This Is Not The Old Hess

Oct.25.11 | About: Hess Corporation (HES)

Hess Corp. (NYSE:HES) is an integrated energy company that operates in two segments: Exploration and Production, and Marketing and Refining. Hess explores throughout the world. It has total proven reserves of 1,537 million barrels of oil equivalent. Hess may seem stodgy due to its age, but in reality, it has embraced the new prolific unconventional oil fields. Hess is still taking advantage of conventional exploration. Plus, it has major natural gas exploration fields in Asia, where the price of natural gas is much higher than in the U.S. HES produced 385,000 boe/d in 1H 2011. This likely projects to approximately 800,000 boe/d for FY2011. This is nothing to laugh at.

If you were talking about the old HES, you would probably be thinking very slow growth going forward. However, HES is now a big player in several of the prolific new US oil shale fields. HES has approximately 900,000 net acres in the Bakken, 185,000 net acres in the Utica, and 100,000 net acres in the Eagle Ford. HES is exploring actively in the Bakken and the Eagle Ford. It plans to start on the Utica in 2012. In non-US uncongenial fields, it has 340,000 net acres in the Paris Basin in France, a 2.7 million acre study area in two JSA’s with Sinopec, and more than 6.2 million gross acres in Beetaloo Basin in Australia (seismic is underway). The Paris Basin is the only one with definite exploration plans for 2012. What is particularly impressive about the new fields is the CAGR (compound annual growth rate). The chart below illustrates the CAGR in the Bakken. It indicates HES expects to be producing approximately 120,000 boe/d by 2015. No wonder HES is dedicating $3.4B of its 7.2B capital and exploration budget for 2011 to US unconventional oil fields. It has committed $2.1B to the Bakken alone.

One would expect a similar pattern to ensue in the Utica oil play, and to a lesser extent, the Eagle Ford, which is mostly a natural gas condensates play.

HES is further pursuing conventional oil and gas with success. A recent discovery in Ghana has 490ft of net pay. Appraisal drilling is scheduled to begin in 1Q 2012. This gives every indication of being a huge field. It has high hopes for its Kurdistan fields. This is not scheduled for drilling until 2013-2014, though. More near term, its fields in the Gulf of Mexico look promising, and its natural gas fields in Australia are currently estimated at 71TCF+ in 13 natural gas discoveries. More development drilling is proceeding, which may mean still more estimated reserves. This natural gas is significantly more profitable than that in US fields, because the Asian/Australian/Japanese natural gas prices are much higher than the U.S. prices. The chart below is the Henry Hub terminal price in Louisiana.

Click to enlarge The chart below is the Indonesian liquified natural gas price in Japan.

Click to enlarge HES has still more natural gas resources estimated at 5-15TCF in the Semai V block in Indonesia. It has high potential oil exploration scheduled for 2013/2014 in Kurdistan and many more new development fields.

HES has a refinery business, an electricity power plant business, fuel oil and natural gas sales, and the retail outlets business all up and down the East Coast of the US. It has made changes to make these businesses more profitable. They all seem very competitive, although they are not likely to grow as fast as the Exploration and Production business. The following chart shows the Energy Marketing Volumes from 2005-2010. Click to enlarge

The table below contains some of the fundamental financial data for HES. The data are from Yahoo Finance.





Analysts’ 1 yr. Price Target


1 year forecast % gain






Mean Analysts’ Opinion


Last Quarter Beat or Miss Amount


Current FY2012 EPS Estimate


FY2012 EPS Estimate 90 days ago


% EPS Growth Rate FY2011


% EPS Growth Rate FY2012


Next 5 years % EPS Growth Rate per annum


Market Cap


Enterprise Value






Total Cash per share (mrq)


Click to enlarge

These data are good. There are no obvious weaknesses.

The two year chart of HES may lend some technical direction to one’s trading (see below).

Click to enlarge The Slow Stochastic sub chart shows that HES is overbought in the near term. However, the current price is in a strong support range for HES. The stock has just pushed past its 50-day SMA, as it has moved upward strongly. Its next target is its 200-day SMA. Technically, a move above that level is most likely. The recent improvements in US economic data, EU economic data and Chinese economic data (the HSBC Flash PMI for Oct. was a much better than expected 51.1); all indicate that oil and other commodities can move up significantly from here. This would tend to substantiate a move by HES above its 200-day SMA near term. Obviously bad news from the EU could put a dent in this thesis, but the US earnings season has been better than expected. It should provide further impetus to upward movement. If the current upward movement continues, a lot of funds will likely start buying the market. This too would help HES move upward.

HES looks like a great buy at this point. However, legging in is likely a good strategy. It could cycle down again before finally moving up more permanently. The potential and likely growth from the Bakken and the Utica is almost assured. The recent Ghana discovery is hugely promising. To me, it seems likely that HES will exceed its rather conservative estimations. The continued longer term profits from HES’ great lease holdings should see it do well. It may do even better than expected in the upcoming years. Plus, it is likely getting its Libyan properties back soon (and back into production). This should provide an added, unpredicted, push upward over the next year. 8% of HES’ output came from Libya; and Libya holds 11% of its proven reserves (or did). There are truly a large number of positive factors working in favor of this stock.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HES over the next 72 hours.