Hess Hits a Homer

With its marketing unit hurting it less than production helped, Hess had a happy face quarter.

By David Smith – Updated Apr 5, 2017 at 5:13PM EST

I suppose it's a matter of proportion. Those integrated oil and gas companies whose exploration and production units are significantly larger than their refining and marketing sectors performed well amid the most recent quarter's rising crude prices and falling refinery margins.

That was how it was for Hess (NYSE:HES), which saw its net income increase to $395 million in the September-ended period, up 33.4% from last year's $296 million. The per-share figure rose to $1.23, from $0.94. Revenues rose 5.3% year over year to $7.5 billion.

Looking at the company's individual sectors, earnings from exploration and production more than doubled to $414 million. At the same time, the contribution from refining and marketing was less than a third of that earned the prior year. The biggest difference in the sector results was a $6.45-per-barrel increase to $65.26 in the selling price for crude oil.

As is frequently the case for any company larger than your local coin laundry, there were a couple of one-time items in the quarter that deserve at least a passing mention. In the most recent quarter, the company took a $33 million charge for production imbalances relating to meter reading at a couple of its offshore fields. And in the year-ago quarter, Hess recorded charges totaling $105 million to reflect a new supplementary tax in the U.K. on petroleum operations.

So, at least for this quarter, Hess has beaten ConocoPhillips (NYSE:COP) and BP (NYSE:BP) -- both of which were hit by softness on the refining and marketing side -- while Occidental (NYSE:OXY) grooved its quarter. In the next few days, we'll be given details on the relative performance of industry leader ExxonMobil (NYSE:XOM) and its second in command, Chevron (NYSE:CVX). Once that's occurred, we'll have better evidence to raise either a good flag or a bad flag regarding the group's overall strength.

In the meantime, I'm inclined to like Hess' relative "oiliness" and, yes, the relative proportion between its two main operating sectors. It's a name I hope Fools with an appetite for oil and gas companies will keep close at hand.

Dave Smith is an economist, investment analyst, and writer, specializing in the energy and media industries. He earlier spent 20 years as a securities trader and analyst, most recently for Royal Bank of Canada. He was a repeat member of The Wall Street Journal's Best-on-the-Street All-Star research team. He specializes in the energy sector. He has been a vice president of Centex Corporation and an officer of a predecessor company of Diamond Offshore, a major deepwater oil and gas drilling contractor. He also has served as the director of the school of journalism and electronic media at the University of Tennessee. A U.S. Marine Corps veteran, Dave holds B.A. and M.S. degrees in journalism and an M.A. in economics and finance. He has completed the course work for a Ph.D. in literature.

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Hess Hits a Homer

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