Published: May 02, 2008 05:05 pm         

Continental’s stock value skyrockets

Enid’s Continental Resources went public last year with it’s stock initially selling for $15 a share — creating a $2.5 billion market capitalization. Today that same stock is up to $42.15 per share and could go up even further. The current cost per share at 169 shares creates a $5.9 billion market capitalization.

All that makes Continental Resources one of the most successful oil companies in the United States. Harold Hamm, of Continental Resources, said the public has to become accustomed to the fact that oil is not going to return to its former price, plus there are not many oil companies in Oklahoma, which is 70 percent a natural gas producing state. Hamm is Chief Executive Officer and Chairman of the Board of Continental Resources.

Continental Resources has 82 percent of their resources in the Rockies making them a major player in the Bakken shale in Montana and North Dakota. About 25 percent of Continental’s resources are in the Bakken shale area of North Dakota and Montana. About 50 percent of their reserves are in the Red River units and about 7 percent in other areas of the Rockies. Continental Resources is the largest land leaseholder in the North Dakota part of the Bakken, Hamm said.

Interest in that area was slow because of skepticism due to some previous drilling attempts that were disappointing. The area was slow to take off because smaller private companies do not have to make their data public and tend not to, and larger public companies, Amerada Hess, Conoco-Phillips, Marathon, are so large, the contribution to their results from the Bakken is not as significant, so they also aren’t prone to disclose much, said Warren Henry, vice president of investor relations for Continental Resources.

Two “phenomenal” wells have come on, one of them owned by PetroHunt is producing 1,000 barrels a day. That well has made more than 400,000 barrels and is still doing 1,000 barrels a day. In 2007 Continental completed 27 wells there.

The company has 340,000 net acres strategically located near the Nesson anticline, with significant reserve and production growth potential. North Dakota oil production is the highest in 20 years, Hamm said.

There are a total of 50 industry operated rigs in the area. Continental plans to complete another 20 net wells while testing new potential areas.

Early studies estimate between 200 and 400 billion barrels of oil in place in the Bakken. A new study due by the end of April is expected to show the capacity may be even higher.

The Bakken shale is good because of the way it is formed with a lodgepole formation on top.

Lodgepole is a limestone formation that sits on top of the Bakken upper shale and caps it, so the oil and gas stay in place in the Bakken and below. The Lodgepole is very tight, so oil, can’t migrate through and it stays in the shale, which is where the oil is formed. Given the formation process’s normal expansion, this top-pressure from the Lodgepole causes the shale to fracture and become even more porous, said Henry.

That’s why oil men are successfully locating rich oil deposits right below the Lodgepole, he said.

The Lodgepole is a common geologic feature in the Williston Basin, which stretches down from Canada through the Dakotas, Montana and Wyoming, and the Bakken is one part of the Williston.

Continental is exploring three areas the Upper Bakken, about 20 feet down, Middle Bakken, and Lower Bakken. But because the oil went downward during heating there may also be oil in the sandy area below the formation.

“We won’t recover all of the deposit, but we will probably recover 20 percent, which will be high,” Hamm said speaking for the industry. Normal “primary” recovery with current technology is between 8 percent and 10 percent of deposits. With secondary recovery methods like water flooding and air pressure, they can push another 10 percent to 12 percent of oil in place with injector wells to producer wells, and then recover the extra oil.

Continental Resources used horizontal drilling in many of its productions. In 1983 they drilled a well beneath the City of Enid and have done others since then. In the last 15 years precision horizontal drilling has improved, and Continental is staging in very thin reservoirs. The thin reservoirs can be four to six feet in depth and stretch underground for miles.

Continental’s wells go vertically 10,000 feet, then they drill from the bottom, horizontally, up for about two miles.

The Bakken is a unique shale resource because it is oil. Most shales are natural gas. Hamm particularly likes it economically because of the pricing advantage versus natural gas in the U.S.

Continental is also active in Oklahoma’s Woodford shale deposits, an emerging unconventional natural gas resource play. There are 30 industry-operated rigs in the area which encompasses 45,000 net acres. In 2008 Continental plans a $103 million capital expenditure on 20 net wells and five to six drilling rigs.

The North Dakota Bakken and Oklahoma Woodford potential could double the current Continental Resources oil reserves. The Woodford Shale is about 1,500 square miles. Within the Woodford, the company has leased 45,000 acres and expects to have five to six drilling rigs active in the Woodford this year, and the $103 million capital expenditure will cover 20 net wells.

Continental also is involved with other ongoing and emerging oil plays across the United States. In the Rockies there are 175,000 net undeveloped acres, and another 180,000 undeveloped acres in the mid-continent region, along with 5,000 net undeveloped acres in the gulf coast, Henry said.

They continue to lease a lot of land and become involved in high-impact plays. The 2008 capital expenditure budget for leasing land is $56 million, and is likely to be increased, he said.

One of the positive signs for the company is their cash flow has quadrupled in four years, which is the opposite of finance companies. Their market capital today is $5.6 billion due to market appreciation. The company uses its cash flow stream to fund capital expenditures, which is mainly drilling operations, inserted of borrowing money or selling more stock to fund drilling, Henry said.

Hamm believes with technical breakthroughs they will be able to harvest shale under the United States and may obtain enough supply to lend itself to going to making light diesel from natural gas, which would be good for the country.

There are “huge” supplies of oil and natural gas in shale plays in the U.S., that can now be harvested economically with new technology in horizontal drilling, water flooding, air injection and modern fracturing techniques. If the price of oil continues to increase relative to gas $108 per barrel vs. $9.74 per mcf, and if the company continues to increase the amounts of natural gas taken, at some point it becomes feasible to use all of that natural gas as a feeder stock to new plants that would convert it to liquid fuel, or diesel. (Instead of refining diesel from higher priced oil.) That is being done in the Middle East, where there are huge local supplies of natural gas, more than there is a local market for, Henry said.