Integrated oil company Hess Corporation ( HES )
reported adjusted second quarter 2012 earnings of $1.72 per share,
which beat the Zacks Consensus Estimate of $1.38. However, the
quarterly result was below the adjusted year-earlier earnings of
$1.78, mainly on account of lower oil price realization.
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Total revenue declined 5.1% year over year to $9,309 million in
the quarter, but surpassed the Zacks Consensus Estimate of $8,726
Exploration and Production (E&P): The segment
posted profits of $644 million in the second quarter, 13.8% below
the year-earlier profit of $747 million.
Quarterly hydrocarbon production was 429 thousand barrels of oil
equivalent per day (MBOE/d), up 15.3% year over year.
Crude oil production was 304 thousand barrels per day (up from 248
thousand barrels per day in the year-ago quarter), natural gas
liquids production totaled 19 thousand barrels (up from 17 thousand
barrels) while natural gas output was 639 thousand cubic feet (Mcf)
(down from 643 Mcf).
Worldwide crude oil realization per barrel of $86.86 (including
the impact of hedging) showed a drop of 10.6% year over year.
Worldwide natural gas prices (including the impact of hedging)
upped 0.2% year over year to $5.94 per Mcf.
Marketing and Refining : The segment posted
earnings of $8 million in the second quarter, up significantly from
a loss of $39 million in the year-earlier period.
Refinery operations generated an income of $8 million compared
with a loss of $44 million in the year-ago quarter. However,
Marketing earnings were $18 million, down from the year-ago
earnings of $28 million. Trading activities incurred a loss of $18
million versus a loss of $23 million in the year-ago period.
Quarterly net cash flow from operations was $1,240 million. Hess'
capital expenditures totaled $2,078 million in the reported
quarter, of which approximately $2,036 million were expended toward
As of June 30, 2012, the company had approximately $409 million in
cash and $7,845 million in long-term debt (including current
maturities). Hess' debt-to-capitalization ratio at the end of the
quarter was 28.2% versus 26.7% in the preceding quarter.
We have maintained our Neutral recommendation on New York-based
Hess Corporation, an integrated energy company engaged in oil and
gas exploration, production and refining as well as
The quarterly production grew on an annualized basis and we
believe that Hess has a competitive advantage over its peers from
its improving fundamentals, commodity price leverage and exposure
to areas with high resource potential like Brazil, Ghana, Libya and
Recently, Hess struck an asset sale deal with Royal Dutch
Shell Plc ( RDS.A ) related to its stake in an oilfield off
the Scottish coast. This is in sync with its strategy to balance
high risk, high return offshore exploration with the expected lower
risk and long reserve life, liquids-rich alternative resource plays
We believe that the company's strong exploration upside in Ghana
and continued improvement in Bakken productivity hold a lot of
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.
We are maintaining our long-term Neutral recommendation on the
stock. Hess retains a Zacks #3 Rank, which translates into a
short-term Hold rating.