Hess Corporation: Circling Back To A Longtime Favorite Stock
- Hess Corporation has two major avenues of growth through Bakken Shale and Guyana.
- By 2030, we see production from Hess Corporation approaching more than 500 thousand barrels/day, showing the company's financial strength.
- Going forward, we expect Hess Corporation to continue its growth while generating substantial long-term shareholder returns.
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Hess Corporation (NYSE: NYSE:HES) is a mid-size oil company with a market capitalization of almost $25 billion. In a strong oil market where numerous companies are avoiding capital investment, the company is uniquely positioned for its impressive portfolio of assets and the strong potential they have to drive additional shareholder returns.
Hess Corporation Priorities
Hess Corporation continues to remain focused on developing its asset portfolio and generating strong shareholder rewards.
Hess Corporation Priorities - Hess Corporation Investor Presentation
Hess Corporation has $2.4 billion in cash and $6.1 billion of liquidity. The company has 150 thousand barrels/day hedged at $60/barrel Brent and a substantial 2021 E&P budget of $1.9 billion. The company remains focused on top-tier execution with manageable D&C costs as it focuses on long-term value of its assets.
The company is focused on a low breakeven across its portfolio and has a strong path forward to significantly expand production throughout the 2020s.
Hess Corporation Financial Strength
Hess Corporation's overall portfolio is based on the basis of its financial strength that we discussed briefly above.
Hess Corporation Financial Position - Hess Corporation Investor Presentation
Hess Corporation has $2.4 billion in cash and a more significant amount of liquidity. The company's debt maturities for the remainder of the decade, or $2.3 billion, are covered with the company's current cash position. The company is focused on consistent investment and from 2020 to 2023 CFFO CAGR is expected to grow at 40% annually.
The company has short-term hedges which will help stop a further collapse in the markets. Overall, we expect the portfolio to continue its growth driving substantial shareholder rewards.
Hess Corporation Stabroek
Among the company's most exciting asset is its Stabroek block assets.
Hess Corporation Stabroek Block - Hess Corporation Investor Presentation
Hess Corporation has a 30% stake in the massive Stabroek field, one of the most exciting new fields in the world. The low entry cost field has 6.6 million acres with 20 major discoveries to date. So far discoveries have hovered around 500 million barrels each with 25 major discoveries to date and numerous additional projects.
The breakeven on the discoveries has been roughly $30/barrel. The next steps are to deliver Liza Phase 2 and Payara as upcoming FPSOs and look at Yellowtail as a 4th development. Investigations are going into a line of sight for a massive 10 FPSOs.
Hess Corporation Stabroek Growth - Hess Corporation Investor Presentation
Hess Corporation has steadily increased discovered recoverable resources to 9 billion barrels with additional potential. The company's Payara discovery is expected to grow production to more than 500 thousand barrels/day by 2024 with up to 6 FPSOs or 1+ million barrels/day of production by 2027.
That's a massive ramp up, but it makes sense given the massive amount of resources. There should be 300 thousand barrels/day of production attributable to Hess Corporation by 2026 and we can see it doubling by the end of the decade.
Hess Corporation Bakken
Outside of Guyana, Hess Corporation has the potential to see consistent growth in Bakken Shale.
Hess Corporation Bakken - Hess Corporation Investor Presentation
Hess Corporation's Bakken oil is a fully owned asset that the company is focused on consistently growing. The company has ~460 thousand net acres with a ~75% WI. It produced ~155-160 thousand barrels/day in 2021 with capital expenditures set at $500 million or ~$10/barrel. The company is focused on continued production and cost reductions.
Hess Corporation Bakken Drilling - Hess Corporation Investor Presentation
The company has ~1600 future locations or >50 rig years at $50/barrel WTI. At $70/barrel, that goes up by 50% to ~80 rig years, and even at $40/barrel WTI, the company has ~27 rig years. The company is continuing to drill wells with ~50 new wells coming online in 2021 and the company is continuing to focus on maximizing value and generating returns.
The company's asset portfolio is well integrated. Roughly 70% of the company's value is connected to Brent pricing. The company has ~$3 billion in retained Hess Midstream value which at a 7% dividend yield means ~$200 million in annual cash flow. It's also earned $3.8 billion in cash from dropping down assets.
More so these midstream assets give the company an ability to drive strong cash flow from its existing assets. It gives it the asset portfolio it needs to move oil and gas at a minimal cost.
Hess Corporation Other Assets
The company has several other assets worth paying attention to. This includes South East Asia and the Gulf of Mexico.
Hess South-East Asia - Hess Corporation Investor Presentation
Hess Corporation's South-East Asia assets saw 2021 net production of 60 thousand barrels/day with $165 million in net capital expenditures. The company is an established operator with strong partnerships with Petronas. It's focused on its long-term gas sales agreements with take-or-pay contracts giving it strong cash flow into the late 2020s/early-2030s.
Hess Gulf of Mexico - Hess Corporation Investor Presentation
The company's Gulf of Mexico assets have ~45 thousand barrels/day of net production with net capital expenditures of $25 million. The value of these assets is shown in the company's Shenzi asset sale for $505 million. The company has no wells planned for 2021 and sees the asset as a substantial cash engine with continued strong cash flow.
The asset has a >50% incremental rate of return at $50 WTI, well below current prices. We expect the company will continue to earn reliable cash flow from this asset while keeping investments at a minimum.
Hess Corporation Shareholder Return Potential
Hess Corporation has the ability to drive substantial long-term shareholder returns versus its current asset portfolio.
The company's Guyana assets have a path to 1+ million barrels/day in production by 2026. Out of this ~300 thousand barrels/day will be attributable to Hess Corporation. We can see this growing to 2 million barrels/day by 2030 as FPSOs grow (or ~600 thousand barrels/day to Hess Corporation).
We expect the net breakeven will be ~$30/barrel Brent. With margins of almost $50/barrel, that implies almost $11 billion in profits for Hess Corporation by 2030. That's massive for the company's $25 billion market capitalization. The company's Bakken assets could be production several hundred thousand barrels per day.
The company's other assets will help cover capital spending from now until 2030. However, the net takeaway here is, this network of assets could support a valuation towards $150 billion by 2030. That represents strong returns.
Hess Corporation Risk
Hess Corporation's risk is oil prices. With Brent crude prices at almost $80/barrel, the company is generating massive shareholder rewards. However, there's no guarantee that that'll continue. If shareholder rewards drop, so will the company's ability to continue generating the same amount of shareholder rewards.
Hess Corporation has an impressive portfolio of results that we expect to help the company to drive substantial long-term shareholder rewards. The company is one of what might, by 2030, become one of the largest oil fields in the world. That alone could generate numerous billions in cash flow for shareholders.
On top of that, the company continues to hold onto impressive Bakken Assets and has Gulf of Mexico/International assets that'll help support it throughout the decade. That continued growth of the company will help make the company a valuable long-term investment. For this reason, we recommend investing in the company.
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