Hess Corporation - The Start Of A Turnaround?
Sherif Ahmad, Kapitall Hess Corporation ( HES) announced a handful of proposals on March 4 to boost the firm’s share price and to satisfy the demands of Elliot Management, the activist hedge fund that has recently attempted to use its sway to usher in a change of course for the struggling oil company. Investors are closely watching the ordeal for any signs of a true turnaround, which could provide significant value to shareholders. [More analysis: Carrizo Oil & Gas – A Smart Small-Cap Energy Buy? ]
Elliot Management & Monday’s Announcements
Back in January, the activist hedge fund Elliot Management purchased a 4% stake in Hess Corporation. Paul Singer, founder of Elliot Management, immediately voiced his displeasure in the company’s performance and attempted to leverage the fund’s large position to convince Hess to restructure. Hess Corporation finally reacted yesterday with its announcement to name six new board members, divest its energy trading business and sell off its 1,300+ gas stations by 2015. Hess hopes to focus strictly on oil and gas exploration and production in mostly the US, Norway, Malaysia and Ghana. Additionally, the firm also announced its plan to buy back $4bn of shares and double its dividend payout.
Elliot Management, however, was not satisfied with the announcement. In its original proposal to Hess, the hedge fund suggested splitting the firm into onshore and offshore operations in order to deliver more value. John Hess, the CEO of Hess, quickly dismissed the validity of such a proposal and argued that Singer and his team failed to acknowledge the risk in such a move.
Recent Performance & Outlook
Since Elliot Management’s proposal hit the media, Hess stock has jumped by 17% and by over 3% since yesterday’s announcement. Hess plans to use the money generated by divesting its trading and retail gasoline segments to pay back $2.5bn of debt, inject more cash onto the balance sheet and fund long-term projects. With a healthier balance sheet and a narrower focus, Hess’s share price could very well continue to climb in coming months and years. Last year, exploration and production contributed 91% of Hess’s profits, a sign that a narrower focus could boost the return on assets. The firm has devoted much of its attention to North Dakota’s Bakken Shale, which analysts predict could yield revenue as early as 2015.
Hess, however, seems to be far from seeing eye to eye with Elliot Management which may worry investors moving forward. As Hess aims to offer more concessions to investors, be sure to keep a look out for the future announcements that could influence its share price.
Activist Hedge Funds & Energy Firms
Hedge funds have given more focus to acquiring activist positions in energy firms; Chesapeake Energy Corp, SandRidge Energy, Nabors Industries NBR are among the handful of firms facing pressure by these hedge funds to deliver more value to investors. Be sure to keep a look for developments with these firms as well.