The oil and gas resources discovered offshore Guyana since 2015 continue to play a key role in Hess Corporation’s portfolio and investor spending.
The company has a 30% interest in the ExxonMobil-operated Stabroek Block offshore Guyana where nearly 11 billion barrels of oil equivalent resources have been found since 2015.
During the Bernstein’s 38th Annual Strategic Decisions Conference held last week, Hess Corporation’s Chief Executive Officer (CEO), John Hess categorically stated that his firm is the only one in the industry that can actually grow intrinsic value while at the same time grow cash returns or cash yield for shareholders. He said this is based upon a strategy of three things: growth resource, high returns while going down the cost curve, and having a low cost of supply.
On the resource side, Hess said, “We have a very focused but balanced portfolio, and we think, in order to grow that resource, you can’t just stay in shale. We have the Bakken shale, which is a 15-year well inventory, while most people have a 10-year inventory. We have gas in Malaysia that has another 10 years to go in it. You have the Gulf of Mexico where we do have some growth potential and then there is Guyana; so, it is a very focused balanced portfolio… very oil dominated.”
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The CEO said this portfolio will allow Hess to grow production by 10% a year. He recalled that three years ago, the company was criticised for its laser-focused approach to investing, while adding that this led to a number of investors putting a halt on their offers to the company. Hess said those investors wanted their cash to be returned.
“But we convinced them using Guyana. We said look, ‘We have high returns specifically in Guyana and we are going to benefit from that investment because as we grow the resource, we grow the cash flow,” he said.
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Getting into the numbers, Hess said every Guyana ship at US$65 Brent adds US$1 billion a year to earnings before interest, taxes, and amortisation (EBITA) and as a consequence, the company’s cash flow is 25% compounded each year for the next five years. With more ships, he presumes this can actually go out to 2030.
He said, “Part of that also is going down the cost curve, our cost per barrel goes down 25% to US$9 per boe by 2026; our breakeven as a company will be US$45 Brent for 2026 and at the end of the day, that cash flow growth will compound where we are growing intrinsic value but also start to return cash along the way as well.”
With such a rate of return, he said Hess will no doubt continue to grow dividend and be attractive to growth-income investors.