Hess' Upstream Foray Continues - Analyst Blog

Hess Corp. (HES) continues to gain traction in its upstream growth trajectory. The fifth largest U.S. oil integrated joined hands with the Chinese oil major, PetroChina Co. (PTR) for exploration and production (E&P) in the Daqing oil field, one of the largest crude oil producing area in China.

Following Hess’ confidence in Bakken Shale in North Dakota, the company is keen to work with dense rock in the Daqing field, a formation that is similar to the Bakken basin.

The company is looking forward to apply its Bakken experience to various international destinations. Last week, it won a five-year contract extension for its E&P license off Libya’s coast. Importantly, the company opened an office in China early this year for searching E&P opportunities in the country.

Hess has similar tight rocks exploration exposure in Paris and plans to start drilling in France in the first quarter next year.

We think that unconventional oil (including sources like oil shales, coal-based liquid supplies etc.) and gas extraction (extraction using non-traditional techniques) are going to play an important role in the world energy mix in the long run. Hess’ initiative to leverage the Bakken experience to grow the company’s global unconventional resources is a case in point.

We believe this positive is reflected in the stock’s recent performance. Hess shares rose 3.1% at Friday’s closing and more than 15% from the beginning of this month.

Although Hess has historically traded at a discount due to its E&P underperformance, this is now a thing of past with its success on the exploration front and improved financial health. We maintain our Neutral rating on the stock with the Zacks #3 Rank (Hold).