Amid the good news from Continental Resources Inc. (NYSE: CLR) about its first quarter performance, was an increase in capital spending for 2012, from $1.75 billion to $2.3 billion, per a May 2 news release, one day before the company’s first-quarter earnings conference call.
The revised budget excluded acquisition funding and 88 percent of the initial amount was for drilling, Continental said.
The spending hike was for continued development of recently acquired acreage and to fund accelerated drilling because of faster cycle times, the company said.
So, instead of participating in drilling and completing 759 gross wells (249 net) and operating 325 gross wells (240 net) in 2012, the acquisition of 46,000 net acres in targeted areas of North Dakota’s Bakken since mid-2011 resulted in a 2012 capital budget that called for completing 842 gross (300 net) wells this year, with Continental-operated wells representing 342 gross (240 net) wells in the revised plan. Nearly all of the additional company-operated wells are planned for the Bakken play, where Continental has 21 rigs operating in North Dakota and three in Montana.
Spud-to-spud cycle time cut 30%
But no new rigs will be required to meet the stepped up drilling because the company has reduced its spud-to-spud drilling cycle time for Bakken wells by approximately 30 percent in the last six months, Continental Chairman and Chief Executive Officer Harold Hamm said in a press release in advance of a May 3 conference call.
“Along with good well performance, the two factors driving our results are faster drilling cycle times and our increased working interest ownership in Bakken wells,” he said.
Those factors have prompted Continental to forecast a 47-50 percent production growth in 2012.
The company’s first quarter production of 85,526 barrels of oil equivalent per day was 14 percent higher than its fourth quarter 2011 output of 75,219 boe per day, and 66 percent more than its 51,663 boe a day average in first quarter 2011.
Continental entered May 2012 with production in excess of 91,000 boe per day, benefiting from strong well results throughout the Bakken and Anadarko Woodford of Oklahoma.
Continental’s prediction for its North Dakota production increase in 2012? A modest 107 percent.
The bottom line
After accounting for “an unrealized mark-to-market loss on derivatives,” Continental reported net income of $69.1 million, or 38 cents per diluted share, for first quarter 2012.
Net income included a $129.1 million pre-tax unrealized loss on mark-to-market derivative instruments, a $29.9 million pre-tax property impairment charge, and a $49.6 million pre-tax gain on sales of assets.
Excluding the combined effects of the non-cash, unrealized derivatives loss, property impairment charge and gain on asset sales, Continental said its first quarter net income would have been 76 cents per diluted share.
In the same quarter last year, Continental reported a net loss of $137.2 million, or 80 cents per diluted share.
Excluding the combined effects of a non-cash, unrealized derivatives loss, a property impairment charge, and a gain on sale of assets, the company’s net income would have been 53 cents per diluted share for the first quarter of 2011.
Here are other highlights from the company’s information for the first quarter:
• The acquisitions since mid-2011 have not only been in North Dakota’s Bakken, but “in prime areas where we have significant operating history,” Hamm said.
• Continental experienced strong year-over-year production growth across its three principal operating area — the Bakken, Anadarko Woodford and the Red River units of Montana, North Dakota and South Dakota.
• Bakken production increased 88 percent to 48,024 boe a day in the first quarter of 2012, compared with 25,523 in first quarter 2011.
• Production in the North Dakota Bakken was 41,895 boe per day in the first quarter of 2012, versus 20,238 boe a day in first quarter 2011 (107 percent increase).
•Montana Bakken production increased 16 percent to 6,129 boe a day in the first quarter of 2012, compared with first quarter 2011.
• The company’s Anadarko Woodford production was 12,826 boe a day in first quarter 2012, nearly five times higher than production of 2,685 boe per day in first quarter 2011.
• Production in the Red River units was 15,415 boe a day for the first quarter of 2012, a 10 percent increase over production of 14,066 boe per day for first quarter 2011. “Much of the improvement was in the Buffalo units in South Dakota, where we’ve been increasing our injection volumes over the past year. We’re seeing excellent results in this enhanced oil recovery project,” Hamm said.
• Three acquisitions completed since mid-2011 had a minimal impact on first quarter 2012 production, after the effect of Continental’s $84 million sale of its Worland, Wyo., properties and associated production in early 2012. The net combined effect of the acquisitions and sale was an increase in production of approximately 800 boe per day going forward.
• Continental currently has 35 operated drilling rigs, with 24 in the Bakken, 10 in the Anadarko Woodford and one in the Red River units, as compared with a peak of 44 operated rigs in the fourth quarter of 2011. The biggest reduction has been in the Woodford, where the company has reduced its operated rigs from 16 to 10.
• Crude oil accounted for 70 percent of Continental’s first quarter 2012 total production.
• Crude oil and natural gas sales were $552.3 million for the first quarter, compared with $326.5 million for the same period of 2011.
• Continental’s average realized crude oil price was $90.58 per barrel in the first quarter of 2012, while the average realized natural gas price was $4.48 per thousand cubic feet, yielding a blended realized price of $71.39 per boe. In first quarter 2011, the company reported a blended realized price of $71.14 per boe.
• The company’s crude oil price differential was $12.27 per barrel and its natural gas price differential was a premium of $1.76 per mcf for the first quarter of 2012, due to the high liquids content of the gas. A spike in oil price differentials at the Clearbrook, Minn., and Guernsey, Wyo., markets negatively affected realized prices for March and April 2012, but differentials at these markets have since improved. Due to increased oil differentials and volatility at Clearbrook and Guernsey, Continental expects average differentials for the year will be in a range of $9 to $11 per barrel.
• Production expense was $5.18 per boe for first quarter 2012, down from $6.38 per boe for the first quarter of 2011.
• General and administrative expense was $3.23 per boe, compared with $3.56 for first quarter 2011.
• Capital expenditures in first quarter 2012 were $1.0 billion, including $345 million invested in lease and production acquisitions, which seems to conflict with this statement in Continental’s May 2 press release under the subhead Increased 2012 Capital Expenditures and Growth Rate: “Continental is increasing its 2012 capital expenditure budget to $2.3 billion, excluding acquisitions.” (Petroleum News Bakken has an email into Continental, asking for a clarification, which will appear in the next issue, May 20.)
• The company’s Worland property sale added back $84 million to the $1.0 billion first-quarter capital expenditures.
• As of March 31, Continental’s balance sheet included $43 million in cash and cash equivalents and $1.9 billion in total long-term debt. Total long-term debt at the end of the first quarter included $176 million in borrowings under Continental’s revolving credit facility. Commitments under the facility are $1.25 billion, and its total borrowing base is $2.25 billion.
• Bakken production of 48,024 boe per day accounted for 56 percent of total Continental production, compared with 49 percent of total production in the first quarter last year.
• Continental participated in completing 103 gross wells in the Bakken in the first quarter of 2012. In terms of company-operated wells, Continental completed 54 gross (36 net) operated wells during first quarter 2012, with 47 gross (30 net) in North Dakota and 7 gross (6 net) in Montana.
• Initial one-day test production rates for Continental-operated wells in North Dakota averaged approximately 947 boe per day.
• Four of Continental’s operated rigs in the Bakken are drilling multi-well ECO-Pad® projects, and that number is expected to increase throughout the remainder of the year.
• Continental completed three ECO-Pad projects in late December, and consequently did not complete a multi-well project during the first quarter ending March 31.
• The ECO-Pad design involves drilling four wells on two adjoining 1,280-acre spacing units from a single drilling pad. This approach reduces well costs, as well as reducing the surface impact of each well.
• In April, Continental completed the Candee-Kukla ECO-Pad project, which was comprised of the Candee 2-9H and 3-9H (56 percent WI) wells and the Kukla 2-16H and 3-16H (56 percent WI) wells in Dunn County, N.D. The four wells produced a total 5,913 boe per day in their initial one-day test periods, for an average of 1,478 boe a day per well. Continental expects to complete at least two more ECO-Pad projects by the end of the second quarter.
• As of March 31, 2012, Continental’s acreage position in the Bakken totaled 938,940 net acres, with 684,109 net acres leased in the North Dakota portion of the play and 254,831 net acres in the Montana Bakken.
• Highlighting the company’s Anadarko Woodford operations in the first quarter was the January “completion of the Tom’s 1-21XH (84 percent WI) in Blaine County. The Tom’s 1-21XH was the first multiple-unit spaced well drilled in Oklahoma, and its horizontal section was twice the length of previous Anadarko Woodford wells drilled in the play. Continental said the Tom’s 1-21XH flowed at a rate of 1,270 boe per day (76 percent oil) in its initial one-day test period.
• Continental expects longer laterals in the Anadarko Woodford “will have a significant, positive impact on well productivity and economics.” The company is currently completing its second multiple-unit well.
• Overall, Continental participated in completing 21 gross wells in the Anadarko Woodford in the first quarter. In terms of operated wells, Continental completed 12 gross (nine net) wells in the quarter.
• Initial one-day test production rates for company-operated wells in the Anadarko Woodford averaged approximately 728 boe per day.
• Continental currently has eight operated rigs in the Southeast Cana section of the Anadarko Woodford and two in the Northwest Cana, all of which are focused on crude oil and liquids-rich areas.
• In the Arkoma Woodford of Oklahoma, the company’s production was 3,637 boe per day in the first quarter, compared with 4,065 boe a day in the first quarter of 2011. Continental has suspended drilling in the Arkoma Woodford due to the low price for dry gas.
• As of March 31, Continental had 280,610 net acres leased in the Anadarko Woodford and 36,729 in the Arkoma Woodford.
• In the Niobrara/DJ Basin, Continental completed the Buchner 1-2H (82 percent WI) in Weld County, Colo., during the first quarter. The Buchner well produced 910 boe per day (90 percent oil) in its initial one-day test period.
• As previously announced, the company completed the Staudinger 1-31H (56 percent WI) in January, which produced 739 boe per day in its initial one-day test production period.
“We’re currently assessing results for our first nine Niobrara wells and preparing to initiate the second phase of our development program,” Hamm said.
• As of March 31, Continental had 92,842 net acres in the Niobrara/DJ basin, with approximately 25,000 net acres in the identified oil fairway of the play.
For the rest of the information included in Continental’s May 2 release, including the company’s EBITDAX, go to Continental’s webpage at www.contres.com/.
The largest leaseholder in the “nation’s premier oil play, the Bakken play of North Dakota and Montana,” Continental is based in Oklahoma City.
