❗Help close the gap: We still need to raise $40,000 by the end of March. Donate now

Oilman bets prices will rise – and loses big

Scott Tong Dec 19, 2014
HTML EMBED:
COPY

Oilman bets prices will rise – and loses big

Scott Tong Dec 19, 2014
HTML EMBED:
COPY

The oil price bust has left lots of people licking their financial wounds. Perhaps the biggest one-way bet in the wrong direction came from the oilpatch itself, by a company and its founder at the center of the U.S. oil revolution. Harold Hamm is the $8 billion dollar oilman; the man behind the biggest drilling company in North Dakota, Continental Resources.

In an earnings call five weeks ago, he said, “We’re at the bottom rung here on prices and we’ll see them recover pretty drastically pretty quick. Given our belief the recent pullback in oil prices will be short-lived, we made changes to our existing hedge book by monetizing practically all of our oil contracts.”

That’s oilspeak for: We’re betting on prices to rise. Continental had locked in nice, high-selling prices by what’s called hedging. Until it stopped doing that. The company has lost half its value in four months.

To Gregory Zuckerman, author of “The Frackers: The Outrageous Inside Story of The New Billionaire Wildcatters,” this bet goes hand-in-hand with Hamm’s astonishing success story. The son of Oklahoma sharecroppers, Hamm started with nothing and made an early, crazy bet on North Dakota oil. He was stubborn.

“You need that self-confidence,” Zuckerman says. “But it can bite you on the way down by making you a little too sure of yourself. And I would argue that when he took off those hedges, he showed signs of that.”

In a recent interview, Hamm says he still thinks oil prices could rise. He may well be right. But his timing was off.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.