By: Forbes – The public markets served their purpose for Harold Hamm. Now he doesn’t need them anymore. The pioneering oil wildcatter announced today that Continental Resources CLR +8.4%, the company he founded in 1967, has agreed to his tender offer of $74.28 a share for the 58 million shares (or 17%) of the company he and his five children don’t already own. The takeout price is sweetened from the $70/share he first offered back in June.
Fascinating that Hamm, in SEC filings, says he doesn’t need any outside help to raise the $4.3 billion needed to complete this $27 billion LBO. Financing will consist of cash on hand, Continental’s existing credit facilities plus a new term loan. Continental’s board approved the deal. There’s no point in holding a shareholder vote when Hamm already has 83%.
The takeout price seems reasonable, equating to an enterprise value of about $70,000 per flowing daily barrel of Continental’s 400,000 barrels per day of oil and gas production volumes. That’s in line with public company averages according to data from analyst William Janela at Credit Suisse.
Alternatively, the deal values Continental at about seven times the expected free cash flow of $4 billion this year. Continental currently carries $6 billion in long-term debt, which will likely rise to around $9 billion after the buyout closes.
This debt load will have an impact on Hamm’s standing on Forbes’ list of wealthiest Americans. Forbes currently ascribes him and his children (to whom he’s transferred shares) a net worth of $20.7 billion, based almost entirely on publicly traded Continental shares. Yet when the company becomes private, that debt would essentially shift from being owed by a public company to being owed by Hamm and family, and so would get deducted from his Forbes-estimated net worth total.
So ironically, Hamm could complete this biggest deal of his career, only to see his “net worth” fall by nearly half.
Any way you slice it, Hamm — who landed no. 21 on this year’s Forbes 400 list — is a first-ballot hall-of-fame oil wildcatter. The 13th child of Oklahoma sharecroppers, he picked cotton barefoot as a child and started working at a gas station at age 16 to support his family. He started his own trucking company to haul water to and from oilfields — making early profits skimming oil off wastewater. In 1967, at age 21, he launched Shelly Dean Oil Company, and in 1971 borrowed to drill his first well. In 2007 he took Continental public, and helped pioneer the transformative combo of horizontal drilling and hydraulic fracturing.
Hamm has said that the lack of public market support for fossil fuel producers drove him to privatize. Indeed markets are fickle; in March 2020 when oil prices were tumbling toward zero, Continental shares bottomed out below $10.
Hamm, 77, has said that being a private company will give Continental greater freedom of operating. No telling whether he has any other deals in mind to expand existing operations in North Dakota, Oklahoma, Texas, and Wyoming — where he has enough drilling inventory to stay busy for 11 years at current levels of drilling activity.
The fossil fuel tycoon is also working on reducing his carbon footprint. Earlier this year he pledged $250 million toward an ambitious project to gather up industrial emissions of carbon dioxide from ethanol distilleries across the midwest, pipe it to North Dakota and inject it permanently deep underground. After this LBO he won’t need to care at all whether shareholders think that’s a good idea.