Hess Corp (HES)

A. Company Overview

Hess Corporation, established in 1920 and incorporated in Delaware, is a prominent global exploration and production (E&P) company primarily engaged in the exploration, development, production, transportation, and marketing of crude oil, natural gas liquids (NGL), and natural gas. The company's production operations are strategically located across the United States, Guyana, and the Malaysia/Thailand Joint Development Area (JDA), with significant exploration activities in the U.S. Gulf of Mexico and offshore Suriname. As of the end of 2023, Hess has substantial E&P assets and reserves, positioning it competitively within the global energy market.

B. Business Segments

Exploration and Production

Hess Corporation's E&P segment is pivotal to its overall operations, focusing on identifying and developing oil and gas reserves. As of December 31, 2023, the company demonstrated a considerable reserve base, with a focus on both onshore and offshore resources.

Proved Reserves

Proved reserves at Hess Corporation are assessed based on average prices over a twelve-month period, culminating on December 31. For 2023, the average prices were $78.10 per barrel for West Texas Intermediate (WTI) crude and $82.51 for Brent crude. The company's proved undeveloped reserves constituted approximately 41% of its total reserves, and significant portions of the reserves are governed by production sharing contracts.

Production Overview

Hess's net production includes a diverse range of hydrocarbons. In 2023, the company produced an average of 182,000 barrels of oil equivalent per day (boepd) from the Bakken shale in North Dakota and offshore assets in the Gulf of Mexico. The exploration and production activities have included extensive drilling operations, with 118 wells drilled and brought into production in 2023, increasing the total operated wells to 1,757 by year-end.

Key Operations

1. United States:

- Bakken Shale: Hess's primary onshore asset, holding approximately 466,000 net acres. Production mainly occurs from this play, employing multiple rigs to sustain high output levels.

- Gulf of Mexico: The offshore operations include significant fields such as Baldpate, Conger, and Stampede, with ongoing development plans to expand production potentials.

1. Guyana:

- Stabroek Block: A significant offshore project where Hess holds a 30% interest. The area has yielded over 30 discoveries since 2015, and developments like the Liza Phase 1 and Phase 2 have commenced production, significantly contributing to expected future outputs through a series of Floating Production, Storage and Offloading (FPSO) units.

1. Malaysia and Joint Development Area:

- Production is ongoing at Block A-18 in the Malaysia/Thailand JDA, alongside operations from other blocks in Malaysia. The company’s development strategy involves several wells planned for the upcoming market opportunities.

1. Other International Interests:

- Exploration activities are ongoing in Suriname, where Hess holds a non-operated interest in two offshore blocks, and previously held interests in Canada have concluded as of early 2024.

Midstream Sector

Hess Corporation's Midstream operations are vital for managing the logistics of resource transportation and processing. The Midstream segment includes a consolidated interest in Hess Midstream LP, through which it offers fee-based services including gas gathering, oil terminaling, and logistics support.

Key Assets

Among the noteworthy Midstream assets are:

• Natural Gas Gathering Systems: Extensive pipeline networks in North Dakota connecting production activities to processing plants.
• Crude Oil Gathering Systems: Infrastructure to support crude oil logistics, providing substantial delivery capacities linked to rail terminals and interconnections with major pipeline systems.

The Midstream segment operates under long-term contracts, ensuring stability in revenue generation through negotiated service fees.

C. Recent Developments

In October 2023, Hess Corporation announced a merger agreement with Chevron, marking a significant strategic shift. If finalized in mid-2024, the merger will integrate Hess as a wholly-owned subsidiary of Chevron, offering shareholders a substantial equity stake in Chevron. This follows a period of robust exploration successes and aims to enhance the operational efficiencies and resource bases of both companies.

D. Market Position and Strategy

Hess Corporation's focus on prolific offshore assets, particularly in Guyana, aligns with a broader industry trend favoring high-quality resource extraction. The company’s strategy includes optimizing production efficiencies, expanding its reserve base, and leveraging innovative technologies in both exploration and production. Strong financial performance coupled with disciplined capital allocation is pivotal in maintaining Hess's competitive edge in the volatile energy sector.

Through strategic investments in infrastructure and a keen focus on operational excellence, Hess Corporation continues to position itself as a vital player in the global energy landscape, prepared to meet future energy demands while navigating the complexities of regulatory environments and market conditions.