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Hamm Makes Offer to Take Continental Private

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Continental Resources founder and chairman Harold Hamm has made an all-cash offer to take the oil and natural gas producer private.

Some suspect the move is intended to foster other bids for the Oklahoma City-based E&P, while others see a desire to escape the capital discipline and climate disclosure pressures on publicly held producers.

Continental said Tuesday that Hamm, acting on behalf of himself and his family’s trusts, offered to buy the remaining 17% of the company’s shares that the family does not already hold for $70 per share.

That would represent a premium of about 9% over Continental’s closing price on Jun. 13 and 11% over the average of the last 30 days, according to the company. The offer values the firm at roughly $25.4 billion.

However, by Tuesday afternoon, the price tag already represented a discount, with Continental’s share price soaring by 15% to roughly $74/share after news of the offer broke.

Several analysts indicated that while Hamm’s offer was reasonable and roughly in line with current valuations of the firm, it was also well below what shareholders will likely demand in order to green-light a sale.

Scotiabank analysts in a note estimated that it would take a 10%-15% premium — closer to $80/share — to get shareholders to bite due to the improved attractiveness of Continental’s portfolio after last year’s acquisitions in the Permian and Powder River Basins, as well as soaring oil and gas prices.

Truist analyst Neil Dingmann was even more bullish, estimating that the company is worth at least $95/share to a buyer. He also speculated that the offer was bait to attract a larger buyer.

“Importantly, the offer is not binding and [Continental’s] board plans to evaluate the offer before moving forward, which we expect is an intentional strategy to potentially open the doors to competing bids from large-cap public peers,” said Dingmann. “We would not be surprised if a process ultimately resulted in a sale.”

'Freedom' Move?

Rising oil and gas prices and the broader industry recovery from the depths of the Covid-19 crisis of 2020 have greased the wheels for upstream M&A — although dealmaking slowed some earlier this year as the lowest-hanging fruit was snatched up.

Continental itself made a big splash last November with its $3.25 billion acquisition of Pioneer Natural Resources’ assets in the Delaware Basin, which some speculated at the time was intended to improve the company's attractiveness to potential buyers. Continental has traditionally operated in the Bakken Shale in North Dakota and the Anadarko Basin in Oklahoma.

Hamm has also increased his stake in the firm in the past several months amid speculation that a move to take the company private was in the works. Hamm has publicly lamented the lack of “freedom” that public companies enjoy compared to their private peers, and reiterated that sentiment in an email to Continental employees on Tuesday.

The head of North Dakota's Department of Mineral Resources, Lynn Helms, appears to agree.

Helms noted in his monthly call with reporters that private operators in the Bakken are back to pre-pandemic drilling and completion activity. By contrast, publicly traded producers — constrained by steadfast investor demands for capital discipline and prioritization of shareholder returns — are running at about half their pre-pandemic levels.

"Going private appears to have opened the door to better leveraging your cash flow, to private venture capital, [and] to less scrutiny from the [Biden] administration," Helms argued.

In fact, in Helms' view, heightened scrutiny is the biggest impetus right now for going private.

The US Securities and Exchange Commission under President Joe Biden is advancing rules that will require public companies to comprehensively disclose emissions and emissions reduction targets, while also tracking progress in meeting those goals over time. Helms called the proposed requirements "very draconian and very difficult to meet."

Hamm did not cite such considerations in his offer to take Continental private, but the company does generally lag peers like Devon, Pioneer and EOG Resources in both disclosure (which it does minimally) and reduction targets (which it lacks altogether).

Hamm has long been skeptical of climate-driven trends in investment and finance. As he put it in an interview with the Financial Times earlier this year, the 76-year-old founder of Continental considers himself an "oilocrat" and likened the industry's more aggressive corporate pledges for emissions reduction to "cut[ting] their throat."

Hamm founded the company that would become Continental Resources in 1967 and took the firm public in 2007. He served as CEO of the firm until late 2019 and remains the company’s chairman.

Continental reported adjusted net income of about $960 million in the first quarter of 2022, with roughly $1.15 billion in free cash flow and production of about 374,000 barrels of oil equivalent per day.

Topics:
Equity and Debt Markets, M&A, ESG, Corporate Strategy , Independent E&Ps
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