Continental Resources’ Record Production In the Second Quarter of 2012 Prompts Higher 2012 Growth Guidance
OKLAHOMA CITY, Aug. 8, 2012 /PRNewswire/ — Continental Resources, Inc. (NYSE: CLR) announced record production for the second quarter ended June 30, 2012.
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Significant accomplishments in the second quarter included:
- Achieved record production of 94,852 barrels of oil equivalent per day (Boepd), a 76 percent increase over production of 53,984 Boepd for the second quarter of 2011. Production reached 100,000 Boepd in June 2012.
- Earned $421.9 million of EBITDAX, 48 percent higher than the second quarter of 2011, and increased net income compared to the second quarter last year.
- Accelerated the value of high rate-of-return projects in the Bakken play of North Dakota and Montana and the Anadarko Woodford play of Oklahoma through increased drilling efficiencies and capital spending.
- Continued to simultaneously de-risk and extend the proven inventory in the Bakken play while accelerating its transition to multi-well pad drilling to more efficiently develop this inventory.
Record Production and Proved Reserves
Continental’s production was 94,852 Boepd in the second quarter of 2012, an increase of 76 percent over the second quarter of 2011 and 11 percent over the first quarter of 2012.
The Company increased 2012 full-year production growth guidance to a range of 57 percent to 59 percent, while reducing its operated rig count to 29 rigs today from 44 in late 2011.
“Our operating results have been exceptionally strong. We are significantly ahead of plan to achieve our five-year goal of tripling production from 2009 to 2014,” said Harold Hamm, Chairman and Chief Executive Officer. “We have demonstrated increasing efficiencies by delivering higher production with fewer rigs, and we expect to hit our five-year target during the first half of 2013, which is 18-to-24 months earlier than our original plan. This speaks to the quality of our assets and tremendous team performance by the people at Continental.”
Continental announced a 20 percent increase in proved reserves to 610 MMBoe at June 30, 2012, based on its mid-year internal evaluation. This compared with total proved reserves of 508 MMBoe at year-end 2011 and 421 MMBoe at June 30, 2011.
Capital Expenditures
Continental reported capital expenditures (excluding acquisitions in all cases) of $827 million for the second quarter of 2012, bringing total capital expenditures for the first half of the year to $1.6 billion.
The Company has increased its 2012 capital expenditures budget to $3.0 billion. This incremental capital in the revised budget reflects accelerated spending to drill high rate-of-return projects in the Bakken and increases in Continental’s average working interests in Bakken and Anadarko Woodford wells, which has helped boost production growth. The increase in average working interest results from acquisitions and enhanced ownership through continuous leasing, trades, farm-ins and pooled interests.
Drilling and completion costs have also been higher. In the Bakken, drilling and completion costs have trended higher, with operated wells averaging $9.2 million per well and non-operated wells averaging $11.3 million. Continental continues to work with service providers to maintain its low-cost leadership through operational efficiencies, addressing supply chain issues, and reducing the strain on infrastructure in this developing field.
“Our overall goal is to maximize the value of our premier assets in the Bakken and Anadarko Woodford plays,” said Rick Bott, President and Chief Operating Officer. “Specifically for the Bakken, we’ve accelerated our transition to ECO-Pad capable rigs, now representing half of our drilling fleet, while continuing to grow production at an industry-leading rate. We are moving into full development mode, which will enable us to reduce operating costs, more efficiently develop our multi-year drilling inventory, and realize more quickly the value of our assets.”
Financial Results
Continental’s oil and natural gas sales were $523.4 million for the second quarter of 2012, compared with $388.8 million for the same period of 2011.
Continental reported net income of $405.7 million, or $2.25 per diluted share, for the second quarter of 2012, compared with net income of $239.2 million, or $1.33 per diluted share for the second quarter of 2011. The year-over-year growth in net income reflected Continental’s crude oil-weighted production growth.
Second quarter 2012 net income, on an after-tax basis, included a net non-cash unrealized gain on derivatives of $296.4 million, a $10.8 million net gain on sale of assets, net property impairment charges of $22.2 million, and a net $2.1 million in costs related to the Company’s relocation of its headquarters to Oklahoma City. Excluding the combined effects of the non-cash unrealized gain on derivatives, the gain on sale of assets, the property impairment charge and the relocation expense, Continental’s earnings would have been $0.68 per diluted share for the second quarter of 2012. On a comparable basis, its adjusted earnings per share would have been $0.60 per diluted share for the second quarter of 2011. For the reconciliation of this result to U.S. GAAP earnings per share, see “Non-GAAP Financial Measures – Adjusted earnings per share” at the end of this press release.
The Company reported EBITDAX of $421.9 million, a 48 percent increase compared with the second quarter of 2011. For the Company’s definition and reconciliation of EBITDAX to net income and operating cash flows, see “Non-GAAP Financial Measures” at the end of this press release.
Production expense was $5.16 per Boe for the second quarter of 2012, compared with $6.65 per Boe for the second quarter of 2011. Continental has revised its 2012 guidance and now expects production expense will average in a range of $5.25 to $5.75 per Boe, compared with its original guidance of $6 to $7 per Boe.
General and administrative expense (G&A) was $3.51 per Boe, slightly lower than the second quarter of 2011. Excluding non-cash equity compensation and relocation expenses, G&A for the second quarter of 2012 was $2.20 per Boe, compared with $2.66 per Boe for the second quarter of 2011.
The Company has revised its guidance for G&A and now expects it will average in a range of $2.10 to $2.35 per Boe for 2012, compared with its original guidance of $2.50 to $2.75 per Boe.
Marketing and Commodity Prices
Crude oil represented 69 percent of Continental’s second quarter 2012 production.
Continental reported a blended realized price of $61.69 per Boe (barrel of oil equivalent) in the second quarter of 2012, comprised of an average realized crude oil price of $80.56 per barrel and an average realized natural gas price of $3.51 per Mcf. The Company’s second quarter 2012 average realized price for crude oil does not include the effect of $7.1 million of pre-tax realized losses on mark-to-market derivatives for the quarter. In the second quarter of 2011, it reported a blended realized price of $79.86 per Boe. Continental’s oil price differential was $12.63 per barrel for the second quarter of 2012.
“We continue to identify additional opportunities to transport Bakken oil to water-borne sourced U.S. markets that yield the highest net price per barrel at the wellhead,” Mr. Hamm said. “Demand for high quality domestic crude, especially Bakken barrels, is increasing in all markets. We are aggressively supporting the expansion and construction of current and new pipeline systems. With infrastructure improvements like the reversal and volume expansion of the Seaway pipeline, other new pipeline construction, and expanding rail capacity, we expect the intrinsic value of the Bakken barrel to be realized over time.”
The Company’s natural gas price differential to Henry Hub was a premium of $1.29 per Mcf, reflecting the high liquids content of its natural gas. This compared with a premium of $1.16 per Mcf for the second quarter of 2011.
Strong Financial Position
As of June 30, 2012, the Company’s balance sheet included $29.1 million in cash and cash equivalents and $2.3 billion in total long-term debt. Total long-term debt at June 30, 2012 included $537 million in borrowings under Continental’s revolving credit facility. The commitments and borrowing base under its revolving credit facility were recently increased to $1.5 billion and $2.75 billion, respectively.
“We have accelerated our capital program because of the tremendous opportunities in front of us,” said John Hart, Senior Vice President and Chief Financial Officer. “We are delivering strong production growth while maintaining favorable debt metrics. We are well in line with debt-to-EBITDAX commitments that we have set for our Company.”
Bakken Results
Continental continues to realize strong initial per-well production rates in the Bakken, in line with expectations. Bakken production was 53,471 Boepd for the second quarter of 2012, a 97 percent increase over the second quarter of 2011.
The Company continues to see strong production results from new wells in the Middle Bakken and Three Forks zones. Successful results continue to expand the proven extents of the play laterally, and in the coming months Continental will continue exploring lower benches in the Three Forks to expand the play vertically. The first two tests of the second bench, completed earlier this year, continue to perform in line with typical Three Forks producers.
For the quarter, the Company participated in 154 gross (56 net) wells. In terms of operated wells, Continental completed 69 gross (46 net) wells in the Bakken in the second quarter of 2012, with 62 gross (41 net) wells in North Dakota and 7 gross (5 net) wells in Montana.
Continental continued to build its strategic leasehold and ownership interest by adding 31,057 net acres in the North Dakota Bakken since the beginning of 2012, bringing its total Bakken ownership to 946,248 net acres at June 30, 2012.
The Company currently has 19 operated drilling rigs in the Bakken, a reduction from the peak of 26 operated rigs in the first half of 2012. The current rig fleet includes 15 operated rigs in North Dakota and four in Montana. Nine of the North Dakota rigs are drilling ECO-Pad projects.
Anadarko Woodford Well Results
Production in the Anadarko Woodford in the second quarter of 2012 was more than 4X production in the same quarter of 2011 (16,672 Boepd versus 4,031 Boepd). The Company participated in 31 gross (17 net) wells in the play. In terms of Continental-operated wells, it completed 19 gross (16 net) wells in the Anadarko Woodford play in the second quarter of 2012. Initial well production rates continue to meet expectations and support this strong production growth.
Continental has expanded its lease position in the Anadarko Woodford play by 12.5 percent, with 37,559 net acres added since the beginning of 2012. Total leasehold was 315,675 net acres as of June 30, 2012.
To optimize capital, align with infrastructure timing, and maximize returns, the Company has reduced its operated rig fleet to seven in the Anadarko Woodford, compared with a peak level of 16 operated rigs in the play in late 2011. Continental plans to release one additional rig by the end of the month and is concentrating its drilling activity in the oil-rich southernmost segment of the play.
Operating Highlights
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2012 2011 2012 2011
---- ---- ---- ----
Average daily
production:
Crude oil (Bbl per
day) 65,274 40,382 62,587 39,420
Natural gas (Mcf
per day) 177,471 81,609 165,611 80,459
Crude oil
equivalents (Boe
per day) 94,852 53,984 90,189 52,830
Average sales
prices: (1)
Crude oil ($/Bbl) $80.56 $95.88 $85.40 $90.78
Natural gas ($/Mcf) 3.51 5.47 3.96 5.29
Crude oil
equivalents
($/Boe) 61.69 79.86 66.31 75.63
Production expenses
($/Boe) (1) 5.16 6.65 5.17 6.52
General and
administrative
expenses ($/Boe)
(1)(2) 3.51 3.53 3.38 3.55
Net income (in
thousands) 405,684 239,194 474,778 101,993
Diluted net income
per share 2.25 1.33 2.63 0.58
EBITDAX (in
thousands)(3) 421,860 285,631 876,392 554,286
(1) Average sales prices and per unit
expenses have been calculated
using sales volumes and exclude
any effect of derivative
transactions.
(2) General and administrative expense
($/Boe) includes non-cash equity
compensation expense of $0.92 per
Boe and $0.79 per Boe for the
three months ended June 30, 2012
and 2011, respectively, and $0.82
per Boe and $0.79 per Boe for the
six months ended June 30, 2012 and
2011, respectively.
(3) EBITDAX represents earnings before
interest expense, income taxes,
depreciation, depletion,
amortization and accretion,
property impairments, exploration
expenses, non-cash gains and
losses resulting from the
requirements of accounting for
derivatives, and non-cash equity
compensation expense. EBITDAX is
not a measure of net income or
operating cash flows as determined
by U.S. GAAP. Reconciliations of
net income and operating cash
flows to EBITDAX are provided
subsequently under the header Non-
GAAP Financial Measures.
The following table presents the Company’s average daily production by region for the periods presented.
2Q 1Q 2Q
Boe per day 2012 2012 2011
----------- ---- ---- ----
North Region:
North Dakota Bakken 47,166 41,895 21,682
Montana Bakken 6,305 6,129 5,495
Red River Units 15,482 15,415 14,328
Other 1,445 1,445 1,024
South Region:
Anadarko Woodford 16,672 12,826 4,031
Arkoma Woodford 3,806 3,637 3,236
Other 2,912 2,988 3,118
East Region 1,064 1,191 1,070
----- ----- -----
Total 94,852 85,526 53,984
Revised 2012 Guidance
Current Previous Guidance
2012 Production growth range 57% to 59% 47% to 50%
Crude oil price differential per barrel $11 to $13 $9 to $11
Production expense per Boe $5.25 to $5.75 $6 to $7
G&A expense per Boe* $2.10 to $2.35 $2.50 to $2.75
Capital expenditures** $3.0B $2.3B
In addition, the Company expects to incur approximately $9-to-$12 million in headquarters relocation expenses in 2012. Through the first half of 2012, relocation expenses were $5.1 million.
*Excludes non-cash equity compensation and headquarters relocation expenses
** Excludes acquisition capital expenditures
Conference Call Information
Continental Resources plans to host its second quarter 2012 earnings conference call on Thursday, August 9, 2012, at 10 a.m. ET. Those wishing to listen to the conference call may do so via the Company’s web site at www.clr.com or by phone:
Time and date: 10 a.m. ET
Thursday, August 9, 2012
Dial in: 888 713 4205
Intl. dial in: 617 213 4862
Pass code: 14752483
A replay of the call will be available for 30 days on the Company’s web site or by dialing:
Replay number: 888 286 8010
Intl. replay 617 801 6888
Pass code: 36347483
Conference Presentations and 2012 Continental Resources Investors Day
Continental management is currently scheduled to present at the following research conferences. Presentation materials will be available on the Company’s web site.
Aug. 14 ENERCOM Energy Conference, Denver
Sept. 19-20 Imperial Capital Global Opportunities
Conference, New York
Oct. 9 Continental Resources Investors Day,
Oklahoma City
Oct. 15-17 Canaccord/Genuity Energy Conference, Miami
The Company will host its 2012 Continental Resources Investors Day in Oklahoma City on Tuesday, October 9, 2012. At that time, the Company plans to discuss its growth strategy for the 2013-2017 period, as well as its general 10-year outlook for growing production and proved reserves. Presentation materials for research conferences and the 2012 Continental Resources Investors Day will be available on the Company’s web site the day of the presentations.
About Continental Resources
Continental Resources is a Top 10 petroleum liquids producer in the United States and the largest leaseholder in the nation’s premier oil play, the Bakken play of North Dakota and Montana. Based in Oklahoma City, the company also has a leading presence in the Anadarko Woodford play of Oklahoma and the Red River Units play of North Dakota, South Dakota and Montana. Founded in 1967, Continental’s growth strategy has focused on crude oil since the 1980s. The company reported total revenues of $1.6 billion for 2011 and is ahead of plan to triple production and proved reserves from 2009 to 2014. Visit www.CLR.com for more information.
Forward-Looking Statements
This press release includes forward-looking information that is subject to a number of risks and uncertainties, many of which are beyond the Company’s control. Other than historical facts included in this press release, all information regarding strategy, future operations, drilling plans, estimated reserves, future production, estimated capital expenditures, projected costs, the potential of drilling prospects and other plans and objectives of management are forward-looking information. All forward-looking statements speak only as of the date of this press release. Although the Company believes that the plans, intentions and expectations reflected in or suggested by the forward-looking statements are reasonable, there is no assurance that these plans, intentions or expectations will be achieved. Actual results may differ materially from those anticipated due to many factors, including oil and natural gas prices, industry conditions, drilling results, uncertainties in estimating reserves, uncertainties in estimating future production from enhanced recovery operations, availability of drilling rigs and other services, availability of crude oil and natural gas transportation capacity, availability of capital resources and other factors listed in reports we have filed or may file with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update any forward-looking statement to reflect events or circumstances that may arise after the date of this press release.
CONTACTS: Continental Resources, Inc.
Investors Media
Warren Henry, VP Investor Relations Kristin Miskovsky, VP Public Relations
405-234-9127 405-234-9480
Warren.Henry@CLR.com Kristin.Miskovsky@CLR.com
Unaudited Condensed Consolidated Statements of Income
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2012 2011 2012 2011
---- ---- ---- ----
Revenues: In thousands, except per share data
Crude oil and natural gas
sales $523,393 $388,784 $1,075,651 $715,251
Gain (loss) on derivative
instruments, net 471,728 204,453 302,671 (164,850)
Crude oil and natural gas service
operations 9,598 9,655 21,497 16,281
----- ----- ------ ------
Total revenues 1,004,719 602,892 1,399,819 566,682
Operating costs and expenses:
Production expenses 43,756 32,361 83,831 61,631
Production taxes and other expenses 49,227 33,491 99,967 61,053
Exploration expenses 8,702 5,034 12,853 11,846
Crude oil and natural gas service
operations 7,255 8,064 17,097 13,515
Depreciation, depletion,
amortization and accretion 161,018 83,501 310,473 159,151
Property impairments 35,871 19,242 65,778 40,090
General and administrative expenses
(1) 29,813 17,209 54,779 33,556
Gain on sale of assets, net (17,397) (318) (67,024) (15,575)
------- ---- ------- -------
Total operating costs and expenses 318,245 198,584 577,754 365,267
------- ------- ------- -------
Income from operations 686,474 404,308 822,065 201,415
Other income (expense):
Interest expense (31,691) (18,785) (55,969) (37,756)
Other 789 1,022 1,570 1,531
(30,902) (17,763) (54,399) (36,225)
------- ------- ------- -------
Income before income taxes 655,572 386,545 767,666 165,190
Provision for income taxes 249,888 147,351 292,888 63,197
------- ------- ------- ------
Net income $405,684 $239,194 $474,778 $101,993
-------- -------- -------- --------
Basic net income per
share $2.26 $1.33 $2.64 $0.58
Diluted net income per
share $2.25 $1.33 $2.63 $0.58
(1) Includes non-cash charges for equity compensation of $7.8 million and $3.9 million for the three months ended June 30, 2012 and 2011, respectively, and $13.3 million and $7.5 million for
the six months ended June 30, 2012 and 2011, respectively.
Unaudited Condensed Consolidated Balance Sheets
June 30, December 31,
2012 2011
---- ----
Assets In thousands
Current assets $930,576 $936,373
Net property and
equipment 6,178,663 4,681,733
Other noncurrent
assets 145,073 27,980
Total assets $7,254,312 $5,646,086
---------- ----------
Liabilities and
shareholders'
equity
Current liabilities $1,081,990 $1,111,801
Long-term debt 2,252,918 1,254,301
Other noncurrent
liabilities 1,127,907 971,858
Total shareholders'
equity 2,791,497 2,308,126
--------- ---------
Total liabilities
and shareholders'
equity $7,254,312 $5,646,086
---------- ----------
Unaudited Condensed Consolidated Statements of Cash Flows
Six months ended June 30,
-------------------------
2012 2011
---- ----
In thousands
Net income $474,778 $101,993
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Non-cash expenses 269,885 393,358
Changes in assets and
liabilities 26,167 (66,385)
------ -------
Net cash provided by
operating activities 770,830 428,966
Net cash used in
investing activities (1,773,492) (803,616)
Net cash provided by
financing activities 978,255 628,142
------- -------
Net change in cash and
cash equivalents (24,407) 253,492
Cash and cash equivalents
at beginning of period 53,544 7,916
------ -----
Cash and cash equivalents
at end of period $29,137 $261,408
Non-GAAP Financial Measures
EBITDAX represents earnings before interest expense, income taxes, depreciation, depletion, amortization and accretion, property impairments, exploration expenses, non-cash gains and losses resulting from the requirements of Accounting for Derivatives, and non-cash equity compensation expense. EBITDAX is not a measure of net income or operating cash flows as determined by U.S. GAAP. Management believes EBITDAX is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above from net income and operating cash flows in arriving at EBITDAX because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. EBITDAX should not be considered as an alternative to, or more meaningful than, net income or operating cash flows as determined in accordance with U.S. GAAP or as an indicator of a company’s operating performance or liquidity. Certain items excluded from EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of EBITDAX. Our computations of EBITDAX may not be comparable to other similarly titled measures of other companies. We believe EBITDAX is a widely followed measure of operating performance and may also be used by investors to measure our ability to meet future debt service requirements, if any. At June 30, 2012, our credit facility required that we maintain a total funded debt to EBITDAX ratio of no greater than 3.75 to 1.0 on a rolling four-quarter basis, which was subsequently amended to 4.0 to 1.0 effective July 26, 2012. This ratio represents the sum of outstanding borrowings and the letters of credit under our credit facility plus our note payable and senior note obligations, divided by total EBITDAX for the most recent four quarters. Our credit facility defines EBITDAX consistently with the definition of EBITDAX utilized and presented by us. The following table is a reconciliation of our net income to EBITDAX for the periods presented.
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2012 2011 2012 2011
---- ---- ---- ----
in thousands
Net income $405,684 $239,194 $474,778 $101,993
Interest expense 31,691 18,785 55,969 37,756
Provision for income taxes 249,888 147,351 292,888 63,197
Depreciation, depletion,
amortization and accretion 161,018 83,501 310,473 159,151
Property impairments 35,871 19,242 65,778 40,090
Exploration expenses 8,702 5,034 12,853 11,846
Impact from derivative
instruments:
Total (gain) loss on
derivatives, net (471,728) (204,453) (302,671) 164,850
Total realized loss (cash
outflow) on derivatives, net (7,056) (26,878) (46,981) (32,094)
------ ------- ------- -------
Non-cash (gain) loss on
derivatives, net (478,784) (231,331) (349,652) 132,756
Non-cash equity compensation 7,790 3,855 13,305 7,497
----- ----- ------ -----
EBITDAX $421,860 $285,631 $876,392 $554,286
The following table provides a reconciliation of our net cash provided by operating activities to EBITDAX for the periods presented.
Six months ended June 30,
-------------------------
2012 2011
---- ----
in thousands
Net cash provided
by operating
activities $770,830 $428,966
Current income tax provision 2,150 960
Interest expense 55,969 37,756
Exploration expenses,
excluding dry hole costs 12,755 8,476
Gain on sale of assets, net 67,024 15,575
Other, net (6,169) (3,832)
Changes in assets and
liabilities (26,167) 66,385
------- ------
EBITDAX $876,392 $554,286
Adjusted earnings per share
Our presentation of adjusted earnings per share that excludes the effect of certain items is a non-GAAP financial measure. Adjusted earnings per share represents diluted earnings per share determined under U.S. GAAP without regard to non-cash gains and losses on derivative instruments, property impairments, gains and losses on asset sales, and corporate relocation expenses. Management believes this measure provides useful information to analysts and investors for analysis of our operating results on a recurring, comparable basis from period to period. In addition, management believes this measure is used by analysts and others in valuation, comparison and investment recommendations of companies in the oil and gas industry to allow for analysis without regard to an entity’s specific derivative portfolio, impairment methodologies, and nonrecurring transactions. Adjusted earnings per share should not be considered in isolation or as a substitute for earnings per share as determined in accordance with U.S. GAAP and may not be comparable to other similarly titled measures of other companies. The following table reconciles earnings and diluted earnings per share as determined under U.S. GAAP to adjusted earnings and adjusted diluted earnings per share.
Three months ended June 30,
---------------------------
2012 2011
---- ----
In thousands, except per share data After-Tax $ Diluted EPS After-Tax $ Diluted EPS
----------- ----------- ----------- -----------
Net income (GAAP) $405,684 $2.25 $239,194 $1.33
Adjustments, net of tax:
Non-cash gain on
derivatives, net (296,367) (1.64) (143,425) (0.80)
Property
impairments 22,204 0.12 11,930 0.07
Gain on sale of
assets, net (10,769) (0.06) (197) -
Corporate
relocation
expenses 2,064 0.01 243 -
-----
Adjusted net
income (Non-
GAAP) $122,816 $0.68 $107,745 $0.60
Weighted
average
diluted shares
outstanding 180,335 180,229
------- -------
Adjusted
diluted net
income per
share (Non-
GAAP) $0.68 $0.60
SOURCE Continental Resources
