UPDATE 3-Hess profit soars, lifted by higher prices, lower costs

Wed Apr 24, 2013 5:56pm BST

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* Books one-time gain of $588 mln, largely on asset sales

* Adjusted profit $1.95/share vs Wall Street estimate $1.59

* Bakken oil output rises 55 pct

* Shares up nearly 3 percent

By Anna Driver

April 24 (Reuters) - Hess Corp, under pressure from investors to improve returns, reported a better-than-expected first-quarter profit on Wednesday, helped by higher oil and natural gas prices and lower costs.

Shares of Hess rose nearly 3 percent to $70.20 in midday New York Stock Exchange trading.

Earlier this year, in response to criticism from hedge fund Elliott Management, Hess accelerated its plans to turn itself into a company focused solely on oil and gas exploration and production.

Roger Read, a Wells Fargo analyst, said in a note to clients that the earnings beat "could bode well for Hess management" in its proxy fight with Elliott.

"We are making substantial progress toward our goal of becoming a pure-play exploration and production company. However, there is still much to do," Hess Chief Executive John Hess told analysts on a conference call.

As part of its strategy, Hess has announced the sale of assets in Texas and Russia and other international properties and has said it will exit the refining and retail businesses. . Proceeds from the asset sales will first be allocated to retire $2.5 billion in short-term debt, Hess said.

Elliott Management, which owns 4.5 percent of Hess' shares, has accused management of destroying shareholder value and has asked the company to consider spinning off its U.S. onshore assets. Elliott is also pushing to elect five independent directors to the board of the New York-based company.

Hess took action to increase shareholder returns in March, announcing a higher dividend and a $4 billion share buyback. It has also said it will nominate six new directors at the annual meeting in May in the wake of criticism that the current board lacks independence.

First-quarter net income soared to $1.28 billion, or $3.72 per share, from $545 million, or $1.60 per share, a year earlier, boosted by a gain of $588 million, largely from the sale of assets in the UK North Sea and Azerbaijan.

Excluding certain special items, Hess earned $1.95 per share. On that basis, analysts' average forecast was $1.59, according to Thomson Reuters I/B/E/S.

Revenue soared 39 percent to $4.12 billion.

Production fell 2 percent to 389,000 barrels of oil equivalent (boe) per day due to the asset sales and lower output in the Valhall field in Norway.

Production from the oil-rich Bakken shale in North Dakota was up 55 percent at 65,000 boe per day. Bakken production in May will likely stay around that level as the company builds an inventory of wells that have been drilled but not yet completed, Hess said on the call.

Analysts at CapitalOne SouthCoast said Hess' earnings beat was driven by higher-than-expected oil and gas prices and lower costs.

Hess said its average worldwide crude oil selling price rose about 5 percent from a year earlier to $94.50 per barrel in the quarter. The company's natural gas price was $6.62 per thousand cubic feet (mcf), up from $6.23 per mcf a year earlier.

The cost to drill a well in the Bakken fell 36 percent from a year earlier to $8.6 million, Hess said.

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