OilVoice - Continental Resources Announces Strong Third Quarter 2009 Results

Continental Resources Announces Strong Third Quarter 2009 Results

Friday, November 06, 2009

Continental Resources, Inc. announces that it doubled operating earnings and net income for the third quarter of 2009, compared with results for the second quarter of 2009, based on higher crude oil prices and lower production costs. Compared with the third quarter of 2008, when crude oil and natural gas prices peaked, operating and net income were lower for the quarter ended September 30, 2009.

Based on strong third quarter cash flow and its positive outlook, Continental announced plans to accelerate drilling operations in the fourth quarter of 2009 and in 2010.

Continental has increased its 2009 capital expenditure budget to $415 million from $390 million, with expected cash flow sufficient to cover its increased capex budget. The Company now plans to exit 2009 with 12 operated drilling rigs, compared with the previous target of six. Of its 12 rigs at year end, six additional rigs will be deployed in the North Dakota Bakken and one in the Montana part of the play.

The Company announced a 2010 capital expenditure budget of $650 million. Continental expects to have up to 23 operated drilling rigs deployed by mid-2010.
"Consistent with our growth strategy, we are accelerating drilling operations in response to the improved crude oil market," said Harold Hamm, Chairman and Chief Executive Officer. "Our shareholders value Continental's capital discipline and focus on operating costs. We aggressively reduced drilling and other spending as prices fell in late 2008. We are ramping up operations in anticipation of strong cash flows in 2010, although we will continue to adapt to pricing trends and cash flow.

"We expect this budget to drive 2010 production growth of approximately 10 percent," he said. "Along with strong execution and cost management, our focus will be to accelerate production growth momentum by mid-year and then sustain that growth in 2011."

The Company now expects 2009 total production will be approximately 13.3 MMBoe (million barrels of oil equivalent), which would exceed its guidance of 12.5-to-13 MMBoe.

For the third quarter of 2009, Continental reported net income of $34.9 million, or $0.21 per diluted share, compared with net income of $105.3 million, or $0.62 per diluted share, for the third quarter of 2008. On a consecutive-quarter basis, third quarter 2009 net income represented a 159 percent increase over net income of $13.5 million for the second quarter of 2009.

Net income for the third quarter of 2009 included a pre-tax leasehold property impairment charge of $11.8 million and mark-to-market losses on natural gas fixed price and basis swaps of $2.1 million. Apart from these non-cash items, Continental's net income was $44.4 million, or $0.26 per diluted share, for the third quarter of 2009. In the third quarter of 2008, the Company recorded a $9.9 million pre-tax leasehold property impairment charge.

Average daily production was 37,384 Boepd (barrels of oil equivalent per day) for the third quarter of 2009, 12 percent higher than production of 33,297 Boepd in the third quarter of 2008.

Average realized sales price per Boe was $48.19 for the third quarter of 2009, a decline of 48 percent from the average realized sales price of $93.21 per Boe for the third quarter of 2008.

Crude oil accounted for 74 percent of Continental's third quarter 2009 total production. The average realized price for crude oil was $58.78 per barrel in the third quarter of 2009, while the average realized natural gas price was $2.98 per Mcf. Average realized prices were $108.37 per barrel and $7.97 per Mcf in the third quarter last year.

Crude oil price differentials averaged $9.39 per barrel for the third quarter of 2009, compared with $6.02 in the second quarter of 2009 and $9.68 for the third quarter of 2008.

Total oil and natural gas sales were $168.4 million for the third quarter of 2009, compared with $286.2 million for the third quarter of 2008. Sales exceeded production in the third quarter as the Company sold 55 MBbls of crude oil from storage. The Company sold 124 MBbls of crude oil in storage in October 2009. Minimum pipeline line fill requirements resulted in inventory balances of 341 MBbls of crude oil at September 30, 2009.

Continental reduced production expenses during the third quarter. Production expense was $6.50 per Boe for the third quarter of 2009, compared with $7.14 for the second quarter of 2009 and $8.22 for the third quarter of 2008.

Income from operations was $59.3 million for the third quarter of 2009, compared with $171.2 million for the third quarter last year. On a consecutive-quarter basis, third quarter 2009 income from operations represented a 126 percent increase over operating income of $26.2 million for the second quarter of 2009.

EBITDAX was $128.7 million for the third quarter of 2009, compared with $238.3 million for the third quarter last year. For the Company's definition and reconciliation of EBITDAX to net income, see "Non-GAAP Financial Measures" at the end of this press release.

At September 30, 2009, the Company's balance sheet included $5.3 million in cash and $546.3 million in long-term debt. As of November 5, 2009, $235 million was drawn against its revolving credit facility, leaving available borrowing capacity at $515 million, based on commitments of $750 million.

"We view 2010 as a strong first step toward the goal of doubling our proved reserves over the next five years," Mr. Hamm said.

"Our operating focus is quite different today than it was in late 2008. A year ago, we were cutting capex due to falling commodity prices. We had so much momentum at the time, however, that we entered 2009 with a backlog of 40 completions that boosted production at the beginning of the year," he said.

"Today we are accelerating drilling activity, and we will rely on that acceleration to generate 2010's production growth, rather than an early-year backlog of completions," he said. "Our goal is to establish a level of drilling activity that supports steady growth in 2011 and beyond."