Stabroek Block partner, Hess Corporation, on Wednesday reported second-quarter earnings at US$119 million, less than the US$667 million for the same period last year, but is optimistic that with investments like in Guyana, future projections will not only increase each year but grow significantly by 2027.
The company also announced that plans are on stream for the purchase of the Liza Unity FPSO sometime next year, and this could positively impact earnings even further.
“…Guyana keeps getting bigger and better, all of which positions us to deliver significant shareholder value for years to come,” President of Hess, John Hess, told its Second Quarter Earnings call.
This country and the company’s projections were the main focus of investors and financial analysts who participated in Wednesday’s conference.
“In terms of resource growth with multiple phases of Guyana developments coming online and our robust inventory of high-return drilling locations in the Bakken (North Dakota), we can deliver highly profitable production growth of more than 10% annually through 2027. In terms of low cost of supply, as our resource base continues to expand, particularly in Guyana, where our first 5 developments have breakevens in the range of (US)$25 to $35 per barrel Brent, we will steadily move down the cost curve. By 2027, we forecast that our cash unit costs will decline by 25% to approximately $10 per BOE (barrels of oil equivalent).
“By investing only in high-return low-cost opportunities, we have built a differentiated and balanced portfolio focused on Guyana, the Bakken, Deepwater Gulf of Mexico and Southeast Asia. Key to our strategy is Guyana, the industry’s largest oil province discovered in the last decade, where Hess has a 30% interest and ExxonMobil is the operator. Since 2015, we have had more than 30 discoveries on the Stabroek Block, underpinning a gross discovered recoverable resource estimate of more than 11 billion barrels of oil equivalent, with multibillion barrels of exploration potential remaining,” he added.
In terms of Guyana developments, he said that the partners currently have line of sight to six floating production, storage and offloading vessels, or FPSOs, in 2027, “with a gross production capacity of more than 1.2 million barrels of oil per day and the potential for up to 10 FPSOs to develop the discovered resources on the Stabroek Block.”
For this year, the company expects company-wide net production to average between 385,000 and 390,000 barrels of oil equivalent per day, up from its previous guidance of 365,000 to 375,000 barrels of oil equivalent per day. This according to Hess, primarily reflects the company’s strong performance in the first half of 2023 and the expected startup of the Payara development in Guyana early in the fourth quarter.
“For the third quarter, net production from Guyana is expected to also average approximately 110,000 barrels of oil per day. We now expect full year 2023 net production to average approximately 115,000 barrels of oil per day compared to our previous guidance range of 105,000 to 110,000 barrels of oil per day, reflecting the expected early fourth quarter start-up of Payara, with a gross production capacity of approximately 220,000 barrels of oil per day. We forecast Payara to contribute approximately 15,000 net barrels of oil per day in the fourth quarter,” he explained.
With regard to the fourth development – Yellowtail – he said that the overall project is approximately 60% complete and remains on track for first oil in 2025, with a gross production capacity of approximately 250,000 barrels of oil per day.
The fifth development, Uaru, was sanctioned in April. “Uaru will develop more than 800 million barrels of oil from the Uaru, Mako and Snoek fields. The FPSO will have a gross production capacity of approximately 250,000 barrels of oil per day and is on track to achieve first oil in 2026. With regard to our sixth development, Whiptail, the partnership anticipates submitting a plan of development to the Government of Guyana in the fourth quarter, with first oil targeted for 2027.”
Exploration
Focusing on exploration here, he reminded that the Stabroek Block exploration licence was formally extended by one year to October 2027 due to the COVID-19 pandemic; pushing out the contractual acreage relinquishment by one year to October 2024.
“In the Fangtooth area, drill stem tests and core analysis are ongoing. Moving forward, we plan to drill the Bacher-1 well which is a deep prospect located approximately 7 miles west of Fangtooth-1 and the Lancetfish-1 well, located approximately 2 miles southwest of Fangtooth-1. We also plan to drill the Lancetfish-2 appraisal well also in the Fangtooth area,” he updated.
Further, “Exploration and appraisal activities are also planned in the southeastern portion of the block to better understand the longer-term potential of this area. Activities will include drilling and exploration prospect called Blue Fin, located approximately 6 miles southwest of Haimara-1.”
Bank of America representative, Doug Leggate, queried the expected production for the fourth quarter and for insight on possible ramping up and full facility production which could be expected at Payara.
“As we mentioned it’s coming on early in the fourth quarter and I would expect the ramp-up to be like Liza Phase 2, kind of on the order of five months or so in terms of ramp. Payara is a little bit bigger, so it might take marginally a little bit longer but I would say five months, yes,” Greg Hill responded.
And when Leggate asked if there is a debottlenecking strategy around Payara, as the company would have done in Liza 1 and 2, Hill affirmed. “I think there will be because there is a lot of discovered resource in and around Payara. So there will definitely be a debottlenecking strategy as well.”
‘Greater than’
Leggate, who said that he had visited Guyana, also probed about exploration, pointing out that the partners had submitted a 35-well programme that has been approved by the government and what it means for the risked resource view. He also noted that there has not been an update to the 11 billion barrels estimated resource in nearly a year and a half, although there had been success with the Fangtooth Well discovery and enquired on when the company expected to see resource numbers revised.
“We have a very active exploration appraisal programme this year on the Stabroek Block. A lot of it in terms of appraisal, especially in the Fangtooth area. Greg addressed that in his remarks. And other appraisal on the block, some exploration on the block. And I think the real takeaway, Doug, is that we still see multibillion barrels of oil equivalent. And at the appropriate time, we’ll consider increasing the resource estimate of greater than 11 billion barrels of oil equivalent,” John Hess said.
And when Leggate asked about how many discoveries the 11 billion barrels estimate relates to, Hess replied, “that line continues to get upgraded. And I would say, it’s the overall programme and there’s still more to be recognized from some of the outstanding wells we drilled. As you know, a lot of evaluation work is underway in an area like Fangtooth. And until we get that evaluation work done, including the drill stem test, production tests, it’s a little premature to jump that number until we’re ready to give more clarity on it.”
‘Debottlenecking’
Arun Jayaram with JPMorgan Securities, requested an update on how the debottlenecking efforts are going at Liza 1 and Liza 2, and whether there any other projects scheduled for the back half of this; in addition to where the company thinks the new plateau level of production is for both facilities in the post debottlenecking.
Hill referenced that Liza Phase 1 has already been debottlenecked and was “comfortably operating in the 145 to 150 (thousand) range on a regular basis.”
“So, I think that’s about what you can expect out of that one. If we look at Liza Phase 2, so that’s Unity, it’s producing above its nameplate of 220. It’s sometimes as high as 240. The operator has a plan to further debottleneck that facility between now and the end of the year. So I think we’ll be approaching the 250 number as we get sort of towards the end of the year. And then there’s another kind of an engineering project next year to look at the possibility of further debottlenecking Phase 2. I think the operator is quite comfortable with a number around 400,000 barrels a day from both of those facilities and I would add that’s 20% above the sanction case. So ExxonMobil is just doing an extraordinary job of debottlenecking, higher reliability. I can’t say enough about the outstanding job they’re doing as an operator,” he added.
Liza Unity purchase
To Hess’ Chief Financial Officer, John Rielly Jayaram asked for some soft capital expenditure guidance for 2024, including expectations that the company purchased the Liza Unity FPSO here.
“As you know, it’s a little early for 2024 capital. We do… there is a plan to purchase the Unity FPSO in 2024. But look, we’re still working on Whiptail, getting the final cost estimates in on that. So I think what we’ll do is provide our typical 2024 guidance in January,” Rielly said.
Scotiabank’s stock analyst Paul Cheng pointed to the company’s full year budget at $3.7 billion, as he noted the first half year is a bit low and wanted to know where the ramp-up is going to be in the second half.
“Yes. So we have Guyana, obviously, the ramp going there, getting Payara online. And look, we managed just the progression of the developments there. So we’ll be working on Yellowtail. There’s obviously working on Uaru. So you just got – the back half of the year, you’ve got more spend coming in Guyana,” Rielly said.
“Then also, what we have is the Gulf of Mexico rig. So as (Chief Operating Officer) Greg (Hill) mentioned, we have… that rig came in right at the tail end of Q2 and so it drilled Pickerel. We had the success there. And as Greg mentioned, it’s going to be doing Black Pearl and then Vancouver. So again, that’s tilted towards the second half of the year. And the only other thing I would add on that and this was expected, is that the weather window up in North Dakota, this is the best time for some of the facilities to work up there. So that’s why we get a little bit more in the back half in the Bakken as well,” he added.
Multinational investment bank and financial services company, Piper Sandler, had its stock analyst Ryan Todd as a representative at the conference.
Todd pointed to the one-year extension on both acreage relinquishment and exploration licence that were given to the and asked about any impact it might have on how the company allocates resource here over the next few years.
“It won’t change the pace. I think you can expect certainly next year, probably a six-rig programme. And it won’t affect anything. It will just give us that extra year to lock down whatever we can before the expiry which we have every interest in doing, obviously,” Hill said.
Hess added, “To be clear, each year, we plan to drill 10 to 12 exploration appraisal wells. So it just gives us another year to have further evaluation, then it will be in the best interest of the country and also our joint venture itself. So we have, as I said before and Greg did as well, multibillion barrels of exploration potential remaining.”
Important thing
Roger Read with Wells Fargo asked about how the wells have been performing and how that fits into the rated guidance on production or the overall confidence that allows the company to raise production guidance.
“The wells are performing better than expected, really across the board. And of course, the capacity is driven by the physical constraints on the vessel. But obviously, with those wells outperforming, we want to increase that capacity view as high as possible through debottlenecking. But the wells are doing fantastic,” Hill said.
And with the company saying that it would be putting resources into more exploration of the southwestern part of the Stabroek Block, it also provided an updated overview of the geology, as it also explained the benefits of incremental drilling and what it hoped to discover in the area.
“Again, the discovery is down in that part of the block. They’re all Upper Campanians, so they’re Liza-like reservoirs, so very high-quality reservoirs. As you move to the southeast of the block, the GOR (Gas/Oil Ratio) does increase. So the reason that we want to do some further appraisal and exploration down there is to really understand the higher GOR developments on the block. Still going to be very good projects, I’m sure. But we just need a little bit more data to fully understand how we’re going to develop those, where we fit in a queue,” Hill explained.
“I think the important thing is, though, our objective is to move oily developments forward. So for example, Fangtooth is a great example that we’re trying to move oily developments up in the queue. But at the same time, there’s more that we need to understand about the southeast part of the block. So we will occasionally do some appraisal or exploration drilling down or just to further up our understanding of that part of the block,” he added.
