Hess Corp. (Hess), Large Cap AI Study of the Week

September 17, 2024

Weekly AI Pick from the S&P 500

Company Overview

Hess Corporation is a global exploration and production (E&P) company engaged in the exploration, development, production, transportation, purchase, and sale of crude oil, natural gas liquids, and natural gas. It operates in key regions including the United States, Guyana, the Malaysia/Thailand Joint Development Area (JDA), and Malaysia. One of its major projects is the Stabroek Block offshore Guyana, where it plans to deploy six FPSOs by 2027, targeting a production capacity of over 1.2 million gross barrels of oil per day. Hess is also pursuing the Whiptail project in Guyana, aiming for an initial production of 250,000 barrels of oil per day by 2027, and a Gas to Energy Project involving the construction of a 130-mile pipeline to an onshore power plant, expected to be completed by the end of 2024.

The company’s midstream segment, in which it holds a 38% interest in Hess Midstream LP, provides fee-based services primarily in North Dakota’s Bakken shale play. This segment includes assets such as natural gas and oil gathering systems, processing plants, rail terminals, and storage facilities, generating revenue through fees for services related to gathering, compressing, processing, transporting, and storing natural gas, crude oil, NGLs, and produced water. Hess Midstream has commercial agreements with Hess, including gas gathering, crude oil gathering, and gas processing, with terms extendable for an additional ten years starting January 1, 2024. The company has entered into a merger agreement with Chevron in 2023, expected to close in mid-2024, which could drive further growth through Chevron's broader resources and capabilities.

Hess Corporation operates under stringent environmental regulations, which have led to higher capital expenditures but are not expected to adversely affect its financial condition. The company has robust emergency preparedness plans and insurance coverage for physical damage, third-party liability, and pollution events, although there are certain limitations and exclusions. Hess’s human capital strategy focuses on employee development, diversity, equity, inclusion (DEI), and workplace safety, supported by the "Life at Hess" framework aimed at optimizing employee experiences. The company’s executive leadership team, with extensive industry experience, oversees operations and strategic initiatives to maintain competitiveness and innovation.

By the Numbers

Annual 10-K Report Summary for 2023:

• Net income: $1,382 million (decrease from $2,096 million in 2022)
• Adjusted net income: $1,552 million (decrease from $2,176 million in 2022)
• Net production: 394,000 boepd (up from 344,000 boepd in 2022)
• Cash and cash equivalents: $1,688 million (down from $2,486 million in 2022)
• Consolidated debt: $8,613 million (up from $8,281 million in 2022)
• Net income attributable to Hess Corporation: $1,382 million (down from $2,096 million in 2022)
• Total revenues and non-operating income (E&P segment): $10,550 million (down from $11,502 million in 2022)
• Total costs and expenses (E&P segment): $8,254 million (up from $8,034 million in 2022)
• Worldwide production: 225,000 barrels of crude oil per day, 602,000 mcf of natural gas per day (up from 194,000 barrels and 570,000 mcf in 2022)
• Production unit costs: $26.46 per BOE (up from $25.41 in 2022)
• Exploration expenses: $317 million (up from $208 million in 2022)
• Effective income tax expense rate: -30% (improved from -31% in 2022)
• Midstream revenues: $1,357 million (up from $1,281 million in 2022)
• Net income attributable to Hess Corporation (Midstream): $252 million (down from $269 million in 2022)
• Total equity: $9.602 billion (up from $8.496 billion in 2022)
• Operating cash flows: Approximately $3.94 billion (stable compared to 2022)
• Total liquidity: Approximately $5 billion

Quarterly 10-Q Report Summary for Q2 2024:

• Net income for Q2: $757 million (up from $119 million in Q2 2023)
• Adjusted net income for Q2: $809 million (up from $201 million in Q2 2023)
• Total net production for Q2: 494,000 boepd (up from 387,000 boepd in Q2 2023)
• Guyana production for Q2: 192,000 bopd (up from 110,000 bopd in Q2 2023)
• Bakken net production for Q2: 212,000 boepd (up from 181,000 boepd in Q2 2023)
• Net income for the first six months: $1,729 million (up from $465 million in the first six months of 2023)
• Adjusted net income for the first six months: Significant increase (specific numbers not provided)
• After-tax earnings increase due to higher sales volumes: $445 million for the quarter, $1,045 million for the half-year
• Midstream revenues for Q2: $365 million (up from $324 million in Q2 2023)
• Net income attributable to Hess Corporation (Midstream) for Q2: $66 million (up from $62 million in Q2 2023)
• Net cash provided by operating activities for the first six months: $2,778 million (up from $1,612 million in the first six months of 2023)
• Cash and cash equivalents as of June 30, 2024: $1.9 billion
• Total liquidity as of June 30, 2024: Approximately $5.2 billion
• Total long-term debt as of June 30, 2024: $8,865 million (fair value of $9,030 million)