Q2 2023 Hess Corp Earnings Call
Yeah.
Good day, ladies and gentlemen, and welcome to the second quarter 2023, Hess Corporation Conference call. My name is Kevin and I'll be your operator for today at this time all participants are in a 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 call over to Jay Wilson, Vice President of Investor Relations. Please proceed.
Yeah.
Thank you Kevin 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 uncertain certainties that may cause actual results to differ from those expressed or implied in such statements.
These risks include those set forth in the risk factors section of Hess is annual and quarterly reports filed with the SEC shape.
So 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, I will now turn the call over to John Hess.
Thank you Jay welcome everyone to our second quarter conference call today, I will share some thoughts on the energy transition and then discuss our continued progress in executing our strategy then Greg Hill will cover our operations and John Riley will review our financial results first in terms of the energy transition.
It is important to realize that progress has been made toward the goal of the Paris agreement. According to the international Energy agency or the IEA. The global median temperature increase prior to the Paris agreement was 3.5 degree Celsius today. According to the IEA stated policy scenario.
The world is on a trajectory to a median temperature increase of 2.5 degrees. However, much more progress. This were acquired and we currently are not on a path to meeting the Paris Agreement's goal of 1.5 degrees. There are three important gaps affecting the pace of progress first.
The world is facing a structural deficit in energy supply and the key challenge is investment to meet growing energy demand the world needs to invest four trillion dollars each year for the next 10 years in clean energies.
Never going to be more than last year's investment of 1.4 trillion dollars. The world also needs to invest $500 billion each year for the next 10 years in the oil and gas as compared with 300 billion until $400 billion invested annually in the last five years.
Developed countries have a gap between their current pledges and the investments they are making to reach their emission reduction commitments. For example, the United States has pledged a 50% reduction in emissions by 2030, and even with the incentives and the inflation reduction Act, our nation will likely fall far short.
Short of that pledge.
Finally, developing countries are also facing large gaps in their aspirations for emission reductions I recently had the honor of speaking at the Energy Asia Conference in Kuala Lumpur.
Asia represents 50% of the world's population, 50% of global energy use and 50% of global emissions and will therefore play a key role in the energy transition. The conference speakers, both government officials and business leaders made it clear that Asia will need to find the right balance between energy.
Affordability and emission reduction commitments at Cop 28 in December of this year developing countries voices must be hard to address their rights to economic prosperity and a higher standard of living.
The reality is that the energy transition will take a long time.
Cost a lot of money and require many technologies that do not exist today, we must recognize that oil and gas will be needed for decades to come and are fundamental to an orderly just and secure energy transition path.
Policy makers need to have climate literacy energy literacy and economic literacy to enable and net zero future.
In a world that will require reliable low cost oil and gas resources for decades ahead. We believe that has offers a unique value proposition for investors. We continue to execute our strategy to deliver high return resource growth, a low cost of supply and industry, leading cash flow growth.
And at the same time maintain our industry leadership in environmental social and governance performance and disclosure.
In terms of resource growth with multiple phases of Guyana developments coming online and a robust inventory of high return drilling locations in the Bakken, we can deliver highly profitable production growth up more than 10% annually through 2027.
In terms of a low cost of supply as our resource base continues to expand particularly in Guyana, where our first five developments have break evens in the range of $25 to $35 per barrel. Brent we will steadily moved down the cost curve by 2027, we forecast that our cash unit costs well.
Climbed by 25% to approximately $10 per Boe.
In terms of cash flow growth, we have an industry leading rate of change story and an industry, leading duration story, providing a highly differentiated value proposition.
Based upon our flat Brent oil price of $75 per barrel, our cash flow is forecast to increase by approximately 25% annually between 2020, two and 2020 seven more than twice as fast as our topline growth and our balance sheet will also continue to strengthen with our most recent debt to.
Dax ratio at approximately one time.
Successful execution of our strategy has uniquely positioned our company to deliver significant value to shareholders for years to come.
By growing intrinsic value and by growing cash returns 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 in future years share repurchases are expected to represent a growing proportion of our return of capital.
By investing only in high return low cost opportunities, we have built a differentiated imbalance portfolio focused on Guyana.
Deepwater Gulf of Mexico, and Southeast Asia Keith.
Key to our strategy is Guyana, the industry's largest oil province discovered in the last decade, where Hess has a 30% interest and Exxonmobil is the operator since 2015, we have had more than 30 discoveries on the stabroek block underpinning a gross discovered recoverable resource estimate of more of that.
11 billion barrels of oil equivalent with multibillion barrels of exploration potential remaining.
In June we were honored to be named N. P explorer of the year and the 15th annual Wood Mackenzie exploration industry survey for the second consecutive year.
In terms of Guyana developments, we currently have line of sight to six floating production storage and offloading vessels or F. P. S. OS in 2027 with a gross production capacity of more than 1.2 million barrels of oil per day and the potential for up to 10 F. P. S owes to develop the discovered resources.
On the Stabroek block.
In the Bakken, we have a 15 year inventory of high return drilling locations to enable us to steadily grow net production to approximately 200000 barrels of oil equivalent per day in 2025, we plan to continue operating a four rig program, which will enable us to fully optimize our infrastructure lower.
Unit cash costs and generate significant levels of free cash flow.
Turning to our operated offshore assets.
In the Gulf of Mexico, We had a successful oil discovery during the quarter at the Hess operated pickerel, one well with approximately 90 feet of high quality net pay which we plan to tie back to our tubular bells production facility with first oil expected in mid 'twenty 'twenty four and.
In South East Asia, we have two important long life natural gas assets in North Malay basin in the joint development area or J D. A R.
Our major priorities going forward are to continue to maximize cash flow and production at North Malay basin and to work with the governments of Malaysia, and Thailand to extend our PSC agreement at the J D. A.
As we execute our company strategy, we will continue to be guided by our long standing commitment to sustainability and are proud to be an industry leader in this area last week, we announced the publication of our 26th annual Sustainability report, which provides a comprehensive review of our strategy and performance.
On environmental social and governance programs, including our net zero commitment and the significant progress we have made toward our 2025 emissions reduction targets and.
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 as a result, our company is uniquely positioned to deliver significant value to shareholders for years to come both by growing intrinsic value and by growing cash returns as our portfolio becomes increasingly free cash flow positive. We will continue to prioritize the return up.
Capital to our shareholders through further dividend increases and share repurchases I will now turn the call over to Greg Hill for an operational update.
Thanks, John in.
In the second quarter, we demonstrated strong operational performance across our portfolio.
Company wide net production averaged 387000 barrels of oil equivalent per day.
Well above our guidance of approximately 355000 to 365000 barrels of oil equivalent per day.
In the third quarter, we expect company wide net production to average approximately 385000 barrels of oil equivalent per day, reflecting planned maintenance and hurricane contingency in the Gulf of Mexico.
For the full year 2023, we now expect company wide net production to average between 385003 hundred 90000 barrels of oil equivalent per day up from our previous guidance of 365000 to 375000 barrels of oil equivalent per day.
Primarily reflecting our strong performance in the first half of 2023.
And the expected startup of the pie at the development in Guyana It early in the fourth quarter.
Turning to the Bakken.
Second quarter net production of 181000 barrels of oil equivalent per day was above our guidance of 165000 to 170000 barrels of oil equivalent per day with approximately half of the increase due to strong operational performance and the remainder.
Some higher production entitlements under a percentage of proceeds contracts as a result of lower NGL prices.
In the second quarter, we drilled 32 wells and brought 30, new wells online in.
In the third quarter, we expect to drill approximately 27, new wells and bring online approximately 30 new wells.
For the full year 2023, we expect to drill and bring online approximately 110 new wells.
Individual well results in terms of IP, one eighties and E ours continue to meet or exceed expectations.
For the third quarter, we expect Bakken net production to average approximately 185000 barrels of oil equivalent per day and for the full year 2023, we have increased our forecast of net production to between 175000 and 180000 barrels of oil equivalent per.
Day.
From our previous guidance of 165000 to 170000 barrels of oil equivalent per day.
Moving to the offshore.
In the deepwater Gulf of Mexico second quarter net production averaged 32000 barrels of oil equivalent per day in.
In the third quarter, we expect net production to average approximately 25000 barrels of oil equivalent per day, reflecting planned maintenance downtime and hurricane contingency.
For the full year 2023, we continue to forecast Gulf of Mexico net production to average approximately 30000 barrels of oil equivalent per day.
We are excited to announce that the first well of our 20 twenty-three Gulf of Mexico drilling program has resulted in an oil discovery they.
They have operated pickerel, one infrastructure led exploration well in Mississippi Canyon.
Encountered approximately 90 feet of net pay and high quality oil bearing Miocene aged reservoir.
Long way construction activities are underway to tie the well back to the tubular bells production facility with production expected to commence in mid 2024.
Following pickerel, we plan to drill the black Pearl development well.
In which Hess is the operator and has a 25% working interest in Chevron see knock in Ecuador, each have 25%.
This well is planned as a tie back to the Stampede production facility.
Following black Pearl.
We plan to drill the Vancouver prospect located in Green Canyon block $2 87.
Vancouver is a large hub class exploration prospect targeting sub salt Miocene aged reservoir hassles.
After the operator and has 40% working interest and shell and Chevron each F 30%.
In South East Asia second quarter net production averaged 64000 barrels of oil equivalent per day for.
For the third quarter and full year of 2023.
We forecast net production to average approximately 65000 barrels of oil equivalent per day.
In Guyana, where Hess has a 30% interest in the stable block.
Second quarter net production averaged 110000 barrels of oil per day at the high end of our guidance range of 105000 to 110000 barrels of oil per day, driven by a strong facility uptime and well performance.
For the third quarter.
Net production from Guyana is expected to also average approximately 110000 barrels of oil per day.
We now expect full year 2023, net production to average approximately 115000 barrels of oil per day compared to our previous guidance range of 105000 to 110000 barrels of oil per day.
Reflecting the expected early fourth quarter startup of pie or with a gross cut back production capacity of approximately 220000 barrels of oil per day, we forecast prior to contribute approximately 15000 net barrels of oil per day in the fourth quarter.
Turning to our fourth development yellow tail.
The overall project is approximately 60% complete and remains on track for first oil in 2025 with a gross production capacity of approximately 250000 barrels of oil per day.
The fifth development Wallaroo was sanctioned in April while real well developed more than 800 million barrels of oil from the Huawei Mako and snook fields.
The peso will have a gross production capacity of approximately 250000 barrels of oil per day and is on track to achieve first oil in 2026.
With regard to our sixth development Whip-tailed the partnership anticipates submitting a plan of development to the government of Guyana in the fourth quarter with first oil targeted for 2027 now.
Now turning to exploration in Guyana, the stable block exploration license was formerly extended by one year to October 2027, due to the COVID-19 pandemic. The extension also pushes out the contractual acreage relinquished meant by one year to October 2024.
Sure.
In the Fangtooth area drill stem tests and core analysis are ongoing.
Moving forward, we plan to drill the Bachelor one well would you say deep prospect located approximately seven miles west of thank to each one.
And Atlanta and fish one well.
Located approximately two miles southwest of Fangtooth one.
We also plan to drill the Atlantic fish, two appraisal well also in the Fangtooth area.
Exploration and appraisal activities are also planned in the southeastern portion of the block to better understand the longer term potential of this area.
Activity will include drilling and exploration prospect called bluefin located approximately six miles southwest of Hi, Mara one.
In closing, we achieved strong operational performance in the quarter.
The Bakken is on a steady growth trajectory, we had exploration success in the Gulf of Mexico with more drilling plan are.
South East Asia assets continued to deliver steady production through high reliability and successful ongoing drilling programs.
And gone it keeps getting bigger and better all of which position us to deliver significant shareholder value for years to come.
Now I'll turn the call over to John Reilly.
Thanks, Greg.
Remarks today I will compare results from the second quarter of 2023 to the first quarter of 2023.
We had net income of $119 million in the second quarter of 2023, compared with $346 million in the first quarter of 2023.
On an adjusted basis, which excludes items affecting comparability of earnings we had net income of $201 million in the second quarter of 2023.
Turning to E&P.
A&P adjusted net income was $237 million in the second quarter of 2023, compared with $405 million in the previous quarter.
The changes in the after tax components of adjusted E&P earnings between the second quarter and first quarter of 2023, whereas follows.
Higher sales volumes increased earnings by $66 million.
Lower realized selling prices decreased earnings by $118 million.
Higher cash cost and midstream tariffs decreased earnings by $71 million higher exploration expenses decreased earnings by $34 million.
All other items decreased earnings by $11 million for an overall decrease in second quarter earnings of $168 million.
For the second quarter, our E&P oil sales volumes were over lifted compared with production by approximately 100000 barrels which had an insignificant impact on our after tax results for the quarter.
Turning to midstream the midstream segment had net income of $62 million in the second quarter of 2023, compared with $61 million in the previous quarter midstream.
Midstream EBITDA before non controlling interests amounted to $247 million in the second quarter compared to $238 million in the previous quarter.
Turning to our financial position.
At June 30th excluding the midstream segment cash and cash equivalents were $2 $2 billion.
Liquidity was $5 6 billion, including available committed credit facilities and debt and finance lease obligations totaled $5 $6 billion.
During the second quarter, we received net proceeds of $217 million from the public offering of approximately $6 4 million Hess on class a shares of Hess midstream and the sale of approximately $1 7 million Hess on class B units to Hess midstream.
Net cash provided by operating activities before changes in working capital was $974 million in the second quarter compared with one point over $3 billion in the first quarter.
E&P capital and exploratory expenditures were $933 million in the second quarter of 2023 compared to $765 million in the previous quarter.
Now turning to guidance.
Our E&P cash costs were $13 97 per barrel of oil equivalent in the second quarter of 2023, which was lower than our guidance of $15.50 to $16 per barrel of oil equivalent primarily due to higher production.
We project E&P cash costs 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 at the lower end of our previous guidance of $13 50 to $14 50 per barrel of oil equivalent.
Yeah.
DD&A expense was $12 79 per barrel of oil equivalent in the second quarter of 2023.
DD&A expense is forecast to be in the range of $12 50 to $13 per barrel of oil equivalent for the third quarter and in the range of 13 to $13 50 per barrel of oil equivalent for the full year, which is at the lower end of our previous guidance of 13 to $14 per barrel of oil equivalent.
This results in projected total E&P unit operating cost to be in the range of $26 50 to $27 50 per barrel of oil equivalent for both the third quarter and full year 2023.
Exploration expenses, excluding dry hole costs are expected to be approximately $60 million in the third quarter and approximately $170 million for the full year, which is updated from the previous guidance of $160 million to $170 million.
The midstream tariff is projected to be in the range of $320 million to $330 million for the third quarter and full year guidance of $1 billion $230 million to $1.250 billion remains unchanged.
E&P income tax expense is expected to be in the range of $170 million to $180 million for the third quarter and full year guidance of $670 million to $680 million remains unchanged.
We expect non cash option premium amortization, which will be reflected in our realized selling prices will be $52 million for the third quarter and full year guidance of $190 million remains unchanged.
Our E&P capital and exploratory expenditures are expected to be approximately $1.025 billion in the third quarter and full year guidance of approximately $3 7 billion remains unchanged.
Turning to midstream.
We anticipate net income attributable to Hess from the midstream segment to be in the range of $55 million to $60 million for the third quarter and $240 million to $250 million for the full year, which is down from the previous guidance of $255 million to $265 million, reflecting the impact of the midstream capital.
Market transactions completed in the second quarter.
Turning to corporate.
Corporate expenses are estimated to be approximately $25 million for the third quarter and $110 million to $120 million for the full year, which is lower than the previous guidance of $120 million to $130 million due to higher interest income.
Interest expense is estimated to be in the range of $75 million to $80 million for the third quarter.
$300 million to $310 million for the full year, which is updated from the previous guidance of $305 million to $315 million.
This concludes my remarks, we'll be happy to answer any questions I will now turn the call over to the operator.
Thank you ladies and gentlemen, if you have a question. Please press star followed by one on your phone. If your question has been answered or you wish to move yourself from the queue. Please press star one again.
So that will be taken in the order received please standby for our first question.
Yeah.
Our first question comes from Doug Leggate with Bofa. Your line is open.
Oh, Hi, good morning, everybody. Thanks for taking my questions.
Greg I Wonder if I could just ask a couple on on Guyana first of all with Pi Ara.
Gave the guidance of the expected production for the fourth quarter, but can you give us some idea as the ramp up when would you expect to see who facility production that play out.
Yeah. So thanks for that question, Doug Yeah, as we mentioned it's coming on early in the fourth quarter and I would expect the ramp up to be like Liza phase two you know kind of on the order of five months or so.
In terms of ramping up higher is a little bit bigger so it might take you know marginally a little bit longer, but I would say five months yep.
Okay. Thank you.
Debottlenecking.
The strategy around <unk> like you've done in Liza one and two.
Yeah. So I think there will be because there is a lot of discovered resource are in and around <unk>. So there will definitely be a D var, making strategy as well.
My follow up is really on exploration it seems Exxon I guess yourselves and Exxon submitted a 35 well program that's been.
Approved by the government. So I guess that fits into the timeline you were talking about with the extension, but I'm really trying to understand what this means for the risked resource view you haven't updated the 11 billion bottles for about year, and a half and our understanding from our field trip down there was a fine through southeast was another success. So can you give us some update as to.
When you would expect to see the resource numbers revised.
Sure Doug It's John and Thanks for the question you know look we have a very active exploration appraisal program. This year on this day broke block a lot of it in terms of appraisal, especially in the bank tooth area, Greg address that in his remarks.
And other appraisal on the block some exploration on the block and I think the real takeaway Doug is that we still see multibillion barrels of oil equivalent and and at the appropriate time, we will consider increasing the resource estimate of greater than 11 billion barrels of oil equivalent.
Just to be clear John that the 11 billion relates to how many discoveries.
Doug you know that line continues to get upgraded and I would say, it's the overall program and there's still more to be recognized from some of the outstanding wells. We drilled as you know a lot of evaluation work is underway in an area like fangtooth and until we get that evaluation work done, including the drill stem test production.
Tests, you know where you are.
A little premature to jump that number until we're ready to give more clarity on it.
Alright, Thank you everybody I'll pass it on.
Thank you. Our next question comes from Arun Jairam with J P. Morgan Securities. Your line is open.
Yeah, Good morning, Greg.
Greg.
Good morning, John Greg I was wondering if you could give us maybe an update on how the debottlenecking efforts are going at Liza one and Liza two are there any other projects scheduled for the back half of the year and give us a sense.
Where do you think the new plateau level production is for both facilities in a post debottlenecking.
Sure so.
Arun as you know Liza phase one is already been beat Debottleneck, it's comfortably operating in the $1 45 to $1 50 range on a regular basis. So I think that's about what you can expect out of that one.
If we look at Liza phase two.
So that's unity, it's producing above its nameplate of two 'twenty, it's sometimes as high as $2 40.
The operator has a plan to further debottleneck that facility.
Between now and the end of the year. So I think we will be approaching the $2 50 number as we get sort of towards the end of the year and then there's a another kind of an engineering project next year to look at the possibility of further debottlenecking phase two.
I think the operators is quite comfortable.
You know with a number around 400000 barrels a day from both of those facilities and I would add.
That's 20% above the sanction case, so exxonmobil is just doing an extraordinary job of.
Debottlenecking higher reliability I can't say enough about the outstanding job they are doing as an operator.
Great that's helpful and maybe one for John Reilly, John I was wondering if you could maybe offer some soft capex guidance for 2024.
Including kind of an expectation that you do kind of purchase.
Pier 70, you, obviously announced the discovery now at Pickle.
Thanks Arun.
As you know it's a little early for 2024 capital at we do there is a plan to purchase the Uniti F PSL and in 2024, but look we're still working on whiptail getting the final cost estimates on that so I think what we'll do is provide our typical 2024 guidance in January .
Okay fair enough. Thanks, John .
Thank you. Our next question comes from Paul Cheng with Scotiabank. Your line is open.
John I know you reiterate the full year.
At 3.7, Finland.
He is a bit low.
And so with the ramp up and that's going to be in the second half.
Yes, so we have Guyana, obviously, the ramp going there getting pay are online and then it's just the progression of the.
Developments there so we'll be working on on yellow tail. There's obviously working on what room. So you just got to back half of the year, you've got more spend coming in Guyana.
Then also what we have is the Gulf of Mexico rigs, So as Greg mentioned, we have that.
That rig came in right at the tail end of Q2, and so it it drilled pick role we had the success there and as Greg mentioned, it's going to be doing black Pearl and then Vancouver, So again that's.
Tilted towards the second half of the year and the only other thing I would add on that end and this was expected is that the what the weather window up in North Dakota. This is the best time for some of the facilities work up there. So that's why we get a little bit more in the back half and the Bakken as well.
And what I mean, do you think there's any.
We use them appropriately.
On a full year spending and end up going to be below the budget given the one way that we see.
Paul I think we you know we are just going to keep reiterating the $3 7 billion. The execution has been terrific. So far as you can see on the production side and we've been very efficient on the capital side, but we do have plans to spend at a full $3 7 billion. So I would look to just to keep the capital at that.
At that level in your model.
Okay.
On Guyana, and I think that you have probably you have a.
45, 50 million of deferred tax.
In the quarter any kind of a rough estimate you can provide for their third and.
And fourth quarter right.
And also that whether it be expansion of exploration.
Hey, Whit.
One the one time payment from the consult with them to their government.
Al.
Let me start with that one year payment no. There was there was no payment that was really as Greg had mentioned earlier due to COVID-19, and the force majeure, the us not being able to explore during that period. So that just is extended to the one year as far as the deferred taxes, which are.
<unk> always a bit difficult to actually.
Forecast Youre right. It was approximately $45 million in Q2, it was about $36 million in Q1, I would say from our forecast and what we're looking at and you've got to pay are a startup which makes it even harder harder to forecast that it will be a little bit higher than that 40.
$5 million number you mentioned in Q3 and Q4 on the deferred taxes.
Okay. Thank you.
Thank you. Our next question comes from Ryan Todd with Piper Sandler Your line is open.
Okay. Thanks, maybe just.
Just one follow up on the extensions there in Guyana and congrats on good it makes sense for both the acreage relinquishment and the exploration license.
I know you had always said that this was this was going to be easily managed and I have a huge impact.
Does the extension to have any impact on how you may allocate resource there over the next few years or in general on your approach or what Youre able to do there in the basin.
No I don't think at all it won't change the pace I think you can expect certainly next year, probably a six rig program.
And you know it won't affect anything it will just gives out that extra year or two are you know locked down whatever we can before the expiry, which we have every interest in doing obviously, yeah to be clear each year. We plan to drill you know 10 to 12 exploration appraisal wells. So it just gives us another year to have further evaluation then.
It will be in the best interest of the country and also our joint venture itself. So you know we have as I said before and Greg did as well multibillion barrels of exploration potential remaining and you know we can't orderly have a prosecution of that opportunity.
Great. Thanks, and then maybe.
As a as a follow up I know you were just talking about the capital budget for the year, but what are your latest assumptions in terms of.
Or what you're seeing in terms of cost inflation.
Deflation.
On the contract side and how does that compare with what you had.
Earlier been assuming you know in your capital and Opex guidance.
Yeah. So let me address both the onshore and the offshore so you know in.
In the Bakken are we observed inflation of between 10% to 15% blended you know in the first half of 2023.
And we were able to mitigate about half of that you know through the application of strategic contracting lean manufacturing and technology.
Now, we're starting to see some cost such as oil country tubular goods are beginning to moderate.
We're still maintaining our well cost guidance at $6 nine per well because.
Because we're increasing proppant loading in several areas of the field to further maximize the issue NPV. So we're just going to stick with our 6.9, but again, we are seeing some deflation.
<unk> to occur in the Bakken.
If we go in the offshore.
Our rig utilization remains very high and they also are so cost of not moderated there. However.
You know most of our spans and Guyana or the first five F. Dsos are contracted Exxonmobil is doing a great job of mitigating inflationary effects using its design one build many strategy and in addition recall for 2023 Gulf of Mexico program. Most services were contracted in 2022.
Two on costs were lower so long in short our overall 2023 capital guidance of $3 7 billion remains unchanged and we will provide 2024 guidance in our January call as John Reilly said.
Alright, thank you.
Thank you. Our next question comes from Neil Mehta with Goldman Sachs. Your line is open.
Yeah. Thank you are there it was a strong quarter in the Bakken and recognizing that volume.
With commodity prices, but just curious on your thoughts on getting to that 200000 barrels a day plateau and is there visibility to pull that forward.
Execution track.
No I think Neil what our plan is our plan still shows that we'll get to a.
You know an average of 200000 barrels a day and in 2025.
And as we've said before you know with our extensive inventory of.
Drilling locations, we expect to hold that plateau for for nearly a decade and and the Bakken then becomes a significant free cash flow you know a machine so.
Yeah.
Alright. Thank you the follow up is just around a couple of cash flow items first is around return of capital.
What's the framework for it.
Increasing that as you continue to progress through the program in Guyana and the second is any update on hedging strategies as we as we look into 2024.
Thanks, Thanks, Neil for the return of capital program. So we're going to continue to be disciplined in the execution of our return of capital framework I mean as you know in March of this year, we announced an increase in our dividend by 17% and as we go through the year, we'll continue to follow the framework and as a reminder.
Our financial priorities main first we're going to invest in the high return opportunities, especially in Guyana, and the Bakken and as was mentioned earlier, we do have.
Capital is a bit back end loaded this year. So we have more capital coming in the second half of the year.
Our second is to maintain a strong balance sheet and with that we do have that $300 million debt maturity coming next year, which we do intend to pay off but again the key to maintain a strong balance sheet and cash position and we do have a nice cash position now the $2 $2 billion.
And that's in place. So we can continue to fund these great return projects and in the Guyana and Bakken and then what we will do and we will follow this framework. It's an annual framework, we're going to return up to 75% of our free cash flow to shareholders through the dividend increases as John has mentioned earlier and share repurchases and as John has mentioned earlier as our free cash.
Flow generation steadily increases share repurchases are expected to represent a growing proportion of our return of capital.
Yeah.
Yeah.
Great.
Alright, yes on hedging for the hedging.
You've seen us in the past.
A couple of years, we've been hedging in around 130 to 150000 barrels of oil per day with put options. So we want to make sure we give the upside to our investors.
And you can you can think about that we will maintain that type of level on a percentage basis of our oil production because with Guyana coming on in Pi are are coming on at full ramp you know you're getting just that production capacity between 55, and 60000 barrels a day add there.
Yellow tail will be even more because it's a it's a bigger boat. So we're gonna have higher and higher oil production. So the hedging percentage as a percentage of our oil overall oil production will go down, but we will maintain around that 130 to 150 level.
Thanks, John .
Youre welcome.
Thanks Neil.
Our next question comes from Roger read with Wells Fargo. Your line is open.
Yeah. Thanks, good morning.
Hum.
Just to I guess two questions I had one in terms of Guyana, just what you can tell us about how the wells have been performing and how maybe that fits into the raised guidance on production or the overall confidence that allows you to raise production guidance.
No the wells are performing better than expected really across the board.
And you know of course, the capacity is driven by the physical constraints on the vessel, but obviously with those wells outperforming we want to increase that capacity view as high as possible through debottlenecking, but the wells are doing fantastic.
That's good to hear and then my other question as you look at your Gulf of Mexico exploration program sort of the relatively lower risk.
Black Pearl versus the higher risk Vancouver anything you're doing on the seismic side that that's making that.
Let's say offsetting the risk to some standpoint.
Yeah, absolutely I think there's two things that really have been the discontinuity I'll call. It in the last five years in exploration in the Gulf of Mexico, and the first one is ocean bottom nodes.
So where we are shooting ocean bottom node surveys in and around all of our hubs and that is coupled that coupled with the new algorithms.
So a full way form inversion FW I the combination of those two things are.
Allowing us to see new opportunities in sub salt in the Gulf of Mexico, and that's not only true for hub.
In and around our hubs, but it's also true for hub class opportunities as well. So very exciting you know we've got over 80 80 blocks in the Gulf of Mexico.
And with that inventory you know our aim is to maintain that cash engine in the Gulf of Mexico at a minimum hold production broadly flat, but then also potentially grow that production with a hub class success in those seismic improvements that I talked about are leading that charge with it with a great portfolio that we have.
That sounds good I appreciate the clarity. Thank you you bet.
Thank you. Our next question comes from Kevin Mccarthy with Pickering Energy Partners. Your line is open.
Hey, Good morning, just one question on the Bakken production guidance raise.
Gas and Ngls, obviously outpaced your quarterly guidance, but you also had strong oil production above our expectations.
Is there any color you can provide on how much of the guidance raise was oil versus gas and Ngls.
So specifically here is as we know as we move through the year. Our oil production is going to continue to increase so as you saw the increase in Q2, you can expect a similar increase in Q3 as we saw from Q1 to Q.
Two and then we continue to expect to see these increases as we go forward and then outside of the you know the winter months and there will continue to have oil increases as we go through into 2025.
And we get up to that 200000 barrels of oil per day. So in general from an overall guidance standpoint on what we were doing it it's kind of similar some of the half of the the guidance increase is due to performance and half was due to those pop those NGL and <unk>.
Gas volumes.
Okay.
Thanks for the color.
Thank you. Our next question comes from Vijay <unk> with Susquehanna Financial Group. Your line is open.
Hi, Thanks for thanks for taking my question.
Just wondering.
How is your sort of tightening up the design tolerance on each of these spss.
Trying to understand as you go through the subsequent.
Debottlenecking projects, how we should think about.
Production uplift.
Yeah. So I think the the thing I will say that every vessel.
We'll be bespoke.
So you know the way that we do this debottlenecking is we produce the vessel for a year or so and then get all of the dynamic data and then from that data make a decision on how much. We think we can we can squeeze more out of the vessel or do an engineering project to <unk>.
Debottleneck that but I think.
The bias will be to Debottleneck. These vessels as much as we can because there is so much additional resource around each one of these hubs and that coupled with the.
The multibillion barrels of additional upside.
Says that these vessels are going to be full at plateau longer than what would be typical.
For a deepwater development.
And Ah, but again, each one it'll be bespoke, so, but certainly the bias is going to be there to debottleneck as much as possible.
Got it that's helpful. A follow up on the Bakken.
So that 200000.
Barrels equivalent a day.
Auto level, what should be the oil mix.
At that point.
Yeah, so longer term when we're at that 200000 barrels a day you can you can expect about 100000 barrels a day of oil.
So about 50%.
Okay perfect. Thanks.
Thank you. Our next question comes from Noel Parks with Tuohy Brothers. Your line is open.
Hi, good morning.
Good morning.
You may have mentioned in the.
Yeah on the discussion.
About.
They're putting resources into more exploration of the southwestern part of the block and I Wonder if you could just sort of.
Refresh us on what.
The original view.
That geology.
And now with the benefit of.
Incremental drilling them.
What you hope to discover our discern there.
Again, there's discoveries are down in that part of the block Theyre all upper campaign and so their liza like reservoir, so very high quality reservoirs.
As you move to the southeast of the block the <unk> does increase so the reason that we wanted to do some further appraisal and.
In exploration down there is to really understand the.
The higher G O our developments on the block.
Still going to be very good projects I'm sure, but we just need a little bit more data to fully understand how we're going to develop those where we fit in the Q I think the important thing is though.
Our objective is to move oily developments forward. So for example, Fangtooth is great example, that we're trying to move oil developments up in the Q, but at the same time, there's more that we need to understand about the southeast part of the block. So we will occasionally do.
Some appraisal or exploration drilling down there just a further up our understanding of of that part of the block.
Great Thanks and.
I appreciate your comments just a minute ago about the.
Seismic improvement and the opportunity in the Gulf of Mexico, I was just wondering whether there were any projects.
Hum.
Participating on the <unk>.
Operator.
And the girl, whether I was wondering if there are any of those sort of under the radar.
Might be worth mentioning.
No I think there's again.
And the shell assets in particular.
<unk> around some of their hubs, where we have an interest in non operated interest they're doing the same things we are obese and finding new opportunities around those hubs as well so you'll see some of those feature in the future as well.
Are those sort of near term or more sort of on the horizon now those near term it'll be part of the mix as we kind of execute you know over the next two to three years.
Great. Thanks, a lot.
Thank you. Our next question comes from Paul Cheng with Scotiabank. Your line is open.
Hey, just a quick follow up on the Pepco to be on stream mid 2024, what is the net too.
And what's the development cost.
Sure Paul So that you know, we're still a value weight in the well results, but we anticipate peak gross production rates to be in the range of eight to 10000 bear.
Barrels a day and we have a 100% interest in that well to be clear yep.
As we said that'll be tied back to the tubular bells facility.
Kind of mid year next year.
Great John .
I mean, what's the development cost on this pipeline.
Again, we are still overall developed I'm, sorry, coming up are evaluating the results of the well one I can tell you. It's a very high return project, obviously with it being a tieback to tubular bells and typically these type of.
Tieback wells are going to have like a $10 per barrel kind of cost or lower.
That's what we'll typically see in those and these tie back wells find and develop.
Hi, Ann.
Great.
What's do we source a recoverable resource that we estimate what is and is it Oh you want that is the mix between oil and gas no I'd say, it's a mix.
<unk> of oil and gas you know, 80% oil 20% gas.
So it's mainly oil.
And as John mentioned were still evaluating the wells. So I don't want to give a resource estimate yet, but again its going to be extremely profitable ilex tie back very low finding and development cost so nothing to worry about here Paul at all.
Okay, a final one for me.
And.
Oh.
You're talking about 2000, 22026 should we assume you're somewhat.
Q2.
It's going to be in the early fall.
But I think what we're what we're saying is that you know is that each of these will come on in the year quoted I think it's too early to say exactly when in that year for these later projects. So we're just quoting the in the year.
Itself and as we get closer obviously, but yellow tail, 60% complete so that should tell you something about where it is in the queue.
And on the Gulf of Mexico second quarter production is that because.
Because of that some of the.
Our maintenance downtime has been able to perform at a shocker.
It's actually being pushed to the third quarter.
No it's really reliability.
It's really just high reliability across the board.
Okay perfect. Thank you.
Thank you. Our next question comes from Phillips Johnston with capital One Securities. Your line is open.
Hey, guys. Thanks, just a quick one for John on the first quarter call. You were asked about your investment in Hess midstream and it was pretty clear that it's going to remain a key strategic asset for the company going forward for a few different reasons.
Unit sale in Q2 for a little over 200.
Cut your stake down about 30% I'm sure you can't comment on.
On potential future sell downs, but can you maybe just remind us of the threshold, where you would no longer have operation.
Control.
So let me just start high level that we remain committed to maximizing the long term value of Hess midstream.
It's adding differentiated value to our Bakken E&P assets and part of it is allowing us to maintain operational control, which we can for.
Even with a much lower ownership percentage, so nothing to worry about there from that field.
What it also does it provides takeaway optionality to high value markets and also it's the ability to increase our gas capture to drive down flaring in our G. H T emissions intensity, so and as you know where we've set.
Zero routine flaring goal by 2025.
So the one other thing about it to your point, but with a strong credit position and its continuing free cash flow growth Hess Midstream has said they continue to have greater than $1 billion of financial flexibility through 2025 to support potential incremental share repurchases similar to the ones that we've done this year, we had two $100 million gross.
Transactions executed in March and June . So you couldn't you should expect some more of those with that financial flexibility.
Okay sounds good thank you.
You're welcome.
Ladies and gentlemen, this does conclude the Q&A portion of today's conference call.
We'd like to thank you very much. This concludes today's conference. Thank you for your participation you may now disconnect and have a wonderful day.
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
Okay.