Hess Corp cuts energy trading risk to lowest since 1998
NEW YORK, March 1 |
NEW YORK, March 1 (Reuters) - Hess Corp wagered less of its money in energy markets last year than any time since 1998, the first full year of operation for its oil and gas trading joint-venture Hetco, a company filing showed on Friday.
Hess Corp's 'value at risk' (VaR) for trading activities, an estimated measure of the maximum potential loss on 95 out of 100 days, fell to just $6 million on average from $11 million in 2011, according to the annual filing with the Securities and Exchange Commission. Its VaR peaked at $20 million in 2006.
The filing also showed that Hess had lost $6 million after tax from trading last year, a third consecutive loss. The figure includes its 50 percent share of a "consolidated partnership" - a reference to Hetco - as well as Hess Corp's own trading.
Although Hess does not provide specific data for New York-based Hetco alone, it goes on to say that its trading activity is "conducted principally through a trading partnership."
The data offer a small glimpse into the fortunes of Hess Energy Trading Company (Hetco), the New York-based venture founded by two former Goldman Sachs Group Inc partners in 1997. It is one of a handful of global merchants that specialize in trading physical commodities such as crude oil and natural gas.
But unlike larger peers such as Glencore International Plc , Vitol SA and Phibro, Hetco remained largely out of the public eye until earlier this year, when activist shareholder Elliott Management bought a position in Hess Corp and launched a campaign to shed non-core business.
Also unlike many of its rivals, Hetco has not invested deeply in hard assets and infrastructure such as oil tanks, rail cars or wells - leaving it reliant on largely speculative trading in energy markets that been particularly treacherous lately. Prices have been whipsawed by a European debt crisis and other factors unrelated to supply and demand.
Hess Corp does not explain what caused last year's drop in VaR, which at $6 million is relatively low compared with major energy companies, bigger merchants and many Wall Street banks, which report VaR in excess of $20 or $30 million. The trading VaR is also small relative to the corporation's energy marketing and risk management VaR, which averaged $49 million.
A Hess Corp spokesman did not respond to an email seeking comment.
The drop in trading risk comes amid a period of record low volatility in energy markets, as prices of both oil and gas settle into steady ranges and hedging demand diminishes.
But some companies, particularly Wall Street banks facing new curbs on proprietary trading, are also actively looking to cut back on the amount of their own money they wager on markets. Value at Risk has halved at some of the biggest players.
In the first 10 years after founding Hetco, Hess Corp recorded after-tax trading profits, including its 50 percent share of the trading firm, of $276 million, posting an unbroken decade of profitability, according to the company's SEC filings.
But results have stumbled in recent years, showing an annual loss in four of the last five years, the filings show.
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