Hess Reports Estimated Results for the Fourth Quarter of 2019
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Hess Reports Estimated Results for the Fourth Quarter of 2019

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01.29.2020

Key Developments:

  • Commenced production on December 20, 2019 from the Liza Phase 1 Development at the Stabroek Block (Hess – 30 percent), offshore Guyana

  • Announced a 15th discovery at the Mako-1 exploration well located approximately 6 miles southeast of the Liza Field in December

  • Increased estimate of gross discovered recoverable resources for the Stabroek Block to more than 8 billion barrels of oil equivalent (boe) from the prior estimate of 6 billion boe

  • Announced a 16th discovery at Uaru located approximately 10 miles northeast of the Liza Field in January 2020; the discovery will be incremental to new resources estimate

  • Hess Corporation received approximately $300 million in cash and owns approximately 47 percent of Hess Midstream LP on a consolidated basis upon closing of its previously announced acquisition of Hess Infrastructure Partners LP

 

Fourth Quarter Financial and Operational Highlights:

  • Net loss was $222 million, or $0.73 per common share, compared with a net loss of $4 million, or $0.05 per common share, in the fourth quarter of 2018

  • Adjusted net loss1 was $180 million, or $0.60 per common share, compared with an adjusted net loss of $77 million, or $0.31 per common share, in the fourth quarter of last year

  • Oil and gas net production averaged 316,000 barrels of oil equivalent per day (boepd), excluding Libya, up from 267,000 boepd in the fourth quarter of 2018; Bakken net production was 174,000 boepd, up 38 percent from 126,000 boepd in the prior-year quarter

  • Exploration and Production (E&P) capital and exploratory expenditures were $876 million, compared with $618 million in the prior-year quarter

  • Cash and cash equivalents, excluding Midstream, were $1.54 billion at December 31, 2019

  • Year-end proved reserves were 1,197 million boe; reserve replacement for 2019 was 104 percent (134 percent excluding price revisions)

 

2020 Guidance:

  • E&P capital and exploratory expenditures are expected to be $3.0 billion

  • Oil and gas production, excluding Libya, is forecast to be in the range of 330,000 boepd to 335,000 boepd, compared to full year 2019 net production, excluding Libya, of 290,000 boepd

 

Hess today reported a net loss of $222 million, or $0.73 per common share, in the fourth quarter of 2019, compared with a net loss of $4 million, or $0.05 per common share, in the fourth quarter of 2018. On an adjusted basis, the Corporation reported a net loss of $180 million, or $0.60 per common share, in the fourth quarter of 2019, compared with an adjusted net loss of $77 million, or $0.31 per common share, in the prior-year quarter. The decrease in after-tax adjusted results primarily reflects lower natural gas and natural gas liquids realized selling prices, partially offset by higher production volumes and improved Midstream earnings, compared with the prior-year quarter.

     “Our company had an outstanding year, achieving a number of important milestones and delivering higher production and lower capital and exploratory expenditures for the year than our guidance,” Chief Executive Officer John Hess said. “We look forward to continuing this momentum into 2020 and future years as we execute our differentiated long term strategy.”

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

 

Three Months Ended

 

 

Year Ended

 

 

 

December 31,

 

 

December 31,

 

 

(unaudited)

 

 

(unaudited)

 

 

2019

 

2018

 

2019

 

 

2018

 

(In millions, except per share amounts)

Net Income (Loss) Attributable to Hess Corporation

 

 

 

 

 

 

 

 

 

 

 

 

Exploration and Production

$

(64

)

$

(5

)

$

53

 

$

51

 

Midstream

 

33

 

 

32

 

 

144

 

 

120

 

Corporate, Interest and Other

(191

)

(31

)

(605

)

(453

)

Net income (loss) attributable to Hess Corporation

$

(222

)

$

(4

)

$

(408

)

$

(282

)

Net income (loss) per common share (diluted) (a)

$

(0.73

)

$

(0.05

)

$

(1.37

)

$

(1.10

)

 

Adjusted Net Income (Loss) Attributable to Hess Corporation

Exploration and Production

$

(124

)

$

(5

)

$

(10

)

$

137

 

Midstream

 

49

 

 

32

 

 

160

 

 

120

 

Corporate, Interest and Other

 

(105

)

(104

)

(431

)

(433

)

Adjusted net income (loss) attributable to Hess Corporation

 

$

 

(180

 

)

 

$

 

(77

 

)

 

$

 

(281

 

)

 

$

 

(176

 

)

Adjusted net income (loss) per common share (diluted) (a)

$

(0.60

)

$

(0.31

)

$

(0.95

)

$

(0.74

)

 

Weighted average number of shares (diluted)

 

 

302.8

 

 

29

 

1.5

 

 

 

301.2

 

 

 

298.2

 

(a) Calculated as net income (loss) attributable to Hess Corporation less preferred stock dividends, divided by weighted average number of diluted shares.

 

Exploration and Production:

E&P net loss was $64 million in the fourth quarter of 2019, compared with a net loss of $5 million in the fourth quarter of 2018. On an adjusted basis, E&P’s fourth quarter 2019 net loss was $124 million. The Corporation’s average realized crude oil selling price, including the effect of hedging, was

$54.90 per barrel in the fourth quarter of 2019, versus $55.24 per barrel in the prior-year quarter. The average realized natural gas liquids (NGL) selling price in the fourth quarter of 2019 was $13.87 per barrel, versus $21.19 per barrel in the prior-year quarter, while the average realized natural gas selling price was $3.48 per mcf, compared with $4.82 per mcf in the fourth quarter of 2018.

Net production, excluding Libya, was 316,000 boepd in the fourth quarter of 2019, up from fourth quarter 2018 net production of 267,000 boepd. The higher production was primarily driven by the Bakken. Libya net production was 22,000 boepd in both the fourth quarter of 2019 and 2018.

Cash operating costs, which include operating costs and expenses, production and severance taxes, and E&P general and administrative expenses, were $12.59 per boe in the fourth quarter, compared with $12.60 per boe in the prior-year quarter. Excluding items affecting comparability of earnings between periods, income tax expense is comprised primarily of taxes in Libya.

Oil and Gas Reserve Estimates:

Oil and gas proved reserves at December 31, 2019, which are subject to final review, were 1,197 million boe, compared with 1,192 million boe at December 31, 2018. Net proved reserve additions and revisions in 2019 of 121 million boe, included net negative revisions due to lower commodity prices of 35 million boe.  The net additions and revisions were primarily related to the Bakken and Guyana. The Corporation replaced 104 percent of its 2019 production (134 percent excluding price revisions) at a finding, development and acquisition cost of approximately $22.70 per boe ($17.60 per boe excluding price revisions).

Operational Highlights for the Fourth Quarter of 2019:

 Bakken (Onshore U.S.): Net production from the Bakken increased 38 percent to 174,000 boepd from 126,000 boepd in the prior-year quarter, with net oil production up 28 percent to 106,000 barrels of oil per day (bopd) from 83,000 bopd, primarily due to increased drilling activity and new plug and perf well completion design. Natural gas and NGL production was also higher due to the increased drilling activity, additional natural gas captured from the Little Missouri 4 natural gas processing plant that commenced operations in late July 2019, and additional volumes received under percentage of proceeds contracts resulting from lower prices. The Corporation operated six rigs in the fourth quarter, drilling 42 wells, completing 37 wells and bringing 59 new wells online.

Gulf of Mexico (Offshore U.S.): Net production from the Gulf of Mexico was 70,000 boepd, compared with 68,000 boepd in the prior-year quarter. The Esox-1 oil discovery in Mississippi Canyon (Hess – 57 percent) has been successfully completed and will be brought online in February as a low cost tieback to the Tubular Bells production facilities. At the Oldfield exploration well in Mississippi Canyon (Hess – 60 percent), the operator, Kosmos Energy, announced the well did not encounter commercial quantities of hydrocarbons. Exploration expense in the fourth quarter includes $15 million for well costs incurred through December 31, 2019.

Guyana (Offshore): At the Stabroek Block, the operator, Esso Exploration and Production Guyana Limited, achieved first production from the Liza Field using the Liza Destiny floating production, offloading, and storage (FPSO) vessel on December 20, 2019. Production is expected to ramp up to the full capacity of 120,000 gross bopd in the coming months, with the first one million barrel of oil cargo allocated to Hess scheduled to be sold in March 2020.

A second FPSO, Liza Unity, with an expected capacity of up to 220,000 gross bopd is under construction for the Liza Phase 2 development, with first oil expected by mid-2022. A third development, Payara, is expected to be sanctioned following government and regulatory approvals and is expected to produce up to 220,000 gross bopd with startup as early as 2023.

In December 2019, the Corporation announced a 15th discovery at the Mako-1 exploration well, which encountered approximately 164 feet of high-quality oil-bearing sandstone reservoir and is located approximately 6 miles southeast of the Liza Field. Earlier this week, the Corporation announced a 16th discovery at Uaru located approximately 10 miles northeast of the Liza Field, which encountered 94 feet of high-quality oil-bearing sandstone reservoir. The company also announced an increase in the estimated gross discovered recoverable resources for the Stabroek Block to more than 8 billion boe, up from the previous estimate of 6 billion boe. The new recoverable resources estimate includes 15 discoveries offshore Guyana through yearend 2019. The Uaru discovery is the first of 2020 and will be added to the resources estimate at a later date.

Midstream:

The Midstream segment had net income of $33 million in the fourth quarter of 2019, compared with net income of $32 million in the prior-year quarter. On an adjusted basis, fourth quarter 2019 net income was $49 million. The improved fourth quarter 2019 results primarily reflect higher throughput volumes.

In December 2019, Hess Midstream Operations LP (formerly, Hess Midstream Partners LP) (HESM) completed its previously announced acquisition of Hess Infrastructure Partners LP (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 converted from a master limited partnership into an “Up-C” structure in which HESM’s public unitholders received newly issued securities in a new public entity named “Hess Midstream LP” (Hess Midstream). Upon completion of the transaction, Hess Corporation received approximately $300 million in cash and owns approximately 47 percent of Hess Midstream on a consolidated basis. The transaction was non-taxable to Hess Corporation.

Corporate, Interest and Other:

After-tax expense for Corporate, Interest and Other was $191 million in the fourth quarter of 2019, compared with $31 million in the fourth quarter of 2018. On an adjusted basis, after-tax expense was

$105 million in the fourth quarter of 2019, compared with $104 million in the prior-year quarter.

Capital and Exploratory Expenditures:

E&P capital and exploratory expenditures were $876 million in the fourth quarter of 2019, compared with $618 million in the prior-year quarter, primarily reflecting greater activity in Guyana, the Bakken, and the Gulf of Mexico.

Midstream capital expenditures were $108 million in the fourth quarter of 2019, up from $67 million in the prior-year quarter.

Liquidity:

Excluding the Midstream segment, Hess Corporation had cash and cash equivalents of $1.54 billion and debt and finance lease obligations totaling $5.64 billion at December 31, 2019. The Corporation’s debt to capitalization ratio, including finance leases, was 43.2 percent at December 31, 2019 and 38.0 percent at December 31, 2018.

The Midstream segment had cash and cash equivalents of $3 million and total debt of $1,753 million at December 31, 2019. In December 2019, as part of the HIP acquisition, HESM assumed $800 million of outstanding HIP notes and issued $550 million of new 5.125% senior notes due in 2028. In addition, the existing credit facilities at HIP and HESM were terminated and HESM entered into a new

$1.0 billion 5-year revolving credit facility and $400 million 5-year Term Loan A facility. Proceeds from borrowings and the new notes were primarily used to fund the acquisition of HIP. The notes and the credit facilities are non-recourse to Hess Corporation.

Net cash provided by operating activities was $286 million in the fourth quarter of 2019, down from

$881 million in the fourth quarter of 2018. Net cash provided by operating activities before changes in operating assets and liabilities2 was $520 million in the fourth quarter of 2019, which includes $30 million of nonrecurring transaction related costs for HESM’s acquisition of HIP and corporate restructuring, compared with $588 million in the prior-year quarter. Changes in operating assets and liabilities were a net outflow of $234 million in the fourth quarter of 2019, driven by premiums paid on calendar year 2020 crude oil hedge contracts.

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:

Three Months Ended

 

 

Year Ended

 

 

 

December 31,

 

 

December 31,

 

 

(unaudited)

 

(unaudited)

 

 

 

2019

 

 

2018

 

2019

 

2018

 

(In millions)

Exploration and Production

$

60

 

$

$

63

 

$

(86

)

Midstream

 

(16

)

 

 

(16

)

 

 

Corporate, Interest and Other

(86

)

73

(174

)

(20

)

Total items affecting comparability of earnings between periods

$

(42

)

$

73

$

(127

)

$

(106

)

 

 

 

 

 

2 Net cash provided by (used in) operating activities before changes in operating assets and liabilities” is a non-GAAP financial measure. The definition of this non-GAAP measure and a reconciliation to its nearest GAAP equivalent measure appears on pages 7 and 8.

Fourth Quarter 2019: E&P results include a noncash income tax benefit of $60 million resulting from the reversal of a valuation allowance against net deferred tax assets in Guyana upon achieving first production. Midstream results include a pre-tax charge of $30 million ($16 million after noncontrolling interests) for nonrecurring transaction related costs for HESM’s acquisition of HIP and corporate restructuring. Corporate, Interest and Other results include an allocation of noncash income tax expense of $86 million that was previously a component of accumulated other comprehensive income related to our 2019 crude oil hedge contracts.

Fourth Quarter 2018: Corporate, Interest and Other results included an allocation of noncash income tax benefit of $73 million to offset the recognition of a noncash income tax expense recorded in other comprehensive income that resulted from changes in fair value of crude oil hedge contracts for 2019.

Reconciliation of U.S. GAAP to Non-GAAP measures:

The following table reconciles reported net income (loss) attributable to Hess Corporation and adjusted net income (loss):

 

Three Months Ended

 

 

 

Year Ended

 

 

 

 

December 31,

 

 

 

December 31,

 

 

(unaudited)

 

(unaudited)

 

 

2019

 

2018

 

2019

 

2018

 

(In millions)

Net income (loss) attributable to Hess Corporation

$

(222

)

$

(4

)

$

(408

)

$

(282

)

Less: Total items affecting comparability of earnings between periods

(42

)

73

(127

)

(106

)

Adjusted net income (loss) attributable to Hess Corporation

$

(180

)

$

(77

)

$

(281

)

$

(176

)

The following table reconciles reported net cash provided by (used in) operating activities from net cash provided by (used in) operating activities before changes in operating assets and liabilities:

Three Months Ended

 

Year Ended

 

 

 

December 31,

 

 

December 31,

 

 

(unaudited)

 

(unaudited

)

 

 

2019

 

2018

 

2019

2018

 

(In millions)

Net cash provided by (used in) operating activities before changes in operating assets and liabilities

 

$

 

520

 

$

 

588

 

$

 

2,237

 

$

 

2,129

 

Changes in operating assets and liabilities

(234

)

293

(595

)

(190

)

Net cash provided by (used in) operating activities

$

286

$

881

$

1,642

$

1,939

 

 

Hess Corporation will review fourth quarter financial and operating results and other matters on a webcast at 10 a.m. today (EDT). For details about the event, refer to the Investor Relations section of our website at www.hess.com.

Hess Corporation is a leading global independent energy company engaged in the exploration and production of crude oil and natural gas. More information on Hess Corporation is available at www.hess.com.

Forward-looking Statements

Certain statements in this release may constitute "forward-looking statements" within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Forward-looking statements are subject to known and unknown risks and uncertainties and other factors which may cause actual results to differ materially from those expressed or implied by such statements, including, without limitation, uncertainties inherent in the measurement and interpretation of geological, geophysical and other technical data. Estimates and projections contained in this release are based on the Corporation’s current understanding and assessment based on reasonable assumptions. Actual results may differ materially from these estimates and projections due to certain risk factors discussed in the Corporation’s periodic filings with the Securities and Exchange Commission (SEC) and other factors.

Non-GAAP financial measures

The Corporation has used non-GAAP financial measures in this earnings release. “Adjusted net income (loss)” presented in this release is defined as reported net income (loss) attributable to Hess Corporation excluding items identified as affecting comparability of earnings between periods. “Net cash provided by (used in) operating activities before changes in operating assets and liabilities” presented in this release is defined as Net cash provided by (used in) operating activities excluding changes in operating assets and liabilities. Management uses adjusted net income (loss) to evaluate the Corporation’s operating performance and believes that investors’ understanding of our performance is enhanced by disclosing this measure, which excludes certain items that management believes are not directly related to ongoing operations and are not indicative of future business trends and operations. Management believes that net cash provided by (used in) operating activities before changes in operating assets and liabilities demonstrates the Corporation’s ability to internally fund capital expenditures, pay dividends and service debt. These measures are not, and should not be viewed as, a substitute for U.S. GAAP net income (loss) or net cash provided by (used in) operating activities. A reconciliation of reported net income (loss) attributable to Hess Corporation (U.S. GAAP) to adjusted net income (loss), and a reconciliation of net cash provided by (used in) operating activities (U.S. GAAP) to net cash provided by (used in) operating activities before changes in operating assets and liabilities are provided in the release.

Cautionary Note to Investors

We use certain terms in this release relating to resources other than proved reserves, such as unproved reserves or resources. Investors are urged to consider closely the oil and gas disclosures in Hess Corporation’s Form 10-K, File No. 1-1204, available from Hess Corporation, 1185 Avenue of the Americas, New York, New York 10036 c/o Corporate Secretary and on our website at www.hess.com. You can also obtain this form from the SEC on the EDGAR system.

 

For Hess Corporation Investor Contact:

Jay Wilson (212) 536-8940

Media Contacts:

Lorrie Hecker (212) 536-8250

Jamie Tully

Sard Verbinnen & Co (312) 895-4700


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