SEC Form 10-Q filed by Continental Resources Inc.

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________

FORM 10-Q

________________________________________

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-32886

____________________________________

 

CONTINENTAL RESOURCES, INC

(Exact name of registrant as specified in its charter)

____________________________________

Oklahoma						73-0767549
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
		20 N. Broadway,	Oklahoma City,	Oklahoma	73102
		(Address of principal executive offices)			(Zip Code)

(405) 234-9000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

____________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		x		Smaller reporting company		☐
				Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of September 30, 2023, there are no publicly traded common shares of Continental Resources, Inc.

 

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Table of Contents

PART I. Financial Information
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Unaudited Condensed Consolidated Statements of Income	2
	Unaudited Condensed Consolidated Statements of Equity	3
	Unaudited Condensed Consolidated Statements of Cash Flows	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	31
PART II. Other Information
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
	Signature	34
When we refer to “us,” “we,” “our,” “Company,” or “Continental” we are describing Continental Resources, Inc. and our subsidiaries.

 

 

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Glossary of Crude Oil and Natural Gas Terms

The terms defined in this section may be used throughout this report:

“Bbl” One stock tank barrel, of 42 U.S. gallons liquid volume, used herein in reference to crude oil, condensate or natural gas liquids.

“Boe” Barrels of crude oil equivalent, with six thousand cubic feet of natural gas being equivalent to one barrel of crude oil based on the average equivalent energy content of the two commodities.

“Btu” British thermal unit, which represents the amount of energy needed to heat one pound of water by one degree Fahrenheit and can be used to describe the energy content of fuels.

“completion” The process of treating a drilled well followed by the installation of permanent equipment for the production of crude oil and/or natural gas.

“developed acreage” The number of acres allocated or assignable to productive wells or wells capable of production.

“development well” A well drilled within the proved area of a crude oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

“dry hole” Exploratory or development well that does not produce crude oil and/or natural gas in economically producible quantities.

“exploratory well” A well drilled to find crude oil or natural gas in an unproved area, to find a new reservoir in an existing field previously found to be productive of crude oil or natural gas in another reservoir, or to extend a known reservoir beyond the proved area.

“field” An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.

“MBbl” One thousand barrels of crude oil, condensate or natural gas liquids.

“MBoe” One thousand Boe.

“Mcf” One thousand cubic feet of natural gas.

“MMBoe” One million Boe.

“MMBtu” One million British thermal units.

“MMcf” One million cubic feet of natural gas.

“Net crude oil, natural gas, and natural gas liquids sales” Represents total crude oil, natural gas, and natural gas liquids sales less total transportation expenses. Net crude oil, natural gas, and natural gas liquids sales presented herein are non-GAAP measures. See Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures for a discussion and calculation of this measure.

“Net sales price” Represents the average net wellhead sales price received by the Company for its sales after deducting transportation expenses. Net sales price is calculated by taking revenues less transportation expenses divided by sales volumes for a period. Net sales prices presented herein are non-GAAP measures. See Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures for a discussion and calculation of this measure.

“NGL” or “NGLs” Refers to natural gas liquids, which are hydrocarbon products that are separated during natural gas processing and include ethane, propane, isobutane, normal butane, and natural gasoline.

“NYMEX” The New York Mercantile Exchange.

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“play” A portion of the exploration and production cycle following the identification by geologists and geophysicists of areas with potential crude oil and natural gas reserves.

“proved reserves” The quantities of crude oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs and under existing economic conditions, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates renewal is reasonably certain.

“royalty interest” Refers to the ownership of a percentage of the resources or revenues produced from a crude oil or natural gas property. A royalty interest owner does not bear exploration, development, or operating expenses associated with drilling and producing a crude oil or natural gas property.

“undeveloped acreage” Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of crude oil and/or natural gas.

“working interest” The right granted to the lessee of a property to explore for and to produce and own crude oil, natural gas, or other minerals. The working interest owners bear the exploration, development, and operating costs on either a cash, penalty, or carried basis.

 

 

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Cautionary Statement for the Purpose of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

This report and information incorporated by reference in this report include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact, including, but not limited to, forecasts or expectations regarding the Company’s business and statements or information concerning the Company’s future operations, performance, financial condition, production and reserves, schedules, plans, timing of development, rates of return, budgets, costs, business strategy, objectives, and cash flows, included in this report are forward-looking statements. The words “could,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “budget,” “target,” “plan,” “continue,” “potential,” “guidance,” “strategy” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

Forward-looking statements may include, but are not limited to, statements about:

Forward-looking statements are based on the Company’s current expectations and assumptions about future events and currently available information as to the outcome and timing of future events. Although the Company believes these assumptions and expectations are reasonable, they are inherently subject to numerous business, economic, competitive, regulatory and other risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control. No assurance can be given that such expectations will be correct or achieved or that the assumptions are accurate or will not change over time. The risks and uncertainties that may affect the operations, performance and results of the business and forward-looking statements include, but are not limited to, those risk factors and other cautionary statements described under Part II, Item 1A. Risk Factors and elsewhere in this report, if any, our Annual Report on Form 10-K for the year ended December 31, 2022, and other announcements we make from time to time.

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Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which such statement is made. Additionally, new factors emerge from time to time, and it is not possible for us to predict all such factors. Should one or more of the risks or uncertainties described in this report or our Annual Report on Form 10-K for the year ended December 31, 2022 occur, or should underlying assumptions prove incorrect, the Company’s actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements are expressly qualified in their entirety by this cautionary statement.

Except as expressly stated above or otherwise required by applicable law, the Company undertakes no obligation to publicly correct or update any forward-looking statement whether as a result of new information, future events or circumstances after the date of this report, or otherwise.

 

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PART I. Financial Information

ITEM 1. Financial Statements

 

Continental Resources, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

		September 30, 2023				December 31, 2022
In thousands, except par values and share data		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	49,253			$	137,788
Receivables:
Crude oil, natural gas, and natural gas liquids sales			1,321,161				1,313,538
Joint interest and other			384,512				458,391
Allowance for credit losses			(3,751	)			(5,514	)
Receivables, net			1,701,922				1,766,415
Derivative assets			78,644				39,280
Inventories			207,635				173,264
Prepaid expenses and other			30,885				27,508
Total current assets			2,068,339				2,144,255
Net property and equipment, based on successful efforts method of accounting			19,626,889				18,471,914
Investment in unconsolidated affiliates			226,340				210,805
Operating lease right-of-use assets			41,339				25,158
Derivative assets, noncurrent			18,935				3,548
Other noncurrent assets			17,960				22,670
Total assets		$	21,999,802			$	20,878,350
Liabilities and equity
Current liabilities:
Accounts payable trade		$	907,717			$	850,547
Revenues and royalties payable			848,043				882,256
Accrued liabilities and other			332,144				343,777
Current portion of incentive compensation liability			130,503				125,653
Current portion of income tax liabilities			66,667				152,149
Derivative liabilities			175,384				88,136
Current portion of operating lease liabilities			17,847				4,086
Current portion of long-term debt			894,777				638,058
Total current liabilities			3,373,082				3,084,662
Long-term debt, net of current portion			6,454,038				7,571,582
Other noncurrent liabilities:
Deferred income tax liabilities, net			2,706,680				2,538,312
Incentive compensation liability, noncurrent			37,818				100,066
Asset retirement obligations, noncurrent			271,048				257,152
Derivative liabilities, noncurrent			39,494				133,363
Operating lease liabilities, noncurrent			22,389				20,055
Other noncurrent liabilities			31,224				43,550
Total other noncurrent liabilities			3,108,653				3,092,498
Commitments and contingencies (Note 9)
Equity:
Preferred stock, $0.01 par value; 25,000,000 shares authorized; no shares issued and outstanding			—				—
Common stock, $0.01 par value; 1,000,000,000 shares authorized
299,610,267 shares issued and outstanding at September 30, 2023;
299,610,267 shares issued and outstanding at December 31, 2022;			2,996				2,996
Retained earnings			8,700,724				6,754,174
Total shareholders’ equity attributable to Continental Resources			8,703,720				6,757,170
Noncontrolling interests			360,309				372,438
Total equity			9,064,029				7,129,608
Total liabilities and equity		$	21,999,802			$	20,878,350

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Continental Resources, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Income

		Three months ended September 30,								Nine months ended September 30,
In thousands, except per share data		2023				2022				2023				2022
Revenues:
Crude oil, natural gas, and natural gas liquids sales		$	2,082,331			$	2,767,262			$	5,663,672			$	7,870,696
Gain (loss) on derivative instruments, net			(335,111	)			(337,778	)			270,795				(1,009,460	)
Crude oil and natural gas service operations			30,119				17,747				73,716				52,707
Total revenues			1,777,339				2,447,231				6,008,183				6,913,943
Operating costs and expenses:
Production expenses			175,804				166,322				532,197				456,840
Production and ad valorem taxes			162,535				200,593				440,364				563,204
Transportation, gathering, processing, and compression			86,873				85,650				245,267				236,851
Exploration expenses			2,835				2,809				10,747				20,460
Crude oil and natural gas service operations			22,364				10,356				61,343				29,361
Depreciation, depletion, amortization and accretion			576,995				490,523				1,603,618				1,396,185
Property impairments			11,027				12,794				46,469				52,868
General and administrative expenses			112,368				68,687				230,752				206,098
Net (gain) loss on sale of assets and other			51,389				(618	)			51,041				(773	)
Total operating costs and expenses			1,202,190				1,037,116				3,221,798				2,961,094
Income from operations			575,149				1,410,115				2,786,385				3,952,849
Other income (expense):
Interest expense			(100,885	)			(70,717	)			(306,014	)			(215,508	)
Loss on extinguishment of debt			—				—				—				(403	)
Other			3,902				4,490				8,561				4,503
			(96,983	)			(66,227	)			(297,453	)			(211,408	)
Income before income taxes			478,166				1,343,888				2,488,932				3,741,441
Provision for income taxes			(105,994	)			(323,390	)			(539,139	)			(903,745	)
Income before equity in net loss of affiliate			372,172				1,020,498				1,949,793				2,837,696
Equity in net loss of affiliate			(883	)			(660	)			(2,041	)			(736	)
Net income			371,289				1,019,838				1,947,752				2,836,960
Net income attributable to noncontrolling interests			501				6,731				1,854				17,349
Net income attributable to Continental Resources		$	370,788			$	1,013,107			$	1,945,898			$	2,819,611
Net income per share attributable to Continental Resources:
Basic		$	1.24			$	2.83			$	6.49			$	7.88
Diluted		$	1.24			$	2.80			$	6.49			$	7.79

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Continental Resources, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Equity

 

Three months ended September 30, 2023
		Shareholders’ equity attributable to Continental Resources
In thousands, except share data		Shares outstanding				Common stock				Additional paid-in capital				Treasury stock				Retained earnings				Total shareholders’ equity of Continental Resources				Noncontrolling interests				Total equity
Balance at June 30, 2023			299,610,267			$	2,996			$	—			$	—			$	8,329,936			$	8,332,932			$	362,513			$	8,695,445
Net income			—				—				—				—				370,788				370,788				501				371,289
Change in dividends payable			—				—				—				—				—				—				—				—
Contributions from noncontrolling interests			—				—				—				—				—				—				2,636				2,636
Distributions to noncontrolling interests			—				—				—				—				—				—				(5,341	)			(5,341	)
Balance at September 30, 2023			299,610,267			$	2,996			$	—			$	—			$	8,700,724			$	8,703,720			$	360,309			$	9,064,029

 

 

Nine months ended September 30, 2023
		Shareholders’ equity attributable to Continental Resources
In thousands, except share data		Shares outstanding				Common stock				Additional paid-in capital				Treasury stock				Retained earnings				Total shareholders’ equity of Continental Resources				Noncontrolling interests				Total equity
Balance at December 31, 2022			299,610,267			$	2,996			$	—			$	—			$	6,754,174			$	6,757,170			$	372,438			$	7,129,608
Net income			—				—				—				—				1,945,898				1,945,898				1,854				1,947,752
Change in dividends payable			—				—				—				—				652				652				—				652
Contributions from noncontrolling interests			—				—				—				—				—				—				8,809				8,809
Distributions to noncontrolling interests			—				—				—				—				—				—				(22,792	)			(22,792	)
Balance at September 30, 2023			299,610,267			$	2,996			$	—			$	—			$	8,700,724			$	8,703,720			$	360,309			$	9,064,029

 

 

Three months ended September 30, 2022
		Shareholders’ equity attributable to Continental Resources
In thousands, except share data		Shares outstanding				Common stock				Additional paid-in capital				Treasury stock				Retained earnings				Total shareholders’ equity of Continental Resources				Noncontrolling interests				Total equity
Balance at June 30, 2022			363,002,130			$	3,630			$	1,042,891			$	—			$	7,961,406			$	9,007,927			$	377,897			$	9,385,824
Net income			—				—				—				—				1,013,107				1,013,107				6,731				1,019,838
Cash dividends declared			—				—				—				—				(101,639	)			(101,639	)			—				(101,639	)
Change in dividends payable			—				—				—				—				56				56				—				56
Stock-based compensation			—				—				16,664				—				—				16,664				—				16,664
Restricted stock:
Granted			107,134				1				—				—				—				1				—				1
Repurchased and canceled			(13,420	)			—				(922	)			—				—				(922	)			—				(922	)
Forfeited			(73,098	)			(1	)			—				—				—				(1	)			—				(1	)
Contributions from noncontrolling interests			—				—				—				—				—				—				4,329				4,329
Distributions to noncontrolling interests			—				—				—				—				—				—				(12,403	)			(12,403	)
Balance at September 30, 2022			363,022,746			$	3,630			$	1,058,633			$	—			$	8,872,930			$	9,935,193			$	376,554			$	10,311,747

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Continental Resources, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Equity (Continued)

 

 

 

Nine months ended September 30, 2022
		Shareholders’ equity attributable to Continental Resources
In thousands, except share data		Shares outstanding				Common stock				Additional paid-in capital				Treasury stock				Retained earnings				Total shareholders’ equity of Continental Resources				Noncontrolling interests				Total equity
Balance at December 31, 2021			364,297,520			$	3,643			$	1,131,602			$	—			$	6,340,211			$	7,475,456			$	380,869			$	7,856,325
Net income			—				—				—				—				2,819,611				2,819,611				17,349				2,836,960
Cash dividends declared			—				—				—				—				(287,036	)			(287,036	)			—				(287,036	)
Change in dividends payable			—				—				—				—				144				144				—				144
Common stock repurchased			—				—				—				(99,855	)			—				(99,855	)			—				(99,855	)
Common stock retired			(1,842,422	)			(18	)			(99,837	)			99,855				—				—				—				—
Stock-based compensation			—				—				60,751				—				—				60,751				—				60,751
Restricted stock:
Granted			1,539,017				15				—				—				—				15				—				15
Repurchased and canceled			(605,162	)			(6	)			(33,883	)			—				—				(33,889	)			—				(33,889	)
Forfeited			(366,207	)			(4	)			—				—				—				(4	)			—				(4	)
Contributions from noncontrolling interests			—				—				—				—				—				—				8,135				8,135
Distributions to noncontrolling interests			—				—				—				—				—				—				(29,799	)			(29,799	)
Balance at September 30, 2022			363,022,746			$	3,630			$	1,058,633			$	—			$	8,872,930			$	9,935,193			$	376,554			$	10,311,747

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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