Hess Misses Estimates in 4Q - Analyst Blog

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Integrated oil company Hess Corporation ( HES ) reported adjusted fourth quarter 2011 earnings of $1.17 per share, which came in below the Zacks Consensus Estimate of $1.34. The quarterly result was also below the adjusted year-earlier earnings of $1.20. The underperformance was mainly due to lower production realized in the reported quarter.

 

Total revenue crept up 1.5% year over year to $8,824 million in the quarter, but failed to meet the Zacks Consensus Estimate of $9,230 million.

 

For 2011, total revenue increased 9.4% to reach $37,871 million compared to 2010 and beat the Zacks Consensus Estimate of $36,728 million.

 

Operational Performance

 

Exploration and Production (E&P) : The segment posted profits of $527 million in the fourth quarter, 25.5% higher than the year-earlier profit of $420 million.

 

Quarterly hydrocarbon production was 367 thousand barrels of oil equivalent per day (MBOE/d), down 12.6% year over year. The decrease was mainly attributable to production interruptions and asset sales.

 

Crude oil production was 251 thousand barrels per day (down from 291 thousand barrels per day in the year-ago quarter), natural gas liquids production totaled 18 thousand barrels (down from 19 thousand barrels) while natural gas output was 590 thousand cubic feet (Mcf) (down from 663 Mcf).

 

Worldwide crude oil realization per barrel of $89.70 (including the impact of hedging) showed a significant 25.0% year-over-year jump. Worldwide natural gas prices (including the impact of hedging) upped 19.2% year over year to $6.32 per Mcf.

 

At the end of 2011, oil and gas proved reserves were 1,573 million barrels of oil equivalent, compared with 1,537 million barrels at the end of 2010. During 2011, the Corporation added 203 million barrels of oil equivalent to proved reserves. Subject to final review, these additions, replaced approximately 147% of the Corporation's 2011 production, resulting in a reserve life of 11.4 years.

 

Marketing and Refining : The segment posted a loss of $561 million in the fourth quarter, significantly wider than the year-earlier loss of $261 million.

 

Refinery operations suffered a loss of $598 million compared with a loss of $308 million in the year-ago quarter. However, Marketing earnings climbed marginally to $48 million in the reported quarter from the year-ago earnings of $37 million, while Trading activities incurred a loss of $11 million versus an income of $10 million in the year-ago period.

 

Financials

 

Quarterly net cash flow from operations was $1,138 million. Hess' capital expenditures totaled $2,236 million in the reported quarter, of which approximately $2,185 million were expended toward E&P.

 

As of December 31, 2011, the company had approximately $351 million in cash and $6,057 million in long-term debt (including current maturities). Hess' debt-to-capitalization ratio at the end of the quarter stood at 24.6% versus 22.0% in the preceding quarter.

 

Outlook

 

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 marketing.

 

Despite the quarterly production setback, we believe that Hess has a competitive advantage over its peers based on improving fundamentals, commodity price leverage and exposure to areas with high resource potential like Brazil, Ghana, Libya and offshore Australia.

 

We believe that the company's strong exploration upside in Ghana and continued improvement in Bakken productivity hold a lot of promise.

 

Hess also remains upbeat on its U.S. shale acreage and expects its oil output to double in the coming few years in the region. The company said that its production will hit the 1.5-2 million barrels of oil per day mark in the coming five to seven years, backed by a pickup in unconventional oil play activity across North Dakota to Texas. Presently, the region produces approximately 700,000 barrels per day. Again, we believe that the company's recent Utica Shale tie-up with CONSOL Energy Inc. ( CNX ) will serve as a catalyst for future growth in reserves as the covering areas have high liquids content.

 

However, Hess' sensitivity to gas/oil price volatility, as well as drilling results, costs, geo-political risks and project delays, also limit the upside potential of its shares.

 

We are maintaining our long-term Neutral recommendation on the stock. Hess, which faces competition from ConocoPhillips ( COP ), currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.


 
CONSOL ENERGY ( CNX ): Free Stock Analysis Report
 
CONOCOPHILLIPS ( COP ): Free Stock Analysis Report
 

HESS CORP ( HES ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Business , Stocks

Referenced Stocks: CNX , COP , HES

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