Citi Upgrades Hess Corp After Bakken Midstream JV Reveal

In a report published Friday, Citi analyst Robert S Morris upgraded the rating on

from Neutral to Buy, while raising the price target from $80 to $88. The company has entered into a joint venture to monetize its Bakken midstream holdings. Hess announced that it will sell a 50 percent interest in its Bakken Midstream Assets to privately-held firm, Global Infrastructure Partners. However, Hess will retain operational control of these assets. "Following the closing of this transaction in early Q3'15, mgmt. stated it expects to proceed with an IPO of this JV – Hess Infrastructure Partners (HIP) – although it did not indicate how many of the then-held HIP units it plans to sell as part of the IPO," Morris reported. The company also announced it expected to achieve gross EBITDA of $290-300 million from the Bakken Midstream Assets during the 12 months to March 31, 2016. Hess also expects the joint venture to lead to decline in its annual E&P net margin, while EV is expected to rise, driven by the cash proceeds from the transaction and the subsequent increase in working capital. "Subsequent to this transaction, and before any possible proceeds from an IPO of HIP, we project that Hess will end the year with a well-below peer average net debt-to-capitalization ratio," the Citi report stated, while adding, "Apart from continuing to assess potential acquisition opportunities, Hess will have even more ‘dry powder' to continue, or accelerate, its share repurchase program."