Hess (NYSE:HES) missed slightly on its Q1 2012 earnings report -- $1.50 per share versus an expected $1.53 per share. Total revenue declined 7.3% year over year to $9,747 million -- better than estimated. Hydrocarbon production declined 0.5% year over year to 397,000 Boepd. Crude oil production was 276,000 bopd. People were also upset when Hess said its Bakken production would end 2012 under its previous estimate. Some might view all of these items as negative signs for the company. However, there are actually many positives to be gleaned about Hess.
The list of positives includes:
- Hess generated consolidated net income of $545 million in Q1 2012 compared with a net loss of $131 million in Q4 of 2011. This was a huge improvement.
- Hess has over 900,000 net acres of leases in the Bakken -- one of the most prolific US unconventional oil shale fields. The reason Hess's production goal will likely miss at year end 2012 is that it has to drill wells in some non-optimal sites in order to retain lease acreage that has to be held by production. This "problem" is only due to the fact that Hess has such a huge amount of acreage in an incredibly prolific field. It is an acknowledgement that even that acreage not in the "sweet spot" is too valuable to consider losing.
- Brigham Exploration (BEXP) sold itself to Statoil (NYSE:STO) not long ago for approximately $4.7B. It had only about 365,000 net acres in the Bakken (and not much else of great value). As a ballpark estimate, one might say Hess' Bakken acreage is worth about 2.5 times as much or about $12B. If you guesstimate that Hess' approximately 200,000 net Utica acres and its approximately 100,000 net Eagle Ford acres are worth another $4B soon, you already have a figure of $16B in value on just these assets alone. Hess' market cap is only $18.39B.
- Hess has many other assets. First there are the ones that supply most of the 397,000 Boepd. Then there are the other new development areas around the world. Hess has approximately 340,000 net acres in the Paris Basin. It has 6.2 million gross acres in the Beetaloo Basin in Australia. It has a joint venture in China with Sinopec with 1.7 million acres. It has the Valhall/Hod fields in the Norwegian North Sea, which it expects to produce 75,000 Boepd net by Q3 2012. It has a joint development area in Malaysia-Thailand (natural gas). It has Block G in Equatorial Guinea. It expects this to produce Approximately 45,000 net Boepd in 2012 with development continuing. It has Gulf of Mexico properties it eventually expects net production of 25,000 Boepd from. It has a huge new discovery in Ghana with 490 ft. of net pay in Cretaceous age clastic reservoirs. It has developments in Brunei and Kurdistan. Hess also has its Marketing and Refining business, which includes 1360 HESS gasoline stations with convenience stores. It operates an East Coast refinery; and it has 21 million barrels in storage capacity on the East Coast as well as 10 million more barrels of capacity in St. Lucia. Other fields are located in such places as Algeria, Azerbaijan, Brazil, Denmark, Egypt, Indonesia, Iraq, Libya, Peru, Russia, and the UK. Many of these are not "safe" areas, but Hess does gain some overall "safety" by its geographical diversity.
- Hess' natural gas production is mostly non-US natural gas. This means its overall sales price for natural gas is far higher than that of companies that are heavily weighted in US natural gas. With hedging, Hess got an average price of $6.23 per Mcf (per mmBTU) in Q1 2012, while the average US Nymex price for natural gas averaged under $3 per Mcf.
All told Hess is not experiencing the problems of many of the other big US oil and natural gas developers such as Exxon Mobil (NYSE:XOM), ConocoPhillips (NYSE:COP), and Chevron (NYSE:CVX), which all have large US natural gas holdings.
The two year chart of Hess lends some technical direction to a trade in Hess.
The slow stochastic sub chart shows that Hess is near oversold levels. The main chart shows that it is near long term support levels at approximately $50 per share. If the overall market sells off, the company's stock could go lower, but it appears likelier to rally off the long term support. Even if it does fall on an overall market fall, it will probably not fall too far. There will be a secular bull market in oil for many years to come. The emerging market nations all are greatly increasing their demand for oil and energy in general. This makes Hess a strong value play. With the hurricane season and the summer driving season coming up soon, it is probably also a decent technical trade. It might be wise to average in, but it does not look like you can go very far wrong with Hess as a long term investment. It does pay a dividend of 0.80%. It trades at a PE of 13.95 and an FPE of 6.92. This last seems like a bargain. It is forecast to grow 20% next year, and it has no major problem areas. Its new fields should provide growth for many years to come, and it is continually buying into still more fields. The fundamental data directly above are from Yahoo Finance.
Good Luck Trading.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HES over the next 72 hours.