Hess : Reports Estimated Results for the Fourth Quarter of 2016

Hess Corporation (NYSE: HES) today reported a net loss of $4,892 million, or $15.65 per common share, in the fourth quarter of 2016 compared with a net loss of $1,821 million, or $6.43 per common share, in the fourth quarter of 2015. Fourth quarter 2016 results include a noncash accounting charge of $3,749 million on deferred tax assets. This financial reporting requirement has no cash flow or economic impact. Fourth quarter results also include an after-tax charge of $693 million to impair our Equus natural gas project, offshore the North West Shelf of Australia, and other after-tax charges totaling $145 million. Excluding items affecting comparability between periods, fourth quarter 2016 net loss was $305 million, or $1.01 per common share, compared to a net loss of $396 million, or $1.40 per share in the fourth quarter of 2015. The adjusted fourth quarter 2016 results reflect higher realized crude oil selling prices and improved total production unit costs.

     “We see 2017 as the start of an exciting new chapter of value-driven growth for our company and our shareholders,” Chief Executive Officer John Hess said. “We are increasing activity in the Bakken, our two offshore developments at North Malay Basin in the Gulf of Thailand and Stampede in the Gulf of Mexico are on track to come online in 2017 and 2018, and the Liza Field in Guyana is one of the industry’s largest oil discoveries in the last 10 years.”

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

Exploration and Production:

     The Exploration and Production net loss in the fourth quarter of 2016 was $3,950 million compared to a net loss of $1,713 million in the fourth quarter of 2015. On an adjusted basis, the fourth quarter of 2016 net loss was $257 million compared to $328 million in the prior-year quarter.

     The Corporation’s average realized crude oil selling price was $45.97 per barrel in the fourth quarter of 2016, up 5 percent from $43.73 per barrel in the year-ago quarter, including the effect of hedging. The average realized natural gas liquids selling price in the fourth quarter of 2016 was $14.68 per barrel, up from $9.61 per barrel in the prior-year quarter, while the average realized natural gas selling price was $3.24 per mcf compared with $3.44 per mcf in the fourth quarter of 2015.

     Excluding production from Libya and assets sold, pro forma net production in the fourth quarter of 2016 was 307,000 boepd, compared to 358,000 boepd in the fourth quarter of 2015. Lower volumes were primarily due to a reduced drilling program across our portfolio, planned and unplanned downtime, and natural field declines. Production in Libya resumed in the fourth quarter at a net rate of 4,000 boepd.

Oil and Gas Reserve Estimates:

     Oil and gas proved reserves were 1,109 million barrels of oil equivalent (boe) at December 31, 2016, compared with 1,086 million boe at December 31, 2015. Proved reserve additions and other technical revisions added 172 million boe in 2016, primarily relating to the Bakken, North Malay Basin in Malaysia, and the South Arne Field in Denmark. Lower crude oil prices used for estimating proved reserves resulted in negative revisions of 29 million boe. The net additions of 143 million boe, which are subject to final review, replaced approximately 119 percent of the Corporation’s 2016 production at a finding and development cost of approximately $13 per boe, and resulted in a year-end 2016 reserve life of 9.2 years.

Operational Highlights for the Fourth Quarter of 2016:

     Bakken (Onshore U.S.): Net production from the Bakken decreased approximately 13 percent to 95,000 boepd from the prior-year quarter due to constrained production operations in the quarter caused by severe winter weather and a reduced drilling program during 2016. The Corporation operated an average of two rigs and brought 21 gross operated wells on production in the fourth quarter of 2016, increasing the year-to-date total to 100 wells. Drilling and completion costs per operated well averaged $4.6 million in the fourth quarter of 2016, down 10 percent from the year-ago quarter, despite increasing our standard well design to a 50-stage completion from the previous 35-stage completion design used in the prior year.

     Gulf of Mexico (Offshore U.S.): Net production from the Gulf of Mexico was 61,000 boepd compared to 73,000 boepd in the prior-year quarter, primarily as a result of unplanned well downtime due to subsurface valve failures at two fields and natural field declines. At the Stampede project in the Gulf of Mexico (Hess operated - 25 percent), drilling operations and construction of production facilities continued on schedule with first production targeted for 2018.

     North Malay Basin Full-field development (Offshore): At the North Malay Basin project, offshore Malaysia (Hess operated - 50 percent), we completed subsea tie-in work, hook-up and commissioning of the three wellhead platforms, and drilling operations continued. First gas is projected for the third quarter of 2017.

     Guyana (Offshore): At the Stabroek Block (Hess 30 percent), operated by Esso Exploration and Production Guyana Limited, results from the Payara-1 well confirmed a second oil discovery on the block located approximately 10 miles (16 kilometers) northwest of the world-class Liza oil discovery. The well encountered more than 95 feet (29 meters) of high-quality, oil-bearing sandstone reservoirs and a production test is planned in the first quarter. In 2017, the co-venture partners plan to appraise the Liza and Payara discoveries and continue to evaluate the resource potential on the broader Stabroek block with additional exploration drilling and seismic analysis planned. We expect to be in a position to sanction the first phase of the Liza development in 2017.

Bakken Midstream:

     The Corporation’s Bakken Midstream segment had net income of $3 million in the fourth quarter of 2016 compared to $11 million in the prior-year quarter. Revenues were higher in the quarter primarily due to recognition of deferred minimum volume deficiency payments earned, partly offset by lower throughput volumes caused by severe weather conditions. Fourth quarter results include a pre-tax charge of $67 million ($21 million after income taxes and noncontrolling interest) to impair older specification rail cars. Excluding the rail car charge, adjusted fourth quarter 2016 net income was $24 million compared to $11 million in the prior-year quarter.

Capital and Exploratory Expenditures:

     Exploration and Production capital and exploratory expenditures were $414 million in the fourth quarter of 2016, down 56 percent from $943 million in the prior-year quarter, reflecting our reduced work program in response to the low commodity price environment. Full year 2017 E&P capital and exploratory expenditures are forecast to be $2.25 billion.

     Bakken Midstream capital expenditures were $86 million in the fourth quarter of 2016 and $103 million in the year-ago quarter. In 2017, Midstream capital expenditures are forecast to be $190 million, down from full year 2016 capital expenditures of $276 million due to the expected completion of the Hawkeye compressor station project in the first quarter.

     In 2017, the Midstream segment will also include our interest in the Permian gas plant in West Texas and related CO2 assets, and additional water handling assets in North Dakota. These assets are wholly owned by the Company and are not included in our Hess Infrastructure Partners joint venture.

Liquidity:

     Net cash provided by operating activities was $326 million in the fourth quarter of 2016 and $623 million in the fourth quarter of 2015. Net cash provided by operating activities before changes in operating assets and liabilities was $128 million in the fourth quarter of 2016, which reflects a reduction of approximately $200 million associated with cash-related charges in items affecting comparability of earnings and higher well workover costs. In the fourth quarter of 2016, the Corporation used $625 million of cash to purchase and redeem notes to complete the previously announced debt refinancing that commenced in the third quarter.

     The Corporation had cash and cash equivalents of $2,732 million and total debt, excluding the Bakken Midstream, of $6,073 million at December 31, 2016. The Corporation’s debt to capitalization ratio was 30.4 percent and 24.4 percent at December 31, 2016 and 2015, respectively.

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:

     Fourth quarter 2016 results include:

• A noncash charge of $3,749 million (Exploration & Production: $2,920 million; Corporate, Interest and Other: $829 million) to establish valuation allowances against net deferred tax assets as of December 31, 2016, as required under accounting standards following a three-year cumulative loss.

• An after-tax charge of $693 million ($938 million pre-tax) in Exploration and Production to fully impair the carrying value of our interests in blocks WA-390-P and WA-474-P (Hess 100 percent) offshore the North West Shelf of Australia following the decision to defer further development of the Equus natural gas fields.

• Other after-tax charges of $145 million ($272 million pre-tax) related to exit costs for an offshore drilling rig, loss on debt extinguishment, impairment of rail cars (Bakken Midstream), severance and other charges.

     Fourth quarter 2015 results include:

• Noncash charges of $1,359 million in Exploration and Production, comprised of a goodwill impairment charge of $1,098 million and other charges totaling $261 million after income taxes ($404 million pre-tax) to write-off assets.
• Corporate, Interest and Other results include after-tax charges of $41 million ($66 million pre-tax) for the Corporation’s estimated liability resulting from HOVENSA LLC’s bankruptcy settlement.

     The following table summarizes the items affecting comparability of earnings between periods by line item in the income statement:

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):

     The following table reconciles reported net cash provided by (used in) operating activities to cash provided by continuing operating activities before changes in operating assets and liabilities:

Hess Corporation will review fourth 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 Corporation’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 Corporation excluding items identified as affecting comparability of earnings between periods. “Net cash provided by operating activities before changes in operating assets and liabilities” is defined as Cash provided by operating activities excluding changes in operating assets and liabilities. Management uses adjusted net income (loss) to evaluate the Corporation’s operating performance and believes that investors’ understanding of our performance is enhanced by disclosing this measure, which excludes certain items that management believes are not directly related to ongoing operations and are not indicative of future business trends and operations. Management believes that net cash provided by operating activities before changes in operating assets and liabilities demonstrates the company’s ability to internally fund capital expenditures, pay dividends and service debt. These measures are not, and should not be viewed as, a substitute for U.S. GAAP net income (loss) or net cash provided by operating activities. A reconciliation of reported net income (loss) attributable to Hess Corporation (U.S. GAAP) to adjusted net income (loss) as well as a reconciliation of net cash provided by (used in) operating activities (U.S. GAAP) to net cash provided by operating activities before changes in operating assets and liabilities are provided in the release.

(a) Bakken Midstream debt is non-recourse to Hess Corporation.