What: Hess' (NYSE:HES) stock was battered last month by a combination of weakening crude prices and credit worries, which sent its stock down 18.6% in December.
So what: The price of domestically produced crude oil slid 11% last month to just more than $37 per barrel due to persistent oversupply. That price is below the cash flow breakeven point of a lot of producers, including Whiting Petroleum (NYSE:WLL), which needs a $50 oil price in 2016 to break even. Hess is a bit better insulated against low prices due to the company's prime position in the core of the Bakken play. When combined with its lean manufacturing process, it's delivering some of the highest returns in the play, according to the company.
Those returns aside, the market is growing worried about the credit quality of oil companies because the current oil price is really squeezing cash flows. Those concerns led one of the major credit-rating agencies to put 29 U.S. oil companies on review for a potential credit-rating downgrade, including Hess.
Hess has one of the best balance sheets in the industry after selling a 50% stake in its midstream assets, which brought in $3 billion in cash. In fact, with a pro forma net debt-to-capital ratio of just 13%, Hess's ratio is less than half its peer group average of 29%, and much lower than Whiting Petroleum's 43% ratio. In other words, a credit-rating downgrade is unlikely because its credit metrics are so strong.
While the market is currently focused on the weakening price of oil and credit concerns within the industry, Hess sees better days ahead. Its CEO told CNBC last month that the company sees oil prices hitting at least $60 per barrel by the end of 2016. That's because the company sees slowing supply growth as rivals like Whiting Petroleum aim to just keep production flat next year, even as demand continues to head higher. At some point, this will rebalance the market, leading to an improvement in the oil price, which is needed to bring new supplies online.
Now what: Hess is much better positioned than its peers to weather the current storm due to its strong Bakken position and balance sheet. That pretty much ensures that Hess will be left standing when oil prices finally rebound, even if the timing is much later than the company is currently predicting.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.