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Debt load is lighter for Hess and Pioneer Natural Resources

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Mar. 26 2015, Updated 2:05 p.m. ET

Hess Corporation

We’ve been discussing energy upstream and integrated companies’ debts in a falling crude oil price environment. We’ve looked at Encana Corporation (ECA) and EOG Resources (EOG) and how their debt structures have changed. Now we’ll look at the lighter debt load over the years for Hess Corporation (HES) and Pioneer Natural Resources (PXD).

Hess Corporation (HES) is 1.5% of the Energy Sector Select SPDR ETF (XLE). Pioneer Natural Resources (PXD) is 1.4% of the Vanguard Energy ETF (VDE).

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Hess Corporation reduces debt burden

From 4Q09 to 4Q14, Hess Corporation’s (HES) total long-term borrowing increased 37%. Long-term borrowings are repaid over more than one year. However, the company has reduced debt burden in recent times. From 4Q13 to 4Q14, its net debt, or long-term and short-term debt less cash reserves, has decreased 11% to $3.5 billion.

Net debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio currently stands at 0.57x. Net debt-to-EBITDA is a measurement of leverage, which indicates a company’s ability to repay debt. The lower the ratio, the better it is for the financial health of a company. EBITDA is also a measure of profit.

Hess Corporation’s debt-to-capitalization currently stands at ~21%, a decrease from 24% in 4Q09. Total capital includes the company’s debt and shareholders’ equity. A higher ratio indicates a company’s reduced financial flexibility and increased risk of insolvency.

Pioneer Natural Resources consistently decreases debt

Pioneer Natural Resources (PXD) is a Texas-based energy upstream company that operates primarily in the Permian Basin in West Texas, the Eagle Ford Shale play in South Texas, the Raton field in southeastern Colorado, and the West Panhandle field in the Texas Panhandle.

From 4Q09 to 4Q14, Pioneer Natural Resources’ (PXD) total long-term borrowing decreased 3%. Its debt repayment increased in recent quarters. From 4Q13 to 4Q14, its net debt, or long-term and short-term debt less cash reserves, decreased 27% to $1.6 billion.

Net debt-to-EBITDA ratio currently stands at 0.73x, a huge improvement over 4.2x a year ago. Its debt-to-capitalization currently stands at ~24%, a decrease from 43% in 4Q09.

In the next part of this series, we’ll look at the debts of ConocoPhillips (COP) and Laredo Petroleum (LPI).

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