Oil prices have dropped drastically during the past week. This means oil and gas companies can no longer project rosy growth simply based on higher crude prices in the market. Hess (NYSE: HES) has posted earnings growth in the second quarter, thanks to higher price realizations. But, more importantly, the integrated company has failed to post any fundamental growth in terms of operations and production.

The externals look good, but...
Not surprisingly, total operating revenues for the second quarter stood at $9.8 billion, a 26.5% increase from the year-ago quarter. Higher price realizations have definitely had a positive effect on cash flows in this period.

While this looks fine, from an operational standpoint, the results don't look too encouraging. Total production fell 10% to 372,000 barrels of oil equivalent per day (Boe/d). The Libyan crisis has shaved off production at a major level. While that is a valid reason, Hess' failure to make up for that elsewhere does not look pretty.

Hess' resources across diverse locations should have not worked to its advantage. The company could not increase its production in the Bakken, which remained flat at 25,000 Boe/d. While management blames a harsh winter and severe spring flooding, this doesn't seem like an especially valid reason. EOG Resources (NYSE: EOG), Kodiak Oil & Gas (NYSE: KOG), Brigham Exploration (Nasdaq: BEXP), along with other major players in North Dakota, have managed to ramp up production substantially in the just-ended quarter.

Another failure
Midstream services weren't too impressive, either. Marketing and refining activities generated losses of $39 million. Hess' investment in Hovensa, a refining joint venture, has produced losses of $49 million. Higher fuel costs and reduced distillation capacities because of the shutting down of some units in the joint venture will hurt the company. The Port Reading facility has, however, managed to convert last year's $27 million loss into a $5 million gain.

Capital expenditures for the first half of 2011 did increase by 45% compared with last year's first half. With a new revolving credit facility of $4 billion coming into effect from April, the company should not face problems in funding expansions. Developing its Bakken and Eagle Ford properties should be key to increasing production levels.

Foolish bottom line
In all, this has been an unimpressive quarter for Hess, but a turnaround is definitely possible. Management carries a substantial responsibility. Currently it looks more like a wait-and-watch game for investors.