Continental Resources An Oil 'Beta' Play; Credit Suisse Initiates Buy

Shares of Continental Resources, Inc. CLR have gained 88 percent year-to-date. Credit Suisse’s Edward Westlake initiated coverage of the company with a Neutral rating and a price target of $43. The analyst commented that in case everything goes by plan, the oil market should rebalance over the next 18 months, and the company has high leverage to this market.

High-Margin Oil Production

“With cost reductions and high-grading, CLR can keep its ~205-215 kbd production base flat with oil at $37/bbl. Given the oily production base, each $5/bbl would add $150- $200m of cash flow for redeployment into growth barrels. CLR's large acreage positions in the Bakken, STACK and SCOOP offer captured resource development opportunities as commodity prices increase,” analyst Edward Westlake wrote.

The STACK has been among the best improvers among shale, with higher oil cuts, flow rates and encouraging spacing tests. Continental Resources also has low breakeven inventory in the Springer and core Bakken. In case there’s a recovery in gas prices, the gassier parts of Oklahoma would also compete, Westlake pointed out.

The shares have jumped more than 100 percent from their lows and the stock appears fully valued. Moreover, the company needs to improve its balance sheet gearing. The analyst added, however, that Continental Resources “has demonstrated strong operational credentials in shale and offers investors oil beta given the relatively high share of oil in production (66%).”