06
May

CLR 1Q08 With Wrap Notes and Mini Model

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In A Nutshell. Very Strong Outlook. The stock closed up 16% Monday at $50.97. We hold the common since $14 and June calls which are doing nicely. This note incorporates my pre-call piece from Monday morning before the open as well as some additional notes and a back of the envelope model to gauge the potential impact on the shares which should help answer the question, "have they run too far too fast?" For a look at the initial snapshot I did on them before they went public click here and for a review at the beginning of the year click here

CLR Reports Good 1Q08 Results; Guides Toward High Double Digit Growth By YE 2008

The 1Q08 Numbers: 

  • EPS of $0.53 (ex item) vs $0.49 Street Consensus
  • CFPS of $0.92 vs $0.92                "         "
  • Revenues of $228 million vs $218 million expected
  • Production: 30,237 boepd; flat sequentially and 8% YoY.

Guidance:

  • Capital budget going up $167 million or 27% to $783 million. About $100 million of the increase goes to accelerate the North Dakota Bakken program.
  • 2008 Expected Exit Rate: 43,000 boepd, up 42% from average 1Q08 production.  

Red River Units - Southern North Dakota - the company's corner stone play

  • 13,620 bopd, down 3% sequentially from 14,086 boepd in the fourth quarter -  the dip in sequential production was due to conversion of more formally producing wells to injector status.
  • this gets part of the capex boost,
  • 4 rigs vs prior plans of 5 to 6 for 2008.
  • Production is now expected to peak at 21,000 bopd in mid 2009, up from a YE2007 projection of 19,000 bopd in 2009.

Bakken Oil Shale Update: 487,000 net acres - now largest leaseholder and producer. Moving rig count up to 10-12 later this month and will add a 13th rig in the 3Q, up from 6 -8 rigs planned as of the last quarterly report.

  • Montana: (under development) - 
    • Production of 6,678 vs 7,244 net boepd in 4Q07,
    • still at 2 -3 rigs for 2008
  • North Dakota: (emerging potential)
    • Production of 1,532 boepd vs 1,382 boepd in 4Q07, (expect that to be coming up quickly as rigs are redeployed (10 of the eventual 13 will be in the ND Bakken)).
    • Getting $100 million additional dollar this year.
  • Recent IP's in the 400 to 700 bopd on 7 day tests. This takes you to an EUR of 400 to 735,000 barrels vs the 335,000 boe seen before. They are affecting more rock with the frac, think will see same decline as the earlier wells. Costs a little more: $5.2 mm/ Well, due to the longer 4-6 day frac, in winter takes longer with the fresh water used. These are great economics.
  • Rocket Prospect: 1,000 IP in first well; used a different completion technique (plug and packer multi-stage fracs). Finished 5 wells (2 with sleeves, 3 with perf and plug method which gives better completion).

  • Three Forks Sanish (TFS) lies below the lower Bakken Shale - good shows in the first well and it is being fracced today. Now they have reason to think the Three Forks Sanish (TFS) zone (immediately below the lower Bakken) is not in communication with the L. Bakken ... they think they are separate reservoirs. It does not take a lot of capital to take it down to the TFS. Trying to frac it and Bakken (from below) with single laterals with multi-stage fracs (every completion going forward will use the method used at Rocket) - 

 

Trenton / Black River Area - Michigan

  • first 3 wells drilled here are producing 650 bopd gross combined, plan to drill 8 more this year

Woodford Shale - (emerging potential) - 45,000 net acres

  • Testing simul fracs: first simul frac of 4 - 640 acre spaced horizontal wells resulted in an average IP of 3.8 MMcfepd. Laterals 3,500 to 4,500', 5-7 frac stages each. Will do a 2 well simul frac this summer but so far they are pretty encouraged by the results.
  • 4 rigs running now, increasing to 6 by July
  • Drilling days decreased 23% due to efficiencies.
  • They're in a 40 acre pilot with (NFX) and the results are similar to what (CLR) has seen in their most recent 160 acre test. Could open up quite a few more drilling locations for them.

Other emerging plays of interest and comments: - they allocated $27 million of the expanded budget to acquire acreage in the Haynesville, Marceullus , Huron shale plays.


Woodford/Atoka Texas Panhandle - 64,000 total acres / 29,000 net acres in the fairway, drilling 1 st well this month. These were $4.6mm apiece. Total locations: on 80 acre spacing: 560 locations. This is where EOG just hit some 7 mm/d and has drilled 17 wells. It's early as they have not yet completed their first well but this region could prove to be quickly and cheaply additive to numbers.

West Texas Barnett - "may have Pinon opportunities". Ask Sandrigde about Pinon...that's a bold statement.

Haynesville Shale Watch: CLR saying they see the Haynesville as having big potential. Further confirmation CHK, HK, PQ, GDP etc. They have "heard rates over 7 mm/d in the handful of wells", this is “intelligence they’ve gained, not official results” Some of these are certainly CHK wells.

Mini-Model: Just to give an idea of the leverage involved when talking about that 43,000 BOEpd exit, I've taken a quick and dirty look at the 1Q model and extrapolated over to full 2009 results. I do this to get an idea of where the Street might be taking its numbers. It looks highly likely they could add about a buck to 2009 CFPS estimates. The assumptions are arguably fairly conservative with the price deck coming from current Street consensus and little improvements assumed from current levels of 2008 model guidance on a $/BOE basis (given on the 3Q press release). The production number assumes they generate mid teens growth from the 2008 exit which appears doable given the expected backend loaded nature of the 2008 production profile as North Dakota Bakken comes to the forefront and Red River Units achieve their peak mid 2009.  

Valuation: Given CLR's growth profile it can easily support a 10x multiple of 2009 CFPS which would roughly put the stock at $60.

clr-1q08-to-2009-modelaaa.jpg

 

 

9 Responses to “CLR 1Q08 With Wrap Notes and Mini Model”

  1. 1
    reefguy Says:

    CLR-Grand Slam! Can they meet or exceed their 2008 exit guidance of production up 42%? That is an immpressive move on the organic oily front. Is they Trenton/Black River horizontal play?

  2. 2
    Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Tuesday – Still More Earnings Says:

    […] CLR 1Q08 With Wrap Notes and Mini Model […]

  3. 3
    Garyinhou Says:

    Thanks ZMan

  4. 4
    Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Wednesday Is Oil Inventory Day And A Rare Free Post! Says:

    […] Play, North Dakota. Yes, they are here too as described in my note here from May 5 but so far the stock has not yet yielded itself to Bakken Mania. They are drilling their third […]

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