Amid an oversupplied market and demand uncertainty made worse by the coronavirus outbreak, Continental Resources Inc. is trimming its near-term guidance for capital expenditures (capex) and production growth, Executive Chairman Harold Hamm said Thursday.
“In this current price environment, we are moderating our near-term growth and keeping capital spend flat year-over-year,” Hamm told analysts during the 4Q2019 earnings call.
“We see the oil and gas markets as fundamentally oversupplied, with demand even further impacted by the coronavirus. By preserving our high quality assets for a more structurally sound market, we are further enhancing future value for shareholders,” said Hamm, considered a founding father of unconventional exploration and production (E&P) in North America.
Oklahoma City-based Continental is targeting capex of $2.65 billion in 2020, which would be flat year/year (y/y) and about 20% lower than the original five-year (2019-2023) plan. Most of the capex, $2.2 billion, would be directed to drilling and completion, with roughly 60% allocated for the Bakken Shale and 40% for Oklahoma.
Continental estimates that $700 million of capital spend in 2020 would not realize first production until 2021 as it prioritizes large scale multi-pad development projects in the South Central Oklahoma Oil Province (SCOOP) and the Long Creek Bakken Unit development project in Williams County, ND.
Continental saw 14% y/y growth in 2019 oil production from the Bakken, which COO Jack Stark called “the best oil reservoir in the country.”
Total hydrocarbon output is expected to increase by 4-6% y/y in 2020, Continental said.
Citing that “today’s macro environment has inserted a higher level of price volatility into current markets, we believe a prudent and responsible response” is to moderate the previous five-year compound annual growth rate to 8-10% from 12.5%, said CFO John Hart.
“We believe this reduction in our projected growth rate is appropriate given current market conditions and last year’s market performance,” said CEO Bill Berry, who succeeded Hamm on Jan. 1.
Continental reported oil production of 197,991 b/d in 2019, up 18% y/y. Natural gas output rose 10% to average 854.4 MMcf/d. This year, oil production is estimated at 198,000-201,000 b/d, with natural gas output of 935-960 MMcf/d.
Berry said the company is also seeking to divest a portion of its produced water assets.
Having already offloaded a water gathering and recycling system in Oklahoma last year for $85 million, “We estimate the value of our remaining water infrastructure assets across the Bakken and Oklahoma to be in excess of $1.5 billion,” Berry said.
Continental expects to generate $350-400 million of free cash flow in 2020, assuming a West Texas Intermediate oil price of $55/bbl and a Henry Hub natural gas price of $2.50/MMBtu.
Continental reported nearly flat quarterly net income year/year, at $193.9 million (53 cents/share) from $197.7 million (53 cents) in 4Q2018. Full-year net income fell to $775.6 million ($2.08/share) from $988.3 million ($2.64) in 2018.
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