Hess Corp (HES.N) will offload its energy trading arm, Hetco, and exit its retail gasoline and marketing businesses by 2015 after pressure from investors accelerated plans to break up the company's sprawling energy empire.
Hess, with a market capitalization of about $23 billion, will focus on exploration and production from oil and gas fields in the United States, Norway, Malaysia and Ghana after divesting its trading arm, power plants and more than 1,300 gas stations.
Hess also said it would buy back up to $4 billion of its stock and increase its annual dividend to $1 from 40 cents, beginning in July. Its shares were up 3.6 percent on Monday.
Hess has joined the ranks of energy companies such as Chesapeake Energy Corp (CHK.N) and SandRidge Energy Inc (SD.N) that have come under pressure from activist investors who are seeking change for reasons including share price underperformance and governance issues.
Hedge fund Elliott Management, the third-largest shareholder of Hess, asked the company in January to consider the spinoff of its U.S. onshore assets and the sale of its retail operations.
But John Hess, the company's chairman and chief executive officer, told Reuters the changes announced on Monday were the "culmination of this long-term strategy that we've had in place."
Hess has already exited its refining business, following rivals such as ConocoPhillips (COP.N), Marathon Oil Corp (MRO.N) and Murphy Oil (MUR.N) that have sought value by separating their production and refining businesses.
Raymond James analyst Pavel Molchanov said Occidental Petroleum Corp (OXY.N) could follow Hess's lead and separate its substantial chemical, midstream segments from its exploration and production portfolio to deliver "breakup value".
The company also rejected a proposal by Paul Singer's Elliott Management, which owns 4 percent of Hess, to nominate five directors at the annual meeting in May.
Now Hess has assembled its own slate of six directors - including some with experience in the energy sector - to nominate in May, following criticism that the company's board lacked independence.
"As we transport Hess to a pure-play (exploration & production company), it was appropriate with all these great candidates to really renew and refresh our board with people that would be even more suited to take us to the next level," CEO Hess said.
In a letter to shareholders, Hess said Elliott's recommendation to split the exploration and production business into U.S. onshore and offshore operations, and to separate Hess's midstream business, ignored credit risk and tax consequences.
In a statement, Elliott Management said Hess's plan "falls dramatically short of what is needed."
Hess, known for toy trucks introduced by founder Leon Hess in the 1960s and sold at its gas stations, has been looking to sell non-core assets and pour more than 90 percent of its capital into exploration and production.