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Hess investors growing increasingly impatient over returns
– company heavily invested in Guyana
Several investors in Hess, which have partnered with ExxonMobil and Nexen for oil exploration offshore Guyana, are preparing to force a sale of all or part of the company due to concerns over free cash flow generation through 2020.
Last week, reports surfaced that the Hedge fund, Elliott Management, is poised to wage a campaign to unseat Chief Executive Officer (CEO) John Hess or force a sale of all or part of the company.
Elliott Management, which holds a 6.7 percent stake in Hess, also wants the company to cut its dividend and instead buy back stock from shareholders, the Wall Street Journal reported.
Other big investors are also pressuring the company to make improvements, the paper reports. Investors are reportedly unhappy with Hess’s projection that it won’t generate free cash flow through 2020 due to spending tied to its offshore oil project in Guyana and its U.S. shale fields.
Hess is heavily invested in the Stabroek Block, located approximately 120 miles offshore of Guyana, an area that covers approximately 6.6 million acres. The company has indicated that the block contains multiple prospects and clay types representing additional multibillion barrel of unrisked exploration potential.
Esso Exploration and Production Guyana Ltd. operate as a subsidiary of Exxon Mobil Corporation and is the operator with a 45 percent working interest, while Hess Guyana Exploration Ltd has 30 percent interest and while Nexen Petroleum Guyana Ltd. has 25 percent interest.
Chief Executive Officer (CEO) Hess, John Hess
“As long-term shareholders in Hess, we are frustrated by the company’s continuing underperformance,” Elliott portfolio manager John Pike told the Journal.
Pike added that shareholders are getting impatient because the changes needed to remedy Hess’s severe undervaluation are substantial and need to be announced without delay.
Hess Chairman, James Quigley defended Hess in a statement to the Journal.
“John has the clear, unanimous and unambiguous support of our board as our CEO,” he said.
Hess and Elliott previously clashed in 2013 in a battle that ended with Hess giving up his role as chairman and Elliott nominees joining the board of directors, the Journal notes.
The first phase of a planned multiphase development of the Liza Field is expected to have a gross capital cost of approximately U.S. $3.2 billion for drilling and subsea infrastructure and will develop approximately 450 million barrels of oil, with first oil expected by 2020.
The first phase of development will utilise a leased floating production, storage and offloading vessel (FPSO) that will have the capacity to process up to 120,000 barrels of oil per day from four subsea drill centres consisting of 17 wells, including eight producers, six water injectors and three gas injectors.
Earlier this year, Hess announced net share of development costs is forecast to be approximately U.S. $955 million, of which $110 million was already included in Hess’ 2017 capital and exploratory budget. Of the remaining net development costs, approximately U.S. $250 million is expected in 2018 and approximately U.S. $330 million in 2019, with the balance expected between 2020 and 2021.
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