In North Dakota, where production expectations for the booming Bakken are higher than Mount Everest, never promise more than can be delivered. Hess Corp. said it “may” come up short on 2012 production and was severely reprimanded by investors, despite other notable achievements in the Bakken during this year’s first quarter.
In fact, Hess’ net production from the Bakken rocketed to 42,000 barrels of oil equivalent per day in the 2012 first quarter, compared to 25,000 boe per day in the year ago quarter. And for the first three weeks of April, net output was up again averaging 47,000 boe per day.
Moreover, while Hess’ overall crude oil and natural gas production was roughly flat with the year ago quarter, higher production from the Bakken helped to offset the impact of North Sea natural gas asset sales and natural field declines in Equatorial Guinea, the company noted. Finally, Hess has started operations at a rail loading terminal in North Dakota and will begin moving about 25,000 barrels a day of Bakken light crude oil to St. James, Louisiana.
“We should be ramping up to higher volumes” and will ship 50,000 to 54,000 barrels a day by the end of the year, John B. Hess, the company’s chairman and chief executive officer, said in an April 25 conference call.
Then Hess, one of the most active players in the Bakken, dropped the bomb.
“While we expect the monthly average to continue to increase throughout the rest of the year, we now expect the average for the full year may come in somewhat lower than our original estimate of 60,000 barrels of oil equivalent per day,” John B. Hess said.
On that disclosure Hess shares plummeted nearly 8 percent, even though Bakken production currently represents just 12 percent of Hess’ overall daily output of 397,000 boe.
Bakken progress key
However, it appears the Bakken has come to be a measuring stick for the company’s overall progress.
“Progress in the Bakken has been the key underpinning for optimism of a turnaround in Hess share price in 2012,” analyst Edward Westlake of Credit Suisse said in a note to clients.
Hess shares had been underperforming compared to its peers amid production disruptions and five quarters of missing analysts’ expectations.
Gregory P. Hill, Hess’ president of worldwide exploration and production, attributed the probable missed production target to two issues, neither one of which seemed to satisfy analysts’ concerns about Hess’ performance in the Bakken.
“The first thing was (a) permitting issue, which really just reflects the huge amount of activity in North Dakota,” Hill explained. “So during the first quarter, we experienced some delays in receiving permits at certain locations, which resulted in delays in getting wells on production. So we’re working with the state to resolve these issues.”
He said the second issue had to do with “well mix,” or as Credit Suisse’s Westlake explained it, “drilling certain acreage to capture leases as opposed to focusing just on the sweet spots.”
Hill said that for the remainder of the year, Hess plans to add two drilling rigs, going from 14 in the first quarter to 16 and 17 for the balance of the year, and then modifying the well “mix to focus our drilling activities on higher productivity and higher working interest areas.”
Solid growth trajectory
“Now although first quarter production was a little lower than planned … we continue to make progress in drilling efficiency and remain on this very solid growth trajectory,” Hill said.
Hess reported a profit of $545 million, or $1.60 a share, down from $929 million, or $2.74 a share, a year earlier. The latest results included a $36 million gain tied to the sale of Norwegian offshore assets, while the year-earlier period included a $310 million gain from asset sales. Excluding the asset sale gain, earnings per share were $1.50, relatively in line with analysts’ expectations of $1.52 per share. Revenue fell 7.3 percent to $9.75 billion.
