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Hess Corp. Third Quarter 2021 Results

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   |    Wednesday,October 27,2021

Hess Corp. reported its Q3 2021 results.

Hess reported net income of $115 million, or $0.37 per common share, in the third quarter of 2021, compared with a net loss of $243 million, or $0.80 per common share, in the third quarter of 2020. On an adjusted basis, the Corporation reported net income of $86 million, or $0.28 per common share, in the third quarter of 2021, compared with an adjusted loss of $216 million, or $0.71 per common share, in the prior-year quarter. The improvement in adjusted after-tax results compared with the prior-year period was primarily due to higher realized selling prices in the third quarter of 2021, partially offset by the impact of lower net production, including curtailed production in the Bakken related to the Tioga Gas Plant maintenance turnaround and reduced Gulf of Mexico production due to Hurricane Ida.

CEO John Hess said: "Our company continues to successfully execute our strategy - to grow our resource base, have a low cost of supply and sustain cash flow growth - while delivering industry leading environmental, social and governance performance and disclosure. We are well positioned to deliver strong and durable cash flow growth that will allow us to significantly increase cash returns to shareholders in the coming years through dividend increases and opportunistic share repurchases."

Exploration and Production

E&P net income was $178 million in the third quarter of 2021, compared with a net loss of $182 million in the third quarter of 2020. On an adjusted basis, E&P's third quarter 2021 net income was $149 million compared with an adjusted net loss of $156 million in the prior-year quarter. The Corporation's average realized crude oil selling price, including the effect of hedging, was $63.17 per barrel in the third quarter of 2021, compared with $45.60 per barrel in the prior-year quarter. The average realized natural gas liquids (NGL) selling price in the third quarter of 2021 was $32.88 per barrel, compared with $11.63 per barrel in the prior-year quarter, while the average realized natural gas selling price was $4.71 per mcf, compared with $2.94 per mcf in the third quarter of 2020.

Net production, excluding Libya, was 265,000 boepd in the third quarter of 2021, compared with 321,000 boepd in the third quarter of 2020, due to lower production in the Bakken and Gulf of Mexico, partially offset by higher production in Guyana. Net production for Libya was 19,000 boepd in the third quarter of 2021 compared with zero in the third quarter of 2020 due to force majeure declared by the Libyan National Oil Corporation.

Cash operating costs, which include operating costs and expenses, production and severance taxes, and E&P general and administrative expenses, were $12.76 per boe (excluding Libya: $13.45 per boe) in the third quarter of 2021, compared with $9.86 per boe excluding items affecting comparability of earnings between periods (excluding Libya: $9.69 per boe) in the prior-year quarter. The change in per unit cost reflects the impact of lower production volumes, and higher workover activity and production and severance taxes in North Dakota in the third quarter of this year. Income tax expense increased in the third quarter of 2021 compared with the year-ago period primarily due to higher production in Libya.

Operational Highlights for 3Q21

Bakken (Onshore U.S.): Net production from the Bakken was 148,000 boepd compared with 198,000 boepd in the prior-year quarter, primarily due to the impact of lower drilling activity caused by a reduction in rig count from six to one during the first half of last year, lower NGL and natural gas volumes received under percentage of proceeds contracts due to higher commodity prices, curtailed production related to the planned Tioga Gas Plant maintenance turnaround completed in the quarter and the second quarter 2021 sale of Little Knife and Murphy Creek nonstrategic acreage interests. Net oil production was 78,000 barrels of oil per day (bopd) in the third quarter of 2021 and 108,000 bopd in the prior year quarter. NGL and natural gas volumes received under percentage of proceeds contracts were 9,000 boepd in the third quarter of 2021 compared with 22,000 boepd in the third quarter of 2020 due to higher realized NGL prices lowering volumes received as consideration for gas processing fees. In 2021, the Corporation added a second rig in February and a third rig in September. During the third quarter of 2021, we drilled 18 wells, completed 22 wells, and brought 19 new wells online.

Gulf of Mexico (Offshore U.S.): Net production from the Gulf of Mexico was 32,000 boepd, compared with 49,000 boepd in the prior-year quarter, primarily due to the sale of the Corporation's interest in the Shenzi Field in the fourth quarter of 2020, higher hurricane related downtime in the third quarter of 2021, and natural field decline. Net production from the Shenzi Field was 9,000 boepd in the third quarter of 2020.

Guyana (Offshore): At the Stabroek Block (Hess - 30%), the Corporation's net production from the Liza Field was 32,000 bopd in the third quarter of 2021 compared with 19,000 bopd in the prior-year quarter. The Liza Unity FPSO, with an expected capacity of 220,000 gross bopd, arrived at the Stabroek Block on October 25 th, and startup of Phase 2 of the Liza Field development remains on track for early 2022. The third development, Payara, will utilize the Prosperity FPSO with an expected capacity of 220,000 gross bopd; first oil is expected in 2024. A fourth development, Yellowtail, has been identified on the Stabroek Block with anticipated startup in 2025, pending government approvals and project sanctioning. We expect to have at least six FPSOs on the Stabroek Block by 2027, with the potential for up to 10 FPSOs to develop the current discovered recoverable resource base.

Since July, the operator, Esso Exploration and Production Guyana Limited, has announced the 19th, 20th and 21st significant discoveries at Whiptail, Pinktail and Cataback, and earlier this month increased the gross discovered recoverable resource estimate for the block to approximately 10 billion boe, up from the previous estimate of more than 9 billion boe.

The Whiptail-1 well encountered 246 feet of net pay in high quality oil bearing sandstone reservoirs, and the Whiptail-2 well, which is located 3 miles northeast of Whiptail-1 encountered 167 feet of net pay in high quality oil bearing sandstone reservoirs. The Pinktail well encountered 220 feet of net pay in high quality oil bearing sandstone reservoirs. Pinktail is located approximately 21.7 miles southeast of the Liza Phase 1 development and approximately 3.7 miles southeast of Yellowtail-1. The Cataback well encountered 243 feet of net pay in high quality hydrocarbon bearing sandstone reservoirs of which 102 feet is oil bearing. Cataback is located approximately 3.7 miles east of the Turbot-1 well.

Following the completion of the Cataback well, the Noble Tom Madden commenced Phase 2 drilling and completion activities. The Stena Carron completed drill stem tests on Uaru-1 and Mako-2 and is currently performing a drill stem test on Longtail-2. Following the completion of the Pinktail well, the Noble Don Taylor commenced development drilling at Payara. The Noble Sam Croft and Noble Bob Douglas are currently drilling and completing Phase 2 development wells, and the Stena Drillmax left the Stabroek Block following the completion of the Whiptail-1 well and will return in the fourth quarter to drill the Fangtooth prospect.

South East Asia (Offshore): Net production at North Malay Basin and JDA was 50,000 boepd in both the current quarter and prior-year quarter.

Denmark (Offshore): In August, the Corporation completed the sale of its interests in Denmark for adjusted proceeds of approximately $130 million. Net production from Denmark was 3,000 boepd in the third quarter of 2021 compared with 5,000 boepd in the prior-year quarter.

Midstream

The Midstream segment had net income of $61 million in the third quarter of 2021, compared with net income of $56 million in the prior-year quarter, primarily due to higher revenue from minimum volume commitments and tariff rates partially offset by costs associated with the planned Tioga Gas Plant maintenance turnaround, which was safely and successfully completed.

In August 2021, Hess Midstream Operations LP (HESM Opco), a consolidated subsidiary of Hess Midstream LP, completed the purchase of approximately 31 million of HESM Opco Class B units from Hess Corporation and Global Infrastructure Partners for $750 million. The Corporation received net proceeds of $375 million. The purchase was financed by the issuance of $750 million of 4.250% senior unsecured notes due 2030 by HESM Opco. In October 2021, Hess Midstream LP completed a public offering of approximately 8.6 million Class A shares held by Hess Corporation and Global Infrastructure Partners. The Corporation received net proceeds of approximately $108 million. After giving effect to these transactions, the Corporation owns an approximate 44% interest in Hess Midstream LP, on a consolidated basis.

Corporate, Interest and Other

After-tax expense for Corporate, Interest and Other was $124 million in the third quarter of 2021, compared with $117 million in the third quarter of 2020.

Capital and Exploratory Expenditures

E&P capital and exploratory expenditures were $498 million in the third quarter of 2021 compared with $331 million in the prior-year quarter, primarily due to higher drilling activity in the Bakken, Guyana and JDA, partially offset by lower drilling activity in the Gulf of Mexico. Midstream capital expenditures were $59 million in the third quarter of 2021, down from $66 million in the prior-year quarter.

Liquidity

Excluding the Midstream segment, Hess Corporation had cash and cash equivalents of $2.41 billion and debt and finance lease obligations totaling $6.12 billion at September 30, 2021. The Midstream segment had cash and cash equivalents of $5 million and total debt of $2.6 billion at September 30, 2021. The Corporation's debt to capitalization ratio as defined in its debt covenants was 44.5% at September 30, 2021 and 47.5% at December 31, 2020.

During the quarter, the Corporation received net proceeds of approximately $130 million from the sale of its interests in Denmark and $375 million from the repurchase by HESM Opco of approximately 15.6 million Hess-owned Class B units. The Corporation also prepaid $500 million of its $1.0 billion term loan. In October, the Corporation received net proceeds of approximately $108 million from the public offering of approximately 4.3 million Hess-owned Class A shares of Hess Midstream LP.

Net cash provided by operating activities was $615 million in the third quarter of 2021, up from $136 million in the third quarter of 2020. Net cash provided by operating activities before changes in operating assets and liabilities2 was $631 million in the third quarter of 2021, compared with $468 million in the prior-year quarter primarily due to higher realized selling prices, partially offset by the impact of lower net production. Changes in operating assets and liabilities decreased cash flow from operating activities by $16 million during the third quarter of 2021 and by $332 million during the prior-year quarter.


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