Executive Summary / Key Takeaways

• Hess Corporation's investment thesis is fundamentally driven by its 30% stake in the world-class Stabroek Block offshore Guyana, underpinning a multi-decade growth runway with low-cost, high-margin production.
• The company is executing a multi-phased development plan in Guyana, with three FPSOs currently online and plans for eight by 2030, targeting aggregate gross production capacity of 1.7 million bopd, significantly boosting future cash flow.
• Complementing Guyana, the Bakken asset provides a robust, high-return inventory supporting steady production growth to a ~200,000 boepd plateau by 2025, expected to generate substantial free cash flow.
• Recent financial performance in Q1 2025 reflects lower commodity prices and sales volumes compared to the prior year, impacting earnings, but operational execution remains strong across the portfolio.
• The pending merger with Chevron represents a significant near-term catalyst, though its completion hinges on the outcome of the Stabroek joint venture arbitration regarding a right of first refusal, with a decision expected in Q3 2025.

Powering Forward: Hess's Strategic Core and Differentiated Approach

Hess Corporation stands as a prominent global independent energy company, primarily focused on Exploration and Production (EP) activities, complemented by a strategic Midstream segment. The company's journey has increasingly centered on cultivating a portfolio of high-return, low-cost assets, a strategy profoundly shaped by its involvement in the prolific Stabroek Block offshore Guyana. Since discoveries began in 2015, Guyana has rapidly become the cornerstone of Hess's growth narrative, transforming its future trajectory.

The company's overarching strategy is clear: deliver high-return resource growth, achieve a low cost of supply, and generate industry-leading cash flow growth, all while maintaining leadership in environmental, social, and governance (ESG) performance. This focused approach has built a differentiated and balanced portfolio anchored by Guyana, the Bakken shale in North Dakota, the Deepwater Gulf of Mexico, and assets in Southeast Asia.

In the competitive global energy landscape, Hess positions itself as a company capable of generating superior cash flow growth compared to many peers, including major oil companies and top quartile S&P 500 constituents. While lacking the sheer scale and integrated downstream/chemicals operations of supermajors like Exxon Mobil (XOM) or Chevron (CVX), Hess competes effectively through targeted investments in high-quality reservoirs and operational efficiency. Compared to large independent E&P companies like Occidental Petroleum (OXY), Hess's competitive edge is increasingly tied to the unique scale and low-cost nature of the Guyana resource base and its integrated Midstream operations in the Bakken.

Hess leverages technological advancements and operational strategies to enhance its competitive standing. In the Deepwater Gulf of Mexico, the application of ocean bottom nodes (OBN) and advanced algorithms like Full Waveform Inversion (FWI) is crucial for improving subsalt imaging and identifying new exploration opportunities. This technology aims to enhance the speed and accuracy of reserve identification. In the Bakken, the company employs lean manufacturing principles, strategic contracting, and technology to drive efficiency and mitigate inflationary pressures, targeting lower unit costs. In Guyana, the operator, ExxonMobil, utilizes a "Design One, Build Many" strategy for FPSOs, which helps mitigate inflation and improves execution efficiency. While specific, quantifiable performance metrics directly attributable to Hess's proprietary technology over competitors are not extensively detailed beyond general efficiency gains and cost mitigation efforts, the strategic intent is clear: these technological and operational approaches are designed to lower costs, improve recovery, and accelerate project timelines, thereby enhancing profitability and competitive positioning. For instance, the focus on tiebacks in the GoM (like Pickerel) leverages existing infrastructure for lower development costs, estimated at $10 per barrel or lower.

Performance Reflecting Strategy and Market Dynamics

Hess's recent financial performance provides insight into the interplay of its strategic execution and prevailing market conditions. In the first quarter of 2025, net income attributable to Hess Corporation was $430 million, a notable decrease from $972 million in the first quarter of 2024. Adjusted net income, excluding items affecting comparability, stood at $559 million in Q1 2025. This decline in adjusted earnings was primarily attributed to lower realized oil selling prices and lower sales volumes compared to the prior-year quarter.

The Exploration and Production (EP) segment, the primary driver of the business, saw its net income attributable to Hess Corporation fall to $434 million in Q1 2025 from $997 million in Q1 2024. Adjusted EP net income was $563 million. The segment's performance was impacted by the decrease in average realized crude oil selling price, which fell to $71.22 per barrel in Q1 2025 from $80.06 per barrel in Q1 2024. While NGL and natural gas prices saw slight increases, the impact of lower oil prices and sales volumes (net worldwide sales volumes decreased to 41.5 million boe in Q1 2025 from 43.8 million boe in Q1 2024) significantly outweighed these gains. Cash operating costs increased on both an absolute and per-unit basis, primarily due to increased maintenance activity in North Dakota and the start-up of the Pickerel well in the Gulf of Mexico. Depreciation, depletion, and amortization (DDA) also rose, reflecting new assets coming online, including Pickerel and facilities in Malaysia and the JDA.

The Midstream segment, providing stable fee-based revenue, saw a slight increase in net income attributable to Hess Corporation, rising to $70 million in Q1 2025 from $67 million in Q1 2024. This improvement was driven by higher throughput volumes, although operating costs increased correspondingly. Interest expense in the Midstream segment increased due to new debt issuances, while the provision for income taxes rose due to changes in ownership structure following equity transactions.

Corporate, Interest and Other expenses, net of income taxes, contributed $74 million in Q1 2025 compared to $92 million in Q1 2024. This decrease in net expense was primarily due to higher capitalized interest associated with the ongoing Guyana development projects (Yellowtail, Uaru, and Whiptail), partially offset by lower interest income.

Financially, Hess maintains a solid liquidity position. At March 31, 2025, cash and cash equivalents (excluding Midstream) totaled $1.3 billion, with total liquidity, including committed credit facilities, reaching approximately $4.6 billion. Net cash provided by operating activities was strong at $1401 million in Q1 2025, up from $885 million in Q1 2024. However, operating cash flow before changes in operating assets and liabilities decreased to $1315 million (including a $129 million charge for accrued legal claims) from $1729 million, reflecting the impact of lower commodity prices and sales volumes. Capital expenditures increased to $1012 million in Q1 2025, primarily driven by higher development activities in Guyana. The company's debt levels and financial ratios indicate a manageable position, with compliance maintained under debt covenants. Compared to peers, Hess's TTM net profit margin of 17.86% is competitive, though it trails larger, more integrated players like XOM (10% in 2024) and CVX (9% in 2024), while being potentially stronger than some pure-play E&P companies like OXY (11% in 2024), reflecting the high-margin nature of its core assets despite recent price impacts. Its Debt/Equity ratio of 0.82 is higher than XOM (0.25) and CVX (0.16), indicating a more leveraged balance sheet relative to equity compared to the supermajors.

Strategic Momentum and Future Outlook

Hess's strategic momentum is most evident in the continued progress of its world-class Guyana developments. The Stabroek Block, where Hess holds a 30% interest alongside operator Exxon Mobil (45%) and CNOOC (CEO) (25%), boasts a gross discovered recoverable resource estimate exceeding 11 billion barrels of oil equivalent, with significant exploration potential remaining. The multi-phased development is on track to unlock this potential.

Currently, three FPSOs are producing: Liza Destiny (Liza Phase 1, debottlenecked to 140,000 bopd capacity), Liza Unity (Liza Phase 2, 220,000 bopd capacity, with debottlenecking efforts underway), and Prosperity (Payara, 220,000 bopd capacity, which arrived offshore Guyana in April 2023 and targeted early Q4 2023 startup, contributing approximately 15,000 net bopd in Q4 2023). The fourth development, Yellowtail (250,000 bopd capacity), is approximately 60% complete and on track for start-up in Q3 2025, with the ONE GUYANA FPSO arriving offshore Guyana in April 2025. The fifth development, Uaru (250,000 bopd capacity), sanctioned in April 2023, is expected online in 2026. The sixth development, Whiptail (250,000 bopd capacity), sanctioned in April 2024, is targeted for 2027. Looking further ahead, a field development plan for the seventh development, Hammerhead (150,000 bopd capacity), was submitted in March 2025, with first production anticipated in 2029, pending approvals. The discovered resources are expected to support up to ten FPSOs in total.

This phased development underpins Hess's production growth trajectory. The company forecasts total net production in the range of 480,000 to 490,000 boepd in Q2 2025. Guyana net production is expected to be approximately 180,000 bopd in Q2 2025, including tax barrels. In the Bakken, Hess plans to continue operating a four-rig program in 2025, targeting net production in the range of 210,000 to 215,000 boepd in Q2 2025 and aiming for a plateau of approximately 200,000 boepd by 2025, which is expected to be maintained for nearly a decade. The Gulf of Mexico and Southeast Asia assets are expected to continue contributing steady production.

The company's financial outlook is closely tied to this production growth and commodity prices. EP capital and exploratory expenditures are forecast at approximately $4.5 billion in 2025, primarily directed towards the high-return Guyana and Bakken assets. Management expects cash flow from operating activities and existing cash to be sufficient to fund the 2025 capital program and capital return initiatives, based on current forward strip crude oil prices.

The shareholder return framework prioritizes increasing the regular dividend, with share repurchases expected to grow as free cash flow increases, particularly as new FPSOs come online in Guyana.

Risks and Challenges on the Horizon

While the growth potential is significant, Hess faces material risks and challenges. The most prominent near-term factor is the pending merger with Chevron. While approved by Hess stockholders, the merger's completion is subject to conditions beyond Hess's control, most notably the outcome of the arbitration initiated by affiliates of Exxon Mobil and CNOOC concerning the applicability of a right of first refusal (ROFR) in the Stabroek joint operating agreement to the merger. A merits hearing for this arbitration is scheduled for May 2025, with a decision expected in the third quarter of 2025. While Hess and Chevron believe the ROFR does not apply and intend to vigorously defend this position, the outcome is uncertain and could delay or prevent the merger, impacting Hess's stock price and future strategic direction.

Beyond the merger, Hess is exposed to the inherent volatility of crude oil, NGL, and natural gas prices, which directly impacts its revenues and profitability, as seen in the Q1 2025 results. Operational risks, including those associated with complex offshore developments, drilling success, and weather events (like the winter weather impacts in the Bakken in late 2022), can affect production levels and costs.

The company is also subject to various legal and environmental contingencies, including ongoing lawsuits related to past operations (MTBE, environmental sites) and claims regarding post-production deductions in North Dakota, for which a $129 million reserve has been established for anticipated settlements. While management believes the outcome of current proceedings is not expected to have a material adverse effect, potential judgments or settlements could impact financial results and cash flows. Geopolitical risks, particularly in regions where Hess operates or explores, and the broader implications of the energy transition and regulatory initiatives regarding emissions also pose potential challenges.

Conclusion

Hess Corporation presents a compelling investment narrative centered on its transformative position in the Guyana basin. The company's strategy to focus on high-return, low-cost assets, particularly the multi-phased development of the Stabroek Block, underpins a clear path for significant production and cash flow growth over the next decade. Complementary assets in the Bakken, Gulf of Mexico, and Southeast Asia provide additional production and cash generation.

While recent financial results reflect the impact of lower commodity prices, the underlying operational execution and progress on major projects remain strong. The pending merger with Chevron offers a potential strategic combination, but the outcome of the critical Stabroek ROFR arbitration introduces significant near-term uncertainty. Investors in Hess are betting on the successful realization of the immense value embedded in the Guyana asset base, the continued operational efficiency across its portfolio, and the resolution of the merger process. The arbitration decision in Q3 2025 will be a pivotal moment, determining whether Hess continues its journey as a standalone entity or becomes part of a larger integrated energy major, but the long-term growth story driven by Guyana's low-cost production remains central to the investment thesis.