Hess : Reports Estimated Results for the Third Quarter of 2017

Hess Corporation (NYSE: HES) today reported a net loss of $624 million, or $2.02 per common share, in the third quarter of 2017 compared with a net loss of $339 million, or $1.12 per common share, in the third quarter of 2016. On an adjusted basis, the Corporation reported a net loss of $324 million, or $1.07 per common share, in the third quarter of 2017 compared with an adjusted net loss of $340 million, or $1.12 per common share, in the prior- year quarter. The improved adjusted results reflect higher realized crude oil selling prices and lower operating costs, depreciation, depletion and amortization, and exploration expenses. Third quarter 2017 results were adversely impacted by lower tax benefits compared to the prior-year quarter following a required change in deferred tax accounting. On an adjusted pre-tax basis, the Corporation reported a loss of $307 million in the third quarter of 2017, down from $553 million in the year-ago quarter.

   “We are successfully executing our strategic plan to focus our portfolio by investing in our highest return assets and divesting mature higher cost assets,” Chief Executive Officer John Hess said. “These actions in turn will lower our cash unit costs, bolster our balance sheet and prefund our world class investment opportunity in Guyana, which will position us to deliver a decade plus of returns-driven growth and increasing cash generation for our shareholders.”

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

Exploration and Production:

   Exploration and Production (E&P) net loss in the third quarter of 2017 was $474 million, compared to a net loss of $234 million in the third quarter of 2016. On an adjusted basis, third quarter 2017 net loss was $238 million compared to a net loss of $285 million in the prior-year quarter. The Corporation’s average realized crude oil selling price, including the effect of hedging, was $46.97 per barrel in the third quarter of 2017, up from $41.50 per barrel in the year-ago quarter. The average realized natural gas liquids selling price in the third quarter of 2017 was $17.22 per barrel, versus $9.23 per barrel in the prior-year quarter, while the average realized natural gas selling price was $3.35 per mcf, compared with $3.20 per mcf in the third quarter of 2016.

   Net production, excluding Libya, was 299,000 boepd in the third quarter of 2017, compared to 314,000 boepd in the prior-year quarter. Lower volumes were due to a reduced drilling program, natural field declines, the effect of hurricane-related downtime and an asset sale, partially offset by the start-up of production from the North Malay Basin and a temporary adjustment to entitlement and higher uptime at the JDA. Our Permian assets, which were sold in August 2017, had production of 3,000 boepd in the third quarter (7,000 boepd in the third quarter of 2016). Fourth quarter 2017 production will be negatively impacted by hurricane-related downtime and expected lower entitlement at the JDA as the temporary adjustment reverses.

   Excluding items affecting comparability of earnings between periods, cash operating costs, which include operating costs and expenses, production and severance taxes, and E&P general and administrative expenses, were $13.67 per barrel of oil equivalent (boe) in the third quarter, down 13 percent from $15.72 per boe in the prior-year quarter. The E&P effective tax rate, excluding items affecting comparability and Libya, was a benefit of 18 percent in the third quarter of 2017, down from a benefit of 41 percent in the third quarter of 2016. Commencing in 2017, we do not recognize deferred tax benefit or expense in the U.S., Denmark (hydrocarbon tax only), and Malaysia until deferred tax assets are re-established in these jurisdictions. This financial reporting requirement has no cash flow or economic impact.

Operational Highlights for the Third Quarter of 2017:

   Bakken (Onshore U.S.): Net production from the Bakken of 103,000 boepd was impacted by reduced field availability due to adverse weather and delays in completing new wells. The Corporation operated an average of four rigs in the third quarter, drilling 24 wells and bringing 13 new wells online.

   Gulf of Mexico (Offshore U.S.): Net production from the Gulf of Mexico was 59,000 boepd, compared to 61,000 boepd in the prior-year quarter. At the Stampede development (Hess operated - 25 percent), the second and third production wells were completed. First production from the field is expected in the first quarter of 2018.

   North Malay Basin (Offshore Malaysia): At North Malay Basin (Hess operated - 50 percent), first production of natural gas from the full-field development commenced in July and production averaged 86 mmcfd for the third quarter of 2017. The field is currently producing approximately 155 mmcfd.

   Guyana (Offshore): At the Stabroek Block (Hess - 30 percent), operated by Esso Exploration and Production Guyana Limited, the Payara-2 well was successfully completed and confirmed a second giant oil field containing gross discovered recoverable resources of approximately 500 million barrels of oil equivalent. In addition, the Operator announced that the Turbot-1 exploration well resulted in a discovery encountering a reservoir of 75 feet of high-quality, oil-bearing sandstone in the primary objective. The well is located approximately 30 miles to the southeast of the Liza phase one project. An exploration well at the Ranger prospect is expected to spud at the end of October. The drilling of an additional well on the Turbot discovery is planned for 2018. Development activities associated with the Liza phase one project are on schedule and first production is expected by 2020.

Midstream:

   The Midstream segment, which is comprised primarily of our 50/50 midstream joint venture, Hess Infrastructure Partners, had a net loss of $12 million in the third quarter of 2017, compared to net income of $13 million in the prior-year quarter. Excluding items affecting comparability of earnings between periods, third quarter 2017 net income was $22 million, compared to $13 million in the third quarter of 2016. Third quarter 2017 results attributable to Hess Corporation include a charge of $34 million after income taxes related to the sale of Permian Midstream assets that were wholly-owned by Hess Corporation.

Capital and Exploratory Expenditures:

   Exploration and Production capital and exploratory expenditures were $558 million in the third quarter of 2017, up from $433 million in the prior-year quarter, which included increased activity at Bakken and Guyana.

Liquidity:

   Net cash provided by operating activities was $88 million in the third quarter of 2017, compared to $332 million in the third quarter of 2016. Net cash provided by operating activities before changes in working capital was $415 million in the third quarter of 2017, up from $309 million in the year-ago quarter. Changes in working capital during the third quarter of 2017 were net outflows of $327 million and primarily related to Norwegian abandonment expenditures, advances to operators, premiums on hedge contracts and the timing of interest payments.

   At September 30, 2017, the Corporation had cash and cash equivalents of $2,526 million and total debt, excluding the Midstream segment, of $6,016 million. The Corporation’s debt to capitalization ratio was 31.8 percent at September 30, 2017 and 30.4 percent at December 31, 2016.

   In the third quarter of 2017, the Corporation increased its West Texas Intermediate (WTI) crude oil hedging program by 50,000 barrels of oil per day (bopd) to a total of 110,000 bopd for the remainder of 2017. In addition, the Corporation added WTI crude oil collars covering 115,000 bopd for 2018. See hedging summary on page 20.

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 2017: Results include an after-tax gain attributable to Hess Corporation stockholders of $280 million associated with the sale of our enhanced oil recovery assets in the Permian Basin. This transaction, which included upstream and midstream assets, was allocated to the E&P segment ($314 million after-tax gain) and to the Midstream segment ($34 million after-tax loss). E&P results also include a noncash after-tax charge of $550 million to impair the carrying value of our assets in Norway as a result of the expected sale. Corporate, Interest and Other results include an after-tax charge of $30 million in connection with vacated office space.

   Third quarter 2016: Exploration and Production results included a tax benefit of $51 million related to the resolution of certain tax matters, while Corporate, Interest and Other results included an after-tax charge of $50 million related to debt refinancing.

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

   The following table reconciles reported income (loss) before income taxes and adjusted income (loss) before income taxes:

   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 from cash provided by operating activities before changes in operating assets and liabilities:

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 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. “Adjusted income (loss) before income taxes” presented in this release is defined as income (loss) before income taxes excluding items identified as affecting comparability of earnings between periods. “Net cash provided by operating activities before changes in operating assets and liabilities” presented in this release is defined as Cash provided by operating activities excluding changes in operating assets and liabilities. Management uses adjusted net income (loss) and adjusted income (loss) before income taxes to evaluate the Corporation’s operating performance and believes that investors’ understanding of our performance is enhanced by disclosing these measures, 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 Corporation’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 (used in) operating activities. A reconciliation of reported net income (loss) attributable to Hess Corporation (U.S. GAAP) to adjusted net income (loss), a reconciliation of reported income (loss) before income taxes (U.S. GAAP) to adjusted income (loss) before income taxes and 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.

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.