Insider Buy at Continental Resources Less Than Meets the Eye

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When a CEO lays out good money to purchase shares of his company at market prices, that’s usually a positive signal to shareholders. Such is the case with Continental Resources Inc. (NYSE: CLR) this morning, following a filing with the SEC that the company’s CEO, Harold Hamm, bought 100,000 shares at a cost of about $7.2 million.Continental is one of the largest leaseholders in the Bakken shale play in North Dakota, and Hamm is generally recognized as the guy who found the oil.

While most estimates of the size of the Bakken crude deposits are around 4-5 billion barrels, Hamm believes there are 24 billion barrels just waiting to be squeezed out of the ground. In an interview with The Wall Street Journal in October 2011, Hamm said, “[T]he United States could be ‘completely energy independent by the end of the decade. We can be the Saudi Arabia of oil and natural gas in the 21st century.’” And Hamm appears willing to put his money where his mouth is.

But in March of this year, a company owned by Hamm and Continental’s President Jeff Hume sold 38,000 acres in the Bakken play to Continental for $340 million in stock. At the time of the sale, Hamm owned 123 million of Continental’s 180 million outstanding shares. Another 100,000 shares is a rounding error.

According to the company’s proxy statement:

Wheatland Oil Inc. (“Wheatland”) is owned 75% by the Hamm Revocable Trust and 25% by our President and Chief Operating Officer, Mr. Jeffrey B. Hume. Wheatland participates in several of the Company’s crude oil and natural gas properties located in the states of Mississippi, Montana, North Dakota and Oklahoma. The Wheatland interests generally range from 5% to 10% of the Company’s interests. During the year ended December 31, 2011, we disbursed net crude oil and natural gas revenues of approximately $36.7 million to Wheatland and were paid for billed costs of approximately $64.9 million by Wheatland. We also paid Wheatland approximately $5,000 in 2011 for their share of undeveloped leasehold adjustments. At December 31, 2011 $17.6 million was due from Wheatland and $3.5 million was due to Wheatland.

This does not sound much different from the Founder Well Participation Program that Chesapeake Energy Corp. (NYSE: CHK) had going with CEO Aubrey McClendon.

But investors do like insider buying. Continental’s shares are up nearly 6% in late morning trading today at $75.44 in a 52-week range of $42.43-$97.19.

Continental’s proxy filing detailing related party transactions is available here.

Paul Ausick

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