Hess Corporation

Good day, ladies and gentlemen, and welcome to the second quarter 2022 Hess Corporation conference call. My name is Liz, and I'll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. 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.

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 factor sections of HES'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 also 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. Welcome to our second quarter conference call. Today, I will provide first some comments on the oil markets and then review our progress in executing our strategy. Greg Hill will then discuss our operations and John Reilly will review our financial results. In the last month, recessionary fears that have affected the financial markets have also been weighing on the oil markets. The price for Brent crude oil has gone from a peak of $120 per barrel to a low of $95 per barrel to approximately $105 per barrel today. However, the physical oil market remains tight. For example, to buy a physical Brent cargo, crude buyers today have to pay a cash premium of at least several dollars per barrel. We are in unprecedented times for the financial markets and for the oil markets. In both markets, we have experienced a demand shock and a supply shock. The global economy shut down in 2020, and it has taken approximately two years to recover. In terms of global oil demand, there's been a V-shaped recovery due to various government financial stimulus programs and accommodative monetary policies. Global oil demand has returned to pre-COVID levels of approximately 100 million barrels per day. On the other hand, global oil supply has seen more of a U-shaped recovery. Global oil supply has been struggling to keep up with demand, predominantly as a result of more than five years of industry underinvestment. As a consequence, we have seen seven consecutive quarters of draws on global oil inventories, so much so that global oil inventories today are approximately 400 million barrels less than pre-COVID levels. As we look to the second half of the year, we expect global oil demand to increase by 1 million to 1.5 million barrels per day as a result of China's economy reopening after COVID lockdowns and increasing air travel. In terms of global oil supply, while shale producers have enabled the U.S. to grow oil production by approximately 1 million barrels per day over the year, In the last year, there is very little spare capacity left in the world. With demand growing, supply lagging, and the potential for further sanctions on Russian oil exports, we expect a tight global oil market to get even tighter over the balance of the year. In a world that needs reliable, low-cost oil and gas resources now and for decades to come, HESTA is in a very strong position, offering a highly differentiated value proposition for investors. Our strategy is to continue delivering high resource growth, a low cost to supply, and industry-leading cash flow growth, while at the same time maintaining our industry leadership in environmental, social, and governance performance and disclosure. Our successful execution of this strategy has uniquely positioned our company to deliver value to shareholders now and for years to come, both by growing intrinsic value and by growing cash returns. By investing only in high-return, low-cost opportunities, the best rocks for the best returns, we have built a balanced portfolio focused on Guyana, the Bakken, Deepwater Gulf of Mexico, and Southeast Asia. With multiple phases of low-cost oil developments coming online in Guyana and our robust inventory of high-return drilling locations in the Bakken, we can deliver highly profitable production growth of more than 10% annually over the next five years. Through the continued development of our high-quality resource base, we are steadily moving down the cost curve. Our four sanctioned oil developments in Guyana have a break-even Brent oil price of between $25 and $35 per barrel. In terms of cash flow growth, we have an industry-leading rate of change and industry-leading durability story. Based upon a flat Brent oil price of $65 per barrel, Our cash flow is forecast to increase by approximately 25% annually between 2021 and 2026, more than twice as fast as our top line growth. Our balance sheet will also continue to strengthen in the coming years, with debt to EBITDAX expected to decline from less than two times in 2022 to under one time in 2024. As our portfolio becomes increasingly free cash flow positive, In the coming years, we are committed to returning up to 75% of our annual free cash flow to shareholders, with the remainder going to strengthen the balance sheet by increasing our cash position or further reducing our debt. Given our strong cash flow growth, we commenced a share repurchase program during the second quarter, repurchasing approximately 1.8 million shares of common stock for $190 million under our existing $650 million board authorizations. and we intend to opportunistically repurchase the remaining amount by year-end. Looking ahead, we plan to continue increasing our regular dividend to a level that is attractive to income-oriented investors, but sustainable in a low oil price environment. As our free cash flow generation steadily increases, share repurchases will represent a growing proportion of our return of capital. Key to our strategy is Guyana, the industry's largest oil province discovered in the last decade. On the Staybrook block in Guyana, where Hess has a 30% interest in ExxonMobil as the operator, we continue to see the potential for at least six floating production storage and offloading vessels, or FPSOs, in 2027, with a gross production capacity of more than 1 million barrels of oil per day and up to 10 FPSOs to develop the discovered resources on the block. In terms of our sanctioned oil developments, production at the LISA Phase I development has reached its new production capacity of more than 140,000 gross barrels of oil per day in the second quarter, following production optimization work on the LISA DES and the FPSO. The LISA Phase II development, which achieved first oil in February, reached its gross production capacity of approximately 220,000 barrels of oil per day earlier this month. Our third development on the Staybrook Block at the Piara Field, with a gross production capacity of approximately 220,000 barrels of oil per day, is on track for startup in late 2023. In early April, we announced sanction of Yellowtail, which will be the largest development to date on the Staybrook Block. The project will develop an estimated recoverable resource base of approximately 925 million barrels of oil and have a gross production capacity of approximately 250,000 barrels of oil per day, with first oil expected in 2025. Front-end engineering and design work for our fifth development in Wauru Mako is underway, with a plan of development expected to be submitted to the government by year-end. In terms of exploration and appraisal in Guyana, we continue to invest in an active program with approximately 12 wells planned for the Staybrook block in 2022. Yesterday, we announced two new discoveries on the block, at the Seabob 1 and Kurokuro 1 wells, bringing our total this year to seven. These discoveries will add to the previously announced gross discovered recoverable resource estimate for the Stabrook Block of approximately 11 billion barrels of oil equivalent. And we continue to see multi-billion barrels of future exploration potential remaining. Now turning to the Bakken, our largest operated asset. We have an industry-leading position with approximately 460,000 net acres in the core of the play. Severe weather in April and May caused widespread power outages lasting four to six weeks and production shut-ins throughout North Dakota. Production recovery efforts took longer than expected for our company and the industry. Our Bakken operations are now recovering. with approximately 50 new wells planned to be brought online in the second half of the year versus 32 in the first half. Given the strength of the oil market and the world's need for more oil supply, we added a fourth week earlier this month, which will allow us to achieve net production of approximately 200,000 barrels of oil equivalent per day in 2024, a level which will maximize free cash flow generation, lower our unit cash costs, and optimize our infrastructure. As we continue to execute our strategy, we are dedicated to maintaining our industry leadership in environmental, social, and governance performance and disclosure. On Monday, we announced publication of our 25th Annual Sustainability Report, demonstrating our long-standing commitment to sustainability and transparency. 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 15th consecutive year based on an independent assessment by ISS ESG, and we were the only energy company to earn a place on the 2022 list. Social responsibility is a fundamental part of our sustainability commitment. Earlier this month, we announced a multi-year national health care initiative with the government of Guyana and the Mount Sinai Health System. to provide access to affordable and high-quality health care, which is central to the government's vision for long-term shared prosperity for the people of Guyana. In summary, we continue to successfully execute our strategy to deliver industry-leading cash flow growth and financial returns to our shareholders while safely and responsibly producing oil and gas to help meet the world's growing energy needs. We increased our regular quarterly dividend by 50% in March, and during the second quarter commenced a share repurchase program reflecting the financial strength of our business and our commitments to shareholders. As our portfolio becomes increasingly free cash flow positive, we will continue both to invest to grow our company's intrinsic value and to increase the return of capital to our shareholders through further dividend increases and share repurchases. I will now turn the call over to Greg Hill for an operational update.