Hess : Reports Estimated Results for the Third Quarter of 2016

Hess Corporation (NYSE: HES) today reported a net loss of $339 million, or $1.12 per common share, in the third quarter of 2016 compared with a net loss of $279 million, or $0.98 per common share, in the third quarter of 2015. On an adjusted basis, the Corporation reported a net loss of $340 million, or $1.12 per common share, in the third quarter of 2016 compared with an adjusted net loss of $291 million, or $1.03 per common share, in the prior-year quarter. Third quarter 2016 after-tax results reflect lower production and realized selling prices compared with the third quarter of 2015, as well as lower operating costs and depreciation, depletion and amortization expenses.

   “Our company continues to take steps to maintain a strong balance sheet and materially reduce our spending,” Chief Executive Officer John Hess said. “We also are investing in growth projects including the world-class Liza oil discovery in Guyana that we believe will create significant value for our shareholders. Based on the positive results of the Liza-3 well, we now expect Liza to be at the upper end of the previously announced estimated recoverable resources range of 800 million to 1.4 billion barrels of oil equivalent.”

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

Exploration and Production:

   The Exploration and Production net loss in the third quarter of 2016 was $234 million compared to a net loss of $188 million in the prior-year quarter. On an adjusted basis, the third quarter 2016 adjusted net loss was $285 million compared to $221 million in the prior-year quarter.

   The Corporation’s average realized crude oil selling price was $41.50 per barrel in the third quarter of 2016, down 9 percent from $45.66 per barrel in the year-ago quarter, including the effect of hedging. The average realized natural gas liquids selling price in the third quarter of 2016 was $9.23 per barrel compared to $7.17 per barrel in the prior-year quarter while the average realized natural gas selling price was $3.20 per mcf, down from $4.02 per mcf in the third quarter of 2015.

  Net production in the third quarter of 2016 was 314,000 boepd compared to pro forma net production, which excludes assets sold, of 372,000 boepd in the third quarter of 2015. Lower volumes were primarily due to a reduced drilling program across our portfolio, planned and unplanned downtime, and natural field declines.

Operational Highlights for the Third Quarter of 2016:

   Bakken (Onshore U.S.): Net production from the Bakken was 107,000 boepd compared to 113,000 boepd in the prior-year quarter, due to a reduced drilling program. The Corporation operated an average of three rigs in the quarter and brought 22 gross operated wells on production. Drilling and completion costs averaged $4.7 million per operated well in the third quarter, down 11 percent from the year-ago quarter, while increasing our standard well design to a 50-stage completion from the previous 35-stage completion design.

   Gulf of Mexico (Offshore U.S.): Net production from the Gulf of Mexico was 61,000 boepd compared to 83,000 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.

   Valhall (Offshore Norway): Net production from the Valhall Field (Hess 64 percent) averaged 31,000 boepd in the third quarter of 2016, down from 35,000 boepd in the year-ago quarter, primarily due to a reduced drilling program.

   South Arne (Offshore Denmark): Net production from the South Arne Field (Hess 62 percent) averaged 11,000 boepd in the third quarter of 2016, down from 14,000 boepd in the year-ago quarter, as a result of a planned maintenance shutdown during the third quarter of 2016.

   Joint Development Area of Malaysia / Thailand (Offshore): At the Joint Development Area of Malaysia / Thailand (Hess 50 percent), the operator shut down the field in the third quarter to commission the booster compressor project. Net production averaged 24,000 boepd in the third quarter of 2016, down from 36,000 boepd in the prior-year quarter due to the shut down and lower entitlement.

   Development Projects: At the North Malay Basin project, offshore Malaysia (Hess operated - 50 percent), we completed installation of the topsides at three remote wellhead platforms and development drilling operations continued. First gas from the full field development is projected for the third quarter of 2017. At the Stampede project in the Gulf of Mexico (Hess operated - 25 percent), the topsides deck was installed on the hull and drilling operations in the field continued. First production is targeted for 2018.

   Guyana (Offshore): The Liza-3 appraisal well on the Stabroek Block (Hess 30 percent), operated by Esso Exploration and Production Guyana Limited, was successfully completed. Based on the Liza-3 results, we now expect the estimated recoverable resources to be at the upper end of the previously announced range of 800 million to 1.4 billion barrels of oil equivalent. On a separate prospect 25 miles northwest of the Liza discovery, the operator completed drilling of the Skipjack exploration well, which was unsuccessful and expensed in the quarter.

Bakken Midstream:

   The Corporation’s share of Bakken Midstream segment net income was $13 million in the third quarter of 2016 compared to $16 million in the prior-year quarter, primarily due to lower throughput volumes.

Capital and Exploratory Expenditures:

   Exploration and Production capital and exploratory expenditures were $435 million in the third quarter of 2016 down 49 percent from $849 million in the prior-year quarter reflecting reduced activities in response to the weak commodity price environment. Bakken Midstream capital expenditures were $88 million in the third quarter of both 2016 and 2015.

Liquidity:

   Net cash provided by operating activities before changes in operating assets and liabilities was $309 million in the third quarter of 2016 compared to $509 million in the prior-year quarter. In the third quarter, the Corporation issued $1 billion of senior notes with a 4.30% coupon due in 2027 and $500 million of senior notes with a 5.80% coupon due in 2047, with proceeds to be used primarily to purchase or redeem higher-coupon bonds and near-term maturities. Through September 30, 2016, $750 million has been used to purchase the tendered 8.125% notes, due in 2019.

   The Corporation had cash and cash equivalents of $3,529 million and total debt, excluding the Bakken Midstream, of $6,654 million at September 30, 2016. The Corporation’s debt to capitalization ratio was 26.0 percent at September 30, 2016.

   In October, the Corporation expects to purchase and redeem notes for $625 million to complete the debt refinancing. Pro forma for the notes to be purchased or redeemed in October and excluding the Bakken Midstream, debt amounted to $6,095 million at September 30, 2016. The Corporation’s pro forma debt to capitalization ratio was 24.5 percent.

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:

   Third quarter 2016 Exploration and Production results include a tax benefit of $51 million related to the resolution of certain international tax matters. Third quarter 2016 Corporate, Interest and Other results include an after-tax charge of $50 million ($80 million pre-tax) for the premium paid to purchase 65 percent of the principal amount of our 8.125% notes, due in 2019.

   Third quarter 2015 Exploration and Production 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 after-tax charges totaling $48 million ($74 million pre-tax) for undeveloped leasehold impairment and other exit costs. Third quarter 2015 Corporate, Interest and Other results include an after-tax charge of $8 million ($10 million pre-tax) related to the HOVENSA bankruptcy.

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:

A reconciliation of pro forma debt to total debt on a GAAP basis is provided on page 10.

Hess Corporation 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 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 measures
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. In addition, “Pro forma debt” presented in this release is defined as reported debt less debt balances that we have committed to repurchase or redeem at September 30, 2016. Management used pro forma debt to evaluate the Corporation’s financing structure and believes that investors’ understanding of our liquidity and debt is enhanced by disclosing this measure.

Cautionary Note to Investors
We use certain terms in this release relating to resources other than proved reserves, such as unproved reserves or resources. Investors are urged to consider closely the oil and gas disclosures in Hess’ Form 10-K, File No. 1-1204, available from Hess Corporation, 1185 Avenue of the Americas, New York, New York 10036 c/o Corporate Secretary and on our website at www.hess.com. You can also obtain this form from the SEC on the EDGAR system.