Hess shares jump on news of Elliott interest
NEW YORK (AP) — Hess Corp. shares jumped more than 10 percent Tuesday on news that investment firm Elliott Management is pushing a slate of five outsiders for the oil and gas producer's board.
THE SPARK: In a letter to Hess shareholders, Elliott accuses the board of "poor oversight" of management for "over a decade of failures" that shortchanged shareholders.
Elliott said Tuesday that Hess should consider options for boosting share value including a potential spinoff of the oil company's holdings in North Dakota's Bakken shale-oil field. Hess declined comment.
THE BIG PICTURE: New York-based Elliott Management Corp. said two of its affiliates hold 4 percent of Hess stock. Elliott called it the firm's largest initial stock investment ever.
The letter to shareholders came a day after Hess disclosed Elliott's interest in the company and outlined a plan to sell U.S. oil-storage terminals and close a New Jersey refinery as part of its plant to exit the refining business and focus on oil exploration and production.
The move away from refining continues a trend in the energy industry. Murphy Oil, ConocoPhillips and Marathon Oil Corp. have all split off their refining businesses in recent years.
Exploring for oil is a high-risk business that can also offer high rewards when companies succeed in finding oil and oil prices rise. But refining oil into fuels and selling them does not usually carry the same risks or rewards.
Besides generating proceeds, the sale of the terminal network is expected to free up about $1 billion in working capital for other projects.
THE ANALYSIS: Citi analyst Faisel Khan estimated the value of the terminal network at $1 billion, excluding working capital, with the New Jersey refinery and its related assets worth another $266 million.
Khan also said that Elliott's investment and involvement could also be a good thing.
"We believe a new investor with the intent to make new nominations to the board is a move in the right direction for Hess's corporate governance," Khan wrote in a Monday note to investors.
THE SHARES: Up $5.85, or 9.4 percent, to $68.33 in midday trading after peaking at $70.77 earlier in the day and marking their highest level since August 2011.
Since the start of this year, the shares have gained about 18 percent.