Hess : Reports Estimated Results for the Second Quarter of 2015

Hess Corporation (NYSE:HES) today reported an adjusted net loss, which excludes items affecting comparability, of $147 million or $0.52 per common share, for the second quarter of 2015 compared with adjusted net income of $432 million or $1.38 per share in the second quarter of 2014. Lower realized selling prices reduced adjusted net income by approximately $740 million after-tax compared with the prior-year quarter. In addition, second quarter 2015 results benefitted from higher production, lower cash operating costs and reduced exploration expenses that were partially offset by higher depreciation, depletion, and amortization expense. On an unadjusted basis, the Corporation reported a net loss of $567 million for the second quarter of 2015, including a noncash goodwill impairment charge of $385 million, and net income of $931 million in the prior-year quarter.

     “We achieved strong operating performance in the quarter and delivered significant and immediate value to our shareholders with the sale of a 50 percent interest in our Bakken midstream assets,” Chief Executive Officer John Hess said. “We remain confident that our financial strength, resilient portfolio and proven operating capabilities position us well in the current low oil price environment as well as for a future price recovery.”

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

Exploration and Production:

     The Corporation’s Exploration and Production activities had a net loss of $502 million in the second quarter of 2015, compared with net income of $1,049 million in the second quarter of 2014. Adjusted net loss was $96 million in the second quarter of 2015 compared with adjusted net income of $475 million in the second quarter of 2014.

     The Corporation’s average worldwide crude oil selling price, including the effect of hedging, was down 45 percent to $55.83 per barrel in the second quarter of 2015 from $102.16 per barrel in the second quarter of last year. The average worldwide natural gas liquids selling price was $11.06 per barrel, down from $36.59 per barrel in the year-ago quarter while the average worldwide natural gas selling price was $4.49 per mcf in the second quarter of 2015 compared with $6.35 per mcf in the second quarter a year-ago.

     Oil and gas production was 391,000 boepd, up 23 percent from 319,000 boepd in the second quarter of 2014. Assets contributing to the volume growth were primarily the Bakken shale play (39,000 boepd), the Utica shale play (19,000 boepd), the Joint Development Area of Malaysia/Thailand (11,000 boepd) and the Gulf of Mexico (9,000 boepd). Asset sales reduced production by 9,000 boepd.

Operational Highlights for the Second Quarter of 2015:

     Bakken (Onshore U.S.): Net production from the Bakken increased approximately 49 percent to 119,000 boepd from the prior-year quarter due to continued drilling activities. The Corporation brought 67 gross operated wells on production in the second quarter of 2015 bringing the year-to-date total to 137 wells. Drilling and completion costs per operated well averaged $5.6 million in the second quarter of 2015, down 24 percent from the year-ago quarter. During the second quarter, the Corporation operated 8 rigs.

     Utica (Onshore U.S.): On the Corporation’s joint venture acreage, 10 wells were drilled and net production averaged 22,000 boepd in the second quarter of 2015 compared with 3,000 boepd in the prior-year quarter.

     Gulf of Mexico (Offshore U.S.): Net production from the Gulf of Mexico was up compared to the prior-year quarter with higher volumes from Tubular Bells, which totaled 23,000 boepd in the second quarter of 2015, being partially offset by lower production from the Conger and Llano Fields. At the Corporation’s non-operated Sicily exploration prospect in the Keathley Canyon area (Hess 25 percent), the operator successfully completed drilling and logging activities in the second quarter. The well was drilled to a depth of 30,214 feet and is being evaluated. The drilling of an appraisal well to further evaluate the discovery is expected late this year or in early 2016.

     Guyana (Offshore): On the Stabroek Block (Hess 30 percent), the operator announced a significant oil discovery at the Liza #1 well and is now in the process of evaluating the resource potential on the block. The operator recently commenced the acquisition of 17,000 square kilometers of 3D seismic.

Bakken Midstream:

     The Corporation’s Bakken Midstream activities had net income of $32 million in the second quarter of 2015 compared to $7 million in the prior-year quarter primarily due to higher throughput throughout the system. In July 2015, the Corporation completed the sale of a 50 percent interest in its Bakken Midstream assets for cash consideration of $2.7 billion. The joint venture incurred $600 million of debt in July with proceeds distributed equally to both partners, resulting in total after-tax cash proceeds net to Hess of approximately $3.0 billion. These transactions will be reflected in the Corporation’s third quarter results. As a result of the joint venture transaction, Hess has reported its Bakken-related midstream operations as a separate Midstream segment in its consolidated financial statements and will begin disclosing certain historical and forward-looking financial information for this segment.

Capital and Exploratory Expenditures:

     Capital and exploratory expenditures were $1,071 million in the second quarter of 2015 down from $1,256 million in the prior-year quarter of which $1,006 million and $1,208 million, respectively, relate to Exploration and Production activities. Second quarter 2015 Exploration and Production expenditures reflect reduced activity in assets including the Bakken, the Utica, Norway and Equatorial Guinea, partly offset by expenditures associated with development of the North Malay Basin project and exploratory activities in the Gulf of Mexico and Guyana.

Liquidity:

     Net cash provided by operating activities was $541 million in the second quarter of 2015, compared with $911 million in the second quarter of 2014. At June 30, 2015, cash and cash equivalents totaled $931 million compared with $2,444 million at December 31, 2014. Total debt was $5,957 million at June 30, 2015 compared with $5,987 million at December 31, 2014. The Corporation’s debt to capitalization ratio at June 30, 2015 was 22.0 percent, compared with 21.2 percent at December 31, 2014. In July 2015, the Corporation received after-tax cash proceeds of approximately $3 billion from the Bakken Midstream joint venture transaction described above.

During the second quarter, the Corporation hedged an additional 20,000 barrels per day of crude oil production for the remainder of 2015 by entering into West Texas Intermediate crude collars with a floor price of $60 per barrel and a ceiling price of $80 per barrel. The Corporation’s crude oil hedging program for the remainder of 2015 is detailed on page 18.

Discontinued Operations:

     Losses from discontinued operations amounted to $14 million in the second quarter of 2015 compared to $44 million in the prior-year quarter. The Corporation completed the sale of its energy trading partnership (HETCO) in the first quarter of 2015. Financial results for the second quarter of 2014 have been recast to report HETCO as discontinued operations in the consolidated income statement on page 7.

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:

     Second quarter 2015 results include a goodwill impairment charge of $385 million associated with the Corporation’s onshore reporting unit. As a result of establishing the Bakken Midstream business as a separate operating segment in the second quarter of 2015, U.S. GAAP required the reallocation of goodwill to the Bakken Midstream segment and a goodwill impairment test for each of the Corporation’s reporting units. The nontaxable impairment charge for the onshore reporting unit caused the Corporation’s effective tax rate in the quarter to be substantially less than normal. In addition, the Corporation recognized after-tax charges totaling $21 million ($21 million pre-tax) associated with terminated international office space.

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

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

Hess Corporation will review second 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 Corporation is available atwww.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 a non-GAAP financial measure in this earnings release. “Adjusted net income (loss)” presented in this release is defined as reported net income (loss) attributable to Hess Corporation excluding items identified as affecting comparability of earnings between periods. We believe that investors’ understanding of our performance is enhanced by disclosing this measure. This measure is not, and should not be viewed as, a substitute for U.S. GAAP net income (loss). A reconciliation of reported net income (loss) attributable to Hess Corporation (U.S. GAAP) to adjusted net income (loss) is provided in the release.