It is now assumed that oil (West Texas Intermediate) prices in 2021 and 2022 will average $57 per barrel and $67/bbl respectively (previously $55 and $57). That makes the stock look more or less fairly valued at the current price.
At the end of 2020, the company reported net proved reserves of 1.2 billion barrels of oil equivalent. Net production averaged 323 thousand barrels of oil equivalent per day in 2020, at a ratio of 70% oil and natural gas liquids and 30% natural gas.
The valuation of the firm’s Guyana assets continues to assume 10 total phases of development, consistent with management commentary. However, we risk the sixth and seventh phases at 75% and the final three at 50% in our base case. Likewise, 220 mb/d capacities for stages 4 and 5, with 180 mb/d peak output for developments 6-10. To give some indication of the upside if Hess and its partner Exxon can continue to execute and deliver the full 10 phases, we also model a scenario with no risk on the later-stage developments, and assume 220 mb/d capacities throughout. In that scenario fair value would be $89 per share.
Company Profile
Hess Corporation (NYSE: HES) is an independent oil and gas producer with key assets in the Bakken Shale, Guyana, the Gulf of Mexico, and Southeast Asia. Hess Corporation is a mining and exploration firm. The Company is involved in the exploration, development, production, transportation, procurement, and sale of crude oil, natural gas liquids (NGL), and natural gas, with operations in the United States, Guyana, the Malaysia/Thailand Joint Development Area, Malaysia, and Denmark. Exploration and Production and Midstream are the Company’s segments. It’s Exploration and Production sector searches for, develops, produces, buys, and sells crude oil, natural gas, and NGLs. The Midstream business provides fee-based services such as crude oil and natural gas gathering, natural gas processing and fractionation of NGLs, crude oil transportation by rail car, terminating and loading crude oil and NGLs.
(Source: Morningstar)
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