Hess Q2 2023 Earnings Report

Hess EPS Results

• Actual EPS: $0.65
• Consensus EPS: $0.57
• Beat/Miss: Beat by +$0.08
• One Year Ago EPS: $2.15

Hess Revenue Results

• Actual Revenue: $2.32 billion
• Expected Revenue: $2.32 billion
• Beat/Miss: Missed by -$3.18 million
• YoY Revenue Growth: -22.40%

Hess Announcement Details

• Quarter: Q2 2023
• Date: 7/26/2023
• Time: Before Market Opens
• Conference Call Date: Wednesday, July 26, 2023
• Conference Call Time: 10:00AM ET

Hess (NYSE:HES), an exploration and production company, explores, develops, produces, purchases, transports, and sells crude oil, natural gas liquids (NGLs), and natural gas. The company operates in two segments, Exploration and Production, and Midstream. It conducts production operations primarily in the United States, Guyana, the Malaysia/Thailand Joint Development Area, and Malaysia; and exploration activities principally offshore Guyana, the U.S. Gulf of Mexico, and offshore Suriname and Canada. The company is also involved in gathering, compressing, and processing natural gas; fractionating NGLs; gathering, terminaling, loading, and transporting crude oil and NGL through rail car; and storing and terminaling propane, as well as providing water handling services primarily in the Bakken Shale plays in the Williston Basin area of North Dakota. The company was incorporated in 1920 and is headquartered in New York, New York.

Hess Q2 2023 Earnings Call Transcript

Presentation

[Operator]

Day, ladies

[Operator]

and gentlemen, and welcome to the Second Quarter 2023 Hess Corporation Conference Call. My name is Kevin, and I'll be your operator for today. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded for replay purposes.

[Operator]

I would now like to turn the conference over to Jay Wilson, Vice President of Investor Relations. Please proceed.

[Jay Wilson, Vice President, Investor Relations at Hess]

Thank you, Kevin. Good morning, everyone, and thank you for participating in our Q2 earnings conference call. Our earnings release was issued this morning and appears on our website, www.hess.com. Today's conference call contains projections and other forward looking statements within the meaning of the federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements.

[Jay Wilson, Vice President, Investor Relations at Hess]

These risks include those set forth in the Risk Factors section of Hess' annual and quarterly reports filed with the SEC. Also on today's conference call, we may discuss certain non GAAP financial measures. A reconciliation of the differences between these non GAAP Financial Measures and the most directly comparable GAAP Financial Measures can be found in the supplemental information provided on our website. On the line with me today are John Hess, Chief Executive Officer Greg Hill, Chief Operating Officer and John Reilly, Chief Financial Officer. I'll now turn the call over to John Hess.

[John Hess, CEO at Hess]

Thank you, Jay. Welcome everyone to our Q2 conference call. Today, I will share some thoughts on the energy transition and then discuss our continued progress in executing our strategy. Then Greg Hill will cover our operations and John Reilly will review our financial results. First, in terms of the energy transition, It is important to realize that progress has been made toward the goal of the Paris Agreement.

[John Hess, CEO at Hess]

According to the International Energy Agency, The global median temperature increase prior to the Paris agreement was 3.5 degrees Celsius. Today, according to the IEA's stated policy scenario, the world is on a trajectory to a median temperature increase of 2.5 degrees. However, much more progress is required and we currently are not on a path to meeting the Paris Agreement's goal of 1.5 degrees. There are 3 important gaps affecting the pace of progress. First, the world is facing a structural deficit in energy supply and the key challenge is investment.

[John Hess, CEO at Hess]

To meet growing energy demand, the world needs to invest $4,000,000,000,000 each year for the next 10 years In Clean Energy's significantly more than last year's investment of $1,400,000,000,000 The world also needs to invest $500,000,000,000 each year for the next 10 years in oil and gas as compared with $300,000,000,000 to $400,000,000,000 Invested annually in the last 5 years. 2nd, developed countries have a gap between their current pledges and the investments they are making to reach their emission reduction commitments. For example, the United States has pledged a 50% reduction in emissions by 2,030. And even with the incentives in the Inflation Reduction Act, our nation will likely fall far short of that pledge. Finally, developing countries are also facing large gaps in their aspirations for emission reductions.

[John Hess, CEO at Hess]

I recently had the honor of speaking at the Energy Asia Conference in Kuala Lumpur. Asia represents 50% of the world's population, 50% of global energy use and 50% of global emissions and will therefore play a key role in the energy transition. The conference speakers, both government officials and business leaders made it clear that Asia will need to find the right balance between energy affordability and emission reduction commitments. At COP28 in December of this year, developing countries' voices must be heard to address their rights to economic prosperity and a higher standard of living. The reality is that the energy transition will take a long time, costs a lot of money and require many technologies that do not exist today.

[John Hess, CEO at Hess]

We must recognize that oil and gas will be needed for decades to come and are fundamental to an orderly, just and secure energy transition. Policymakers need to have climate literacy, Energy Literacy and Economic Literacy to Enable A Net Zero Future. In a world that will require Reliable low cost oil and gas resources for decades ahead, we believe that Hess offers a unique value proposition for investors. We continue to execute our strategy to deliver high return resource growth, a low cost of supply and industry leading cash flow growth and at the same time maintain our industry leadership in environmental, social and governance performance and disclosure. In terms of resource growth, with multiple phases of Guyana developments coming online and our robust inventory of high return drilling locations in the Bakken, We can deliver highly profitable production growth of more than 10% annually through 2027.

[John Hess, CEO at Hess]

In terms of low cost of supply, as our resource base continues to expand, particularly in Guyana, Where our first five developments have breakevens in the range of $25 to $35 per barrel Brent, we will steadily move down the cost curve. By 2027, we forecast that our cash unit costs will decline by 25% to approximately $10 per BOE. In terms of cash flow growth, we have an industry leading rate of change story and an industry leading duration story, providing a highly differentiated value proposition. Based upon a flat Brent oil price of $75 per barrel, Our cash flow is forecast to increase by approximately 25% annually between 20222027, more than twice as fast as our top line growth. And our balance sheet will also continue to strengthen with our most recent debt to EBITDAX ratio at approximately Successful execution of our strategy has uniquely positioned our company to deliver significant value to shareholders for years to come, both by growing intrinsic value and by growing cash returns.

[John Hess, CEO at Hess]

We plan to continue increasing our regular dividend to a level that is attractive to income oriented investors, but sustainable in a low oil price environment. As our free cash flow generation steadily increases in future years, Share repurchases are expected to represent a growing proportion of our return of capital. By investing Only in high return low cost opportunities, we have built a differentiated and balanced portfolio focused on Guyana, The Bakken, Deepwater Gulf of Mexico and Southeast Asia. Key to our strategy is Guyana, The industry's largest oil province discovered in the last decade, where Hess has a 30% interest and ExxonMobil is the operator. Since 2015, we have had more than 30 discoveries on the Stabroek Block, underpinning a gross discovered recoverable resource estimate of more than 11,000,000,000 barrels of oil equivalent with multi 1000000000 barrels of exploration potential remaining.

[John Hess, CEO at Hess]

In June, We were honored to be named E and P Explorer of the Year in the 15th Annual Wood Mackenzie Exploration Industry Survey for the 2nd consecutive year. In terms of Guyana developments, we currently have line of sight to 6 floating production, storage and offloading vessels or FPSOs In 2027, with a gross production capacity of more than 1,200,000 barrels of oil per day and the potential for up to 10 FPSOs In the Bakken, we have a 15 year inventory of high return drilling locations to enable us to steadily grow net production to approximately 200,000 barrels of oil equivalent per day in 2025. We plan to continue operating a 4 rig program, which will enable us to fully optimize our infrastructure, lower our unit cash costs and generate significant levels of free cash flow. Turning to our operated offshore assets. In the Gulf of Mexico, we had a successful oil discovery during the quarter at the Hess operated Pick roll 1 well with approximately 90 feet of high quality net pay, which we plan to tie back to our Tubular Bells production facility with first oil expected in mid-twenty 24.

[John Hess, CEO at Hess]

In Southeast Asia, we have 2 important long life Natural Gas Assets, North Malay Basin and the Joint Development Area or JDA. Our major priorities going forward Are to continue to maximize cash flow and production at North Malay Basin and to work with the governments of Malaysia and Thailand to extend our PSC agreement at the JDA. As we execute our company's strategy, we will continue to be guided by our long standing commitment to sustainability and are proud to be an industry leader in this area. Last week, we announced the publication of our 26th Annual Sustainability Report, which provides a comprehensive review of our strategy and performance on environmental, social and governance programs, including our net zero commitment and the significant progress we have made toward our 2025 emissions reduction targets. In summary, we continue to successfully execute our strategy to deliver industry leading cash flow growth and financial returns to our shareholders, While safely and responsibly producing oil and gas to help meet the world's growing energy needs.

[John Hess, CEO at Hess]

As a result, Our company is uniquely positioned to deliver significant value to shareholders for years to come, both by growing intrinsic value and by growing cash returns. As our portfolio becomes increasingly free cash flow positive, we will continue to prioritize the return of capital to our shareholders through further dividend increases and share repurchases. I will now turn the call over to Greg Hill for an operational update.

[Gregory Hill, COO and President of Exploration & Production at Hess]

Thanks, John. In the Q2, we demonstrated strong operational performance across our portfolio. Company wide net production averaged 387,000 barrels of oil equivalent per day, well above our guidance of approximately 355,000 to 365,000 barrels of oil equivalent per day. In the Q3, we expect company wide net production to average approximately 385,000 barrels of oil equivalent per day, reflecting planned maintenance and hurricane contingency in the Gulf of Mexico. For the full year 2023, We now expect company wide net production to average between 385,000,390,000 barrels of oil equivalent per day, Up from our previous guidance of 365,000 to 375,000 barrels of oil equivalent per day, primarily reflecting our strong performance in the first half of twenty twenty three and the expected start up of the Payard development in Guyana Early in the Q4.

[Gregory Hill, COO and President of Exploration & Production at Hess]

Turning to the Bakken. 2nd quarter net production of 181,000 barrels of Oil equivalent per day was above our guidance of 165,000 to 170,000 barrels of oil equivalent per day With approximately half of the increase due to strong operational performance and the remainder from higher production entitlements Under our percentage of proceeds contracts as a result of lower NGL prices. In the second quarter, We drilled 32 wells and brought 30 new wells online. In the Q3, we expect to drill approximately 27 new wells and bring online approximately 30 new wells. For the full year 2023, we expect Drill and bring online approximately 110 new wells.

[Gregory Hill, COO and President of Exploration & Production at Hess]

Individual well results in terms of IP-180s and EURs Continue to meet or exceed expectations. For the Q3, we expect Bakkenet production to average Approximately 185,000 barrels of oil equivalent per day. And for the full year 2023, we have increased our forecast of net production to between 175,000 and 180,000 barrels of oil equivalent per day, up from our previous guidance of 165,000 to 170,000 barrels of oil equivalent per day. Moving to the offshore. In the Deepwater Gulf of Mexico, 2nd quarter net production averaged 32,000 barrels of oil equivalent per day.

[Gregory Hill, COO and President of Exploration & Production at Hess]

In the Q3, we expect net production to average approximately 25,000 barrels of oil equivalent per day, reflecting planned maintenance downtime and hurricane contingency. For the full year 2023, We continue to forecast Gulf of Mexico net production to average approximately 30,000 barrels of oil equivalent per day. We are excited to announce that the first well of our 2023 Gulf of Mexico drilling program has resulted in an oil discovery. The Hess operated Piccolo-one infrastructure led exploration well in Mississippi Canyon encountered approximately 90 feet of net pay and high quality oil bearing Miocene Aged reservoir. Longleaf construction activities are underway To tie the well back to the Tubular Bells production facility with production expected to commence in mid-twenty 24.

[Gregory Hill, COO and President of Exploration & Production at Hess]

Following Pickerel, we plan to drill the Black Pearl development well in which Hess is the operator and has a 25% working interest Then Chevron, Cenac and Equinor each have 25%. This well is planned as a tieback to the Stampede production facility. Following Black Pearl, we plan to drill the Vancouver prospect located in Green Canyon Block 287. Vancouver is a large hub class exploration prospect targeting sub salt Miocene aged reservoir. Hess is the operator and has 40% working interest and Shell and Chevron each have 30%.

[Gregory Hill, COO and President of Exploration & Production at Hess]

In Southeast Asia, 2nd quarter net production averaged 64,000 barrels of oil equivalent per day. For the Q3 and full year of 2023, we forecast net production to average approximately 65,000 In Guyana, where Hess has a 30% interest in the Stabroek Block, 2nd quarter net production averaged 110,000 barrels of oil per day at the high end of our guidance range of 105,000 to 110,000 barrels of oil per day, driven by strong facility uptime and well performance. For the Q3, net production from Guyana is expected to also average approximately 110,000 barrels of oil per day. We now expect full year 2023 net production to average approximately 115,000 barrels of oil per day Compared to our previous guidance range of 105,000 to 110,000 barrels of oil per day, Reflecting the expected early Q4 start up of Payara with a gross production capacity of approximately 220,000 barrels of oil per day, We forecast Payara to contribute approximately 15,000 net barrels of oil per day in the 4th quarter. Turning to our 4th development, Yellowtail.

[Gregory Hill, COO and President of Exploration & Production at Hess]

The overall project is approximately 60% complete and remains on track for 1st oil in 2025 with a gross production capacity of approximately 250,000 barrels of oil per day. The 5th development, Huarou, was sanctioned in April. Huarou will develop more than 800,000,000 barrels of oil from The FPSO will have a gross production capacity of approximately 250,000 barrels of oil per day and is on track to achieve first oil in 2026. With regard to our 6th development, Whiptail, The partnership anticipates submitting a plan of development to the government of Guyana in the Q4 with first oil targeted for 2027. Now turning to exploration.

[Gregory Hill, COO and President of Exploration & Production at Hess]

In Guyana, the Stabroek Block exploration license was formally extended by 1 year To October 2027, due to the COVID-nineteen pandemic, the extension also pushes out the contractual acreage relinquishment by 1 year to October 2024. In the Fangtooth area, drill stem tests and core analysis are ongoing. Moving forward, we plan to drill the Basher 1 well, which is a deep prospect located approximately 7 miles west of Fangteeth 1 And the Lantern Fish 1 well located approximately 2 miles Southwest of Fangtooth 1. We also plan to drill the Lancet Fish 2 appraisal well also in the FANG TUT area. Exploration and appraisal activities are also planned in the southeastern portion of the block to better understand the longer term potential of this area.

[Gregory Hill, COO and President of Exploration & Production at Hess]

Activities will include drilling and exploration prospect Called Bluefin, located approximately 6 miles Southwest of Haimara 1. In closing, We achieved strong operational performance in the quarter. The Bakken is on a steady growth trajectory. We had Exploration success in the Gulf of Mexico with more drilling planned. Our Southeast Asia assets continued to deliver steady production through high reliability and successful ongoing drilling programs.

[Gregory Hill, COO and President of Exploration & Production at Hess]

And Guyana keeps getting bigger and better, all of which position us to deliver significant shareholder value for years to come. I will now turn the call over to John Reilly.

[John Rielly, Executive VP & CFO at Hess]

Thanks, Greg. In my remarks today, I will compare results from the Q2 of 2023 to the Q1 of 2023. We had net income of $119,000,000 in the Q2 of 2023 compared with $346,000,000 in the Q1 of 2023. On an adjusted basis, which excludes items affecting comparability of earnings, We had net income of $201,000,000 in the Q2 of 2023. Turning to E and P.

[John Rielly, Executive VP & CFO at Hess]

E and P adjusted net income was $237,000,000 in the Q2 of 2023 compared with $405,000,000 in the previous quarter. The changes in the after tax components of adjusted E and P earnings between the Q2 and Q1 of 2023 were as follows. Higher sales volumes increased earnings by $66,000,000 Lower realized selling prices decreased earnings by $118,000,000 Higher cash costs and midstream tariffs decreased earnings by $71,000,000 Higher exploration expenses decreased earnings by $34,000,000 All other items decreased earnings by $11,000,000 for an overall decrease in 2nd quarter earnings of 100 For the Q2, our E and P oil sale volumes were over lifted compared with production by approximately 100 And we'll now turn the call over to the operator for questions. Thanks, Steve. Turning to Midstream.

[John Rielly, Executive VP & CFO at Hess]

The Midstream segment had net income of $62,000,000 in the Q2 of 2023 compared with $61,000,000 in the previous quarter. Midstream EBITDA before non controlling interest amounted to $247,000,000 in the 2nd quarter compared to $238,000,000 in the previous quarter. Turning to our financial position. At June 30, excluding the Midstream segment, cash and cash equivalents were $2,200,000,000 Total liquidity was $5,600,000,000 including available committed credit facilities and debt and finance lease obligations totaled $5,600,000,000 During the Q2, we received net proceeds of $217,000,000 from the public offering of approximately 6,400,000 Hess Owned Class A shares of Hess Midstream and the sale of approximately 1,700,000 Hess Owned Class B units to Hess Midstream. Net cash provided by operating activities before changes in working capital was $974,000,000 in the 2nd quarter compared with $1,030,000,000 in the Q1.

[John Rielly, Executive VP & CFO at Hess]

E and P capital and exploratory expenditures were $933,000,000 in the 2nd quarter of 2023 compared to $765,000,000 in the previous quarter. Now turning to guidance. Our E and P cash costs were $13.97 per barrel of oil equivalent in the Q2 of 2023, which was lower than our guidance of $15.50 to $16 per barrel of oil equivalent, primarily due to higher production. We project E and P cash costs to be in the range of $14 to $14.50 per barrel of oil equivalent for the 3rd quarter and in the range of $13.50 to $14 per barrel of oil equivalent for the full year, which is at the lower end of our previous guidance of $13.50 to $14.50 per barrel of oil equivalent. DD and A expense was $12.79 per barrel of oil equivalent in the Q2 of 2023.

[John Rielly, Executive VP & CFO at Hess]

DD and A expense is forecast to be in the range of $12.50 to $13 per barrel of oil equivalent for the Q3 and in the range of 13 to $13.50 per barrel of oil equivalent for the full year, which is at the lower end of our previous guidance of 13 to $14 per barrel of oil equivalent. This results in projected total E and P unit operating costs to be in the range of $26.50 to $27.50 per barrel of oil equivalent for both the Q3 and full year 2023. Exploration expenses excluding dry hole costs are expected to be approximately $60,000,000 in the 3rd quarter and approximately $170,000,000 for the full year, which is updated from the previous guidance of $160,000,000 to $170,000,000 The midstream tariff is projected to be in the range of 320 to $330,000,000 for the Q3 and full year guidance of $1,230,100,000 to $1,250,100,000 remains unchanged. E and P income tax expense is expected to be in the range of 170 to $180,000,000 for the Q3 and full year guidance of $670,000,000 to $680,000,000 remains unchanged. We expect non cash option premium amortization, which will be reflected in our realized selling prices, will be $52,000,000 for the 3rd quarter and full year guidance of $190,000,000 remains unchanged.

[John Rielly, Executive VP & CFO at Hess]

Our E and P capital and exploratory expenditures are expected to be $1,025,000,000 in the 3rd quarter and full year guidance of approximately $3,700,000,000 remains unchanged. Turning to Midstream. We anticipate net income attributable to Hess from the Midstream segment to be in the range of 55 to $60,000,000 for the 3rd quarter $240,000,000 to $250,000,000 for the full year, which is down From the previous guidance of $255,000,000 to $265,000,000 reflecting the impact of the midstream capital market transactions completed in the Q2. Turning to corporate. Corporate expenses are estimated to be approximately $25,000,000 for the 3rd quarter and $110,000,000 to $120,000,000 for the full year, which is lower than the previous guidance of $120,000,000 to $130,000,000 due to higher interest income.

[John Rielly, Executive VP & CFO at Hess]

Interest expense is estimated to be in the range of $75,000,000 to $80,000,000 for the 3rd quarter And $300,000,000 to $310,000,000 for the full year, which is updated from the previous guidance of $305,000,000 to $315,000,000 This concludes my remarks. We'll be happy to answer any questions. I will now turn the call over to the operator.

[Operator]

Our first question comes from Doug Leggate with BofA. Your line is open.

[Doug Leggate, Analyst at Bank of America]

Hi. Good morning, everybody. Thanks for taking my questions. Greg, I wonder if I could Just ask a couple on Guyana. First of all, with Payara, you gave the guidance of the expected production for the Q4, but can you give us some ideas of the ramp up?

[Doug Leggate, Analyst at Bank of America]

When would you expect to see full facility production at Payara?

[Gregory Hill, COO and President of Exploration & Production at Hess]

Yes. So thanks for that question, Doug. Yes, we mentioned it's coming on early in the 4th quarter and I would expect the ramp up to be like Liza Phase 2 kind of on the order of 5 months or so In terms of ramp, no Payara is a little bit bigger, so it might take marginally a little bit longer, but I would say 5 months, yes.

[Doug Leggate, Analyst at Bank of America]

Okay. Thank you. Is there a debottlenecking strategy around Payara like you've done in Liza 1 and 2?

[Gregory Hill, COO and President of Exploration & Production at Hess]

Yes, I think there will be because there is a lot of discovered resource in and around Payara. So So there will definitely be a debottlenecking strategy as

[Gregory Hill, COO and President of Exploration & Production at Hess]

well.

[Doug Leggate, Analyst at Bank of America]

Thanks. My follow-up is really on exploration. It seems Exxon, I guess yourselves and Exxon submitted a 35 well program that's been approved by the government now. So I guess that fits into that timeline you were talking about with the extension.

[Doug Leggate, Analyst at Bank of America]

But I'm really trying to understand what this means for the risk resource view. You haven't updated the 11,000,000,000 barrels for about 1.5 years. And our understanding from our field trip down there was that fine tooth Southeast was another success. So can you give us some update as to When you would expect to see the resource numbers revised?

[John Hess, CEO at Hess]

Sure, Doug. It's John. And thanks for the question. Look, we have a very active exploration appraisal program this year on the Stabroek Block. A lot of it in terms of appraisal, especially in the bank Tooth area, Greg addressed that in his remarks and other appraisal on the block, some exploration on the block.

[John Hess, CEO at Hess]

And I think the real takeaway Doug is that we still see multi 1,000,000,000 barrels of oil equivalent and at the appropriate time we'll consider increasing the resource

[Doug Leggate, Analyst at Bank of America]

Just to be clear, John, the $11,000,000,000 relates to how many discoveries?

[John Hess, CEO at Hess]

Doug, that line continues to get upgraded and I would say it's the overall program and there's still more to be recognized from Some of the outstanding wells we drilled, as you know, a lot of evaluation work is underway in an area like Fanthuth. And until we get that evaluation work done, including the drill stem test, production test, it's a little premature to jump that number until we're ready to give more clarity on it.

[Doug Leggate, Analyst at Bank of America]

All right. Thank you, everybody. I'll pass it on.

[Operator]

Thank you. Our next question comes from Arun Jayaram with JPMorgan Securities, your line is open.

[Arun Jayaram, Vice President at JP Morgan Chase & Co]

Yes, good morning.

[John Rielly, Executive VP & CFO at Hess]

Good morning, John.

[Arun Jayaram, Vice President at JP Morgan Chase & Co]

Good morning, John.

[Arun Jayaram, Vice President at JP Morgan Chase & Co]

Greg, I

[Arun Jayaram, Vice President at JP Morgan Chase & Co]

was wondering if you could give us maybe An update on how the debottlenecking efforts are going at Liza 1 and Liza 2. Are there any other projects scheduled For the back half of the year and give us a sense of where you think the new plateau level of production is for both facilities post debottlenecking?

[Gregory Hill, COO and President of Exploration & Production at Hess]

Sure. So Arun, as you know, Liza Phase 1 has already been debottlenecked. It's comfortably operating in the $145,000,000 to $150,000,000 range on a regular basis. So I think that's about what you can expect out of that one. If we look at Liza Phase 2, so that's Unity, it's producing above its nameplate of 220.

[Gregory Hill, COO and President of Exploration & Production at Hess]

It's Sometimes as high as $240,000,000 The operator has a plan to further debottleneck that facility between now and the end of the year. So I think we'll be approaching the $250,000,000 number as we get sort of towards the end of the year. And then there's another Kind of an engineering project next year to look at the possibility of further debottlenecking Phase 2. I think the operator is quite comfortable with the number around 400,000 barrels a day from both of those And I would add, that's 20% above the sanction case. So ExxonMobil is just doing an extraordinary job of De bottlenecking high reliability, I can't say enough about the outstanding job they're doing as an operator.

[Arun Jayaram, Vice President at JP Morgan Chase & Co]

Great. That's helpful. And maybe one for John Reilly. John, I was wondering if you could maybe offer some soft CapEx guidance For 2024, including kind of an expectation that you do kind of purchase The FPSO and you obviously announced the discovery now at Pickel.

[John Rielly, Executive VP & CFO at Hess]

Thanks, Arun. As you know, it's a little early for 2020 For capital, we do there is a plan to purchase the Unity FPSO in 2024, but Look, we're still working on Whiptail getting the final cost estimates in on that. So I think what we'll do is provide our typical 2024 guidance in January.

[Arun Jayaram, Vice President at JP Morgan Chase & Co]

Okay, fair enough. Thanks, John.

[Operator]

Thank you. Our next question comes from Paul Cheng with Scotiabank. Your line is open.

[Paul Cheng, Analyst at Scotiabank]

John, I know you reiterate the full year budget at $3,700,000,000 but the first half is a bit Hello. And so where the ramp up is going to be in the second half?

[John Rielly, Executive VP & CFO at Hess]

Yes. So we have Guyana, obviously, the ramp Going there, getting Payara online and look, then it's just the progression of the developments there. So we'll be working On Yellowtail, there's obviously working on Uaru. So you just got the back half of the year, you've got more spend coming in Guyana. Then also what we have is the Gulf of Mexico rig.

[John Rielly, Executive VP & CFO at Hess]

So as Greg mentioned, we have That rig came in right at the tail end of Q2. So it drilled Pickerel. We had the success there. And as Greg mentioned, it's going to be doing Black Pearl and then Vancouver. So again, that's tilted toward the second half of the year.

[John Rielly, Executive VP & CFO at Hess]

And the only other thing I would add And this was expected is that the weather window up in North Dakota, this is the best time for some of the facilities work up there. So that's why we get a little bit more in the back half in the Bakken as well.

[Paul Cheng, Analyst at Scotiabank]

And what I mean, do you think there's any We, some of our profitability, the full year spending end up going to be below the budget given the runway that we see?

[John Rielly, Executive VP & CFO at Hess]

Paul, I think we are just going to keep reiterating the $3,700,000,000 The execution has been terrific So far, as you can see on the production side and we've been very efficient on the capital side, but we do have plans to spend that Full $3,700,000,000 So I would look to just to keep the capital at that level in your model.

[Paul Cheng, Analyst at Scotiabank]

Okay. On Diana, I think that you probably have a $45,000,000 $50,000,000 of deferred tax In the quarter, any kind of rough estimate you can provide for the 3rd Q4 may look like? And also that whether the expansion of exploration period by 1 year, is there any one time payment from the consortium to the

[John Rielly, Executive VP & CFO at Hess]

Let me start with that 1 year payment. No, there was no payment that was really, as Greg had mentioned Earlier due to COVID-nineteen and the force majeure us not being able to explore during that period. So that just is extended the 1 year. As far as the deferred taxes, which are always a bit difficult to Actually, the forecast, you are right. It was approximately $45,000,000 in Q2.

[John Rielly, Executive VP & CFO at Hess]

It was about $36,000,000 in Q1. I would say from our forecast and what we're looking and you've got the Payara startup, which makes it even Harder to forecast that it will be a little bit higher than that $45,000,000 number you mentioned in Q3 and Q4 on the deferred taxes.

[Paul Cheng, Analyst at Scotiabank]

Okay. Thank you.

[Operator]

Thank you. Our next question comes from Ryan Todd with Piper Sandler. Your line is open.

[Ryan Todd, Senior Research Analyst at Piper Sandler Companies]

Thanks. Maybe just one follow-up on the extensions there and Guyana. I mean congrats on getting the extension Both the acreage relinquishment and the exploration license, I know you had always said that this was Going to be easily managed and not have a huge impact. But does the extension have any impact on how you may allocate resource there over the next few years or in general on your Approach or what you're able to do there in the basin?

[Gregory Hill, COO and President of Exploration & Production at Hess]

No, I don't think at all. It won't change the pace. I think you can expect certainly next Probably a 6 rig program, and it won't affect anything. It will just give us that extra year Lock down whatever we can before the expiry, which we have every interest in doing, obviously.

[John Hess, CEO at Hess]

Yes. To be clear, each year, we plan to drill 10 to 12 exploration Appraisal well, so it just gives us another year to have further evaluation and it will be in the best interest of the country and also our joint venture itself. So we have, as I said before, and Greg did as well, multibillion barrels of exploration potential remaining and We can orderly have a prosecution of that opportunity.

[Ryan Todd, Senior Research Analyst at Piper Sandler Companies]

Great. Thanks. And then maybe As a follow-up, I know you were just talking about the capital budget for the year, but what are your latest assumptions in terms of What you're seeing in terms of cost inflation or deflation on the contract side? And how does that compare with what you had Earlier, I've been assuming in your capital and OpEx guidance.

[Gregory Hill, COO and President of Exploration & Production at Hess]

Sure. Yes. So let me address both the onshore and the offshore. In the Bakken, we observed inflation of between 10% to 15% blended in the first half of twenty twenty three. And we were able to mitigate about half of that through the application of strategic contracting, lean manufacturing and technology.

[Gregory Hill, COO and President of Exploration & Production at Hess]

Now we're starting to see some costs, such as Oil Country Tubular Goods beginning to moderate. We're still maintaining our well cost guidance at $6,900,000 per well, because we're increasing proppant loading in several areas of the field To further maximize the issue NPV, so we're just going to stick with our 6.9%. But again, we are seeing some deflation Start to occur in the Bakken. If we go in the offshore, rig utilization remains Very high in the offshore, so costs have not moderated there. However, most of our spends in Guyana Where the first five FPSOs are contracted, ExxonMobil is doing a great job of mitigating inflationary effects Using its Design 1, Build Mini strategy.

[Gregory Hill, COO and President of Exploration & Production at Hess]

And in addition, recall for our 2023 Gulf of Mexico program, Most services were contracted in 2022 when costs were lower. So long and short, our overall 2023 capital guidance The $3,700,000,000 remains unchanged and we'll provide 2024 guidance in our January call as John Reilly said.

[Ryan Todd, Senior Research Analyst at Piper Sandler Companies]

Okay. Thank you.

[Operator]

Thank you. Our next question comes from Neil Mehta with Goldman Sachs. Your line is open.

[Neil Mehta, Head of Americas Natural Resources Equity Research at Goldman Sachs]

Yes. Thank you. It was a strong quarter in the Bakken, recognizing that volume can be noisy with commodity But just curious on your thoughts on getting to that 200,000 barrels a day at plateau and Is there visibility to pull that forward if you continue on this execution track?

[Gregory Hill, COO and President of Exploration & Production at Hess]

No, I think, Neil, our Our plan still shows that we'll get to an average of 200,000 barrels a day in 2025. And as we've said before, with our extensive inventory of drilling locations, we expect to hold that plateau for nearly a decade. And the Bakken then becomes a significant free cash flow machine. So

[Neil Mehta, Head of Americas Natural Resources Equity Research at Goldman Sachs]

All right. Thank you. The follow-up is just around a couple of cash flow items. First is around Return of capital, what's the framework for increasing that as you continue to progress through the program In Guyana and the second is any update on hedging strategies as we look into 2024?

[John Rielly, Executive VP & CFO at Hess]

Thanks, Neil. For the return of capital program, so we're going to continue to be disciplined in the execution of our return of capital framework. And as you know, in March of this year, we announced an increase in our dividend by 17%. And as we go through the year, we'll continue to follow the framework. And as a reminder, our financial priorities main, first, We're going to invest in the high return opportunities, especially in Guyana and the Bakken.

[John Rielly, Executive VP & CFO at Hess]

And as was mentioned earlier, we do have our capital to bit back end loaded this year. So We have more capital coming in the second half of the year. Our second is to maintain a strong balance sheet. And with that, we Do you have that $300,000,000 debt maturity coming next year, which we do intend to pay off. But again, the key to maintain a strong balance sheet and cash position and we have a nice cash Position now the $2,200,000,000 and that's in place so we can continue to fund these great return projects in the Guyana and Bakken.

[John Rielly, Executive VP & CFO at Hess]

And then what we will do and we'll follow this framework, it's an annual framework. We're going to return up to 75% of our free cash flow to shareholders Through the dividend increases, as John has mentioned earlier and share repurchases, and as John has mentioned earlier, as our free cash flow generation steadily increases, Share repurchase are expected to represent a growing proportion of our return of capital.

[Neil Mehta, Head of Americas Natural Resources Equity Research at Goldman Sachs]

Great. And on hedging?

[John Rielly, Executive VP & CFO at Hess]

Oh, sorry.

[John Rielly, Executive VP & CFO at Hess]

Yes, on hedging. For the hedging, you've seen us in the past Couple of years, we've been hedging in around 130,000 to 150,000 barrels of oil per day with put options. So we want to Make sure we give the upside to investors and you can think about that we will maintain that type of level. So on

[John Rielly, Executive VP & CFO at Hess]

a percentage basis of our oil production because with

[John Rielly, Executive VP & CFO at Hess]

Guyana coming on, Sandage basis of our oil production because with Guyana coming on and Payara coming on at full ramp, you're getting Just at production capacity between 5,500,000 and 60000 barrels a day add there, Yellowtail will be even more because So it's a bigger boat. So we're going to have higher and higher oil production. So the hedging percentage as a percentage of our overall oil production will go down, but we'll around that 130 to 150

[John Rielly, Executive VP & CFO at Hess]

level.

[Neil Mehta, Head of Americas Natural Resources Equity Research at Goldman Sachs]

Thanks, John.

[John Rielly, Executive VP & CFO at Hess]

You're welcome.

[John Hess, CEO at Hess]

Thanks, Neil.

[Operator]

Our next question comes from Roger Read with Wells Fargo. Your line is open.

[Roger Read, Senior Energy Analyst at Wells Fargo Securities]

Yes, thanks. Good morning.

[John Hess, CEO at Hess]

Good morning,

[John Hess, CEO at Hess]

Ryan.

[Roger Read, Senior Energy Analyst at Wells Fargo Securities]

Just to I guess two questions I had. 1 in terms of Guyana, just what you can tell us about how the wells have been Performing and how maybe that fits into the raised guidance on production or the overall confidence that allows you to raise production guidance?

[Gregory Hill, COO and President of Exploration & Production at Hess]

No. The wells are performing better than expected really across the board. And of course, the capacity It is driven by the physical constraints on the vessel. But obviously, with those wells outperforming, we want to increase our capacity to be as high as possible

[Roger Read, Senior Energy Analyst at Wells Fargo Securities]

As you look at your Gulf of Mexico exploration program, sort of the relatively lower risk Black Pearl versus the higher risk Vancouver, anything you're doing on the seismic side that's making that, Let's say, offsetting the risk to some standpoint?

[Gregory Hill, COO and President of Exploration & Production at Hess]

Yes, absolutely. I think there's 2 things that Really have been the discontinuity, I'll call it, in the last 5 years in exploration in the Gulf of Mexico. And the first one is ocean bottom nodes. So we are shooting ocean bottom node surveys in and around all of our hubs. And that is coupled with the new algorithms.

[Gregory Hill, COO and President of Exploration & Production at Hess]

So, full waveform inversion, FWI, The combination of those two things are allowing us to see new opportunities in sub salt in the Gulf of Mexico. And that's not only true for hub in and around our hubs, but it's also true for hub class opportunities as well. So Very exciting. We've got over 80 blocks in the Gulf of Mexico. And with that inventory, our aim is to maintain that Cash engine in the Gulf of Mexico at a minimum hold production broadly flat, but then also potentially grow that production with a hub class success and those seismic Improvements that I talked about are leading that charge with the great portfolio that we have.

[Roger Read, Senior Energy Analyst at Wells Fargo Securities]

That sounds good. Appreciate the clarity. Thank you.

[Gregory Hill, COO and President of Exploration & Production at Hess]

You bet.

[Operator]

Thank you. Our next question comes from Kevin McCurdy with Pickering Energy Partners. Your line is open.

[Kevin MacCurdy, Managing Director at Pickering Energy Partners]

Hey, good morning. Just one question on the Bakken production guidance raise. Gas and NGL has obviously outpaced your quarterly guidance, but you also had strong oil production above our expectations.

[Kevin MacCurdy, Managing Director at Pickering Energy Partners]

Is there any color

[Kevin MacCurdy, Managing Director at Pickering Energy Partners]

you can provide on how much of the guidance raise was oil versus gas and NGLs? Thank you.

[John Rielly, Executive VP & CFO at Hess]

So specifically here, as we move through the year, our oil production is going to continue to increase. So as you saw The increase in Q2, you can expect a similar increase in Q3 as we saw from Q1 to Q2. And then we continue to expect to see these increases as we go forward. And then outside of the winter months We'll continue to have oil increases as we go through into 2025, and we get up to that 200,000 Barrels of oil per day. So in general, from an overall guidance standpoint on what we were doing, And it's kind of similar.

[John Rielly, Executive VP & CFO at Hess]

Some of the half of the guidance increase is due to performance and half was

[Kevin MacCurdy, Managing Director at Pickering Energy Partners]

Thanks for the color.

[Operator]

Thank you. Our next question comes from Biju Perjura with Susquehanna Financial Group. Your line is open.

[Biju Perincheril, Equity Research Analyst - Renewables and E&P at SIG Group]

Hi. Thanks for taking my question. John, I was wondering How are you sort of tightening up the design tolerance on each of these FPSOs? Just trying to understand as you go through this subsequent The bottleneck and projects, how we should think about the production uplift?

[Gregory Hill, COO and President of Exploration & Production at Hess]

Yes. So I think, the thing I will say is that every vessel will be bespoke. So the way that we do this debottlenecking is we produce the vessel for a year or so And then get all of the dynamic data and then from that data make a decision on how much we think we can squeeze more out of the vessel or do an engineering project to further debottleneck that. But I think the bias will be To debottleneck these vessels as much as we can because there is so much additional resource around each one of these hubs And that coupled with the multibillion barrels of additional upside says that these vessels are going to be full At plateau longer than what would be typical for a deepwater development. And but again, each one will be bespoke.

[Gregory Hill, COO and President of Exploration & Production at Hess]

So but certainly the bias is going to be there to debottleneck as much as possible.

[Biju Perincheril, Equity Research Analyst - Renewables and E&P at SIG Group]

Got it. That's helpful. Follow-up on the Bakken. So that 200,000 barrels equivalent At the plateau levels, what should be the oil mix we should expect at that point?

[Gregory Hill, COO and President of Exploration & Production at Hess]

Yes. So longer term, when we're at that 200,000 barrels a day, you can expect about 100,000 barrels a day of oil, so about 50%.

[Biju Perincheril, Equity Research Analyst - Renewables and E&P at SIG Group]

Okay. Perfect. Thanks.

[Operator]

Thank you. Our next question comes from Noel Parks with Tuohy Brothers. Your line is open.

[Noel Parks, Managing Director - Energy Research at Tuohy Brothers Investment Research Inc]

Hi, good morning.

[Gregory Hill, COO and President of Exploration & Production at Hess]

Good morning.

[Noel Parks, Managing Director - Energy Research at Tuohy Brothers Investment Research Inc]

You made a mention Beyond the discussion about just putting resources into more exploration of the southwestern part of the block, I wonder if you could just sort of refresh us on what the original view of that geology was And now with the benefit of all the incremental drilling of what you hope to discover or discern there?

[Gregory Hill, COO and President of Exploration & Production at Hess]

Again, the discoveries down in that part of the block, they're all Upper Campanian, so they're Liza like reservoirs, so very high quality reservoirs. As you move to the southeast of the block, the GOR does increase. So the reason that we want to do some further appraisal The aspiration down there is to really understand the higher GOR developments on the block. Still going to be very good projects, I'm sure, but we just need a little bit more data to fully understand how we're going to develop Those where we fit in the queue. I think the important thing is though our objective is to move oily developments forward.

[Gregory Hill, COO and President of Exploration & Production at Hess]

So For example, Fangtooth is a great example that we're trying to move oily developments up in the queue, but at the same time, there's more that we need to understand about Southeast part of the block. So we will occasionally do some appraisal or exploration drilling down there just to further up our understanding of that part of the block.

[Noel Parks, Managing Director - Energy Research at Tuohy Brothers Investment Research Inc]

Great. Thanks. And appreciate your comments just a minute ago about the Seismic improvement and the opportunity in the Gulf of Mexico. I was just wondering whether there were any projects That test is participating in on a non operated basis in the Gulf, whether I was wondering if there are any of those sort of under the radar that might be worth mentioning?

[Gregory Hill, COO and President of Exploration & Production at Hess]

No, I think there is again in the Shell assets in particular around some of their hubs where we have an interest, And non operated interest, they're doing the same things we are OBN and finding new opportunities around those hubs as well. So you'll see some of those feature in the future as well.

[Noel Parks, Managing Director - Energy Research at Tuohy Brothers Investment Research Inc]

Are those sort of near term or more sort of on the horizon?

[Gregory Hill, COO and President of Exploration & Production at Hess]

No, those are near term. It will be part of the mix as we kind Thank you, over the next 2 to 3 years.

[Noel Parks, Managing Director - Energy Research at Tuohy Brothers Investment Research Inc]

Great. Thanks a lot.

[Operator]

Thank you. Our next question comes from Paul Cheng with Scotiabank. Your line is open.

[Paul Cheng, Analyst at Scotiabank]

Just a quick follow-up on the Tech Roll To be on stream mid-twenty 24, what is the net to, ads going to look like and what's the development cost?

[Gregory Hill, COO and President of Exploration & Production at Hess]

Sure, Paul. So we're still evaluating the well results, but we anticipate peak gross production rates To be in the range of 8,000 to 10000 barrels a day.

[John Hess, CEO at Hess]

And we have 100% interest in that well, to be clear.

[Gregory Hill, COO and President of Exploration & Production at Hess]

Yes.

[Gregory Hill, COO and President of Exploration & Production at Hess]

And that will be as we said, that will be tied back to the Tubular Bells facility kind of midyear next year.

[Paul Cheng, Analyst at Scotiabank]

Greg or John, any rough estimate, what's the development cost on this pipeline?

[John Rielly, Executive VP & CFO at Hess]

Again, we are still overall I'm sorry, coming up evaluating the results of the well. One, I can I'll tell you, it's a very high return project, obviously, with it being a tieback to Tubular Bells. And typically, these type of Tieback wells are going to have like a $10 per barrel kind of cost or lower. That's what we'll typically see in those And these tieback wells.

[Gregory Hill, COO and President of Exploration & Production at Hess]

Fine and develop.

[Paul Cheng, Analyst at Scotiabank]

Right. And Greg, what's the resource recoverable resource that we estimate for this? And is it oil or that is a mix between oil and gas?

[Gregory Hill, COO and President of Exploration & Production at Hess]

No, it's a mix of oil and gas, 80% oil, 20% gas. So it's mainly oil. And as John mentioned, we're still evaluating the well, so I don't want to give a resource Not yet, but again, it's going to be extremely profitable. ILX tieback, very low find and development costs. So nothing to worry about here, All at all.

[Paul Cheng, Analyst at Scotiabank]

Okay. A final one for me. Yellowtail and Euro, You're talking about 2025, 2026. Should we assume you're somewhat similar to Payura, it's going to be in the early Q4?

[Gregory Hill, COO and President of Exploration & Production at Hess]

I think what we're saying is that each of these will come on in the year quoted. I think it's too early to say exactly when in that year for these later projects. So we're just quoting in the year itself. And as we get closer, obviously, the Yellowtail is 60% complete. So that should tell you something about where it is in the queue.

[Paul Cheng, Analyst at Scotiabank]

Okay. And on the Gulf of Mexico, 2nd quarter production is better. Is it because that some of the Maintenance downtime has been able to perform at a shorter period or that some is actually being pushed to the 3rd quarter?

[Gregory Hill, COO and President of Exploration & Production at Hess]

No, it's really reliability. No, it's really just high reliability across the board.

[Paul Cheng, Analyst at Scotiabank]

I see. Perfect. Thank you.

[Operator]

Thank you. Our next question comes from Phillips Johnston with Capital One Securities. Your line is open.

[Phillips Johnston, Senior E&P Analyst at Capital One Securities, Inc]

Hey, guys. Thanks. Just a quick one for John Reilly. On the Q1 call, you were asked about your investment in Hess Midstream and it was pretty clear that it's going to remain a Key strategic assets for the company going forward for a few different reasons. With the unit sale in Q2 for a little over $200,000,000 you Cut your stake down about 38%.

[Phillips Johnston, Senior E&P Analyst at Capital One Securities, Inc]

I'm sure you can't comment on potential future sell downs, but can you maybe just remind us of the

[John Rielly, Executive VP & CFO at Hess]

So let me just start high level that We remain committed to maximizing the long term value of Hess Midstream. It's adding differentiated value to our Bakken E and P assets And part of it is allowing Hess to maintain operational control, which we can for even with a much lower ownership percentage. So Nothing to worry about there from that, Phil. Then what it also does, it provides takeaway optionality to high value markets And also, it's the ability to increase our gas capture to drive down flaring in our GHG emissions intensity. So and as you know, we're we've set 0 routine flaring goal by 2025.

[John Rielly, Executive VP & CFO at Hess]

So the one other thing about it to your point, but With a strong credit position and its continuing free cash flow growth Hess Midstream has said they continue to have greater than $1,000,000,000 Financial flexibility through 2025 to support potential incremental share repurchases similar to the ones that we've done this year. We had $100,000,000 gross transactions executed in March June. So you could you should expect some more of those with that financial flexibility.

[Phillips Johnston, Senior E&P Analyst at Capital One Securities, Inc]

Okay. Sounds good, John. Thank you.

[John Rielly, Executive VP & CFO at Hess]

You're welcome.

[Operator]

Ladies and gentlemen, this does conclude the Q and A portion of today's conference call. We'd like to thank you very much. This concludes today's conference. Thank you for your participation. You may now disconnect and have a wonderful day.

Participants

Executives

• Jay Wilson, Vice President, Investor Relations
• John Hess, CEO
• Gregory Hill, COO and President of Exploration & Production
• John Rielly, Executive VP & CFO

Analysts

• Doug Leggate, Analyst at Bank of America
• Arun Jayaram, Vice President at JP Morgan Chase & Co
• Paul Cheng, Analyst at Scotiabank
• Ryan Todd, Senior Research Analyst at Piper Sandler Companies
• Neil Mehta, Head of Americas Natural Resources Equity Research at Goldman Sachs
• Roger Read, Senior Energy Analyst at Wells Fargo Securities
• Kevin MacCurdy, Managing Director at Pickering Energy Partners
• Biju Perincheril, Equity Research Analyst - Renewables and E&P at SIG Group
• Noel Parks, Managing Director - Energy Research at Tuohy Brothers Investment Research Inc
• Phillips Johnston, Senior E&P Analyst at Capital One Securities, Inc