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Hess (HES) Proceeds With Planned Sale of Several Assets

Integrated oil and gas company Hess Corporation HES recently announced that it has agreed to divest its subsidiary Hess Norge that holds stakes in Norway's Valhall and Hod fields to Aker BP ASA. The deal will bring Hess a total of $2 billion. Also, recently, the company agreed to sell its offshore Equatorial Guinea interests to Kosmos Energy KOS and Trident Energy for a total of $650 million. Hess also intends to divest its interests in Denmark's South Arne Field.

Details of the Deals

In the first two quarters of 2017, net production from the Valhall and Hod fields was 26,000 barrels of oil equivalent per day (BOE/d) on an average. Hess owns 64.05% and 62.5% interest in Valhall and Hod fields, respectively. The sale of the assets still requires approval from the Ministry of Oil and Energy, Ministry of Finance, and related competition clearance. Effective Jan 1, 2017, the deal is expected to close by the end of 2017.

In Equatorial Guinea, Hess has 85% operating interests, where production for the first two quarters of 2017 averaged 28,000 barrels of oil per day. The deal is expected to be over by the end of 2017.

The sale of South Arne Field, where it owns 61.5% interests, is expected to close in 2018. In the first two quarters of 2017, net production from the field was 11,000 (BOE/d) on average.

Sale Rationale

The company said that the divestitures including the Norway assets, Equatorial Guinea assets and the Permian Basin assets obtained $3.25 billion in cash proceeds year to date.

The deals are in line with the company's strategy of divesting assets in order to shift its focus to high return assets. The company plans to use the proceeds from the deals, added with the available cash on its balance sheet, for the development of its offshore Guyana asset. Hess believes this will give it the opportunity to receive growth, which will generate cash for more than a decade. The company also expects the proceeds from the divestment program to reduce its debt level by $500 million in 2018.

About Hess

New York-based Hess, previously known as Amerada Hess Corporation, is a global exploration & production company. The company engages in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids, and natural gas. Currently, the company has two operating segments, Exploration and Production and Bakken Midstream.

Hess is among the leading producers of crude in the Bakken oil shale play in North Dakota. The company has interests in the best areas of the play. With crude prices improving after OPEC’s decision to curb output, we expect the Bakken play to contribute to production growth in the long run. Moreover, new output from Gulf of Mexico and Malaysia could add considerably to the company’s output. However, in order to support its capital expenditures through 2017, the company continues to be highly dependent on major asset sales. The company’s growth and returns picture will likely be hindered by the asset sale programs in the near term.

Price Performance

Hess has lost 27.5% of its value year to date compared with 11% fall of its industry.

Zacks Rank and Stocks to Consider

Hess currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector are Par Pacific Holdings, Inc. PARR and Denbury Resources Inc. DNR. Both sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Par Pacific’s sales for the third quarter of 2017 are expected to increase 28.5% year over year. The company delivered a positive average earnings surprise of 9.1% in the last four quarters.

Denbury Resources’ sales for 2017 are expected to increase 5.8% year over year. The company delivered a positive earnings surprise of 100% in the second quarter of 2017.

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