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Hess profit doubles on asset-sales gains

BY ALISON SIDER

HOUSTON -- Hess 1Q earnings more than doubled on gains from asset sales and got a boost from higher oil and natural gas prices as the company prepares to go head to head with a dissident investor at the shareholder meeting next month.

Hess has been shedding assets to fund drilling and exploration efforts as it struggles with lackluster profits and a shareholder revolt. So far this year, the company has completed or agreed to sales that will bring in $3.4 billion. Earlier this month, Hess agreed to sell its stake in a Russian subsidiary to Lukoil for $1.8 billion.

Proceeds from the sales helped boosts Hess' s 1Q profits to $1.28 billion from $545 million, a year earlier. Excluding those sales, the company' s adjusted earnings were $1.95 a share, up 30% from a year ago and well ahead the $1.59 a share analyst had predicted. Revenue jumped 39% to $4.12 billion.

Hess has been battling criticism from dissident investor Elliott Management, which has aimed to elect five board members and directly pay them bonuses based on how Hess shares perform. The hedge fund, which controls 4.4% of Hess' s shares, also wants to split Hess into two companies in a bid to boost the stock' s performance.

Both Hess and Elliott have put forward slates of board nominees. Shareholders will vote at the company' s annual meeting next month.

In the Bakken, which Hess has said will drive growth as it transforms itself into a pure exploration and production company, the company reported production grew by 55% from a year ago to 65,000 boepd, even as costs per well fell 36%. Elliott Management has criticized Hess for cost overruns in the Bakken.

Hess said during a conference call following its earnings report that it expects Bakken production to average between 64,000 and 70,000 boepd through the rest of the year.

Hess announced earlier this year that it planned to focus exclusively on upstream work, divesting its terminal, retail energy marketing and trading operations as well as closing its last remaining refinery in Port Reading, New Jersey.

ISI Group analyst Doug Terreson said Hess performed well during the quarter both in terms of production and profitability.

"Production growth was strong from the United States and that' s what investors were looking for" Mr. Terreson said. "Profitability was much improved in relations to recent quarter."

But Raymond James analyst Pavel Molchanov said the results were "much less impactful" because many investors are likely to be focus on the ongoing battle with activist shareholders and upcoming board election.

During a conference call, Hess CEO John Hess said the company now has a "focused, liquids-rich portfolio that is lower risk" and does not currently plan to sell more assets.

Elliott has called for Hess to separate its high growth Bakken assets from costly international assets, but Hess has said that idea won' t be good for shareholders.

Mr. Hess said during the call that the asset portfolio as is will generate returns for investors.

Earnings at Hess' s exploration and production business doubled to $1.29 billion, due primarily to gains on asset sales. Average daily production decreased 2% to 389,000 boe as asset sales and lower production from the Valhall Field in Norway partially offset increased production from the Bakken oil-shale play.

The marketing and refining segment' s results are now booked as discontinued operations. Marketing and refining earnings, which comprise retail, energy marketing, refining, and energy trading results, rose to $100 million from $12 million a year ago.

Dow Jones Newswires

04/25/2013

 

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