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WTI and Brent Crude Oil

Oklahoma City-based shale producer Continental Resources reported a loss for the fourth consecutive time during the December quarter with losses exceeding analysts’ expectations as the COVID-19 pandemic disrupted energy demand, sending its shares down over 2% in extended trading on Tuesday.

However, the U.S. crude oil and natural gas company upgraded their capital expenditures budget and expect oil and gas output to increase in 2021, largely due to recent recovery in commodity prices.

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The largest oil producer in North Dakota said it is now projecting a $1.4 billion capital expenditures budget, higher than the previous forecast of 1.2 billion. The 2021 capital budget is projected to generate approximately $2.4 billion of cash flow from operations and $1.0 billion of free cash flow (non-GAAP) for full-year 2021 at $52 per barrel WTI and $2.75 per Mcf Henry Hub.

A $5 increase per barrel WTI is estimated to increase cash flow by approximately $250 million, the company said.

Continental Resources said annual crude oil production is projected to range between 160,000 to 165,000 Bopd and annual natural gas production is projected to range between 880,000 to 920,000 Mcfpd.

CLR is sticking to low growth, high FCF yield model by looking to spend $1.1 billion D&C (60% Bakken, 35% Oklahoma, 5% PRB) and another $300m on workovers, leasehold, facilities and mineral acquisitions. We had modelled $1.3 billion and consensus had expected $1.29 billion that we expect is largely varied vs. guidance due to non-D&C spend. The budget is expected to deliver production growth of 3% at the midpoint with oil vols of 160-165 MBD (2% below Cowen estimate) and gas vols of 880-920 MMcf/d (17% above our estimate),” noted David Deckelbaum, equity analyst at Cowen and Company.

“Importantly, the implied reinvestment rate at $52/bbl is 58%. CLR expects to TIL 210 gross op wells and end the year with roughly 135 DUCs. Overall, the guided implies $1 billion of FCF at $52/bbl/$2.75/Mcf that is effectively in line with our prior model. The update contains few surprises and the commitment to shareholders returns is likely favoured by the market.”

The oil firm reported an adjusted net loss for the quarter ended December 31, 2020 of $81.9 million, or $0.23 per diluted share, largely missing the Wall Street estimates for a loss of $0.08 per share. The company’s revenue declined about 30% to $837.6 million; however, that beats analysts’ expectations of $62.81 million.

Continental Resources‘ shares, which slumped over 52% in 2020, had risen 49% so far this year. However, the stock declined over 2% to $23.74 in extended trading on Tuesday.

Continental Resources Stock Price Forecast

Thirteen analysts who offered stock ratings for Continental Resources in the last three months forecast the average price in 12 months of $19.71 with a high forecast of $26.00 and a low forecast of $11.00.

The average price target represents a -18.86% decrease from the last price of $24.29. From those 13 analysts, three rated “Buy”, eight rated “Hold”, two rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $14 with a high of $28 under a bull scenario and 3 under the worst-case scenario. The firm gave an “Underweight” rating on the crude oil and natural gas company’s stock.

Several other analysts have also upgraded the stock outlook. Continental Resources had its price objective raised by KeyCorp to $23 from $22. The firm currently has an overweight rating on the oil and natural gas company’s stock. TD Securities increased their price objective to $15 from $14 and gave the stock a hold rating.

Moreover, Truist increased their price objective to $26 from $22. Citigroup increased their price objective to $19 from $16. Barclays increased their price objective to $21 from $19 and gave the stock an equal weight rating.

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Analyst Comments

“Lack of downside protection to lower oil prices. Lack of hedges offers outsized exposure should oil prices recover, though weighs on the cash flow profile in our base case. Low oil prices weigh on net asset valuation. On our commodity price deck of $45 WTI, Continental Resources’ (CLR) net asset value suggests intrinsic downside from current trading levels,” said Devin McDermott, equity and commodities Strategist at Morgan Stanley.

“Elevated leverage. CLR‘s elevated leverage remains a concern at 1.7x YE-21 vs 1.2x for Permian peers.”

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