Continental's decision to lift most of its hedges for 2014, 2015 and 2016 has made the company a lightning rod for concerns about the impact of falling oil prices on the US shale sector.
John Kemp is a Reuters market analyst. The views expressed are his own
LONDON, Dec 2 (Reuters) - Continental Resources, one of the largest U.S. shale drillers, has learned the hard way that hedging is like being pregnant: you're either hedging or you're not. There is no middle ground. If you are not hedging, you are gambling on future prices.
By lifting most of its hedges for 2014, 2015 and 2016, the company, founded and majority owned by Chief Executive Harold Hamm, has swapped its traditional hedging strategy for a gamble on future oil prices.
"We view the recent downdraft in oil prices as unsustainable given the lack of fundamental change in supply and demand," Hamm told investors on Nov. 5.
"Accordingly, we have elected to monetize nearly all of our outstanding oil hedges, allowing us to fully participate in what we anticipate will be an oil price recovery."
But the decision has made the company a lightning rod for concerns about the impact of falling oil prices on the U.S. shale sector.
On Friday, Continental's share price tumbled almost 20 percent, a five-standard deviation down-move, after OPEC decided not to cut production and Saudi Oil Minister reportedly declared a price war on U.S. shale at the organisation's meeting. (http://link.reuters.com/nev53w)
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