Hess Corp. (NYSE:HES) reported decent second-quarter results before the market opened on Wednesday. While the oil and gas producer posted another net loss, cash flow surged. Meanwhile, the company continued making progress on its turnaround plan, which should lead to big-time growth in oil production and cash flow in the coming years.

Looking at the quarter

Metric Q2 2018 Q1 2018 Q2 2017
Adjusted earnings (loss) ($56 million) ($72 million) ($449 million)
Adjusted earnings per share (loss)  ($0.23) ($0.27) ($1.46)
Production 247,000 BOE/D 233,000 BOE/D 294,000 BOE/D

Data source: Hess Corp. BOE/D=barrels of oil equivalent per day.

An offshore driling rig with the sun setting in the background.

Image source: Getty Images.

While Hess continued to lose money in the second quarter, that number keeps narrowing, and it came in $0.06 ahead of analysts' expectations. 

Production, meanwhile, dipped year over year due to asset sales. However, if we adjust for that impact, it would have increased 10,000 BOE/D year over year. Driving the growth of its retained assets was the recent start-up of the North Malay Basin off Malaysia. Output from the field averaged 26,000 BOE/D during the quarter, versus just 1,500 BOE/D in the year-ago period, when it was just starting up. Meanwhile, Hess' production in the Bakken Shale rose 6% during the quarter thanks to the ramp-up in drilling activity, which helped offset an 8% decline in the Gulf of Mexico due to the temporary shutdown of a production platform.

While Hess has yet to return to profitability, cash flow surged to $425 million during the quarter, up from $165 million in the year-ago period. However, the company continues to outspend cash flow after investing $525 million in capital expenditures during the quarter as it ramps up in the Bakken and starts development of an offshore discovery near Guyana. But that's not a concern, since Hess can easily bridge its spending gap because it ended the quarter with $2.5 billion in cash against just $5.5 billion in debt.

The wheeling and dealing continued

Hess' cash pile will get another injection in the third quarter after the company agreed to sell its joint venture in the Utica Shale for $400 million. It will use those proceeds, it says, to "invest in our higher-return growth opportunities in Guyana and the Bakken, and to fund the company's previously announced share-repurchase program."

Meanwhile, the company said that it now plans to retain its 61.5% stake in the South Arne Field off Denmark. The company had put that asset up for sale but didn't receive offers that met its expectations for value. Hess did say that it will continue to review its strategic options for this asset.

Hess' asset sales over the past few years have enabled it to build up a huge cash position that it's now allocating in several different ways. Not only is it using the money to fund the gap between capex and cash flow, but it's also in the process of repurchasing $1.5 billion in shares and retiring $1 billion in debt. The company bought back another $500 million in stock during the quarter, bringing the total to $1 billion. Meanwhile, it retired $110 million in debt and has now paid off $500 million.

An oil pump with the sun shining through.

Image source: Getty Images.

A look ahead

The asset sales and share buyback program have helped moved the needle for Hess' stock this year, making it one of the best-performing oil stocks in the S&P 500. However, the company's future hinges on Guyana, where it is a 30% partner in the Stabroek Block, which is operated by ExxonMobil (NYSE:XOM). Exxon recently announced that it made an eighth oil discovery in the Block, which it now believes holds 4 billion BOE of recoverable resources. That's enough to support up to five production platforms that could produce 750,000 barrels of oil per day (BPD) by 2025. The first one is already underway and is on pace to begin producing 120,000 BPD by early 2020, while two more are in development and could start up by mid-2022 and early 2023, respectively.

Hess believes that its dual growth drivers -- the Bakken and Guyana -- should support a 10% compound annual growth rate (CAGR) in production through 2023. Cash flow, meanwhile, could expand at a 20% CAGR over that period, assuming crude averages just $50 a barrel. That puts the company on pace to start generating a gusher of free cash flow after 2020 as long as oil is above $50 a barrel.

The future keeps getting brighter

Hess has spent the past several years reshaping its portfolio to transform into an oil and cash-flow growth juggernaut. While it's still a few years from hitting its stride, the company is well on its way. Because of that, it's becoming one of the more intriguing oil growth stocks to consider for the long term, making it one that investors should put on their watch list.