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Continental Cuts Back For 2015, Again

Bakken Shale pioneer Continental Resources Inc. (CLR) Monday cut its 2015 capital spending plans for the second time in as many months in the face of depressed oil prices. Still, production is expected to increase.

The revised non-acquisition capital budget is $2.7 billion, which the company said it expects will yield 16-20% production growth over 2014. Last month Continental said it was cutting 2015 capital spending by 12% (see Shale Daily, Nov. 6). The latest cut represents a 41% reduction from the previous $4.6 billion.

"This revised budget prudently aligns our capital expenditures to lower commodity prices, targeting cash flow neutrality by mid-year 2015," said CEO Harold Hamm. "This budget also maintains our financial flexibility and strong balance sheet while continuing to grow production in our core Bakken and SCOOP plays."

The company plans to decrease its current average operated rig count from 50 to 34 by the end of first quarter 2015 and average  31 operated rigs for full-year 2015. Allocation of operated rigs includes 16 in the SCOOP Woodford/Springer plays, 11 in the North Dakota Bakken and four in Northwest Cana, where 50% of the costs applicable to the company's interest are being carried by a joint venture partner.

The revised 2015 budget is based on completing 81 net wells in the SCOOP Woodford/Springer plays with no change to previous estimated ultimate recovery (EUR) targets. In the Bakken, Continental now expects to complete 188 net wells, focused primarily in its core acreage, targeting an increased average EUR of 800,000 boe per well. In the Northwest Cana play and other areas, Continental plans to complete 11 net wells.

Completed well costs are expected to average at least 15% below 2014 averages as service costs adjust to lower commodity prices, the company said.

BMO Capital Markets analysts said Tuesday that the reduced spending and drilling activity preserves the company's balance sheet, noting an investment-grade credit rating and a "strong" liquidity position.

"CLR expects to be cash flow-neutral by mid-2015, although at strip prices, we don't expect this to be achieved until 4Q at which production is flat sequentially," the BMO analysts said. "As such, Continental appears to be targeting a maintenance level of capex in 2H, which can be achieved within cash flow, and with high oil prices in 2016+, continued cost reductions, and a flattening base decline rate, we estimate growth to resume with minimal outspend in 2016+ (or accelerate if prices warrant)."

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