Just like any other oil company, Hess (HES, Financial) has been severely affected by falling crude prices. However, the company got some relief while stating its recent quarterly numbers. The results were mainly driven by increased production at its Bakken shale formation along with lowered costs. But the stock is behaving just like any other stock in this space and tanked considerably in the past year with the current price trading near its 52-week low. Leaving the near-term volatility apart, let’s see how the company is doing from a long-term perspective.
The way ahead
During the quarter, Hess benefited from higher crude oil and NGL sales volumes coupled with lower exploration expenses. Especially its Bakken field was the top performer and the company will continue to focus on some of the lowest-cost, highest-return wells in the region. In addition, Hess will go ahead with its plans to develop Stampede, which is a deepwater oil and gas project in the Green Canyon area of the Gulf of Mexico.
Stampede’s total recoverable resources are expected to be in the range of 300 million to 350 million barrels of oil equivalent, with production starting from 2018. The company has a 25% working interest in this project and will prove to be a great asset boosting its growth in the future.
But this was offset by lower oil prices in the international market along with higher depreciation expenses. These positives are not sufficient to hide the headwinds it has on account of an uncertain macroeconomic environment. Although it will be a matter of time until the macro data improves yet the management is doing all it can to improve its stand.
In this direction, the management sold its assets worth billions of dollars in order to raise cash and narrow its focus. Also in an effort to spin off its mid stream assets it filed for an IPO in September, which will ultimately help the company to support its growth in the Bakken oil shale play. In Libya things are getting better after the operations were disrupted due to violence, but still a lot of work has to be done in this regard. At the same time Hess did not rule out the possibility to slash production to curtail the falling prices.
Conclusion
With such initiative Hess is trying to stand its ground in the near term. But in the long run we might see some better results ahead. As already said we need to look at growth from a long term perspective and also need to be on the lookout for a turnaround in the oil industry. The stock is currently near its 52-week low and once the industry gains its momentum it might do better in the future.
