Fracking Pioneer Harold Hamm to Take Continental Resources Private

The deal comes as U.S. shale companies are under pressure from Wall Street investors to spend conservatively on production and return more cash to shareholders. The shale industry grew production rapidly for years, but mostly lost money by outspending its cash flow. Many investors concerned about the companies’ carbon footprint have also pulled out of the sector, leading to what executives and analysts said are low company valuations relative to their book value. 

Even with oil prices topping $130 this year, oil-and-gas producers have maintained their discipline and only modestly increased crude output. Mr. Hamm has said that pressure from investors makes it difficult for the company to pump more oil. 

Mr. Hamm and his family, who own about 83% of Continental, will buy the remaining shares for $74.28 each. Mr. Hamm plans to acquire the company through an entity he owns in a deal that values the whole company at about $27 billion.

Shares of Continental Resources rose 8.7% to $74.14 Monday. 

In June, Mr. Hamm offered to take the company private, saying it would “enhance our ability to maintain our competitive edge and will also enable us to be even more nimble in our efforts to create value through the drill bit.” Now that a definitive agreement has been struck with Continental, Mr. Hamm will begin a tender offer to purchase the approximately 58 million company shares not held by him or his family, Continental said Monday. 

The deal price represents a 15% premium to the stock’s price at the time Mr. Hamm’s initial $70 offer became public in June and includes 28 cents to cover Continental’s anticipated dividend for the third quarter. 

Some shareholders expressed dissatisfaction with the announcement.

Cole Smead,

president of Smead Capital Management, an investment firm that is the largest nonfamily owner of Continental shares, said that Mr. Hamm’s offer undervalued the company’s assets.

“We think he’s stealing the assets at these prices,” he said, adding that his firm hadn’t been consulted on the deal despite its requesting so. Continental said Monday that the deal doesn’t require a shareholder vote, leaving shareholders few options to contest.  

Continental didn’t respond to a request for comment.

More producers would go private to have more flexibility, oil-and-gas executives have said, but few are in a position to do so. Analysts said they didn’t expect to see more publicly traded U.S. oil producers go private.

Among large publicly-listed producers, Mr. Hamm is unique in retaining most of the shares of the company he founded, giving him the ability to regain sole control 15 years after taking it public. The company’s initial public offering brought it cash to expand drilling in the Bakken.

One precedent of a producer going private includes the sale of oil producer Venoco Inc. to chief executive and majority shareholder

Tim Marquez

a decade ago.

David Deckelbaum,

a senior analyst at investment bank

Cowen,

said he expects Continental will more aggressively exploit its acreage in Wyoming’s Powder River Basin and the Anadarko Basin of Western Oklahoma, as well as reinforce its existing position in the oil-rich Permian basin of Texas and New Mexico. “It’s very much in the DNA of the Continental organization to be explorers—to find new opportunities” he said. 

Mr. Hamm, the 13th child of Oklahoma sharecroppers, founded Continental in 1967 without a college degree. His fortunes have been tied to the company’s performance, which made him one of the richest men in America. Russia and Saudi Arabia’s battle for market share in 2020 tested this arrangement when crude prices cratered and Continental’s shares plummeted, docking $3 billion off Mr. Hamm’s wealth in just a few days. The pandemic forced Mr. Hamm to slam the brakes on drilling, shut off existing wells and stop delivering crude to some refineries. 

The company bounced back in the postpandemic recovery and was propelled to new heights by rising oil prices following Russia’s invasion of Ukraine, with the company’s stock up more than 60% year-to-date. Continental and other shale drillers have reported strong profits this year: the producer reported about $1.2 billion in profit in the second quarter of the year, more than double from the previous quarter. 

Continental is well-positioned to take advantage of high prices, as it is among the few shale drillers that typically don’t use hedging contracts to lock-in prices for future production. 

Continental’s board approved the latest deal based on a recommendation of a special committee of independent directors formed after the June offer. Mr. Hamm serves as chairman of Continental’s board of directors. 

Continental said Mr. Hamm’s deal will be financed using a combination of cash on hand, borrowings under the company’s existing revolving credit facility and a new term loan facility to be entered into in connection with the closing of the transaction.

Continental announced in late 2019 that Mr. Hamm would step down from his CEO role. He was succeeded by current CEO

William Berry,

who had served as a board member since 2014 and remains on the board.

Chris Wack contributed to this article.

Write to Benoît Morenne at benoit.morenne@wsj.com