Reports indicate Oklahoma City-based Continental Resources Inc. has shut down most of its oil production in North Dakota after telling at least one refiner the company could not make an oil delivery because of the oil crisis.
Bloomberg reported that the company declared a force majeure on one of its contracts earlier in the week following negative oil prices. Its explanation echoed the cry of one oil group to the Oklahoma Corporation Commission that the sale of oil at such basement prices is a “waste.”
Force Majeure is a clause typically in a contract that free both parties from liability or obligation when an Act of God or an extraordinary event beyond their control prevents them from fulfilling their obligation to the contract.
In the contract document and the force majeure call by Continental as seen by Bloomberg, the company said it couldn’t have foreseen the dramatic rout caused by the coronavirus outbreak, and that selling oil at negative prices constitutes waste.
The declaration by Continental led refiners to criticize the company, saying it is the “height of hypocrsy” after company founder Harold Hamm had recently called for a limit of foreign oil imports.
A Continental spokeswoman told Bloomberg the company continues to honor its commitments and is working closely with its purchasers. “Certainly this pandemic has brought about conditions under which force majeure applies,” the company said in an emailed statement.
Hamm has been an active voice in Washington since crude prices suffered the most dramatic collapse in decades. He’s said Saudi Arabia and Russia are guilty of “illegal” dumping and has called on the U.S. to impose tariffs on their crude.
Refiners whose facilities are designed to run on heavier, foreign grades of crude have lobbied against any move to block Saudi imports.
“It is the height of hypocrisy for a company to choose not to honor its contracts to supply domestic crude to refineries while also demanding the administration impose restrictions on foreign crude,” the American Fuel and Petrochemical Manufacturers, a trade group representing refiners, said in an email.
Most recently, Continental filed a complaint with the Chicago Mercantile Exchange over Monday’s price collapse and is seeking an investigation from the Commodity Futures Trading Commission.
The rapid plunge — with the May contract for West Texas Intermediate falling some $40 in the last 22 minutes of trading — “strongly raises the suspicion of market manipulation or a flawed new computer model,” the company said Tuesday. CME Group Inc. called Continental’s allegations “factually inaccurate.”
Source: Bloomberg
