Crude prices likely at bottom of slide

10:20 PM @ Friday - 07 November, 2014
Crude oil prices are likely at the bottom of their recent slide, Continental Resources CEO Harold Hamm said Thursday on an earnings call, adding that prices will probably return to the mid-$80s to low $90s/b in the near term.

While he did not specify an expected time frame for recovery, Hamm said he believes the oil price drop will be "short lived" based on global supply and demand fundamentals which "[haven't] changed in the last three months."

"What we're dealing with is [an oil] renaissance that will be very long lasting in the US," Hamm said.

Hamm also said a temporary drop in prices may cause the US "overall [to] be well served ... even though we're probably not looking at it that way."

For example, a period of lower oil prices may improve efficiencies and lower well costs, and could also keep US producers at a measured pace of crude oil growth and prevent a longer-term oversupply, he said.

The sudden crude oil price drop in recent weeks prompted Continental to monetize its oil hedges for the rest of 2014 and also 2015 and 2016, capturing $433 million in proceeds from the action, the company said late Wednesday in releasing its third-quarter financial report. The company also said it would reduce estimated 2015 capex to $4.6 billion, down from an earlier projected $5.2 billion.

Benchmark crude futures are the lowest they have been in years. NYMEX December crude settled 77 cents lower Thursday at $77.91/b, continuing to hover at levels not seen since mid-2012. Likewise ICE December Brent settled 9 cents lower at $82.86/b, still around lows not seen since late 2010.

On Thursday, OPEC Secretary General Abdalla el-Badri said he believed oil prices would see a recovery by the second half of next year, although he was unable to say by how by much (See story, 1613 GMT).

50-RIG PROGRAM TO CONTINUE IN 2015; CAPEX BUDGET BASED ON $80/B

Continental expects to maintain its current 50-rig program in 2015 while prioritizing opportunities according to return rates and production, Hamm said.

For example, the Springer formation in Oklahoma, a new discovery, has spurred more company activity there. Continental President Jack Stark during the Thursday call said he had never seen a resource play that has shown such promising results so early in its development.

Continental CFO John Hart said the company's 2015 capital budget is based on $80/b crude oil and that he would not expect this to change for awhile.

"We want to see the recovery," Hart said during the call. "If we see a good recovery in six to nine months, we'll look at it [revising the budget], but for the near-term $4.6 billion is where we'll stay."

As for whether the company might re-hedge its oil production if prices recover, both Hart and Hamm suggested that this could happen if prior price levels are reached.

Hart said the company looks at both Brent and WTI to determine its hedges.

"We're looking for areas we think would be indicative of the pricing environment going forward," he said.
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