By Arunima Kumar and Ruhi Soni
(Reuters) -Continental Resources Inc said on Monday it had agreed to a sweetened offer from founder Harold Hamm to take the U.S. shale oil producer private at a valuation of about $27 billion.
Hamm, a legendary oilman who once called the Organization of the Petroleum Exporting Countries a "toothless tiger," said in June that he wanted to take the company private because public markets have not supported the oil and gas industry.
Hamm offered $74.28 per share for the stake not owned by him and the Hamm family trust. He had proposed $70 per share in June. The company's shares jumped more than 8% to close at $74.14 on Monday and posted a total return of 67% so far in 2022.
Since the onset of the coronavirus pandemic in 2020, U.S. oil companies have retrenched, pulling back on capital investment in response to investor demands for better returns and as investment managers have shifted to fast-growing renewable sectors. U.S. oil production is still short of its all-time record set in 2019.
Continental produced 400,000 barrels of oil equivalent per day in the second quarter. The company operates primarily in North Dakota's Bakken region and Oklahoma's Anadarko; those basins are still shy of their all-time record as other operators have concentrated on the biggest shale region, the Permian in Texas and New Mexico.
Hamm founded Continental, the largest oil and gas producer in the Bakken shale, as Shelly Dean Oil Company in 1967, and ran it as a private firm until 2007.
OIL AND GAS ADVOCATE
In a letter to employees in June detailing his offer, Hamm lamented that the public markets have not supported the oil and gas industry and limited its growth, especially since the pandemic.
An early supporter of Donald Trump's presidential candidacy, Hamm spoke at the 2016 Republican convention where he blasted environmental regulations for threatening U.S. oil production gains. He was reportedly considered for the role of Trump's U.S. energy secretary.
Smead Capital Management, the largest shareholder after the Hamm family with a stake of about 2%, reiterated on Monday that the revised offer "undervalues" Continental.
"While we knew that Hamm would have to raise his price to get a deal done, this still undervalues the assets," said Cole Smead, president and portfolio manager at Smead Capital.
Continental did not respond to a request for comment on Smead's remarks.
U.S. crude and natural gas prices earlier this year hit multiyear highs as Russia's invasion of Ukraine further squeezed crude oil supplies and caught the shale industry ill-prepared to quickly increase production.
Hamm and his family own 83% of Continental's common stock and the deal does not require a vote by shareholders. His large stake is unique among publicly traded producers, meaning the deal is not expected to be a harbinger of other activity.
"We believe E&Ps are broadly undervalued by public markets relative to the cash flow they are expected to generate next year," said Andrew Dittmar, a director at market researcher Enverus. Closely held oil companies have greater flexibility than public rivals in to invest in higher production, he added.
Monday's all-cash offer represents a premium of 8.9% to Continental's closing price on Friday and 15% to the close before Hamm's initial offer was announced.
The offer includes 28 cents per share in lieu of the anticipated dividend for the third quarter, the company said, adding it expected the deal to close before Dec. 31.
The tender offer would be for about 58 million shares valued at around $4.3 billion, Continental said, based on the shares outstanding as of Oct. 12.