) reported adjusted first quarter 2013 earnings of $1.95 per
share, up 30.9% from adjusted earnings of $1.49 in the first
quarter of 2012. Earnings also comfortably beat the Zacks
Consensus Estimate of $1.57. The increase was mainly attributable
to higher volumes in the Bakken.
Total revenue increased 39.0% year over year to $4,117 million
in the quarter from $2,961 million.
The company is gradually moving from an integrated oil and gas
company towards becoming a pure play exploration and production
(E&P) entity. As part of this strategy, Hess has sold assets
worth billions of dollars, as it looks to exit the downstream
business. The company has classified its
Marketing and Refining
business as discontinued operations.
In the reported quarter,
Exploration and Production
(E&P) business posted profits of $1,286 million which more
than doubled from the year-earlier profit of $635 million.
Quarterly hydrocarbon production was 389 thousand barrels of
oil equivalent per day (MBOE/d), down 2.0% year over year. Lower
production was due to the impact of asset sales and lower
production from the Valhall Field in Norway. This was partially
offset by higher Bakken production year over year.
Crude oil production was 272 thousand barrels per day (down
from 276 thousand barrels per day in the year-ago quarter),
natural gas liquids production totaled 18 thousand barrels per
day (down from 19 thousand barrels), while daily natural gas
output was 593 thousand cubic feet (Mcf) (down from 610 Mcf).
Worldwide crude oil realization per barrel of $95.24 decreased
5.2% year over year. Worldwide natural gas prices upped 6.3% year
over year to $6.62 per Mcf.
In the reported quarter, Marketing and Refining business (now
discontinued) clocked earnings of $100 million versus $12 million
in the year-ago period. Results were boosted by gains from the
liquidation of LIFO inventories. This was partially offset by
refinery shutdown costs and employee severance costs.
Quarterly net cash flow from operations was $819 million.
Hess' capital expenditures totaled $1,631 million, of which
approximately $1,613 million were expended toward E&P.
As of Mar 31, 2013, the company had approximately $444 million
in cash and $7,376 million in long-term debt (including current
maturities). Hess' debt-to-capitalization ratio at the end of the
quarter was 24.3%.
New York-based Hess Corporation was an integrated energy
company engaged in oil and gas exploration, production and
refining as well as marketing.
Hess remains on track with its strategy of becoming purely an
E&P company while boosting its shareholder value, much like
Marathon Oil Corporation
In this regard, the company in the first quarter announced
that it would divest its downstream businesses. In this regard,
the company has pocketed $3.4 billion to date through asset
sales. The downstream businesses to be divested consist of
terminal, retail, energy marketing, and trading operations.
Separately, the company closed its Port Reading refinery in Feb
2013, marking its exit from the refining business.
In Jan 2013, Hess sold its stake in the Beryl area fields and
the Scottish Area Gas Evacuation System to
Royal Dutch Shell Plc
). The company subsequently sold its interests in the ACG fields
in Azerbaijan in March. Then in April, the company entered into
an agreement to sell its Russian subsidiary Samara-Nafta for a
total consideration of $2.05 billion. Hess' 90% stake in
Samara-Nafta will bring in approximately $1.8 billion as sales
proceeds. Finally, Hess also reached an agreement to sell its
Eagle Ford assets in Texas for $265 million and is scouting to
dispose its interests in Indonesia and Thailand.
Going forward, we believe that the company's strong
exploration upside in Ghana and continued improvement in Bakken
productivity hold a lot of promise. This would help the company
to consistently deliver 5-8% annualized production growth in the
The company has also announced that it would resume share
repurchase under its pre-existing $4 billion authorization in the
second half of 2013. We feel these would handsomely add to
However, Hess' sensitivity to gas/oil price volatility, as
well as drilling results, costs, geo-political risks and project
delays limit the upside potential of its shares.
Hess shares currently retain a Zacks Rank #3, which translates
into a short-term Hold rating.
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