Hess cuts capex, raises output guidance

Hess has lowered its spending plan for the rest of 2017 but marginally raised its output guidance, reflecting the producer's continued success in lowering costs.

The cut follows a similar announcement by fellow independent Anadarko this week as it paces its investment with lower oil prices, which have largely held below $50/bl since March.

Hess pared its capital expenditure (capex) plan by about $100mn — to $2.15bn from $2.25bn. The decline will largely be a result of investment slowing down at its North Malay basin project and the Stampede development in the US Gulf of Mexico. The improvements in efficiency will also cap spending in its Bakken shale acreage in North Dakota.

Output for 2017 is expected to average 305,000-310,000 b/d of oil equivalent (boe/d), excluding Libya, compared with between 300,000-310,000 boe/d forecast earlier.

"We continue to take steps to reinforce our outstanding value-driven growth outlook and drive improving returns and lower capital and operating costs across our portfolio," chief executive John Hess said.

Output in the Bakken rose to 108,000 b/d of oil equivalent (boe/d) in the second quarter compared with 106,000 boe/d, and 99,000 boe/d in the first quarter. In June Hess became one of the first US independents to announce a pause in rig additions amid the prolonged softening in oil prices, keeping the count steady at four in the basin.

But output would still grow by about 10pc for several years with those rigs as the company enhances its well completion design, which include as many as 60 fracturing stages per well compared with about 50 earlier in the year, and the use of more proppant, or sand, and water. A year ago the company would have needed six rigs to boost output by that extent, Hess said.

The producer is generating "significant" free cash flow from the Bakken at current prices and it has 800 wells that generate 15pc or higher rate of return at 40/bl, he said.

Hess' North Malay basin, offshore Malaysia, commenced first production of natural gas on schedule in mid-July after installing the topside of the central processing platform. Output from the field is expected to ramp up to 165mn cf/d in the third quarter.

The Stampede project, which it operates with a 25pc stake, is set to achieve first output on schedule in the first half of this year as the hook-up of wells begins following the installation of the tension leg platform in the field.

In the ExxonMobil-operated Stabroek block, offshore Guyana, in which Hess holds a 30pc stake, the independent has earmarked $110mn in capex this year, out of its total share of $955mn. It expects to spend $250mn in 2018 and $330mn in 2019, with the balance expected in 2020 and 2021.

Overall, the company does not expect its capex to increase next year, even though spending in Guyana and the Bakken may increase. Those gains will be offset from a decline in spending in its North Malay project and Stampede, together expected at around $400mn in 2018 from $700mn this year.