In the previous section of this series, we discussed why returns from operating in major resource shales may vary for the producers. Continental Resources, Inc. (CLR), a major oil producer in North Dakota’s Bakken Shale, revised its 2015 capital expenditures (or capex), production budget, and rig count estimates. We’ll discuss this in detail in this article.
Continental Resources lowers 2015 budget
In a press release on December 22, Continental Resources (CLR) announced it has reduced its 2015 capital budget in response to falling oil prices. The company is now forecasting 2015 capex of $2.7 billion, down from its earlier announced $4.6-billion budget. Investors should also note that the November budget was a 19% reduction from the capex budget released with the company’s 3Q14 financial results. Continental Resources’ 2014 capital budget was $4.05 billion.
Continental Resources also lowered its outlook for next year’s production growth to 16% to 20% from an earlier estimate of a 23% to 29% growth in 2015.
Continental Resources also reduced its expected average rig count for the year to 31 from earlier expectations of 50.
Why Continental Resources changed its outlook
Initially, during its 3Q14 earnings release disclosed in early November, Continental Resources was bullish on oil price and expected an oil price rebound. To gain from the oil price rise, the company abandoned its oil-hedging program and recorded a $474 million gain on liquidation of the hedges. Upstream companies typically hedge its production to protect against a crude price fall.
Continental Resources’ chief executive officer Harold Hamm expected crude oil price recovery in the range of $85 and $90 a barrel. Currently, WTI (West Texas Intermediate) crude price is hovering around $55 a barrel. For a complete analysis of Continental Resources, read Market Realist’s Continental Resources: An independent US oil producer.
A lower crude oil price will also negatively affect other Bakken producers such as Whiting Petroleum Corporation (WLL) and Hess Corporation (HES). Some of these are components of the Energy Select Sector SPDR ETF (XLE) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
In the next article of this series, we’ll discuss Apache Corporation’s (APA) 2015 capex and production budget.