UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☑ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2018
or
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-1204
Hess Corporation
(Exact name of Registrant as specified in its charter)
DELAWARE |
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13-4921002 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification Number) |
1185 AVENUE OF THE AMERICAS, |
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10036 |
NEW YORK, N.Y. |
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(Zip Code) |
(Address of principal executive offices) |
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|
(Registrant’s telephone number, including area code, is (212) 997-8500)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
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Name of Each Exchange on Which Registered |
Common Stock (par value $1.00) |
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New York Stock Exchange |
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☑
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer ☑ |
Accelerated filer ☐ |
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Non-accelerated filer ☐ Emerging Growth Company ☐ |
Smaller reporting company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of voting stock held by non-affiliates of the Registrant amounted to $17,510,000,000, computed using the outstanding common shares and closing market price on June 29, 2018, the last business day of the Registrant’s most recently completed second fiscal quarter.
At January 31, 2019, there were 303,034,262 shares of Common Stock outstanding.
Part III is incorporated by reference from the Proxy Statement for the 2019 annual meeting of stockholders.
HESS CORPORATION
Form 10-K
TABLE OF CONTENTS
Item No. |
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Page |
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PART I |
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1 and 2. |
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4 |
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1A. |
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14 |
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1B. |
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17 |
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3. |
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17 |
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4. |
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18 |
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PART II |
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5. |
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19 |
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6. |
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21 |
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7. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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22 |
7A. |
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42 |
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8. |
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43 |
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9. |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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94 |
9A. |
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94 |
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9B. |
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94 |
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PART III |
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10. |
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94 |
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11. |
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96 |
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12. |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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96 |
13. |
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Certain Relationships and Related Transactions, and Director Independence |
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96 |
14. |
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96 |
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PART IV |
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15. |
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97 |
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100 |
Unless the context indicates otherwise, references to “Hess”, the “Corporation”, the “Company”, “Registrant”, “we”, “us”, “our” and “its” refer to the consolidated business operations of Hess Corporation and its subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain sections in this Annual Report on Form 10-K, including information incorporated by reference herein, and those made under the captions Business and Properties, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk contain “forward-looking” statements, as defined under the Private Securities Litigation Reform Act of 1995. Generally, the words “anticipate,” “estimate,” “expect,” “forecast,” “guidance,” “could,” “may,” “should,” “would,” “believe,” “intend,” “project,” “plan,” “predict,” “will,” “target” and similar expressions identify forward-looking statements, which generally are not historical in nature. Forward-looking statements related to our operations are based on our current understanding, assessments, estimates and projections of relevant factors and reasonable assumptions about the future. Forward-looking statements are subject to certain known and unknown risks and uncertainties that could cause actual results to differ materially from our historical experience and our current projections or expectations of future results expressed or implied by these forward-looking statements. As and when made, we believe that these forward-looking statements are reasonable. However, given these uncertainties, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made and there can be no assurance that such forward-looking statements will occur and actual results may differ materially from those contained in any forward-looking statement we make. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise. Risk factors that could materially impact future actual results are discussed under Item 1A. Risk Factors within this document.
Throughout this report, the following company or industry specific terms and abbreviations are used:
Appraisal well – An exploration well drilled to confirm the results of a discovery well, or a well that is used to determine the boundaries of a productive formation.
Bbl – One stock tank barrel, which is 42 United States gallons liquid volume.
Barrel of oil equivalent or Boe – This reflects natural gas reserves converted on the basis of relative energy content of six mcf equals one barrel of oil equivalent (one mcf represents one thousand cubic feet). Barrel of oil equivalence does not necessarily result in price equivalence, as the equivalent price of natural gas on a barrel of oil equivalent basis has been substantially lower than the corresponding price for crude oil over the recent past.
Boepd – Barrels of oil equivalent per day.
Bopd – Barrels of oil per day.
Condensate – A mixture of hydrocarbons that exists in the gaseous phase at original reservoir temperature and pressure, but that when produced, is in the liquid phase at surface pressure and temperature.
Development well – A well drilled within the proved area of an oil and/or natural gas reservoir with the intent of producing oil and/or natural gas from that area of the reservoir.
Dry hole or dry well – An exploratory or development well that does not find oil or natural gas in commercial quantities.
Exploratory well – A well drilled to find oil or natural gas in an unproved area or find a new reservoir in a field previously found to be productive by another reservoir.
Fractionation – Fractionation is the process by which the mixture of natural gas liquids that results from natural gas processing is separated into the NGL components, such as ethane, propane, butane, isobutane, and natural gasoline, prior to their sale to various petrochemical and industrial end users. Fractionation is accomplished by controlling the temperature of the stream of mixed liquids in order to take advantage of the difference in boiling points of separate products.
Field – An area consisting of a single reservoir or multiple reservoirs all grouped or related to the same individual geological structural feature and/or stratigraphic condition.
FPSO – Floating production, storage, and offloading vessel.
Gross acreage – Acreage in which a working interest is held by the Corporation.
Gross well – A well in which a working interest is held by the Corporation.
Mcf – One thousand cubic feet of natural gas.
Mmcfd – One thousand mcf of natural gas per day.
Net acreage or Net wells – The sum of the fractional working interests owned by us in gross acres or gross wells.
NGLs or Natural gas liquids – Naturally occurring substances that are separated and produced by fractionating natural gas, including ethane, butane, isobutane, propane and natural gasoline. NGLs do not sell at prices equivalent to crude oil.
Non-operated – Projects in which the Corporation has a working interest but does not perform the role of Operator.
OPEC – Organization of Petroleum Exporting Countries.
Operator – The entity responsible for conducting and managing exploration, development, and/or production operations for an oil or gas project.
Participating interest – Reflects the proportion of exploration and production costs each party will bear or the proportion of production each party will receive, as set out in an operating agreement.
Production entitlement – The share of gross production the Corporation is entitled to receive under the terms of a production sharing contract.
Production sharing contract – An agreement between a host government and the owners (or co-owners) of a well or field regarding the percentage of production each party will receive after the parties have recovered a specified amount of capital and operational expenses.
2
Productive well – A well that is capable of producing hydrocarbons in sufficient quantities to justify commercial exploitation.
Proved properties – Properties with proved reserves.
Proved reserves – In accordance with the Securities and Exchange Commission regulations and practices recognized in the publication of the Society of Petroleum Engineers entitled, “Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information,” those quantities of crude oil and condensate, NGLs and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.
Proved developed reserves – Proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or for which the cost of the required equipment is relatively minor compared to the cost of a new well.
Proved undeveloped reserves – Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.
Unproved properties – Properties with no proved reserves.
Working interest – An interest in an oil and gas property that provides the owner of the interest the right to drill for and produce oil and gas on the relevant acreage and requires the owner to pay a share of the costs of drilling and production operations.
3
Items 1 and 2. Business and Properties
Hess Corporation, incorporated in the State of Delaware in 1920, is a global Exploration and Production (E&P) company engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids, and natural gas with production operations located primarily in the United States (U.S.), Denmark, the Malaysia/Thailand Joint Development Area (JDA) and Malaysia. We conduct exploration activities primarily offshore Guyana, Suriname, Canada and in the U.S. Gulf of Mexico. At the Stabroek Block (Hess 30%), offshore Guyana, we have participated in twelve significant discoveries. The Liza Phase 1 development was sanctioned in 2017 and is expected to startup in early 2020 with production reaching up to 120,000 gross bopd. The discovered resources to date on the Stabroek Block are expected to underpin the potential for at least five FPSOs producing more than 750,000 gross bopd by 2025.
Our Midstream operating segment provides fee-based services, including gathering, compressing and processing natural gas and fractionating NGLs; gathering, terminaling, loading and transporting crude oil and NGLs; storing and terminaling propane, and water handling services primarily in the Bakken and Three Forks Shale plays in the Williston Basin area of North Dakota.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for further details.
Exploration and Production
Proved Reserves
Proved reserves are calculated using the average price during the twelve-month period ending December 31 determined as an unweighted arithmetic average of the price on the first day of each month within the year, unless prices are defined by contractual agreements, and exclude escalations based on future conditions. Crude oil prices used in the determination of proved reserves at December 31, 2018 were $65.55 per barrel for West Texas Intermediate (WTI) (2017: $51.19) and $72.08 per barrel for Brent (2017: $54.87). Our total proved developed and undeveloped reserves at December 31 were as follows:
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Crude Oil & Condensate |
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Natural Gas Liquids |
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Natural Gas |
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Total Barrels of Oil Equivalent (BOE) |
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||||||||||||||||||||
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2018 |
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2017 |
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2018 |
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2017 |
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2018 |
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2017 |
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2018 |
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2017 |
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||||||||
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(Millions of bbls) |
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(Millions of bbls) |
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(Millions of mcf) |
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(Millions of bbls) |
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||||||||||||||||||||
Developed |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
United States |
|
|
266 |
|
|
|
239 |
|
|
|
85 |
|
|
|
87 |
|
|
|
432 |
|
|
|
526 |
|
|
|
423 |
|
|
|
414 |
|
Europe |
|
|
38 |
|
|
|
45 |
|
|
|
— |
|
|
|
— |
|
|
|
77 |
|
|
|
80 |
|
|
|
51 |
|
|
|
58 |
|
Africa |
|
|
111 |
|
|
|
112 |
|
|
|
— |
|
|
|
— |
|
|
|
115 |
|
|
|
117 |
|
|
|
130 |
|
|
|
132 |
|
Asia and other |
|
|
4 |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
585 |
|
|
|
696 |
|
|
|
102 |
|
|
|
121 |
|
|
|
|
419 |
|
|
|
401 |
|
|
|
85 |
|
|
|
87 |
|
|
|
1,209 |
|
|
|
1,419 |
|
|
|
706 |
|
|
|
725 |
|
Undeveloped |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
235 |
|
|
|
194 |
|
|
|
90 |
|
|
|
84 |
|
|
|
381 |
|
|
|
354 |
|
|
|
389 |
|
|
|
337 |
|
Europe |
|
|
1 |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
12 |
|
|
|
1 |
|
|
|
6 |
|
Africa |
|
|
15 |
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
|
|
13 |
|
|
|
7 |
|
|
|
17 |
|
|
|
17 |
|
Asia and other (a) |
|
|
44 |
|
|
|
44 |
|
|
|
— |
|
|
|
— |
|
|
|
211 |
|
|
|
149 |
|
|
|
79 |
|
|
|
69 |
|
|
|
|
295 |
|
|
|
258 |
|
|
|
90 |
|
|
|
84 |
|
|
|
606 |
|
|
|
522 |
|
|
|
486 |
|
|
|
429 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
501 |
|
|
|
433 |
|
|
|
175 |
|
|
|
171 |
|
|
|
813 |
|
|
|
880 |
|
|
|
812 |
|
|
|
751 |
|
Europe |
|
|
39 |
|
|
|
49 |
|
|
|
— |
|
|
|
— |
|
|
|
78 |
|
|
|
92 |
|
|
|
52 |
|
|
|
64 |
|
Africa |
|
|
126 |
|
|
|
128 |
|
|
|
— |
|
|
|
— |
|
|
|
128 |
|
|
|
124 |
|
|
|
147 |
|
|
|
149 |
|
Asia and other (a) |
|
|
48 |
|
|
|
49 |
|
|
|
— |
|
|
|
— |
|
|
|
796 |
|
|
|
845 |
|
|
|
181 |
|
|
|
190 |
|
|
|
|
714 |
|
|
|
659 |
|
|
|
175 |
|
|
|
171 |
|
|
|
1,815 |
|
|
|
1,941 |
|
|
|
1,192 |
|
|
|
1,154 |
|
(a) |
Asia and other includes proved undeveloped reserves in Guyana of 42 million boe at December 31, 2018 (2017: 45 million boe). |
Proved undeveloped reserves were 41% of our total proved reserves at December 31, 2018 on a boe basis (2017: 37%). Proved reserves held under production sharing contracts totaled 7% of our crude oil reserves and 44% of our natural gas reserves at December 31, 2018 (2017: 7% and 44%, respectively).
For additional information regarding our proved oil and gas reserves, see the Supplementary Oil and Gas Data to the Consolidated Financial Statements presented on pages 82 through 92.
4
Worldwide crude oil, natural gas liquids, and natural gas net production was as follows:
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2018 |
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2017 |
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2016 |
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|||
Crude oil - Thousands of barrels |
|
|
|
|||||||||
United States |
|
|
|
|
|
|
|
|
|
|
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Bakken |
|
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27,663 |
|
|
|
24,439 |
|
|
|
24,881 |
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Other Onshore (a) |
|
|
389 |
|
|
|
2,053 |
|
|
|
3,209 |
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Total Onshore |
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|
28,052 |
|
|
|
26,492 |
|
|
|
28,090 |
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Offshore |
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15,026 |
|
|
|
14,411 |
|
|
|
16,649 |
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Total United States |
|
|
43,078 |
|
|
|
40,903 |
|
|
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44,739 |
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
Norway (a) |
|
|
— |
|
|
|
7,236 |
|
|
|
8,387 |
|
Denmark |
|
|
2,231 |
|
|
|
2,988 |
|
|
|
3,636 |
|
|
|
|
2,231 |
|
|
|
10,224 |
|
|
|
12,023 |
|
Africa |
|
|
|
|
|
|
|
|
|
|
|
|
Equatorial Guinea (a) |
|
|
— |
|
|
|
9,201 |
|
|
|
11,898 |
|
Libya |
|
|
6,654 |
|
|
|
3,542 |
|
|
|
387 |
|
|
|
|
6,654 |
|
|
|
12,743 |
|
|
|
12,285 |
|
Asia |
|
|
|
|
|
|
|
|
|
|
|
|
JDA |
|
|
546 |
|
|
|
586 |
|
|
|
616 |
|
Malaysia |
|
|
851 |
|
|
|
289 |
|
|
|
152 |
|
|
|
|
1,397 |
|
|
|
875 |
|
|
|
768 |
|
Total |
|
|
53,360 |
|
|
|
64,745 |
|
|
|
69,815 |
|
Natural gas liquids - Thousands of barrels |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
Bakken |
|
|
10,767 |
|
|
|
10,107 |
|
|
|
9,701 |
|
Other Onshore (a) |
|
|
1,647 |
|
|
|
2,972 |
|
|
|
4,205 |
|
Total Onshore |
|
|
12,414 |
|
|
|
13,079 |
|
|
|
13,906 |
|
Offshore |
|
|
1,703 |
|
|
|
1,733 |
|
|
|
1,724 |
|
Total United States |
|
|
14,117 |
|
|
|
14,812 |
|
|
|
15,630 |
|
Europe - Norway (a) |
|
|
— |
|
|
|
340 |
|
|
|
408 |
|
Total |
|
|
14,117 |
|
|
|
15,152 |
|
|
|
16,038 |
|
Natural gas - Thousands of mcf |
|
|
|
|||||||||
United States |
|
|
|
|
|
|
|
|
|
|
|
|
Bakken |
|
|
25,625 |
|
|
|
22,621 |
|
|
|
22,312 |
|
Other Onshore (a) |
|
|
16,167 |
|
|
|
33,478 |
|
|
|
48,597 |
|
Total Onshore |
|
|
41,792 |
|
|
|
56,099 |
|
|
|
70,909 |
|
Offshore |
|
|
24,452 |
|
|
|
20,987 |
|
|
|
23,603 |
|
Total United States |
|
|
66,244 |
|
|
|
77,086 |
|
|
|
94,512 |
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
Norway (a) |
|
|
— |
|
|
|
6,739 |
|
|
|
8,541 |
|
Denmark |
|
|
2,958 |
|
|
|
5,124 |
|
|
|
7,128 |
|
|
|
|
2,958 |
|
|
|
11,863 |
|
|
|
15,669 |
|
Asia and Other |
|
|
|
|
|
|
|
|
|
|
|
|
JDA |
|
|
68,477 |
|
|
|
73,444 |
|
|
|
68,031 |
|
Malaysia (b) |
|
|
59,995 |
|
|
|
27,225 |
|
|
|
13,151 |
|
Other |
|
|
4,288 |
|
|
|
— |
|
|
|
— |
|
|
|
|
132,760 |
|
|
|
100,669 |
|
|
|
81,182 |
|
Total |
|
|
201,962 |
|
|
|
189,618 |
|
|
|
191,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Barrels of Oil Equivalent (in millions) (a) (b) |
|
|
101 |
|
|
|
112 |
|
|
|
118 |
|
(a) |
In August 2018, the Corporation sold its Utica Assets, onshore U.S. Utica production averaged 9,000 boepd for calendar year 2018 (2017: 19,000 boepd; 2016: 29,000 boepd). In 2017, the Corporation sold its assets in Equatorial Guinea (November), Norway (December), and the Permian, onshore U.S. (August). Permian production averaged 4,000 boepd for calendar year 2017 (2016: 7,000 boepd). |
(b) |
Includes 6,442 thousand mcf of production for 2018 (2017: 4,256 thousand mcf; 2016: 3,624 thousand mcf) from Block PM301 which is unitized into Block A-18 of the JDA. |
5
At December 31, 2018, our significant E&P assets included the following:
United States
Our production in the U.S. was from onshore properties, principally in the Bakken oil shale play in the Williston Basin of North Dakota (Bakken) and from offshore properties in the Gulf of Mexico.
Onshore:
Bakken: At December 31, 2018, we held approximately 543,000 net acres in the Bakken with varying working interest percentages. During 2018, we operated an average of 4.8 rigs, drilled 121 wells, completed 118 wells, and brought 104 wells on production, bringing the total operated production wells to 1,414 by year-end. During 2018, we transitioned from utilizing sliding sleeve completion designs to plug and perf completions. During 2019, we plan to operate six rigs, drill approximately 170 wells and bring approximately 160 wells on production. From 2019, all production wells will use plug and perf completions, which we expect will allow us to increase peak net production to approximately 200,000 boepd by 2021. We forecast net production for full year 2019 to be in the range of 135,000 boepd to 145,000 boepd, compared to production of 117,000 boepd in 2018.
Offshore:
Gulf of Mexico: At December 31, 2018, we held approximately 75,000 net developed acres, with our production operations principally at the Baldpate (Hess 50%), Conger (Hess 38%), Hack Wilson (Hess 25%), Llano (Hess 50%), Penn State (Hess 50%), Shenzi (Hess 28%), Stampede (Hess 25%) and Tubular Bells (Hess 57%) Fields. At December 31, 2018, we held approximately 270,000 net undeveloped acres, of which leases covering approximately 37,000 acres are due to expire in the next three years.
Production from the Baldpate, Conger, Llano, and Penn State Fields were shut-in following a fire at the third-party operated Enchilada platform in November 2017. In 2018, production restarted at the Baldpate, Llano, and Penn State Fields in the first quarter, and at the Conger Field in the third quarter. At the Hess operated Stampede Field, production commenced in January 2018. In 2019, we plan to drill one production well and two water injection wells at the Stampede Field, one production well at the Llano Field, and one exploration well at the Esox prospect which, if successful, can be tied back into production facilities at the Tubular Bells Field.
Asia
Malaysia/Thailand Joint Development Area (JDA): At the Carigali Hess operated offshore Block A-18 in the Gulf of Thailand (Hess 50%), no drilling is planned for 2019 as contracted volumes are expected to be met from the booster compression project that came online in 2016.
Malaysia: Our production in Malaysia comes from our interest in Block PM301 (Hess 50%), which is adjacent to and is unitized with Block A‑18 of the JDA and our 50% interest in Block PM302 located in the North Malay Basin (NMB), offshore Peninsular Malaysia. Production from full-field development commenced in July 2017. In 2019, we plan to continue the drilling program and development activities.
Europe
Denmark: Production comes from our operated interest in the South Arne Field (Hess 62%). In 2018, we decided to retain our interest in the field after offers received in a previously announced sale process did not meet our value expectations. During 2019, we plan to drill an exploration well on License 06/16, located approximately 19 miles from South Arne.
Africa
Libya: At the onshore Waha concession in Libya, which includes the Defa, Faregh, Gialo, North Gialo and Belhedan Fields (Hess 8%), net production averaged approximately 20,000 boepd in 2018, 10,000 boepd in 2017, and 1,000 boepd in 2016. Production was shut-in by the operator for extended periods in 2016 due to force majeure caused by civil unrest. The Company’s net investment in Libya was approximately $55 million at December 31, 2018.
6
Guyana: At the Stabroek Block (Hess 30%), which covers approximately 6.6 million acres offshore Guyana, the operator Esso Exploration and Production Guyana Limited has made twelve significant discoveries to date. The first phase of the Liza Field development, which was sanctioned in 2017, is expected to begin producing oil by early 2020. Phase 1 will use the Liza Destiny FPSO to produce up to 120,000 gross bopd. Drilling of development wells in the Liza Field is continuing, subsea equipment is being prepared for installation, and the topside facilities modules have been installed on the Liza Destiny FPSO in Singapore, which is expected to arrive offshore Guyana in the third quarter of 2019. Preparations are also underway for the installation of subsea umbilicals, risers and flowlines at the Liza Field in the spring of 2019.
Phase 2 of the Liza Field development is expected to start production by mid-2022. Pending government and regulatory approvals, project sanction for Phase 2 is expected by the operator in the first quarter of 2019 and will include a second FPSO vessel designed to produce up to 220,000 gross bopd. Project sanction for a third phase of development at the Payara Field is expected in 2019 with first production expected to start up as early as 2023. In addition to the first three phases, development planning is underway for additional FPSOs. The ultimate sizing and timing will be a function of further exploration and appraisal drilling.
The operator is currently utilizing three drillships on the block. The Stena Carron and the Noble Tom Madden, which arrived in the third quarter of 2018, are involved in exploration and appraisal drilling. The Noble Bob Douglas is drilling development wells for Liza Phase 1. In 2018, the following explorations wells were drilled on the Stabroek Block (in chronological order):
Ranger-1: The well, located approximately 60 miles northwest of the Liza discovery, encountered approximately 230 feet of high-quality, oil-bearing carbonate reservoir.
Pacora-1: The well encountered approximately 65 feet of high-quality, oil-bearing sandstone reservoir, and is located approximately four miles west of the Payara-1 well, which was drilled in 2017. The operator plans to integrate this discovery into the Payara Field development.
Liza-5: The well encountered 77 feet of high-quality, oil-bearing sandstone reservoir and is located approximately six miles northwest of the Liza-1 well, which was drilled in 2016.
Sorubim-1: The well did not encounter commercial quantities of hydrocarbons.
Longtail-1: The well encountered approximately 256 feet of high-quality, oil-bearing sandstone reservoir and is located approximately five miles west of the Turbot-1 well, which was drilled in 2017.
Hammerhead-1: The well encountered approximately 197 feet of high-quality, oil-bearing sandstone reservoir and is located approximately 13 miles to the southwest of the Liza-1 well.
Pluma-1: The well encountered approximately 121 feet of high-quality, hydrocarbon-bearing sandstone reservoir and represents the tenth discovery on the Block. The well is located approximately 17 miles south of the Turbot-1 well.
In February 2019, the operator announced the eleventh and twelfth discoveries on the Stabroek Block at the Tilapia-1 and Haimara-1 wells. The Tilapia-1 well encountered approximately 305 feet of high-quality, oil-bearing sandstone reservoir, and is located approximately three miles west of the Longtail-1 well. The Haimara-1 well encountered approximately 207 feet of high-quality, gas condensate-bearing sandstone reservoir, and is located approximately 19 miles east of the Pluma-1 well.
In 2019, additional drilling is planned, including appraisal of the Hammerhead, Ranger and Turbot discoveries, as well as a wider exploration program that will target additional prospects and play types on the block.
In 2018, we acquired a participating interest in the Kaieteur Block (Hess 15%), which is adjacent to the Stabroek Block. The operator, Esso Exploration and Production Guyana Limited, expects to complete a 2D seismic shoot in 2019.
Suriname: We hold a 33% non-operated participating interest in Block 42, offshore Suriname. In 2018, the operator, Kosmos Energy Ltd., completed drilling operations on the Pontoenoe-1 exploration well. Commercial quantities of hydrocarbons were not discovered and well results will be integrated into the ongoing evaluation for future exploration on the block. We also hold a 33% non-operated participating interest in Block 59, offshore Suriname, where the operator ExxonMobil Exploration and Production Suriname B.V. commenced a seismic program in 2018.
Canada: We hold a 50% participating interest in four exploration licenses offshore Nova Scotia. In 2018, the operator, BP Canada, completed drilling of the Aspy exploration well, which did not encounter commercial quantities of hydrocarbons. In January 2019, the partnership relinquished 50% of the Nova Scotia acreage in accordance with the license agreement timeline. The retained acreage of approximately 1.75 million gross acres remains under evaluation. We also hold a 25% participating interest in three BP Canada operated exploration licenses offshore Newfoundland.
7
We have certain long-term contracts with fixed minimum sales volume commitments for natural gas and NGLs production. At the JDA in the Gulf of Thailand, we have annual minimum net sales commitments of approximately 80 billion cubic feet of natural gas per year through 2025 and approximately 40 billion cubic feet per year in 2026 and 2027. At the North Malay Basin development project offshore Peninsular Malaysia, we have annual net sales commitments of approximately 55 billion cubic feet per year through 2024. Our estimated total volume of production subject to these sales commitments is approximately 950 billion cubic feet of natural gas. We also have NGLs minimum delivery commitments, primarily in the Bakken through 2023, of approximately 10 million barrels per year, or approximately 55 million barrels over the remaining life of the contracts.
We have not experienced any significant constraints in satisfying the committed quantities required by our sales commitments, and we anticipate being able to meet future requirements from available proved and probable reserves and projected third-party supply.
8
Selling Prices and Production Costs
The following table presents our average selling prices and average production costs:
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|||
Average selling prices (a) |
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil - per barrel (including hedging) |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
Onshore |
|
$ |
56.90 |
|
|
$ |
46.04 |
|
|
$ |
36.92 |
|
Offshore |
|
|
62.02 |
|
|
|
47.34 |
|
|
|
37.47 |
|
Total United States |
|
|
58.69 |
|
|
|
46.50 |
|
|
|
37.13 |
|
Europe (b) |
|
|
70.08 |
|
|
|
55.03 |
|
|
|
43.33 |
|
Africa |
|
|
69.64 |
|
|
|
53.17 |
|
|
|
41.88 |
|
Asia |
|
|
70.42 |
|
|
|
56.99 |
|
|
|
42.98 |
|
Worldwide |
|
|
60.77 |
|
|
|
49.23 |
|
|
|
39.20 |
|
Crude oil - per barrel (excluding hedging) |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
Onshore |
|
$ |
60.64 |
|
|
$ |
46.76 |
|
|
$ |
36.92 |
|
Offshore |
|
|
65.73 |
|
|
|
48.15 |
|
|
|
37.47 |
|
Total United States |
|
|
62.41 |
|
|
|
47.25 |
|
|
|
37.13 |
|
Europe (b) |
|
|
70.08 |
|
|
|
55.14 |
|
|
|
43.33 |
|
Africa |
|
|
69.64 |
|
|
|
53.25 |
|
|
|
41.88 |
|
Asia |
|
|
70.42 |
|
|
|
56.99 |
|
|
|
42.98 |
|
Worldwide |
|
|
63.80 |
|
|
|
49.75 |
|
|
|
39.20 |
|
Natural gas liquids - per barrel |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
Onshore |
|
$ |
21.29 |
|
|
$ |
17.67 |
|
|
$ |
9.18 |
|
Offshore |
|
|
25.58 |
|
|
|
21.34 |
|
|
|
13.96 |
|
Total United States |
|
|
21.81 |
|
|
|
18.10 |
|
|
|
9.71 |
|
Europe (b) |
|
|
— |
|
|
|
29.04 |
|
|
|
19.48 |
|
Worldwide |
|
|
21.81 |
|
|
|
18.35 |
|
|
|
9.95 |
|
Natural gas - per mcf |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
Onshore |
|
$ |
2.29 |
|
|
$ |
1.96 |
|
|
$ |
1.48 |
|
Offshore |
|
|
2.68 |
|
|
|
2.22 |
|
|
|
1.99 |
|
Total United States |
|
|
2.43 |
|
|
|
2.03 |
|
|
|
1.61 |
|
Europe (b) |
|
|
3.61 |
|
|
|
4.42 |
|
|
|
3.97 |
|
Asia and other |
|
|
5.07 |
|
|
|
4.27 |
|
|
|
5.31 |
|
Worldwide |
|
|
4.18 |
|
|
|
3.37 |
|
|
|
3.37 |
|
Average production (lifting) costs per barrel of oil equivalent produced (c) |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
Onshore (d) |
|
$ |
22.34 |
|
|
$ |
19.64 |
|
|
$ |
18.40 |
|
Offshore |
|
|
13.80 |
|
|
|
11.89 |
|
|
|
18.88 |
|
Total United States |
|
|
19.74 |
|
|
|
17.42 |
|
|
|
18.54 |
|
Europe (b) |
|
|
26.23 |
|
|
|
21.95 |
|
|
|
21.28 |
|
Africa |
|
|
4.42 |
|
|
|
14.40 |
|
|
|
20.53 |
|
Asia and other |
|
|
6.16 |
|
|
|
7.83 |
|
|
|
11.91 |
|
Worldwide |
|
|
15.73 |
|
|
|
16.07 |
|
|
|
18.29 |
|
(a) |
Includes inter‑company transfers valued at approximate market prices, primarily onshore U.S., which include certain processing and distribution fees. |
(b) |
In 2017, we sold our assets in Norway. See Note 3, Dispositions in the Notes to Consolidated Financial Statements. The average selling prices in Norway for 2016 were $43.32 per barrel for crude oil (including hedging), $43.32 per barrel for crude oil (excluding hedging), $19.48 per barrel for NGLs and $5.22 per mcf for natural gas. The average production (lifting) costs in Norway were $24.70 per boe in 2016. |
(c) |
Production (lifting) costs consist of amounts incurred to operate and maintain our producing oil and gas wells, related equipment and facilities and transportation costs, including Midstream tariff expense. Lifting costs do not include costs of finding and developing proved oil and gas reserves, production and severance taxes, or the costs of related general and administrative expenses, interest expense and income taxes. |
(d) |
Includes Midstream tariff expense of $13.69 per boe in 2018 (2017: $11.10 per boe; 2016: $9.24 per boe). |
9
Gross and Net Undeveloped Acreage
At December 31, 2018, gross and net undeveloped acreage amounted to:
|
|
Undeveloped |
|
|||||
|
Acreage (a) |
|
||||||
|
|
Gross |
|
|
Net |
|
||
|
|
(In thousands) |
|
|||||
United States |
|
|
436 |
|
|
|
383 |
|
South America |
|
|
14,332 |
|
|
|
3,943 |
|
Europe |
|
|
169 |
|
|
|
91 |
|
Africa |
|
|
3,334 |
|
|
|
272 |
|
Asia and other (b) |
|
|
6,350 |
|
|
|
2,755 |
|
Total (c) |
|
|
24,621 |
|
|
|
7,444 |
|
(a) |
Includes acreage held under production sharing contracts. |
(b) |
Includes 5.1 million gross acres (2.1 million net acres) offshore Canada. |
(c) |
At December 31, 2018, 26% of our net undeveloped acreage is scheduled to expire during the next three years pending results of exploration activities. In addition, we relinquished 1.75 million gross acres (0.9 million net acres) offshore Nova Scotia, Canada in January 2019. |
Gross and Net Developed Acreage, and Productive Wells
At December 31, 2018 gross and net developed acreage and productive wells amounted to:
|
|
Developed Acreage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Applicable to |
|
|
Productive Wells (a) |
|
||||||||||||||||||
|
|
Productive Wells |
|
|
Oil |
|
|
Gas |
|
|||||||||||||||
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
||||||
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
United States |
|
|
953 |
|
|
|
554 |
|
|
|
2,693 |
|
|
|
1,281 |
|
|
|
29 |
|
|
|
21 |
|
Europe |
|
|
23 |
|
|
|
14 |
|
|
|
19 |
|
|
|
12 |
|
|
|
— |
|
|
|
— |
|
Africa |
|
|
9,564 |
|
|
|
782 |
|
|
|
1,032 |
|
|
|
84 |
|
|
|
9 |
|
|
|
1 |
|
Asia and other |
|
|
452 |
|
|
|
226 |
|
|
|
— |
|
|
|
— |
|
|
|
118 |
|
|
|
60 |
|
Total |
|
|
10,992 |
|
|
|
1,576 |
|
|
|
3,744 |
|
|
|
1,377 |
|
|
|
156 |
|
|
|
82 |
|
(a) |
Includes multiple completion wells (wells producing from different formations in the same bore hole) totaling 105 gross wells and 61 net wells. |
Exploratory and Development Wells
Net exploratory and net development wells completed during the years ended December 31 were:
|
Net Exploratory Wells |
|
|
Net Development Wells |
|
||||||||||||||||||
|
2018 |
|
|
2017 |
|
|
2016 |
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
||||||
Productive wells |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
92 |
|
|
|
65 |
|
|
|
83 |
|
Europe |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
Asia and other |
|
4 |
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
— |
|
|
|
4 |
|
|
|
2 |
|
|
|
1 |
|
|
|
93 |
|
|
|
67 |
|
|
|
84 |
|
Dry holes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Africa (a) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Asia and other (b) |
|
2 |
|
|
|
— |
|
|
|
1 |
|
|
|
— |