For the first time since entering the play, Hess Corp. has issued production guidance for its Utica Shale assets in Ohio, estimating that its wells there will be producing 40,000 boe/d by 2020.
With about 40 wells completed and producing in the play, Hess officials said they felt confident issuing that guidance during an investor presentation on Monday. The company, which permitted its first Ohio Utica well in 2012, said it can reach 40,000 boe/d in six years at 500 well locations. It issued an estimated ultimate recovery (EUR) of 300 million boe for its assets in the play.
"Our unconventional strategy is really threefold: first, is to maximize opportunities of the Bakken, secondly, to leverage industry-leading capabilities into other plays, like the Utica, and third, to grow our portfolio as a partner of choice," CEO John B. Hess told potential investors.
Overall, the company's long-term growth plan calls for increasing its five-year production growth rate by 6-10% annually from 2013-2018. It will rely heavily on its offshore assets across the globe that stretch from the Gulf of Mexico to Australia to do so. Only about 7% of the company's production is exposed to Henry Hub pricing, Hess officials said, noting that while that will grow with the expansion of its onshore assets in North Dakota and Ohio, the company will need to see Brent crude oil prices between $90-100/bbl in order to achieve its projected growth rate.
"We're really in a strong position compared to our competition to manage in a lower price environment," John Hess said. "In fact, I think we're positioned to capitalize on it."
He added that the company's growth would be facilitated with a balance between low-risk assets in the onshore and cash-flow from the company's offshore operations.
"If you look at [capital expenditures] offshore, again, you get very, very high investment upfront, but then what happens with offshore is it comes on to generate an awful lot of cash flow and it pays out fairly quickly," COO of Exploration and Production Gregory Hill said of that balance. "Unconventionals, of course, are a little bit more of a modern investment, but then it takes longer to pay out, but you end up with a very nice long-term cash flow stream that goes on for as far as the eye can see."
The company's bread and butter in the onshore has been North Dakota's Bakken Shale, where it has 640,000 net acres and considerable infrastructure investments. Hess also increased its production guidance there, thanks in large part to tighter downspacing, which increased its total well locations from 3,000 to 4,000. It now estimates that its Bakken assets will be producing 175,000 boe/d by 2020 and has increased its EUR to 1.4 billion boe.
Vice President of Bakken operations Geurt Schoonman told investors that since 2012 the cost of the company's average Bakken well has been reduced from $13.4 million to $7.2 million, even with more hydraulic fracturing stages and longer laterals.
But the company has spent heavily on pilot wells and research, and it's now finding that the Utica Shale is competing for capital with the Bakken, despite higher well costs. Senior Vice President of Onshore operations Michael Turner said the Utica has double the EURs and a greater return on investment in the wet gas window, which makes it comparable to the Bakken.
Hess plans to run a two-three rig program at a cost of $300-350 million over the next six years across its 90,000 net acre position in Jefferson, Belmont, Harrison and Guernsey counties Ohio. In the near-term, Turner said, third-party gathering and processing will be secure by the end of this year for all of the wells Hess plans to drill through 2018.