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Hess (HES) Offers Senior Unsecured Notes Worth $1.5 Billion

Zacks

Leading Exploration & Production (E&P) company, Hess Corporation HES, recently announced plans to issue senior unsecured notes for an aggregate amount of $1.5 billion. The proposed offering of senior unsecured notes has been assigned a Ba1 rating by Moody's Investors Service.

The company intends to conduct the issuance in two tranches. The first tranche will comprise of senior unsecured notes worth $1 billion that are set to mature on Apr 1, 2027. These notes will carry a coupon of 4.30%.

The second offering will comprise of senior unsecured notes worth $500 million, which are due on Apr 1, 2047. These notes will have a coupon of 5.80%.

Hess had signed the deal with a syndicate of underwriters including Goldman, Sachs & Co., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, Mizuho Securities USA Inc. and MUFG Securities Americas Inc. Also, the offering is expected to close by Sep 28, 2016, subject to necessary approvals.


HESS CORP Price

The net proceeds from the offering will likely be utilized to repurchase the company’s 8.125% Notes due in 2019, its 7.875% Notes due 2029 , its 7.300% Notes due 2031 and 7.125% Notes due 2033. The remainder will be utilized to fund the repurchase of its 1.300% Notes due 2017, as well as for working capital and other general corporate purposes.

New York-based Hess engages in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids, and natural gas.

Given that Hess is predominantly an E&P entity, it has changed its growth approach from high-impact exploration to low-risk unconventional oil and gas resources. The company currently has a smaller, more focused exploration portfolio. Hess’ effort to streamline its business will go a long way in tackling the volatile market conditions owing to low commodity prices.

However, being a firm in the E&P industry, Hess’ profitability has expectedly taken a beating in this weakly priced oil and gas market. Moreover, we believe that potential asset sales will likely hamper the company’s production and lower its profitability.

As a result, Hess currently carries a Zacks Rank #3 (Hold), which implies that it will perform in line with the broader U.S. equity market over the next one to three months.

Some better-ranked players in the broader energy sector include Murphy USA Inc. MUSA, Par Pacific Holdings, Inc. PARR and Evolution Petroleum Corp. EPM. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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