The role of Guyana in Hess’ portfolio is already dominant and, in our view, has become increasingly well understood by the broader market, after an extraordinary run of exploration success. However we believe the impact of exploration beyond the obvious line of sight that underpins up to 10 phases of development is being overlooked in terms of the impact it has on duration of production plateaus. In our view, from discussion with Hess management suggests confirmation of longer plateau levels of production is a case of when, not if. But it also undermines both Hess’ and ExxonMobil’s projections of ‘more than’ 1mm bpd of production from ‘up to 6 FPSO’s by 2027. On our estimates the actual production capacity is easily 30% higher at that time, on its way to 2mm bpd of gross production by 20230. At BofA’s base case that assumes $70 Brent, we estimate Hess’ free cashflow above $8bn; but with identified and prospective resource potentially supporting a decade of production at each phase of development, we see risks to our DCF based valuation skewed higher over time – not least through the accretion in value that comes from a capital efficient production sharing contract. Still, the exploration program for Hess is not over: on the contrary recent submissions to the Guyana EPA for approval of a 12 well exploration campaign in the Kaieture Block through 2028 and new 35 well plan in Stabroek means the potential to meet XOM’s suggestion that identified resource could double (from 9bn boe declared at that time) cannot be ruled out. In summary Hess’ continues to stand alone as an E&P whose value improves with time, in contrast to many unconventional E&P peers. With free cashflow approaching an inflection when Phase 3 comes online in 2023, we believe Hess’ will e increasingly recognized as perhaps the only meaningful growth story of the US E&P’s. Our rating is Buy, PO moves up to $175 on the risked assessment of extended plateaus in all phases of Guyana development. As always, our model is available on request. BofA
