Continental Resources, the Oklahoma City-based energy exploration and production company founded by Hamm, is cutting production as it grapples with both lower demand due to the COVID-19 pandemic and a supply glut exacerbated by a price war between Saudi Arabia and Russia.
"Global crude oil and product demand is estimated to have been impacted by 30 percent due to COVID-19,” Bill Berry, CEO of the Oklahoma City-based Continental Resources, founded by Hamm, said in a statement Wednesday. “Accordingly, we are reducing our production for April and May 2020 in a similar range."
Many U.S. energy companies are fighting for their survival after the imbalance between supply and demand slashed 44 percent from the S&P 500 energy sector’s market value, reducing it to $538.8 billion.
Prices for West Texas Intermediate crude oil, the U.S. benchmark, have fallen by as much as 68 percent to $20.31 per barrel since topping out on Jan. 6. WTI was trading near $25 a barrel on Wednesday.
While both Saudi Arabia and Russia would like to see oil prices stabilize, and are said to be discussing a production cut of 10 million barrels per day, they want U.S. producers to lower their output, too.
Production cuts by shale companies would put the U.S. on track to becoming a net importer of energy, which the U.S. Energy Information Administration forecast on Tuesday.
The EIA said it sees the U.S. reaching net importer status in the third quarter of this year and remaining there through 2021.
Cuts by U.S. shale may be “a little bit slower than the Saudis and Russians are expecting because the companies will try to limit their bankruptcy proceedings as much as possible,” Dr. Jean-Francois Seznec, non-resident scholar at the Middle East Institute, told FOX Business. “Every barrel they pump will end up delaying” their bankruptcies, he added.
Neal Dingmann, an analyst at SunTrust Robinson Humphrey, says that other U.S. producers may still join Continental in reducing output.
“As we continue to see minimal headway as it related to any sort of OPEC++ agreement, we would not be surprised to see other large U.S. names follow a similarly proactive approach,” he wrote.
Seznec agreed, noting that Hamm being in favor of U.S. producers cutting output "carries weight," and that large U.S. producers such as Exxon and Chevron might join Continental in doing so.
Even if a deal is reached, however, “demand has cratered so much” that cutting by 10 million or 15 million barrels won’t improve demand or immediately reduce the inventory glut, Seznec said.