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TheStreet Open House

Hess Reports Estimated Results For The Second Quarter Of 2013

Hess Corporation (NYSE: HES) today reported net income of $1,431 million for the quarter ended June 30, 2013. Adjusted earnings, which excludes the gain on sale of our Russian subsidiary and other items affecting comparability, were $520 million or $1.51 per common share. Net cash provided by operating activities was $1,247 million in the second quarter.

After-tax income (loss) by major operating activity was as follows:

         
Three Months Ended Six Months Ended
June 30, (unaudited) June 30, (unaudited)
2013     2012 2013     2012

(In millions, except per share amounts)

Exploration and Production $ 1,533 $ 644 $ 2,819 $ 1,279
Corporate and Other   (113)   (107)   (223)   (209)
Net income from continuing operations 1,420 537 2,596 1,070
Discontinued operations - Downstream businesses   11   12   111   24
Net income attributable to Hess Corporation $ 1,431 $ 549 $ 2,707 $ 1,094
 
Net income per share (diluted):
Continuing operations $ 4.13 $ 1.58 $ 7.56 $ 3.14
Discontinued operations   0.03   0.03   0.32   0.07
Net income per share $ 4.16 $ 1.61 $ 7.88 $ 3.21
 
Weighted average number of shares (diluted)   344.0   340.4   343.4   340.4
 
Note: See page 5 for a table of items affecting comparability of earnings between periods.

E&P Performance On Track:Exploration and Production earnings were $1,533 million in the second quarter of 2013, compared with $644 million in the second quarter of 2012. Second quarter 2013 results included $933 million of income and second quarter 2012 results included an after-tax charge of $36 million from items affecting comparability of earnings. Oil and gas production of 341,000 barrels of oil equivalent per day in the quarter was down from 429,000 barrels of oil equivalent per day in the second quarter a year ago. The decrease in production primarily reflects the impact of asset sales in Russia, the United Kingdom North Sea and Azerbaijan, partially offset by an increase in Bakken production. The Corporation’s full year guidance remains 340,000 to 355,000 barrels of oil equivalent per day. The Corporation’s average worldwide crude oil selling price, including the effect of hedging, was $97.89 per barrel, up from $86.86 per barrel in the same quarter a year ago. The average worldwide natural gas selling price was $6.44 per mcf in the second quarter of 2013, up from $5.94 per mcf in the second quarter of 2012.

Operational Highlights:

   Bakken: Net production from the Bakken oil shale play averaged 64,000 barrels of oil equivalent per day in the second quarter of 2013, an increase of 16 percent from the same period last year. Full year Bakken production guidance remains 64,000 to 70,000 barrels of oil equivalent per day. During the quarter, Hess brought 42 operated wells on production, bringing the year-to-date total to 72 wells. Drilling and completion costs per operated well averaged $8.4 million in the second quarter of 2013, an improvement of 28 percent versus last year’s second quarter.

 

   Utica: Ten wells were drilled, three wells were completed and three wells were flow tested during the quarter. Two of the wells tested were operated by Hess; one on the Corporation’s 100 percent-owned acreage and one on our CONSOL joint venture acreage. On our 100 percent-owned acreage, the Richland B 1H-34 well, in Belmont County, tested at a rate of 2,985 barrels of oil equivalent per day including 29 percent liquids. On our CONSOL joint venture acreage, the Cadiz 1H-23 well, in Harrison County, tested at a rate of 2,250 barrels of oil equivalent per day including 57 percent liquids.

 

   Tubular Bells: During the second quarter of 2013, the Corporation completed drilling the second production well, spud the third production well and continued facilities construction. First oil from this development in the deepwater Gulf of Mexico is anticipated in mid-2014.

 

   Valhall: Net production averaged 13,000 barrels of oil equivalent per day in the second quarter of 2013, compared with 23,000 barrels of oil equivalent per day in the same period last year. After completing a planned maintenance shutdown in June, the Valhall field restarted on July 1 and production is expected to ramp up in the third quarter of 2013 as new wells are brought online. Full year 2013 net production guidance for Valhall is expected to be at the lower end of the range of 24,000 to 28,000 barrels of oil equivalent per day.

 

   North Malay Basin: Development activities on the early production system are progressing and the project is on track to achieve first production in the fourth quarter of 2013. During the second quarter, the jacket and topsides were installed and the Floating, Production, Storage and Offloading vessel arrived on-location. The five well development drilling program commenced in June 2013 and is expected to be completed by the end of the year.

 

   Ghana: In the second quarter, Hess submitted appraisal plans to the government for the Deepwater Tano Cape Three Points Block. The government is currently reviewing the plans and Hess is awaiting final approval.

 

Capital and Exploratory Expenditures:Capital and exploratory expenditures in the second quarter of 2013 were $1,613 million, of which $1,571 million related to Exploration and Production operations including $546 million invested in the Bakken. Capital and exploratory expenditures for the second quarter of 2012 were $2,078 million, of which $2,036 million related to Exploration and Production operations including $826 million for the Bakken. Full year 2013 capital and exploratory expenditures guidance remains $6.8 billion, which is down approximately 18 percent from 2012 levels.

Asset Sales Program:In 2013, the Corporation completed the sale of its subsidiary in Russia and its interests in the Beryl area fields in the United Kingdom North Sea, the Azeri-Chirag-Guneshli fields offshore Azerbaijan and the Eagle Ford assets in Texas. Total proceeds from these sales were $3.5 billion. In addition, the Corporation announced this week the sale of its Energy Marketing business to Direct Energy for $1.025 billion. The remaining divestiture processes for our upstream assets in Indonesia and Thailand, as well as our downstream terminals, retail, and trading businesses are well underway.

Enhancing Liquidity:Net cash provided by operating activities was $1,247 million in the second quarter of 2013, compared with $1,240 million in the same quarter of 2012. At June 30, 2013, cash and cash equivalents totaled $725 million, compared with $642 million at December 31, 2012. Total debt of $5,800 million at June 30, 2013 is down 28 percent from $8,111 million at December 31, 2012. The Corporation’s debt to capitalization ratio at June 30, 2013 was 19.5 percent, compared with 27.7 percent at the end of 2012.

Returning Capital to Shareholders:As previously announced, the Corporation plans to increase its returns to shareholders through a 150 percent increase in the annual dividend to $1 per common share commencing in the third quarter of 2013 and a share repurchase plan of up to $4 billion. The announcement this week that the Corporation will sell its Energy Marketing business for $1.025 billion now puts the company in a position to commence the share repurchase program. The Corporation also plans to monetize its Bakken infrastructure assets by 2015 and return additional cash to shareholders.

Discontinued Operations – Downstream Businesses:The downstream businesses, comprised of retail, energy marketing, refining and energy trading, reported income of $11 million in the second quarter of 2013, compared with $12 million in the same period in 2012. Second quarter 2013 results included additional employee severance charges and Port Reading refinery shutdown costs. Excluding these expenses, downstream income increased primarily reflecting improved trading results and higher earnings in energy marketing.

Items Affecting Comparability of Earnings Between Periods:The following table reflects the total after-tax income (expense) of items affecting comparability of earnings between periods:

             
Three Months Ended Six Months Ended
June 30, (unaudited) June 30, (unaudited)
2013     2012

2013

    2012

(In millions)

Exploration and Production $ 933 $ (36) $ 1,521 $         -
Corporate and Other  

(1)

  -   (12)           -
Total items affecting comparability of earnings
from continuing operations 932 (36) 1,509 -
Discontinued operations - Downstream businesses   (21)   -   9           -
Total items affecting comparability of earnings
between periods $ 911 $ (36) $ 1,518 $         -
 

Second quarter 2013 Exploration and Production earnings included a nontaxable gain of $951 million related to the sale of the Corporation’s 90 percent interest in its Russian subsidiary, Samara-Nafta. In addition, second quarter income from continuing operations included after-tax charges totaling $19 million for employee severance and exit costs.

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