Exploration and Production:Exploration and Production earnings were $455 million in the third quarter of 2013, compared with $608 million in the third quarter of 2012. Adjusted earnings were $458 million in the third quarter of 2013 and $546 million in the third quarter of 2012. Earnings in the third quarter were negatively impacted by an estimated $30 million resulting from sales volumes being underlifted compared to production by 1.2 million barrels. In addition, extended shutdowns for seasonal maintenance at non-operated fields in the Gulf of Mexico reduced earnings by an estimated $30 million compared to the prior year quarter and $75 million compared to the second quarter of 2013.
Oil and gas production of 310,000 barrels of oil equivalent per day (boepd) was down from 402,000 boepd in the third quarter a year ago. The decrease was due to asset sales in Russia, the United Kingdom North Sea and Azerbaijan (reduction of 83,000 boepd), extended shutdowns in the Gulf of Mexico and lower production in Libya (reduction of 23,000 boepd), as well as other maintenance and declines (reduction of 24,000 boepd). Partially offsetting these reductions, net production was up at Valhall by 30,000 boepd and at the Bakken by 8,000 boepd. Due to civil unrest in Libya, full year 2013 production is expected to be at the low end of the guidance range of 340,000 to 355,000 boepd. The Corporation’s average worldwide crude oil selling price, including the effect of hedging, was $104.95 per barrel, up from $86.69 per barrel in the same quarter a year ago. The average worldwide natural gas selling price was $6.52 per mcf in the third quarter of 2013, up from $5.88 per mcf in the third quarter of 2012.
Operational Highlights for the Third Quarter of 2013: Bakken (Onshore U.S.): Net production from the Bakken oil shale play averaged 71,000 barrels of oil equivalent per day, an increase of approximately 14 percent from the same period last year. Bakken production guidance remains 64,000 to 70,000 boepd for full year 2013. During the quarter, Hess brought 50 operated wells on production, bringing the year-to-date total to 122 wells. Drilling and completion costs per operated well averaged $7.8 million in the third quarter of 2013, an improvement of 18 percent versus last year’s third quarter.
Utica (Onshore U.S.): Seven wells were drilled, eight wells were completed and one well was flow tested during the quarter. On the Hess 100 percent-owned acreage, the Porterfield C 1H-17 well, in Belmont County, tested at a rate of 3,421 barrels of oil equivalent per day including 21 percent liquids. To date in 2013, 21 wells have been drilled, 18 wells were completed and nine wells have been tested across both the Corporation’s 100 percent-owned and CONSOL joint venture acreage.Valhall (Offshore Norway): Net production averaged 37,000 boepd during the third quarter, compared with 7,000 boepd in the same period last year, and 13,000 boepd in the second quarter of 2013. The Field was shut down from July 2012 through January 2013 to install a new production, utilities and accommodation platform. Production resumed at reduced rates until the Field was shut down during June for planned maintenance at a third party processing facility. Full year 2013 production for Valhall is expected to be at the low end of the guidance range of 24,000 to 28,000 barrels of oil equivalent per day. The Corporation’s higher depreciation, depletion and amortization expense in the third quarter as compared to the second quarter of 2013, reflected this greater production contribution from the Valhall Field, which has a higher depreciation rate per barrel than the portfolio average due to a combination of the recently completed field redevelopment project and prior acquisition costs. While this higher depreciation rate and the high Norwegian statutory income tax rate lowers Valhall’s net income per barrel contribution to the portfolio, its cash margin per barrel is accretive to the portfolio average, since cash taxes are expected to be deferred for the next several years. North Malay Basin (Offshore Malaysia): The five well development drilling program, which commenced in June 2013, was completed ahead of schedule and the rig has now been demobilized. The project achieved first production in October 2013. Progress continues on the full field development where first gas is anticipated by 2017. Kurdistan Region of Iraq (Onshore): The Corporation spud its first exploration well on the Shakrok block. A second exploration well in Kurdistan, which will be on the Dinarta block, is due to be spud in November 2013. Capital and Exploratory Expenditures:Capital and exploratory expenditures in the third quarter of 2013 were $1,527 million, of which $1,491 million related to Exploration and Production operations, including $579 million invested in the Bakken. Capital and exploratory expenditures for the third quarter of 2012 were $2,287 million, of which $2,260 million related to Exploration and Production operations, including $766 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:To date in 2013, the Corporation has sold 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 its Eagle Ford shale assets in Texas. In addition, the Corporation has announced the sale of its energy marketing business and its terminal network. Total proceeds from these completed and announced asset sales, including an expected release of working capital, amount to approximately $6.3 billion. During the quarter, the Corporation also advanced divestiture processes for its upstream assets in Indonesia and Thailand, as well as the retail and trading businesses. Liquidity:Net cash provided by operating activities was $1,254 million in the third quarter of 2013, compared with $1,862 million in the same quarter of 2012. At September 30, 2013, cash and cash equivalents totaled $321 million, compared with $642 million at December 31, 2012. Total debt of $6,209 million at September 30, 2013 is down 23 percent from $8,111 million at December 31, 2012. The Corporation’s debt to capitalization ratio at September 30, 2013 was 20.7 percent, compared with 27.7 percent at the end of 2012. Returning Capital to Shareholders:During the third quarter, the Corporation increased its returns to shareholders through a 150 percent increase in the quarterly dividend to 25 cents per common share, and the purchase of approximately 6,530,000 shares of common stock at a cost of approximately $500 million under the Corporation’s authorized $4 billion share repurchase program. Items Affecting Comparability of Earnings Between Periods:The following table reflects the total after-tax income (expense) of items affecting comparability of earnings between periods:
|Three Months Ended||Nine Months Ended|
|September 30,||September 30,|
|Exploration and Production||$||(3)||$||62||$||1,518||$||62|
|Corporate and Other||(5)||-||(17)||-|
|Total items affecting comparability of earnings from continuing operations||(8)||62||1,501||62|
|Discontinued operations - Downstream businesses||23||-||32||-|
|Total items affecting comparability of earnings between periods||$||15||$||62||$||1,533||$||62|
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