Quintessential oil fracking billionaire Harold Hamm has seen the value of his stake in Continental Resources plunge by half since January and more than $1 billion this week amid a selloff in company shares.
Continental shares traded at $17 mid-morning Thursday, after plunging as as much as 25% overnight to their lowest level in more than a decade. Analysts at Tudor, Pickering & Holt expressed concern that Continental’s capital spending budget assumes oil at $55 a barrel (versus WTI at $47 today) and would be unlikely to generate free cash flow without a recovery.
Due to a glut of oil and stubborn weakness in crude prices, Hamm’s fortune has sunk from $17.2 billion in 2018, to $12.7 billion a year ago, and is now down to $5.3 billion, according to Forbes estimates.
Hamm, who owns nearly 77% of Continental, stepped down from the CEO role late last year and now serves as executive chairman of the company he founded in 1967. That move could be a prelude to taking the company private. At today’s price, the entire public float of Continental (i.e. the shares Hamm doesn’t own) is just $1.5 billion.
Such a move might be well worth making. According to Continental’s annual report, released yesterday, the company generated net income of $770 million last year, down from nearly $1 billion in 2018, and grew oil and gas output by 18%. With earnings per share of $2.08, its price-earnings multiple is now at a relatively cheap 8.25.
Although the coronavirus epidemic looks likely to evaporate oil demand growth this year as people fly, drive and buy less, the world still uses 100 million barrels per day of petroleum. Once the panic has passed and life begins to return to normal, it won’t take much price appreciation to significantly goose Continental’s margins.
Ironically, if Hamm were to take Continental 100% private, it could have the effect of knocking him out of the Forbes billionaires rankings altogether. That’s because when it comes to publicly traded stock holdings our methodology doesn’t dock billionaires for debt held at the company level, which in Continental’s case is $5.3 billion. If Hamm were to buy up all the public float, that debt would then be deducted from the implied value of Continental’s equity — evaporating his net worth (at today’s valuations anyway).
Hamm is far from the only oilman having a bad year. Shares in other drillers focused on North Dakota’s Bakken oilfields are doing even worse, with Whiting Petroleum down 33% today and Oasis Petroleum off 14%. Natural gas bellwether Chesapeake Energy has lost 90% of its equity value in the past year and is down another 14% today to just 27 cents per share.
Meanwhile, shares of ExxonMobil, at $51.75, are down 35% in the past 12 months and haven’t been this cheap since 2004, while BP is close to lows not seen since its Deepwater Horizon disaster nearly a decade ago. All the supermajor oil companies sport dividend yields of at least 5%, with Royal Dutch Shell now at 8.22%. With yields on 10-year U.S. treasuries dropping to 1.28%, those Big Oil dividends are getting more interesting every day.