On Mar 13, 2014, we issued an updated research report on
). Hess 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
Strong growth throughout the Bakken oil shale play, along with
robust holdings in the Utica Shale, is expected to lift Hess'
earnings, cash flow and valuation in the foreseeable future.
Going forward, we find the company's strong exploration upside in
Ghana and continued improvement in Bakken productivity as holding
a lot of promise.
This would help the company to consistently deliver 5-8%
year-over-year production growth in the near future. The
company's asset divestiture program, along with its significant
progress in multi-year transformation, is also likely to reduce
its financing needs.
Hess reported mixed financial results for the fourth quarter of
2013 with the top line beating the Zacks Consensus Estimate but
the bottom line missing it. Hess failed to deliver positive
earnings surprise in two of the last four quarters, with an
average beat of 0.19%.
The company's new strategy of concentrating on high-impact
exploration areas compared to low risk areas in more stable
regions has consequently led to increased spending on Bakken as
well as North Malay Basin, Valhall and Tubular Bells. Bakken
recorded a notable production growth of 20% in 2013, while
experiencing a reduction in drilling and completion costs by more
For 2014, this region is expected to average 80-90 thousand
barrels of oil equivalent per day (Mboe/d), up 19-34% from 2013
levels. The exploration budget for 2014 is focused primarily on
three regions: the Gulf of Mexico; Southeast Asia, particularly
Malaysia; and the West Africa play, including Ghana.
Hess' total proceeds from the asset sale venture amounted to $7.8
billion in 2013. The company is in the process of shedding its
upstream assets in Thailand, as well as retail and the trading
businesses. The amount raised through asset sale is expected to
help fund E&P investments.
These major shifts in reshaping its portfolio will likely be
completed by the end of 2014. However, the company said it will
continue to look at all opportunities to enhance long-term
HESS CORP (HES): Free Stock Analysis Report
HELMERICH&PAYNE (HP): Free Stock Analysis
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Hess remains on track with its multi-year transformation program.
However, to support its capital expenditures through 2014, the
company remains highly dependent on major asset sales. Again,
this year, Hess will likely register a downfall in both its
parameters, i.e., production and reserves. As of year-end 2013,
Hess' proved reserves tally stood at 1.44 billion oil-equivalent
barrels, down 7.1% from the 2012 level. Hence, the company's
growth and returns picture will likely be hindered by the asset
sale programs in the near term.
Stocks That Warrant a Look
Hess carries a Zacks Rank #3 (Neutral). Other stocks in the oil
and gas industry include
Helmerich & Payne, Inc.
Warren Resources Inc.
Patterson-UTI Energy Inc.
). All three have a Zacks Rank #1 (Strong Buy).