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Hess Corporation (HES - Analyst Report) reported adjusted second-quarter 2014 earnings of $1.38 per share, breezing past the Zacks Consensus Estimate of $1.20. However, this came below the year-ago quarterly earnings of $1.51 per share.
 

Total revenue decreased 13.5% year over year to $3,600 million in the quarter from $4,162 million. However, it surpassed the Zacks Consensus Estimate of $2,750 million. The beat is mainly attributable to better realizations.

Operational Performance

In the reported quarter, the Exploration and Production (E&P) business posted adjusted profits of $483 million, down 19.5% from the year-earlier profit of $600 million.

Quarterly hydrocarbon production was 319 thousand barrels of oil equivalent per day (MBOE/d), down 6.5% year over year. The drop in production was primarily due to asset sales and Libyan unrest.

Crude oil production was 216 thousand barrels per day (down from 226 thousand barrels per day in the year-ago quarter), natural gas liquids production totaled 21 thousand barrels (up from 18 thousand barrels) while natural gas output was 491 thousand cubic feet (Mcf) (down from 583 Mcf).

Worldwide crude oil realization per barrel of $101.70 (including the impact of hedging) increased 3.9% year over year. Worldwide natural gas prices (including the impact of hedging) fell 1.4% year over year to $6.35 per Mcf.

In the quarter under review, downstream businesses (now discontinued) reported loss of $35 million versus earnings of $26 million in the year-ago period.

Financials

Quarterly net cash flow from operations was $946 million. Hess Corp.’s capital expenditures totaled $1,256 million. In the reported quarter, the company repurchased approximately 8.3 million shares of common stock for approximately $768 million at an average cost per share of $91.85.

As of Jun 30, 2014, the company had approximately $2,240 million in cash and $6.077 million in long-term debt. The debt-to-capitalization ratio at the end of the quarter was 20% versus 18.7% in the prior quarter.

Outlook

The company expects production to average 305–315 MBOE/d for 2014. This would be driven by continued growth in the Bakken, higher production from the Valhall Field, and the planned start-up of the Tubular Bells Field in the Gulf of Mexico in the third quarter of 2014.

Going forward, we believe the company’s asset divestiture program and significant progress in multi-year transformation will reduce its financing needs. Hess remains focused on value creation and the pursuit of its previously announced intention to monetize its midstream assets in the Bakken oil shale play in North Dakota.

With this intention, the company announced plans to pursue the formation and initial public offering of a master limited partnership or MLP. Hess stated that it plans to use the MLP as the primary midstream vehicle to support its Bakken production growth. It expects the MLP to file a registration statement with the Securities and Exchange Commission in the fourth quarter of 2014 and launch an initial public offering of common units representing limited partner interests in the MLP in the first quarter of 2015.

Hess Corp. remains on track with its strategy of becoming an E&P company entirely while boosting its shareholder value, much like ConocoPhillips (COP - Analyst Report) and Marathon Oil Corp. (MRO - Analyst Report).

Hess Corp. currently carries a Zacks Rank #3 (Hold). Meanwhile, one can consider the Zacks Ranked #1 (Strong Buy) stock Weatherford International plc (WFT - Analyst Report).
 

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