NEW YORK (Reuters) - Pioneering shale oil producer Continental Resources Inc (CLR.N) has hired veteran oil trader Kirk Kinnear in an effort to claim a share of the bumper profits that have emerged from an unprecedented arbitrage in domestic crude markets.
Kinnear, whose 33-year career spans includes stints at some of the most renowned trading firms in the country, including Phibro and Sempra, will run marketing logistics in order to ensuring Continental’s oil output “has access to the most competitive markets”, the company said in a Friday news release.
The high-profile hire comes as oil companies operating in the Bakken and other northern shale oil patches grow frustrated at the massive gap between their local selling prices - depressed by an unexpected supply surplus - and the premium prices paid by refiners on the Gulf Coast.
The lack of sufficient pipeline or transportation routes to handle the boom in northern output means companies like Oklahoma City, Oklahoma-based Continental, are often forced to sell at as much as $30 a barrel less than what similar oil fetches at the coastal refining hub, leaving railway firms, pipeline owners or, logistics firms or other companies to pick up bumper profits.
For instance, Continental, which gets about three-quarters of its 85,526 barrels-of-oil-equivalent-per-day output from northern fields across Montana, Wyoming, and North Dakota, sold its crude at an average of $90.58 a barrel in the first quarter.
But the average price for U.S. crude oil at the Cushing, Oklahoma, storage hub was $103 a barrel in the first quarter, while Light Louisiana Sweet on the Gulf Coast fetched an average of $120, according to Reuters calculations.
“I look forward to helping Continental find the best home for the high-quality crude oil it produces,” Kinnear said in the statement.
A spokeswoman for Continental, run by Oklahoma billionaire Harold Hamm, was not immediately available to comment on whether the hire would change the company’s trading strategy.
Kinnear’s three-decade career has included working on pipeline projects in Alaska and refineries in Kansas, but has more recently taken him through some of the most successful oil merchant-traders in the world.
He worked for Connecticut-based Phibro two decades ago at a time when chief Andy Hall was running a fleet of refineries. He went on to work for Hess Energy Trading (Hetco), a joint venture run by two top Goldman Sachs traders, and at RBS/Sempra, the powerhouse merchant trader bought by JPMorgan Chase & Co (JPM.N) in 2010. He was an executive director before leaving the Wall Street bank.
Continental was one of the first companies to strike it big in shale oil fields including the Bakken/Three Forks in North Dakota and Montana, the Red River Units in the Dakotas and Montana, the Niobrara in southern Wyoming and northern Colorado - the fastest growing new oil frontier in the world.
Continental reported total revenues of $1.6 billion for 2011 and is on track to triple production and proved reserves from 2009 to 2014. Output rose 66 percent in the first quarter versus a year ago, and 70 percent of total production was crude oil.
As production has grown, Continental has reduced its reliance on the biggest buyer of its output - Marathon Oil Corp (MRO.N), which bought 57 percent of its oil in 2010. By last year, Marathon bought only 41 percent, according to Continental’s annual report. No other company bought more than 10 percent.
“Kirk Kinnear’s history of leading high-performance teams and demonstrating creative thinking make him a welcome addition to Continental Resources as we develop new markets for our growing production base,” Hamm said in the statement.
Many traditional exploration and production companies have built up their logistics capabilities in recent years as the unexpected boom in inland oil production - far from traditional refining centers or pipeline hubs - opens unprecedented arbitrage opportunities for those able to exploit it.
Pipeline and logistics firm Plains All American (PAA.N), for instance, saw profit in its supply and logistics division nearly treble last year to $647 million. Railway firms and barge operators have also seen a surge in business.
But increasingly oil producers and refineries are looking to get into the game rather than give away the profits.
Hess Energy (HES.N), another Bakken producer with refinery operations on the East Coast, built rail loading facilities in North Dakota to move its crude to market.
Reporting by Jeffrey Kerr and Jonathan Leff; Editing by Tim Dobbyn