Hess Earnings Rise 62% on Higher Prices, Production

By Dan Lonkevich

July 30 (Bloomberg) -- Hess Corp., the fifth-largest U.S. oil company, said second-quarter profit rose 62 percent on higher production and prices.

Net income gained to $900 million, or $2.76 a share, from $557 million, or $1.75, after payment of dividends on preferred stock, a year earlier, the New York-based company said in a statement today. Hess was expected to post earnings of $2.74 a share, according to 14 analyst estimates compiled by Bloomberg.

Hess was paid 74 percent more for its oil in the quarter and 60 percent more for its natural gas. Profit from production, which climbed to 393,000 barrels of oil equivalent per day from 378,000, more than doubled to $1.03 billion.

``Exploration and production exceeded everybody's expectations,'' said Fadel Gheit, an analyst at Oppenheimer & Co. in New York, who rates Hess share `` market perform'' and doesn't own any. ``The only downside was refining. The refinery picture is not getting any better.''

Refining and marketing had a loss of $52 million, compared with a profit of $122 million a year earlier. Hess attributed the refinery loss to the disparity between the cost of purchasing oil and the price of refined products such as gasoline and diesel, which hasn't kept pace with the rising cost of oil. Gasoline demand fell as prices rose above $4 per gallon.

Hess has two refineries, one in Port Reading, New Jersey, and another in the U.S. Virgin Islands, where the St. Croix site is a joint venture with Petroleos de Venezuela SA. The company also sells gasoline through a network of about 1,350 service stations in 14 states on the U.S. East Coast.

Oil, Gas Prices

The company's oil fetched $104.29 per barrel, up from $60.05 a year earlier. Its natural gas earned $7.81 per million British thermal units, up from $4.88. Second-quarter revenue climbed 56 percent to $11.7 billion.

Oil futures on the New York Mercantile Exchange averaged $123.80 in the quarter, a gain of 90 percent from a year earlier. Gas averaged $11.47 per million Btu, up 50 percent.

Chief Executive Officer John Hess has been refocusing the company's capital on regions with the biggest potential reserves such as offshore Gulf of Mexico, Brazil, Australia, Libya and West Africa.

Hess fell $1.78, or 1.9 percent, to $92.47 at 9:37 a.m. in New York Stock Exchange composite trading. Before today, the stock had risen 6.6 percent this year.

Exxon Mobil Corp. is the largest U.S. oil company, followed by Chevron Corp., ConocoPhillips and Marathon Oil Corp.

(Hess will conduct a conference call beginning at 10 a.m. New York time, accessible on the company's Web site at http://www.hess.com.)

To contact the reporter on this story: Dan Lonkevich in New York at dlonkevich@bloomberg.net.