Continental Resources Sets Up For 2012

By Eric Fox | December 26, 2011 AAA

Continental Resources (NYSE:CLR) plans to continue to develop the company's Bakken properties in 2012 as it works towards meeting its long-term growth goals on production and proved reserves. The company will also work on the Cana Woodford Shale play next year.

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2012 Capital Budget
Continental Resources has budgeted $1.75 billion for drilling expenditures in 2012, with approximately 54% or $950 million devoted to developing the Bakken and other formations in North Dakota. The company will also spend an additional $91 million on the Bakken in Montana. Most of the balance of the capital budget will be put towards the Woodford Shale and Niobrara drilling programs.

Continental Resources expects this spending to generate from 26-28% production growth in 2012 over last year.

Five-Year Growth Plan
Continental Resources established a growth plan in 2009 to triple the company's production and proved reserves over a five-year period.

Continental Resources reported production of 13.6 million barrels of oil equivalent (BOE) and proved reserves of 257 million BOE in 2009. The company is targeting production of 40.8 million BOE and 771 million of proved reserves in 2014. (For related reading, see 5 Common Trading Multiples Used In Oil And Gas Valuation.)

2011 Summary
Continental Resources estimates that production in the fourth quarter of 2011 will average at least 73,000 BOE per day. This implies that the company will achieve 39% production growth for the full year, at the upper end of its guidance range.

Continental Resources has just over 900,000 net acres of Bakken exposure and is operating 23 rigs in North Dakota. The company is proceeding slower in Montana and drilled eight gross wells in 2011 using a two rig program.

Continental Resources completed 46 gross wells into the Bakken during the fourth quarter of 2011 and reported initial production rates ranging from 1,328 to 2,094 BOE per day.

Continental Resources is also starting to develop the Three Forks formation, which lies below the Lower Bakken on much of the same acreage. The company divides the Three Forks into four separate zones and recently completed a well to the second of these zones. Continental Resources reported initial production of 1,396 BOE per day on this test well.

Other operators testing the Three Forks formation include Marathon Oil (NYSE:MRO), which is drilling a well in Dunn County, North Dakota.

Woodford Shale
Continental Resources is also active in the Cana portion of the Woodford Shale in Oklahoma, where wells tend to have a high liquids composition. The company has budgeted $355 million here in 2012.

One recent well completed here by the company produced 7.1 million cubic feet of natural gas and 325 barrels of oil per day during an initial test period.

Another operator active in the Woodford is Cimarex Energy (NYSE:XEC), which has more than 120,000 net acres here and expects to 50 net wells in the Cana area in 2011.

PetroQuest Energy (NYSE:PQ) is also active in the Woodford Shale and has acreage in the dry gas area of the play. The company is operating four rigs here and estimates that it will drill 31 gross wells in 2011.

The Bottom Line
Continental Resources has a leading position in the booming Bakken oil play and is on target to achieving the ambitious goal of tripling the company's size over five years. (For related reading, see A Guide To Investing In Oil Markets.)

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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