Q4 2019 Earnings Call
At this time, all participants are in listen only mode.
Later, we will conduct a question answer session.
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As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the conference over to Jay Wilson, Vice President of Investor Relations. Please proceed.
Thank you less good morning, everyone and thank you for participating in our fourth quarter earnings Conference call.
Earnings release was issued this morning that appears on our website www dot has stock comp.
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.
These risks include those set forth in the risk factor section of houses annual and quarterly reports filed with the FCC.
Also on todays conference call, we may discuss certain non-GAAP financial measures reconciliation of these 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.
As usual with me today or John has Chief Executive Officer, Greg Hill, Chief Operating Officer, and John Riley Chief Financial Officer, I'll now turn the call over to John Hess.
Thank you Jay a welcome everyone to our fourth quarter Conference call I will review our continued progress in executing our strategy then Greg Hill will discuss our operating performance and then John Riley will review our financial results.
We had an outstanding year in terms of operational performance and continued execution of our long term strategy.
Achieving a number of important milestones and delivering higher production and lower capital exploratory expenditures than our original guidance.
Well the guy on in the Bakken as our growth engines in Malaysia, and the deepwater Gulf of Mexico as our cash engines. Our portfolio is on track to deliver increasing and strong financial returns visible in low risk production growth and industry, leading cash flow growth.
It is important to note that both Guyana in the Bakken will become significant gas generators over the next several years.
As we've stated in our Investor presentations, where we provide a financial outlook through 2025, our portfolio is positioned to generate approximately 20% compound annual cash flow growth and more than 10% compound annual production growth.
And our portfolio breakeven is projected to decrease to below $40 per barrel Brent by 2025.
As our free cash flow grows we will prioritize return of capital to shareholders. Both in terms of dividends and opportunistic share repurchases.
Another key element of our strategy is maintaining a strong balance sheet and liquidity position and managing risk.
We ended the year with more than $1.5 billion in cash and cash equivalents on the balance sheet.
And have hedged 150000 barrels of oil per day in 2020 using put options.
With 130000 barrels per day at $55 per barrel W. T <unk> and 20000 barrels per day at $60 per barrel Brent.
Without standing execution throughout our portfolio, we were able to reduce our full year 2019 capital and exploratory expenditures to $2.74 billion down approximately $150 million from our original guidance.
We have kept our 2020 capital on exploratory budget to $3 billion.
In line with the guidance, we provided at our December 2018 Investor Day.
During the fourth quarter, we close the previously announced transaction in which Hess midstream converted to end up see corporate structure and acquired Hess infrastructure partners.
As a result of the transaction, we received approximately $300 million in cash and owned 47% of Hess midstream.
Turning to Guyana, where Hess has a 30% interest in the Stabroek block and Exxon Mobil is the operator 2019 was an outstanding year in terms of both exploration and development.
On December Twentyth, the lease up phase one development achieved first production and is expected to reaches full capacity of 120000 gross barrels of oil per day in the coming months.
We recognize this pivotal moment in Guyana history and are committed to working collaboratively with the government our partners and the people of Guyana to build a safe and sustainable industry that fulfills the promise of shared prosperity.
The leasing unity floating production storage and all floating vessel or F.B.S.. So is under construction for the second phase of Lisa development.
It is expected to start production in Guyana by mid 2022, where their production capacity of 220000 gross barrels of oil per day.
Front end engineering design for a third F.B.S. So the prosperity is underway to develop the by Yara field pending government approvals and project sanctioning.
Production from pie or I could start as early as 2023, reaching an estimated 220000 gross barrels of oil per day.
From an exploration perspective, 2019 was a banner year with five new discoveries at high Myra the labia yellowtail triple tail and maaco.
On Monday, we announced an increase in the estimate of gross discovered recoverable resources for the Stabroek block to more than 8 billion barrels of oil equivalent.
We continue to see multi billion barrels of exploration potential remaining.
We also announced a significant oil discovery at war room, marking the 16th discovery on the Stabroek block the wall Rude discovery will be incremental to the new resources estimate.
Turning to the Bakken our largest operated assets our team had a very strong year full year net production in 2019 for the Bakken averaged 152000 barrels of oil equivalent per day, well above our original guidance range of 135240 5000 barrels of oil.
Equivalent per day, and nearly 30% higher than 2018.
Our Bakken performance showed the benefits of our successful transition to plug and perf completions.
As a result net oil production for 2019 was up 22% compared to 2018 and we are on track for Bakken production to average approximately 200000 barrels of oil equivalent per day in 2021.
In the deepwater Gulf of Mexico, our successful oil discovery last quarter. It. He sox will be brought online next month as the low cost high back to the tubular bells production facilities has is the operator and holds a 57.14% interest.
Now turning to our 2019 financial results for the fourth quarter, our adjusted net loss was $180 million compared to adjusted net loss of $77 million in the fourth quarter of 2018, primarily reflecting the effects of lower realized prices.
Full year 2019, net production was 290000 barrels of oil equivalent per day, excluding Libya.
17% higher than the pro forma 248000 barrels of oil equivalent per day produced in 2018.
In 2020, our net production is forecast to average between 330000 and 335000 barrels of oil equivalent per day, excluding Libya.
Bakken net production is forecast to average approximately 180000 barrels of oil equivalent per day in 2020.
As we continue to execute our strategy our board our leadership team and each of our employees will be guided by our longstanding commitment to sustainability in terms of safety protecting the environment and making a positive impact on the communities, where we operate we're gratified to have been recognized by a number of third.
Party organizations for the quality of our environmental social and governance performance and disclosure most recently achieving leadership status and Cdps global climate analysis for the 11th consecutive year.
In summary, we are proud of our 2019 performance and look forward to continuing this momentum into 2020 and future years as we execute our differentiated long term strategy with increasing cash margins and production volumes our cash flow through 2025 is.
Jack to grow at a rate that outpaces, our industry peers and most companies in the S&P 500.
As our portfolio generates increasing cash flow. The majority will be deployed towards increased return of capital to our shareholders through dividend increases and opportunistic share repurchases.
We'll now turn the call over to Greg for an operational update.
Thanks, John .
2019 marked another year of exceptional performance and strategic execution in particular, I would like to call out three major operational highlights from 2019.
First we beat our guidance for both production and for capital and exploratory expenditures.
Our 2000 net 19 net production averaged 290000 barrels of oil equivalent per day, excluding Libya.
I was above our original guidance of between 270000 280000 barrels of oil equivalent per day and also above our more recent guidance of approximately 285000 barrels of oil equivalent per day.
At the same time or 2019 capital an exploratory expenditures were 2.74 billion approximately 150 million below our original guidance.
Second we continued or extraordinary running success on the 6.6 million acres Stabroek block in Guyana with five discoveries with the started production from the leads to phase one development in December ahead of schedule and under budget and with the sanction of Elisa Phase two development, which is on track for for.
Oil by mid 2022.
Third in the Bakken, we successfully completed or transitioned to plug and perf completions.
Driving down drilling and completion costs.
Our plug and perf transition has an average delivered a 15% uplift in IP. When 80 production at same time, we reduced our drilling and completion costs from an average of approximately $7.5 million per well.
In the fourth quarter of 2018 to approximately 6.5 million in the fourth quarter of 2019.
By the end of 2020, we expect our DNC costs will approach $6 million per well.
Proved reserves at the end of 2019 stood at 1.197 billion barrels of oil equivalent.
Net proved reserve additions and revisions in 2019 totaled 121 million barrels of oil equivalent including negative net price revisions of 35 million barrels of oil equivalent resulting in an overall 2019 production replacement ratio of 104%.
A majority of the additions were in the Bakken in Guyana.
Now turning to production.
In the fourth quarter of 2019 companywide net production averaged 316000 barrels of oil equivalent per day, excluding Libya.
Above our guidance of approximately 300000 barrels of oil equivalent per day, driven by strong performance across the portfolio and in particular the Bakken.
For the full year 2020, we forecast net production to average between 330000 and 335000 barrels of oil equivalent per day, excluding Libya, which is a 15% increase from 2019.
In the first quarter of 2020, we forecast net production to average between 320000 and 325000 barrels of oil equivalent per day.
In the Bakken fourth quarter net production averaged 174000 barrels of oil equivalent per day, an increase of approximately 38% above year ago quarter and above our guidance of 165000 net barrels of oil equivalent per day.
For the full year 2019, Bakken net production averaged 152000 barrels of oil equivalent per day.
Above our original guidance of between 135, and 145000 barrels oil equivalent per day and.
And our most recent full year guidance of 150000 barrels of oil equivalent per day.
These results reflect the strong performance or plug and perf completions in the quality of or acreage position.
For the full year 2020, we forecast Bakken net production to average approximately 180000 barrels of oil equivalent per day, which is approximately 18% higher than 2019.
Our full year forecast reflects the impact of a 45 day planned shutdown of the Tioga gas plant in the third quarter.
During the shutdown, we will perform a turn around and tie in the plant expansion project, which will increase capacity from 250 million cubic feet per day to 400 million cubic feet per day.
In 2020, we expect to drill approximately 170 wells and bring approximately 175, new wells online compared with 160 wells drilled and 156 wells brought online in 2019.
In the first quarter of 2020.
We expect Bakken net production to average approximately 170000 barrels of oil equivalent per day.
First quarter 2020 forecast reflects lower planned activity levels due to seasonally difficult winter weather conditions.
Where we expect to bring on line approximately 30, new your wells compared with 59 in the fourth quarter of 2019.
Net production will increase in the Bakken throughout the year growing to approximately 200000 barrels of oil equivalent per day by the end of 2020.
As discussed previously we plan to drop our rig count from six rigs in 2022 four in 2021.
At this level of activity.
Expect the old production relatively flat for at least five years and generate approximately $750 million of free cash flow annually at $55 per barrel WT <unk>.
Moving to the offshore in the deepwater Gulf of Mexico, net production averaged 70000 barrels of oil equivalent per day in the fourth quarter and 66000 barrels of oil equivalent per day for the full year 2019 inline with our guidance.
Our focused exploration program and the deepwater Gulf of Mexico.
Building in the oil discovery in the fourth quarter at the Soc, one well in Mississippi Canyon.
Well completion was successfully run in the subsea installation is underway, which will tie back to the tubular bells production facility. We expect to achieved first oil in February .
Socs is a high return cash generative tie back opportunity that was well executed the timeframe from discovery to first oil is expected to be less than four months.
In 2020, we forecast net production from or deepwater Gulf of Mexico assets.
Average approximately 65000 barrels of oil equivalent per day. This includes extended planned maintenance shutdowns in the second quarter.
At the Malaysia, Thailand Joint development area in the Gulf of Thailand, where half has a 50% interest net production averaged 36000 barrels of oil equivalent per day in the fourth quarter and 35000 barrels of oil equivalent per day for the full year 2019.
At the North Malay Basin also in the Gulf of Thailand, where half as operator and has a 50% interest net production averaged 28000 barrels oil equivalent per day in the fourth quarter and for the full year 2019.
Combined net production from our J.D.A. in North Malay Basin assets is forecast to average approximately 60000 barrels of oil equivalent per day for the full year 2020.
Turning to Guyana, where Hess has a 30% interest in the Stabroek block in Exxon Mobil is the operator.
In December we announced the Fiftyth discovery on the block at the make a one well located approximately six miles southeast of the Liza field.
Make a one drilled in 5315 feet of water encountered approximately 164 feet of high quality oil bearing sandstone reservoirs.
On Monday, we announced a new other significant oil discovery at Wal route.
Which is located approximately 10 miles northeast of the Liza field.
The walk through one well drilled in 6342 feet of water encountered approximately 94 feet of high quality oil bearing sandstone reservoirs.
Well was drilled in a down dip location on a large stratigraphic trap further appraisal and testing is plan.
Based on the 15 discoveries through year end 2019, the estimate of gross discovered recoverable resources for the Stabroek block has been increased to more than 8 billion barrels of oil equivalent.
For more than 5 billion barrels of oil equivalent only one year ago.
While we were discovery is incremental to this new resource estimate the continuing growth of the resource base on the block has been truly remarkable.
Looking forward after the noble Tom Madden completes the evaluation of the Walkthrough discovery Drillship will move to development drilling for Liza phase two.
The stand of care and is currently engaged on a well past the Yelp yellowtail discovery.
After which it will drill and test the yellow to two appraisal well.
After completing the evaluation program for make a one ennobled on Taylor remix drill and pass the long tailed two appraisal well.
Finally, the noble Bob Douglas will continue drilling development wells.
As announced on Monday, the operator intends to bring in a fifth drillship later this year.
We expect the first half of 2020 will be dominated by appraisal activities, primarily in the greater turbine area.
In the second half of the year, we plan to drill several new exploration wells, including some that will pass the emerging deeper plays on the Stabroek block.
Turning now to our Guyana developments on December Twentyth production commenced from leaves a phase one development less than five years. After the discovery of hydrocarbons and well ahead of the industry average for deepwater developments. The project also came in under budget.
At sanction.
Liza Phase one was budgeted at $4.4 billion gross including the purchase for the past so.
We now expect the gross cost for the development to be approximately 3.5 billion or 21% below the sanction estimate.
Liza Phase one production continues to ramp up.
Current gross production is approximately 75000 barrels of oil per day from three of the five produce available at startup.
Production is expected to reach the fpsos capacity of 120000 barrels of oil per day in the coming months.
For the full year 2020, we forecast or net production to average approximately 25000 barrels of oil per day.
The leaves a phase two development is progressing to plan on January 13, the whole for the Liza Unity, FPSO, which will have a capacity of 225 220000 barrels of oil per day arrived at the Keppel yard in Singapore.
Construction of all 13 deck modules is currently underway.
Meanwhile, in Guyana installation of sub sea flow lines and equipment is underway and development drilling is expected to begin next month.
We continue to forecast first oil by mid 2022.
Pending government approvals and projects sanctioning a third development at Pryor is planned to utilize and Fps. So with a gross production capacity of 220000 barrels of oil per day with first oil as early as 2023.
Together with hammerhead discoveries on the southeast portion of the block, including Terabit Yellowtail long tail plumer to lobby and triple tail will underpin future F. dsos.
In closing or execution continues to be strong.
The Bakken is on a capital efficient growth trajectory or offshore assets in the deepwater Gulf of Mexico in Malaysia, Contented continue to generate significant free cash flow.
And Guyana continues to get bigger and better all of which positions us to deliver industry, leading returns material free cash flow generation and significant shareholder value I will now I'll turn the call over John writing.
Thanks, Greg in my remarks today, I will compare results from the fourth quarter of 2019 to the third quarter of 2019.
We incurred a net loss of $222 million in the fourth quarter of 2019 compared to a net loss of $212 million in the third quarter of 2019.
On an adjusted basis, which excludes items affecting comparability of earnings between periods, we incurred a net loss of $180 million in the fourth quarter of 2019 compared to a net loss of $105 million in the previous quarter.
Pre and pay.
On an adjusted basis NP incurred a net loss of $124 million in the fourth quarter of 2019 compared to a net loss of $41 million in the previous quarter.
The changes in the after tax components of adjusted NP results between the fourth quarter and third quarter of 2019 were as follows.
Higher exploration costs reduced results by $56 million lower realized selling prices reduced results by $13 million.
All other items reduced results by $14 million for an overall reduction in fourth quarter results of $83 million.
For midstream on an adjusted basis. The midstream segment had net income of $49 million in the fourth quarter of 2019 compared to $39 million in the previous quarter, reflecting higher throughput volumes.
Midstream EBITDA on an adjusted basis and before non controlling interest amounted to $157 million in the fourth quarter of 2019 compared to $134 million and the previous quarter.
For corporate on an adjusted basis after tax corporate and interest expenses were $105 million in the fourth quarter of 2019 compared to $103 million in the previous quarter.
Now turning to our financial position.
At quarter end, excluding midstream cash and cash equivalents were $1.540 billion and total liquidity was $5.4 billion, including available commit committed credit facilities, while debt and finance lease obligations totaled 5.640 billion dollar.
Yes.
In December 2019, Hess Midstream completed its previously announced acquisition of Hess infrastructure partners with the conversion to an up see corporate structure and incentive distribution rights simplification.
As consideration for the transaction, we received additional shares and approximately $300 million in cash.
We now own approximately 134 million shares of Hess midstream or approximately 47%.
In the fourth quarter of 2019 net cash provided from operating activities was $286 million or $550 million before changes in working capital and items affecting comparability.
While cash outlays for capital expenditures were $825 million in the fourth quarter.
Changes in working capital reduce cash flows from operating activities by $234 million in the fourth quarter, primarily reflecting premiums paid for crude oil hedging contracts.
For calendar year 2020.
Crude oil hedge positions consist of W. T. I put options within notional amount of 130000 barrels of oil per day that have an average monthly floor price of $55 per barrel and Brent put options within notional amount of 20000 barrels of oil per day that have an average monthly floor price of 60.
Dollars per barrel.
Now turning to guidance first for exploration and production.
We project NP cash costs, excluding Libya to be in the range of $11.50 to $12.50 per barrel of oil equivalent for the first quarter and for the full year 2020.
DDNA expense, excluding Libya is forecast to be in the range of $16.50 to $17.50 per barrels oil equivalent for the first quarter and for the full year 2020.
This results in projected total LP unit operating costs, excluding Libya to be in the range of 28 to $30 per barrel of oil equivalent for the first quarter and for the full year 2020.
Guided earlier capital an exploratory expenditures expenditures in 2020 are expected to be $3 billion.
Exploration expenses, excluding dry hole costs are expected to be in the range of $50 million to $55 million in the first quarter.
With full year 2020 guidance expected to be in the range of $210 million to $220 million.
The midstream tariff is projected to be in the range of $225 million to $235 million in the first quarter with full year 2020 guidance expected to be in the range of $940 million to $965 million.
NP tax expense, excluding Libya is expected to be in the range of $15 million to $20 million for the first quarter and in the range of $80 million to $90 million for the full year 2020.
As highlighted earlier, we have purchased crude oil hedge positions for calendar year 2020, we expect noncash option premium amortization, which will be reflected in our realized selling prices to reduce our results by approximately $70 million per quarter.
Now turning to midstream.
Anticipate net income attributable to has for the midstream segment to be it in the range of $45 million to $55 million in the first quarter and full year 2020 guidance is expected to be in the range of $205 million to $215 million.
For corporate.
Corporate expenses are estimated to be in the range of $30 million to $35 million in the first quarter and full year 2020 guidance is expected to be in the range of $115 million to $125 million.
Interest expense is estimated to be in the range of $85 million to $90 million for the first quarter with the full year 2020 guidance expected to be $350 million to $360 million.
The increase from 2019 is due to see seen interest capitalization at the Liza field, which commenced production in December 2019.
This concludes my remarks, we'll be happy to answer any questions I will now turn the call over to the operator.
Ladies and gentlemen, if you have the question. Please press star followed by one on your phone.
If your question has been answered we would like to withdraw your question press pound.
And we'll be taken in the order received please press star one to begin.
Your first question comes from the line of Doug Leggate with Bank of America.
Thanks, Good morning, everybody.
Morning, Doug.
Does it looks like the on the market doesn't like the the guidance too much. So I wonder if we could talk a little bit about the cadence of what's going on with done times through the course of the year, Greg you touched on to yoga.
One and you obviously you you've given us.
First quarter run rate for the Bakken, but can you kind of walk us through how did not progressing through the year, because clearly 174 in fourth quarter and I'm wondering if you average for the full year.
Looks a little soft on maybe touch on the Gulf of Mexico planned downtime as well.
Yeah. Thanks, Doug So as we mentioned we do have the turnaround at the type of gas plant, it's going to be about 45 days.
And we're going to turn around and also tie in the the gas plant expansion as we mentioned.
Now that's not going to have much impact if any on oil.
It's going to be primarily gas and the net effect of that is about 6000 barrels of oil equivalent per day.
If I turn to will go to your Greg or for the core yet for the year, yeah for the year. Thanks.
And then if I turn to the Gulf of Mexico.
We have two major shutdowns in the second quarter, one at Konger and one at Llano.
Both of which are down for 30 days.
We also have Penn state down for about eight days in the us in the second quarter. So the net impact to that on the quarter is about 13000 barrels a day.
Okay, but starts to make a bit more sense and appreciate the emphasis.
Oil doesn't get it gets hit so thank you for them so.
Mike follow up is not to be too predictable is obviously on Guyana.
And I know, we hope to excellent analyst day on March FIS as the extent you can you can share it seems that the appraisal activity focused the run turbo is.
Probably I'm guessing is to define what the scale of Dot development is going to look like over time, you previously defined as a major development hub, but we also know the Hammerheads has been passed through the development team Forex on so Im just wondering if you can kind of walk us through your your current thoughts on this time.
Thing of on to scale about 2025 run rate on joined Riley.
How does that.
It does impact the 2018 get you should give us over run rate 3 billion dollar coupled program and I'll leave it there. Thanks.
Yeah. Thanks, Doug I think as we've spoken before you're right I mean hammerhead has been passed off to the development team that Notionally right now is about 140000.
Barrels of oil capacity kind of vessel and then as you mentioned all of the appraisal activities that are ongoing really what I call on the eastern seaboard between Turbinen Liza.
Our really trying to understand.
How many vessels.
Vessels will it take two evacuated all of that oil which is substantial.
Along that eastern Seaboard, so clearly.
You know clearly vessel five is going to be in that area and probably several vessels after that but we're trying to figure all that out.
How many vessels will it take and obviously that the fess will be a large when it will be in the 220 class.
The others are.
But you know specific timing of the number of vessels and timing of the ones. After five that's really what we're working on and that's kind of the heavy lift.
For this year, Doug to really understand that.
And then Doug as far as our capital program as we laid out on our Investor Day, We had $3 billion. This year. We do have if you if you see from the Investor day, a little bit more next year as we move on with these developments and as we've talked about as an approximate 3 billion and right now Theres no change to that number we've.
At a nice cadence going to Exxon on it as an aside has been doing a fantastic job on the execution of phase one and now phase two is the execution is going along well and so it's doing a great shop for Guy and I and for the for the partners. So what we're seeing from our capital program is that.
$3 billion is a good number right now as Greg said, we're unsure of Sps Hills beyond the five and we'll see that but again that will be much later in the profile of our of our timing of free cash flow because as you remember once phase two comes on its a big inflection point for us from a free cash flow standpoint. So.
Any f. dsos be six seven or something beyond that we'll be in a good period for us when were generated a lot of free cash flow.
Appreciate it guys are seeking a couple of weeks. Thank you.
Okay. Thank you.
Your next question comes from the line of Ryan Todd Fitzsimmons energy.
Great. Thanks.
Maybe.
One follow up initially on the on Guiana.
Can you talk about on the of the upwards revision to the resource estimate to a billion barrels.
With all that based on the inclusion of incremental discoveries into less estimate or was there any component driven by upward revisions estimates a prior discovery and maybe just.
You talked about the primary drivers of what you can do this is a significant upward pressure on resource.
I think the absolute Grand majority of that was all all new discoveries.
So it's just continuing to add to this extraordinary success rate.
Five in 2019 and already another one in 2020 with more to come.
Great. Thanks, and then maybe.
Maybe a follow up in the in the Bakken him in the Bakken continues to exceed expectations.
In terms of productivity.
And also impressive cost can you talk about some of the drivers what you've seen in terms of the strong Buck in.
Production.
And maybe you highlighted actual and targeted reductions are well cost for the back in in 2020.
What are the drivers and what are you seeing there in terms of costs and in the basin.
Yeah. So let me start with cost first.
As I mentioned in my opening remarks, and I'm really proud of the so the team and their their ability to drive cost down with lean manufacturing so.
If you think about our journey in 2019, we started it seven and a half in the fourth quarter of 2018 7.3 in Q1 seven in Q2 6.7 in Q3 and 6.5 in Q4, so that's an amazing.
Cost reduction over 12 months, driven primarily by lean manufacturing, but also technology.
And then as we look forward to next year, I'm, obviously that flattens out a bit.
Part of lean manufacturing.
But we still think we'll be at six by the end of the year. The biggest driver on that is going to be again technology in lean, but we also are seeing some softness in the sand costs and also pressure pumping. So we built some of that into our cost estimates.
For next year regarding the productivity really a function of where we're drilling.
But also the plug and perf coming in.
Very well so on average IP, one eightys are up 15%.
But if you look at certain areas of the field.
Critically.
On the southern part of the field we've outperformed.
That 15% in those areas and those are very good prolific areas of the Bakken.
And as we look forward to our 2020 program again, it's a 175 wells.
Very similar you are kind of in the one to 1.2 range.
IP one eightys.
In the 110 to 120 range and I are ours at 60, well above 75%. So again, a very strong program in 2020.
Great. Thanks, Greg very helpful.
Your next question comes from the line of Roger read with Wells Fargo.
Yes, thanks, good morning.
Oh.
Maybe just a follow up on that POC in question and this baby premature, but given that you're continuing to see improvements as we think about holding flat at 200000, a day kinda.
End of this year onwards.
Any reason at this point or any optimism to think about that costing less or maybe not taking quite four rigs as we go forward or do we just need to balance that as you kind of move from as you mentioned you know the premium spots to maybe the next tier down that's.
Incorporated any outlook.
Yeah, I think I think it's a balance as you said.
So we're pretty confident that we can hold it flat.
At the 200 range for at least five years and probably longer and as you mentioned as technology improvements to can continue to occur.
Cost potentially continue to come down obviously that plug plateau be extended even longer.
I will mention that in our tier two acreage we're doing a lot of trials on proppant loading.
On number of entry points on spacing. So we are we are not.
You know, we're not decided yet in some of those areas exactly what thats going to be so the assumption going forward is none of that's built in so I'm very optimistic that that will get much better as we go forward is we learn in those areas.
Yeah. So certainly has not been a static environment so far right.
One other question and it's it's got to parts I apologize for doing it that way, but it's some of the push back we've gotten post results here. One is the hedging program. So I'll just kind of put the question up to you up why hedge the second part is we did see debt go up.
In the quarter it looks like mostly that was to take care of the midstream side of things, but I was wondering if you could clarify on those two points for us.
Sure Roger and only do the second one first is quick the debt that went up was related to midstream and the completion of the transaction that we spoke about the acquisition of Hess infrastructure partners and the conversion to to the up see that was the debt. So it's just purely midstream debt that is non recourse to Hess has for.
Sure as the hedging Roger you know the price we have.
Our Investor day, there with Bakken getting up to 200000 barrels a day and bringing on phase two so what we do is we look at it year by year and we put these hedges on for insurance just to ensure that we can fund that investment program because of the returns that that program.
Dry for us so we're getting closer and closer face to ride is mid 2022, we just want to finished this guy and a program executed continue to execute that and as Greg said continue to execute our six rig program, which will drop the four rigs the following year and and so we just put hedges on for insurance purposes, and hopefully we don't.
Use.
I appreciate it thank you.
Your next question comes from Jeanine Wai with Barclays.
Hi, good morning, everyone morning.
I guess my two questions on Capex and Diana the first one and it looks like total anti capex for the quarter came in and little bit higher than expected and I believe some of that might be related to Diana. So can you provide any color on that and any implications for stage two that it may impact.
It did come into the for the quarter very small amount again, we just went out within approximately 850 came in at age 76, as Greg mentioned with the Bakken, We did get a little bit more completions in the Bakken So a little bit is in the bar in the Bakken a little bit of it is an acceleration in Guyana.
And the rest fit is kind of just through the portfolio really small numbers again, we were just given approximate amount. So there's no implication on that going forward. We have to 3 billion capital that we set we are going up approximately 300 million in in Guyana next year versus 2019, and again, we laid that out.
For the continuation of phase one about 400 million for phase two and then the rest of it for phase three and future developments.
Okay, Great. That's that's really helpful. Thank you for that my second question on Diana can you comment on any of the recent news headlines about the potential for contract renegotiation.
Yes.
So most of the news that you here is not from reliable sources, neither the current government or opposition government.
I think they both have been pretty clear.
That they're going to honor the PSC Hum, So I think thats the real takeaway you should have.
Okay, great. Thank you for taking my questions.
Pleasure.
Your next question comes from the line of David Deckelbaum with Cowen.
Good morning, everyone. Thanks for taking my questions.
Thanks.
I just wanted to ask you talked about having the first tanker loading attributed to Hess are allocated the Hess in March.
1 million barrels.
How do you see the the listings are tanker low things progressing throughout the year should we always be thinking about the same sort of capacity and what kind of cadence.
Are you expecting throughout the year.
So the cadence can move around a little bit from that on how they get allocated but here lives a general rule of thumb it will be a million barrels each lift and for US as you heard Greg gave the guidance on guy and as that it's 25000 barrels a day for the year.
You multiply that by 365, you're getting just about 9 million a little over 9 million barrels. So we expect just from a forecast standpoint to have nine lifted this year.
I can't exactly be specific which quarters they'll be coming in our first lift you're right is expected in early March.
Okay I appreciate that.
It does sound like you're not sales amount as approximating your your production guidance for the year. So thats and gradually is correct quarter by quarter, you could get some under Overlift split right for the full year. It does the sale should approximate the production about.
Got it.
And then just to revisit some of the Bakken guidance I know that it's difficult to forecast with lumpiness around the quarters.
But the expectation is that you'd be exiting 20 at approximately that 200.
Excellent.
Target.
Yes, yes, we'll achieve that sometime in the fourth quarter.
Okay, and then the in the third quarter with the Tioga turnaround and expansion.
How was it that oil volumes are not impacted there from a logistical.
Perspective.
Well you know again that they're separate systems right. So you can Ah Ah the gas is a separated on the pad from the oil.
And it goes through a separate systems. So you can still produce the oil, but obviously that gas goes through the plant. So that's where the impacts going to be so we'll do some local flaring on the pads and some flaring at the gas plant as well during that 45 day shut down but the oil will largely stay on.
Okay. I guess has a total program you'd still be onto the regulations for flaring.
At the state level.
Yes, yes, there would there will be some restrictions that we'll have to deal with but of course, you can get some dispensation for things like turnarounds et cetera. So.
Okay I appreciate the color on that thank you guys.
Yes.
Your next question comes from the line of Michael Hall, with Heikkinen Energy Advisors.
Thanks, Good morning.
Just curious a little bit of an accounting question I guess on the Diana volumes 25000, a day does that include costs.
Barrel recoveries.
If so how much if not how should we think about that for 2020.
It does include that it's just part of the normal production sharing contract that cost recovery barrels are are included as part of our production and the partners production.
Specific do you have an estimate of how much of that is cost recovery such as.
I can walk you maybe through it a little bit more detail after the call, but the contractors out there that you can see but the way. It basically works is on the revenue then 75% of the revenue goes for cost recovery for the contractors. So that's how you can factor and then you go into profit share after that.
Okay.
Yes, just wanted to make sure we're calibrating right.
And then I was curious on I guess, the Gulf of Mexico, The capital on the 20 to 20 plan.
Thank you backed into around 300 and.
50 million or so.
Relative to 2018 Analyst day, you talked about annual average capital of $150 million to sustain 65, then Delia day.
So I'm just trying to wind those two things up.
Sure, Yes, how do we reconcile those two things.
I just want to make sure that we were on the same page with the number so and arc are released that we went out for 2020, the Gulf of Mexico capital will be approximately $135 million for for this year. That's we're spending from a production aspect of it last year, we did have a higher amount it was approximately.
290 million.
And that is because we were running full year, we had two rigs running for stampede, which will be coming off contract here.
Basically in the second quarter, so there's lower Gulf of Mexico spend.
And so as you know we will be tying in E socs, which again helps and keeps us at that 65000 barrels a day.
That we've talked about.
And then as is as we did mention going forward do you can expect about $150 million to $200 million, a capex per annum for infill and tieback wells. So.
And this is our objective in the short term to medium term to maintain the Gulf at about 65000.
Barrels a day and we've been very successful doing that.
If you look at Konger Tan.
That was about 6000 barrels a day Penn state six about 14000 barrels a day Lotto five about eight and E. Socs is anticipated to be a very goodwill.
We see four to six more things that we'd like to drill and then in the next couple of years.
In our expectation of keeping those hub full then beyond that of course, it will be greenfield. So we'll drill a greenfield exploration well, probably one year I'm on average over the next several years again trying to maintain that production or potentially even growing it.
With that with the new hub.
Okay, Yeah, I guess, that's helpful I guess to.
Maybe to make sure I'm thinking about the numbers right here. So I mean I was trying to connect 1.73 billion of total U.S. capital per the release.
With the 1.375 billion in the Bakken and the remainder being in the Gulf of Mexico.
Well I'm, assuming some of that being for.
Exploration.
So I guess, what didnt, what's being spent in the U.S. outside of.
The Bakken and then kind of Gulf of Mexico, if anything.
How would you breakout the.
The 1.73 billion between.
The Bakken or in the Gulf of Mexico.
Just seems like.
I was too though that doesn't.
So let's put it so you have a billion seventhirty, you're saying in the U.S. right.
So you have 17173 ill back out the Bakken, which is a billion 375.
Right in production right now.
And you're gonna back how should one.
135 for the Gulf of Mexico.
Right.
So then the rest of that amount is in exploration that can be wells being drilled or seismic being spent so that that approximate 200 million dollar should you have left relates to exploration.
Sure, Okay and that explorations all in the Gulf in the Gulf correct at U.S. piece correct.
Okay.
Thank you.
Your next question comes from the line of Paul Cheng with Scotiabank.
Hey, guys good morning.
The Giants that John Lee So yet my questions have already been nonsense, just let me know so I would just look at the transcript.
On.
John I think two quick questions would you on the on the accounting to the hedging premium amortization to 70 Minn Kota is that that's enough to text and also from the timing standpoint scenes in Guyana.
You have to death and been doing to pick up the income tax. So when you guys. We put you are you going to report.
That does the corresponding tax asset gross up and then that you will you. We put it also to attack or that you just don't we plan to taxable.
How's that accounting treatment going to be.
Okay. So first on the hedges it is pre tax and post tax so that will be the same amount because we have a valuation allowance against our net operating losses in the U.S. So that will be the same number in Guyana, we do pay taxes. It's in the entitlement of our contracts. So the taxes are in battle embedded in our in.
I don't want effectively reducing our entitlement and therefore, what we do then with our entitlement for financial reporting purposes is dis aggregate that and then show the tax and gross it up from relating to that I can walk you through that more after the call but that is how we're doing that.
Yes, because I think that's how Apache has done in Egypt I just wanted to make sure that that's the same methodology because that's how we multiple things like now.
Yes that is how it would work and happy to discuss that further we can do that.
Okay and.
Great when I'm looking at your production guidance that seems conservative case.
Is there any area that that maybe we have a beetle more of the upside.
Hi, Thank you probably missed the you probably missed the started the call where we've kind of went through the shutdowns.
Okay again tight gas plant down 45 days and then a heavy maintenance buried in the Gulf of Mexico, where we have two of our big assets down 30 days in the second quarter. So that's really kind of what reduced or normal capacity of our production was too.
As of two shutdowns.
Okay, I will read the transcript and during the final why have you guys book any additional we soon we need to the on diesel one last year.
We booked a minor amounts for the wells that we were drilled here again rule of thumb as you know Paul probably we've got.
A third of the of the reserves on the on the books right now for Phase one and then as we get the dynamic data Sealy injection goes we'll begin to pick up additional reserves.
Okay all right. Thank you.
Your next question comes from the lineup Pavel Molchanov with Raymond James.
I think for off for taking the question. So this year. After five years you will begin to.
Drill on a brand new exploration blocks, Indiana and given your experience on stop broke I'm curious what kind of exit expectations should we be thinking about in terms of pre drill estimates and the geology of this new acreage that sure we're going to be.
Getting underway.
No I think you're referring to the Cai two or block, which is outboard of us baybrook, which we have a 15% interest in exxon's the operator.
See very similar play types that exists on the on the Liza block around the Stabroek block.
And in fact, we'll spud our first well a well called Tan injure this year on that block so stay tuned.
Okay, Alright fair fair enough.
And I question about Hess midstream.
Now that the Bakken is.
Very close to it it's not reaching plateau.
What's going to be that dropped down model for the MLP fee underlying production is essentially flat lining.
So for Hess midstream now, it's it's not an MLP in all the assets in North Dakota have been acquired by by the midstream because we completed that transaction in the fourth quarter. So they have now have all the gathering facility there and the title the gas plant so from the.
All dropdown mouse model that won't be happening going forward. So what you do have here is this growth that we have so in the Bakken obviously is still going from 180 to 200000 barrels a day, we're going to they're going to pick up that growth. The Hess midstream is picking up that then as you know the flaring a regulator.
Since get tighter and tighter as as we move on in North Dakota, and so what Hess Midstream is doing now is they've completed the LM for plant and so picked up additional gas processing capacity. There. We're doing the expansion of the Tioga gas plant and so that's going up to 400 million cubic feet a day and it.
Just looking to pick up third party business as these flaring regulations get tighter and tighter and and we are in a good infrastructure position in a good position to pick up that so there's a lot of growth going from there and they'll look for other opportunities up there in North Dakota.
All right appreciate it guys.
Your next question comes from the lineup Bryan singer with Goldman Sachs.
Thank you good morning, warranted can you talk about the the benefits and risks of in Guyana of co development, that's dsos and how discussions and plan set with the operator are evolving if at all as you ramp up the first yeso gain greater insight into the reservoir and processes, how how on the.
Table that this when you look out to PSS, three four or five or beyond.
No I think I think Brian you know that the current strategy, which we agree with.
Is the design one build many because you can get such leverage of learnings as you go from vessel won the two to three right.
Now what is likely going to happen is the timeframe between those vessels will begin to collapse.
So from a cadence of maybe one a year maybe becomes every nine months or potentially even every six months heaters you get out in time.
That's what those synergies.
We'll do for you. So that's what we really see we don't really see doubling or tripling up.
Because that's very inefficient, but rather design one build many but continue to collapse the timeframe based on efficiencies.
And just the embellish on that it's really a phased approach.
To be capital efficient.
Exxonmobils done a great job.
Optimizing the development lowering the costs the learnings from ship want to help us and shipped to and that will continue and shipped three so we're really looking at a phased approach, but as Greg said, maybe with more compression of the timeframe and you know just want to remind everyone. The 8 billion barrels of oil equivalent we've talked about we've had 16 successes.
So it's basically a 500.
Million.
<unk> per discovery, and that's world class and it's got very low cost very high returns and Exxonmobils doing a great job moving the project forward.
Great. Thanks, and then John in your opening comments, you talked about free cash or cash flow overtime going to dividend increases an opportunistic share repurchase.
Is there any change in the timing of when you would expect to consider that is that still when you get more into free cash flow mold post or with the start up of phase two in Guyana or is that something that we could see earlier or later than that.
No I would say right now stick with our guidance that it it's going to be timed with phase two coming online and again that is the big inflection point for us from a free cash flow and earnings standpoint, and the priority would be on increasing the dividend.
As the first call.
Great. Thank you.
Your next question comes from lineup in the value with Mizuho Securities.
Mr. Luckily, how you're from maybe on you.
Hi, sorry, it's cool thank you here.
Yeah.
Yeah, we can enter your ball here sorry about that.
Good.
On the year to year in oil and gas you could very very well in terms of sort of your disclosure could you talk a little bit about some of the areas. We bring construe get becker them, specifically thinking about flaring and beyond that could you talk about the impact of Guyana.
How that works sharing some of the metrics that you do such a great job disclosing thanks.
Yes. Thank you Paul obviously, a U.S.G. sustainability is a core value for the company we've been doing a sustainability report for 22 years.
We're honored and proud to be an industry leader we want to.
Make sure we continue that leadership role.
As we look at our flaring, let's say in the Bakken.
Were ahead of the states a limits and we have a program in place to continue that and we're looking at updating our sustainability efforts in terms of the environment and will be coming out with some new targets within the year.
For the next five years, so that's a work in progress.
But but we always want to stay ahead of the regulations.
And in terms of Guyana, you know the you know the gas is basically a re injected.
And you know again, Exxon Mobil does a great job minimizing the flaring in startup et cetera, but the majority glasses re injected so there's really not an issue there and the one of the things were going to be looking at in Guyana is how can we help the country going forward in social responsibility, which is something that's very important to our company and our boss.
Board and every employee.
Got it thanks very much for that and then a follow up on a pre your hedging question correctly different subject how do you expect.
Hedging or.
Program.
Got it stays around a little bit over time.
I Wonder how you split dynamics are afraid that going forward and whether or not you whatever but different hedging.
Strategy, let's say.
Perhaps five years correct Greg.
Sure I mean, we do look at it Paul year year to year and make our decisions on our hedging requirements and right now obviously with the investment.
Still going in for a guy at until we get to that phase two we wanted to put a significant amount insurance on to ensure we fund that as we move forward and we get to more free cash flow will still be you know obviously have a heavy oil portion in our portfolio, we'll make those decisions year to year and we could make some different decisions at that point in time.
Thank you Greg.
Okay.
Thank you very much. This concludes today's conference. Thank you for your participation you may now disconnect have a great <unk>.