Investors on the explorer/producer side of energy know all the big names. Yet, I overlooked a name that I should know and so should you — Hess Corporation (NYSE:HES). HES operates in two segments, Exploration & Production and Bakken Midstream. It is also involved in crude oil and natural gas gathering, processing of natural gas and the fractionation of natural gas liquids and a variety of other activities, including the storage and terminating of propane, primarily in the Bakken and Three Forks Shale plays in the Williston Basin area of North Dakota.
Low Oil Prices Have Hurt Hess Stock
Hess stock has gotten whacked since 2014, thanks to its struggles in obtaining favorable prices for its output. In the first quarter of 2016, Hess only managed $27 per barrel of oil in the US and $28.50 internationally, and a measly $1.27/Mcf in the US. That’s almost 60% less than the previous year.
Q2 was not much better. Hess stock is mostly dependent on Brent crude prices which only averaged $45 that quarter. The result was that Hess stock was bleeding cash, and had to cut its capital expenditures (capex). By the end of 2016, total revenues were only $4.76 billion, down from $10.7 billion in 2014, before oil prices tanked. The result was a $6 billion operating loss, accompanied by $1.4 billion in negative free cash flow.
Things have not been much better in the trailing twelve months, with operating losses at $1.15 billion, although the cash burn is down to just about a billion dollars.
However, the good news is that, in mid-2016, there were major oil discoveries in South America, and Hess has a piece of them.
New Discoveries
First up, the Stampede Field in the Gulf of Mexico, one of the biggest undeveloped oil fields in the gulf, and HES has a 25% interest. It has a 50/50 venture with Petronas in the Gulf of Thailand for natural gas. Meanwhile, Hess has a 75% position in the Bakken shale basin and 50% interest in the Utica shale basin.
HES has been selling non-core assets to cut debt, as well. It sold its Norway unit for $2 billion and will sell its 61.5% stake in the South Arne field as well. Also being sold is interests in Equatorial Guinea, and it divested its enhance oil recovery assets for $600 million.
However, it is the big Liza discovery — one of the largest in the past decade — that may be the future for Hess stock. HES owns 30% of the Liza/Paraya/Ranger block of which ExxonMobil Corporation (NYSE:XOM) is the operator, and a 33% interest in two blocks next to the Liza.
Bottom Line on Hess Stock
I feel like Hess stock is just where BP plc (NYSE:BP) was about a year ago — on the verge of recovery with some real possible upside. Hess stock is still 50% off its all-time high and has already recovered 35% off its low.
Despite its struggles it did not cut its $1.00 per share dividend, which seemed very likely at one point.
With oil prices surging again, now may be a good time to check into Hess stock.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He owns shares of BP. He has 23 years’ experience in the stock market, and has written more than 1,800 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
