Hess Corporation

About Hess Corporation

Integrated oil and gas company Hess Corporation has corporate exploration and production operations in Algeria, Australia, Azerbaijan, Brazil, China, Denmark, Egypt, Equatorial Guinea, France, Gabon, Ghana, Indonesia, Kurdistan, Libya, Malaysia, Norway, Peru, Russia, Thailand, the UK, and the US. In 2011 Hess reported proved reserves totaling more than 2.4 – more... billion barrels of oil equivalent. It markets gasoline through more than 1,360 HESS gas stations in 16 US states and operates a 50%-owned oil storage terminal (HOVENSA) in the US Virgin Islands and a refinery in New Jersey. It also provides power to Northeast and Mid-Atlantic customers.

Financial Analysis

Robust oil prices and higher refined petroleum product prices lifted Hess' revenue in 2011, despite a decline in crude oil and petroleum product sales volume. However, net income was also down due to higher expenses, primarily related to the higher prices of purchased refined petroleum products. The company's 2011 financial performance was also trimmed by operational issues (and related fiscal losses) at its HOVENSA refinery, which led to that refinery being shut down and Hess taking $525 million in impairment-related charges.

Following a difficult 2009 when the global recession hammered commodity prices and weakened revenues and income, an expanding economy (with its higher oil and gas prices and increased industrial demand) helped the company post higher revenues and income in 2010.

Geographic Reach

Hess' European properties account for more than 30% of its total proved oil and gas reserves. In 2009 it boosted its European assets further, swapping some noncore properties with Royal Dutch Shell in return for major stakes in two Norwegian offshore fields. The company plans to exploit attractive properties in Algeria, Australia, Azerbaijan, and Latin America, as well as Asia (particularly in  Malaysia and Thailand) to boost its reserves.

Strategy

Hess' refinery in the US Virgin Islands was operated as a joint venture with Venezuela's state oil company Petróleos de Venezuela S.A (PDVSA). However, the loss-making refinery was shut down in 2012 and converted to an oil storage terminal. In 2013 Hess announced that it will complete its exit from the refining business by closing its Port Reading, New Jersey refinery.

The company is looking to grow its position in the lucrative Bakken oil shale play in North Dakota. In 2010 the company acquired American Oil and Gas in a $450 million stock deal that added 85,000 net acres to Hess' holdings. It also bought 167,000 acres in the Bakken play from TRZ Energy, LLC for $1 billion.

The Utica Shale in Ohio is another growth area. In 2011 Hess agreed to pay up to $593 million for joint exploration and development rights to CONSOL Energy's nearly 200,000 Utica Shale acres in Ohio. It subsequently acquired acquired Marquette Exploration LLC and other Utica Shale leases for $750 million, boosting its acreage position by 85,000 net acres. (To help pay for this it sold noncore UK North Sea assets that year to generate $359 million in cash.)

Hess also seeks opportunities on the marketing side of the business. In late 2008 Hess expanded its electricity marketing business in its core US retail market, acquiring power assets in the northeastern US from RRI Energy (now GenOn Energy. In 2011 the company was marketing a total of more than 4,370 MW a day. – less

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