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Hess Sells Utica Shale Assets

Stocks in this article: HES CHK SN MPC

HOUSTON (The Deal) -- New York oil and gas explorer Hess (HES) said Wednesday it agreed to sell 74,000 acres of its dry natural gas properties in Ohio's Utica Shale for $924 million.

It didn't disclose the name of the buyer, but rumors are swirling that American Energy Partners -- led by former Chesapeake Energy (CHK) CEO Aubrey McClendon -- bought the properties.

In October American Energy Partners unit American Energy-Utica LLC raised $1.7 billion in private equity and debt financing to buy properties and explore for and produce oil and gas in the region. The funders included Energy & Minerals Group, First Reserve Management LP, Blackstone Group's GSO Capital Partners, Magnetar Capital and BlackRock Inc.

Hess will get two-thirds of the proceeds from the sale at the end of the first quarter and the rest in the third quarter. It plans to use the money for more share repurchases, which it may increase from the $4 billion authorized in March of last year once it decides whether to spin off or sell its gas stations.

Hess CEO John Hess said the sale is an example of its continued commitment to improve shareholder value by shuffling the assets in its portfolio. "While our wells in the dry gas portion of the Utica were highly productive, we concluded that the potential returns from such an investment, at current and projected natural gas prices, no longer justified retaining this acreage as a strategic part of our overall liquids-based asset portfolio," he said.

Sameer Uplenchwar, an analyst at Global Hunter Securities Inc., said the sale worked out to about $12,000 per acre, in line with recent comparables, bringing Hess' total asset sales to more than $10 billion. He said the next catalysts include Hess' decision as to whether to spin off or sell the gas stations and details about its Bakken Shale midstream assets, which Hess plans to spin off in a master limited partnership early next year.

"[Hess] needs to deliver on the go-forward growth strategy," he said, including focusing on unconventional assets where growth will be driven by the Bakken and Utica, exploitation with growth driven by Tubular Bells, Valhall and the North Malay Basin, and focused exploration in areas like Ghana.

Hess has has been under pressure from Paul Singer's hedge fund Elliott Management Corp. to make changes at the company, including selling noncore assets.

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