Hess Corp (HES.N) 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 up more than 5 percent.
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 terminal.
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 (KMI.N), El Paso Pipeline Partners LP EPB.N 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 in the second quarter, or $2.96 per share, 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 due to ongoing violence in that country, as well as recent asset sales as the company works to streamline its exploration and production operations.
Shares of Hess jumped 5.6 percent to $104.99 in premarket Wednesday trading. As of Tuesday's close, the stock had gained nearly 20 percent so far this year.
(Reporting by Ernest Scheyder; Editing by Franklin Paul and Chris Reese)