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
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.
That rout has punished drillers like Continental, whose shares are
down by more than 30 percent over the same period. Many analysts
have forecast even lower crude prices.
Hedging offers commodity producers protection from sharp price
drops, though it can also limit profits if prices soar. By exiting
hedging, Hamm is effectively betting that the steep drop in oil
prices is a short-term fluke bound to reverse course.
To be sure, going "naked" without hedges is not unprecedented.
Majors such as Chevron Corp and Exxon Mobil Corp do little hedging
on their own production.
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.
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The company now expects a 2015 capital budget of $4.6 billion, down
from a previous estimate of $5.2 billion.
Continental, a top producer in North Dakota's Bakken field, trimmed
its output growth estimate for next year, now expecting a 23-29
percent jump from 2014 levels. Hamm had previously forecast a 26-32
percent jump for next year.
It posted third-quarter net income of $533.5 million, or $1.44 per
share, compared with $167.5 million, or 45 cents per share, in the
Hamm, who founded the Oklahoma City-based company in 1967, is in the
midst of a bitter divorce battle with his wife Sue Ann.
Since Hamm owns about 68 percent of the company, the divorce
settlement holds vast implications. During much of August and
September, the CEO spent most days in court to attend his divorce
trial, which may result in one of the largest divorce judgments in
Philip K. Verleger, president of consultancy PKVerleger LLC and a
one-time adviser to President Jimmy Carter, said Continental's
decision on hedging may concern investors.
"My expectation is that Continental's investors will rue this
decision because it changes the firm's business," he said. "Hedging
provides an assured cash flow. By dropping the hedges the firm is
gambling that prices go up. If they go down Continental will go
Other analysts, however, said the company has a strong balance sheet
and can weather the downdraft.
(Reporting By Ernest Scheyder in Williston, and Jonathan Leff and
Jessica Resnick-Ault in New York; Writing by Terry Wade; Editing by
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