Continental Resources is an oil company based in Oklahoma City. The company was founded in 1967 by Harold Hamm, when he was 21 years of age. The story of Harold Hamm does not make sense to me, though I have read it several times.
Harold Hamm was the youngest of 13 children, whose parents were poor cotton sharecroppers. He went to work in the oil field when he was in his teens. I have read that he later went to work at an automobile service station & garage, or that he owned it. He operated a water truck that delivered water to the oil field, and then he started an oil field water truck service.
The only thing that did seem to make sense about how Harold Hamm began to get ahead, was that there was an oil bust, and oil drill rigs began to be sold for scrap metal. With all the money that he had or could get a hold of, he began buying as many oil drill rigs as he could, at scrap metal prices. When oil companies began drilling again, he owned oil drill rigs.
Skipping ahead, in 1995 Continental Resources used horizontal drilling to develop an oil field that it had discovered in North Dakota, that became named the Cedar Hills Field. Prior to horizontal drilling and hydraulic fracturing being used in the oil industry, it was cost prohibitive to drill and produce oil in North Dakota. In 2003, Continental Resources began using horizontal drilling and fracturing in the Bakken Formation of North Dakota.
Currently, Continental Resources produces approximately 242,000 barrels of oil and natural gas, per day. It’s primary operations are in North Dakota and Oklahoma. A company pictorial chart shows that 50.4% of its production comes from North Dakota.
Harold Hamm’s net worth is about $15 billion. I have wondered how being poor and uneducated, Harold Hamm was able to become one of the top 100 wealthiest Americans, when the oil industry is full of hardworking, stubborn, ruthless, greedy, talented, and educated, workers, operators, financiers, geologists, and engineers, all of whom just about never get ahead. How could Harold Hamm be right, every time, at every juncture? Or, wait a minute, is he?
It is probably not well known, that in North Dakota, the oil wells that are produced using horizontal drilling and hydraulic fracturing, they lose about 25% of their production volume every year. Here is an example of what this decreasing oil production looks like:
- Year 2010, well completed, production = 100 barrels per day
- Year 2011, 25% decrease, production = 75 barrels per day
- Year 2012, 25% decrease, production = 56.3 barrels per day
- Year 2013, 25% decrease, production = 42.2 barrels per day
- Year 2014, 25% decrease, production = 31.7 barrels per day
- Year 2015, 25% decrease, production = 23.8 barrels per day
- Year 2016, 25% decrease, production = 17.9 barrels per day
- Year 2017, 25% decrease, production = 13.4 barrels per day
- Year 2018, 25% decrease, production = 10 barrels per day
(For reference, here is the link to one formal study that shows the oil production values for North Dakota wells produced using horizontal drilling and hydraulic fracturing: https://link.springer.com/article/10.1007/s11053-019-09559-5)
Using the oil production values that I listed in the table above, even at oil prices as low as $40 per barrel, oil companies should be able to recover their exploration, lease, site, drilling, and maintenance costs for an oil well at the end of two years, with the generation of roughly $2.5 million in oil revenue from this well.
However, the owner of the mineral rights where a North Dakota oil well is drilled, typically a farmer or rancher, whose oil revenue money keeps dropping by 25% or more each year, they are not going to look at this as a business venture where initial costs are recovered and subsequent years are profitable to a point, until obsolescence is reached, like the oil companies do.
The farmers and ranchers who have oil wells on their property, whose oil revenue money keeps decreasing each year for eight or ten years until it is nothing, they are going to feel like they were swindled. They are going to be angry that the money didn’t keep coming in like it did initially, and now they have this nasty oil well or oil wells on their property that don’t profit them hardly at all.
Donald Trump will likely get re-elected in 2020, and serve until 2024. But unfortunately this will probably be the last Republican president in the U.S. due to demographics. The continued population growth of all the cities in every state, and the majority of these city dwellers voting Democrat, these Democrat voters will outnumber the conservative rural voters in every state. Both the popular vote and the electoral college vote will be a majority Democrat in the 2024 elections.
When the Democrats have the presidency, and one or both houses of Congress, the EPA will expand, and the coal, natural gas, and oil industries will be blocked and attacked. Not only will there likely be a halt to horizontal drilling and hydraulic fracturing, which is now being called “well stimulation” due to controversy, there will be groups of environmentalist and activists who seek a platform to rant about all of the destruction, jeopardy, and poisoning that hydraulic fracturing has caused.
The farmers and ranchers in North Dakota with oil wells on their property, who were so disappointed by the 25% yearly drop in oil revenue money down to nothing, that they felt swindled by the oil companies, they will switch sides and become plaintiffs against the oil companies in all of the lawsuits seeking monetary damages from hydraulic fracturing, such as causing groundwater pollution, sink holes, earth fissures, and earthquakes.
Come 2024, many people will catch on that change is coming. Oil companies that had good earnings, and steady or increasing stock prices, will become suspect due to concerns about legal liability. It won’t just be Continental Resources, but Marathon Oil, Whiting, Hess, ConocoPhillips, every company that used hydraulic fracturing.
Once an oil company’s stock price begins to fall due to concern over huge legal liability lawsuits, how will the oil company be able to pay the enormous settlements? Though oil companies were able to profitably produce oil in North Dakota due to hydraulic fracturing, which was Continental Resources’ biggest success, in the end this may be their undoing.