Hess Corp said on Wednesday it would form a master limited partnership (MLP) for its North Dakota oil and natural gas storage facilities and processing plants, taking advantage of a key financial trend in the energy sector to generate cash. The company, which produces oil in North Dakota, Iraq and Ghana, also posted a better-than-expected quarterly profit, sending its shares to levels not seen since before the 2008 recession.
Hess plans to launch the MLP in the first quarter of 2015, giving the new entity – which will trade like equity – control over several assets in Tioga, North Dakota, including a newly opened natural gas processing plant and a crude oil pipeline terminal. Hess will retain control over the MLP in its role as general partner. An MLP conversion has been extremely popular among pipeline and energy transportation companies for the past few years, with Kinder Morgan, El Paso Pipeline Partners LP and others taking advantage of the tax structure.
MLPs are not taxed at the U.S. federal level, lowering their cost of capital for parent companies, and typically have higher quarterly payouts than dividend-paying companies, making them appealing to stockholders. Hess had signaled for months that it was interested in forming an MLP for North Dakota assets. Hess posted net income of $931 million in the second quarter, or $2.96 per share, compared with $1.43 billion, or $4.16 per share, in the year-ago period. Excluding one-time charges, the company posted a profit of $1.38 per share. By that measure, analysts expected earnings of $1.18 per share, according to Thomson Reuters I/B/E/S.
The company’s production dipped to 319,000 barrels of oil equivalent per day from 341,000 boe/d in the year-ago period. The drop was due to production curtailment in Libya because of ongoing violence in that country, as well as recent asset sales as the company streamlines its exploration and production operations. Still, production jumped in the company’s North Dakota Bakken shale holdings by 23 percent to 48,000 boe/d.
The Bakken has been one of Hess’ most-prolific production areas in recent years. The company opened 53 Bakken wells in the second quarter and slashed its well completion costs in the shale formation to $7.4 million, down 12 percent from the same period last year. Hess agreed in May to sell its chain of gas stations and related businesses for $2.87 billion to Marathon Petroleum Corp , a deal that helps Hess focus more on oil production.
In June, Hess sold its 50 percent stake in an under-construction power plant in New Jersey to private equity firm Energy Investors Funds. Terms were not disclosed. Hess is in talks with Russian oil company Lukoil to sell a stake in its offshore project in Ghana, sources told Reuters last month. On Wednesday, Hess executives said they would update Wall Street by the end of the year on plans for the Ghana assets.
Shares of Hess jumped as much as 6 percent in Wednesday morning trading. By midday, the stock was up 2.6 percent to $102 per share.