Hess Dodges Proxy Battle -- WSJ

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03/09/2018 | 08:48 am
John Hess


By Bradley Olson and David Benoit



This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 9, 2018).



Hess Corp. headed off a potential proxy fight with activist hedge fund Elliott Management Corp. with a plan to buy back an additional $1 billion in shares.



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



The hedge fund said 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 behind during the past year, The Wall Street Journal reported in December.



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 adding 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 gasoline 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 more focus on profit 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 without instituting a major buyback plan. Exxon fell 2.5% Wednesday, even as peers such as Chevron Corp. were roughly flat.



Mr. Hess 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 an oil discovery in South America.



The field off the coast of Guyana might be capable of producing as much as 700,000 barrels a day in the next decade, according to Exxon, with whom Hess has joined 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.



John Levin, founder of asset manager Levin Capital Strategies, which owns more than three million Hess shares, said he was supportive of Mr. Hess because of his work to change the company, even though he favored some aspects of Elliott's push.



"There's merit to much of Elliott's program, but I very much dispute their view" of Mr. Hess, he said.



In recent weeks, Hess and Elliott held talks on how to improve the stock price. Directors also met with big shareholders on the issue and debated internally how the company could provide short-term relief, 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. An additional buyback became possible given higher oil prices and increasing clarity on spending plans for the venture.



If the buyback doesn't manage to turn around investor sentiment, some shareholders might push again for more aggressive action, the people said.



Hess has had a total shareholder return -- a measure of stock-price movement and reinvested dividends -- of 14% in the past six months, according to FactSet. Oil prices rose 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 shares returned 37% in the past six months, compared with an 11% gain on the S&P 500 index.



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





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