Kemp: Continental Becomes Lightning Rod For Fears About Shale

Continental's market capitalisation has halved since Sept. 4 amid doubts about how the firm will fare in a world of sharply lower oil prices.

The firm is relying on a cut in capital spending to offset reduced cash flow. "While awaiting this recovery, we have elected to maintain our current level of activity and plan to defer adding rigs in 2015," Hamm said.

"This translates to a $600 million reduction in our 2015 capex budget, resulting in a revised 2015 capex budget of $4.6 billion."

Market Timing

In the last three months and especially on Friday, Continental's share price has been hit much harder than benchmark oil prices WTI and Brent.

The company has become a leveraged bet on the future of oil prices and U.S. shale - in a world where Saudi Arabia and the rest of OPEC are fighting to retain market share.

Lifting the hedge is bound to become intensely controversial in the months ahead if oil prices do not rebound.

In a strict mathematical sense, the expectation of a further decline in oil prices is much less once prices have already fallen. There is a limit to how far the market price can fall since it cannot go below zero.


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