Shares of Hess (HES 1.40%) have been on fire this year. The oil company's stock rocketed 33% in January thanks to its better-than-expected fourth-quarter results. Meanwhile, the best quarter for crude prices in a decade added more fuel to that rally, helping drive shares of the oil producer up more than 65% for the year.
Hess could get another dose of fuel when it reports its first-quarter results later this week. Here's what it would need for that to happen.
Image source: Getty Images.
Earnings need to continue outpacing expectations
Hess put analysts to shame last year by routinely posting results that were well ahead of expectations:
|
Earnings History |
Q1 2018 |
Q2 2018 |
Q3 2018 |
Q4 2018 |
|---|---|---|---|---|
|
EPS estimated |
($0.49) |
($0.29) |
$0 |
($0.41) |
|
EPS actual |
($0.27) |
($0.23) |
$0.38 |
($0.31) |
|
Difference |
$0.22 |
$0.06 |
$0.38 |
$0.10 |
|
% Surprise |
44.90% |
20.70% |
N/A |
24.40% |
Data source: Yahoo! Finance.
Despite Hess' consistent outperformance, analysts don't expect much from the company during the first quarter. The current consensus is that it will report an adjusted loss of $0.30 per share. That's only a $0.01 per share improvement from the fourth quarter even though oil prices rebounded sharply.
Because of that, there's a high probability of Hess beating expectations once again during the first quarter. If the company comes in well ahead of the consensus, it could give shares a jolt.
Production needs to come in strong, especially in the Bakken
One of the drivers of the company's better-than-expected financial results last year was production. During the fourth quarter, for example, Hess produced above its guidance range, fueled in part by continued strong results from new wells in North Dakota's Bakken Shale. Overall, output in that region averaged 126,000 barrels of oil equivalent per day (BOE/D), which was up 15% year over year and 1,000 BOE/D above its forecast.
Hess expects continued production growth during 2019. The company sees its Bakken output coming in between 130,000 and 135,000 BOE/D during the first quarter. Ideally, the company will produce at or above the high end of that range. Given the company's improving well performance in the region, that's a definite possibility as long as it didn't run into any weather or infrastructure problems. Delivering high-end performance would increase the probability that the company achieves its full-year forecast of growing output in the region by 19%.
Higher oil prices could provoke positive changes to its 2019 plans
Most oil producers reduced their drilling budgets for 2019 in response to crashing oil prices during the fourth quarter of 2018. Hess, on the other hand, boosted its spending plan by 40% to $2.9 billion. That gave it the funds to ramp up its activity levels in the Bakken to fuel fast-paced growth as well as develop its offshore oil discoveries in Guyana with ExxonMobil.
However, with crude prices surging, Hess is now hauling in more cash than anticipated. The company initially thought it would reach an inflection point next year, when the first phase of its Guyana development with ExxonMobil comes online. That timeline could move up into 2019 thanks to higher oil prices. The company would have several options for that free cash, including bolstering its balance sheet, drilling more wells in the Bakken, or returning it to shareholders through additional stock repurchases. While all options could create value for investors, the last one might provide the most immediate boost.
Potential catalysts abound
Hess has already rallied sharply this year on the dual fuels of its stronger-than-expected fourth-quarter results and a big-time rebound in oil prices. Its upcoming first-quarter report could provide more catalysts for the stock. That potential upside makes it one of the more intriguing oil stocks to watch this quarter.
