By David Wethe and Bradley Olson
Hess Corp. will sell its fuel storage terminal network and exit the refining business as Paul Singer’s Elliott Associates LP fund said it plans to buy more than $800 million shares and seek board seats.
Hess will close its Port Reading, New Jersey, refinery by the end of February and seek a buyer for its 19 storage terminals, the New York-based company said in a statement Monday. Hess rose 5 percent to $61.84 at 10:24 a.m., the highest intraday gain on the Standard & Poor’s 500 Index.
Singer is the founder and president of Elliott Management Corp. which oversees two funds, Elliott Associates and Elliott International LP, that have $21.5 billion of assets under management. Elliott Associates notified Hess that it may seek board seats at the annual shareholder meeting this year, according to a separate release from Hess. Elliott last year added two new board members to BMC Software Inc. after pushing BMC to consider a sale.
Peter Truell, a spokesman for Elliott, declined to comment when reached by phone today.
Hess’s terminals business may sell for as much as $1 billion, said Fadel Gheit, a New York analyst with Oppenheimer & Co. The moves also will free up about $1 billion in working capital “for future growth opportunities,” the company said. The Port Reading closure culminates a process that last year included shutting down another money-losing refinery Hess co-owned in the U.S. Virgin Islands known as Hovensa LLC.
“They’ve been doing this gradually,” Gheit said today in a telephone interview. “Hess has turned a corner and the company is executing the right strategy.” Gheit rates Hess the equivalent of a buy and doesn’t own shares.
Hess joins companies including ConocoPhillips and Marathon Oil Corp. in exiting the refining business, which rallied in 2012 in areas where operators have had access to cheaper U.S. crude. East Coast refineries, which pay more for imported oil, have been shut as their profit margins narrowed.
“We have transformed Hess into a predominantly exploration and production company, which is part of a multi-year strategy to grow shareholder value,” Chairman and Chief Executive Officer John Hess said in the statement.
Hess has exploration and production assets around the world, from the Bakken and Utica plays in the U.S. to Equatorial Guinea and Norway. The company has tripled its revenue from exploration and production in the past decade, while continuing to generate 75 percent of sales from marketing and refining. Production in the third quarter climbed 17 percent from a year earlier to the equivalent of 402,330 barrels of oil a day, according to data compiled by Bloomberg.
Of the $6.7 billion Hess plans to spend this year on exploration and production, 40 percent of it will go towards its unconventional shale resources in the U.S., the company said Jan. 9. Hess, which was founded by John Hess’s father, began as a fuel oil delivery business and expanded into retail, refining, and oil storage.
The company is retaining its gas station business, which includes more than 1,350 Hess-branded sites in 16 states along the East Coast, the statement said. The company is the leading gasoline convenience store retailer in the region, according to the company’s website.
“The next potential move for them could be to exit the retail side,” Brian Youngberg, an analyst with Edward Jones & Co. in St. Louis, said in a telephone interview today. “Retail is a lower-margin business, so exiting could potentially unlock further value.”
Valero Energy Corp., the largest independent fuel processor in the world, is in the process of spinning off its convenience store business.
Founded in 1977, Singer’s Elliott Management is one of the oldest private investment firms of its kind under continuous management. The Elliott funds’ investors include large institutions, college and charitable endowments, family offices, and friends and employees of the firm.
Singer is among a group of creditors seeking payment from Argentina for bond defaults. Ghana detained an Argentine navy ship in October on the bondholders’ request and Argentine President Cristina Fernandez de Kirchner took a chartered flight to Indonesia this month to avoid creditors seizing the nation’s plane.
Hess has retained Goldman Sachs Group Inc. as its financial adviser on the terminal sales.