Hess' (HES) Q3 Earnings In Line, Bakken Volumes Impress

Zacks Equity Research
·5-min read

Hess Corporation HES reported adjusted third-quarter 2020 loss per share of 71 cents, in line with the Zacks Consensus Estimate. The quarterly loss, however, was wider than the year-ago loss of 35 cents per share.

Quarterly revenues declined to $1,176 million from $1,515 million in the year-ago period. However, the top line beat the Zacks Consensus Estimate of $1,151 million.

Higher oil equivalent production from the Bakken play, increased midstream throughput volumes and lower operating costs helped the company to meet the earnings estimate. This was partially offset by lower realized oil and gas prices.

Q3 Major Developments

The company boosted the estimate of gross discovered recoverable resources to 9 billion barrels of oil equivalent (Boe) from 8 billion Boe in the Stabroek Block offshore Guyana. The third development project in the block, Payara has been sanctioned in the third quarter. The project is expected to come online in 2024.

The company agreed to divest 28% working interest in the Shenzi Field in the Gulf of Mexico for $505 million. The divestment is expected to close by year-end.

Hess Corporation Price, Consensus and EPS Surprise

Hess Corporation Price, Consensus and EPS Surprise
Hess Corporation Price, Consensus and EPS Surprise

Hess Corporation price-consensus-eps-surprise-chart | Hess Corporation Quote

Q3 Operational Update

Exploration and Production

In the quarter under review, the Exploration and Production business reported an adjusted net loss of $182 million compared with a loss of $60 million a year ago. The business was affected by lower realized oil and gas prices, partially offset by higher oil and natural gas liquids production volumes.

Quarterly hydrocarbon production was 321 thousand barrels of oil equivalent per day (MBoe/d), up from 312 MBoe/d in the year-ago period on contributions from resources in the Bakken play and Liza Field offshore Guyana.

Crude oil production increased from 166 thousand barrels per day (MBbls/d) in third-quarter 2019 to 168 MBbls/d. Moreover, natural gas liquids production totaled 63 MBbls/d, up from 52 MBbls/d in the prior-year quarter. However, natural gas output was 540 thousand cubic feet per day (Mcf/d), down from 563 Mcf/d a year ago.

Worldwide crude oil realization per barrel of $36.17 (excluding the impact of hedging) declined from $55.91 in the year-ago period. Moreover, worldwide natural gas prices declined to $2.94 per Mcf from the year-ago level of $3.81. However, the average worldwide natural gas liquids selling price rose to $11.63 per barrel from $9.41 a year ago.

Midstream

From the midstream business, the company generated adjusted net earnings of $56 million, significantly up from $39 million a year ago. The rise can be attributed to higher throughput volumes.

Operating Expenses

Operating expenses for the third quarter totaled $308 million, down from the year-ago figure of $321 million. Marketing costs also decreased to $221 million from $423 million in the year-ago quarter. Exploration expenses, however, rose to $71 million from $50 million in the year-ago period.

Total costs and expenses declined to $1,354 million from $1,565 million in third-quarter 2019.

Financials

Quarterly net cash flow from operations was $136 million for the third quarter, reflecting a significant decline from the year-ago figure of $443 million. Hess’ capital expenditures for exploration and production activities totaled $331 million, down from $661 million in the prior-year quarter.

As of Sep 30, 2020, the company had $1,285 million in cash & cash equivalents, down from $1,646 million in second quarter-2020. Its long-term debt was recorded at $8,280 million at third quarter-end, up from $8,205 million in the prior quarter. Current maturity of the long-term debt is $8 million. Debt to capitalization at quarter-end was 45.7%.

Guidance

Due to hurricanes in the Gulf of Mexico, the company has decreased its 2020 net production guidance — excluding Libya — to 325,000 Boe/d from the earlier projection of 330,000 Boe/d. From the prolific Bakken shale play, it now expects 2020 net production of 190,000 Boe/d versus the earlier projection of 185,000 Boe/d.

Hess’ capital expenditures for exploration and production activities are estimated at $1.8 billion, reflecting a decrease from the previous guidance of $1.9 billion.

Zacks Rank & Stocks to Consider

The company currently has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space include Cabot Oil & Gas Corporation COG, Solaris Oilfield Infrastructure, Inc. SOI and Premier Oil plc PMOIY, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cabot Oil & Gas’ bottom line for 2021 is expected to rise 201.6% year over year.

Solaris Oilfield’s bottom line for 2021 is expected to surge 133.3% year over year.

Premier Oil’s bottom line for 2021 is expected to jump 80% year over year.

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