Secondary Offering Sinks Hess Shares

Very early Friday morning, independent oil and gas producer Hess Corp. (NYSE: HES) announced that it had priced an underwritten offering of 25 million shares of common stock at $39 per share and a concurrent offering of 10 million depositary shares at a price of $50 a share. Thursday’s closing price on Hess common stock was $43.47, and the impact on Friday’s opening price was predictable: shares are down about 11% in the first few minutes of trading.

The depositary shares represent a 1/20th interest in one share of 8.00% Series A mandatory convertible preferred stock with a liquidation preference of $1,000 per share. Underwriters in the offerings have been granted 30-day options to purchase up to 3.75 million additional shares of common stock and up to 1.5 million additional depositary shares.

Net proceeds of about $945.8 million from the common stock offer and $485.3 million from the depositary share offer will be used to “strengthen the Company’s balance sheet and for general corporate purposes including funding its longer term capital needs and the cost of the capped call transactions described below.” Both offers are expected to close on February 10.

When Hess reported an adjusted net loss of $1.40 a share last week, the company also said it would cut its capital spending budget from $4.1 billion in 2015 to $2.4 billion in 2016. The stock issuance announced Friday reflects an effort to maintain that level of spending while still paying the company’s 2.54% dividend yield without raising Hess’s debt-to-EBITDA ratio.
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Shares traded down about 9.9% at $39.20 Friday morning, in a 52-week range of $32.41 to $79.00. The consensus price target on the stock is $56.04. Shares had already traded about four times average daily volume of 4.8 million.