiencies Continue to Drive Year-Over-Year All-In Well Costs Lower
•   Bakken Completed Well Cost Decreased 12% to $7.2 Million per Well (Approx. 70% Structural)
•   South Completed Well Cost Decreased 10% to $9.5 Million per Well (Approx. 80% Structural)

Continental Resources, Inc. (NYSE: CLR) (the "Company") today announced second quarter 2020 operating and financial results.

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The Company reported a net loss of $239.3 million, or $0.66 per diluted share, for the quarter ended June 30, 2020. In second quarter 2020, typically excluded items in aggregate represented a decrease of $16.4 million, or $0.05 per diluted share, in Continental's reported net loss. Adjusted net loss for second quarter 2020 was $255.7 million, or $0.71 per diluted share (non-GAAP).

Adjusted net loss, adjusted net loss per share, EBITDAX, net debt, free cash flow, net sales prices and cash general and administrative (G&A) expenses per barrel of oil equivalent (Boe) presented herein are non-GAAP financial measures. Definitions and explanations for how these measures relate to the most directly comparable U.S. generally accepted accounting principles (GAAP) financial measures are provided at the conclusion of this press release.

"Continental has proactively responded to the unprecedented events that have shaped the global commodity landscape in 2020. By deferring volumes in the second quarter of 2020, we expect to generate an estimated $90 million in incremental cash flow from operations at $40 WTI. Combined with our strong asset position and unmatched shareholder alignment, we believe Continental's equity reflects an uncommon value," said Bill Berry, Chief Executive Officer.

Production Update

Second quarter 2020 total production averaged 202,815 Boepd. Second quarter 2020 oil production averaged 95,174 Bopd. Second quarter 2020 natural gas production averaged 645.8 MMcfpd. During the second quarter, approximately 55% of the Company's operated oil volumes were shut in, or approximately 7.8 MMBo.

The following table provides the Company's average daily production by region for the periods presented.

  2Q    2Q    YTD    YTD 
Boe per day  2020    2019    2020    2019 
Bakken  88,822    194,014    145,162    196,704 
South  107,083    128,777    129,547    126,568 
All other  6,910    8,623    7,119    8,551 
Total  202,815    331,414    281,828    331,823 

Financial Update"

We have made tremendous strides to remain the low cost industry leader amongst our oil-weighted peers. We are reinstituting per unit cost guidance and expect LOE, G&A and DD&A per Boe to be within our previous guidance, reflecting exceptional cost management and capital efficiency," said John Hart, Chief Financial Officer. "While our debt increased modestly due to the pandemic, it has not changed our long-term strategy to continue focusing on debt reduction, with a total debt target of $5.4 billion to $5.5 billion by year end 2020."

    Three Months Ended    Six Months Ended 
2Q20 Financial Update    June 30, 2020  June 30, 2020 
Cash and Cash Equivalents        $6.7 million 
Total Debt        $5.74 billion 
Net Debt (non-GAAP)(1)         $5.74 billion 
Average Net Sales Price (non-GAAP)(1)         
Per Barrel of Oil    $16.35    $32.37 
Per Mcf of Gas    $0.12    $0.59 
Per Boe    $7.88    $18.56 
Production Expense per Boe    $3.58    $3.60 
Total G&A Expenses per Boe    $2.30    $1.66 
Crude Oil Differential per Barrel    ($7.54)    ($6.66) 
Natural Gas Differential per Mcf    ($1.58)    ($1.26) 
Non-Acquisition Capital Expenditures     $190.8 million    $841.5 million 
Exploration & Development Drilling & Completion    $155.8 million    $699.8 million 
Leasehold     $6.2 million    $25.5 million 
Minerals, of which 80% was Recouped from FNV     $2.7 million    $23.3 million 
Workovers, Recompletions and Other    $26.1 million    $92.9 million 

         
(1) Net debt and net sales prices represent non-GAAP financial measures. Further information about these non-GAAP financial measures as well as reconciliations to the most directly comparable U.S. GAAP financial measures are provided subsequently under the header Non-GAAP Financial Measures." 

Guidance Update

Our updated 2020 guidance emphasizes our ongoing commitment to shareholder value. This is driven by the strength of our assets, the quality and flexibility of our operations and the outstanding performance by our teams, companywide," said Jack Stark, President and Chief Operating Officer. "Going forward, shareholder value remains our top priority as we continue to drive down costs, maximize free cash flow and focus on reducing debt."  

The Company has updated its 2020 annual production guidance to 155,000 to 165,000 Bopd and 800 to 820 MMcfpd. The Company has updated its third quarter 2020 production guidance to 280,000 to 300,000 Boepd and its 2020 exit rate production guidance to 310,000 to 330,000 Boepd. As of June 30, 2020, the Company has 215 wells in progress and expects to end the year with 140. The Company expects to average 7.7 drilling rigs and 2.5 stimulation crews in 2020.

Revised production guidance is forecasted to generate approximately $1.3 billion of annual cash flow from operations and $200 million of annual free cash flow at $40 per barrel WTI, with $615 million of cash flow from operations and $500 million of free cash flow in the second half of 2020. The Company believes it is essential to prioritize the balance sheet and is targeting total debt of $5.4 billion to $5.5 billion by year end 2020.

The Company maintains its commitment to low cost industry leadership amongst oil-weighted peers. In spite of significant production curtailments in the second quarter of 2020, the Company is reinstating previously suspended per unit cost guidance metrics in 2020. Production expense is expected to be $3.50 to $4.00 per Boe in 2020. Total G&A expense, which is comprised of cash and non-cash G&A expense, is expected to be $1.60 to $2.00 per Boe in 2020. Continental expects 2020 guidance for DD&A of $15.00 to $17.00 per Boe, reflecting strong well productivity and capital efficiency.

The Company is on track to achieve its previously revised 2020 Capex guidance of $1.2 billion or lower, a 55% decrease from original guidance of $2.65 billion. The Company continues to drive maintenance capital lower and estimates $1.2 billion D&C maintenance capital or lower to hold production flat year-over-year in 2021.

Bakken completed well cost has decreased 12% year-over-year to $7.2 million per well, with approximately 70% of these savings being structural and South completed well cost has decreased 10% year-over-year to $9.5 million per well, with approximately 80% of these savings being structural. Both the Bakken and South completed well costs include D&C and full facilities costs, including artificial lift.

The Company's full 2020 guidance, capital expenditures budget and operating details can be found at the conclusion of this press release.

The following table provides the Company's production results, per-unit operating costs, results of operations and certain non-GAAP financial measures for the periods presented. Average net sales prices exclude any effect of derivative transactions. Per-unit expenses have been calculated using sales volumes.

  Three months ended June 30,    Six months ended June 30, 
  2020    2019    2020    2019 
Average daily production:               
Crude oil (Bbl per day)  95,174    193,586    147,922    193,753 
Natural gas (Mcf per day)  645,846    826,969    803,434    828,422 
Crude oil equivalents (Boe per day)  202,815    331,414    281,828    331,823 
Average net sales prices (non-GAAP), excluding effect from derivatives: (1)               
Crude oil ($/Bbl)  $      16.35    $     54.66    $      32.37    $        52.36 
Natural gas ($/Mcf)  $        0.12    $       1.66    $        0.59    $         2.11 
Crude oil equivalents ($/Boe)  $        7.88    $     36.03    $      18.56    $        35.79 
Production expenses ($/Boe)   $        3.58    $       3.74    $        3.60    $         3.66 
Production taxes (% of net crude oil and gas sales)  7.8%    8.7%    8.7%    8.4% 
DD&A ($/Boe)  $      16.07    $     16.14    $      16.25    $        16.37 
Total general and administrative expenses ($/Boe) (2)  $        2.30    $       1.57    $        1.66    $         1.58 
Net income (loss) attributable to Continental Resources (in thousands)   $ (239,286)    $ 236,557    $ (424,950)    $    423,533 
Diluted net income (loss) per share attributable to Continental Resources  $      (0.66)    $       0.63    $      (1.17)    $         1.13 
Adjusted net income (loss) (non-GAAP) (in thousands) (1)   $ (255,702)    $ 219,136    $ (283,268)    $    435,746 
Adjusted diluted net income (loss) per share (non-GAAP) (1)  $      (0.71)    $       0.59    $      (0.78)    $         1.16 
Net cash provided by (used in) operating activities (in thousands)  $   (20,248)    $ 783,396    $  643,570    $ 1,504,904 
EBITDAX (non-GAAP) (in thousands) (1)  $    36,013    $ 858,019    $  630,260    $ 1,712,804 

 
(1) Net sales prices, adjusted net income (loss), adjusted diluted net income (loss) per share, and EBITDAX represent non-GAAP financial measures. Further information about these non-GAAP financial measures as well as reconciliations to the most directly comparable U.S. GAAP financial measures are provided subsequently under the header Non-GAAP Financial Measures. 
 
(2) Total general and administrative expense is comprised of cash general and administrative expense and non-cash equity compensation expense. Cash general and administrative expense per Boe was $1.45, $1.17, $1.04, and $1.18 for 2Q 2020, 2Q 2019, YTD 2020, and YTD 2019, respectively. Non-cash equity compensation expense per Boe was $0.85, $0.40, $0.62, and $0.40 for 2Q 2020, 2Q 2019, YTD 2020, and YTD 2019, respectively. 

Second Quarter Earnings Conference Call

The Company plans to host a conference call to discuss second quarter 2020 results on Tuesday, August 4, 2020 at 12:00 p.m. ET (11:00 a.m. CT). Those wishing to listen to the conference call may do so via the Company's website at CLR.com or by phone:

Time and date:  12 p.m. ET, Tuesday, August 4, 2020 
Dial-in:  1-888-317-6003 
Intl. dial-in:  1-412-317-6061 
Conference ID:  8636766 

A replay of the call will be available for 14 days on the Company's website or by dialing:

Replay number:  1-877-344-7529 
Intl. replay:  1-412-317-0088 
Conference ID:  10146341 

The Company plans to publish a second quarter 2020 summary presentation to its website at CLR.com prior to the start of its conference call on Tuesday, August 4, 2020.  

2020 Guidance 
As of August 3, 2020 
       
  2020 Original    2020 Updated  
       
Full-year average oil production (Bopd)  198,000 to 201,000    155,000 to 165,000 
Full-year average natural gas production (Mcfpd)   935,000 to 960,000    800,000 to 820,000 
Capital expenditures budget  $2.65 Billion    $1.2 billion  
       
Operating Expenses:       
     Production expense per Boe  $3.50 to $4.00    $3.50 to $4.00 
     Production tax (% of net oil & gas revenue)  8.3% to $8.5%    8.3% to $8.5% 
     Cash G&A expense per Boe(1)  $1.10 to $1.40    $1.10 to $1.40 
     Non-cash equity compensation per Boe  $0.50 to $0.60    $0.50 to $0.60 
     DD&A per Boe  $15.00 to $17.00    $15.00 to $17.00 
       
Average Price Differentials:       
     NYMEX WTI crude oil(2)(per barrel of oil)  ($4.50) to ($5.50)    ($5.50) to ($6.50) 
     Henry Hub natural gas(3)(per Mcf)  ($0.50) to ($1.00)    ($0.75) to ($1.25)  

 
1.  Cash G&A is a non-GAAP measure and excludes the range of values shown for non-cash equity compensation per Boe in the item appearing immediately below. Guidance for total G&A (cash and non-cash) is a projected range of $1.60 to $2.00 per Boe. 
2.  Includes second half 2020 guidance of ($5.00) to ($5.50). 
3.  Includes natural gas liquids production in differential range. Includes second half 2020 guidance of ($0.50) to ($1.00). 

2020 Capital Expenditures 
         
The following table provides the breakout of budgeted capital expenditures: 
         
($ in Millions)  North D&C  South D&C  Leasehold, Facilities, Other   
Capex  $635  $315  $250   
         
         
         
2020 Operational Detail  
         
The following table provides additional operational detail for wells expected to have first production in 2020:  
         
Asset   Average Rigs  Gross Operated Wells  Net Operated Wells  Total Net Wells(1) 
North  3.4  116  76  100 
South  4.3  54  38  42 
Total  7.7  170  114  142 
         
         
1.     Represents projected net operated and non-operated wells with first production. 

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