Continental Resources, the pioneering U.S. driller that bet big on North Dakota's Bakken shale patch when its rivals were looking abroad, is once again flying in the face of convention: cashing out some $4 billion worth of hedges in a huge gamble that oil prices will rebound.
Late on Tuesday, the company run by Harold Hamm, the Oklahoma wildcatter who once sued OPEC, said it had opted to take profits on more than 31 million barrels worth of U.S. and Brent crude oil hedges for 2015 and 2016, plus as much as 8 million barrels' worth of outstanding positions over the rest of 2014, netting a $433 million extra profit for the fourth quarter.
Based on its third quarter production of about 128,000 barrels per day (bpd) of crude, its hedges for next year would have covered nearly two-thirds of its oil production.
A 30 percent slump in world oil prices since June has handed many oil drillers a potential windfall on their paper hedges - but most are holding onto those derivative deals as protection against a deeper drop in prices next year.
Not Contintental.
"We view the recent downdraft in oil prices as unsustainable given the lack of fundamental change in supply and demand," Hamm said. Lifting the hedges will allow Continental "to fully participate in what we anticipate will be an oil price recovery."
Continental said it had liquidated the hedges during October, a month in which Brent crude fell from nearly $95 a barrel to a four-year low of $82.60 a barrel as oil traders realized that OPEC kingpin Saudi Arabia was in no rush to cut production and defend higher prices.
The company did not say at what point in the month it lifted the hedges, or at what price, but its profitability was clear. Based on the company's swaps trades and options floor prices, it put on the hedges at about $98 a barrel, according to Reuters calculations.
