Must-know update: Highfields Capital exits its position in Hess

Market Realist

Highfields Capital Management's positions in the fourth quarter (Part 7 of 8)

(Continued from Part 6)

Highfields Capital Management and Hess Corporation

Jonathon Jacobson’s Highfields Capital Management’s top new purchases are Air Products & Chemicals, Inc. (APD), Broadcom Corporation (BRCM), Applied Materials, Inc. (AMAT), Royal Dutch Shell (RDS.A), and JPMorgan Chase (JPM). Highfields sold out positions in CBS Corporation (CBS) and Hess Corporation (HES).

Highfields Capital Management exited a 2.16% in Hess Corporation (HES). Hess is a a global company devoted to exploring oil, gas, and energy solutions.

The company, which saw pressure from activist investor Paul Singer’s Elliott Management last year, has been shedding assets to transform into a pure play exploration and production company. The transformation plan included fully exiting the company’s Marketing and Refining (M&R) businesses, including its terminal, retail, energy marketing, and energy trading operations, as well as the permanent shutdown of refining operations at its Port Reading facility, completing its exit from all refining operations.

Hess reported a fourth-quarter income increase driven by asset sales, but earnings missed analyst estimates. The exploration and production (E&P) company reported a profit of $1.93 billion, or $5.76 a share, up from $374 million, or $1.10 a share, a year earlier. However, revenue fell 6.1% to $5.57 billion. Oil and gas production was 307,000 boepd in the fourth quarter of 2013 down from 396,000 boepd in the year ago quarter. Asset sales lowered production by 72,000 boepd, while extended shutdowns caused by civil unrest in Libya reduced production by approximately 20,000 boepd versus the year-ago quarter.

Unplanned downtime at non-operated facilities in the Gulf of Mexico, natural declines, and lower entitlement in Algeria also contributed to the reduced production. Total proceeds from the asset sales were approximately $7.8 billion. In Bakken, net production averaged 67,000 barrels of oil equivalent per day, up 20% year-over-year. At the same time, drilling and completion costs were reduced to $7.6 million in 4Q 2013 compared to $9 million in the year-ago quarter. In 2014, Hess plans to increase its rig count to 17 from 14 and expects the net production from the Bakken to average between 80,000 and 90,000 barrels of oil equivalent per day.

Chief Executive Officer John Hess said, “In March 2013, we announced a detailed plan to complete our transformation into a pure play E&P company, fully exit the downstream, strengthen financial flexibility, and increase cash returns to our shareholders.”

Excess proceeds from the asset sales allowed Hess to begin a share repurchase program of up to $4 billion in August last year. To date, the company has purchased $1.9 billion of its shares, reducing fully diluted outstanding shares by approximately 6.5%. Hess also raised its annual dividend by 150% to $1 per share in September.

HES hedge
As part of its transformation during 2012 and 2013, the company sold mature or lower margin assets in Azerbaijan, Indonesia, Norway, Russia, Britain’s North Sea, and certain interests onshore in the U.S. In the fourth quarter of 2013, the company sold its energy marketing business and its terminal network. In 2014, the company plans to divest its remaining downstream businesses, including its retail marketing business and energy trading joint venture, plus, its E&P assets in Thailand. The Corporation has also reached an agreement to sell dry gas acreage in the Utica shale play in the U.S.

Continue to read about Hess’ Bakken activity in Must-know: The essentials of Hess Corporation’s Bakken activity.

Continue to Part 8

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