Hess plans to up Bakken output in 2017: Update

Adds details from earnings call, recasts lead.

US independent Hess plans to step up drilling activity in the Bakken shale in 2017, a response to rising oil prices and falling operating costs.

The company will not detail the planned expansion until January, but in a third quarter earnings call chief executive John Hess said the activity will not undermine efforts to strengthen Hess' balance sheet.

The company's holdings in "the core of the core" in the Bakken have "low drilling and completion costs that offer us returns competitive with the Permian and Eagle Ford," he said.

Hess' output in the third quarter fell amid lower spending, to 314,000 b/d of oil equivalent (boe/d) from 372,000 boe/d, excluding asset sales, a year earlier. Production also fell because of planned and unplanned downtime, particularly in the US Gulf of Mexico (GOM), and natural field declines.

Output from the core Bakken acreage in North Dakota fell to 107,000 boe/d compared with 113,000 boe/d a year earlier, because of a reduced drilling program. It lowered drilling and completion costs to $4.7mn/well, down by 11pc from a year earlier, while increasing standard well design to a 50-stage completion from a 35-stage completion design. The average estimated ultimate recovery per well in the Bakken improved to just under 900,000 boe in the third quarter and should reach 1mn boe in the fourth quarter.

Fourth quarter Bakken production should be between 100,000-105,000 boe/d, a reflection of fewer new wells coming on line, and full-year 2016 output will average 105,000 boe/d.

In the Utica shale production was about 30,000 boe/d compared with 29,000 in the second quarter and 28,000 in the third quarter of 2015.

In the IS Gulf of Mexico, production fell to 61,000 boe/d compared with 83,000 boe/d a year earlier as a result of unplanned well downtime.

In the Conger field in the Gulf of Mexico, maintenance work is expected to limit production until the first quarter of 2017. In the Tubular Bells field, which was offline for five days last quarter because of a hurricane, output will be hampered until the first quarter 2017 by replacement of a third defective subsea value. Hess is also starting water injection this quarter to enhance oil recovery and expects a fifth producing well to come on line in the first quarter 2017.

Hess earned an average of $41.50/bl on crude in the third quarter versus $45.66/bl a year earlier, including the effect of hedging. On natural gas liquids (NGLs), it earned $9.23/bl compared with $7.17/bl and $3.20/mcf on natural gas compared with $4.02/mcf. The company currently does not have any of its production hedged.

Exploration and production (E&P) capex fell to $435mn in the third quarter from $849mn a year earlier. The company expects full-year 2016 capex to be about $2bn, down $100mn from its most recent projection and half of the 2015 spending.

In the third quarter, Hess raised $1bn in long-term debt due in 2027 and another $500mn in notes due 2047 to repurchase bonds that bear higher interest rates and repay nearer term debt.

Its loss in the third quarter widened to $339mn compared with a loss of $279mn a year earlier.