Hess Corp. is doing more with less, with the Bakken Shale continuing to drive a significant portion of oil and natural gas production growth at the same time 2019 spending came in lower than expected.
The New York City-based producer on Wednesday reported net oil and gas production in 4Q2019, excluding Libya, averaged 316,000 boe/d versus 267,000 boe/d in 4Q2018. The increase was driven largely by the Bakken Shale, where net production during the quarter was 174,000 boe/d, up 38% year/year.
Full-year net production, excluding Libya, averaged 290,000 boe/d, above more recent guidance of about 285,000 boe/d. At the same time, last year’s capital expenditures (capex) were $2.74 billion, about $150 million lower than original guidance.
CEO John Hess touted his team’s ability to drive down costs with “lean manufacturing” and technology. While the company expects some flattening to occur in 2021, it is also seeing some softness in sand costs and pressure pumping. “So we built some of that into our cost estimates for next year,” the company chief said Wednesday on a call to discuss earnings.
For 2020, net production, excluding Libya, is forecast to average 330,000-335,000 boe/d, a 15% increase year/year. First quarter net production is expected to be 320,000-325,000 boe/d. Hess also affirmed 2020 capex of $3 billion.
In the Bakken, net production last year averaged 152,000 boe/d, which is above most recent guidance of 150,000 boe/d. Net oil production during 4Q2019 was up 28% year/year to 106,000 b/d, primarily from increased drilling activity, and new plug/perforation well completion design. Natural gas and natural gas liquids production also were higher because of the increased drilling activity, additional gas captured from the Little Missouri 4 gas processing plant that started operations in July, and from additional volumes received under percentage-of-proceeds contracts resulting from lower prices.
Net oil production last year was up 22% from 2018, and the company is on track for Bakken production to reach around 200,000 boe/d by the end of the year. It expects 2021 output to be about flat from this year, a level it expects to hold “for at least five years and probably longer,” according to management.
The producer is doing “a lot of trials” on proppant loading on a number of entry points on spacing in its Tier 2 acreage, with none of those included in assumptions going forward. “I'm very optimistic that will get much better as we go forward, as we learn in those areas,” John Hess said.
The company operated six rigs in the Bakken in 4Q2019, drilling 42 wells, completing 37 wells and bringing 59 wells online. It plans to drop the number of rigs in the play to four in 2021.
In the first quarter, Bakken net production is forecast to average about 170,000 boe/d, which reflects lower planned activity levels from “seasonally difficult winter weather conditions.” It expects to bring online roughly 30 wells, compared with 59 in 4Q2019, according to the company chief.
For 2020, Hess is projecting net production in the Bakken to average around 180,000 boe/d, which is about 18% higher than 2019. It expects to drill about 170 wells and bring around 175 new wells online, compared with 160 wells drilled and 156 wells brought online in 2019.
Full-year production guidance includes a 45-day turnaround at the Tioga gas processing plant in North Dakota during 3Q2020 that would include a previously announced expansion to boost capacity to 400 MMcf/d from 250 MMcf/d. The turnaround is expected to have a net impact of about 6,000 boe/d.
The company also has two “major” shutdowns scheduled in the Gulf of Mexico (GOM) for the second quarter, each of which is expected to last 30 days. Another eight-day turnaround is planned for its Penn State Deep Well 6 well, which altogether would impact around 13,000 b/d during the quarter.
Net production from the GOM during 4Q2019 was 70,000 boe/d, compared with 68,000 boe/d a year ago. The Esox-1 oil discovery in Mississippi Canyon, in which it has a 57% stake, is to be brought online in February as a low-cost tieback to the Tubular Bells production facilities.
“The time frame from discovery to first oil is expected to be less than four months,” COO Gregory Hill said of the Esox well. In 2020, Hess is forecasting net production from its deepwater GOM assets to average around 65,000 boe/d.
Hess is allocating more than 80% of its $3 billion 2020 budget to investments in the Bakken and offshore Guyana. Management is designating $1.375 billion to fund the Bakken program, while $860 million has been earmarked for Guyana, including $100 million associated with the Liza Phase 1 development. Subsidiary Hess Guyana Exploration Ltd. has a 30% stake in a partnership with ExxonMobil Corp. in the Stabroek Block.
“With Guyana and the Bakken as our growth engines and Malaysia and the deepwater Gulf of Mexico as our cash engines, our portfolio is on track to deliver increasing and strong financial returns, visible and low-risk production growth and industry-leading cash flow growth,” Hess said.
Fourth quarter net losses totaled $222 million (minus 73 cents/share), compared with a net loss of $4 million (minus 5 cents) in 4Q2018. Full year 2019 net losses were $408 million (minus $1.37/share), compared with a full year 2018 net loss of $282 million (minus $1.10).
Exploration and production capital and exploratory expenditures were $876 million in 4Q2019, compared with $618 million in the prior-year quarter, primarily reflecting greater activity in Guyana, the Bakken and the GOM.
“Our company had an outstanding year, achieving a number of important milestones and delivering higher production and lower capital and exploratory expenditures for the year than our guidance,” Hess said. “We look forward to continuing this momentum into 2020 and future years as we execute our differentiated long-term strategy.”
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