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Continental (CLR) Up 10.5% Since Q3 Earnings Beat on Low Cost

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Continental Resources, Inc.’s (CLR - Free Report) stock gained 10.5% since it reported better-than-expected quarterly results on Nov 5. Investors are impressed by the fact that in 2020, the company expects to deliver free cash flow for the fifth straight year despite current market volatility.

It reported third-quarter 2020 adjusted loss of 16 cents per share, narrower than the Zacks Consensus Estimate of a loss of 24 cents. In the year-earlier quarter, the upstream energy player reported a profit of 54 cents per share.

Revenues of $692.4 million beat the Zacks Consensus Estimate of $619 million. However, the figure declined from $1,104.2 million in the year-ago quarter.

The better-than-expected quarterly results were supported by lower operating expenses. This was partially offset by lower commodity price realizations and production volumes.

Continental Resources, Inc. Price, Consensus and EPS Surprise

Continental Resources, Inc. Price, Consensus and EPS Surprise

Continental Resources, Inc. price-consensus-eps-surprise-chart | Continental Resources, Inc. Quote

Production Declines

Production from continuing operations averaged 297,001 barrels of oil equivalent per day (Boe/d) for the quarter (57% oil), lower than 332,315 Boe/d in the year-ago period. Production volumes declined primarily due to lower output from Bakken assets.

Oil production for the quarter came in at 169,265 barrels per day (Bbls/d), down from 198,074 Bbls/d a year ago. Natural gas production fell from 805,446 thousand cubic feet per day (Mcf/d) in third-quarter 2019 to 766,416 Mcf/d.

Oil Equivalent Price Realization Falls

Crude oil equivalent price for the quarter fell to $23.23 per barrel from $33.30 in the prior-year period. Natural gas was sold at 98 cents per Mcf, down from $1.12 in the year-ago quarter. Moreover, average realized price for oil was $35.93 a barrel, down from $51.28 in the prior-year quarter.

Total Expenses Plunge

Total operating expenses of $724.3 million for the third quarter fell from $825.5 million in the September quarter of 2019. Total production cost fell to $88.7 million from $114.1 million in the year-ago quarter. Exploration costs for the quarter were $1 million compared with $2.5 million in the year-ago period. Transportation costs fell to $55.3 million from the year-ago level of $62 million.

Financials

For third-quarter 2020, total capital expenditure (excluding acquisitions) was $149.4 million. It generated free cash flow of $258.3 million in the third quarter.

As of Sep 30, 2020, the company had total cash and cash equivalents of $21.2 million, up from $6.7 million at second quarter-end. It had long-term debt of $5,629.1 million (excluding current maturities), down from $5,740.6 million in the second quarter. It had a debt to capitalization of 46.4%.

Guidance

With oil price somewhat improving in the past few months, Continental has provided its 2020 production and capital guidance, as well as 2021 preliminary outlook. The company reiterated its oil production guidance in the range of 155-165 MBoe/d. Natural gas production is still expected within 800-820 MMcf/d.

Capital expenditure for full-year 2020 is estimated at $1.2 billion, indicating a decline from the original guidance of $2.65 billion. Production expense for the year is expected within $3.50-$3.75 per Boe, the upper limit of which indicates a rise from the 2019 level of $3.58.

The company expects Oklahoma hydrocarbon assets to enable it to capitalize on high gas prices in 2021. On the back of operational efficiency and strong cash flow generation, the company expects to reduce total debt below the $5-billion mark by 2021-end. It expects capital spending for 2021 within $1.2-$1.3 billion. It might generate free cash flow of $400 million in 2021 at WTI crude price of $40 per barrel.

Zacks Rank & Stocks to Consider

The company currently has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space include Matador Resources Company (MTDR - Free Report) , Antero Resources Corporation (AR - Free Report) and Global Partners LP (GLP - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Matador Resources’ bottom line for 2021 is expected to surge 187% year over year.

Antero Resources’ bottom line for 2021 is expected to rise 30.5% year over year.

Global Partners’ bottom line for 2020 is expected to rise 150.5% year over year.

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