Hess Corporation (ticker: HES) is a leading global independent energy company engaged in the global exploration and production of crude oil and natural gas. The company is currently shedding assets in 2013 to become a pure-play E&P company.
Hess Corporation announced it is entering into a $1.025 billion, or $2.50 per Hess share, agreement with Direct Energy, a North American subsidiary of UK-based Centrica plc, to sell its Energy Marketing business. The business supplies natural gas and electricity to 23,000 commercial, industrial and small business customers in the Eastern half of the U.S. Centrica is paying US$731 million plus US$300 in working capital in the transaction. Click here for the Hess news release.
William Featherston, UBS research analyst said of the transaction in a July 30, 2013 note: “Solid progress on restructuring plan. Today’s sale brings YTD asset sale proceeds to ~$4.5bn, enabling HES to reach its target of $2.5bn in debt reduction, to build a $1bn cash cushion, & to fund $1bn for the 2013-14E organic FCF deficit, implying that additional proceeds will be directed to share repurchases ($4bn authorized) beginning in 2H13. Aside from the sale of remaining downstream assets, the next large asset sale likely to be announced is HES’ producing assets in Indonesia & Thailand (UBSe $2.7bn).”
This transaction, expected to close in Q4’13, was done as part of Hess’ multi-year plan to become a purely play E&P company by 2014 and divest its downstream business. The sale of Energy Marketing in addition to four other producing asset sales earlier in the year brings total year-to-date divestitures to $4.5 billion. This capital has been used to repay $2.4 billion of debt and will now allow Hess to repurchase shares under its existing $4 billion share repurchase authorization.
“Our Energy Marketing business has had a proud history and has been built upon long term relationships with our customers. We are grateful to all of our customers for their trust and support of our company over many years,” John B. Hess, Chief Executive Officer said in the company press release. “We also want to recognize and thank our dedicated employees for their tireless efforts as well as their invaluable contributions in providing outstanding service to meet our customers’ energy needs.”
The plan to become a purely play E&P company includes:
- Further focusing Hess’ E&P portfolio by divesting Indonesia and Thailand;
- Pursuing monetization of Bakken midstream assets, expected in 2015;
- Fully exiting the Company’s downstream businesses, including retail, energy marketing, and energy trading;
- Returning capital directly to shareholders through an increase in the annual dividend to $1.00 per share commencing in the third quarter of 2013, and a share repurchase authorization of up to $4 billion tied to the timing of asset sales;
- Naming six new world class independent directors with the right mix of corporate leadership, operational and financial expertise, and top level E&P experience.
Their divestures this year include the sale in late April of 100% of its Russian subsidiary Samara-Nafta to OAO LUKOIL for $2.05 billion. Additionally in late March, the company completed the sale of its 2.72% interest in the Azeri, Chirag and Guneshli Fields (ACG) and its 2.36% interest in the associated BTC pipeline to ONGC Videsh Ltd. for $1 billion.
According to a Centrica news release, the acquisition of HES’ Energy Marketing business will make Direct Energy the largest business gas supplier on the East Coast of the US and the second largest business power supplier in the competitive US retail markets.
Centrica Chief Executive, Sam Laidlaw, said in the press release: “This transaction will transform our B2B operations in North America, giving us leading positions in business gas and power supply and creating a unique dual fuel business in the US. It marks a significant step towards delivering on our strategy – substantially increasing the scale of our North American downstream business and integrating along the gas value chain – with the aim of doubling the profitability of our North American downstream business over the next three to five years.” Click here for the Centrica news release.
Pavel Molchanov, research analyst for Raymond James, said in a research note on July 30, 2013: “As Hess continues to implement the restructuring program, there is certainly the possibility of monetizations that are better than (or worse than) relative to the market’s “whisper numbers.” However, from a big picture perspective, the roadmap is already quite clear. As we’ve done before, we acknowledge missing the boat on the Hess activist trade, but at this point, we think that trade is substantially over. We believe the breakup value is already adequately priced into HES shares.”
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