Continental Resources, Inc. reported strong growth in crude oil and natural gas production and strong year-over-year EBITDAX growth for the three months ended September 30, 2010.

Production was 44,775 barrels of oil equivalent per day (Boepd) for the third quarter of 2010, a 20 percent increase over production of 37,384 Boepd for the third quarter of 2009 and seven percent higher than daily production for the second quarter of 2010. Crude oil accounted for 75 percent of third quarter 2010 production.

Continental's production increased to 47,336 Boepd in September 2010, the final month in the third quarter.

Continental reported net income of $39.1 million, or $0.23 per diluted share, for the third quarter of 2010. Net income included a pre-tax property impairment charge of $14.7 million and a $24.2 million loss on mark-to-market derivative instruments. The loss on derivative instruments was comprised of a $36.6 million unrealized loss, offset partially by a $12.4 million realized gain. The third quarter 2010 impairment charge and $36.6 million unrealized loss together reduced net income per share by $0.19.

Net income for the third quarter of 2009 was $34.9 million, or $0.21 per diluted share. Net income for the third quarter of 2009 included an impairments charge of $11.8 million and a $2.1 million unrealized loss on mark-to-market derivative instruments.

Oil and natural gas sales were $238.8 million for the third quarter of 2010, compared with $168.4 million for the same period last year.

Continental reported EBITDAX of $196.9 million for the third quarter of 2010, a 53 percent increase over EBITDAX of $128.7 million for the third quarter of 2009. For the Company's definition and reconciliation of EBITDAX to net income, see "Non-GAAP Financial Measures" at the end of this press release.

"Strong production growth has us firmly on track for a solid 2010 and an even stronger year in 2011," said Harold Hamm, Chairman and Chief Executive Officer. "Our teams continue to operate at a very high level, and we have the liquids-rich inventory in hand to support years of continued growth."

Continental's average realized crude oil price was $67.26 per barrel in the third quarter of 2010, while the average realized natural gas price was $4.28 per Mcf, yielding a blended realized price of $56.92 per Boe. In the third quarter of 2009, the Company reported a blended price of $48.19 per Boe.

The Company's crude oil price differential for the third quarter of 2010 averaged $8.93 per barrel. The Company's natural gas differential was $0.08 per Mcf for the third quarter of 2010.

Production expense was $5.92 per Boe for the third quarter of 2010, compared with $6.50 per Boe for the third quarter of 2009.

General and administrative expense was $2.90 per Boe, compared with $2.88 per Boe for the third quarter of 2009. These included non-cash equity compensation of $0.63 per Boe for the third quarter of 2010 and $0.92 per Boe for the third quarter of 2009.

At September 30, 2010, the Company's balance sheet included $149.5 million in cash and $895.9 million in long-term debt. At the end of the third quarter of 2010, the Company had no borrowings under its revolving credit facility.

Review of Operations

Bakken Shale Play (North Dakota and Montana) Continental's Bakken Shale production of 20,160 Boepd represented 45 percent of the Company's total production for the third quarter of 2010, compared with 36 percent in the third quarter last year. Bakken production for the third quarter of 2010 was 50 percent higher than that for the third quarter of 2009.

In the North Dakota Bakken, Continental reported a 103 percent increase in production, compared to the third quarter of 2009. The Company participated in completing 53 gross wells (19.3 net) in the North Dakota Bakken during the quarter. Initial production rates averaged 1,017 Boepd during single-day test periods. All initial well results in this press release are 24-hour tests.

In terms of Company-operated wells, Continental completed 26 gross operated wells (16.4 net) during the quarter, with an average 1,011 Boepd.

Continental's operated wells included its first ECO-Pad(R) project completion. The ECO-Pad design involves drilling, from a single pad, four wells on two adjoining 1,280-acre spacing units. Expected benefits from the innovative approach include higher production from longer horizontal bores, more efficient drilling and completion, and reduced environmental impact due to the smaller surface footprint, compared with four individual drilling sites.

The Company's first ECO-Pad project involved the Hegler 1-13H and 2-13H wells (both 83% WI) and the Arthur 1-12H and 2-12H wells (both 94% WI). Of the two wells that targeted the Three Forks zone, the Hegler 1-13H produced 1,195 Boe at 1,400 psi on a 22 choke, and the Arthur 1-12H produced 849 Boe at 1,150 psi on a 22 choke. In terms of the Middle Bakken wells, the Hegler 2-13H produced 1,203 Boe at 2,200 psi on an 18 choke, and the Arthur 2-12H produced 1,103 Boe at 2,350 psi on an 18 choke.

"The different flowing pressures clearly demonstrate that the Middle Bakken and Three Forks reservoirs are separate and not communicating in this part of western Dunn County," Mr. Hamm said.

The Company has 20 operated rigs in the North Dakota Bakken and two rigs in the Montana Bakken.

The Company has 864,559 net acres leased in the Bakken Shale play, with 620,620 net acres in North Dakota and 243,939 net acres in Montana portion.

Red River Units (Montana, North Dakota and South Dakota) Red River Units' production was 14,953 Boepd in the third quarter, or 33 percent of total production. Continental has two operated drilling rigs in the Units and is drilling wells to complete its increased density sweep pattern in the secondary recovery program. The Company also continues to convert producer wells to injection wells.

Woodford Shale Play (Oklahoma) Production in the Anadarko Woodford shale play in western Oklahoma was 1,377 Boepd in the third quarter of 2010, reflecting a significant increase in drilling activity this year.

During the quarter, Continental completed a key confirmation well in the southeastern part of the play, the Dana 1-29H (78% WI) in Grady County. The Dana flowed at 2.5 MMcfd of liquids-rich natural gas and 88 Bopd in its initial one-day test period, by far the most productive well completed in the southeast extension of the play.

"The Southeast Cana clearly has an even higher liquids component than the core and the northwest," Mr. Hamm said. "We are very bullish on the southeastern part of the play, especially as we continue to improve the productivity of wells in the area." The Company expects to have additional data in early 2011 on another confirmation well in the Southeast Cana.

The Company has leased 258,816 net acres in the Anadarko Woodford. Continental currently has six operated rigs in the Anadarko Woodford play and plans to add two more by year end.

Continental's production in the eastern part of the Woodford Shale play, the Arkoma Woodford, was 4,413 Boepd in the third quarter of 2010. The Company currently has one operated rig in the Arkoma Woodford, where its acreage position totals 47,201 net acres.

Niobrara Shale Play (Colorado and Wyoming) Continental today announced plans to spud its first long-lateral Niobrara shale well - the Newton 1-9H (87% WI) - in early December 2010 in northern Weld County, Colorado. The Newton 1-9H is the first Niobrara well permitted for 1,280-acre spacing in the Colorado portion of the play. The Company is planning to drill a 9,200-foot lateral section in the well, similar to the well design approach it is using in the North Dakota Bakken Shale play.

The Company is in the process of permitting additional Niobrara wells in northern Colorado and southern Wyoming. "If the results of the Newton 1-9H go as planned, we expect to spud additional Niobrara wells early in the second quarter next year," Mr. Hamm said.

Continental has 73,009 net acres leased in the Niobrara Shale play, with acreage in Weld County, Colorado and Platte, Laramie and Goshen counties, Wyoming.

Tags: Continental Resources