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Exploring Hess’s Free Cash Flow Trends

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Hess’s cash flow

In 1Q16, Hess Corporation (HES) reported CFO (cash flow from operations) of -$60 million. This was ~114% lower than its CFO in 1Q15. The company’s negative cash flow stemmed from lower revenue, which, in turn, was affected by lower realized energy prices.

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Hess’s free cash flow trends

Hess’s FCF (free cash flow), which is the result of CFO minus capex (capital expenditure), has been negative for the past nine quarters, as you can see in the above graph. Hess’s FCF was about -$680 million in 1Q16.

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

Hess’s capex in 2016

Hess has fixed its 2016 E&P (exploration and production) capex budget at $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 to production, $820 million will be allocated to developments, and $500 million will be allocated to exploration and appraisal activities.

Many upstream companies have reduced their 2016 capex due to low energy prices (USO) (UNG). Apache (APA) and Anadarko Petroleum (APC) lowered their capex by 60% and 50%, respectively, compared to 2015. These companies make up ~0.3% of the iShares Core S&P 500 ETF (IVV).

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