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HESS CORPORATION

(HES)
  Report
Delayed Nyse  -  04:00 2022-09-23 pm EDT
104.60 USD   -8.57%
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HESS CORP Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

08/04/2022 | 04:23pm EDT

The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read together with the unaudited consolidated financial statements and accompanying footnotes for the quarter ended June 30, 2022 included under Item 1. Financial Statements of this Form 10-Q and the audited consolidated financial statements and related notes included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021.

Overview

Hess Corporation is a global E&P company engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids, and natural gas with production operations located in the United States, Guyana, the Malaysia/Thailand Joint Development Area (JDA), Malaysia, and Libya. We conduct exploration activities primarily offshore Guyana, in the U.S. Gulf of Mexico, and offshore Suriname and Canada. At the Stabroek Block (Hess 30%), offshore Guyana, we and our partners have discovered a significant resource base and are executing a multi-phased development of the Block. The Liza Phase 1 development reached its new production capacity of more than 140,000 gross bopd in June 2022 following the completion of production optimization work. The Liza Phase 2 development achieved first production in February 2022 and reached its production capacity of approximately 220,000 gross bopd in July. A third development, Payara, was sanctioned in the third quarter of 2020 and is expected to achieve first production in late 2023 with production capacity of approximately 220,000 gross bopd. A fourth development, Yellowtail, was sanctioned in April 2022 and is expected to achieve first production in 2025, with production capacity of approximately 250,000 gross bopd. We currently plan to have at least six floating production, storage and offloading vessels (FPSO) with an aggregate expected production capacity of more than 1 million gross bopd on the Stabroek Block in 2027, and the potential for up to ten FPSOs to develop the current discovered recoverable resource base.

Our Midstream operating segment provides fee-based services, including gathering, compressing and processing natural gas and fractionating natural gas liquids (NGL); gathering, terminaling, loading and transporting crude oil and NGL; storing and terminaling propane, and water handling services primarily in the Bakken shale play in the Williston Basin area of North Dakota.

In April 2022, Hess Midstream completed a public offering of approximately 10.2 million Hess Midstream LP Class A shares held by a subsidiary of Hess Corporation and an affiliate of GIP. We received net proceeds of $146 million from the public offering. Concurrent with the public offering, HESM Opco repurchased approximately 13.6 million HESM Opco Class B units from a subsidiary of Hess Corporation and an affiliate of GIP for $400 million, of which we received net proceeds of $200 million. HESM Opco issued $400 million in aggregate principal amount of 5.500% fixed-rate senior unsecured notes due 2030 in a private offering to repay borrowings under its revolving credit facility used to finance the repurchase. After giving effect to these transactions, we own an approximate 41% interest in Hess Midstream LP, on a consolidated basis.

2022 Highlights and Outlook

Following the startup of the Liza Phase 2 project in February 2022, we repaid the remaining $500 million outstanding under our $1.0 billion term loan, and in March 2022, we announced a 50% increase to our quarterly dividend on common stock. In June 2022, we repurchased approximately 1.8 million shares of common stock for $190 million. We intend to utilize the remaining amount authorized under our stock repurchase plan of $460 million by the end of the year. Excluding our Midstream Segment, we ended the second quarter of 2022 with approximately $2.16 billion in cash and cash equivalents.

Oil and gas net production in 2022, excluding Libya, is forecast to be approximately 320,000 barrels of oil equivalent per day (boepd). Our E&P capital and exploratory expenditures for 2022 are forecast to be approximately $2.7 billion. For the remainder of 2022, we have WTI put options for 90,000 bopd with an average monthly floor price of $60 per barrel and Brent put options for 60,000 bopd with an average monthly floor price of $65 per barrel.

Second Quarter Results

In the second quarter of 2022, net income was $667 million, compared with a net loss of $73 million in the second quarter of 2021. Excluding items affecting comparability of earnings between periods detailed on pages 25 and 27, adjusted net income was $74 million in the second quarter of 2021. The improvement in after-tax earnings in the second quarter of 2022 compared with the prior-year quarter adjusted results was primarily due to higher realized selling prices in the second quarter of 2022.


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                    PART I - FINANCIAL INFORMATION (CONT'D.)

Exploration and Production Results

In the second quarter of 2022, E&P had net income of $723 million compared with a net loss of $25 million in the second quarter of 2021. Excluding items affecting comparability of earnings between periods, adjusted net income was $122 million in the second quarter of 2021. Total net production, excluding Libya, averaged 303,000 boepd in the second quarter 2022, compared with 307,000 boepd in the second quarter of 2021, or 302,000 boepd pro forma for assets sold. The average realized crude oil selling price, including hedging, was $99.16 per barrel in the second quarter of 2022, compared with $59.79 per barrel in the second quarter of 2021. The average realized 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 thousand cubic feet (mcf) in the second quarter of 2022, compared with $4.05 per mcf in the second quarter of 2021.

The following is an update of our ongoing E&P activities:

•In North Dakota, net production from the Bakken averaged 140,000 boepd for the second quarter of 2022 (2021 Q2: 159,000 boepd), reflecting unplanned production shut-ins caused by severe weather in April and May. We operated three rigs, drilled 20 wells, completed 19 wells, and brought 19 new wells online during the second quarter of 2022. In July, we added a fourth drilling rig. We forecast net production to be in the range of 155,000 boepd to 160,000 boepd for the third quarter, in the range of 160,000 boepd to 165,000 boepd for the fourth quarter, and in the range of 150,000 boepd to 155,000 boepd for the full year 2022.

•In the Gulf of Mexico, net production for the second quarter of 2022 averaged 29,000 boepd (2021 Q2: 52,000 boepd), primarily due to field decline and unplanned downtime at the Stampede and Penn State fields. We forecast Gulf of Mexico net production to be in the range of 25,000 boepd to 30,000 boepd for the third quarter and approximately 30,000 boepd for the full year 2022. In June, we completed drilling operations on the Huron prospect (Hess 40%) located at Green Canyon Block 69. Well results are being evaluated and an appraisal sidetrack is planned.

•At the Stabroek Block (Hess 30%), offshore Guyana, net production totaled 67,000 bopd for the second quarter of 2022 (2021 Q2: 26,000 bopd). The Liza Destiny FPSO reached its new production capacity of more than 140,000 gross bopd in June following the completion of production optimization work. 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. We forecast net production to be in the range of 90,000 bopd to 95,000 bopd for the third quarter and approximately 75,000 bopd for the full year 2022, which includes tax barrels of approximately 7,000 bopd and 6,000 bopd, respectively.

Beginning in the third quarter of 2022, we expect to use the remainder of the previously generated Guyana net operating loss carryforwards. As a result, we will start to incur a current income tax liability. Pursuant to the terms of the petroleum agreement, a portion of gross production from the block, separate from the contractors' share of gross production for cost oil and profit oil, is used to satisfy the contractors' income tax liability. This portion of gross production, referred to as "tax barrels", will be included in our reported production volumes and revenue will be recognized.

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 250,000 gross bopd, with first production expected in 2025.

In July, two new discoveries were announced at Seabob and Kiru-Kiru on the Stabroek Block. 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. The Kiru-Kiru-1 well, where drilling operations are ongoing, 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.

•In the Gulf of Thailand, net production from Block A-18 of the JDA averaged 41,000 boepd for the second quarter of 2022 (2021 Q2: 38,000 boepd), while net production from North Malay Basin, offshore Peninsular Malaysia, averaged 26,000 boepd for the second quarter of 2022 (2021 Q2: 28,000 boepd). Combined net production from JDA and North Malay Basin is forecast to be approximately 55,000 boepd in the third quarter and in the range of 60,000 boepd to 65,000 boepd for the full year 2022.


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© Edgar Online, source Glimpses

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