You want the ultimate buy high, sell low? Take a look at the 33 million shares that Hess (HES) bought in the $80 range when oil was at its high in the halcyon days of 2014 and then look at the 25 million shares sold last night at $39. Now that's a trade for you.
Sure, we know that every single oil company, perhaps save Exxon-Mobil (XOM), wants and needs to raise capital right now. After the disastrous two-thirds cut in the dividend from Conoco (COP) yesterday, we know it isn't enough to just shut in high cost wells and hope for oil to come back.
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Actions to raise capital by selling any assets and issuing any stock are welcome for these companies.
And they can be good for new shareholders. Those who bought the 12 million shares that Pioneer (PXD) sold at $117 Jan. 5 had to suffer through a couple of rocky days, but they are now up nicely with the stock at $123.
But this Hess situation seems particularly egregious. That's because the oil companies that have come through with the best numbers, the ones that are the most sought after here, are those that have terrific downstream operations, notably the retail stores.
Hess had the best of them with the operative term being "had." At the top of the oil market Hess sold its iconic chain for $2.87 billion to Marathon Petroleum (MPC) in May 2014 when oil was at $103. Why?
CEO John Hess said, "(T)he sale of our retail business marks the culmination of our strategy to transform into a pure play exploration and production company."
The proceeds? Hess used a huge part of it to buy back stock.
A pure play without the buffer of retail. The worst trade imaginable at the worst time imaginable.
Now, you could say that Hess just got unlucky. Or you could say that the company was pressured into the move by activists. Paul Singer's Elliott Management had waged a proxy battle the year before and added three members to the board. Hess never point blank came out and said this was Elliott's idea and other oil companies, namely Marathon (MRO) and Conoco did the same thing.
Not coincidentally, Marathon and Conoco are the two majors that put the meat axe to their dividends.
But it is a reminder that the activist pressure on companies can force them to take actions instead of, what was in the case of Hess, leaving well enough alone.
It's also a reminder that not all buybacks are created equal.
The other day, 3M (MMM) announced a $10 billion buyback. Its stock had fallen from $157 down to the $130s. CEO Inge Thulin announced a terrific quarter and then put the money to work at a nice discount to its high.
Hess did the opposite. It sold the crown jewel and it went drilling on Wall Street. Now its existing shareholders are paying the price, just like all of the oil companies. Except in this case it really stings.
Hess was the safe, conservative retailer that sold oil. Now it's the opposite.
I wonder what would have happened had Singer not come calling.
Somehow, I don't think the company would be selling 25 million shares at $39 after buying that many and more in the $80 just a little less than two years ago.
Random musings: Hope you are enjoying the Open House. Please peruse all the premium products we have. It's a darned good institution!
