WSJ : Mining Giants Ride Copper’s Wave

Mining Giants Ride Copper’s Wave
Anglo American, BHP Billiton, Glencore to report earnings this week on back of copper surge

Copper bulls are looking smart—for now.

Some of the world’s biggest mining companies, which have giant copper portfolios, are now poised to reap the rewards, with Anglo American PLC, BHP Billiton Ltd. and Glencore PLC set to report full- or half-year earnings this week.

The industrial metal has surged more than 30% in the past year, providing rocket fuel for companies that were staring into the abyss a year ago. Shares in Anglo and Glencore have more than tripled in the past 12 months. BHP, which has faced headwinds from a fatal tailings-dam disaster at one of its mining operations in Brazil, is up 62%.

Rio Tinto PLC, which is focusing more on its copper business, offered a preview of how miners’ fortunes have flipped to the upside when it reported earnings earlier this month. The Anglo-Australian mining giant said it returned to a profit in 2016 with $4.62 billion in earnings, increased its dividend and announced a $500 million share buyback.

Overall, the miners’ results are expected to highlight a head-snapping turnaround in the past 12 months that has seen the industry pull back from the precipice of financial disaster.
“The past year has brought some reprieve,” said Anglo Chief Executive Mark Cutifani in a speech this month in South Africa. “While market watchers were ready to sound a death knell on mining’s prospects, we are still here, stronger than we were before.”

A year ago, miners were haunted by hair-raising worst-case scenarios in commodities as growth in China stalled, investors panicked and prices fell to what Barclays called their lowest levels in 30 years.

Anglo said it would cut its workforce in half. Glencore frantically raised $4.7 billion from asset sales to trim its debt. Investors told Glencore executives they worried copper could dip below $4,000 a metric ton, threatening the stability of the miner’s debt-laden balance sheet.


But while copper flirted with the $4,000 level, it never breached it. On Friday, copper prices were over $6,000 a metric ton.

The metal’s resurgence partially has been driven by a government economic stimulus program in China, where over 40% of the world’s copper is consumed.

At the same time, supply has come off the market. This year, there have been snags at two of the world’s largest copper mines—labor problems at Chile’s Minera Escondida, jointly owned by Rio Tinto and BHP, and a permit dispute with the Indonesian government for Freeport-McMoRan Inc.’s Grasberg mine. The two mines account for about 8% to 9% of global copper supply, according to analysts.
Glencore took direct action to move copper supplies out of the market, shutting down a large African mine in 2015 in hopes of refurbishing it and reopening it this year when prices rebound. The company also shut down some of its production of coal and zinc in a similar bid to boost prices.

“We’ve contributed to restoring balance in the supply fundamentals,” Glencore CEO Ivan Glasenberg said in a company tweet last week.

While most experts say they expect copper prices to remain strong in the near term, China’s economy hangs over the market. The slightest hiccup there can send painful ripples through the industry.

“It’s China that’s driving the market,” said Paul Benjamin, global director of copper markets at Wood Mackenzie.

To be sure, miners’ are also buoyed by the surging price of other metals and commodities such as coal and iron ore. And most miners’ stocks remain well below the nosebleed levels they reached several years ago at the height of the China-fueled commodity “supercycle.”

But more than the other materials, the resurgence of copper prices is a boon for strategic bets made recently by big miners.

Rio Tinto recently said it would advance production at a major mine in Mongolia that will be one of the world’s biggest when it starts producing in 2020. Rio Tinto has bulked up its copper profile to help diversify away from iron ore and coal, and CEO Jean-Sebastian Jacques was installed last year after running the company’s copper division.

Glencore on Monday raised its copper bet with a $534 million deal to buy out a large partner’s stakes in Katanga and another big Congolese copper mine.

Copper accounted for 33% of Glencore’s earnings before interest, taxes, depreciation and amortization in the first half of 2016, and 18% of Anglo’s total.

“We see copper moving from a headwind in 2016 to a tailwind in 2017” for Glencore, Credit Suisse said in a Feb. 17 note.

Demand for copper is expected to outpace production in 2017, putting the market in a supply deficit for the first time in years. While total copper production is expected to come in at 22.64 million metric tons, consumption is expected to reach 22.92 million tons, resulting in a deficit of 275,000 tons, according to commodity consultancy Wood Mackenzie. In 2016, the copper market was oversupplied by 345,000 tons.

FT : Millions of expats caught in Brexit no man’s land

Millions of expats caught in Brexit no man’s land
Negotiating a deal to secure citizen rights faces numerous obstacles

When Greenland left the European Community in the 1980s, the legacy rights of expatriate citizens were guaranteed with a legal act of extraordinary simplicity: the operative article runs to just 85 words.

The fate of 4m EU and British expatriates looks far more uncertain and complex. One senior Brexit negotiator fears talks on citizen rights could sink into “a horrible legal morass”.

“It’s immense. Every time you think you’re across it, you turn another corner and find another mess,” said another senior EU diplomat.

Both London and the EU-27 agree on a broad goal: a reciprocal deal to guarantee the rights of 3m EU citizens in Britain, and some 1m British expats within the union. But within the detail of that superficial agreement lies an expat lifetime’s worth of politically-sensitive choices.

Residence definitions, pension rights, unborn children, the ability to move, claim benefits, marry, divorce, even commit crime and avoid deportation — an entire cycle of modern life is potentially touched by the Brexit agreement.

“We can’t hide the fact that it is complex,” said Guy Verhofstadt, the European Parliament’s chief Brexit negotiator.

“But if we base ourselves on the principles of reciprocity and a uniform approach by the EU-27 then in my view there is no reason why we cannot find a lasting and equitable solution.”

Here the FT runs through seven obstacles to a deal.

Nothing can be taken for granted

There is no systematic register of when expats arrived in their current place of residence. Worse still, EU officials think it is not feasible to create a comprehensive one before the expected Brexit date in 2019. So even if some rights are guaranteed, citizens will need to prove eligibility. Britain’s 85-page residency form offers an insight on the bureaucracy ahead.

Not all expats are the same

No British politician has questioned the right to remain of legitimate EU migrants. But that is only one small sliver of EU citizen rights. At issue are work rights, welfare access, health provision, discounted student fees, even the ability to draw a UK state pension 50 years from now. And these rights depend on circumstances.

Under EU law, migrant workers have different rights to students, pensioners or jobseekers. Residing in a country for more than five years — and thereby gaining “permanent residence” — is an important threshold for gaining rights. But decisions will depend on proof.

Circumstances change

Managing change will be hard. If an expat marries, what rights would their partner enjoy, and would their nationality matter? Could they bring in-laws to the country? Similarly an expat’s legal status may evolve over time, should they lose their job or move country.

The law, too, will evolve. The EU may legislate to change rights post-Brexit. EU nationals may want to challenge Britain’s application of their rights. Would that be in British courts or European courts? And whose interpretation of EU law would prevail? A big role for European courts would cross a red line for London.

The two sides want to guarantee different rights

The EU-27 want to maintain full rights for EU expats but this could be tricky for Mrs May. If existing welfare rights remain intact, for instance, EU migrants could still claim UK child benefit for dependants in Paris or Warsaw — long a British tabloid bugbear. Full ​EU rights would also restrict Britain’s ability to deport an EU migrant who ​has ​committed crimes​ after Brexit.

A third example is pensions. Presently a Brit moving to Australia can draw their UK state pension, but it would be frozen, and not increased in line with inflation and earnings. A Slovak or German migrant worker who leaves Britain, by contrast, would enjoy better rights: their full UK pension drawn overseas and uprated every year.

There may need to be dozens of deals

Brexit poses two questions on citizen rights: the legacy rights of current expats, and what terms future expats may enjoy.

Britain may seek to tackle both in one deal — reciprocated by the EU. That would apply a single — probably less generous — regime of rights to all present and future EU migrants, covering health, benefits and citizenship.

Potential problems will arise from watering down EU rights. That is because the EU-27’s first and foremost concern is preserving full rights for the existing 3m migrants, rather than future flows.

Depart too much from the EU’s legal baseline and EU negotiators warn a citizen rights deal may not be possible under the Article 50 exit clause. Instead country-by-country bilateral deals may be necessary with each of the 27 members. That is hard to negotiate and ratify, and even harder for expats to understand and apply.

Beware the cut off point

No Brexit deal on rights can be open-ended. Negotiators are looking at various cut-off points: the lifetime of the eligible expats; a period of time, say 5 or 10 years; or until the point at which the expat gives up their enhanced rights by moving country. All three options have political and technical upsides and downsides.

One complication is that some rights — such as pensions — will be for life and even cover former expats. Then there is the eligibility date. British ministers want to draw a line on EU free movement rights and are looking at three options: the point of the Brexit referendum, the Article 50 notification, or Britain’s exit. EU-27 negotiators see nothing to discuss: EU rights and obligations continue until the point Britain leaves.

Early, late or hard?
Expat rights will be one of the first topics to be discussed in Brexit talks. Both sides want a quick deal but that may be impossible. Diplomats are scrambling to work out what would happen in the event of no deal. Expats would basically be at the mercy of national governments.

But there are some protections. EU law does cover safeguard rights for some third-country nationals. And a raft of dormant UK bilateral agreements with European countries on welfare — superseded by EU membership — may be revived. One such agreement dug up: a 1923 Anglo-Finnish treaty on “the disposal of the estates of deceased seamen”.

FT : Kraft Heinz drops $143bn pursuit of Unilever

Kraft Heinz drops $143bn pursuit of Unilever
Buffett and Lemann feared public battle could have been damaging

Kraft Heinz, the Warren Buffett-backed US food group, dropped its $143bn pursuit of consumer products rival Unilever on Sunday, only two days after publicly confirming its interest in acquiring the Anglo-Dutch rival.

Kraft Heinz said in a joint statement with Unilever that it had “amicably agreed to withdraw its proposal for a combination of the two companies”.

A takeover would have created the world’s second-largest consumer goods group by sales behind Nestlé, combining brands such as Kraft Mac & Cheese and Heinz Tomato Ketchup with Unilever’s Dove soap and Magnum ice cream.

The companies said: “Unilever and Kraft Heinz hold each other in high regard. Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever.”

The announcement came after a report in FT Alphaville on Friday forced Kraft Heinz to confirm it had approached Unilever about a combination to create a juggernaut in packaged foods and household items.

Kraft Heinz said in a separate statement that its “interest was made public at an extremely early stage. Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction.”

It added: “It is best to step away early so both companies can focus on their own independent plans to generate value. We remain focused on driving long-term value while always putting our consumers first.”

Two people close to the talks said Warren Buffett and 3G Capital’s Jorge Paulo Lemann, Heinz Kraft’s main shareholders, decided on Sunday morning to withdraw the bid after they concluded that a protracted public battle to take over Unilever would have caused more damage than good.

Mr Buffett’s Berkshire Hathaway and Mr Lemann’s 3G control just under 50 per cent of Kraft Heinz shares. The duo, who would have contributed significant new capital to fund the deal, were also spooked by the hostile response from UK politicians, according to one of these people. The British government had raised concerns about another large company being acquired by a foreign group in the aftermath of the vote to leave the EU

Another person said the early leaking of Kraft’s interest in Unilever made it hard for the US company to negotiate a deal that would have been attractive to both sides. “Kraft Heinz was ready to make a lot of concessions, including taking on the Unilever name, to make this deal happen but unfortunately it leaked too early and that made it hard to negotiate,” this person said. Kraft Heinz was prepared to “substantially increase” its offer.

Both companies began meetings with the UK government over the weekend after British prime minister Theresa May ordered senior officials to examine the proposed takeover to see if it warranted government intervention.

The Kraft Heinz bid would have been a big test for the UK government’s industrial policy. Mrs May had already called for greater powers to prevent predatory takeovers, citing Kraft Foods’ 2010 takeover of UK chocolate maker Cadbury, where the acquirer later reneged on promises to retain factories in Britain.

Sir Vince Cable, business secretary during the coalition, tweeted: “Good news #kraft back off #unilever takeover. But many less famous names are sitting ducks thanks to post #Referendum devaluation.”

The decision by Kraft Heinz to walk away, marks a significant victory for Unilever chief executive Paul Polman, who becomes the first consumer industry leader to defeat 3G in a public takeover battle.

A deal would have brought together two companies with radically business cultures. With a stable of slower-growing brands, Kraft Heinz is heavily concentrated in the US and was formed in the last few years through debt-laden deals.

Using 3G’s approach to management, it implements aggressive cost-cutting strategies to generate margin expansion that allow it to repay the debt and bolster shareholder returns. Meanwhile, Unilever is better known for its strong brands and presence in some of the biggest emerging markets. Under Mr Polman, it has also attempted to focus on trying to better balance profitability with environmental sustainability.

The Anglo-Dutch company said on Friday that the $50-a-share cash and stock offer, an 18 per cent premium to its closing price on Thursday, “fundamentally undervalues Unilever”.

It added: “Unilever rejected the proposal as it sees no merit, either financial or strategic, for Unilever’s shareholders. Unilever does not see the basis for any further discussions.”

The unusually strong rejection meant the US group faced an uphill battle to strike a deal. One person close to Kraft Heinz said the US company had a cordial dialogue in the weeks leading up to the proposal, which was made about 10 days ago, and was surprised by the terse language in the public rejection on Friday.

The end of Kraft Heinz’s bid for Unilever will also restart speculation over its next big acquisition target, as analysts had previously thought the US company was more like to go after targets such as Mondelez International, the snacks company, or cereals group General Mills.

Shares in both Unilever and Kraft Heinz are expected to fall on Monday. Unilever’s UK-listed shares had risen 13.4 per cent to £37.97 by the end of last week, making its equity worth £114bn. Kraft Heinz stock climbed 10.7 per cent to $96.65, giving it a market value of $130.2bn, as its investors anticipated the benefits of the company’s next megadeal.

Unilever was defended by law firm Linklaters and bankers at Centerview Partners, Morgan Stanley, UBS and Deutsche Bank. Kraft Heinz was working with law firm Paul Weiss and bankers at Lazard.

>>> Asian Update

Asia Mid-Session Market Update: Beijing voices opposition to US carrier presence in South China Sea; Japan trade balance in deficit on rising imports

***Friday US markets on close: Dow flat, S&P500 +0.2%, Nasdaq +0.4%***
- Best Sector in S&P500: Telecom
- Worst Sector in S&P500: Energy
- Biggest gainers: KHC +10.7%; VFC +4.6%; CL +4.3%
- Biggest losers: CPB -6.5%; fls -4.8%; GIS -3.8%
- At the close: VIX 11.5 (-0.3pts); Treasuries: 2-yr 1.19% (-2bps), 10-yr 2.43% (-3bps), 30-yr 3.03% (-2bps)

***Weekend US/EU Corporate Headlines***
- ULVR.NV: Kraft Heinz withdraws $143B offer for Unilever
- RBS: UK Treasury has brokered a new deal with EU over the £46B bailout received by RBS in 2008 amid Brexit fears; new measures will cost RBS £750M, to be written off as a cost in this week's annual results - UK press
- SAZ.DE: Bain Capital said to have submitted competing €3.6B takeover bid at €58/shr - press

***Politics***
- (JP) Japan PM Abe's cabinet approval rating rises 5pts to 66% - Yomiuri
- (US) Homeland Security Secretary (DHS) Kelly said to consider a new "streamlined" version of Executive Order on immigration - press

***Key economic data:***
- (JP) JAPAN JAN TRADE BALANCE: -¥1.09T (first deficit in 5 months) V -¥626BE; ADJ TRADE BALANCE: ¥155B (1-year low) V ¥276BE
- (NZ) NEW ZEALAND Q4 PPI INPUT Q/Q: 1.0% V 1.5% PRIOR; PPI OUTPUT Q/Q: 1.5% V 1.0% PRIOR
- (NZ) NEW ZEALAND JAN PERFORMANCE OF SERVICES INDEX: 59.5 (16-month high) V 58.5 PRIOR
- (KR) SOUTH KOREA JAN PPI M/M: 1.3% V 0.9% PRIOR; Y/Y: 3.7% (5-year high) V 1.8% PRIOR

***Asia Session Notable Observations, Speakers and Press***
- Asian equity markets trading mixed to start the week, with Australia dragged down by disappointing earnings from Brambles and WorleyParsons, while Shanghai Composite is faring better despite the rising geopolitical risks. Overall trading sentiment is somewhat muted by the US holiday on Monday, as investor also await this week's FOMC policy minutes for further hints of just how close the Fed is to another policy tightening. Ahead of that release, Fed's Mester (hawkish, non-voter) stated she sees the US economy on solid footing, but also added it will take some time to for Fed to shed MBS from its balance sheet.
- Weekend security summit in Munich, Germany yielded some more conciliatory and less isolationist rhetoric from US govt officials, including VP Pence. However, some focus also turned to China, and US Sen Lindsay Graham said there may be bipartisan Congressional support if Pres Trump decides to name Beijing a currency manipulator. In the mean time, China defense officials expressed displeasure to US aircraft carrier USS Carl Vinson beginning patrols in the South China Sea.
- In economic data, Japan trade balance was the most notable event with a much wider deficit than anticipated. Exports growth was slower than expected at 1.3% v 5.0%e, while imports growth of 8.5% v 4.8%e marked the first monthly rise in 2 years. Some of the slower exports can be attributed to stronger JPY, as USD/JPY came in about 5 handles from early January highs. Shipments to US and Europe were down 6.6% and 5.6% respectively, while exports to Asia rose 6%. Elsewhere, South Korea PPI spiked up to a 5 year high.

China
- (US) According to US Sen Lindsey Graham (R-SC), Pres Trump would have bipartisan support to label China a "currency manipulator" - press
- (CN) Chinese Academy of Social Sciences (CASS) Researcher Zhang Yunling: China plans to have growth depend more on domestic consumption and less on exports amid rising labor costs and weak external demand - Chinese press
- (CN) US Nimitz-class aircraft carrier USS Carl Vinson started patrols in the South China Sea despite this week's opposition from China Foreign Ministry against US meddling in the region - Nikkei
- (CN) China plans to have growth depend more on domestic consumption and less on exports amid rising labor costs and weak external demand - Chinese press

Japan
- (JP) Japan PM Abe's cabinet approval rating rises 5pts to 66% - Yomiuri

Australia/New Zealand:
- (AU) CBA Business Sales indicator sees Australia growth of business spending for January rising 0.5pts m/m to 5.8% - press
- (NZ) ASB chief economist: New Zealand property market expectations have retreated - NZ press

***Asian Equity Indices/Futures (23:30ET)***
- Nikkei +0.1%, Hang Seng +0.3%, Shanghai Composite +0.8%, ASX200 -0.3%, Kospi flat
- Equity Futures: S&P500 +0.1%; Nasdaq flat, Dax flat, FTSE100 flat

***FX ranges/Commodities/Fixed Income (23:30ET)***
- EUR 1.0600-1.0635; JPY 112.80-113.20; AUD 0.7660-0.7680; NZD 0.7170-0.7195; GBP 1.2405-1.2440
- Apr Gold -0.3% at 1,235/oz; Mar Crude Oil +0.1% at $53.83/brl; Mar Copper +0.3% at $2.72/lb
- GLD: SPDR Gold Trust ETF daily holdings fall 2.3 tonnes to 841.2 tonnes; first fall since Jan 25th
- (CN) PBOC SETS YUAN MID POINT AT 6.8743 V 6.8456 PRIOR; biggest margin of decline since Jan 9th
- (CN) PBOC to inject combined CNY170B v CNY150B prior in 7-day, 14-day and 28-day reverse repos
- (KR) South Korea sells 10-yr Treasury bonds; avg yield 2.155%

***Asia equities / Notables / movers***
Australia
- NHF.AU NIB Holdings +7.2% (H1 result)
- BSL.AU Bluescope +4.0% (H1 result)
- AMP.AU AMP Capital -1.3% (FY result)
- BXB.AU Brambles -9.6% (H1 result)
- WOR.AU WorleyParsons -14.2% (H1 result)

Hong Kong
- 611.HK China Nuclear Energy Technology +2.2% (FY16 profit alert)
- 827.HK Ko Yo Chemical Group +2.0% (FY16 guidance)
- 1060.HK Alibaba Pictures Group Ltd -4.3% (FY16 profit warning)
- 3322.HK Win Hanverky Holdings -6.8% (FY16 profit warning)
- 1219.HK Tenwow International Holdings -10.7% (FY16 profit warning)

Japan
- 5101.JP Yokohama Rubber +3.4% (FY16 result)
- 9984.JP Softbank +3.2% (reportedly preparing to approach Deutsche Telekom's T-Mobile US about a possible merger with Sprint)
- 6502.JP Toshiba +1.3% (Speculation about chip unit sale)
- 5423.JP Tokyo Steel -2.4% (Maintains prices of hot-rolled coil and H-beam steel after 3 months of increases)

Barron's : Hess Shares: Less Appealing Than They Look (Article +pdf )

Hess Shares: Less Appealing Than They Look

Oil outfit Hess has improved its operations, but not enough to offset drop in prices from shale production.

Hess has undergone a massive overhaul in the past five years. That’s made it more efficient and, in some investors’ eyes, undervalued. But those who bet on its shares are likely to be disappointed.

After a spate of production misses and cost overruns early this decade, Hess went on a diet, shedding its gas stations and slimming its midstream operations. It also refocused on exploration and production, an effort that is starting to bear fruit, thanks to key operations in the Bakken shale formation and promising fields in Asia, the Gulf of Mexico, and off the coast of Guyana.

Analysts, on average, believe the stock (ticker: HES), recently $51.30, is worth $65. CEO John Hess told investors last week that the company’s “decade or more of visible production growth [will] deliver improving returns and value.” The stock yields 2%.

Yet even as oil has rebounded—thanks partly to a production cut by the Organization of Petroleum Exporting Countries—the best days for Hess may be behind it. Blame the U.S. shale boom, which will swamp any rally in oil prices and in Hess shares. In fact, some canny observers believe the stock could fall at least 10%.

West Texas Intermediate, the benchmark U.S. oil, recently fetched $53.36 a barrel; a number of analysts believe it could rise as high as $70 this year. In theory, that should benefit Hess, which has proven reserves of 1.1 billion barrels and plans to produce 300,000 to 310,000 barrels a day this year, one-third of it from the Bakken formation, which stretches across parts of North Dakota, Montana, and southern Canada. Yet the risk is that oil peaks this year. Global demand for petroleum trails economic growth, thanks to new technology, renewables, and the developing world’s transition from manufacturing to services. Then there’s the shale boom. Some observers believe oil will fall below $50 by January and dip under $40 next year, partly since U.S. output could ramp up quickly.

Last year, Hess lost $6.2 billion, or $19.92 a share, on $4.8 billion in revenue, including $3.7 billion in noncash charges, based on generally accepted accounting principles. More years of losses lie ahead.

NONE OF THIS IS GOOD NEWS for Hess shareholders. Bakken producers are said to be viable whenever WTI oil fetches $55 to $60 a barrel. Yet even with prices below that level, drilling is under way in the Bakken and elsewhere, aggravating an oversupply that OPEC was hoping to address. As of mid-January, U.S. oil producers had pumped an extra 500,000 barrels a day in the previous three months, more than the volume Saudi Arabia had committed to stop producing. Earlier this year, major shale drillers reported budget increases exceeding 50%. Hess boosted its budget by 18%, even though it is increasing production by only 10%.

In the Bakken, Hess is increasing its rigs this year to six from two and aims to drill 80 wells. Management says that two-thirds of its wells in the Bakken provide a 15% internal rate of return—a level analysts say is viable—when WTI is $60, and 49% when oil is at $50. Every $1 move in the price of oil changes after-tax cash flow by $70 million. That would be good news if oil prices move in the right direction. But long term, that’s unlikely.

Technology has helped Hess drive extraction costs 10% lower than they were last year and 66% below their level in 2012, just before activist Elliott Management launched a proxy battle, took seats on the board, and forced the company to slim down. Yet supply costs—for fracking materials, wages, and the like—are jumping.

Meanwhile, other areas are more profitable than the Bakken. Production in the Permian Basin, located mainly in West Texas, is viable at $50 a barrel, and that’s attracted producers such as EOG Resources (EOG) and Pioneer Natural Resources (PXD). Output also is rising in the so-called Stack and Scoop shale formations in Oklahoma, where companies such as Devon Energy (DVN) operate. “Market sentiment is decidedly pro-Permian, Stack and Scoop,” Barclays analyst Paul Cheng wrote in January.

Says another analyst, who asked not to be named, “The issue is whether the Bakken will ever be needed when Permian breaks even at $50 and is closer to the markets.”

Hess also has pushed offshore for oil. This year, it will sell oil from the North Malay Basin in the Gulf of Thailand. Next year, the first oil is expected to come out of its Stampede development in the Gulf of Mexico. It also has a 30% interest in a world-class field off Guyana, operated by Exxon Mobil (XOM). It contains an estimated 800 million to 1.4 billion barrels but won’t come online until 2020, at the earliest.

John Hess is bullish on the company that his father Leon, a former owner of the New York Jets, founded in 1933. The nearly 50% shrinkage in global E&P spending since 2014 will lift oil prices, he maintains, and continued strong demand will offset U.S. shale production. Aside from new production offshore, there are other catalysts for the stock, including the planned initial public offering of Hess’ midstream master limited partnership. A war, of course, could send prices sharply higher.

For the current year, analysts expect Hess to lose $943 million, or $3.02 a share, on $5.8 billion in revenue. They see the per-share losses decreasing to $2.15 next year and 66 cents in 2019. Says Morningstar’s Dave Meats: “Hess is not expected to earn its cost of capital for several years.” The company should be able to handle the losses. It has $2.7 billion in cash and total liquidity of $7.3 billion following a recent refinancing. Its total debt is $6.8 billion, which Fitch recently downgraded to BBB-, one notch above junk, citing Hess’ “loss in size and diversification.”

Using an average price of $59 a barrel this year and $45 in 2018, Meats values Hess’ stock at $47, or 8.5 times enterprise value to earnings before interest, taxes, depreciation, and amortization this year and 13 times next year—around 10% below last week’s price. “I’m not saying oil prices can’t go any higher,” he adds. “But $55 is the long-term level for WTI that makes sense.”

On the other side of the world, Luan Nguyen, a proprietary trader at Vietnam’s Viet Capital Securities, has shared his view of Hess on the buy-side Website SumZero. “Return on invested capital is still far below the cost of capital,” he contends. “I just don’t see any upside.” If oil averages $51 a barrel this year, Nguyen says the stock is worth $45.

Best steer clear.