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Why Is Hess (HES) Up 3% Since Last Earnings Report?

It has been about a month since the last earnings report for Hess (HES). Shares have added about 3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Hess due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Hess Q4 Earnings Surpass Estimates, Revenues Fall Y/Y

Hess reported fourth-quarter 2023 earnings per share of $1.63, which beat the Zacks Consensus Estimate of $1.43. However, the bottom line declined from the year-ago quarter’s level of $1.78.

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Total quarterly revenues decreased to $3.04 billion from $3.05 billion in the year-ago period. The figure, however, beat the Zacks Consensus Estimate of $2.78 billion.

Better-than-expected quarterly results have been driven by higher oil equivalent production volumes. The positives were partially offset by higher total costs and expenses.

Key information

Hess is being acquired by Chevron Corporation for $53 billion in an all-stock transaction. This deal, projected to be finalized in early 2024, marks the second-largest acquisition in the history of the oil and gas industry.

For Chevron, this acquisition represents a significant achievement, granting the company entry to Hess' valuable assets in Guyana and the Bakken Formation in North Dakota. In addition to the Guyana and Bakken assets, Chevron will gain access to Hess’ assets in the Gulf of Mexico and Southeast Asia.

Operational Update

Exploration and Production

For the quarter under review, the Exploration and Production business reported adjusted earnings of $512 million, down from $641 million reported a year ago. The business was negatively impacted by a dip in realized natural gas and natural gas liquids (NGL) prices.

Quarterly hydrocarbon production totaled 418 thousand barrels of oil equivalent per day (MBoe/d), up from 386 MBoe/d in the year-ago period, primarily due to higher production in Guyana and the Bakken. The reported figure also beat our estimate of 405.7 MBoe/d.

Crude oil production increased from 228 thousand barrels per day (MBbls/d) in fourth-quarter 2022 to 244 MBbls/d in the quarter under review. The reported figure also beat our estimate of 229.6 MBbls/d.

NGL production totaled 73 MBbls/d, up from 62 MBbls/d in the prior-year quarter. The reported figure beat our estimate of 70.8 MBbls/d.

Natural gas production totaled 608 thousand cubic feet per day (Mcf/d), up from 576 Mcf/d recorded a year ago. The reported figure missed our estimate of 632 Mcf/d.

Worldwide crude oil realization per barrel of $78.95 (excluding the impacts of hedging) significantly declined from $83.50 in the year-ago period. Also, global natural gas price fell to $4.51 per Mcf from the year-ago figure of $5.17. The average global NGL selling price declined to $20.92 per barrel from $26.93 reported a year ago.

Midstream

The company generated adjusted net earnings of $63 million, down from $64 million registered a year ago.

Operating Expenses

Operating expenses for the fourth quarter totaled $473 million compared with the year-ago level of $385 million. The reported figure outpaced our estimate of $423.2 million.

Exploration expenses increased to $87 million from $74 million recorded in the year-ago period. Marketing costs increased to $886 million from $821 million a year ago.

Total costs and expenses increased to $2.35 billion from $2.18 billion in the prior-year period.

Financials

Net cash provided by operating activities amounted to $1.34 billion. Hess’ capital expenditure for exploration and production activities totaled $1.48 billion.

As of Dec 31, 2023, the company had $1.69 billion in cash and cash equivalents. Its long-term debt was $8.30 billion at the end of the fourth quarter.

Outlook

Hess expects to continue operating four drilling rigs in 2024. It expects to receive leases for these rigs in the first quarter of 2024.  Hess forecasts a total capital and exploratory expenditure of $4.2 billion for full-year 2024. This includes the recent acquisition of leases from the Gulf of Mexico Lease Sale 261.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Hess has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Hess has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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