HES – Market expectations are for Uniform ROA to inflect positively, but management may have concerns about cash flows, commodity prices, and Fangtooth

• Hess Corporation (HES:USA) currently trades near historical highs relative to UAFRS-based (Uniform) earnings, with a 38.3x Uniform P/E. At these levels, the market is pricing in expectations for Uniform ROA to inflect positively, but management may have concerns about cash flow growth, their commodity price outlook, and the Fangtooth well.
• Specifically, management may have concerns about volatility in commodity prices, potential hurricane impacts on operations in the Gulf of Mexico, and their cash and liquidity position. In addition, they may lack confidence in their ability to generate industry-leading cash flow growth, increase their dividend to a yield higher than that of the S&P 500, and target deep water intervals with Fangtooth. Moreover, they may be overstating the quality of the oil-bearing sandstone reservoirs at Whiptail and they may be downplaying concerns about the size of seismic reactions from Fangtooth. Furthermore, they may have concerns about their flash gas compression system replacement on Liza Destiny FSPO, the transfer of obligations from the Fieldwood bankruptcy, and their planned 45-day Tioga Gas Plant maintenance. Finally, management may be overstating the potential of the Stabroek Block exploration in Guyana and the Block 42 drilling plan in Suriname.