Back on production trackWith Tioga plant expansion complete, Hess Corp. again growing Bakken output Mike Ellerd Petroleum News Bakken
As Hess Corp. completes its transition to a pure-play exploration and production company, it saw a 17 percent pro forma increase in second quarter production over the same quarter of 2013. That growth, according to Chief Executive Officer John Hess “is underpinned in five key areas,” those being the Bakken, the Utica in Ohio, its Tubular Bells play in the deepwater Gulf of Mexico, the Valhall field in Norway’s North Sea and the North Malay Basin in Malaysia.
Of those five key areas, the Bakken provided the highest production averaging 80,000 barrels of oil equivalent per day in the quarter, a 25 percent increase over the same quarter of 2013 following startup of the corporation’s expanded Tioga gas in March.
Hess Corp. sees even more Bakken increases ahead with projected third quarter output estimate at between 85,000 and 90,000 boepd, which puts the corporation on track to meet its 2014 Bakken production forecast of 80,000 to 90,000 boepd, Hess told analysts in a July 30 conference call.
Furthermore, those production increases come at the same time Hess Corp. is seeing yet further reduction in well costs with second quarter costs averaging $7.4 million per well, a 12 percent decrease from the second quarter 2013. “As we have said before, our goal is to deliver the highest value wells, and our results continue to demonstrate that we are consistently delivering wells with some of the highest returns in the Bakken,” Hess told analysts.
2Q Bakken operations For the second quarter, the 80,000 boepd output represents a 27 percent increase over the 63,000 boepd production in the first quarter, production that was affected by wells shut-in during expansion of the Tioga gas plant. According to Hess Corp. President and Chief Operating Officer for Exploration and Production Greg Hill, 30 percent of that second quarter production came from wells completed in the Three Forks formation. “This demonstrates the high quality of our acreage position in the Three Forks, as well as the Middle Bakken,” Hill said in the July 30 conference call.
One of the factors contributing to Hess Corp.’s lower well costs is a reduced cycling time. “Compared to the year-ago quarter, we have seen a 19 percent decrease in spud-to-spud days, which leads not only to lower drilling cost, but also accelerates production,” Hill said.
In the second quarter, the corporation operated 17 drill rigs in the Bakken and brought 53 wells on production, up from the 30 wells brought on production in the first quarter. Over the third and fourth quarters, Hess Corp. plans to bring another 140 to 150 wells on production, according to Hill.
Hess Corp. is also seeing successes in downspacing pilots using 13 and 17 wells per 1,280-acre drill spacing unit, pilots that Hill said are in line with the corporation’s expectations and will determine optimum densities. “These pilots are critical for us to determine optimal spacing across play,” Hill said. “By the end of this year, we expect to have sufficient data to provide updated guidance for well spacing, production, forward drilling locations and estimated recoverable resources.”
In terms of overall development, Hill said the corporation’s main objective is to maximize asset value, which he said is a function of both the pace of development and the build-out of infrastructure. “So we’re constantly trying to manage those two dimensions to ensure that we maximize ultimate NPV (net present value) from the Bakken development, because you can go really fast and over build infrastructure that you don’t need, and so we’re really trying to optimize - based on those two dimensions - to maximize value from the asset,” Hill told analysts.
Tioga gas plant The Tioga gas plant was shut down in late November in order to increase capacity from 115 million cubic feet, mmcf, per day to 250 mmcf per day. In addition, natural gas liquids, NGLs, processing capacity also more than doubled to 50,000 gross boepd. Hill said the plant’s gross inlet volumes are currently at approximately 180 mmcf per day, and the plant is processing approximately 35,000 gross boepd of NGLs. “Looking forward, we intend to debottleneck the plant to enable processing of up to 300 million cubic feet per day,” Hill said. “The plant will be a major enabler for us to reduce flaring to less than 10 percent by 2017,” he added.
Second quarter numbers Hess Corp.’s total world-wide net production in the second quarter averaged 319,000 barrels of oil equivalent per day, up slightly from the first quarter production of 318,000 boepd, but down from the 341,000 boepd average in the second quarter 2013, although much of that decline is due to asset divestitures in the last year. Of the 319,000 boepd in the quarter, 67.7 percent was crude oil, 25.5 percent was natural gas and the remaining 6.80 percent was natural gas liquids.
Hess Corp. divides its global crude oil production into the following categories: U.S. Bakken, other U.S. onshore, U.S. offshore, Europe, Africa and Asia. Of those, the highest production came from the Bakken followed by U.S. offshore at 54,000 bpd, Africa at 51,000 bpd, Europe at 36,000 bpd, other U.S. onshore at 9,000 bpd and Asia at 2,000 bpd. At 127,000 bpd, U.S. onshore accounted for 58.9 percent of the corporation’s total crude production. The U.S. also accounts for most of the corporation’s NGL production while most of its natural gas production comes from Asia.
In the second quarter, Hess Corp. completed $1.6 billion in asset sales in the Utica play, in Thailand as well as a New Jersey power plant. Also in the quarter the corporation announced the $2.9 billion sale of its retail business. “With the sale of our retail business, which was announced in May, we have essentially completed our transformation to a pure-play E&P company,” Hess told analysts. Also announced in the second quarter was an increase in the authorized share repurchase program from $4 billion to $6.5 billion.
The corporation’s net income was $931 million and adjusted net income was $432 million for the quarter. In the same quarter of 2013, net income was $1.43 billion and adjusted net income was $520 million. The decreases were due to divestitures along with shut-in of the company’s operations in Libya due to political unrest.
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