Hess Corp. remains laser-focused on developing assets in the Bakken Shale of North Dakota and offshore Guyana, directing the lion’s share of its $1.9 billion exploration and production (E&P) capital and exploratory budget to the “high return, low cost” assets for 2021.
The New York City-based producer in the first quarter is set to increase the number of rigs operating in the Bakken to two, with a plan to develop “a large inventory of future drilling locations that generate attractive financial returns at current prices,” according to CEO John Hess. This year it expects to drill about 55 gross operated wells and to bring online 45. Funds are also included for investing in nonoperated wells.
“By investing only in high return, low cost opportunities, we have built a differentiated portfolio of assets that we believe will provide industry leading cash flow growth over the course of the decade,” said the company chief.
The executive had indicated during the third quarter 2020 earnings call that Hess would not add a second rig in the Bakken until West Texas Intermediate (WTI) oil prices approached $50/bbl. WTI reached that threshold earlier this month after Saudi Arabia said it would cut oil production by 1 million b/d in February and March. The Organization of the Petroleum Exporting Countries and its allies, led by the Saudis, agreed to curtail production overall by 7.125 million b/d in February and 7.05 million in March.
Bakken net production is forecast to average around 170,000 boe/d in 2021, according to Hess. This forecast includes the impact of operating a two-rig program beginning in the first quarter and a planned 45-day turnaround and expansion tie-in at the Tioga Gas Plant in the third quarter. The E&P expects the outage to reduce full-year production in the Bakken by around 7,500 boe/d net.
Net production is forecast to average about 310,000 boe/d in 2021, excluding Libya.
Offshore Guyana, Hess, along with partner ExxonMobil, has three sanctioned oil developments, which have a Brent breakeven oil price of $25-35/bbl. The focus in 2021 is to advance the next two sanctioned developments to first oil – Liza Phase 2 in early 2022 and Payara in 2024 – and on front-end engineering and design (FEED) work for future development phases on the Stabroek Block.
It also plans to continue investing in an active exploration and appraisal program, with 12-15 wells planned on the block. Hess in June resumed a four-rig drilling operation in the Stabroek, with two rigs focused on development wells and two on exploration and appraisal activities.
“Our capital program reflects our disciplined approach in the current oil price environment to preserve cash, core capabilities and the long-term value of our assets,” the CEO said.
Of the $1.9 billion budget, up from $1.8 billion in 2020, $670 million (35%) is to go toward production, including $450 million for the Bakken and $165 million for production activities at North Malay Basin (Hess 50% and operator) and the Malaysia/Thailand Joint Development Area (Hess 50%) in the Gulf of Thailand.
The producer has set aside $780 million (41%) for offshore Guyana developments and $450 million (24%) for exploration and appraisal activities. Another $25 million is associated with the Liza Phase 1 development, which reached nameplate capacity of 120,000 gross b/d in December. Hess has earmarked $450 million for the Liza Phase 2 development with a capacity of up to 220,000 b/d gross, with first production expected in early 2022.
Another $235 million would go toward the Payara development, with a capacity of up to 220,000 b/d gross. First production is expected in 2024. The Stabroek Block would get $70 million primarily for FEED work for future development phases.
Hess also is targeting $450 million to drill 12-15 exploration and appraisal wells on the Stabroek Block. Funds are also included for well planning on Block 42 in Suriname, in which Hess has a 33.3% stake, seismic acquisition and processing in Guyana and the deepwater Gulf of Mexico (GOM) and for license acquisitions.
BMO Capital Markets analysts in a note Monday said there were no big surprises on the production and capital expenditures (capex) guidance, but said the Guyana exploration and appraisal activity were “significant.”
With GOM spending implied to be only $140 million and not included as production or development capex, BMO said this indicates a production decline throughout 2021, “although minimal activity here was already expected,” analyst Phillip Jungwirth said. Activity in Guyana, meanwhile, with 12-15 exploration and appraisal wells planned, provides “an upward bias to the current 8 billion boe resource potential.”
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