harold ham
Photo by David Yellen/Forbes Collection
Privatizing Continental Resources would mean assuming about $9 billion in debt.
The public market served its purpose for Harold Hamm. Now he doesn't need them anymore. The oil industry pioneer announced today that Continental Resources, CLR, a company he founded in 1967, is making a per-share deal for the 58 million shares, or 17%, of the company he and his five children don't already own. The company announced that it has agreed to a tender offer of $74.28. . The purchase price is lower than the $70 per share he originally offered in June.
Interestingly, Hamm said in an SEC filing that no outside help was needed to raise the $4.3 billion needed to complete this $27 billion LBO. . Financing consists of cash on hand, Continental's existing credit facility and a new term loan. Continental's board of directors approved the transaction. There is no point in holding a shareholder vote when Ham already owns 83%.
The take-home price seems reasonable, representing an enterprise value of about $70,000 per flowing barrel per day of Continental's 400,000 barrels per day of oil and gas production. That's in line with the average for publicly traded companies, according to data from Credit Suisse analyst William Janela.
Alternatively, the deal values Continental at about seven times this year's expected free cash flow of $4 billion. Continental currently has $6 billion in long-term debt, which could rise to around $9 billion after the deal closes.
This debt burden will affect Hamm's place on Forbes magazine's list of America's richest people. Forbes currently pegs his and his children (who transferred his shares) to have a net worth of $20.7 billion, based almost entirely on publicly traded Continental stock. But when the company goes private, the debt effectively changes from being owed by a public company to being owed by Hamm and his family, and therefore subtracted from Forbes' estimate of his total net worth.
Ironically, Ham was able to complete this largest transaction of his career, only to have his “net worth” reduced by nearly half.
No matter how you look at it, Ham, who said no? His 21st place on this year's Forbes 400 list makes him the first oil industry wildcatter to be inducted into the Ballot Hall of Fame. Born as his 13th child to sharecroppers in Oklahoma, he picked cotton barefoot as a child, and to support his family he began working at a gas station at age 16. He started his own trucking company to transport water to and from oil fields, and skimmed oil from his wastewater to make his early profits. In 1967, at the age of 21, Sherry Dean started his oil company and in 1971 took a loan and drilled his first well. He took Continental public in 2007 and helped pioneer the innovative combination of horizontal drilling and hydraulic fracturing.
Ham said the lack of public market support for fossil fuel producers drove privatization. It's true that markets are fickle. In March 2020, when oil prices were falling towards zero, Continental stock bottomed below $10.
Mr. Hamm, 77, said becoming a private company would give Continental greater operational freedom. It's unclear whether he has other deals in mind to expand his existing operations in North Dakota, Oklahoma, Texas and Wyoming, but he has enough drilling to keep him busy for 11 years at his current level of drilling activity. I have inventory.
The fossil fuel king is also working to reduce its carbon footprint. Earlier this year, he committed $250 million to an ambitious project to collect industrial carbon dioxide emissions from ethanol distilleries across the Midwest, pipe them to North Dakota and permanently inject them deep underground. I promised. After this LBO, he won't have to worry at all about whether shareholders think it's a good idea.
2014 cover story.
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