Hess Corporation

Good day, ladies and gentlemen, and welcome to the fourth quarter 2020 HES Corporation conference call. My name is Andrew, and I will 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 fourth 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 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 we have done in recent quarters, we will be posting transcripts of each speaker's prepared remarks on our website following the presentations. As usual, online 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. I would like to welcome everyone to our fourth quarter conference call. I hope you and your families are well and staying healthy during these challenging times. Today, I will review our continued progress in executing our strategy. Then Greg Hill will discuss our operations, and John Riley will review our financial performance. Our strategy has been and continues to be to grow our resource base, have a low cost of supply, and sustain cash flow growth. Our differentiated portfolio is balanced between short cycle and long cycle assets with our focus on the best rocks for the best returns. The Bakken, Deepwater Gulf of Mexico, and Southeast Asia are our cash engines and Guyana is our growth engine. Guyana becomes a significant cash engine as multiple phases of low-cost oil developments come online, which we believe will drive our company's break-even price to under $40 per barrel Brent and provide industry-leading cash flow growth over the course of the decade. As our portfolio generates increasing free cash flow, we will first prioritize debt reduction and then increase cash returns to shareholders through dividend increases and opportunistic share repurchases. Turning to 2020, we achieved strong operating results, overcoming difficult market conditions and the challenges of working safely in the pandemic. I am extremely proud of our workforce for delivering production in line with our original guidance, despite a 40% reduction in our capital and exploratory expenditures. In response to the pandemic's severe impact on oil prices, our priorities have been to preserve cash, preserve our operating capability, and to 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 enhance cash flow and maximize the value of our production. Last March and April, when U.S. oil storage was near capacity, we chartered three very large crude carriers, or VLCCs, to store approximately 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. and the second and third VLCC cargoes have been sold at a premium to Brent for delivery in the first quarter of 2021. We reduced our capital and exploratory spend for 2020 by 40% from our original budget of $3 billion down to $1.8 billion. The majority of this reduction came from dropping from a six-rig program in the Bakken to one rig. We also reduced our 2020 cash operating costs by $275 million. In 2020, we strengthened the company's cash and liquidity position through a $1 billion three-year term loan initially underwritten by JPMorgan Chase. In addition, we have an undrawn $3.5 billion revolving credit facility and no material debt maturities until 2023. During the fourth quarter, we closed on the sale of our 28% interest in the Shenzi Field in the Gulf of Mexico for a total consideration of $505 million, bringing value forward in the low-price environment. In terms of preserving capability, a key for us in 2020 was continuing to operate one rig in the Bakken. Greg Hill and our Bakken team have made tremendous progress over the past 10 years, in lean manufacturing capabilities, and innovative practices, which have 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, Guyana, with its low cost of supply and industry-leading financial returns, remains our top priority. On the Staybrook block, where Hess has a 30% interest and ExxonMobil is the operator, 2020 was another outstanding year. Three oil discoveries during the year at Waru, Red Tail 1, and Yellow Tail 2 brought total discoveries on the Staybrook block to 18. The estimate of gross discovered recoverable resources on the block was increased to approximately 9 billion barrels of oil equivalent, and we continue to see multi-billion barrels of future exploration potential remaining. In December, Production from Lisa Phase 1 reached its full capacity of 120,000 gross barrels of oil per day. The Lisa Phase 2 development is on track to achieve first oil in early 2022 with a capacity of 220,000 gross barrels of oil per day. Another key 2020 milestone was the sanctioning of our third oil development on the Stabro Block in September at the Piara Field. Piara will have a capacity of 220,000 gross barrels of oil per day and is expected to achieve first oil in 2024. Turning to our plans for 2021, to protect our cash flows, we have hedged 100,000 barrels per day with $45 per barrel WTI put options and 20,000 barrels per day with $50 per barrel Brent put options. Our 2021 capital and exploratory budget is $1.9 billion, of which more than 80% will be allocated to Guyana and the Bakken. Our three sanctioned oil developments on the Staybrook block have break-even Brent oil prices of between $25 and $35 per barrel, world-class by any measure. Front-end engineering and design work for a fourth development at the Yellowtail area is underway today. and we hope to submit the development plan to the government for approval before year end. We continue to see the potential for at least five FPSOs to produce more than 750,000 gross barrels of oil per day by 2026, and longer term for up to 10 FPSOs to develop the current discovered recoverable resource base. We will continue to invest in an active exploration and appraisal program in Guyana in 2021. with 12 to 15 wells planned for the block. The Haase number one exploration well recently encountered approximately 50 feet of oil-bearing reservoir in deeper geologic intervals. Although the well did not find oil in the primary shallower target areas, the Haase well results confirm a working petroleum system and provide valuable information about the future exploration prospectivity for this part of the block. In the Bakken, we plan to add a second rig during the first quarter, which will allow us to sustain production in the range of 175,000 barrels of oil equivalent per day for several years and protect the long-term cash flow generation from this important asset. As we continue to execute our strategy, our board, our leadership team, and our employees will be guided by our long-standing commitment to sustainability and the HES values. We are proud to have been recognized throughout 2020 by a number of third-party organizations for the quality of our environmental, social, and governance performance and disclosure. In December, we achieved leadership status in CDP's annual global climate analysis for the 12th consecutive year and earned a place on the Dow Jones Sustainability Index for North America, for the 11th consecutive year. In summary, our priorities will remain to preserve cash, preserve capability, and preserve the long-term value of our assets. 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 for over the course of the decade. As our free cash flow grows, we will first prioritize debt reduction and then return of capital to shareholders, both in terms of dividends and opportunistic share repurchases. I will now turn the call over to Greg for an operational update.