Hess Corporation (HES)
Discounting $70/bbl Brent with Non- Conventional and Ghana Upsides
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Bottom Line: HES shares are discounting around $70/bbl Brent and
ignoring upsides in the non-conventional and Ghana acreage. While near-
term earnings have been hampered by weather in the Bakken, Libya, and
operational issues at Valhall, the cloud appears to be lifting. 185,000 new
acres in the Utica, a higher production profile in the Bakken, and optimism
surrounding 2012 appraisal work offshore Ghana (3 wells will be drilled to
test three different structures) should help the shares.
US Onshore Strategy: HES has committed $800mn (for 2011) in the last
two days to acquire acreage in the emerging Utica shale play. The majority
of the Utica is already held by production. It will take time for HES to derisk
this play given few well results thus far. The company today announced
plans for a three rig program in 2012, rising to nine by 2015 in the play. HES
will have to spend to grow - capex guidance was raised slightly ($6-
$7bn/year vs. our estimates for c$5.8bn over the next five years) to develop
Utica, Eagleford, Bakken and appraise Ghana.
Our Focus Remains on the Bakken for Now: Investor sentiment remains
sanguine on the Bakken based on the 2010 results that have been made
available to the public, due to rising service costs and 1H11 weather related
production hiccups. HES currently has c70 wells drilled but not completed.
As the company raises its number of frac stages and operating conditions
improve, there is upside that can be realized in the Bakken over time.
Undervalued Assuming the World Does Not End: HES shares trade on a
low multiple vs. the group and vs. our core NAV ($89/sh excluding
exploration upside). HES are outspending cashflow but have enough
liquidity - $2.2bn cash on hand and $4bn revolver ($3.57bn undrawn). Inside,
we calculate the shares are discounting $70/bbl Brent
[But what if the World DOES end?] |
