Elliott Management Corporation (“Elliott”), one of the largest shareholders of
Hess Corporation HES, today issued the following statement to
shareholders:
We are very pleased by the resounding support we've seen over the past few
days for the group of highly-qualified independent shareholder nominees
submitted by Elliott Management.
It is extremely rare for both ISS and Glass Lewis to endorse an entire
dissident slate. In fact, these independent proxy advisory firms have fully
supported a multi-person shareholder nominee slate only one other time in the
past five years.
Taken together, Hess's recent actions and statements have been deeply
disappointing for shareholders. Its intolerance of ideas different from its
own is a major cause of the Company's underperformance. Its complete denial of
reality and increasingly desperate “bunker mentality” does nothing to serve
the interests of shareholders.
Since ISS and Glass Lewis announced their recommendations, John Hess has
launched a number of attacks – against Elliott, against the independent
Shareholder nominees, against ISS and Glass Lewis, and even against proxy
voting advisory firms in general. But one thing he has not done is answer the
question: Why should Shareholders believe this time will be different?
The Market Has Been Writing About Fundamental Problems at Hess Since 1997
Unless Shareholders vote the GREEN proxy card to bring accountability to Hess,
we have no reason to believe that performance will improve.
But don't take Elliott's word for it. While Hess may deny and lash out,
everyone knows real problems exist at the Company:
_________________
“HES has been what we call a ‘value trap' for some time.”
– Societe Generale (January 30, 2013)
“In multiple client conversations throughout the day we found literally no one
that defended the shape, nor global strategy of Hess.”
– Deutsche Bank (January 30, 2013)
“The simple fact is the market doesn't trust Hess to run its business well,
and thus places a discount on everything the company controls.”
– Morningstar (January 29, 2013)
“This is the most undermanaged major oil company in the world.”
– Jim Cramer, CNBC Faber Report (January 29, 2013)
“And so, one of the problems is the board is stuffed with incredibly
long-serving members, none of whom seem to have any experience outside the
company running an oil company, so there's a real lack of oil industry depth
here. And coincidentally, they also happen to have very strong financial
connections with the Hess family, helping to run the charitable board, helping
to run the estate of the founders.”
– Reuters Breakingviews (January 29, 2013)
“…Hess' board has consistently failed its shareholders and has never brought
management to task, ever…. In light of the company's poor performance the last
decade, this is clearly a board that gives John Hess what he wants, rather
than doing what is good for shareholders.”
– Morningstar (January 29, 2013)
“The stock price reflects concern about ballooning capital costs, chronic lack
of free cash flow, a high oil price breakeven, and recent difficulty executing
against guidance and expectations.”
– Deutsche Bank (October 17, 2012)
“We think the market will largely adopt a wait and see approach and not give
any free passes to management until clear path towards their cash flow targets
and execution capability is evidenced…From a valuation perspective, we think
the stock is relatively cheap as a result of the company's less-than-stellar
historical performance record and perceived execution risk.”
– Barclays (July 26, 2012)
“The large variability in capex versus original guidance (just set six months
ago) demonstrates some lack of capital discipline within the company.”
– Citigroup (July 25, 2012)
“On the upstream side, we question whether the company has the bandwidth to
operate in over 20 countries… We do not believe a company of Hess's size will
get credit in the market for a shotgun approach to investing across the world.
“
– Citigroup (July 20, 2012)
“The key issue for HES in our mind is capital intensity and the inability of
management in recent years to live within the limits of its cash flows.
Furthermore, given the lack of growth in oil and gas production over the last
5 years, there is a case to be made that the company should return more cash
back to shareholders instead of attempting to grow at all.”
– Citigroup (July 20, 2012)
“We are skeptical that Hess's current global growth strategy will yield
superior returns or growth, as its organization appears to be spread thin and
we think it is unlikely that Hess can have a competitive advantage in all the
areas it is pursuing.”
– Goldman Sachs (June 11, 2012)
“We believe Hess should consider further reducing its exploration program
beyond what has already been announced. It is not clear to us given the levels
of exploration spending versus cash flows that a mid-sized oil company can
successfully pursue a global exploration strategy as Hess has attempted….The
company's high-risk/high-potential exploration and acreage strategy since 2009
is thus far not yielding favorable results.”
– Goldman Sachs (June 11, 2012)
“The 7% pullback in the stock was severe, and in our view, is indicative of a
loss of investor confidence in HES's execution capabilities, following a
string of production misses and a lack of notable exploration success, in
addition to a growing deficit between capex and cash flow. Entering 1Q'12, HES
had missed its production guidance for four of the preceding 5 quarters,
meaning execution was at a premium.”
– Simmons (April 26, 2012)
“Although we think the company's underlying asset value is worth significantly
higher than our near-term price target, we now believe the shares will likely
continue to struggle throughout this year and will trade substantially below
our estimate of its fair asset value due to the lack of visible catalysts as
well increased investor skepticism over management's execution record…”
– Barclays (April 26, 2012)
“To summarize, the key growth assets underperform, expectations are lowered,
and a key investor fear – Hess's propensity to outspend cash flow – is stoked
by an early upward revision to the 2012 budget.”
– Deutsche Bank (April 25, 2012)
“Flowing through from the high capex and low growth, the company has the
lowest yield and lowest dividend growth combination amongst major oils.”
– Deutsche Bank (July 27, 2011)
Dating Back To the Last Decade…
“The company has continued to be a net issuer of equity…at a time when most of
the other majors have been buying stock back… and has produced low return on
capital employed for most of the present decade.”
– Bernstein (October 22, 2009)
“The company's refining and marketing assets remain emphatically not for sale,
despite the fact that redeploying downstream invested capital…to the much
higher returning upstream would make solid business sense.”
– JP Morgan (September 17, 2009)
“Hindsight: We can't believe you're back to more hedging.”
– Deutsche Bank (September 29, 2008)
“Notwithstanding the romance of Leon Hess's development of the company from
one oil delivery truck into a multi-billion dollar enterprise, by the early
2000's the company's reputation with investors was one of a struggling oil
essentially run as if it were private.”
– Deutsche Bank (August 7, 2007)
“Historic mistrust, with certain major potential shareholders reluctant to
invest based on the issues the company faced in the past with a distinctly
mixed record of shareholder value creation to say the least. Ultimately, John
Hess is still in charge, and that provides a major link to the past. Hess has
historically shown poor performance on operational metrics…”
– Deutsche Bank (August 6, 2007)
“The change in 2008 estimated EPS is due to our belief in the industry-wide
cost pressures being sustained into next year and the company's inability to
manage them quite as successfully as do the Majors.”
– Bank of America (April 26, 2007)
“Continued exploration losses are value destructive.”
– Deutsche Bank (October 25, 2006)
“It is important to highlight that the highest paid companies are also the
best performers, with the arguable exception of Hess. He is a dynastic
executive left in a business that resonates with family fortunes…”
– Deutsche Bank (August 24, 2006)
“We think the frequency of HES's analyst meetings could be increased. How
about biannual?”
– Merrill Lynch (May 22, 2006)
“The key question, in our view, going forward is whether Hess is starting to
spread itself too thin via a growing project portfolio list.”
– Goldman Sachs (April 26, 2006)
“The aggressive upstream exploration story driven by John O'Connor is under
pressure, as a run of dry holes is looming larger. With no completion target,
the story has an uncertain future, costs are rising and prospects are pushed
from this year to next.”
– Deutsche Bank (April 26, 2006)
“This company has not historically shown good capital discipline, delivering
one of the highest F&D costs in the sector and one of the lower returns on
capital.”
– Bank of America (January 27, 2005)
“Despite a new record quarterly oil price environment and sequentially much
higher production levels, worldwide unit profitability rose only marginally …
because of continued heavy hedging loss (no surprise here) and a sharp
increase of costs.”
– Lehman Brothers (January 27, 2005)
“Hess's long-term share performance has been hampered by an inability to show
sustainable volume growth and value creation in the upstream…As a result,
Hess's 10-year share price performance has been the weakest among the
integrated oils.”
– Merrill Lynch (October 21 2004)
“Following several years of missed targets, Hess has refrained from offering
production guidance much beyond the current year. Whilst this plays to its
benefit by avoiding the risk of over promising / under delivery, it also
clouds the outlook over the coming years. AHC's reluctance to commit to any
long-term production objectives is understandable in the context of a poor
track record where a succession of aggressive growth targets has been missed.”
– Citigroup Smith Barney (October 11, 2004)
“…Hess needs to spend aggressively to arrest its imploding production profile.
The risk is whether these capital investments will generate competitive
returns, a concern to investors given the recent history of production and
reserve disappointments…”
– Merrill Lynch (April 29, 2004)
“The question, in our view, is whether Hess is truly creating a culture that
is focused on profitability first.”
– Goldman Sachs (February 6, 2004)
“Hess's near-term strategic outlook is fairly clear-cut: the company must
improve. [Hess] will need to regain project management credibility after
disappointing results…”
– Bank of America (January 6, 2004)
… Including the Early Part of the Last Decade
“Having lagged the recent rebound in the sector – adding to what has been
long-term secular underperformance…”
– Goldman Sachs (December 9, 2003)
“We believe Hess had four issues it needed to overcome: Top management was not
as strong as at its competitors; E&P asset base was very mature and
short-lived; Balance sheet was weak; Capital discipline was expressed in
words, but not practiced in actions.”
– Goldman Sachs (December 9, 2003)
“Will perpetual restructuring mode ever end?”
– Goldman Sachs (October 14, 2003)
“Hess released another quarter of disappointing earnings…While offshore
development delays are not uncommon for large oil and gas projects, Hess has
consistently disappointed the market with operational performance over the
past several quarters.”
– Bank of America Credit Research (July 29, 2003)
“… [Hess] a company that we consider the most fundamentally flawed E&P or
integrated in our investment grade universe… Unfortunately, these days a lack
of astoundingly bad news is cause for celebration!”
– Morgan Stanley Credit Research (May 1, 2003)
“With below cost of capital ROACE, high upstream costs, and strategic
impediments due to recurring high debt levels, we believe the Hess shares
should continue to trade at a material discount vs. the integrated peer group.
Moreover… we remain unconvinced that the company's planned upstream growth
will lead to improved profitability and returns.”
– UBS Warburg (April 30, 2003)
“The burden of high debt levels and low returns, with abandoned targets and a
weak near-term production profile, leaves the management in need of
reestablishing credibility and share price performance.”
– Deutsche Bank (April 8, 2003)
“The material erosion of shareholder equity so soon after the completion of
these two acquisitions is a clear disappointment... [It] also must raise
questions as to the acquisition due diligence process within Hess…We believe
investors' confidence in the company has been materially undermined…”
– UBS Warburg (February 3, 2003)
“The continued string of negative news has left management with some work to
do to rebuild investor confidence.”
– Bank of America Credit Research (January 31, 2003)
“We believe Hess should trade at a 5%-10% discount to the Domestic Oils based
on…[and] 3) Damaged management credibility.”
– JP Morgan (January 30, 2003)
“Credibility matters, and Hess has little of it left.”
– Credit Suisse (January 30, 2003)
“REITERATE UNDERPERFORM; E&P DETERIORATION A SERIOUS ISSUE. There is no change
to our Underperform rating for Hess despite the continued slide in its shares.
We believe large write downs at its LLOG and Triton acquisitions coupled with
continued erosion in its base E&P properties point to serious problems with
the company's exploration and production business.”
– Goldman Sachs (January 30, 2003)
“…While investors remain worried over the management's seemingly sloppy
attitude to shareholders' equity…We are increasingly concerned over Hess's
continuing ability to generate these ‘non-recurring' charges …Carelessness
with shareholders equity is a worrying trait in any corporation.”
– Credit Suisse (January 30, 2003)
“…We believe even if the disposal program is completed the portfolio
improvement is unlikely to be sufficient to result in returns in excess of
Hess's cost of capital.”
– UBS Warburg (November 5, 2002)
“…Production forecasts were revised lower supporting concerns that we have had
regarding economic value creation…”
– Morgan Stanley (October 25, 2002)
“Hess's stock fell 12% today on the back of a downgrade to 2003 and 2004
production expectations and a further write-down of the LLOG properties. While
neither of these things is devastating to the company's value, we believe that
management credibility at Hess has been stretched very thin…This charge will
be seen by investors as a continuation of a disturbing pattern of special
charges at Hess…again calling into question the company's judgment…”
– Credit Suisse (October 24, 2002)
“In 2003, Hess's ROACE of 7.6% is the lowest in its peer group and is well
below Hess's cost of capital of 10%-12%.”
– UBS Warburg (September 22, 2000)
“Hess's consistently poor returns…”
– UBS Warburg (September 22, 2000)
And Even Back Into the Last Century!
“Hess announced a broad-based restructuring program involving reductions in
overhead and capital expenditures…Regarding the stock, we maintain our
longstanding Neutral rating. Investor interest is not expected to become
material in this company until returns resemble the cost of capital on a
sustainable basis.”
– Morgan Stanley (December 14, 1998)
“Exploration expense is significantly above average…Hess, with a market
capitalization of $4.5 billion, had 1997 exploration expense of $373 million;
in comparison, Exxon, with a market capitalization of $175 billion, had
exploration expense of $753 million. (In other words, Exxon's exploration
expense is only twice as high as Hess's, while its market capitalization is
almost 40 times as high).”
– Goldman Sachs (September 4, 1998)
“While Hess has not been an earnings story for many years now, the absence of
profits is getting stale.”
– UBS (January 23, 1998)
“Given the continued inconsistency in Hess results…we would not add to
positions at these levels”
– Smith Barney (October 23,1997)
BOTTOM LINE – For 17 Years, the More Things “Change” at Hess
“In recent discussions with shareholders, we have reiterated our belief that
our strategy to transform Hess… is the right one.”
– John Hess (April 15, 2013)
… the More They Stay the Same
“Hess continues to be the perennial turnaround story.”
– Paine Webber (May 7, 1997)
Cast Your Vote for Highly-Qualified Independent Shareholder Nominees
By voting the GREEN proxy card, you can elect five new, outstanding directors
who will evaluate all options for unlocking the substantial value that is
trapped inside the company.
* Rodney Chase (Former Deputy Group CEO, BP): Managed every major business
at BP.
* Harvey Golub (Former CEO, AmEx): Led turnaround resulting in 750% share
appreciation.
* Karl Kurz (Former COO, Anadarko): Helped lead a successful transformation
of Anadarko.
* David McManus (Former EVP, Pioneer): Executed “a text book repositioning
of a portfolio.”
* Mark Smith (Senior VP/CFO, Ultra): Manages lowest-cost operator in
resource play environment.
Please vote for these world-class directors by signing and returning the GREEN
proxy card, voting by phone, or voting online today.
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