Q2 2022 Hess Corp Earnings Call

July 27, 2022

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Good day, ladies and gentlemen, and welcome to the second quarter 2022, Hess Corporation Conference call.

My name is Liz and I'll be your operator for today at.

At this time, all participants are in listen only mode.

Later, we will conduct a question and answer session.

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.

Yeah.

Good morning, everyone.

And thank you for participating in our second quarter earnings Conference call. Our earnings release was issued this morning and appears on our website Www Dot has dot 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.

These risks include those set forth in the risk factor sections.

<unk> annual and quarterly reports filed with the SEC.

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 and.

In case, there are any audio issues issues. We also will be posting transcripts of each speaker's prepared remarks on www dot <unk> dot com following the presentation.

I'll now turn the call over to John Hess.

Thank you Jay welcome to our second quarter Conference call today, I will provide first some comments on the oil markets and then review our progress in executing our strategy. Greg Hill will then discuss our operations and John Riley will review our financial results.

In the last months recessionary fears that have affected the financial markets have also been weighing on the oil markets. The price for Brent crude oil has gone from a peak of $120 per barrel to a low of $95 per barrel to approximately $105 per barrel today, however, the physical oil market.

<unk> tight for example to buy a physical Brent cargo crude buyers today have to pay a cash premium.

At least several dollars per barrel.

We are in unprecedented times for the financial markets and for the oil markets in both markets, we have experienced a demand shock and a supply shock the global economy shutdown in 2020.

He has taken approximately two years to recover.

In terms of global oil demand there has been a V shape recovery due to various government financial stimulus programs and accommodative monetary policies global oil demand has returned to pre COVID-19 levels of approximately 100 million barrels per day.

The other hand global oil supply has seen more of a U shaped recovery global oil supply has been struggling to keep up with demand predominantly as a result of more than five years of industry under investment.

As a consequence, we have seen seven consecutive quarters of draws on global oil inventories. So much so that global oil inventories today are approximately 400 million barrels less than pre COVID-19 levels.

As we look to the second half of the year, we expect global oil demand to increase by one to one 5 million barrels per day as a result of China's economy reopening after COVID-19 lockdowns and increasing air travel.

In terms of global oil supply while shale producers have enabled the U S to grow oil production by approximately 1 million barrels per day over the year.

And the last year, there is very little spare capacity left in the world with demand growing supply lagging and the potential for further sanctions on Russia oil exports, we expect a tight global oil market to get even tighter over the balance of the year.

In a world that needs a reliable low cost oil and gas resources now and for decades to come is in a very strong position offering a highly differentiated value proposition for our investors.

Our strategy is to continue delivering.

Hi, resource growth, a low cost of supply and industry, leading cash flow growth while at the same time, maintaining our industry leadership in environmental social and governance performance and disclosure.

Our successful execution of this strategy has uniquely positioned our company to deliver value to shareholders now and for years to come both by growing intrinsic value and by growing cash returns.

By investing only in high return low cost opportunities the best rocks for the best returns we have built a balanced portfolio focused on Guyana, the Bakken deepwater Gulf of Mexico, and Southeast Asia with multiple phases of low cost oil developments coming online in Guyana, and a robust inventory of high return.

Willing locations in the Bakken, we can deliver highly profitable production growth of more than 10% annually over the next five years.

Through the continued development of our high quality resource base, we are steadily moving down the cost curve or for sanctioned oil developments in Guyana have a breakeven Brent oil price of between $25 $35 per barrel.

In terms of cash flow growth, we have an industry leading rate of change and industry, leading durability story.

Based upon our flat Brent oil price of $65 per barrel, our cash flow is forecast to increase by approximately 25% annually between 2021 and 2026 more than twice as fast as our top line growth our balance sheet. We will also continue to strengthen in the coming years with debt to EBITDAX.

<unk> to decline from less than two times in 2022 to under one time in 2024.

As our portfolio becomes increasingly free cash flow positive in the coming years, we are committed to returning up to 75% of our annual free cash flow to shareholders with the remainder going to strengthen the balance sheet by increasing our cash position or further reducing our debt.

Given our strong cash flow growth, we commenced a share repurchase program during the second quarter repurchasing approximately one 8 million shares of common stock for $190 million under our existing $650 million board authorization, and we intend to opportunistically repurchased the remaining amount by.

Year end <unk>.

Looking ahead, 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 share repurchases will represent a growing proportion of our return of capital.

Key to our strategy is Guyana, the industry's largest oil province discovered in the last decade on the Stabroek block in Guyana, where Hess has a 30% interest and Exxonmobil is the operator, we continue to see the potential for at least six floating production storage and offloading vessels or <unk> in 2000.

27, with a gross production capacity of more than 1 million barrels of oil per day and up to 10 F. Dsos to develop the discovered resources on the block in terms of our sanctioned oil developments production at the Liza Phase one development. It has reached its new production capacity of more than a 140000 gross barrels.

Of oil per day in the second quarter following production optimization work on the Liza Destiny F BSO.

The Liza phase two development, which achieved first oil in February reached its gross production capacity of approximately 220000 barrels of oil per day earlier this month.

Our third development on the Stabroek block at the <unk> field with a gross production capacity of approximately 220000 barrels of oil per day is on track for startup in late 2023.

In early April we announced sanction of yellow tail, which will be the largest development to date on the stabroek block. The project will develop an estimated recoverable resource base of approximately 925 million barrels of oil and have a gross production capacity of approximately 250000 barrels of oil per day.

With first oil expected in 2025 fronts.

Front end engineering and design work for our fifth development at Wawa Mako is underway with a plan of development expected to be submitted to the government by year end.

In terms of exploration and appraisal in Guyana, we continue to invest in an active program with approximately 12 wells planned for the Stabroek block in 2022.

Yesterday, we announced two new discoveries on the block at the sea, Bob one and <unk>, one wells, bringing our total this year to seven these discoveries will add to the previously announced gross discovered recoverable resource estimate for the Stabroek block of approximately 11 billion barrels of oil equivalent and we continue.

To see multibillion barrels of future exploration potential remaining.

Now turning to the Bakken our largest operated asset we have an industry leading position with approximately 460000 net acres in the core of the play.

<unk> weather in April and May cause widespread power outages lasting four to six weeks and production shut ins throughout North Dakota.

Production recovery efforts took longer than expected for our company and the industry. Our Bakken operations are now recovering with approximately 15, new wells planned to be brought online in the second half of the year versus 32 in the first half given the strength of the oil market and the world's need for more oil supply we added a fourth rig.

Earlier, this month, which will allow us to achieve net production of approximately 200000 barrels of oil equivalent per day in 2024 level, which will maximize free cash flow generation lower our unit cash costs and optimize our infrastructure.

As we continue to execute our strategy, we are dedicated to maintaining our industry leadership in environmental social and governance performance and disclosure on Monday, we announced the publication of our 25th annual sustainability report demonstrating our long standing commitment to sustainability and transparency, we continue to be recognized.

<unk> is an industry leader for the quality of our ESG performance and disclosure.

In May has was named to the 100 best corporate citizens list for the 15th consecutive year based on an independent assessment by ISS ESG and we were the only energy company to earn a place on the 2022 list.

Social responsibility is a fundamental part of our sustainability commitment earlier. This month, we announced a multi year national healthcare initiative with the government of Guyana, and the Mount Sinai Health system to provide access to affordable and high quality healthcare, which is central to the government's vis.

<unk> for long term shared prosperity for the people of Guyana.

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. We increased our regular quarterly dividend by 50% in March and during the second.

<unk> commenced a share repurchase program, reflecting the financial strength of our business and our commitments to shareholders as our portfolio becomes increasingly free cash flow positive. We will continue both to invest to grow our company's intrinsic value and to increase the return of capital to our shareholders through further.

And increases in share repurchases I will now turn the call over to Greg Hill for an operational update.

Thanks, John .

Second quarter, we experienced continued weather impacts in the Bakken and ramp up of Liza phase II. It was modestly slower than expected net.

Net production was up 10% from the first quarter and we anticipate company wide net production to continue to build in the second half of the year as we bring more wells online in the Bakken and Liza phase two operate at nameplate capacity.

In the second quarter company wide net production averaged 303000 barrels of oil equivalent per day, excluding Libya.

In the third quarter, we expect company wide net production to increase by approximately 10% from the second quarter to average between 330000 335000 barrels of oil equivalent per day, excluding Libya.

In the fourth quarter company wide net production is expected to further increase to between 365000 and 370000 barrels of oil equivalent per day, excluding Libya.

For the full year 2022.

We now forecast net production to average approximately 320000 barrels of oil equivalent per day, excluding Libya.

Turning to the Bakken.

Second quarter net production averaged 140000 barrels of oil equivalent per day. This was in line with our guidance and reflected the impact of severe weather in April and May <unk>.

Production is now recovering and is expected to increase to between 155000 and 160000 barrels of oil equivalent per day in the third quarter.

For the fourth quarter.

<unk> forecast net production to further increase to between 160000 and 165000 barrels of oil equivalent per day.

For the full year 2022, we now forecast Bakken net production to average between 150000.

155000 barrels of oil equivalent per day. This reflects a volume reduction of approximately 7000 barrels of oil equivalent per day under percentage of proceeds contracts as a result of higher NGL prices.

Although NGL volume entitlement through lower overall cash flow is substantially higher.

In terms of drilling and completion costs, we're continuing to see upward pressure across our supply chains, particularly in oil country tubular goods.

As a result, we've increased our full year average drilling and completion cost forecast by $100000 per well do averaged $6 3 million per well in 2022.

I am proud of our team's effectiveness and mitigating the impacts of inflation tight supply change.

Largely through our distinctive lean culture well.

While we believe the industry is experiencing overall inflation of between 15% and 20%.

Full year drilling and completion costs are forecast to increase by only about eight 5% year over year.

In the second quarter, we drilled 20 wells and brought 19, new wells online.

In the third quarter, we expect to drill approximately 25 wells and bring approximately 20, new wells online and for the full year 2022, we now expect to drill approximately 95 wells and to bring between 80% and 85, new wells online, which is slightly lower than previous guidance due.

The second quarter weather related delays in mobilizing equipment.

Individual well results in terms of <unk>, and <unk> continued to meet or exceed expectations.

Earlier this month, we added a fourth drilling rig in the Bakken through our strategic partnerships with neighbors and Halliburton.

We were able to secure a fully staffed high spec pace X class rig and a second completion crew.

Moving to a four rig program will allow us to grow net production to approximately 200000 barrels of oil equivalent per day in 2024.

Which will optimize our in basin infrastructure and drive further reductions in our unit cash cost.

Now moving to the offshore in the deepwater Gulf of Mexico second quarter net production averaged 29000 barrels of oil equivalent per day compared to our guidance of approximately 30000 barrels of oil equivalent per day.

In the third quarter, we forecast Gulf of Mexico net production to average between 25000 35000 barrels of oil equivalent per day.

The planned downtime at tubular bells and.

Penn State wells being shut in due to a mechanical issue.

This downtime will be partially offset by the planned startup of the Llanos fixed high back in August , which logged 123 feet of high quality Miocene pay.

For the failure of 2022, our forecast for Gulf of Mexico. Net production is now approximately 30000 barrels of oil equivalent per day.

In June we completed drilling operations on the Heron prospect on Green Canyon block 69 with encouraging results.

After the operator with a 40% working interest in Chevron and shell <unk>, 30% the.

The well encountered high quality oil bearing Miocene age reservoirs and establish the existence of the working petroleum system well results are still being evaluated in an appraisal sidetrack is planned.

And southeast Asia net production in the second quarter was 67000 barrels of oil equivalent per day compared to our guidance of approximately 65000 barrels of oil equivalent per day.

Phase III of the North Malay Basin development came online in June and is producing above expectations and phase four is on track to achieve first gas in early 2023.

Third quarter net production is forecast to average approximately 55000 barrels of oil equivalent per day, reflecting planned maintenance at both <unk> and North Malay basin.

Full year 2022 production is expected to average between 60000 65000 barrels of oil equivalent per day.

Now turning to Guyana.

In the second quarter net production averaged 67000 barrels of oil per day.

<unk> a modest delay in the ramp up of Liza phase II.

Overall, the startup that's been very successful in July Liza phase two reached its nameplate capacity of 220000 barrels of oil per day or about 56000 barrels of oil per day net to Hess.

For Liza Phase one production optimization work was completed in the second quarter and the BSO is now operating at or above its new gross production capacity of 140000 barrels of oil per day.

Earlier this month SPM offshore also completed the replacement of the flash gas compressor, which has resulted in high reliability and zero routine flaring.

Third quarter net production from Guyana is forecast to increase to a range of 90000 to 95000 barrels of oil per day and average approximately 75000 barrels of oil per day for the full year 2022.

With regard to our third development and <unk> are.

Topside fabrication and installation on the prosperity PSM is well underway in Singapore and development drilling in Guyana continues at pace.

Project, which will have a gross production capacity of 220000 barrels of oil per day is now more than 80% complete and is well on track to achieve first oil in late 2023.

In April we sanctioned a fourth development at the yellow tail.

Which will develop approximately 925 million barrels of oil.

And have a breakeven Brent oil price of approximately $29 per barrel.

The project will have a gross production capacity of 200200 50000 barrels of oil per day.

It's on track to achieve first oil in 2025.

As for our fifth development at Wahoo and Mako.

The operator anticipates submitting the plan of development to the government of Guyana in the fourth quarter with first oil targeted for 2026 pending government approvals and project sanctioning.

Turning to exploration.

Yesterday, we announced two new discoveries on the Stabroek block the <unk>, one well encountered 131 feet of high quality oil bearing upper campaigning and sandstone reservoirs.

The well is located in the southeastern part of the block.

Proximately 12 miles southeast of the yellow tail field.

The <unk> one well is also doesn't thus far encountered 98 feet of high quality hydrocarbon bearing upper Campania sandstone reservoirs.

The well is currently drilling ahead to test deeper Antivirals and is located in the southeastern part of the block.

Approximately three miles southeast of the Cabot back one discovery.

Both discoveries will add to the gross discovered recoverable resource estimate for the block.

<unk> 11 billion barrels of oil equivalent.

In terms of future drilling activity on the Stabroek block next up in the queue, our euro and banjo the euro one well will test stacked upper campaigning and targets.

Tip of discoveries with tailwind tilapia, well is located 19 miles south of the yellowtail, one discovery well the.

The banjo, one well will also target stacked upper campaigning targets west of <unk> and up dip of Mako.

The well is located eight miles northwest of the <unk>, one discovery well.

These wells will appraise the development potential of the inboard oil play in the southeastern portion of the block.

In addition on block 42 in Suriname, we will participate in as Andrew <unk>, one exploration well.

<unk> operated wells expected to spud in late August and we will test both upper campaigning and deeper plays stack targets Hess Chevron and shell each have a one third working interest.

In closing our Bakken assets are now recovering from the severe weather impacts experienced in the first half of the year and we expect to see steady production growth in the coming quarters, particularly with the addition of the fourth rig we had positive drilling results in the Gulf of Mexico at both <unk> and Heron and <unk>.

As a robust inventory of both infrastructure led tieback opportunities and exploration prospects.

Malaysia continues to generate steady production and cash flow and our extraordinary success in Guyana continues on all fronts.

Distinctive long life portfolio uniquely positions us to deliver material and accelerating production and free cash flow growth and significant value to our shareholders I will now turn the call over to John Reilly.

Thanks, Greg in my remarks today, I will compare results from the second quarter of 2022 to the first quarter of 2022.

We had net income of $667 million in the second quarter compared with $417 million in the first quarter or $404 million on an adjusted basis.

Turning to E&P.

A&P had net income of $723 million in the second quarter compared with $460 million in the first quarter.

Changes in the after tax components of E&P earnings between the second quarter and first quarter of 2022, whereas follows.

Higher realized selling prices increased earnings by $178 million.

Sales volumes increased earnings by $170 million.

Higher DD&A expense decreased earnings by $39 million higher.

Higher cash costs decreased earnings by $39 million all other items decreased earnings by $7 million for an overall increase in second quarter earnings of $263 million.

For the second quarter, our E&P sales volumes were under lifted compared with production by approximately 500000 barrels which decreased our after tax income by approximately $15 million.

Turning to midstream.

The midstream segment had net income of $65 million in the second quarter of 2022, compared with $72 million in the first quarter.

Midstream EBITDA before non controlling interest was $241 million in both the second quarter and first quarter of 2022.

Turning to our financial position at quarter end, excluding midstream cash and cash equivalents were $2 $1 6 billion.

And total liquidity was $5 73 billion.

Including available committed credit facilities, while debt and finance lease obligations totaled $5 six 1 billion.

In April we received total net proceeds of $346 million from the public offering of approximately $5 1 million has shown class a shares of Hess midstream and.

And the sale of approximately $6 8 million Hess on class B units to Hess midstream.

In the second quarter, we commenced common stock share repurchases with the purchase of approximately one 8 million shares for $190 million under our existing $650 million board authorized stock repurchase program.

We intend to utilize the remaining amount under the stock repurchase program by the end of this year.

Total cash returned to shareholders in the second quarter amounted to $306 million, including.

Dividends.

Net cash provided by operating activities before changes in working capital was $1 $4 6 billion in the second quarter compared with $952 million in the first quarter.

Merrily due to higher realized selling prices and sales volumes.

In the second quarter, we sold six 1 million barrel cargoes of crude oil in Guyana upfront sales of $2 3 million barrels of crude oil in the first quarter.

<unk> in operating assets and liabilities during the second quarter of 2022 increased cash flow from operating activities by $46 million.

E&P capital and exploratory expenditures were $622 million in the second quarter and $580 million in the first quarter.

In June Moody's investors service upgraded our senior unsecured ratings of Hess Corporation to be a three from VA won all three major credit agencies now rate has is investment grade.

In July we replaced our $3 5 billion revolving credit facility expiring in May 2024, with a new 325 billion revolving credit facility expiring in July 2027.

Now turning to guidance first for E&P.

Beginning in the third quarter, we will use the remainder of the previously generated Guyana net operating loss carryforwards. As a result, we will start to incur a current income tax liability.

Our third quarter, Guyana net production guidance of 90 to 95000 barrels of oil per day includes approximately 7000 barrels of oil per day of tax barrels.

Our full year 2022, Guyana net production guidance of approximately 75000 barrels of oil per day includes approximately 6000 barrels of oil per day of tax barrels.

There were no tax barrels in the first or second quarters in.

In both the third and fourth quarter of this year, we expect to sell eight 1 million barrel lifting from Guyana.

Our E&P cash costs in the second quarter of 2022 were $13 90 per barrel of oil equivalent, including Libya, and $14 56 per barrel of oil equivalent excluding Libya.

We project E&P cash costs, excluding Libya to be in the range of 14 to $14 50 per barrel of oil equivalent for the third quarter and in the range of $13 50 to $14 per barrel of oil equivalent for the full year, which is unchanged from previous guidance.

DD&A expense was $11 79 per barrel of oil equivalent, including Libya, and $12 34 per barrel of oil equivalent excluding Libya in the second quarter.

DD&A expense, excluding Libya is forecast to be in the range of 13 to $13 50 per barrel of oil equivalent for the third quarter and $12 50 to $13 per barrel of oil equivalent for the full year.

Which is updated from the prior guidance of $11 50 to $12 50 per barrel of oil equivalent.

This results in projected total E&P unit operating costs, excluding Libya to be in the range of 27 to $28 per barrel of oil equivalent for the third quarter and 26 to $27 per barrel of oil equivalent for the full year 2022.

Exploration expenses, excluding dry hole costs are expected to be in the range of $35 million to $40 million in the third quarter and in the range of $160 million to $170 million for the full year, which is down from our previous guidance of $170 million to $180 million.

The midstream tariff is projected to be in the range of 305 to $315 for the third quarter and full year guidance of $1 billion $190 million to $1 billion and $215 million remains unchanged.

E&P income tax excluding Libya is expected to be in the range of $170 million to $180 million for the third quarter and in the range of $540 million to $550 million for the full year.

Which is up from the previous guidance range of $460 million to $470 million, primarily due to higher commodity prices.

We expect non cash option premium amortization, which will be reflected in our realized selling prices will be approximately $165 million for both the third and fourth quarters.

Our E&P capital and exploratory expenditures are expected to be approximately $750 million in the third quarter and approximately $2 7 billion for the full year.

Which is down from previous guidance of $2 8 billion that I referenced in our last conference call.

The reduction is due to the phasing of activities in the Bakken and efficiencies across the portfolio.

For midstream.

We anticipate net income attributable to Hess from the midstream segment to be in the range of $60 million to $65 million for the third quarter.

Our full year guidance range of $265 million to $275 million remains unchanged.

For corporate corporate.

<unk> are estimated to be approximately $40 million for the third quarter and in the range of $135 to $145 million for the full year, which is up from previous guidance of $120 million to $130 million due to higher legal and professional fees.

Interest expense is estimated to be approximately $85 million for the third quarter and in the range of $345 million to $350 million for the full year, which is in the lower end of our previous guidance range. This.

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 a question. Please press star followed by one on your phone.

Questions will be taken in the order received please press star one to begin.

Our first question comes from Arun Jairam with Jpmorgan. Your line is now open.

Yes, good morning, John I wanted to start with cash return.

This quarter.

You returned about 20% of your CFO , including dividends and the buyback.

You acknowledge your plan to go ahead and complete the.

The remaining authorization, which would point to about $460 million of buybacks plus the dividend I'm wondering as we think about your capital return framework, which includes the return of up to 75% of your free cash flow how should we think about the pace of buybacks as we approach 2023.

Yeah, John Reilly.

Yeah. Thanks, Arun So just just to remind you what our capital return framework.

Our framework is set up on an annual basis. So we look at our annual free cash flow and.

And we are planning to return and we are committed to return up to 75% of that free cash flow and that free cash flow is reduced for debt reductions, which we did have that $500 million in the first quarter. So as we said with our 650 authorized in the 190 done in the second quarter, you can expect the remainder to be done.

Throughout the rest of this year and it's actually going to be above the 75% framework because of where commodity prices are our discussions with the board are favorable balance sheet position and look with Guyana ramping up in Guyana, and Bakken ramping up our free cash flow is improving as you see from our second quarter results.

So that we can give more than 75% this year with this favorable commodity price environment and so then come into 2023, you really should think about but we just are starting this capital return program. This is just the beginning and we plan to continue it. So as we move into 2023, we are committed to that 75% framework.

Again, if commodity prices are favorable we can do more than that.

Next year, but.

You should begin to think this is going to be a continued program and just remember now with Bakken as we said thats going to 200000 barrels a day, Guyana is going to be bringing on in spss almost once a year here for the for the coming year. So we're going to have a growing free cash flow. So that's 5% is going to be going on a bigger and bigger number as we move out so.

I think thats the strategic framework, you should be thinking about.

Great and maybe John rally a follow up for you.

$2 7 billion in Capex.

Update a little bit lower than you told us last quarter I was wondering if you could just provide us maybe some soft commentary around 2023, Capex. If you sustain four rigs in the Bakken and continue your.

<unk> program in Guyana.

Alright, well. Thank you for the thank you for the soft guidance, then Arun because that's what we'll do as usual we will provide full guidance in January because we do have some moving parts like you said, but with the fourth rig in the Bakken and look we did have some phasing of activities that are moving into 2023, you can at least expect an addition.

$150 million plus from the Bakken and this is before inflation, which I'll talk about a little bit at the end.

So the Bakken will be increasing with that fourth rig some of the phasing as well. So you can think about that $150 million in Guyana as you know we've got a lot of things going on so I did say this in the first quarter Theres clearly going to be about 700, several hundred million dollars more in Guyana, because we'd be developing pie RF right, we're bringing that on.

In late 2023, we've got to develop with yellow tail.

The fifth PSL, which Greg mentioned, Wahoo and Mako and we also have the gas to energy project going on in Guyana, So against several hundred million more for Guyana, but we'll fine tune that as we go through the year also as you heard Greg mentioned, we had success at your on well in the Gulf of Mexico.

Looking at what we're doing from an appraisal standpoint, and what our Gulf of Mexico program, which typically as we had mentioned we'd like to get some of these infrastructure led tie backs done as well as greenfield. So we will be having some increase in Gulf of Mexico for 2023, and then I mentioned it of course, we are monitoring the industry inflation, we are seeing.

Greg mentioned, what's happening with our D&C cost in Bakken, we are seeing in rig rates labor steel cost. So we'll continue to be looking at that and we will fine tune. It as we get to the end of the year, but kind of soft those are the those are the kind of numbers you can be looking at around.

And what about the Fps. So have you all made a determination with Exxon uncapped on buying those on your buy option.

No that has not been.

Finally determined yet Arun the timing the guidance I would give you right now is not to expect just in 2023. So if you are putting in your models don't put one in 2023 I would expect one in early 2024, but again, it's still early days, we do not have that finalized yet.

Great. Thanks, John .

Thank you Youre welcome.

Thank you.

Our next question comes from Doug Leggate with Bank of America. Your line is now open.

Thanks, Good morning, everyone. Good morning, I guess.

Should I go first to the Bakken.

Obviously the <unk>.

Given the fairly thorough explanation as to.

What's been going on there with weather and productivity and so on but I wanted to ask about any any thoughts on the trajectory to 200000 barrels a day is there any reason why we should.

Rethinking your timeline or are you still confident not on what is your updated thoughts on the trajectory to get there.

Yes, Greg.

No Doug I think I think we're back on track in the Bakken we're back on that trajectory.

As I mentioned in my opening remarks, we expect the third quarter to be up 10% the fourth quarter to be up 10% from that and then you really see the fourth rig start to kick in because youll start completing wells from that fourth rig in 2023. So that's why we're saying we'll have this steady increase trajectory to 200.

1000 barrels a day, which we expect to hit in 2024.

So it should be a smooth ramp from here.

Okay. Thanks, Greg I, just wanted to kind of address that.

The.

My follow up I'll leave everyone else to ask on Guyana today, Greg I wanted to ask you about Google on this this is.

Perhaps a little bit more material news and perhaps the euro.

Your.

Comments might suggest can you give us a little bit more color on pre drill scale.

On your site tracking one assumes that you are pretty encouraged with what youre seeing so what was the pre drill target here and what is what is this.

You've talked about one potential hub development.

Exploration well per year going forward does this does this qualifies as a potential hub development.

Hey, Greg well, let me talk about let me talk about the well first so.

It was drilled on Green Canyon block 69 to a depth of 28900 feet.

And the rig was released on June <unk> 2022, So as I mentioned in my opening remarks, the prospect targeted a new Miocene sub salt fairway in Northern Green Canyon reason, we're really encouraged by the results that we discovered.

Good high quality oil and good quality Miocene sands.

And we as I did mention we're also planning an appraisal sidetrack up dip on that well I think the second thing that's really exciting about it as a result as a result of what we're seeing here on we see additional prospectively in that northern Marine can Eric Green Canyon area, and we have a very.

Narrative leasehold position there so two positive outcomes from hereon Doug.

Doug We don't we don't release pre drill estimates.

The well is still under evaluation. So further information coming as we appraise that asset.

Yes.

I would just add to that I mean, we're encouraged by the prospect activity.

In this area.

The fact that there is a working petroleum system, so theres going to be further drilling and appraisal ahead of us and we're encouraged by it.

If I may very quickly, Greg you say youre going to do an uptick appraisal did you have an oil water contact.

Well scale undervaluation Doug.

Okay. Thanks.

Thank you.

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

Thank you good morning.

I think that's the first one is for John <unk> John .

The rising.

On recession.

Or does it at all impact on their thinking on your decision process.

You guys decision point that on the budget.

John .

Sure. So that's one of the things I've mentioned fly has.

Ron said soft guidance on what our budget would be for for next year. We are looking at that obviously there is no change to our base program in the Bakken, we're going to have the four rigs were doing that we want to optimize our infrastructure up there lower our cash cost and it's the best return way to develop the Bakken so.

There won't be any change there.

And so we'll continue to monitor the cost and update everyone on where the budget ends up with that so on a go forward basis, then Guyana again, the plans there unchanged.

Obviously, just a phenomenal province for us for oil developments. The returns there are are excellent and we will be trying to bring forward as much as we can to get this oil for the country of Guyana on as early as possible. So again.

Yellow tail getting the fifth ship.

And for <unk> try to get that development planning to the government. So no change there again with Exxon has been doing an excellent job.

Managing the cost there, but we are susceptible to that cost inflation that everybody else is seeing so we'll update again, where that number confidence, but as I said, we have about $1 billion. This year and our plan in our original budget and we're not changing that in Guyana. So again Exxon has done a really good job this year.

Managing managing that inflation and as I said, it will be several hundred million dollars more.

But again, we'll see where the inflation ends up and then kind of the new thing because we were just talking about Gulf of Mexico. In a program. We are looking at the rig rates and being able to get slots. So that's something again that we will be looking at managing but we do want to do this appraisal and we talked about and we'd like to do.

Some of our infrastructure led tie back. So again those are extremely good returns even if the cost inflation is a little bit higher. So I think you can take that again as our soft guidance on what we're doing and we keep practicing our lean culture and try and create as much as possible working with our strategic will able again Exxon has done.

A really good job this year, managing managing that inflation and as I said it will be several hundred million dollars more.

But again, we'll see where the inflation ends up and then kind of the new thing because we were just talking about Gulf of Mexico on a program. We are looking at the rig rates.

And being able to get slots. So that's something again that we will be looking at.

Yes, and one other point, Paul and it's a good.

Great question.

<unk>.

All companies are dealing with us.

Assertion risk, even though there is an economic slowdown now we certainly see the market getting tighter for the reasons that I mentioned between now and the end of the year, having said that our board will definitely stress tests, our budget for next year.

Definitely there'll be a recession scenario in that.

And we will definitely be prepared should there be a recession to stay ahead of it to keep the balance sheet strong.

So we can still invest in our high return opportunity in Guyana, and we will also take steps as we normally do as we get to the end of the year to make sure. We have some price protection on in terms of puts on the downside. So we'll be prepared in case of recession occurs.

We're going to be one of the scenarios that the board has with our senior leadership to make sure we're financially disciplined going into next year.

Sure Greg.

Going back to John mandate that you mentioned some activity has been push from this year to next year can you quantify roughly how much.

Sure so.

<unk> mentioned right now with wells online were a little bit down.

I'd say wells online we are only in like say five range of wells online that are going to be moving to next year. Some.

Wells drilled and so we're only getting five so we've got additional wells that are moving that way. So youre looking nine or 10 wells to be drilled that are moving to next year five ish kind of wells online.

Moving to next year and just some other small infrastructure type things so altogether.

You're probably looking in that $40 million type range that got moved to next year.

Thank you.

Our next question comes from Jeanine Wai with Barclays. Your line is now open.

Hi, good morning, everyone. Thanks for taking our question good morning Jeanine.

Morning.

We'd like to follow up on the Gulf of Mexico from Doug's question, there's been some headlines that some of your partners. There are looking to monetize their interest and one of your field and it sounds like you're very positive on the Gulf in the near term I know you just mentioned increasing activity in 'twenty three in your side tracking well can you generally disk.

What your medium term plan is in terms of activity in the Gulf and then our follow up is on.

Your appetite to grow your position there. Thank you.

Yes, Greg why would appreciate it if you just go over our strategy.

Our role as the Gulf in our portfolio.

Exploration acreage that we have.

And I can comment on the M&A side Janine in the normal course of business, we always look to optimize our portfolio, but we have not seen anything in the market.

Be it in the Gulf for or elsewhere that makes sense for us to do an acquisition, we have better opportunities to invest in our portfolio of high return and low cost investments. So we're much more focused on.

Getting return from the inventory of investment opportunities that we have them looking to the outside we don't need M&A to grow the returns of our business and quite frankly, most of the stuff that we've seen would erode returns mark on all of that is going to do that we're going to stay financially disciplined but Greg can you just talk about the role of the Gulf in our portfolio.

Sure. Thanks, Janine so.

Gulf of Mexico for US remains a very important part of the portfolio. It's an important cash engine and it's a platform for growth for us. So our objective in the Gulf is to at a minimum sustained production and cash flow through tieback opportunities and also with selected selectively pursuing.

Hub class exploration opportunities.

If we can grow it we want to.

And as you recall, we've been selectively rebuilding our portfolio in the last five or six years, such that we acquired 60, new lease blocks in the Gulf. We've got over 80 now in our portfolio and that's really a balance of higher return tie backs and also hub class new exploration prospects.

Assuming those opportunities compete for capital.

A good planning assumption for us going forward is that we would drill roughly two wells per year for the next several years that again is focused on both of those tie backs and new new hub class opportunities.

With Huron being the first out of the gate again very encouraging results in.

And here on particularly for that Northern Green Canyon.

Basin, where we have a very competitive lease hold there. So we're pretty excited about that.

Great. Thank you.

Thank you.

Next question comes from Ryan Todd with Piper Sandler Your line is now open.

Great and maybe just a couple of quick follow ups on earlier questions.

On the Gulf of Mexico, as you were talking about a medium term strategy you were too.

I know this better than a lot of things, but if you were to do that plan a couple wells a year.

The general outlook that you would probably hold production flat there over the medium term in the Gulf of Mexico that you could drive.

Modest growth or how do you think about it.

As you look at it over the next few years, the sort of trajectory of production there in the Gulf of Mexico.

Yes, Greg.

Sure sure I think for the next couple of years, you could assume our objective is really to hold it flat.

And we will do that through these <unk>.

Sales in Io.

<unk> infrastructure led exploration wells that are quick tie backs.

Beyond that we're also going to be doing some hub class exploration prospects, obviously those wouldn't feature those wouldn't come in as growth until later.

In that period, so short term hold it flat as a minimum longer term grow it assuming success from some of these have glass exploration prospects.

Perfect. Thanks, Craig and then maybe.

A follow up on an earlier comment you talked a little bit about the dividend.

The desire to grow it to a position of competitiveness.

How would you define <unk>.

The increase in materially earlier this year, but how would you define the competitive dividend what peer group are you looking at.

And any thoughts on kind of the timetable of.

Over which you'd like to grow that dividend too.

Kind of a sustainable level, where you'd like it to be.

I'm going to have John answer it, but I think the way to think about it as a sustainable.

And meaningful premium to the S&P dividend yield that's what we're really looking at we want to compete.

For the generalist investor not just the oil and gas investor, but we want it to be something that.

Also holds up under low oil prices, but John why don't you elaborate a little bit what our plans are.

Sure. So I mean, John did gives us a good explanation on that but that's clearly what we're looking to do continual increases here and John did mentioned it that we'd like to get our dividend to a level that is attractive to the income oriented investors. So I think yield.

Yield is an output, but you can think about the yield that the income oriented investors are looking at so with our ability here again as I mentioned Bakken growing to 200000 barrels a day and then Guyana.

<unk> coming in late 2023 and then.

Most of that Sps, So a year here as we move out. The next couple of years, we're going to have a significant free cash flow that we're able to continue to increase the dividend and we can kind of move that dividend as our cash flow grows but actually the bigger part of our return will be share repurchases because that growing free cash.

So when you put that 75% against that as we will grow that dividend, we want to make it sustainable in a low oil price environment, but the bigger portion ultimately will be share repurchases.

Yeah.

Alright, Thanks John .

Thank you.

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

Good morning team had a couple of questions on the macro and the first is around price realizations. They were good in the quarter and John you had made the comment that.

What we see in the financial market.

Might be lower than what youre, realizing in the physical market, but can you just talk about that divergence and whether youre able to realize something higher than the current price.

Yes.

Obviously this changes as you know Neal it's a great question every day.

But what we've been seeing really for the last two months as buyers or.

Physical Brent or physical Brent equivalents.

Several dollars a barrel premium over the screen or the futures market.

There is strong buying that's out there obviously not.

Not just because the world is short inventory and needs the current barrels, but obviously, what's going on in Russia and Europe .

Tighten the market even more what you are seeing more in the Brent price than you are in the WTO price on the screen, but several dollars a barrel I think is a good planning assumption for now.

And what.

You just have to see how the market evolves between now and the end of the year. One of the concerns. We have is obviously have more barrels are taken out of Russia, I think Russia is down in.

In terms of their exports about 1 million barrels a day if that number grows in the EU is talking about sanctioning the more of those barrels.

That physical premium will go up.

Thanks, John and then the follow up is on natural gas and so would just love your perspective.

On how youre thinking about U S natural gas in particular.

And if anything structurally changed in your view of mid cycle and then as it relates to your hedging position remind us.

How open you are over the next couple of years can you participate in the strengthening commodity Kurt. Thank you, Ken I'll have John handle the hedging and natural gas obviously.

It is being impacted.

Specifically in Europe .

And the LNG.

The trading business.

Because.

Europe is about 40%.

Their supply from Russia, obviously that continues to be interrupted very concerns about its availability going into.

But winter.

We're also starting to see the EU in European countries start to ration.

Gas and that's having an impact on the European price the Asian price because of the LNG factor and I think the U S has been relatively insulated from that because of shale gas.

Domestic production as well as the Freeport.

Terminal.

Having had its problems and when that recovers so.

I think the numbers for.

Natural gas in Europe , or somewhere between 50 and $60.

An mcf where in the U S. It's closer to nine so the U S is still up but it's much slower than the rest of the world in part because where energy independent where in their export or so.

I think as you think about natural gas going into the winter that's going to stay very tight both in the U S and even more so in Europe and Asia.

When you look past that I think a lot of that is a function of windows.

The Russia, Ukraine conflict get resolved God willing sooner than later.

We're lives are saved.

On both sides for that matter.

And then I think the natural gas business will start to normalize there's plenty of natural gas out there.

But it has to be falling for inventories to rebuild so that.

You get more back to equilibrium prices, but we see the natural gas market both in the U S and the rest of the world staying tight certainly through this coming winter John do you want to hit the hedging question.

Sure. So for hedges for next year, we do not have any hedges on in 2023 or beyond at this point now you know our strategy and you should assume that we'll continue with that strategy is to put a floor price on so as we get to the end of the year will use puts obviously with where volatility is that from everything.

That John has been discussing on this call.

And also just the time aspect.

The put options will be putting them on closer to the end of the year or early into next year. That's typically the timeframe that we that we do that but we do want to put a floor on you can expect us to do that again next year and years. After two just again to provide that insurance.

Should prices should there be a change should there be a recession or something happening that drops those prices, but we will do that towards the end of the year.

Thanks, Steve.

Thank you.

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

Yes, Thank you and good morning.

Good morning.

Yes.

Maybe just a follow up on some of the last discoveries hearing kiana and some of the stuff before where are you in terms of drill stem test flow rate test things like that as we try to think about.

Some of the things that will eventually raise more than likely raised 11 billion barrel resource targets out there.

Hey, Greg.

Yeah. So.

As we said these two discoveries see Bob and Keira, Cara, which are still underway. So those will be additive to the already announced 11 billion barrels gross recoverable hydrocarbons.

I think the significant part.

About these discoveries is why they are where they are so encouraging is that if you look at see Bob.

That is leading to a potential inboard oil play in the southeastern part of the Stabroek block and in fact, as we look forward.

Our next two wells Euro and banjo will help further delineate that inboard oil opportunities. So there could be a another FTE oily fpss.

Centered around that inboard oil play.

So as you mentioned.

After we get these wells done, we'll do some DSD et cetera, and I'm really trying to.

Prove up really that that inboard oil play so very very exciting.

Yes.

And it's been that way for several years now it's good to see it keep you Allen.

The other question if I could just kind of going back to the inflation question as you're starting to look and I understand all the things that are out there recession et cetera, but let's assume.

The crude strip is right, we're going to continue to see activity and probably some inflation next year, where are you at this point in terms of getting a good handle on what 2023 underlying inflation might be in terms of you talked about <unk> already but lower 48 Gulf of Mexico.

Yes, John you want to answer the other part.

Sure. So I mean, we are seeing Roger that just like our competitors, we're seeing upward pressure onshore and offshore.

With steel prices labor costs and rig rates. So there is no question. We are seeing that so as you mentioned, we talked about Guyana. So onshore you heard Greg mentioned that the D&C costs did go from six two to $6. Three this year, we are seeing inflation.

Coming from 2023, these things continuing so I can't give the number that's why we'll wait to the end of the year, but you should expect that six three to be higher in 2023, when we get the full numbers in again, we're working hard to mitigate the effects through efficiency gains.

Working with our suppliers contracts in all of our relationships there and.

With the.

The strength of the oil prices like you mentioned I still think with that tightness going into 2023, we will continue to see that.

But of course with the higher oil prices, obviously were getting much higher returns and cash flow. So I can't be exactly specific thats, what I said earlier, but it will continue to work the contracts through the end of the year and ill update everyone on our January call and I think Roger the other thing is Greg and his team moved.

Expeditiously.

Secure.

Al.

Excellent equipment.

With neighbors and also with cruise with.

Halliburton as well so so some of our competitors I don't think are as well positioned as we are.

To have high quality equipment and people.

And I think that will inure to our benefit.

As we go into next year to mitigate the cost pressures plus the fact that Greg and his team are leaders in lean manufacturing and.

Have a proven track record of mitigating cost increases so the exact number as John said, we will give you at the end of the year, but I think we're staying ahead of it and taking steps to mitigate whatever that impact is.

I appreciate it thank you.

Thank you.

Our next question comes from Dan <unk> with Mizuho. Your line is now open.

Hey, Thanks for getting me on.

The first question was just on Debottlenecking work at Liza Phase one.

Was just wondering if you could remind me about the investment required to get the.

Just 20000 barrels extra online and then probably more importantly, your ability to carryover similar debottlenecking work to our future projects.

Greg.

Yes, sure so the investment level to get to that new nameplate of that new capacity.

<unk> 140 <unk>.

In barrels a day from the $1 20 on phase one very minimal.

I mean this was some piping changes et cetera. So you shouldn't think about that as a major investment.

On phase one as we look forward to future phases certainly.

In phase two and also by our I think we could see the potential for additional debottlenecking.

For those two vessels.

And that is your vessels get bigger say the $2 50 class, we will have to wait and see and I think the important thing to remember about these debottlenecking efforts is it's going to be bespoke.

For each vessel so its going to depend on the individual dynamics.

That vessel operating as to how much additional capacity you can eke out of it so.

So.

Hopefully that answered your question.

Great. Thanks, and the second one was just back to cash return and a regular dividend I mean, obviously the investment profile and the capital intensity of Guyana, Belton quite a bit different from U S. Unconventional just wondering how this affects your thinking on regular dividends and if you think that the regular or the base dividend is one way that you.

Can ultimately differentiate from your peer group and E&P. Thanks, Yes.

Yes, we certainly intend to increase the dividend each year.

<unk>.

At a moderate pace.

But one that builds value over time that will be sustainable but also meaningful.

I appreciate it thanks guys. Thank you.

Thank you.

Our next question comes from David <unk> with Cowen. Your line is now open.

Yeah.

Thanks, guys for fitting me in I really only had I think one additional follow up to some of the other questions that were answered already.

As we think about you've thrown out the 200000, a day target in the Bakken.

As most optimal.

A level of performance for the asset just given some of the inflation that we're seeing there.

Some of the inflation that we're seeing both on the unit cost size is 200 is still the right number and.

Is there does that still steady state four rig program or just given the move in higher pricing. If we were to believe in the long term price that is higher given some of the inflation do all of these numbers move slightly higher yes.

Yes, Greg.

No look I think if you would.

Look at our portfolio, we've got 2100 <unk>.

We're more drilling locations that generate great returns at a $60 to $60 Adobe Ti so.

Obviously at current prices those returns are fantastic right and so certainly the movement in the oil price.

Return standpoint is outstripping any inflationary effects and the 200000 barrel a day kind of plateau rate if you will for the Bakken.

Absolutely the optimum place to be because it really fills up all the infrastructure that we have in place in the Bakken. So you need to think about.

Future wells as almost like a tieback in the Gulf of Mexico. The infrastructure is already there. So the incremental returns are very high.

For those Bakken wells, so we'll hold that with the portfolio. We have we will hold that for rigs.

And be able to hold that plateau.

200000 barrels a day for almost a decade.

All the while the general the Bakken generating significant amounts of free cash flow.

During that period, so at $60 that generates over $1 billion of free cash flow.

At current prices much higher.

So it becomes this massive cash annuity.

For the portfolio at that 200000 barrels a day.

I appreciate the response, Greg Thank you guys.

Thank you.

Thank you very much.

This concludes today's conference. Thank you for your participation you may now disconnect all the while the general the Bakken Jim.

The conference will begin shortly to raise your hand during Q&A you can dial one one.

[music].

Yes.

Okay.

Yes.

Okay.

[music].

Yes.

Okay.

[music].

Uh huh.

Okay.

[music].

Okay.

[music].

Good day, ladies and gentlemen, and welcome to the second quarter 2022, Hess Corporation Conference call. My name is Liz and I'll be your operator for today.

At this time all participants are in listen only mode. Later, we will conduct a question and answer session.

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.

Yeah.

Good morning, everyone and thank you for participating in our second quarter earnings Conference call. Our earnings release was issued this morning and appears on our website www Dot Hess Dot 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.

These risks include those set forth in the risk factor sections of <unk>.

<unk> 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.

In case, there are any audio issues issues. We also will be posting transcripts of each speaker's prepared remarks on www Dot Hess dot com following the presentation.

I'll now turn the call over to John Hess.

Tight for example to biophysical Brent cargo crude buyers today have to pay a cash premium of at least several dollars per barrel.

We are in unprecedented times for the financial markets and for the oil markets in both markets, we have experienced a demand shock and a supply shock the global economy shutdown in 2020.

And it has taken approximately two years to recover in terms of global oil demand. There has been a V shaped recovery due to various government financial stimulus programs and accommodative monetary policies global oil demand has returned to pre COVID-19 levels of approximately 100 million barrels per day on the other hand.

Global oil supply has seen more of a U shape recovery global oil supply has been struggling to keep up with demand predominantly as a result of more than five years of industry under investment as.

As we look to the second half of the year, we expect all global oil demand to increase by one to one and a half million barrels per day as a result of China's economy reopening after COVID-19 lockdowns and increasing aircraft will.

In terms of global oil supply while shale producers have enabled the U S to grow oil production by approximately 1 million barrels per day over the year.

And the last year, there is very little spare capacity left in the world with demand growing supply lagging and the potential for further sanctions on Russia oil exports, we expect the tight global oil market to get even tighter over the balance of the year.

In a world that needs a reliable low cost oil and gas resources now and for decades to come Hess is in a very strong position offering a highly differentiated value proposition for our investors. Our strategy is to continue delivering high resource growth a low cost of supply.

And industry, leading cash flow growth, while at the same time, maintaining our industry leadership in environmental social and governance performance and disclosure.

Our successful execution of this strategy has uniquely positioned our company to deliver value to shareholders now and for years to come both by growing intrinsic value and by growing cash returns.

<unk> locations in the Bakken, we can deliver highly profitable production growth of more than 10% annually over the next five years.

In terms of cash flow growth, we have an industry leading rate of change and industry, leading durability story.

Based upon a flat Brent oil price of $65 per barrel, our cash flow is forecast to increase by approximately 25% annually between 2021 and 2026 more than twice as fast as our topline growth our balance sheet will also continue to strengthen in the coming years with debt to EBITDAX.

The decline from less than two times in 2022 to under one time in 2024.

And we intend to opportunistically repurchase the remaining amount by year end.

Looking ahead, 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 share repurchases will represent a growing proportion of our return of capital.

127, with a gross production capacity of more than 1 million barrels of oil per day and up to 10 F. Dsos to develop the discovered resources on the block in terms of our sanctioned oil developments production at the Liza Phase one development. It has reached its new production capacity of more than 140000 gross barrels.

Of oil per day in the second quarter following production optimization work on the Liza Destiny BSO.

The Liza phase two development, which achieved first oil in February reached its gross production capacity of approximately 220000 barrels of oil per day earlier this month.

Our third development on the Stabroek block at the <unk> field with a gross production capacity of approximately 220000 barrels of oil per day is on track for startup in late 2023.

In early April we announced sanction of yellow tail, which will be the largest development to date on the stabroek block. The project will develop an estimated recoverable resource base of approximately 925 million barrels of oil and to have a gross production capacity of approximately 250000 barrels of oil per day.

With first oil expected in 2025 front.

Front end engineering and design work for our fifth development at Wawa Mako is underway with a plan of development are expected to be submitted to the government by year end.

In terms of exploration and appraisal in Guyana, we continue to invest in an active program with approximately 12 wells planned for the Stabroek block in 2022 yesterday, we announced two new discoveries on the block at the sea, Bob One and <unk>, one wells, bringing our total this year to seven these discoveries.

<unk> will add to the previously announced gross discovered recoverable resource estimate for the Stabroek block of approximately 11 billion barrels of oil equivalent and.

And we continue to see multibillion barrels of future exploration potential remaining.

Now turning to the Bakken our largest operated asset we have an industry leading position with approximately 460000 net acres in the core of the play severe.

Severe weather in April and May cause widespread power outages lasting four to six weeks and production shut ins throughout North Dakota production.

This month, which will allow us to achieve net production of approximately 200000 barrels.

Of oil equivalent per day in 2020 for a level, which will maximize free cash flow generation lower our unit cash cost and optimize our infrastructure.

As we continue to execute our strategy, we are dedicated to maintaining our industry leadership in environmental social and governance performance and disclosure on Monday, we announced the publication of our 2005th annual sustainability report demonstrating our long standing commitment to sustainability and transparency, we continue to be rare.

<unk> is an industry leader for the quality of our ESG performance and disclosure.

Social responsibility is a fundamental part of our sustainability commitment.

Earlier this month, we announced a multi year national health care initiative.

The government of Guyana, and Mount Sinai Health system to provide access to affordable and high quality healthcare, which is central to the government's vision for long term shared prosperity for the people of Guyana.

Quarter commenced a share repurchase program, reflecting the financial strength of our business and our commitments to shareholders as our portfolio becomes increasingly free cash flow positive. We will continue both to invest to grow our company's intrinsic value and to increase the return of capital to our shareholders through further development.

And increases in share repurchases I will now turn the call over to Greg Hill for an operational update.

Thanks, John .

The second quarter, we experienced continued weather impacts in the Bakken and ramp up of Liza phase two that was modestly slower than expected.

Net production was up 10% from the first quarter and we anticipate companywide net production to continue to build in the second half of the year as we bring more wells online in the Bakken and Liza phase two operate at nameplate capacity.

In the second quarter.

Company wide net production averaged 303000 barrels of oil equivalent per day, excluding Libya.

In the third quarter, we expect company wide net production to increase by approximately 10% from the second quarter and to average between 330000 and 335000 barrels of oil equivalent per day, excluding Libya.

In the fourth quarter company wide net production is expected to further increase to between 365003.

370000 barrels of oil equivalent per day, excluding Libya.

For the full year 2022, we now forecast net production to average approximately 320000 barrels of oil equivalent per day, excluding Libya.

Turning to the Bakken second.

Second quarter net production averaged 140000 barrels of oil equivalent per day. This was in line with our guidance and reflected the impact of severe weather in April and May.

Production is now recovering and is expected to increase to between 155000 and 160000 barrels of oil equivalent per day in the third quarter.

For the fourth quarter, we forecast net production to further increase to between 160000 and 165000 barrels of oil equivalent per day.

For the full year 2022, we now forecast Bakken net production to average between 150000.

155000 barrels of oil equivalent per day. This reflects a volume reduction of approximately 7000 barrels of oil equivalent per day under our percentage of proceeds contracts as a result of higher NGL prices.

Although NGL volume entitlements are lower overall cash flow is substantially higher.

In terms of drilling and completion costs, we're continuing to see upward pressure across our supply chains, particularly in oil country tubular goods.

As a result, we have increased our full year average drilling and completion cost forecast by $100000 per well through averaged $6 3 million per well in 2022.

I am proud of our team's effectiveness and mitigating the impacts of inflation tight supply change.

Largely through our distinctive lean culture.

While we believe the industry is experiencing overall inflation of between 15 and 20% our full year drilling and completion costs are forecast to increase by only about eight 5% year over year.

In the second quarter, we drilled 20 wells and brought 19, new wells online.

The second quarter weather related delays in mobilizing equipment.

Individual well results in terms of <unk>, and <unk> continued to meet or exceed expectations.

Earlier this month, we added a fourth drilling rig in the Bakken through our strategic partnerships with neighbors and Halliburton.

We were able to secure a fully staffed high spec pace X class rig and a second completion crew.

Moving to a four rig program will allow us to grow net production to approximately 200000 barrels of oil equivalent per day in 2024.

Which will optimize our in basin infrastructure and drive further reductions in our unit cash cost.

Now moving to the offshore in the deepwater Gulf of Mexico second quarter net production averaged 29000 barrels of oil equivalent per day.

Compared to our guidance.

Approximately 30000 barrels of oil equivalent per day.

In the third quarter, we forecast Gulf of Mexico net production to average between 25030 5000 barrels of oil equivalent per day.

Reflecting planned downtime at tubular bells and.

Penn State wells being shut in due to a mechanical issue.

This downtime will be partially offset by the planned startup of the Llanos fixed high back in August , which logged 123 feet of high quality Miocene pay.

For the full year 2022, our forecast for Gulf of Mexico. Net production is now approximately 30000 barrels of oil equivalent per day.

In June we completed drilling operations on the Heron prospect on Green Canyon block 69 with encouraging results.

The operator with a 40% working interest in Chevron and shell <unk>, 30%.

And southeast Asia net production in the second quarter was 67000 barrels of oil equivalent per day compared to our guidance of approximately 65000 barrels of oil equivalent per day.

Three of the North Malay Basin development came online in June and is producing above expectations and phase four is on track to achieve first gas in early 2023.

Third quarter net production is forecast to average approximately 55000 barrels of oil equivalent per day, reflecting planned maintenance at both <unk> and North Malay basin.

Full year 2022 production is expected to average between 60000 65000 barrels of oil equivalent per day.

Now turning to Guyana.

In the second quarter net production averaged 67000 barrels of oil per day.

<unk> a modest delay in the ramp up of Liza phase II.

Overall, the startup has been very successful in.

In July Liza Phase II reached its nameplate capacity of 220000 barrels of oil per day or about 56000 barrels of oil per day net to Hess.

For Liza Phase one production optimization work was completed in the second quarter and the BSO is now operating at or above its new gross production capacity of 140000 barrels of oil per day.

Earlier this month.

Offshore also completed the replacement of the flash gas compressor, which has resulted in high reliability in zero routine flaring.

Third quarter net production from Guyana is forecast to increase to a range of 90000 to.

The 95000 barrels of oil per day, and average approximately 75000 barrels of oil per day for the full year 2022.

With regard to our third development of <unk>.

Topside fabrication and installation on the prosperity PSM is well underway in Singapore and development drilling in Guyana continues at pace.

Project, which will have a gross production capacity of 220000 barrels of oil per day is now more than 80% complete and is well on track to achieve first oil in late 2023.

In April we sanctioned a fourth development at the yellow tail.

We will develop approximately 925 million barrels of oil.

And have a breakeven Brent oil price of approximately $29 per barrel.

The project will have a gross.

<unk> capacity of 200200 50000 barrels of oil per day.

It's on track to achieve first oil in 2025.

As for our fifth development at Wahoo, and Mako, the operator anticipates submitting the plan of development to the government of Guyana in the fourth quarter with first oil targeted for 2026 pending government approvals and project sanctioning.

Turning to exploration yesterday, we announced two new discoveries on the Stabroek block.

Bob one well encountered 131 feet of high quality oil bearing upper campaigning sandstone reservoirs.

The well is located in the southeastern part of the block.

<unk> 12 miles southeast of the Yellowtail field.

The <unk> one well has also doesn't thus far encountered 98 feet of high quality hydrocarbon bearing upper campaigning and sandstone reservoirs.

The well is currently drilling ahead to test deeper Antivirals and is located in the southeastern part of the block.

Approximately three miles southeast of the Cabot back one discovery.

Both discoveries will add to the gross discovered recoverable resource estimate for the block.

<unk> 11 billion barrels of oil equivalent.

Yeah.

In terms of future drilling activity on the Stabroek block.

Next up in the queue, our euro and banjo the euro one well will test stacked upper campaigning and targets.

Tip of discoveries whiptail until lumpy in.

The well is located 19 miles south of the Yellowtail, one discovery well.

The banjo, one well will also target stacked upper campaigning targets west bear lie and update the Mako.

The well is located eight miles northwest of the barrel one discovery well.

These wells will appraise the development potential of the inboard oil play in the southeastern portion of the block.

In addition on block 42 in Suriname, we will participate in the Zander I one exploration well.

The shell operated wells expected to spud in late August and we will test both upper campaigning and deeper plays stack targets.

Chevron and shell each have a one third working interest.

<unk>.

In closing.

Our Bakken assets are now recovering from the severe weather impacts experienced in the first half of the year and we expect to see steady production growth in the coming quarters, particularly with the addition of the fourth rig we had positive drilling results in the Gulf of Mexico at both <unk> and Heron and have a robust inventory of both infrastructure.

<unk> led tieback opportunities and exploration prospects.

Asia continues to generate steady production and cash flow and our extraordinary success in Guyana continues on all fronts.

These long life portfolio uniquely positions us to deliver material and accelerating production and free cash flow growth and significant value to our shareholders I will now turn the call over to Sean Reilly.

Thanks, Greg in my remarks today, I will compare results from the second quarter of 2022 to the first quarter of 2022.

We had net income of $667 million in the second quarter compared with $417 million in the first quarter or $404 million on an adjusted basis.

Turning to E&P.

<unk> had net income of $723 million in the second quarter compared with $460 million in the first quarter.

The changes in the after tax components of E&P earnings between the second quarter and first quarter of 2022, whereas follows.

Higher realized selling prices increased earnings by $178 million.

Higher sales volumes increased earnings by $170 million.

Higher DD&A expense decreased earnings by $39 million higher cash costs decreased earnings by $39 million. All other items decreased earnings by $7 million for an overall increase in second quarter earnings of $263 million.

For the second quarter, our E&P sales volumes were under lifted compared with production by approximately 500000 barrels which decreased our after tax income by approximately $15 million.

Turning to midstream.

The midstream segment had net income of $65 million in the second quarter of 2022, compared with $72 million in the first quarter.

Midstream EBITDA before Noncontrolling interest was $241 million in both the second quarter and first quarter of 2022.

Turning to our financial position at quarter end, excluding midstream cash and cash equivalents were $2 $1 6 billion and total liquidity was $5 $7 3 billion, including available committed credit facilities, while debt and finance lease obligations totaled $5 six.

$1 billion.

In April we received total net proceeds of $346 million from the public offering of approximately $5 1 million has shown class a shares of Hess midstream and.

And the sale of approximately $6 8 million Hess on class B units to Hess midstream.

We intend to utilize the remaining amount under the stock repurchase program by the end of this year.

Total cash returned to shareholders in the second quarter amounted to $306 million, including.

Including dividends.

Net cash provided by operating activities before changes in working capital was $1 $4 6 billion in the second quarter compared with $952 million in the first quarter.

Merrily due to higher realized selling prices and sales volumes in the second quarter. We sold six 1 million barrel cargoes of crude oil in Guyana up from sales of $2 3 million barrels of crude oil in the first quarter.

Changes in operating assets and liabilities during the second quarter of 2022 increased cash flow from operating activities by $46 million.

E&P capital and exploratory expenditures were $622 million in the second quarter and $580 million in the first quarter.

In June Moody's Investor services upgraded our senior unsecured ratings of Hess Corporation to be a three from VA one.

All three major credit agencies now rate has is investment grade.

In July we replaced our $3 5 billion revolving credit facility expiring in May 2024, with a new 325 billion revolving credit facility expiring in July 2027.

Now turning to guidance first for E&P.

Beginning in the third quarter, we will use the remainder of the previously generated Guyana net operating loss carryforwards. As a result, we will start to incur at current income tax liability, our third quarter, Guyana net production guidance of 90% to 95000 barrels of oil per day includes approximately 7000 barrels of oil.

Per day of tax barrels.

Our full year 2022, Guyana net production guidance of approximately 75000 barrels of oil per day includes approximately 6000 barrels of oil per day of tax barrels there.

There were no tax barrels in the first or second quarters.

In both the third and fourth quarter of this year, we expect to sell eight 1 million barrel lifting from Guyana.

Our E&P cash costs in the second quarter of 2022 were $13 90 per barrel of oil equivalent, including Libya, and $14 56 per barrel of oil equivalent excluding Libya.

DD&A expense was $11 79 per barrel of oil equivalent including Libya.

And $12 34 per barrel of oil equivalent excluding Libya in the second quarter.

DD&A expense, excluding Libya is forecast to be in the range of 13 to $13 50 per barrel of oil equivalent for the third quarter and $12 50 to $13 per barrel of oil equivalent for the full year.

Which is updated from the prior guidance of $11 50 to $12 50 per barrel of oil equivalent.

This results in projected total E&P unit operating costs, excluding Libya to be in the range of 27% to $28 per barrel of oil equivalent for the third quarter and 26 to $27 per barrel of oil equivalent for the full year 2022.

The midstream tariff is projected to be in the range of 305 to $315 for the third quarter and full year guidance of $1 billion $190 million to $1 billion and $215 million remains unchanged.

E&P income tax excluding Libya is expected to be in the range of $170 million to $180 million for the third quarter and in the range of $540 million to $550 million for the full year, which is up from the previous guidance range of $460 to $470 million, primarily due to higher commodity prices.

We expect non cash option premium amortization, which will be reflected in our realized selling prices will be approximately $165 million for both the third and fourth quarters.

Our E&P capital and exploratory expenditures are expected to be approximately $750 million in the third quarter and approximately $2 7 billion for the full year, which is down from previous guidance of $2 $8 billion that I referenced in our last conference call.

The reduction is due to the phasing out of activities in the Bakken and efficiencies across the portfolio.

For midstream.

We anticipate net income attributable to Hess from the midstream segment to be in the range of $60 million to $65 million for the third quarter. The full year guidance range of $265 million to $275 million remains unchanged.

For corporate corporate expenses are estimated to be approximately $40 million for the third quarter and in the range of $135 to $145 million for the full year, which is up from previous guidance of $120 million to $130 million due to higher legal and professional fees.

Interest expense is estimated to be approximately $85 million for the third quarter and in the range of $345 to $350 million for the full year, which is in the lower end of our previous guidance range.

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 a question. Please press star followed by one on your phone.

Questions will be taken in the order received please press star one to begin.

Our first question comes from Arun Jairam with Jpmorgan. Your line is now open.

Yes, good morning, John I wanted to start with cash return.

This quarter.

You returned about 20% of your CFO , including dividends and the buyback.

And you acknowledge your plan too.

Go ahead and complete.

The remaining authorization, which would point to about $460 million of buybacks.

Plus the dividend I'm wondering as we think about your capital return framework, which includes the return of up to 75% of your free cash flow how should we think about the pace of buybacks as we approach 2023.

Yeah, John Reilly.

Yes. Thanks, Irina So just just to remind you what are the capital return framework is our framework is set up on an annual basis. So we look at our annual free cash flow.

So that we can give more than 75% this year with this favorable commodity price environment and so then come into 2023, you really should think about but we just are starting this capital return program. This is just the beginning and we plan to continue with so as we move into 2023, we are committed to that 75% framework.

Again, if commodity prices are favorable we can do more than that next year, but.

You begin to think this is going to be a continued program and just remember now with Bakken as we said Thats go into 200000 barrels a day, Guyana is going to be bringing on an S. PSL almost once a year here for the for the coming years. So we're going to have a growing free cash flow. So that's 5% is going to be going on a bigger and bigger number as we move out so I think.

That's the strategic framework, you should be thinking about.

Great and maybe generally a follow up for you.

$2 7 billion in Capex.

Update a little bit lower than you told us last quarter I was wondering if you could just provide us maybe some source commentary around 2023, Capex. If you sustain four rigs in the Bakken and continue your.

Indeed program in Guyana.

Go ahead, John Thank you for the thank you for the soft guidance, then Arun because thats. So that's what we'll do as usual we will provide full guidance in January because we do have some moving parts like you said, but with the fourth rig in the Bakken and look we did have some phasing of activities that are moving into 2023, you can at least expect an additional 100.

$50 million plus from the Bakken and this is before inflation, which I'll talk about a little bit at the end.

So the Bakken will be increasing with that fourth rig some of the phasing as well. So you can think about that $150 million in Guyana, you know, we've got a lot of things going on so I did say this in the first quarter. It is clearly going to be about 700, several hundred million dollars more in Guyana, because we'd be developing pie RF right, we're bringing that.

In late 2023, we've got to develop with yellow tail.

The fifth PSL, which Greg mentioned, Wahoo and Mako and we also have the gas to energy project going on in Guyana, So against several hundred million dollars more for Guyana, but we'll fine tune that as we go through the year also as you heard Greg mentioned, we had success at <unk>.

Youre on well in the Gulf of Mexico will.

We will be looking at what we're doing from an appraisal standpoint, and what our Gulf of Mexico program, which typically as we had mentioned we'd like to get some of these infrastructure led tie backs done as well as greenfield. So we will be having some increase in Gulf of Mexico for 2023, and then I mentioned and of course, we are monitoring the industry inflation, we are seeing.

Greg mentioned, what's happening with our D&C costs in Bakken, we are seeing it in rig rates labor steel costs. So we will continue to be looking at that and we will fine tune. It as we get to the end of the year, but kind of soft those are that those are the kind of numbers you can be looking at around.

And what about the Fps. So have you all made a determination with Exxon uncapped on buying those on your buy option.

No that has not been finally determined yet arun the timing the guidance I would give you right now is not to expect just in 2023, so if you're putting in your models don't put one in 2023 I would expect one in early 2024, but again, it's still early days, we do not.

Have that finalized yet.

Great. Thanks, John .

Thank you Youre welcome.

Thank you.

Our next question comes from Doug Leggate with Bank of America. Your line is now open.

Thanks, Good morning, everyone. Good morning, I guess.

Could I go to the Bakken.

Obviously the <unk>.

Given that for Ya clearly thorough explanation as to what's.

What's been going on there with weather and productivity and so on but I wanted to ask you about any any thoughts on the trajectory to 200000 Boes a day is there any reason why we should be.

Rethinking the timeline are you still confident not on what is your updated thoughts on the trajectory to get there.

Yes, Greg.

No Doug I think I think we're back on track in the Bakken we're back on that trajectory.

As I mentioned in my opening remarks, we expect the third quarter to be up 10% in the fourth quarter to be up 10% from that and then you really see the fourth rig start to kick in because youll start completing wells from that fourth rig in 2023. So that's why we're saying we'll have this steady increase trajectory to 200.

<unk> thousand barrels a day, which we expect to hit in 2024.

So it should be a smooth ramp from here.

Okay. Thanks, Greg I, just wanted to kind of address the front.

My follow up.

I'll leave everyone else the Moscow in Guyana today, Greg I wanted to ask you about crude on this this is.

Perhaps a little bit more material news and perhaps the.

Yes.

Sure.

Comments might suggest can you give us a little bit more color on pre drill scale.

On your site tracking one assumes that you are pretty encouraged with what youre seeing so what was the pre drill target here and what is it what is this.

I know you've talked about one potential hub development.

Exploration well per year going forward does this does this qualify as essential hub development.

Hey, Greg well, let me talk about yes, let me talk about the well first so.

It was drilled on Green Canyon block 69 to a depth of 28900 feet.

And the rig was released on June 14th of 2022, So as I mentioned in my opening remarks, the prospect targeted a new Miocene sub salt fairway in Northern Green Canyon reason, we're really encouraged by the results that we discovered.

Good high quality oil in good quality Miocene sands.

And we as I did mention we're also planning an appraisal sidetrack dip on that well I think the second thing that's really exciting about it as a result as a result of what we're seeing in here on we see additional prospectively in that northern Marine can Eric Green Canyon area, and we have a very.

Vantiv leasehold position there so two positive outcomes from hereon Doug.

Doug We don't we don't release pre drill estimates.

The well is still under evaluation. So further information coming as we appraise that asset.

Yes.

I would just add to that I mean, we're encouraged by the prospect tariff activity.

In this area.

The fact that there is a working petroleum system, so theres going to be further drilling and appraisal ahead of us and we're encouraged by it.

If I may very quickly, Greg you say youre going to do an uptick appraisal did you have an oil water contact.

Well still under evaluation Doug.

Okay. Thanks.

Thank you.

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

Thank you good morning.

I think that's the first one is for John <unk> John .

The rising.

On recession.

Or does it at all impact on the thinking on your decision process.

You guys decision process on the budget.

John .

Sure. So that's one of the things I mentioned fly has.

<unk> soft guidance on what our budget would be for for next year. We are looking at that obviously there is no change to our base program in the Bakken, we're going to have the four rigs were doing that we want to optimize our infrastructure up there lower our cash cost and it's the best return way to develop the Bakken so.

There won't be any change there.

And so we'll continue to monitor the cost and update everyone on where the budget ends up with that so on a go forward basis, then Guyana again, the plans there unchanged.

Yellow tail getting the fifth ship.

And for FY <unk> tried to get that development plan into the government. So no change there again with Exxon has been doing an excellent job.

Our plan in our original budget and we're not changing that in Guyana. So again Exxon has done a really good job this year, managing managing that inflation and as I said it will be several hundred million dollars more.

But again, we'll see where the inflation ends up and then kind of the new thing because we were just talking about Gulf of Mexico on a program. We are looking at the rig rates and being able to get slots. So that's something again that we will be looking at managing but we do want to do this appraisal. So we talked about and we'd like to do.

A really good job this year, managing managing that inflation and as I said it will be several hundred million dollars more.

But again, we'll see where the inflation ends up and then kind of the new thing because we were just talking about Gulf of Mexico on a program. We are looking at the rig rates.

And being able to get slots. So that's something again that we will be looking at.

And one other point, Paul and it's a good great.

Question I think.

All companies are dealing with this.

Recession risk, even though there is an economic slowdown now we certainly see the market getting tighter for the reasons that I mentioned between now and the end of the year, having said that.

Our board will definitely stress tests, our budget for next year.

Definitely there will be a recession scenario in that and we will definitely be prepared should there be a recession to stay ahead of it to keep the balance sheet strong.

I'm going to be one of the scenarios that the board has with our senior leadership to make sure we're financially disciplined going into next year.

Sure.

Going back to John mandate that you mentioned some activity has been push from this year to next year can you quantify roughly how much.

Sure so.

<unk> mentioned right now with wells online were a little bit down.

I'd say wells online we are only in like say five range of wells online that are going to be moving to next year. Some.

Some of the wells drilled so as Greg mentioned, there were 95 wells, that's actually up from our original guidance of 90, but that didn't include the fourth rig. So the fourth we should have gotten an additional say 14 to 15 wells drilled and so we're only getting five so we've got additional wells that are moving that way.

So you are looking nine or 10 wells to be drilled that are moving to next year five ish kind of wells online.

Moving to next year and just some other small infrastructure type things so altogether.

Probably looking in that $40 million type range that got moved to next year.

Thank you.

Our next question comes from Jeanine Wai with Barclays. Your line is now open.

Hi, good morning, everyone. Thanks for taking our question.

Wondering if you're doing good.

Good morning.

We'd like to follow up on the Gulf of Mexico from Doug's question there.

<unk> been some headlines that some of your partners there are looking to monetize their interest and one of your fields and it sounds like you're very positive on the golf in the near term I know you just mentioned increasing activity in 'twenty three in your side tracking well.

Can you generally discuss what your medium term plan is in terms of activity in the Gulf and then our follow up is on what's your appetite to grow your position there. Thank you.

Greg why would appreciate it if you just go over our strategy.

The role is they're all fit our portfolio.

Exploration acreage that we have.

And I can comment on the M&A side, the Janine in the normal course of business, we always look to optimize our portfolio, but we have not seen anything in the market.

Be it in the Gulf War or elsewhere that makes sense for us to do an acquisition, we have better opportunities to invest in our portfolio of high return and low cost investments. So we're much more focused on.

Getting return from the inventory of investment opportunities that we have been looking to the outside we don't need M&A to grow the returns of our business and quite frankly, most of the stuff that we've seen would erode returns mark on all of that is going to do that we're going to stay financially disciplined but Greg can you just talk about the role of the Gulf in our portfolio.

Sure. Thanks, Janine so the Gulf of Mexico for US remains a very important part of the portfolio. It's an important cash engine and it's a platform for growth for us. So our objective in the Gulf is to at a minimum sustained production and cash flow.

Through tieback opportunities and also selecting selectively pursuing hub class exploration opportunities.

If we can grow it we want to.

And as you recall, we've been selectively rebuilding our portfolio in the last five or six years, such that we acquired 60, new lease blocks in the Gulf. We've got over 80 now in our portfolio and that's really a balance of high return tie backs and also hub class new exploration prospects. So.

Assuming those opportunities compete for capital.

Good planning assumption for us going forward is that we would drill roughly two wells per year for the next several years that again is focused on both of those tie backs and new new hub class opportunities.

With Huron being the first out of the gate again very encouraging results in.

And here on particularly for that Northern Green Canyon.

Basin, where we have a very competitive lease hold there. So we're pretty excited about that.

Great. Thank you.

Thank you.

Next question comes from Ryan Todd with Piper Sandler Your line is now open.

Great and maybe just a couple of quick follow ups on earlier questions.

On the Gulf of Mexico, as you were talking about a medium term strategy you were too.

I notice there is a lot of things, but if you were to do that plan a couple wells a year.

It is.

General outlook that you would probably hold production flat there over the medium term in the Gulf of Mexico that you could drive.

Modest growth or how do you think about it.

As you look at it over the next few years, the sort of trajectory of production there in the Gulf of Mexico.

Yes, Greg.

Sure sure I think for the next couple of years, you could assume our objective is really to hold it flat.

And we will do that through these <unk>.

Sales in Io.

<unk> infrastructure led exploration wells that are quick tie backs.

Beyond that we're also going to be doing some hub class exploration prospects, obviously those wouldn't feature those wouldn't come in as growth until later.

In that period, so short term hold it flat as a minimum longer term grow it assuming success from some of these have glass exploration prospects.

Perfect. Thanks, Greg and then maybe.

A follow up on an earlier comment you talked a little bit about the dividend.

The desire to grow it to a position of competitiveness.

How would you define I mean, you've obviously increased materially earlier this year, but how would you define the competitive dividend what peer group or are you looking at.

And any thoughts on kind of the timetable of.

Over which you'd like to grow that dividend too.

And have a sustainable level, where you'd like it to be.

Yes, I'm going to have John answer it, but I think the way to think about it as a sustainable.

And meaningful premium to the S&P dividend yield that's what we're really looking at we want to compete.

For the generalist investor not just the oil and gas investor, but we want it to be something that.

Also holds up under low oil prices, but John why don't you elaborate a little bit what our plans are.

Yield is an output, but you can think about the yield that the income oriented investors are looking at so with our ability here again as I mentioned Bakken growing at 200000 barrels a day and then Guyana.

Coming in late 2023 and then.

When you put that 75% against that as we will grow that dividend, we want to make it sustainable in a low oil price environment, but the bigger portion ultimately will be share repurchases.

Yeah.

Alright, Thanks John .

Thank you.

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

Good morning team I had a couple of questions on the macro.

First is around price realizations. They were good in the quarter and John you had made the comment that.

What we see in the financial market.

Might be lower than what youre, realizing in the physical market, but can you just talk about that divergence and whether youre able to realize something higher than the front.

Yes, I mean, obviously this changes as you know Neal is a great question every day.

But what we've been seeing really for the last two months as buyers or.

Physical Brent or physical Brent equivalents.

Several dollars a barrel premium over the screen or the futures market.

There's strong buying that's out there obviously not.

Not just because the world is short inventory and needs the current barrels, but obviously, what's going on in Russia and Europe .

Tighten the market even more what you are seeing more in the Brent price than you are in the WTO price on the screen, but several dollars a barrel I think is a good planning assumption for now.

And just.

You just have to see how the market evolves between now and the end of the year. One of the concerns. We have is obviously have more barrels are taken.

Out of Russia, I think Russia is down.

In terms of their exports about 1 million barrels a day if that number grows in the EU is talking about sanction more of those barrels.

That physical premium will go up.

Thanks, Shannon the follow up is on natural gas and so would just love your perspective.

On how youre thinking about U S natural gas in particular.

And if anything structurally changed in your view of mid cycle and then as it relates to your hedging position remind us how.

How open you are over the next couple of years and can you participate in the strengthening commodity Kirk. Thank you Ken I'll have John handle the hedging and natural gas obviously.

It is being impacted.

Specifically in Europe .

And the LNG.

The trading business.

Because.

Europe is about 40%.

Their supply from Russia, obviously that continues to be interrupted very concerns about its availability going into.

But winter.

We're also starting to see the EU in European countries start to ration.

Gas and that's having an impact on the European price.

The Asian price because of the LNG factor and I think the U S has been relatively insulated from that because of shale gas.

And domestic production as well as the Freeport.

Terminal.

Having had its problems and when that recovers so.

I think the numbers for <unk>.

Natural gas in Europe , or somewhere between 50 and this is.

$60.

Mcf, where in the U S. It's closer to nine so the U S is still up.

But it's much slower than the rest of the world in part because where energy independent where in their export or so.

I think as you think about natural gas going into the winter that's going to stay very tight both in the U S and even more so in Europe and Asia.

When you look past that I think a lot of that is a function of windows.

The Russia, Ukraine conflict get resolved God willing sooner than later.

Our lives are saved.

On both sides for that matter.

And then I think the natural gas business will start to normalize there's plenty of natural gas out there.

It has to be falling for inventories to rebuild so that.

You get more back to equilibrium prices, but we see the natural gas market both in the U S and the rest of the world staying tight certainly through this coming winter John you want to hit the hedging question.

Has been discussing on this call.

And also that just the time aspect.

Should prices should there be a change should there be a recession or something happening that drops those prices, but we will do that towards the end of the year.

Thanks, Steve.

Thank you.

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

Yes, Thank you and good morning, good morning.

Yes.

Maybe just a follow up on some of the last discoveries hearing kiana and some of the stuff before where are you in terms of drill stem test flow rate test things like that as we try to think about.

Some of the things that will eventually raise more than likely raise the 11 billion barrel resource targets out there.

Yes, Greg.

Yeah. So.

As we said these two discoveries see Bob.

Keira, which are still underway.

Those will be additive to the already announced 11 billion barrels gross recoverable hydrocarbons.

I think the significant part.

These discoveries.

Why are there where they are so encouraging is that if you look at see Bob.

That is leading to a potential inboard oil play in the southeastern part of his favorite block and in fact, as we look forward.

The next two wells Euro and banjo will help further delineate that inboard oil opportunities. So there could be another FTE oily fpss.

Standard down that inboard oil play.

So as you mentioned.

After we get these wells done, we'll do some dst's et cetera, and I'm really trying to.

Prove up really that that inboard oil play so very very exciting.

Yes.

<unk> has been that way for several years now it's good to see it keep you Allen.

The other question if I could just kind of going back to the inflation question as youre, starting to look and I understand all the things that are out there recession et cetera, but let's assume.

Yes, John you want to answer the other part.

Sure. So I mean, we are seeing Roger that just like our competitors, we're seeing upward pressure onshore and offshore.

So I can't give the number that's why we'll wait to the end of the year, but.

Should expect that six three to be higher in 2023, when we get the full numbers in again, we're working hard to mitigate the effects through efficiency gains.

Working with our suppliers contracts in all of our relationships there and.

With the.

The strength of the oil prices like you mentioned I still think with that tightness going into 2023, we will continue to see that.

Lee.

Is secure.

Excellent equipment.

With neighbors and also with cruise with.

Halliburton as well so so some of our competitors I don't think are as well positioned as we are.

To have high quality equipment and people.

And I think that will inure to our benefit as we go into next year to mitigate the cost pressures plus the fact that Greg and his team are leaders in lean manufacturing and <unk>.

A proven track record of mitigating cost increases so the exact number as John said, we will give you at the end of the year, but I think we're staying ahead of it and taking steps to mitigate whatever that impact is.

I appreciate it thank you.

Thank you.

Our next question comes from Tim <unk> with Mizuho. Your line is now open.

Hey, Thanks for getting me on.

The first question was just on Debottlenecking work at Liza Phase one.

I was just wondering if you could remind me about the investment required to get the.

I just wanted to add barrels extra online and then probably more importantly, your ability to carryover of similar debottlenecking work to our future projects.

Greg.

Yeah sure so the investment level to get to that new nameplate of that new capacity to 140000 barrels a day from the $1 20 on phase one very minimal.

I mean this was some piping changes et cetera. So you shouldnt think about that as a major investment.

On phase one.

We look forward to future phases certainly.

In phase two and also I.

I think we could see the potential for additional debottlenecking.

For those two vessels beyond that as your vessels get bigger say the $2 50 class, we will have to wait and see and I think the important thing to remember about these debottlenecking efforts.

Is it going to be bespoke.

For each vessel so its going to depend on the individual dynamics of that vessel operating as to how much additional capacity you can eke out of it.

So.

Hopefully that answered your question.

Great. Thanks, and the second one was just back to cash return and a regular dividend I mean, obviously the investment profile and the capital intensity of Guyana development quite a bit different from U S. Unconventional just wondering how this affects your thinking on regular dividends and if you think that the regular or the base dividend is one way that you.

Can ultimately differentiate from your peer group.

Thanks.

We certainly intend to increase the dividend each year.

Sure.

At a moderate pace.

But one that builds value over time that will be sustainable but also meaningful.

I appreciate it thanks guys. Thank you.

Thank you.

Our next question comes from David <unk> with Cowen. Your line is now open.

Yes.

Thanks, guys for Sydney, and I really only had I think one additional follow up to some of the other questions that were answered already.

But as we think about you've thrown out the 200000, a day target in the Bakken.

As most optimal.

A level of performance for the asset.

Given some of the inflation that we're seeing there.

Some of the inflation that we're seeing both on the unit cost size is 200 is still the right number and is there does that still steady state four rig program or just given the move in higher pricing. If we were to believe in the long term price that is higher given some of the inflation do all of these numbers move slightly higher.

Yes, Greg.

No look I think.

If you look at our portfolio, we've got 2100.

We're more drilling locations that generate great returns at $60 $60 Adobe Ti so.

Obviously at current prices those returns are fantastic right.

And so certainly the movement in the oil price.

From a return standpoint is outstripping any inflationary effects and the 200000 barrel a day kind of plateau rate if you will for the Bakken.

It was absolutely the opt in place to be because it really fills up all the infrastructure that we have in place in the Bakken. So you need to think about.

Future wells as almost like a tieback in the Gulf of Mexico. The infrastructure is already there. So the incremental returns are very high.

Those Bakken wells, so we'll hold that with the portfolio. We have we will hold that for rigs.

And be able to hold that plateau.

At about 200000 barrels a day for almost a decade.

All the while the general the Bakken generating significant amounts of free cash flow.

During that period, so at $60 that generates over $1 billion of free cash flow, obviously at current prices much higher.

So it becomes this massive cash annuity.

For the portfolio at that 200000 barrels a day.

I appreciate the response, Greg Thank you guys.

Thank you.

Thank you very much.

This concludes today's conference. Thank you for your participation you may now disconnect.

Q2 2022 Hess Corp Earnings Call

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