Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



How Significant Are Continental's Losses?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Exploration and production companies operating in the Bakken region are seeing the results. Continental Resources (NYSE: CLR  ) reported strong results for the fiscal first quarter riding on sharp production rise. Losses from derivative instruments, however, marred the company's bottom line. What are Fools to think?

Solid growth
Total production rose to 51,663 barrels of oil equivalent per day -- or BOE/D -- for this quarter. That's a 34% increase from 38,428 BOE/D a year ago. Production in the Bakken rose by 67% over the year-ago quarter to 25,523 BOE/D. This consists of nearly 50% of the company's daily production.

Clearly, the importance of the Bakken reserves cannot be underestimated. Crude oil and natural gas sales for this quarter jumped to $326 million from $217 million a year ago -- a sharp 50% hike.

The dent
However, losses from derivative instruments (generally meant to protect the company from bigger losses) have put the company's bottom line in the red. A net loss of $137 million as compared to net profit of $72 million a year ago actually brings out the glaring disconnect between the operational and notional results that can creep into a company's financial statements.

A $369 million derivative loss, 99% of which is noncash and unrealized, definitely does not look pretty on the income statement. However, the good news is that the contract run through the end of 2013, and there might be a possibility of a turnaround by then.

This should not deter Foolish investors, as the fundamentals for this company look sound and management seems to have ambitious plans to expand operations. Fellow Bakken operator Brigham Exploration (Nasdaq: BEXP  ) and other players such as Anadarko Petroleum (NYSE: APC  ) and Noble Energy (NYSE: NBL  ) are in the same boat -- and I am pretty bullish about the prospects of these companies.

Foolish takeaway
Looking forward, management looks confident in growth prospects. As CEO Harold Hamm said, "We are solidly on track to achieve our 2011 target of 35-37 percent (production) growth."

I do not see any reason to disagree. With substantial upward revision of estimated reserves in the Bakken fields, Foolish investors should find a long-term winner in this stock.

Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 16, 2011, at 12:28 PM, badbernanke wrote:

    Derivative "losses" from hedging commodity production are better than derivative gains for companies with rapidly growing production profiles.

    "Gains" normally means that prices for the commodity are dropping and that marginal, unhedged production is receiving prices lower than the hedge price.

    "Losses" mean that the commodity prices are rising (actually, have risen) above the hedge price. So marginal, unhedged production will benefit from higher market prices.

    Since hedging "gains" and "losses" are snapshots in time, there can be fast reversals. Linn Energy had huge hundreds of millions of dollars in paper losses when oil was headed to $150/bbl and those hundreds of millions tuned into paper gains when oil headed south to $30/bbl.

    The market reaction to the paper losses was overdone and evidences the general investor community's misunderstanding of hedging gains and losses for producers of commodities.

  • Report this Comment On May 21, 2011, at 10:04 AM, isacsimon wrote:


    <<The market reaction to the paper losses was overdone and evidences the general investor community's misunderstanding of hedging gains and losses for producers of commodities.>>

    I totally agree with you. Investors are misled especially by excessive and hyped media reporting.

    Fool on.

    -Isac Simon

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1492874, ~/Articles/ArticleHandler.aspx, 10/23/2016 9:51:42 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
CLR $52.85 Down -0.13 -0.25%
Continental Resour… CAPS Rating: **
APC $63.54 Down -0.22 -0.35%
Anadarko Petroleum CAPS Rating: ****
BEXP.DL $0.00 Down +0.00 +0.00%
Brigham Exploratio… CAPS Rating: ***
NBL $35.74 Down -0.18 -0.50%
Noble Energy CAPS Rating: ***