Continental Resources, Inc. (CLR)
Q2 2010 Earnings Conference Call
August 5, 2010 10:00 AM ET
Harold Hamm – Chairman and CEO
Jeff Hume – President and COO
Jack Stark – SVP, Exploration
John Hart – CFO
Rick Muncrief – SVP, Operations
David Heikkinen – Tudor, Pickering, Holt & Co
John Freeman – Raymond James
Stephen Berman – Pritchard Capital
Joseph Allman – JPMorgan
Scott Wilmouse – Siemans Incorporated
Amir Arif – Stifel Nicolaus
Noel Parks – Ladenburg Thalmann
Brian Corales – Howard Weil
Irene Haas – Canaccord Adams
Jennifer Jurrius (ph)
John Daily (ph)
Gil Yang – BofA Merrill Lynch
Subash Chandra – Jefferies & Co
JT Schultz (ph)
Good day, ladies and gentlemen, and welcome to the Continental Resources Second Quarter 2010 Earnings Conference Call. (Operator Instructions)
Previous Statements by CLR
» Continental Resources, Inc. Q1 2010 Earnings Call Transcript
» Continental Resources, Inc. Q4 2009 Earnings Call Transcript
» Continental Resources Inc. Q3 2009 Earnings Call Transcript
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 with an overview of the company’s second quarter achievements followed by President and Chief Operating Officer, Jeff Hume, who will provide additional detail on financial and operating results.
Finally, in the question-and-answer period, additional members of management will be available to answer questions.
At this point, I will turn the call over to Mr. Hamm.
Good morning, everyone, and thanks for joining us this morning on our conference call. Today, we’re pleased to review our excellent second quarter results, even our long-term investors may not realized that along with the passion for finding along gas, Jeff Hume and I have a passion for vintage sports cars, Chevrolet Corvette to be exact.
Jeff has the ‘65 Corvette that he’s owned since 1970, some 40 years. I, on the other hand drive a fully restored Black ‘60 model, which I bought a few years back. Driving an old Corvette in top shape gives you an appreciation for precision and power.
My point, that’s how Continental Resources is driving right now. We’re cranking up the RPMs and have nothing but open road in front of us. As you saw yesterday afternoon under press release, we increased production to almost 42,000 Boe per day in the second quarter of 2010. That is 9% over the first quarter of this year, and 12% higher than the second quarter of last year.
We’re on track to meet our guidance for the year, 15 to 17% production growth, with much stronger growth in 2011 as we continue to add rigs between now and year end. Currently, we are producing almost 44,000 Boe per day and we expect to exit the year at about 50,000 Boe per day.
Clearly, crude oil is fuel in the tank. It was 75% of second quarter production.
Our production in North Dakota Bakken continued to increase in high gear. In the second quarter, it was almost doubled what it was in the same quarter last year.
Also our production and Anadarko Woodford became significant this past quarter. We generated 1,079 Boe per day in the Anadarko, a combination of rich gas and condensate. This will continue to increase as we rapidly put more rigs to work and apply and continue to drill with the rigs that we have already.
On October 12, we’re going to have an Investor Day in Oklahoma City, at that time we’ll layout the detailed roadmap for growth over the next several years.
We’ll dig deeper into Anadarko Woodford or Bakken and then Niobrara, which will be the key engine for our growth. The presentation will be audio webcast and we’ll post slides after on our websites.
Production in our Red River units also remains solid as we drill new wells this past quarter.
There were two key factors to it growing along gas sales by 49% this past quarter. First, we increase production. Second, we benefited from the strengthening crude oil prices in the last year. We saw strong growth in EBITDAX in the second quarter. It came in at 212 million that was almost doubled EBITDAX for the same period last year and 18% stronger than the first quarter of 2010.
We expect further growth in EBITDAX. We continue to layer in hedges when we see a good opportunity as we did earlier this week, and even today. We want to make sure we have a horsepower to sustain the momentum of our drilling program for the future with (inaudible).
Finally, at the bottom line, we reported $0.60 per income per diluted share. This compared with the $0.08 per share last year in the second quarter and $0.43 in the first quarter of this year.
So, just like a Corvette, Continental was burned on all cylinders. The people at Continental are doing a great job for the shareholders. Last year – yesterday, where North Dakota and went to the Glaxo Ramo ECO-Pad and we saw a rig there that moves from one hole to the other within only an hour. You don’t even have to move the backyard in this drilling operation. So, we think that our estimate 10% cost savings for doing that is going to be right on target. Our (inaudible) performance at a high level as we add rigs, strengthening our acreage position, liquids risk, high-value shale place and prepare for even stronger growth ahead.
On July 9th, we grab another gear and announced a 53% increase in our capital expenditures budget for 2010. This allowed us to take advantage of the opportunity to add acreage on our oil risk (ph) price. During the past six months, we were able to acquire significant acreage for $250-400 an acre, and we say base on recent sales this acreage now worth 10 times as much or more. De-risking, of course, and further development will increase that value even further.
There is not an acre that we bought that I would care to get back. Based on our knowledge to the Bakken play, we correctly predicted the bun in both drilling activity and land base. Associated with those two components were secured drilling rigs and frac equipment ahead of this trend.
Activity has now doubled to more than 140 rigs to North Dakota and land value have increased significantly as demonstrated by recent M&A transactions up there.
A recent leasing activity is completely consistent with Continental’s long-term growth strategy. It has two key components. First, we focus on conservative fiscal management. Second, our expiration strategy emphasized boldness when we spot a compelling opportunity for organic growth as we recently have seen.
This expiration strategy is fourfold. First, we build a geologic concept of the play. Next, we get in and lease before costs escalate, of course, many times it’s been in a basin or region that’s our favorite at that time, as it was up there in the Wilson basin. Third, we build a large acreage position and we can leverage with our operating expertise. Fourth and final, we maximize our economic submitted play, such as ECO-Pad development.
You’ve seen us accomplish these several times. We applied this strategy in Oklahoman some 30 years ago, followed by the Red River units at Cedar Hills, Elm Coulee in Montana, of course, the first horizontal play, and the North Dakota Bakken.
More recently, we built strategic positions in Anadarko Woodford extension in the vast Niobrara. So, we’ve been consistent in our approach. Continental’s list inventory provides long-term support for accelerating growth to many years.
And of course, you have to pamper a vintage Corvette, when not on the road. She should be parked in the garage, under cover. We’re the same way about our company. We’re known for being good stewards of capital and a good steward use a debt to take advantage when it has an opportunity to create significant shareholder value. This is why we’ve kept that low over the years to give us flexibility at a time like today, so we can capture high-value opportunities and that’s just what we’ve done.
We’ve sold and continued to market non-strategic, but valuable assets. This will offset some of the hard cap expending. We sold acreage in the Haynesville in the second quarter and booked a nice gain, and we have other high-value assets we’re marketing today.