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HES – CDS 123bps, Base Case iCDS 34bps, Negative Case iCDS 53bps, 2027 4.300% Bond YTW of 2.154%, iYTW of 1.134%, Ba1 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

August 24, 2021

  • Credit markets are overstating credit risk, with a YTW of 2.154% and a CDS of 123bps relative to an Intrinsic YTW of 1.134% and Intrinsic CDS of 34bps. Furthermore, Moody’s is overstating the firm’s fundamental credit risk, with its Ba1 credit rating three notches lower than Valens’ IG4+ (Baa1) credit rating
  • Incentives Dictate Behavior™ analysis highlights mostly favorable signals for credit holders. Management’s compensation framework should drive them to focus on all three value drivers: asset efficiency, growth, and margins, which should lead to Uniform ROA improvement and higher cash flows available for servicing obligations. Additionally, management members are material owners of HES equity relative to their annual compensation, indicating they may be well-aligned with shareholders for long-term value creation
  • Valens’ qualitative analysis of the firm’s Q2 2021 earnings call highlights that management generated an excitement marker when saying net production is forecast to average 60,000 barrels of oil per day and they are confident net production from Liza Phase 1 is forecast to average 30,000 barrels of oil per day