U.S. oil CEO Hamm goes out on a limb, scraps hedges

Thu Nov 6, 2014 7:21pm EST
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WILLISTON N.D. (Reuters) - Harold Hamm, the chief executive of North Dakota oil producer Continental Resources Inc (CLR.N: Quote), has stunned a bearish crude market by scrapping all of the company's hedges - a bold bet that prices will recover soon after sliding some 25 percent.

In so doing, Hamm, who last month called OPEC a "toothless tiger", appears to be bracing for a price war with the world's biggest exporter, Saudi Arabia. The OPEC-leader and other key members of the oil exporter group have so far shown no real sign of moving to cut production to lift prices.

Conventional wisdom among oil analysts is that Saudi Arabia, frustrated by a global supply glut caused by soaring output in the United States, is prepared to let prices fall to squeeze U.S. shale oil producers out of the market.

"We have elected to monetize nearly all of our outstanding oil hedges, allowing us to fully participate in what we anticipate will be an oil price recovery," Hamm said in a statement on Wednesday when the company posted third-quarter results. Continental will hold a conference call on its quarterly earnings with analysts on Thursday.

The move to sell all crude oil hedge positions from October through 2016 netted the oil company a $433 million one-time gain during the most recent quarter.

"We view the recent downdraft in oil prices as unsustainable given the lack of fundamental change in supply and demand," Hamm said.

Most energy experts said that when prices began falling in June companies should have been carrying more hedging contracts that lock in high prices and protect them from low ones.

"It's pretty unusual for a company to monetize all of its hedges. The fact that they're going basically unhedged on oil suggests that they're going to take on a bit more risk," said Leo Mariani, an analyst at RBC Capital Markets.

Since they traded at more than $115 a barrel in mid-June, benchmark Brent crude futures have plunged to levels not seen since October 2010, closing near $83 a barrel on Wednesday.   Continued...

The Continental Resources office building is seen in downtown Oklahoma City, Oklahoma  September 22, 2014.  REUTERS/Steve Sisney