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Hess Sees $279MM Loss in 1Q; Talks Bakken, Utica GOM Ops

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   |    Wednesday,April 29,2015

Hess Corporation reported an adjusted net loss, which excludes items affecting comparability, of $279 million or $0.98 per common share, for the first quarter of 2015 compared with adjusted net income of $446 million or $1.38 per share in the first quarter of 2014. Lower realized selling prices reduced adjusted net income by approximately $700 million, after-tax compared with the prior-year quarter. In addition, first quarter 2015 results benefitted from higher crude oil and natural gas liquids production but were offset primarily by higher depreciation, depletion, and amortization expense. On an unadjusted basis, the Corporation reported a net loss of $389 million for the first quarter of 2015 and net income of $386 million in the prior-year quarter.

Chief Executive Officer John Hess said: "We delivered strong operating results for the quarter and captured significant cost savings for the year, with additional reductions being pursued. With our robust balance sheet, resilient portfolio and top quartile operating capabilities, we are well positioned for both the current price environment as well as for a future recovery in oil prices."

Exploration and Production

     Exploration and Production losses were $286 million in the first quarter of 2015, compared with net income of $508 million in the first quarter of 2014. Adjusted net loss was $193 million in the first quarter of 2015 compared with adjusted net income of $514 million in the first quarter of 2014.

     During the quarter, the Corporation hedged 50,000 barrels of crude oil production for the remainder of 2015 by entering into Brent crude collars with a floor price of $60 per barrel and a ceiling price of $80 per barrel. The Corporations average worldwide crude oil selling price, including the effect of hedging, was down 55 percent to $44.78 per barrel in the first quarter of 2015 from $99.17 per barrel in the first quarter of last year. The average worldwide natural gas liquids selling price was $14.91 per barrel, down from $44.28 per barrel in the year-ago quarter while the average worldwide natural gas selling price was $4.74 per mcf in the first quarter of 2015 compared with $7.03 per mcf in the first quarter a year-ago.

     Oil and gas production was 361,000 boepd, up 14 percent from 318,000 boepd in the first quarter of 2014. Assets contributing to the volume growth were primarily the Bakken shale play (45,000 boepd), our Utica wet gas acreage (15,000 boepd), Denmark (4,000 boepd) and the Joint Development Area of Malaysia/Thailand (3,000 boepd). Assets sales reduced production by 23,000 boepd and Norway production was 7,000 boepd lower.

Operational Highlights for the 1Q2015

     Bakken (Onshore U.S.): Net production from the Bakken increased approximately 70 percent to 108,000 boepd from the prior year quarter due to continued drilling activities and constrained production in the first quarter of 2014 resulting from the shut-in of the Tioga gas plant to complete the expansion project. The Corporation brought 70 gross operated wells on production in the first quarter of 2015. Drilling and completion costs per operated well averaged $6.8 million in the first quarter of 2015, down from $7.5 million in the year-ago quarter. During the first quarter, the Corporation operated an average of 12 rigs, compared with 17 rigs at year-end 2014. As of April, the Corporation is operating 8 rigs and plans to continue at that level for the remainder of 2015.

     Utica (Onshore U.S.): On the Corporations joint venture acreage, 5 wells were drilled and net production averaged 17,000 boepd in the first quarter of 2015 compared with 2,000 boepd in the prior-year quarter.

     Gulf of Mexico (Offshore U.S.): First quarter net production from Tubular Bells was 18,000 boepd and is forecast to be in the range of 30,000 boepd to 35,000 boepd for 2015 with the continued ramp up of existing wells and a fourth production well scheduled to be brought online in the second quarter. Overall production from the Gulf of Mexico was comparable to the prior-year quarter as volumes from Tubular Bells were offset by lower production from the Conger and Llano Fields as a result of planned maintenance activities. At the Corporations non-operated Sicily prospect, exploration drilling commenced in January with drilling operations expected to be completed in the second quarter of 2015.

     Valhall (Offshore) Norway: Net production averaged 30,000 boepd during the first quarter of 2015 which included a maintenance shut down, compared with 37,000 boepd in the year-ago quarter. The Corporation anticipates production for 2015 to be in the range of 30,000 boepd to 35,000 boepd.

     Kurdistan (Onshore): In the first quarter, the Corporation suspended drilling at the Shireen 1 exploration well due to mechanical issues. Based on well results to date and given the current low oil price environment, the Corporation and its partner agreed to relinquish the Dinarta Block and exit the region.

     Guyana (Offshore): The operator commenced drilling of the Liza-1 well and anticipates the well will reach target depth by the end of the second quarter of 2015.

     Libya : Production was shut in for the first quarter of 2015 due to ongoing civil unrest in the country.

Capital and Exploratory Expenditures

     Capital and exploratory expenditures were $1.3 billion in the first quarter of 2015. The first quarter 2015 capital spend reflects an average of 12 rigs in the Bakken and increased exploratory drilling expenditures in the Gulf of Mexico, Guyana and Kurdistan.

Cost Savings Initiatives

     In the first quarter, the Corporation aggressively reviewed its cost structure to reduce spending and met with suppliers to adjust service rates to better reflect the current commodity price environment. As a result of the Corporations efforts to date, we are lowering full year 2015 guidance for capital and exploratory expenditures by $300 million to $4.4 billion. In addition, the Corporation forecasts its full year 2015 cash costs will be lower by approximately $250 million, or $2.00 per barrel. The Corporation will continue to pursue additional savings in 2015 and beyond to improve its financial flexibility.

Liquidity

     Net cash provided by operating activities was $362 million in the first quarter of 2015, compared with $1,158 million in the first quarter of 2014. At March 31, 2015, cash and cash equivalents totaled $1,506 million, compared with $2,444 million at December 31, 2014. Total debt was $5,980 million at March 31, 2015 compared with $5,987 million at December 31, 2014. The Corporations debt to capitalization ratio at March 31, 2015 was 21.6 percent, compared with 21.2 percent at December 31, 2014.

Discontinued Operations

     Results from discontinued operations were losses of $13 million in the first quarter of 2015 compared with income of $57 million in the first quarter of 2014. The Corporation completed the sale of its energy trading partnership (HETCO) in the first quarter of 2015. Financial results for the first quarter of 2014 have been recast to report HETCO and the formerly owned retail marketing business as discontinued operations in the consolidated income statement on page 7.

 First quarter 2015 results include an after-tax charge of $67 million ($159 million pre-tax) to write-off a previously capitalized exploration well and associated leasehold costs related to the Dinarta Block in the Kurdistan Region of Iraq following the decision by the Corporation and its partner to cease further drilling activity and to exit operations in the region. In addition, the Corporation recorded after-tax charges totaling $26 million ($37 million pre-tax) to expense surplus drilling materials due to changes in the capital program, and to write-off its exploration project in Brunei.