Continental pushes into profit

09 November 2017, Week 44, Issue 483

Continental Resources reported a net income of US$10.6 million for the third quarter, versus a US$109.6 million loss for the same quarter in 2016. This marks the strongest quarter for the company since the end of 2016, with a loss reported in the second quarter of this year and a minor profit – of US$470,000 – in the first quarter. 

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Oil production was substantially up, at 140,611 bpd, accounting for 58% of the total output, of 242,788 boepd. The third quarter suffered as a result of unusually rainy weather in the Bakken and midstream problems in Oklahoma linked to Hurricane Harvey. Production in October was estimated to be more than 275,000 boepd, of which 59% was oil. 

The company reported a strong performance in North Dakota’s Bakken, its single most productive area, with output of 129,600 bpd, from 112,400 bpd in the second quarter. However, its SCOOP output slipped to 57,300 bpd, from 61,100 bpd. 

Production by the end of 2017 should reach 280,000-290,000 boepd, which would be an increase of 33-38% on the fourth quarter of 2016. 

The company’s chairman and CEO, Harold Hamm, described Continental’s performance as “capital-disciplined production growth. Continental's operations continue to become more capital efficient each quarter, allowing us to sustain our low-cost advantage.”

Net cash for the quarter was US$431.4 million. However, capital expenditures for the quarter were US$520.6 million, including US$444.7 million on exploration and development. 

“Our cash flows are strong and improving with rising production and improved commodity prices, each positively benefiting our leverage ratios,” said Continental’s CFO, John Hart. “We see this trend continuing. We also continue to make progress towards our near-term debt reduction target of US$6 billion and our longer-term goal of US$5 billion.” In pursuit of this goal, the company recently completed three sales, raising US$136 million, and more are planned. 

Continental’s production continued to be sold at a discount to NYMEX averages, with oil selling for US$43.27 per barrel, a US$4.98 per barrel differential. However, the discount narrowed from the second quarter by US$1.33. 

While production expenses were low, at US$3.82 per boe, depreciation, depletion and amortisation (DD&A) was US$19 per boe, in line with the previous two quarters. 

In the Bakken, the company completed 122 gross wells, with four drilling rigs and four stimulation crews active. At the end of the third quarter, there were 172 gross wells drilled but uncompleted (DUC), with the target of reducing this number to 150 by the end of the year. 

The company said it was using an optimised completion technique in the play, which involved larger proppant loads, tighter stage spacing and accelerated flow backs and high-capacity lift. Wells are ahead of its Bakken type curve, provided last quarter, doubling the expected rate of return. 

Drilling time has fallen, to 10.5 days from spud to total depth on average, a 27% improvement quarter on quarter. This has helped bring down costs per well. 

In the STACK play the company is trying a new density test in the Meramec formation. A 10-well unit had a combined peak 24-hour flow rate of 22,032 boepd, of which 75% was oil. Meanwhile, in the SCOOP play Continental said it was focused on a six-well test in the Springer formation. Results are due by early 2018. 

One area of interest for the company is exports to China. The company, in mid-October, announced a first shipment of 1 million barrels of Bakken crude, with loading on to tankers in Texas. Commenting at the time, Hamm said such sales would help to reduce the WTI to Brent discount. 

“Stabilised US production and increasing industry sales of American crude to international markets will drive down US inventories, correcting much of the recent disparity between Brent and WTI prices,” the executive said. “Modern modes of transport in the crude oil sector today eliminate price disparities between markets and allow free markets to work.”

 

Edited by

Anna Kachkova

Editor

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