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Why Is Continental Resources (CLR) Down 15.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Continental Resources (CLR - Free Report) . Shares have lost about 15.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Continental Resources due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Continental Resources Q3 Earnings and Revenues Beat Estimate

Continental Resources, Inc. reported third-quarter 2018 adjusted earnings of 90 cents per share, beating the Zacks Consensus Estimate of 81 cents. Moreover, the bottom line skyrocketed from the year-ago quarter's earnings of 9 cents per share.

Revenues of $1,282.2 million surpassed the Zacks Consensus Estimate of $1,213 million and also surged from $726.7 million in the year-ago quarter.

The strong third-quarter results were supported by higher oil equivalent price realizations and increased production from the North Dakota Bakken, as well as SCOOP and STACK regions.

Exploration and Production

Production from continuing operations averaged 296,904 barrels of oil equivalent per day (BOE/D) in the quarter, higher than 242,788 BOE/D in the year-ago quarter. Oil production in the quarter came in at 164,605 barrels per day (Bbls/d), higher than the year-ago period’s 140,611 Bbls/d. Notably, contribution of oil in the total production mix of Continental Resources is on the rise. Of the total production recorded in September, 57% was oil.

Natural gas production jumped from 613,060 thousand cubic feet per day (Mcf/d) in third-quarter 2017 to 793,793 Mcf/d in the third quarter of 2018.

In the North Region, production from the North Dakota Bakken was recorded at 161,008 BOE/D in the quarter, which rose from 129,582 BOE/D in the year-ago period. Production from Montana Bakken and Red River Units fell marginally year over year to 6,635 BOE/D and 8,989 BOE/D, respectively.

In the South Region, production from SCOOP increased to 63,270 BOE/D in third-quarter 2018 from 57,283 BOE/D in the prior-year quarter. Output from STACK rose to 56,129 BOE/D in the quarter under review from 35,619 BOE/D in the year-ago quarter.

Price Realization

Average realized price for oil was $65.78 a barrel, up from $43.27 in the year-earlier quarter. Natural gas was sold at $3.12 per Mcf, up from $2.74 in the year-ago quarter. Crude oil equivalent price in the quarter increased to $44.85 per barrel from $31.86 in the prior-year quarter.

Total Expenses

Total operating expenses of $790.8 million in the third quarter rose from $635 million in the July to September quarter of 2017. Total production cost rose to $103 million from $84.5 million in the year-ago quarter. Transportation costs in the quarter were $46 million, while the same were absent in the year-ago period.

Exploration expenses increased to $2.3 million in the quarter from $1.4 million in the year-ago period. Production expense per barrel of oil equivalent in the third quarter of 2018 was $3.77, lower than the year-ago period’s $3.82.

Capital Expenditure

In the third quarter of 2018, total capital expenditure (excluding acquisitions) came in at around $790.8 million, more than 80% of which was used in exploration and development drilling.

Balance Sheet

As of Sep 30, 2018, the company had total cash and cash equivalents of $12.9 million and debt of $6 billion (excluding current maturities), with a debt-to-capitalization ratio of 50.1%.

Guidance

Reiterated Guidance: Continental Resources’ 2018 capital spending (excluding acquisitions) is expected at $2.7 billion. For the full year, production is expected in the range of 290,000-300,000 BOE/D.

Updated Guidance: The company updated its production expense for the full year to the range of $3.50-$3.75 from the previous guidance of $3-$3.50 per BOE.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -13.54% due to these changes.

VGM Scores

At this time, Continental Resources has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Continental Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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