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What Do Hess’s Free Cash Flow Trends Tell Us?

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Hess’s cash flow

In 2Q16, Hess (HES) reported CFO (cash flow from operations) of $197 million. This was ~72% lower than its CFO in 2Q15. The company’s lower 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 -$418 million in 2Q16.

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 $2.1 billion. This is ~48% lower than its 2015 capex of $4 billion.

Many upstream companies have reduced their 2016 capexes in response to lower energy prices (USO) (UNG). Newfield Exploration (NFX) and Concho Resources (CXO) have lowered their 2016 capexes by ~50% and 35%, respectively, compared to 2015.

Next, we’ll take a look at what Hess’s historical valuation reveals.

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