Continental Resources Inc. expects to exit 2014 with a 20-25 percent drop in oilfield service costs, company executives told analysts during a fourth quarter and full-year earnings conference call Feb.25.
The low oil and gas price environment has already given Continental the muscle it needs to force its vendor charges down 10 percent, company officials said during the conference call.
When asked how much oil prices would have to increase to justify an increase in well completions, they said $70 West Texas Intermediate, but the company doesn’t plan an increase in drilling or completions above what it has already announced for this year. Rather, executives said it will focus on cost-cutting and increasing efficiencies this year.
In fact two-thirds of the reduced capex will be spent in the first half of the year and one-third of the budget will be spent in the last half of the year.
For example, Continental entered 2015 with 10 stimulation crews in the Bakken and expects to be down to four in early March due to deferring completions. The company plans to continue with four stimulation crews through year end.
And, Continental operated an average of 23 rigs in the Bakken play during the fourth quarter, is currently running 12 rigs, and expects to be down to 10 rigs in March, holding the number at 10 for the rest of the year.
Company officials expect significantly lower service costs going into next year. Depending on oil prices that cost reduction might produce higher activity next year, they said.
Still looking to buy
When asked whether Continental plans to add acreage in the Bakken or SCOOP, company President and Chief Operating Officer Jack Stark, said, “Yes. … 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. And we are planning to negotiate prices in line with the market.”
Wall Street happy
Continental’s stock rose on Feb. 24 when the company reported a profit above Wall Street’s expectations, a profit that was based on a one-time gain from the sale of crude hedges in November, which helped offset falling oil prices and exhibited Continental founder Harold Hamm’s faith in a rebound in oil prices.
Continental reported a net income of $114 million, or 31 cents per share, compared with $132.8 million, or 36 cents per share, in the same period in 2013.
Prices have dropped further since then, creating apprehension in the U.S. about oil markets and concern about the vitality of the so-called shale (horizontal drilling and hydraulic fracturing) sector.
The hedges sale yielded $388 million pre-tax gain for Continental in the fourth quarter, leaving the company at the mercy of price fluctuations in 2015.
Hamm said Continental should be cash flow neutral by the second quarter, basically promising to spend as much cash as it takes in, and no more, and aggressively seeking lower service and leasing costs.
2015 guidance
Even though Continental reduced its capex guidance by approximately 40 percent, its production guidance remains at 16 percent to 20 percent fueled by momentum exiting 2014.
“We expect 2015 production to rise through midyear and level off in the second half of the year,” said John Hart, chief financial officer.
“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,” Hart continued.
“Our deep and diverse inventory provides us with a lot of optionality when designing our development plans. 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 we would expect to be cash flow neutral by mid-year. At $50, the outspend in the back half of the year would be moderate and around $200 to $250 million,” Hart said.
Bakken development report
In its Bakken development report, Continental executives and a related press release said Bakken production averaged 130,783 barrels of oil equivalent per day in the fourth quarter, an increase of 8 percent compared to third quarter and an increase of 40 percent compared to fourth quarter 2013.
For full-year 2014, Bakken production averaged 114,715 boe per day, an increase of 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 full-year 2014.
This year’s Bakken drilling program is focused on the high rate of return areas in Williams and McKenzie counties and to a lesser extent Dunn and Mountrail counties, targeting an average estimated ultimate recovery of 800,000 boe per well. Enhanced completion techniques are being used to complete the wells, utilizing a combination of slickwater and hybrid stimulations.
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.
About the company
Continental Resources is a top 10 independent oil producer in the United States and describes itself as a leader in America’s energy renaissance.
Based in Oklahoma City, Continental is the largest leaseholder and one of the largest producers in the Bakken play of North Dakota and Montana.
The company also has significant positions in Oklahoma, including its SCOOP Woodford and SCOOP Springer discoveries and the Northwest Cana play.
