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Continental (CLR) Set to Gain From Higher Commodity Prices

Zacks Equity Research
·4-min read

Continental Resources, Inc. CLR is progressing to break previous record profits this year as strong commodity prices will likely drive financial success.

The West Texas Intermediate (“WTI”) crude price has risen significantly over the past year. Higher oil prices are boons for Continental’s operations since it is a leading crude producer in the United States.

However, the WTI crude price recently dropped due to the growing recession fears. Although oil prices are currently below their most recent highs, it would prolong gains for the oil and gas companies.

The upstream energy player has a strong presence in the core of a prolific oil field, the Bakken shale play of North Dakota and Montana. Notably, CLR’s acquisition of Delaware Basin assets marked its entry into the prolific Permian Basin. The acquisition has brightened the company’s long-term production outlook, as it expects more than 1000 locations in the area.

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Continental has a strong focus on cost-reduction initiatives. The company is well known for being a low-cost, high-margin oil producer. As the global economy rebounded and fuel demand increased, CLR’s free cash flow levels surged to $2.6 billion last year.

Continental is strongly focused on returning capital to shareholders. The company increased its quarterly dividend payments to 28 cents per share from the last paid 23 cents. However, CLR’s current dividend yield is lower than the composite stocks belonging to the industry.

The current financial position of upstream energy companies is at an all-time high. The favorable outcomes are set to get better this year, owing to a perfect storm of factors pushing profits.

Most of last year’s profit was spent on reducing debt, leaving upstream companies in a very healthy financial position.Upstream companies like EOG Resources, Inc. EOG, Matador Resources Company MTDR and ConocoPhillips COP will continue to witness gains as the crude price trajectory is expected to remain healthy.

EOG Resources, a leading oil and natural gas exploration and production company, is well-placed to capitalize on the promising business scenario. EOG has an estimated 11,500 net undrilled premium locations, resulting in a brightened production outlook.

EOG Resources is strongly committed to returning capital to shareholders. Since it transitioned to premium drilling, the company has returned $10 billion in cash to stockholders. With the employment of premium drilling, EOG can reduce its cash operating costs per barrel of oil equivalent. This will aid its bottom line.

Strong oil prices are boons for Matador’s upstream operations as it has a strong presence in oil-rich core acres in the Wolfcamp and Bone Spring plays of the Delaware Basin. For 2022, the upstream energy player expects total production of 36.9-38.3 million barrels of oil equivalent (MMBoe), higher than the 31.5 MMBoe reported last year.

Matador plans to turn 71.2 wells to sales this year, including operated and non-operated wells. Among the prime priorities that MTDR has set for this year are lowering debt levels, delivering free cashflows and maintaining or increasing dividends.

ConocoPhillips holds a bulk of acres in the three big oil-rich unconventional plays, namely Eagle Ford shale, Delaware Basin and Bakken shale. In the Eagle Ford shale, ConocoPhillips drilled more than 1,600 wells that could lend the company access to huge oil-equivalent potential reserves.

For 2022, ConocoPhillips stated a capital budget of $7.8 billion. Of the total planned capital spending, COP has decided to allot 60% of capital toward the Lower 48, which includes prolific plays like the Eagle Ford, Bakken and Permian basins. With the capital spending plan, COP projects the 2022 production at 1.74 million barrels of oil equivalent per day (MMBoe/d), suggesting an improvement from 1.6 MMBoe/d last year.


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ConocoPhillips (COP) : Free Stock Analysis Report
 
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