Company Overview and History
Hess Corporation, a global energy company, has been at the forefront of the industry for over a century. With a focus on exploration, development, production, transportation, and the sale of crude oil, natural gas liquids, and natural gas, Hess has established itself as a respected player in the energy landscape.
Founded in 1933, Hess Corporation has a rich history of innovation and adaptation. The company started as an independent oil company focused on refining and marketing activities on the East Coast of the United States. Over the decades, it has transformed into a diversified global energy firm with operations spanning the United States, Guyana, Malaysia, and the Thailand-Malaysia Joint Development Area. A key milestone in Hess' history was the discovery of the Valhall field offshore Norway in 1975, marking the company's entry into international exploration and production. This discovery paved the way for further expansion, with significant discoveries and acquisitions in regions such as Equatorial Guinea, Denmark, and Thailand.
Historical Challenges
In the late 2000s and early 2010s, Hess faced several challenges, including a strategic review that led to the divestment of its refining and marketing assets to focus solely on the E&P business. This transition occurred during a challenging commodity price environment, requiring the company to adapt its operations. Additionally, Hess was impacted by the aftermath of the Deepwater Horizon oil spill in the Gulf of Mexico in 2010, which resulted in increased regulatory scrutiny and costs associated with the spill response and cleanup efforts. In response, Hess worked diligently to strengthen its safety and risk management practices.
Financials
Despite these challenges, Hess has remained resilient and innovative, continuously investing in technological advancements and exploration activities to grow its resource base and production capabilities. The company's financial performance has been resilient, even in the face of volatile market conditions. In 2023, the company reported annual net income of $1.38 billion, with annual revenue of $10.51 billion and annual operating cash flow of $3.94 billion. The company's annual free cash flow stood at -$166 million.
For the most recent quarter (Q2 2024), Hess reported revenue of $3.20 billion, net income of $498 million, operating cash flow of $2.05 billion, and free cash flow of $1.18 billion. The increase in revenue, net income, OCF, and FCF in Q2 2024 compared to the prior year quarter was primarily due to higher production volumes and realized selling prices. These figures demonstrate Hess' ability to navigate the complexities of the energy industry and deliver consistent financial results.
Strategic Focus
One of Hess' key strengths lies in its strategic focus on developing its assets in Guyana, where the company has made significant discoveries and is executing a multi-phased development plan. As of the latest 10-Q filing in 2024, Hess had three floating production, storage, and offloading (FPSO) vessels producing on the Stabroek Block, with plans to have six FPSOs with an aggregate expected production capacity of approximately 1.3 million gross barrels of oil per day by the end of 2027.
In addition to its exploration and production activities, Hess' Midstream segment, which includes the company's approximately 38% consolidated ownership interest in Hess Midstream LP, provides fee-based services such as gathering, compressing, and processing natural gas, as well as fractionating natural gas liquids, storing and terminaling crude oil and natural gas liquids, and water handling services. This diversified business model helps Hess mitigate risks and capitalize on opportunities across the energy value chain.
Sustainability Initiatives
Hess has also demonstrated a commitment to sustainability, with a focus on reducing its environmental impact and promoting responsible energy development. The company has set ambitious greenhouse gas emission reduction targets and is investing in renewable energy projects to support its long-term sustainability goals.
Recent Developments
Despite the challenges faced by the energy industry, Hess has navigated the landscape adeptly. In 2023, the company entered into an agreement to be acquired by Chevron Corporation, a transaction that is currently progressing through the necessary regulatory approvals and is expected to be completed in the third quarter of 2024.
In the meantime, Hess continues to execute its strategic plan, as evidenced by its strong operational and financial performance. The company's net production averaged 461,000 barrels of oil equivalent per day (boepd) in the third quarter of 2024, up 17% from the same period in the previous year. This growth was primarily driven by increased production in Guyana, where the Prosperity FPSO reached its initial production capacity of approximately 220,000 gross bopd in January 2024.
Cost Management
Hess' financial discipline is also evident in its cost management. The company's cash operating costs, which include operating costs and expenses, production and severance taxes, and exploration and production general and administrative expenses, were $13.84 per barrel of oil equivalent (boe) in the third quarter of 2024, compared to $14.04 per boe in the prior-year quarter.
Liquidity
As of June 30, 2024, Hess Corporation maintained a strong liquidity position. The company reported cash and cash equivalents of $2.02 billion and available committed credit facilities of $3.41 billion. The debt-to-equity ratio stood at 0.55, indicating a manageable level of leverage. The current ratio and quick ratio were both 3.15, suggesting a robust ability to meet short-term obligations.
The company's midstream operations have also contributed to its overall financial strength. In the third quarter of 2024, Hess Midstream LP completed an underwritten public equity offering, further strengthening the segment's balance sheet and positioning it for continued growth.
Operational Segments
Hess Corporation operates through two main segments: Exploration and Production (EP) and Midstream. The EP segment, which is the larger contributor to the company's financial performance, focuses on exploration, development, production, transportation, purchase, and sale of crude oil, natural gas liquids, and natural gas. In the second quarter of 2024, the EP segment reported net income of $765 million, a significant increase from $155 million in the same quarter of 2023. Excluding certain items affecting comparability, the adjusted net income for the EP segment was $817 million in Q2 2024, up from $237 million in the prior year quarter.
The Midstream segment, comprising Hess's approximately 38% consolidated ownership interest in Hess Midstream LP, provides fee-based services including gathering, compressing and processing natural gas, fractionating natural gas liquids, storing and terminaling crude oil and natural gas liquids, and water handling services, primarily in the Bakken shale play in North Dakota. This segment reported net income of $160 million in Q2 2024, compared to $148 million in Q2 2023, with net income attributable to Hess Corporation from the Midstream segment at $66 million, up from $62 million in the prior year quarter.
Geographic Performance
Hess operates primarily in the United States, Guyana, Malaysia, and the Thailand Joint Development Area (JDA). The majority of the company's revenue and production comes from its operations in the United States and Guyana. In particular, the company's assets in Guyana have been a significant driver of growth, with three FPSOs currently producing on the Stabroek Block and plans for further expansion.
Risks and Future Outlook
While the energy industry remains subject to various risks, such as commodity price volatility, regulatory changes, and competition, Hess has demonstrated its ability to adapt and thrive in this dynamic environment. The company's diversified asset base, strategic focus on high-potential areas like Guyana, and commitment to sustainable practices position it well for the future.
As Hess Corporation navigates the next chapter of its story, investors will be closely watching the progress of the proposed merger with Chevron, as well as the company's continued operational and financial performance. With a proven track record of delivering energy solutions and driving growth, Hess remains a compelling investment opportunity in the global energy landscape.