Continental Resources: Disappointing Results, But Company Returning To Normal (NYSE:CLR)


On Monday, August 3, 2020, independent exploration & production company Continental Resources, Inc. (CLR) announced its second quarter 2020 earnings results. Admittedly, nobody expected these results to be good but these were especially disappointing and the market sent the stock plunging 3.3% in the after-hours session, although it has since rebounded somewhat. With that said, Continental Resources is one of the most well-managed independent oil and gas producers in the nation and it is likely that the worst is now behind it, barring another wave of mass economic shutdowns. The company certainly appears able to weather through the situation, as I discussed in a past article, which is something that any investor should appreciate.

As my long-time readers are no doubt well aware, it is my usual practice to share the highlights from a company’s earnings report before delving into an analysis of its results. This is because these highlights provide a background for the remainder of the article as well as serve as a framework for the resultant analysis. Therefore, here are the highlights from Continental Resources’ second quarter 2020 earnings report:

  • Continental Resources brought in total revenues of $175.659 million in the second quarter of 2020. This represents an 85.46% decline over the $1.208382 billion that the company brought in during the prior year quarter.
  • The company reported an operating loss of $296.776 million in the most recent quarter. This compares very unfavorably to the $379.847 million operating profit that the company had in the year-ago quarter.
  • Continental Resources produced an average of 202,815 barrels of oil equivalents per day in the current quarter. This represents a fairly steep decline over the 331,414 barrels of oil equivalents per day that the company averaged last year.
  • The company reduced its well drilling costs by 12% in the Bakken and by 10% in Oklahoma.
  • Continental Resources reported a net loss of $242.131 million in the second quarter of 2020. This represents a 2.40% decline over the $236.450 million net profit that the company reported in the second quarter of 2019.

As everyone reading this is no doubt well aware, the most significant event in the second quarter was the outbreak of the COVID-19 pandemic and the resulting global economic shutdown. This quarter saw nations around the world shutdown their economies and essentially quarantine their citizens in an effort to slow the spread of the disease. As this event curtailed travel along with much economic activity, it naturally reduced the demand for oil and gas. The law of supply and demand would imply that this would reduce the price of oil, at least until producers reduced the production of energy resources into line with the new demand level. This did in fact happen. As we can see here, the price of West Texas Intermediate crude oil fell from $61.18 per barrel at the start of the year to $42.32 per barrel today:

Source: Business Insider

This understandably had a negative impact on Continental Resources’ latest results. In the quarter, the company reported a net sales price of $7.88 per barrel of oil equivalent compared to $36.03 in the prior year quarter. It should be fairly obvious why this would have a negative impact on the company’s financial performance. After all, if it received a lower price for each unit of oil and gas that it sold then it generated less revenues overall all else being equal. This means that there was less money available to cover the company’s costs and thus make its down to cash flows and profits.

All else is rarely equal with energy companies and with any other company. As noted in the highlights, Continental Resources saw its production decline significantly compared to the year-ago quarter. This is a direct result of the production cuts that the company implemented back in May and June in order to control its costs in the face of an oversupplied oil market and thus to preserve its balance sheet. It should be obvious why this would also have the effect of weakening the company’s income statement. This is because the company had fewer products to sell and generate revenues off of. In the second quarter of 2020, Continental Resources sold a total of 18.065 million barrels of oil equivalents compared to 30.091 million barrels of oil equivalents in the year-ago quarter. Thus both lower oil prices and lower production dragged down Continental Resources’ financial performance.

In my last article on Continental Resources (linked above), I showed that Continental Resources has the lowest costs of production of any of its peers:

Source: Continental Resources

The company is certainly not resting on its laurels however. As noted in the highlights, the company managed to decrease its drill costs by 12% in the Bakken shale compared to the prior year quarter. As the majority of the company’s production is in the Bakken shale, this would increase the margins on the lion’s share of Continental Resources’ production:

Source: Continental Resources

The company has not limited its efficiency improvements to the Bakken shale. It has also managed to reduce its costs in Oklahoma, although not to the same degree. In the second quarter, the company’s well costs were down by about 10% compared to the year-ago quarter.

Source: Continental Resources

It is always a nice thing to see a company actively reducing its costs but it perhaps most important in the current market. This is because the lower a company’s costs, the more money is available to move from revenues to cash flows. This is something that is of vital importance when energy prices are suppressed. As I discussed in a previous article, North American shale plays are among the most expensive areas for an energy company to operate, which is largely due to relatively high decline rates. As a result of the high decline rate, an energy company will need to keep drilling new wells in order to maintain, let alone grow, its production. The cheaper it is to drill a new well, the more easy it is for the company to make a profit.

Fortunately, it appears that the worst is likely behind the company. As we can see in the chart above, oil prices have improved somewhat from their lows during the shutdown, although they are still quite a bit lower than the levels set at the start of the year. Thus, barring another shutdown or some other event that causes prices to plummet, it is likely that Continental Resources will realize higher prices for its production this quarter than it received in the second quarter. This should help boost the company’s revenue over the remainder of year. In addition to this, Continental Resources has announced that it is undoing some of the already-discussed production cuts. The company’s cuts in May and June were 70% of its previous level but in July it said that it will reverse some of these cuts but still will keep about 50% of the cuts in place. In June, Continental Resources produced an average of 150,000 to 160,000 BOE/day, which it increased to 225,000 to 250,000 BOE per day in July. The company announced that it will continue to reverse these productions cuts further on August 4. As the company continues to undo its production cuts, it will provide Continental Resources with more resources to sell, reversing them will undo some of the revenue decline that Continental Resources suffered due to these production declines in the second quarter.

One thing that I have always appreciated about Continental Resources is the company’s relatively low level of debt. As of June 30, 2020, Continental Resources had $5.736104 billion in net debt compared to $6.196144 billion in shareholders’ equity. This gives the company a net debt-to-equity ratio of 0.93. This compares reasonably to its peers, as shown here:

Company Net Debt-to-Equity
Continental Resources 0.93
QEP Resources (QEP) 0.65
Northern Oil and Gas (NOG) 1.02
Whiting Petroleum 7.24

We generally do not like to see a high level of debt in an independent shale company. This is because of the difficulty that many shale companies have in turning a profit. As we can see, an index of 61 independent shale companies has delivered weak or negative cash flows for more than ten years:

Source: Rystad Energy, Clarksons Platou, Transocean (RIG)

This scenario has resulted in these companies issuing copious amounts of debt in order to maintain their operations due to the lack of cash flow. I have predicted in the past that this could lead to bankruptcies across the sector to low energy prices. We have in fact already started to see this with companies like Chesapeake Energy (OTCPK:CHKAQ). Companies that have strong balance sheets and are well-financed are less likely to have this problem so it is certainly nice to see that Continental Resources fits into this category.

The company’s management released an updated guidance with its results, which certainly makes sense given today’s macroeconomic environment. This outlook suggests that the company will generate $200 million in 2020 and $500 million in free cash flow during the second half of the year. The company intends to use this money to reduce its net debt:

Source: Continental Resources

The company’s ability to do this naturally will be influenced by energy prices. The management’s outlook depends on West Texas Intermediate selling at an average price of $50 per barrel this year. If the price remains around its current levels, the company’s free cash flow will be considerably lower. Admittedly, I am not as sure that we will get the rebound in energy prices that Continental Resources expects. The novel coronavirus continues to spread widely among the population and is likely causing people to remain hesitant to travel or otherwise return to their normal activities. This will likely weigh on the demand for crude oil and by extension the price of it.

In conclusion, Continental Resources is reasonably well-positioned among its peers, although this quarter’s performance was certainly disappointing. Fortunately, now that energy prices have come up somewhat and Continental Resources has begun to restart its shuttered production, it appears that the company will see its performance improve over the second half of the year.

At Energy Profits in Dividends, we seek to generate a 7%+ income yield by investing in a portfolio of energy stocks while minimizing our risk of principal loss. By subscribing, you will get access to our best ideas earlier than they are released to the general public (and many of them are not released at all) as well as far more in-depth research than we make available to everybody. We are currently offering a two-week free trial for the service, so check us out!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.





Original source link

Here’s how — and when — the major U.S. sports leagues are returning during the pandemic


There won’t be any fans in attendance, but Major League Baseball will begin its regular season on July 23.

While many European and Asian countries have found ways to reduce the number of coronavirus cases and deaths, cases in the U.S. continue to soar in many states. Despite the rising case numbers, most major U.S. sports leagues are planning to start playing games soon.

But many top athletes are concerned that the conditions won’t be safe enough during the pandemic. Several high profile MLB and NBA players have decided to sit this season out. And over the weekend, many of the NFL’s top players took to Twitter
TWTR,
-0.95%

to ask the NFL to clarify how it will keep players safe.

Seattle Seahawks quarterback Russell Wilson said, “I am concerned. My wife is pregnant.

And Patrick Mahomes, who recently became the highest-paid player in any U.S. sport, said, “Getting ready to report this week hoping the NFL will come to agreement with the safe and right protocols so we can feel protected playing the sport we love.”

Most leagues have said fans will not be present at upcoming competitions, but some have left the door open for fan attendance.

Here’s how each league is approaching the resumption of play during the COVID-19 pandemic:

MLB

Return date: July 23

After months of labor disputes between team owners and the players association, Major League Baseball is set to play a 60-game regular season — rather than its usual 162 game schedule — and then a normal playoffs schedule.

Players are tested for the coronavirus every other day.

“The MLB protocol emphasizes contact tracing and rapid testing, two elements of the kind of robust response to the virus that the federal government largely has failed to deliver,” according to the Los Angeles Times.

Teams will not play games against other teams outside their geographical regions. Teams in the eastern time zone will play other teams in the east, for example. Fans will not be permitted to attend games, at least in the beginning of the regular season.

In lieu of this, several teams, including the Giants, Dodgers and Mets, are allowing fans to pay to have a cardboard cutout of themselves in the stands during home games. Rates for the cutouts have reached up to $299 for an undetermined amount of games.

Stadiums will also be playing virtual crowd noises during games — the nearly 75 sound effects will be audio taken from the popular “MLB The Show” video game.

The league has put in place safety guidelines like maintaining social distancing within dugouts, and outlawing spitting of sunflower seeds, gum or peanuts.

One late-breaking development is that the Canadian government won’t let the Blue Jays play in Toronto because the team might bring COVID-19 back from the U.S. The Associated Press reported on July 21 that the team will play its home games at PNC Park in Pittsburgh, if the state of Pennsylvania approves.

NBA

Return date: July 30

The NBA is set to resume its season with 22 teams at the Wide World of Sports campus in Disney World. The league has constructed a complex bubble where players, team staff, league personnel, etc, will remain for the duration of the season, which could extend as late as October 13.

Players are being tested every other day, according to an NBA’s Health and Safety document. Reports from the NBA bubble say the league is able to provide test results in just 12 to 15 hours, a stark contrast to how long others in the U.S. have waited for results.

One promising sign: In the latest round of testing, no NBA players tested positive for coronavirus out of 346 tested.

The league is scheduled to begin games on July 30, with an eight-game regular season before the postseason begins. Games will be televised as normal, and played in Disney
DIS,
-0.17%

with no fans in attendance. ESPN has reported that the bubble construction will cost the NBA more than $150 million.

The NBA suspended its regular season on March 11 after Jazz center Rudy Gobert tested positive for COVID-19.

NFL

Return date: Sept. 10

The National Football League has benefited from the timing of the coronavirus pandemic, since it started during the league’s off-season. As of today, the NFL is planning to play its full 2020-21 season, starting with a game between the Super Bowl champion Kansas City Chiefs and the Houston Texans on Sept. 10.

NFL teams will travel to stadiums for their games. Dr. Allen Sills, chief medical officer of the NFL, has stated, “We do not feel it’s practical or appropriate to construct a bubble. Anyone who tests positive will be isolated until medically appropriate to return.”

The NFL and the NFL Players Association are requiring daily COVID-19 testing for the first two weeks of training camp, but may scale down testing thereafter if certain test rate benchmarks are hit, according to ESPN.

After two weeks, if the positive test rate is below 5%, the league would scale back to testing every other day. If the positive test rate is not below 5%, they will continue with daily testing until such time as it falls below that number. If the positivity rate hits 5% or higher at any point, they go back to daily testing until it comes down again. NFL training camps open over the next few weeks, depending on the team.

See also: Can the federal government stop the NFL from playing this year?

Oakley, an NFL sponsor and a unit of the Italian conglomerate Luxottica Group SpA, whose parent is EssilorLuxottica
EL,
-2.20%

has designed a “Mouth Shield” product that can be worn by NFL players to mitigate the spread of the coronavirus on the field of play.

The NFL has not given updates on whether there will be full-capacity crowds at stadiums this season. There have been reports that the league will move forward with fans (who may have to sign a liability waiver), but many teams are at the mercy of local government regulations.

The NFL has offered to cancel the entire preseason as the league and the players union move toward safety guidelines for the 2020 NFL season, according to ESPN’s Adam Schefter. In the proposal, the regular season would begin as scheduled, without any exhibition games played first.

NHL

Return date: August 1

The National Hockey League is set to begin its season resumption on Saturday August 1 with a modified postseason format. The 24-team format will feature several playoff rounds, capped by the Stanley Cup — no regular season games will be played.

Edmonton and Toronto will be the “hub cities” where the season restart will take place. Western Conference games will resume at Rogers Place in Edmonton and Eastern Conference games will be played at Scotiabank Place in Toronto.

See also: Two ways Washington dropping the ‘Redskins’ nickname could make the team money

Similar to the NBA, the NHL is calling both locations “bubbles” and has many similar rules like daily testing and mask wearing at all times (excluding exercise).

The league announced that only two positive coronavirus tests since camps opened on July 13. Return timelines for those with positives tests are being evaluated on a case by case basis.

The NHL suspended its season on March 12, a day after the NBA suspended its season.

MLS

Return date: July 8, with setbacks

Major League Soccer suspended its season March 12 due to the coronavirus pandemic.

The League has resumed with a postseason-only “MLS is Back” tournament at the ESPN Wide World of Sports Complex at the Walt Disney World Resort. All 26 teams are participating, and players are being tested every other day for the first two weeks, then less frequently after that, according to ESPN.

Games have been going on since July 8, but there have been many setbacks. FC Dallas has been forced to leave the MLS bubble due to a high volume of positive coronavirus tests.

Tennis’ ATP and WTA Tours

Return date: Some exhibition tournaments were played in June, and the first Grand Slam scheduled to be played during the pandemic is the US Open on Aug. 31.

Since the pandemic began, Wimbledon has been canceled and the French Open has been rescheduled, to now begin on Sept. 27 instead of its usual late May start. The US Open still plans to start at its planned date, Aug. 31 — with no fans in attendance.

In the absence of professional tournaments, some pros put together exhibition matches in June. The No. 1 player in the world, Novak Djokovic, put a tournament of exhibition matches on in Serbia and Croatia and it did not go well. Djokovic, his wife, and multiple other players in the tournament all tested positive for the coronavirus before the matches were completed.

Some of the top women played an exhibition match in Charleston, S.C., and it went better: none of the players got the coronavirus.

On July 17 it was announced that an annual professional tournament in Washington, D.C.— the Citi Open — had been canceled and on July 21 it was announced that a new WTA tournament would start on Aug. 10. Serena and Venus Williams, as well as several other high profile players will participate.

Some changes that tournaments are employing to help minimize the transmission of the coronavirus: fewer ball people and more electronic line-calling.

World TeamTennis is currently playing matches, and on July 21, the American player Danielle Collins was dismissed from the league for breaking its rules: She left West Virginia’s Greenbrier Resort during a three-week period when no players were allowed to leave the premises.





Original source link

Goldman Sachs employees to start returning to U.S. offices from June 22 By Reuters


© Reuters. FILE PHOTO: The Goldman Sachs company logo is seen in the company’s space on the floor of the NYSE in New York

(Reuters) – Goldman Sachs Group Inc (N:) said on Wednesday it plans to start the return of an initial group of its employees to its offices in New York, Jersey City, Dallas and Salt Lake City from June 22.

The Wall Street bank also announced the return of more employees to its London office from June 15 and added that it was expecting to review the process of employees returning to its Bengaluru office towards the end of June. (https://

Working from home was made mandatory across many Wall Street firms in March as financial firms reported their first confirmed cases of coronavirus and the outbreak triggered a state of emergency in New York City.

In March, Goldman Sachs told its employees that most staff across North America and Europe would start working from home or at one of the bank’s business continuity centers on a rotating schedule.

Chief Executive David Solomon told employees last month about the bank’s strategy to gradually return staff to work in offices worldwide.

Morgan Stanley (N:), another Wall street bank, last month announced plans to start getting some traders to return to its New York headquarters in mid-to late-June.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





Original source link

Asian Stocks Up After China’s Economy Returning to Expansion By Investing.com


© Reuters.

By Gina Lee

Investing.com – Asian stocks were up on Monday morning with China releasing data indicating that its economy moved from contraction into expansion in May.

China’s National Bureau of Statics reported an ’s Index of 50.6 on Sunday, above the 50-level indicating an expansion.

The for May corroborated the expansion, with a reading of 50.7.

China’s was up 1.65% by 10:57 PM ET (3:57 AM GMT). The gained 2.42%.

Meanwhile, Hong Kong’s jumped 3.38%, even as investors digested U.S. Donald Trump’s response on Friday to China’s approval of national security laws for the city the day before.

Trump did not provide specific measures in the response, and some investors remained hopeful that the tensions between the two countries would have minimal impact.

“The impact is likely to be limited and more symbolic while the financial sector is unlikely to be affected. We are not too surprised by the move and don’t expect the Hong Kong financial markets to be either,” Sean Darby, Jefferies (NYSE:) global equity strategist, said in a research note.

But other investors were concerned that the rising tensions could have larger and more adverse consequences.

“Admittedly, Trump’s presser on action against China for implementing the Hong Kong Security Bill, which the White House has alleged strips Hong Kong of any autonomy, proved to be more bark than bite. With specific and verifiable measures against China appearing to be weak, markets may draw hollow consolation that the U.S. is treading carefully; especially given risks of unintended economic consequences of far more damage being caused to Hong Kong and non-negligible harm to US economic interests,” Vishnu Varathan, Miuzho Bank’s head of economics and strategy, said in a note.

Japan’s rose 1.17%. South Korea’s was up 1.45%, even with the country reporting that fell 23.7% year-on-year.

The rose a modest 0.93%. Reserve Bank of Australia Governor Philip Lowe is expected to announce that both the cash rate and three-year bond yield target will remain unchanged at 0.25% on Tuesday, with investors also looking to economic data to be released a day later to show whether the country is on the way to recovery from the economic impacts of COVID-19.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





Original source link

These public companies are returning emergency loans meant for small businesses


The Treasury Department says Paycheck Protection Program loans are not meant for “a public company with substantial market value and access to capital markets.”

It has given big borrowers a May 7 deadline to give back the forgivable loans, which in large part were intended for small businesses hurt by the coronavirus crisis.

So how are the returns going?

At least 24 public companies have returned PPP loans worth about $235 million as of Wednesday afternoon.

That likely amounts to less than 10% of the publicly traded companies that borrowed through the PPP, as analytics firm FactSquared has estimated that 270 public companies in total received $968 million in loans.

FactSquared has 22 public companies giving back $154 million in loans as of Wednesday, but its tally — shown in the graphic below — doesn’t include giant car seller AutoNation Inc.
US:AN
, which last week said it was returning $77 million in PPP loans, and metalworking company DMC Global Inc.
US:BOOM
, which last week said it had paid back a $6.7 million PPP loan.

These publicly traded companies have returned Paycheck Protection Program loans.


FactSquared

Among the companies shown in the graphic that have made returns are restaurant operators Shake Shack Inc.
US:SHAK
, Ruth’s Hospitality Group Inc.
US:RUTH
and Potbelly Corp.
US:PBPB
.

Many of the publicly traded companies that received PPP loans rank as micro- or small-cap stocks, so they don’t necessarily fit the bill when it comes to the Treasury Department’s targeting of borrowers with “substantial market value and access to capital markets.”

For example, cruise operator Lindblad Expeditions Holdings Inc.
US:LIND
, which has a market cap of about $300 million, said it doesn’t have ready access to capital and plans to keep its $6.6 million loan, according to a Wall Street Journal report.

The public companies that haven’t returned PPP loans also include three hotel companies tied to Dallas businessman Monty Bennett that have applied for $126 million in total — Ashford Inc.
US:AINC
, Ashford Hospitality Trust Inc.
US:AHT
and Braemar Hotels & Resorts Inc.
US:BHR
, which recently were showing a combined market cap that had fallen below $300 million.

“We plan to keep all funds received under the PPP, which were provided as a result of the application process and other specific requirements established for our industry by Congress,” the three hotel companies said in a four-page statement.

“Although our companies are publicly listed, they do not have access to this volume of emergency funding from the capital markets that we believe we need during this crisis due to their relatively small market capitalizations,” the statement also said.

Read more:Here’s why hotel and restaurant chains got the coronavirus aid for small businesses

A backlash over large companies obtaining PPP loans while many small businesses experienced delays also has prompted returns by privately held companies, including the Los Angeles Lakers, restaurant chain Sweetgreen and media outlet Axios.

The PPP quickly ran through the $350 billion that it received initially through last month’s $2.2 trillion Cares Act, and then last week got an additional $320 billion as President Donald Trump signed into law the $484 billion Paycheck Protection Program and Health Care Enhancement Act.

Related:Here are the public companies that got coronavirus aid meant for small businesses

And see:Pelosi suggests banks making PPP loans shouldn’t get paid more for serving bigger companies

“So far, PPP hasn’t gone smoothly,” said Capital Alpha Partners analyst Ian Katz in a note.

“It does indeed seem unfair that a company large enough to trade on a stock exchange, or an individual with enough money to have a designated concierge at a major bank, should be able to cut in line in front of mom-and-pops,” Katz also said. “We get that. But what’s not getting adequate discussion is the economic objective, which is getting people back to work.”

Now read:Emergency loans for small businesses ‘flowed to areas less hard hit’ by coronavirus, study finds



Original source link