Hess Corporation today reported a net loss of $320 million, or $1.05 per common share, in the second quarter of 2020, compared with a net loss of $6 million, or $0.02 per common share, in the second quarter of 2019. On an adjusted basis, the second quarter 2019 net loss was $28 million, or $0.09 per common share. The decrease in after-tax results compared with adjusted results in the prior-year period primarily reflects lower realized selling prices.

Second Quarter Financial and Operational Highlights:

• Net loss was $320 million, or $1.05 per common share, compared with a net loss of $6 million, or $0.02 per common share (adjusted net loss(1) of $28 million, or $0.09 per common share) in the second quarter of 2019
• Oil and gas net production, excluding Libya, averaged 334,000 barrels of oil equivalent per day (boepd), up from 273,000 boepd in the second quarter of 2019; Bakken net production was 194,000 boepd, up 39% from 140,000 boepd in the prior-year quarter
• Crude oil put option contracts are in place for more than 80% of forecast net oil production in the second half of 2020 with a fair value of approximately $450 million at June 30, 2020; realized settlements on crude oil put option contracts during the first half of the year were approximately $500 million
• Exploration and Production (E&P) capital and exploratory expenditures were $453 million, compared with $664 million in the prior-year quarter
• Cash and cash equivalents, excluding Midstream, were $1.64 billion at June 30, 2020

2020 Revised Full Year Guidance:

• Net production guidance, excluding Libya, increased to approximately 330,000 boepd, up from the previous guidance of approximately 320,000 boepd
• Bakken net production guidance increased to approximately 185,000 boepd, up from the previous guidance of approximately 175,000 boepd due to year to date performance and the deferral of the planned maintenance turnaround at the Tioga Gas Plant from the third quarter of 2020 until 2021

(1) a non-GAAP financial measure

As previously announced, the Corporation chartered three very large crude carriers (VLCCs) to load a total of approximately 6 million barrels of oil during May, June and July to enhance 2020 cash flow and maximize value from its Bakken production. During the second quarter, the Corporation loaded 3.7 million barrels of crude oil on VLCCs and plans to load an additional 2.3 million barrels during the third quarter. The first VLCC cargo of 2 million barrels has been sold for delivery in China in September at a premium to Brent prices. The additional 4 million barrels of oil are expected to be sold in Asia in the fourth quarter of 2020.

“Our company’s long term strategy has enabled us to build a high quality and diversified portfolio that is resilient in a low price environment,” CEO John Hess said. “With multiple phases of low cost oil developments in Guyana, we are well positioned to deliver industry leading cash flow growth and increasing financial returns in the years ahead.”

Exploration and Production:

E&P net loss was $249 million in the second quarter of 2020, compared with net income of $68 million in the second quarter of 2019. On an adjusted basis, E&P’s second quarter 2019 net income was $46 million. The Corporation’s average realized crude oil selling price, excluding the effect of hedging, was $20.63 per barrel in the second quarter of 2020, compared with $61.37 per barrel in the prior-year quarter, reflecting a decrease in benchmark oil prices and widening of crude differentials realized as a result of reduced demand caused by the global coronavirus (COVID-19) pandemic. In addition, a higher proportion of Bakken and Guyana production was sold in April and May which had lower prices than the month of June. Realized gains from crude oil hedging activities improved aftertax results by $228 million in the second quarter of 2020 and reduced after-tax results by $14 million in the second quarter of 2019. Including hedging, the Corporation’s average realized crude oil selling price was $39.03 per barrel in the second quarter of 2020, compared with $60.45 per barrel in the year-ago quarter. The average realized natural gas liquids (NGL) selling price in the second quarter of 2020 was $7.32 per barrel, compared with $12.18 per barrel in the prior-year quarter, while the average realized natural gas selling price was $2.41 per mcf, compared with $3.92 per mcf in the second quarter of 2019.

Net production, excluding Libya, was 334,000 boepd in the second quarter of 2020, up 22% from second quarter 2019 net production of 273,000 boepd. The improved performance primarily resulted from a 39% increase in Bakken production and production from the Liza Field, offshore Guyana, which commenced in December 2019. There was no net production for Libya in the second quarter of 2020 due to the declaration of force majeure by the Libyan National Oil Corporation. Net production for Libya was 20,000 boepd in the second quarter of 2019.

Cash operating costs, which include operating costs and expenses, production and severance taxes, and E&P general and administrative expenses, were $8.81 per barrel of oil equivalent (boe) in the second quarter of 2020, down 27% from $12.11 per boe in the prior-year quarter due to the increased production volumes, lower production and severance taxes and the impact of costreduction initiatives.

Operational Highlights for the Second Quarter of 2020:

Bakken (Onshore U.S.): Net production from the Bakken increased to 194,000 boepd from 140,000 boepd in the prior-year quarter, with net oil production up 26% to 108,000 barrels of oil per day (bopd) from 86,000 bopd, primarily due to increased wells online and improved well performance. Natural gas and NGL production also increased from higher wells online, additional natural gas captured and processed at the Little Missouri 4 natural gas processing plant that commenced operations in July 2019, and additional volumes received under percentage of proceeds contracts resulting from lower prices. The Corporation reduced the number of rigs operating in the Bakken from six rigs in the first quarter to one rig in May as part of its previously announced capital expenditure reduction plans and drilled 17 wells, completed 31 wells, and brought 40 new wells online during the second quarter of 2020. The planned maintenance turnaround at the Tioga Gas Plant originally scheduled for the third quarter of 2020 will be deferred until 2021 to ensure safe and timely execution in light of the COVID-19 pandemic.

Gulf of Mexico (Offshore U.S.): Net production from the Gulf of Mexico was 68,000 boepd, compared with 65,000 boepd in the prior-year quarter. The Esox-1 well, which commenced production in February, is expected to reach its gross peak rate of approximately 17,000 boepd, or 9,000 boepd net to Hess in the third quarter, and is expected to average approximately 5,000 boepd net to Hess in 2020. The Corporation is participating in the BP-operated Galapagos Deep exploration well (Hess – 25%) which is a hub-class, Cretaceous-aged opportunity in the Mississippi Canyon area. The well spud in May and is still drilling.

Guyana (Offshore): On the Stabroek Block (Hess – 30%), the Corporation’s net production from the Liza Field, which commenced in December 2019, averaged 22,000 bopd in the second quarter of 2020. The operator, Esso Exploration and Production Guyana Limited, is currently commissioning water injection equipment and bringing natural gas injection fully online that should enable the Liza Destiny floating production, offloading, and storage vessel (FPSO) to reach its capacity of 120,000 gross bopd in August. Phase two of the Liza Field development, which will utilize the Liza Unity FPSO with an expected capacity of 220,000 gross bopd, remains on target to achieve first oil in early 2022. As previously announced, some activities for a third development, Payara, with expected production capacity of 220,000 gross bopd, have been deferred pending government approval of the project creating a potential delay in production startup of six to twelve months.

As a result of COVID-19 related travel restrictions in Guyana, the operator temporarily idled two drillships but both drillships resumed drilling operations by the end of the second quarter. The Stena Carron rig recently completed appraisal drilling at Yellowtail-2, located 1 mile southeast of Yellowtail-1. The well identified two additional high quality reservoirs, one adjacent to, and the other below the Yellowtail Field, further demonstrating the world class quality of this basin. This additional resource is currently being evaluated and will help form the basis for a potential future development. The Noble Don Taylor commenced drilling of the Redtail exploration well, which is 1.25 miles northwest of Yellowtail-1, in July. The other two drillships, the Noble Bob Douglas and the Noble Tom Madden, are drilling and completing Liza Phase 1 and Phase 2 development wells.

South East Asia (Offshore): Net production at the North Malay Basin and JDA was 44,000 boepd, compared with 59,000 boepd in the prior-year quarter, reflecting reduced natural gas nominations caused by COVID-19 impacts on economic activity in Malaysia.

Midstream:

The Midstream segment had net income of $51 million in the second quarter of 2020, compared with net income of $35 million in the prior-year quarter. The improved second quarter 2020 results are primarily driven by higher throughput volumes.

KeyFacts Energy: Hess US country profile