Hess Reports Estimated Results for the Third Quarter of 2015

Hess Corp. (NYSE:HES) today reported an adjusted net loss, which excludes items affecting comparability, of $291 million or $1.03 per common share, for the third quarter of 2015 compared with adjusted net income of $377 million or $1.24 per share in the third quarter of 2014. Lower realized selling prices reduced adjusted net income by approximately $745 million after-tax compared with the prior-year quarter. Third quarter 2015 results benefitted from higher production and lower cash operating costs but were partially offset by higher depreciation, depletion, and amortization expense. On an unadjusted basis, the Corporation reported a net loss of $279 million for the third quarter of 2015 and net income of $1,008 million in the prior-year quarter, which included after-tax gains from asset sales totaling $635 million.

“During the third quarter we delivered strong operating performance while maintaining a robust financial and liquidity position, with further significant spending reductions underway,” Chief Executive Officer John Hess said. “We are well positioned in the current low price environment and are taking a disciplined approach to preserve our financial strength, competitively advantaged capabilities and long term growth options.”

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

Exploration and Production:

The Exploration and Production adjusted net loss in the third quarter of 2015 was $221 million compared with adjusted net income of $404 million in the third quarter of 2014. On an unadjusted basis, Exploration and Production activities had a net loss of $188 million in the third quarter of 2015, compared with net income of $433 million in the third quarter of 2014.

The Corporation’s average worldwide crude oil selling price, including the effect of hedging, was down 53 percent to $45.66 per barrel in the third quarter of 2015 from $96.78 per barrel in the third quarter of 2014. The average worldwide natural gas liquids selling price was $7.17 per barrel, down from $29.62 per barrel in the year-ago quarter while the average worldwide natural gas selling price was $4.02 per mcf in the third quarter of 2015 compared with $5.59 per mcf in the third quarter a year-ago.

Oil and gas production was 380,000 boepd, up 19 percent from 318,000 boepd in the third quarter of 2014. Assets contributing to the volume growth were the Bakken shale play (27,000 boepd), the Utica shale play (17,000 boepd), the Gulf of Mexico (13,000 boepd) and Norway (10,000 boepd). Due to continued strong performance during 2015, the Corporation is increasing its 2015 production guidance to 370,000 to 375,000 boepd, which is up from previous full year guidance of 360,000 to 370,000 boepd. For the fourth quarter of 2015, the Corporation forecasts production to be approximately 360,000 boepd with the Bakken projected to contribute between 100,000 boepd to 105,000 boepd.

Operational Highlights for the Third Quarter of 2015:

Bakken (Onshore U.S.): Net production from the Bakken increased approximately 31 percent to 113,000 boepd from the prior-year quarter due to continued drilling activities. The Corporation brought 48 gross operated wells on production in the third quarter of 2015 bringing the year-to-date total to 185 wells. Drilling and completion costs per operated well averaged $5.3 million in the third quarter of 2015, down 26 percent from the year-ago quarter. During the quarter, the Corporation operated 7 rigs.

Utica (Onshore U.S.): On the Corporation’s joint venture acreage, 5 wells were drilled and net production averaged 28,000 boepd in the third quarter of 2015 compared with 11,000 boepd in the prior-year quarter. The Corporation completed the sale of an additional 13,000 dry gas exploration acres for a sale price of approximately $120 million, including a note in the amount of $37 million.

Gulf of Mexico (Offshore U.S.): Net production from the Gulf of Mexico was 83,000 boepd compared to 70,000 boepd in the prior-year quarter, with higher volumes from Tubular Bells, which totaled 19,000 boepd in the third quarter of 2015, being primarily offset by lower production from the Llano Field. At the Hess-operated Stampede development project, drilling is expected to begin in early 2016.

Guyana (Offshore): On the Stabroek Block (Hess 30 percent), the operator announced a significant oil discovery at the Liza #1 well in the second quarter of 2015. The operator is currently in the process of acquiring 17,000 square kilometers of 3D seismic and continues to evaluate the resource potential of the block.

Bakken Midstream:

The Corporation’s Bakken Midstream segment had net income of $16 million in the third quarter of 2015 compared to $8 million in the prior-year quarter primarily due to higher throughput. In July 2015, the Corporation completed the sale of a 50 percent interest in its Bakken Midstream for cash consideration of $2.7 billion. In connection with this transaction, in July 2015, the Bakken Midstream joint venture incurred $600 million of debt with proceeds distributed equally to both Hess and its partner, resulting in total after-tax cash proceeds net to Hess of approximately $3.0 billion. Following the completion of this sale, the Corporation continues to fully consolidate the operating results, assets and liabilities of the Bakken Midstream segment in its consolidated financial statements, with its partner’s share being reflected as a noncontrolling interest.

Capital and Exploratory Expenditures:

Exploration and Production capital and exploratory expenditures were $849 million in the third quarter of 2015 down from $1,371 million in the prior-year quarter driven by lower activities primarily in the United States (Bakken, Utica, and Tubular Bells), Norway and Equatorial Guinea, partly offset by continued development of the North Malay Basin project. Full year 2015 E&P capital and exploratory expenditures are forecast to be approximately $4.1 billion.

Bakken Midstream capital expenditures were $88 million in the third quarter of 2015 and $47 million in the year-ago quarter.

Liquidity:

Cash provided by operating activities before changes in working capital was $489 million in the third quarter of 2015, compared with $1,508 million in the third quarter of 2014. At September 30, 2015, cash and cash equivalents, excluding Bakken Midstream, were $3,004 million compared with $2,444 million at December 31, 2014. Total debt, excluding Bakken Midstream, was $5,952 million at September 30, 2015 compared with $5,987 million at December 31, 2014. The Corporation’s debt to capitalization ratio, excluding Bakken Midstream, at September 30, 2015 was 22.7 percent. The debt to capitalization ratio at December 31, 2014 was 21.2 percent.

Preliminary 2016 Guidance:

The Corporation will finalize its 2016 budget by the end of this year. We currently project Exploration and Production 2016 capital and exploratory expenditures will be in a range of $2.9 billion to $3.1 billion, an approximate 27 percent decrease from the forecasted 2015 amount. As a result of the expected lower capital spend levels in 2016, we forecast production will decrease to a range of 330,000 boepd to 350,000 boepd. Bakken production is projected to be 95,000 boepd to 105,000 boepd in 2016. The Corporation expects to operate 4 rigs in the Bakken in 2016 compared to an average of 8.5 rigs in 2015.

Discontinued Operations:

Losses from discontinued operations, which primarily related to pension settlement charges, amounted to $13 million in the third quarter of 2015. Net income of $671 million in the prior-year quarter included an after-tax gain of $602 million resulting from the sale of the retail business. The Corporation completed the sale of its energy trading partnership (HETCO) in the first quarter of 2015. Financial results for the third quarter of 2014 have been recast to report HETCO as discontinued operations in the consolidated income statement on page 8.

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:

Exploration and Production third quarter results include an after-tax gain of $31 million ($49 million pre-tax) from the sale of dry gas acreage in the Utica shale play and a tax benefit of $50 million associated with an international investment incentive. Exploration and Production results also include an after-tax charge of $26 million ($41 million pre-tax) for undeveloped leasehold impairment, $17 million ($27 million pre-tax) associated with exit costs in Kurdistan and other charges of $5 million ($6 million pre-tax). Corporate, Interest and Other third quarter results include an after-tax charge of $8 million ($10 million pre-tax) related to the Hovensa LLC bankruptcy.

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

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

The reconciliations of net cash flow provided by operating activities before working capital changes to net cash provided by (used in) operating activities are detailed on pages 8 and 9.

Hess Corp. will review third quarter financial and operating results and other matters on a webcast at 10 a.m. today. For details about the event, refer to the Investor Relations section of our website at www.hess.com.

Hess Corporation is a leading global independent energy company engaged in the exploration and production of crude oil and natural gas. More information on Hess Corp. is available at www.hess.com.

Forward-looking Statements

Certain statements in this release may constitute "forward-looking statements" within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Forward-looking statements are subject to known and unknown risks and uncertainties and other factors which may cause actual results to differ materially from those expressed or implied by such statements, including, without limitation, uncertainties inherent in the measurement and interpretation of geological, geophysical and other technical data. Estimates and projections contained in this release are based on the Company’s current understanding and assessment based on reasonable assumptions. Actual results may differ materially from these estimates and projections due to certain risk factors discussed in the Corporation’s periodic filings with the Securities and Exchange Commission and other factors.

Non-GAAP financial measure

The Corporation has used non-GAAP financial measures in this earnings release. “Adjusted net income (loss)” presented in this release is defined as reported net income (loss) attributable to Hess Corp. excluding items identified as affecting comparability of earnings between periods. “Cash provided by operating activities before working capital change” is defined as Cash provided by operating activities excluding changes in working capital. We believe that investors’ understanding of our performance is enhanced by disclosing these measures. These measures are not, and should not be viewed as, a substitute for U.S. GAAP net income (loss) or cash provided by operating activities. A reconciliation of reported net income (loss) attributable to Hess Corp. (U.S. GAAP) to adjusted net income (loss) as well as a reconciliation of cash provided by operating activities (U.S. GAAP) to cash provided by operating activities before working capital change are provided in the release.