Hess Corporation Sells Indonesian Assets for $1.3 Billion as Right-Sizing Project Continues

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.

On December 2, 2013, Hess Corp. announced the sale of its Pangkah and Natuna A assets offshore Indonesia for a total after-tax consideration of $1.3 billion. Indonesia’s state-owned PT Pertamina and Thailand’s PPT Exploration and Production will acquire the assets as part of a 50-50 joint venture. Hess reported the plays produced an average of 15 MBOEPD for 2013 in its Q3’13 earnings release. The sale is expected to close prior to the end of Q1’14 and proceeds will be used to buy back shares under Hess’ existing $4 billion authorization. Approximately $500 million in shares had been repurchased by the end of Q3’13.

The company has now raised $7.75 billion on completed sales in 2013. The $1.2 billion sale of its Energy Marketing business to Direct Energy was completed ahead of schedule on November 2, 2013. In a presentation on November 21, 2013, HES said it expects to receive $8 billion to $10 billion total for its sales, excluding the monetization of its Bakken assets, which will begin in 2015.

John Hess, Chief Executive Officer of HES, said the company’s future endeavors will be “based upon a balanced three-pronged approach managing risk among unconventionals, such as the Bakken and Utica; exploitation of discovered resources, such as Valhall, Tubular Bells in the Deepwater Gulf and North Malay Basin, and also a smaller, more focused effort in exploration, such as Ghana or in the deepwater Gulf starting in 2015.”

Indonesia Background

On November 28, 2013, Chevron (ticker: CVX), the largest oil producer in Indonesia, handed over the rights of a small block onshore Riau to PT Pertamina after its contract was not extended. CVX produces 325 MBOPD in the country, and the block produces roughly 4 MBOPD of its total. The company has not commented on the issue but said it looks forward to playing a major role in Indonesia’ LNG focus in a conference call following its Q3’13 earnings release.

According to the Energy Information Association (EIA), the Indonesian government has aimed to reduce the influence of foreign investment by attempting to mandate cost-recovery caps for production sharing contracts (PSCs), increase government incentives and regulate shipping methods. The country dissolved BP Migas, the oil and gas regulator, in November 2012, after PSCs fell short of expectations. Indonesia managed to award just 21 of 43 blocks offered in 2009 and 10 out of 36 blocks in 2011. Moody’s viewed the decision negatively in a review on November 20, 2012, and said: “Ongoing regulatory uncertainty jeopardizes the nation’s ongoing attempts to increase its domestic crude production, and will likely deter new investment and negatively affect expiring concessions.”

The country has aimed to offset its crude decline by focusing on liquefied natural gas and coal. It was the world’s largest exporter of coal by weight in 2011 and recently raised its 2013 LNG export target by 4%. It exported 318 LNG cargoes in 2012, and the 2013 total is expected to reach 314. In 2011 EIA reports, Indonesia was the third-largest LNG exporter and the eighth-largest exporter of natural gas. On the crude production side, aging infrastructure and waning oil fields are expected to prevent Indonesia from meeting targets in the short term.

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