Opinion: What Elon Musk Can Learn from an Oil and Gas Producer

 Presented by:

(Editor's note: This article was written on June 15 and published in Oil and Gas Investor July 1.)

It would be Harold Hamm. The morning of June 14, shortly after seeing Hart Energy’s breaking news alert about Hamm bidding to take Continental Resources Inc. private, I received a text.

Someone had replied to a Twitter post about the news, commenting, “Wonder what he’s seeing.”

Without knowing more details yet, I replied, “Wall Street doesn’t want oil and gas producers using equity to grow, so why be public?”

Getting into the Securities and Exchange Commission filing, I read Hamm’s letter to employees. Yep, that’s his point.

It would be Harold Hamm who would go first to tell Wall Street, “Nope.” When he took his already 40-year-old Continental public in 2007, it had found a game-changing treasure in the Bakken Shale and needed access to large amounts of capital to develop it.

“At that time, the public market rewarded companies for both growth and performance,” he wrote.

Today, though, Wall Street doesn’t want oil and gas producers to spend money; they want to harvest it instead. The ever-fewer public operators out there, Hamm wrote, “is illustrative of a lack of support from the public market, and we believe there is a resulting underappreciation of Continental.”

That’s how it is in 2022. That’s what Hamm sees.

He wrote that private operators have “the freedom to operate.” And, like Continental was before May 16, 2007, “aren’t limited by public markets.”

He concluded, “Continental is a strong company built to last, and our family believes being private will make it even stronger and more competitive.”

RELATED:

Analysts: Hamm’s Offer to Continental Points to Industrywide Undervaluing of E&Ps

Immediately, the market appreciated Continental, driving the stock price up well beyond Hamm’s $70 per share offer, 16% from the prior-day closing to $74.88.

Nitin Kumar, oil and gas securities analyst for Wells Fargo Securities LLC, said traders might be expecting a rival bid. But the Hamm family isn’t interested in selling any of their 83% holding. The other bid would have to be for the 17% alone—essentially a silent partner.

What is certain, though, is that Continental shares are actually worth $80, Kumar said. And that’s at only $60 oil.

Meanwhile, it’s irresistible (yes, I’m going there) to compare how Harold Hamm makes an offer and how Elon Musk makes an offer.

Clearly Hamm’s was contemplated for, well, 15 years, plus four weeks. He wrote in his letter that he’s always said that “as long as we were appreciated in the market, we would remain a public company, but if our opportunities were limited by being public, we should look at alternatives.”

Meanwhile, Musk’s bid for Twitter looks like an accident—a pocket tweet to which he woke the next morning and felt more compelled to follow bad thinking with more bad thinking (oblivious that no one really takes him seriously anymore) than to tweet his usual mea culpa: “Haha.”

Hamm bid $70; the stock appreciates to $75. Musk bid $54.20; the stock tanks to $37.

Hamm and the Hamm family’s Continental holding appreciated this year 40% through June 13. Musk’s holding—about 15%—in Tesla Inc. depreciated this year 46% through June 13.

Continental likely holds only U.S. dollars. Tesla’s quarterly report filed April 25 reported it “invested” $1.5 billion in Bitcoin in the first quarter of 2021. “We believe in the long-term potential of digital assets both as an investment and also as a liquid alternative to cash,” it added.

The crypto would have been acquired at between $32,150 and $58,745. On June 14, a Bitcoin was worth $22,000.

I gave a nephew 0.001 Bitcoin last summer for his 10th birthday. It was worth $45 at the time. He said, “I want to sell it.” I suggested he hold.

He asked again last November, when it was worth $67. I suggested he continue to hold it. I said something about “you have no better use of the proceeds” and other things that I now see could roughly be translated as “blah blah blah.”

Today, a Pokemon card would have been a better investment, after all. 

I could learn a lot from a 10-year-old.

Elon Musk could learn a lot from an oil and gas producer.

First, all property owned should be real. Second, write a letter to the employees—a nice letter.

Third, do due diligence. Fourth, do this due diligence before making an offer.

Fifth, don’t tweet crazy stuff. Sixth, maybe just don’t tweet.