Hess (NYSE:HES) capped an excellent year by posting solid fourth-quarter results. While the oil producer didn't return to profitability during the period, it turned a key corner as its partner ExxonMobil (NYSE:XOM) started up the first phase of their joint offshore Guyana development. Add that new growth engine to its rapidly expanding position in the Bakken, and Hess has the fuel to grow briskly this year.

Drilling into Hess' fourth-quarter numbers

Metric

Q4 2019

Guidance or Expectations

Total production (excluding Libya)

316,000 BOE/D

300,000 BOE/D

Bakken production

174,000 BOE/D

165,000 BOE/D

Adjusted earnings (loss)

 $(0.60)

 $(0.48)

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

Hess' production surged during the fourth quarter. Total output rose 18% year over year, due in large part to expectation-crushing Bakken production, which rocketed 38% compared to the prior-year period. Fueling the company's strong showing in that region were newly drilled wells and the benefit from enhancements to its well completion design, which boosted productivity. Hess was also able to capture more natural gas thanks to the start-up of the Little Missouri 4 gas processing plant that came online in late July.

Hess' assets in the Gulf of Mexico, meanwhile, delivered solid results as output rose 3% to 70,000 BOE/D. The company also produced 22,000 BOE/D in Libya, which was flat versus the year-ago period.

However, the main story for Hess during the quarter was that ExxonMobil completed the first phase of their shared offshore Guyana development. That project started producing on December 20th and should reach its full capacity of 120,000 barrels per day in the coming months.

In addition to achieving that milestone, Exxon continued work on the second and third phases of that project, which could start producing in mid-2022 and early 2023, respectively, if everything goes according to plan. The oil giant also announced two more discoveries over the past two months, bringing the total to 16. In addition, the company updated its resource estimate in the region and currently believes it found 8 billion barrels of recoverable oil resources, up from its previous view of 6 billion barrels.

An offshore oil production platform at sunset

Image source: Getty Images.

A look at what's ahead for Hess

Hess expects to invest $3 billion this year on capital projects, a bit higher than last year's level of around $2.7 billion. It's allocating roughly 56% of that money on production-focused projects aimed at boosting output this year. It will spend the bulk of that money in the Bakken, where it plans to complete another 175 new wells. Hess plans to spend about 29% of its capital budget on development projects in Guyana. Finally, it will invest 15% on exploration activities in the Gulf of Mexico and offshore Guyana. 

That spending level should enable Hess to produce between 330,000 BOE/D to 335,000 BOE/D in 2020. That's 13% to 15% above 2019's average of 290,000 BOE/D. Fueling that growth will be its continued expansion in the Bakken, a discovery well in the Gulf of Mexico it will bring online next month, and its share of the output from the first phase in Guyana. With most of that production growth high-margin oil, it will help boost Hess' cash flow this year, assuming oil prices don't continue selling off.

That keeps Hess firmly on track with its long-term forecast, which would see it grow its production at a 10% compound annual rate through 2025. This pace would fuel 20% compound annual cash flow growth during that timeframe, assuming oil averages $60 a barrel. That's around its average for the past two years, though it's a bit below the current price. Further, the company's development program in offshore Guyana has it on track to drive its oil breakeven level below $40 a barrel by 2025, which will make it easier for the company to handle lower oil prices in the future.

Hess continues to look like an appealing long-term buy

Hess was one of the best-performing energy stocks last year, fueled by its fast-growing production. Shares, however, have given back some of those gains this year, mainly due to falling oil prices. Because of that, now could be a good time to pick up shares of this fast-growing oil producer, given how bright its future appears, especially if crude recovers a bit from its recent swoon.