Hess Corp. (HES) reported better-than-expected third-quarter earnings of $1.31 per share, compared with the Zacks Consensus Estimate of $1.04 and the year-earlier profit of 74 cents. We have adjusted the reported quarter as well as the year-earlier figures for the non-recurring items.
Total revenue increased 21% year over year to $8.95 billion, but remained well below the Zacks Consensus Estimate of $10.33 billion.
Operational Performance
The Exploration and Production (E&P) segment posted $1,277 million profit in the quarter, substantially higher than the year-earlier profit of $397 million. Results were positively impacted by a significant increase in oil and gas prices.
Quarterly oil and gas production was 413 thousand barrels of oil equivalent per day (MBOE/d), down almost 2% year over year. Crude oil production was 290 thousands barrels per day (down from 297 barrels per day in the year-ago quarter), natural gas liquids accounted for 18 barrels (up from 14 barrels) and natural gas was 630 thousand cubic feet (Mcf) (down from 654 Mcf).
Worldwide crude oil realization per barrel during the quarter was $64.81 (including the impact of hedging), up by more than 15% year over year. Worldwide natural gas prices (including the impact of hedging) increased more than 24% year over year to $5.73 per Mcf.
The Marketing and Refining segment posted a loss of $38 million, compared with income of $38 million in the year-earlier quarter. The reported quarter incurred losses of $50 million from refinery operations compared with $3 million in the year-ago quarter as a result of lower refining margins.
Quarterly net cash flow from operations was $1,246 million. Hess’ capital expenditures totaled $1,567 million in the third quarter, of which approximately $1,548 million went into the E&P business. At the end of the quarter, the company had approximately $2.35 billion in cash and $5.58 billion in long-term debt. Hess’ debt-to-capitalization ratio at the end of the quarter stood at 26.0%.
Outlook
We continue to see an upstream momentum on the back of the company’s large inventory of E&P projects. Hess’ improving fundamentals, commodity price leverage and exposure to areas with high resource potential have improved its prospects.
Recently, the company also joined hands with the Chinese oil major, PetroChina Co. (PTR) for E&P in the Daqing oil field, one of the largest crude oil producing area in China. The company is looking forward to apply its Bakken experience to various international destinations. We have a long-term favorable outlook on Hess’ E&P portfolio that complements its low-risk drilling opportunities.
Although there is significant resource potential from new discoveries, the E&P business is inherently risky, often with an equal share of successes and failures.
Our Neutral recommendation for the stock remains unchanged at this stage and the company holds a Zacks #3 Rank (short-term Hold rating).
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