Hess expands 2020 spending cuts, reduces rigs in Bakken

Hess is expanding its 2020 spending cuts in response to low oil prices caused by the coronavirus pandemic, with a focus on reducing rigs in the North Dakota Bakken Shale play and drilling activity offshore Guyana, the company said Thursday.

Hess has further reduced its budget to $1.9 billion, down 37% from the company's original $3 billion budget.

"This reduction will be achieved primarily by shifting from six rigs to one rig in the Bakken and deferring discretionary spending across the portfolio including a six- to 12-month deferral in the development of the Payara Field and reduced 2020 drilling activity on the Stabroek Block offshore Guyana," Hess said in a release.

Hess plans to reduce its Bakken rig count to one by the end of May, and expects net Bakken production to average 175,000 barrels of oil equivalent/day, down from 190,000 boe/d in the first quarter of 2020. Hess will now spend around $720 million this year on its Bakken operations.

The company will remain at one rig until West Texas Intermediate crude prices stabilize in the $50/b area. If oil prices stay low going into 2021, the Bakken rig count could be reduced further, down to zero, for a period of time, Chief Financial Officer John Rielly said during the company's Q1 earnings call.

NYMEX front-month crude was trading below $23.50/b around 1900 GMT Thursday.

An increase in Bakken production helped drive the company's global net output, excluding Libya, 24% higher year on year to 344,000 boe/d in Q1. The rise was also driven by the Liza Field offshore Guyana, "which commenced production in December 2019," the company said.

Liza Field output averaged 15,000 b/d in Q1, and is expected to reach 120,000 b/d in June.

Because of onshore storage constraints in the US, Hess has also chartered three VLCCs "to store 2 million barrels each of May, June and July Bakken crude production that is expected to be sold in the fourth quarter of 2020."

The crude will be sold to Asia, CEO John Hess said on the call.

VLCC rates spiked in March and April on a rush to fix vessels, but have since fallen as activity has dried up. The US Gulf Coast to China VLCC rate was assessed by S&P Global Platts at $26.67/mt Wednesday, for instance, down from $73.15/mt on April 1.

According to S&P Global Platts Analytics, between April 1 and April 30, waterborne crude in transit climbed 111 million barrels to 976 million barrels, while crude on idled and laden vessels climbed 97 million barrels to 246 million barrels.

In Guyana, Hess has temporarily idled "two of the four drilling rigs on the Stabroek Block due to pandemic-related travel restrictions," the company said. The Liza Phase 2 development "remains on schedule to start production in 2022."

Hess has planned a third development, Payara, with an expected capacity of 220,000 b/d.

"Pending government approval to proceed, some 2020 activities at Payara are now being deferred, creating a potential delay in first production of six to 12 months beyond the initial start-up target in 2023," the company said.

"In addition, pandemic-related travel restrictions have temporarily slowed our drilling campaign in Guyana. As a result, our production objective of more than 750,000 gross barrels of oil per day has been moved into 2026," Hess said on the call.

Due to travel restrictions, ExxonMobil, Hess' partner in Guyana, has temporarily idled two of its four drilling rigs at the Stabroek block, Hess said. The rigs are expected to resume operations sometime in June.