The Rising Influence of Rising Affluence

[Democritus_of_Abdera]

Re: oil price for HES breakeven…

During the Q&A in today's conference call, HES management gave a fairly explicit statement of what oil price is required for Hess to breakeven on an earnings basis in the long run. Basically after production in Guyana starts in 2020, it will be $50. Looking at Bakken only, profits accrue at $40 oil today.

This discussion occurred at 01:08:34 in the presentation (see: http://phx.corporate-ir.net/phoenix.zhtml?c=101801&p=irol-EventDetails&EventId=5258792 )

Partial transcript:

Paul Sankey, Wolff Research:
You’ve referenced the tremendous number of moving parts, several of them very positive. And, you’ve talked about for example $35 oil as a decent return for Guyana. But at the same time you have referenced the current oil price as being a current low price environment which isn’t suggested by the strip. Can you update us on the highest level on where your aiming the company for in terms of the oil price that you assume and what you are going to need to just break even in terms of your CapEx, your growth, what type of growth you would want, and what type of price your wanting.
Gregory Hill, President, COO
Yeah, Paul we’re assuming $50 as the oil price that we are going to have for some time. And, while we are in the investment mode now because of Guyana and we earn very good returns in the future from that and also the Bakken as well at the 4-rig count. You know, we’re putting the company to be in a position that when Guyana comes on, in a $50 world we’ll be cash generative.

Paul Sankey, Wolff Research:
And could you just continue that into the Bakken, John, because I think that in the past you’ve spoken about $60 and it seems that’s changing. Could you update me on where that’s going to be?
John Rielley, CFO:
From the Bakken again, let me sure that I get this out right now at these prices or lower, the Bakken generates free cash flow. So, as Greg mentioned, we have 800 wells at even $40 WTI, they generate 15% returns. So, as John said, we do have deficits right now our target over that medium term once Liza comes on stream is to be net cash flow positive at $50. That’s post dividend as well. And, we believe that we can do that while providing attractive and competitive rates of production growth and returns. So, currently where we are right now is cash flow from operations in 2017 covers all are producing assets capital and our dividend at these current prices. As we move into ’18, though our North Malay Basin and Stampede projects become cash generators. So, again, that’s going to help lower that deficit. And, then what we will do until Guyana comes on stream is we will continue to use our strong cash position. Remember we have the Permian asset sale coming in the third quarter to supplement our cash flow to fund those growth projects which is Bakken, we are going to keep the Bakken at 4 rigs especially at the current prices as you heard because it does generate good returns. And then Guyana, because of the value that both Bakken and Guyana generate for us and we are past the development spend on North Malay Basin and Stampede, we can drive to having an increasing cash flow, pre-cash flow position post Guyana coming on in the $50 world.

Paul Sankey, Wolff Research
Thank you, that is exactly what I wanted to hear. And, could you just continue that into earnings please John. You’ve mentioned and explained that the slightly confusing DD&A you mentioned earlier in the call. When can we expect to be earnings positive.
John Rielley, CFO:
The earning is going to be the non-cash DD&A obviously we have that high rate that we go on now. Bakken and Guyana will continue to drive down that rate as Bakken reserves get added and then as well as additional reserves we get booked with Guyana and that production comes on stream. The exact point, Paul, I don’t know. The breakeven on net income will follow kind of the cash flow, free cash flow numbers. So, again it will be post-Guyana.