Financial and Operational Highlights:
NEW YORK–(BUSINESS WIRE)–Hess Corporation (NYSE: HES) today reported net income of $32 million, or $0.09 per common share, in the first quarter of 2019, compared to a net loss of $106 million, or $0.38 per common share, in the first quarter of 2018. On an adjusted basis, the first quarter 2018 net loss was $72 million, or $0.27 per common share. First quarter 2019 results benefitted from higher U.S. crude oil production, partially offset by lower realized crude oil prices and higher depreciation, depletion and amortization expenses compared with the prior-year quarter.
“Our company is successfully executing our strategy to deliver industry leading cash flow growth and improving financial returns well into the next decade,” Chief Executive Officer John Hess said. “We have started the year off with strong operating performance across our portfolio in the first quarter and continued exploration success in Guyana.”
After-tax income (loss) by major operating activity was as follows:
Exploration and Production:
Exploration and Production (E&P) net income was $109 million in the first quarter of 2019, compared to a net loss of $25 million, or net income of $12 million excluding items affecting comparability of earnings between periods, in the first quarter of 2018. The Corporation’s average realized crude oil selling price, including the effect of hedging, was $55.91 per barrel in the first quarter of 2019, versus $59.32 per barrel in the year-ago quarter. The average realized natural gas liquids selling price in the first quarter of 2019 was $18.46 per barrel, versus $21.11 per barrel in the prior-year quarter, while the average realized natural gas selling price was $4.43 per mcf, compared to $3.86 per mcf in the first quarter of 2018.
Net production, excluding Libya, was 278,000 boepd in the first quarter of 2019, up from 233,000 boepd in the prior-year quarter, which included 13,000 boepd from a divested asset. The higher net production volumes were driven by the Gulf of Mexico, Bakken and North Malay Basin. Libya net production was 21,000 boepd in the first quarter of 2019, compared with 22,000 boepd in the year-ago quarter.
Excluding items affecting comparability of earnings between periods, cash operating costs, which include operating costs and expenses, production and severance taxes, and E&P general and administrative expenses, were $11.00 per boe in the first quarter, down 18 percent from $13.46 per boe in the prior-year quarter. Income tax expense is comprised primarily of taxes in Libya. Excluding items affecting comparability of earnings between periods and Libya, the E&P effective tax rate was an expense of 2 percent in the first quarter compared to a small benefit in the first quarter of 2018.
Operational Highlights for the First Quarter of 2019:
Bakken (Onshore U.S.): Net production from the Bakken increased 17 percent to 130,000 boepd from 111,000 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 first quarter, drilling 38 wells and bringing 25 new wells online.
Gulf of Mexico (Offshore U.S.): Net production from the Gulf of Mexico was 70,000 boepd, up from 41,000 boepd in the prior-year quarter, primarily reflecting higher production from the Conger, Penn State and Llano fields which were impacted in the year-ago quarter by the shutdown of the third-party operated Enchilada platform.
Guyana (Offshore): At the Stabroek Block (Hess – 30 percent), the operator, Esso Exploration and Production Guyana Limited, announced positive results from the Tilapia-1 and Haimara-1 exploration wells offshore Guyana during the quarter and from the Yellowtail-1 exploration well on April 18, 2019, bringing the total number of discoveries on the Stabroek Block to thirteen. These discoveries further underpin the potential for at least five FPSOs producing more than 750,000 gross barrels of oil per day (bopd) by 2025.
Exploration success on the Stabroek Block in 2019 has been significant:
Tilapia: The Tilapia-1 well encountered approximately 305 feet of high-quality, oil-bearing sandstone reservoir and is located approximately 3.4 miles west of the Longtail-1 well. In addition to Tilapia-1, prior discoveries in the Turbot area include the Turbot, Longtail and Pluma discoveries.
Haimara: The Haimara-1 well encountered approximately 207 feet of high-quality, gas condensate bearing sandstone reservoir. It is located approximately 19 miles east of the Pluma-1 well.
Yellowtail: The Yellowtail-1 well encountered approximately 292 feet of high-quality oil-bearing sandstone reservoir and is located approximately 6 miles northwest of the Tilapia discovery. As the fifth discovery in the greater Turbot area, it underpins another major development hub.
The Noble Tom Madden and Stena Carron drillships will next drill the Hammerhead-2 and Hammerhead-3 wells.
Development activities on the block are progressing:
Liza Phase 1: Development is on schedule and is expected to begin producing up to 120,000 gross bopd by the first quarter of 2020. Drilling of Phase 1 development wells by the Noble Bob Douglas drillship is proceeding and installation of subsea infrastructure is well advanced, with installation of subsea umbilicals, risers, and flowlines planned for the second quarter. Installation of topside modules on the Liza Destiny FPSO is now complete, and commissioning activities are underway. The vessel is expected to arrive offshore Guyana in the third quarter of 2019.
Liza Phase 2: Phase 2 of the Liza development, which will use a second FPSO, the Liza Unity, will have the capacity to produce up to 220,000 gross bopd and is expected to begin producing by mid-2022. A final investment decision is expected soon, subject to government and regulatory approvals.
Payara: The operator expects a third development, Payara, to be sanctioned late in 2019 with first production expected in 2023. The Payara development is expected to have the capacity to produce between 180,000 and 220,000 gross bopd from a third FPSO.
The Midstream segment, comprised primarily of Hess Infrastructure Partners LP, our 50/50 midstream joint venture, had net income of $37 million in the first quarter of 2019, compared to net income of $28 million in the prior-year quarter.
Corporate, Interest and Other:
Net results for Corporate, Interest and Other were an after-tax expense of $114 million in the first quarter of 2019, compared to an after-tax expense of $109 million in the first quarter of 2018. On an adjusted basis, first quarter 2018 after-tax expense was $112 million.
Capital and Exploratory Expenditures:
E&P capital and exploratory expenditures were $542 million in the first quarter of 2019, compared to $384 million in the prior-year quarter, reflecting increased drilling in the Bakken and greater development activity in Guyana, partially offset by reduced development spend in the Gulf of Mexico.
Midstream capital expenditures were $127 million in the first quarter of 2019, up from $37 million in the year-ago quarter. First quarter 2019 capital expenditures include $99 million related to the acquisition of crude oil, gas and water gathering assets from Summit Midstream Partners. Midstream investments in its 50/50 joint venture with Targa Resources were $7 million in the first quarter of 2019, compared to $24 million in the prior-year quarter.
Excluding the Midstream segment, the Corporation had cash and cash equivalents of $2.3 billion and debt and finance lease obligations totaling $5.7 billion at March 31, 2019. The Midstream segment had cash and cash equivalents of $6 million and total debt of $1,178 million at March 31, 2019. The Midstream segment borrowed $199 million from its revolving credit facilities in the first quarter of 2019 to fund the previously announced purchase of water disposal assets from Hess and the acquisition from Summit Midstream Partners. The Corporation’s debt to capitalization ratio, including finance leases, was 39.4 percent at March 31, 2019 and 38.0 percent at December 31, 2018. On April 18, 2019, Hess entered into a new fully undrawn $3.5 billion revolving credit facility maturing in May 2023 that replaced the Corporation’s previous credit facility maturing in January 2021.
Net cash provided by operating activities was $238 million in the first quarter of 2019, up from $210 million in the first quarter of 2018. Net cash provided by operating activities before changes in working capital was $635 million in the first quarter of 2019 compared with $397 million in the year-ago quarter. Changes in working capital during the first quarter of 2019 was a net outflow of $397 million, that included a one-time repayment of approximately $130 million to our joint venture partner for its share of sale/leaseback proceeds related to our sale of the North Malay Basin floating storage and offloading vessel completed in the third quarter of 2018. The remaining working capital items included semi-annual interest payments on debt, an increase in accounts receivable and a reduction in accounts payable.
On January 31, 2019, our 8.00% Series A Mandatory Convertible Preferred Stock automatically converted into common stock. The net number of common shares issued upon conversion was approximately 11.6 million shares.
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:
First Quarter 2018: E&P results included a net after-tax severance charge of $37 million related to a cost reduction program. Corporate, Interest and Other results included an after-tax charge of $27 million related to the premium paid for the retirement of debt. In addition, as required under accounting standards’ intraperiod allocation rules, the Corporate, Interest & Other results included a noncash income tax benefit of $30 million, which offset a noncash income tax charge recorded in other comprehensive income, resulting from the $125 million reduction in the Corporation’s pension liabilities.
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):
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:
Hess Corporation will review first 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.