Okay. Welcome to day two of JP Morgan's Eighth Annual Energy Conference. My name is Arun Jayaram. I'm the E&P and Oilfield Services analyst. Delighted to begin day two with a company who has one of the most interesting opportunity sets within not only energy, but I'd argue within the S&P, just given how them and ExxonMobil have a series of world-class discoveries in Guyana that they'll be developing over the next several years, that provide a unique runway of not only resource expansion opportunities, but cash flow growth with a very interesting capital returns framework. Delighted to have John Hess, who's the CEO of Hess, to present today. We thought we would switch things up and do a fireside chat to make it more relevant to the investment community. As typical, I've divided today's discussion into a series of topics that I think will be relevant to the buy-side community. We will leave a few minutes at the end to ask any questions that you may have. John, how are you? I'm very good. Thanks for having our company speak at the conference. Great. John, I wanted to start... I know you and the team at Hess spend a lot of time thinking about the macro environment. You know, most investors came into 2023 quite bullish on oil fundamentals, maybe a little bit more cautious on U.S. natural gas. Yet, we've been through perhaps a little bit more volatility in oil prices. Maybe you could start with your thoughts on why do you think we've seen this volatility in oil, and what is your, you know, kind of expectations on the supply-demand balance of oil? Well, you know, I think, Arun, what's been a surprise is that since last summer, after the Russia invasion of Ukraine, oil has basically traded in a range of $70-$80, and that's after hitting $120 after the invasion. And it just sort of dropped like a rock, and it's been lower for longer. I think there are several factors there. I think one of the biggest factors, actually, is the financial markets and the fact that interest rates have gone up so rapidly high. JPMorgan Chase talks about that all the time, but it's had a real impact on investor sentiment of risk off. Not only risk off in the S&P or bonds, but also risk off in oil as a financial asset and oil as an equity. I think high interest rates have continued to create this negative sentiment of risk off that has kept sort of a ceiling on oil price. That's number one. Number two, what surprised us was the China lockdown was really a lockdown and probably took upwards of 2 MMbpd off the market last year. China's been very slow to come back. You read Bloomberg, and you see that they're starting to stimulate the economy. You know, I think we've been surprised that the first half of the year, China didn't come back quicker once the reopening happened, but it is happening slowly but surely. I think that's gonna be a factor for the second half of the year. Russia supply, there was fear, the market went vertical for a while, that we'd lose at least 3 MMbpd of Russian exports. Almost every barrel has been repositioned from going to Europe to going to China, India, Turkey. While the Russians, because of the price caps, may be getting less money for it, they're still getting paid for all their volume. Then, you know, you had the SPR. It was absolutely right that the government intervened with the potential supply disruption and put approximately 250 million bbl on the market from the government stocks. That, again, weighed on the market. You know, warm winter in the first quarter, a lot of the gas that might have been disrupted and replaced by oil for fuel substitution didn't happen. You had the regional banking crisis, which is another risk-off factor. When you add these all up, these were all weights on the market. When you look to the second half of the year, we do get more constructive. We think inventories are gonna draw globally in the range of 1 MMbpd, led by China coming back, which we're starting to see. Obviously, you're gonna have the SPR, even at a very tempered rate, starting to buy oil instead of selling oil. You saw the Saudis take a preemptive move to cut another 1 MMbpd off. We'll see. That was voluntary to sort of keep OPEC and OPEC+ together, but that also will be constructive for the market. I think the Saudis are doing it for two reasons. One, to fight this risk-off mentality that investors have and, you know, sort of scare the shorts out of using oil as a hedge. But also, the Saudis, like all of us, are fearful of the impact on demand of a potential recession, and that we haven't seen yet. But at the end of the day, you know, we do see stocks growing about a MMbpd going into the second half of the year. You gotta remember, there's a direct correlation between inventories and oil price. If stocks draw, after having last summer for the last four quarters, stocks building, we think that's gonna be constructive for the oil price. It is a physical commodity. I think the bigger picture here about the fundamentals, Russia-Ukraine really put the spotlight on energy security, and I think people have come to the realization, and you and I have talked about it, that oil and gas are gonna be needed for decades, not 10 years, as President Biden said in his State of the Union Address. Oil and gas are key to an affordable, just and secure energy transition. Oil and gas are a strategic industry for our country in terms of jobs, in terms of lower electricity costs, and in terms of national security. We are energy independent. We are competitively advantaged because of that. China imports 75% of their oil. Europe imports 75% of the oil. I think you just gotta realize that oil and gas are gonna be needed for decades, and that means we need to be investing more, not less, in oil and gas. I think the number from the IEA and all their scenarios is about $500 billion a year is needed to be invested each year for the next 10 years to keep oil and gas supply up with demand, and that's the bigger picture. That number was between $300 billion-$400 billion the last 5 years. We need to invest more in renewables, but we also need to invest more in oil and gas, and I think that's really energy reality. Great. Thanks for your thoughts on the macro. John, let's shift gears. For the generalists in the audience, I was wondering if you could give the audience a little bit of a sense of where you're at in terms of your Guyana development project. Yeah. Everybody knows, Guyana is the largest oil development and discovery in the last 10 years in the oil industry. We're very fortunate to be there. It's over 6 million acres, equivalent of 1,250 Gulf of Mexico blocks. We have 30%. ExxonMobil's the operator with 45%. They're doing a great job. We have CNOOC, the China National Offshore Oil Corporation, with 25%. You know, since 2015, we've had 32 discoveries. We've discovered more than 11 billion bbl of oil equivalent. About 80% is oil. We've already sanctioned five low-cost developments. These are world-class developments. The first two are on production, producing in excess on a gross basis, 375,000 bbl a day. Actually, more recently, closer to 400,000 bbl a day. The performance of the reservoir and the two FPSOs, floating production storage offloading facilities, is excellent. We have three more developments in queue. Payara, that should come on in the fourth quarter. That's 220,000 bbl a day. You know, in 2025 and 2026, Yellowtail and Uaru should come on. I think it's important for everybody to know these have world-class economics, world-class financial returns, where the break-even is a Brent price between $25 and $35 to make a 10% return. You know, really the best investment returns in the industry, there's more to come. We have a line of sight to six of these developments to produce over 1.2 MMbpd in 2027, and the potential to have 10 FPSOs to develop that discovered resource that I talked about. We still have multi-billion barrels of exploration potential remaining. I think it's also important to know that the government there is very supportive of investment, very supportive of business. Recently, a group of investors were down in country, and were told by the president and vice president that, you know, Guyana is gonna honor the contract, is very pleased with the performance of our joint venture, and wants us to accelerate the development of the oil so they can grow their economy, they can diversify their economy, and they basically can have shared economic prosperity for the people of Guyana. It's a transformational investment, and it's got duration. Great. John, what does this do for Hess's long-term cash flow growth when you think about, you know, multiple phases of this, of this project, up to six that are in the queue through 2027? Yeah. You know, just so everybody can be reminded, our strategy is to grow the resource. We're in a resource business. That's the only way a company can grow cash flows over time. shale is hitting a wall now. We're very happy to have the Bakken, but that resource is actually liquidating. Our resource is growing. That's why I used the word duration before. We wanna have a low cost of supply. Just talked about the break evens and, you know, in the Bakken, we have a 15-year inventory of very high return opportunities as well, and about 80% of our budget, by the way, goes to both Guyana and the Bakken. Ultimately, because, you know, we have a resource that's growing our production 10% a year, and that's an output, not an input, and on top of that, we have a cost of supply where our cash costs go down 25% in the next 5 years to about $10 a barrel oil equivalent. You know, we have an expanding margin. A consequence of growing volume and decreasing cost per barrel enables us to grow our cash flow at $75 Brent flat over the next five years, 25% a year compounded each year for the next five years. No other oil company can say that. We're industry leading in cash flow growth, and that cash flow growth, by the way, is in the top 10%, which you made the point before of the S&P. It's a unique value proposition. We're the only oil company that's a growth company, where we can grow intrinsic value, at the same time we're growing cash returns. John, in a couple years, you'll be in a situation where if oil prices hold at a solid level, you'll be generating a lot of free cash flow. Can you talk about your capital returns framework, what you plan to do with? Yeah - the excess free cash flow? Look, our financial priorities as we go forward, are first to keep investing in those high return projects that I just talked about. That enables us to grow our NAV. The next priority is to keep a strong balance sheet. If COVID taught us anything, and financial crises as they occur, especially in a commodity business, you've need to have a strong balance sheet and a strong cash position. As part of that, every year we buy, puts to put a floor on oil price, where our investors still have the opportunity to participate 100%, on the upside. You know, sometimes people have said, "As your balance sheet gets stronger, you know, you don't need to buy the puts anymore. You can use your balance sheet." Well, you only have one chance to do that. We wanna protect our balance sheet, protect our cash position through the cycle, so we can keep investing in the high return projects I talked about. The result of all this is that we will have, over the next five years, a growing free cash flow wedge, where the cash flow is growing 25% a year at $75 Brent flat. Even in a backward dated market, our free cash flow grows. We put last year in a return of capital framework, where up to 75% of that free cash flow every year will be returned to our shareholders, first as a dividend. Last year, we increased our dividend by $0.50 a share about 50%. This year, we're growing, $0.25 per share this year, sort of following our cash flow growth, and our commitment is to continue to grow our dividend each year in the range of about $0.25 a year. As our free cash flow grows, though, to meet that return of capital framework I talked about returning up to 75% of our free cash flow every year, a growing proportion of that free cash flow will be to, buy our stock. In fact, last year, because we had surplus cash, we actually bought $650 million of our stock. With each ship that comes on, our cash flow grows, at current prices, about $1 billion a year. It's a wise thing, as that future value becomes current value, the more we can buy stock in front of that, we compound and realize a lot of NAV for our shareholders. Great. next topic is maybe to drill down in Guyana. I thought maybe we could start with the two projects that you have online today. Could you talk about how operations are going LIZA Phase 1 and 2, and some of the efforts you've done to debottleneck both of those facilities with ExxonMobil to increase output above the nameplate? ExxonMobil's done a extraordinary job, a superb job of project management, where each one of these vessels has come in ahead of schedule, and under budget, and actually are performing ahead of design capacity. On LIZA, Phase 1, that came on in 2019, the original design capacity, you know, the reservoirs can produce way in excess of what the design capacity is. As they debottleneck the ship, the original design was about 120,000 bbl a day. It's currently producing in the range of 150,000 bbl a day, gross basis, and has the potential to go up, potentially, to 160,000 bbl a day. Wow! I don't wanna get ahead of ExxonMobil on that, but, you know, outstanding performance as basically the top sides of production equipment has enabled the reservoir to perform more at an optimum level. The second LIZA Phase 2, designed for 220,000 bbl a day, been producing in a range of about 235,000-140,000 bbl a day, and again, with debottlenecking, has the potential to go above that. We're very optimistic that this equipment capability will allow us to produce in excess of design capacity for Payara, which is a 220,000 bbl a day ship. Should come on in the fourth quarter of this year. 2025, 250,000 bbl a day coming on in Yellowtail. 2026, Uaru coming on, 250,000 bbl a day. Each of these ships, because the reservoir is so good, we are pretty confident we'll be able to debottleneck those ships to produce in excess of their design capacity as well. Okay. let's talk a little bit about... You know, you outlined, the next, four ships. let's talk about, some of the, exploration activities in the deeper, interval. I know, ExxonMobil announced a discovery at Fangtooth. Could you talk about the delineation activities around Fangtooth? Yeah. We have line of sight now, I said to six ships. The six ships is going to be one called Whiptail. Whiptail should go in for field development approval by the end of this year. Hopefully, get approval to that in the end of the first quarter, beginning of the second quarter next year. That's 250,000 bbl a day. What's next after that? All the developments so far have been at 15,000 ft depth, which is what we call the Upper Campanian. These are sand channels that meander out, obviously, well resourced by a working petroleum system. We have had about 17 wells that would drill down for the 32 discoveries that we've had, and take a look at a deeper horizon at 18,000 ft. It's not much more cost. There's no salt to deal with, so it's very inexpensive to take a look down there. All of those were not optimally located for the best reservoir accumulation just at 18,000 ft. The first prospect that was, is Fangtooth, which is on the western side of a lot of our discoveries. We've had a couple of successful wells there, and this is really to evaluate Fangtooth as our seventh ship that would be solely developed for this 18,000-foot horizon. We are doing a lot of reservoir evaluation. Before you spend the billions of dollars to get a production ship, you want to make sure the reservoir is going to have the right performance. We're doing drill stem test, extended well test, to really figure out the aerial extent, the producibility of the reservoir. We're optimistic about the results so far, but it's a work in progress. We're also in the second half of the year, going to be drilling two more prospects near Fangtooth that could be tied into a potential development for the seventh ship. One is called Basher, one is called Lanternfish. All of this is to appraise the area for this future potential development of the deep horizon. The other thing that I think is important, as we get these well results, and we calibrate the seismic, we're starting to see other deep potential on the block. There's, you know, exploration potential prospectivity that we're going to be able to build upon because of the success we're having at Fangtooth. Okay. Can you talk about what's next in terms of the exploration program beyond Basher and Lanternfish? Yeah. How much more time do you have to explore the Stabroek Block? Yes. Well, in the next 12 to 18 months, we're going to be doing more exploration appraisal. I think it's important to know we have 2.5 to 3 drill ships available to us in theater. We have, for exploration appraisal work, we have another three doing development work for the developments I talked about. It's a pretty active program. Again, Exxon is doing a great job operating those rigs very efficiently and effectively. In terms of the targets looking forward, it's to continue the appraisal work on Fangtooth and this deeper horizon, this Lower Campanian horizon at 18,000 ft. We're also going to be looking at doing some exploration appraisal inboard, Barreleye, and some of these other discoveries we had, to see if we can cobble together potentially another development, inboard, and stay tuned on that. We're also going to be doing some work in the southeastern part of the block that's more gassy, gas and liquids, to really start to calibrate how much gas we have there. That's not something that we're going to develop in the next several years, but we want to size that so we might have a potential development there in the outer years. Which really gets you to your other question, which is, you know, how much time do we have left in the block? The exploration block goes out to 2026. There are very active discussions on with the government about extending that exploration term one more year. I'd say those discussions are well advanced. It's up to the government to decide to give us that extra year. Why? Because during COVID, we really had a force majeure period where Exxon couldn't even get workers in country. We couldn't run the three rigs for exploration, we took that exploration drilling pause. You know, I'm cautiously optimistic, based upon our talks with the government, that we'll get that extra year out to 2027. There's also a relinquishment requirement that we would have October 2023. That would also get another year on top of that's just a requirement of the license. I think the other point is, as we look at the next 12- 24 months, we're going to be starting to lengthen our horizons to look at potential other wildcats that are more northwest of the big accumulation we've had in the southeast. I'd say that's the fourth component of our exploration program going forward. Remember, we drill 10- 12 exploration appraisal wells a year, and that's the plan out to 2026 or 2027. We don't want to leave any oil behind. It's not in the interest of the government, and it's not in the interest of our shareholders or joint venture. I want to ask you about the regulatory environment. You mentioned how there's a group of investors that went down, that met with the government, and it seems like everything's pretty hunky-dory from a regulatory standpoint. A couple of questions that have come up from investors recently. Is the consortium faced a legal challenge on the environmental permit for the LIZA 1 facility? Any update on what's going on there? Yeah. No, first of all, this is something the government disagreed with, we disagreed with. You had a judge that got a complaint from an environmental activist, I mean, it happens in our country as well, and said, you know, basically, the joint venture had to have unlimited liability in terms of the developments, otherwise, production had to cease. I can tell you, the President was very emphatic that a stay would be put in place. It would have no impact on production. The stay was put in place. There is no impact on production, I think this is just a case of the judge not understanding what the petroleum legislation was, or the petroleum requirements of our production programs were, and I think that matter's been put to bed. There was a lot of noise about it, but it was basically noise. Okay, the last question I get from time to time is that I believe the consortium has to relinquish some of the acreage as part of just the agreement. Yes. Can you talk about that? Does that potentially impact your future exploration? No, we pretty much already have identified the 20% acreage that we would relinquish, and it's nothing material and nothing prospective, so we're ready for that relinquishment whenever that time is. Okay. John, you have other babies outside of Guyana, I'd be remiss if I didn't ask you about what's going on in the Bakken. Yeah. This year's guide is 165,000- 170,000 MBOE per day. I think the program was 110 wells during the year. How are things going in the field? You've outlined a longer-term objective of 200 MBOE per day. You know, thoughts on that ramp to getting to that? Yeah. The Bakken is a very important asset to us. We put about $1 billion in, and as you get out to produce 200,000 bbl a day at current prices, it will generate about $1 billion a year of free cash flow. We're running four rigs. With the higher oil prices, we're not going to five. Four is the right number to optimize returns and also to optimize our infrastructure there. At the end of the let me tell you, we have a 15-year inventory of drilling locations, so when you talk about shale or you talk about anybody in the resource base business, you wanna have resource duration and drilling inventory duration. We have that in 15 years. Performance this year has been very good. We had a more accommodative winter. It wasn't as severe. You know, I talked earlier about the weather being warm. That's bad for oil demand, but it's good for Bakken performance. You know, we're on track basically to get to that 200,000 bbl a day on average in 2025, and then we should plateau from there and be able to keep the Bakken flat at about 200,000 bbl a day oil equivalent out for the next 10 years after that. You know, the Bakken program's going well. I'd say it's hitting on all cylinders now. Production is at or ahead of what our guidance is. you know, as long as weather accommodates, you know, I feel pretty confident about the numbers this year, and we're on track to get to that 200,000 bbl a day of oil equivalent on average for 2025. Okay. let's shift gears to the Gulf of Mexico. You do have a couple of wells that you may be drilling this year, Pickerel, Black Pearl. Just give us a quick update on the Gulf of Mexico and some of your explorations. Yeah, for, you know, several years, you know, partly because of low oil prices, partly because of COVID, we stopped drilling activities in the Gulf. We're currently running between 30,000 bbl equivalent per day to 35,000 bbl equivalent today. It's a major cash generator. We put $100 million-$150 million back in the business each year, now that our drilling program is up. You know, it's an area that's not only a cash engine for Hess, but also offers some upside. When a lot of people were going to the Permian, we saw better opportunities actually to buy leases in the Gulf. We bought about 60 leases over a five-year period for $120 million, and we're prosecuting them now, exploiting them now. Some of them are tiebacks. I'll talk about that. Some of them are Miocene prospects, one of which we think will drill, start drilling by the end of the year, which, you know, could be a hub class opportunity, and also some are Cretaceous opportunities. Now that we have that drilling opportunity, we're starting to drill those wells, the first of which is Pickerel, which is part of the Tubular Bells area. That is currently drilling. That could be a tieback next year. It would be a very lucrative investment, very competitive returns because it is a tieback going back to Tubular Bells. The downstream infrastructure is there. You know, we'll be able to give an update on that, once we hopefully successfully complete the well. Then after that, we have Black Pearl, which would be a tieback to our Stampede facility, and then after that, we have an exploration opportunity in the Miocene that we'd be drilling by the end of the year in Green Canyon. We're back in the exploration business. We think that offers upside, and it offers high returns. Okay. We have time for questions if you have any. Okay, let me just ask one more. I view this kind of as a lottery ticket, but I think you are participating in a well offshore Canada? Yes. Can you talk a little bit about that? Yeah. That's in Newfoundland. It's a large prospect. It's a risky prospect. BP's the operator, 50%, Hess has 25%, and Chevron has 25%. Hopefully, we'll be able to operations are still underway. Hopefully, we'll be able to give an update on our quarterly call on that one. Okay, great. John, I think we're out of time. Really appreciate you participating in this year's conference. Thank you very much. Thank you much. Thanks for your interest and support of the company, and thank you everybody for being here today. Appreciate it. Well done, thank you so much.