Shale Titan Hamm Ups Continental Offer in Bid for ‘Freedom’

(Bloomberg) — Billionaire wildcatter Harold Hamm boosted his offer for the Continental Resources Inc. stock his family doesn’t already own to $4.3 billion as he seeks “freedom to invest” and buck the disciplined-spending mantra adopted by rival shale drillers.

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The Oklahoma City-based company said in a statement Monday it has entered into a merger agreement with Hamm, who is now offering $74.28 a share in cash. That represents a 15% premium to the closing price on June 13, the day before Hamm’s family disclosed its initial $70 proposal. The stock rose as much as 8.7% for its best intraday performance in more than four months.

Smead Capital Management, the largest minority investor in Continental with a 2% stake, voiced disapproval, saying Hamm should be paying about $90 a share to buy the rest of the company. Smead also said that rival Devon Energy Corp. should make an all-stock offer for Continental. Hamm said going private will free the shale giant from the wishes of public investors.

“We have all felt the limits of being publicly held over the last few years, and in such a time as this, when the world desperately needs what we produce, I have never been more optimistic about where we are headed,” Hamm said in a message to employees. “Our freedom was a key to our success prior to going public, and it will be integral to our continued success for decades to come.”

Representatives for Continental and Devon declined to comment on Smead’s suggestion of a merger between them.

Hamm, one of the first to see opportunities in hydraulic fracturing in North Dakota’s Bakken shale region, is close to ending his 15-year experiment with public ownership. Publicly traded oil explorers are under increasing pressure to devote cash flow to dividends and buybacks rather than big expansions in crude output. As a result, most appear to be limiting production increases despite the lure of sky-high oil prices and a looming supply crisis.

Closely held explorers, on the other hand, have been the most aggressive drillers, accounting for a majority of active US rigs. However, there are signs of that private growth may be slowing as record costs cut into cash flow. At current activity levels, private producers “would burn through their drilling inventory,” Chase Mulvehill, an analyst at Bank of America Corp., wrote last week in a note that highlighted the slowdown.

“We will play an essential role for decades to come as we do our part to help secure America’s energy independence without any encumbrances,” Hamm said in his message. “Let’s go find some oil.”

The youngest of three children born to poor Oklahoma sharecroppers, Hamm started in the energy industry at the age of 18 with an oilfield-services business he funded with a $1,000 loan. Continental helped pioneer the shale-oil boom and debuted as a publicly traded company in 2007. Hamm’s net worth is $20.9 billion, according to the Bloomberg Billionaires Index.

In April, Continental raised its 2022 drilling budget by about 15% to $2.65 billion and hiked its crude production target by 2.5%. The company also boosted dividends by 22%.

Hamm has taken steps this year to secure his legacy. In February, he handed each of his five children stakes in the company which at the time were valued at about $2.3 billion. Despite the transfers, which were largely tax-free, Hamm said that he retained control because his children can’t sell the shares until he dies.

The go-private deal, which does not need an investor vote, is expected to close before the end of the year, Continental said Monday. Smead Capital Management, which has about $4.2 billion under management, is weighing whether to take legal action, Cole Smead, president and portfolio manager of the Phoenix-based firm, said during an interview.

Smead said his firm was told it would get a chance to engage with the special committee that Continental created in June after Hamm’s initial offer, but that never happened.

“He had all the freedom with the special committee he wanted,” Smead said. “If he didn’t have freedom, this would be a much tougher deal to do.”

(Updates with Devon, Continental responses in fifth paragraph.)