Hess Wants to Keep Assets, Despite Shareholder Calls

Hess Corp. Chairman and Chief Executive Officer John Hess said he wants to keep Bakken shale and offshore oil fields, despite calls from Paul Singer’s Elliott Management Corp. and Relational Investors LLC for the company to pursue asset sales.

Hess will respond soon to a statement from Elliott, its second-largest shareholder, that said the New York-based company should streamline and bring in new board members, the CEO told investors and analysts on an earnings conference call today. Hess needs a balance of onshore and offshore assets and its energy marketing and retail operations still “enhance” the company, he said.

Elliott, owner of a 4 percent stake, announced yesterday it was seeking to replace five board members to end a “chronic” lack of focus at Hess. The activist investor called for Hess to spin off its shale business, sell gasoline stations and the energy marketing unit, and keep some international exploration and production assets. Ralph Whitworth’s Relational, owner of a 2.7 percent stake, said in a letter it supports “significant” board changes.

Retaining shale assets and offshore production as well as exploration at a handful of promising offshore fields “is the right strategy,” John Hess said today. The company’s global assets “generate the cash needed to fund the unconventional growth we have in the Bakken and the Utica.”

On their own, the Bakken and Utica shale assets “would not be self-funding, they could not get access to the credit markets and that’s a real issue,” Hess said. “This balanced approach we definitely think is the right one.”

History Repeats

Hess plans to complete its shift to an exploration and production company by the end of the year, the CEO said. The company will shut its last refinery by the end of February and is seeking a buyer for its storage business, it said on Jan. 28. Hess can manage a pared-down portfolio, the CEO said.

“History repeats itself at Hess,” Elliott Management said in an e-mailed response today. “It has no further restructuring plans to announce. Shareholder nominees are needed to address much larger problems and recoup the years of lost shareholder value.”

The investment company seeks shareholder votes at the 2013 annual meeting to replace Hess’s head of production, Gregory P. Hill, on the board as well as former New Jersey Governor Thomas H. Keane, former Senator Samuel A. Nunn Jr., former Hertz Corp. Chairman Frank A. Olson and former U.S. Treasury Secretary Nicholas F. Brady.

‘Sacred Cows’

Elliott’s slate includes Rodney F. Chase, former deputy CEO of BP Plc; Karl Kurz, former chief operating officer at Anadarko Petroleum Corp.; David McManus, former executive vice president at Pioneer Natural Resources Co.; and Mark Smith, chief financial officer of Ultra Petroleum Corp. The fifth is Harvey Golub, former chairman and CEO of American Express Co.

Chairman and CEO Hess said the company is “looking carefully” at Elliott’s proposal.

“We look at everything to enhance long-term shareholder value,” Hess said. “We have no sacred cows in the business or in the board room.”

Relational, known for pushing changes and board seats at Hewlett-Packard Co. and other companies, said it met with Hess’s management on Dec. 3 and board representatives on Jan. 14.

Proxy Fight

A majority of Hess shareholders would support Elliott’s nominees, Relational co-founder Whitworth said in a phone interview today.

“They are qualified people and they want to serve,” said Whitworth, who hasn’t talked to Elliott or other shareholders. “It really shouldn’t be very controversial.”

Relational would be “disappointed” if Hess forced a proxy fight on the board nominees, co-founder David Batchelder wrote in a letter to John Hess today. Relational’s letter was first reported by CNBC.

“Management’s efforts and the shareholders’ money are best devoted to improving the operations in the Bakken, pursuing asset sales, and structuring the company to maximize the valuation of its assets,” he wrote.

Hess reported a $566 million profit for the fourth quarter today, compared with a $131 million net loss for the same period a year earlier, when it recorded costs to close a refinery on St. Croix. Excluding one-time items, per-share profit was a penny less than analysts’ estimates, according to data compiled by Bloomberg.

The shares fell 0.3 percent to $67.88 at the close in New York.

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