(Adds Breakingviews link, closing stock price)
By Ernest Scheyder
July 30 Hess Corp said on Wednesday it
would form a master limited partnership (MLP) for its North
Dakota oil and natural gas storage facilities and processing
plants, taking advantage of a key financial trend in the energy
sector to generate cash.
The company, which produces oil in North Dakota, Iraq and
Ghana, also posted a better-than-expected quarterly profit,
sending its shares to levels not seen since before the 2008
Hess plans to launch the MLP in the first quarter of 2015,
giving the new entity, which will trade like equity, control
over several assets in Tioga, North Dakota, including a newly
opened natural gas processing plant and a crude oil pipeline
Hess will retain control over the MLP in its role as general
partner. An MLP conversion has been extremely popular among
pipeline and energy transportation companies for the past few
years, with Kinder Morgan, El Paso Pipeline Partners LP
and others taking advantage of the tax structure.
MLPs are not taxed at the U.S. federal level, lowering their
cost of capital for parent companies, and typically have higher
quarterly payouts than dividend-paying companies, making them
appealing to stockholders. Hess had signaled for months that it
was interested in forming an MLP for North Dakota assets.
Hess posted net income of $931 million, or $2.96 per share,
in the second quarter, compared with $1.43 billion, or $4.16 per
share, in the year-ago period.
Excluding one-time charges, the company posted a profit of
$1.38 per share.
By that measure, analysts expected earnings of $1.18 per
share, according to Thomson Reuters I/B/E/S.
The company's production dipped to 319,000 barrels of oil
equivalent per day from 341,000 boe/d in the year-ago period.
The drop was due to production curtailment in Libya because
of ongoing violence in that country, as well as recent asset
sales as the company streamlines its exploration and production
Still, production jumped in the company's North Dakota
Bakken shale holdings by 23 percent to 48,000 boe/d. The Bakken
has been one of Hess' most prolific production areas in recent
years. The company opened 53 Bakken wells in the second quarter
and slashed its well completion costs in the shale formation to
$7.4 million, down 12 percent from the same period last year.
Hess agreed in May to sell its chain of gas stations and
related businesses for $2.87 billion to Marathon Petroleum Corp
, a deal that helps Hess focus more on oil production.
In June, Hess sold its 50 percent stake in an
under-construction power plant in New Jersey to private equity
firm Energy Investors Funds. Terms were not disclosed.
Hess is in talks with Russian oil company Lukoil
to sell a stake in its offshore project in Ghana, sources told
Reuters last month.
On Wednesday, Hess executives said they would update Wall
Street by the end of the year on plans for the Ghana assets.
Shares of Hess jumped as much as 6 percent before closing up
1.6 percent at $101.05.
(Reporting by Ernest Scheyder; Editing by Franklin Paul, Chris
Reese, Gunna Dickson and Richard Chang)