Hess Exiting Refining Business With Sale of Terminal Network

Published in CSP Daily News

Remains committed to retail, energy marketing businesses

NEW YORK -- Hess Corp. has announced that it will pursue the sale of its terminal network in the United States. Hess also announced that it will complete its exit from the refining business by closing its Port Reading, N.J., refinery. Hess will continue its long-term commitment to the Retail and Energy Marketing businesses, it said.

Hess is one of the larger independent gasoline-convenience retailers on the East Coast with more than 1,350 stations and c-stores in 18 states including 290 Hess-branded locations in Florida. It will take all the necessary steps to ensure supply security, competitive prices and high-quality service for its customers, the company said.

In addition to the proceeds from the sale of the terminal network, the transaction should also release approximately $1 billion of working capital for redeployment to fund Hess' future growth opportunities.

The terminal network is located along the U.S. East Coast and has a total of 28 million barrels of storage capacity in 19 terminals, 12 of which have deepwater access. The terminals previously served as the primary outlet for Hess' share of production from its HOVENSA joint venture refinery, most of which was used to supply Hess' Retail and Energy Marketing businesses. With the closure of the HOVENSA refinery in 2012 as well as Hess' ability to access refined products from third parties to supply these marketing businesses, the terminal system is no longer core to the company's operations. The company's St. Lucia oil storage terminal in the Caribbean with 10 million barrels of capacity will also be included in the package for divestiture.

The Port Reading refinery, which will be closed by the end of February, is comprised solely of a fluid catalytic cracking unit and it primarily manufactures gasoline and components used for blending heating oil. The refinery incurred losses in two of the past three years. The financial outlook for the facility is expected to remain challenged due to the requirement for future expenditures to comply with environmental regulations for low sulfur heating oil and the weak forecast for gasoline refining margins.

"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," said John Hess, chairman and CEO.

Kenneth Shriber, managing director of Petroleum Equity Group Ltd., Chappaqua, N.Y., was surprised to learn about Hess's intention to sell its terminal assets.

"Proprietary terminals in strategic areas (like the East Coast) have historically been highly profitable despite the costs of compliance with increased environmental regulation, and especially in cases where there is a readily accessible outlet for the throughput, which Hess has," he told CSP Daily News. "Storage terminals with pipeline and barge access have also become highly coveted by hedge funds, MLPs and other investors. Perhaps these assets are worth more to others than to Hess, and it is likely that they have other purposes for the capital which deliver a greater upside than the ongoing and near-term cash flow from terminal ownership and operations."

Hess has retained Goldman, Sachs & Co. as its financial advisor for the divestiture of the terminal network.

New York City-based Hess is a leading global independent energy company primarily engaged in the exploration and production of crude oil and natural gas, and the marketing of refined petroleum products, natural gas and electricity.