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Hess Q2 Earnings Beat, Rev Misses

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Hess Corporation (HES - Free Report) reported adjusted second quarter 2013 earnings of $1.51 per share, comfortably beating the Zacks Consensus Estimate of $1.41. The increase was mainly attributable to higher oil and gas prices.

Total revenue increased 23.6% year over year to $4,105 million in the quarter from $3,321 million. Revenues however came below the Zacks Consensus Estimate of $4,906.0 million.

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

Operational Performance

In the reported quarter, the Exploration and Production (E&P) business posted profits of $1,533 million which more than doubled from the year-earlier profit of $644 million.

Quarterly hydrocarbon production was 341 thousand barrels of oil equivalent per day (MBOE/d), down 20.5% year over year. Lower production was due to the impact of asset sales. This was partially offset by higher Bakken production year over year.

Crude oil production was 226 thousand barrels per day (down from 304 thousand barrels per day in the year-ago quarter); natural gas liquids production totaled 18 thousand barrels per day (down from 19 thousand barrels); and daily natural gas output was 583 thousand cubic feet (Mcf) (down from 639 Mcf).

Worldwide crude oil realization per barrel of $97.89 increased 12.7% year over year. Worldwide natural gas prices upped 8.4% year over year to $6.44 per Mcf.

In the reported quarter, downstream businesses (now discontinued) clocked earnings of $11 million versus $12 million in the year-ago period.


Quarterly net cash flow from operations was $1,247 million. Hess’ capital expenditures totaled $1,613 million, of which approximately $1,571 million were expended toward E&P.

As of Jun 30, 2013, the company had approximately $725 million in cash and $5,800 million of total debt. Hess’ debt-to-capitalization ratio at the end of the quarter was 19.5%.


The company reaffirmed its full year production guidance of 340 to 355 MBOE/d.

New York-based Hess Corporation was 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 - Free Report) and Marathon Oil Corporation (MRO - Free Report) .

The company has already divested its subsidiary in Russia and its interests in the Beryl area fields in the United Kingdom North Sea, the Azeri-Chirag-Guneshli fields offshore Azerbaijan and the Eagle Ford assets in Texas. In this regard, the company has pocketed $3.5 billion through asset sales to date. The downstream businesses yet to be divested consist of terminal, retail, and trading operations.

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% annualized production growth in the near future.

The company has also announced that it would resume share repurchases under its pre-existing $4 billion authorization and implement a 150% dividend hike in the third quarter of 2013. All these endeavors would undoubtedly add to shareholder value.

Hess shares currently retain a Zacks Rank #2, which translates into a short-term Buy rating. However, there are other Zacks Ranked #1 (Strong Buy) stocks in the oil and gas industry like Dril-Quip, Inc. (DRQ - Free Report) that appear more attractive in the short term.

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