Continental Leading The Bakken Pack To Triple Production $CLR
On August 8th, Continental (CLR) reported second quarter earnings and missed on both the top and bottom lines. The Street was looking for $559.2 million in revenue and earnings of 73 cents/share. Continental reported 68 cents/share on revenues of $523.39 million. Continental posted additional revenues of $471.72 on gains related to derivatives.
Two years ago, Harold Hamm announced Continental would triple production in five years. He now believes this will happen by early to mid-2013. Production for the second quarter of 2012 was 76% higher year over year and 11% better than the quarter before. Full year 2012 production growth has been increased between 57% to 59%.
This was not a surprise to me as I have been documenting its results, which have been impressive in 2012. Continental has made a quick change to 30 stages. This isn’t the only reason for increased production as it has been averaging between 50000 and 60000 barrels of water per 30 stage completions. This is an increase from 40000 to 50000 barrels seen in more recent 24 stage fracs. Continental is now using 2.7 to 3 million pounds of proppant, which is an increase from 2 to 2.2 million.
This has helped to produce much better initial production numbers, but has also increased costs. Continental is shooting for 97% of its North Dakota Bakken to be held by production by year end of 2013. Right now it has 72% of this held by production. Continental has reduced its number of rigs in the Bakken from 26. Its current Bakken rig count is 19, of which 9 are ECO-Pad capable. It has 15 rigs in North Dakota and 4 in Montana.
As other Bakken companies are doing, Continental is reducing its number of rigs. Even with a lower number of rigs, Continental is still drilling as many wells. It has seen drilling times decrease by 30%. As acreage is de-risked, Continental is switching from its single well rigs to ECO-pad rigs. Currently, a little less than half of the number of rigs are ECO-pad. Continental decreases well costs by 10% using pad drilling. These variables are part of the reason for an increase in cap ex to $3 billion. Because drill times have decreased, more wells will be drilled.
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See more at http://www.rulingthemarkets.com – Including access to our “Natural Gas Thesis” mentioned below.
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Let’s talk natural gas and “fracking”. Fracking can cost several million dollars per well so companies are continually on the look-out for lower cost options. Recently, Schlumberger has been discussing a new technology that reduces fracking cost substantially.
Fracking a well involves three major costs – proppant (sand/chemical mix), water and trucks. The fracking technology Schlumberger has developed utilizes 40% less proppant and up to 50% less water. Less proppant and less water leads to significantly fewer supply trucks and therefore less operating cost.
JPMorgan has estimated that fracking costs could drop from $2.5 million per well down to under $1 million. A significant cost reduction for natural gas producers.
Lower cost means more oil/gas can be economically recovered (higher company reserves), increasing the overall supply. More supply equates to lower retail prices and more support for our “Investment Case For Natural Gas”.
Thanks for the comments and link to an interesting site Jim. Glad to have you.