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Hess, Buckeye in $850M Deal

Zacks Equity Research

Integrated energy company, Hess Corporation (HES), has inked a deal with petroleum products pipeline operator, Buckeye Partners, L.P. (BPL), to sell its U.S. East Coast and St. Lucia storage terminals for a cash consideration of $850 million. The sale would also free working capital of about $900 million.

The transaction includes a network of 20 terminals of which one is in the Caribbean and the remaining ones are located in metropolitan sites along the East Coast. The total storage capacity is expected at approximately 39 million barrels.

The terminal network sale represents a strategic move, whereby Hess plans to shift its focus from refining to exploration and production (E&P). The transaction is expected to be settled in the fourth quarter of 2013 post necessary approvals.

Hess’ total divestiture for the year, to date, stands at $5.4 billion. The sale of the four upstream producing assets previously and the impending sale of the Energy Marketing business are other contributors to this amount, in addition to the current deal.

The New York-based company plans to use the proceeds from the asset sales to lower its debt burden and add value to its financials. Also, the company has initiated its $4 billion share buyback program. It plans to finance this venture from the proceeds of the terminal network sale and the working capital released by the move.

Hess is engaged in oil and gas exploration, production and refining as well as marketing. The company now plans to work as a pure play E&P and is working toward becoming a more focused, higher growth and lower risk company.

Hess currently holds a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider other stocks in the energy sector that are expected to outperform in the near term. These include Zacks Ranked #1 (Strong Buy) stocks of Stone Energy Corp. (SGY) and Dril-Quip, Inc. (DRQ).

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