Hess Deals Disappoint as Wildcatting Activists Target Energy
Updated with Wednesday share prices and investor comments in 9th paragraph.
NEW YORK ( TheStreet) -- Hess(HES) may become further stuck between shale rock and a very hard place as activist investors exclaim their displeasure following a most underwhelming sale of the energy company's Eagle Ford Shale assets.
Hess shares were little changed after dropping 3% yesterday following the deal's announcement. Shares have gained 32% this year.
Late on Monday, Hess said it sold a 4,300-acre Eagle Ford Shale oilfield to Sanchez Energy (SN) for $265 million, in a deal that fetched about a third of the value that more optimistic analyst had forecast when the New York-based driller put the assets up for sale in 2012.
The deal comes at a crucial time for Hess which is embarking on an ambitious strategy to spin off its refining and marketing businesses and become a pure-play oil and gas driller with a leading position in promising shales like the Bakken.
Still, as Hess continues a sharp 2013 share price rise on optimism that it may be prodded into unlocking the full value of the company, management continues to face scrutiny from large investors.
Hess's proposed split off of downstream businesses, its recent announcement of a $4 billion share repurchase plan and a previous planned sale of its East Coast terminal network come just as activist hedge funds Elliott Management and Relational Investors take large positions in the driller and seek board seats.
Unimpressed by the details of Hess's decision to deconsolidate its integrated energy empire, Elliott and Relational are pressing their own slate of directors to counter the company's proposed board reconstitution, which will add directors with experience at TNK-BP Russia and Royal Dutch Shell and lead to a board of 13 of 14 independent members.
The pricetag with Monday's announced Eagle Ford Shale asset sale, however, may create new headaches for Hess as it tries to convince shareholders its plan is the path forward to realizing the company's shale riches .
In a Tuesday client note, Bank of America Merrill Lynch analyst Douglas Leggate said, "Eagleford bids were known ahead of its response to the ongoing Elliot activist move and fell within its internal range of expectations," after discussing the deal with Hess CEO John Hess.
Notably, the deal may also underscore challenges that drillers face in trying to fetch top dollar for non-core shale acreage, amid balance sheet repair and asset rationalization across the industry. Such risks are present not just for Hess, but other notable activist investments in the sector such as Chesapeake Energy (CHK) and Sandridge Energy (SD) .
Meanwhile, other energy sector giants such as Transocean(RIG) , Nabors Industries (NBR) and Murphy Oil (MUR) face the heat of investors ranging Carl Icahn to Pamplona Capital and Third Point's Dan Loeb