Tags: Hess | shale | oil | HES

Hess Bets On the Future of Shale Oil

Thursday, 20 Oct 2011 02:02 PM

By Meghan Sapp

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The diminishing civil war in Libya doesn’t grab headlines as it once it did, which in a way is indicative of where the U.S. is hoping to derive its future energy. American energy companies are looking homeward, which for oil giant Hess (HES) means less Libya and a whole lot more oil shale in Ohio.

The company’s joint venture with Marathon Oil (MRO) and ConocoPhillips (COP) and Libya’s National Oil Company, called Waha Oil, has had a hard time of late, thanks to Libyan oil company managers using the site as a weapons base for pro-regime forces.

That means that NATO forces have been targeting the nearly 400,000 barrels per day facility. It may not come back online until 2012. If they can get the striking field workers to come back, that is, after they took off following a dispute because the company supported the regime.

Brazil is looking to be a sour bet for the company as well. Last year, Hess wrote down the value of two of the three wells already drilled at the offshore Block BM-S-22 in the Santos Basin. Hess has a joint exploration venture in the block with Exxon Mobil (XOM), which recently put up for sale a 25 percent share in the deal.

Inward

So instead of looking abroad, Hess is looking to Ohio, where it recently signed deals for acquire a 50 percent interest in CONSOL Energy's nearly 200,000 acres in the Utica Shale in eastern Ohio for aggregate payments of $593 million. As well, Hess is acquiring Marquette Exploration and other leases in the area, boosting its acreage position by 85,000 net acres at a cost of approximately $750 million.

Together with the previously announced joint venture with CONSOL Energy, the transactions provide Hess with approximately 185,000 net acres in the Utica Shale play.

These purchases come on the heels of Hess CEO John B. Hess’s recent remarks that oil prices are preparing to skyrocket, and that “$150-a-barrel oil was a warning.” He recently told a conference that global oil demand fell by 2 million barrels a day in the depths of the financial crisis, while today demand in the industrialized world is down only slightly and emerging markets are continuing to grow.

Hess expects global demand to rise by 1 million barrels per day in the next few years as OPEC’s reserves are limited to Saudi Arabia and Iraq.

Hess purchased 174,950 company shares for $10 million just in time for the company’s a dividend of 10 cents per share on Sept. 15. The company reported net income for the second quarter at $607 million, up from $375 million in the second quarter of 2010.

In early October, Argus maintained a buy but cut its target to $85. Hess next reports Oct. 26.

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