Hess Corp. Beats on Earnings, Revs

Zacks

Hess Corporation (HES) reported adjusted first-quarter 2014 earnings of $1.38 per share, breezing past the Zacks Consensus Estimate of $1.01. However, this came below the year-ago quarterly earnings of $1.95 per share.

Total revenue decreased 18.6% year over year to $5,506 million in the quarter from $6,760 million. However, it surpassed the Zacks Consensus Estimate of $2,086 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 $514 million, down 26.4% from the year-earlier profit of $698 million.

Quarterly hydrocarbon production was 318 thousand barrels of oil equivalent per day (MBOE/d), down 18.3% year over year. The drop in production was primarily due to asset sales and Libyan unrest.

Crude oil production was 210 thousand barrels per day (down from 272 thousand barrels per day in the year-ago quarter), natural gas liquids production totaled 13 thousand barrels (down from 18 thousand barrels) while natural gas output was 571 thousand cubic feet (Mcf) (down from 593 Mcf).

Worldwide crude oil realization per barrel of $99.17 (including the impact of hedging) increased 4.9% year over year. Worldwide natural gas prices (including the impact of hedging) upped 6.2% year over year to $7.03 per Mcf.

In the quarter under review, downstream businesses (now discontinued) reported earnings of $13 million versus $69 million in the year-ago period.

Financials

Quarterly net cash flow from operations was $1,158 million. Hess Corp.’s capital expenditures totaled $1,522 million, of which approximately $1,208 million were expended toward E&P.

As of Mar 31, 2014, the company had approximately $1,288 million in cash and $5,576 million in long-term debt. The debt-to-capitalization ratio at the end of the quarter was 18.7% versus 19.0% in the prior quarter.

Outlook

The company expects production to average 305–315 MBOE/d for full-year 2014. This would be driven by continued growth in the Bakken, higher production from the Valhall Field post completion, 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 along with significant progress in multi-year transformation is also likely to reduce its financing needs.

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

Hess Corp. currently carries a Zacks Rank #3 (Hold). Meanwhile, one can consider the Zacks Ranked #1 (Strong Buy) stock Clayton Williams Energy, Inc. (CWEI).

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