Hess Corp. won't sell its unconventional assets in the Bakken, Eagle Ford and Utica shale plays, but it is looking at proposals from a hedge fund that wants a larger stake in the company, Hess officials said during a 4Q2012 earnings call on Wednesday.
"The smaller, more focused exploratory program is the right strategy," said CEO John Hess.
Elliott Associates LP, a hedge fund that owns a 4% stake in Hess, is urging other shareholders to elect its five nominees to the company's board of directors (see Shale Daily, Jan. 30). Elliott has also called for the company's unconventional assets to be spun off into a separate entity called Hess Resource Co.
"We're happy to discuss with shareholders their ideas," Hess' CEO said. "And specifically, in terms of Elliott's proposals, we're looking carefully at them and the presentation. We will have a response to that presentation in a short period of time."
But Hess said he disagreed with Elliott's idea of spinning off the company's unconventionals.
"Some of [the] assets in our conventional portfolio generate the cash needed to fund the unconventional growth that we have in the Bakken and the Utica," Hess said. "Just having the Bakken and Utica stand alone, they would not be self-funding. They could not get access to the credit markets, and that's a real issue. So this balanced approach we definitely think is the right one that will create the most financial returns for our shareholders over the long term."
Hess Corp. reported oil and natural gas production of 396,000 boe/d during 4Q2012, an increase from 367,000 boe/d in 4Q2011. The company said it expects 2013 production will average between 375,000 boe/d and 390,000 boe/d.
Greg Hill, Hess president of worldwide exploration and production, said the company plans to bring 70 wells into production during the first half of 2013 and another 105 wells in the second half. Full-year production for 2012 averaged 56,000 boe/d, an 87% increase from 2011.
"Fourth quarter production from the Bakken averaged 64,000 boe/d, up 68% from the fourth quarter of 2011," Hill said. "We expect 2013 net production to average between 64,000 and 70,000 boe/d and for most of the growth to occur in the second half of the year."
Hill added that the company's 2013 capital expenditures (capex) budget for the Bakken is $2.2 billion, down from the $3.1 billion it spent on capex in the play in 2012. "The primary drivers for this decrease are lower drilling and completion costs and a lower level of infrastructure spend," he said. "We expect to operate a 14-rig program in 2013."
Hess drilled 176 operated wells and completed 206 wells in the Bakken in 2012. Average 30-day initial production (IP) for the completed wells ranged from 750 to 900 b/d of oil, and estimated ultimate recovery (EUR) averaged between 550,000 and 650,000 boe per well. Hess plans to drill 185 operated wells and complete 175 wells, in 2013.
Hill said Hess was continuing to appraise its position in the Utica. "We are encouraged by the results based on data from our own wells and industry wells," he said, adding that the company had drilled two wells and completed one, the NAC 3H-3, in 2012. Hill said the well tested at a rate of 11 Mcf/d and is currently maintaining a rate of 4 Mcf/d, with surface facility constraints.
Also in the Utica, Hill said Hess and its joint venture (JV) partner in the play, Consol Energy Inc., drilled two Hess-operated wells and completed one of them on acreage owned by the JV (see Shale Daily, Sept. 8, 2011). Hill said the Athens 1H-24 well, located in Harrison County, OH, tested at a rate of 13.9 Mcf/d and 1,056 b/d of condensate. He said Consol also drilled another eight wells, of which four were completed and three were tested.
"In 2013, we plan to drill five wells on our 100% owned acreage, and the JV is planning to drill 27 wells, mainly concentrated in Harrison, Guernsey and Noble counties," Hill said.
Hess Corp. reported net income of $566 million ($1.66/share) for 4Q2012, compared to a net loss of $131 million (39 cents/share) in 4Q2011. Net income, excluding items affecting comparability between the two periods, was $409 million in 4Q2012, compared to $394 million in 4Q2011. Consolidated net income for 2012 totaled $2.2 billion.