The Rising Influence of Rising Affluence

[Democritus_of_Abdera]

Re HES Plans for current cash surplus…

I support the debt reduction, but not the share buybacks.

HES going to need cash to develop the Guyana property beyond Phase I. The problem is that HES does not control the timing of additional capital infusions into Guyana. Exxon is the operating partner… If Exxon decides to aggressively develop the property, HES will need to either pony up with cash or miss out.

This issue was raised in the question and answer period of the recent Q3 CC (Oct 25, 2017) (see: https://edge.media-server.com/m6/p/sfvyi47t ):

Evan Calio - Morgan Stanley & Co. LLC
What is the earliest you could be spending on Guyana phase two and phase three post FID type spending? Meaning, is there a reasonable scenario where you will need the cash from asset sales to support or to bridge to the post Liza startup period?
Gregory P. Hill - Hess Corp
We are in early phases of feed on phase two, but we just can't be specific yet on the exact timing of when phase two and phase three could come about. I mean, clearly with 2.25 billion to 2.75 billion barrels of recoverable, you're going to need more than just phase one to get at that. But timing on both of those, I don't want to comment on because Exxon's still in various phases of planning that. We should have clarity on that, as John mentioned, as we go through the budget process by year end.

Jeffrey L. Campbell - Tuohy Brothers Investment Research, Inc.
You said that Guyana will be self-funding once Liza phase one comes online. Or at least I believe that's what you've said. And there's obviously a lot of future development there. Do you have any idea how long you think it'll take to generate free cash flow from Guyana development?
John B. Hess - Hess Corp
Yeah. Just for phase one, as we've said in meetings with investors, just phase one in and of itself, you get your cash back in about three years from first production. …. So we can talk intelligently about phase one because we've authorized it. We just have to wait for the phasing a phase two and phase three to give you the macro picture on Guyana itself for Hess.
Jeffrey L. Campbell - Tuohy Brothers Investment Research, Inc.
Where I was trying to go is that before people get so comfortable with selling assets that are obviously generating free cash now, one should step back and think about when free cash is going to emerge from Guyana
Gregory P. Hill - Hess Corp
Yeah. So Block 42 in Suriname as you mentioned, we see that as being part of the same play fairway as Liza. We're currently interpreting in 3D seismic there and evaluating to drill a well in 2018. So Block 42 looks great and of course we also, as you know, entered Block 59 along with ExxonMobil and Statoil; that's a third equity each. That's a very big block. That's 500 Gulf of Mexico blocks. We also see it as part of the same play fairway as Liza and the co-ventures now we're just beginning to plan seismic program. So 42, likely a well in 2018; 59, too early to comment on when we might be drilling there because we got to get the seismic done first.

The issue was addressed in the prepared remarks, i.e.

John P. Rielly - Hess Corp.
The proceeds from asset sales along with our current cash position and importantly, our free cash flows from our low cost cash generative assets in the Gulf of Mexico and Malaysia, provide us the financial flexibility to fund our growing world class investment opportunity in Guyana in an extended $50 oil price environment without the need to access the debt or equity markets. However, we need more visibility into Exxon's plans for phase 2 and 3 of the Liza development in Guyana. Until we have this clarity, we initially plan to maintain a strong liquidity position, but will clearly consider cash returns to shareholders as appropriate.