Hess Corporation’s Free Cash Flow Trends

Hess Corporation’s Free Cash Flow Trends


Apr. 15 2016, Updated 4:04 a.m. ET

Hess’s cash flows

In this part of the series, we’ll be looking at Hess Corporation’s (HES) cash flows. In 4Q15, Hess reported cash flow from operations (or CFO) of $623 million. This was ~42% lower than its CFO in 4Q14. The drop was primarily due to lower revenues reported in the same period.

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Hess’s free cash flow trends

Hess Corporation’s free cash flow (or FCF), which is its operating cash flow minus its capital expenditure (capex), has mostly remained negative over the past nine quarters, as the graph above shows. Hess’s FCF was -$312 million in 4Q15. In 2015, Hess has seen reduced capex spending, which has resulted in improving free cash flows.

Hess anticipates a positive free cash flow between 2017, when new field startups in the North Malay Basin come online, and 2018, when Stampede in the deepwater Gulf of Mexico comes online.

Hess’s capex in 2016

On January 26, 2016, Hess (HES) announced its 2016 E&P (exploration and production) capex budget of $2.4 billion. This is 40% lower than its 2015 capex of $4 billion. Of the $2.4 billion, $470 million will be allocated to unconventional shale resources, $610 million will be allocated for production, $820 million will be allocated for developments, and $500 million will be allocated for exploration and appraisal activities.

Like Hess, many of its peers are also expected to cut their 2016 capex as a result of weak energy prices (USO) (UNG). 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. These companies combined make up ~6.7% of the Energy Select Sector SPDR ETF (XLE).


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