Hess Corporation's (HES) first-quarter earnings more than doubled, driven by production gains in tandem with record commodity prices. We continue to see upstream momentum in 2008 on the back of the company's leverage to high crude oil prices and large inventory of projects in Brazil, Australia, Libya, and Ghana. However, we believe these positives are already reflected in current valuation leaving little for upside from current levels.

The management is focused on restructuring the upstream asset portfolio by divesting mature and high-cost properties and increasing its exposure to longer reserve life and faster growing regions, such as West Africa, Asia, and the deepwater Gulf of Mexico (GoM).

The company continues to acquire additional acres in the Bakken play in North Dakota, bringing its total acreage position to 410,000 acres. The firm currently has six rigs operating in the region and two more rigs will be added in 2008.

We believe that the company's existing portfolio of development projects would enable it to achieve average annual production growth rates in the range of 5%-6% through 2010. In addition to improving upstream prospects, Hess has a stable and highly efficient refining business (the HOVENSA joint venture) and growing retail marketing operations.

Historically, HES shares have traded at a discount to its peers, reflecting the company's track record of underperformance in terms of upstream growth, costs, commodity-price leverage, and balance sheet strength; the level of discount has narrowed in recent days. Given current levels, we do not see any near-term catalyst that can aid near-term valuation.