By Sarfaraz A. Khan. Research Asst. Adnan Mushtaq
Oil prices have fallen by around 50% over the last six months to their lowest levels in five years, which led to steep drops in several exploration and production stocks. However, this could be a buying opportunity for investors looking for exposure to high-quality names such as Hess Corp. (NYSE:HES). The company is in a good position to face the weak oil pricing environment while growing production from its core assets. Here are four reasons to consider Hess.
No. 1 -- Strong Cash Position
In his December report (emailed directly to me), Goldman Sachs's analyst Brian Singer wrote that Hess has a "strong balance sheet" that has been built over the years on the back of asset sales. Hess was an integrated oil company but has been selling its non-core exploration and production, refining and downstream assets since 2012. Over the last two years, the company has sold more than $12 billion worth of assets.
Consequently, the company's cash reserves rose to $4.12 billion at the end of the third quarter of 2014, up from $528 million two years ago. Meanwhile, during this period, Hess' long-term debt has dropped from $7.2 billion to $5.9 billion. Furthermore, Hess's cash position could be bolstered by positive free cash flows expected this year. Over the last few years, Hess has been generating negative free cash flows. But in 2015, as per Goldman Sachs' estimates, the oil producer will generate $52 million of free cash flows ahead of dividends and acquisitions. This figure will … read full article on Seeking Alpha.