Hess Deals Disappoint as Wildcatting Activists Target Energy

Hess's assets up for sale are far more diverse than those of Chesapeake Energy and may not reflect the specific strains of shale acreage.

In its deconsolidation plan, Hess has put assets up for sale stretching from oilfields in Russia, Malaysia and Indonesia, to a refinery network in the U.S., which Tudor Pickering Holt forecasts could raise over $6 billion in total proceeds.

With proceeds from asset sales and a reduction in overall expense, Hess appears to be ready for a more aggressive drilling program that could increase the company's oil and gas production growth rate in coming years.

The company now targets a five-year production growth rate of 5% to 8%, and forecasts 'mid-teens' production growth between 2012 and 2014.

Shareholders also will see an immediate payout as Hess executes the multi-year plan to focus exclusively on oil exploration and production. Hess on Mar. 4 said that its annual dividend will increase to $1 a share beginning in the third quarter. The company also said it had authorized up to $4 billion in share buybacks tied to the timing of asset sales.

Selling shareholders on the spinoff plan, a focus on core exploration and production businesses and increasing shareholder payouts will be crucial, given Elliott Management and Relational Investors' opposition.

Weiss of Argus Research isn't ready to call the light Eagle Ford Shale deal a major factor in whether Hess or activists like Elliott win out in their restructuring plans. Still the analyst notes performance will be paramount.

"It is the right direction," Weiss says of Hess's recently announced plans.

"I think Elliott made a good case. It doesn't mean that management from Hess can't stay in there. They need to execute."

The analyst highlights other lagging energy sector giants such as Devon Energy (DVN) and Apache (APA) as other companies that might tempt activists.

John Hartz, a spokesperson for Elliott Management declined to comment, while Jon Pepper, a spokesperson for Hess wasn't immediately available for comment.

-- Written by Antoine Gara in New York

Follow @AntoineGara

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