Hess Corporation

Good day, ladies and gentlemen, and welcome to the third quarter 2020 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 at 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 and that may cause actual results to differ from those expressed or implied in such statements. These risks include those set forth in the risk factor section of 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 supplemental information provided on our website. 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 hope you and your families are well and staying healthy during these challenging times. Today, I will provide an update on our progress in executing our strategy in the current low oil price environment. Then Greg Hill will discuss our operations, and John Riley will review our financial results. Before we address this quarter, I would like to talk briefly about the macro outlook for oil and how it informs our strategy. The International Energy Agency just published its 2020 World Energy Outlook, that provides an aggressive sustainable development scenario in which, if all the pledges of the Paris Climate Agreement were met, oil and gas would still be 46% of the energy mix in 2040. The energy transition will take time, and major breakthroughs in technology will be needed. While we need policies to encourage renewable energy to battle climate change, oil and gas will be needed for many decades to come and will continue to be fundamental to world economic growth and human prosperity. The key for our company is to have a low cost of supply in any price environment. By investing only in high return, low cost opportunities, we have built a differentiated portfolio of assets that we believe will provide industry-leading cash flow growth over the course of the decade, which is superior to our peers and to most companies in the S&P 500. Our portfolio is underpinned by significant cash engines in the Bakken, Deepwater Gulf of Mexico, and Southeast Asia, as well as multiple phases of low-cost Guyana oil developments, which we believe will drive our company's break-even price to under $40 per barrel Brent by mid-decade. To realize our long-term strategy, we must manage the short-term challenges facing our industry. Our priorities during this low-price environment 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 at West Texas Intermediate and 20,000 barrels per day at $60 per barrel Brent. To enhance cash flow and maximize the value of our production, in March and April, when U.S. oil storage was near capacity. We chartered 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 2.1 million barrels was sold in China at a premium to Brent in September. The second and third VLCC cargoes are expected to be sold in Asia by the end of the year. We have also reduced our 2020 capital and exploratory budget by 40%, from $3 billion to our current revised guidance of $1.8 billion, primarily by reducing our Bakken rate count from 6 to 1, and we reduced our full-year 2020 cash operating costs by $275 million. At the end of September, we had $1.28 billion of cash, a $3.5 billion undrawn revolving credit facility, and no debt maturities until the term loan comes due in 2023. In terms of preserving capability, we have been operating one rig in the Bakken since May, down from six rigs at the beginning of the year, to maintain the lean manufacturing capabilities and innovative practices that Greg and his team have built for over more than 10 years. Our plan is to remain at one rig until oil prices approach $50 per barrel WTI. Before reducing the recount, we achieved our goal of 200,000 barrels of oil equivalent per day, six months ahead of schedule. In addition, our Bakken team has cut our average drilling and completion costs below $6 million per well, and we continue to see further opportunities for cost reductions. In terms of preserving the long-term value of our assets, Guyana, with its low cost of supply and industry-leading financial returns, remains our top priority. We are very pleased that on September 30th, the government of Guyana approved the development plan for the Piara Field, the third oil development on the Staybrook Block, where Hess has a 30% interest and ExxonMobil is the operator. Piara is targeted for first oil in 2024, and we expect to have at least five FPSOs on the block, producing more than 750,000 gross barrels of oil per day by 2026. The three sanctioned oil developments, Lisa 1, which is producing, and Lisa 2 and Piara, which are in construction, have break-even Brent oil prices of between $25 and $35 per barrel, which are world-class by any measure. On September 8th, we also announced the Red Tail and Yellow Tail 2 discoveries, bringing total discoveries on the block to 18. Incorporating the current assessment of additional volumes from the Redtail, Yellowtail II, and Wauru discoveries, we are increasing the estimate of gross discovered recoverable resources for the Stabrook Block to approximately 9 billion barrels of oil equivalent. We also now see the potential for up to 10 FPSOs to develop the current discovered recoverable resource base. We announced on October 5th an agreement to sell our 28% working interest in the Shenzi Field in the Deepwater Gulf of Mexico to BHP Billiton, the field's operator, for a total consideration of $505 million at an effective date of July 1st, 2020. This transaction brings value forward in a low-price environment and further strengthens our cash and liquidity position until the Lease of Phase II development in Guyana comes online in early 2022. We expect to close the transaction before the end of the year. Our strategy will continue to be guided by our company's long-standing commitment to sustainability, which we believe creates value for all our stakeholders. Earlier this month, the Transition Pathway Initiative, or TPI, published its 2020 report on the progress of 163 energy companies in transitioning to a low-carbon economy and supporting efforts to mitigate climate change in line with the Task Force on Climate-Related Financial Disclosures, or TCFD, recommendations. In TPI's 2020 report, Hess is the only U.S. oil and gas company to achieve a level four star rating, which is only awarded to companies that demonstrably manage climate-related risks and opportunities from a governance, operational, and strategic perspective, and satisfy all TPI management quality criteria. In summary, we continue to execute our long-term strategy, delivering strong operational performance while prioritizing the preservation of cash, capability, and the long-term value of our assets during this low-price environment. As a result, Hess is uniquely positioned to deliver industry-leading cash flow growth and financial returns over the decade. As our portfolio generates increasing free cash flow, we will prioritize debt reduction and increasing cash returns to our shareholders. I will now turn the call over to Greg for an operational update.