Integrated oil company Hess Corp. (HES) reported disappointing fourth-quarter results hurt by weak performance at its refining business.
Hess reported fourth quarter earnings of $1.20 per share (excluding the one-time items), which fell below the Zacks Consensus Estimate of $1.22, but increased from the year-earlier profit of $1.10.
Total revenue increased a modest 1.5% year over year to $8.69 billion and also surpassed the Zacks Consensus Estimate of $8.19 billion.
The quarter’s results turned out to be depressing as against its peers. Occidental Petroleum Corporation (OXY) posted earnings of $1.49 per share and ConocoPhillips (COP) recorded profit of $1.32 per share.
Operational Performance
The Exploration and Production (E&P) segment posted $420 million profit in the quarter, lower than the year-earlier profit of $494 million. The company incurred a higher exploration expense related to the drilling of two wells offshore Brazil that had adverse effects on the quarter results.
Quarterly oil and gas production was 420 thousand barrels of oil equivalent per day (MBOE/d), up 1.2% year over year. Crude oil production was 291 thousands barrels per day (up from 282 thousand barrels per day in the year-ago quarter), natural gas liquids accounted for 19 thousand barrels (up by 3 thousand barrels when compared with prior-year quarter) and natural gas was 663 thousand cubic feet (Mcf) (down from 700 Mcf in 4Q09).
At the year-end 2010, the company’s oil and gas proved reserves were 1.54 billion barrels of oil equivalent, exceeding the reserve level of 1.44 billion barrels at the end of 2009.
Worldwide crude oil realization per barrel during the quarter was $71.73 (including the impact of hedging), up 12.5% year over year. Worldwide natural gas prices (including the impact of hedging) increased 2.1% year over year to $5.30 per Mcf.
The Marketing and Refining segment posted a huge loss of $261 million, compared with the income of $17 million in the year-earlier quarter. The reported quarter experienced a loss of $308 million from refinery operations compared with a loss of $40 million in the year-ago quarter as a result of lower refining margins.
Financials
Quarterly net cash flow from operations was $1.48 million. Hess’ capital expenditures totaled $2.46 billion in the fourth quarter, of which approximately $2.44 billion were absorbed into the E&P business.
As of December 31, 2010, the company had approximately $1.61 billion in cash and $5.54 billion in long-term debt. Hess’ debt-to-capitalization ratio at the end of the quarter stood at 23.7%.
Outlook
We believe that the New Yorkbased Hess Corp. is favorably positioned to benefit from an array of developments projects, commodity price leverage and improving fundamentals within the industry scenario.
The company’s recently upgraded capital and exploratory budget of $5.6 billion for 2011, highlights its confidence regarding presence in the Bakken oil shale in North Dakota, deepwater Gulf of Mexico and Equatorial Guinea. Management also reiterated its long-term production growth target of 3% per annum.
However, we continue to remain concerned about Hess’ ability to fund large-scale, longer-term developments and its projected capital spending especially in the light of lofty exploration expenses and dry hole costs.
We are maintaining our long-term Neutral recommendation on the stock. Hess shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating.
CONOCOPHILLIPS (COP): Free Stock Analysis Report
HESS CORP (HES): Free Stock Analysis Report
OCCIDENTAL PET (OXY): Free Stock Analysis Report
Zacks Investment Research
