Hess’s Production costs
Now, let’s look at the efforts Hess Corporation (HES) has undertaken to reduce its production costs.
The chart on the left shows Hess’s drilling performance in terms of days, and the one on the right shows its performance in terms of costs. Hess has improved its drilling performance by 60% since 2011. Its drilling costs have fallen by 62% since 2012.
It’s interesting to note that HES has consistently been improving its performance since long before crude oil prices began crashing.
Hess’s crucial projects
Hess plans to focus on two important growth projects:
- Its joint venture with the state-run Petronas in the North Malay Basin in Malaysia
- Its Stampede development project in the Gulf of Mexico.
These projects are expected to add 35,000 barrels of oil equivalent per day to HES’s production over the next two years, and they’re expected to become cash generators for Hess by 2018.
The Bakken Shale: Hess’s backbone
The Bakken Shale is a major growth engine for Hess Corporation. In its 1Q16 earnings conference, Hess noted that as prices recover, it will accelerate drilling activity in the Bakken Shale.
In response to lower crude oil prices, Hess reduced its rig count from 17 in 2014 to an average of eight and a half in 2015. Despite this, HES saw significant production growth year-over-year.
Again in 1Q16, despite reducing its rig count to an average of four rigs in 1Q16 from 12 rigs in 1Q15, net production from the Bakken averaged 111,000 barrels of oil equivalent per day in 1Q16 versus 108,000 barrels of oil equivalent per day in 1Q15. This was due to faster drilling and completion times and increased well productivity.