Hess Corporation Cuts 2015 Capital Spending to $4.7 Billion as Low Prices Offset Strong 2014 Productivity

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Researched by Industrial Info Resources (Sugar Land, Texas)--Oil and gas exploration and production company Hess Corporation (NYSE:HES) (New York, New York) became the latest in its industry to report a decline in profits and revenues in 2014, as a steep drop in realized hydrocarbon prices more than offset solid growth in the company's crude oil and liquefied natural gas (LNG) sales volumes. Still, Hess added significantly to its proved reserves, especially in the Bakken and Utica shales and the Gulf of Mexico. Net income was reported to be $2.32 billion for the year, compared with $5.05 billion in 2013.

Industrial Info is tracking more than $16 billion worth of projects involving Hess, including the $800 million construction of a natural gas-fired power plant in Newark, New Jersey. The project involves building a 2-on-1 combined-cycle power block that will include two 187.5-megawatt (MW) General Electric (NYSE:GE) MS7001FA.05 combustion turbine generators, each with a supplemental-fired heat recovery steam generator, and a 250-MW GE D11 steam turbine generator. Skanska USA Civil (New York, New York) is performing engineering, procurement and construction services.

Total revenues stood at $11.44 billion, an 18.46% decrease from 2013. The company's average worldwide crude oil selling price fell 24% in the fourth quarter, reflecting the broader global decline that has pummeled the Oil & Gas Production Industry. Still, oil and gas production grew 18% to 362,000 barrels of oil equivalent per day (boepd) during the quarter, most notably in the Bakken and Utica shales (35,000 and 12,000 boepd, respectively) and the Gulf of Mexico (12,000 boepd). In the Bakken, the company completed the Tioga gas plant expansion project in the first quarter, significantly boosting production. Hess added 193 million barrels of oil equivalent to its proved reserves.

Capital expenditures from continuing operations totaled $5.6 billion in 2014, a 10% decrease from 2013.

"Throughout 2014, our Bakken team has continued to drive down drilling and completion costs, and the productivity of our wells is among the highest in the industry," said John Hess, the chief executive officer of Hess, in a conference call.

Hess executives acknowledged that they will have to take steps to reduce spending in 2015, despite an expected 10% to 13% increase in production (excluding Libya) to between 350,000 and 360,000 boepd. A major factor driving the gains will be the first full year of production at the Tubular Bells Field in the Gulf of Mexico, which began production in the fourth quarter and is expected to average between 30,000 and 35,000 boepd.

"We will reduce our 2015 capital and exploratory expenditure budget to $4.7 billion, approximately 16% lower than our 2014 actual spend," Hess said. "We are reducing our 2015 annual spend in the Bakken to $1.8 billion, compared to $2.2 billion in 2014, and plan to decrease our rig count to eight rigs by the second quarter, compared to 17 rigs in 2014. In addition, we are actively pursuing cost reductions with service providers across our supply chain."

The company also plans to begin developing the $4 billion Stampede production platform, another oil & gas project in the deepwater Gulf of Mexico. It is expected to consist of two drilling rigs, the first of which will begin operations in fourth-quarter 2015. The processing capacity is expected to total 80,000 barrels per day (BBL/d) of oil, 120 million standard cubic feet per day of natural gas, and 100,000 BBL/d of water injection. First production is set for 2018. A separate subsea installation is valued at $2 billion.

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