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Elliot Management Urges Hess Spinoff of Bakken Assets, Shares Spike Higher

Elliot Management Urges Hess Spinoff of Bakken Assets, Shares Spike Higher

Elliot Management's Paul Singer urged Hess (NYSE: HES) to conduct a full strategic review of the company, including the possibility of selling the company's Bakken Shale assets.

Singer, the noted activist investor, wrote a letter to shareholders Tuesday urging them to accept five new board members supported by Elliot. Elliott Management owns four percent of Hess's common stock, the largest initial investment in its 35-year history.

On January 25, Elliot gave notice to Hess that it was seeking to purchase approximately $800 million in shares and seek new board members upon completion of the purchase. “Lack of focus is a chronic issue at Hess that remains unchecked by the board,” Elliott said in the letter. “New directors are needed for real change.”

The firm also said that shares could be worth as much as $126 per share if the company could unlock the true value of all of its assets. This would represent a more than doubling of Monday's closing price of $62.48 per share.

Edward Westlake, co-head of Oil and Gas Equity Research at Credit Suisse, posted a note Monday indicating that the stock could be worth as much as $98.80 per share on a sum-of-the-parts analysis. This is well below the $126 indicated by Elliot Management but nevertheless represents significant upside. The stock remained with a neutral rating at Credit Suisse.

Of the board members proposed by Elliot for Hess, four of the five have experience in the oil and gas industry. The fifth is Harvey Golub, former CEO and Chairman of American Express (NYSE: AXP).

The suggestion to sell Bakken assets is interesting as many companies are looking to get into the shale boom, not exit it. Elliot may be concerned that the lack of infrastructure in the region to support the transportation of fuels once they are drilled could hurt land values in the future and could be pushing for a sale before prices begin to fall.

Paul Singer is the founder and President of Elliot Management which oversees two separate funds, Elliot Associates LP and Elliot International LP, with a combined $21.5 billion of assets under management. The position represents about four percent of the total AUM of the firm.

Hess shares rose 9.51 percent at the market open to $68.42 per share. The stock is near the top of its 52-week range of $39.67 to $70.77.

Latest Ratings for HES

Nov 2019DowngradesSector OutperformSector Underperform
Nov 2019MaintainsOverweight
Oct 2019ReiteratesBuy

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