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Hess to Sell Utica Dry Gas Acreage for $924M

Hess Corp. announced Wednesday that it plans to sell about 74,000 acres in the Utica Shale, classified as dry natural gas acreage, to an undisclosed buyer for $924 million.

Meanwhile, the New York-based company also reported net income of $1.93 billion ($5.76/share) for 4Q2013, a more than five-fold increase over the $374 million ($1.10) earned in the year-ago period.

According to supplemental earnings information, Hess currently holds 134,000 net acres in the Utica, with 100% working interest in 92,000 net acres and 42,000 net acres with Consol Energy Inc., its joint venture (JV) partner in the play. Hess also has around 31,000 noncore acres (see Shale Daily, Oct. 15, 2013).

It was unclear if the acreage to be sold includes any JV acreage. The JV is active in Ohio's Belmont, Guernsey, Harrison, Jefferson and Noble counties.

"The sale of our Utica dry gas acreage is an example of our continued commitment to grow shareholder value through ongoing portfolio reshaping," said CEO John Hess. "While our wells in the dry gas portion of the Utica were highly productive, we concluded that the potential returns from such an investment, at current and projected natural gas prices, no longer justified retaining this acreage as a strategic part of our overall liquids-based asset portfolio."

The company expects to receive about two-thirds of the proceeds from the sale by the end of March, with the balance coming in 3Q2014. Proceeds from the sale would be used for a $4 billion share repurchase program launched last year, in tandem with a strategy to transform into a pure-play exploration and production company (see Daily GPI, March 5, 2013). Hess had purchased $1.54 billion in shares as of Dec. 31, 2013.

Earlier this month, Hess filed paperwork with the U.S. Securities and Exchange Commission to form Hess Retail Corp., a subsidiary for its convenience stores and gasoline fueling stations (see Daily GPI, Jan. 9).

"The company will determine whether or not to seek an increase to its existing $4 billion share repurchase authorization, approved as part of its [March 2013] announcement, after a final decision is made either to spin or sell Hess Retail," the company said.

Last week, Hess said it would spend $5.8 billion on capital expenditures in 2014, with nearly half going to the development of its unconventional resources in the Bakken and Utica shales (see Shale Daily, Jan. 24).

According to Hess' supplemental earnings information, the company had one rig deployed in the Utica during 4Q2013, and the JV had two more rigs actively working. Eight wells were drilled on JV acreage controlled by Hess during the quarter, but none were drilled on Consol's JV acreage or on Hess' 100%-owned acreage.

Six wells were completed and eight wells were flow tested in the Utica during 4Q2013. Hess said that on the JV acreage, five of its operated wells were tested with an average initial production (IP) rate of 1,810 boe/d, 57% liquids-weighted. On its 100%-owned acreage, three wells were tested at an average IP rate of 2,666 boe/d, 10% liquids-weighted.

For the full 2013, 29 wells were drilled in the Utica, while 24 wells were completed and 17 wells were tested across both the JV and 100% Hess-owned acreage.

Adjusted earnings in 4Q2013 were $319 million (96 cents/share), which included an adjusted net loss of $9 million from the downstream business. Cash flow from operations, before working capital, was $1.16 billion.

Oil and gas production averaged 307,000 boe/d during 4Q2013, down 22.5% from the 396,000 boe/d produced in 4Q2012. Hess said 72,000 boe/d in production was lost due to asset sales, while extended shutdowns caused by civil unrest in Libya caused a reduction of 20,000 boe/d.

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