What happened
Shares of Continental Resources (CLR) had slumped more than 10% by 10:30 a.m. ET on Tuesday. The primary issue weighing on the oil company's stock was its outlook for 2022 and beyond, especially in light of falling oil prices today as the tensions between Russia and Ukraine appear to be easing.
So what
Continental Resources reported solid fourth-quarter results. The oil producer posted $651 million, or $1.79 per share, of adjusted net income, beating the analysts' consensus estimate by $0.10 per share. It benefited from improving production and oil prices.
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Those two factors enabled the oil company to deliver a record $3.97 billion in cash flow from operations in 2021, along with $2.64 billion in free cash flow. That's allowing the company to return more cash to shareholders. It's boosting its quarterly dividend and adding $500 million to its share repurchase program.
Continental's outlook for 2022 and beyond seems to have bothered investors. The oil producer expects to generate $5.2 billion of cash flow from operations this year. That's enough to cover its $2.3 billion capital budget with an estimated $2.9 billion to spare. That capital budget includes a 15% spending increase from its legacy operations and an incremental $500 million attributed to its recently acquired positions in the Powder River and Permian Basins. That higher budget will grow its oil production from nearly 170,000 barrels per day last year to about 200,000 barrels per day in 2022.
Continental also unveiled its longer-term framework for enhancing shareholder value. It projects to deliver at least $20.7 billion of cumulative cash flow from operations between 2022 and 2025 along with $11.6 billion of cumulative free cash flow while delivering low single-digital annual production growth.
This forecast assumes crude oil averages $80 a barrel during that time frame. That would give it the money to achieve its debt reduction target, pay its dividend, and complete its share repurchase program with plenty of cash left over. That oil price target might be a bit optimistic, given the easing tension between Russia and Ukraine.
Now what
Continental Resources is cashing in on higher oil prices. That's giving it more money to use for the benefit of shareholders. Their concern is that the company is using some of those funds to increase its production, a strategy that has backfired in the past. However, if oil prices remain strong, that decision to grow its output positions it to produce even more cash in the future.
