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Hess Corp. First Quarter 2022 Results

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   |    Thursday,April 28,2022

Hess Corp. reported its first quarter 2022 results.

Key Developments:

  • Announced new discoveries at Barreleye, Lukanani, and Patwa on the Stabroek Block, offshore Guyana; discoveries further underpin the development potential of the Block
  • Increased the gross discovered recoverable estimate for the Stabroek Block to approximately 11 billion barrels of oil equivalent (boe), up from the previous estimate of more than 10 billion boe
  • Sanctioned development of Yellowtail, the fourth and largest development on the Stabroek Block, with a production capacity of approximately 250,000 gross barrels of oil per day (bopd); first oil is expected in 2025
  • Commenced production from the Liza Phase 2 development on the Stabroek Block in February; production is expected to reach capacity of approximately 220,000 gross bopd by the third quarter
  • The third development on the Stabroek Block, Payara, is ahead of schedule and is now expected to startup in late 2023 with a production capacity of approximately 220,000 gross bopd
  • Improved returns to shareholders through a 50 percent increase in the first quarter dividend to $0.375 per share and reduced debt by prepaying the remaining $500 million of the Corporation's $1 billion term loan

First Quarter Financial and Operational Highlights:

  • Net income was $417 million, or $1.34 per share, compared with net income of $252 million, or $0.82 per share, in the first quarter of 2021; Adjusted net income1 in the first quarter of 2022 was $404 million, or $1.30 per share
  • Oil and gas net production, excluding Libya, was 276,000 barrels of oil equivalent per day (boepd); Bakken net production was 152,000 boepd
  • E&P capital and exploratory expenditures were $580 million, compared with $309 million in the prior-year quarter

Financial Overview

Hess reported net income of $417 million, or $1.34 per share, in the first quarter of 2022, compared with net income of $252 million, or $0.82 per share, in the first quarter of 2021. On an adjusted basis, the Corporation reported net income of $404 million, or $1.30 per share, in the first quarter of 2022. The improvement in adjusted after-tax earnings compared with the prior-year period was primarily due to higher realized selling prices in the first quarter of 2022, partially offset by lower sales volumes.

CEO John Hess said: "Our differentiated portfolio is uniquely positioned to deliver industry leading cash flow growth and financial returns in the coming years. As our portfolio becomes increasingly free cash flow positive, we commit to prioritizing the return of capital to our shareholders through further dividend increases and share repurchases."

Exploration and Production

E&P net income was $460 million in the first quarter of 2022, compared with net income of $308 million in the first quarter of 2021. The Corporation's average realized crude oil selling price, including the effect of hedging, was $86.75 per barrel in the first quarter of 2022, compared with $50.02 per barrel in the prior-year quarter. The average realized natural gas liquids (NGL) selling price in the first quarter of 2022 was $39.79 per barrel, compared with $29.49 per barrel in the prior-year quarter, while the average realized natural gas selling price was $5.28 per mcf, compared with $4.90 per mcf in the first quarter of 2021.

Net production, excluding Libya, was 276,000 boepd in the first quarter of 2022, compared with 315,000 boepd in the first quarter of 2021, or 304,000 boepd proforma for assets sold, primarily due to field decline and unplanned downtime in the Gulf of Mexico.

Cash operating costs, which include operating costs and expenses, production and severance taxes, and E&P general and administrative expenses, were $13.79 per boe (excluding Libya: $14.54 per boe) in the first quarter of 2022, compared with $9.81 per boe (excluding Libya: $10.21 per boe) in the prior-year quarter. The variance in cash operating costs in the first quarter of this year, versus the first quarter of last year, reflects the impacts of lower production volumes, higher production and severance taxes in North Dakota due to higher realized selling prices, and higher initial per unit cash operating costs for Liza Phase 2 during the production ramp up following first oil in February 2022.

Operational Highlights for the First Quarter of 2022

Bakken (Onshore U.S.): Net production from the Bakken was 152,000 boepd compared with 158,000 boepd in the prior-year quarter, primarily due to the sale of Little Knife and Murphy Creek nonstrategic acreage interests in the second quarter 2021, which contributed net production of approximately 5,000 boepd in the first quarter of 2021. Net oil production was 77,000 bopd in the first quarter of 2022 and 84,000 bopd in the prior year quarter. During the first quarter of 2022, we operated three rigs and drilled 19 wells, completed 16 wells, and brought 13 new wells online.

Gulf of Mexico (Offshore U.S.): Net production from the Gulf of Mexico was 30,000 boepd, compared with 56,000 boepd in the prior-year quarter, primarily due to field decline and unplanned downtime at the Baldpate, Penn State, and Llano fields. In February, the Corporation spud an exploration well at the Huron prospect (Hess - 40 percent) located at Green Canyon Block 69. Well results are anticipated in the second quarter.

Guyana (Offshore): At the Stabroek Block (Hess - 30 percent), net production totaled 30,000 bopd in the first quarter of 2022 compared with 31,000 bopd in the prior-year quarter. In February, production commenced from the Liza Unity floating production, storage and offloading vessel (FPSO) and contributed 7,000 net bopd in the first quarter of 2022.

The Liza Destiny FPSO recently completed production optimization work initiated in March that expanded its production capacity to more than 140,000 gross bopd from 120,000 gross bopd previously. It is currently producing 130,000 gross bopd and is expected to reach its full capacity in the second quarter. The Liza Unity FPSO is expected to reach its production capacity of approximately 220,000 gross bopd by the third quarter. In the first quarter we sold approximately 2.3 million barrels of oil from Guyana and expect to have 7 one-million barrel liftings in the second quarter and 8 one-million barrel liftings in both the third and fourth quarters.

The third development, Payara, will utilize the Prosperity FPSO with an expected capacity of 220,000 gross bopd, with first production now expected in late 2023. In April 2022, the Corporation announced it had made the final investment decision to proceed with the Yellowtail development on the Stabroek Block after the development plan received approval from the government of Guyana. Yellowtail, the largest development thus far on the Block, will utilize the ONE GUYANA FPSO, which will develop an estimated gross resource base of approximately 925 million barrels of oil. The ONE GUYANA FPSO is expected to have a capacity of up to 250,000 gross bopd, with first production expected in 2025. Six drill centers are planned with up to 26 production wells and 25 injection wells. Excluding pre-sanction costs and FPSO purchase cost, the Corporation's net share of development costs is forecast to be approximately $2.3 billion, of which approximately $210 million is expected in 2022, $430 million in 2023, $585 million in 2024, $390 million in 2025 and $295 million in 2026.

Three new discoveries on the Stabroek Block were announced yesterday at Barreleye, Lukanani and Patwa. The Barreleye-1 well encountered approximately 230 feet of hydrocarbon bearing sandstone reservoirs of which approximately 52 feet is high quality oil bearing. The well was drilled in 3,840 feet of water and is located approximately 20 miles southeast of the Liza Field.

The Lukanani-1 well encountered 115 feet of hydrocarbon bearing sandstone reservoirs of which approximately 76 feet is high quality oil bearing. The well was drilled in water depth of 4,068 feet and is located in the southeastern part of the block, approximately 2 miles west of the Pluma discovery.

The Patwa-1 well encountered 108 feet of hydrocarbon bearing sandstone reservoirs. The well was drilled in 6,315 feet of water and is located approximately 3 miles northwest of the Cataback-1 discovery.

South East Asia (Offshore): Total net production at North Malay Basin and JDA was 64,000 boepd in both the first quarter of 2022 and 2021.

Midstream

The Midstream segment had net income of $72 million in the first quarter of 2022, compared with net income of $75 million in the prior-year quarter.

In April 2022, the Corporation received total proceeds of $346 million related to two Hess Midstream equity transactions. During the month, Hess Midstream LP (HESM) completed a public offering of approximately 10.2 million HESM Class A shares held by Hess Corporation and Global Infrastructure Partners. The Corporation received net proceeds of $146 million from the public offering. Concurrent with the public offering, Hess Midstream Operations LP (HESM Opco), a consolidated subsidiary of HESM, repurchased approximately 13.6 million HESM Opco Class B units from Hess Corporation and Global Infrastructure Partners for $400 million, of which the Corporation received net proceeds of $200 million. The purchase was financed by HESM Opco's issuance of $400 million of 5.500% senior unsecured notes due 2030. After giving effect to the above transactions, the Corporation owns approximately 41% of HESM on a consolidated basis.

Corporate, Interest and Other

After-tax expense for Corporate, Interest and Other was $115 million in the first quarter of 2022, compared with $131 million in the first quarter of 2021. On an adjusted basis, after-tax expense for Corporate, Interest and Other was $128 million in the first quarter of 2022.

Capital and Exploratory Expenditures

E&P capital and exploratory expenditures were $580 million in the first quarter of 2022 compared with $309 million in the prior-year quarter, primarily due to higher drilling and development activities in Guyana, the Bakken, and Malaysia and JDA. Midstream capital expenditures were $37 million in the first quarter of 2022, compared to $23 million in the prior-year quarter.

Liquidity

Excluding the Midstream segment, Hess Corporation had cash and cash equivalents of $1.37 billion and debt and finance lease obligations totaling $5.61 billion at March 31, 2022. The Midstream segment had cash and cash equivalents of $4 million and total debt of $2.6 billion at March 31, 2022. The Corporation's debt to capitalization ratio as defined in its debt covenants was 40.2% at March 31, 2022 and 42.3% at December 31, 2021. In February, the Corporation repaid the remaining $500 million outstanding of its $1.0 billion term loan and, in March, increased its quarterly dividend to $0.375 per share commencing in the first quarter of 2022.

Net cash used in operating activities was $156 million in the first quarter of 2022, compared with net cash provided by operating activities of $591 million in the first quarter of 2021. Net cash provided by operating activities before changes in operating assets and liabilities2 was $952 million in the first quarter of 2022, compared with $815 million in the prior-year quarter primarily due to higher realized selling prices, partially offset by the impact of lower sales volumes. During the first quarter of 2022, changes in operating assets and liabilities decreased cash flow from operating activities by $1,108 million, reflecting payments made for previously accrued Libyan income tax and royalties of approximately $470 million for the period December 2020 through November 2021, premiums paid of $325 million to remove the ceiling price on outstanding WTI and Brent crude oil collars effective April 1, 2022, and an increase in accounts receivable due to higher crude oil prices. During the first quarter of 2021, changes in operating assets and liabilities decreased cash flow from operating activities by $224 million.

In April 2022, the Corporation received net proceeds of $146 million from the public offering of approximately 5.1 million HESM Class A shares held by the Corporation and received net proceeds of $200 million from the repurchase by HESM Opco of approximately 6.8 million HESM Opco Class B units held by the Corporation.


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