Independent Hess Midstream Spawned in Chevron Divestment

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

Chevron said it expects to sustain production in the Bakken under the terms of the deal, but it might deploy fewer rigs. The agreement is expected to remove around $3.5 billion in debt from Chevron's balance sheet.

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Chevron-Hess Accounted for Nearly 10% of Bakken Oil Production

A new independent, multi-basin midstream company, Hess Midstream, is spawning out of a divestment from parent company Chevron, the companies announced.

"Hess Midstream LP will acquire Chevron's crude oil and natural gas gathering and storage assets in the Denver Julesburg ("DJ") Basin, including a minority interest in a long-haul pipeline, which will diversify Hess Midstream LP's geographic presence and increase third-party revenues," the company said in a statement.

Revising the agreements covering contracts in the Bakken shale formation in North Dakota, meanwhile, are expected to cut midstream costs for Chevron by around 50%.

"Chevron expects to sustain Bakken production through ongoing technology deployment and operational improvements drawn from its global shale and tight portfolio," it stated.

Industrial Info Resources data show Hess is affiliated with a 64-mile grassroot natural gas pipeline in North Dakota by way of its ownership of the Tioga natural gas gathering field. The plant itself has a design capacity for 400 million cubic feet per day (MMSCFD) in feed gas. The Industrial Info Resources Global Market Intelligence (GMI) Oil & Gas Production Project and Plant databases offer a detailed project report and a detailed profile of the processing plant.

North Dakota data show total natural gas production in June, the last full month for which data are available, averaged 3.58 billion cubic feet per day (Bcf/d), a 1.6% improvement over May levels.

Shale basins tend to yield more gas as they mature because pressure variances in the well tend to keep the heavy molecules associated with crude oil trapped in the sub-surface pours. Some shale states are also working to capture as much of the gas associated with crude oil production as possible.

Hefty Footprint in North Dakota

North Dakota said operators were capturing about 95% of the associated gas in the Bakken. State data, meanwhile, show Chevron-Hess was the fifth-largest oil-producer in the state so far this year, accounting for about 9.7% of total output. Hess said in a statement outlining the terms of the deal that Chevron is expected to drop a rig in the Bakken before the end of the year.

The Bakken formation was singled out last year when Chevron announced the completion of its acquisition of Hess Corporation. At the time, Chevron boasted that it was taking on more than 450,000 net acres of inventory across the Bakken.

Chevron under the terms of the deal will transfer midstream assets in the basin over to Hess.

Chevron's production during the second quarter was around 200,000 barrels of oil equivalent per day, with much of that attributed to the $53 billion acquisition of Hess.

Riding high on a geopolitical risk premium, Chevron reported total second-quarter net income of $12.1 billion, compared to $2.5 billion during the same period last year. The company realized an oil price of $104 per barrel of Brent, compared to $68 per barrel during the same period last year.

Brent was trading at around $102 per barrel on Wednesday. The agreement is expected to remove around $3.5 billion in debt from Chevron's balance sheet.

By the Numbers

• $12.1 billion in Q2 revenue for Chevron was an exponential year-on-year gain.
• 9.7% of Bakken oil production came from the combined Chevron-Hess.

Key Takeaways

• Chevron dumping Hess Midstream, expecting to clear off debt.
• Second quarter production gains for the company were largely attributed to Hess.

About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).