U.S. Markets closed

Hess Reports Estimated Results for the Fourth Quarter of 2018

NEW YORK--(BUSINESS WIRE)--

Key Highlights:

  • A tenth discovery on the Stabroek Block, offshore Guyana, was announced at the Pluma-1 exploration well located approximately 17 miles south of the Turbot-1 well
  • Estimate of gross discovered recoverable resources for the Stabroek Block increased to more than 5 billion barrels of oil equivalent (boe); growing resource base further underpins the potential for at least five floating production, storage and offloading vessels (FPSOs) producing more than 750,000 gross barrels of oil per day (bopd) by 2025
  • Year-end proved reserves were 1,192 million boe, organic reserve replacement for 2018 was 166 percent at a finding and development cost of approximately $11.80 per boe
  • The Corporation purchased $250 million in common stock to complete our previously announced $1.5 billion share repurchase program

Fourth Quarter Financial and Operating Highlights:

  • Net loss was $4 million, or $0.05 per common share, compared with a net loss of $2,677 million, or $8.57 per common share, in the prior-year quarter
  • Adjusted net loss was $77 million, or $0.31 per common share, compared to an adjusted net loss of $304 million, or $1.01 per common share, in the fourth quarter of last year
  • Oil and gas production averaged 267,000 barrels of oil equivalent per day (boepd), excluding Libya; Bakken net production was 126,000 boepd, up 15 percent from 110,000 boepd in the year-ago quarter
  • E&P capital and exploratory expenditures were $618 million in the quarter, compared to $568 million in the prior-year quarter
  • Cash and cash equivalents, excluding Midstream, were $2.6 billion at December 31, 2018

2019 Guidance:

  • E&P capital and exploratory expenditures are expected to be $2.9 billion
  • Oil and gas production, excluding Libya is forecast to be in the range of 270,000 to 280,000 boepd, compared to full year 2018 net production, excluding Libya and assets sold, of 248,000 boepd

Hess Corporation (HES) today reported a net loss of $4 million, or $0.05 per common share, in the fourth quarter of 2018, compared to a net loss of $2,677 million, or $8.57 per common share, in the fourth quarter of 2017. On an adjusted basis, the Corporation reported a net loss of $77 million, or $0.31 per common share, in the fourth quarter of 2018, compared with an adjusted net loss of $304 million, or $1.01 per common share, in the prior-year quarter. Fourth quarter 2018 results benefitted from higher U.S. crude oil production, reduced operating costs, and lower depreciation, depletion and amortization expense, compared with the prior-year quarter.

“Our company enters 2019 with a great deal of momentum,” Chief Executive Officer John Hess said. “With our strong execution in 2018, our portfolio is well positioned to deliver approximately 20 percent compound annual cash flow growth and more than 10 percent compound annual production growth through 2025, with a portfolio breakeven of less than $40 per barrel Brent by 2025.”

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

        Three Months Ended           Year Ended
December 31, December 31,
(unaudited) (unaudited)
2018           2017 2018           2017
(In millions, except per share amounts)

Net Income (Loss) Attributable to Hess Corporation

                                               
Exploration and Production $ (5 ) $ (2,592 ) $ 51 $ (3,653 )
Midstream 32 20 120 42
Corporate, Interest and Other               (31 )               (105 )               (453 )               (463 )
Net income (loss) attributable to Hess Corporation $             (4 ) $             (2,677 ) $             (282 ) $             (4,074 )
 
Net income (loss) per common share (diluted) (a) $             (0.05 ) $             (8.57 ) $             (1.10 ) $             (13.12 )
 

Adjusted Net Income (Loss) Attributable to Hess Corporation (b)

Exploration and Production $ (5 ) $ (219 ) $ 137 $ (1,044 )
Midstream 32 20 120 76
Corporate, Interest and Other               (104 )               (105 )               (433 )               (433 )
Adjusted net income (loss) attributable to Hess Corporation $             (77 ) $             (304 ) $             (176 ) $             (1,401 )
 
Adjusted net income (loss) per common share (diluted) (a) $             (0.31 ) $             (1.01 ) $             (0.74 ) $             (4.61 )
 
Weighted average number of shares (diluted)               291.5               313.6               298.2               314.1

(a)

 

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

(b)

Adjusted net income (loss) attributable to Hess Corporation excludes items affecting comparability of earnings between periods summarized on page 7. A reconciliation of net income (loss) attributable to Hess Corporation to adjusted net income (loss) attributable to Hess Corporation is provided on page 7.

 

Exploration and Production:

Exploration and Production (E&P) net loss was $5 million in the fourth quarter of 2018, compared to a net loss of $2,592 million, or a net loss of $219 million on an adjusted basis, in the fourth quarter of 2017. The Corporation’s average realized crude oil selling price, excluding the effect of hedging, was $58.11 per barrel in the fourth quarter of 2018, versus $57.32 per barrel in the year-ago quarter. Noncash losses on crude oil hedging contracts reduced fourth quarter 2018 after-tax results by $48 million, compared to a $54 million reduction in the fourth quarter of 2017. The average realized natural gas liquids selling price in the fourth quarter of 2018 was $21.19 per barrel, versus $22.78 per barrel in the prior-year quarter, while the average realized natural gas selling price was $4.82 per mcf, compared to $3.69 per mcf in the fourth quarter of 2017.

Net production, excluding Libya, was 267,000 boepd in the fourth quarter of 2018, down from 282,000 boepd in the prior-year quarter, which included 58,000 boepd from divested assets. Growth in 2018 production was driven by the Bakken and the Gulf of Mexico. Libya net production was 22,000 boepd in the fourth quarter of 2018, compared with 18,000 boepd in the year-ago quarter.

Cash operating costs, which include operating costs and expenses, production and severance taxes, and E&P general and administrative expenses, were $12.60 per boe in the fourth quarter, down 14 percent from $14.58 per boe in the prior-year quarter. This improvement is due to higher production from lower cost Gulf of Mexico assets and cost reduction initiatives. The E&P effective tax rate, excluding items affecting comparability of earning between periods and Libya, was a benefit of 57 percent in the fourth quarter of 2018, compared to an expense of 21 percent in the prior-year period.

Oil and Gas Reserve Estimates:

Oil and gas proved reserves at December 31, 2018, which are subject to final review, were 1,192 million boe, compared with 1,154 million boe at December 31, 2017. Proved reserve additions and revisions in 2018 were 172 million boe, and primarily related to the Bakken. Additions resulting from asset acquisitions totaled 4 million boe, while asset sales reduced proved reserves by 35 million boe. Excluding asset sales, the Corporation replaced 170 percent of its 2018 production at a finding, development and acquisition cost of approximately $11.75 per boe, which resulted in a year-end 2018 reserve life of 11.5 years.

Operational Highlights for the Fourth Quarter of 2018:

Bakken (Onshore U.S.): Net production from the Bakken increased 15 percent to 126,000 boepd from 110,000 boepd in the year-ago quarter, due to increased drilling activity and improved well performance. The Corporation operated an average of six rigs in the fourth quarter, drilling 36 wells and bringing 35 new wells online.

Gulf of Mexico (Offshore U.S.): Net production from the Gulf of Mexico was 68,000 boepd, compared to 40,000 boepd in the prior-year quarter, primarily reflecting higher production from the Penn State and Conger fields which were impacted by the shutdown of the third-party operated Enchilada platform in the year-ago quarter, and the Stampede Field which commenced production in 2018.

Guyana (Offshore): At the Stabroek Block (Hess - 30 percent), the operator, Esso Exploration and Production Guyana Limited, announced a tenth discovery, the Pluma-1 exploration well which encountered approximately 121 feet of high-quality, hydrocarbon-bearing sandstone reservoir and is located approximately 17 miles south of the Turbot-1 well. As a result of this new discovery and further evaluation of previous discoveries, the estimate of gross discovered recoverable resources for the Stabroek Block was increased to more than 5 billion boe, which further reinforces the potential for at least five FPSOs producing over 750,000 gross bopd by 2025.

Earlier this month the Stena Carron drillship began drilling the Haimara-1 well, located 19 miles east of the Pluma-1 discovery in the southeastern part of the Stabroek Block, and the Noble Tom Madden drillship began drilling the Tilapia-1 prospect, located approximately 3 miles west of the Longtail-1 discovery, in the Turbot area.

Development activities are progressing as follows:

Liza Phase 1: The operator has moved into its peak execution phase ahead of the expected startup in early 2020. Liza Phase 1 will use the Liza Destiny FPSO to produce up to 120,000 gross bopd. Drilling of development wells in the Liza Field is continuing using the Noble Bob Douglas drillship, subsea equipment is being prepared for installation, and the topside facilities modules are being installed on the Liza Destiny FPSO in Singapore, which is expected to arrive offshore Guyana in the third quarter of 2019. Preparations are also underway for the installation of subsea umbilicals, risers and flowlines at the Liza Field in the spring.

Liza Phases 2 and 3: Phase 2 of the Liza development, which will use a second FPSO designed to produce up to 220,000 gross bopd, is expected to be producing by mid-2022. Pending government and regulatory approvals, project sanction is expected in the first quarter of 2019. Development of the Payara Field is expected to be sanctioned in 2019 with first production expected to start up as early as 2023.

Canada (Offshore): In Nova Scotia (Hess – 50 percent), the operator, BP Canada, completed drilling of the Aspy exploration well. The well did not encounter commercial quantities of hydrocarbons. Well costs of $26 million were incurred and expensed in the fourth quarter. The operator is evaluating the data from the Aspy well and determining next steps.

Midstream:

The Midstream segment, comprised primarily of Hess Infrastructure Partners LP, our 50/50 midstream joint venture, had net income of $32 million in the fourth quarter of 2018, compared to net income of $20 million in the prior-year quarter. The improved fourth quarter 2018 results primarily reflect higher throughput volumes.

Corporate, Interest and Other:

Net results for Corporate, Interest and Other were an after-tax expense of $31 million in the fourth quarter of 2018, compared to an after-tax expense of $105 million in the fourth quarter of 2017. On an adjusted basis, fourth quarter 2018 after-tax expense was $104 million. Adjusted corporate expenses were $20 million in the fourth quarter of 2018, down $13 million from the year-ago quarter, primarily as a result of lower employee related costs and professional fees. Fourth quarter 2018, interest expense of $84 million was $12 million higher than the year-ago quarter primarily due to lower capitalized interest.

Capital and Exploratory Expenditures:

E&P capital and exploratory expenditures were $618 million in the fourth quarter of 2018, compared to $568 million in the prior-year quarter, reflecting increased drilling in the Bakken, greater development activity in Guyana, and higher exploration spend, partially offset by reduced development spend in the Gulf of Mexico and the impact of 2017 asset sales.

Midstream capital expenditures were $67 million in the fourth quarter of 2018, up from $46 million in the year-ago quarter primarily due to expansion of gathering systems and compression capacity to support Hess and third-party production growth.

Liquidity:

Excluding the Midstream segment, the Corporation had cash and cash equivalents of $2.6 billion and total debt of $5.7 billion at December 31, 2018. The Midstream segment had cash and cash equivalents of $109 million and total debt of $981 million at December 31, 2018. The Corporation’s debt to capitalization ratio was 38.0 percent at December 31, 2018 and 36.1 percent at December 31, 2017.

Net cash provided by operating activities was $881 million in the fourth quarter of 2018, up from $343 million in the fourth quarter of 2017. Net cash provided by operating activities before changes in working capital was $584 million in the fourth quarter of 2018 compared with $492 million in the year-ago quarter. Changes in working capital during the fourth quarter of 2018 was a net inflow of $297 million due to an increase in accounts payable and a reduction in accounts receivable.

In the fourth quarter of 2018, the Corporation purchased a total of $250 million of common shares to complete its previously announced $1.5 billion share repurchase program.

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)
2018           2017 2018         2017
(In millions)
Exploration and Production $               $               (2,373 ) $               (86 ) $               (2,609 )
Midstream (34 )
Corporate, Interest and Other                 73                                 (20 )                 (30 )
Total items affecting comparability of earnings between periods $               73 $               (2,373 ) $               (106 ) $               (2,673 )

Fourth Quarter 2018: Corporate, Interest and Other results include an allocation of noncash income tax benefit of $73 million, as required by accounting standards, to offset the recognition of a noncash income tax expense recorded in other comprehensive income resulting from changes in fair value of our 2019 crude oil hedging program.

Fourth Quarter 2017: E&P results included an after-tax gain of $486 million ($486 million pre-tax) from the sale of our interests in Equatorial Guinea, and an after-tax loss of $857 million ($857 million pre-tax) from the sale of our interests in Norway. In addition, E&P results included after-tax impairment charges totaling $1,980 million ($1,980 million pre-tax) to reduce the carrying value of our interests in the Stampede and Tubular Bells Fields in the Gulf of Mexico and to fully impair the carrying value of our former interests in Ghana. Fourth quarter results also included a noncash after-tax charge of $22 million ($22 million pre-tax) related to de-designated crude oil hedging contracts.

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)

    2018    

 

    2017    

 

    2018    

 

     2017    

(In millions)
Net income (loss) attributable to Hess Corporation $   (4 ) $   (2,677 ) $   (282 ) $   (4,074 )
Less: Total items affecting comparability of earnings between periods     73     (2,373 )       (106 )     (2,673 )
Adjusted net income (loss) attributable to Hess Corporation $   (77 ) $   (304 )   $   (176 ) $   (1,401 )
 

The following table reconciles reported net cash provided by (used in) operating activities from 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)

  2018  

   

  2017  

  2018  

 

  2017  

(In millions)
Cash provided by (used in) operating activities before changes in operating assets and liabilities $   584 $   492 $   2,125 $   1,725
Changes in operating assets and liabilities     297     (149 )     (186 )     (780 )
Net cash provided by (used in) operating activities $   881 $   343 $   1,939 $   945
 

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 and other factors.

Non-GAAP financial measure

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. “Cash provided by (used in) operating activities before changes in operating assets and liabilities” presented in this release is defined as 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 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 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’ 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.

 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)
(IN MILLIONS)

 
                                            Fourth     Fourth     Third

   Quarter   

   Quarter   

   Quarter   

2018 2017 2018

Income Statement

     
 
Revenues and non-operating income
Sales and other operating revenues $ 1,653 $ 1,663 $ 1,793
Gains (losses) on asset sales, net (362 ) 14
Other, net     29     (10 )     21
Total revenues and non-operating income     1,682     1,291     1,828
 
Costs and expenses
Marketing, including purchased oil and gas 472 476 491
Operating costs and expenses 292 358 266
Production and severance taxes 43 31 47
Exploration expenses, including dry holes and lease impairment 91 356 169
General and administrative expenses 91 121 143
Interest expense 99 80 99
Depreciation, depletion and amortization 533 646 489
Impairment         1,700    
Total costs and expenses     1,621     3,768     1,704
 
Income (loss) before income taxes 61 (2,477 ) 124
Provision (benefit) for income taxes     27     158     121
Net income (loss) 34 (2,635 ) 3
Less: Net income (loss) attributable to noncontrolling interests     38     42     45
Net income (loss) attributable to Hess Corporation (4

)

 

(2,677 ) (42 )
Less: Preferred stock dividends     12     12     11
Net income (loss) attributable to Hess Corporation common stockholders $   (16

)

 

$   (2,689 ) $   (53 )
 
 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)
(IN MILLIONS)

 
                                                Year Ended December 31,
2018   2017

Income Statement

                                       
 
Revenues and non-operating income
Sales and other operating revenues $ 6,326 $ 5,466
Gains (losses) on asset sales, net 32 (86 )
Other, net                       108                       11
Total revenues and non-operating income                       6,466                       5,391
 
Costs and expenses
Marketing, including purchased oil and gas 1,771 1,267
Operating costs and expenses 1,134 1,443
Production and severance taxes 171 119
Exploration expenses, including dry holes and lease impairment 362 507
General and administrative expenses 473 422
Interest expense 399 325
Loss on debt extinguishment 53
Depreciation, depletion and amortization 1,883 2,883
Impairment                                             4,203
Total costs and expenses                       6,246                       11,169
 
Income (loss) before income taxes 220 (5,778 )
Provision (benefit) for income taxes                       335                       (1,837 )
Net income (loss) (115 ) (3,941 )
Less: Net income (loss) attributable to noncontrolling interests                       167                       133
Net income (loss) attributable to Hess Corporation (282 ) (4,074 )
Less: Preferred stock dividends                       46                       46
Net income (loss) attributable to Hess Corporation common stockholders $                     (328 ) $                     (4,120 )
 
 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)
(IN MILLIONS)

 
                                                                      December 31,
2018         2017

Balance Sheet Information

                                           
 
Cash and cash equivalents $ 2,694 $ 4,847
Other current assets 1,765 1,310
Property, plant and equipment – net 16,083 16,192
Other long-term assets                         891                         763
Total assets $                       21,433 $                       23,112
 
Current maturities of long-term debt $ 67 $ 580
Other current liabilities 2,136 1,855
Long-term debt 6,605 6,397
Other long-term liabilities 1,737 1,926
Total equity excluding other comprehensive income (loss) 9,935 11,737
Accumulated other comprehensive income (loss) (306 ) (686 )
Noncontrolling interests                         1,259                         1,303
Total liabilities and equity $                       21,433 $                       23,112
 
 
December 31,
2018 2017

Total Debt

 
Hess Corporation $ 5,691 $ 5,997
Midstream (a)                         981                         980
Hess Consolidated $                       6,672 $                       6,977
 

(a)  Midstream debt is non-recourse to Hess Corporation.

 
 
 
December 31,
2018 2017

Debt to capitalization ratio

 
Hess Consolidated 38.0 % 36.1 %
 
                                                               
Three Months Ended Year Ended
December 31, December 31,

   2018   

         

   2017   

   2018   

         

   2017   

Interest Expense

                                                       
 
Gross interest expense – Hess Corporation $ 90 $ 97 $ 359 $ 385
Less: Capitalized interest – Hess Corporation                   (6 )               (25 )                   (20 )               (86 )
Interest expense – Hess Corporation 84 72 339 299
Interest expense – Midstream (a)                   15               8                   60               26
Interest expense – Consolidated $                 99 $             80 $                 399 $             325
 

(a)

 

Midstream interest expense is reported in the Midstream operating segment.

 
...
 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)
(IN MILLIONS)