Continental Resources shuts in 70% of oil output on low prices

Houston — Bakken Shale powerhouse Continental Resources has shut in 70% of its May oil production, roughly 136,500 b/d, owing to low crude prices caused by the global coronavirus pandemic, the company said Monday.

That leaves Continental, a large producer in the North Dakota/Montana Bakken play, with about 58,500 b/d of crude output this month, according to S&P Global Platts estimates.

Including natural gas, Continental has shut-in around 210,000 boe/d, or roughly 60% of its total production.

"All of this [shut-in] production is cash flow-positive at today's prices," CEO Bill Berry said during a first-quarter earnings call. "And as contango starts to shift a bit you'll probably start to see us bringing production back on."

Berry suggested next month some of its shut-in natural gas could be lifted.

Continental's 360,800 boe/d of total production in the first quarter included 961,000 Mcf/d of natural gas.

"In June, we will continue curtailing our oil production, selectively targeting sales that maximize gas production to take advantage of the momentum in natural gas prices," Berry said.

"This enables us to have the flexibility to defer our production for a more stabilized, constructive and higher-priced market that we perceive as imminent," he said.

REBALANCING MID-YEAR

"Our model shows the market begins rebalancing by mid-year, and predicts 2021 will be strong and 2022 even stronger," Executive Chairman Harold Hamm said on the call.

"We're already beginning to see the consequences of supply/demand rebalancing begin in current and future prices," he said. "We ... know from experience we can quickly bring [Continental's] deferred production back online when conditions improve and not see degradation in reservoir performance."

Continental produced 200,700 b/d of oil combined from the Bakken and in Oklahoma in the first quarter, up 3% on the year but down 3% from the prior quarter. Most of that output, about 145,500 b/d, came from the Bakken.

From an average of close to 20 rigs earlier this year, Continental now has five working and expects to have just four by year-end: two in the Bakken and two in Oklahoma, Berry said.

Many upstream producers similarly have provided guidance on their shut-in volumes for May or June, which they believe will be the worst months for oil storage availability. Few executives have publicly made predictions beyond that time frame.

Oil producers have been cutting production in response to low oil prices, and OPEC and its allies agreed to a 9.7 million b/d cut in production.

But the market still remains oversupplied.

Saudi Arabia said Monday it would cut another 1 million b/d from its own production, which Hamm said "validates" the continued demand slump.

Continental is tracking 3%-5% below its $1.2 billion 2020 budget, which was slashed in March from an initial $2.65 billion at the start of the year, due to its continued pursuit of operational efficiencies.