Continental Resources: When Companies Aim to Triple

The Bakken Shale oil producer aims to triple its production and its proved reserves by the end of 2017. The company said that this goal takes the mid-range estimate of 36 million barrels of oil equivalent for 2012 up to somewhere around 108 MMBOE by 2017, with most of the growth coming from its Montana, North Dakota and the Anadarko Woodford area in Oklahoma. Continental is an independent exploration and production company that has leases covering almost 1 million acres in the Bakken Shale region. It also had leases covering some 315,000 acres in the Anadarko Woodford region. The Anadarko and Arkoma Woodford regions are said to be the secondary focus.

Continental’s proved reserves were listed as 610 MMBOE earlier this year, so the company’s ambition is to get this up to more than 1,800 MMBOE by the end of 2017. Production growth is targeted to rise by 30% to 35% in 2013 versus almost 95,000 barrels of oil equivalent per day most recently. Next year’s capital spending plan is roughly $3.4 billion and it plans to complete 300 wells.

Continental Resources saw its shares rise by almost 3% on the news to $78.66, but it has a 52-week range of $51.38 to $97.19. Thomson Reuters has estimate on earnings of $3.18 EPS for 2012, implying that the company trades at about 24-times earnings. More conservative investors need to understand that there is no dividend paid out to common holders. The company also runs a tight balance sheet, with its June 30 books showing only about $135 million between cash and long-term investments, versus about $2.25 billion in stated long-term debt. The net tangible assets are almost $2.8 billion, against a market capitalization rate of about $14.1 billion. Thomson Reuters has a consensus price target objective of about $86.50 for this stock.

Aiming to triple production and reserves is no easy feat, particularly with risks that are sometimes associated with domestic shale oil plays. Still, this is one very high stated ambition from an oil exploration and production outfit that aims to become much larger.

JON C. OGG