U.S. independent Hess Corp. expects another tight oil market next year and is increasing its capital expenditure for the upcoming year by $1 billion in a focus on exploration and production (E&P).
“I have to say even though we’ve seen a slowing of demand in China and in Europe, overall global oil demand continues to be pretty resilient and we’re not seeing a major impact from inflation and the high-dollar in oil demand itself,” CEO John Hess said in a third quarter conference call. He said with China reopening its economy and an increase in overall air travel, he expects global oil demand to rise by 1 million b/d next year.
“I don’t think if there is a pullback in the economy, where it does affect oil demand, I don’t think it’s going to be anywhere near what it was during the world financial crisis… So, we see the market, if anything, having strengthening impact tailwinds going into the winter and as such, I’d say there’s more upside to the price from where we are now than there was downside.”
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Hess had a good third quarter, with oil and natural gas net production, excluding Libya, up 32% year/year. Production was 351,000 boe/d, compared to 265,000 boe/d in the third quarter of 2021.
The company saw net production from its Bakken Shale assets of 166,000 boe/d in the third quarter, up 12% from 148,000 boe/d in the same period last year. Guyana net production was 98,000 b/d, compared with 32,000 b/d in the prior-year quarter.
The company’s portfolio is focused on Guyana, the Bakken, the deepwater Gulf of Mexico, and Southeast Asia. Hess sees 10% growth in production annually over the next five years, led by Guyana and the Bakken.
In the Bakken, the company is seeing inflation of 15-20% this year versus last year. Hess has been able to keep this figure at 8.5%, “and we’ve done that through manufacturing, strategic contracting and technology,” management said.
Hess is anticipating a further 15-20% inflation in oil tubular goods in the Bakken next year, with 15-20% inflation in drilling rigs and 5-10% inflation in hydraulic fracturing spreads, sand and labor.
The company added a fourth rig to its Bakken program recently and sees an additional $250 million of spending there next year.
In Guyana, Hess highlighted the fact that the company has a break-even Brent oil price of $25-35/bbl. Two more discoveries were announced on Wednesday in the massive Stabroek Block offshore Guyana.
Stabroek is operated by ExxonMobil affiliate Esso Exploration and Production Guyana Ltd., which has a 45% stake. Hess Guyana Exploration Ltd. has a 30% interest, and CNOOC Petroleum Guyana Ltd. has a 25% stake.
Executives said that though the Guyana offshore fields hold natural gas, the focus would be on oil. A natural gas pipeline to deliver the fuel to a combined cycle power plant in Georgetown, Guyana’s capital, is being developed. Any liquefied natural gas export project would be many years down the road, if at all.
E&P capital and exploratory expenditures are expected to be $2.7 billion for 2022, in line with guidance. E&P capital and exploratory expenditures in the third quarter were $701 million, compared with $498 million in the prior-year quarter. Overall capital expenditure across the company’s assets will jump to $3.7 billion in 2023.
Net production, excluding Libya, is forecast to be 370,000 boe/d in the fourth quarter and 325,000 boe/d for the full year.
Total cash returned to stockholders in the quarter through share repurchases and dividends amounted to $265 million.
Net income was $515 million ($1.67/share) in the third quarter, compared with net income of $115 million (37 cents) in the third quarter of 2021.
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