Continental Resources (CLR, Financial) reported some strong numbers during the quarter that topped the analyst’s expectations. Although the stock has been down for quite some time yet the company seems to have some good prospects for the days ahead. The company recently monetized all its oil hedges citing that oil prices have hit the bottom and won’t continue their swoon. The management believes that after sinking more than 25%, the oil will start its recovery.
Expecting better times
While talking to Forbes, CEO Harold Hamm said, “We view the recent downdraft in oil prices as unsustainable given the lack of fundamental change in supply and demand. Accordingly, we have elected to monetize nearly all of our outstanding oil hedges, allowing us to fully participate in what we anticipate will be an oil price recovery.” This is a big bet by the company even as Saudi Arabia and other OPEC members maintained their stand to continue oil production. Investors need to on the look out for any further decline in oil prices as it will put Continental under sever pressure.
During the quarter it increased its production, which was mainly driven the success in Baken and SCOOP Oil fields. And the company continues to increase it further with a target of 200,000 Boe per day for the year end. The increased production is a good sign indicating strength in its fundamentals.
In addition, Continental recently entered into a joint venture with SK E&S in its Northwest Cana Woodford Shale. SK E&S is one of the largest conglomerates in South Korea and is a subsidiary of the SK Group. Continental received around $90 million in cash along with a $270 million drilling carry, which is to be used over the next five years. Apart from utilizing the carry, the joint venture will allow Continental to drill in the primary dry gas field at advantaged return. The management believes that this deal will enhance the value of its assets and also develop positive cash flow throughout the project life.
Conclusion
Going forward, the company plans to maintain its rig count to 50 for the next year and also prioritized the areas for maximum rate of return. The management reiterated its strong financials and with 50 rigs it will be able to maintain its momentum in the next year as well. For 2015 it expects EUR for the Bakken Three Forks drilling program to be around 700,000 barrels of oil equivalent per well. These are further indications of a strong Bakken oil field, which will strengthen its position in the coming months.
