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A must-know overview of the Bakken Shale oil play

Part 5
A must-know overview of the Bakken Shale oil play (Part 5 of 14)

Must-know: The essentials of Hess Corporation’s Bakken activity

Hess and the Bakken

Hess Corp. (HES) is the second largest producer in the Bakken region. However, unlike many other operators in the region, Hess’s Bakken assets make up less than a quarter of the company’s production and reserves.

Summary facts

Bakken Acreage: 640,000
2013 Bakken Capex: ~$2.2 billion
3Q13 Bakken Production: ~71 thousand barrels of oil equivalent per day
3Q13 Total Company Production: ~310 thousand barrels of oil equivalent per day
Percentage Bakken Production: ~23%
Market Cap (12/4/13): $27.8 billion
Enterprise Value (12/4/13): $33.7 billion
3Q13 EBITDAX: $1,6 billion
2014 Consensus EBITDAX: $6.8 billion
EV/3Q13 Annualized EBITDAX: 5.2x
EV/2014 Consensus EBITDAX: 5.0x

2013.12.03 - HES AcreageEnlarge Graph

Hess’s other core assets are in the Deepwater Gulf of Mexico, Valhall/South Arne in the North Sea, the JDA in Southeast Asia, and Equitorial Guinea. Over 2013, Hess has sold off a significant amount of assets that it considered non-core. Just a few days ago, on December 2, 2013, Hess announced that it would sell its assets in Indonesia for $1.3 billion. Also, in October 2013, Hess agreed to sell its North American terminal network assets to Buckeye Partners for $850 million. In July 2013, Hess announced the sale of its energy marketing business to Centrica PLC for $1.025 billion. In April 2013, Hess sold its assets in Russia to LUKOIL for $2 billion. In March, Hess sold certain assets located in the Caspian Sea for $1 billion. These assets sales, including several others, have generated ~$7.8 billion in proceeds for the company year-to-date.

The point of these major asset sales was so Hess could divest itself from non-core businesses such as energy marketing and activities in some overseas areas while using the proceeds to return capital to shareholders and redeploying the capital into core production areas, one of which is the Bakken. Hess has noted that its Bakken assets will be the single biggest contributor to its production growth for 2013 through 2017.

Another point of note is that Hess has a significant amount of midstream assets in the Bakken area (including a rail terminal, a gas plant, and other transportation and logistics assets), which the company has said it plans to monetize in 2015. Hess noted that it plans to maintain operatorship and the controlling interest in these assets. So the company will likely create a master limited partnership (MLP) entity and move the midstream assets into this entity over time. Note that MLPs trade at higher multiples than regular C-Corps (which is the structure of most oil and gas producers), as MLPs don’t pay corporate taxes (see The Market Realist guide to master limited partnerships). By creating this new entity, Hess can take advantage of this higher valuation of its midstream assets.

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