Continental Resources (CLR)

Q4 2010 Earnings Call

February 24, 2011 10:00 am ET


Jeffery Hume - President and Chief Operating Officer

Harold Hamm - Executive Chairman, Chief Executive Officer and Member of Compensation Committee

John Hart - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer


Leo Mariani - RBC Capital Markets, LLC

Subash Chandra - Jefferies & Company, Inc.

John Gerdes - Canaccord Genuity

Gil Yang - BofA Merrill Lynch

Jason Wangler - SunTrust Robinson Humphrey, Inc.

Scott Wilmoth - Simmons

John Freeman - Raymond James & Associates, Inc.

Brian Lively - Tudor, Pickering, Holt & Co. Securities, Inc.

Noel Parks - Ladenburg Thalmann & Co. Inc.



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Good day, ladies and gentlemen, and welcome to the Continental Resources Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] Today's call will include projections, assumptions and guidance that are considered forward-looking statements. Actual results will likely differ from those contained in our forward-looking statements. Please refer to the company's filings with the Securities and Exchange Commission for additional information concerning these statements and risks.

Chairman and CEO, Harold Hamm, will begin this morning's call. Followed by President and COO, Jeff Hume; and CFO, John Hart and then a question-and-answer period. Additional members of management are available to answer your questions.

Now I will turn the call over to Mr. Hamm.

Harold Hamm

Good morning, everyone. Thanks for joining us on our conference call today. I'm a little bit under the weather today so I think I'll keep my comments brief and save what voice I have for Q&A. Continental finished 2010 with a strong fourth quarter production. We reported total 2010 production of 15.8 million Boe, an increase of 16% over 2009, achieving our 2010 guidance objective. We tripled our operator rig count during the past year, setting us up for continuous growth in 2011. Our 30% growth target remains in place for the current year. We expect to report total production of 20.6 million Boe for 2011.

On a stand-alone basis, our fourth quarter production was 48,000 Boe per day, 27% higher than production for the fourth quarter of 2009. Crude oil accounted for 73% of our production in fourth quarter, and North Dakota continued driving pretty slow oil production in the company. Continental's continued drilling success resulted in proved reserves, increasing 42% for 2010. At December 31, 2010, we have proved reserves of 365 million Boe, compared with 257 million Boe at the end of 2009. I'd like to highlight three aspects of our proved reserve growth.

First, total reserve additions were 95.2 million barrels of oil equivalent, which equated to 602% of the year's production of 15.8 million Boe. The proved reserve additions were at an average F&D cost of $12.42 per Boe before revisions. After positive revisions, our F&D cost is $9.63 per Boe. Second, our year-end 2010 proved reserves were 38%. We have 1,282 gross, 547 net proved undeveloped locations or PUDs. About 66% of our PUDs were in the Bakken, primarily North Dakota. Of the year-end PUDs 72% were crude oil. Third, we operate 88% of our PV-10 so we are positioned to keep growing with excellent operating discipline.

With that, I'll turn it over to John Hart for a review of our financial results.

John Hart

Thanks, Harold. We reported $221 million in EBITDAX for the fourth quarter of 2010, which represented a 40% increase over the same period of the previous year. For the year as a whole, EBITDAX totaled almost $811 million, an increase of 80% over 2009. At year-end 2010, we had $8 million in cash and $926 million in long-term debt, which gave us a net debt-to-EBITDAX ratio of 1.1, among the lowest in our peer group of E&P companies. We have excellent liquidity, as you can see, to continue supporting our growth momentum. At year-end 2010, along with our cash, we had committed available capacity of $718 million in our revolving credit facility. We currently have a total of $750 million in commitments, with a borrowing base of $1.5 billion. We believe we could increase commitments upward to the full borrowing base should we be inclined.

Finally, we reported a net loss of $45 million or $0.27 per diluted share for the fourth quarter of 2010. The loss primarily reflected a $194.4 million unrealized loss on mark to market derivative instruments. The property impairment charges, a small loss on the sale of an asset in this unrealized loss on derivatives, reduced net income by $0.78 per share as we noted in our press release last evening.

We've been discussing the evolving nature of our hedging activity over the past year. We have layered in prices hedges, primarily on oil to underpin our long-term growth strategy and to provide a solid cash flow stream that will enable us to grow at an accelerated rate with what we believe will be very favorable returns.

As previously communicated, Continental has a long-term growth plan to develop our key positions in the Bakken, Woodford and Niobrara Shale Plays. Underpinning our growth plans are strong, attractively-priced hedges that support significant cash flows for use in our capital program. Let me review those.

For natural gas, we have 26 MMBTu hedged in 2011 and 3.7 MMBTu in 2012 under financial price swaps, which have average prices of $5.46 for 2011 and $5.07 for 2012. Moving over to crude oil, which obviously represents our majority product, we entered into price protection consisting of swaps and costless collars as crude oil prices have trended positively over the last year. For 2011, we had 12 million barrels under contract at an average price of $90.56. This and the following average prices represent the blended prices of our swaps and the call values of our collars.

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