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Hess Cuts 2016 E&P Capex Budget by 40%

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Hess’s 2016 capex

On January 26, 2016, Hess (HES) announced its 2016 E&P (exploration and production) capex (capital expenditure) budget of $2.4 billion. It’s 40% lower than its 2015 capex of $4 billion.

Of the $2.4 billion, $470 million will be allocated to unconventional shale resources, $610 million will be allocated for production, $820 million will be allocated for developments, and $500 million will be allocated for exploration and appraisal activities.

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Like Hess, many of its peers are also expected to slash their 2016 capex as a result of weak energy prices. Apache (APA) and Anadarko Petroleum (APC) slashed their 2015 capital expenditures by ~65% and ~33%, respectively, compared to 2014. Marathon Oil (MRO) also announced a capex reduction of ~40% compared to 2014. These companies combined make up ~6.7% of the Energy Select Sector SPDR ETF (XLE).

Further breakdown of capex

Of the $470 million allocated to unconventionals, $425 million will be used to operate two rigs and bring online ~80 new wells in the Bakken shale. The remaining $45 million will be used in the Utica shale.

The majority of the production budget of $610 million will be allocated for production activities in the deepwater Gulf of Mexico. That will require $375 million. The remaining will be used for completion of projects in Denmark, Norway, and the Gulf of Thailand.

The development budget of $820 million will include spending of $375 million to further the full field development of the North Malay Basin project in Malaysia. About $325 million will be used to commence drilling at the Stampede Field in the deepwater Gulf of Mexico.

The exploration and appraisal budget of $500 million will include $250 million to drill four wells offshore in Guyana and $175 million for drilling in the deepwater Gulf of Mexico.

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