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Hess Corporation (HES) Increases 2017 E&P Capital Budget


Hess Corporation HES recently came out with its 2017 exploration and production (E&P) capital budget. The energy major also provided its production outlook for this year.

For 2017, the company is expected to allocate $2.25 billion for upstream operations, up 18.4% from $1.9 billion spent in 2016. Of the total amount, $700 million will be used in unconventional shale resources. The company will spend $375 million, $825 million and $350 million for production, developments and exploration & appraisal operations, respectively.

The increase in capital spending should translate into production improvement. In fact, the company anticipates net production for 2017 in the range of 300,000 to 310,000 barrels of oil equivalent per day (BoE/D), excluding Libya. The upside will be supported by increased rig activity in the Bakken, resumption of drilling activities at Valhall and the start-up of North Malay Basin during third quarter. The company anticipates net output in the Bakken during 2017 to be between 95,000 BoE/D and 105,000 BoE/D.

Hess’ capital budget appears to have been buoyed by the improving business scenario. Crude price has been trending higher since OPEC and non-OPEC oil producers agreed to limit oil production. Hence, the company could sell the additional production for this year at higher prices, in turn, generating greater profitability.

This apart, Hess announced that it expects the fourth-quarter 2016 results to include $3.8 billion of non-cash charges. The company will likely announce its fourth-quarter results on Jan 25, 2017. The Zacks Consensus Estimate for the quarter now stands at a loss of $1.08 per share.

Hess also posted encouraging results from the Payara-1 well, located off the coast of Guyana. Post drilling, the well encountered more than 95 feet (29 meters) of high-quality, oil-bearing sandstone reservoirs. Along with Payara, the Liza-3 appraisal well identified 100–150 million barrels of oil equivalent of resources.

New York-based Hess, previously known as Amerada Hess Corporation, is a global E&P company. The company underperformed the Zacks categorized Oil & Gas-U.S Integrated industry over the prior six months. During the aforesaid period, Hess improved almost 1.5% while the broader industry gained more than 4%.

The company currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the energy sector include Imperial Oil Limited IMO, Suncor Energy Inc. SU and Newfield Exploration Company NFX. Both Imperial Oil and Suncor sport a Zacks Rank #1 (Strong Buy), while Newfield carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Imperial Oil is undervalued, as revealed by its forward PE ratio of 17.8 compared with 140.8 for the broader industry.

Suncor posted an average earnings surprise of 40.55% in the last four quarters.

Newfield surpassed the Zacks Consensus Estimate in three of the last four quarters with an average earnings surprise of 754.83%.

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