Report
Dave Meats
EUR 850.00 For Business Accounts Only

Morningstar | Conger Restart Supports 3Q Earnings Beat for Hess

Hess delivered production of 279 thousand barrels of oil equivalent per day in the third quarter, excluding volumes from Libya (18 mboe/d in the period and 16 mboe/d on average year to date). The high end of prior guidance was 260 mboe/d, making this a considerable (positive) surprise. This was primarily driven by stronger-than-expected volumes in the Gulf of Mexico following the July restart of the Conger field, which was shut in back in the fourth quarter of 2017 following a fire on the third-party Enchilada platform. Bakken volumes were 118 mboe/d, near the midpoint of guidance. Following this strong performance, management tightened its guidance for the full year and expects to deliver an average of 255 mboe/d, which was the high limit of the previous range.

The firm also benefited from very strong realized oil prices, particularly in the North Dakota Bakken, where it reported a differential of just $2.40 against West Texas Intermediate. As a result, the firm’s financial results were much stronger than expected, with adjusted EBITDA and adjusted earnings per share coming in at $792 million and $0.38, respectively (consensus estimates were $676 million and $0.02). This followed 14 consecutive quarters of losses, marking what we think is a sustainable return to profitability.

After the recent sell-off in energy stocks, Hess is trading at a modest discount to our unchanged fair value estimate of $65 per share. But we see very little margin of safety. Our 3-star rating has not changed, owing to the high uncertainty associated with future oil prices. We would need to see a further pullback before getting positive on the name.

No hydrocarbons were discovered in Suriname when the Pontoenoe-1 exploration well was completed in October. Hess holds a 33% working interest in Block 42, where the well is located. Though this does not write off the block’s potential fully, it does reduce the probability that it contains an extension of the prolific belt of discoveries in the Stabroek Block, as had been suggested. Development at Stabroek is proceeding as planned (see our August report "Hess: Guyana Deep Dive Supports Fair Value Increase" for details).
Underlying
Hess Corporation

Hess is a global exploration and production company engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquid (NGL), and natural gas with production operations located primarily in the United States, Guyana, the Malaysia/Thailand Joint Development Area, Malaysia and Denmark. The company's Midstream operating segment provides fee-based services, including gathering, compressing and processing natural gas and fractionating NGL; gathering, terminaling, loading and transporting crude oil and NGL; storing and terminaling propane, and water handling services primarily in the Bakken shale play in the Williston Basin area of North Dakota.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Dave Meats

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