Continental Resources posts $239.3 million loss for second quarter
Continental Resources posted a net loss of $239.3 million for the second quarter of 2020, it announced after markets closed Monday.
That loss, based upon total revenues of $175.7 million, shook out to about 66 cents per share.
The second quarter of 2019, the company posted a net income of $236.5 million, or 63 cents per share, on total revenues of about $1.2 billion.
The difference between two periods provides a stark illustration of how the COVID-19-induced collapse in global energy demand impacted commodity prices and the company’s response to the situation.
Given that Continental Resources doesn’t hedge the value of any of its oil production, the company instead opted during the second quarter of the year to curtail about 55% of its crude production, or about 7.8 million barrels of oil.
Its average daily production of crude oil, natural gas and natural gas liquids during the second quarter was 202,815 barrels of oil (equivalent).
Officials said the company intends to relax those restrictions in the third and fourth quarters.
Continental expects to boost its average daily production to between 280,000 and 300,000 barrels equivalent during the third quarter and expects to exit 2020 producing between 310,000 and 330,000 barrels equivalent a day.
Assuming the price of West Texas Intermediate crude oil averages $40 a barrel or better during that time, it forecasts it will generate about $1.3 billion in annual cash flow from its operations, with about $200 million of that free cash flow.
“We kind of value the production value over volume, and that is what we did here,” said Harold Hamm, Continental Resources’ executive chairman. “We just curtailed production for a couple of months, until prices returned to a range where we felt appropriate to begin producing again. That’s not to say we don’t need it higher, because everybody does.”
Hamm and William Berry, Continental Resources' CEO, said the company used the second quarter of this year to evaluate its operations to identify opportunities where they could be improved.
They observed its production expense of $3.58 per barrel of oil equivalent during the second quarter stayed in line with its $3.50 to $4 per barrel estimate for the entire year.
They also pointed out that Continental Resources during the second quarter drove its completed well costs 12% lower in the Bakken Shale field, to $7.2 million per well, and completed well costs 10% lower in its the Anadarko Basin’s STACK and SCOOP plays, to $9.5 million per well.
While some of that might be attributable to reduced service provider costs, both Berry and Hamm also attributed those accomplishments to the hard work of their employees.
Unlike many oil and gas companies right now, Continental Resources hasn’t laid off employees, a reputation the Oklahoma City-based company has built over time as it’s kept its staff intact through previous downturns.
“Quality employees are the foundation of our business. We have always operated with a really lean and mean organization,” Berry said. “Maybe we aren’t spending as much capital and have slowed down a little bit, but we have all this backlog of things involving engineering and geological analyses that we can analyze to do better. That’s why you are seeing the capital reduction on the wells we are drilling. Those efforts have just a huge impact on the efficacies of the company.”
“What has really impressed me is how our teams have really come through in increasing our efficiencies, as they did during the downturn in 2014 and 2015,” he said. “I also am very proud of how Bill approached the situation and pulled our teams together. Sometimes, when you are hard at work, you can’t do that. Slowing down a little bit, you can make some structural changes that benefit the company in the future.”
Company officials said Continental Resources had 215 wells under development on June 30 and expects to end the year with 140 drilling and completion projects underway, using an average of 7.7 drilling rigs and 2.5 stimulation crews for the year.
They noted the company remains on track to holding its drilling and completion costs for the year at about $1.2 billion, which would enable it to maintain 2020's average production levels of oil, natural gas and natural gas liquids through 2021.
As for employees’ health during the pandemic, Berry said established safety precautions are making a difference.
“We have about 1% of our employees out there who have gotten sick, but the protocols we have, with people wearing masks, social-distancing and washing their hands frequently, seem to be working,” Berry said. “Everyone has such a good understanding of what they need to do now.”