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A Rare Mix of Quality and Quantity for This Energy Pick

Continental Resources has the wherewithal to tolerate a temporary period of lower prices better than many peers.

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David Meats: Third-quarter earnings are firmly in the rearview for our upstream oil and gas coverage. The rebound in oil prices that we saw back in the second quarter now looks like a false dawn. We're currently expecting WTI to average less than $50 a barrel in 2016, and it's the same story with gas prices. The 2016 strip is at just $2.40 per thousand cubic feet right now. These low prices are mainly supply driven, although the gas number is partially weather driven as well.

So, it's a very tough environment; but as we discussed in our financial-health review recently, most companies are still in decent shape. Leverage is rising across the board, but the majority of our coverage, which is admittedly skewed toward quality, has enough levers to pull in terms of liquidity and potential asset monetizations. Borrowing base redeterminations were a key risk going into the fall for firms subject to reserve-based lending constraints; but in reality, banks were fairly accommodating again.

Dave Meats does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.