Guest “end the hostage crisis now!” by David Middleton
Continental Resources Halts Shale Output, Seeks to Cancel Sales
Devika Krishna Kumar and Liz Hampton, ReutersFri, 04/24/2020 – 04:20 AM
The largest oil producer in North Dakota has halted most of its production in the U.S. state and notified some customers it would not supply crude after prices dived into negative territory this week, people familiar with the matter said.
Continental Resources Inc., the company controlled by billionaire Harold Hamm, stopped all drilling and shut in most of its wells in the state’s Bakken shale field, three people familiar with production in the state said April 23.
Global oil prices have plunged because of excess supplies and tumbling demand due to the coronavirus crisis.
U.S. crude prices plunged into negative territory this week—meaning suppliers had to pay people to take oil—due to lack of storage space, prompting moves by operators to halt output.
Shut-ins have been particularly swift in North Dakota, which produced more than 1.4 million bbl/d of oil in 2019, making it the second-largest U.S. producing state after Texas.
State officials say production has already dropped by about 300,000 bbl/d. This month, rival operator in North Dakota Whiting Petroleum Corp. became the first major shale producer to file for bankruptcy.
Coming into this year, Continental produced nearly 150,000 bbl/d in the Bakken, according to company figures.
[…]
Hart Energy
Continental Resources has also declared force majeure on current contracts to deliver crude oil at current prices. Legal experts are dubious regarding their force majeure claim. Continental, one of the most financially successful “shale” players, does not hedge production and was, therefore, highly exposed to the sudden price drop.
Continental Resources Draws Anger with Decision to Cancel Oil Sales
Liz Hampton, Stephanie Kelly and Devika Krishna Kumar, ReutersFri, 04/24/2020
Oil billionaire and influential Trump adviser Harold Hamm drew a sharp response from a top industry group and questions from legal experts after his company, Continental Resources Inc., said April 23 it could not deliver crude to customers, citing hardships based on low prices.
With fuel demand destroyed by the coronavirus pandemic as people worldwide stopped driving and taking flights, oil producers have been forced to store hundreds of millions of barrels of crude and fuel that would otherwise have been consumed. With tanks now brimming, producers are cutting output.
Continental Resources, the largest producer in North Dakota, stopped all drilling there, shut in wells and issued a force majeure notice, according to three sources familiar with the matter, an action typically reserved for situations out of a company’s control, such as natural disasters.
[…]
However, North Dakota oil regulators this week decided not to label current production as “economic waste,” which would have them the rationale to mandate production cuts. The state’s Industrial Commission said it will hold a meeting soon to consider this possibility, but regulators have been reluctant to mandate cuts.
“I think it’s going to be very difficult for them to assert economic force majeure, which is basically what they’re doing,” said Ted Borrego, who has practiced oil and gas law for over 45 years and teaches at the University of Houston Law Center. “I think the chances of success are pretty close to zero.”
Continental also produces in Oklahoma, which this week issued an emergency order allowing producers to shut in wells without fear of losing leases.
[…]
A producer who saw the notice predicted legal action, saying, “The only way there will be a force majeure on the producer side is if states prorate production.”
Continental is exposed to weak prices because it did not hedge future production, betting economic growth would lift prices. Many large shale producers use derivatives as a type of insurance policy to lock in a price for their future output.
Bakken crude this week was selling regionally at roughly $3/bbl, far below the U.S. benchmark, said Ron Ness, president of the North Dakota Petroleum Council. Benchmark U.S. WTI crude settled at $16.50 on April 23.
Hart Energy
Does Continental have a valid force majeure claim? The recent plunge in oil prices is entirely due to government malfeasance, starting with Red China: The ChiCom-19/Fire Marshal Gump Hostage Crisis. So, maybe they do… Of course this raises the question, “Could financial institutions declare force majeure and refuse to honor $50-60/bbl hedge contracts?” It’s a potential “slippery slope.”
“ChiCom-19” is my intentionally politically incorrect rebranding of all things pertaining to the Chinese Communist coronavirus. “Fire Marshal Gump” is my nickname for Dallas County’s chief executive, County Judge Clay Jenkins. Generically, Fire Marshal Gumps are the tyrannical mayors, county officials and governors who have unconstitutionally placed their citizens under house arrest to protect us from the Kung Flu.
Fortunately, the US Attorney General may take action against the Fire Marshal Gumps of America:
Barr calls stay-at-home orders ‘disturbingly close to house arrest’
The attorney general said the Justice Department may consider taking legal action against states that go too far.April 21, 2020, 5:06 PM CDT / Updated April 21, 2020, 5:12 PM CDT
By Pete Williams
WASHINGTON — Attorney General William Barr said Tuesday that the need for strong restrictions to stop the spread of the coronavirus may be passing and that the Justice Department might consider taking legal action against states that go too far.
“There are very, very burdensome impingements on liberty,” he told radio talk show host Hugh Hewitt, “and we adopted them for the limited purpose of slowing down the spread. We didn’t adopt them as the comprehensive way of dealing with this disease. We are now seeing that these are bending the curve, and we have to come up with more targeted approaches.”
[…]
The Justice Department took just such an action just last week, filing a statement in support of a small Mississippi church that sued city officials who tried to shut down a drive-in church service while allowing a local drive-in restaurant to stay open.
He called stay-at-home orders “disturbingly close to house arrest.”
NBC News
ChiCom-19 and Fire Marshal Gump are reversing this faster than Sandy Cortez on amphetamines could…
Speaking of Sandy Cortez…
I couldn’t make this sort of schist up if I was trying.
In the legal world people refer to what Continental is claiming as “Price Majeure”. They don’t want out of these contracts because delivering the oil is beyond their reasonable control- but because its painfully expensive for them. Even if “Pandemic” is listed in the Force Majeure clause as a mitigating factor, they still must show the pandemic rendered the contracts performance “ beyond their reasonable control”. That is simply not the case here. Continental looses in court on this one.
Remove Covid 19 from the equation and you have Wyoming in the early 80’s. A crash of Biblical proportions. We were due for another one, virus or not.
A 1 million bbl/d OPEC+ production cut would have sent oil to ~$60-65/bbl. The Soviet-Saudi price war dropped it to $30. Only the rather sudden 30% drop in demand due to ChiCom-19 hostage crisis could have dropped it to where it is now,
No virus and no OPEC+ shenanigans and oil would be ~$40-50/bbl. Not good, but not a crash of Biblical proportions.
Here we go:
HOUSTON, April 27, 2020 /PRNewswire/ — Diamond Offshore Drilling, Inc. (NYSE: DO) (“Diamond” or “the Company”) today announced that the Company and select subsidiaries have filed voluntary petitions for reorganization under chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas…
DO was not in demonstrably bad shape as of 12/31/19.
Equity/Assets: 55% (vs. S&P 500 mean of ~38%)
Current Ratio: 1.57
Cash flow for TTM was essentially breakeven.
_________________
For those who don’t know, DO is the 2nd largest offshore drilling company.
I don’t see how any of the drilling contractors avoid some sort of restructuring if this drags on much longer.
David,
Thanks for your continued attempts to enlighten the benighted; even the nonsensical concern trolls! I recently purchase and watched all of the Mad Max movies to get a better understanding of what the ChiComs and their LSM and DemoKKKrat allies are trying to accomplish.
Mad Max 2 (Road Warrior) made the unfortunate mistake of trying to make heroes of a small band of humans who pump and refine their very own oil! Just imagine the liberal heads exploding whenever they watch! This has been fully rectified in the latest episode; Furry Road. I don’t why this one received so many accolades except for it being so PC; the world was destroyed for the scarce resource “guzzolene” and all the evil doers are white males. Hollywood is boringly predictable.
With the intentional infection of the the world economy with Chi-Com 19, the Wuhan Flu, it seems that a decision has been made to move toward a Matrix type scenario. The millennials and the young will hooked into Interweb with Chi-com mind control devices and their parents and grandparents will be isolated or killed off with unnecessary or incorrect medical procedures. Have you scene the interview of Dr. Erickson, a Bakersfield urgent care physician? It seems we have been lied to and led in the opposite direction from what standard practices would call for.
The intentional destruction of wealth and freedom by means of the Chi-Com 19 virus is the greatest and most expensive scandal in human history; even worse than the Russian Collusion Hoax and Spygate scandals perpetrated by our LSM urinalists and the DemoKKKrats!
“Legal experts are dubious regarding their force majeure claim.”
Maybe not, but the remedy for default is the difference in price between the contract and the market. In this case where the market is in collapse, there will be no damages, and no re4ason to pay a lot of legal fees to get that result.
The per well production, even after many wells have been taken out of service, is down to levels seen in 2008. The Bakken rush is now over. To keep production from falling the sector needs to keep destroying capital it does not have. And it was not China that shut down the economy but stupid politicians who don’t understand math. Voters were too scared to protest the manipulation of the AGW data. They are too scared to point out the manipulation of the virus data. The US has 27% of the total deaths reported but 5% of the population? How does that make sense to anyone?
And let us ask about the total deaths this year versus last year during the same period. Does the virus cure heart disease, strokes, liver failure, diabetes, etc.?
The future of the Bakken, and all other oil production, depends on the future of oil prices.
Right now, the total number of deaths from all causes only seems to be elevated in the New York City area.