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Continental Resources Raises Dividends Following a Quarter of Profit

As a recovery in economic activity and travel boosted oil prices to multi-year highs, shale producer Continental Resources Inc posted a fourth-quarter profit that surpassed Wall Street expectations.

In general, for the last three months of 2021, world crude oil prices averaged $80 per barrel as demand recovered from a pandemic-induced crash. Results of such a hike are pleasing to the eye: a barrel of crude in the U.S. is currently trading for close to $95 a barrel.

In response to this, Continental Resources' adjusted average net sales price in the fourth quarter rose to $55.27 per barrel of oil equivalent (boe) — easily doubling the numbers of the year prior.

After pumping out 160,600 barrels of oil per day (bopd) in 2021, the company set its full-year target to average between 195,000 to 205,000 bbl/d of oil. And in order to achieve this, purchased near the end of the last year Pioneer's Delaware Basin position in the Permian area (covering approximately 92,000 net acres in Pecos, Reeves, Ward, and Winkler Counties with net production of approximately 50,000 boe/d) will come in handy.

It is estimated that natural gas will be produced at a rate of 1.04 billion to 1.14 billion cubic feet per day (cfpd) in 2022.

Aiming to boost the rates, Continental already forecasted, that it will spend $2.3 billion in the coming year, including an increase of 15% in legacy costs in Bakken and Anadarko, as well as a rise of $500 million related to its Permian acquisition and the purchase of Chesapeake Energy assets in Wyoming.

To compare, in 2021 the company’s capital expenditures totaled just $1.56 billion.

And it’s not just a bunch of empty promises: last week Continental Resources raised its quarterly dividend by 15% to 23 cents per share. In addition, the company will increase its share repurchase program from $1 billion to $1.5 billion.

The market reported an adjusted net income for the Continental of $651 million, or $1.79 per share during the quarter, beating analysts' expectations per share by no small margin of 0.09 cents. While it may seem not that impressive, during the same period a year prior the company reported a loss of $82 million, or 23 cents per share — a great comeback!

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Export Opportunities For Permian’s and Takeaway Problem

Around 25,000 net acres in the Permian are being sold by Percussion Petroleum II, looking to fetch up to $1.5 billion, as some sources bet on rising oil prices to pocket more than double what it paid in 2021. The company spent $375 million plus contingent payments a year ago to buy the bulk of its assets in one of the most prolific crude-producing areas in the U.S. from Oasis PetroleumInc. The oil prices increased to triple digits and buyers wanted to gain a toehold in the basin, whereas backers of private shale companies such as Percussion use it as a chance to exit their investments with big profits. Remarkably, U.S. crude oil futures have grown about 50% to approximately $109/bbl since June 29, 2021, when Percussion closed its deal with Oasis.

Shareholder’s payout target was increased by 50% after the largest U.S. independent oil producer surpassed Wall Street’s earnings estimates on growing energy prices, said Houston-based Conoco Phillips Co. on Aug. 4. Due to Western sanctions on major producer Russia throttling energy supply amid a rebound in demand from pandemic lows, oil and gas #prices have soared. Crude has been trading more than 25% higher since the start of the year and results also benefited from high natural gas prices. Meanwhile, shares were down a fraction, to $91.03, in early trading but are up about 26% year to date. Conoco Phillips stated, that the average price obtained for a barrel of oil and gas accelerated 77% from a year earlier to $88.57. The company acknowledges that it has not hedged any of its oil and gas sales to make the most of higher market prices. The capacity of 1.69 million boe/d was in line with Wall Street estimates, however, the company expected the current quarter’s output would be between 1.71 million and 1.76 million boe/d.

California oil joint venture, Aera Energy, of Exxon Mobil Corp. and ShellPlc is being sold to German asset manager IKAV, according to the agreement of Sept. 1. Shell noted that the sale of its 51.8% membership interest in Aera Energy is for a total consideration of about $2 billion in cash with additional contingent payments based on future oil prices, subject to regulatory approval. However, the total transaction value was not disclosed. Being one of California’s largest oil and gas producers, Aera Energy accounts for nearly 25% of the state’s production. The sale by Exxon Mobil and Shell ends a 25-year-long partnership in California, meanwhile, it persists a streak of divestments of mature oil and gas properties by the two supermajors. Aera Energy LLC operates about 13,000 wells in the San Joaquin Valley in California, producing oil and associated gas. In 2021, Aera took out about 95,000 boe/d. Exxon Mobil’s interests in the Aera oil-production operation in California contained a 48.2% share of Aera Energy LLC and a 50% share of Aera Energy Services Co. held by Mobil California Exploration & Producing Co. Moreover, Exxon Mobil affiliates have signed a separate agreement for the sale of an associated loading facility and pipeline system. The sale effectively ends Shell’s upstream position in California. The company reported that the divestiture is valued to result in a post-tax impairment of $300 million to $400 million, subject to adjustments.

The completion of the merger between Centennial Resource Development Inc. and Colgate Energy Partners II LLC happened on Sept. 1, sealing the debut of Permian Resources Corp., which is considered the largest pure-play E&P company in the Delaware Basin. Permian Resources’ idea was to combine two successful E&P companies, creating a better, stronger, and more strategically compelling company. Centennial and Colgate announced an agreement to merge in May, denying rumors that Colgate, a privately held independent Midland-based company, had been seeking an IPO. The merger estimated Colgate at about $3.9 billion and consists of 269.3 million shares of Centennial stock, $525 million of cash, and the assumption of approximately $1.4 billion of Colgate’s outstanding net debt. Permian Resources, being the combined company, has a deep inventory of “high-quality” drilling locations on around 180,000 net acres the companies anticipate will provide more than $1 billion of free cash flow in 2023 at current strip prices, in accordance with the company release on Sept. 1.

2022 blog posts