<table><tr><th>From:</th><th>jeffrey E. &lt;jeevacation@gmail.com&gt;</th></tr><tr><td>Sent:</td><td>Wednesday, September 14, 2016 4:40 PM</td></tr><tr><td>To:</td><td>Richard Kahn</td></tr><tr><td>Subject:</td><td>Re: ***Buy HES convert preferred following a 15% drop in the stock....</td></tr></table>

silly

On Wed, Sep 14, 2016 at 12:30 PM, Richard Kahn
wrote:

Richard Kahn
HBRK Associates Inc.

<u>New York, NY 10022</u>

f

0

Begin forwarded message:

<iv style="margin-top:0px;margin-right:0px;margin-bottom:0px;margin-left:=px">From: "Ens,=Amanda" <=manda.ens@baml.com <mailto:amanda.ens@baml.com>>

Subject: ***Buy HES convert preferred follo=ing a 15% drop in the stock....

Date: September 14, 2016 at 11:05:05 =M EDT

To: "

Macro Focus: Oil is down modestly in front of EIA at 10:30am....=API was modestly bullish (+1.44m bbl, gasoline -2.39m, distillate +5.31m, =ushing crude -1.12m) with a smaller build and a Cushing draw, but people are willing to wait for EIA... All eyes will be on DOE da=a at 10:30am after last week's draw of 14.5mmb which was the =iggest draw going back to 1999. This was the result of storms and re=ated shutins. This kicked off a massive short squeeze where higher beta outperformed lower risk in last week's rising co=modity price environment. The lEA weighed on group yesterday (along =ith stronger dollar) as they said the oil glut will last longer than initi=lly estimated.

HES is down over 15% in the last couple of weeks after results for their =kipjack well disappointed investors. We believe that "shorts" have piled on and see a potential opportunity to =et long the stock into year-end as they are due to announce the result of =he Liza$3 well in 4Q.

Conclusions....Skipjack disap=ointed and HES equity has more than paid the price. While the lack of immi=ent news may weigh following the exploration miss, Guyana is not discounted in shar=s, and Liza #3 is an event that investors will have to revisit in coming w=eks. Next catalysts are the Liza #3 appraisal (4Q16) and Payara (early 201=). The Liza #3 well, has the potential to further de-risk a reso=rce base for the play opening Liza discovery currently suggested by XOM at between 800mm -1.4bn boe. At the mid-point this represents a 30% increase in Hess' net oil & gas reserves at y/end 2015. Following Liza =3, it is entirely possible that XOM and its partners could have an exploration test every 3/4 months in a block that covers the equivalent of 1,150 GoM blocks. Recognizing exploration has risk we assume no value for incremental suc=ess - but Liza may already represent a - 30% uplift in current produ=tion by early next decade with world class economics, even at current oil prices. For now the focus =emains on the $10/share net to HES we believe has yet to be recognized.

Earn yield + upside into a pending exploration catalyst with t=e mandatory convertible preferred.

HES 8% 2/01/2019 at 59.50 (HES A Pfd)</=>

	• =C2• 6.8% strip yield, vs common stock at 2.1%=div yield

• =C2* It converts with a low strike of $39 (1.2= shares) and high strike of $45.82 (1.09 shares) at maturity in 2019

* =C2* If stock is up 25%, the preferred returns=24.8%. If stock is up 50%, the preferred returns 46.4% (held to maturity)<=>

• =C2* If stock is down 25%, the preferred retur=s -7.1%. If stock is down 50%, the preferred returns -32.4% (held to matur=ty)

	• =C2• $575mm notional, $725mm market value outs=anding (good liquidity)

(This is not a product of BAML Research)

Disclaimer:

This material was prepared by Sector Specialist Sales personnel =f Merrill Lynch and is subject to the terms available at the following lin=:
http://corp.bankofamerica.com/business/smb/landing/ema=ldisclaimer/americas/global-markets
<http://corp.bankofamerica.com/business/smb/landing/emaildisclaim=r/americas/global-markets>
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</=pan></=>
=C2

please note<=r>

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