Continental Resources has lost around US$15 billion of its market capitalization since October 2018-more than half of its market value that now stands at around US$12 billion, in the latest sign that investors and the market are not favoring U.S. shale producers, which have been setting production records by outspending their cash flows.
At the beginning of October last year, Continental Resources had a market capitalization of around US$26-27 billion. As of August 6, 2019, the market value of the oil producer founded by shale pioneer Harold Hamm had fallen to US$12.67 billion.
The oil price slump in the fourth quarter of 2018 and the investors' now finite patience with shale producers not turning in cash flows have combined to punish the stocks of many big and small U.S. oil drillers in recent months, including the shares of Continental Resources.
Since early October last year, the S&P index of independent explorers has also performed very poorly, losing 51 percent, according to Bloomberg estimates.
The poor stock performance prompted a question at Hamm on Continental's Q2 conference call on Tuesday, with Bank of America Merrill Lynch analyst Doug Leggate asking the management: "what is the value of Continental being a public company?"
Continental's Chairman and CEO Hamm took the question and answered this:
"Let's talk about the value of being public. In today's market, we don't see a lot of value in it."
"We think as long as the value is not reflected in the stock, we ought to be buying it back. And that's what we're doing. And that's what we'll continue to do," Hamm added. Related: Oil Prices Slide On Surprise Crude Build
As early as at the beginning of this year, it was Hamm who made a "wild guess" that U.S. shale production growth could slow by as much as 50 percent year on year in 2019.
While U.S. shale production is booming and the Permian continues to set new production records, the pace of growth is slowing as many companies have recently scaled back production growth targets while investors and bankers continue to be skeptical about the shale industry's returns.
After oil prices crashed in the fourth quarter of 2018, many independent producers trimmed their spending budgets for this year, but investors continue to be unconvinced that they will see steady healthy returns, as evidenced in the market value of many producers, Bloomberg estimates show.
By Tsvetana Paraskova for Oilprice.com
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Comments
Even with all this flood of authoritative reports confirming a slowdown in shale oil production particularly in the Permian which contributes 65%-70% to total US shale oil production, authors contributing to the oilprice.com continue to hype about booming production of shale oil with the Permian claimed to continue to set new production records. It is as if these authors have been programmed to peddle the same hype.
Still, the US shale oil industry will be no more in 5-10 years.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London