Hess Corporation is an all American production and exploration company that develops, produces, transports, and sells crude oil as well as natural gas liquids (NGLs). Hess Corporation currently trades on the NYSE at $51.62 per USD per share as had seen a steep depreciation in the past quarter with share prices peaking at $74.59 USD on October 1st.
Recent Volatility
The recent depreciation of 30.79% can be attributed to two partnerships that have severely hindered Hess’s free cash flows. In late 2015 after the discovery of untapped crude oil deposits in Guyana by ExxonMobil and Hess teamed up in a joint venture drilling project. The Guyana venture was in trouble from the beginning as later that year an ExxonMobil research vessel was turned away when they were confronted by the Venezuelan Navy, in Guyananian waters. This would not be the last time the Guyana project came under threat from the increasingly unstable Venezuelan government. Later, on December 24th, ExxonMobil ceased all operations relating to the Guyana project, putting them on hold.
Success in other areas
In addition to the Guyana project, Hess has recently invested $2.68 billion into the Bakken Shale Midstream merger, representing 50% of the partnership with undisclosed sponsors. The Bakken Shale region is located across North Dakota and into Montana. While Hess hasn’t reaped the rewards of locating, and controlling the center of the Bakken Shale region, they have negotiated multiple agreements with third parties in the region giving them a distinct competitive advantage to transport natural gas, and crude oil out of the Bakken region. Something that other companies within the region have not been able to accomplish.
Repairing Cash Flows
In late 2018 to address Hess’s cash flow issues they announced a six year plan that will be carried out through 2025. The goal of this plan will be to increase long term cash flows within the next six years and beyond, the first stage of this plan will be implemented on January 31st of 2019 with a controversial conversion of all Series A Prefered shares, eliminating the 8.00% dividend paid out to shareholders. Hess Prefered Stock represents 1/20th of the company’s interest in shares, and will convert to Common shares at a ratio ranging between 21.8220 and 25.6420 and on February 1st 2019 Preferred shareholders will receive a final dividend payout of $20 per share.
Valuation – There is hope
In conclusion Hess is currently trading at $51.62 USD per share, and due to the mandatory conversion of all Series A Preferred will likely depreciate further from the historical $60-$70 USD range that it has traded at. However, should Hess’ plan to recover and grow cash flows show merit, Hess stock should appreciate rebound to and even surpass its historical trading range. As the American economy nears a bear market investing in established corporations who are not afraid to take short term hits to insure longevity is a wise, and equally bold decision.
