| ● | Net income increased to $1,276 million, compared to $545 million in the first quarter of 2012 |
| ● | Adjusted earnings increased to $669 million; Adjusted EPS was $1.95 per share, an increase of 30 percent from the first quarter of 2012 |
| ● | Corporation executing on transformation to pure play E&P and delivering strong operating results |
| ● | Corporation applying proceeds of $3.4 billion from asset sales to date in 2013 to reduce debt and add cash to its balance sheet, providing the financial flexibility to fund future growth |
| ● | Most of the proceeds from additional asset sales to fund $4 billion share repurchase program expected to commence second half of 2013 |
NEW YORK, April 24, 2013 -- Hess Corporation (NYSE: HES) today reported net income of $1,276 million for the quarter ended March 31, 2013. Adjusted earnings, which exclude gains on asset sales and other items affecting comparability of earnings between periods, were $669 million, or $1.95 per common share, representing a 30 percent increase on a per share basis over the same quarter last year.
The Corporation generated net cash flow from operations of $819 million during the first quarter while reducing capital and exploratory expenditures by $355 million, a reduction of 18 percent in the year-over-year period.
The Company continues to make progress on its asset sales. In the first quarter, the Corporation completed the sales of its interests in the Beryl area fields in the United Kingdom North Sea, the Azeri-Chirag-Guneshli (ACG) fields in Azerbaijan, and announced the sale of its acreage in the Eagle Ford shale play in Texas, relieving Hess of approximately $500 million of future capital requirements over the next three years. On April 1, Hess announced an agreement to sell 100 percent of its Russian subsidiary, Samara-Nafta, for $2.05 billion, with
total proceeds to Hess of $1.8 billion based on its 90 percent interest. Including Samara-Nafta, total year-to-date proceeds from asset sales amount to approximately $3.4 billion. Hess continues to make progress on the process to divest its upstream assets in Indonesia and Thailand, as well as its terminals, retail, energy marketing and trading businesses in the downstream.
“Our first quarter results demonstrate our strong operating performance across the company. In addition, we continue to execute our multi-year transformation into a more focused, higher growth, lower risk, pure play E&P company and are making excellent progress toward delivering our forecast of 5 to 8 percent compound average annual growth in production,” said John B. Hess, Chairman and CEO. “We continue to focus our E&P portfolio by divesting assets that do not fit our growth profile. By applying proceeds from the sales that we have announced or completed so far this year to reduce debt and strengthen our balance sheet, we will have the financial flexibility both to fund future growth and direct most of the proceeds from additional asset sales to returning capital directly to shareholders. We expect to begin repurchasing shares under our existing $4 billion authorization in the second half of this year.”
After-tax income (loss) by major operating activity was as follows:
| | | Three Months Ended |
| | | March 31, (unaudited) |
| | | 2013 | | 2012 |
| | | (In millions, |
| | | except per share amounts) |
| Exploration and Production | $ | 1,286 | | | $ | 635 | |
| Corporate and Other | | (110 | ) | | | (102 | ) |
| Net income from continuing operations | | 1,176 | | | | 533 | |
| Discontinued operations - Marketing and Refining | | 100 | | | | 12 | |
| Net income attributable to Hess Corporation | $ | 1,276 | | | $ | 545 | |
| | | | | | | | | |
| Net income per share (diluted) from continuing operations | $ | 3.43 | | | $ | 1.57 | |
| Net income per share (diluted) from discontinued operations | | 0.29 | | | | 0.03 | |
| | Total net income per share | $ | 3.72 | | | $ | 1.60 | |
| | | | | | | | | |
| Weighted average number of shares (diluted) | | 342.6 | | | | 340.3 | |
| | | | | | | | | |
| | Note: See page 6 for a table of items affecting comparability of earnings between periods. | |
Strong E&P Performance:
Exploration and Production earnings were $1,286 million in the first quarter of 2013, compared with $635 million in the first quarter of 2012. First quarter 2013 results include $588 million from items affecting comparability of earnings primarily due to gains on asset sales. First quarter oil and gas production was 389,000 barrels of oil equivalent per day, compared with 397,000 barrels of oil equivalent per day in the first quarter a year ago. The decrease in production reflects the impact of asset sales and lower production from the Valhall Field in Norway, partially offset by an increase in production from the Bakken. The Corporation’s average worldwide crude oil selling price, including the effect of hedging, was $94.50 per barrel, up from $89.92 per barrel in the same quarter a year ago. The average worldwide natural gas selling price was $6.62 per mcf in the first quarter of 2013, up from $6.23 per mcf in the first quarter of 2012.
Operational Highlights:
Bakken: Net production from the Bakken oil shale play averaged 65,000 barrels of oil equivalent per day in the first quarter of 2013, an increase of 55 percent from 42,000 of oil equivalent per day in the same period last year. During the quarter, Hess brought 30 operated wells on production. Drilling and completion costs per operated well averaged $8.6 million in the first quarter of 2013, an improvement of $4.8 million per well, or 36 percent, versus last year’s first quarter.
Utica: Across the Corporation’s position, four wells were drilled, seven wells were completed and five wells were flow tested. Three of the five tested wells were operated by Hess. On the Corporation’s 100 percent-owned acreage two wells were tested during the quarter. The Capstone 2H9 well, in Belmont County, tested at a rate of 2,242 barrels of oil equivalent per day including 42 percent liquids, and the NAC 4H-20 well, in Jefferson County, tested at a rate of 7.5 million cubic feet per day of dry gas. On our joint venture acreage, we tested the Jeffco 1H-6 well, in Harrison County, at a rate of 1,432 barrels of oil equivalent per day including 20 percent liquids. As previously announced, the Athens 1H-24 well, in Harrison County, was tested in late 2012 with a rate of 4,230 barrels of oil equivalent per day including 59 percent liquids.
Tubular Bells: During the first quarter of 2013, the Corporation completed drilling the first production well, commenced drilling the second production well and also continued facilities construction work. First oil from this development in the deepwater Gulf of Mexico is anticipated in mid-2014.
Valhall: Production restarted in late January 2013 following a six month shutdown for the operator to install and commission new facilities from a redevelopment project. The project included the installation of a new production, utilities and accommodation platform and expansion of gross production capacity to 120,000 barrels of liquids per day and 143,000 mcf of natural gas per day. Net production averaged 5,000 barrels of oil equivalent per day in the first quarter of 2013, compared with 22,000 barrels of oil equivalent in the same period last year. Production continues to ramp up and the operator is currently running two drilling rigs.
North Malay Basin: Development activities on the early production system are progressing and the project is on track to achieve first production in the fourth quarter of 2013. During the first quarter, construction was completed on the jacket and topsides and modifications to the Floating Production, Storage and Offloading vessel are proceeding on schedule.
Ghana: In February, Hess announced the Cob and Pecan North oil discoveries offshore Ghana. Hess achieved outstanding performance in terms of drilling time and cost-per-foot, with gross well costs averaging approximately $40 million for the last three wells, including success-case logging. Pre-development studies on the block’s seven discoveries have begun and discussions are underway with the government on the appraisal plans for the Deepwater Tano Cape Three Points Block.
Executing Asset Sale Program:
The Corporation has announced significant asset divestitures as part of its transformation to a pure play exploration and production company. So far in 2013, the Corporation has agreed to or completed asset sales with total after-tax proceeds of approximately $3.4 billion. The sale of the Corporation’s interests in the Beryl area fields in the United Kingdom North Sea was completed in January 2013, and the sale of its interests in the ACG fields in Azerbaijan was completed in March 2013. In April 2013, the Corporation announced that it had entered into an agreement to sell 100 percent of its Russian subsidiary Samara-Nafta for a total consideration
of $2.05 billion. Based on its 90 percent interest in Samara-Nafta, Hess’ proceeds are expected to amount to approximately $1.8 billion. The Corporation has also reached an agreement to sell its Eagle Ford assets in Texas for $265 million and commenced sales processes for its interests in Indonesia and Thailand. This follows the completion of the sales of the Schiehallion and Bittern fields, in the United Kingdom North Sea and the Snohvit Field, offshore Norway, during 2012.
Exiting Downstream:
In the first quarter, the Corporation announced its intent to exit all of the Company’s downstream businesses, including divestiture of its terminal, retail, energy marketing, and trading operations, as the culmination of a multi-year strategic transformation into a pure play exploration and production company. In addition, the Corporation closed its Port Reading refinery in February 2013, completing its exit from the refining business. All of these downstream businesses are presented as discontinued operations and all comparative periods in this release have been recast to reflect this change.
Decreasing Capital Expenditures:
Capital and exploratory expenditures in the first quarter of 2013 were $1,631 million, of which $1,613 million related to Exploration and Production operations. Capital and exploratory expenditures for the first quarter of 2012 were $1,986 million, of which $1,963 million related to Exploration and Production operations.
Enhancing Liquidity:
Net cash provided by operating activities was $819 million in the first quarter of 2013, compared with $988 million in the same quarter of 2012. At March 31, 2013, cash and cash equivalents totaled $444 million, compared with $642 million at December 31, 2012. During the first quarter of 2013, the Corporation received proceeds from the completed asset sales referred to above of $1.3 billion. Proceeds from the sale of assets in the first quarter of 2012 were $132 million. Total debt was $7,376 million at March 31, 2013 and $8,111 million at December 31, 2012, reflecting a reduction of 9 percent due to proceeds from asset sales and lower capital expenditures. The Corporation’s debt to capitalization ratio at March 31, 2013 was 24.7 percent, compared with 27.7 percent at the end of 2012.
Marketing and Refining Moved to Discontinued Operations:
Marketing and Refining earnings, comprised of retail, energy marketing, refining, and energy trading results, were $100 million in the first quarter of 2013, compared with $12 million in the same period in 2012. First quarter 2013 results reflected income from operations and gains from the liquidation of LIFO inventories, partially offset by refinery shutdown costs and employee severance.
Items Affecting Comparability of Earnings Between Periods:
The following table reflects the total after-tax income (expense) of items affecting comparability of earnings between periods:
| | Three Months Ended |
| | March 31, (unaudited) |
| | 2013 | | 2012 |
| | (In millions) |
| Exploration and Production | $ | 588 | | | $ | 36 | |
| Corporate and Other | | (11 | ) | | | - | |
| Total items affecting comparability of earnings from continuing operations | | 577 | | | | 36 | |
| Discontinued operations - Marketing and Refining | | 30 | | | | - | |
| Total items affecting comparability of earnings between periods | $ | 607 | | | $ | 36 | |
First quarter 2013 Exploration and Production results included after-tax gains totaling $683 million related to the sale of the Corporation’s interests in the Beryl and ACG fields. First quarter results also included a non-cash income tax charge of $28 million as a result of a planned divestiture. In addition, income from continuing operations included after-tax severance charges totaling $78 million (Exploration and Production – $67 million and Corporate and Other – $11 million) related to the Corporation’s transformation into a more focused pure play exploration and production company.
As a result of the cessation of refining operations at the Port Reading facility in February, first quarter 2013 Marketing and Refining results included after-tax income of $137 million related to the liquidation of LIFO inventories, partially offset by after-tax charges totaling $64 million comprised of accelerated depreciation expenses and other shutdown costs. In addition, an after-tax charge of $43 million was recorded for employee severance costs related to the Corporation’s planned exit from its downstream businesses.
Reconciliation of Reported Net Income to Adjusted Earnings:
The following table reconciles reported Net income attributable to Hess Corporation (U.S. GAAP) and adjusted earnings:
| | Three Months Ended |
| | March 31, (unaudited) |
| | 2013 | | 2012 |
| | (In millions) | |
| Net income attributable to Hess Corporation | $ | 1,276 | | | $ | 545 | |
| Less: Total items affecting comparability of earnings between periods | | 607 | | | | 36 | |
| Adjusted earnings | $ | 669 | | | $ | 509 | |
Hess Corporation will review first quarter financial and operating results and other matters on a webcast at 10 a.m. today. For details about the event, refer to the Investor Relations section of our website at www.hess.com.
Hess Corporation is a leading global independent energy company engaged in the exploration and production of crude oil and natural gas. More information on Hess Corporation is available at www.hess.com.
Forward-looking Statements
Certain statements in this release may constitute "forward-looking statements" within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Forward-looking statements are subject to known and unknown risks and uncertainties and other factors which may cause actual results to differ materially from those expressed or implied by such statements, including, without limitation, uncertainties inherent in the measurement and interpretation of geological, geophysical and other technical data.
