Harold Hamm and Continental Resources and the Bakken

Since Harold Hamm is the face of Continental Resources and Continental Resources is probably the company most closely identified with the Bakken boom, I dug into the archives for some material on Hamm and the path Continental took from Oklahoma to North Dakota. This post is meant to be a portrait of Hamm and Continental, a story about the Bakken, and a look at the nature of the oil and gas industry; and along the way give a sense of how North Dakota’s boom came to happen.

The Oklahoma City Journal Record sat down with Hamm for a long interview that was published on November 3, 2008, as the center of a profile of him. Here are some key remarks by Hamm:

The youngest of 13 children, Hamm left the family farm in Purcell at 16 to strike out on his own in Enid. Shortly after graduating from high school, the entrepreneur secured $1,000 and a cosigned note to start up Hamm & Phillips Service Co., a one-truck oilfield service business that would serve as his entry into the industry. Last year [2007], Hamm took his company, Continental Resources, to the stock market with an initial public offering that raised more than $440 million.

Hamm grew up in a sharecropper’s one-bedroom home, without paint on the walls or indoor toilets. He grew up in the cotton fields, working for others. When he moved to Enid, Hamm decided to change direction and finished high school working nearly any job he could so that some day he could be his own boss. At about the same time, the town of Hennessey was booming with exploration and drilling. Hamm had never been around an oilfield before, but once exposed, he was hooked.

“Suddenly I saw another side of folks,” he said. “These were charismatic people and were the movers and shakers of the area. Those were exciting times. Hennessey had boomed and northeast Enid field was close to being drilled. The whole Sooner Trend production, from Oklahoma City to the north and west, was on the cusp of being drilled.”

When the industry was in full swing in the late ’60s, he said, “You could count 28 drilling rigs from the crest of a hill near Ringwood, without moving. Those were exciting times. We drilled our first well in 1971 as a wildcat, and we found a nice little field, which prepared me. I got out of school and finally got into the business on the service side after working for a contractor for about three years. I worked for Champlin for a short stint and was able to get into business for myself.”

The “small fortune” Hamm said he earned at the time gave him even more freedom – “I quickly realized I didn’t need that much freedom,” he said. Realizing he would never be able to get oil out of his blood, Hamm decided to take some of his hard-earned money and invest in his education. He took several classes at Phillips University in the mid-’70s, focusing on mineralogy, chemistry and petroleum geology. But getting a degree wasn’t as important as the knowledge itself, he said.

“I did a thesis in my class on oil exploration because I was interested in it. I guess the thought there was that there was ancient wealth unfound. The thought of that grasped my young mind. I wanted to learn as much about the business as I could. Of course I was working all the time I was going to college. I started my own company again and enjoyed the very exciting times of the late 1970s. Finally got to the time when prices were where you could make a living.”

Hamm sensed that the landscape was about to change in a big way. “I was committed to staying in the business,” Hamm said. “I started with one rig and basically was drilling my own leases. By the time of the height of the boom we wound up the builder of the biggest and best rigs. We had 13 rigs and it just got too good to be true,” he said. “Of course, I was working almost 24 hours a day with that thing and I’ve never really seen anything like it. It was really kind of illogical to me. I just finally got scared.” So he sold the appropriately named Trend Drilling Co.- a trend in time as well as a geological trend – which had successfully been drilling not only its own leases, but also contract work for other companies.

Although he missed out on the maximum profit potential, his timing was still fortuitous. “If I’d sold it earlier I would’ve gotten all my money,” he said. “I had to carry some of the deal. I came out really well. . . . The deal closed April 7, 1982. Penn Square Bank went down in July. That’s how close it was.”

When Oklahoma City Penn Square Bank shut down because of a gross imbalance of speculative loans in the oil and gas industry, it started a nationwide ripple that took many other banks with it. The petroleum industry also spiraled into a severe recession: Gas prices fell off from $9 per thousand cubic feet to 95 cents by 1987; oil went from $40 a barrel in 1981 to $10 a barrel in 1986.

“It put half the people out of business and destroyed half the infrastructure that existed at that time in our industry,” Hamm said. “People were cutting up drilling rigs for scrap iron by the end of the ’80s. Chopping them up, one right after the other and melting them down. It was terrible to see.”

But it also provided an opportunity to step back, assess the new environment, pick up some assets, and appreciate the wealth of industry wisdom he could tap into. Hamm was at least two steps ahead of the economic rebound.

“In about 1983, I retrenched as an oil and gas operator. At that time we had about 100 wells we drilled and operated, and I wanted to find oil and gas, so that’s what I started to do – concentrated and focused on building my company. And from that point on, the last 25 years, my focus has been exactly on that.

“I was very young. They helped me because of that. Our industry is so unique in the fact that there’s always someone out there helping someone else or mentoring someone else. Oil people are generous. . . . People gave to me. A lot of people mentored me for 30 years, and it was more so in the field than in any classroom. There were several that took me under their wing. Ask questions, they’ll help you. It’s another entire level of professionalism.”

Hamm’s first major oilfield development was the Cedar Hills Field in North Dakota in 1995, which was the largest onshore discovery at the time in more than two decades. It was also the first field drilled strictly with horizontal wells. The Department of Energy still ranks it as the 13th-largest onshore field in the lower 48 states. Hamm refers to it as a legacy field and “elephant” that helped the company reach the point where he could take it public. Finding the field is still a benchmark he remembers fondly.

“You know it exactly when it happens. With this field, we had it all mapped out and thought we knew exactly where it was from tests. Our guys thought it was small in some different places; I thought it was gigantic in proportion,” he said. “We started with two rigs at the same time and I really realized the size of the field and the potential prospect. When we went up there on the ground after the rigs were on the ground drilling, and you couldn’t see one rig from the other.”

The latest elephant in which Continental has had a leading role is the Bakken Shale Field in North Dakota, delineated as the Elm Coulee Field and other holdings. It also is a horizontal drilling operation.

“In 2003 we took a large lease position in North Dakota along the Nessen Anticline, where we knew the Bakken existed,” he said. “We felt it would be productive and now we’re running about 30 rigs and 14 of which are drilling in the Bakken of North Dakota and Montana. This is a huge play. The U.S.Geological Survey came out and did an assessment on this and gave it over 4 billion recoverable at the current level of technology and methods. Actually it confirmed what we doing,” he said. “It gave it credence. . . . Absolutely the greatest find in my career, without a doubt.”

“I could sit here and find bread-and-butter deals readily in Oklahoma and make a good living. But as an explorationist, I wanted to go to the Rockies. I felt like the opportunity was there to find some good deals and I wanted find elephants – fields with 400-500 million barrels.”

He said the discoveries of unconventional plays, particularly in natural gas, will be a boost [for the U.S.]. “Very few people know there are about 15 companies or resource players in America and all are independent producers – not a major in the bunch,” Hamm said. “These are the ones that embraced this technology of horizontal drilling, high-pressure fracs, multi-state high-pressure fracs and other high-tech. It’s a paradigm change from conventional to unconventional. What it’s done is unlock an almost unimaginable amount of resources for this country.”

He said the last five years of exploration have unlocked the gate to abundant resources such as the Bakken Shale in the northern U.S. and Barnett Shale in Texas. “The majors thought the deals were too little,” he said. “They didn’t want to get involved. Today the Barnett Shale is the biggest thing in America. It’s going to produce mainly natural gas. The Bakken is an anomaly. It’s an oil producer. The rest is natural gas.”

With a world short on transportation fuels, and the technology to harness wind energy, the country will be back on the right track, he said. “What it does is open up the door to an almost unlimited supply of natural gas to America. It’s my belief that we need a national energy policy as soon as we can. And this is coming from an oil producer, OK? My company is 80 percent oil. We need a policy as quickly as we can to retool vehicles to handle natural gas. This is an abundant, cheap fuel.”

Natural gas must be used in a form that will power vehicles. “I think we do it very quickly, and like [T. Boone Pickens] said, we’re going to have to drill, drill, drill until then,” Hamm said. “We have to open up ANWR, offshore, and make it possible to get access to federal lands in the Rockies and other places that are off-limits today.”

Hamm said that although it seems bleak at times, there is no national emergency today. “We haven’t had one supply disruption, the strategic petroleum reserve is full and it hasn’t been drawn out of,” he said. “There are no lines at service stations. The thing that’s got everyone’s attention is the price shock. They look down the road and see how expensive it’s going to be. The switch to natural gas cars is not going to be easy. But neither was the car when it first came out. You have to get ready for it. We can do it, and natural gas is going to be here for as long as we’re here.”

Harold Hamm: Position: Chairman and chief executive officer, Continental Resources. Born: Dec. 11, 1945, in Lexington, Okla.

Education: Honorary master of laws degree from Northwestern Oklahoma State University; studied geology at Phillips University; graduated from Enid High School. Family: Wife, Sue Ann Hamm; children Deana Cunningham, Shelly Lambertz, Tom Hamm, Jane Hamm and Hilary Hamm; and 10 grandchildren. Hobbies: Game bird hunting, fishing, golf and flying – he has a private pilot’s license.

Favorite movie: Secondhand Lions. Favorite president: Ronald Reagan. Favorite radio station: 96.1 FM, country music. Favorite meal: Chicken fried steak. Favorite car: 1960 Chevrolet Corvette. Car driven most often: Mercedes 500 SL.

A month after Continental Resources went public, The Oklahoman’s Adam Wilmoth also sat down with him for an interview the newspaper published in June 2007. It in part duplicates what he would say in the interview above, not quite a year and a half later, but is also of interest:

“My interest was oil and gas even back then [in his late teens],” Hamm said. “I grasped a passion for this industry from all the activity that was going on around us. I think the passion grabbed me because of the idea that you could create a lot of wealth from oil and natural gas. My family was very poor, so that idea was very appealing to me.”

[In 1967], a 22-year-old Hamm formed the company that would become Continental Resources. Almost exactly four decades later, Hamm took the company public last month [May 2007] in a move that earned him nearly $1.5 billion overnight.

Hamm recently discussed his companies and his life with The Oklahoman. The following is an edited excerpt of the conversation:

Q: How did you get started in the oil and gas industry?

A: Exploration was something that I lived to do. My only problem was how could I get the education to do it right. I was very fortunate in the fact that this industry is very remarkable. What somebody would spend a whole lot of money to find out about, they’ll share with other people. There were people to mentor me and teach me the various aspects of the business early on.

After those first successes we had in the early ’70s, I was able to take the step for a formal education. I attended Phillips University. I actually didn’t get a degree at Phillips. I just took all the courses I needed, particularly in petroleum geology and other areas. I never attempted to get a degree.

Q: You pride yourself in being willing to take risks. Obviously with starting companies so early in life, you had a willingness to take risks even then. Where did that come from?

A: You had to have that. With the entrepreneurial spirit, it has to be something that you fully embrace. Of course I’ve done that. We’ve built and started a lot of companies. Through the years we’ve had eight or 10 that have been very successful.

Q: How did you survive the bust?

A: I got lucky. I was very fortunate. I had started a company called Trend Drilling Company back in 1974 to be able to drill my own leases. You couldn’t get rigs back then so I started a company and bought rigs and built rigs. The only problem is a drilling company can become all-consuming. Pretty soon we were drilling not only our own leases, but we were doing a lot of work for a lot of other people as a general contractor. The company had gotten pretty large by 1982. To me, it was too good to be true. So I sold my drilling company and got a lot of money out of it. I didn’t get all my money, but I got a lot of it.

So when the bust began, when Penn Square went down in July 1982, I had just sold in April. So as a result, I was flush with cash through that period. That allowed me to take advantage of a lot of distressed situations over the next five years. I bought a lot of properties people were selling. It got us through the bust years in awfully good shape, and it created a lot of opportunity for us.

That’s when I really began putting together a first-class exploration group. When everybody else was laying off their exploration group, I was picking them up. From then on, we’ve been tremendously active in exploration.

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4 Responses to Harold Hamm and Continental Resources and the Bakken

  1. Wesley Sullivan says:

    Not in any other country do you have the kind of oppurtunity to go out and get like this man did. Of course now days instead of putting the work in to build something, they want to be given it. Very Inspirational.

  2. Raj says:

    Such a remarkable guy. And he fully deserves his success.

  3. Pingback: Bloomberg Documentary: Shale Oil Revolution Only in the ‘Second or Third Inning’

  4. Pingback: Energy In Depth | Bloomberg Documentary: Shale Oil Revolution Only in the ‘Second or Third Inning’

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