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Analyzing Hess Corporation’s Debt Position

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Apr. 6 2016, Updated 11:06 a.m. ET

Hess’s net debt-to-EBITDA

Hess Corporation’s (HES) net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) was well under 1x between 4Q13–4Q14. In 2015, however, its net debt-to-EBITDA multiple started increasing along with its net debt in the first two quarters of 2015. While net debt fell in late 2015, lower EBITDA levels continued to push the multiple higher in 4Q15.

Hess’s 4Q15 net-debt-to-adjusted-EBITDA multiple was ~1.7x. Looking at the above graph, we note that since 4Q14, Hess’s net-debt-to-EBITDA multiple started rising along with the net debt until 3Q15, when its net debt fell sharply, pulling the EV-to-EBITDA multiple lower. While net debt rose moderately in 4Q15, it was the relatively larger drop in the 4Q15 trailing 12-month EBITDA that pushed the EV-to-EBITDA multiple higher in 4Q15.

Hess’s 4Q15 net debt was ~$3.9 billion versus $3.5 billion in 4Q14. Its trailing-12-month adjusted EBITDA as of 4Q15 was $2.4 billion compared to the 4Q14 trailing 12-month EBITDA of ~$5.3 billion.

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Peer group comparison

Upstream companies such as Newfield Exploration (NFX), Marathon Oil (MRO), and ConocoPhillips (COP) also saw lower EBITDA levels last year compared to 2014 due to lower crude oil prices (USO). Their respective 4Q15 EBITDAs for the trailing 12 months fell by 9%, 38%, and 65%. These companies make up ~5% of the Energy Select Sector SPDR ETF (XLE).

Liquidity and financial position

Hess Corporation (HES) noted that it had $2.7 billion in cash and cash equivalents as of December 31, 2015. It also has $4 billion from an unused revolving credit facility.

Continue on to the next part to read about Hess’s free cash flow trends.

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