NEW YORK Jul 29, 2015 (Thomson StreetEvents) -- Edited Transcript of Hess Corp earnings conference call or presentation Wednesday, July 29, 2015 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Jay Wilson Hess Corporation - VP, IR * John Hess Hess Corporation - CEO * Greg Hill Hess Corporation - COO & President, Exploration & Production * John Rielly Hess Corporation - SVP & CFO ================================================================================ Conference Call Participants ================================================================================ * David Heikkinen Heikkinen Energy Advisors - Analyst * Doug Terreson Evercore ISI - Analyst * Doug Leggate Bank of America Merrill Lynch - Analyst * Roger Read Wells Fargo Securities - Analyst * Ed Westlake Credit Suisse - Analyst * Paul Sankey Wolfe Research - Analyst * Ryan Todd Deutsche Bank - Analyst * Brian Singer Goldman Sachs - Analyst * Paul Cheng Barclays Capital - Analyst * Jeffrey Campbell Tuohy Brothers - Analyst * Pavel Molchanov Raymond James - Analyst * Guy Baber Simmons & Company International - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen and welcome to the second-quarter 2015 Hess Corporation conference call. My name is Lisa and I will be your operator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Jay Wilson, Vice President of Investor Relations. Please proceed. -------------------------------------------------------------------------------- Jay Wilson, Hess Corporation - VP, IR [2] -------------------------------------------------------------------------------- Thank you, Lisa. Good morning, everyone and thank you for participating in our second-quarter earnings conference call. Our earnings release was issued this morning and appears on our website, www.Hess.com. Today's conference call contains projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements. These risks include those set forth in the Risk Factors section of Hess's Annual and Quarterly Reports filed with the SEC. Also, on today's conference call, we may discuss certain non-GAAP financial measures. A reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website. With me today are John Hess, Chief Executive Officer; Greg Hill, Chief Operating Officer; and John Rielly, Chief Financial Officer. I'll now turn the call over to John Hess. -------------------------------------------------------------------------------- John Hess, Hess Corporation - CEO [3] -------------------------------------------------------------------------------- Thank you, Jay. Welcome to our second-quarter conference call. I will provide highlights from the quarter and an update on the steps we are taking to strengthen our financial position while preserving our long-term growth options in the current low oil price environment. Greg Hill will discuss our operating performance and John Rielly will then review our financial results. Regarding our financial position, on July 1, we closed on the sale of a 50% interest in our Bakken Midstream assets for cash consideration of $2.675 billion and formed a joint venture with Global Infrastructure Partners. This transaction delivers significant and immediate value to our shareholders and bolsters our financial flexibility in the current low oil price environment. At closing, the joint venture incurred $600 million of debt through a five-year Term Loan A facility with proceeds distributed equally to both partners resulting in total after-tax proceeds net to Hess of $3 billion. Importantly, this joint venture has independent access to capital, including a fully committed $400 million five-year senior revolving credit facility to help grow our midstream business. As previously announced, the joint venture plans to proceed with an initial public offering of Hess Midstream Partners LP common units pending SEC review and market conditions. With the proceeds from the midstream asset transaction, plus cash on hand and an untapped $4 billion revolving credit facility, Hess has one of the strongest liquidity positions among our peers. Consistent with our financial strategy, the proceeds from this transaction will enable us to preserve the strength of our balance sheet in the current low oil price environment, provide additional flexibility for future growth opportunities and continue to repurchase stock on a disciplined basis. With regard to our financial results, in the second quarter of 2015, we posted a net loss of $567 million. On an adjusted basis, the net loss was $147 million, or $0.52 per share compared to net income of $1.38 per share in the year-ago quarter. Compared to the second quarter of 2014, our financial results were impacted by lower crude oil and natural gas selling prices and higher DD&A expense, which more than offset the impact of higher crude oil and natural gas sales volumes and lower cash costs and exploration expense. During the second quarter, we delivered strong operating results. Net production averaged 391,000 barrels of oil equivalent per day, an increase of 23% from pro forma production in the year-ago quarter, excluding Libya. This improvement was driven by higher production from the Bakken and Utica shale plays, the joint development area of Malaysia/Thailand and Tubular Bells in the Deepwater Gulf of Mexico. In light of our strong performance year to date, we are raising our overall Company production forecast for 2015 by 10,000 barrels of oil equivalent per day to a range of 360,000 to 370,000 barrels of oil equivalent per day, excluding Libya. Turning to the Bakken, net production averaged 119,000 barrels of oil equivalent per day in the second quarter, above our guidance range. As a result of our strong year-to-date performance, we are increasing our full-year 2015 production forecast to a range of 105,000 to 110,000 barrels of oil equivalent per day, up from our previous guidance of 95,000 to 105,000 barrels of oil equivalent per day. Hess has one of the strongest acreage positions in the Bakken with more drilling spacing units, or DSUs, in the core of the play than any other operator. Through the application of lean manufacturing techniques and supply chain cost savings, our Bakken team continues to drill some of the lowest cost wells in the play. In the second quarter, drilling and completion costs averaged $5.6 million, down 24% from the year-ago quarter. In addition, our wells continue to rank among the most productive. As a result, we are able to deliver financial returns that are attractive even at current prices and are competitive with those in the best shale oil plays in the United States. In addition, we are leveraging this expertise in lean manufacturing techniques from the Bakken to drive improvements in our joint venture operations in the Utica where net production for the second quarter averaged 22,000 barrels of oil equivalent per day. Given the adverse pricing environment for natural gas and natural gas liquids, Hess, along with our joint venture partner, Consol, elected earlier this year to reduce drilling activity in the Utica to a single Hess-operated rig for the second half of 2015. Even with this reduction in activity, we are increasing our full-year 2015 production forecast by 5000 barrels of oil equivalent per day to a range of 20,000 to 25,000 barrels of oil equivalent per day as a result of strong well performance and efficiency gains. Turning to the Deepwater Gulf of Mexico, net production from our Tubular Bells field in which Hess as a 57% interest and is operator averaged 23,000 barrels of oil equivalent per day in the quarter as we continue to ramp up production. As a result of some short-term production issues, which Greg will discuss in his remarks, we are lowering our full-year guidance for Tubular Bells by 5000 barrels of oil equivalent per day to a range of 25,000 to 30,000 barrels of oil equivalent per day. In the Malaysia/Thailand joint development area, in the Gulf of Thailand, net production for the second quarter averaged 47,000 barrels of oil equivalent per day, an increase of 11,000 barrels of oil equivalent per day from the year-ago quarter when we had planned downtime to complete booster compression and wellhead tie-ins. Regarding our developments, we continued to progress two Hess-operated offshore projects during the quarter. Full field development of the North Malay Basin project in this Gulf of Thailand in which Hess has a 50% working interest is on track for first production in 2017, which should increase net production from approximately 40 million cubic feet per day currently to 165 million cubic feet per day. In the Deepwater Gulf of Mexico, the Stampede project in which Hess has a 25% working interest is on track for first production in 2018. Gross recoverable resources for Stampede are estimated in the range of 300 million to 350 million barrels of oil equivalent. In terms of exploration, our strategy is to create future growth options that deliver long-term value by focusing on proven and emerging oil-prone plays in the Atlantic basin, areas we understand well and that leverage our offshore drilling and development capabilities. In the Deepwater Gulf of Mexico, we are encouraged by the Chevron-operated Sicily discovery in the Keathley Canyon area in which Hess has a 25% working interest. Well data is being analyzed and an appraisal well to further evaluate the discovery is expected to spud late this year or in early 2016. On the Stabroek Block offshore Guyana, where Hess has a 30% working interest, the operator, Exxon Mobil, announced a significant oil discovery in late May at the Liza Prospect. We are now in the process of evaluating the resource potential on the block and recently commenced the acquisition of 17,000 square kilometers of 3D seismic. Capital and exploratory expenditures in the second quarter of 2015 were $1.07 billion, down 15% from the second quarter of 2014. We continue to project that full-year 2015 capital and exploratory expenditures will be $4.4 billion, more than 20% lower than our 2014 spend. In summary, we delivered another quarter of strong operating results. We remain confident that our financial strength, resilient portfolio and proven operating capabilities position us well in the current low oil price environment, as well as for competitive growth when prices recover. I will now turn the call over to Greg for an operational update. -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [4] -------------------------------------------------------------------------------- Thanks, John. I'd like to provide an operational update and review our overall progress in executing our E&P strategy. Starting with production, in the second quarter, we averaged 390,000 net barrels of oil equivalent per day, substantially exceeding our second-quarter guidance of 355,000 to 365,000 barrels of oil equivalent per day and reflecting strong performance across our portfolio, notably in the Bakken and the Gulf of Mexico. As a result of continuing strong performance, we are increasing our full-year 2015 net production forecast by 10,000 barrels of oil equivalent per day to a range of 360,000 to 370,000 barrels of oil equivalent per day, excluding Libya. On this same basis, we forecast net production in the third quarter to average between 355,000 and 365,000 barrels of oil equivalent per day. Our third-quarter forecast reflects planned downtime at the JDA, lower activity levels in the Bakken and hurricane contingency in the Gulf of Mexico. During the second quarter, we continued to actively drive down our cost structure. We now project a further reduction in our cash operating costs of $60 million to $70 million bringing cash operating cost savings for the year to over $300 million and our total cost reduction savings, including capital, to over $600 million. We continue to identify opportunities to reduce costs further and we will keep you apprised as appropriate. Turning to operations and beginning with unconventionals, in the second quarter, net production from the Bakken averaged 119,000 barrels of oil equivalent per day compared to 108,000 barrels of oil equivalent per day in the first quarter and 80,000 barrels of oil equivalent per day in the year-ago quarter. Higher than expected production availability and improved well performance allowed us to substantially exceed our second-quarter net production guidance of 100,000 to 110,000 barrels of oil equivalent per day. In line with our plan and as previously communicated, we reduced our Bakken rig count from an average of 12 in the first quarter to an average of 8 in the second quarter, which is where we expect to remain for the balance of the year. Over 2015, we expect to drill 187 wells, complete 217 and bring 225 wells online compared to last year where we drilled 261 wells, completed 230 and brought 238 online. In the first half of 2015, we brought 137 new wells online and we expect to bring 88 wells online in the second half of the year as the lower rig count takes effect. As a result of strong performance, we are increasing our full-year 2015 net production forecast for the Bakken by 5000 barrels of oil equivalent per day to average between 105,000 and 110,000 barrels of oil equivalent per day. We do expect Bakken production to turn modestly lower in the second half of the year, reflecting the lower rig count and the resulting lower number of completions. In the third quarter, we forecast net Bakken production to average between 105,000 and 110,000 barrels of oil equivalent per day. Through the application of our distinctive lean manufacturing capability combined with our supply chain cost reductions, we continue to drive Bakken drilling and completion costs lower with the second quarter averaging $5.6 million per well versus $6.8 million in the first quarter and $7.4 million in the year-ago quarter. For full-year 2015, we now expect drilling and completion costs to average between $5.8 million and $6 million per well, below our previous guidance of $6 million to $6.5 million per well. We know from benchmarking that we are delivering some of the lowest cost and highest productivity wells in the Bakken, which in combination means that we are generating some of the highest returns in the play. With an 8-rig program at current strip prices and costs, we have about a 10-year inventory of drilling locations that can generate after-tax returns of 15% or higher. Moving to the Utica, in the second quarter, the joint venture drilled 10 wells, completed 15 and brought 9 on production. Net production for the second quarter averaged 22,000 barrels of oil equivalent per day compared to 7000 barrels of oil equivalent per day in the year-ago quarter and 17,000 barrels of oil in the first quarter of 2015. Similar to our Bakken position, our Utica acreage is largely held by production, which allows us to reduce activity in the short term while preserving the long-term upside. As previously mentioned, due to the current pricing environment, the joint venture elected to focus activities on the liquids-rich Harrison County acreage, utilizing a single Hess-operated rig across the JV. We continue to drive down our well costs in the Utica. Through application of our distinctive lean manufacturing capability and supply chain reductions, we now project our 2015 full-year drilling and completion costs in the Utica to average between $9.2 million and $9.5 million per well as compared to $13.7 million in 2014. As a result of improving efficiency, we now forecast that the JV will drill 20 to 25 wells and bring 25 to 30 new wells online in 2015. Well productivity continues to be encouraging and as a result, we are increasing our 2015 net production guidance by 5000 barrels of oil equivalent per day to a range of 20,000 to 25,000 barrels of oil equivalent per day. Now turning to the offshore, in the Deepwater Gulf of Mexico, net production averaged 23,000 barrels of oil equivalent per day in the second quarter at our Tubular Bells field in which Hess holds a 57.1% working interest and is operator. Due to a delay in bringing on the fourth well, coupled with the now dissolved compressor mechanical issues we experienced in the fourth quarter, we are lowering our 2015 full-year forecast to between 25,000 and 30,000 net barrels of oil equivalent per day. The fourth well is now in production and is being ramped up to full capacity. In Equatorial Guinea, net production averaged 43,000 barrels of oil equivalent per day in the second quarter at our Okume and [Saba] fields in which Hess holds an 85% working interest and is operator. During the quarter, we brought online the [OF-15] well, the final well in the current drilling campaign, at a rate of 3000 barrels of oil equivalent per day. Demobilization of the rig has commenced and will be completed in the third quarter. 4-D seismic processing is underway to support future exploitation drilling. In Norway, at the BP-operated Valhall field and which Hess has a 64% interest, net production averaged 35,000 barrels of oil equivalent per day in the second quarter. One new producer was brought online and planned maintenance activities were successfully completed. We continue to expect full-year 2015 net production to be in the range of 30,000 to 35,000 barrels of oil equivalent per day. In the Gulf of Thailand, at North Malay Basin in which Hess has a 50% working interest in as operator, second-quarter net production averaged 39 million cubic feet per day through the early production system and is expected to remain at around 40 million cubic feet per day through 2016. In June, we installed two wellhead platform jackets and commenced construction on wellhead platform topsides as part of the full field development project, which is expected to increase net production to 165 million cubic feet per day in 2017. Moving to exploration, the first two well from our new program delivered encouraging results. In the Gulf of Mexico, we continue to evaluate the results of the Chevron-operated Sicily discovery in which Hess holds a 25% working interest. Sicily penetrated a four-way lower tertiary structure located in approximately 6400 feet of water. As John mentioned, an appraisal well to further evaluate the discovery is planned to spud late 2015 or early 2016. In May, Exxon Mobil announced a significant oil discovery at the Liza Prospect on the Stabroek block offshore Guyana in which Hess holds a 30% interest. The operator recently commenced an extensive 3D seismic survey to further delineate both the discovered resource and the potential of the block. In closing, I am very pleased with the performance of our team who once again achieved strong operational results. I will now turn the call over to John Rielly. -------------------------------------------------------------------------------- John Rielly, Hess Corporation - SVP & CFO [5] -------------------------------------------------------------------------------- Thanks, Greg. In my remarks today, I will compare results from the second quarter of 2015 to the first quarter of 2015. As previously announced, we have reported Bakken Midstream results beginning with the second quarter of 2015. As a result, we have recast prior quarters to reflect the breakout of the Bakken Midstream from E&P. In our second-quarter supplemental presentation located on the Hess website, we've included recast quarterly information of E&P and midstream for 2014 and the first two quarters of 2015. Now turning to results, our adjusted net loss, which excludes items affecting comparability of earnings between periods, was $147 million in the second quarter of 2015 compared to $279 million in the first quarter of 2015. On a GAAP basis, the Corporation incurred a net loss of $567 million in the first quarter of 2015 compared with a net loss of $389 million in the first quarter of 2015. Turning to exploration and production, on an adjusted basis, E&P incurred losses of $96 million in the second quarter of 2015 compared to a loss of $221 million in the first quarter of 2015. The changes in the after-tax components of adjusted results for E&P between the second quarter of 2015 and first quarter of 2015 were as follows -- higher realized selling prices improved the results by $118 million; higher sales volumes improved results by $71 million; higher cash operating costs and Bakken Midstream tariffs reduced results by $20 million; higher DD&A expense reduced results by $46 million; all other items net to an improvement in results of $2 million for an overall improvement in second-quarter adjusted results of $125 million. In May, we expanded our crude oil hedging program by entering into WTI crude collars covering 20,000 barrels per day through the end of 2015. As a reminder, we previously hedged 50,000 barrels per day for 2015 using Brent crude collars. Both the Brent and WTI crude collars have a floor price of $60 per barrel and a ceiling price of $80 per barrel. For the quarter, our E&P operations were overlifted compared with production by approximately 400,000 barrels, which had the effect of decreasing our second-quarter after-tax loss by approximately $8 million. The E&P effective income tax rate, excluding items affecting comparability, was a benefit of 56% for the second quarter of 2015. This outcome was favorable to guidance and primarily resulted from the mix of income generated by operations during the quarter. The E&P effective tax rate in the first quarter of 2015 was a benefit of 48%. In the press release, we announced a non-cash goodwill impairment charge of $385 million related to our onshore reporting unit. This charge was triggered under the accounting standards that required goodwill to be reallocated and a review for impairment be performed when an operating segment is split, as was the case of breaking out Bakken Midstream from E&P in the quarter. The goodwill impairment for the onshore reporting unit reflects the impact of the reallocation of goodwill and the low commodity price environment. Turning to midstream activities, the Bakken Midstream segment had net income of $32 million in the second quarter of 2015 compared to $27 million in the first quarter of 2015 while EBITDA amounted to $74 million in the second quarter of 2015 compared to $65 million in the previous quarter. In the earnings supplement, we have provided quarterly consolidated income statements of the Company to facilitate an understanding of the movement in reported numbers caused by separating the Bakken Midstream segment from E&P. Using the second quarter of 2015 as an example, E&P metrics changed as follows -- cash operating costs improved by $1.15 per barrel to $15.65 per barrel as $42 million of costs are now included in Bakken Midstream; DD&A improved by $0.62 per barrel to $28.22 with $22 million of DD&A transferred to Bakken Midstream. As a result, overall E&P unit operating costs improved by $1.77 per barrel and were $43.87 per barrel in the second quarter. Bakken Midstream tariff expense was $116 million, or $3.26 per barrel, which, combined with the improved unit costs, decreased E&P's pre-tax earnings by $52 million, or $1.49 per barrel. This reduction in E&P earnings has been transferred to the Bakken Midstream segment as shown in the press release on page 19. Turning to corporate and interest, corporate and interest expenses, excluding items affecting comparability and after income taxes, were $83 million in the second quarter of 2015 compared to $85 million in the first quarter of 2015. Turning to cash flow, net cash provided by operating activities in the second quarter, including a decrease of $170 million from changes in working capital, was $541 million. Excluding working capital changes, cash flow from operations was $711 million, a 51% increase from the first quarter. Capital expenditures in the quarter were $1.013 billion. Common stock acquired and retired amounted to $11 million. Repayments of debt were $17 million. Common stock dividends paid were $72 million. All other items amounted to a decrease in cash of $3 million resulting in a net decrease in cash and cash equivalents in the second quarter of $575 million. We had $931 million of cash and cash equivalents at June 30, 2015. Total debt was approximately $6 billion at both June 30, 2015 and March 31, 2015. The Corporation's debt to capitalization ratio at June 30, 2015 was 22% compared to 21.6% at March 31, 2015. On July 1, 2015, we closed the Bakken Midstream joint venture with Global Infrastructure Partners for after-tax proceeds of approximately $3 billion, which includes the Corporation's share of debt proceeds issued by the joint venture at formation. I would like to provide updated guidance for the remainder of 2015. Starting with E&P, for the full year of 2015, cash costs for E&P operations are reduced $1.50 per barrel of oil equivalent to $16 to $17 per barrel of oil equivalent. The separation of the Bakken Midstream segment is responsible for $1 of this reduction and the additional $0.50 reduction is due to our ongoing cost efficiency initiatives. For the third quarter of 2015, cash costs are expected to be in the range of $16.50 to $17.50 per barrel of oil equivalent. DD&A per barrel guidance remains $28.50 to $29.50 per barrel of oil equivalent for both the third quarter and full-year 2015 resulting in total E&P unit operating costs of $45 to $47 per barrel of oil equivalent for the third quarter and $44.50 to $46.50 per barrel of oil equivalent for the full year of 2015. The Bakken Midstream tariff expense is expected to be $3.55 to $3.65 per barrel of oil equivalent for the third quarter of 2015 and $3.40 to $3.50 per barrel of oil equivalent for the full year of 2015. Exploration expenses, excluding dry hole costs, are expected to be in the range of $110 million to $120 million in the third quarter and our full-year guidance of $380 million to $400 million is unchanged. The E&P effective tax rate, excluding items affecting comparability and Libyan operations, is expected to be a benefit in the range of 41% to 45% for the third quarter and 44% to 48% for the full year. Turning to Midstream, for the third and fourth quarter of 2015, we anticipate net income attributable to Hess from the Bakken Midstream segment, which reflects our 50% ownership, will be in the range of $15 million to $20 million. Now for corporate and interest, for the third quarter of 2015, corporate expenses are estimated to be in a range of $30 million to $35 million net of taxes and interest expenses are estimated to be in the range of $50 million to (technical difficulty) net of taxes. The full-year 2015 guidance for corporate expenses of $120 million to $130 million net of taxes and interest expenses of $205 million to $215 million net of taxes remains unchanged. This concludes my remarks. We will be happy to answer any questions. I will now turn the call over to the operator. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions). David Heikkinen, Heikkinen Energy Advisor. -------------------------------------------------------------------------------- David Heikkinen, Heikkinen Energy Advisors - Analyst [2] -------------------------------------------------------------------------------- Good morning, guys and good quarter. One of the things that people have been focusing on is the trajectory of the Bakken and your pace, Greg, as you kind of outlined that. As you think about glide-planing down in third quarter and fourth quarter at this pace, how does that flatten versus your second-quarter peak volumes? -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [3] -------------------------------------------------------------------------------- It's a good question. I think with an eight-rig program, we expect to be able to hold long-term production flat at or near this 100,000 barrels a day, which I think we've said on previous calls. And I think as John mentioned in his remarks, with this eight-rig program at current strip prices and well costs, we've got about a ten-year inventory of drilling locations that generate after-tax returns in excess of 15% or higher. -------------------------------------------------------------------------------- David Heikkinen, Heikkinen Energy Advisors - Analyst [4] -------------------------------------------------------------------------------- That's helpful. And then as you think about Tubular Bells' ramp with the fourth well coming online, how does that roll forward? -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [5] -------------------------------------------------------------------------------- I think, again, our guidance -- we did lower our guidance because of the operating problems that we discussed and the deferral of the fourth well. And so the glide path -- we will just stay within our guidance as we gave on the call. -------------------------------------------------------------------------------- David Heikkinen, Heikkinen Energy Advisors - Analyst [6] -------------------------------------------------------------------------------- Okay. That's fair. Thinking about Guyana and the significant discovery, haven't known you guys as long as some other exploration companies, can you put significant in a ballpark for me? -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [7] -------------------------------------------------------------------------------- No, we can't. Again, it's too early. I think recall we did encounter more than 295 feet of high quality oil-bearing sandstone reservoirs in this block. And again, the entire block is about 6 million acres. So as John and I both said in our opening remarks, really the next step is we started shooting 3D seismic on the block and we continue to evaluate the results of the well, but obviously it's very encouraging. -------------------------------------------------------------------------------- David Heikkinen, Heikkinen Energy Advisors - Analyst [8] -------------------------------------------------------------------------------- Okay. Thanks, guys. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- Doug Terreson, Evercore. -------------------------------------------------------------------------------- Doug Terreson, Evercore ISI - Analyst [10] -------------------------------------------------------------------------------- One of the key themes today and also in the industry has been that lower service costs are leading to expense in capital productivity and on this point, I wanted to see if you would elaborate a little bit more on your experience as far namely whether the changes that have unfolded have been similar to your expectations and also previous cycles for John. And also any insight into the pace of change that you're seeing in the market. Meaning we talked about or you guys talked about a $600 million figure on the call, I think, and so the question is how does that compare to what your expectations were for savings earlier in the year. -------------------------------------------------------------------------------- John Rielly, Hess Corporation - SVP & CFO [11] -------------------------------------------------------------------------------- I think it compares very well. So just give you an example. So the $1.2 million per well that we reduced in the quarter in the Bakken, if you look at where those savings came from, supply chain savings amounted to about 60% of those savings and then the lean manufacturing efficiency gains made up the balance of the 40% reduction. So again, fairly significant results from the supply chain. -------------------------------------------------------------------------------- Doug Terreson, Evercore ISI - Analyst [12] -------------------------------------------------------------------------------- Okay. Just another quick question on Guyana. First, will you guys be able to book reserves in the country? Do we know that? And also how significant do you think this interaction is with the opposition from the Venezuelan government? Is that something that we should be concerned about or focused on? How do you think about that? -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [13] -------------------------------------------------------------------------------- On the political side, I'm going to leave that to the politicians, but we don't think it's going to have any impact on our financial position there or our reserve position there. -------------------------------------------------------------------------------- Doug Terreson, Evercore ISI - Analyst [14] -------------------------------------------------------------------------------- Okay. And John, can you guys book reserves there, if in fact there are any, in the future? -------------------------------------------------------------------------------- John Rielly, Hess Corporation - SVP & CFO [15] -------------------------------------------------------------------------------- Yes, we can. -------------------------------------------------------------------------------- Doug Terreson, Evercore ISI - Analyst [16] -------------------------------------------------------------------------------- Okay. Thanks a lot, guys. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- Doug Leggate, Bank of America. -------------------------------------------------------------------------------- Doug Leggate, Bank of America Merrill Lynch - Analyst [18] -------------------------------------------------------------------------------- I also have a couple, if I may. Guys, I'm afraid I'm going to stick with Guyana for a second. I think in your Analyst Day last year, you suggested that the block, the whole area, had a risk resource net to Hess somewhere on the order of 500 million barrels and I realize that was a theoretical probability of geological success and so on. But I'm guessing when you announced this, the operator announces a significant discovery, you've derisked the numbers of parameters such as proving the hydrocarbon system, traps, field migration, all that good stuff. So I'm just wondering if you could help qualify how you came up with the 500 million number and how this declared success changes the risk profile of that estimate? And I've got a follow-up, please. -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [19] -------------------------------------------------------------------------------- Doug, obviously, that 500 million barrels was a risk resource estimate at the time. Clearly, this well has helped de-risk that. I can't really give you any more guidance than that, but it was a very positive result from the well. The big risk there that we were trying to understand was there a working petroleum system and clearly, there is on the block. -------------------------------------------------------------------------------- Doug Leggate, Bank of America Merrill Lynch - Analyst [20] -------------------------------------------------------------------------------- Okay, I guess I won't pursue it for now, but suffice to say that 500 million, is that kind of worst case, if you like? A worst case would have been zero, I guess, but in terms of -- I guess I'm just trying to understand the scale of the prospect backlog on the area. Have you and your partner figured out what next steps are at this point? (inaudible) -------------------------------------------------------------------------------- John Hess, Hess Corporation - CEO [21] -------------------------------------------------------------------------------- It's a fair question. The seismic is the next step, Doug, to high-grade the block further and then we will then consider further evaluation activities and really you need to look to the operator for further color on this subject. -------------------------------------------------------------------------------- Doug Leggate, Bank of America Merrill Lynch - Analyst [22] -------------------------------------------------------------------------------- Okay, appreciate that, John. My follow-up is really more of -- I guess it's really more of a challenge question because you clearly have done a tremendous job releasing or securing at least market visibility on the value of the midstream. By my calculation, it's about a quarter of your current enterprise value. Your share price along with (inaudible) has basically gone straight down pretty much since you made that announcement. So the $17 a share there thereabouts, the associated value of that appears to have been somewhat ignored. So my question is, now you've got $4 billion more or less of cash on the balance sheet, how does the share buyback program compete for capital against other drilling opportunities in a $50 oil price environment? And I'll leave it there. Thanks. -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [23] -------------------------------------------------------------------------------- Obviously, use of proceeds, very fair question. And obviously with the very strong liquidity position the Company has, it's key to remind everyone, as we've said on our last call after the midstream joint venture was announced, that our first, second and third priority in use of proceeds will be to preserve the strength of our balance sheet in the current low oil price environment. We need to maintain our financial strength. It's vital in this low price environment. We don't know how low it will go and how long it will go, so that's going to be the first, second and third priority to make sure that we can fund the projects that we have, including our projects that are investing in longer term growth, be it North Malay Basin or Stampede or some of the exploration activities that we have that are very disciplined. Our second effort or priority then would be to provide additional financial flexibility for future growth opportunities should they meet our strategic, economic and liquidity priorities. And we're going to be very disciplined in that regard given the first priority being to preserve the strength of our balance sheet. And last but not least, we will continue to repurchase stock on a disciplined basis. So I think it's very important for people to understand the key priority in this environment is for us to preserve the strength of our balance sheet. -------------------------------------------------------------------------------- Doug Leggate, Bank of America Merrill Lynch - Analyst [24] -------------------------------------------------------------------------------- John, could I fish that a little bit? What is the cash balance that you see to meet those objectives before the buyback? Like I say, $4 billion now, is that enough? Is that too much? What's your order of magnitude as to what you need to meet those -- the first two criteria? -------------------------------------------------------------------------------- John Rielly, Hess Corporation - SVP & CFO [25] -------------------------------------------------------------------------------- Doug, the way we look at it, and I would like to answer it is -- as you know, we remain committed to managing our business to be cash-generative over the long term. So with this low price oil environment, what have we done, what's the self-help? So first, we've reduced our capital spend from $5.6 billion in 2014 to $4.4 billion in 2015 and we will further reduce capital in 2016. And as Greg mentioned earlier, during 2015, our cost reduction efforts have yielded over $600 million of savings and we continue to be focused on reducing costs further, so there is the self-help that we are doing. Now kind of getting to your point, we do have near-term cash flow deficits at these low prices and it is being driven by our spend of approximately $1.4 billion on projects where we are investing for longer-term growth. So these projects, as John mentioned, North Malay Basin, Stampede, it's Tubular Bells on the development side and in exploration, we have capital spending now for the significant discovery at Liza and Guyana and in the Gulf of Mexico at the Sicily Prospect. So as John mentioned, now our advantaged liquidity position with nearly $4 billion of cash post the completion of our Bakken Midstream JV, that allows us to fund these growth projects, preserve our top-quartile operating capabilities and we are really using that then to position us to capitalize as prices recover when we can then generate free cash flow. So that's kind of in combination with what John said and how we are looking at our balance sheet right now. -------------------------------------------------------------------------------- Doug Leggate, Bank of America Merrill Lynch - Analyst [26] -------------------------------------------------------------------------------- All right. I'll leave it there, guys. Thank you. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- Roger Read, Wells Fargo. -------------------------------------------------------------------------------- Roger Read, Wells Fargo Securities - Analyst [28] -------------------------------------------------------------------------------- I guess following along the lines of uses of capital here, you clearly have one of the best balance sheets in the sector. What does the acquisition front look like? It's been relatively quiet for the industry, but historically this is -- a double dip in oil prices would tend to accelerate the process. I'm just sort of curious -- seeing anything more interesting? How does that need to compare versus your growth opportunities and so forth. -------------------------------------------------------------------------------- John Hess, Hess Corporation - CEO [29] -------------------------------------------------------------------------------- Well, you all follow the stock market as do we in terms of some of these prospective opportunities that could potentially fit our strategic needs in our portfolio. The prices of some of those type of opportunities have come down more than the companies with as strong a balance sheet as ours. We are looking, but, again, I said before, our first, second and third priority is to keep our financial strength in the current environment that we think will be with us for some time and to come out of this environment strong. If there is an opportunity that makes financial sense, strategic sense and doesn't impair our balance sheet strength, we will be very disciplined in evaluating it. Obviously we have not found anything to date. -------------------------------------------------------------------------------- Roger Read, Wells Fargo Securities - Analyst [30] -------------------------------------------------------------------------------- And any help you can give us on how you would think about the returns of an acquisition versus the returns of drilling? Do they need to be equivalent, one better than the other? Just any further clarity there? -------------------------------------------------------------------------------- John Hess, Hess Corporation - CEO [31] -------------------------------------------------------------------------------- We will always invest for returns and it will have to be competitive with our alternatives. -------------------------------------------------------------------------------- Roger Read, Wells Fargo Securities - Analyst [32] -------------------------------------------------------------------------------- Okay. That's it for me. Thank you. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- Ed Westlake, Credit Suisse. -------------------------------------------------------------------------------- Ed Westlake, Credit Suisse - Analyst [34] -------------------------------------------------------------------------------- I'm just trying to reconcile your improvements in operational performance and then the CapEx that's unchanged. Obviously the Bakken wells seem to have come in a little bit below your guidance. You're still drilling an eight-rig program and I noticed that the Utica wells are also -- well done for getting the costs down dramatically in the Utica. So maybe talk through why that perhaps hasn't shown up in sort of a CapEx reduction for this year. -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [35] -------------------------------------------------------------------------------- Ed, if you think about it, we are basically maintaining an eight-rig program. So as we continue to gain efficiencies, our spud to spud date -- days between spud now is about 18 days, so what that means is that you drill more wells in the year than what you plan. So effectively that CapEx is consumed by continuing that eight-rig program. -------------------------------------------------------------------------------- Ed Westlake, Credit Suisse - Analyst [36] -------------------------------------------------------------------------------- Right. But the implication might be next year there would be some lower CapEx from these savings as well as the timing of other projects? -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [37] -------------------------------------------------------------------------------- I think that's a reasonable assumption. -------------------------------------------------------------------------------- Ed Westlake, Credit Suisse - Analyst [38] -------------------------------------------------------------------------------- And then there was a bit of a debate on I think the 4FY call about continuing to drill in South Arne and Valhall where perhaps as long as the reservoirs aren't damaged in terms of pressure management, maybe there's a little bit more flexibility -- say oil prices were low and you came back and said, well, look, Ed, the economics still work, so we are going to carry on doing them. I'm just wondering as the prices have wallowed around at this current level whether anything has changed there in terms of CapEx planning for next year. -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [39] -------------------------------------------------------------------------------- I think, again, we haven't given our 2015 guidance, but certainly for this year we are contracted for a rig in South Arne. We will continue to execute that program. It's generating very good returns in South Arne, well above our cost of capital. Similar in Valhall. Recall though that we did shut down the [IP] drilling rig in Valhall this year, so we've cut one rig out and then we have the remaining drilling is with a jackup there, again a contracted jackup rig that we are continuing that program. -------------------------------------------------------------------------------- Ed Westlake, Credit Suisse - Analyst [40] -------------------------------------------------------------------------------- Okay. Thanks very much. -------------------------------------------------------------------------------- Operator [41] -------------------------------------------------------------------------------- Paul Sankey, Wolfe Research. -------------------------------------------------------------------------------- Paul Sankey, Wolfe Research - Analyst [42] -------------------------------------------------------------------------------- Firstly on cash flow for the quarter, can you just help me get as close as I can to what you think the ongoing cash generation -- what the business will be at $60 oil and how representative this quarter was of the ongoing cash flow that you think you'll make at that kind of price level? Thanks. -------------------------------------------------------------------------------- John Hess, Hess Corporation - CEO [43] -------------------------------------------------------------------------------- If you get $60 oil, obviously, you're going to have higher cash flows for our business because we've got a significant amount of oil production, so it's difficult. I would tell you overall when you look at Hess because of our oily portfolio, a $1 change in oil prices does increase our cash flows by a little over $70 million. So that's the kind of sensitivity you can look at from our portfolio and flex on different oil prices. -------------------------------------------------------------------------------- Paul Sankey, Wolfe Research - Analyst [44] -------------------------------------------------------------------------------- Thank you. And what should I consider to be the clean operating cash flow for this quarter, Q2? I think there's some -- likely some distortions in it from working capital. Thanks. -------------------------------------------------------------------------------- John Rielly, Hess Corporation - SVP & CFO [45] -------------------------------------------------------------------------------- Yes, so there was a $170 million reduction in the cash flow from working capital. So if you add that back in, you get $711 million of cash flow from operations. And that's up 51% from the first quarter, reflecting the improved oil prices in the second quarter. -------------------------------------------------------------------------------- Paul Sankey, Wolfe Research - Analyst [46] -------------------------------------------------------------------------------- Yes, and John, you guided us that essentially next year's CapEx will be lower I guess assuming that we are at this oil price level? -------------------------------------------------------------------------------- John Rielly, Hess Corporation - SVP & CFO [47] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Paul Sankey, Wolfe Research - Analyst [48] -------------------------------------------------------------------------------- But you're not obviously going to say more about the kind of level we should think about. I'm just wondering how long a cash deficit can be run given what you've also said about the importance of the balance sheet. -------------------------------------------------------------------------------- John Rielly, Hess Corporation - SVP & CFO [49] -------------------------------------------------------------------------------- Again, it will be lower. We'll have to work with our partners and we'll see what prices are as we get into 2016. But as I mentioned, we will be funding these growth projects that we have, so North Malay Basin and Stampede will continue. We will be working with Exxon with spending in Guyana and Chevron on Sicily, so we have these growth projects to fund. Now we've got nearly $4 billion with the post-completion of the Bakken Midstream JV so we are in a great position to be able to fund these growth projects and position us to generate free cash flow as oil prices recover. -------------------------------------------------------------------------------- Paul Sankey, Wolfe Research - Analyst [50] -------------------------------------------------------------------------------- Understood. Thank you. One area of potential cost savings would be to merge with another company. Have you considered that, particularly in the Bakken? Thank you. -------------------------------------------------------------------------------- John Hess, Hess Corporation - CEO [51] -------------------------------------------------------------------------------- Obviously we don't comment on such matters and you know that, Paul. -------------------------------------------------------------------------------- Paul Sankey, Wolfe Research - Analyst [52] -------------------------------------------------------------------------------- Just checking, John. Thank you. -------------------------------------------------------------------------------- Operator [53] -------------------------------------------------------------------------------- Ryan Todd, Deutsche. -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank - Analyst [54] -------------------------------------------------------------------------------- Maybe if I could follow up on one more question on CapEx. You've talked in the past about kind of a run rate from the fourth quarter on of $950 million, I think? Is that still a good number, or are the cost savings that you are seeing potentially driving that a little bit lower? Any updates on kind of the pro forma run rate as you're stabilizing an eight-rig program? -------------------------------------------------------------------------------- John Rielly, Hess Corporation - SVP & CFO [55] -------------------------------------------------------------------------------- Again, it's still early for us. We will be looking, obviously, at oil prices. We have to work with partners on what we are doing in the partnerships that we have for the fields. So it's just at this point right now we don't want to be more specific than what I said. We do have $4.4 billion this year. 2016's capital will be lower than that $4.4 billion and we will be looking at everything on the CapEx side, as well as on the OpEx side because we are going to continuing to be focused on cost in this low price environment. -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank - Analyst [56] -------------------------------------------------------------------------------- Great, thanks. And then maybe one follow-up on the Bakken. I guess could you talk -- and I dropped off the call unfortunately for a little bit, so I'm not sure if you addressed it, but can you talk a little bit -- the production was continuing to exceed expectations. Can you talk -- is that more of a function of a quicker pace of drilling than you had expected previously? Is it well performance? Maybe a little bit of what you're seeing on well performance and then finally in terms of the production mix between oil, NGL and gas, what is kind of a right place do you think for us to stabilize that going forward? -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [57] -------------------------------------------------------------------------------- If you look at the difference between Q1 and Q2 in the Bakken, we did have an increase of about 11,000 barrels a day. There are really three factors associated with that. The first was we had a high number of new wells online in the second quarter, so we had 67 wells online. The second factor was we had a 2% increase in production availability, so the operations guys have been doing a great job getting the reliability and availability up. And the third factor was we had increased gas capture at Tioga, obviously both our own volumes as our own volumes went up, but also third-party volumes as well. -------------------------------------------------------------------------------- John Rielly, Hess Corporation - SVP & CFO [58] -------------------------------------------------------------------------------- And then just from a product mix standpoint for the 119,000 barrels a day in the quarter, about 85,000 barrels a day were oil or 71% of it, 22,000 barrels a day were NGLs, so 19% and then gas was 71 million [scufs] per day or about 10% of the BOE. -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank - Analyst [59] -------------------------------------------------------------------------------- And is that a good mix to think about going forward? We've seen some --. -------------------------------------------------------------------------------- John Rielly, Hess Corporation - SVP & CFO [60] -------------------------------------------------------------------------------- I think that is a reasonable mix. You are getting now the rampup of the Tioga gas plant, so we've had some changes as that's moved on. So if you looked at the average for 2014, we were up -- we only had 12% of NGLs and 8% gas. So now you are beginning to see some of the uplift from the Tioga gas plant. -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank - Analyst [61] -------------------------------------------------------------------------------- Okay, great. Thank you. -------------------------------------------------------------------------------- Operator [62] -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [63] -------------------------------------------------------------------------------- You've spoken a lot here on the sharp reduction that you've seen in your Bakken well costs. Can you also talk to what you're doing on the technology front, if the type of well you're drilling has changed at all and can you talk to any changes you are seeing in well productivity? -------------------------------------------------------------------------------- John Hess, Hess Corporation - CEO [64] -------------------------------------------------------------------------------- I think our well design has not changed. So again, it's a typical 35-stage sliding sleeve completion in the Bakken. That hasn't changed. Proppant loading of 70,000 to 100,000 pounds per stage depending upon the area. In terms of technology, we've got some 50-stage trials under our belt, so 50-stage sliding sleeve. Those trials have gone well, so once we get a few more on the ground and are convinced of the reliability of the completion system, we will be evaluating whether or not we switch to that as a value accretive improvement to the Bakken completions. We've tried some slick water fracs. We do not see that those add enough incremental value to justify the additional costs. We've tried some higher proppant loadings and really kind of the same conclusion. It doesn't generate enough incremental value. And I guess the final thing is we are, as you know, experimenting with tighter infills, 9/8 spacing pilots. We've got about 38 wells online now in that configuration. Now only 13 of these wells have been online for more than 90 days. I will say the initial results are encouraging, but it is still early days. I'd like to get more wells on the ground and on production before we draw any final conclusions for that. And so we expect to be in a position by year end or early first quarter to provide some color and some results on that 9/8 infill. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [65] -------------------------------------------------------------------------------- Great, thank you. And then your backlog in the Bakken has been coming down based on the number of completed versus drilled wells. Do you anticipate building backlog in the second half, drawing backlog or holding flat? -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [66] -------------------------------------------------------------------------------- No, we don't. We are pretty much at our rhythm bin size now, which is about 25 to 30 wells at any given moment that are uncompleted and we would expect to carry that level of oil into next year. But that's about as low as it can go. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [67] -------------------------------------------------------------------------------- Great, thank you. -------------------------------------------------------------------------------- Operator [68] -------------------------------------------------------------------------------- Paul Cheng, Barclays. -------------------------------------------------------------------------------- Paul Cheng, Barclays Capital - Analyst [69] -------------------------------------------------------------------------------- A number of quick questions. This is for John Rielly. John, when I look at your international operations, if I strip out the special items and also I strip out the estimate on the FX, the hedging impact, if we report sort of by a pre-tax (inaudible) $34 million and you have a tax credit of $38 million, I am trying to reconcile that, why that you have a profit and then you will have a tax credit in your international operation? -------------------------------------------------------------------------------- John Rielly, Hess Corporation - SVP & CFO [70] -------------------------------------------------------------------------------- Once you get into this law of small numbers, you get into these strange tax rates. There's really nothing unusual. We have some small credits and I will walk you through an example. We have small credits sitting in the international side and some small debits on the other side for an overall rate that came in, as you know, above guidance on that benefit side. So what happens is -- this is just a simple example -- if you have a loss in Norway of $10 and you have an income in JDA of $10, you put those two together, you've got zero income, but Norway has got an 80% tax rate, so you are booking an $8 benefit on Norway and JDA has a 10% rate, so you are only booking $1. So you get a benefit of $7 on zero income. It's that mix of income that's causing the strange numbers in international. -------------------------------------------------------------------------------- Paul Cheng, Barclays Capital - Analyst [71] -------------------------------------------------------------------------------- I see. Okay. On the cash flow, of your DD&A is about $1 billion, your net loss, excluding the special items, is about [147]. It seems to suggest that your cash flows from operations should be higher than even after you adjust for the working capital. Is there any other items that (inaudible) another $100 million, $150 million that gets locked down your cash flow? Those items are going to be repeatable in the future? -------------------------------------------------------------------------------- John Rielly, Hess Corporation - SVP & CFO [72] -------------------------------------------------------------------------------- Your math is very good, Paul, as usual. What it is is because where we are in the losses right now and I think we've given guidance on that, is that the majority of the tax benefit is deferred. So you've got a benefit sitting against that loss and that is -- that was the one number I didn't hear you say that was reducing it then down to the $711 million. Now it's obviously going to depend on prices and what happens here going forward. It's the same guidance that I have been giving. In the US and in Norway, we are not paying cash taxes and won't be for five years and potentially longer if these prices stay lower. So it all depends on where the profit is, but if we stay in a loss position, we will continue to have that deferred tax benefit. -------------------------------------------------------------------------------- Paul Cheng, Barclays Capital - Analyst [73] -------------------------------------------------------------------------------- I see. And maybe this is for John Hess. I assume that you will complete the IPO for the Bakken MLP. Is there a decision has been made that the cash proceeds, who is going to (inaudible)? Is it going to be split between the joint venture partner or it would be kept inside the MLP? -------------------------------------------------------------------------------- John Hess, Hess Corporation - CEO [74] -------------------------------------------------------------------------------- So when the IPO is done and the proceeds -- the proceeds will go to the partners of the JV, that's basically the way that we are looking at it. Nothing has been finally decided, but that's how it would be, it would be split between the two partners, the 50-50 partners. -------------------------------------------------------------------------------- Paul Cheng, Barclays Capital - Analyst [75] -------------------------------------------------------------------------------- John, I think there are a lot of people who asked about the CapEx. Maybe if I could, maybe looking at (inaudible) different. If I look at to maintain your current asset mix and that the production is flat and taking into consideration of your commitment in the major growth projects that you already commit, what is the minimum CapEx that we need for next year? -------------------------------------------------------------------------------- John Rielly, Hess Corporation - SVP & CFO [76] -------------------------------------------------------------------------------- What we've been I guess talk about with the growth projects that we have, so we've got a $4.4 billion budget this year. It includes -- I'm going to add a little bit more because we had some other growth capital in 2015 -- so we have about a $1.6 billion of investment in offshore developments say in exploration. So when you subtract it from the total, we've got about $3 billion, under $3 billion to maintain current production levels. So you do have this North Malay Basin and Stampede going into next year and the thing that I can't talk about right now is what happens in Guyana, what happens in Sicily. So again, I think the best I can do right now is to say the guidance will be below $4.4 billion, but we just can't tell you what that number's going to be. -------------------------------------------------------------------------------- John Hess, Hess Corporation - CEO [77] -------------------------------------------------------------------------------- Yes and I think another perspective, obviously, Paul, is the entire industry is running deficits. All the oil producers of the world are running deficits and depending upon how low oil prices go and how long they go for, obviously, that will figure in our calculus as well about how far we reduce our CapEx program next year. We have further flexibility to reduce in the Bakken and Utica and we also have flexibility to reduce in our offshore, if it's appropriate. We are going to invest for returns, but we also intend to be cash-generative over the medium term. So it's a balance. Good returns, but if the money is not there, we will reduce our CapEx even further and that's going to be an iterative process between now and the end of the year and when we finalize our program, obviously, we will communicate that to the investors out there. -------------------------------------------------------------------------------- Paul Cheng, Barclays Capital - Analyst [78] -------------------------------------------------------------------------------- My final question is for Greg. Greg, is there any data you can share about the two discoveries in Guyana and in the Gulf of Mexico, Sicily, in terms of the pay zone, whether that those is primarily black oil, condensate, gas, any kind of information you could provide on those two discoveries? -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [79] -------------------------------------------------------------------------------- They are both black oil based on what we know right now. On the Sicily discovery in the Gulf of Mexico, it's lower tertiary and in Guyana, it's a Cretaceous play that we are currently looking at right now. -------------------------------------------------------------------------------- Paul Cheng, Barclays Capital - Analyst [80] -------------------------------------------------------------------------------- How thick is the pay zone or that kind of information? -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [81] -------------------------------------------------------------------------------- Yes, in Guyana, we can't give that information yet on Sicily; you will have to ask the operator about that. But consistent with Exxon's press release in May, in Guyana, the well encountered more than 295 feet of high-quality oil-bearing sandstone reservoir, so you do have a net pay on that. -------------------------------------------------------------------------------- Paul Cheng, Barclays Capital - Analyst [82] -------------------------------------------------------------------------------- Okay, thank you. -------------------------------------------------------------------------------- Operator [83] -------------------------------------------------------------------------------- Jeffrey Campbell, Tuohy Brothers. -------------------------------------------------------------------------------- Jeffrey Campbell, Tuohy Brothers - Analyst [84] -------------------------------------------------------------------------------- First, I'd like to return to the subject of the pilot tests. First question is how widespread are the tests across your acreage. And then following up, if they prove successful, what sort of uplift to drilling locations might be possible? -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [85] -------------------------------------------------------------------------------- So they are spread out, but because we are concentrating in the core of the core, they are primarily in the core of the Bakken. So it's spread out over 14 DSUs and in those 14 DSUs this year, we plan to get 82 pilot wells in the ground. Now as I mentioned, 38 of those are currently online, but only 13 have been online for more than 90 days. And as I said, the initial results are very encouraging, but it's still early days. I want to get a lot more wells in the ground before I make a final decision on that. Hopefully by year-end early in the first quarter, we will be in a position to make that decision. Obviously, if you do go to a 9/8 configuration, it won't apply across the entire field, but it will obviously increase your well locations for the Bakken. -------------------------------------------------------------------------------- Jeffrey Campbell, Tuohy Brothers - Analyst [86] -------------------------------------------------------------------------------- Right. And importantly, it increases your best well locations? -------------------------------------------------------------------------------- Greg Hill, Hess Corporation - COO & President, Exploration & Production [87] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Jeffrey Campbell, Tuohy Brothers - Analyst [88] -------------------------------------------------------------------------------- My second question was if commodity prices remain depressed in 2016, will you continue to concentrate Utica drilling in Harrison County, or do you have any requirements to hold acreage elsewhere that would require you to drill in another county in 2016? -------------------------------------------------------------------------------- John Hess, Hess Corporation - CEO [89] -------------------------------------------------------------------------------- It's on the margins. There isn't any significant HBP requirement. So obviously if prices do continue where they are, we are going to continue in Harrison County and why do we do that? Because that's truly the sweet spot of the play. It's the wettest part of the play and it also has a 95% net revenue interest as well on that acreage. So obviously that helps the economics. -------------------------------------------------------------------------------- Jeffrey Campbell, Tuohy Brothers - Analyst [90] -------------------------------------------------------------------------------- Okay, great. And my last question is I haven't heard too much about Ghana in the discussion of the portfolio today. Is there any update on Ghana and Ghana timeline, particularly now that you've got a partner there? -------------------------------------------------------------------------------- John Hess, Hess Corporation - CEO [91] -------------------------------------------------------------------------------- No, there's not. We are just continuing all the technical studies on Ghana. We are also going through feed processes, etc. and we are in discussions with the Ghanaian government to understand how the border dispute and the ongoing international Law of the Sea Treaty proceedings are going on the block and how that might affect progress on the block. But we are committed to advancing the work to the extent feasible, including all those technical studies and pursuing appropriate commercial agreements. The one thing we can't do is we can't get a drilling rig or a seismic vessel out there in the disputed area, so it's pretty much technical studies. -------------------------------------------------------------------------------- Jeffrey Campbell, Tuohy Brothers - Analyst [92] -------------------------------------------------------------------------------- Okay, great. Thanks very much. -------------------------------------------------------------------------------- Operator [93] -------------------------------------------------------------------------------- Pavel Molchanov, Raymond James. -------------------------------------------------------------------------------- Pavel Molchanov, Raymond James - Analyst [94] -------------------------------------------------------------------------------- Two quick ones in relation to Bakken Midstream, if I may. You were talking about at the beginning of the year an IPO sometime in 2015. Is that still the targeted timetable for taking this public? -------------------------------------------------------------------------------- John Rielly, Hess Corporation - SVP & CFO [95] -------------------------------------------------------------------------------- Unfortunately, Pavel, we are in a quiet period right now so I can't be anything specific. So it's going to depend just on the SEC review and market conditions for the timing of the IPO. -------------------------------------------------------------------------------- Pavel Molchanov, Raymond James - Analyst [96] -------------------------------------------------------------------------------- All right, fair enough. And for Hess to remain the operator of the joint venture, is there a minimum economic interest that you have to maintain? -------------------------------------------------------------------------------- John Rielly, Hess Corporation - SVP & CFO [97] -------------------------------------------------------------------------------- Yes, there is a minimum economic interest. So we would have to drop down though considerably before that would happen. -------------------------------------------------------------------------------- Pavel Molchanov, Raymond James - Analyst [98] -------------------------------------------------------------------------------- (inaudible) -------------------------------------------------------------------------------- John Hess, Hess Corporation - CEO [99] -------------------------------------------------------------------------------- To be clear, our intent is to control and operate the venture, so let's be clear on that. -------------------------------------------------------------------------------- Pavel Molchanov, Raymond James - Analyst [100] -------------------------------------------------------------------------------- Okay. What is that percentage, just to clarify? -------------------------------------------------------------------------------- John Hess, Hess Corporation - CEO [101] -------------------------------------------------------------------------------- I think, as I said before, our intent is to control and operate the venture. I wouldn't want to speculate otherwise. -------------------------------------------------------------------------------- Pavel Molchanov, Raymond James - Analyst [102] -------------------------------------------------------------------------------- Appreciate it. -------------------------------------------------------------------------------- Operator [103] -------------------------------------------------------------------------------- Guy Baber, Simmons. -------------------------------------------------------------------------------- Guy Baber, Simmons & Company International - Analyst [104] -------------------------------------------------------------------------------- Thanks for fitting me in here and congratulations on another strong quarter. Just one strategic question from me. Understanding maintaining financial strength is priority number one, I was just hoping to press for a bit more color on the potential to add resource and flexibility via bottom-of-the-cycle acquisition. You've mentioned that meeting strategic objectives would be key for you in doing that. Could you just elaborate on what those strategic objectives are? And I'm not sure if you can be specific or not, but any updated thoughts around long-term portfolio mix, whether you have a desire for more onshore versus offshore or US versus international, or whether you are agnostic on those fronts. Any strategic color on that front would be very helpful. Thanks. -------------------------------------------------------------------------------- John Hess, Hess Corporation - CEO [105] -------------------------------------------------------------------------------- Obviously, we are always looking to upgrade our portfolio, so anything would have to strengthen our portfolio strategically, economically in terms of providing profitable and visible resource growth. As we look out there, we see our mix staying roughly half unconventionals, half conventional, half onshore, half offshore, half US, half international. Obviously it's a dynamic market and we will be very disciplined about any opportunities that we consider, but commenting further than that would be pure speculation and we don't want to do that. The key is we are going to be disciplined and again, our top priority is to maintain our financial strength in a low price environment because it may be with us for some time. -------------------------------------------------------------------------------- Pavel Molchanov, Raymond James - Analyst [106] -------------------------------------------------------------------------------- Thanks for that. -------------------------------------------------------------------------------- Operator [107] -------------------------------------------------------------------------------- Thank you very much. This concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.
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