Continental Resources (CLR)

Q4 2011 Earnings Call

February 23, 2012 10:00 am ET

Executives

Harold G. Hamm - Executive Chairman, Chief Executive Officer and Member of Nominating & Corporate Governance Committee

Jack H. Stark - Senior Vice President of Exploration

Jeffery B. Hume - President and Chief Operating Officer

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

Analysts

Noel A. Parks - Ladenburg Thalmann & Co. Inc., Research Division

Subash Chandra - Jefferies & Company, Inc., Research Division

Brian M. Corales - Howard Weil Incorporated, Research Division

Joseph Patrick Magner - Macquarie Research

Jason A. Wangler - SunTrust Robinson Humphrey, Inc., Research Division

David W. Kistler - Simmons & Company International, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Continental Resources Fourth Quarter 2011 Earnings Call. This conference call is being recorded.

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Today's call will include projections, assumptions and guidance that all 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 Jack Stark, Senior Vice President for Exploration, and Jeffery Hume, President and COO. After their remarks, we will have a question-and-answer period. Other members of management are available to answer your questions.

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

Harold G. Hamm

Good morning, everyone. Thank you for joining us for Continental's fourth quarter earnings call. You probably heard me say that Hegler [ph] oil play has just keep getting better. That's certainly true with the Bakken. Again, there's only one Bakken, it's a world-class oil play, certainly without April [ph] in the United States in the last 50 years and it just keeps getting bigger and better and we'll talk about that sum today.

I can say the same for Continental Resources. Last night, we reported record fourth quarter 2011 results. We entered 2012 with tremendous production growth momentum and EBITDAX growth momentum and the numbers say it all. We increased fourth quarter EBITDAX year-over-year by 86% to $412 million. Full year EBITDAX was $1.3 billion, a 61% increase. Production was 75,219 barrels of oil equivalent per day for the fourth quarter, 57% higher than the fourth quarter 2010, 72% of this production was crude oil.

In January 2012, we produced 84,200 barrels per day. Full year 2011 production was 43% higher than the total for 2010. Again, crude oil, not crude oil and liquids, just crude oil, was 73% of our 2011 production. If we reported combined liquids, that amount would be much higher due to our 1,500-plus Btu gas stream in the Bakken.

Mainly due to an unrealized mark-to-market loss on derivatives, we reported a net loss of $112 million or $0.62 per diluted share for fourth quarter 2011. A clean net income of $0.88 per share for the fourth quarter when you back out the noncash derivatives loss, property impairment charge and a small gain on the sale of properties.

Clean net income of $0.88 per share is $0.11 above this pre-consensus number.

For the year, we reported net income of $429 million or $2.41 per diluted share. Again, the clean net income number would be $2.70 per share, $0.29 higher after back half noncash derivatives again, a gain on sale of assets and a property impairment charge. These are simply an outstanding operating and financial results.

Continental clearly has world-class asset positions in the Bakken and Anadarko Woodford and we're delivering world-class operating results to match. I can't tell you how proud I am of the entire Continental team of employees and the results they're achieving. As results of their achievements yesterday, we revised 2012 production growth guidance to a higher range of 37% to 40% and this is without an increase in drilling capital expenditures. How is this possible? To simply put, and Jeff will expand on this later, our well results were stronger than expected in new expansion areas in the Bakken and in the Anadarko Woodford. When we developed our regional [ph] 2012 drilling plan, we've projected results on a risk basis in new and proven areas west of the North Cana in North Dakota, and the southernmost section of the Southeast Cana, the Oklahoma, Anadarko Woodford, and the oil wind of the Northwest Cana.

In these unproven areas it makes sense to send a explorer for wells in these areas might not consistently match the productivity of wells across the play where we have extensive well control. Now we know.

These wells and the expansion areas are as strong or stronger than typical wells in established areas where we've done much more drilling. So based on approximately the same 2012 drilling investment and expected well count, we plan to grow production as much as 40% this year.

We're placed to an interesting question that would've been asked by more than 2 investors in recent months. How is Continental growing and operating at such a high level when other operations, especially in the Bakken, are challenged with several infrastructure constraints. And it's a great question.

First, Continental's focused on a world-class operation by a world-class team. We're committed to being the best, most efficient operator in the Bakken, Anadarko Woodford and oil plays. It starts with the people, we believe we have the most capable professional teams and they certainly have a great depth of experience, with older hands having operated in this place for decades. Certainly, we face challenges just like everybody else. And we've basically seen it all over the years and we've learned to anticipate future needs as drilling activity ramps up and as the infrastructure capacity is strained and when harsh weather conditions affect how we can operate.

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