Hess(HES) - 2022 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited Q1 2022 financials show net income of $417 million, total assets $19.8 billion, and $500 million debt repayment Consolidated Financial Statements Q1 2022 net income rose to $417 million on $2.37 billion revenue, with cash decreasing to $1.37 billion due to debt repayment Consolidated Balance Sheet Highlights (In millions) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,370 | $2,713 | | Total current assets | $3,266 | $4,346 | | Property, plant and equipment — net | $14,489 | $14,182 | | Total Assets | $19,798 | $20,515 | | Total current liabilities | $2,303 | $3,064 | | Long-term debt | $7,934 | $7,941 | | Total Liabilities | $12,750 | $13,489 | | Total Equity | $7,048 | $7,026 | Consolidated Income Statement Highlights (In millions, except per share amounts) | Account | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Sales and other operating revenues | $2,313 | $1,898 | | Total revenues and non-operating income | $2,371 | $1,919 | | Net Income Attributable to Hess Corporation | $417 | $252 | | Diluted EPS | $1.34 | $0.82 | Consolidated Cash Flow Highlights (In millions) | Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($156) | $591 | | Net cash provided by (used in) investing activities | ($522) | ($385) | | Net cash provided by (used in) financing activities | ($665) | ($79) | Notes to Consolidated Financial Statements Notes detail $120 million increase in capitalized exploration, $500 million debt repayment, crude oil as primary revenue, and $325 million hedge restructuring - Capitalized exploratory well costs pending determination of proved reserves increased by $120 million during Q1 2022, reaching a balance of $801 million, primarily related to drilling on the Stabroek Block, Guyana, and the Huron prospect in the Gulf of Mexico[24] - In February 2022, the company repaid the remaining $500 million outstanding under its $1 billion term loan, which was previously scheduled to mature in March 2023[33] Disaggregated Revenue from Contracts with Customers (Q1 2022, In millions) | Revenue Source | Amount | | :--- | :--- | | Crude oil revenue | $1,239 | | Natural gas liquids revenue | $181 | | Natural gas revenue | $280 | | Sales of purchased oil and gas | $699 | | Total E&P Revenue | $2,399 | - In Q1 2022, the company purchased WTI and Brent call options for $325 million to remove the ceiling price on its price collars for the period of April 1 to December 31, 2022, while floor prices of $60/bbl for WTI and $65/bbl for Brent remain in place[56] - In April 2022, Hess Corporation received total proceeds of $346 million from two Hess Midstream equity transactions, reducing its consolidated ownership in Hess Midstream from approximately 43.5% to 41.0%[65] Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2022 adjusted net income of $404 million driven by higher prices, with focus on Guyana development and $500 million debt repayment - Adjusted net income for Q1 2022 was $404 million, compared to $252 million in Q1 2021, driven by higher realized selling prices, partially offset by lower sales volumes[75][84] - The company repaid the remaining $500 million of its term loan and increased its quarterly dividend by 50% in March 2022[72] - 2022 net production guidance (ex-Libya) is at the low end of 325,000 to 330,000 boepd, with E&P capex guidance of ~$2.6 billion and a potential increase of $180-$200 million due to adding a fourth Bakken rig and cost inflation[73][74] Exploration and Production Results E&P net income increased to $460 million in Q1 2022 due to higher prices, despite production decreasing to 276,000 boepd Average Realized Selling Prices | Product | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Crude Oil (per barrel, incl. hedging) | $86.75 | $50.02 | | NGL (per barrel) | $39.79 | $29.49 | | Natural Gas (per mcf) | $5.28 | $4.90 | Net Production Volumes (kboepd, ex-Libya) | Region | Q1 2022 (kboepd) | Q1 2021 (kboepd) | | :--- | :--- | :--- | | North Dakota | 152 | 158 | | Gulf of Mexico | 30 | 56 | | Guyana | 30 | 31 | | Malaysia/JDA & Other | 64 | 70 | | Total (ex-Libya) | 276 | 315 | - In Guyana, the Yellowtail development was sanctioned and is expected to produce approximately 250,000 gross bopd starting in 2025, with new discoveries announced at Barreleye, Lukanani, and Patwa[69][79][80] E&P Unit Costs (per boe) | Cost Category | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Cash operating costs | $13.79 | $9.81 | | DD&A | $10.96 | $11.83 | | Total Production Unit Costs | $24.75 | $21.64 | Midstream Results Midstream net income was $72 million in Q1 2022, with revenues increasing to $312 million due to higher volume commitments Midstream Financial Summary (In millions) | Account | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Sales and other operating revenues | $312 | $289 | | Results of Operations Before Income Taxes | $165 | $162 | | Net Income Attributable to Hess Corporation | $72 | $75 | - The increase in revenue was primarily associated with higher minimum volume commitments, while the increase in costs was due to higher rail transport costs, DD&A on new assets, and higher interest expense[111][112] Liquidity and Capital Resources Total liquidity was $4.94 billion as of March 31, 2022, with $156 million net cash used in operations due to working capital changes and debt repayment Liquidity Position (March 31, 2022) | Item | Amount (In billions) | | :--- | :--- | | Cash and cash equivalents (ex-Midstream) | $1.37 | | Available Revolving Credit Facility | $3.50 | | Total Liquidity | ~$4.94 | - Net cash used in operating activities was $156 million, impacted by a $1.108 billion use of cash from changes in operating assets and liabilities, including a $325 million payment for hedge restructuring and approximately $470 million for Libyan income tax and royalty payments[122] - In Q1 2022, the company repaid the remaining $500 million of its term loan, with financing activities also including $119 million in dividend payments[123] - The company plans to return up to 75% of its annual adjusted free cash flow to shareholders through dividend increases and/or stock repurchases[125] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company manages commodity price, interest rate, and foreign currency risks, with sensitivities noted for crude oil options and long-term debt - A 10% increase/decrease in forward WTI and Brent crude oil prices would decrease/increase the fair value of the company's put options by approximately $15 million and $20 million, respectively[138] - A 15% increase/decrease in interest rates would decrease/increase the fair value of the company's long-term debt by approximately $420 million and $440 million, respectively[137] Item 4. Controls and Procedures CEO and CFO confirmed effective disclosure controls and procedures, with no material changes to internal control over financial reporting - Based on their evaluation as of March 31, 2022, the CEO and CFO concluded that the Corporation's disclosure controls and procedures were effective[145] - No change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting was identified in Q1 2022[146] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, including environmental and asbestos claims, with no material adverse effect expected - Information regarding legal proceedings is detailed in Note 10 of the Notes to Consolidated Financial Statements[148] - Key ongoing legal matters include lawsuits related to MTBE, environmental remediation for the Lower Passaic River and Gowanus Canal, climate change litigation, and asbestos claims, which are being managed through a Chapter 11 process for a subsidiary[43][45][47][48] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data - The exhibits filed with the report include CEO/CFO certifications (31 and 32), a form of performance award agreement (10(1)), and Inline XBRL documents (101)[151]