Hess Corporation
Introduction
Hess Corporation is a leading multinational and an independent energy company that explores and engages in production of natural gas and crude oil. The company is both an oil and gas producer and a leading competitor in deepwater development oil exploration and production. The assets of the company are focused in five main regions where it has proven technical capabilities. These regions are Gulf of Mexico, Asia Pacific North Sea, Onshore U.S. and West Africa.
The Hess Corporation is also a pioneer in conducting Marketing and Refining in oil as which sees it operate in over 23 countries. In addition to exploration and production, the company also focuses in purchase, sale of crude oil and natural gas marketing and transportation of refined petroleum products such as natural gas and electricity. The oil giant owns thousands of Hess gas stations including small convenience sales stores throughout the United States East Coast (HESS, 2013). In addition, the company owns thousands of acres of land regions which it has exploration interests especially in the North Dakota Bakken. Internationally, the Corporation controls hundreds of thousands of acres of land that are valuable to it exploration and production exercises in search for crude oil and natural gas (HESS, 2013).
PESTEL Analysis
Political
The political climate affects the performance and future prospects of the company and mostly all oil companies. The recent years especially one year has been an active period for oil companies with new trends to expect in the coming years. For instance, the world experienced reactions from the Fukushima crisis in Japan. Additionally, the future political aspects will be shaped by the growth and demand of renewable energy. This is because the topic has become a world topic and a decision changer that has seen emergence of hybrid vehicles. The recently held world meeting on environmental safety shows the beginning of the reduction of dependence on fossil fuel. This will limit future use, exploration, and refining of oil and shale natural gas. To establish political significance, Hess Corporation became a participant and signatory of the Voluntary Principles on Security and Human Rights (HESS, 2013).
Methodology
The company adopted both primary and secondary methodologies of acquiring business opportunities and ventures. In primary method, the company started its own oil exploration ventures and eventually capitalised the newly found resources as its extraction and production bases. In specific areas, the company conducts production and exploration operations in the United States, Norway, Egypt, Equatorial Guinea, United Kingdom, Algeria, Denmark, Libya, Russia, Gabon, Ghana (HESS, 2013). In terms of secondary methodologies, the company has partnered with existing oil companies to produce the product from exixting oil fields. Specifically, the corporation has Joint Development project in Malaysia, Indonesia, Thailand, Australia, Brazil and Azerbaijan (HESS, 2013). Hess is a diverse company with financial markets activity through it trading arm, the Hess Energy Trading Company.
On March 4, 2013 Hess announced that it would sell its domestic refineries and retail operations and that it would also sell its holdings in Indonesia and Thailand (De La Merced, 2013). The company will focus exclusively on oil production as a strategy of expanding it operations in the industry.
Economic
The economic scenario is being shaped by competition for energy production and investment opportunities by companies. The energy industry is regarded as lucrative and there is increase in economic focus to sectors that are powered by fossil energy (Van, 2012). In the investment sector, competing companies in the United States are exploring for opportunities in energy and oil explorations. Additionally, Asian and countries from the East are investing in energy opportunities in the upcoming oil regions such as Canada and the Northeast corridor of the United States (HESS, 2013). This is an issue Hess Corporation as well as Department of Energy of the United States have to consider in formulating future plans.
Hess Corporation should pay close attention to the economic prospects because the Chinese are also venturing into the renewable energies industry. Just like they have succeeded in any industry, Chinese can create new energy technology such as energy saving equipment which can shape future revenue prospects in the market (HESS, 2013). They can produce equipments such as solar panels at extremely lower comparative costs than the American economy can do. This means that demand for petroleum energy will be decreasing in the future economies which will affect the economic prospects for Hess Corporation.
Environmental
The environmental aspects of the Hess Corporation business prospects are dominated by the growing need for green energy. This is what has necessitated the growth of considerations for renewable energy. Despite previous failures by firms and countries on renewable energy, the demand is an international concern as it is an essential for a healthier world. First, adoption of renewable energy contributes toward a healthier environment and also reduces costs associated with environmental degradation. Also, higher oil prices expensive for the world economy especially when the demand for petroleum products is on the rise which is not stable.
Environmental and Risks
Hess Corporation has been involved in environmental degradation through the load of 163,000 US gallons of fuel that spilled in a reef in Hudson River. After the spill, Hess assumed responsibility and worked alongside the Red Star company to contain the mess by clean up. The spill left risks of kerosene and toxic chemicals like benzene in water which can cause harm to aquatic life and fish. Hess went on to claim that their corporate policy stresses on their commitment to comply with applicable environment safety, laws and health regulations and that were committed to clean up the spill.
In accordance the regulations set by the New York State Department of Environmental Conservation (DEC) Hess Corporation got committed to pay $1.1 million set as fines and was to bring 65 gasoline stations and facilities in order to comply with state requirements(HESS, 2013). The agreement was addressing the many violations at several gas stations as well as the Brooklyn oil storage facilities for Hess Corporations. The agreement was also purposed to resolve violations made by Hess Corporation in regard to the environmental regulations set by the state.
The environmental contamination cases have not been on Hess Corporation alone, they have affected the whole industry. In a recent contamination case directed at major American oil companies, it was directed that Hess Corporation will pay $422 million as part of the contamination fine settlement (Hess Investors, 2013). The case as presented by public organizations that provide water providers against Hess Corporation over contaminations made to drinking water caused by gasoline additive chemicals.
Technology
The technological environment has been experiencing different changes in methodology, equipment and innovations. Therefore, Hess Corporation and other firms in the industry should align their technology with the changes. The company is considering adopting new and different technological methods in line with the changing trends. Fracking, which is the process of fracturing rocks in the shale to free up natural gas and oil, has become the energy industry’s top-running trend.
Despite opposition and criticism of the technique in regard to environmental impacts, fracking is considered to be an efficient and technique for extracting lucrative natural gas and oil that will not be ignored. However, Hess Corporation and other industry leaders expect stricter regulations for fracking to be implemented in certain areas. There is still a large amount of unknowns about the environmental affects of the new methodology. However, oil firms do not count on the effects to warrant restriction of this technique as an extraction method.
Natural Capitalization Aspects
Hess has capitalised natural resources which form part of it asset base as an international corporation. The company’s oil resources have been increasing in value but prospects of low value due to the world’s inclination to new energy technologies is imminent. However, the near future economic prospect is good since oil is an element that cannot be overlooked. This is significant especially with the economic prediction by economists that the United States will achieve energy independence within the next fifteen years (HESS, 2013). This is in addition to possible pipeline projects to be set up in North America to ensure smooth flow of oil.
Competitive Environment
The competitive environment is stiff and the companies in the industry must work to out do their rivals in exploration, extraction, production and marketing of oil. Bloomberg finance reports are ranking and keeping an eye on the most innovative and groundbreaking organizations of the United States making concerned efforts adapting to climate change within their respective markets. The rankings follow how hundreds of organizations with more than $1 billion in assets are mitigating climate change related risks, managing carbon emissions, and creating clean-tech solutions, and new products (Hess Investors, 2013). Hess Corporation and few other companies are a part of the rankings, which offer investors a view at how responsible these and other organizations are in regard to the above and the effects that the climate has on them.
Another aspect that is equally reviewed is the level of proactive activity that these organizations have when identifying opportunities for higher profits. Importance of the rating aspect is that it will evaluate critical items and place the information on the financial reports and help bring in more investments into the industry. For example, recent ranking reports indicate that Exxon Mobile has backed groups that deny, or complicate, climate science, and of failing to support efforts to present new climate rulings and law. In a favorable competitive edge, Hess Corporation received higher rankings because of the company’s efforts and what it has done in adaptation, and in the management as well as in the mitigation of emissions.
In a favorable competitive edge especially regarding the adaptation and management of emissions, Hess Corporation has put in place strong processes and systems to safeguard their onshore and offshore operations. These are to safeguard operations against bad weather events, such as storms, hurricanes, earthquake or tsunamis. Additionally, on the management side of their related issues, Hess Corporation has set in place good policies, procedures, regulations and systems. Finally, Hess Corporation has strict and excellent plans and mechanisms of carbon accounting.
Political and Economic Risk
Other than uncertainties in the entire industry, the company faces manageable economic and political risks. Hess Corporation has produced good profits and it income potential is constant (Hess Investors, 2013). Although the company has produced decent economic profits, the returns have been affected by volatility of the market. The Hess Corporation cash flow generation is weak and its’ financial leverage is low. However, an economic profit analysis shows that Hess Corporation’s three-year historical return on investment capital was above the its estimate. This shows that the Hess Corporation has a good value creation rating, which indicates that Hess’s stocks may be undervalued. Most recently, Hess Corporation’s stocks are trading at about $54 a share and investors speculate that the stock could perhaps trade higher (Hess Investors, 2013). However, Hess Corporation faces an economic risk in the growth of British Petroleum market. This could have some negative decrease in free cash flow for Hess Corporation.
Risk Management
The company adopts diversification of business operations as the main element of managing the economic and political risks associated with it operations. For instance, the main economic aspect that affects the industry and market for Hess Corporation and other American energy firms is the increasing business acquisitions, joint ventures, partnerships and mergers between the Canadian firms and the Chinese firms. Therefore, Hess Corporation decided to venture in mergers and partnerships to manage risks faced with competing with such Chinese ventures. These mergers present more opportunity for high-rewards and low-risk ventures in the energy supply sector which will affect the emerging investors which narrows the American prospects (De La Merced, 2013). Therefore is the most opportune time for like Hess Corporation and related organizations to make urgent changes for them to remain relevant and continue profiting and operating in the industry.
In terms of environmental risk management, Hess Corporation has plans to protect the company from violations of environmental safety. This is in regard to the emission of greenhouse gas by Hess as outlined in the company’s reports. Hess Corporation indicated in the report that it will prepare a four element strategy aimed at reducing and controlling harmful emissions. The strategy involves several steps that incorporate the processes of measuring, monitoring, managing and mitigating. Hess Corporation intends to improve its environmental policy by reporting results, monitoring reports, energy efficiency along with recovery, in addition to carbon capture and trading.
Company Strategy and Financial Performance
Hess Corporation has a sustainable net income of $1.7 billion and transports over 700,000 barrels of petroleum products on daily basis (Hess Investors, 2013). The company transports using tankers, barges, pipelines, and production platform sales. However, there have been some important market changes and trends that Hess Corporation and other firms in the industry must pay close attention. Adapting to change is essential in the world of business (HESS, 2013). During the recent economy and competitive environment, organizations can be certain of uncertainty which presents some economic and political risks. Change in the economy and political set ups is occurring everywhere and is forcing business executives to review how the evaluate markets, technology, human resources, and competitiveness.
Hess Corporation stock opened year 2012 at $53.77 a share and closed at $53.24, which is up from week four assignment and has been somewhat steady the last 30 days (Hess Annual Reports, 2013). In the past, the company’s stocks dropped to below $40 a share from the highest point earlier in the year, which was trading at just above $65 a share in the year 2012 and now is at 81.15 (HESS, 2013).
Furthermore, Hess Corporation’s second quarter report for 2012 reveals that the company’s net income was $549 million (Hess Annual Reports, 2013). This is in comparison to the year 2011 which was $607 million in the second quarter of the same year. The loss was mainly contributed to the dropping of the price per barrel of crude oil from $97.20 to $86.86 in global market during this period (Hess Annual Reports, 2013). However, production of oil and gas increased to 429,000 barrels of oil a day, up from what was recorded in the second quarter of year 2012.
Another economically positive note is that oil and gas production increased in the Baskken to 55,000 barrels. Hess Corporation seems to have their debt-to-equity ratio under control, which means they will have adequate cash on-hand available. The corporation’s debt seems to have increased from 24.6% at the end of 2011 to 28.2% in June 2012 (Hess Annual Reports, 2013). This means that from a financial point of view, Hess Corporation’s stock is a good investment for investors. Although low prices have had an effect on the company’s net income, it does not affect the Corporation’s debt to capitalization ratio. However, this cannot be sustained since Hess Corporation has a very cash strong company.
From an initial financial review, Hess Corporation stock is a wise investment. Although low prices have had an effect on net income and the Corporation’s debt to capitalization ratio is slight up, Hess is a very cash strong company (Hess Investors, 2013). Additionally, with the company’s recent acquisition ventures and future shale oil exploration and extraction projects, they have the potential to earn very profitable earnings for shareholders. Despite that the cost of shares dropped from the beginning of the year, Hess offers value in the sense that oil will remain a vital and critical commodity and according to some business analyst, forward earning growth is expected to be strong in the near future.
New Developments and Innovation
Hess Corporation has recently announced that it had entered into separate agreements and joint venture businesses. The first is venture with PT Pertamina and other one is agreement with PTT Exploration and Production Company LTD (HESS, 2013). These agreements are aimed at selling the corporation’s interests in exploration and marketing of oil and related products. Additionally, these acquisition ventures and future oil exploration and extraction projects have the potential to earn very profitable earnings for shareholders. Despite the drop in the cost of shares from the recent years, Hess offers value in the sense that oil will remain a critical and central commodity. This will keep the business of Hess Corporation and other oil firms in earning growth potential.
Hess Corporation produces millions of barrels of oil on a yearly basis and they all also have new business activities with tens of thousands of gasoline stations throughout the world. However, only Hess Corporation is a retail electric provider, which provides power to the thousands of people in the Northeast and Mid-Atlantic region of the United States (HESS, 2013). Another attraction to potential investors is that Hess Corporation is committed to meeting the highest standards of corporate citizenship by protecting the health and safety of people and the environment. The company also has been creating a long-lasting and positive relationship in communities where they conduct business.
The company has also kept abreast with new technology and maintains innovative methods of extraction, production and refining oil such as fracking. In regarding strategies for adapting to a changing market, Hess Corporation has established plans for effective strategies aimed at thoroughly understanding internal information and external information (HESS, 2013). Hess has knowledge the current market situation that it uses to determine business strategy and approach.
Conclusion
Hess Corporation is a leading global energy corporation that has maintained an excellent focus on core business over time. The company serves commercial and industrial markets that it focuses to manage as business units to achieve competitive advantage. The company has expanded markets in terms of commodity to electric power and in terms of regional market dominations. The company manages economic and political risks by setting up plans that will alleviate occurrence of environmental losses. Diversification of operations has reduced such risks and increased the income and earnings of the company. This way the company has remained as a leading oil exploration, extraction, production and marketing.
