Continental Resources issues new equity, further accelerates 2011 production growth

By Oil & Gas Financial Journal staff

Continental Resources Inc. (NYSE: CLR) has set a new capital expenditures budget for 2011 heavily weighted with Bakken Shale plans, altered its guidance, and launched a public offering.

The company recently raised its 2011 capex budget from $1.36 billion to $1.75 billion, an increase of 28.7%. The increase is due to an accelerated drilling program in the Anadarko Woodford, but mostly allocated to the Bakken Shale

Continental, the largest leaseholder in the Bakken with roughly 865,000 net acres, is also the most active driller with 22 operating rigs drilling. Before the recent budget increase, the company had plans to spend roughly $955 million ($845 million for drilling) on the shale play in 2011.

At the recent winter NAPE conference Feb. 16, Jack Stark, senior vice president of exploration at Continental credited technology advancements with the dramatic increases in estimated recoverable reserves in the Bakken.

Continental has also increased its 2011 production range and issed a 10 million share public offering. 

Production levels have been increased from 2010 levels of 30% to a new range of between 35%-37%.

The public offering includes 9.17 million new shares and 0.83 million shares from shareholders. Underwriters will receive a 1.5 million share option to cover any share over-allotment.

Net proceeds from the offering not used in the capex budget will go towards repayment of Continental’s $750 million revolving credit facility outstanding.

A March 2 research note from Stifel, Nicolaus & Co. Inc. commented on Continental’s equity raise and drilling program acceleration plans. “We believe that yesterday’s announced equity raise and further acceleration of its drilling program will likely lead to a pullback in the name as dilution from the issuance of roughly 6% of the outstanding share base are offset by higher production/lower costs. Recently, the market has reacted negatively to operators that have raised equity or incurred debt to accelerate production and we believe yesterday’s announcement will be no different; nonetheless a pullback could lead to a more attractive entry point into the name.”

Prior to the capital raise, Stifel projected an $815 million cash flow shortfall for the company next year, but sees the share offering as a way to partially fill that gap. Assuming $732 million in proceeds and $95 million credit facility repayment, only $636 million of Stifel’s projected cash flow shortfall for the company would remain, while leaving an untapped revolver. 

BofA Merrill Lynch and J.P. Morgan are acting as joint book-running managers for the offering.

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