Hess lowers 2020 capex more than 25%, defers most exploration, but Guyana is intact

Houston — Hess Corp. revised its projected 2020 capital budget down more than 25% to $2.2 billion on Tuesday and said it will drop all but one of its Bakken Shale rigs in North Dakota, but it appears drilling in Guyana remains sacrosanct.

The company has six rigs running in the Bakken Shale, but plans to shed five of them by the end of May, it said in a statement. It will also defer most discretionary exploration and offshore drilling.

But that won't apply to Guyana, Hess said, suggesting that exploration, appraisal and development will continue in that country's prolific offshore where the company has made 16 discoveries in the Stabroek block along with block operator ExxonMobil and China's CNOOC, another partner.

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ExxonMobil said this week it is looking to "significantly reduce" spending due to decreasing oil demand caused by the COVID-19 pandemic and a plunge in oil prices, but was not specific and did not mention its plans for Guyana this year.

Hess has said or signaled publicly to investors multiple times in the past week that despite recent uncertainty over Guyana elections, and market and commodity prices, it is confident that exploration, appraisal and development in that country will all continue.

First oil was achieved in December from the Liza Field, the ExxonMobil-led consortium's first find in the country's offshore in 2015. Liza's FPSO (floating production, storage and offloading unit) is ramping up output and the unit is capable of producing 120,000 b/d of oil.

PRODUCTION DECREASES IN 2020 WILL BE MODEST

For now, with most of Hess' Bakken rigs gone by midyear, total company net production will be down modestly (1.5%) in 2020. Hess' net production this year is now forecast to average 325,000-330,000 boe/d, compared with its previous estimate of 330,000-335,000 boe/d.

Its Bakken production is now projected at roughly 175,000 boe/d in 2020, essentially flat with Q4 and down nearly 3%, compared to a previously-guided 180,000 boe/d.

"As management estimates Bakken maintenance capex at $700 million with a three-rig program, we expect Hess' Bakken volumes to decline around 11% year over year in 2020 to around 156,000 boe/d," Credit Suisse analyst Bill Featherston said in a Tuesday note.

Featherston added he sees the 175,000 boe/d figure as a Q4 2020 exit rate rather than a full-year average.

Hess has about 80% of its crude oil production hedged, making it one of the most hedged independents. It has 130,000 b/d in put options at $55/b WTI and 20,000 b/d in puts at $60/b Brent and is financially protected by those derivatives.

Right now, Guyana appears a clear sky amid the stormy conditions of uncertain oil demand and battered crude prices.

"Specifically, Hess noted that [Liza Field development] Phase 2 is underway and ahead of schedule, which could drive start up in early 2022 or late Q4 2021 versus initial mid-2022 expectations," investment bank Goldman Sachs said in a note last week following its investor conference in Houston.

Liza Phase 2's FPSO will be capable of producing 220,000 b/d of oil.

NEXT GUYANA PROJECT LIKELY TO BE SANCTIONED

Goldman said Hess CEO Greg Hill also noted at the conference that a third development phase will likely be sanctioned soon after results of the recent national election are finalized, adding Hill anticipates this to occur in Q2.

The Stabroek partners, which have made 16 discoveries offshore Guyana, have repeatedly said they anticipate five offshore developments in the country by 2025 that will produce more than 750,000 b/d of oil.

ExxonMobil did not provide an upside to that figure at its analyst day earlier this month. "[But] Hess believes there is likely to be 900,000-950,000 b/d of oil production capacity at some point in 2025 just from adding up FPSOs," Goldman Sachs said.

"Additionally, as highlighted in our recent meetings with Hess management, there could be even further resource upside from 3,000 feet deeper targets in the Stabroek [block], where ExxonMobil and Hess are still exploring" with around four wells to be deepened to test an 18,000-foot-deep zone this year, the bank said.