Hess 1Q Profit Doubles on Asset-Sales Gains

Hess Corp.'s first-quarter earnings more than doubled on gains from asset sales, while the oil and gas producer's revenue improved despite lower production.

Hess has been shedding assets to fund drilling and exploration efforts as it struggles with lackluster profits and a shareholder revolt. So far this year, the company has completed or agreed to sales that will bring in $3.4 billion. Earlier this month, Hess agreed to sell its stake in a Russian subsidiary to OAO Lukoil (LKOH.RS) for $1.8 billion.

Proceeds from the sales helped boosts Hess's first-quarter profits to $1.28 billion, or $3.72 per share, from $545 million, or $1.60 a share, a year earlier. Excluding those sales, the company's adjusted earnings were $1.95 a share, up 30% from a year ago and well ahead the $1.59 a share analysts had predicted. Revenue jumped 39% to $4.12 billion.

Shares rose 2.8% Wednesday morning to $70.11.

Hess has been battling criticism from dissident investor Elliott Management Corp., which has aimed to elect five board members and directly pay them bonuses based on how Hess shares perform. The hedge fund, which controls 4.4% of Hess's shares, also wants to split Hess into two companies in a bid to boost the stock's performance.

Both Hess and Elliott have put forward slates of board nominees. Shareholders will vote at the company's annual meeting next month.

In the Bakken, which Hess has said will drive growth as it transforms itself into a pure exploration and production company, the company reported production grew by 55% from a year ago to 65,000 barrels of oil equivalent per day, even as costs per well fell 36%. Elliott Management has criticized Hess for cost overruns in the Bakken.

Hess said during a conference call following its earnings report that it expects Bakken production to average between 64,000 and 70,000 barrels of oil equivalent a day through the rest of the year.

Hess announced earlier this year that it planned to focus exclusively on upstream work, divesting its terminal, retail energy marketing and trading operations as well as closing its last remaining refinery in Port Reading, N.J.

During a conference call, Hess Chief Executive John Hess said the company now has a "focused, liquids-rich portfolio that is lower risk," and does not plan to sell more assets.

Elliott has called for Hess to separate its high growth Bakken assets from costly international assets, but Hess has said that idea won't be good for shareholders.

Mr. Hess said during the call that the asset portfolio as is will generate returns for investors.

Earnings at Hess's exploration and production business doubled to $1.29 billion, due primarily to gains on asset sales. Average daily production decreased 2% to 389,000 barrels of oil equivalent as asset sales and lower production from the Valhall Field in Norway partially offset increased production from the Bakken oil-shale play.

The marketing and refining segment's results are now booked as discontinued operations. Marketing and refining earnings--which comprise retail, energy-marketing, refining, and energy-trading results--rose to $100 million from $12 million a year ago.

Copyright (c) 2012 Dow Jones & Company, Inc.


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Kevin Barry | Apr. 25, 2013
Asset sales do drive short term gains, which at the time is refreshing, like taking a quick drink of cold water, however what is not clear is the med and long term plans to drive sustainable profitability and shareholder return. I do tend to agree with the CEOs comments but would challenge that he has to find a middle ground with his major shareholder, balancing the RISK against sharholder expectation. I do have another concern that if the Oil price does drop as expected, what is his plan to alleviate this, whilst still delivering shareholders expectations. I do however also like Elliots appraoch to splitting assets those that return profit from those that are high RISK, this allows transparency and also gives some focus to those assets that requiring RISK management??

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