Posted on 11/06/2014 5:24:50 AM PST by ryan71
WILLISTON N.D. (Reuters) - Harold Hamm, the chief executive of North Dakota oil producer Continental Resources Inc , 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.
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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.
(Excerpt) Read more at news.yahoo.com ...
This was entirely predictable, both on the basis of simple economics, and on the basis of past behavior on the part of the Saudis. It’s inconceivable that the people who run the shale oil business didn’t expect it and factor it into their calculations.
This is a very nice outcome.
The infrastructure is in place. Our tight oil isn’t going anywhere. We can leverage a trickle of our vast reserves to keep the world price of oil down. That in turn puts economic pressure on OPEC and Russia, which is good for us.
Over time, fracking technology will become more efficient, driving the economic break-even point for domestic production lower; that will be a tightening noose around the neck of OPEC.
Additionally, it gives us an improved strategic reserve in case of a large-scale security threat.
Interesting data point. Means very little, though. Industry execs routinely over invest. That’s what happened in the 80’s. Not unique to oil either. Coal and iron are getting killed.
Thanks
That’s what I thought. If they want to sell us cheap oil, we’ll hoarde our resources for when they run out.
Further reading in the article and in others show he is making cuts based upon a lower price.
Yet in a bit of a strategic hedge, Hamm slashed Continental’s 2015 capital spending budget by $600 million, saying he would not put more drilling rigs in the field while prices are low. Given that, Continental doesn’t expect its production to jump as much as previously forecast next year.
The company now expects a 2015 capital budget of $4.6 billion, down from a previous estimate of $5.2 billion.
Also at:
http://oilpro.com/post/8260/leading-bakken-ep-company-ditches-2015-growth-plans-slashes-budge
$60 oil might make that seem reckless, in addition to posing liquidity problems. Coal and iron companies are losing money hand over fist because they tapered rather than slashed spending to the bone.
$60 oil might make that seem reckless
I’m sure if the price drops another $20 bucks that many companies including Hamm’s will be making more changes to their capital budget.
Personally, I would be very surprised at sustained prices of $60.
Good post, I like the sound of that.
It means that power rests not with the holders of the largest reserves, but with the holder of the biggest production (rate) capacity.
The immense "overhead" costs of the single-export oil producers (like Saudi, Qatar, etc.) mean they're forced into something like a short squeeze. As the world price falls, they're forced to boost output in order to pay for their vast social welfare systems. The Saudis don't know the meaning of the word "work."
They're even more addicted to oil money than we are to oil. For us, high oil prices are an inconvenience. For them, low oil prices are a death sentence.
I think the future for the mideast oil producers is dim.
Their #1 customer will be a country with mafia business practices and 1.5 billion expendable people to enforce them.
They will long for the days when they could sell to the US and Euro. And likely have a lot less dough to finance terror and Islamic expansion.
Energy independent? Is that the reason we import over 7 million barrels of oil each day?
China has domestic energy supplies.
China is also developing nuclear energy. In particular, they are putting a lot of money into liquid thorium reactor technology, using research data they got from us.
For more on this subject, you can watch this very interesting (but long) video. You don't have to listen to the whole thing. The interesting part starts at the 1:41 (one hour, forty-one minute) mark.
We use more than twenty MMBPD.
No. Not even when you count Natural Gas liquids, ethanol and biodiesel.
Total Liquid "fuels" (including petrochemical feedstock) is under 20 MMBPD. It has been for several years.
http://www.eia.gov/dnav/pet/pet_cons_psup_dc_nus_mbblpd_m.htm
When you look at what is refined from Crude Oil (gasoline, diesel, kerosene and the leftovers), we currently top out ~17 MMBPD and usually under that.
Perhaps some of that reduction is due to a slow economy?
In any event, we import for economic reasons. Your numbers mean that our energy independence is greater than I argued above.
It started falling before the economy did. Higher prices I suspect mostly drove people to make other choices regarding consumption of transportation fuels. It has been fairly steady in recent years with a very slight increase.
our energy independence is greater than I argued above.
I don't understand a statement of energy independence while importing that much crude oil.
Exactly. It’s the market (our shale) forcing them into price cuts, which in turn benefits us immensely. Oil producers here don’t like in the short term, but they will be fine long term.
"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.[singing] roll out the barrel...
Very astute comment. Thanks.
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