Hess to Divest Utica Acres for $924M

Oil and gas company Hess Corporation’s (HES) share price dropped 0.7% on the announcement that it has inked an agreement with an undisclosed third party to divest about 74,000 acres of its dry gas acreage in the Utica Shale. The transaction is valued at $924 million.

Around two-thirds of the transaction amount is anticipated by the end of the current quarter of the year, while the balance is likely to be received in the third quarter.

The funds raised from this sale will be used for further share repurchases as they are in excess of the expected target of the divestiture program announced by Hess on Mar 4, 2013. The company is likely to decide on whether or not to seek an increase to its existing $4 billion share repurchase authorization, approved as part of its Mar 4 announcement, after a final decision is made either to spin or sell Hess Retail.

Hess is undergoing a transition from an integrated oil and gas company to a predominantly E&P entity, thereby shifting its growth approach from high-impact exploration to lower-risk unconventionals and a smaller, more focused exploration portfolio. It announced the closure of Port Reading, its New Jersey refinery, which marked the company’s complete exit from the refining business.

Hess also aims to shed assets in Indonesia and Thailand as well as its terminals, retail, energy marketing and trading businesses in the downstream. The company also announced a share repurchase plan of up to $4 billion, and a boost in its annual dividend to $1 a share, begun in the third quarter, which has more than doubled its quarterly dividend. In view of the global economic slowdown and new refining capacity entering the world market, these aforesaid decisions will help raise Hess’ shareholder value.

Hess currently carries a Zacks Rank #3 (Hold). Stocks with a Zacks Rank #1 (Strong Buy) that appear more rewarding in the short term are Pembina Pipeline Corp. (PBA), Marathon Petroleum Corp. (MPC) and NGL Energy Partners LP (NGL).