Continental Resources expects its production to grow in 2015, powered primarily by momentum from 2014, but as 2015 wears on, the company’s slashed capital expenditure budget will move it into maintenance mode.
While Continental reduced its capex guidance by approximately 40 percent, it is planning to grow production in 2015.
“Looking ahead, our 2015 budget targets cash flow neutrality in the second half of the year,” Chairman and CEO Harold Hamm said in a February press release. “We believe that our momentum coming out of 2014 will allow us to grow our production 16 percent to 20 percent this year; however, we are deferring completions in the Bakken to minimize the volumes we sell into this low price environment,” Hamm continued.
Chief Financial Officer John Hart told industry analysts in an earnings conference call in February that Continental is looking for most of 2015 production growth to occur in the first half of the year. “We expect 2015 production to rise through midyear and level off in the second half of the year,” Hart said. “Looking forward to 2016, we expect we can maintain a growth rate in the mid-single digits with flat capex at $2.7 billion, so in essence, maintenance capex.”
Continental took a one-time $338 million gain from the sale of crude hedges in November when oil prices fell, basically leaving it exposed to market prices in 2015, but the company has a plan to ride out the downturn.
“Our deep and diverse inventory provides us with a lot of optionality when designing our development plans,” Hart said. “For 2015, our current $2.7 billion capex plan was developed with a focus on aligning capex to be near discretionary cash flow by mid-year 2015.”
At a $60 benchmark WTI, Continental calculates it would be cash flow neutral by mid-year, but at $50 oil, the outspend in the back half of the year would be around $200 to $250 million.
The Bakken will see most of the capex spending, consuming 65 percent of the company’s drilling capital in 2015.
Continental entered 2015 with 10 stimulation crews in the Bakken and expected to be down to four in early March due to deferring completions. The company plans to continue with four stimulation crews through year end. Continental operated an average of 23 rigs in the Bakken play during the fourth quarter 2014, but expected to be down to 10 rigs in March and to hold its rig count at 10 for the balance of 2015.
Acquisition-minded
While exploration and production have been scaled back, Continental has not scaled back its hunt for opportunities in its Bakken or its south-central Oklahoma SCOOP core areas, according to company President and Chief Operating Officer Jack Stark.
“We continually evaluate our opportunities; we haven’t really slowed down from an acquisition or a leasing standpoint in any of our plays at this time,” Stark said, adding that the company plans to negotiate prices in line with the market.
Smartly grabbing leases
Continental moved boldly in an online auction offering of two 80-net acre North Dakota Department of Trust Lands oil and gas leases on March 10. With literally less than a minute remaining, Continental stepped in with its only bid, trumping the previous bid by $100, picking up the leases for $14,200 per acre and netting Trust Lands $2.272 million.
State records show no existing wells on the leases, which lie under and along the east shore of Lake Sakakawea in the Sanish field in southwest Mountrail County, but Continental has one active well on an adjacent section onshore with another six wells permitted.
Drew Combs, who heads Trust Lands’ Minerals Management Division, said that even though the tracts are in a very productive region of the Bakken, he didn’t think the tracts would bring that much money. “Our benchmark for those tracts was $10,000,” Combs told Petroleum News Bakken.
Production up
In its Bakken development report, Continental said Bakken production averaged 130,783 barrels of oil equivalent per day in fourth quarter 2014, up 8 percent compared to third quarter and up 40 percent from fourth quarter 2013. Full-year 2014 Bakken production averaged 114,715 boe per day, up 30 percent compared to 2013.
The company completed 72 net (234 gross) operated and non-operated Bakken wells during fourth quarter 2014 and 312 net (921 gross) operated and non-operated Bakken wells for the year.
Continental said that in 2015 it will focus on further cost-cutting and increasing efficiencies.
The company will concentrate its drilling in high rate of return areas of Williams and McKenzie counties and to a lesser extent in Dunn and Mountrail counties.
Continental is employing enhanced completion techniques utilizing a combination of slickwater and hybrid stimulations, targeting an average estimated ultimate recovery of 800,000 boe per well.
Results of the enhanced completions are being monitored closely and continue to deliver 30 percent to 45 percent uplift in initial 90-day rates and an estimated 25 percent to 30 percent increase in EURs based on early results.
Based in Oklahoma City, Continental is the largest leaseholder and one of the largest producers in the Bakken play of North Dakota and Montana. It has significant positions in Oklahoma, including its SCOOP Woodford and SCOOP Springer discoveries and the Northwest Cana play.
