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Hess Corporation (

HES

)

Q3 2010 Earnings Call

October 27, 2010 10:00 a.m. ET

Executives

Jay Wilson - VP, IR

John Hess - CEO

John P. Rielly - SVP & CFO

Greg Hill - EVP & President, Worldwide Exploration and Production

Analysts

Ed Westlake - Credit Suisse

Paul Shankey - Deutsche Bank

Doug Leggate - BAS-ML

Mark Gilman - Benchmark & Co.

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Evan Calio - Morgan Stanley

Arjun Murti - Goldman Sachs

Paul Cheng - Barclays Capital

Blake Fernandez - Howard Weil

Pavel Molchanov - Raymond James

Kate Minyard - JPMorgan

Presentation

Operator

Compare to:
Previous Statements by HES
» Hess Q2 2010 Earnings Call Transcript
» Hess Corp. Q1 2010 Earnings Call Transcript
» Hess Corp. Q4 2009 Earnings Call Transcript
» Hess Corp. Q3 2009 Earnings Call Transcript

Good day, ladies and gentlemen and welcome to the Third Quarter 2010 Hess Corporation Earnings Conference Call. My name is Melelia and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call; Mr. Jay Wilson, Vice President, Investor Relations. Please proceed.

Jay Wilson

Good morning everyone and thank you for participating in our third quarter earnings conference call. 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.

With me today are John Hess, Chairman of the Board and Chief Executive Officer; Greg Hill, President, Worldwide Exploration and Production and John Rielly, Senior Vice President and Chief Financial Officer.

I'll now turn the call over to John Hess.

John Hess

Thank you, Jay and welcome to our third quarter conference call. I will make a few brief comments after which John Rielly will review our financial results.

Net income for the third quarter of 2010 was $1.154 billion, versus $341 million a year ago. Our third quarter operating results were positively impacted by higher crude oil and natural gas selling prices and sales volumes compared to the year ago quarter.

This quarter's results also included an after-tax gain of $1.072 billion associated with our strategic asset trade with Shell, which closed in September as well as an after-tax charge of $347 million to write-off the West Med Block 1 concession off shore Egypt.

Excluding these non-recurring items, exploration and production earned $552 million. Crude oil and natural gas production averaged 413,000 barrels of oil equivalent per day, which was 2% below the year-ago period.

Lower year-over-year production resulted primarily from natural field decline to the Ceiba Field in Equatorial Guinea and planned downtime at the Valhall field in Norway, which was partially offset by higher production from our Bakken program in North Dakota.

Current net production from the Bakken is approximately 18,000 barrels of oil equivalent per day, with nine rigs working. We plan to add one additional rig in November and expect to exit this year with net production of about 20,000 barrels of oil equipment per day.

Our acquisition of American Oil & Gas is progressing through the regulatory process and is expected to close by the end of the year. In September we closed on both the strategic asset trade with Shell and the acquisition of Total's interest in the Valhall and the Hod fields in Norway, which together raised our interest in these fields to 64.5% and 62.5% respectively.

Also, in September we announced the acquisition of an additional 20% interest in the Tubular Bells oil and gas field in the Gulf of Mexico from BP for $40 million. Following regulatory approval Hess will have a 40% working interest and become the operator.

In the United Kingdom, the sale of non-quartered, nor seen natural gas assets is now expected to close in the fourth quarter, these assets have net production of 16,000 barrels of oil equivalent per day and year end 2009 proved reserves of 29 million barrels of oil barrel equivalent.

With regard to explorations we drilled two wells on our 100% owned permit WA390P in the Northwest Shelf of Australia, resulting in two discoveries. We have now completed our 16

commitment wells on the block with 13 discoveries. We have initiated an appraisal program that will continue through the middle of next year and include additional drilling and flow testing of several wells.

Commercial discussions with potential partners regarding WA309P are ongoing. In December we expect to spud exploration wells on our 40% owned BMS-22 block in Brazil, our 100% owned Tano/Cape Three Points Block in Ghana and our 80% owned North Red Sea Block One concession in Egypt.

In the first quarter of 2011 we plan to drill our 100% owned semi five block in Indonesia. In terms of unconventional resources, we plan to start drilling in the EagleFord in Texas in November and in the Paris base and in France in the first quarter of 2011.

Turning to marketing and refining, we reported a loss for the third quarter of $38 million. Refining margins weakened from last years third quarter, primarily due to lower gasoline and residual fuel oil crack spreads and higher fuel costs at our HOVENSA's joint venture refinery and lower gasoline crack spreads at our Port Reading, New Jersey facility.

Marketing results were better than the year ago quarter, principally due improved margins in our energy marketing business. Retail gasoline volumes on a per site basis were up 1% while convenient store sales rose nearly 3%. In energy marketing natural gas sales were higher year-over-year while fuel, oil and electricity sales were lower.

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