As if anyone needed more evidence of the difficult path to profits in the oil refining business, Hess Corp. (NYSE: HES) said this morning that it will shut down its Port Reading, N.J., refinery and try to sell its 28 million barrels of terminal storage capacity. Hess closed its joint-venture 350,000 barrel-a-day refinery in the U.S. Virgin Islands last February. Petroleos de Venezuela SA (PdVSA) was the company’s partner in that refinery.
With crude on the East Coast priced at higher Brent crude levels, the refineries have faced a severe disadvantage compared with mid-continent refineries with access to cheaper West Texas Intermediate crude. As transportation networks for the cheaper crude work their way into the eastern United States, the differential will likely only get worse before it gets better.
The company’s CEO said:
By closing the Port Reading refinery and selling our terminal network, Hess will complete its transformation from an integrated oil and gas company to one that is predominantly an exploration and production company and be able to redeploy substantial additional capital to fund its future growth opportunities.
Maybe, but at least equally likely is an acquisition. Hess is shedding its money-losing operations and the company may end up being too small to make it on its own. The company’s proved reserves at the end of 2011 totaled 1.57 billion barrels of oil equivalent, and nearly half of those are undeveloped. In 2011, the company produced 370,000 barrels of oil equivalent a day.
The good news for Hess is that it holds leases on 900,000 net acres in the Bakken play and more than 100,000 acres in the Eagle Ford play. The company also completed the acquisition of some 85,000 net acres and a 50% interest from Consol Energy Inc. (NYSE: CNX) in another 200,000 acres in the Utica shale play.
Shares in Hess are up 6.2% at $62.50 in a 52-week range of $39.67 to $67.86.