We reaffirmed our Neutral recommendation on
) on Aug 7, 2013. The company's multi-year transformation program
is on track and is likely to enhance shareholders' value in the
long term. However, the company's growth and returns picture will
likely be hindered by its asset sale program in the near term.
Hess - an integrated energy company - is executing a
transition from an integrated oil and gas company to a
predominantly E&P entity, thereby shifting its growth
approach from high-impact exploration to lower-risk
unconventionals and a smaller, more focused exploration
The company announced the closure of its Port Reading, New Jersey
refinery, which marked its complete exit from the refining
business. Hess also aims to shed assets in Indonesia and Thailand
as well as its terminals, retail, energy marketing and trading
businesses in the downstream.
For 2013, Hess expects pro forma production of 290-305 MBoe/d,
excluding asset sales compared to pro forma production of 289
MBoe/d in 2012. A five-year compounded annual growth rate of 5-8%
is expected to be achieved through 2017 by the company, driven by
its lower risk assets.
We expect unconventional oil (including sources like oil shales,
coal-based liquid supplies etc.) and gas extraction (using
non-traditional techniques) to play important roles in the world
energy mix in the long run. After building up its position in the
North American Bakken oil field for unconventional oil, Hess is
pursuing unconventional gas in the Marcellus Shale play. Hess'
smaller exposure to the Eagle Ford and Utica shale plays as well
as several global development projects (such as Ghana, Brunei,
Gulf of Mexico and Kurdistan) are likely to be the growth drivers
However, to support its capital expenditures through 2013, the
company depends on major asset sales. This year, Hess will likely
register a downfall in both its parameters, i.e., production and
reserves. Hence, the company's growth and returns picture will
likely be hindered by the asset sale program in the near term.
Other Stocks to Consider
While we prefer to remain on the sidelines for Hess, Zacks Ranked
#1 (Strong Buy) stock -
Range Resources Corp.
Susser Petroleum Partners LP
) could be good buying options for the short term.
DRIL-QUIP INC (DRQ): Free Stock Analysis
HESS CORP (HES): Free Stock Analysis Report
RANGE RESOURCES (RRC): Free Stock Analysis
SUSSER PETRLEUM (SUSP): Free Stock Analysis
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