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Bakken Taking Backseat as Oklahoma Feeling Continental's Love

Continental Resources Inc. (CLR) executives made one thing clear during an investor conference on Thursday: the Bakken Shale may have brought it to the dance, but Oklahoma is taking it back home.

The company, headquartered in Oklahoma City, has found that not only can it go home again but it's going to be a comfortable place to be. CLR remains the Bakken Shale's No. 1 oil producer, with 11,100 boe/d-plus at the end of June.

CLR's annual production rate in the Bakken has grown by more than 58% over the last three years, said Senior Vice President Gary Gould, who handles operations and resource development for the northern region.

"Enhanced completions are unlocking more potential," he told investors, Those enhancements are costing more, but they are providing a 25% uplift in production, he said.

In late 2013, typical drilling and completion costs for a Bakken well cost around $7.5 million. Now with larger proppant volumes and slickwater or hybrid fluids, completions are pushing out more oil and "maximizing the economics."

CLR's northern management team spent a couple of hours outlining progress in the Bakken/Three Forks formations, highlighting density pilots and operational gains from technology.

However, the company's honchos saved most of their praise for the Oklahoma portfolio. Deep within CLR's bread-and-butter South Central Oklahoma Oil Province (SCOOP), Springer Shale's initial results were disclosed on Thursday (see Shale Daily, Sept. 18).

Even CEO Harold Hamm, an Oklahoma native who long has touted the charms of the Bakken, couldn't stop talking about how much better his home state's oil and gas resources appear to be.

"SCOOP is going to rival our position in the Bakken itself," he told investors. "We've been close mouthed on what's been going on in SCOOP because we've been in a competitive situation and we couldn't say anything about it. We had to do that and let our land people do their work.

"Now they've done that and we've amassed 471,000 net acres in the Woodford Shale, and 200,000 coves the Springer section. Continental does have the lion's share here, and we've established a high barrier for others who want to take positions..."

Hamm claimed that Oklahoma's oil resources have the potential to vie for third place behind Texas and North Dakota, muscling Alaska and California out of the way.

"If you like the Bakken, you're going to love SCOOP," said newly appointed COO Jack Stark, a 22-year company veteran who was appointed on Wednesday (see Shale Daily,Sept. 17).

Take, for instance, the potential for undrilled net wells in the SCOOP versus the Bakken. In 2012, CLR had a combined total of 11,400 net wells that weren't drilled; this year it has around 18,600.

However, dig a little deeper and the trend is more obvious: the Bakken undrilled well count has risen by less than 1,000, while the SCOOP undrilled well count is more than 4,000.

It's the same in the numbers for net unrisked resource potential/proved reserves. In 2012, the company's combined net unrisked resource potential plus proved reserves totaled 4.9 billion boe, with close to 3 billion boe in the Bakken and 1 billion in the SCOOP. It also estimated it had around 500 million boe of proved reserves total.

This year, CLR estimates it has a combined net unrisked resource potential plus proved reserves of 9.6 billion boe. That includes 8.5 billion boe of potential reserves and 1.1 billion boe of proved reserves. Digging deeper, CLR is estimating now it has about 3.8 billion boe of unrisked resource potential in the Bakken and 3 billion boe-plus in the SCOOP.

"The resource potential in SCOOP has almost doubled," Stark said. "The key thing here, is that the growth is organic. It's in-house generation; it's not stuff we bought...I talk about billions like I used to talk about millions. It just seems to get better."

The type curve on a Bakken well over 30 days averages 603,000 boe, 85% oil, which offers a 45% rate of return (ROR). A SCOOP oil well over the same period is averaging 655,000 boe, 57% weighted to oil with a 30% ROR. The Bakken oil delivery drops more quickly than the SCOOP oil wells, according to CLR type curves.

SCOOP condensate wells on CLR type curves over 30 days are averaging 1.725 million boe, 13% oil, 73% ROR. And Springer wells have delivered on average 940,000 boe, 67% oil, with a 105% ROR.

Following the conference, shareholders bailed, sending the stock price down almost 8%. However, Global Hunter Securities (GHS) on Friday upgraded the company from "neutral" to "buy" with a price target of $85.00 from its Wednesday closing price of $77.00.

"CLR shares took it on the chin...as investors took concern" on the Bakken inventory and well costs, said GHS analyst Mike Kelly. The Bakken inventory "indirectly inferred that only 20% of inventory is comprised of 600,000 boe-plus wells..."

Also, CLR detailed that well costs in the Bakken are increasing by $2-2.5 million "without a corresponding 'official' increase to its 603,000 boe Bakken type-curve (also the main driver of 2015 capital expenditures coming in 17% higher than Street expectations," Kelly wrote.

"We're comfortable with both of these issues as management's conservatism showed with regards to the lack of a type curve bump," and "we believe a more than 25% uptick is coming once all the science is done...

"Additionally, we think management unintentionally and mistakenly signaled that the majority of Bakken inventory is under its 603,000 boe...Overall, we see the CLR story as strong as it's ever been..."

Tudor, Pickering, Holt & Co. analysts on Friday were underwhelmed by the Bakken presentation, but the Springer news "was a bright spot and likely accretive to our $64/share" proved, probable, possible net asset value "but not enough to make us constructive on the name given the expensive valuation..."

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