8-K: Hess Corporation Reports Fourth Quarter 2023 Estimated Results, Production Up 11%

Hess Corporation announced its estimated fourth quarter 2023 results, highlighted by an 11% increase in oil and gas production and the commencement of production at the Payara development in Guyana.

Summary

• Hess Corporation reported a net income of $413 million, or $1.34 per share, for the fourth quarter of 2023, compared to $497 million, or $1.61 per share, in the same quarter of 2022.
• Adjusted net income was $501 million, or $1.63 per share, down from $522 million, or $1.69 per share, in the fourth quarter of 2022.
• The decrease in adjusted after-tax results is attributed to lower realized gas and natural gas liquids (NGL) selling prices, partially offset by higher production volumes.
• Oil and gas net production averaged 418,000 barrels of oil equivalent per day (boepd), an 11% increase from 376,000 boepd in the fourth quarter of 2022.
• Bakken net production was 194,000 boepd, up 23% from 158,000 boepd in the prior-year quarter, while Guyana net production was 128,000 bopd, compared to 116,000 bopd in the fourth quarter of 2022.
• E&P capital and exploratory expenditures were $1,480 million, including the purchase of the Liza Unity FPSO for approximately $380 million.
• Year-end proved reserves are estimated at 1.37 billion barrels of oil equivalent (boe), with an organic reserve replacement of 178% at a finding and development cost of $16.00 per boe.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong production growth and reserve replacement, but it is tempered by lower net income and increased capital expenditures. The pending merger with Chevron also adds uncertainty.

Positives

• Oil and gas production increased by 11% year-over-year, driven by strong performance in the Bakken and Guyana.
• The Payara development in Guyana commenced production and reached its initial capacity in January 2024, adding significant production volume.
• Bakken production increased by 23% year-over-year, demonstrating strong operational performance.
• The company achieved a high organic reserve replacement rate of 178%, indicating successful exploration and development activities.
• Net cash provided by operating activities was $1,344 million in the fourth quarter of 2023, compared with $1,252 million in the fourth quarter of 2022.

Negatives

• Net income decreased to $413 million in Q4 2023 from $497 million in Q4 2022.
• Adjusted net income decreased to $501 million in Q4 2023 from $522 million in Q4 2022.
• Lower realized gas and NGL selling prices negatively impacted financial results.
• Cash operating costs increased to $13.29 per boe in Q4 2023 from $12.72 per boe in the prior-year quarter.
• E&P capital and exploratory expenditures increased significantly to $1,480 million in Q4 2023, compared to $818 million in the prior-year quarter.

Risks

• The company is exposed to fluctuations in market prices of crude oil, NGL, and natural gas.
• There are risks associated with increasing oil and gas reserves, including unsuccessful exploration and drilling risks.
• Changes in tax, property, contract, and other laws and regulations could impact the business.
• Operational disruptions due to accidents, severe weather, or cyber-attacks could affect production.
• The company faces risks related to its proposed merger with Chevron.

Future Outlook

Full year 2024 E&P capital and exploratory expenditures are expected to be approximately $4.2 billion, which includes the recent acquisition of leases from the Gulf of Mexico Lease Sale 261. The fourth development on the Stabroek Block, Yellowtail, is expected to have first production in 2025, and the fifth development, Uaru, is expected to have first production in 2026.

Management Comments

• Due to the pending merger with Chevron Corporation, the Corporation will not host a conference call to review its fourth quarter 2023 results.

Industry Context

The results reflect the ongoing trends in the oil and gas industry, including the importance of production growth and the impact of commodity price fluctuations. The increased production from Guyana highlights the significance of offshore developments, while the Bakken's performance underscores the continued relevance of onshore shale plays. The company's focus on reserve replacement is also a key factor in the industry.

Comparison to Industry Standards

• Hess's 11% production increase is a strong result compared to some peers who have struggled with production growth in the same period, however, some companies have seen similar or higher growth rates.
• The 178% reserve replacement is a positive sign, indicating a strong focus on future growth, and is above the industry average for many companies.
• The finding and development cost of $16.00 per boe is competitive, but some companies with lower cost structures may have achieved lower costs.
• The decrease in net income due to lower gas and NGL prices is a common theme across the industry, as many companies have faced similar price pressures.
• The increase in capital expenditures is in line with the industry trend of increased investment in exploration and development, particularly in offshore projects.

Legal Proceedings

• Corporate and other results included a pre-tax charge of $52 million ($52 million after income taxes) for litigation related costs associated with the Corporation's former downstream business, HONX, Inc.

Related Party Transactions

• In November 2023, Hess Midstream Operations LP (HESM Opco), a consolidated subsidiary of Hess Midstream LP (HESM), repurchased approximately 3.4 million HESM Opco Class B units held by Hess Corporation and Global Infrastructure Partners for $100 million, of which the Corporation received $37.8 million.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net income and adjusted net income, but encouraged by the production growth and reserve replacement.
• Employees may be impacted by the ongoing operational changes and the pending merger with Chevron.
• Customers will benefit from increased production volumes.
• Suppliers may see increased business opportunities due to higher capital expenditures.
• Creditors will be monitoring the company's debt levels and cash flow.

Next Steps

• The company plans to continue operating four drilling rigs in the Bakken in 2024.
• The company expects to be awarded 20 leases in the Gulf of Mexico in the first quarter of 2024.
• The Yellowtail development is expected to have first production in 2025.
• The Uaru development is expected to have first production in 2026.

Key Dates

Keywords

Oil and Gas, Production, Exploration, Reserves, Bakken, Guyana, Financial Results, Hess Corporation, Capital Expenditures, Net Income