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The largest oil producer in North Dakota has halted most of its production in the US state and notified some customers it would not supply crude after prices dived into negative territory this week, sources said.
Continental Resources Inc, the company controlled by billionaire Harold Hamm, stopped all drilling and shut in most of its wells in the state’s Bakken shale field, three people familiar with production in the state said.
Global oil prices have plunged because of excess supplies and tumbling demand due to the coronavirus crisis.
Continental shares are down 61 percent in the year so far.
US crude prices plunged into negative territory this week — meaning suppliers had to pay people to take oil — due to lack of storage space, prompting moves by operators to halt output.
Shut-ins have been particularly swift in North Dakota, which produced more than 1.4 million barrels per day (bpd) of oil in 2019, making it the second-largest US producing state after Texas.
State officials say production has already dropped by about 300,000 bpd. This month, rival operator in North Dakota Whiting Petroleum became the first major shale producer to file for bankruptcy.
Coming into this year, Continental produced nearly 150,000 bpd in the Bakken, according to company figures. The firm cut production through May by 30 percent before the latest price crash and suspended its dividend.
A rival who viewed Continental’s notice of force majeure said that, without state regulators’ requiring output cuts, a contract could not be canceled just because sales were unprofitable for a period. This week, state regulators decided against demanding output cuts.
Continental is exposed to weak prices because it did not hedge future production, betting economic growth would lift prices. Many large shale producers use derivatives as a type of insurance policy to lock in a price for their future output.
Bakken crude this week was selling regionally at roughly $3 a barrel, far below the US benchmark, said Ron Ness, president of the North Dakota Petroleum Council.
A spokeswoman for Continental did not reply to requests for comment.
