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Hess Corp. Second Quarter 2022 Results

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   |    Wednesday,July 27,2022

Hess Corp. reported its 2Q 2022 results.

Hess reported net income of $667 million, or $2.15 per common share, in the second quarter of 2022, compared with a net loss of $73 million, or $0.24 per common share, in the second quarter of 2021. On an adjusted basis, the Corporation had net income of $74 million, or $0.24 per common share, in the second quarter of 2021. The improvement in after-tax earnings compared with the prior-year quarter adjusted results was primarily due to higher realized selling prices in the second quarter of 2022.

CEO John Hess commented: "In a world that needs reliable, low cost oil and gas resources now and for decades to come, Hess offers a highly differentiated value proposition. As our portfolio becomes increasingly free cash flow positive, we will continue both to invest to grow our company's intrinsic value and to return capital to our shareholders through further dividend increases and share repurchases."

Exploration and Production

E&P net income was $723 million in the second quarter of 2022, compared with a net loss of $25 million in the second quarter of 2021. On an adjusted basis, E&P second quarter 2021 net income was $122 million. The Corporation's average realized crude oil selling price, including the effect of hedging, was $99.16 per barrel in the second quarter of 2022, compared with $59.79 per barrel in the prior-year quarter. The average realized natural gas liquids (NGL) selling price in the second quarter of 2022 was $40.92 per barrel, compared with $23.12 per barrel in the prior-year quarter, while the average realized natural gas selling price was $6.45 per mcf, compared with $4.05 per mcf in the second quarter of 2021.

Net production, excluding Libya, was 303,000 boepd in the second quarter of 2022, compared with 307,000 boepd in the second quarter of 2021, or 302,000 boepd proforma for assets sold.

Cash operating costs, which include operating costs and expenses, production and severance taxes, and E&P general and administrative expenses, were $13.90 per boe (excluding Libya: $14.56 per boe) in the second quarter of 2022, compared with $11.63 per boe (excluding Libya: $12.16 per boe) in the prior-year quarter. The increase in cash operating costs in the second quarter of this year, compared with the second quarter of last year, reflects higher production and severance taxes in North Dakota due to higher realized selling prices, and higher workover activity in North Dakota and the Gulf of Mexico.

Operational Highlights for 2Q2022

Bakken (Onshore U.S.): Net production from the Bakken was 140,000 boepd, which remained within our guidance range for the second quarter, reflecting unplanned production shut-ins caused by severe weather in April and May. Net production in the second quarter of 2021 was 159,000 boepd. During the second quarter of 2022, the Corporation operated three rigs and drilled 20 wells, completed 19 wells, and brought 19 new wells online. In July, the Corporation added a fourth drilling rig.

Gulf of Mexico (Offshore U.S.): Net production from the Gulf of Mexico was 29,000 boepd, compared with 52,000 boepd in the prior-year quarter, primarily due to field decline and unplanned downtime at the Stampede and Penn State fields.

Guyana (Offshore): At the Stabroek Block (Hess - 30%), net production totaled 67,000 bopd in the second quarter of 2022 compared with 26,000 bopd in the prior-year quarter. Production from the Liza Destiny FPSO reached its new production capacity of more than 140,000 gross bopd in the second quarter of 2022 following the completion of production optimization work initiated in March. Net production from the Liza Unity FPSO, which commenced in February, was 35,000 bopd in the second quarter of 2022, and reached its production capacity of 220,000 gross bopd in July. In the second quarter, we sold 6 one-million barrel cargos of crude oil from Guyana compared with 2 one-million barrel cargos in the prior year quarter.

Net production guidance for Guyana for the full year 2022 is expected to be approximately 75,000 bopd, which includes approximately 6,000 bopd of tax barrels. Net production guidance for the third quarter of 2022 is expected to be in the range of 90,000 bopd to 95,000 bopd, which includes approximately 7,000 bopd of tax barrels. There were no tax barrels in the first or second quarters.

The third development, Payara, will utilize the Prosperity FPSO with an expected capacity of 220,000 gross bopd, with first production expected in late 2023. The fourth development, Yellowtail, was sanctioned in April and will utilize the ONE GUYANA FPSO with an expected capacity of approximately 250,000 gross bopd, with first production expected in 2025.

Two new discoveries were announced at Seabob and Kiru-Kiru, which add to the previously announced gross discovered recoverable resource estimate for the Stabroek Block of approximately 11 billion boe. The Seabob-1 well encountered 131 feet of high quality oil bearing sandstone reservoirs. The well was drilled in 4,660 feet of water and is located approximately 12 miles southeast of the Yellowtail Field. Drilling operations at Kiru-Kiru are ongoing. The Kiru-Kiru-1 well has thus far encountered 98 feet of high quality hydrocarbon bearing sandstone reservoirs. The well is being drilled in 5,760 feet of water and is located approximately 3 miles southeast of the Cataback-1 discovery.

Southeast Asia (Offshore): Net production at North Malay Basin and JDA was 67,000 boepd in the second quarter of 2022 compared with 66,000 boepd in the prior-year quarter.

Midstream

The Midstream segment had net income of $65 million in the second quarter of 2022, compared with net income of $76 million in the prior-year quarter.

Corporate, Interest and Other

After-tax expense for Corporate, Interest and Other was $121 million in the second quarter of 2022, compared with $124 million in the second quarter of 2021.

Capital and Exploratory Expenditures

E&P capital and exploratory expenditures were $622 million in the second quarter of 2022 compared with $429 million in the prior-year quarter, primarily due to higher drilling and development activities in the Bakken, Gulf of Mexico, Guyana, and Malaysia and JDA. Midstream capital expenditures were $72 million in the second quarter of 2022, up from $47 million in the prior-year quarter.

Liquidity

Excluding the Midstream segment, Hess Corporation had cash and cash equivalents of $2.16 billion and debt and finance lease obligations totaling $5.61 billion at June 30, 2022. The Midstream segment had cash and cash equivalents of $3 million and total debt of $2.9 billion at June 30, 2022. The Corporation's debt to capitalization ratio as defined in its debt covenants was 37.9% at June 30, 2022 and 42.3% at December 31, 2021.

Net cash provided by operating activities was $1,509 million in the second quarter of 2022, up from $785 million in the second quarter of 2021. Net cash provided by operating activities before changes in operating assets and liabilities² was $1,463 million in the second quarter of 2022, compared with $659 million in the prior-year quarter primarily due to higher realized selling prices. Changes in operating assets and liabilities increased cash flow from operating activities by $46 million during the second quarter of 2022 and increased cash flow from operating activities by $126 million during the prior-year quarter.

The Corporation commenced common stock repurchases in the second quarter with the purchase of approximately 1.8 million shares for $190 million under the Corporation's existing $650 million board authorized stock repurchase program. The Corporation intends to utilize the remaining amount under the stock repurchase program by the end of this year. Total cash returned to shareholders in the second quarter amounted to $306 million including dividends.

In April 2022, the Corporation received net proceeds of $346 million from the public offering of approximately 5.1 million Hess Midstream LP (HESM) Class A shares held by the Corporation and the repurchase by Hess Midstream Operations LP (HESM Opco) of approximately 6.8 million HESM Opco Class B units held by the Corporation. The repurchase of approximately 6.8 million HESM Opco Class B units was financed by the issuance of $400 million of 5.500% senior unsecured notes due 2030 by HESM Opco. After giving effect to the above transactions, the Corporation owns approximately 41% of HESM on a consolidated basis.

In July 2022, the Corporation replaced its $3.5 billion revolving credit facility expiring in May 2024 with a new $3.25 billion revolving credit facility maturing in July 2027. In July 2022, HESM Opco extended the maturity of its $1.4 billion credit facilities, consisting of a $1.0 billion revolving credit facility and a fully drawn $400 million term loan, through July 2027. Borrowings under both revolving credit facilities, including the fully drawn five-year term loan, will bear interest based on the Secured Overnight Financing Rate plus an applicable margin.