2023-05-31 13:30:57 ET
Summary
- Hess Corporation quarterly revenues were $2,453 million, up from $2,371 million last year.
- Hess Corporation produced 374K net Boep/d in 1Q23. It was up from 297K Boep/d the same quarter a year ago.
- The company declared a quarterly dividend of $0.4375 per share this quarter, or an increase of 17% sequentially.
- I recommend buying Hess Corporation stock between $127.2 and $125, with possible lower support at $118.75.
Introduction
U.S.-based independent oil and gas producer Hess Corporation (HES) released its first-quarter 2023 results on April 26, 2023.
Important note: This article updates my February 14, 2023 article. I have followed HES on Seeking Alpha since 2017.
1 - Q1 2023 Results Summary
1.1 - Q1 2023 results
Hess Corporation reported an adjusted first-quarter 2023 earnings per share of $1.13 , beating analysts' expectations again this quarter. It compared with $1.34 per share a year ago.
The quarterly revenues were $2,453 million from $2,371 million last year.
Production was 374K Boep/d in 1Q23. Production from Guyana reached 112K Boep/d this quarter. Net cash provided by operating activities was $638 million in the first quarter of 2023, up from $546 million in the first quarter of 2022.
Cash and cash equivalents, excluding the Midstream segment, were $2.100 billion on March 31, 2023.
The midstream business generated adjusted net earnings of $61 million in 1Q23, down from $72 million a year ago. HES owns about 41% of HESM.
In the press release (emphasis added):
In March 2023, Hess Midstream Operations LP (HESM Opco), a consolidated subsidiary of Hess Midstream LP ((HESM)), repurchased approximately 3.6 million HESM Opco Class B units from Hess Corporation and Global Infrastructure Partners for $100 million, of which the Corporation received net proceeds of $50 million. The purchase was financed by HESM Opco's revolving credit facility. After giving effect to this transaction, the Corporation continues to own approximately 41% of HESM on a consolidated basis.
1.2 - Guyana and Suriname
The net production from the Liza Destiny and the Liza Unity FPSOs totaled 112K Bop/d in the first quarter of 2023 compared with 30K Bop/d in the prior-year quarter.
The third development, Payara, which will use the Prosperity FPSO with a production capacity of approximately 220K gross bop/d, is targeted for startup early in the fourth quarter. It is 66K Bop/d net for HES.
Another discovery this quarter. In the press release, HES announced:
The Corporation today announced an oil discovery at the Lancetfish-1 well on the Stabroek Block, offshore Guyana. The Lancetfish-1 well encountered approximately 92 feet of oil bearing sandstone reservoir. The well was drilled in 5,843 feet of water by the Noble Don Taylor and is located approximately 4 miles southeast of the Fangtooth discovery.
1.3 - The Bakken
Oil and gas production from Bakken is still the leading segment for HES, with 163K Boep/d produced in 1Q23. The company's only onshore asset represents 40.6% of the total output.
HES added a fourth drilling rig in July 2022, drilled 25 wells, completed 26 wells, and brought 24 new wells online during the first quarter of 2023.
1.4 - Offshore productions from the Gulf of Mexico and Southeast Asia
Net production from the Gulf of Mexico was 33K boep/d, and net production at North Malay Basin and JDA was 66K boep/d in the first quarter of 2022.
2 - Stock Performance
HES has struggled on a one-year basis. The stock is now up 4% , whereas HESM is lagging behind its peers, with a loss of 17% on a one-year basis.
Hess Corp. Balance Sheet History and Trend Until 1Q23 - The Raw Numbers
Hess Energy | 1Q22 | 2Q22 | 3Q22 | 4Q22 | 1Q23 |
Total Revenues and others in $ Billion | 2.37 | 2.99 | 3.16 | 3.05 | 2.45 |
Net income available to common in $ Million | 417 | 667 | 515 | 624 | 346 |
EBITDA $ Million | 1,162 | 1,594 | 1,484 | 1,637 | 1,218 |
EPS diluted in $/share | 1.34 | 2.15 | 1.67 | 1.78 | 1.13 |
Cash from operations in $ Million | -156 | 1,509 | 1,339 | 1,252 | 638 |
Quarterly CapEx in $ Million | 546 | 663 | 723 | 793 | 837 |
Free Cash Flow in $ Million | -702 | 846 | 616 | 459 | -199 |
Cash and cash equivalent $ Billion | 1.37 | 2.16 | 2.38 | 2.49 | 2.10 |
Long-term debt (consolidated) in $ Billion | 7.96 | 8.33 | 8.30 | 8.28 | 8.38 |
Dividend per share in $ | 0.375 | 0.375 | 0.375 | 0.375 | 0.4375 |
Shares outstanding (diluted) in Million | 308.9 | 311.26 | 308.90 | 308.31 | 307.30 |
Oil Production | 1Q22 | 2Q22 | 3Q22 | 4Q22 | 1Q23 |
Oil Equivalent Production in K Boepd (incl. Libya) | 297 | 322 | 368 | 386 | 374 |
Global liquids price ($/b) | 86.75 | 99.16 | 85.32 | 83.50 | 76.02 |
Global Natural gas price ($/M Btu) | 5.28 | 6.45 | 5.85 | 5.17 | 4.39 |
Source: Company material .
Analysis: Revenues, Generic Free Cash Flow, and Oil and Gas Production Worldwide
1 - Quarterly total revenues were $2,411 million in 1Q23
Hess' oil revenues increased to $2,411 million in the first quarter of 2023, up from $2,316 million in the same quarter a year ago. Total revenues were $2,453 million .
The quarterly income was $346 million or $1.13 per diluted share, compared to $1.34 per diluted share in 1Q22.
Operating expenses in 1Q23 were $382 million compared with $313 million last year.
The midstream business generated adjusted net earnings of $61 million, down from $72 million a year ago.
2 - Free cash flow (not including divestiture) and net debt
Note: The generic free cash flow is the cash flow from operation minus the CapEx.
HES's trailing 12-month free cash flow jumped sequentially to $1,722 million, with a free cash flow loss of $199 million in 1Q23.
The company declared a quarterly dividend of $0.4375 per share this quarter, or an increase of 17% sequentially.
3 - Net Debt and Cash on Hand
As of March 31, 2023, the company had $2,100 million in cash & cash equivalents, up from $1,370 million in the previous year.
E&P Debt (non-GAAP) was $5.397 billion. Its long-term debt (consolidated) was $8,387 million. HES had no current maturity of the long-term debt this quarter.
4 - Quarterly production analysis
4.1 - Production
HES produced 374K net Boep/d in 1Q23. It was up from 297K Boep/d the same quarter a year ago, with contributions from resources in the Bakken of 163K Boep/d this quarter and a jump in production in Guyana to 112K Boep/d.
As I said earlier, the Bakken production is the company's primary production. It supports the business while ramping up Guyana, which is slowly catching up.
Note: Bakken is expected to produce ~200K Boepd net production in 2024+.
Crude oil represents 57% of the total output.
Crude oil output was 213K Boep/d in the first quarter of 2023, up from 158K Boepd a year ago. Further, natural gas liquids production totaled 64K Bbls/d , and natural gas output was 96K Boep/d.
4.2 - Oil and Natural gas prices are going down.
Below are the historical trends of global liquid prices and NG prices.
- Worldwide crude oil realization per barrel of $76.02 (excluding hedging) significantly decreased from $94.04 in the year-ago period.
- Worldwide natural gas prices rose to $4.39 per Mcf from $5.28 last year.
- Worldwide natural gas liquids' prices declined to $24.25 per barrel from $39.79 a year ago.
4.3 - 2023 Guidance increased sequentially.
For 2023, Hess expects net production guidance of 365K-375K barrels of oil equivalent per day. Net production at Bakken is expected to be 165K-170K Boepd and 105K-110K Boep/d in Guyana.
For 2023, the capital and exploratory budget are expected to be $3.7 billion, with 80% directed toward Guyana and North Dakota’s Bakken Shale field. A substantial increase from $2.7 billion in 2022.
Technical Analysis and Commentary
Note: the chart has been adjusted for the dividend.
HES stock forms an ascending channel pattern with resistance at $132.3 and support at $126.3. RSI is 38 and is approaching oversold territory.
A Falling Wedge is a bullish chart pattern that takes place in an upward trend, and the lines slope down.
This means there is a high probability that Hess Corporation stock breaks down, potentially reaching the lower support. It will depend essentially on future oil and gas prices, and they are weakening now.
The short-term strategy is regularly trading LIFO at about 40%-45% of your position, expecting potentially lower lows. However, the chart pattern indicates a possible breakout only after a meaningful retracement that I do not see ending soon. Thus, invest with caution here.
Thus, I recommend taking profits between $132 and $136.2 with potential higher resistance at $140. Conversely, I recommend buying between $127.2 and $125, with possible lower support at $118.75.
Watch oil and gas prices like a hawk.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
For further details see:
Hess Corporation: Tough Headwinds On The Horizon