10-K: Hess Corporation Reports FY24 Results, Outlines Merger Progress Amid Arbitration

Hess Corporation's FY24 results reveal increased net income and production, while the proposed merger with Chevron faces ongoing arbitration regarding preemptive rights in the Stabroek Block.

Summary

• Hess Corporation reported a net income attributable to Hess Corporation of $2,769 million in 2024, compared to $1,382 million in 2023.
• Adjusted net income was $2,983 million in 2024, compared to $1,552 million in 2023.
• Net production averaged 481,000 boepd in 2024, up from 394,000 boepd in 2023.
• The average realized crude oil price was $77.28 per barrel in 2024 and $75.97 per barrel in 2023, including hedging.
• Total proved reserves were 1,438 million boe at the end of 2024, compared to 1,370 million boe at the end of 2023.
• The merger with Chevron is progressing, with stockholder approval obtained on May 28, 2024.
• Arbitration is ongoing regarding the applicability of a right of first refusal (Stabroek ROFR) to the merger, with a merits hearing scheduled for May 2025 and a decision expected in the third quarter.
• Capital and exploratory expenditures are projected to be approximately $4.5 billion in 2025.
• Capital investment for Midstream operations is expected to be approximately $300 million in 2025.

Sentiment

Score: 7

Explanation: The document presents a mixed sentiment. The financial results are positive, showing significant improvements in net income and production. However, the ongoing arbitration regarding the Chevron merger introduces uncertainty and potential risks. The company's commitment to sustainability and GHG emission reduction targets is also a positive factor.

Positives

• Significant increase in net income and production year-over-year.
• Growth in proved reserves, indicating successful exploration and development.
• Advancement of the Stabroek Block development in Guyana, with plans for further expansion.
• Commitment to reducing GHG emissions and investing in carbon credits.
• Strong liquidity position with $4.5 billion available.

Negatives

• Ongoing arbitration regarding the Chevron merger creates uncertainty.
• Notification that the current PSC for JDA Block A-18 will not be re-awarded to the existing PSC contractors upon its expiration in 2029 resulting in an after-tax charge of $52 million.
• Exploration expenses of $92 million related to the Vancouver-1 exploration well in the Gulf of America which did not encounter commercial quantities of hydrocarbons.
• Hurricane related downtime reduced net production by approximately 2,000 boepd and hurricane related maintenance and repair costs were approximately $1 million.

Risks

• The Chevron merger is subject to conditions, including the outcome of arbitration, and may not be completed.
• Commodity price volatility could impact revenue, cash flows, and reserve estimates.
• Operational risks, including catastrophic events and cybersecurity attacks, could disrupt operations.
• Regulatory and environmental risks, including climate change initiatives, could increase costs and reduce demand.
• Political instability in areas where Hess operates could adversely affect business.

Future Outlook

E&P capital and exploratory expenditures are projected to be approximately $4.5 billion in 2025. Capital investment for Midstream operations is expected to be approximately $300 million in 2025. Total net production is forecast to be in the range of 465,000 boepd to 475,000 boepd in the first quarter of 2025.

Management Comments

• Our strategy is to grow our resource base, have a low cost of supply and sustain cash flow growth.
• Our strategy aligns with the energy transition needed to reach the energy-related Sustainable Development Goals of the United Nations.
• Our commitment to sustainability starts with our Board of Directors and senior management and is reinforced throughout our organization.

Industry Context

The report acknowledges the ongoing energy transition and the need for both renewable energy sources and oil and gas to meet growing global energy demands. Hess's strategy aligns with this transition by focusing on growing its resource base and maintaining a low cost of supply.

Comparison to Industry Standards

• The report does not provide a direct comparison to industry standards.
• However, it mentions that Hess's proved reserves are calculated in accordance with SEC regulations and practices recognized by the Society of Petroleum Engineers.
• The engagement of DeGolyer and MacNaughton, an independent petroleum engineering consulting firm, to audit a significant portion of Hess's reserves is a common practice in the industry to ensure the reliability of reserve estimates.

Legal Proceedings

• Ongoing arbitration proceedings regarding the applicability of the Stabroek ROFR to the Chevron merger.
• Two lawsuits were filed challenging the sufficiency of the disclosures made in connection with the Merger Agreement, but have been voluntarily dismissed.
• Involved in six claims in federal and state courts in North Dakota related to post-production deductions from royalty and working interest payments.

Stakeholder Impact

• Shareholders: Potential benefits from the Chevron merger, but also uncertainty due to ongoing arbitration.
• Employees: Uncertainty about their roles during the pendency of the merger.
• Customers: Continued supply of crude oil, NGL, and natural gas.
• Suppliers: Ongoing business relationships, but potential changes due to the merger.
• Creditors: Continued ability to service debt, but potential impact from commodity price volatility.

Next Steps

• Continue to progress the Chevron merger, including resolving the ongoing arbitration.
• Execute the 2025 capital investment plan of approximately $4.5 billion.
• Continue development activities at the Stabroek Block in Guyana.
• Continue development activities at NMB.
• Continue to focus on ESG practices and reduce carbon footprint.

Key Dates