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Hess to Divest North Sea Fields

Zacks Equity Research

U.S. energy company Hess Corporation (HES) entered into an agreement with Europe’s largest oil company Royal Dutch Shell plc (RDS.A) to sell its interest in the Beryl area fields and the Scottish Area Gas Evacuation System. Shell will pay $525 million for this deal.

The fields, which are located in the North Sea near Aberdeen, Scotland, are jointly operated by Hess Corp. with Apache Corporation (APA).

During the first nine months of 2012, the Beryl field produced 14,000 barrels of oil equivalent per day. Shell’s current interest in the Beryl field yields 9,000 barrels of oil equivalent per day. Following the acquisition, the company plans to increase production to up to 24,000 barrels of oil equivalent per day.  Shell’s interest in the fields will increase in a range of 9–65%.

Last month, Hess Corp. sold its interest in Azeri, Chirag and Guneshli fields (ACG) in Azerbaijan and the BTC pipeline to ONGC Videsh Ltd. for $1 billion. Earlier this year, the company offloaded $2.4 billion worth of assets, including this transaction.

The sale is anticipated to complete in the first quarter of 2013, subject to regulatory approval.

New York City, New York-based Hess Corporation, previously known as Amerada Hess Corporation, is an integrated energy company engaged in oil and gas exploration and production (E&P) and refining as well as marketing.

Hess’ new strategy of concentrating on high-impact exploration areas compared to low risk areas; its exposure to areas with high resource potential (such as Brazil, Ghana, Libya and offshore Australia), strong growth throughout the Bakken oil shale play, along with robust holdings in the Eagle Ford Shale and the Utica Shale are expected to raise its earnings, cash flow and valuation.

However, we believe that future asset sales will likely hamper the company's production and bring down its profitability levels.

Considering the situation, we expect the stock to perform in line with other industry players and the broader market and maintain our long-term Neutral recommendation on Hess. The company retains a Zacks #3 Rank (equivalent to a short-term Hold rating).

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