Oil exploration and production specialist Hess (HES 0.56%) reported third-quarter earnings on Wednesday, Oct. 30, that topped analyst estimates. The results showed a mixed performance as the company's strong production growth was weighed down by lower realized oil prices. Adjusted earnings per share came in at $2.14, beating the expected $1.79. However, net income slipped 1.2% to $498 million. Revenue was up 14%, driven by production increases, especially in Guyana and the Bakken Shale.
Overall, the quarter highlighted growth in production but also flagged concerns over profitability given increased capital expenditures.
| Metric | Q3 2024 | Analyst Estimate | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Adjusted EPS | $2.14 | $1.79 | $1.64 | 30.5% |
| Revenue | $3.19 billion | $2.96 billion | $2.8 billion | 14% |
| Guyana production | 170,000 bopd | N/A | 108,000 bopd | 57% |
| Net income | $498 million | N/A | $504 million | (1.2%) |
Source: Hess. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year. bopd = Barrels of oil per day.
Understanding Hess
Hess is a leading oil and gas exploration company known for its focus on large, high-impact oil reserves. Its assets include the transformational Guyana Stabroek Block and domestic operations in the Bakken Shale. Its key strategic focus areas are resource-rich regions that pose significant growth opportunities. This quarter, Hess concentrated efforts on maximizing output in these regions, particularly through fast-tracking production projects in the Stabroek Block with floating production, storage, and offloading units, known as FPSOs.
The company is significantly bolstering its capabilities at the Bakken site with ongoing rig operations. Key success factors for Hess include smooth project execution in drilling and well completion. Another factor is operational efficiency in its Midstream segment, supporting oil and gas transportation in key regions.
Quarterly Highlights
Hess achieved notable production milestones in Q3 as Guyana's net production jumped 57% to 170,000 barrels of oil per day (bopd), primarily due to new production from the Payara project. This development is set to boost production further in the coming months. In the U.S., the Bakken Shale also saw an 8% rise in production to 206,000 bopd, buoyed by new wells and improved drilling techniques.
The company's capital and exploratory expenditures increased to $1.1 billion, accelerating developments in Guyana, a strategic priority as it prepares additional FPSOs. The full-year guidance for capital spending was lifted from $4.2 billion to $4.9 billion, underscoring a commitment to enhancing output capacity despite adding financial pressures. However, profitability faced headwinds with net income slightly decreasing to $498 million from $504 million year-on-year due to lower selling prices. The drop in oil prices from $81.53 per barrel to $77.06 per barrel limited profit margins, despite increased revenue.
Operationally, Hess progressed with its drilling program in Bakken, operating four rigs and commissioning 37 new wells. It also completed 36 existing wells as part of ongoing efforts to optimize production efficiency. Despite increased investments and higher production, lower realized oil prices continued to constrain profit.
Financially, Hess reported $1.51 billion in operating cash flows, up from $986 million the previous year. This increase partly resulted from the improved production volumes and reflects the company’s focus on expanding its operational base.
Looking Ahead
For the fourth quarter of 2024, Hess expects production in Guyana to increase further, targeting 185,000 to 190,000 bopd. For its Exploration and Production (E&P) net production, it projects a range of 475,000 to 485,000 bopd. These projections demonstrate considerable growth potential and endorse the company’s long-term strategic focus on high-yield projects. Exploratory expenditures for the full year are expected to be approximately $4.9 billion, up from previous guidance of $4.2 bllion, as Hess management decided to pull forward purchase plans for two additional FPSOs.
Hess is also closely engaged in a potential merger with Chevron (CVX 0.78%), which could provide substantial strategic benefits. The merger aims to enhance financial stability and operational synergies. If approved, this deal proposes handing Chevron shares to Hess shareholders. The merger remains subject to regulatory approvals and legal challenges but is slated for completion in 2025.
