Fitch currently rates Hess as follows:
--Long-term Issuer Default Rating (IDR) 'BBB';
--Senior unsecured notes/debentures 'BBB';
--Senior unsecured bank facility 'BBB'.
The Rating Outlook is Stable.
Key Ratings Drivers
Hess' ratings are supported by the company's strong operational metrics, including high exposure to liquids in the upstream (approximately 72% of 2013 production and 77% of reserves); decent size and scale as an independent (1.437 billion boe reserves at YE 2013, with core regions in the U.S. [GoM, onshore Bakken and
As calculated by Fitch, Hess' most recent three-year Finding, Development & Acquisition (FD&A) costs rose to
Ratings downsides for Hess include the loss of diversification benefits associated with the downstream and retail assets; some loss of size primarily through upstream asset sales (pro forma production excluding
Less Negative FCF Trend
Hess' free cash flow (FCF) status has improved as it nears the end of a multi-year investment in shale plays. LTM FCF at
Bakken Performance Improving
After an earlier period of flat performance, Bakken metrics have begun to improve. The company has now largely exited its leasehold drilling program and has been doing higher efficiency pad drilling. Strong operational performance in the Bakken is especially important as it would tend to put to rest operational complaints made by shareholder activists in the most recent proxy season.
Hess' latest financial performance has been good, driven by robust oil prices and margin increases driven by portfolio high grading. At
Hess maintains liquidity through a
Hess' other obligations are manageable. The company's pension was overfunded by
Positive: Future developments that could lead to positive rating actions include:
--Increased size, scale and diversification of Hess' upstream portfolio, accompanied by a managerial commitment to maintaining lower debt levels relative to reserves and production. Positive rating actions are unlikely in the current period given the high capex and restrained reserve and production growth associated with Hess' portfolio repositioning.
Negative: Future developments that could lead to negative rating action include:
--Failure of stated asset sales to close as expected;
--A prolonged period of weak operational performance or low oil prices;
--The sale or spin-off of assets beyond levels originally outlined, without offsetting adjustments;
--A major negative reserve revision, or loss at the company's energy trading operations.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage' (
--Global Impact of US Shale Oil -- Rising Production Tempers World Prices (
--Cash Flow Trends in the U.S. Energy Sector-Shareholder Activism Having an Impact (
--Scenario Analysis: Lifting the U.S. Crude Export Ban (
--Investor FAQs--Recent Questions on E&P, Refining, and Drilling and Services Sectors (
--Updating Fitch's Oil & Gas Price Deck (
Energy Handbook -
Updating Fitch's Oil and Gas Price Deck
Investor FAQs: Recent Questions on the E&P, Refining, and Drilling and Services Sectors
Scenario Analysis: Lifting the Crude Export Ban (
Cash Flow Trends in the U.S. Energy Sector (Shareholder Activism Having an Impact)
Global Impact of U.S. Shale Oil (Rising Production Tempers World Prices)
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Source: Fitch Ratings
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