Hess’s stock in 2015
As we saw in the previous part of this series, Hess’s (HES) stock price has fallen significantly in 2015, driven by a dismal commodity price environment. Crude oil prices have fallen ~67% from their June 2014 peak of $107 per barrel.
Key management objectives and discussions
Hess has taken several steps to counter lower commodity prices. These include capital and cost reductions. John Hess, chief executive officer and director, said that the company has captured $600 million in reductions so far this year, evenly split between capital expenditure and operating costs.
Many oil and gas companies have slashed their 2015 capital expenditures in response to the weakness in crude oil prices. Apache (APA) and Anadarko Petroleum (APC) slashed their 2015 capital expenditures by ~65% and ~33%, respectively, compared to 2014. Marathon Oil (MRO) also announced a capex reduction of ~40% compared to 2014. For an in-depth analysis of Apache, you can read Market Realist’s series Apache: A Key Investor Overview.
These companies combined make up ~5% of the Energy Select Sector SPDR ETF (XLE).
Key management comments
In Hess’s 3Q15 earnings conference call, Hess also commented about his company’s ability to withstand the turbulent price environment. He said, “We are well positioned in the current low price environment and are taking a disciplined approach to preserve our financial strength, competitively advantaged capabilities and long term growth options.”
He also stressed that maintaining a strong balance sheet is the number-one priority for the company. He said, “Our priority here is to keep our strong balance sheet strong and that comes first before anything else. So at the end of the day we’re cutting our CapEx if we don’t think it makes sense to accelerate production in this environment.”
He also said that share buybacks will be taking a backseat.
Analyst targets for Hess
The above graph notes high, low, average, and median analyst target prices for HES. The consensus target price of $68.65 indicates positive returns of about 31% compared to current levels over the next 12 months.
In the next part of this series, we’ll see how Hess’s production mix and realized prices have evolved.