Hess Corp.’s 2016 exploration and production capital and exploratory budget has been reduced 40% compared to 2015, with the bulk of it going to offshore production, developments, exploration, and appraisals.
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Tubular Bells in the Gulf of Mexico. Image from Hess. |
The 2016 budget stands at US$2.4 billion, compared to 2015’s $4 billion, and also represents a 20% decrease to the company’s preliminary 2016 guidance of $2.9-$3.1 billion provided in October.
A total of 34% or $820 million will be allocated to developments; 25% or $610 million will be used for production; 21% or $500 million will be set for exploration and appraisal activities; and 20% or $470 million will be used for unconventional shale resources.
“We take a long term view to managing our business and we will continue to invest in our growth projects and prospects, including exploration and appraisal activities. However, in response to the current low oil price environment, we have significantly decreased our 2016 capital and exploratory expenditures and we plan to reduce activity at all of our producing assets,” Greg Hill, Hess president and COO said. “Moreover, we will continue to pursue further cost reductions and efficiency gains across our portfolio.”
Development
For development activities, Hess will spend about $375 million on its 50% owned and operated North Malay Basin offshore Malaysia to progress full field development.
In the deepwater Gulf of Mexico, Hess expects to spend $325 million to integrate hull and topsides, install subsea umbilicals, risers and flowlines and commence drilling at its 24% owned and operated Stampede field.
The US independent also anticipates spending $70 million offshore Guyana at the Esso E&P Guyana-operated Liza field for pre-development activities.
Production
Of the $610 million set aside for production, Hess will spend about $375 million for production activities in the deepwater Gulf of Mexico, which includes the drilling and completion of a production well and completion of a water injection well at its 57.1% owned and operated Tubular Bells field, in addition to a water injection well at the BHP-operated Shenzi Field, which Hess owns 28% stake.
Offshore Europe, Hess expects to spend $140 million to complete the current stage of the Phase 3 drilling campaign at its 61.5% owned and operated South Arne field off Denmark by the end Q1, and for operations at the BP-operated Valhall field off Norway, which Hess owns 64%.
Offshore Asia, the company has allocated $50 million to complete the Booster Compression project and processing of new broadband seismic data in the Carigali Hess-operated joint development area in the Gulf of Thailand that Hess owns 50%.
Exploration and appraisal
Exploration and appraisal activities include drilling up to four wells on the Stabroek Block, offshore Guyana, including evaluating the Liza discovery, a drill stem test, and additional exploration activities, which is expected to cost $250 million.
In the deepwater Gulf of Mexico, drilling an appraisal well to delineate the Chevron-operated Sicily discovery (Hess owns 25%), and an exploration well at the ConocoPhillips-operated Melmar prospect (Hess owns 35%), a large Paleogene four way structure in the Perdido Fold Belt, and other exploration activities that will cost an estimated $175 million.
Hess is forecasting that its net production will average between 330,000-350,000 boe/d in 2016.
“While we are well positioned to navigate the current low oil price environment with one of the strongest balance sheets and liquidity positions among our E&P peers, we are also well positioned to benefit from a recovery in prices, with a high quality portfolio that is leveraged to oil and offers attractive investment opportunities which will create long term value for our shareholders,” Hess CEO John Hess said.
According to Simmons & Company, the lower capex budget will help moderate outspend for Hess.
“The 2016 cash flow deficit remains significant (well over $1 billion at $40/bbl oil) - a point of concern for investors,” Simmons & Company analysts said. “On the other hand, Hess has an exceptionally strong balance sheet, an advantageous liquidity position, and long lead time major project spending will be rolling of the books in coming hears, helping to improve the cash flow profile on a go forward basis.”
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