We are maintaining our recommendation on Hess shares at Underperform following its fourth-quarter 2014 results. The company's earnings and revenues fell year over year, due mainly to a drop in oil and gas prices. For 2014, Hess also registered a reduction in its reserves. Hess remains on track with its multi-year transformation program. However, to support its capital expenditures through 2015, the company continues to be highly dependent on major asset sales. Hence, the company's growth and returns picture will likely be hindered in the near term by the asset sales.
New York-based Hess Corporation (HES), previously known as Amerada Hess Corporation, is an integrated energy company engaged in oil and gas Exploration & Production (E&P) and refining as well as marketing. The company's E&P activities are concentrated in Algeria, Australia, Azerbaijan, Brazil, Denmark, Egypt, Equatorial Guinea, Gabon, Ghana, Indonesia, Libya, Malaysia, Norway, Russia, Thailand, the United Kingdom and the United States. As of year-end 2014, Hess' proved reserves tally stood at 1.43 billion oil-equivalent barrels, while the company replaced 158% of its production, resulting in a reserve life of 11.7 years.
The company previously operated under two segments: E&P and Refining & Marketing ("R&M"). The Refining and Marketing segment has now been classified under discontinued operations.
Hess now plans to operate as a pure play E&P and is working toward becoming a more focused, higher growth and lower risk company. The company continues to concentrate on its E&P portfolio by divesting assets that do not fit its growth profile.
In first-quarter 2013, Hess announced its intent to exit from all downstream businesses, including divestiture of its terminal, retail, energy marketing, and trading operations, as a result of the multi-year strategic transformation into a pure play exploration and production company. Additionally, the Corporation closed its Port Reading refinery in Feb 2013, completing its exit from the refining business. All of these downstream businesses have now been classified under discontinued operations.
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