Hess Strengthens Libya Footprint - Analyst Blog

The U.S. oil integrated Hess Corporation (HES) won a five-year contract extension for its exploration and production license off Libya’s coast. Yesterday, the Libyan government said that the contract extension is for Area 54 in the Sirte basin, about 480 kilometers off the coast. Hess acquired this license in 2005 and discovered hydrocarbons in 2008.

Although the government did not disclose the details of the contract, it said that the company can carry out appraisal operations as well as additional exploration activity.

Libya has the largest proven oil reserve in Africa. International oil majors such as Occidental (OXY), ExxonMobil Corp. (XOM) and ConocoPhillips (COP) have already invested huge amounts for the development of the area.

Earlier this year, the Libyan government had warned that the interest of these U.S. companies may be jeopardized following some political issues between the U.S. and Libya. However, this contract extension indicates that these issues have been resolved.

We continue to see an upstream momentum on the back of Hess’ large inventory of exploration and development projects. The company’s improving fundamentals, commodity price leverage and exposure to areas with high resource potential such as Brazil, Ghana, offshore Australia and Libya position the stock to out perform its peers.

Historically, Hess shares have traded at a discount to its peers based on earnings and cash flow multiples, reflecting the company’s track record of underperformance in terms of upstream growth, costs, commodity-price leverage and balance sheet strength. This trend reversed with its success on the exploration front and improved financial health. The stock is currently rated Neutral with the Zacks #3 Rank (Hold).