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Iran sanctions, Permian squeeze to push oil prices up 10%, Continental CEO says

The combination of new U.S. sanctions on Iranian crude oil and the inability of Permian Basin producers to get more production to market will drive world crude prices at least 10% higher, shale oil billionaire Harold Hamm told analysts on his company's earnings conference call Aug. 8.

Hamm, CEO of Continental Resources Inc., was fresh from an Aug. 7 meeting with President Donald Trump, and Wall Street analysts asked him about the impact of the sanctions imposed on Iranian oil. Hamm said his impression was that the Trump administration intends to encourage as much U.S. oil as possible be exported to fill the gap in world supplies.

"The current administration would likely enhance [exports]," Hamm said, pointing out that the exports would help balance U.S. trade with other countries. "The further we go down this road, the more everyone's going to realize that ... the U.S. has its own petrodollars. We're seeing the current administration embrace this more and more every day, realizing the importance of it."

Continental is a leading producer of oil from the Bakken Shale and Midcontinent, both regions with unhampered access to oil markets, whereas Permian oil and gas production is capped off until more pipeline infrastructure is built.

"I think overall, we could see prices running another 10% here before they're leveled off," Hamm said. "Obviously, I'm pretty bullish on prices in the macro. It's — we're seeing Permian — that production that's held back by the infrastructure ... that's going to be harder to see a lot more oil coming to the market. So overall, we feel pretty good that things could run another 10% higher before it levels out."

Continental's stock slipped nearly 4% early in the day, only to gain it all back during the conference call. The company beat analysts' profit expectations for the second quarter, with 73 cents per share in earnings after one-time items. Analysts surveyed by S&P Global Market Intelligence were expecting to see 71 cents per share in normalized earnings.

By midafternoon, Continental shares had gained 2% to $63.38 per share.

Continental has begun planning to restart dividend payments, probably starting in 2019, Hamm and CFO John Hart said on the call. "Dividends are something that we're actively considering," Hart said. "We want to see or achieve the $5 billion [in debt] before any action in that nature, but we are dramatically on progress for that."

Continental, which did not hedge its oil sales in the quarter, captured most of the value of recently rising oil prices, reporting average sales prices of $63.35 per barrel, 63% more than it realized in the same quarter in 2017.

The oil price increase pushed Continental's revenues up 81% compared to the prior year's second quarter, to $1.14 billion.