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Hess Corporation (HES) Doug Leggate +1 713 247 6013 Research Analyst, MLPF&S Buy, PO $80 1Q17 investment thesis Broad expectations of a pro-energy agenda from the incoming administration set a theoretically constructive backdrop for the US oils. Along with the tailwind from renewed OPEC support for oil prices, we view the broader energy sector as a momentum play in the early part of 2017 where stock specific catalysts can re-emerge to differentiate relative performance within the large cap US oils. We view Hess as the most catalyst rich large cap US E&P for 2017 with a return to growth and disproportionate exploration risk from a company with the highest cash margins in the sector, second best balance sheet and significant oil leverage to our base case that is an oil recovery in 2017. Hess remains amongst our top ideas in the US large cap oil sector for 2017, and we retain our Buy rating, and $80 PO. Table 1: Hess key stock data Industry US oil and gas exploration and production Market Cap (mn) $19,090 Price $62.90 EV/Debt adjusted cash flow (2017)* 9.4x % of sell-side rated Buy 46.4% Short interest % of float 8.52% Source: Bloomberg and BofA Merrill Lynch Global Research estimates Deregulation / Gov't Legislation While the potential for a less onerous regulatory backdrop, and greater access to Federal lands for exploration and development, the majority of current activity remains dominated by private lands thereby limiting any material changes arising froma Republican administration. The exception is the potential for more receptive backdrop for infrastructure development that can improve regional pricing through improved access to takeaway capacity. Tax Policy: For the majority of the US E&P’s, changes in corporate tax rates have negligible impact given that substantial net operating losses and deferred tax credits means that cash taxes remain de minimis for the foreseeable future. Catalysts: News flow starts with an expected capex budget unchanged from 2016 at ~$2bn, the company has stated it expects a return to drilling in the Bakken with a stated ramp up to 6 rigs from 2 currently returning the play to growth in 2017.. The first Guyana development (Liza) expected to achieve FID by 2Q17 and which we expect to confirm industry leading economics. Start-up of the first of two major developments — the North Malay basin gas play in 3Q17, putting Hess back on a growth track and turning attention to the Stampede start up in the US GoM in early 2Q18. In the background is an exploration test every 45-60 days any one of which could materially change the scale of the Hess business model of the next decade. Bankof America 8 Top 10 US Ideas Quarterly | 03 January 2017 Merrill Lynch HOUSE_OVERSIGHT_014629