US oil giant halts shale output, seeks to cancel sales contracts

US shale producers are counting the cost of a global plunge in oil prices. (Shutterstock)
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Updated 25 April 2020

US oil giant halts shale output, seeks to cancel sales contracts

NEW YORK: The largest oil producer in North Dakota has halted most of its production in the US state and notified some customers it would not supply crude after prices dived into negative territory this week, sources  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.

Global oil prices have plunged because of excess supplies and tumbling demand due to the coronavirus crisis.

Continental shares are down 61 percent in the year so far.

US 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 barrels per day (bpd) of oil in 2019, making it the second-largest US producing state after Texas.

State officials say production has already dropped by about 300,000 bpd. This month, rival operator in North Dakota Whiting Petroleum became the first major shale producer to file for bankruptcy.

Coming into this year, Continental produced nearly 150,000 bpd in the Bakken, according to company figures. The firm cut production through May by 30 percent before the latest price crash and suspended its dividend.

A rival who viewed Continental’s notice of force majeure said that, without state regulators’ requiring output cuts, a contract could not be canceled just because sales were unprofitable for a period. This week, state regulators decided against demanding output cuts.

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 a barrel, far below the US benchmark, said Ron Ness, president of the North Dakota Petroleum Council. 

A spokeswoman for Continental did not reply to requests for comment.


Analysts urge Canada to focus on boosting the economy

Updated 06 July 2020

Analysts urge Canada to focus on boosting the economy

  • Canada lost one of its coveted triple-A ratings in June when Fitch downgraded it for the first time

TORONTO: Canada should focus on boosting economic growth after getting pummeled by the COVID-19 crisis, analysts say, even as concerns about the sustainability of its debt are growing, with Fitch downgrading the nation’s rating just over a week ago.

Canadian Finance Minister Bill Morneau will deliver a “fiscal snapshot” on Wednesday that will outline the current balance sheet and may give an idea of the money the government is setting aside for the future.

As the economy recovers, some fiscal support measures, which are expected to boost the budget deficit sharply, could be wound down and replaced by incentives meant to get people back to work and measures to boost economic growth, economists said.

“The only solution to these large deficits is growth, so we need a transition to a pro-growth agenda,” said Craig Wright, chief economist at Royal Bank of Canada. The IMF expects Canada’s economy to contract by 8.4 percent this year. Ottawa is already rolling out more than C$150 billion in direct economic aid, including payments to workers impacted by COVID-19.

Further stimulus measures could include a green growth strategy, as well as spending on infrastructure, including smart infrastructure, economists said. Smart infrastructure makes use of digital technology.

“We have to make sure that government spending is calibrated to the economy of the future rather than the economy of the past,” Wright said.

Canada lost one of its coveted triple-A ratings in June when Fitch downgraded it for the first time, citing the billions of dollars in emergency aid Ottawa has spent to help bridge the downturn caused by COVID-19 shutdowns.

Standard & Poor’s, Moody’s and DBRS still give Canadian debt the highest rating. At DBRS, Michael Heydt, the lead sovereign analyst on Canada, says his concern is about potential structural damage to the economy if the slowdown lingers too long.

Fiscal policymakers “need to be confident that there is a recovery underway before they start talking about (debt) consolidation,” Heydt said.

Fitch expects Canada’s total government debt will rise to 115.1 percent of GDP in 2020 from 88.3 percent in 2019.

Royce Mendes, a senior economist at CIBC Capital Markets, said the economy still needs more support.

“Turning too quickly toward austerity would be a clear mistake,” he said.