Energy: Tighter supply supports further crude recovery

A recent rebound in crude prices, which has seen WTI recover from $65/bl in mid-August to $70/bl, is supported by market developments. A surge in US/North Sea/OPEC supply is being digested and a slow down in Chinese imports has stabilized and should reverse. On the supply-side, Permian bottlenecks are becoming more acute, Iranian exports are dropping ahead of US sanctions, and Saudi Arabia is unwilling to oversupply markets. Those factors more than offset an underwhelming US driving season and t...

A robust performance in Q2

Q218 cash earnings beat consensus by 16% and FY18 guidance is maintained, despite divesting ~3% of FY18 volumes, and arguably looks conservative, if new Bakken wells perform well. However the stock's 37% YTD gains leaves it on elevated 12m forward multiples versus the sector, before falling to an in-line multiple in 2020, when first production is expected from Guyana. As such current valuation is fair. On a raised crude price deck (e.g. WTI $70/bl in 2020) we increase our price target to $64 (fr...

Strong output drives good first quarter

HES's initial FY18 output guidance issued in January, of +3% YoY growth, was seen as underwhelming at the time but the Q1 performance indicates management were conservative in their view. Q1 output (ex-Libya) of 233kboed beat guidance of 220-225kboed and, while the FY18 outlook is maintained, investor confidence that guidance can be met/exceeded should be raised. On our raised crude price deck (e.g. WTI $65/bl in 2020) we raise our price target to $60 and retain our Neutral rating. High oil gear...

Guyana prefunded but FY18 volume guide low

FY18 output guidance of +3% (pro-forma) was below consensus (+10%), reflecting a slow ramp-up at the new Stampede field and a lengthy restart of four existing Gulf of Mexico fields following a fire at a third party platform. Guyana funding is secured but we believe investors will continue to focus on near-term cash earnings. Retain Neutral, $45 price target.

Cash earnings beat but FY18 output guide low

Q4 cash earnings of $1.57/share beat consensus/AE at $1.24/$1.16, although output (ex-Libya) of 282kboed was marginally light and unit cash opex was slightly higher than the guided range. Initial FY18 output guidance of 245-255kboed (+3% pro-forma, ex-Libya) is below consensus at 266kboed but assumes a six-month outage at a Shell-operated facility in the Gulf of Mexico, through which Hess oil is transported. Underlying reserves replacement was a robust 351% and a new, $150m cost saving initiativ...

Model update: lowering estimates ahead of Q4

We have adjusted our forecasts to take account of lost production in 4Q (previously disclosed), resulting from a fire on another operator's platform in the US Gulf of Mexico, to which Hess fields are connected, and a mark-to-market for commodity prices.

Disposals address Guyana funding concerns