Hess Corporation

Good day ladies and gentlemen and welcome to the third quarter 2021 HESS Corporation conference call. My name is Josh 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, Josh. 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 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 our website following the presentation. I'll now turn the call over to John Hess. Thank you, Jay. Good morning, everyone.

Welcome to our third quarter conference call. Today I will review our continued progress in executing our strategy. Greg Hill then will discuss our operations, and John Reilly will cover our financial results. With COP26 beginning this Sunday, it is appropriate to address the energy transition. Climate change is the greatest scientific undertaking of the 21st century. The world has two challenges, to grow our global energy supply by about 20% in the next 20 years and to reach net zero emissions by 2050. The International Energy Agency published its latest World Energy Outlook earlier this month, which provides four scenarios to shed light on these challenges. It is important to remember that these are scenarios, not forecasts, to help guide policymakers and business leaders in their decision making. In all four scenarios, oil and gas will still be needed in the decades to come. Significantly more investment will be required to meet the world's growing energy needs. Much more in renewables and much more in oil and gas. A reasonable estimate for global oil and gas investment from these IEA scenarios is at least $400 billion each year over the next 10 years. Last year, that number was $300 billion. This year's estimate is $340 billion. To ensure a successful and orderly energy transition, we need to have climate literacy, energy literacy, and economic literacy. Our strategy is to grow our resource base, have a low cost of supply, and sustain cash flow growth, while delivering industry-leading environmental, social, and governance performance and disclosure. By investing only in high return, low cost opportunities, we have built a differentiated and focused portfolio that is balanced between short cycle and long cycle assets. Our cash engines are the Bakken, the Gulf of Mexico, and Southeast Asia, where we have competitively advantaged assets and operating capabilities. Guyana is our growth engine and is on track to become a significant cash engine in the coming years, as multiple phases of low-cost oil developments come online. Also, by adding a third rig in the Bakken in September and completing the turnaround and expansion of the Tioga gas plant, the Bakken is expected to generate significant free cash flow in the years ahead. By successfully executing our strategy, our company is positioned to deliver strong and durable cash flow growth through the end of the decade. Based upon the most recent sell-side consensus estimates, our cash flow is estimated to grow at a compound annual growth rate of 42% between 2020 and 2023, which is 50% above our peers and puts us in the top 5% of the S&P 500. As our portfolio generates increasing free cash flow, we will first prioritize debt reductions. and then cash returns to shareholders through dividend increases and opportunistic share repurchases. We have continued to maintain financial strength as well as managing for risk. As of September 30th, we had $2.4 billion of cash on the balance sheet. In July, we prepaid half of our $1 billion term loan maturing in March 2023, and we plan to repay the remaining $500 million in 2022. This debt reduction, combined with the startup of Lisa Phase 2 early next year, is expected to drive our debt-to-EBITDAX ratio under 2 and also enable us to consider increasing cash returns to shareholders. In August, we completed the sale of our interest in Denmark for a total consideration of $150 million, effective January 1, 2021. and received $375 million in proceeds from Hess Midstream's buyback of Class B units from its sponsors, Hess Corporation and Global Infrastructure Partners. Earlier this month, our company also received net proceeds of $108 million from the public offering of Hess-owned Class A shares of Hess Midstream. The Denmark sale and these midstream monetizations brought material value forward and further strengthened our cash and liquidity position. Key to our long-term strategy is Guyana, one of the industry's best investments. On the Staybrook block, where Hess has a 30% interest and ExxonMobil is the operator, we announced the 19th and 20th significant discoveries during the third quarter at Whiptail and Pinktail. And on October 7th, we announced the 21st significant discovery on the block at Cadaback. These discoveries will underpin our queue of future low-cost oil developments. We see the potential for at least six FPSOs on the Staybrook block, producing more than 1 million gross barrels of oil per day in 2027, and up to 10 FPSOs to develop the discovered resources on the block. On October 7th, we increased the gross discovered recoverable resource estimate for the block to approximately 10 billion barrels of oil equivalent, up from the previous estimate of more than 9 billion barrels of oil equivalent. And we continue to see multi-billion barrels of future exploration potential remaining. In terms of our current Guyana developments, gross production from the Lisa Phase I complex averaged 124,000 barrels of oil per day in the third quarter. The LISA Phase II development is on track for startup in early 2022 with a gross production capacity of 220,000 barrels of oil per day, and the LISA unit FPSO arrived in Guyana on Monday. Our third development on the Staybrook block at the Payara Field is on track to achieve first oil in 2024, also with a gross capacity of 220,000 barrels of oil per day. Our three sanctioned oil developments have a breakeven Brent oil price of between $25 and $35 per barrel. The plan of development for our fourth development on the block at Yellowtail was recently submitted to the government of Guyana for approval. Pending government approvals, the project is envisioned to have a gross capacity of approximately 250,000 barrels of oil per day with first oil in 2025. Turning to sustainability, we are proud to be recognized as an industry leader in our environmental, social, and governance performance and disclosure. Earlier this month, our company received a AAA rating in the MSCI ESG ratings for 2021 after earning AA ratings for the previous 10 consecutive years. The AAA rating designates Hess as a leader in managing industry-specific ESG risks relative to peers and reflects our strong management practices to reduce carbon emissions, as well as our top quartile performance in areas such as biodiversity and land use, reduction of air and water emissions and waste, and making a positive impact on the communities where we operate. In summary, we remain focused on executing our strategy and achieving strong operational and ESG performance. Our company is uniquely positioned to deliver cash flow growth over the next decade that is not only industry-leading, but which we believe will rank among the best in the S&P 500. After our term loan is paid off and our portfolio generates increasing free cash flow, we will prioritize return of capital to our shareholders through dividend increases and optic share repurchases. Thank you, and I will now turn the call over to Greg Hill for an operational update.