In a presentation at the Bank of America Merrill Lynch 2017 Global Energy Conference on Thursday, Hess Corporation (NYSE:HES) Chief Executive Officer John Hess, disclosed a number of steps the company is taking, which is the clearest indication yet that it is betting big on the South American country of Guyana.
This year, the company has announced sales of mature, lower growth assets that will result in proceeds of $3.4 billion and the release of $1.3 billion of asset retirement obligations (excluding the sale of its interests in Denmark expected in 2018).
The company plans to use these proceeds to prefund a world class oil development in Guyana. It will also be looking to increase to a total of six rigs from four rigs currently in the Bakken during 2018, where the company has a robust inventory of high return drilling locations in the core of the play. Hess said it will return cash to shareholders through a share repurchase program of up to $500 million of stock to be completed in 2018. It will also seek to reduce Hess Corporation debt (excluding midstream) by $500 million in 2018.
“We have moved aggressively to focus and high grade our portfolio with asset sales that exceeded expectations in terms of value and timing,” John Hess said. “Investing in our highest return assets and divesting mature, higher cost assets are significantly lowering our cash unit costs and bolstering our company’s balance sheet, as well as enabling us to prefund Guyana oil developments, return capital to shareholders and reduce debt.”
The company’s portfolio will be focused on Guyana and the Bakken as growth engines and Malaysia and deepwater Gulf of Mexico as cash engines. On a pro forma basis, this high graded portfolio is expected to generate capital efficient annual production growth of approximately 10 percent per year through 2020. Assuming a $50 per barrel oil price (Brent), cash flow is expected to grow at an annual rate of more than 20 percent over the same period.
The high graded portfolio combined with a planned $150 million annual cost reduction program is expected to drive down cash unit production costs by approximately 30 percent – to less than $10 per barrel of oil equivalent – by 2020. This improvement will enable the company to generate free cash flow at a $50 per barrel oil price (Brent) after 2020.
“The Stabroek Block is a massive world class resource that keeps getting bigger and better,” Hess said. “Guyana is an extraordinary oil investment opportunity that is uniquely advantaged by its scale, reservoir quality, cost advantages, rapid cash paybacks and strong financial returns, which we believe will create significant value for our shareholders for many years to come.”
Hess has a 30 percent interest in the Stabroek Block offshore Guyana, where gross discovered recoverable resources are currently estimated to be 2.5 billion to 2.8 billion barrels of oil equivalent. The company also sees multi billion barrels of additional unrisked exploration potential on the block.
