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Stabroek Block profits pull Hess from brink of debt
…positioned to be company’s engine of growth in future
“…Just as the West seeks to use less oil, its demand is being replaced quickly by the emerging markets.”
Kaieteur News – Three months ago, the parent company for Hess Guyana Exploration Limited, Hess Corporation based in the US had a debt to capitalization ratio of 55 percent but according to analysts, “with so much revenue coming in, that is much less of a concern.”
This, according to Investors Alley analyst, Tony Daltorio—currently the editor of Market Mavens—who in a recent analysis noted that, “the real excitement for investors in Hess is centered on the growing Stabroek Block, offshore Guyana.”
Hess CEO, John Hess
It’s “the firm’s core growth engine going forward and is a game-changer for the company, due to its large scale and exceptional economics,” it was noted.
This area is one of the highest margin, lowest carbon intensity oil developments globally, according to a report by the energy consultancy Wood Mackenzie.
“Barrels from this field, the largest discovered in the last decade, are mainly light, which helps meet the rising demand for relatively low-carbon-intensity liquids.”
It was noted that at present, Hess is not one of Wall Street’s favourites because of its high debt level and at the end of the first quarter, its debt to capitalization ratio was above 55 percent.
Additional good news for Hess is that oil demand is set to top pre-pandemic levels next year, with 80 percent of the growth in demand coming from non-OECD nations such as Guyana.
According to Daltorio, “just as the West seeks to use less oil, its demand is being replaced quickly by the emerging markets.”
He added, “All of this is very good news for any oil company that can increase its oil output at low cost to take advantage of high prices. One such company is Hess Corporation (HES), which is highly leveraged to the price of oil.”
It was noted that the Stabroek Block, where Hess has a 30 percent interest and ExxonMobil as the operator, is large and continues to grow with the company recently increasing the gross discovered recoverable estimate to approximately 11 billion barrels of oil equivalent, up from the previous estimate of about 10 billion.
According to Daltorio, current management guidance indicates six development phases will come online by 2027, resulting in gross volumes of about 1.2 million barrels a day of oil output. In April last, the company announced it is going ahead with its fourth development in the field, Yellowtail, which should produce 250,000 barrels per day starting in 2025.
The third development on the Stabroek Block at the Payara Field, with capacity of approximately 220,000 barrels of oil per day, is ahead of schedule and expected to start producing in late 2023.
These in addition to the two producing fields in the Stabroek Block—Liza I and II.
It was noted that after Goldman Sachs analysts sifted through hundreds of oil and gas projects globally, it identified Hess as one the few winners “who own material new projects that are highly profitable and will materially lift their future cash flows and production”.
Additionally, it was noted that the company’s four oil developments in Guyana have a breakeven oil price of between US$25 per barrel and US$35 per barrel.
By 2026, the overall company breakeven oil price is forecast to decrease to an oil price of roughly US$45 per barrel.
This, he reiterated “will translate to cash flow growth being strong over the coming years. Cash flow is forecast to grow at 25 percent annually through 2026, more than double the top-line growth. That makes Hess stock a buy on its recent weakness.”
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