Notes to Consolidated Financial Statements
Note 1. Organization and Summary of Significant Accounting Policies
Description of the Company
Continental Resources, Inc. (the “Company”) was originally formed in 1967 and is incorporated under the laws of the State of Oklahoma. The Company's principal business is crude oil and natural gas exploration, development and production with properties primarily located in the North, South, and East regions of the United States. The North region consists of properties north of Kansas and west of the Mississippi River and includes North Dakota Bakken, Montana Bakken, and the Red River units. The South region includes all properties south of Nebraska and west of the Mississippi River including various plays in the SCOOP (South Central Oklahoma Oil Province), STACK (Sooner Trend Anadarko Canadian Kingfisher), and Arkoma Woodford areas of Oklahoma. Historically, our properties in Blaine, Dewey and Custer counties of Oklahoma that produced from the Woodford formation were referred to as the Northwest Cana district, while properties often underlying the same surface acreage in those counties that produced from the Meramec and Osage formations were referred to as the STACK district. Such properties were historically combined by us and referred to as "Northwest Cana/STACK". Effective December 31, 2016, we now refer to such properties simply as "STACK". The East region is comprised of undeveloped leasehold acreage east of the Mississippi River with no current drilling or production operations.
A substantial portion of the Company’s operations are located in the North region, with that region comprising approximately
61%
of the Company’s crude oil and natural gas production and approximately
69%
of its crude oil and natural gas revenues for the year ended
December 31, 2016
. The Company's principal producing properties in the North region are located in the Bakken field of North Dakota and Montana. As of
December 31, 2016
, approximately
50%
of the Company’s estimated proved reserves were located in the North region. In recent years, the Company has significantly expanded its activity in the South region with its discovery of the SCOOP play and its increased activity in the STACK play. The South region comprised approximately
39%
of the Company's crude oil and natural gas production,
31%
of its crude oil and natural gas revenues, and
50%
of its estimated proved reserves at
December 31, 2016
.
For the year ended
December 31, 2016
, crude oil accounted for approximately
59%
of the Company’s total production and approximately
82%
of its crude oil and natural gas revenues. Crude oil represents approximately
50%
of the Company's estimated proved reserves as of
December 31, 2016
.
Basis of presentation of consolidated financial statements
The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are 100% owned, after all significant intercompany accounts and transactions have been eliminated upon consolidation.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure and estimation of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. The most significant of the estimates and assumptions that affect reported results are the estimates of the Company’s crude oil and natural gas reserves, which are used to compute depreciation, depletion, amortization and impairment of proved crude oil and natural gas properties.
Revenue recognition
Crude oil and natural gas sales result from interests owned by the Company in crude oil and natural gas properties. Sales of crude oil and natural gas produced from crude oil and natural gas operations are recognized when the product is delivered to the purchaser and title transfers to the purchaser. Payment is generally received one to three months after the sale has occurred. The Company uses the sales method of accounting for natural gas imbalances in those circumstances where it has under-produced or over-produced its ownership percentage in a property. Under this method, a receivable or payable is recognized only to the extent an imbalance cannot be recouped from the reserves in the underlying properties. The Company’s aggregate imbalance positions at
December 31, 2016
and
2015
were not material.
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Cash and cash equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company maintains its cash and cash equivalents in accounts that may not be federally insured. As of
December 31, 2016
, the Company had cash deposits in excess of federally insured amounts of approximately
$15.0 million
. The Company has not experienced any losses in such accounts and believes it is not exposed to significant credit risk in this area.
Accounts receivable
The Company operates exclusively in crude oil and natural gas exploration and production related activities. Receivables arising from crude oil and natural gas sales and joint interest receivables are generally unsecured. Accounts receivable are due within
30
days and are considered delinquent after
60
days. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time accounts are past due, the Company’s history of losses, and the customer or working interest owner’s ability to pay. The Company writes off specific receivables when they become noncollectable and any payments subsequently received on those receivables are credited to the allowance for doubtful accounts. Write-offs of noncollectable receivables have historically not been material. The Company's allowance for doubtful accounts totaled
$3.0 million
and
$2.3 million
as of
December 31, 2016
and
2015
, respectively, which is included in "Receivables
—
Joint interest and other, net" on the consolidated balance sheets.
Concentration of credit risk
The Company is subject to credit risk resulting from the concentration of its crude oil and natural gas receivables with several significant purchasers. For the year ended
December 31, 2016
, sales to the Company’s largest purchaser accounted for approximately
18%
of its total crude oil and natural gas sales. No other purchasers accounted for more than
10%
of the Company’s total crude oil and natural gas sales for
2016
. The Company does not require collateral and does not believe the loss of any single purchaser would materially impact its operating results, as crude oil and natural gas are fungible products with well-established markets and numerous purchasers in various regions.
Inventories
Inventory is comprised of crude oil held in storage or as line fill in pipelines and tubular goods and equipment to be used in the Company's exploration and development activities. Crude oil inventories are valued at the lower of cost or market primarily using the first-in, first-out inventory method. Tubular goods and equipment are valued at the lower of cost or market, with cost determined primarily using a weighted average cost method applied to specific classes of inventory items.
The components of inventory as of
December 31, 2016
and
2015
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
In thousands
|
|
2016
|
|
2015
|
Tubular goods and equipment
|
|
$
|
15,243
|
|
|
$
|
15,633
|
|
Crude oil
|
|
96,744
|
|
|
78,518
|
|
Total
|
|
$
|
111,987
|
|
|
$
|
94,151
|
|
Crude oil and natural gas properties
The Company uses the successful efforts method of accounting for crude oil and natural gas properties whereby costs incurred to acquire mineral interests in crude oil and natural gas properties, to drill and equip exploratory wells that find proved reserves, to drill and equip development wells, and expenditures for enhanced recovery operations are capitalized. Geological and geophysical costs, seismic costs incurred for exploratory projects, lease rentals and costs associated with unsuccessful exploratory wells or projects are expensed as incurred. Costs of seismic studies that are utilized in development drilling within an area of proved reserves are capitalized as development costs. To the extent a seismic project covers areas of both developmental and exploratory drilling, those seismic costs are proportionately allocated between capitalized development costs and exploration expense. Maintenance, repairs and costs of injection are expensed as incurred, except that the costs of replacements or renewals that expand capacity or improve production are capitalized.
Under the successful efforts method of accounting, the Company capitalizes exploratory drilling costs on the balance sheet pending determination of whether the well has found proved reserves in economically producible quantities. The Company capitalizes costs associated with the acquisition or construction of support equipment and facilities with the drilling and development costs to which they relate. If proved reserves are found by an exploratory well, the associated capitalized costs
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
become part of well equipment and facilities. However, if proved reserves are not found, the capitalized costs associated with the well are expensed, net of any salvage value.
Production expenses are those costs incurred by the Company to operate and maintain its crude oil and natural gas properties and associated equipment and facilities. Production expenses include labor costs to operate the Company’s properties, repairs and maintenance, waste water disposal costs, utility costs, and materials and supplies utilized in the Company’s operations.
Service property and equipment
Service property and equipment consist primarily of automobiles and aircraft; machinery and equipment; gathering and recycling systems; storage tanks; office and computer equipment, software, furniture and fixtures; and buildings and improvements. Major renewals and replacements are capitalized and stated at cost, while maintenance and repairs are expensed as incurred.
Depreciation and amortization of service property and equipment are provided in amounts sufficient to expense the cost of depreciable assets to operations over their estimated useful lives using the straight-line method. The estimated useful lives of service property and equipment are as follows:
|
|
|
Service property and equipment
|
Useful Lives
In Years
|
Automobiles and aircraft
|
5-10
|
Machinery and equipment
|
6-10
|
Gathering and recycling systems
|
15-30
|
Storage tanks
|
10-30
|
Office and computer equipment, software, furniture and fixtures
|
3-25
|
Buildings and improvements
|
10-40
|
Depreciation, depletion and amortization
Depreciation, depletion and amortization of capitalized drilling and development costs of producing crude oil and natural gas properties, including related support equipment and facilities, are computed using the unit-of-production method on a field basis based on total estimated proved developed reserves. Amortization of producing leaseholds is based on the unit-of-production method using total estimated proved reserves. In arriving at rates under the unit-of-production method, the quantities of recoverable crude oil and natural gas reserves are established based on estimates made by the Company’s internal geologists and engineers and external independent reserve engineers. Upon sale or retirement of properties, the cost and related accumulated depreciation, depletion and amortization are eliminated from the accounts and the resulting gain or loss, if any, is recognized. Unit of production rates are revised whenever there is an indication of a need, but at least in conjunction with semi-annual reserve reports. Revisions are accounted for prospectively as changes in accounting estimates.
Asset retirement obligations
The Company accounts for its asset retirement obligations by recording the fair value of a liability for an asset retirement obligation in the period in which a legal obligation is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Subsequently, the capitalized asset retirement costs are charged to expense through the depreciation, depletion and amortization of crude oil and natural gas properties and the liability is accreted to the expected future abandonment cost ratably over the related asset’s life.
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Company’s primary asset retirement obligations relate to future plugging and abandonment costs on its crude oil and natural gas properties and related facilities disposal. The following table summarizes the changes in the Company’s future abandonment liabilities from January 1,
2014
through
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Asset retirement obligations at January 1
|
|
$
|
102,909
|
|
|
$
|
76,708
|
|
|
$
|
55,787
|
|
Accretion expense
|
|
6,086
|
|
|
4,740
|
|
|
3,366
|
|
Revisions (1)
|
|
(12,755
|
)
|
|
15,068
|
|
|
9,916
|
|
Plus: Additions for new assets
|
|
2,692
|
|
|
7,404
|
|
|
9,022
|
|
Less: Plugging costs and sold assets
|
|
(2,754
|
)
|
|
(1,011
|
)
|
|
(1,383
|
)
|
Total asset retirement obligations at December 31
|
|
$
|
96,178
|
|
|
$
|
102,909
|
|
|
$
|
76,708
|
|
Less: Current portion of asset retirement obligations at December 31 (2)
|
|
1,742
|
|
|
1,658
|
|
|
1,246
|
|
Non-current portion of asset retirement obligations at December 31
|
|
$
|
94,436
|
|
|
$
|
101,251
|
|
|
$
|
75,462
|
|
|
|
(1)
|
Revisions for the year ended
December 31, 2016
primarily represent a decrease in the present value of liabilities resulting from a deferral of the estimated future timing of abandonment prompted by an increase in the economic lives of certain producing properties.
|
|
|
(2)
|
Balance is included in the caption "Accrued liabilities and other" in the consolidated balance sheets.
|
As of
December 31, 2016
and
2015
, net property and equipment on the consolidated balance sheets included
$77.9 million
and
$87.5 million
, respectively, of net asset retirement costs.
Asset impairment
Proved crude oil and natural gas properties are reviewed for impairment on a field-by-field basis each quarter. The estimated future cash flows expected in connection with the field are compared to the carrying amount of the field to determine if the carrying amount is recoverable. If the carrying amount of the field exceeds its estimated undiscounted future cash flows, the carrying amount of the field is reduced to its estimated fair value.
Non-producing crude oil and natural gas properties primarily consist of undeveloped leasehold costs and costs associated with the purchase of certain proved undeveloped reserves. Impairment losses for non-producing properties are recognized by amortizing the portion of the properties’ costs which management estimates will not be transferred to proved properties over the lives of the leases based on drilling plans, experience of successful drilling, and the average holding period. The Company’s impairment assessments are affected by economic factors such as the results of exploration activities, commodity price outlooks, anticipated drilling programs, remaining lease terms, and potential shifts in business strategy employed by management.
Debt issuance costs
Costs incurred in connection with the execution of the Company’s three-year term loan, note payable, and revolving credit facility and any amendments thereto are capitalized and amortized over the terms of the arrangements on a straight-line basis, the use of which approximates the effective interest method. Costs incurred upon the issuances of the Company's various senior notes (collectively, the “Notes”) were capitalized and are being amortized over the terms of the Notes using the effective interest method.
The Company had aggregate capitalized costs of
$55.9 million
and
$71.8 million
(net of accumulated amortization of
$56.8 million
and
$47.0 million
) relating to its long-term debt at
December 31, 2016
and
2015
, respectively. Unamortized capitalized costs associated with the Company’s Notes, three-year term loan, and note payable totaled
$50.4 million
and
$64.1 million
at
December 31, 2016
and
2015
, respectively, and are reflected as a reduction of "Long-term debt, net of current portion" on the consolidated balance sheets. Unamortized capitalized costs associated with the Company’s revolving credit facility totaled
$5.5 million
and
$7.7 million
at
December 31, 2016
and
2015
, respectively, and are reflected in "Other noncurrent assets" on the consolidated balance sheets. In November 2016, the Company wrote off
$6.1 million
of unamortized capitalized costs in conjunction with the redemptions of its 7.375% Senior Notes due 2020 and 7.125% Senior Notes due 2021 as discussed in
Note 7. Long-Term Debt
.
For the years ended
December 31, 2016
,
2015
and
2014
, the Company recognized amortization expense associated with capitalized debt issuance costs of
$9.8 million
,
$8.9 million
and
$9.3 million
, respectively, which are reflected in “Interest expense” on the consolidated statements of comprehensive income (loss).
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Derivative instruments
The Company recognizes its derivative instruments on the balance sheet as either assets or liabilities measured at fair value with such amounts classified as current or long-term based on contractual settlement dates. The accounting for the changes in fair value of a derivative depends on the intended use of the derivative and resulting designation. The Company has not designated its derivative instruments as hedges for accounting purposes and, as a result, marks its derivative instruments to fair value and recognizes the changes in fair value in the consolidated statements of comprehensive income (loss). Gains and losses on crude oil and natural gas derivatives are reflected in the caption “
Gain (loss) on crude oil and natural gas derivatives, net
.” Gains and losses on diesel fuel derivatives are reflected in the caption “Operating costs and expenses—Net gain on sale of assets and other.”
Fair value of financial instruments
The Company’s financial instruments consist primarily of cash, trade receivables, trade payables, derivative instruments and long-term debt. See
Note 6. Fair Value Measurements
for a discussion of the methods used to determine fair value for the Company's financial instruments and the quantification of fair value for its derivatives and long-term debt obligations at
December 31, 2016
and
2015
.
Income taxes
Income taxes are accounted for using the liability method under which deferred income taxes are recognized for the future tax effects of temporary differences between financial statement carrying amounts and the tax basis of existing assets and liabilities using the enacted statutory tax rates in effect at year-end. The effect on deferred taxes for a change in tax rates is recognized in income in the period that includes the enactment date. The Company’s policy is to recognize penalties and interest related to unrecognized tax benefits, if any, in income tax expense. A valuation allowance for deferred tax assets is recorded when it is more likely than not that the benefit from the deferred tax asset will not be realized. The Company recorded valuation allowances of
$1.0 million
,
$13.5 million
, and
$4.4 million
for the years ended
December 31, 2016
, 2015, and 2014, respectively, against deferred tax assets associated with operating loss carryforwards generated by its Canadian subsidiary for which the Company does not expect to realize a benefit.
Earnings per share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares outstanding for the period. In periods where the Company has net income, diluted earnings per share reflects the potential dilution of non-vested restricted stock awards, which are calculated using the treasury stock method. The following table presents the calculation of basic and diluted weighted average shares outstanding and net income (loss) per share for the years ended
December 31, 2016
,
2015
and
2014
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
In thousands, except per share data
|
|
2016
|
|
2015
|
|
2014
|
Income (loss) (numerator):
|
|
|
|
|
|
|
Net income (loss) - basic and diluted
|
|
$
|
(399,679
|
)
|
|
$
|
(353,668
|
)
|
|
$
|
977,341
|
|
Weighted average shares (denominator):
|
|
|
|
|
|
|
Weighted average shares - basic
|
|
370,380
|
|
|
369,540
|
|
|
368,829
|
|
Non-vested restricted stock (1)
|
|
—
|
|
|
—
|
|
|
1,929
|
|
Weighted average shares - diluted
|
|
370,380
|
|
|
369,540
|
|
|
370,758
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.08
|
)
|
|
$
|
(0.96
|
)
|
|
$
|
2.65
|
|
Diluted
|
|
$
|
(1.08
|
)
|
|
$
|
(0.96
|
)
|
|
$
|
2.64
|
|
|
|
(1)
|
For the years ended
December 31, 2016
and 2015, the Company had a net loss and therefore the potential dilutive effect of approximately
2,303,000
and
1,567,000
weighted average non-vested restricted shares, respectively, were not included in the calculation of diluted net loss per share because to do so would have been anti-dilutive to the computations.
|
Foreign currency translation
In 2014, the Company initiated exploratory drilling activities in Canada through a 100%-owned Canadian subsidiary. The Company's operations in Canada are currently immaterial. The Company has designated the Canadian dollar as the functional
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
currency for its Canadian operations. Adjustments resulting from the process of translating foreign functional currency financial statements into U.S. dollars are included in "Accumulated other comprehensive loss" within shareholders’ equity on the consolidated balance sheets.
New accounting pronouncements not yet adopted
Leases
– In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02,
Leases (Topic 842)
, which requires companies to recognize a right of use asset and related liability on the balance sheet for the rights and obligations arising from leases with durations greater than 12 months. The standard is effective for interim and annual reporting periods beginning after December 15, 2018 and requires adoption by application of a modified retrospective transition approach.
The Company continues to evaluate the impact of ASU 2016-02 and is in the process of developing systems and processes to identify, classify, and account for leases within the scope of the new guidance. Based on an initial review of the new guidance and the Company’s current commitments, the Company anticipates it may be required to recognize lease assets and liabilities related to drilling rig commitments, certain equipment rentals and leases, certain surface use agreements, and potentially certain firm transportation agreements, as well as other arrangements, the effect of which cannot be estimated at this time.
Stock-based compensation
– In March 2016, the FASB issued ASU 2016-09,
Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
, which changes how companies account for certain aspects of share-based payment awards, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2016 and will be adopted either prospectively, retrospectively or using a modified retrospective transition approach depending on the topic covered in the standard. The Company will adopt the new standard on January 1, 2017.
Under ASU 2016-09, effective January 1, 2017 companies will no longer record excess tax benefits and deficiencies in additional paid-in capital. Instead, excess tax benefits and deficiencies will be recognized as income tax expense or benefit in the income statement. This is expected to result in increased volatility in income tax expense/benefit and corresponding variations in the relationship between income tax expense/benefit and pre-tax income/loss from period to period.
ASU 2016-09 also removes the requirement to delay recognition of an excess tax benefit until it reduces current taxes payable. Under the new guidance, effective January 1, 2017 excess tax benefits will be recorded when they arise. This change is required to be applied on a modified retrospective basis through a cumulative effect adjustment to retained earnings upon adoption.
The Company estimates its cumulative effect adjustment will result in an approximate
$5 million
increase to retained earnings upon adoption of ASU 2016-09 on January 1, 2017. Additionally, the Company expects to recognize approximately
$4 million
of tax deficiencies as income tax expense in the first quarter of 2017 under the new standard.
The Company will continue its current accounting practice of estimating forfeitures in determining the amount of stock-based compensation expense to recognize. Therefore, the adoption of ASU 2016-09 is not expected to have an impact on stock-based compensation expense to be recognized on non-vested restricted stock awards.
Revenue recognition and presentation
– In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which generally requires an entity to identify performance obligations in its contracts, estimate the amount of consideration to be received in the transaction price, allocate the transaction price to each separate performance obligation, and recognize revenue as obligations are satisfied. Additionally, the standard requires expanded disclosures related to revenue recognition.
Subsequent to the issuance of ASU 2014-09, the FASB has issued various clarifications and interpretive guidance to assist entities with implementation efforts, including guidance pertaining to the presentation of revenues on a gross basis (revenues presented separately from associated expenses) versus a net basis. Under this guidance, an entity generally shall record revenue on a gross basis if it controls a promised good or service before transferring it to a customer, whereas an entity shall record revenue on a net basis if its role is to arrange for another entity to provide the goods or services to a customer. Significant judgment may be required in some circumstances to determine whether gross or net presentation is appropriate.
ASU 2014-09 and related interpretive guidance will be effective for interim and annual periods beginning after December 15, 2017 and allows for either full retrospective adoption, meaning the standard is applied to all periods presented in the financial statements, or modified retrospective adoption, meaning the standard is applied only to the most current period presented. The Company plans to adopt the standard on January 1, 2018 using a modified retrospective approach. The standard is not expected to have a material effect on the timing of the Company's revenue recognition or its financial position, results of operations, net
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
income or cash flows, but is expected to impact the presentation of future revenues and expenses under the gross-versus-net presentation guidance. Historically, the Company has generally presented its revenues net of transportation costs. The new guidance is expected to result in future revenues and associated transportation expenses for certain of the Company's arrangements being reported on a gross basis. The Company expects changes from net to gross presentation will result in an increase in revenues and a corresponding increase in separately reported transportation expenses, with no net effect on the Company's results of operations, net income, or cash flows. For the year ended
December 31, 2016
, the Company estimates it had approximately
$230 million
of transportation related charges included in "Crude oil and natural gas sales" on the consolidated statements of comprehensive income (loss). The Company is not currently able to estimate the impact on the presentation of its future revenues and expenses under the new guidance due to uncertainties with respect to future sales volumes, service costs, locations of producing properties, sales destinations, transportation methods utilized, and changes in the nature, timing, and extent of its arrangements from period to period.
Business combinations
– In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
, which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is deemed to be a business. Determining whether a transferred set constitutes a business is important because the accounting for a business combination differs from that of an asset acquisition. The definition of a business also affects the accounting for dispositions. Under the new standard, when substantially all of the fair value of assets acquired is concentrated in a single asset, or a group of similar assets, the assets acquired would not represent a business and business combination accounting would not be required. The new standard may result in more transactions being accounted for as asset acquisitions rather than business combinations. The standard is effective for interim and annual periods beginning after December 15, 2017 and shall be applied prospectively. Early adoption is permitted. The Company has elected to early adopt ASU 2017-01 on January 1, 2017 and will apply the new guidance to applicable transactions occurring after that date.
Credit losses
– In June 2016, the FASB issued ASU 2016-13,
Financial Instruments
–
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. This standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the currently required incurred loss approach with an expected loss model for instruments measured at amortized cost. The standard is effective for interim and annual periods beginning after December 15, 2019 and shall be applied using a modified retrospective approach resulting in a cumulative effect adjustment to retained earnings upon adoption. The Company is currently evaluating the new standard and is unable to estimate its financial statement impact at this time.
Note 2. Supplemental Cash Flow Information
The following table discloses supplemental cash flow information about cash paid for interest and income tax payments and refunds. Also disclosed is information about investing activities that affects recognized assets and liabilities but does not result in cash receipts or payments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Supplemental cash flow information:
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
316,116
|
|
|
$
|
301,743
|
|
|
$
|
267,384
|
|
Cash paid for income taxes
|
|
2
|
|
|
30
|
|
|
53,457
|
|
Cash received for income tax refunds
|
|
174
|
|
|
61,403
|
|
|
7
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
Asset retirement obligation additions and revisions, net
|
|
(10,063
|
)
|
|
22,472
|
|
|
18,938
|
|
As of
December 31, 2016
,
2015
,
2014
, and 2013, the Company had
$223.6 million
,
$282.8 million
,
$797.5 million
, and
$507.0 million
, respectively, of accrued capital expenditures included in "Net property and equipment" and "Accounts payable trade" in the consolidated balance sheets.
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 3. Net Property and Equipment
Net property and equipment includes the following at
December 31, 2016
and
2015
. For the year ended
December 31, 2016
, capital expenditures of
$1.1 billion
were offset by the removal of
$804 million
of costs associated with asset sales and
$234 million
of impairments of unproved properties, resulting in a minimal change in gross property and equipment during the year.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
In thousands
|
|
2016
|
|
2015
|
Proved crude oil and natural gas properties
|
|
$
|
19,802,395
|
|
|
$
|
19,520,724
|
|
Unproved crude oil and natural gas properties
|
|
429,562
|
|
|
682,988
|
|
Service properties, equipment and other
|
|
301,788
|
|
|
307,059
|
|
Total property and equipment
|
|
20,533,745
|
|
|
20,510,771
|
|
Accumulated depreciation, depletion and amortization
|
|
(7,652,518
|
)
|
|
(6,447,443
|
)
|
Net property and equipment
|
|
$
|
12,881,227
|
|
|
$
|
14,063,328
|
|
Note 4. Accrued Liabilities and Other
Accrued liabilities and other includes the following at
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
In thousands
|
|
2016
|
|
2015
|
Prepaid advances from joint interest owners
|
|
$
|
57,861
|
|
|
$
|
49,917
|
|
Accrued compensation
|
|
38,046
|
|
|
40,060
|
|
Accrued production taxes, ad valorem taxes and other non-income taxes
|
|
22,053
|
|
|
21,678
|
|
Accrued interest
|
|
52,657
|
|
|
62,058
|
|
Current portion of asset retirement obligations
|
|
1,742
|
|
|
1,658
|
|
Other
|
|
4,411
|
|
|
1,576
|
|
Accrued liabilities and other
|
|
$
|
176,770
|
|
|
$
|
176,947
|
|
Note 5. Derivative Instruments
Crude oil and natural gas derivatives
The Company may utilize crude oil and natural gas swap and collar derivative contracts to economically hedge against the variability in cash flows associated with future sales of crude oil and natural gas production. While the use of these derivative instruments limits the downside risk of adverse price movements, their use also limits future revenues from upward price movements.
The Company recognizes all derivative instruments on the balance sheet as either assets or liabilities measured at fair value. The Company has not designated its crude oil and natural gas derivative instruments as hedges for accounting purposes and, as a result, marks such derivative instruments to fair value and recognizes the changes in fair value in the consolidated statements of comprehensive income (loss) under the caption “
Gain (loss) on crude oil and natural gas derivatives, net
.”
The estimated fair value of derivative contracts is based upon various factors, including commodity exchange prices, over-the-counter quotations, and, in the case of collars and written call options, volatility, the risk-free interest rate, and the time to expiration. The calculation of the fair value of collars and written call options requires the use of an option-pricing model. See
Note 6. Fair Value Measurements
.
With respect to a crude oil or natural gas fixed price swap contract, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is less than the swap price, and the Company is required to make a payment to the counterparty if the settlement price for any settlement period is greater than the swap price. For a crude oil or natural gas collar contract, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is below the floor price and the Company is required to make a payment to the counterparty if the settlement price for any settlement period is above the ceiling price. Neither party is required to make a payment to the other party if the settlement price for any settlement period is between the floor price and the ceiling price.
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
At
December 31, 2016
, the Company had outstanding natural gas derivative contracts with respect to future production as set forth in the table below. The hedged volumes reflected below represent an aggregation of multiple derivative contracts primarily having calendar year 2017 durations that are generally expected to be realized ratably over the year. The Company's natural gas derivative contracts are settled based upon reported NYMEX Henry Hub settlement prices. At
December 31, 2016
the Company had no outstanding crude oil derivative contracts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps Weighted Average Price
|
|
Floors
|
|
Ceilings
|
|
|
|
|
|
|
|
Weighted Average Price
|
|
|
|
Weighted Average Price
|
Period and Type of Contract
|
|
MMBtus
|
|
|
Range
|
|
|
Range
|
|
January 2017 - December 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps - Henry Hub
|
|
72,690,000
|
|
|
$
|
3.41
|
|
|
|
|
|
|
|
|
|
Collars - Henry Hub
|
|
65,700,000
|
|
|
|
|
$2.40 - $3.00
|
|
$
|
2.47
|
|
|
$2.92 - $3.88
|
|
$
|
3.08
|
|
Crude oil and natural gas derivative gains and losses
Cash receipts and payments in the following table reflect the gain or loss on derivative contracts which matured during the period, calculated as the difference between the contract price and the market settlement price of matured contracts. Non-cash gains and losses below represent the change in fair value of derivative instruments which continue to be held at period end and the reversal of previously recognized non-cash gains or losses on derivative contracts that matured during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Cash received (paid) on derivatives:
|
|
|
|
|
|
|
Crude oil fixed price swaps (1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
331,591
|
|
Crude oil collars (1)
|
|
—
|
|
|
—
|
|
|
65,310
|
|
Natural gas fixed price swaps
|
|
88,823
|
|
|
39,670
|
|
|
(11,551
|
)
|
Natural gas collars
|
|
—
|
|
|
29,883
|
|
|
—
|
|
Cash received on derivatives, net
|
|
88,823
|
|
|
69,553
|
|
|
385,350
|
|
Non-cash gain (loss) on derivatives:
|
|
|
|
|
|
|
Crude oil fixed price swaps
|
|
—
|
|
|
—
|
|
|
84,792
|
|
Crude oil collars
|
|
—
|
|
|
—
|
|
|
1,121
|
|
Crude oil written call options
|
|
38
|
|
|
4,715
|
|
|
3,981
|
|
Natural gas fixed price swaps
|
|
(120,784
|
)
|
|
41,828
|
|
|
62,699
|
|
Natural gas collars
|
|
(39,936
|
)
|
|
(25,011
|
)
|
|
21,816
|
|
Non-cash gain (loss) on derivatives, net
|
|
(160,682
|
)
|
|
21,532
|
|
|
174,409
|
|
Gain (loss) on crude oil and natural gas derivatives, net
|
|
$
|
(71,859
|
)
|
|
$
|
91,085
|
|
|
$
|
559,759
|
|
|
|
(1)
|
Net cash receipts for crude oil swaps and collars for the year ended December 31, 2014 include
$433 million
of proceeds received from crude oil derivative contracts that were settled in the fourth quarter of 2014 prior to their contractual maturities. Of the proceeds,
$373 million
related to crude oil swap liquidations and
$60 million
related to crude oil collar liquidations.
|
Diesel fuel derivatives
In March 2016, the Company entered into diesel fuel swap derivative contracts to economically hedge against the variability in cash flows associated with future purchases of diesel fuel for use in drilling activities. The Company has hedged approximately
12 million
gallons of diesel fuel over the period from January 2017 to December 2017 at a weighted average price of
$1.43
per gallon. With respect to these diesel fuel swap contracts, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is greater than the swap price, and the Company is required to make a payment to the counterparty if the settlement price for any settlement period is less than the swap price. The diesel fuel swap contracts are settled based upon reported NYMEX settlement prices for New York Harbor ultra-low sulfur diesel fuel.
The Company recognizes its diesel fuel derivative instruments on the balance sheet as either assets or liabilities measured at fair value. The estimated fair value is based upon various factors, including commodity exchange prices, over-the-counter quotations, the risk-free interest rate, and time to expiration. The Company has not designated its diesel fuel derivative instruments as hedges for accounting purposes and, as a result, marks the derivative instruments to fair value and recognizes the
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
changes in fair value in the consolidated statements of comprehensive income (loss) under the caption “Operating costs and expenses—Net gain on sale of assets and other.” For the year ended
December 31, 2016
, the Company recognized cash gains totaling
$0.7 million
on diesel fuel derivatives that matured during the period and non-cash gains totaling
$4.1 million
on diesel fuel derivatives that continue to be held at year-end.
Balance sheet offsetting of derivative assets and liabilities
The Company’s derivative contracts are recorded at fair value in the consolidated balance sheets under the captions “Derivative assets”, “Noncurrent derivative assets”, “Derivative liabilities”, and “Noncurrent derivative liabilities”. Derivative assets and liabilities with the same counterparty that are subject to contractual terms which provide for net settlement are reported on a net basis in the consolidated balance sheets.
The following table presents the gross amounts of recognized crude oil, natural gas, and diesel fuel derivative assets and liabilities, the amounts offset under netting arrangements with counterparties, and the resulting net amounts presented in the consolidated balance sheets for the periods presented, all at fair value.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
In thousands
|
|
2016
|
|
2015
|
Commodity derivative assets:
|
|
|
|
|
Gross amounts of recognized assets
|
|
$
|
4,061
|
|
|
$
|
120,385
|
|
Gross amounts offset on balance sheet
|
|
—
|
|
|
(11,903
|
)
|
Net amounts of assets on balance sheet
|
|
4,061
|
|
|
108,482
|
|
Commodity derivative liabilities:
|
|
|
|
|
Gross amounts of recognized liabilities
|
|
(59,489
|
)
|
|
(19,192
|
)
|
Gross amounts offset on balance sheet
|
|
—
|
|
|
11,903
|
|
Net amounts of liabilities on balance sheet
|
|
$
|
(59,489
|
)
|
|
$
|
(7,289
|
)
|
The following table reconciles the net amounts disclosed above to the individual financial statement line items in the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
In thousands
|
|
2016
|
|
2015
|
Derivative assets
|
|
$
|
4,061
|
|
|
$
|
93,922
|
|
Noncurrent derivative assets
|
|
—
|
|
|
14,560
|
|
Net amounts of assets on balance sheet
|
|
4,061
|
|
|
108,482
|
|
Derivative liabilities
|
|
(59,489
|
)
|
|
(3,583
|
)
|
Noncurrent derivative liabilities
|
|
—
|
|
|
(3,706
|
)
|
Net amounts of liabilities on balance sheet
|
|
(59,489
|
)
|
|
(7,289
|
)
|
Total derivative assets (liabilities), net
|
|
$
|
(55,428
|
)
|
|
$
|
101,193
|
|
Note 6. Fair Value Measurements
The Company follows a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:
|
|
•
|
Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date.
|
|
|
•
|
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. These are inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
|
|
|
•
|
Level 3: Unobservable inputs that are not corroborated by market data and may be used with internally developed methodologies that result in management’s best estimate of fair value.
|
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A financial instrument’s categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 inputs are given the highest priority in the fair value hierarchy while Level 3 inputs are given the lowest priority. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the hierarchy. As Level 1 inputs generally provide the most reliable evidence of fair value, the Company uses Level 1 inputs when available. The Company’s policy is to recognize transfers between the hierarchy levels as of the beginning of the reporting period in which the event or change in circumstances caused the transfer.
Assets and liabilities measured at fair value on a recurring basis
The Company's derivative instruments are reported at fair value on a recurring basis. In determining the fair values of fixed price swaps, a discounted cash flow method is used due to the unavailability of relevant comparable market data for the Company’s exact contracts. The discounted cash flow method estimates future cash flows based on quoted market prices for forward commodity prices and a risk-adjusted discount rate. The fair values of fixed price swaps are calculated mainly using significant observable inputs (Level 2). Calculation of the fair values of collars and written call options requires the use of an industry-standard option pricing model that considers various inputs including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. These assumptions are observable in the marketplace or can be corroborated by active markets or broker quotes and are therefore designated as Level 2 within the valuation hierarchy. The Company’s calculation of fair value for each of its derivative positions is compared to the counterparty valuation for reasonableness.
The following tables summarize the valuation of financial instruments by pricing levels that were accounted for at fair value on a recurring basis as of
December 31, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at December 31, 2016 using:
|
|
|
In thousands
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Derivative liabilities:
|
|
|
Fixed price swaps
|
|
$
|
—
|
|
|
$
|
(12,297
|
)
|
|
$
|
—
|
|
|
$
|
(12,297
|
)
|
Collars
|
|
—
|
|
|
(43,131
|
)
|
|
—
|
|
|
(43,131
|
)
|
Total
|
|
$
|
—
|
|
|
$
|
(55,428
|
)
|
|
$
|
—
|
|
|
$
|
(55,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at December 31, 2015 using:
|
|
|
|
In thousands
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Derivative assets (liabilities):
|
|
|
Fixed price swaps
|
|
$
|
—
|
|
|
$
|
104,426
|
|
|
$
|
—
|
|
|
$
|
104,426
|
|
Collars
|
|
—
|
|
|
(3,195
|
)
|
|
—
|
|
|
(3,195
|
)
|
Written call options
|
|
—
|
|
|
(38
|
)
|
|
$
|
—
|
|
|
(38
|
)
|
Total
|
|
$
|
—
|
|
|
$
|
101,193
|
|
|
$
|
—
|
|
|
$
|
101,193
|
|
Assets measured at fair value on a nonrecurring basis
Certain assets are reported at fair value on a nonrecurring basis in the consolidated financial statements. The following methods and assumptions were used to estimate the fair values for those assets.
Asset impairments –
Proved crude oil and natural gas properties are reviewed for impairment on a field-by-field basis each quarter. The estimated future cash flows expected in connection with the field are compared to the carrying amount of the field to determine if the carrying amount is recoverable. If the carrying amount of the field exceeds its estimated undiscounted future cash flows, the carrying amount of the field is reduced to its estimated fair value. Due to the unavailability of relevant comparable market data, a discounted cash flow method is used to determine the fair value of proved properties. The discounted cash flow method estimates future cash flows based on the Company's estimates of future crude oil and natural gas production, commodity prices based on commodity futures price strips adjusted for differentials, operating costs, and a risk-adjusted discount rate. The fair value of proved crude oil and natural gas properties is calculated using significant unobservable inputs (Level 3). The following table sets forth quantitative information about the significant unobservable inputs used by the Company to calculate the fair value of proved crude oil and natural gas properties using a discounted cash flow method.
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
|
|
Unobservable Input
|
|
Assumption
|
Future production
|
|
Future production estimates for each property
|
Forward commodity prices
|
|
Forward NYMEX swap prices through 2021 (adjusted for differentials), escalating 3% per year thereafter
|
Operating costs
|
|
Estimated costs for the current year, escalating 3% per year thereafter
|
Productive life of field
|
|
Ranging from 0 to 40 years
|
Discount rate
|
|
10%
|
Unobservable inputs to the fair value assessment are reviewed quarterly and are revised as warranted based on a number of factors, including reservoir performance, new drilling, crude oil and natural gas prices, changes in costs, technological advances, new geological or geophysical data, or other economic factors. Fair value measurements of proved properties are reviewed and approved by certain members of the Company’s management.
For the year ended
December 31, 2016
, the Company determined the carrying amounts of certain proved properties were not recoverable from future cash flows, and therefore, were impaired. Impairments of proved properties amounted to
$2.9 million
for
2016
, all of which were recognized in the third quarter primarily for properties in a non-core area of the North region. The impaired properties were written down to their estimated fair value of approximately
$0.7 million
.
Certain unproved crude oil and natural gas properties were impaired during the years ended
December 31, 2016
,
2015
, and
2014
, reflecting recurring amortization of undeveloped leasehold costs on properties the Company expects will not be transferred to proved properties over the lives of the leases based on drilling plans, experience of successful drilling, and the average holding period.
The following table sets forth the non-cash impairments of both proved and unproved properties for the indicated periods. Proved and unproved property impairments are recorded under the caption “Property impairments” in the consolidated statements of comprehensive income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Proved property impairments
|
|
$
|
2,895
|
|
|
$
|
138,878
|
|
|
$
|
324,302
|
|
Unproved property impairments
|
|
234,397
|
|
|
263,253
|
|
|
292,586
|
|
Total
|
|
$
|
237,292
|
|
|
$
|
402,131
|
|
|
$
|
616,888
|
|
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Financial instruments not recorded at fair value
The following table sets forth the fair values of financial instruments that are not recorded at fair value in the consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
In thousands
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
Debt:
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
905,000
|
|
|
$
|
905,000
|
|
|
$
|
853,000
|
|
|
$
|
853,000
|
|
Term loan
|
|
498,865
|
|
|
500,000
|
|
|
498,274
|
|
|
500,000
|
|
Note payable
|
|
12,176
|
|
|
10,200
|
|
|
14,309
|
|
|
12,500
|
|
7.375% Senior Notes due 2020 (1)
|
|
—
|
|
|
—
|
|
|
196,574
|
|
|
179,200
|
|
7.125% Senior Notes due 2021 (1)
|
|
—
|
|
|
—
|
|
|
395,365
|
|
|
388,300
|
|
5% Senior Notes due 2022
|
|
1,997,188
|
|
|
2,020,400
|
|
|
1,996,831
|
|
|
1,480,400
|
|
4.5% Senior Notes due 2023
|
|
1,484,524
|
|
|
1,474,800
|
|
|
1,482,451
|
|
|
1,061,000
|
|
3.8% Senior Notes due 2024
|
|
990,964
|
|
|
929,400
|
|
|
989,932
|
|
|
700,300
|
|
4.9% Senior Notes due 2044
|
|
691,199
|
|
|
607,600
|
|
|
691,052
|
|
|
430,500
|
|
Total debt
|
|
$
|
6,579,916
|
|
|
$
|
6,447,400
|
|
|
$
|
7,117,788
|
|
|
$
|
5,605,200
|
|
(1) The Company redeemed the 7.375% Senior Notes due 2020 and the 7.125% Senior Notes due 2021 on November 10, 2016. See
Note 7. Long-Term Debt
for further discussion of the redemptions.
The fair values of revolving credit facility borrowings and the term loan approximate carrying value based on borrowing rates available to the Company for bank loans with similar terms and maturities and are classified as Level 2 in the fair value hierarchy.
The fair value of the note payable is determined using a discounted cash flow approach based on the interest rate and payment terms of the note payable and an assumed discount rate. The fair value of the note payable is significantly influenced by the discount rate assumption, which is derived by the Company and is unobservable. Accordingly, the fair value of the note payable is classified as Level 3 in the fair value hierarchy.
The fair values of the 7.375% Senior Notes due 2020 (“2020 Notes”), the 7.125% Senior Notes due 2021 (“2021 Notes”), the 5% Senior Notes due 2022 (“2022 Notes”), the 4.5% Senior Notes due 2023 (“2023 Notes”), the 3.8% Senior Notes due 2024 (“2024 Notes”), and the 4.9% Senior Notes due 2044 (“2044 Notes”) are based on quoted market prices and, accordingly, are classified as Level 1 in the fair value hierarchy.
The carrying values of all classes of cash and cash equivalents, trade receivables, and trade payables are considered to be representative of their respective fair values due to the short term maturities of those instruments.
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 7. Long-Term Debt
Long-term debt, net of unamortized discounts, premiums, and debt issuance costs totaling
$37.3 million
and
$49.6 million
at
December 31, 2016
and
2015
, respectively, consists of the following.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
In thousands
|
|
2016
|
|
2015
|
Revolving credit facility
|
|
$
|
905,000
|
|
|
$
|
853,000
|
|
Term loan
|
|
498,865
|
|
|
498,274
|
|
Note payable
|
|
12,176
|
|
|
14,309
|
|
7.375% Senior Notes due 2020 (1)
|
|
—
|
|
|
196,574
|
|
7.125% Senior Notes due 2021 (1)
|
|
—
|
|
|
395,365
|
|
5% Senior Notes due 2022
|
|
1,997,188
|
|
|
1,996,831
|
|
4.5% Senior Notes due 2023
|
|
1,484,524
|
|
|
1,482,451
|
|
3.8% Senior Notes due 2024
|
|
990,964
|
|
|
989,932
|
|
4.9% Senior Notes due 2044
|
|
691,199
|
|
|
691,052
|
|
Total debt
|
|
6,579,916
|
|
|
7,117,788
|
|
Less: Current portion of long-term debt
|
|
2,219
|
|
|
2,144
|
|
Long-term debt, net of current portion
|
|
$
|
6,577,697
|
|
|
$
|
7,115,644
|
|
(1) The Company redeemed the 7.375% Senior Notes due 2020 and the 7.125% Senior Notes due 2021 on November 10, 2016 as discussed below.
Revolving credit facility
The Company has an unsecured revolving credit facility, maturing on May 16, 2019, with aggregate commitments totaling
$2.75 billion
at
December 31, 2016
, which may be increased up to a total of
$4.0 billion
upon agreement between the Company and participating lenders.
The Company had
$905 million
and
$853 million
of outstanding borrowings on its revolving credit facility at
December 31, 2016
and
2015
, respectively. Borrowings bear interest at market-based interest rates plus a margin based on the terms of the borrowing and the credit ratings assigned to the Company's senior, unsecured, long-term indebtedness. The weighted-average interest rate on outstanding borrowings at
December 31, 2016
was
2.4%
.
The Company had approximately
$1.84 billion
of borrowing availability on its revolving credit facility at
December 31, 2016
and incurs commitment fees based on currently assigned credit ratings of
0.30%
per annum on the daily average amount of unused borrowing availability under its revolving credit facility.
The revolving credit facility contains certain restrictive covenants including a requirement that the Company maintain a consolidated net debt to total capitalization ratio of no greater than
0.65
to 1.00. This ratio represents the ratio of net debt (calculated as total face value of debt plus outstanding letters of credit less cash and cash equivalents) divided by the sum of net debt plus total shareholders' equity plus, to the extent resulting in a reduction of total shareholders' equity, the amount of any non-cash impairment charges incurred, net of any tax effect, after June 30, 2014. The Company was in compliance with the revolving credit facility covenants at
December 31, 2016
.
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Senior notes
The following table summarizes the face values, maturity dates, semi-annual interest payment dates, and optional redemption periods related to the Company’s outstanding senior note obligations at
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 Notes
|
|
2023 Notes
|
|
2024 Notes
|
|
2044 Notes
|
Face value (in thousands)
|
|
|
$2,000,000
|
|
$1,500,000
|
|
$1,000,000
|
|
$700,000
|
Maturity date
|
|
|
Sep 15, 2022
|
|
April 15, 2023
|
|
June 1, 2024
|
|
June 1, 2044
|
Interest payment dates
|
|
|
March 15, Sep 15
|
|
April 15, Oct 15
|
|
June 1, Dec 1
|
|
June 1, Dec 1
|
Call premium redemption period (1)
|
|
|
March 15, 2017
|
|
—
|
|
—
|
|
—
|
Make-whole redemption period (2)
|
|
|
March 15, 2017
|
|
Jan 15, 2023
|
|
Mar 1, 2024
|
|
Dec 1, 2043
|
|
|
(1)
|
On or after this date, the Company has the option to redeem all or a portion of its 2022 Notes at the decreasing redemption prices specified in the indenture to the 2022 Notes plus any accrued and unpaid interest to the date of redemption.
|
|
|
(2)
|
At any time prior to these dates, the Company has the option to redeem all or a portion of its senior notes of the applicable series at the “make-whole” redemption prices or amounts specified in the respective senior note indentures plus any accrued and unpaid interest to the date of redemption. On or after these dates, the Company may redeem all or a portion of its senior notes at a redemption price equal to 100% of the principal amount of the senior notes being redeemed plus any accrued and unpaid interest to the date of redemption.
|
The Company’s senior notes are not subject to any mandatory redemption or sinking fund requirements.
The indentures governing the Company's senior notes contain covenants that, among other things, limit the Company's ability to create liens securing certain indebtedness, enter into certain sale-leaseback transactions, and consolidate, merge or transfer certain assets. The senior note covenants are subject to a number of important exceptions and qualifications. The Company was in compliance with these covenants at
December 31, 2016
. Three of the Company’s subsidiaries, Banner Pipeline Company, L.L.C., CLR Asset Holdings, LLC, and The Mineral Resources Company, which have no material assets or operations, fully and unconditionally guarantee the senior notes on a joint and several basis. The Company’s other subsidiaries, the value of whose assets and operations are minor, do not guarantee the senior notes.
2016 Redemptions of Senior Notes
On November 10, 2016, the Company redeemed its then outstanding 7.375% Senior Notes due 2020 and 7.125% Senior Notes due 2021. The redemption price for the 2020 Notes was equal to
102.458%
of the
$200 million
principal amount plus accrued and unpaid interest to the redemption date in accordance with the terms of the 2020 Notes and related indenture. The redemption price for the 2021 Notes was equal to
103.563%
of the
$400 million
principal amount plus accrued and unpaid interest to the redemption date in accordance with the terms of the 2021 Notes and related indenture.
The aggregate of the principal amounts, redemption premiums, and accrued interest paid upon redemption of the 2020 Notes and 2021 Notes was
$623.9 million
. The Company funded the redemptions using borrowings under its revolving credit facility. Such borrowings offset the Company's previous reduction of outstanding credit facility borrowings which used proceeds totaling approximately
$631.5 million
from asset dispositions completed in 2016, resulting in no net increase in total debt associated with the redemptions.
The Company recognized a pre-tax loss totaling
$26.1 million
related to the redemptions, which includes the call premiums and write-off of deferred financing costs and unaccreted debt discounts associated with the notes and is reflected under the caption “Loss on extinguishment of debt" in the consolidated statements of comprehensive income (loss) for the year ended
December 31, 2016
.
2014 Redemption of Senior Notes
In July 2014, the Company redeemed its then outstanding
$300 million
of 8.25% Senior Notes due 2019 for
$317.5 million
, representing a make-whole amount calculated in accordance with the terms of the notes and related indenture. The Company recognized a pre-tax loss of
$24.5 million
related to the redemption, which included the make-whole premium and the write-off of deferred financing costs and unaccreted debt discount and is reflected under the caption “Loss on extinguishment of debt" in the consolidated statements of comprehensive income (loss) for the year ended December 31, 2014.
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Term loan
In November 2015, the Company borrowed
$500 million
under a three-year term loan agreement, the proceeds of which were used to repay a portion of the borrowings then outstanding on the Company's revolving credit facility. The term loan matures in full on November 4, 2018 and bears interest at a variable market-based interest rate plus a margin based on the terms of the borrowing and the credit ratings assigned to the Company's senior, unsecured, long-term indebtedness. The interest rate on the term loan at
December 31, 2016
was
2.3%
.
The term loan contains certain restrictive covenants including a requirement that the Company maintain a consolidated net debt to total capitalization ratio of no greater than
0.65
to 1.0, consistent with the covenant requirement in the Company's revolving credit facility. The Company was in compliance with the term loan covenants at
December 31, 2016
.
Note payable
In February 2012, 20 Broadway Associates LLC, a 100% owned subsidiary of the Company, borrowed
$22 million
under a
10
-year amortizing term loan secured by the Company’s corporate office building in Oklahoma City, Oklahoma. The loan bears interest at a fixed rate of
3.1%
per annum. Principal and interest are payable monthly through the loan’s maturity date of
February 26, 2022
. Accordingly, approximately
$2.2 million
is reflected as a current liability under the caption “Current portion of long-term debt” in the consolidated balance sheets at
December 31, 2016
.
Note 8. Income Taxes
The items comprising the provision (benefit) for income taxes are as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Current income tax provision (benefit):
|
|
|
|
|
|
|
United States federal (1)
|
|
(22,941
|
)
|
|
—
|
|
|
—
|
|
Various states
|
|
2
|
|
|
24
|
|
|
20
|
|
Total current income tax provision (benefit)
|
|
(22,939
|
)
|
|
24
|
|
|
20
|
|
Deferred income tax provision (benefit):
|
|
|
|
|
|
|
United States federal
|
|
(182,422
|
)
|
|
(140,578
|
)
|
|
527,315
|
|
Various states
|
|
(27,414
|
)
|
|
(40,863
|
)
|
|
57,362
|
|
Total deferred income tax provision (benefit)
|
|
(209,836
|
)
|
|
(181,441
|
)
|
|
584,677
|
|
Provision (benefit) for income taxes
|
|
$
|
(232,775
|
)
|
|
$
|
(181,417
|
)
|
|
$
|
584,697
|
|
(1) The current federal income tax benefit for the year ended December 31, 2016 represents alternative minimum tax refunds.
The provision (benefit) for income taxes differs from the amount computed by applying the United States statutory federal income tax rate to income (loss) before income taxes. The sources and tax effects of the difference are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Expected income tax expense (benefit) based on US statutory tax rate of 35%
|
|
$
|
(221,359
|
)
|
|
$
|
(187,280
|
)
|
|
$
|
546,713
|
|
State income taxes, net of federal benefit
|
|
(18,829
|
)
|
|
(16,219
|
)
|
|
42,169
|
|
Canadian valuation allowance
|
|
1,044
|
|
|
13,503
|
|
|
4,389
|
|
Effect of differing statutory tax rate in Canada
|
|
481
|
|
|
5,239
|
|
|
(1,900
|
)
|
Other, net
|
|
5,888
|
|
|
3,340
|
|
|
(6,674
|
)
|
Provision (benefit) for income taxes
|
|
$
|
(232,775
|
)
|
|
$
|
(181,417
|
)
|
|
$
|
584,697
|
|
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The components of the Company’s deferred tax assets and deferred tax liabilities as of
December 31, 2016
and
2015
are reflected in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
In thousands
|
|
2016
|
|
2015
|
Deferred tax assets
|
|
|
|
|
United States net operating loss carryforwards
|
|
478,975
|
|
|
398,024
|
|
Canadian net operating loss carryforwards
|
|
18,936
|
|
|
17,892
|
|
Alternative minimum tax carryforwards
|
|
16,663
|
|
|
40,796
|
|
Equity compensation
|
|
32,924
|
|
|
32,910
|
|
Non-cash losses on derivatives
|
|
21,064
|
|
|
—
|
|
Other
|
|
11,466
|
|
|
11,048
|
|
Total deferred tax assets
|
|
580,028
|
|
|
500,670
|
|
Canadian valuation allowance
|
|
(18,936
|
)
|
|
(17,892
|
)
|
Total deferred tax assets, net of valuation allowance
|
|
561,092
|
|
|
482,778
|
|
Deferred tax liabilities
|
|
|
|
|
Property and equipment
|
|
(2,448,450
|
)
|
|
(2,528,125
|
)
|
Non-cash gains on derivatives
|
|
—
|
|
|
(38,452
|
)
|
Gain on derivative liquidation
|
|
—
|
|
|
(4,158
|
)
|
Other
|
|
(2,947
|
)
|
|
(2,271
|
)
|
Total deferred tax liabilities
|
|
(2,451,397
|
)
|
|
(2,573,006
|
)
|
Deferred income tax liabilities, net
|
|
$
|
(1,890,305
|
)
|
|
$
|
(2,090,228
|
)
|
As of
December 31, 2016
, the Company had federal and state net operating loss carryforwards of
$1.08 billion
and
$2.17 billion
, respectively. The federal net operating loss carryforward will begin expiring in 2033. The Company's net operating loss carryforward in Oklahoma totaled
$1.56 billion
at
December 31, 2016
, which will begin to expire in 2027. The Company's net operating loss carryforward in North Dakota totaled
$530 million
at
December 31, 2016
, which will begin to expire in 2033. The Company has alternative minimum tax credit carryforwards of
$17 million
that have no expiration date. Any available statutory depletion carryforwards will be recognized when realized. The Company files income tax returns in the U.S. federal, U.S. state and Canadian jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2013.
The Company recorded valuation allowances of
$1.0 million
,
$13.5 million
and
$4.4 million
against Canadian deferred tax assets for the years ended
December 31, 2016
, 2015 and 2014, respectively, which resulted in a cumulative valuation allowance of
$18.9 million
as of
December 31, 2016
. Our Canadian subsidiary has generated operating loss carryforwards for which we do not believe we will realize a benefit. The amount of deferred tax assets considered realizable, however, could change if our subsidiary generates taxable income.
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 9. Lease Commitments
The Company’s operating lease obligations primarily represent leases for land and road use, office equipment, and communication towers. Lease payments associated with operating leases for the years ended
December 31, 2016
,
2015
and
2014
were
$4.4 million
,
$9.6 million
and
$8.0 million
, respectively, a portion of which was capitalized and/or billed to other interest owners. At
December 31, 2016
, the minimum future rental commitments under operating leases having lease terms in excess of one year are as follows:
|
|
|
|
|
|
In thousands
|
|
Total amount
|
2017
|
|
$
|
1,624
|
|
2018
|
|
1,376
|
|
2019
|
|
746
|
|
2020
|
|
643
|
|
2021
|
|
476
|
|
Thereafter
|
|
7,629
|
|
Total obligations
|
|
$
|
12,494
|
|
Note 10. Commitments and Contingencies
Included below is a discussion of various future commitments of the Company as of
December 31, 2016
. The commitments under these arrangements are not recorded in the accompanying consolidated balance sheets.
Drilling commitments –
As of
December 31, 2016
, the Company has drilling rig contracts with various terms extending to
January 2020
to ensure rig availability in its key operating areas. Future commitments as of
December 31, 2016
total approximately
$227 million
, of which
$138 million
is expected to be incurred in 2017,
$59 million
in 2018,
$29 million
in 2019, and
$1 million
in 2020.
Transportation and processing commitments –
The Company has entered into transportation and processing commitments to guarantee capacity on crude oil and natural gas pipelines and natural gas processing facilities. The commitments, which have varying terms extending as far as 2027,
require the Company to pay per-unit transportation or processing charges regardless of the amount of capacity used. Future commitments remaining as of
December 31, 2016
under the arrangements amount to approximately
$840 million
, of which
$221 million
is expected to be incurred in 2017,
$215 million
in 2018,
$162 million
in 2019,
$55 million
in 2020,
$44 million
in 2021, and
$143 million
thereafter. The Company’s commitments are for production primarily in the North region. The Company is not committed under these contracts to deliver fixed and determinable quantities of crude oil or natural gas in the future.
Litigation –
In November 2010, a putative class action was filed in the District Court of Blaine county, Oklahoma by Billy J. Strack and Daniela A. Renner as trustees of certain named trusts and on behalf of other similarly situated parties against the Company. The Petition alleged the Company improperly deducted post-production costs from royalties paid to plaintiffs and other royalty interest owners from crude oil and natural gas wells located in Oklahoma. The plaintiffs alleged a number of claims, including breach of contract, fraud, breach of fiduciary duty, unjust enrichment, and other claims and seek recovery of compensatory damages, interest, punitive damages and attorney fees on behalf of the proposed class. On November 3, 2014, plaintiffs filed an Amended Petition that did not add any substantive claims, but sought a “hybrid class action” in which they sought certification of certain claims for injunctive relief, reserving the right to seek a further class certification on money damages in the future. Plaintiffs filed an Amended Motion for Class Certification on January 9, 2015, that modified the proposed class to royalty owners in Oklahoma production from July 1, 1993, to the present (instead of 1980 to the present) and sought certification of over 45 separate “issues” for injunctive or declaratory relief, again, reserving the right to seek a further class certification of money damages in the future. The Company responded to the petition, its amendment, and the motions for class certification denying the allegations and raising a number of affirmative defenses and legal arguments to each of the claims and filings. Certain discovery was undertaken and the “hybrid” motion was briefed by plaintiffs and the Company. A hearing on the “hybrid” class certification was held on June 1 and 2, 2015. On June 11, 2015, the trial court certified a “hybrid” class as requested by plaintiffs. The Company appealed the trial court’s class certification order. On February 8, 2017, the Court of Civil Appeals reversed the trial court’s ruling on certification and remanded the case for further proceedings. The Company is not currently able to estimate a reasonably possible loss or range of loss or what impact, if any, the ultimate resolution of the action will have on its financial condition, results of operations or cash flows due to the preliminary status of the matter, the complexity and number of legal and factual issues presented by the matter and uncertainties with respect to, among other things, the nature of the claims and defenses, the potential size of the class, the scope and types of the properties and agreements involved, the production years involved, and the ultimate potential outcome of the matter. It is reasonably possible
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
one or more events may occur in the near term that could impact the Company’s ability to estimate the potential effect this matter could have, if any, on its financial condition, results of operations or cash flows. Plaintiffs have alleged underpayments in excess of
$200 million
that they may claim as damages, which may increase with the passage of time, a majority of which would be comprised of interest. The Company disputes plaintiffs’ claims, disputes the case meets the requirements for a class action and continues to vigorously defend the case. An unsuccessful mediation was conducted on December 7, 2015. The parties continue to negotiate a possible resolution to the case. However, it is unclear and unforeseeable whether the parties' efforts will result in settlement and the Company will continue to defend the case on all merits and certification issues and, absent settlement, intends to defend the case to a final judgment.
The Company is involved in various other legal proceedings including, but not limited to, commercial disputes, claims from royalty and surface owners, property damage claims, personal injury claims, disputes with tax authorities and other matters. While the outcome of such other legal matters cannot be predicted with certainty, the Company does not expect them to have a material effect on its financial condition, results of operations or cash flows. As of
December 31, 2016
and
2015
, the Company had recorded a liability on the consolidated balance sheets under the caption “Other noncurrent liabilities” of
$6.5 million
and
$6.1 million
, respectively, for various matters, none of which are believed to be individually significant.
Environmental risk –
Due to the nature of the crude oil and natural gas business, the Company is exposed to possible environmental risks. The Company is not aware of any material environmental issues or claims.
Note 11. Related Party Transactions
The affiliate transactions reflected in the consolidated statements of comprehensive income (loss) include transactions between the Company and Hiland Partners, LP and its subsidiaries ("Hiland"). Hiland was controlled by the Company's principal shareholder through February 13, 2015, at which time it was sold to an unaffiliated third party. As a result of the sale, the prior related party relationship between the Company and Hiland terminated as of February 13, 2015, which resulted in a reduction in certain affiliate transactions recognized in the Company's financial statements subsequent to that date.
The Company historically sold a portion of its natural gas production to Hiland. For the years ended December 31,
2015
and
2014
, these sales amounted to
$1.4 million
and
$95.1 million
, respectively, net of transportation and processing costs, and are included in the caption “Crude oil and natural gas sales to affiliates” in the consolidated statements of comprehensive income (loss).
The Company capitalized costs of
$0.1 million
,
$2.6 million
and
$5.9 million
in
2016
,
2015
, and
2014
, respectively, associated with drilling rig services and demobilization of a drilling rig provided by an affiliate. Hiland historically provided field services such as compression, purchases of residue fuel gas and reclaimed crude oil, and reimbursements of generator rentals and fuel. Production and other expenses attributable to these transactions with Hiland were
$1.7 million
and
$5.1 million
for the years ended December 31,
2015
and
2014
, respectively. The total amount paid to these affiliates, a portion of which was billed to other interest owners, was
$0.1 million
,
$7.7 million
and
$58.2 million
for the years ended December 31,
2016
,
2015
, and
2014
, respectively. Nothing was due to these affiliates at December 31,
2016
and
2015
related to the transactions.
Certain officers of the Company own or control entities that own working and royalty interests in wells operated by the Company. The Company paid revenues to these affiliates, including royalties, of
$0.4 million
,
$0.7 million
, and
$1.7 million
and received payments from these affiliates of
$0.3 million
,
$0.5 million
, and
$0.8 million
during the years ended
December 31, 2016
,
2015
, and
2014
, respectively, relating to the operations of the respective properties. At
December 31, 2016
and
2015
, approximately
$90,000
and
$106,000
was due from these affiliates, respectively, and approximately
$45,000
and
$52,000
was due to these affiliates, respectively, relating to these transactions.
The Company allows certain affiliates to use its corporate aircraft and crews and has used the aircraft and crews of those same affiliates from time to time in order to facilitate efficient transportation of Company personnel. The rates charged between the parties vary by type of aircraft used. In 2016, the Company also purchased an existing prepaid maintenance account from an affiliate for use in major engine overhaul to be applied as needed for corporate aircrafts. For usage during
2016
,
2015
, and
2014
, the Company charged affiliates approximately
$9,500
,
$9,600
, and
$51,000
, respectively, for use of its corporate aircraft, crews, fuel, utilities and reimbursement of expenses and received approximately
$6,800
,
$33,000
, and
$39,000
from affiliates in
2016
,
2015
, and
2014
, respectively. The Company was charged approximately
$292,000
,
$236,000
, and
$97,000
, respectively, by affiliates for use of their aircraft and reimbursement of expenses during
2016
(including the prepayment),
2015
, and
2014
and paid
$195,000
,
$221,000
, and
$34,000
to the affiliates in
2016
,
2015
, and
2014
, respectively. At
December 31, 2016
and
2015
, approximately
$3,400
and
$1,000
was due from an affiliate, respectively, and approximately
$97,000
and
$15,000
was due to an affiliate, respectively, relating to these transactions.
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Company incurred costs for various field projects that had been ongoing with an entity that became an affiliate of the Company in the third quarter of 2014. During the fourth quarter of 2015, the affiliate relationship terminated. The total amount invoiced and capitalized for 2015 and 2014 associated with the projects was
$8.8 million
and
$1.8 million
, respectively. The total amount paid, a portion of which was billed to other interest owners, was
$9.2 million
and
$1.9 million
for 2015 and 2014 respectively.
Note 12. Stock-Based Compensation
The Company has granted restricted stock to employees and directors pursuant to the Continental Resources, Inc. 2013 Long-Term Incentive Plan ("2013 Plan") as discussed below. The Company’s associated compensation expense, which is included in the caption “General and administrative expenses” in the consolidated statements of comprehensive income (loss), was
$48.1 million
,
$51.8 million
, and
$54.4 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
In May 2013, the Company adopted the 2013 Plan and reserved
19,680,072
shares of common stock that may be issued pursuant to the plan. As of
December 31, 2016
, the Company had
15,265,952
shares of common stock available for long-term incentive awards to employees and directors under the 2013 Plan.
Restricted stock is awarded in the name of the recipient and constitutes issued and outstanding shares of the Company’s common stock for all corporate purposes during the period of restriction and, except as otherwise provided under the 2013 Plan or agreement relevant to a given award, includes the right to vote the restricted stock or to receive dividends, subject to forfeiture. Restricted stock grants generally vest over periods ranging from
one
to
three
years.
A summary of changes in non-vested restricted shares from December 31,
2013
to
December 31, 2016
is presented below.
|
|
|
|
|
|
|
|
|
|
|
Number of
non-vested
shares
|
|
Weighted
average
grant-date
fair value
|
Non-vested restricted shares at December 31, 2013
|
|
2,714,312
|
|
|
$
|
37.50
|
|
Granted
|
|
1,424,764
|
|
|
61.11
|
|
Vested
|
|
(1,007,166
|
)
|
|
35.91
|
|
Forfeited
|
|
(453,146
|
)
|
|
44.90
|
|
Non-vested restricted shares at December 31, 2014
|
|
2,678,764
|
|
|
$
|
49.40
|
|
Granted
|
|
1,462,534
|
|
|
46.65
|
|
Vested
|
|
(555,517
|
)
|
|
48.07
|
|
Forfeited
|
|
(336,170
|
)
|
|
51.23
|
|
Non-vested restricted shares at December 31, 2015
|
|
3,249,611
|
|
|
$
|
48.20
|
|
Granted
|
|
2,064,508
|
|
|
22.36
|
|
Vested
|
|
(1,207,235
|
)
|
|
41.27
|
|
Forfeited
|
|
(193,250
|
)
|
|
39.79
|
|
Non-vested restricted shares at December 31, 2016
|
|
3,913,634
|
|
|
$
|
37.12
|
|
The grant date fair value of restricted stock represents the closing market price of the Company’s common stock on the date of grant. Compensation expense for a restricted stock grant is a fixed amount determined at the grant date fair value and is recognized ratably over the vesting period as services are rendered by employees and directors. There are no post-vesting restrictions related to the Company’s restricted stock. The fair value at the vesting date of restricted stock that vested during
2016
,
2015
and
2014
was
$30.0 million
,
$23.6 million
and
$58.2 million
, respectively. As of
December 31, 2016
, there was approximately
$55 million
of unrecognized compensation expense related to non-vested restricted stock. This expense is expected to be recognized
over a weighted average period of
1.4
years.
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 13. Accumulated Other Comprehensive Loss
Adjustments resulting from the process of translating foreign functional currency financial statements into U.S. dollars are included in "Accumulated other comprehensive loss" within shareholders’ equity on the consolidated balance sheets. The following table summarizes the change in accumulated other comprehensive loss for the years ended
December 31, 2016
,
2015
, and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Beginning accumulated other comprehensive loss, net of tax
|
|
$
|
(3,354
|
)
|
|
$
|
(385
|
)
|
|
$
|
—
|
|
Foreign currency translation adjustments
|
|
3,094
|
|
|
(2,969
|
)
|
|
(385
|
)
|
Income taxes (1)
|
|
—
|
|
|
—
|
|
|
—
|
|
Other comprehensive income (loss), net of tax
|
|
3,094
|
|
|
(2,969
|
)
|
|
(385
|
)
|
Ending accumulated other comprehensive loss, net of tax
|
|
$
|
(260
|
)
|
|
$
|
(3,354
|
)
|
|
$
|
(385
|
)
|
|
|
(1)
|
A valuation allowance has been recognized against all deferred tax assets associated with losses generated by the Company's Canadian operations, thereby resulting in no income taxes on other comprehensive income (loss).
|
Note 14. Property Dispositions
2016
In October 2016, the Company sold approximately
30,000
net acres of non-strategic leasehold located in the SCOOP play in Oklahoma for cash proceeds totaling
$295.6 million
. The leasehold was located primarily in the eastern portion of the SCOOP play and included producing properties with production totaling approximately
700
barrels of oil equivalent per day. In connection with the transaction, the Company recognized a pre-tax gain of
$201.0 million
. The disposed properties represented an immaterial portion of the Company’s proved reserves.
In September 2016, the Company sold non-strategic properties in North Dakota and Montana to a third party for cash proceeds of
$214.8 million
, with no gain or loss recognized. The sale included approximately
68,000
net acres of leasehold primarily in western Williams county, North Dakota, and approximately
12,000
net acres of leasehold in Roosevelt county, Montana. The sale also included producing properties with production totaling approximately
2,700
barrels of oil equivalent per day. The disposed properties represented an immaterial portion of the Company’s proved reserves.
In April 2016, the Company sold approximately
132,000
net acres of undeveloped leasehold acreage located in Wyoming to a third party for cash proceeds of
$110.0 million
. In connection with the transaction, the Company recognized a pre-tax gain of
$96.9 million
. The disposed properties had no production or proved reserves.
2015
During the year ended
December 31, 2015
, the Company sold certain non-strategic properties in various areas to third parties for proceeds totaling
$34.0 million
. The proceeds primarily related to the disposition of certain non-producing leasehold acreage in Oklahoma to a third party for
$25.9 million
in May 2015. The Company recognized a pre-tax gain on the transaction of
$20.5 million
. The disposed properties represented an immaterial portion of the Company’s leasehold acreage.
2014
During the year ended
December 31, 2014
, the Company sold certain non-strategic properties in various areas to third parties for proceeds totaling
$129.4 million
. The proceeds primarily related to dispositions of properties in the Niobrara play in Colorado and Wyoming in March 2014 for proceeds totaling
$30.3 million
and
$85.8 million
of proceeds received in conjunction with the disposition of certain Oklahoma properties in September 2014, with no significant gains or losses recognized. The disposed properties represented an immaterial portion of the Company’s total proved reserves, production, and revenues.
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 15. Crude Oil and Natural Gas Property Information
The tables reflected below represent consolidated figures for the Company and its subsidiaries. In 2014, the Company initiated exploratory drilling activities in Canada. Through December 31, 2016, those drilling activities have not had a material impact on the Company's total capital expenditures, production, and revenues. Accordingly, the results of operations, costs incurred, and capitalized costs associated with the Canadian operations have not been shown separately from the consolidated figures in the tables below.
The following table sets forth the Company’s consolidated results of operations from crude oil and natural gas producing activities for the years ended December 31,
2016
,
2015
and
2014
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Crude oil and natural gas sales
|
|
$
|
2,026,958
|
|
|
$
|
2,552,531
|
|
|
$
|
4,203,022
|
|
Production expenses
|
|
(289,289
|
)
|
|
(348,897
|
)
|
|
(352,472
|
)
|
Production taxes and other expenses
|
|
(142,388
|
)
|
|
(200,637
|
)
|
|
(349,760
|
)
|
Exploration expenses
|
|
(16,972
|
)
|
|
(19,413
|
)
|
|
(50,067
|
)
|
Depreciation, depletion, amortization and accretion
|
|
(1,679,485
|
)
|
|
(1,722,336
|
)
|
|
(1,338,351
|
)
|
Property impairments
|
|
(237,292
|
)
|
|
(402,131
|
)
|
|
(616,888
|
)
|
Income tax benefit (provision)
|
|
126,794
|
|
|
33,680
|
|
|
(559,311
|
)
|
Results from crude oil and natural gas producing activities
|
|
$
|
(211,674
|
)
|
|
$
|
(107,203
|
)
|
|
$
|
936,173
|
|
Costs incurred in crude oil and natural gas activities
Costs incurred, both capitalized and expensed, in connection with the Company’s consolidated crude oil and natural gas acquisition, exploration and development activities for the years ended December 31,
2016
,
2015
and
2014
are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Property acquisition costs:
|
|
|
|
|
|
|
Proved
|
|
$
|
5,008
|
|
|
$
|
557
|
|
|
$
|
48,917
|
|
Unproved
|
|
149,962
|
|
|
168,492
|
|
|
409,529
|
|
Total property acquisition costs
|
|
154,970
|
|
|
169,049
|
|
|
458,446
|
|
Exploration Costs
|
|
182,355
|
|
|
241,523
|
|
|
863,606
|
|
Development Costs
|
|
767,148
|
|
|
2,148,530
|
|
|
3,670,448
|
|
Total
|
|
$
|
1,104,473
|
|
|
$
|
2,559,102
|
|
|
$
|
4,992,500
|
|
Costs incurred above include asset retirement costs and revisions thereto of
($9.6) million
,
$22.8 million
and
$20.3 million
for the years ended December 31,
2016
,
2015
and
2014
, respectively.
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Aggregate capitalized costs
Aggregate capitalized costs relating to the Company’s consolidated crude oil and natural gas producing activities and related accumulated depreciation, depletion and amortization as of December 31,
2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
In thousands
|
|
2016
|
|
2015
|
Proved crude oil and natural gas properties
|
|
$
|
19,802,395
|
|
|
$
|
19,520,724
|
|
Unproved crude oil and natural gas properties
|
|
429,562
|
|
|
682,988
|
|
Total
|
|
20,231,957
|
|
|
20,203,712
|
|
Less accumulated depreciation, depletion and amortization
|
|
(7,553,255
|
)
|
|
(6,374,218
|
)
|
Net capitalized costs
|
|
$
|
12,678,702
|
|
|
$
|
13,829,494
|
|
Under the successful efforts method of accounting, the costs of drilling an exploratory well are capitalized pending determination of whether proved reserves can be attributed to the discovery. When initial drilling operations are complete, management attempts to determine whether the well has discovered crude oil and natural gas reserves and, if so, whether those reserves can be classified as proved reserves. Often, the determination of whether proved reserves can be recorded under SEC guidelines cannot be made when drilling is completed. In those situations where management believes that economically producible hydrocarbons have not been discovered, the exploratory drilling costs are reflected on the consolidated statements of comprehensive income (loss) as dry hole costs, a component of “Exploration expenses”. Where sufficient hydrocarbons have been discovered to justify further exploration or appraisal activities, exploratory drilling costs are deferred under the caption “Net property and equipment” on the consolidated balance sheets pending the outcome of those activities.
On a quarterly basis, operating and financial management review the status of all deferred exploratory drilling costs in light of ongoing exploration activities—in particular, whether the Company is making sufficient progress in its ongoing exploration and appraisal efforts. If management determines that future appraisal drilling or development activities are not likely to occur, any associated exploratory well costs are expensed in that period of determination.
The following table presents the amount of capitalized exploratory drilling costs pending evaluation at December 31 for each of the last three years and changes in those amounts during the years then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Balance at January 1
|
|
$
|
59,397
|
|
|
$
|
93,421
|
|
|
$
|
152,775
|
|
Additions to capitalized exploratory well costs pending determination of proved reserves
|
|
123,980
|
|
|
132,806
|
|
|
627,853
|
|
Reclassification to proved crude oil and natural gas properties based on the determination of proved reserves
|
|
(141,941
|
)
|
|
(160,779
|
)
|
|
(671,618
|
)
|
Capitalized exploratory well costs charged to expense
|
|
(6,584
|
)
|
|
(6,051
|
)
|
|
(15,589
|
)
|
Balance at December 31
|
|
$
|
34,852
|
|
|
$
|
59,397
|
|
|
$
|
93,421
|
|
Number of gross wells
|
|
54
|
|
|
73
|
|
|
119
|
|
As of
December 31, 2016
, the Company had no significant exploratory drilling costs that were suspended one year beyond the completion of drilling.
Note 16. Supplemental Crude Oil and Natural Gas Information (Unaudited)
The table below shows estimates of proved reserves prepared by the Company’s internal technical staff and independent external reserve engineers in accordance with SEC definitions. Ryder Scott Company, L.P. ("Ryder Scott") prepared reserve estimates for properties comprising approximately
99%
,
99%
, and
99%
of the Company’s discounted future net cash flows (PV-10) as of December 31,
2016
,
2015
, and
2014
, respectively. Properties comprising
99%
,
98%
, and
98%
of total proved reserves were evaluated by Ryder Scott as of December 31,
2016
,
2015
, and
2014
, respectively. Remaining reserve estimates were prepared by the Company’s internal technical staff. All proved reserves stated herein are located in the United States. No proved reserves have been included for the Company's Canadian operations as of December 31,
2016
,
2015
, and
2014
.
Proved reserves are estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be economically producible in future periods from known reservoirs under existing economic
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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. There are numerous uncertainties inherent in estimating quantities of proved crude oil and natural gas reserves. Crude oil and natural gas reserve engineering is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be precisely measured, and estimates of engineers other than the Company’s might differ materially from the estimates set forth herein. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Periodic revisions to the estimated reserves and future cash flows may be necessary as a result of a number of factors, including reservoir performance, new drilling, crude oil and natural gas prices, changes in costs, technological advances, new geological or geophysical data, or other economic factors. Accordingly, reserve estimates may differ significantly from the quantities of crude oil and natural gas ultimately recovered.
Reserves at December 31,
2016
,
2015
and
2014
were computed using the 12-month unweighted average of the first-day-of-the-month commodity prices as required by SEC rules.
Natural gas imbalance receivables and payables for each of the three years ended December 31,
2016
,
2015
and
2014
were not material and have not been included in the reserve estimates.
Proved crude oil and natural gas reserves
Changes in proved reserves were as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil
(MBbls)
|
|
Natural Gas
(MMcf)
|
|
Total
(MBoe)
|
Proved reserves as of December 31, 2013
|
|
737,788
|
|
|
2,078,020
|
|
|
1,084,125
|
|
Revisions of previous estimates
|
|
(67,151
|
)
|
|
(244,783
|
)
|
|
(107,949
|
)
|
Extensions, discoveries and other additions
|
|
239,526
|
|
|
1,206,569
|
|
|
440,621
|
|
Production
|
|
(44,530
|
)
|
|
(114,295
|
)
|
|
(63,579
|
)
|
Sales of minerals in place
|
|
(123
|
)
|
|
(18,623
|
)
|
|
(3,227
|
)
|
Purchases of minerals in place
|
|
850
|
|
|
1,498
|
|
|
1,100
|
|
Proved reserves as of December 31, 2014
|
|
866,360
|
|
|
2,908,386
|
|
|
1,351,091
|
|
Revisions of previous estimates
|
|
(246,840
|
)
|
|
(302,143
|
)
|
|
(297,198
|
)
|
Extensions, discoveries and other additions
|
|
134,764
|
|
|
710,453
|
|
|
253,173
|
|
Production
|
|
(53,517
|
)
|
|
(164,454
|
)
|
|
(80,926
|
)
|
Sales of minerals in place
|
|
(253
|
)
|
|
(456
|
)
|
|
(329
|
)
|
Purchases of minerals in place
|
|
—
|
|
|
—
|
|
|
—
|
|
Proved reserves as of December 31, 2015
|
|
700,514
|
|
|
3,151,786
|
|
|
1,225,811
|
|
Revisions of previous estimates
|
|
(99,966
|
)
|
|
(63,057
|
)
|
|
(110,474
|
)
|
Extensions, discoveries and other additions
|
|
97,587
|
|
|
911,062
|
|
|
249,430
|
|
Production
|
|
(46,850
|
)
|
|
(195,240
|
)
|
|
(79,390
|
)
|
Sales of minerals in place
|
|
(8,057
|
)
|
|
(14,733
|
)
|
|
(10,513
|
)
|
Purchases of minerals in place
|
|
—
|
|
|
—
|
|
|
—
|
|
Proved reserves as of December 31, 2016
|
|
643,228
|
|
|
3,789,818
|
|
|
1,274,864
|
|
Revisions of previous estimates.
Revisions represent changes in previous reserve estimates, either upward or downward, resulting from new information normally obtained from development drilling and production history or resulting from a change in economic factors, such as commodity prices, operating costs or development costs.
Downward revisions to proved reserves in 2016 resulted in part from decreases in average commodity prices during the year. The 12-month average price for crude oil decreased
15%
from
$50.28
per Bbl for 2015 to
$42.75
per Bbl for 2016, while the 12-month average price for natural gas decreased
3%
from
$2.58
per MMBtu for 2015 to
$2.49
per MMBtu for 2016. These decreases shortened the economic lives of certain producing properties and caused certain exploration and development projects to become uneconomic which had an adverse impact on the Company's proved reserve estimates, resulting in downward revisions of
20
MMBo and
50
Bcf (totaling
28
MMBoe) in 2016.
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
In response to the prolonged decrease in commodity prices throughout the majority of 2016, the Company further refined its capital program to focus on areas that provide the greatest opportunities to convert undeveloped acreage to acreage held by production, achieve operating efficiencies and cost reductions through multi-well pad drilling, and improve recoveries, cash flows and rates of return using enhanced completions. As part of this effort, the Company shifted a significant portion of its 2016 spending away from the Bakken to areas in Oklahoma that offered more advantageous opportunities. This shift, a longer and more severe decrease in crude oil prices than anticipated, and the Company's increased emphasis on balancing capital spending with cash flows have altered the timing and extent of previous development plans in certain areas and resulted in the removal of
51
MMBo and
118
Bcf (totaling
70
MMBoe) of proved undeveloped reserves no longer scheduled to be developed within five years from the date of initial booking, primarily in the Bakken.
Additionally, changes in anticipated production performance on certain properties resulted in
37
MMBo of downward revisions to crude oil proved reserves and
166
Bcf of upward revisions to natural gas proved reserves (netting to
9
MMBoe of downward revisions) in 2016. Further, changes in ownership interests, operating costs, and other factors during 2016 resulted in
7
MMBo of upward revisions to crude oil proved reserves and
61
Bcf of downward revisions to natural gas proved reserves (netting to
3
MMBoe of downward revisions).
Extensions, discoveries and other additions
.
These are additions to proved reserves resulting from (1) extension of the proved acreage of previously discovered reservoirs through additional drilling in periods subsequent to discovery and (2) discovery of new fields with proved reserves or of new reservoirs of proved reserves in old fields.
Extensions, discoveries and other additions for each of the three years reflected in the table above were primarily due to increases in proved reserves associated with our successful drilling activity in the Bakken, SCOOP, and STACK plays. Proved reserve additions in the Bakken totaled
55
MMBo and
105
Bcf (totaling
73
MMBoe) and reserve additions in SCOOP totaled
18
MMBo and
475
Bcf (totaling
97
MMBoe) for the year ended December 31,
2016
. Additionally,
2016
extensions and discoveries were significantly impacted by successful drilling results in the STACK play, resulting in proved reserve additions of
24
MMBo and
331
Bcf (totaling
79
MMBoe) in
2016
.
Sales of minerals in place.
These are reductions to proved reserves resulting from the disposition of properties during a period. See
Note 14. Property Dispositions
for a discussion of notable dispositions.
Purchases of minerals in place.
These are additions to proved reserves resulting from the acquisition of properties during a period. There were no notable acquisitions in the three years reflected in the table above.
The following reserve information sets forth the estimated quantities of proved developed and proved undeveloped crude oil and natural gas reserves of the Company as of December 31,
2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Proved Developed Reserves
|
|
|
|
|
|
|
Crude oil (MBbl)
|
|
290,210
|
|
|
326,798
|
|
|
342,137
|
|
Natural Gas (MMcf)
|
|
1,370,620
|
|
|
1,190,343
|
|
|
962,051
|
|
Total (MBoe)
|
|
518,646
|
|
|
525,188
|
|
|
502,479
|
|
Proved Undeveloped Reserves
|
|
|
|
|
|
|
Crude oil (MBbl)
|
|
353,018
|
|
|
373,716
|
|
|
524,223
|
|
Natural Gas (MMcf)
|
|
2,419,198
|
|
|
1,961,443
|
|
|
1,946,335
|
|
Total (MBoe)
|
|
756,218
|
|
|
700,623
|
|
|
848,612
|
|
Total Proved Reserves
|
|
|
|
|
|
|
Crude oil (MBbl)
|
|
643,228
|
|
|
700,514
|
|
|
866,360
|
|
Natural Gas (MMcf)
|
|
3,789,818
|
|
|
3,151,786
|
|
|
2,908,386
|
|
Total (MBoe)
|
|
1,274,864
|
|
|
1,225,811
|
|
|
1,351,091
|
|
Proved developed reserves are reserves expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are reserves expected to be recovered from new wells on undrilled acreage or from existing wells that require relatively major capital expenditures to recover. Natural gas is converted to barrels of crude oil equivalent using a conversion factor of six thousand cubic feet per barrel of crude oil based on the average equivalent energy content of natural gas compared to crude oil.
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Standardized measure of discounted future net cash flows relating to proved crude oil and natural gas reserves
The standardized measure of discounted future net cash flows presented in the following table was computed using the 12-month unweighted average of the first-day-of-the-month commodity prices, the costs in effect at December 31 of each year and a
10%
discount factor. The Company cautions that actual future net cash flows may vary considerably from these estimates. Although the Company’s estimates of total proved reserves, development costs and production rates were based on the best available information, the development and production of the crude oil and natural gas reserves may not occur in the periods assumed. Actual prices realized, costs incurred and production quantities may vary significantly from those used. Therefore, the estimated future net cash flow computations should not be considered to represent the Company’s estimate of the expected revenues or the current value of existing proved reserves.
The following table sets forth the standardized measure of discounted future net cash flows attributable to the Company’s proved crude oil and natural gas reserves as of December 31,
2016
,
2015
and
2014
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Future cash inflows
|
|
$
|
31,008,587
|
|
|
$
|
36,551,672
|
|
|
$
|
90,867,459
|
|
Future production costs
|
|
(9,175,410
|
)
|
|
(10,869,493
|
)
|
|
(25,799,221
|
)
|
Future development and abandonment costs
|
|
(6,452,647
|
)
|
|
(6,935,958
|
)
|
|
(12,842,174
|
)
|
Future income taxes
|
|
(3,018,839
|
)
|
|
(3,717,612
|
)
|
|
(13,800,737
|
)
|
Future net cash flows
|
|
12,361,691
|
|
|
15,028,609
|
|
|
38,425,327
|
|
10% annual discount for estimated timing of cash flows
|
|
(6,851,468
|
)
|
|
(8,552,325
|
)
|
|
(19,992,293
|
)
|
Standardized measure of discounted future net cash flows
|
|
$
|
5,510,223
|
|
|
$
|
6,476,284
|
|
|
$
|
18,433,034
|
|
The weighted average crude oil price (adjusted for location and quality differentials) utilized in the computation of future cash inflows was
$35.57
,
$41.63
, and
$84.54
per barrel at December 31,
2016
,
2015
and
2014
, respectively. The weighted average natural gas price (adjusted for location and quality differentials) utilized in the computation of future cash inflows was
$2.14
,
$2.35
, and
$6.06
per Mcf at December 31,
2016
,
2015
and
2014
, respectively. Future cash flows are reduced by estimated future costs to develop and produce the proved reserves, as well as certain abandonment costs, based on year-end cost estimates assuming continuation of existing economic conditions. The expected tax benefits to be realized from the utilization of net operating loss carryforwards and tax credits are used in the computation of future income tax cash flows.
The changes in the aggregate standardized measure of discounted future net cash flows attributable to the Company’s proved crude oil and natural gas reserves are presented below for each of the past three years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Standardized measure of discounted future net cash flows at January 1
|
|
$
|
6,476,284
|
|
|
$
|
18,433,034
|
|
|
$
|
16,295,767
|
|
Extensions, discoveries and improved recoveries, less related costs
|
|
786,587
|
|
|
1,091,283
|
|
|
5,516,528
|
|
Revisions of previous quantity estimates
|
|
(794,785
|
)
|
|
(2,156,028
|
)
|
|
(1,755,366
|
)
|
Changes in estimated future development and abandonment costs
|
|
1,651,218
|
|
|
5,008,731
|
|
|
476,665
|
|
Sales of minerals in place, net
|
|
(90,390
|
)
|
|
(7,768
|
)
|
|
(3,196
|
)
|
Net change in prices and production costs
|
|
(2,003,163
|
)
|
|
(16,111,142
|
)
|
|
(1,925,349
|
)
|
Accretion of discount
|
|
798,597
|
|
|
1,843,303
|
|
|
1,629,576
|
|
Sales of crude oil and natural gas produced, net of production costs
|
|
(1,595,281
|
)
|
|
(2,002,997
|
)
|
|
(3,500,790
|
)
|
Development costs incurred during the period
|
|
454,983
|
|
|
1,394,584
|
|
|
2,466,748
|
|
Change in timing of estimated future production and other
|
|
(538,665
|
)
|
|
(3,844,259
|
)
|
|
(309,902
|
)
|
Change in income taxes
|
|
364,838
|
|
|
2,827,543
|
|
|
(457,647
|
)
|
Net change
|
|
(966,061
|
)
|
|
(11,956,750
|
)
|
|
2,137,267
|
|
Standardized measure of discounted future net cash flows at December 31
|
|
$
|
5,510,223
|
|
|
$
|
6,476,284
|
|
|
$
|
18,433,034
|
|
Continental Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 17. Quarterly Financial Data (Unaudited)
The Company’s unaudited quarterly financial data for
2016
and
2015
is summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
In thousands, except per share data
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
2016
|
|
|
|
|
|
|
|
|
Total revenues (1)
|
|
$
|
453,174
|
|
|
$
|
451,211
|
|
|
$
|
526,199
|
|
|
$
|
549,689
|
|
Gain (loss) on crude oil and natural gas derivatives, net (1)
|
|
$
|
42,112
|
|
|
$
|
(82,257
|
)
|
|
$
|
15,668
|
|
|
$
|
(47,382
|
)
|
Property impairments (2)
|
|
$
|
78,927
|
|
|
$
|
66,112
|
|
|
$
|
57,689
|
|
|
$
|
34,564
|
|
Gain on sale of assets, net (3)
|
|
$
|
109
|
|
|
$
|
96,907
|
|
|
$
|
6,158
|
|
|
$
|
201,315
|
|
Income (loss) from operations
|
|
$
|
(239,103
|
)
|
|
$
|
(110,547
|
)
|
|
$
|
(93,183
|
)
|
|
$
|
155,299
|
|
Loss on extinguishment of debt (4)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,055
|
|
Net income (loss)
|
|
$
|
(198,326
|
)
|
|
$
|
(119,402
|
)
|
|
$
|
(109,621
|
)
|
|
$
|
27,670
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.54
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
0.07
|
|
Diluted
|
|
$
|
(0.54
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
0.07
|
|
2015
|
|
|
|
|
|
|
|
|
Total revenues (1)
|
|
$
|
625,644
|
|
|
$
|
796,374
|
|
|
$
|
682,669
|
|
|
$
|
575,480
|
|
Gain (loss) on crude oil and natural gas derivatives, net (1)
|
|
$
|
32,755
|
|
|
$
|
(4,737
|
)
|
|
$
|
46,527
|
|
|
$
|
16,540
|
|
Property impairments (2)
|
|
$
|
147,561
|
|
|
$
|
76,872
|
|
|
$
|
96,697
|
|
|
$
|
81,001
|
|
Gain on sale of assets, net (3)
|
|
$
|
2,070
|
|
|
$
|
20,573
|
|
|
$
|
288
|
|
|
$
|
218
|
|
Income (loss) from operations
|
|
$
|
(111,276
|
)
|
|
$
|
82,447
|
|
|
$
|
(52,356
|
)
|
|
$
|
(142,816
|
)
|
Net income (loss)
|
|
$
|
(131,971
|
)
|
|
$
|
403
|
|
|
$
|
(82,423
|
)
|
|
$
|
(139,677
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.36
|
)
|
|
$
|
—
|
|
|
$
|
(0.22
|
)
|
|
$
|
(0.38
|
)
|
Diluted
|
|
$
|
(0.36
|
)
|
|
$
|
—
|
|
|
$
|
(0.22
|
)
|
|
$
|
(0.38
|
)
|
|
|
(1)
|
Gains and losses on crude oil and natural gas derivative instruments are reflected in “Total revenues” on both the consolidated statements of comprehensive income (loss) and this table of unaudited quarterly financial data. Crude oil and natural gas derivative gains and losses have been shown separately to illustrate the fluctuations in revenues that are attributable to the Company’s derivative instruments. Commodity price fluctuations each quarter can result in significant swings in mark-to-market gains and losses, which affects comparability between periods.
|
|
|
(2)
|
Property impairments have been shown separately to illustrate the impact on quarterly results attributable to write downs of the Company's assets. Commodity price fluctuations each quarter can result in significant changes in estimated future cash flows and resulting impairments, which affects comparability between periods.
|
|
|
(3)
|
Gains on asset sales have been shown separately to illustrate the impact on quarterly results attributable to asset dispositions, which differ in significance from period to period and affect comparability. See
Note 14. Property Dispositions
for a discussion of notable dispositions.
|
|
|
(4)
|
See
Note 7. Long-Term Debt
for discussion of the loss recognized by the Company upon the redemption of its 2020 Notes and 2021 Notes in the 2016 fourth quarter.
|