Hess Earnings Disappoint, Revs Beat - Analyst Blog

Hess Corporation ( HES ) reported adjusted third quarter 2013 earnings of $1.18 per share, lagging the Zacks Consensus Estimate of $1.45. The underperformance was mostly due to lower production resulting from various asset sales.

Total revenue in the quarter decreased 22.8% year over year to $2,698 million from $3,494 million. Revenues, however, topped the Zacks Consensus Estimate of $2,694.0 million.

The company is gradually transforming into a pure play exploration and production (E&P) entity from an integrated oil and gas company. As part of this strategy, Hess has sold assets worth billions of dollars, as it looks to exit the downstream business. Since the first quarter, the company has classified its Marketing and Refining business as discontinued operations.

Operational Performance

In the reported quarter, the E&P business posted profits of $455 million which declined 25.2% from the year-earlier profit of $608 million.

Quarterly hydrocarbon production was 310 thousand barrels of oil equivalent per day (MBOE/d), down 22.9% year over year. Lower production was due to the impact of asset sales. This was partially offset by higher Bakken and Valhall production year over year.

Crude oil production was 207 thousand barrels per day (down from 281 thousand barrels per day in the year-ago quarter); natural gas liquids production totaled 17 thousand barrels per day (down from 19 thousand barrels); and daily natural gas output was 519 thousand cubic feet (Mcf) (down from 614 Mcf).

Worldwide crude oil realization per barrel of $104.95 increased 21.1% year over year. Worldwide natural gas prices increased 10.9% year over year to $6.52 per Mcf.

In the reported quarter, downstream businesses (now discontinued) clocked earnings of $54 million versus $53 million in the year-ago period.


Quarterly net cash flow from operations was $1,254 million. Hess' capital expenditures totaled $1,527 million, of which approximately $1,491 million were expended toward E&P.

As of Sep 30, 2013, the company had approximately $321 million in cash and $6,209 million of total debt. Hess' debt-to-capitalization ratio at the end of the quarter was 20.7%.


The company reaffirmed its full-year production guidance at 340-355 MBOE/d. Production is expected to remain at the lower end of the range due to civil unrest in Libya.


New York-based Hess Corporation is an integrated energy company engaged in oil and gas exploration, production and refining as well as marketing.

Hess, however, remains on track with its transition to a pure play E&P company while boosting shareholder value, much like ConocoPhillips ( COP ) and Marathon Oil Corporation ( MRO ).

Going forward, we believe that the company's strong exploration upside in Ghana and continued improvement in Bakken productivity hold a lot of promise. This would help the company to consistently deliver 5-8% year-over-year production growth in the near future.

Hess shares currently carry a Zacks Rank #3 (Hold). However, there are other Zacks Ranked #1 (Strong Buy) stocks in the oil and gas industry like TransAtlantic Petroleum Ltd ( TAT ), that appear more attractive in the short term.

CONOCOPHILLIPS (COP): Free Stock Analysis Report

HESS CORP (HES): Free Stock Analysis Report

MARATHON OIL CP (MRO): Free Stock Analysis Report

TRANSATL PETROL (TAT): 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 Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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