Hess Corporation

Good day, ladies and gentlemen, and welcome to the first quarter 2023 Hess Corporation conference call. My name is Kevin, and I'll be your operator for today. At this time, all participants are on a 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.

Thank you, Kevin. Good morning, everyone, and thank you for participating in our first 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 factors 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 Reilly, Chief Financial Officer. I'll now turn the call over to John Hess.

Thank you, Jay. Good morning and welcome to our first quarter conference call. Today I will discuss our continued progress in executing our strategy. Greg Hill will then cover our operations and John Reilly will review our financial results. We believe that HESS offers a unique value proposition for investors. 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. In terms of resource growth, with multiple phases of Guyana developments coming online, and our robust inventory of high-return drilling locations in the Bakken, we can deliver highly profitable production growth of more than 10% annually through 2027. On the Staybrook Block in Guyana, we currently have line of sight to six floating production, storage, and offloading vessels, or FPSOs, in 2027, with a gross production capacity of more than 1.2 million barrels of oil per day. In terms of a low cost of supply, as our resource base continues to expand, we will steadily move down the cost curve. By 2027, we forecast that our cash unit costs will decline by 25% to approximately $10 per BOE and that our portfolio will achieve a break-even Brent oil price of approximately $50 per barrel. Our four sanctioned oil developments on the Staybrook block have a break-even Brent oil price of between approximately $25 and $35 per barrel. In terms of cash flow growth, we have an industry-leading rate of change story and an industry-leading duration story, providing a highly differentiated value proposition. Based upon a flat Brent oil price of $75 per barrel, our cash flow is forecast to increase by approximately 25% annually between 2022 and 2027, more than twice as fast as our top line growth. And our balance sheet will also continue to strengthen with our most recent debt to EBITDAX ratio at approximately one time. Successful execution of our strategy has uniquely positioned our company to deliver significant value to shareholders for years to come, both by growing intrinsic value and by growing cash returns. Our financial priorities are to allocate capital to our high-return, low-cost investment opportunities, to maintain a strong balance sheet and cash position to ensure that we can fund our world-class investment opportunities in Guyana and the Bakken, where we have allocated more than 80% of our 2023 capital budget, and also return up to 75% of our annual free cash flow to shareholders through dividend increases and share repurchases. In line with our return of capital framework, in March we increased our annual dividend by 17% to $1.75 per share. 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 future years, Share repurchases are expected to represent a growing proportion of our return of capital. To manage oil price volatility, we have hedged 130,000 barrels of oil per day in 2023, of which 80,000 barrels of oil per day have $70 per barrel WTI put options and 50,000 barrels of oil per day have $75 per barrel Brent put options. which positions our shareholders to be protected on the downside while fully benefiting on the upside. Key to our strategy is Guyana, the industry's largest oil province discovered in the last decade, where Hess has a 30% interest and ExxonMobil is the operator. Since 2015, we have had more than 30 discoveries on the block, including two since the start of 2023 at Fangtooth Southeast 1, and Lancet fish 1, underpinning a gross discovered recoverable resource estimate of more than 11 billion barrels of oil equivalent, with multi-billion barrels of exploration potential remaining. We have the potential for up to 10 FPSOs to develop the discovered resources on the block. The LISA Phase 1 and LISA Phase 2 developments produced an average of approximately 375,000 gross barrels of oil per day in the first quarter. The FPSO for our third sanctioned development at Piara arrived on the Staybrook block earlier this month, ahead of schedule, and is targeted to start up early in the fourth quarter with a gross production capacity of approximately 220,000 barrels of oil per day. The fourth sanctioned development, Yellowtail, is expected to come online in 2025 with a gross production capacity of approximately 250,000 barrels of oil per day. Government and regulatory approvals are expected very soon, hopefully this week, for our fifth development at Waru, which will have a gross production capacity of approximately 250,000 barrels of oil per day. A plan of development for our sixth development, Whiptail, is expected to be submitted for regulatory and government approvals later this year. Turning to the Bakken. We plan to continue operating a four-rig program, which will enable us to grow net production to approximately 200,000 barrels of oil equivalent per day in 2025, lower our unit cash flows, fully optimize our infrastructure, and generate significant levels of free cash flow. Greg and his team continue to do an outstanding job of applying lean manufacturing principles to build a culture of innovation, improve efficiency, and mitigate inflationary cost pressures. As we execute our company's strategy, we will continue to be guided by our long-standing commitment to sustainability and are proud to be an industry leader in this area. Earlier this month, we announced a $50 million donation over the next five years to the Salk Institute's Harnessing Plants Initiative, which is a potential game changer in tackling the global challenge of climate change by developing plants, crops, and wetlands' natural ability to capture and store potentially billions of tons of carbon per year from the atmosphere. We are proud to once again have received a AAA rating in the latest MSCI Environmental, Social, and Governance Rating Assessment. AAA, which is MSCI's ESG's highest rating, designates our company as a leader in managing industry-specific ESG risks relative to peers. We received our first AAA rating in 2021 after earning AA ratings for 10 consecutive years. In February, HES also earned a place on the 2023 Bloomberg Gender Equality Index for the fourth consecutive year. In summary, we continue to successfully execute our strategy, which offers a unique value proposition for our industry by growing both our intrinsic value and our cash returns. With multiple phases of low-cost oil developments coming online in Guyana and our robust inventory of high-return drilling locations in the Bakken, our portfolio is positioned to become increasingly free cash flow positive, and as it does, we will continue to prioritize the return of capital to our shareholders through further dividend increases and further share repurchases. I will now turn the call over to Greg Hill for an operational update.