Hess decides to spend more in 2017. Shelves Equus development

Energy company Hess Corporation has increased its annual budget after two consecutive years of reducing it. The company also decided to postpone further development of Equus gas fields off Australia. 

Hess informed on Thursday that its 2017 E&P capital and exploratory budget will be $2.25 billion, compared to its 2016 actual spend of $1.9 billion.

This includes increased capital for additional rigs in the Bakken, development activities at the world-class Liza field offshore Guyana, and restart of drilling at the Valhall field in Norway.

The $2.25 billion budget is allocated as follows: $700 million (31 percent) for unconventional shale resources, $375 million (17 percent) for production, $825 million (37 percent) for developments and $350 million (15 percent) for exploration and appraisal activities.

Output boost

The company’s net 2017 production is forecast to average between 300,000 and 310,000 barrels of oil equivalent per day (boepd), excluding Libya. Production is expected to increase 8-12 percent from the beginning of 2017 to the end of the year as a result of additional rigs in the Bakken, restart of drilling at Valhall and start-up of North Malay Basin in the third quarter. Bakken net production in 2017 is forecast to average between 95,000 and 105,000 boepd.

CEO John Hess said: “With our leadership position in the Bakken, two offshore developments – North Malay Basinand Stampede – that will become significant cash generators starting in 2017 and 2018 respectively, and the world-class Liza discovery on track for sanction in 2017, Hess is well positioned to deliver sustainable growth, cash generation and returns for our shareholders.”

President and COO Greg Hill said: “We plan to resume drilling at the Valhall Field from the existing platform rig and we will continue to progress our two offshore developments to first production, which will add a combined 35,000 boepd once online.”

Spending

Hess said that $375 million were allocated for production activities in the deepwater Gulf of Mexico, including the drilling and completion of a production well at the Penn State Field (Hess 50 percent and operator) and for operations at the Valhall Field in Norway (Hess 64 percent, Aker BP operator), where drilling will restart in late first quarter 2017.

When it comes to development spending, $425 million will be spent to drill two and complete three wells, install the tension leg platform and progress development of the Stampede Field in the deepwater Gulf of Mexico (Hess 25 percent and operator) to achieve first oil in 2018.

Further, $275 million will be spent to complete initial full field development of North Malay Basin in Malaysia (Hess 50 percent and operator) to achieve first production in the third quarter of 2017.

Finally, $125 million is allocated for development activities at the Liza Field in Guyana (Hess 30 percent, Esso Exploration and Production Guyana Limited operator).

The oil company will use $350 million to drill wells on the Stabroek Block offshore Guyana that include appraising the significant Liza Field, the recent Payara discovery and new exploration prospects. Additional funds are included for seismic acquisition and processing and for license acquisitions.

The company’s fourth quarter results will include a non-cash charge of approximately $3.8 billion to establish valuation allowances against net deferred tax assets as of December 31, 2016, as required under accounting standards following a three-year cumulative loss.

Equus delay

During the fourth quarter of 2016, the company made the decision to defer further development of the Equus natural gas fields on blocks WA-390-P and WA-474-P in the Carnarvon basin, offshore the North West Shelf of Australia. Hess, wit 100% in the permits, has drilled 16 exploratory wells on the block, 14 of which were natural gas discoveries.

As a result of delay, Hess’ fourth quarter 2016 results will include an after-tax charge of approximately $700 million to fully impair the carrying value of interests in Equus. Capital will be allocated to projects that generate higher returns for shareholders, including the Bakken and Guyana.