Hess quarterly profit more than doubles on asset sale gains

By Jim Polson
Bloomberg News

Hess Corp., the oil company that’s in a proxy battle with billionaire Paul Singer’s Elliott Management Corp., said first-quarter profit more than doubled on gains from asset sales.

Net income rose to $1.28 billion, or $3.72 a share, from $545 million, or $1.60, a year earlier, the New York-based company said in a statement today. Per-share profit excluding gains from selling Azerbaijan and North Sea assets plus liquidating some refinery inventories exceeded the $1.59 average of 19 analysts’ estimates compiled by Bloomberg. Sales rose 20 percent to $3.47 billion.

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Hess has announced asset sales this year that will yield $3.4 billion as it exits refining, gasoline retail stations and other businesses to become a pure oil exploration and production company. Singer’s Elliott, holder of a 4.52 percent Hess stake, is soliciting shareholder support to get its five nominees on the board, citing “unrelenting underperformance” and mismanagement.

“It was a very good quarter,” Brian Youngberg, a St. Louis-based analyst for Edward Jones, said in a phone interview. “U.S. volumes grew nicely and the company has become more disciplined in managing their costs.”

Per-share profit beat his expectation by 20 cents. Youngberg rates Hess a buy, doesn’t own the shares and has taken no position on the proxy contest.

Share Buybacks

Hess rose 2.8 percent to $70.12 at the close in New York. The shares have 13 buy and 11 hold ratings from analysts, according to data compiled by Bloomberg.

“Today was another example of Hess denying its problems and therefore doing nothing to solve them,” Quentin Koffey, a portfolio manager for New York-based Elliott, said in an e- mailed statement.

Proceeds from future asset sales will fund as much as $4 billion of share buybacks beginning in the second half, Chairman and Chief Executive Officer John Hess said in today’s statement. Hess announced the buybacks on March 4 and said it would more than double the annual dividend to $1.

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“They are responding to what many shareholders are wanting, which is to shrink the company, reduce capital expenditures and return more of the cash to shareholders,” Youngberg said.

Asset sales, along with classification of the refining and marketing unit as discontinued operations, added $607 million to first-quarter results. Capital spending fell 18 percent from a year earlier to $1.63 billion.

Cash ‘Burn’

“Hess continues to burn cash,” Phil Adams, a Chicago- based debt analyst for Gimme Credit LLC, wrote in a note to clients today. Net cash flow from operations was $875 million, $847 million short of its capital spending and dividend payouts, he wrote.

Production from the Bakken Shale deposit in North Dakota, which Elliott wants Hess to spin off, rose 55 percent from a year earlier to the equivalent of 65,000 barrels of oil a day. Global production fell 2 percent to the equivalent of 389,000 barrels a day on asset sales and reduced output from the Valhall Field in Norway.