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Continental Resources Third Quarter 2021 Results

Share Print Bookmark    |    Wednesday,November 10,2021

Continental Resources, Inc. announced its third quarter 2021 operating and financial results.

Highlights:

• $369.3 MM Net Income; $1.01 per Diluted Share ($437.2 MM Adjusted Net Income; $1.20 per Adjusted Share (Non-GAAP)) in 3Q21

• $1.0 B Cash Flow from Operations & Company Record $669 MM Free Cash Flow (Non-GAAP) in 3Q21

• $3.9 B Projected Full-Year 2021 Cash Flow from Operations & $2.6 B Projected Full-Year 2021 Free Cash Flow (FCF) (Non-GAAP) at Current Strip Prices1 (~14% FCF Yield2 (Non-GAAP))

• Highly Accretive Expansion into Permian Basin; Immediately Additive to FCF Capacity

• Adds up to 2% to Projected Return on Capital Employed3 (ROCE) on an Annual Basis4
• Over 650 Gross Operated Locations in Third Bone Spring/Wolfcamp A & B; Over 1,000 Total Locations, Including Additional Zones Producing in the Basin
• 92 K Contiguous Net Leasehold Acres & 50 K Net Royalty Acres5; Extensive Owned Water Infrastructure
• PDP6 Represents ~75% of Transaction Price; ~55 MBoepd (~70% Oil)

• Accelerating Commitment to Shareholder Capital & Corporate Returns

• $0.05 Increase to Quarterly Dividend to $0.20 per Share; Approximately 1.6% Annualized Dividend Yield
• $65 MM Share Repurchases Executed; $618 MM Remaining under Previous Board Authorization
• 21% Projected ROCE in 2021
  

Financial Overview

The Company reported net income of $369.3 million, or $1.01 per diluted share, for the quarter ended September 30, 2021. In third quarter 2021, typically excluded items in aggregate represented $67.9 million, or $0.19 per diluted share, of Continental's reported net income. Adjusted net income for third quarter 2021 was $437.2 million, or $1.20 per diluted share (non-GAAP). Net cash provided by operating activities for third quarter 2021 was $1.02 billion and EBITDAX was $1.12 billion (non-GAAP).

Adjusted net income (loss), adjusted net income (loss) per share, EBITDAX, free cash flow, free cash flow yield, net debt, net sales prices and cash general and administrative (G&A) expenses per barrel of oil equivalent (Boe) presented herein are non-GAAP financial measures. Definitions and explanations for how these measures relate to the most directly comparable U.S. generally accepted accounting principles (GAAP) financial measures are provided at the conclusion of this press release.

The Company generated $1.02 billion of cash flow from operations and a Company record $669 million of free cash flow (non-GAAP) for the third quarter 2021. The Company now projects generating $3.9 billion of cash flow from operations and $2.6 billion of free cash flow (non-GAAP) for full-year 2021 at current strip prices, or approximately 14% free cash flow yield (non-GAAP).

Entrance into the Permian

The Company announced today it has entered into a definitive agreement under which the Company will acquire select Permian Basin assets from Pioneer Natural Resources in an all-cash transaction valued at approximately $3.25 billion, subject to customary purchase price adjustments. The transaction has been unanimously approved by the Company's Board of Directors, with an effective date of October 1, 2021 and an expected close in December 2021, subject to customary closing conditions.

Bill Berry commented: "Continental's foundation has always been built upon a strong geology-led corporate strategy. This continues today and has directly led us to our new strategic position in the Permian Basin. This acquisition will complement our existing deep inventory portfolio in the Bakken, Oklahoma and most recently, the Powder River Basin. In addition to the competitive geologic attributes, this transaction is accretive on key financial metrics and supports our long term target of 1.0x net debt to EBITDAX by year end 2022 at $60 WTI."

• Accretive to cash flow per share, earnings per share, cash margin and return on capital employed.
• Adds up to 2% to projected return on capital employed on an annual basis.
• Projected to generate $750 MM of annual cash flow from operations & $500 MM of annual free cash flow (non-GAAP) in 2022 at current prices.
• PDP represents ~75% of transaction price; ~55 MBoepd (~70% oil). 
• 92 K contiguous net leasehold acres.
• 98% operated with over 90% of acreage held by production.   
• 50 K net royalty acres and 31 K net surface acres.
• Extensive water infrastructure in place.
• Over 650 gross operated locations in Third Bone Spring/Wolfcamp A & B; over 1,000 total locations, including additional zones producing in the basin.  
• Company projects 1.0x net debt (non-GAAP) to EBITDAX (non-GAAP) by YE22 ($60 WTI and gas strip prices)⁸.

COO Jack Stark added: "These Permian assets contain the key strategic components common to all of our assets with significant untapped potential to enhance performance through optimized density development, wellbore placement, operational efficiencies and further exploration."

Citi Global Market, Inc. is serving as the Company's financial advisor and White & Case LLP is serving as the Company's legal advisor with respect to this transaction.

Corporate Returns

The Company's Board of Directors approved increasing the Company's quarterly dividend to $0.20 per share, payable on November 26, 2021 to stockholders of record on November 15, 2021. This dividend represents a $0.05 increase to the Company's $0.15 per share quarterly dividend paid in third quarter 2021 and equates to an approximately 1.6% annualized dividend yield. The Company also resumed transactions under its existing share repurchase program, with $65 million of share repurchases executed in third quarter 2021 and $618 million of share repurchase capacity remaining under the previous Board of Directors authorization. Additionally, the Company is projecting approximately 21% return on capital employed for 2021.

Production & Operations Update

Third quarter 2021 total production averaged 331.4 MBoepd. Third quarter 2021 oil production averaged 157.2 MBopd. Third quarter 2021 natural gas production averaged 1,046 MMcfpd. The following table provides the Company's average daily production by region for the periods presented.

Financial Update

John Hart, Senior Vice President, Chief Financial Officer & Chief Strategy Officer, said: "We are delivering strong competitive cash flow this year, as demonstrated by our 14% projected free cash flow yield even after our stock price has nearly tripled year-to-date. The third consecutive increase in our quarterly dividend underscores confidence in our sustainable free cash flow. Additionally, our corporate returns continue to expand, with a projected 21% return on capital employed in 2021 highlighting enhanced value creation. Free cash flow, return on capital employed and other financial metrics should further improve pending our recent Permian acquisition."