Tuesday, March 5, 2013

Hess Wrapping Up Transition to Pure Play E&P Company

Oil company Hess (NYSE: HES  ) announced Monday that it is ready to complete its transformation into a pure play oil exploration and production (E&P) company.

Focusing on what it views as the higher-growth, lower-risk field of E&P, Hess will divest "downstream" oil-related businesses such as retail (i.e. gas stations), as well as energy marketing and energy trading. To accomplish this final phase in its multiyear transformation, Hess said it intends to:

  • Sell its Indonesia�and�Thailand E&P operations.
  • "Monetize" its Bakken midstream assets, expected in 2015.
  • Fully exit its downstream businesses.

It plans to be a pure play E&P company by 2014.

Hess intends to use money raised by making these divestitures to pay down debt and increase its dividend payouts to shareholders and its share repurchases. Hess said it intends to increase its dividend by 150%, to $1 a year, starting in Q3 2013, while simultaneously beginning share repurchases expected to reach up to $4 billion.

Meanwhile, the company hopes to achieve a rate of 5% to 8% compound annual production growth, with even faster growth over the next two years. The company hopes to translate much of this growth into increased earnings, in part, by cutting capital expenditures.

Additionally, Hess named six new "independent" directors to its board, noting that with their arrival, 13 of its 14 board members will be independent -- meaning they will not also be employees of Hess.

Hess makes no secret of the fact that it's taking many of these moves in order to fend off shareholder activism by hedge fund Elliott Management.

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