Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Organization and Nature of Business
Continental Resources, Inc. (the “Company”) was 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. Additionally, the Company pursues the acquisition and management of perpetually owned minerals located in certain of its key operating areas. The North region consists of properties north of Kansas and west of the Mississippi River and includes North Dakota Bakken, Montana Bakken, Wyoming Powder River Basin, 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 and STACK areas of Oklahoma. The East region is primarily comprised of undeveloped leasehold acreage east of the Mississippi River with no significant drilling or production operations.
The Company's operations in the North region comprised 55% of its crude oil and natural gas production and 55% of its crude oil and natural gas revenues for the three months ended March 31, 2021. The Company's principal producing properties in the North region are located in the Bakken field of North Dakota and Montana. The Company's operations in the South region comprised 45% of its crude oil and natural gas production and 45% of its crude oil and natural gas revenues for the three months ended March 31, 2021. The Company's principal producing properties in the South region are located in the SCOOP and STACK areas of Oklahoma.
For the three months ended March 31, 2021, crude oil accounted for 49% of the Company’s total production and 62% of its crude oil and natural gas revenues.
Note 2. Basis of Presentation and Significant Accounting Policies
Basis of presentation
The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and entities in which the Company has a controlling financial interest. Intercompany accounts and transactions have been eliminated upon consolidation. Noncontrolling interests reflected herein represent third party ownership in the net assets of consolidated subsidiaries. The portions of consolidated net income (loss) and equity attributable to the noncontrolling interests are presented separately in the Company’s financial statements.
This report has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information. Because this is an interim period filing presented using a condensed format, it does not include all disclosures required by accounting principles generally accepted in the United States (“U.S. GAAP”), although the Company believes the disclosures are adequate to make the information not misleading. You should read this Quarterly Report on Form 10-Q (“Form 10-Q”) together with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”), which includes a summary of the Company’s significant accounting policies and other disclosures.
The condensed consolidated financial statements as of March 31, 2021 and for the three month periods ended March 31, 2021 and 2020 are unaudited. The condensed consolidated balance sheet as of December 31, 2020 was derived from the audited balance sheet included in the 2020 Form 10-K. The Company has evaluated events or transactions through the date this report on Form 10-Q was filed with the SEC in conjunction with its preparation of these condensed consolidated financial statements.
The preparation of financial statements in conformity with 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 periods. Actual results may differ from those estimates. The most significant estimates and assumptions impacting reported results are 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. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation in accordance with U.S. GAAP have been included in these unaudited condensed consolidated financial statements. The results of operations for any interim period are not necessarily indicative of the results of operations that may be expected for any other interim period or for an entire year.
Continental Resources, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Earnings per share
Basic net income (loss) per share is computed by dividing net income (loss) attributable to the Company 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 attributable to the Company for the three months ended March 31, 2021 and 2020.
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|
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|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
In thousands, except per share data
|
|
2021
|
|
2020
|
|
|
|
|
|
Net income (loss) attributable to Continental Resources (numerator)
|
|
$
|
259,642
|
|
|
$
|
(185,664)
|
|
|
|
|
|
|
Weighted average shares (denominator):
|
|
|
|
|
|
|
|
|
|
Weighted average shares - basic
|
|
360,789
|
|
|
365,403
|
|
|
|
|
|
|
Non-vested restricted stock (1)
|
|
1,884
|
|
|
—
|
|
|
|
|
|
|
Weighted average shares - diluted
|
|
362,673
|
|
|
365,403
|
|
|
|
|
|
|
Net income (loss) per share attributable to Continental Resources:
|
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|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.72
|
|
|
$
|
(0.51)
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|
|
|
|
|
|
Diluted
|
|
$
|
0.72
|
|
|
$
|
(0.51)
|
|
|
|
|
|
(1) For the three months ended March 31, 2020 the Company had a net loss and therefore the potential dilutive effect of approximately 594,000 weighted average non-vested restricted shares were not included in the calculation of diluted net loss per share because to do so would have been anti-dilutive to the computation.
Credit risk
The Company's principal exposure to credit risk is through receivables associated with the sale of its crude oil and natural gas production and receivables associated with billings to joint interest owners. Accordingly, the Company classifies its receivables into two portfolio segments as depicted on the condensed consolidated balance sheets as "Receivables—Crude oil and natural gas sales” and "Receivables—Joint interest and other.” The Company determines its credit loss allowance for each portfolio segment by considering a number of factors, primarily including the Company’s history of credit losses with adjustment as needed to reflect current conditions, the length of time accounts are past due, whether amounts relate to operated properties or non-operated properties, the ability to recoup amounts owed through netting of production proceeds, the balance of co-owner prepayments if any, and a party's ability to pay. Historically, the Company's credit losses have been immaterial. There were no significant write-offs, recoveries, or changes in the Company's allowance for credit losses during the three month periods ended March 31, 2021 and 2020.
Inventories
Inventory is comprised of crude oil held in storage or as line fill in pipelines, pipeline imbalances, and tubular goods and equipment to be used in the Company's exploration and development activities. Crude oil and natural gas inventories are valued at the lower of cost or net realizable value primarily using the first-in, first-out inventory method. Tubular goods and equipment are valued primarily using a weighted average cost method applied to specific classes of inventory items.
The components of inventory as of March 31, 2021 and December 31, 2020 consisted of the following:
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In thousands
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Tubular goods and equipment
|
|
$
|
13,341
|
|
|
$
|
13,671
|
|
|
Crude oil and natural gas
|
|
62,667
|
|
|
58,486
|
|
|
Total
|
|
$
|
76,008
|
|
|
$
|
72,157
|
|
In the first quarter of 2020 the Company recognized a $24.5 million impairment to reduce its crude oil inventory to estimated net realizable value at March 31, 2020. The impairment is included in the caption “Property impairments” in the unaudited condensed consolidated statements of operations for the three month period ended March 31, 2020.
Adoption of new accounting pronouncement
On January 1, 2021 the Company adopted Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard eliminates certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The new guidance also clarifies certain aspects of the
Continental Resources, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
existing guidance, among other things. The Company adopted the standard on a prospective basis, which did not have a material impact on its financial position, results of operations, or cash flows.
Note 3. 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.
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|
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|
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|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
In thousands
|
|
2021
|
|
2020
|
|
Supplemental cash flow information:
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
42,554
|
|
|
$
|
51,111
|
|
|
Cash paid for income taxes
|
|
—
|
|
|
8
|
|
|
Cash received for income tax refunds (1)
|
|
2
|
|
|
9,485
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
Asset retirement obligation additions and revisions, net
|
|
6,802
|
|
|
2,508
|
|
(1) Amount received in the 2020 period primarily represents alternative minimum tax refunds.
As of March 31, 2021 and December 31, 2020, the Company had $178.2 million and $128.8 million, respectively, of accrued capital expenditures included in “Net property and equipment” with an offsetting amount in “Accounts payable trade” in the condensed consolidated balance sheets.
As of March 31, 2021 and December 31, 2020, the Company had $0.6 million and $0.1 million, respectively, of accrued contributions from noncontrolling interests included in "Receivables–Joint interest and other" with an offsetting amount in "Equity–Noncontrolling interests" in the condensed consolidated balance sheets.
As of March 31, 2021 and December 31, 2020, the Company had $1.3 million and $1.0 million, respectively, of accrued distributions to noncontrolling interests included in "Revenues and royalties payable" with an offsetting amount in "Equity–Noncontrolling interests" in the condensed consolidated balance sheets.
Note 4. Revenues
Below is a discussion of the nature, timing, and presentation of revenues arising from the Company's major revenue-generating arrangements.
Operated crude oil revenues – The Company pays third parties to transport the majority of its operated crude oil production from lease locations to downstream market centers, at which time the Company's customers take title and custody of the product in exchange for prices based on the particular market where the product was delivered. Operated crude oil revenues are recognized during the month in which control transfers to the customer and it is probable the Company will collect the consideration it is entitled to receive. Crude oil sales proceeds from operated properties are generally received by the Company within one month after the month in which a sale has occurred. Operated crude oil revenues are presented separately from transportation expenses as the Company controls the operated production prior to its transfer to customers. Transportation expenses associated with the Company's operated crude oil production totaled $40.1 million and $50.4 million for the three months ended March 31, 2021 and 2020, respectively.
Operated natural gas revenues – The Company sells the majority of its operated natural gas production to midstream customers at its lease locations based on market prices in the field where the sales occur. Under these arrangements, the midstream customers obtain control of the unprocessed gas stream at the lease location and the Company's revenues from each sale are determined using contractually agreed pricing formulas which contain multiple components, including the volume and Btu content of the natural gas sold, the midstream customer's proceeds from the sale of residue gas and natural gas liquids ("NGLs") at secondary downstream markets, and contractual pricing adjustments reflecting the midstream customer's estimated recoupment of its investment over time. Such revenues are recognized net of pricing adjustments applied by the midstream customer during the month in which control transfers to the customer at the delivery point and it is probable the Company will collect the consideration it is entitled to receive. Natural gas sales proceeds from operated properties are generally received by the Company within one month after the month in which a sale has occurred.
Under certain arrangements, the Company has the right to take a volume of processed residue gas and/or NGLs in-kind at the tailgate of the midstream customer's processing plant in lieu of a monetary settlement for the sale of the Company's operated natural gas production. The Company currently takes certain processed residue gas volumes in kind in lieu of monetary
Continental Resources, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
settlement, but does not currently take NGL volumes. When the Company elects to take volumes in kind, it pays third parties to transport the processed products it took in-kind to downstream delivery points, where it then sells to customers at prices applicable to those downstream markets. In such situations, operated revenues are recognized during the month in which control transfers to the customer at the delivery point and it is probable the Company will collect the consideration it is entitled to receive. Operated sales proceeds are generally received by the Company within one month after the month in which a sale has occurred. In these scenarios, the Company's revenues include the pricing adjustments applied by the midstream processing entity according to the applicable contractual pricing formula, but exclude the transportation expenses the Company incurs to transport the processed products to downstream customers. Transportation expenses associated with these arrangements totaled $10.2 million and $10.1 million for the three months ended March 31, 2021 and 2020, respectively.
Non-operated crude oil and natural gas revenues – The Company's proportionate share of production from non-operated properties is generally marketed at the discretion of the operators. For non-operated properties, the Company receives a net payment from the operator representing its proportionate share of sales proceeds which is net of costs incurred by the operator, if any. Such non-operated revenues are recognized at the net amount of proceeds to be received by the Company during the month in which production occurs and it is probable the Company will collect the consideration it is entitled to receive. Proceeds are generally received by the Company within two to three months after the month in which production occurs.
Revenues from derivative instruments – See Note 5. Derivative Instruments for discussion of the Company's accounting for its derivative instruments.
Revenues from service operations – Revenues from the Company's crude oil and natural gas service operations consist primarily of revenues associated with water gathering, recycling, and disposal activities and the treatment and sale of crude oil reclaimed from waste products. Revenues associated with such activities, which are derived using market-based rates or rates commensurate with industry guidelines, are recognized during the month in which services are performed, the Company has an unconditional right to receive payment, and collectability is probable. Payment is generally received by the Company within one month after the month in which services are provided.
Disaggregation of crude oil and natural gas revenues
The following tables present the disaggregation of the Company's crude oil and natural gas revenues for the three months ended March 31, 2021 and 2020.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
|
Three months ended March 31, 2020
|
|
In thousands
|
|
North Region
|
|
South Region
|
|
Total
|
|
North Region
|
|
South Region
|
|
Total
|
|
Crude oil revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operated properties
|
|
$
|
444,665
|
|
|
$
|
166,430
|
|
|
$
|
611,095
|
|
|
$
|
448,930
|
|
|
$
|
179,176
|
|
|
$
|
628,106
|
|
|
Non-operated properties
|
|
143,552
|
|
|
14,121
|
|
|
157,673
|
|
|
132,939
|
|
|
12,725
|
|
|
145,664
|
|
|
Total crude oil revenues
|
|
588,217
|
|
|
180,551
|
|
|
768,768
|
|
|
581,869
|
|
|
191,901
|
|
|
773,770
|
|
|
Natural gas revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operated properties
|
|
82,933
|
|
|
371,761
|
|
|
454,694
|
|
|
11,588
|
|
|
72,306
|
|
|
83,894
|
|
|
Non-operated properties
|
|
12,600
|
|
|
11,471
|
|
|
24,071
|
|
|
1,720
|
|
|
3,359
|
|
|
5,079
|
|
|
Total natural gas revenues
|
|
95,533
|
|
|
383,232
|
|
|
478,765
|
|
|
13,308
|
|
|
75,665
|
|
|
88,973
|
|
|
Crude oil and natural gas sales
|
|
$
|
683,750
|
|
|
$
|
563,783
|
|
|
$
|
1,247,533
|
|
|
$
|
595,177
|
|
|
$
|
267,566
|
|
|
$
|
862,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods transferred at a point in time
|
|
$
|
683,750
|
|
|
$
|
563,783
|
|
|
$
|
1,247,533
|
|
|
$
|
595,177
|
|
|
$
|
267,566
|
|
|
$
|
862,743
|
|
|
Goods transferred over time
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
$
|
683,750
|
|
|
$
|
563,783
|
|
|
$
|
1,247,533
|
|
|
$
|
595,177
|
|
|
$
|
267,566
|
|
|
$
|
862,743
|
|
Performance obligations
The Company satisfies the performance obligations under its crude oil and natural gas sales contracts upon delivery of its production and related transfer of control to customers. Judgment may be required in determining the point in time when control transfers to customers. Upon delivery of production, the Company has a right to receive consideration from its customers in amounts determined by the sales contracts.
Continental Resources, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
All of the Company's outstanding crude oil sales contracts at March 31, 2021 are short-term in nature with contract terms of less than one year. For such contracts, the Company has utilized the practical expedient in Accounting Standards Codification ("ASC") 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations, if any, if the performance obligation is part of a contract that has an original expected duration of one year or less.
The majority of the Company's operated natural gas production is sold at lease locations to midstream customers under multi-year term contracts. For such contracts having a term greater than one year, the Company has utilized the practical expedient in ASC 606-10-50-14A which indicates an entity is not required to disclose the transaction price allocated to remaining performance obligations, if any, if variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under the Company's sales contracts, whether for crude oil or natural gas, each unit of production delivered to a customer represents a separate performance obligation; therefore, future volumes to be delivered are wholly unsatisfied at period-end and disclosure of the transaction price allocated to remaining performance obligations is not applicable.
Contract balances
Under the Company’s crude oil and natural gas sales contracts or activities that give rise to service revenues, the Company recognizes revenue after its performance obligations have been satisfied, at which point the Company has an unconditional right to receive payment. Accordingly, the Company’s commodity sales contracts and service activities generally do not give rise to contract assets or contract liabilities under ASC Topic 606. Instead, the Company's unconditional rights to receive consideration are presented as a receivable within "Receivables–Crude oil and natural gas sales" or "Receivables–Joint interest and other", as applicable, in its condensed consolidated balance sheets.
Revenues from previously satisfied performance obligations
To record revenues for commodity sales, at the end of each month the Company estimates the amount of production delivered and sold to customers and the prices to be received for such sales. Differences between estimated revenues and actual amounts received for all prior months are recorded in the month payment is received from the customer and are reflected in the financial statements within the caption "Crude oil and natural gas sales". Revenues recognized during the three months ended March 31, 2021 and 2020 related to performance obligations satisfied in prior reporting periods were not material.
Note 5. Derivative Instruments
From time to time the Company enters into crude oil and natural gas swap and collar derivative contracts to economically hedge against the variability in cash flows associated with future sales of production. The Company recognizes its derivative instruments on the balance sheet as either assets or liabilities measured at fair value. The Company has not designated its derivatives 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 unaudited condensed consolidated statements of operations under the caption "Loss on derivative instruments, net".
The Company's derivative contracts are settled based upon reported settlement prices on commodity exchanges, with crude oil derivative settlements based on NYMEX West Texas Intermediate ("WTI") pricing and natural gas derivative settlements based on NYMEX Henry Hub pricing. 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, volatility, the risk-free interest rate, and the time to expiration. The calculation of the fair value of collars requires the use of an option-pricing model. See Note 6. Fair Value Measurements.
Continental Resources, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
At March 31, 2021 the Company had outstanding derivative contracts as set forth in the tables below.
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|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Collars
|
|
Natural gas derivatives
|
|
|
|
|
|
Floors
|
|
Ceilings
|
|
|
|
|
|
Swaps Weighted Average Price
|
|
Range
|
|
Weighted Average Price
|
|
Range
|
|
Weighted Average Price
|
|
Period and Type of Contract
|
|
MMBtus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2021 - December 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps - Henry Hub
|
|
45,178,000
|
|
|
$
|
2.94
|
|
|
|
|
|
|
|
|
|
|
Collars - Henry Hub
|
|
27,450,000
|
|
|
|
|
$2.50 - $2.60
|
|
$
|
2.58
|
|
|
$3.06 - $3.43
|
|
$
|
3.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collars
|
|
Crude oil derivatives
|
|
|
|
|
|
Floors
|
|
Ceilings
|
|
|
|
|
|
Swaps Weighted Average Price
|
|
Range
|
|
Weighted Average Price
|
|
Range
|
|
Weighted Average Price
|
|
Period and Type of Contract
|
|
Bbls
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2021 - December 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NYMEX Roll Swaps
|
|
8,250,000
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
April 2021 - May 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps - WTI
|
|
1,815,000
|
|
|
$
|
54.64
|
|
|
|
|
|
|
|
|
|
|
Collars - WTI
|
|
1,132,000
|
|
|
|
|
$50.00 - $53.00
|
|
$
|
51.81
|
|
|
$55.10 - $63.05
|
|
$
|
59.89
|
|
|
January 2022 - March 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NYMEX Roll Swaps
|
|
675,000
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
Derivative gains and losses
Cash receipts and payments in the following table reflect the gains or losses on derivative contracts which matured during the applicable period, calculated as the difference between the contract price and the settlement price of matured contracts. Non-cash gains and losses below represent the change in fair value of derivative instruments which continued 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. The Company had no outstanding commodity derivative instruments as of March 31, 2020 and for the three months then ended.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
In thousands
|
|
2021
|
|
2020
|
|
|
|
|
|
Cash received (paid) on derivatives:
|
|
|
|
|
|
|
|
|
|
Crude oil fixed price swaps
|
|
$
|
(30,033)
|
|
|
$
|
—
|
|
|
|
|
|
|
Crude oil collars
|
|
(4,956)
|
|
|
—
|
|
|
|
|
|
|
Crude oil NYMEX roll swaps
|
|
159
|
|
|
—
|
|
|
|
|
|
|
Natural gas fixed price swaps
|
|
2,210
|
|
|
—
|
|
|
|
|
|
|
Natural gas collars
|
|
3,183
|
|
|
—
|
|
|
|
|
|
|
Cash received (paid) on derivatives, net
|
|
(29,437)
|
|
|
—
|
|
|
|
|
|
|
Non-cash gain (loss) on derivatives:
|
|
|
|
|
|
|
|
|
|
Crude oil fixed price swaps
|
|
(8,206)
|
|
|
—
|
|
|
|
|
|
|
Crude oil collars
|
|
(2,076)
|
|
|
—
|
|
|
|
|
|
|
Crude oil NYMEX roll swaps
|
|
175
|
|
|
—
|
|
|
|
|
|
|
Natural gas fixed price swaps
|
|
6,086
|
|
|
—
|
|
|
|
|
|
|
Natural gas collars
|
|
(10,049)
|
|
|
—
|
|
|
|
|
|
|
Non-cash gain (loss) on derivatives, net
|
|
(14,070)
|
|
|
—
|
|
|
|
|
|
|
Loss on derivative instruments, net
|
|
$
|
(43,507)
|
|
|
$
|
—
|
|
|
|
|
|
Continental Resources, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Balance sheet offsetting of derivative assets and liabilities
The Company’s derivative contracts are recorded at fair value in the condensed consolidated balance sheets under the captions “Derivative assets,” “Derivative assets, noncurrent,” “Derivative liabilities,” and “Derivative liabilities, noncurrent” as applicable. 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 condensed consolidated balance sheets.
The following table presents the gross amounts of recognized derivative assets and liabilities, as applicable, the amounts offset under netting arrangements with counterparties, and the resulting net amounts presented in the condensed consolidated balance sheets for the periods presented, all at fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Commodity derivative assets:
|
|
|
|
|
|
Gross amounts of recognized assets
|
|
$
|
14,362
|
|
|
$
|
15,900
|
|
|
Gross amounts offset on balance sheet
|
|
(3,087)
|
|
|
(597)
|
|
|
Net amounts of assets on balance sheet
|
|
11,275
|
|
|
15,303
|
|
|
Commodity derivative liabilities:
|
|
|
|
|
|
Gross amounts of recognized liabilities
|
|
(14,940)
|
|
|
(2,408)
|
|
|
Gross amounts offset on balance sheet
|
|
3,087
|
|
|
597
|
|
|
Net amounts of liabilities on balance sheet
|
|
$
|
(11,853)
|
|
|
$
|
(1,811)
|
|
The following table reconciles the net amounts disclosed above to the individual financial statement line items in the condensed consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Derivative assets
|
|
$
|
11,275
|
|
|
$
|
15,303
|
|
|
Derivative assets, noncurrent
|
|
—
|
|
|
—
|
|
|
Net amounts of assets on balance sheet
|
|
11,275
|
|
|
15,303
|
|
|
Derivative liabilities
|
|
(10,659)
|
|
|
(227)
|
|
|
Derivative liabilities, noncurrent
|
|
(1,194)
|
|
|
(1,584)
|
|
|
Net amounts of liabilities on balance sheet
|
|
(11,853)
|
|
|
(1,811)
|
|
|
Total derivative assets (liabilities), net
|
|
$
|
(578)
|
|
|
$
|
13,492
|
|
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 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 not corroborated by market data and may be used with internally developed methodologies that result in management’s best estimate of fair value.
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.
Continental Resources, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
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 swap contracts, 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 swap contracts are calculated mainly using significant observable inputs (Level 2). Calculation of the fair values of collars 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 table summarizes the valuation of derivative instruments by pricing levels that were accounted for at fair value on a recurring basis as of March 31, 2021 and December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at March 31, 2021 using:
|
|
|
|
In thousands
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Derivative assets (liabilities):
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
$
|
—
|
|
|
$
|
(77)
|
|
|
$
|
—
|
|
|
$
|
(77)
|
|
|
Collars
|
|
—
|
|
|
(676)
|
|
|
—
|
|
|
(676)
|
|
|
NYMEX roll swaps
|
|
—
|
|
|
$
|
175
|
|
|
—
|
|
|
$
|
175
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
(578)
|
|
|
$
|
—
|
|
|
$
|
(578)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at December 31, 2020 using:
|
|
|
|
In thousands
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Derivative assets (liabilities):
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
$
|
—
|
|
|
$
|
2,043
|
|
|
$
|
—
|
|
|
$
|
2,043
|
|
|
Collars
|
|
—
|
|
|
11,449
|
|
|
—
|
|
|
$
|
11,449
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
13,492
|
|
|
$
|
—
|
|
|
$
|
13,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Measured at Fair Value on a Nonrecurring Basis
Certain assets are reported at fair value on a nonrecurring basis in the condensed 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. Risk-adjusted probable and possible reserves may be taken into consideration when determining estimated future net cash flows and fair value when such reserves exist and are economically recoverable. Due to the unavailability of relevant comparable market data, a discounted cash flow method is used to determine the fair value of proved properties. Significant unobservable inputs (Level 3) utilized in the determination of discounted future net cash flows include future commodity prices adjusted for differentials, forecasted production based on decline curve analysis, estimated future operating and development costs, property ownership interests, and a 10% discount rate. At March 31, 2021, the Company's commodity price assumptions were based on forward NYMEX strip prices through year-end 2025 and were then escalated at 3% per year thereafter. Operating cost assumptions were based on current costs escalated at 3% per year beginning in 2022.
Unobservable inputs to the Company's fair value assessments are reviewed and 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 three months ended March 31, 2021, estimated future net cash flows were determined to be in excess of cost basis, and therefore no impairment was recorded for the Company's proved crude oil and natural gas properties for the 2021 period.
Continental Resources, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the three months ended March 31, 2020, 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 $181.0 million for the three months ended March 31, 2020, which reflect fair value adjustments on legacy properties in the Red River Units totaling $166.5 million and various non-core properties in the North and South regions totaling $14.5 million. The impaired properties were written down to their estimated fair value at the time of impairment of $145.6 million. Impairments for the three months ended March 31, 2020 also include a $24.5 million impairment to reduce the Company's crude oil inventory to estimated net realizable value at the time of impairment.
Certain unproved crude oil and natural gas properties were impaired during the three months ended March 31, 2021 and 2020, 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 unaudited condensed consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
In thousands
|
|
2021
|
|
2020
|
|
|
|
|
|
Proved property and inventory impairments
|
|
$
|
—
|
|
|
$
|
205,545
|
|
|
|
|
|
|
Unproved property impairments
|
|
11,436
|
|
|
16,984
|
|
|
|
|
|
|
Total
|
|
$
|
11,436
|
|
|
$
|
222,529
|
|
|
|
|
|
Financial Instruments Not Recorded at Fair Value
The following table sets forth the estimated fair values of financial instruments that are not recorded at fair value in the condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
In thousands
|
|
Carrying
Amount
|
|
Estimated Fair Value
|
|
Carrying
Amount
|
|
Estimated Fair Value
|
|
Debt:
|
|
|
|
Credit facility
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
160,000
|
|
|
$
|
160,000
|
|
|
Notes payable
|
|
24,036
|
|
|
23,400
|
|
|
24,590
|
|
|
24,700
|
|
|
5% Senior Notes due 2022
|
|
230,684
|
|
|
230,600
|
|
|
630,470
|
|
|
632,900
|
|
|
4.5% Senior Notes due 2023
|
|
647,222
|
|
|
672,300
|
|
|
646,943
|
|
|
669,900
|
|
|
3.8% Senior Notes due 2024
|
|
907,203
|
|
|
933,900
|
|
|
906,922
|
|
|
939,500
|
|
|
4.375% Senior Notes due 2028
|
|
991,024
|
|
|
1,051,700
|
|
|
990,746
|
|
|
1,024,400
|
|
|
5.75% Senior Notes due 2031
|
|
1,481,237
|
|
|
1,685,200
|
|
|
1,480,879
|
|
|
1,651,900
|
|
|
4.9% Senior Notes due 2044
|
|
691,914
|
|
|
696,500
|
|
|
691,868
|
|
|
689,600
|
|
|
Total debt
|
|
$
|
4,973,320
|
|
|
$
|
5,293,600
|
|
|
$
|
5,532,418
|
|
|
$
|
5,792,900
|
|
The fair value of credit facility borrowings 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 notes payable is determined using a discounted cash flow approach based on the interest rate and payment terms of the notes payable and an assumed discount rate. The fair value of notes payable is significantly influenced by the discount rate assumption, which is derived by the Company and is unobservable. Accordingly, the fair value of notes payable is classified as Level 3 in the fair value hierarchy.
The fair values of 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”), the 4.375% Senior Notes due 2028 (“2028 Notes”), the 5.75% Senior Notes due 2031 (“2031 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 Unaudited Condensed Consolidated Financial Statements
Note 7. Long-Term Debt
Long-term debt, net of unamortized discounts, premiums, and debt issuance costs totaling $42.2 million and $43.7 million at March 31, 2021 and December 31, 2020, respectively, consists of the following.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Credit facility
|
|
$
|
—
|
|
|
$
|
160,000
|
|
|
Notes payable
|
|
24,036
|
|
|
24,590
|
|
|
5% Senior Notes due 2022
|
|
230,684
|
|
|
630,470
|
|
|
4.5% Senior Notes due 2023
|
|
647,222
|
|
|
646,943
|
|
|
3.8% Senior Notes due 2024
|
|
907,203
|
|
|
906,922
|
|
|
4.375% Senior Notes due 2028
|
|
991,024
|
|
|
990,746
|
|
|
5.75% Senior Notes due 2031
|
|
1,481,237
|
|
|
1,480,879
|
|
|
4.9% Senior Notes due 2044
|
|
691,914
|
|
|
691,868
|
|
|
Total debt
|
|
$
|
4,973,320
|
|
|
$
|
5,532,418
|
|
|
Less: Current portion of long-term debt
|
|
2,265
|
|
|
2,245
|
|
|
Long-term debt, net of current portion
|
|
$
|
4,971,055
|
|
|
$
|
5,530,173
|
|
Credit Facility
The Company has an unsecured credit facility, maturing on April 9, 2023, with aggregate lender commitments totaling $1.5 billion. The Company had no outstanding borrowings on its credit facility at March 31, 2021.
Credit facility borrowings, if any, 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 Company incurs commitment fees based on currently assigned credit ratings of 0.25% per annum on the daily average amount of unused borrowing availability.
The 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 credit facility covenants at March 31, 2021.
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 March 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 Notes
|
|
2023 Notes
|
|
2024 Notes
|
|
2028 Notes
|
|
2031 Notes
|
|
2044 Notes
|
|
Face value (in thousands)
|
|
$230,782
|
|
$649,625
|
|
$911,000
|
|
$1,000,000
|
|
$1,500,000
|
|
$700,000
|
|
Maturity date
|
|
Sep 15, 2022
|
|
April 15, 2023
|
|
June 1, 2024
|
|
January 15, 2028
|
|
January 15, 2031
|
|
June 1, 2044
|
|
Interest payment dates
|
|
Mar 15, Sep 15
|
|
April 15, Oct 15
|
|
June 1, Dec 1
|
|
Jan 15, July 15
|
|
Jan 15, Jul 15
|
|
June 1, Dec 1
|
|
Make-whole redemption period (1)
|
|
—
|
|
Jan 15, 2023
|
|
Mar 1, 2024
|
|
Oct 15, 2027
|
|
Jul 15, 2030
|
|
Dec 1, 2043
|
(1)At any time prior to the indicated 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 amounts specified in the respective senior note indentures plus any accrued and unpaid interest to the date of redemption. On or after the indicated dates, the Company may redeem all or a portion of its senior notes at a redemption amount 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, or consolidate, merge or transfer
Continental Resources, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
certain assets. These covenants are subject to a number of important exceptions and qualifications. The Company was in compliance with these covenants at March 31, 2021.
The senior notes are obligations of Continental Resources, Inc. Additionally, three of the Company’s wholly-owned subsidiaries, Banner Pipeline Company, L.L.C., CLR Asset Holdings, LLC, and The Mineral Resources Company, whose assets, equity, and results of operations are not material, fully and unconditionally guarantee the senior notes on a joint and several basis. The Company’s other subsidiaries, whose assets, equity, and results of operations attributable to the Company are not material, do not guarantee the senior notes.
Retirement of Senior Notes
2021
In January 2021, the Company redeemed $400 million principal amount of its outstanding 2022 Notes using proceeds from lower-rate borrowings on its credit facility. The Company recorded a pre-tax loss on extinguishment of debt related to the redemption of $0.2 million, which included the pro-rata write-off of deferred financing costs and unamortized debt premium associated with the redeemed notes. The loss is reflected in the caption “Gain (loss) on extinguishment of debt” in the unaudited condensed consolidated statements of operations.
Subsequent to March 31, 2021, the Company redeemed the remaining principal balance of its 2022 Notes as discussed in Note 13. Subsequent Events.
2020
In March 2020, the Company repurchased a portion of its 2023 Notes and 2024 Notes in open market transactions at a substantial discount to the face value of the notes, including $33.4 million face value of its 2023 Notes at an aggregate cost of $19.5 million and $7.0 million face value of its 2024 Notes at an aggregate cost of $3.8 million, in each case, including accrued and unpaid interest to the repurchase dates.
The repurchased notes were canceled by the Company. The Company recognized pre-tax gains on extinguishment of debt in the 2020 first quarter related to the March 2020 repurchases totaling $17.6 million, which included the pro-rata write-off of deferred financing costs and unamortized debt discount associated with the repurchased notes.
Notes payable
In June 2020, the Company borrowed an aggregate of $26.0 million under two 10-year amortizing term loans secured by the Company’s corporate office building and its interest in parking facilities in Oklahoma City, Oklahoma. The loans mature in May 2030 and bear interest at a fixed rate of 3.50% per annum through June 9, 2025, at which time the interest rate will be reset and fixed through the maturity date. Principal and interest are payable monthly through the maturity date and, accordingly, $2.3 million is reflected as a current liability under the caption “Current portion of long-term debt” in the condensed consolidated balance sheets as of March 31, 2021 associated with the loans.
Note 8. Commitments and Contingencies
Included below is a discussion of certain future commitments of the Company as of March 31, 2021.
Drilling rig commitments – As of March 31, 2021, the Company has drilling rig contracts with various terms extending to November 2021. Future operating day-rate commitments as of March 31, 2021 total approximately $8 million, which will be incurred in the remainder of 2021. A portion of these future costs will be borne by other interest owners.
Transportation, gathering, and processing commitments – The Company has entered into transportation, gathering, 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 2031, require the Company to pay per-unit transportation, gathering, or processing charges regardless of the amount of capacity used. Future commitments remaining as of March 31, 2021 under the arrangements amount to approximately $1.46 billion, of which $192 million is expected to be incurred in the remainder of 2021, $272 million in 2022, $272 million in 2023, $234 million in 2024, $143 million in 2025, and $346 million thereafter. A portion of these future costs will be borne by other interest owners. The Company is not committed under the above contracts to deliver fixed and determinable quantities of crude oil or natural gas in the future. These commitments do not qualify as leases under ASC Topic 842 and are not recognized on the Company's balance sheet.
Senior note redemption – On March 22, 2021, the Company announced its intention to redeem the remaining outstanding principal balance of its 2022 Notes subsequent to March 31, 2021. See Note 13. Subsequent Events for further discussion.
Continental Resources, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Litigation – The Company is involved in various legal proceedings including, but not limited to, commercial disputes, claims from royalty and surface owners, property damage claims, personal injury claims, regulatory compliance matters, disputes with tax authorities and other matters. While the outcome of these 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 March 31, 2021 and December 31, 2020, the Company had recognized a liability within “Other noncurrent liabilities” of $7.7 million and $7.7 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 9. Stock-Based Compensation
The Company has granted restricted stock to employees and directors pursuant to the Continental Resources, Inc. 2013 Long-Term Incentive Plan, as amended ("2013 Plan"). The Company’s associated compensation expense, which is included in the caption “General and administrative expenses” in the unaudited condensed consolidated statements of operations, was $16.9 million and $16.4 million for the three months ended March 31, 2021 and 2020, respectively.
In March 2019, the Company amended and restated its 2013 Plan and specified 12,983,543 shares of common stock may be issued pursuant to the amended plan. Subject to limited exceptions, the 2013 Plan allows previously issued shares to be reissued if such shares are subsequently forfeited or withheld to satisfy tax withholdings. As of March 31, 2021, the Company had 8,497,723 shares of common stock available for long-term incentive awards to employees and directors under the 2013 Plan.
Restricted stock is awarded in the name of the recipient and constitutes issued and outstanding shares of the Company’s common stock for all corporate purposes during the period of restriction and, except as otherwise provided under the 2013 Plan or agreement relevant to a given award, includes the right to vote the restricted stock and to receive dividends if any, subject to forfeiture. Restricted stock grants generally vest over periods ranging from 1 to 3 years.
A summary of changes in non-vested restricted shares outstanding for the three months ended March 31, 2021 is presented below.
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Number of
non-vested
shares
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Weighted average
grant-date
fair value
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Non-vested restricted shares outstanding at December 31, 2020
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4,890,638
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$
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36.26
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Granted
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2,726,442
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22.99
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Vested
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(1,278,334)
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46.54
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Forfeited
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(65,380)
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27.80
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Non-vested restricted shares outstanding at March 31, 2021
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6,273,366
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$
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28.49
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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 determined at the grant date fair value and is recognized over the vesting period as services are rendered by employees and directors. The Company estimates the number of forfeitures expected to occur in determining the amount of stock-based compensation expense to recognize. 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 the three months ended March 31, 2021 was approximately $29 million. As of March 31, 2021, there was approximately $111 million of unrecognized compensation expense related to non-vested restricted stock. This expense is expected to be recognized over a weighted average period of 2.0 years.
Note 10. Shareholders' Equity
Share repurchases
During the three months ended March 31, 2020, the Company repurchased and retired approximately 8.1 million shares of its common stock at an aggregate cost of $126.9 million. No share repurchases have been made subsequent to March 31, 2020. The Company has repurchased and retired a cumulative total of approximately 13.8 million shares at an aggregate cost of $317.1 million since the inception of its $1 billion share repurchase program in June 2019.
The timing and amount of the Company's share repurchases are subject to market conditions and management discretion. The share repurchase program does not require the Company to repurchase a specific number of shares and may be modified, suspended, or terminated by the Board of Directors at any time.
Continental Resources, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Dividend payment
On January 27, 2020 the Company declared a quarterly cash dividend of $0.05 per share on its outstanding common stock, which amounted to $18.4 million and was paid on February 21, 2020 to shareholders of record as of February 7, 2020.
See Note 13. Subsequent Events for discussion of a dividend declaration made by the Company subsequent to March 31, 2021.
Note 11. Income Taxes
Income taxes are accounted for using the asset and liability method under which deferred income taxes are recognized for the future tax effects of temporary differences between financial statement carrying amounts and the tax basis of existing assets and liabilities using the enacted statutory tax rates in effect at period-end. The effect on deferred taxes for a change in tax rates is recognized in income in the period that includes the enactment date. The Company’s policy is to recognize penalties and interest related to unrecognized tax benefits, if any, in income tax expense.
The Company's provision (benefit) for income taxes and resulting effective tax rates were as follows for the periods presented.
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Three months ended March 31,
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2021
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2020
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Provision (benefit) for income taxes (in thousands)
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$
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80,528
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$
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(52,235)
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Effective tax rate
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23.6
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%
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21.9
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%
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The Company computes its quarterly income tax provision (benefit) under the effective tax rate method based on applying an anticipated annual effective tax rate to year-to-date pre-tax income (loss), except for discrete items. Income taxes for discrete items are computed and recorded in the period in which the specific transaction occurs.
The Company's effective tax rate differs from the United States federal statutory tax rate due to the effect of state income taxes, equity compensation, changes in valuation allowances, and other tax items as reflected in the table below.
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Three months ended March 31,
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In thousands, except tax rates
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2021
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2020
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Income (loss) before income taxes
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$
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340,803
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$
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(239,019)
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U.S. federal statutory tax rate
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21.0
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%
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21.0
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%
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Expected income tax provision (benefit) based on U.S. federal statutory tax rate
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71,569
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(50,194)
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Items impacting the effective tax rate:
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State and local income taxes, net of federal benefit
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12,895
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(7,603)
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Equity compensation
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5,990
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3,886
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Other, net
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(5,031)
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(3,189)
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Change in valuation allowance
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(4,895)
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4,865
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Provision (benefit) for income taxes
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$
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80,528
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$
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(52,235)
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Effective tax rate
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23.6
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%
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21.9
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%
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In assessing the realizability of deferred tax assets the Company must consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company applies judgment to determine the weight of both positive and negative evidence in order to conclude whether a valuation allowance is necessary for its deferred tax assets. In determining whether a valuation allowance is required, the Company considers, among other factors, the Company's financial position, results of operations, projected future taxable income, reversal of existing deferred tax liabilities against deferred tax assets, and tax planning strategies. During 2020, a valuation allowance of $14.5 million had been established for the deferred tax asset associated with a portion of the Company's Oklahoma state net operating loss carryforwards. In the first quarter of 2021, the Company reassessed the realizability of the deferred tax asset related to Oklahoma state net operating loss carryforwards and determined it was more likely than not that such assets would be realized. Therefore, it was determined that the previously recorded valuation allowance in 2020 should be released throughout 2021, with $4.9 million of the release being recognized during the first quarter of 2021.
The Company will continue to evaluate both the positive and negative evidence on a quarterly basis in determining the need for a valuation allowance with respect to its deferred tax assets. Changes in positive and negative evidence, including differences between estimated and actual results, could result in changes in the valuation of our deferred tax assets that could have a
Continental Resources, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
material impact on our consolidated financial statements. Changes in existing tax laws could also affect actual tax results and the realization of deferred tax assets over time.
Note 12. Property Acquisition
On March 4, 2021, the Company acquired undeveloped leasehold and producing properties in the Powder River Basin of Wyoming for $206.6 million, consisting of a $21.5 million escrow deposit paid in December 2020 upon execution of a definitive purchase agreement and a $185.1 million payment made at closing in March 2021. The acquisition included approximately 130,000 net acres and producing properties with production totaling approximately 7,200 net barrels of oil equivalent per day at the time of closing. The $21.5 million escrow deposit paid in December 2020 is included in the caption "Other noncurrent assets" on the Company's balance sheet at December 31, 2020, which was subsequently reclassified to "Net property and equipment" on the closing date. The Company recognized approximately $4.9 million of asset retirement obligations and $12.4 million of right-of-use assets and corresponding lease liabilities as of March 31, 2021 associated with the acquired properties.
Note 13. Subsequent Events
Full redemption of 2022 Notes
On April 22, 2021, the Company redeemed the remaining $230.8 million principal amount of its outstanding 2022 Notes using proceeds from lower-rate borrowings on its credit facility.
Dividend declaration
On April 27, 2021, the Company's Board of Directors approved the reinstatement of a quarterly dividend of $0.11 per share on the Company's outstanding common stock, payable on May 24, 2021 to shareholders of record as of May 10, 2021.