Hess Corp. (NYSE: HES) Sells Russian Assets

Brian Hicks

Written By Brian Hicks

Posted April 3, 2013

Hess Corp. (NYSE: HES) is all set to sell off its Russian subsidiary, Samara-Nafta, to OAO Lukoil in a deal worth $2.05 billion. Businessweek reports that this makes it the New York-based oil company’s largest divestment move ever.

Nasdaq reports:

“As the sale of Samara-Nafta indicates, we are making excellent progress in executing our asset sales program, which is a central component of our plan to transform Hess into a more focused, higher growth, lower risk pure play exploration and production company,” Hess Chairman and CEO John Hess said in a statement.

Hess has a 90 percent stake in Samara-Nafta, and accordingly the company projects a return of about $1.8 billion on the deal. That means the combined after-tax values of assets Hess has agreed to sell over this year is now $3.4 billion.

Hess CorpUnder CEO and Chairman John Hess, the company has moved aggressively to focus more sharply on crude exploration and production; this has meant the selloffs of oil fields, storage terminals, and various other assets.

Thus far, Hess has already either announced or closed the sale of a North Sea oil field, a Texan shale deposit, and a bunch of oil fields located offshore near Azerbaijan. Those oil fields went to India’s ONGC Videsh Ltd. in a deal estimated to be worth $1 billion late this March.

Back in October, Hess decided to sell its interest in the Beryl area fields, as well as the Scottish Area Gas Evacuation System, to Royal Dutch Shell (NYSE: RDS.A). That deal was valued at $525 million.

In another notable deal, Hess’s interests in part of the Eagle Ford shale in south Texas went to Sanchez Energy Corp. (NYSE: SN), an independent oil and gas company, for $265 million in cash.

And last month the company stated that it intends to sell its retail gas stations as well as its energy trading and marketing businesses. Moreover, several U.S. oil storage terminals and a refinery situated in New Jersey are also going on the chopping block.

News of the deal sent Hess shares up 3.3 percent on Monday, Businessweek reports, and they closed up at $73.54. So far over this year, the company’s shares have risen more than 35 percent. That puts Hess among the top ten companies to see gains on the S&P 500.

Hess has said, per MarketWatch, that it intends to use most of the proceeds from this sale toward paying down debt.

Russian Oil Investing

The company originally invested in Samara-Nafta after buying a 65 percent stake in Trabant Holdings International back in 2005 in a deal worth $25 million. It appears that Simon Kukes, who holds the remaining 10 percent of Samara-Nafta, has likewise agreed to a sale to Lukoil.

Per USA Today, Samara-Nafta produces around 50,000 barrels of oil per day in the Volga-Urals area. Samara-Nafta commands some 85 million tons of oil reserves, Lukoil estimates.

The deal had undergone the usual inspections, but is yet to be reviewed by Russian antitrust regulators (namely, the Federal Antimonopoly Service of the Russian Federation). For this deal, Hess retained Goldman Sachs as the main financial adviser.

Lukoil, for its part, is the biggest privately-owned oil and gas company in the world, based on proven oil reserves. The company produces around 2.5 million metric tons per year, and accounts for nearly 2.2 percent of the world’s crude oil production. And Samara-Nafta holds rights to explore and develop more than 60 fields spread over its 23 licensed areas.

The agreement with Hess allows Lukoil to expand further within the Russian region. Lukoil already owns a variety of oil refining, petrochemical, and transportation facilities and units all over the region.

Businessweek reports:

“We have acquired a quality asset with long-term growth potential in a region that has some of the most highly developed infrastructure in the country,” Vagit Alekperov, CEO of Lukoil and its largest shareholder, said in the statement.

But not everybody appeared to share Lukoil’s professed optimism, with some analysts suggesting that Lukoil may have paid too much and that this may be an indicator of tough times for Lukoil. From Businessweek:

“The price seems a bit high and reflects Lukoil’s desperate search for new assets,” Ildar Davletshin, a Moscow- based oil and gas analyst at Renaissance Capital Ltd., said in a phone interview. A large number of the company’s fields have tax breaks as they are depleted and high viscosity, he said.


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