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Outlook for Hess: Will Crucial Projects, Cost-Cuts Be Enough?

PART:
1 2 3 4 5 6 7 8 9
Part 6
Outlook for Hess: Will Crucial Projects, Cost-Cuts Be Enough? PART 6 OF 9

Hess Reports Lower Free Cash Flow Due to Lower Revenues

Hess’s cash flows

In this part of the series, we’ll be looking at Hess’s (HES) cash flows. In 3Q15, Hess reported a cash flow from operations (or CFO) of $282 million. This was ~79% lower than its CFO in 3Q14. The drop was primarily due to lower revenues reported in the same period.

Hess’s 3Q15 revenues came in at ~$1.7 billion, down ~38% compared to ~$2.7 billion in 3Q14. The company’s YTD (year-to-date) revenues were $5.2 billion compared to the $8.9 billion it recorded in the first nine months of 2014. This represents a reduction of ~42%.

Hess Reports Lower Free Cash Flow Due to Lower Revenues

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Hess’s free cash flow trends

Hess’s FCF (free cash flow), which is its operating cash flow minus its capex (capital expenditure), has mostly remained negative over the past nine quarters, as you can see in the above graph. Hess’s FCF was -$681 million in 3Q15.

In 2015, Hess has seen reduced capex spending, as you can see in the above graph. CFO has also declined considerably in 2015. Note that in 2Q15, Hess reported an increase in its CFO relative to 1Q15. This helped its 2Q15 FCF. In 3Q15, however, CFO dropped again, causing free cash flow to decline.

Hess anticipates a positive free cash flow from 2017–2018. In 2017, new field startups in the North Malay Basin will come online. In 2018, the Stampede in the deepwater Gulf of Mexico will come online.

Hess’s capex in 2015

Capital expenditures in the third quarter were $849 million compared to $1,371 million in 3Q14. For 2015, capital expenses are expected to be $4.1 billion. This is 16% less than 2014 levels.

In 2016, HES plans to spend 27% less in capex compared to 2015. As a result, production levels are expected to decrease and are estimated to range between 330 MBoe (thousand barrels of oil equivalent) per day and 350 MBoe per day, compared to estimated 2015 production guidance of 370–375 MBoe per day.

Many oil and gas companies slashed their 2015 capexes in response to the weakness in crude oil prices. Apache (APA) and Anadarko Petroleum (APC) slashed their 2015 capexes by ~65% and ~33%, respectively, compared to their 2014 capexes. Marathon Oil (MRO) announced a capex reduction of ~40% compared to 2014. These companies combined make up ~6% of the Vanguard Energy ETF (VDE).

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