Continental Resources' total production grew 18 percent in the second quarter of 2009, compared with the second quarter last year. In addition, the Company reported the successful completion of the Mathistad 2-35H, a "companion well" designed to test its theory that the Middle Bakken and Three Forks/Sanish zones act as separate reservoirs in portions of the North Dakota Bakken shale play.
"Technical data from the Mathistad 2-35H supports our belief that the Middle Bakken and Three Forks/Sanish reservoirs are separate in this area of the play," said Harold Hamm, Chairman and Chief Executive Officer. "The Mathistad 2-35H tested at a seven-day initial production rate of 995 Boepd. This is the highest initial rate that we've recorded from our Middle Bakken completions in North Dakota, and this high initial productivity indicates that we tapped into new, undrained reservoir rock with the companion well."
For the second quarter of 2009, Continental reported net income of $13.5 million, or $0.08 per diluted share, compared with net income of $127.3 million, or $0.75 per diluted share, for the second quarter of 2008.
Net income for the second quarter of 2009 included a pre-tax property impairment charge of $23.3 million and mark-to-market gains on natural gas fixed price and basis swaps of $890,000. Apart from these non-cash items, Continental's net income was $27.1 million, or $0.16 per diluted share, for the second quarter of 2009. The impairment charge included $13.2 million for impairment of non-producing properties and $10.1 million for impairment of developed oil and gas properties. In the second quarter of 2008, the Company recorded a $3.2 million pre-tax property impairment charge.
Average daily production was 37,347 Boepd (barrels of oil equivalent per day) for the second quarter of 2009, 18 percent higher than production of 31,623 Boepd in the second quarter of 2008.
Continental's second quarter 2009 results reflected a significant year-over-year decline in crude oil and natural gas prices. The Company's average realized sales price per barrel of oil equivalent was $43.52 for the second quarter of 2009, a decline of 58 percent from the average sales price of $102.86 per Boe for the second quarter of 2008. The average realized price for crude oil was $53.44 per barrel in the second quarter of 2009, while the average natural gas price was $2.60 per Mcf. Average prices were $118.28 per barrel and $8.82 per Mcf in the second quarter last year. Crude oil accounted for 74 percent of Continental's second quarter 2009 total production.
Crude oil price differentials averaged $6.02 per barrel for the second quarter of 2009, compared with $8.32 in the first quarter of 2009 and $5.75 for the second quarter of 2008.
Total oil and natural gas sales were $146.4 million for the second quarter of 2009, compared with $297.6 million for the second quarter of 2008. Production exceeded sales in the second quarter due to the Company placing an additional 35 MBbls of crude oil in storage. As of June 30, 2009, the Company had 669 MBbls of crude oil in storage and pipeline-required line fill.
EBITDAX was $106.3 million for the second quarter of 2009, compared with $245.0 million for the second quarter last year.
At June 30, 2009, the Company's balance sheet included $5.1 million in cash and $592.0 million in long-term debt. As of August 6, 2009, $572 million was drawn against its revolving credit facility, leaving available borrowing capacity at $178 million, based on commitments of $750 million.
"We are pleased with our production growth year-over-year and the continued reduction in drilling and completion costs in the second quarter of 2009," Mr. Hamm said. "Production expense also declined to $7.14 per Boe in the quarter, compared with $9.32 in the second quarter last year. General and administrative expense per Boe also declined, to $2.78 from $3.55 in the second quarter last year.
"We're also drilling much more efficiently in North Dakota, with spud-to-rig-release down 40 percent from an average of 45 days in 2008 to an average of 28 days in the first half of 2009. We drilled our latest well to total depth of 20,904 feet in 16 days," he said.
Mathistad 2-35H Test
"We are proud of our operating and financial achievements, but clearly the most significant milestone in the quarter was our successful Mathistad 2-35H test," Mr. Hamm said. Continental issued a separate press release today with additional detail on the Mathistad 2-35H. The companion well was drilled horizontally in the Middle Bakken (MB) zone approximately 50 feet above the horizontal of the Mathistad 1-35H.
The Mathistad 1-35H was completed as a producing Three Forks/Sanish (TFS) well in June 2008. By the time Continental started drilling the Mathistad 2-35H, the Mathistad 1-35H had produced 103,000 Boe and was pumping 187 Boepd. In contrast, the Mathistad 2-35H flowed at 995 Boepd during its initial test period, more than four times the rate at which the first well had been performing on pump.
"This significant production difference is the strongest evidence that we stimulated new rock with the second well completion," Mr. Hamm said. "From a technical point of view, that is the only plausible explanation for this level of initial productivity."
He noted that additional drilling will be required to establish the extent to which the reservoirs are separate across the play. "We are very encouraged by these early steps in delineating the Bakken shale play, especially with regard to developing the Middle Bakken and the Three Forks/Sanish reservoirs separately. Based on the results of the Mathistad 2-35H, we believe the reserve potential of the Bakken play just went up."
The Company estimates that approximately half of its 439,000 net acres in North Dakota have the potential for the Middle Bakken and Three Forks/Sanish to produce independently. Continental controls a total of 605,000 net acres in the Bakken play in North Dakota and Montana.
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