Hess Cuts 2013 Spending

US energy company Hess Corporation’s ( HES - Analyst Report ) 2013 capital and exploratory budget of $6.8 billion is 18% lower than the 2012 capital and exploratory budget of $8.3 billion.

Hess intends to utilize most of the funds for exploration and production. About $2.7 billion or 40% of the total has been allocated for the exploitation of the Bakken Shale in North Dakota, where the company intends to employ 14 rigs as well as carry out appraisal work in the Utica Shale. The spending in Utica has been hiked by 33% to reach $400 million.

For 2013, the company expects the development cost at Bakken to be lower as more cost-efficient pad-based drilling methods have lowered well costs. The company has thus assigned $2.2 billion for Bakken, down 29% from 2012.

Another $1.85 billion or 28% of the budgeted amount has been set aside for production expenditures. This includes drilling production wells as well as water injection wells on Block G in Equatorial Guinea, Valhall Field in Norway, the South Arne Field in Denmark and at the Shenzi Field. A production well at the Llano Field is also to be drilled in the deepwater Gulf of Mexico.

Some $1.6 billion is expected to be spend for conventional development, which comprises development drilling at the Tubular Bells Field in the deepwater Gulf of Mexico, setting up of early production system and front-end engineering and design for full field development of North Malay Basin and continued development of Block A-18 in the Joint Development Area in the Gulf of Thailand.

Hess has earmarked $550 million for exploration that targets further work on the Deepwater Tano/Cape Three Points block off Ghana and includes shooting seismic and drilling exploration wells on the Dinarta and Shakrok blocks in Iraqi Kurdistan.

Hess, which recently entered into an agreement with Royal Dutch Shell plc ( RDS.A - Analyst Report ) to sell its interest in the Beryl area fields and the Scottish Area Gas Evacuation System for about $525 million, holds a Zacks Rank #3, which is equivalent to a Hold rating for a period of one to three months. Longer term, we maintain our Neutral recommendation.