Shares of Hess (HES -0.87%) were all over the map in 2018. The oil company's stock rallied for much of the year, peaking at a gain of 57% in October, before collapsing along with the price of crude to end the year. Overall, Hess' stock lost 14.7% of its value in 2018, according to data provided by S&P Global Market Intelligence. Here's a quick look back at what caused all this volatility last year.
Hess was the best-performing oil stock in the S&P 500 through the first half of the year. Several factors fueled its high-octane gains. For starters, the company and its partners ExxonMobil (XOM 0.69%) and China's CNOOC continued finding more oil offshore Guyana. By the end of 2018, the Exxon-led partnership had made 10 discoveries that contain an estimated 5 billion barrels of oil. In addition to that, Hess continued shoring up its financial position by selling its operations in the Utica Shale, which, when combined with asset sales from prior years, gave the company the cash to retire debt, buy back stock, and prefund its share of the first phase of development in Guyana. Add to that the company's return to growth in the Bakken and the boost from higher oil prices for much of the year, and Hess finally returned to profitability during the third quarter.
Crude prices, however, turned over in October and proceeded to sell off for the rest of the year. Overall, oil crashed 40% from its peak, putting it down 19% for 2018. Driving the sell-off was the Trump administration's decision to allow most buyers of Iranian oil to continue purchasing crude from the country, which bypassed the recently reimposed sanctions. As a result, the oil market went from being tightly supplied to having a glut virtually overnight. That sell-off in the oil market caused shares of Hess to plunge over the final three months of the year.
While the late-year sell-off in crude prices caused many of Hess' peers to keep a firm lid on spending in 2019, the company is taking the opposite approach by boosting its budget 40%. While much of that increase is so that the company can fund the developments in Guyana, it's also increasing its activity level in the Bakken. This investment plan sets Hess up to grow production at a double-digit pace in 2019. Meanwhile, Hess believes it can grow output at a 10% compound annual growth rate (CAGR) all the way through 2025 while cash flow expands at a 20% CAGR over that time frame, assuming oil is around $55 a barrel. That fast-paced growth makes Hess look like a compelling oil stock to buy for the long term, especially in light of last year's sell-off.
Check out the latest Hess earnings call transcript.