Hess Corporation

Good day, ladies and gentlemen, and welcome to the third quarter 2019 Hess Corporation conference call. My name is Andrew, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. If at any time you require operator assistance, please press star followed by zero, and we'll be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Jay Wilson. Vice President of Investor Relations. Please proceed.

Thank you, Andrew. Good morning, everyone, and thank you for participating in our third quarter earnings conference call. Our earnings release was issued this morning and appears on our website, www.hess.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 factors section of HESA's 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 and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website. Now, as usual, with me today are John Hess, Chief Executive Officer, Greg Hill, Chief Operating Officer, and John Riley, Chief Financial Officer. I'll now turn the call over to John Hess.

Thank you, Jay. Welcome to our third quarter conference call. I will provide a strategy update, then Greg Hill will discuss our operating performance, and John Riley will review our financial results. We continue to execute our strategy of disciplined capital allocation, focusing only on low-cost, high-return opportunities. We had another strong quarter, delivering higher production and lower capital and exploratory expenditures than our previous guidance. Our portfolio, with Guyana and the Bakken as our growth engines, and Malaysia and the Deepwater Gulf of Mexico as our cash engines, is on track to deliver industry-leading performance in terms of financial returns, cash flow growth, and a portfolio break even below $40 per barrel Brent by 2025. A key part of our strategy is maintaining a strong balance sheet and liquidity position. With $1.9 billion of cash on our balance sheet at the end of the quarter, we are in a strong financial position to fund our high return growth projects across a range of prices. As a result of strong execution throughout our portfolio, we have reduced our full year 2019 capital and exploratory expenditure guidance by a further $100 million to $2.7 billion. Earlier this month, Hess Midstream Partners announced plans to convert to an up-sea structure and acquire Hess Infrastructure Partners, including its oil and gas midstream interests, water services business, outstanding economic general partner interest, and incentive distribution rights in Hess Midstream Partners. Upon completion of this transaction, which is expected in the fourth quarter, Hess Corporation will receive approximately $275 million in cash and will own approximately 134 million units, or 47% of the new Hess Midstream Consolidated Entity, valued net to Hess at approximately $2.85 billion as of last night's close. Cash proceeds will be used to fund our world-class investments in Guyana and the Bakken, where we plan to invest more than 75% of our capital expenditures over the next five years. Turning to Guyana, on the Staybrook Block, where Hess has a 30% interest and ExxonMobil is the operator, gross discovered recoverable resources are estimated at more than 6 billion barrels of oil equivalent, with multi-billion barrels of future exploration potential remaining. In September, we announced a 14th discovery on the block at the Triple Tail One Well, located in the turbo area approximately three miles northeast of the longtail discovery. The well encountered approximately 108 feet of a high-quality oil-bearing sandstone reservoir. Subsequently, additional hydrocarbon-bearing reservoirs have been encountered below the previously announced tripletail discovery. Tripletail is still under evaluation and will further underpin the turbo area as a major development hub. During the quarter, drilling and appraisal activities were completed at Hammerhead with encouraging results, including a successful drill stem test. These results are being evaluated for a potential future development. Also, drilling and evaluation activities continue on the Ranger II well with the objective of appraising the Ranger oil discovery. In terms of our developments, the LISA Phase I development is now targeted to start up in December and will produce up to 120,000 gross barrels of oil per day, utilizing the LISA Destiny Floating Production Storage and Offloading Vessel, or FPSO, which arrived in Guyana on August 29th. The LISA Phase II development is also progressing to plan, and will use a second FPSO, the LISA Unity, with a gross production capacity of 220,000 barrels of oil per day. First oil is expected by mid-2022. Planning is underway for a third development at Piara, which will use an FPSO with gross production capacity of 220,000 barrels of oil per day, and first production from Payara is expected in 2023. We are also seeing positive results from our focused exploration program in the Deepwater Gulf of Mexico, where we have acquired 60 blocks over the past five years for approximately $120 million to pursue high-return infrastructure-led and hub-class prospects. Yesterday, we announced a successful oil discovery at the ESOX-1 exploration well in Mississippi Canyon, which encountered approximately 191 feet of net pay in a high-quality oil-bearing Miocene reservoir. Hess is the operator and holds a 57.14% interest. We expect to commence production in the first quarter of 2020. ESOX will be a low-cost tie-back to the Tubler-Bells production facilities. and is expected to generate strong financial returns. We also plan to spud the old field well by the end of the year. Cosmos is the operator and has a 60% interest in this prospect, which is located approximately six miles east of the ESOX 1 well. Moving to the Bakken, our transition to plug-and-perf completions has been very successful, and we are seeing the expected uplift in initial production rates, in estimated ultimate recovery, and most importantly, in value. Net production in the Bakken is on track to reach approximately 200,000 barrels of oil equivalent per day by 2021. We then plan to reduce our current six-rig program to four-rigs, which will enable us to maintain production of approximately 200,000 barrels of oil equivalent per day, resulting in material-free cash flow generation across a range of prices. Now, turning to our financial results, In the third quarter, we posted a net loss of $205 million, or 68 cents per share, compared to a net loss of $42 million, or 18 cents per share, in the year-ago quarter. On an adjusted basis, we posted a net loss of $98 million, or 32 cents per share, compared with adjusted net income of $29 million, or 6 cents per share, in the third quarter of 2018. Compared to our third quarter of 2018... our financial results primarily reflect lower realized selling prices, which were partially offset by reduced exploration expenses. Third quarter net production averaged 290,000 barrels of oil equivalent per day, excluding Libya, up from 279,000 barrels of oil equivalent per day in the year-ago quarter. For the full year 2019, we are raising our guidance for net production to approximately 285,000 barrels of oil equivalent per day, excluding Libya, up from our previous guidance range of 275,000 to 280,000 barrels of oil equivalent per day. Third quarter net production in the Bakken averaged 163,000 barrels of oil equivalent per day, up 38% from 118,000 barrels of oil equivalent per day a year ago. For the full year 2019, we are raising our guidance for the Bakken net production to approximately 150,000 barrels of oil equivalent per day, up from our previous guidance range of 140,000 to 145,000 barrels of oil equivalent per day. In summary, our strategy of disciplined capital allocation and a focused portfolio of assets is achieving positive results and uniquely positions our company to deliver increasing and strong financial returns, visible and low-risk production growth, and significant free cash flow. I will now turn the call over to Greg for an operational update.