Hess Stock: Fourth Quarter Results, Strong Quarter Overall (NYSE:HES)

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introduction

US-based independent oil and gas producer Hess Corporation (NYSE: HES) released its fourth quarter and full year 2021 results on January 26, 2022.

1 – Snapshot of the 4th quarter and the year 2021

HES reported fourth-quarter 2021 adjusted earnings per share of $0.85, beating analysts’ expectations. That was a big improvement from losing $0.58 per share a year ago.

Quarterly revenue reached $2,255 million from $1,417 million a year ago.

Hess Corporation 4Q21 results

Comparison 4T21 4T20

HES presentation

Fourth quarter earnings were helped by higher raw material price realizations and increased contributions from the midstream business.

2 – Investment thesis

HES is a solid independent oil and gas producer that I suggested for long term oil investment. A crucial asset for the company is the Stabroek block offshore Guyana.

However, the recent uptrend in oil prices has pushed the valuation of oil stocks into unsustainable overbought territory, and I recommend taking partial profits while waiting for a technical correction.

It is crucial to trade the short-term LIFO for your long-term position due to the volatility and cyclicality inherent in the oil industry.

It allows you to take advantage of short-term swings while maintaining a central position for higher targets. I recommend devoting around 30-40% of your position to this vital task.

To note: For those interested in midstream companies with a strong dividend payout, I recommend Hess Midstream (NYSE: HESM) which increased its quarterly dividend this quarter to $0.52 per share, a 7% yield.

3 – Stock market performance

HES is doing quite well year on year despite a significant correction in December 2021. The stock is now up 63% year on year. However, HES underperforms its peers, as we can see below:

HES action vs peers
Data by YCharts

CEO John Hess said on the conference call:

2022 marks an inflection point in the execution of our strategy as we transition from investment mode to capital return mode while still being able to invest to grow our business. Our strategy has been and continues to be to generate high-yield resource growth, deliver low cost of supply and generate industry-leading cash flow growth.

Balance sheet and trend of Hess Corp. 4Q’21 – Raw numbers

Hess Energy 4T20 1T21 2Q21 3Q21 4Q21
Total revenue and other in billions of dollars 1.42 1.92 1.60 1.81 2.26
Net income available to the commons in millions of dollars -97 252 -73 115 265
EBITDA in millions of dollars 649 972 647 804 990*
Diluted EPS in $/share -0.32 0.82 -0.24 0.37 0.85
Cash flow from operations in millions of dollars 486 591 785 615 899
Quarterly CapEx in millions of dollars 374 385 355 498 509
Free cash flow in millions of dollars 112 206 430 117 390*
Cash and cash equivalents Billions of dollars 1.74 1.87 2.43 2.42 2.71
Long-term debt in billions of dollars 8:30 am 8.29 8.22 8.51 8.46
Dividend per share in $ 0.25 0.25 0.25 0.25 0.25
Shares outstanding (diluted) in millions 307 308 308 310 310
Oil production 4T20 1T21 2Q21 3Q21 4Q21
Production of oil equivalent in K boe/d 321 333 328 284 316
World Liquid Price ($/b) 45.32 50.02 59.79 63.17 71.04
World Natural Gas Price ($/M Btu)

3.35

4.90

4.05

4.71

4.77

Source: Company material

* Estimated by Fun Trading

Analysis: Revenues, Generic Free Cash Flow, and Global Oil & Gas Production

1 – Total quarterly revenue was $2,255 million in 4Q’21

Hess Corporation revenue

Revenue History Chart

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Hess’ revenue rose to $2,255 million in the fourth quarter of 2021 from $1,417 million in the same quarter a year ago. Quarterly profit was $0.85 per diluted share, compared to a loss a year ago of $0.32 per diluted share.

Adjusted net loss was $265 million, compared to an adjusted net loss of $176 million in the year-ago quarter.

Hess received net proceeds of $180 million following the repurchase by Hess Midstream LP of a significant number of units of Hess Midstream Operations LP in October.

The midstream business generated adjusted net income of $74 million, compared to $62 million a year ago thanks to improved rates and minimum volume commitments.

2 – Free cash flow (excluding disposal) and net debt

Hess Corporation Free cash flow trend

Historical FCF Chart

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Note: Generic Free Cash Flow is Operating Cash Flow less CapEx.

HES trailing 12-month free cash flow was $1,143 million, with a gain of $390 million in 4Q’21.

The company declared a quarterly dividend of $0.25 per share, or about a cash cost of $310 million per year. I was again disappointed and expected a quarterly dividend increase this quarter.

Consolidated net debt (including midstream) decreased slightly to $5.75 billion this quarter.

Hess Corporation Debt and Cash

Chart Cash vs Debt History

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As of December 31, 2021, the company had $2,713 million in cash and cash equivalents, compared to $2,419 million in the prior quarter. Its long-term debt was $8,458 million, down sequentially from $8,507 million. The current maturity of long-term debt is $517 million.

Debt to capitalization in 4Q’21 was 55.3%, which is relatively high. The company should focus on debt reduction.

3 – Quarterly production analysis

Hess Corporation Oil Equivalent Production

Production History Graph

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HES produced 316,000 Boep/d net in 4Q’21 (including Libya). It was down 1.6% compared to the same quarter a year ago, with Bakken resource contributions of 159,000 Boep/d this quarter.

Graphic

Graphic production by segment

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Below are historical trends for world liquids prices and GN prices. In 4Q’21, the company sold its oil at a global average price of $71.04 per barrel including hedging and $4.77 for natural gas.

Graphic

Oil and Gas Price History Chart

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Crude oil production was 158,000 Bop/d in the fourth quarter of 2021. Additionally, natural gas liquids production totaled 56,000 Bbl/d and natural gas production was 102,000 Bop/d.

The manufacturing details are as follows:

The production of Bakken is by far the main production of the company.

Graphic

Graphic production by segment

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Oil reserves at the end of 2021

COO Greg Hill said on the conference call:

Starting from reserves, proven reserves at the end of 2021 amounted to 1.3 billion barrels of oil equivalent. Net proven reserve additions in 2021 totaled 348 million barrels of oil equivalent, including positive net price revisions of 107 million barrels of oil equivalent, resulting in an overall production replacement rate of 2021 by 295% and a discovery and development cost of approximately $5.25 per barrel of oil. oil equivalent.

Note: On January 1, 2022, ExxonMobil announcement two oil discoveries at Fangtooth-1 and Lau-1 in the Stabroek Block offshore Guyana.

These discoveries will be in addition to the previously announced recoverable resource estimate for the block of 10 billion barrels of oil equivalent.

Production by product. Oil represented 49.4% of the total oil equivalent in 4Q’21.

Graphic

Graph production by product

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Orientation 2022

For 2022, Hess forecasts net production (excluding Libya) of 330,000 to 340,000 Boep/d, an increase of 12% to 15% compared to the level declared in 2021.

Bakken’s net production is expected to be 165,000-170,000 boep/d, an increase of 6-9% from 2021.

The company expects E&P investments to be $2.6 billion, 80% of which will be allocated to Guyana and the Bakken Shale Play.

Chart

Orientation 2022

HES presentation

4 – Halfway

The company reported adjusted net income of $74 million in 4Q’21, compared to $62 million a year ago thanks to the gain in tariffs and minimum volume commitments.

In October, Hess Corp. received $108 million in net proceeds, after Acquisition of Hess Midstream LP of a significant number of Hess Midstream Operations LP units.

Technical analysis and commentary

Graphic

TA Analysis Table

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Note: the graph has been adjusted for the dividend.

HES is forming an ascending channel pattern with resistance at $94.1 and support at $75.

The trading strategy is to take profits between $93.5 and $94.5 depending on oil prices and accumulate below $84.

With oil prices above $90 a barrel, it’s easy to get upset. However, I think oil prices will slowly return below $80 and share the EIA outlook for 2022-2023.

We forecast global oil production to increase by 5.5 million bpd in 2022, driven by production increases in the United States, OPEC and Russia, which together account for 84%, or 4.6 million bpd, growth. We expect an increase in tight oil production in the United States and a gradual increase in crude oil production from OPEC+ (which includes OPEC members and Russia) will account for most of the increase of crude oil production.

Thus, it is imperative to trade short-term LIFO HES while maintaining a long-term center position for possible higher ground.

Warning: The TA table must be updated frequently to be relevant. This is what I do in my stock tracker. The table above has a possible validity of approximately one week. Remember that the TA chart is a tool only to help you adopt the right strategy. This is no way to predict the future. Nobody and nothing can.

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