Hess Gains Momentum in Norway – Analyst Blog

The U.S. oil integrated company Hess Corporation (HES) beefed up its interest in two offshore fields in Norway – Valhall and Hod – by exercising its right to pre-empt Total SA’s (TOT) sale of interests to BP plc (BP). Hess will assume 7.85% and 12.5% interest in Valhall and Hod fields, respectively, for a total consideration of $496 million. The agreement is subject to regulatory approvals and is expected to be completed by the end of the third quarter of 2010.

The transaction will bring Hess’ interests in Valhall and Hod to 64.05% and 62.5%, respectively. In December, Hess joined with Royal Dutch Shell (RDS.A) for a strategic asset swap deal. The deal had doubled Hess’ interest in these two fields to 56.2% and 50%, respectively.

 

The increasing stake in the offshore Norway fields has a favorable impact on Hess. This will support Hess’ long-term objective of profitably increasing its reserves and production.

 

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

 

Management pointed out that the drilling moratorium on offshore Gulf of Mexico would have no material impact on the company’s operations considering that Hess currently has no exposure in this region. Hess is optimistic with its international operations. While the stake increase in the off-Norway fields is a notable development, the company’s plan to invest in the Paris Basin and Bakken shale play later this year will act as catalysts in the near to medium term, in our view.