Hess Corporation

Good day, ladies and gentlemen, and welcome to the third quarter 2022 Hess Corporation conference call. My name is Carmen, and I'll be your operator for today. At this time, all participants are in a listen-only mode. After, 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.

Thank you, Carmen. 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 www.hess.com following the presentation. I'll now turn the call over to John Hess.

Thank you, Jay. Good morning. Welcome to our third quarter conference call. Today, I will share some thoughts about the oil markets and then review our progress in executing our strategy. Greg Hill will then discuss our operations, and John Riley will review our financial results. Global oil demand has returned to pre-COVID levels of approximately 100 million barrels per day. As we look to 2023, even with a recessionary environment and a slowing world economy, we expect global oil demand to grow by at least 1 million barrels per day, driven by China reopening its economy and an increase in global air travel. Oil supply, on the other hand, continues to struggle to keep up with global demand. Global oil inventories are approximately 300 million barrels less than pre-COVID levels, and there is very little spare production capacity in the world. Oil markets were tight, even before Russia invaded Ukraine and are expected to get even tighter this winter with the potential for further sanctions on Russian oil exports. The world is facing a structural supply deficit and significantly more global oil investment is needed. According to the International Energy Agency, a reasonable estimate for the global oil and gas investment needed for supply to meet demand is approximately $500 billion each year over the next 10 years. The last five years have seen significant underinvestment, which will tighten supply as global oil demand grows in the years ahead. The International Energy Agency's World Energy Outlook provides multiple scenarios for addressing the dual challenge of growing global energy supply by about 20% over the next 20 years and reaching net zero emissions by 2050. In all of these IEA scenarios, oil and gas will be needed for decades to come. So to ensure an affordable, just, and secure energy transition, we need to invest significantly more in oil and gas, and we also must have government policies that encourage investment rather than discourage it. In a world that will need reliable, low-cost oil and gas resources for decades to come, Hess is very well positioned. Our strategy is to deliver high return resource growth, a low cost of supply, and industry-leading cash flow growth, and at the same time maintain our industry leadership in environmental, social, and governance performance and disclosure. Our successful execution of this strategy has uniquely positioned our company deliver significant value to shareholders for years to come by growing both intrinsic value and cash returns. By investing only in high return, low cost opportunities, we have built a differentiated and 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. As our high-quality resource base expands, we will steadily move down the cost curve. Our four sanctioned oil developments in Guyana have a breakeven Brent oil price of between $25 and $35 per barrel. In terms of cash flow growth, we have an industry-leading rate of change story and durability story, providing a unique value proposition. 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. And our balance sheet will also continue to strengthen, with debt to EBITDAX expected to decline 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. We continued common stock repurchases during the third quarter, repurchasing $150 million of stock as part of the $650 million stock repurchase program announced earlier this year, and we intend to repurchase the remaining $310 million of stock in the fourth quarter. 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 in the years ahead, share repurchases will represent a growing proportion of our return of capital. Key to our strategy is Guyana, one of the industry's highest margin, lowest carbon intensity, and highest growth oil and gas prospects, according to Wood Mackenzie data. On the Staybrook block in Guyana, where Hess has a 30% interest in ExxonMobil as the operator, we continue to see the potential for 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 on the block, the LISA Phase I and LISA Phase II developments are currently operating at their combined gross production capacity of more than 360,000 barrels of oil per day. Our third development, the Payara Field, with a gross production capacity of approximately 220,000 barrels of oil per day, remains on schedule for startup at the end of 2023. Our fourth development, Yellowtail, which was sanctioned in April, will be the largest development to date on the Staybrook Block, with first oil expected in 2025. 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. Front-end engineering and design work for our fifth development in Waru is well underway, with a plan of development expected to be submitted to the government before year-end. In terms of exploration and appraisal in Guyana, this morning we announced two new discoveries on the block at Yarrow and Sailfam. bringing our total this year to nine. 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. In Suriname, we recently drilled the Zanderai One Well, where Hess has a 33% interest in Shell as the operator. The well demonstrated a working petroleum system and encountered oil pay. The well results are being evaluated and further exploration activities are being considered. Turning to sustainability, we are proud to be recognized as an industry leader in our environmental, social, and governance performance and disclosure. HESS has once again achieved Level 4 status in the Transition Pathway Initiative's recent management quality assessment. which is the highest level awarded to companies that demonstrably manage climate-related risks and opportunities from a governance, operational, and strategic perspective, in line with the Task Force on Climate-Related Financial Disclosures, TCFD, recommendations. In summary, we continue to successfully execute our strategy and deliver strong operational and ESG performance. We truly offer a unique value proposition. to grow both our intrinsic value and our cash returns by increasing our resource base, delivering a lower cost of supply, and generating the best cash flow growth among our peers, major oil companies, and the top quartile of the S&P 500. As our portfolio becomes increasingly free cash flow positive, we will continue to prioritize 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.