U.S. oil company Hess Corporation has cut its capital and exploratory program in response to the sharp drop in oil prices, affecting both onshore and offshore drilling programs.
The company said Tuesday it would reduce its capex to $2.2B from previously proposed $3 billion.
The reductions to the company’s 2020 capital budget will be primarily achieved by shifting from a six rig program to one rig in the Bakken, U.S., which is expected to be completed by the end of May.
"Most discretionary exploration and offshore drilling activities, excluding Guyana, will also be deferred," Hess said.
Hess is a partner in Exxon-operated Stabroek Block offshore Guyana, where the U.S. oil major has recently announced 16th oil discovery, and which started producing oil in December 2019.
The company previously said it would spend $450 million to drill exploration and appraisal wells on the Stabroek and Kaieteur Blocks offshore Guyana and two exploration wells in the Gulf of Mexico, and for seismic acquisition and processing in Guyana, Suriname and the deepwater Gulf of Mexico, and for license acquisitions. It is unclear which of these programs will be affected by the cuts announced Tuesday.
Apart from the $800M reduction, Hess also announced a $1.0 billion, three-year term loan agreement. with JP Morgan Chase Bank, N.A.
"These actions further strengthen the company’s cash position and financial liquidity in response to the sharp decline in oil prices," Hess said.
“With 80% of our oil production hedged in 2020, our significantly reduced capital and exploratory budget and our new three year loan agreement, our company is well-positioned for this low price environment,” CEO John Hess said. “Our focus is on preserving cash and protecting our world class investment opportunity in Guyana.”
As for the $1 billion loan, Hess said the term loan contains provisions that require the company to reduce JPMorgan’s initial funded amount, which the company intends to do by syndicating the loan to other banks.
In 2020, approximately 80% of the company’s oil production is hedged by put options, with 130,000 barrels a day at $55 per barrel West Texas Intermediate put options and 20,000 barrels a day at $60 per barrel Brent put options.
In addition, Hess said, the company entered 2020 with more than $1.5 billion in cash and cash equivalents on its balance sheet and has a $3.5 billion undrawn revolving credit facility and no material debt maturities until 2027.
Net production for 2020 is now forecast to average between 325,000 and 330,000 barrels of oil equivalent per day, excluding Libya, versus previous guidance of between 330,000 and 335,000 barrels of oil equivalent per day.
The company’s Bakken net production is forecast to average approximately 175,000 barrels of oil equivalent per day in 2020, versus previous guidance of approximately 180,000 barrels of oil equivalent per day.