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$37 WTI - Continental Resources Reaches Cash Flow Neutrality

Summary

Perma-oil bull Harold Hamm is running Continental Resources Corporation like WTI is set to stay below $40/barrel.

Hamm has built up a top tier asset base while CEO of Continental Resources.

Strong drilling economics in the Bakken/TF and more recently, the STACK region, will propel Continental Resources higher.

Its Bakken/TF DUC inventory offers the company an easy way to capitalize on prices moving higher.

While it appears Harold G. Hamm, the CEO of Continental Resources (NYSE:CLR), is still holding onto his perma-bull stance on crude prices (see excerpt below), he is running the company like WTI will stay below $40/barrel for the entirety of 2016. That's a good thing, and something worth taking note of.

Before getting into that, here is Harold's response to a question (on Continental's Q4 conference call) about whether Continental Resources would reconsider its stance on only acquiring hedges if WTI marched above $70/barrel;

"[T]these prices today are unsustainable in the world and I think everybody realizes that. So we're building toward a short supply situation. Certainly when you get there, you will see a pretty good recovery of prices in the future. Will we still have the ability to over-supply the market, if people aren't disciplined, they surely could. Again, I think if it gets up, partial recovery to that range [north] of $60, we'll be seriously considering hedging."

The part to take note of is a "partial recovery to that range north of $60". It's novel to see an upstream CEO that optimistic on a pricing recovery, but keep in mind this is the company that unloaded its hedging position back in October 2014, in a move that ostensibly lost the company around $1 billion. That being said, other than being a tad bit too vocally bullish on oil, Harold Hamm has done a fine job building Continental Resources' asset base into the one of the best around.

Top tier acreage

Continental Resources operations are centered around the Bakken/Three-Forks shales up in North Dakota and the SCOOP/STACK/Cana region in Oklahoma. Hefty pricing differentials out of the Bakken/TF region makes wells in the area not economical, unless located in the core of the core, at prices below $40 WTI. That's why Continental, and the industry as a whole, is so excited about the over-pressurized oil window in the STACK play.

The STACK region in Oklahoma is home to the emerging Meramec and Oswego shale plays, along with several others (including the well known Woodford shale). Strong well productivity and solid drilling economics right off the...


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