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Hess Reports Estimated Results for the Second Quarter of 2017

NEW YORK--(BUSINESS WIRE)--Hess Corporation (NYSE:HES) today reported a net loss of $449 million, or $1.46 per common share, in the second quarter of 2017 compared with a net loss of $392 million, or $1.29 per common share, in the second quarter of 2016, reflecting a lower effective tax rate in 2017 from the required change in deferred tax accounting. Our loss before income taxes was $425 million in the second quarter of 2017, compared with a loss before income taxes of $678 million in the prior-year quarter. The improved second quarter 2017 pre-tax results reflect higher realized crude oil selling prices and lower operating costs and exploration expenses that were partially offset by lower sales volumes. On an adjusted basis, second quarter 2016 adjusted loss was $335 million, or $1.10 per common share.

“We continue to take steps to reinforce our outstanding value-driven growth outlook and drive improving returns and lower capital and operating costs across our portfolio.”

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“Our company delivered strong operational performance and achieved a number of major strategic milestones in the quarter,” Chief Executive Officer John Hess said. “We continue to take steps to reinforce our outstanding value-driven growth outlook and drive improving returns and lower capital and operating costs across our portfolio.”

After-tax income (loss) by major operating activity was as follows:

Three Months Ended Six Months Ended
June 30, June 30,
(unaudited) (unaudited)

2017

2016

2017

2016

(In millions, except per share amounts)

Net Income (Loss) Attributable to Hess Corporation

Exploration and Production $ (354 ) $ (328 ) $ (587 ) $ (781 )
Midstream 16 11 34 27
Corporate, Interest and Other (111 ) (75 ) (220 ) (147 )
Net income (loss) attributable to Hess Corporation $ (449 ) $ (392 ) $ (773 ) $ (901 )
Net income (loss) per common share (diluted) (a) $ (1.46 ) $ (1.29 ) $ (2.53 ) $ (3.00 )

Adjusted Net Income (Loss) Attributable to Hess Corporation (b)

Exploration and Production $ (354 ) $ (271 ) $ (587 ) $ (724 )
Midstream 16 11 34 27
Corporate, Interest and Other (111 ) (75 ) (220 ) (147 )
Adjusted net income (loss) attributable to Hess Corporation $ (449 ) $ (335 ) $ (773 ) $ (844 )
Adjusted net income (loss) per common share (diluted) (a) $ (1.46 ) $ (1.10 ) $ (2.53 ) $ (2.81 )
Weighted average number of shares (diluted) 314.4 313.2 314.2 306.5

(a)

Calculated as net income (loss) attributable to Hess Corporation less preferred stock dividends, divided by weighted average number of diluted shares.

(b)

Adjusted net income (loss) attributable to Hess Corporation excludes items affecting comparability summarized on page 5. A reconciliation of net income (loss) attributable to Hess Corporation to adjusted net income (loss) attributable to Hess Corporation is provided on page 6.

Exploration and Production:

The Exploration and Production net loss in the second quarter of 2017 was $354 million, compared to a net loss of $328 million in the second quarter of 2016. On an adjusted basis, second quarter 2016 net loss was $271 million. The Corporation’s average realized crude oil selling price, including the effect of hedging, was $45.95 per barrel in the second quarter of 2017, up from $41.95 per barrel in the year-ago quarter. The average realized natural gas liquids selling price in the second quarter of 2017 was $14.85 per barrel, versus $9.03 per barrel in the prior-year quarter, while the average realized natural gas selling price was $3.19 per mcf, compared with $3.58 per mcf in the second quarter of 2016.

Net production, excluding Libya, was 294,000 boepd in the second quarter of 2017, compared to 313,000 boepd in the prior-year quarter. Lower volumes were due to a reduced drilling program across our portfolio, natural field declines, and planned shut-downs in the Gulf of Mexico. Net production in Libya, which recommenced in the fourth quarter of 2016, was 6,000 boepd in the second quarter of 2017.

Cash operating costs, which include operating costs and expenses, production and severance taxes, and E&P general and administrative expenses, were $14.68 per boe in the second quarter, down 8 percent from $15.91 per boe in the prior-year quarter. Second quarter 2017 results included a charge of $15 million related to crude oil hedge ineffectiveness. The E&P effective tax rate, excluding Libya, was a benefit of 8 percent in the second quarter of 2017, down from a benefit of 47 percent, excluding special items, in the second quarter of 2016. Commencing in 2017, we do not recognize deferred tax benefit or expense in the U.S., Denmark (hydrocarbon tax only), and Malaysia until deferred tax assets are re-established in these jurisdictions. This financial reporting requirement has no cash flow or economic impact.

Operational Highlights for the Second Quarter of 2017:

Bakken (Onshore U.S.): Net production from the Bakken averaged 108,000 boepd, compared to 106,000 boepd in the prior-year quarter. The Corporation operated an average of four rigs in the second quarter, drilling 23 wells and bringing 13 new wells online.

Gulf of Mexico (Offshore U.S.): Net production from the Gulf of Mexico was 51,000 boepd, compared to 54,000 boepd in the prior-year quarter, primarily reflecting lower production as a result of planned shut-downs, partially offset by higher production at the Tubular Bells Field. At the Stampede development (Hess operated - 25 percent), the tension leg platform (TLP) was installed in the field and hook-up activities commenced. One well has been drilled and completed, and completion operations are underway on the second and third wells. First production from the field is expected in the first half of 2018.

North Malay Basin Full-field Development (Offshore Malaysia): At the North Malay Basin project (Hess operated - 50 percent), hook-up of the topsides for the central processing platform was completed in the quarter and first production of natural gas commenced in mid-July with commissioning activities ongoing. The field is expected to ramp up net production to approximately 165 million cubic feet per day during the third quarter.

Guyana (Offshore): At the Stabroek Block (Hess - 30 percent), operated by Esso Exploration and Production Guyana Limited, the partners sanctioned the first phase of the Liza Field development. This phase is expected to have a gross capital cost of approximately $3.2 billion for drilling and subsea infrastructure and will develop approximately 450 million barrels of oil, with first production expected by 2020. The Corporation’s net share of development costs is forecast to be approximately $955 million, of which $110 million is already included in our 2017 capital and exploratory budget. Of the remaining net development costs, approximately $250 million is expected in 2018 and approximately $330 million in 2019, with the balance expected in 2020 and 2021.

In June, the operator confirmed positive results from the Liza-4 well that encountered more than 197 feet of high-quality, oil-bearing sandstone reservoirs. On July 25th, the operator announced the successful Payara-2 well, which encountered 59 feet of high-quality, oil bearing sandstone reservoirs and confirms a second giant field containing gross discovered recoverable resources of approximately 500 million boe. Gross discovered recoverable resources for the Stabroek Block are now estimated to be 2.25 billion to 2.75 billion barrels of oil equivalent.

Midstream:

The Midstream segment, which is comprised primarily of our 50/50 midstream joint venture, Hess Infrastructure Partners (HIP), had net income of $16 million in the second quarter of 2017, compared to $11 million in the prior-year quarter.

In April, Hess Midstream Partners LP (the “Partnership”) successfully sold common units representing limited partner interests in an initial public offering for net proceeds of $365.5 million, of which $175 million was distributed to the Corporation. The Partnership owns an approximate 20 percent controlling interest in the operating assets that comprise HIP, while HIP retains ownership of the remaining 80 percent. The public unit holders own a 30.5 percent limited partner interest in the Partnership.

Capital and Exploratory Expenditures:

Exploration and Production capital and exploratory expenditures were $528 million in the second quarter of 2017, up from $484 million in the prior-year quarter, primarily reflecting increased drilling activity (Bakken, Stampede and Norway), partially offset by lower exploration activity and a reduction in development expenditures at North Malay Basin.

Liquidity:

Net cash provided by operating activities was $165 million in the second quarter of 2017, compared to $197 million in the second quarter of 2016. Net cash provided by operating activities before changes in working capital was $332 million in the second quarter of 2017, up from $257 million in the year-ago quarter. Changes in working capital during the second quarter of 2017 included non-recurring cash outflows totaling approximately $130 million related to crude oil provided to Dakota Access Pipeline as line fill, termination payments for an offshore drilling rig, premiums on crude oil hedging contracts, and prepayments for frac sand in North Dakota.

At June 30, 2017, the Corporation had cash and cash equivalents of $2,492 million and total debt, excluding the Midstream segment, of $6,035 million. The Corporation’s debt to capitalization ratio was 30.9 percent at June 30, 2017 and 30.4 percent at December 31, 2016.

In August, the Corporation expects to complete the sale of its enhanced oil recovery assets in the Permian Basin for total consideration of $600 million.

Items Affecting Comparability of Earnings Between Periods:

The following table reflects the total after-tax income (expense) of items affecting comparability of earnings between periods:

Three Months Ended Six Months Ended
June 30, June 30,
(unaudited) (unaudited)

2017

2016

2017

2016

(In millions)
Exploration and Production $ $ (57 ) $ $ (57 )
Midstream
Corporate, Interest and Other
Total items affecting comparability of earnings between periods $ $ (57 ) $ $ (57 )

Second quarter 2016 Exploration and Production results included after-tax charges totaling $74 million ($119 million pre-tax) associated with dry-hole costs for a well completed in the prior year and termination of a drilling rig contract, partially offset by an after-tax gain of $17 million ($27 million pre-tax) related to the sale of undeveloped acreage, onshore United States.

Reconciliation of U.S. GAAP to Non-GAAP measures:

The following table reconciles reported net income (loss) attributable to Hess Corporation and adjusted net income (loss):

Three Months Ended Six Months Ended
June 30, June 30,
(unaudited) (unaudited)

2017

2016

2017

2016

(In millions)
Net income (loss) attributable to Hess Corporation $ (449 ) $ (392 ) $ (773 ) $ (901 )
Less: Total items affecting comparability of earnings between periods (57 ) (57 )
Adjusted net income (loss) attributable to Hess Corporation $ (449 ) $ (335 ) ...

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