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Hess Corporation (NYSE: HES) is an oil and gas company that extracts oil and gas through drilling and processes it into a variety of products, including gasoline, lubricants and heating oil. The company sells its products to other distributors and directly to consumers through its own gas stations.

Rapid growth in energy demand in emerging economies like China and India coupled with limited oil supply have placed significant upward pressure on oil prices in recent years. As oil prices have risen, more difficult ways of extracting oil (such as deep sea drilling and oil sands) have become economically feasible. Hess’s focus on deep-water projects positions the company to be a leader in this critical transition period. Hess has also benefited from the critical shortage of refining capacity within the U.S. where strict environmental regulations have prevented the construction of new refineries since 1976.

Current government initiatives encourage the development and consumption of alternative energies such as ethanol, biofuels, wind and solar, which may curb future oil demand growth in the future. Additional challenges for the industry include higher equipment and labor costs as oil service companies and drillers raise rates for contracted services.

Company Overview

Hess explores for, develops, produces, purchases, transports and sells crude oil and natural gas. These exploration and production activities take place principally in Algeria, Australia, Azerbaijan, Brazil, Colombia, Denmark, Egypt, Equatorial Guinea, Gabon, Ghana, Indonesia, Libya, Malaysia, Norway, Peru, Russia, Thailand, the United Kingdom and the United States.[1]

Hess also manufactures refined petroleum products and purchases, markets and trades refined petroleum products, natural gas, and electricity. The Company owns 50% of a refinery joint venture in the United States Virgin Islands.[1] An additional refining facility, terminals and retail gasoline stations, most of which include convenience stores, are located on the East Coast of the United States.[1]

Business Segments

Exploration and Production ($2.736 billion in earnings in 2010)[2]


  • 21% of the company’s total proved reserves located in the U.S.
  • 24% of crude oil and natural gas liquids production and 13% of natural gas production located in the U.S.


  • 30% of the company’s total proved reserves located in Europe (United Kingdom 8%, Norway 13%, Denmark 3% and Russia 6%)
  • 29% of crude oil and natural gas liquids production and 22% of natural gas production from European operations.


  • 23% of total proved reserves located in Africa (Equatorial Guinea 8%, Algeria 2%, Libya 11% and Gabon 2%)
  • 41% crude oil and natural gas liquids production was from Africa


  • 26% of Hess’s total proved reserves located in the Asia and other region (Malaysia-Thailand Joint Development Area 11%, Indonesia 9%, Thailand 3%, Azerbaijan 2% and Malaysia 1%).
  • 6% of crude oil and natural gas liquids production and 65% of natural gas production from Asia

Marketing and Refining ($231 million in losses in 2010)[2]

Hess owns a 50% interest in HOVENSA L.L.C., a refining joint venture in the United States Virgin Islands with a subsidiary of Petroleos de Venezuela S.A.[1] In addition, it owns and operates a refining facility in Port Reading, New Jersey with a capacity of 70,000 barrels per day.[1]

Hess has 1,357 Hess gasoline stations, including stations owned by its WilcoHess joint venture.[1] Approximately 92% of the gasoline stations are operated by Hess or WilcoHess.[1] Of the operated stations, 94% have convenience stores on the sites. Most of its gasoline stations are in New York, New Jersey, Pennsylvania, Florida, Massachusetts, North Carolina and South Carolina.

Hess owns 20 oil storage terminals with an aggregate storage capacity of 22 million barrels in its East Coast marketing areas. Hess also owns a terminal in St. Lucia with a storage capacity of 9 million barrels, which is operated for third party storage.[1]

Trends and Forces

Hess is acquiring oil shale land in China and the U.S.

PetroChina Company (PTR) and Hess are engaged in a joint exploration of shale oil at the Daqing oilfield in China. Hess entered into the partnership in order to take advantage of its experience developing shale in North Dakota. Partnering with PetroChina also gives Hess access to the tightly regulated Chinese shale deposits. The Daqing oilfield, in northern China's Heilongjiang province, has been in production for 50 years. Some are concerned that the Daqing shale may be close to depleted, but Daqing is an important source of oil for China, and PetroChina has pledged to maintain the field for another 50 years.[3] Advanced technology has enabled oil companies like Hess to extract gas from shale, but these companies are increasingly turning to developing sedimentary rock instead of shale deposits.

Hess Corporation also announced that is has completed the acquisition of 167,000 net acres in the Bakken oil shale play in North Dakota from TRZ Energy, LLC for $1.05 billion in cash. The acquired properties are located near Hess’ existing acreage and have current net production of approximately 4,400 barrels of oil equivalent per day.[4]

Fluctuating oil prices

Higher oil prices translate into higher profits for Hess, but market fluctuations make it difficult to know for certain what the oil outlook will be like.

The market price for oil depends largely on world oil supply, so the actions of the Organization of the Petroleum Exporting Countries (OPEC) have a huge impact on oil prices. OPEC accounts for approximately 40% of the world's crude oil supply and can increase or decrease the amount of oil on the market to maintain attractive oil prices for its member countries. However, OPEC has been increasingly losing control over the oil market--oversupply from non-OPEC production has cut away at OPEC's influence.

Environmental Concerns

Fossil fuels, though highly cost-efficient forms of energy, are heavy polluters when burned. Increasing environmental concern over environmental degradation and global climate change is fueling a consumer-driven push away from dirty forms of energy toward cleaner forms like wind energy and solar power. These concerns are also causing political movements, which are leading to increased regulation in the fossil fuels market. Government regulations like emissions caps, renewable energy subsidies, and carbon trading schemes all facilitate transitions away from dirty, nonrenewable fuels. Natural gas is being touted by a number of sources (few of them environmental advocates) as "the" alternative to oil and coal . While natural gas does burn more cleanly than either oil or coal, and releases fewer greenhouse gases than either, natural gas is still a carbon-emitter. The current international focus on slowing carbon emissions could slow the market for both oil and natural gas, hurting Hess's business.


Companies in the oil and energy sector operate and compete with each other in different areas, such as chemicals, refining, oil exploration, etc. Hess faces direct competition from companies, such as BP, Chevron, ConocoPhillips, Marathon Oil (MRO), and Sunoco.

  • BP (BP) is one of the world's largest oil and gas companies in terms of production capacity. In 2009, the company's exploration and production segment produced approximately 2.53 million barrels of oil per day as well as 8.48 million cubic feet of natural gas per day while the company's refining throughput averaged 2.28 million barrels/day.[5]
  • Chevron Corporation (CVX) is the second largest energy company in the U.S. (behind Exxon Mobil) and is one of the six supermajor oil companies. With operations in 180 countries, it has a strong network of retail gas stations including Chevron, Texaco, and Caltex.[6]
  • CONOCOPHILLIPS (COP) is the third largest of the oil majors. It operates in all sectors of the oil and natural gas industry: exploration and production, midstream, refining and marketing, and petrochemicals, and supplements its own operations with a 20% share in Russian oil giant, Lukoil.[7]
  • Marathon Oil (MRO) is a global integrated energy company that drills for, refines and sells oil and natural gas. Although the company sells some of the crude oil that it produces to other refineries, it makes most of its money from the sale of its finished petroleum products (gasoline, lubricants, heating oil) to resellers and to consumers through its own retail locations.[8]
  • Sunoco (SUN) is the second largest independent refiner in the United States in terms of capacity. Sunoco is capable of producing 910,000 barrels of refined crude product per day. Its five refineries are located all over the U.S. and produce gasoline, jet fuel, heating oil, and diesel fuel. While Sunoco distributes refined products all over the U.S., its sells its refined products primarily on the east coast.[9]


  1. 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 Reuters Profile: HESS CORPORATION (HES)
  2. 2.0 2.1 Hess First Quarter 2009 Earnings
  3. Wall Street Journal: "PetroChina, Hess In Joint Exploration For Shale Oil At China's Daqing-Sources " Sept. 23, 2010
  4. Business Wire: "Hess Acquires Additional Bakken Acreage" November 22, 2010
  5. Wikinvest: BP
  6. Wikinvest: CVX
  7. Wikinvest: COP
  8. Wikinvest: MRO
  9. Wikinvest: SUN
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