Hess Corporation - Safe Investment With Huge Potential

| About: Hess Corporation (HES)

Summary

Hess Corporation has a very secure financial position.

The company has dropped 30% since its highs and has huge potential.

The company is working on expanding his production and resource base.

Introduction

Hess Corporation (NYSE:HES) is an integrated oil company headquarter in New York City. The company is a Fortune 100 company that explores, produces, transports, and refines crude oil and natural gas. The company has exploration and production businesses centered in many different countries.

Currently, Hess Corporation is slightly overvalued for the present environment. The company has a $20.55 billion market cap with a P/E of 22.42. The company also offers a 1.42% dividend for investors holding the stock, which has fallen 30% since hitting over $100 a share a year ago.

Unless otherwise stated, all data and images are from Hess Corporation's Investor Presentation.

Shareholder Value

Hess Corporation has been focused on driving shareholder value.

The company has strong balance sheet and liquidity positions to help the company survive the current volatile price environment. The company has $1.5 billion in cash and a minimal debt to capitalization ratio of just 22%.

The company also has a disciplined financial strategy centered on managing the business and generating cash over the long run. The company has a resistant portfolio and is focused on balancing risk and leverage while waiting for an oil price recovery.

The company also has the ability to offer competitive future growth with 2015 net production forecast at 10-13% above 2014 net production.

Financial Strength

The company has planned out its debt maturities. The company has a total of $700 million debt maturing over the next four years but has a significant $1.1 billion due in 2019. As a result, the company's situation will become more difficult should oil prices not recover by then.

Still the company has a $1.5 billion cash positive. This is enough to cover the next four years of debt maturities plus an additional $800 million of the $1.1 billion due in 2019. As a result, this means the company needs to only raise $300 million by 2019 to cover its debt maturities.

Compared to its peers, Hess Corporation has the best peer debt-to-capital ratio besides Occidental Petroleum Corporation (NYSE:OXY). Occidental Petroleum is another impressive company to talk about in another presentation.

Portfolio

The company has an impressive and spread out portfolio. The company plans on having a 2015 production level of 350 - 360 thousand barrels per day. This will result in roughly 130 million barrels of yearly production.

The company also has impressive P1 reserves of 1.4 billion barrels and 6P resources of roughly 6.0 billion barrels. The company's P1 reserves will last the company for roughly 11 years. In comparison, the company's 6P resources will last the company roughly 46 years. Of course there is the chance that much of these reserves will never come into fruition.

Performance

The company also has impressive industry leading performance.

The company has done an impressive job of reducing its well costs. More so, the data shows that the company's improved production is not an anomaly resulting from lower oil prices. Instead, the company's performance has been steadily improving over time.

We also see improving well performance. Hess has the third highest number of wells compared to its peers. Yet unlike peer wells which have shown relatively stagnant production over the years, Hess wells have been trending upward by a significant amount with the trend line showing a doubling from 2008 to 2014 in average 90-day initial production.

The company has industry leading performance. Out of five places, the company is ranked in the first quartile, whoever, for the last quartile, the company is a portion of the way between the first and second quartile.

Here I will assume the company is providing its results for the best quarters. It would have been nicer to see the company provide its results for all of its quarters.

The company has industry leading project delivery. Compared to its peers, with the exception of a relatively limited number of them, Hess Corporation has managed to beat its peers in both less Capex and delivery ahead of schedule.

Production

The company's 2014 production was made of a majority of crude oil. NGLs also represented 7% of the production while US Gas represented 8% of the production Behind Crude Oil, International Gas represented the second largest section of production providing 17% of the production.

The company's cash margins managed to beat out all of its competitors including oil majors like COP (ConocoPhillips). Continental Resources, the only company that gets close to the company's margins trades at a P/E similar to that of Hess Corporation.

Competitive Growth

The company forecasts impressive growth - the company forecasts a 10-13% CAGR in 2015. Much of this will be driven by Bakken growth and new T Bells growth which will make up for declining Base Production. More so, many of the company's strategic growth plays including the important T Bells and Bakken plays are relatively low risk.

The company is placed for strong growth through 2018 and beyond - the company's very significant resource base - 1.4 billion barrels of current proved resources plus 4.6 billion barrels of growth provide the company with impressive growth.

The company has a portfolio primarily centered around the Pacific basin which will provide the company with significant growth. The company has an estimated billions of barrels in volumes that have yet to be found.

The company's goals are to achieve 600-700 million barrels in new resources found over the next five years. The company has also managed to achieve a relatively low $25 / barrel finding and development cost.

Conclusion

Hess Corporation has managed to grow rapidly despite a rapid 30% price drop since its all time highs achieved last year.

The company has extreme financial strength and flexibility with relatively with a significant cash holding and a low debt-to-capitalization ratio. The company also has a disciplined financial strategy with a focused and resilient portfolio with the goal of achieving significant future growth.

The company has a significant opportunity to deliver future competitive growth and represents a good buy at current low prices.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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