Continental Resources, Inc. (CLR)

CLR 
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Industry: Energy
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Continental Resources, Inc. (CLR)

Q1 2010 Earnings Call

May 6, 2010 10:00 AM ET

Executives

Harold Hamm - Chairman & CEO

Jeff Hume - President & COO

John Hart - CFO

Jack Stark - SVP of Exploration

Tom Luttrell - SVP of Land

Rick Muncrief - SVP of Operations

Analysts

Mike Jacobs - Tudor Pickering Holt

Scott Wilmot - Simmons & Co.

Noel Parks - Ladenburg Thalmann

Subhash Chandra - Jefferies

Sven Del Pozzo - C.K. Cooper

Gil Yang - Bank of America

Chris Pikul - Morgan Keegan

Mitch Wurschmidt - KeyBanc

John Freeman - Raymond James

TJ Schultz - RBC Capital

Bob Carlson - Janney Montgomery Scott

Gail Nicholson - Pritchard Capital Market

Brian Kuzma - Weiss Multi-Strategy

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Continental Resources’ first quarter 2010 earnings conference call. This conference call is being recorded. Today’s call will include projections, assumptions and guidance that are considered forward-looking statements. Actual results will likely differ from those contained in our forward-looking statements. Please refer to the company’s filings with the Securities and Exchange Commission for additional information concerning these statements and risks.

Chairman and CEO, Harold Hamm will begin this morning’s call with an overview of the company’s first quarter achievements and 2010 outlook. He will be followed by President and Chief Operating Officer, Jeff Hume, who will provide additional detail on financial and operating results.

Finally, in the question-and-answer period, several additional members of management will be available to answer questions, including John Hart, Chief Financial Officer; and Jack Stark, Senior Vice President, Explorations; Tom Luttrell, Senior Vice President, Land.

At this point, I will turn the call over to Mr. Hamm.

Harold Hamm

Good morning, everyone Thank you for joining us today. We’ve had an excellent start with first quarter of 2010. The baseball season is here, that remains me of my days of pitcher on the baseball diamond. So here today, I’m going to show you three keys basis, we’ve got carried in 2010. Let me toss out a new ball and talk about a next home run for shareholders.

Alright, now on first base, we’ve got the oil-rich inventory, which is a right platform at the right time. Today, everyone wants to become an old man and movement is second base. We have superior economics with the foundation of the lowest cost in our industry and third base, we have more than 770,000 Bakken acres sounds the best leases and new study show they’re even better than previously assessed, better than previously thought, better than previously believed and we’re throwing on a new ball today in the form of a 20% higher AUR model for our Bakken wells. For me next on run will be the ramp up in our drilling activity and accelerate growth in the future for Continental.

Let’s start talking about first phase, so oil-rich inventory. A famous author once said, the amortization is the most sincere form of flattery. Today many US E&P companies have announced plan to diversify natural to oil recently, what we did that 22 years ago. In our first quarter production was 76% crude oil, all organic growth.

Our North Dakota production was two times, that wasn’t first quarter of 2009 and total Bakken, March exit rate was 16,150 barrels of oil equivalent per day. Our total production in March exit rate for the company was 40,503 barrels. Our average crude oil price for this period was $71.41 per barrel, two times what it was of course first quarter of 2009 during the economic downturn.

A differential that we’ve experienced was $7.42 per barrel, and this was left in the guidance of $8 to $10 average for the year that were given and we expect further reductions in the future where the own rig commitment Bank of Montana by transferring a pipeline on their Keystone XL.

I think in head is up to Montana’s Governor, Brian Schweitzer, who worked diligently with me and others and transferring a pipeline to make this possible. Additional capacity with potential could be coming on ramp in North Dakota, Governor Hoeven, know the North Dakota officials working with TransCanada there.

This could create a lot of jobs are apportioned and then more investment for Montana and North Dakota and they have great benefit for local producers as a production continues to climb in those States. Of course our total oil and natural gas sales of $217 million is more than twice what it was first quarter 2009.

Next let’s move onto second base. The period of economics of crude oil, especially with our low operating cost, gave us a three times increase in EBITDAX in first quarter 2010 of a $178 million. Our production expense was $6.46 per Boe versus $7.24 in first quarter of ’09 at the 11% savings year-over-year and I think it’s the lowest in the industry, if not it’s very close to the lowest. So we had a net income of $73 million, reporting $0.03 per diluted share versus a net loss of $27 million first quarter of ’09.

Third base, our tremendous lease positions in drilling inventory. 773,000 net Bakken areas adding to oil-rich inventory. To put this in perspective, just 18 months ago September, 2008, we had 577,000 net acres in Bakken, just a 34% increase over that period. So while everybody else was said to increase still back in 2009 in a downturn, we were out there busily picking up additional acreage, and as evidenced by yesterday’s State sale, these are very valuable leases today.

Let’s talk a little about our oil exploration capability and the strategic value of it, we continued to build an expand position emerging all place in onshore were lower 48 US. You heard about the Woodford, that we announced last quarter and we have others that say, we worked on diligently.

Given what toss out a new ball in this game and that has to do with the URs. We’ve increased the URs at the company to 518,000 Boe, this is a 20% improvement in just six months, Bakken is still getting better folks. It is based on higher initial production in North Dakota wells, and our experience there and stronger performance over 30, 60, and 90 days.

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