Hess Corporation

Good day, ladies and gentlemen, and welcome to the second quarter 2020 HECS Corporation conference call. My name is Lateef, and I will 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. If at any time you require operator assistance, please press star followed by zero, and we will 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, Lateef. 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.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 the most directly comparable GAAP financial measures can be found in the supplement information provided on our website. On the line with me today are John Hess, Chief Executive Officer, Greg Hill, Chief Operating Officer, and John Riley, Chief Financial Officer. As we did last quarter, in case there are any audio issues, we will be posting transcripts of each speaker's prepared remarks on www.hess.com following the presentations. I'll now turn the call over to John Hess.

Thank you, Jay. Good morning, everyone. Welcome to our second quarter conference call. We hope you and your families are all staying well during these challenging times. Today I will discuss the steps we are taking to manage through a sustained period of low oil prices. Then Greg Hill will discuss our operations, and John Riley will review our financial results. In response to the pandemic's severe impact on oil prices, our priorities are to preserve cash, preserve capability, and preserve the long-term value of our assets. In terms of preserving cash, we came into 2020 with approximately 80% of our oil production hedged. with put options for 130,000 barrels per day at $55 per barrel West Texas Intermediate and 20,000 barrels per day at $60 per barrel Brent. To maximize the value of our production, in March and April, when U.S. oil storage was at tank tops, we used our marketing capabilities, our HESS midstream infrastructure, and our firm transportation arrangements to the U.S. Gulf Coast to charter three very large crude carriers, or VLCCs, to store 2 million barrels each of May, June, and July Bakken crude oil production. The first VLCC cargo of 2 million barrels has been sold at a premium to Brent for delivery in China in September. The other two VLCC cargoes are expected to be sold in Asia in the fourth quarter. We further strengthened the company's cash position and liquidity through a $1 billion three-year term loan underwritten by JPMorgan Chase. This loan was successfully syndicated during the second quarter. At the end of June, we had $1.6 billion of cash, a $3.5 billion loan, undrawn revolving credit facility, and no debt maturities until the term loan comes due in 2023. We made major reductions in our capital and exploratory budget for 2020, reducing it 37% from our original budget of $3 billion down to $1.9 billion. The majority of this reduction comes from dropping from a six-rig program to one rig in the Bakken, which we completed in May. We also made significant cuts in our 2020 company-wide cash costs. On our first quarter call, we announced the reduction of $225 million. During the second quarter, we identified an additional $40 million with further reductions anticipated. A key for us to preserve capability is continuing to operate one rig in the Bakken. Greg Hill and our Bakken team have made tremendous progress over the years in lean manufacturing. which has delivered significant cost efficiencies and productivity improvements that we want to preserve for the future. In terms of preserving the long-term value of our assets, our top priority is Guyana, an extraordinary world-class asset. On the Saybrook block, where Hess has a 30% interest in ExxonMobil as the operator, we have made 16 significant discoveries on the block since 2015. The current estimate of gross discovered recoverable resources for the block stand at more than 8 billion barrels of oil equivalent, with multi-billion barrels of exploration potential remaining. In June, we resumed a four-rig drilling operation, with two of the rigs focused on development wells and two on exploration and appraisal activities. The lease of Phase I development which has an estimated break-even price of $35 per barrel Brent, achieved first production in December, and is now expected to reach its full capacity of 120,000 gross barrels of oil per day in August. The Leesa Phase II development, with an estimated break-even price of $25 per barrel Brent, and production capacity of 220,000 gross barrels of oil per day, remains on track for an early 2022 startup. The development of the PIAR field, with a production capacity of 220,000 gross barrels of oil per day, has potentially been deferred six to 12 months pending government approval to proceed. Planning for the fourth and fifth FPSOs is underway, which will be further optimized by this year's exploration and appraisal drilling results. Our strategy is guided by our company's longstanding commitment to sustainability, which creates value for all our stakeholders. Earlier this month, we announced publication of our 23rd Annual Sustainability Report, which details our environmental, social, and governance, or ESG, strategy and performance. In terms of safety, since 2014, we have reduced our severe safety incident rate by 36%, and achieved a 67% reduction in process safety incidents. In the critical area of climate change, we have reduced Scope 1 and Scope 2 equity greenhouse gas emissions by approximately 60% over the past 12 years. We also are contributing to groundbreaking work by the Salk Institute to develop plants with larger root systems that are capable of absorbing and storing potentially billions of tons of carbon per year from the atmosphere. We continue to be recognized as an industry leader for the quality of our ESG performance and disclosure, and in May were named to the 100 Best Corporate Citizens list for the 12th consecutive year, earning the number one ranking for an oil and gas company and ranking number nine on the list overall. In summary, our long-term strategy has enabled us to build a high-quality and diversified portfolio that is resilient in a low-price environment, and puts us in a strong position to prosper when oil prices recover. Our portfolio provides long-term resource growth with multiple phases of low-cost Guyana oil developments that are expected to drive industry-leading cash flow growth over the course of the decade. As our portfolio generates increasing free cash flow, we will prioritize debt reduction and increasing cash returns to shareholders. Finally, we wanna thank our employees for their continued commitment to operating safely and reliably during this pandemic. The safety of our workforce and the communities where we operate will remain our top priority. I will now turn the call over to Greg for an operational update.