Hess Corporation

Good day, ladies and gentlemen, and welcome to the second quarter 2021 Hess Corporation conference call. My name is Liz, and I will be your operator for today. At this time, all participants are in 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, Liz. 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 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. On the line with me today are John Hess, Chief Executive Officer, Greg Hill, Chief Operating Officer, and John Riley, Chief Financial Officer. In case there are any audio issues, we will be posting transcripts of each speaker's prepared remarks on www.hess.com following the presentation. I'll now turn the call over to John Hess.

Thank you, Jay. Good morning, everyone. Welcome to our second quarter conference call. Today I will review our continued progress in executing our strategy and our long-standing commitment to sustainability. Greg Hill will then discuss our operations, and John Riley will cover our financial results. Our strategy is to grow our resource base, have a low cost to supply, and sustained cash flow growth. Executing this strategy has positioned our company to deliver industry-leading cash flow growth over the next decade and has made our portfolio increasingly resilient in a low oil price environment. Our strategy aligns with the world's growing need for affordable, reliable, and cleaner energy that is necessary for human prosperity and global economic development. We recognize that climate change is the greatest scientific challenge of the 21st century and support the aim of the Paris Agreement and a global ambition to achieve net zero emissions by 2050. The world faces the dual challenge of needing 20% more energy by 2040 and reaching net zero carbon emissions by 2050. In the International Energy Agency's rigorous sustainable development scenario, which assumes that all pledges of the Paris Agreement are met, oil and gas will be 46% of the energy mix in 2040, compared with approximately 53% today. In the IEA's newest net-zero scenario, oil and gas will still be 29% of the energy mix in 2040. In either scenario, Oil and gas will be needed for decades to come and will require significantly more global investment over the next 10 years on an annual basis than the $300 billion spent last year. The key for our company is to have a low cost of supply. By investing only in high return, low cost opportunities, the best rocks for the best returns, we have built a differentiated and focused portfolio that is balanced between short-cycle and long-cycle assets. Guyana is our growth engine, and the Bakken, Gulf of Mexico, and Southeast Asia are our cash engines. Guyana is positioned to become a significant cash engine in the coming years as multiple phases of low-cost oil developments come online, which we expect will drive our portfolio break-even Brent oil price below $40 per barrel by the middle of the decade. Based on the most recent third-party estimates, our cash flow is estimated to grow at a compound annual growth rate of 42% between 2020 and 2023, which is 75% above our peers and puts us in the top 5% of the S&P 500. With a line of sight for up to 10 FPSOs to develop the discovered resources in Guyana, this industry-leading cash flow growth rate is expected to continue through the end of the decade. Investors want durability and growth in cash flow. We have both. We are pleased to announce today that in July, we paid down $500 million of our $1 billion term loan maturing in March 2023. Depending upon market conditions, we plan to repay the remaining $500 million in 2022. This debt reduction combined with a startup of lease of phase two early next year is expected to drive our debt to EBITDAX ratio under two next year. Once this debt is paid off and our portfolio generates increasing free cash flow, we plan to return the majority to our shareholders, first through dividend increases and then opportunistic share repurchases. In addition, we announced this morning that Hess Midstream will buy back $750 million of its Class B units from its sponsors, Hess Corporation and Global Infrastructure Partners, to be completed in the third quarter. We expect to receive approximately $375 million in proceeds, and our ownership in Hess Midstream on a consolidated basis will be approximately 45% compared with 46% prior to the transactions. On April 30th, we completed the sale of our Little Knife and Murphy Creek non-strategic acreage interest in the Bakken for a total consideration of $312 million, effective March 1st, 2021. This acreage, most of which we were not planning to drill before 2026, was located in the southernmost portion of our Bakken position and was not connected as midstream infrastructure. The midstream transaction and the sale of the Little Knife and Murphy Creek acreage bring material value forward and further strengthen our cash and liquidity position. The Bakken remains a core part of our portfolio and our largest operated asset. We have a large inventory of future drilling locations that generate attractive financial returns at $50 per barrel WTI. In February, when WTO oil prices moved above $50 per barrel, we added a second rig. Given the continued strength in oil prices, we are now planning to add a third rig in the Bakken in September, which is expected to strengthen free cash flow generation in the years ahead. Key to our long-term strategy is Guyana, with its low cost of supply and industry-leading financial returns. We have an active exploration and appraisal program this year on the Staybrook block, where Hess has a 30% interest and ExxonMobil is the operator. We see the potential for at least six FBSOs on the block by 2027, and up to 10 FBSOs to develop the discovered resources on the block. And we continue to see multi-billion barrels of future exploration potential remaining. Earlier today, we announced a significant new oil discovery at Whiptail. The Whiptail No. 1 well encountered 246 feet of net pay, and the Whiptail No. 2 well, which is located 3 miles northeast of Whiptail 1, encountered 167 feet of net pay in high-quality oil-bearing sandstone reservoirs. Drilling continues at both wells to test deeper targets. The Whiptail discovery could form the basis for our future oil development in the southeast area of the Stabrook Block and will add to the previous recoverable resource estimate of approximately 9 billion barrels of oil equivalent. In June, we also announced the discovery at the Longtail 3 well, which encountered approximately 230 feet of net pay, including newly identified high-quality hydrocarbon-bearing reservoirs below the original Long Tail 1 discovery intervals. In addition, the successful Mako II well, together with the Waru II well, which encountered approximately 120 feet of high-quality oil-bearing sandstone reservoir, will potentially underpin a fifth oil development in the area east of the ELISA complex. In terms of Guyana developments, the Lisa Unity FPSO, with a gross capacity of 220,000 barrels of oil per day, is expected to sail from Singapore to Guyana in late August, and the Lisa 2 development is on track to achieve first oil in early 2022. Our third oil development on the Staybrook Block at the Piara Field is expected to achieve first oil in 2024, also with a gross capacity of 220,000 barrels of oil per day. Engineering work for our fourth development. on the Staybrook Block at Yellowtail, is underway with preliminary plans for a gross capacity in the range of 220,000 to 250,000 barrels of oil per day and anticipated startup in 2025, pending government approvals and project sanctioning. Our three sanctioned oil developments have a break-even Brent oil price of between $25 and $35 per barrel. And, according to a recent data from Wood Mackenzie, our Guyana developments are the highest margin, lowest carbon intensity oil and gas assets globally. Last week, we announced publication of our 24th Annual Sustainability Report, which details our environmental, social, and governance, or ESG, strategy and performance. In 2020, we significantly surpassed our five-year emission reduction targets, reducing Scope 1 and 2 operated greenhouse gas emissions intensity by 46% and flaring intensity by 59% compared to 2014 levels. Our five-year operated emission reduction targets for 2025, which are detailed in the sustainability report, exceed the 22% reduction in carbon intensity by 2030 in the International Energy Agency's sustainable development scenario, which is consistent with the Paris Agreement's ambition to hold the rise in global average temperature to well below 2 degrees centigrade. We are also contributing to groundbreaking research being done 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. In May, Hess was named to the 100 Best Corporate Citizens list for the 14th consecutive year based upon an independent assessment by ISS ESG. And we were the only oil and gas company to earn a place on the 2021 list. In summary, oil and gas are going to be needed for decades to come. By continuing to successfully execute our strategy and achieve strong operational performance, our company is uniquely positioned to deliver industry-leading cash flow growth over the next decade. As our term loan is paid off and our portfolio generates increasing free cash flow, the majority will be returned to our shareholders, first through dividend increases and then opportunistic share repurchases. I will now turn the call over to Greg Hill for an operational update.