NEW YORK ( TheStreet) -- As oil prices continue to deteriorate, with the benchmark American WTI and European Brent crudes dropping to their lowest four-year levels on Thursday, Continental Resources ( CLR) has done the unthinkable. The Oklahoma-based oil company is selling all of its crude oil hedges through 2016, making the company even more exposed to commodity price risk.
How could Continental even consider such a move?
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Apparently, by selling the hedges, Continental is effectively betting on a rebound in crude prices in the near term. The company does not "have any (oil) production locked in at any price, so it's purely playing the market" wrote Jason Wangler, an analyst at Wunderlich Securities, in an email to TheStreet.
If oil prices recover, then Continental will be able to sell its production at better rates than its peers that have locked in future sales at lower prices. But even if oil prices fall, Continental will still be in a good position to "weather a storm," Wangler said. This is because Continental has already "made a nice amount off the hedges and has an ample liquidity position."
Essentially, Wangler explained, "If they are right they make lots of money and if wrong they can survive."
John Kilgallon, a Continental Resources spokesman, told TheStreet in an email that the company does not believe the recent aggressive downward move in oil prices is fundamentally based and should not be sustainable.