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An Early Preview of Continental Resources' Earnings

Next week Continental Resources  (NYSE: CLR  ) will report its third quarter results. As each earnings season approaches, investors should prepare a concrete definition of what a successful quarter looks like before the report. That way the actual results won't bias your assessment. 

Continental has been one of the hottest players in the oil patch. Over the past year everything has been going the company's way; Bakken production growth is skyrocketing, drilling costs are falling, and clogs in the energy supply chain are being cleared. The questions for investors are whether these trends will continue and whether Continental has any new catalysts that could send shares higher.

Let's take a quick peek at what investors can expect when the company reports this quarter. 

Continental by the numbers

Analyst EPS Estimate $1.47
Year-Over-Year EPS Change 70.9%
Revenue Estimate $962 million
Year-Over-Year Revenue Change 98.7%
Earnings Beat in Past Year 4

Source: Yahoo Finance

Will the good times keep rollin'?
Continental is rockin' the Bakken. Last quarter the company posted record production totaling 135,700 boepd, up 12% sequentially and 43% year-over-year. In September the company also provided its operating and production guidance for 2014, and management projects a 26% to 32% output boost. No doubt investors will see another banner report this quarter. 

Of course, this stellar growth is already factored into Continental's share price. Investors need to search for a new catalyst. And sitting under the company's Bakken acreage may be an even bigger prize. Based on the latest United States Geological Survey, the Three Forks formation could hold more oil the the Bakken field that lies above it. According to the USGS, the Three Forks contains 3.73 billion barrels of undiscovered, technically recoverable oil. That's slightly larger than the Bakken.

Early reports from other operators in the Williston Basin are encouraging. Newfield Exploration  (NYSE: NFX  ) has been drilling pilot wells in the Three Forks throughout the year. One exploratory project posted an initial production rate over 3,000 boepd, definitely suggesting that the play has commercial potential. Additionally Kodiak Oil and Gas  (UNKNOWN: KOG.DL  ) completed six test wells in the Three Forks this spring with initial production rates between 1,200 and 3,500 boepd. While these results are encouraging, management has cautioned that more testing is needed. 

As Continental and other operators continue their exploration efforts and delineate the Three Forks, investors will start to see the play booked under recoverable reserves. That could serve as a hidden catalyst for the company's share price. 

What's padding profits?
While big finds steal all the headlines, investors should also be watching how much of that top-line growth trickles down to the bottom line. Across the Bakken costs are falling. Last quarter Oasis Petroleum  (NYSE: OAS  )  reported its average well completion costs fell by 20% year over year to $8.2 million per well. Much of this decline has been credited to the transition to pad drilling, the falling cost of hydraulic fracturing services, and other operational efficiencies. 

In the past year Continental has been able to shave $1 million of its average well completion costs, which now come in at $8.3 million per well. That's a pretty substantial figure when you multiply those cost savings over the 300 net wells the company is expected to complete in the Bakken next year. Management has promised to bring those costs down further, and investors should be watching to see if they deliver. 

Foolish bottom line
We know Continental is likely to deliver blowout production numbers from the Bakken this quarter. But investors should be looking closely at the drilling results from new plays like the Three Forks and SCOOP this quarter.

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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 November 03, 2013, at 10:24 AM, ChuckXX wrote:

    Continental Resources is the most "under valued" growth company I have ever seen. Compare it to Pioneer Natural Resources who is very "over valued". Can't seem to understand why CLR is not substantially higher.

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