At a time when global crude oil prices are giving many in the industry serious jitters, and as new flaring rules in North Dakota appear to be slowing oil production growth in the state, Hess Corp. is in an enviable position on both fronts.
With a focused and balanced portfolio along with a strong balance sheet, CEO John Hess told analysts in a third quarter earnings call on Oct. 29 that the corporation is “well positioned in the current price environment to drive cash-generative growth and sustainable returns for our shareholders.”
But even with its strong position, Hess said the corporation is looking at plans that were based on a Brent price of $100 per barrel. “However, with Brent now at approximately $87 per barrel, we are reviewing our plans and actions that we might take in lower price environments,” he said.
In the third quarter, the corporation’s average crude oil selling price was $96.36, down 5 percent from $101.70 in the second quarter and down 8 percent from $104.95 in the third quarter 2013.
In the Bakken
Adding to the corporation’s overall strong position is its strong position in the Bakken. Hess told analysts the corporation is “drilling some of the lowest-cost, high-productive wells” which result in lower breakeven. “We have some of the best acreage. We’re certainly going to be focused on investing for returns as opposed to growth for growth sake, so we’re going to be capital-disciplined in this price environment,” Hess said. “But with the acreage we have, many of our wells still generate very good returns even in the current price environment.”
The corporation’s well costs in the Bakken continued steady improvement in the third quarter averaging $7.2 million, a decrease of 3 percent from the $7.4 million second quarter average and down 8 percent from the $7.8 million third quarter 2013 average.
And with its extensive gas gathering and processing infrastructure in the Williston Basin, the corporation did not experience any production curtailments as a result of the new gas capture requirements implemented by the North Dakota Industrial Commission, NDIC.
As Petroleum News Bakken reported in the Oct. 19 issue, North Dakota’s oil production growth slowed for the second consecutive month in August. The slowdown in growth rate appeared to be due, at least in part, to the state’s new gas capture rules requiring operators to have acceptable gas capture plans in place before the commission will issue drilling permits.
Going forward, President and Chief Operating Officer Greg Hill does not foresee any impacts to Hess’ operations as a result of the new gas capture requirements. “So given our infrastructure position in the Bakken, we don’t anticipate any impacts due to the NDIC flaring rules,” Hill told analysts. “So we’re well positioned to continuously reduce our flaring on a go-forward basis.”
For the third quarter, the corporation’s Bakken production averaged 86,000 barrels of oil equivalent per day, an 8 percent increase over the second quarter and a 21 percent increase over third quarter 2013. In August, Hess Corp. ranked as North Dakota’s second largest Bakken oil producer averaging 86,202 bpd for operated, non-confidential wells according to the latest data available from the North Dakota Department of Mineral Resources.
3Q Bakken ops
Hess Corp. operated 17 drill rigs in the Williston Basin and brought 59 wells on production in the third quarter according to Hill. For the fourth quarter, Hill said, the corporation plans to run six completion crews and expects to bring over 80 wells on production.
The corporation is forecasting its net Bakken production to average between 92,000 and 97,000 boepd in the fourth quarter. Thus far in October, Hill said the corporation has brought 30 wells on production and production has averaged 91,000 boepd.
For the full year, Hess Corp. is projecting its production to finish at the low end of its guidance of 80,000 to 90,000 boepd, due to delays in bringing its Tioga gas plant back online after its recent expansion, along with permitting delays for the Hawkeye pipeline that will bring in additional gas volumes to the plant from the south side of Lake Sakakawea. However, Hill said inlet volumes at the Tioga plant continue to increase and the plant is currently processing approximately 160 million cubic feet, mmcf, of gas and 31,000 gross boe of natural gas liquids, NGLs, per day. Hill also said Hess Corp. is evaluating “low-cost options” to expand the plant’s capacity from the current 250 mmcf per day to 300 mmcf per day.
Overall 3Q numbers
Hess Corp.’s total worldwide production averaged 318,000 boepd in the third quarter, down slightly from 319,000 boepd average in the second quarter but up from the 310,000 boepd in the third quarter 2013. The third quarter production mix was 66 percent oil, 9 percent NGLs and 25 percent natural gas. The production comes primarily from operations in the U.S., Europe, Africa and Asia.
On the financial side, Hess Corp. was not immune from the effects of lower crude oil prices in the third quarter with adjusted net income at $377 million, down from $405 million in the same quarter 2013, a decline the corporation attributes to both lower oil prices and higher depreciation expenses in the quarter.
Hess has scheduled its annual investor day conference for Nov. 10 and will provide more details on all of its operations at that time.
