) plans to shed its stake in oil fields in Azerbaijan and an
associated pipeline to India's ONGC Videsh Ltd. The transaction −
expected to close by early 2013 and subject to the Indian and other
government and regulatory approvals − is worth $1 billion.
BP PLC (BP): Free Stock Analysis Report
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The deal comprises Hess' 2.72% interest in the Azeri, Chirag and
Guneshli fields (ACG) in Azerbaijan and 2.36% interest in the
associated BTC pipeline. The ACG field − located in the Caspian Sea
approximately 100 kilometers east of Baku − commenced production in
1997. It is operated by the British energy giant
New York-based Hess stated that this divestiture is in line with
its strategy to offload mature as well as minor interest holding
properties in order to restructure its portfolio. With this deal,
the company has completed nearly $2 billion of asset sale
agreements till date.
A recent report from Azerbaijan International Operating Company
(AIOC), operated by BP, states that the ACG oil field produced 16.8
million tons, or 682,154 barrels of oil per day (BPD) during the
period January-June 2012 compared with 19.0 million tons produced
in the year-ago period. This marks a sharp 11.6% decline in output,
not witnessed since 2007, mainly attributable to maintenance work
on some drilling programs and refineries.
ACG is the largest oil and gas field complex in Azerbaijan with a
potential ultimate recovery of more than 5 billion barrels. BP
holds a 34.1% stake, while the other associate partners including
), SOCAR, INPEX,
Devon Energy Corporation
) and ITOCHU hold 10.2%, 10%, 10%, 8.6%, 8%, 6.8%, 5.6, and 3.9%
Hess's second quarter profit dropped on an annualized basis as its
exploration and production segment reported a 13.8% decrease in
profit in response to lower worldwide crude oil price realization.
Again, the company intends to divest assets of around $1-$2 billion
in the forthcoming quarters that is likely to reduce the output
level further, thereby affecting its top line.
However, Hess' new strategy of concentrating on high-impact
exploration areas compared to low risk areas, its exposure to areas
with high resource potential (such as Brazil, Ghana, Libya and
offshore Australia), strong growth throughout the Bakken oil shale
play, along with robust holdings in the Eagle Ford Shale and the
Utica Shale, are expected to lift earnings, cash flow and
Considering the situation, we expect the stock to perform in line
with other industry players and the broader market and maintain our
long-term Neutral recommendation for Hess. The company retains a
Zacks #3 Rank (equivalent to a short-term Hold rating).