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Hess Corp. (HES) will sell its fuel storage terminal network and exit the refining business as billionaire Paul Singer’s Elliott Associates LP fund said it may buy more than $800 million in shares and seek board seats.
Hess will close its Port Reading, New Jersey, refinery by the end of February and seek a buyer for its 19 storage terminals, the New York-based company said in a statement today. Hess rose (HES) 6.1 percent to $62.48 at the close in New York, the biggest gain since Oct. 27, 2011.
Singer is the founder and president of Elliott Management Corp., which oversees two funds, Elliott Associates and Elliott International LP, that have $21.5 billion of assets under management. Elliott last year added two new board members to BMC Software Inc. (BMC) after pushing BMC to consider a sale.
Elliott Associates notified Hess on Jan. 25 that it was seeking regulatory approval to buy shares “beyond those they may already own, if any,” and may seek board seats at the annual shareholder meeting this year, according to a separate release from Hess. Peter Truell, a spokesman for Elliott, declined to comment when reached by phone today.
Hess, with a market value of $21 billion as of today, has risen 13 percent in the past year as it closed an unprofitable refinery and ramped up operations offshore Norway and in North Dakota’s Bakken oil fields.
Hess’s terminals business may sell for as much as $1 billion, said Fadel Gheit, a New York-based analyst with Oppenheimer & Co. The moves also will free up about $1 billion in working capital “for future growth opportunities,” the company said. The Port Reading closing culminates a process that last year included shutting down another money-losing refinery Hess co-owned in the U.S. Virgin Islands known as Hovensa LLC.
“They’ve been doing this gradually,” Gheit said today in a telephone interview. “Hess has turned a corner and the company is executing the right strategy.” Gheit rates Hess the equivalent of a buy and doesn’t own shares.
Hess joins companies including ConocoPhillips (COP) and Marathon Oil Corp. (MRO) in exiting the refining business, which rallied in 2012 in areas where operators have had access to cheaper U.S. crude. East Coast refineries, which pay more for imported oil, have been shut as their profit margins narrowed.
“We have transformed Hess into a predominantly exploration and production company, which is part of a multi-year strategy to grow shareholder value,” Chairman and Chief Executive Officer John Hess said in the statement.
Hess has exploration and production assets around the world, from the Bakken and Utica plays in the U.S. to the Valhall field off Norway. The company has tripled its revenue from exploration and production in the past decade, while continuing to generate 75 percent of sales from refining and fuel marketing. Oil and gas production (HES) in the third quarter climbed 17 percent from a year earlier to the equivalent of 402,330 barrels of oil a day, according to data compiled by Bloomberg.
Valhall, a North Sea development operated by BP Plc (BP/) in which Hess owns about a two-thirds stake, began production Jan. 26 and is expected to reach the equivalent of 65,000 barrels a day by the second half of the year, BP said today in a statement. The field was enhanced to be able to process as much as 120,000 barrels of crude a day, BP said.
Of the $6.7 billion Hess plans to spend this year on exploration and production, 40 percent of it will go toward its unconventional shale resources in the U.S., the company said Jan. 9. Hess, which was founded by John Hess’s father, began as a fuel oil delivery business and expanded into retail, refining, and oil storage.
The company is retaining its gas station business, which includes more than 1,350 Hess-branded sites in 16 states along the East Coast, according to the statement. The company is the leading gasoline convenience store retailer in the region, according to the company’s website.
“The next potential move for them could be to exit the retail side,” Brian Youngberg, an analyst with Edward Jones & Co. in St. Louis, said in a telephone interview today. “Retail is a lower-margin business, so exiting could potentially unlock further value.”
Valero Energy Corp. (VLO), the largest independent fuel processor in the world, is in the process of spinning off its convenience store business.
Hess plans to continue its long-term commitment to the retail and energy marketing business, Jon Pepper, a spokesman for Hess, wrote today in an e-mail.
Founded in 1977, Singer’s Elliott Management is one of the oldest private investment firms of its kind under continuous management. The Elliott funds’ investors include large institutions, college and charitable endowments, family offices, and friends and employees of the firm.
Singer is among a group of creditors seeking payment from Argentina for bond defaults. Ghana detained an Argentine Navy ship in October on the bondholders’ request and Argentine President Cristina Fernandez de Kirchner took a chartered flight to Indonesia this month to avoid creditors seizing the nation’s plane.
Hess has retained Goldman Sachs Group Inc. (GS) as its financial adviser on the terminal sales.
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