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Hess Sets Another Buyback, Winning Peace with Activist Investor--Update

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03/08/2018 | 04:38pm CEST

By Bradley Olson and David Benoit

Hess Corp. on Thursday said it would buy back an additional $1 billion in shares, heading off a potentially nasty proxy fight with activist hedge fund Elliott Management Corp.

The share purchase announcement came one day before the company's deadline for nominating new directors. Elliott, which was weighing whether to seek the ouster of John Hess, the company's chief executive, is no longer expected to do so, a person familiar with the matter said.

The hedge fund said in a statement Thursday that it was supportive of the changes at Hess, adding that it also supported a plan by the company to review its operations in North Dakota's Bakken Shale formation.

"We are encouraged that the company has indicated that they are committed to closing the value gap and will be dynamic in exploring further steps to do so," Elliott said.

Elliott, which owns more than 6% of Hess shares, had been seeking greater shareholder returns as the company's performance lagged in the last year, according to people familiar with the matter.

The buyback is in addition to $500 million the company had already announced, bringing the total to $1.5 billion.

The recent skirmish was the second between Hess and Elliott in recent years. The two fought a bitter battle in 2013 that led to Mr. Hess giving up his role as chairman and added Elliott nominees to the board. That fight, which settled on the eve of the vote, also helped spur the sale of some Hess assets, including its brand-name gas stations.

But for now, the company appears to have won another peace.

Many U.S. oil companies are facing investor unrest as shareholders push for more consistent returns after years of lackluster results.

Even investors that have traditionally steered away from activism have taken their cases directly to directors and management teams, demanding new strategies that focus more on profits than production growth. Companies that have failed to fall in line -- restraining their spending, buying back shares or taking steps to change executive compensation -- have been punished in the market.

The movement has even reached some of the world's largest oil companies. Exxon Mobil Corp. announced plans Wednesday to increase spending to $24 billion in 2018 and $30 billion to $35 billion from 2020 to 2024. Chief Executive Darren Woods said Exxon doesn't plan to buy back shares, asserting that the company has better investment opportunities in its business.

Exxon fell 2.5% Wednesday, even as peers such as Chevron Corp. were roughly flat.

For Mr. Hess, the Elliott challenge represented a more direct assault on his leadership. He has spent the past six months meeting with shareholders in an effort to rally support behind a strategy for improving the company's performance that is largely centered on a looming payoff from a giant oil discovery in South America.

The field off the coast of Guyana may be capable of producing up to 700,000 barrels a day in the next decade, according to Exxon, with whom Hess has partnered in the venture.

Many investors and market analysts are enamored with the discovery and its potential, but the prospect isn't expected to begin producing until 2020, leaving some shareholders such as Elliott frustrated in the short term. The hedge fund had sought to push more significant asset sales and a more extensive buyback plan, according to people familiar with the matter.

Hess had previously said its capital plans were tailored to ensure it had the financial wherewithal to fund its portion of the Guyana project. It said Thursday an additional buyback was possible given higher oil prices and increasing clarity on spending plans for the venture.

Hess has had a total shareholder return -- a measure of stock price movement and reinvested dividends -- of 14% in the last six months, according to FactSet. Oil prices are up 25% in that time.

Hess peers such as Anadarko Petroleum Corp., which moved more quickly and aggressively to respond to investor demands, have done better. Anadarko's returned 37% in the last six months, compared to an 11% gain on the S&P 500 Index.

Write to Bradley Olson at [email protected] and David Benoit at [email protected]

Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL -0.17% 24657.8 Delayed Quote.-0.25%
HESS CORPORATION 2.02% 62.64 Delayed Quote.31.96%
NASDAQ 100 0.73% 7280.7047 Delayed Quote.13.00%
NASDAQ COMP. 0.72% 7781.5146 Delayed Quote.11.91%
S&P 500 0.17% 2767.32 Real-time Quote.3.33%
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