Quarterly / Earnings Reports | Third Quarter (3Q) Update

Hess Details Q3 2019 Results; Bakken Output Credited for Production Gain

Share Print Bookmark    |    Wednesday,October 30,2019

Hess Corp. reported its Q3 2019 results.

Net production, excluding Libya, was 290,000 boepd in the third quarter of 2019 (up 4% YOY), up from third quarter 2018 net production of 279,000 boepd, or 269,000 boepd excluding assets sold. The higher production was primarily driven by the Bakken, partially offset by hurricane-related downtime in the Gulf of Mexico and increased planned downtime at the Malaysia/Thailand Joint Development Area (JDA).

Net production from the Bakken increased 38% YOY to 163,000 boepd.

Libya net production was 22,000 boepd in the third quarter of 2019, compared with 18,000 boepd in the prior-year quarter.

CEO John Hess said: "We achieved strong operational performance once again this quarter, delivering higher production and lower capital and exploratory expenditures than previous guidance. In September, we announced our 14th discovery in the Stabroek Block at Tripletail, offshore Guyana and are now targeting December for first oil from the Liza-1 development. We also just announced an oil discovery at the Esox-1 well, part of our focused exploration program in the deepwater Gulf of Mexico, which will be a low cost, high return tieback to Tubular Bells production facilities."

Hess reported a net loss of $205 million, or $0.68 per common share, in the third quarter of 2019, compared with a net loss of $42 million, or $0.18 per common share, in the third quarter of 2018. On an adjusted basis, the Corporation reported a net loss of $98 million, or $0.32 per common share, in the third quarter of 2019, compared with an adjusted net income of $29 million, or $0.06 per common share, in the prior-year quarter. The decrease in after-tax adjusted results primarily reflects lower realized selling prices, partially offset by reduced exploration expenses.

After-tax income (loss) by major operating activity was as follows:

Exploration and Production

E&P net loss was $53 million in the third quarter of 2019, compared with net income of $50 million in the third quarter of 2018. On an adjusted basis, third quarter 2019 net loss was $34 million, compared with net income of $109 million in the prior-year quarter. The Corporation's average realized crude oil selling price, including the effect of hedging, was $56.03 per barrel in the third quarter of 2019, versus $66.08 per barrel in the prior-year quarter. The average realized natural gas liquids (NGLs) selling price in the third quarter of 2019 was $9.41 per barrel, versus $24.29 per barrel in the prior-year quarter, while the average realized natural gas selling price was $3.81 per mcf, compared with $4.11 per mcf in the third quarter of 2018.

Excluding items affecting comparability of earnings between periods, cash operating costs, which include operating costs and expenses, production and severance taxes, and E&P general and administrative expenses, were $12.13 per boe in the third quarter, compared with $11.41 per boe in the prior-year quarter, reflecting higher planned workover activity and the impact from selling our joint venture interests in the Utica natural gas shale play in the third quarter of 2018. Income tax expense is comprised primarily of taxes in Libya.

Operational Highlights for Q3

Bakken (Onshore U.S.): Net production from the Bakken increased 38 percent to 163,000 boepd from 118,000 boepd in the prior-year quarter, with net oil production up 26 percent to 96,000 barrels of oil per day (bopd) from 76,000 bopd in the year-ago period, primarily due to increased drilling activity and new plug and perf completion design. Natural gas and NGL production were also higher due to the increased drilling activity, as well as additional natural gas captured with the start-up of the Little Missouri 4 natural gas processing plant in late July and additional NGLs received under percentage of proceeds contracts resulting from lower NGL commodity pricing. The Corporation operated six rigs in the third quarter, drilling 41 wells, completing 43 wells and bringing 33 new wells online. Full year net production for the Bakken is expected to be approximately 150,000 boepd, which is up from the previous guidance range of 140,000 boepd to 145,000 boepd.

Gulf of Mexico (Offshore U.S.): Net production from the Gulf of Mexico was 59,000 boepd, compared with 71,000 boepd in the prior-year quarter, primarily reflecting hurricane-related downtime that reduced third quarter 2019 net production by approximately 6,000 boepd, as well as higher planned maintenance.

The Corporation announced a discovery at the operated Esox-1 exploration well in Mississippi Canyon Block No. 726 (Hess - 57 percent), which was drilled to a depth of 4,609 feet and encountered approximately 191 feet of net pay in high-quality Miocene reservoirs. The well will be completed and tied back to the Tubular Bells production facilities, with first oil expected in the first quarter of 2020.

Guyana (Offshore): At the Stabroek Block, the operator, Esso Exploration and Production Guyana Limited, announced a 14th discovery at the Tripletail-1 exploration well, which encountered approximately 108 feet of high-quality oil-bearing sandstone reservoir and is located approximately 3 miles northeast of the Longtail discovery. Additional hydrocarbon bearing reservoirs were subsequently encountered below the previously announced Tripletail discovery, which are still under evaluation.

The Liza Phase 1 development is now targeted to commence production in December of this year and will produce up to 120,000 gross bopd utilizing the Liza Destiny FPSO, which arrived in Guyana on August 29, 2019. The Liza Phase 2 development was sanctioned in May 2019 and will use the Liza Unity FPSO to produce up to 220,000 gross bopd, with first oil expected by mid-2022. Pending government approvals, a third development, Payara, is expected to produce up to 220,000 bopd with startup in 2023.

Exploration and development drilling activities continue on the Stabroek Block. After completion of operations at Tripletail, the Noble Tom Madden drillship will next drill the Uaru-1 exploration well, located approximately 10 miles east of the Liza-1 well. The Stena Carron drillship is continuing drilling and evaluation activity at Ranger-2. The drillship will next conduct a production test at Yellowtail-1. The Noble Bob Douglas drillship is currently conducting development drilling operations for the Liza Phase 1 project. A fourth drillship, the Noble Don Taylor, is expected to arrive in Guyana in November 2019 and will drill the Mako-1 exploration well located approximately 6 miles south of the Liza-1 well.

Midstream

The Midstream segment, comprised primarily of Hess Infrastructure Partners LP (HIP), our 50/50 midstream joint venture, had net income of $39 million in the third quarter of 2019, compared with net income of $30 million in the prior-year quarter.

In October 2019, Hess Midstream Partners LP (HESM) announced it will acquire HIP, including HIP's 80 percent interest in HESM's oil and gas midstream assets, HIP's water services business and the outstanding economic general partner interest and incentive distribution rights in HESM. In addition, HESM's organizational structure will convert from a master limited partnership into an "Up-C" structure in which HESM's public unitholders will receive newly issued securities in a new public entity to be named "Hess Midstream LP" (Hess Midstream). Upon completion of the transaction, Hess Corporation will receive approximately $275 million in cash and will own approximately 134 million HESM units, or 47 percent of Hess Midstream on a consolidated basis. The transaction, which is non-taxable to Hess Corporation, is expected to close in the fourth quarter of 2019, subject to customary closing conditions and regulatory approvals.

Corporate, Interest and Other

After-tax expense for Corporate, Interest and Other was $191 million in the third quarter of 2019, compared with $122 million in the third quarter of 2018. On an adjusted basis, after-tax expense was $103 million in the third quarter of 2019, compared with $110 million in the prior-year quarter.

Capital and Exploratory Expenditures

E&P capital and exploratory expenditures were $661 million in the third quarter of 2019, compared with $542 million in the prior-year quarter, primarily reflecting increased drilling in the Bakken and greater activity in Guyana.

Midstream capital expenditures were $112 million in the third quarter of 2019, up from $83 million in the prior-year quarter. Midstream investments in its 50/50 joint venture with Targa Resources were $10 million in the third quarter of 2019, compared with $26 million in the prior-year quarter.

Liquidity

Excluding the Midstream segment, Hess Corporation had cash and cash equivalents of $1.9 billion and debt and finance lease obligations totaling $5.6 billion at September 30, 2019. The Midstream segment had cash and cash equivalents of $7 million and total debt of $1,152 million at September 30, 2019. The Corporation's debt to capitalization ratio, including finance leases, was 40.0 percent at September 30, 2019 and 38.0 percent at December 31, 2018.

Net cash provided by operating activities was $443 million in the third quarter of 2019, up from $423 million in the third quarter of 2018. Net cash provided by operating activities before changes in operating assets and liabilities² was $522 million in the third quarter of 2019, compared with $681 million in the prior-year quarter. Changes in operating assets and liabilities were a net outflow of $79 million in the third quarter of 2019 and a net outflow of $258 million in the year-ago quarter.

Items Affecting Comparability of Earnings Between Periods

The following table reflects the total after-tax income (expense) of items affecting comparability of earnings between periods:

Third Quarter 2019: Corporate, Interest & Other included a noncash charge to recognize unamortized pension actuarial losses of $88 million ($88 million after-tax) resulting from the purchase of a single premium annuity contract using funds of the pension plan to settle a portion of the plan's benefit obligations. The charge is included in Other, net nonoperating income in the income statement. E&P results included a pre-tax charge of $21 million ($19 million after-tax) related to a settlement on historical cost recovery balances in the JDA that will be paid in cash. The charge is included in Marketing, including purchased oil and gas in the income statement.

Third Quarter 2018: E&P results included a pre-tax charge of $73 million ($73 million after-tax) in connection with vacated office space, of which $57 million is included in General and administrative expenses and $16 million is included in Depreciation, depletion and amortization in the income statement. In addition, E&P results included a pre-tax gain of $14 million ($14 million after-tax) from the sale of our joint venture interests in the Utica shale play. As required under accounting standards, Corporate, Interest and Other results included an allocation of noncash income tax expense of $12 million to offset the recognition of a noncash income tax benefit recorded in other comprehensive income resulting from changes in fair value of crude oil hedge contracts.