HES
#Thanks, Greg
In my remarks today I will compare results from the first quarter of 2017 to the fourth quarter of 2016. In the first quarter of 2017, we reported a net loss of $324 million compared with an adjusted net loss of $305 million in the previous quarter
Turning to E&P, E&P incurred a net loss of $233 million in the first quarter of 2017, compared to an adjusted net loss of $256 million in the fourth quarter of 2016. The changes in the after-tax components of E&P results between the first quarter of 2017 and adjusted results for the fourth quarter of 2016 were as follows
Higher realized selling prices improved results by $34 million
Lower sales volumes reduced results by $14 million
Lower cash operating costs improved results by $44 million
Lower exploration expenses improved results by $19 million
Lower Midstream tariffs improved results by $15 million
Changes in effective tax rate reduced results by $89 million
All other items net improved results by $14 million for an overall improvement in first quarter results of $23 million
The E&P effective income tax rate was a benefit of 13% for the first quarter of 2017 compared with the benefit of 43% in the fourth quarter, excluding items affecting comparability and Libyan operations
The lower effective tax rate in the first quarter is due to not recognizing a deferred tax benefit on operating losses in the U.<UNK>
, Denmark and Malaysia as previously discussed when we provided 2017 guidance
For the first quarter, our E&P sales volumes were under-lifted compared with production by approximately 1.4 million barrels, which did not have a material impact on our results
Turning to Midstream
In April 2017, the Corporation and its partners successfully completed the IPO of <UNK> Midstream Partners and we received our net share of proceeds totaling $175 million
The IPO transaction had no impact on the Midstream segment first quarter results, but has been incorporated into our updated guidance for the remainder of the year
In addition, as we previously announced, commencing January 1, 2017, our Midstream segment now includes the Corporation's interest in a Permian Basin gas plant in West Texas and related CO2 assets, and our wholly-owned water handling assets in North Dakota
We have recast all prior period financial information to include these assets and the results as part of the Midstream segment
In our first quarter supplemental earnings information presentation located on the <UNK> website, we have provided quarterly consolidating income statements for 2016, recast to reflect the transfer of these assets from E&P to Midstream
In the first quarter of 2017, the Midstream segment had net income of $18 million compared to adjusted net income of $23 million in the fourth quarter of 2016, which included the recognition of a full year of deferred minimum volume deficiency payments earned at year-end 2016. EBITDA for the Midstream before the non-controlling interest amounted to $94 million in the first quarter of 2017 compared to $102 million in the fourth quarter of 2016. Turning to corporate, after-tax corporate and interest expenses were $109 million in the first quarter of 2017 compared to adjusted after-tax corporate and interest expenses of $72 million in the fourth quarter of 2016. The first quarter results reflect not recognizing a deferred tax benefit on operating losses
Turning to first quarter cash flow
Net cash provided by operating activities before changes in working capital was $443 million
The net decrease in cash resulting from changes in working capital was $94 million
Additions to property, plant and equipment were $390 million
Proceeds from asset sales were $100 million
Net repayments of debt were $21 million
Common and preferred stock dividends paid were $92 million
All other items resulted in an increase in cash of $8 million, resulting in a net decrease in cash and cash equivalents in the first of $46 million
The sale proceeds received in the quarter resulted from the sale of approximately 8,500 non-core net acres in the West Goliath area of the Bakken, which at the time was producing approximately 240 barrels of oil equivalent per day
Turning to cash and liquidity
Excluding the Midstream, we had cash and cash equivalents of $2.7 billion, total liquidity of $7.2 billion, including available committed credit facilities, and debt of $6.54 billion at March 31, 2017. Now turning to guidance
First for E&P
In the first quarter, our E&P cash costs were $14.15 per barrel, which beat guidance on strong production performance and cost management
For the second quarter, E&P cash costs are expected to be in the range of $15.50 to $16.50 per barrel, reflecting the lower second quarter production guidance and higher planned offshore facility maintenance costs, with full year guidance of $15 to $16 per barrel remaining unchanged
DD&A per barrel in the second quarter is forecast to be $25 to $26 with full-year guidance remaining unchanged at $24 to $25 per barrel
The resulting total E&P unit operating costs are projected to be $40.50 to $42.50 per barrel in the second quarter, and $39 to $41 per barrel for the full year
Exploration expenses excluding dry holes are expected to be in the range of $65 million to $75 million in the second quarter, with full-year guidance remaining unchanged at $250 million to $270 million
The Midstream tariff is projected to be in the range of $125 million to $135 million in the second quarter, and $520 million to $550 million for the full year, which is unchanged from prior guidance
The E&P effective tax rate, excluding Libya, is expected to be a benefit in the range of 10% to 14% for the second quarter
For the full year 2017, we now expect a benefit in the range of 12% to 16%, down from original guidance of 17% to 21% due to a change in mix of operating results
Turning to Midstream, we anticipate net income attributable to <UNK> from the Midstream segment to be in the range of $15 million to $25 million in the second quarter
Midstream net income attributable to <UNK> for the full year is projected to be $65 million to $85 million, which is down from original guidance of $70 million to $90 million
The change reflects the increased non-controlling interest from the MLP as a result of the IPO
Turning to corporate, for the second quarter of 2017, corporate expenses are estimated to be in the range of $35 million to $40 million, and interest expenses are estimated to be in the range of $75 million to $80 million
Full year guidance remains unchanged at $140 million to $150 million for corporate expenses, and $295 million to $305 million for interest expense
This concludes my remarks
We will be happy to answer any questions
I will now turn the call over to the operator
Question-and-Answer <UNK>ession
Doug, right now, we're forecasting our capital spending in Q2 through Q4 to be higher than what you're seeing in Q1 and there is a couple of reasons
I mean, as you know, we're going to be ramping up rigs in the Bakken from two rigs at the beginning of the year to six at year end
Now, we are also forecasting an increased spend mid-year as we get closer to the North Malay Basin startup in Q3. <UNK>o, as you've seen, cost and capital have been performing well here in the first quarter
<UNK>o we'll continue to monitor what we're doing through the year and as usual, we'll update our guidance in mid-year
But, right now, our guidance remains $2.25 billion
Doug, I'll start with your last question on the capital spend associated with the early production system and our flexibility to finance it
And I guess the first thing I should say is, we are working with the operator, and we are looking to sanction the early production system for Liza around midyear
<UNK>o at that point everybody can see the numbers associated with that early production system
Now, we expect the <UNK>ana development to be phased, so with the cost spread out over a number of years, and for initial phases of development to fund future phases as Greg talked about earlier
Now, as you said, at this point in our discussions with the operator, we are looking at leasing the FP<UNK>O which will reduce our upfront spend for the development
And then again going to our flexibility, these increase in expenditures in <UNK>ana coincide with the startup of North Malay Basin and <UNK>tampede, which become cash generator starting in 2018. And the last thing I would like to remind everybody, we are sitting with $2.7 billion of cash right now in our balance sheet and we have a high leveraged oil prices
<UNK>o, as you know, every $1 increase in oil price adds approximately $70 million of after-tax cash flow to our portfolio
<UNK>o we are poised to benefit from any increase in oil prices
<UNK>o, our flexibility is there to fund the <UNK>ana development
<UNK>o, it was $700 million last year, and I think, hang on, for this year for <UNK>tampede and for North Malay Basin, we had $275 million budgeted for North Malay Basin and $425 million
<UNK>o, yes, you are correct
That $700 million of capital associated with those two assets
<UNK>o, in 2018, the capital will go down for those assets combined, plus cash flow will go up
I'd say it's more – it's basically more of our practice right now
It's early in the year
We've had good cost performance and good production performance, so it was both of those combined on how we came in under our cash cost guidance
In the second quarter, as you said, we will have the higher maintenance cost and a higher cash cost
<UNK>o, as you move to the third quarter, yes, the cost reduction efforts that we have been – that had been ongoing, and we did some further cost reductions at the end of 2016, will come back into the portfolio
The other thing that will happen is that North Malay Basin starts up in the third quarter
And that from our portfolio will be very accretive to cash cost because that is a low cash cost asset
<UNK>o as North Malay Basin continues to ramp up in the third and then into the fourth quarter, that will help our cash costs as well
<UNK>o, what we'll see is by our next earnings call, right, we'll have gotten through the maintenance season, we'll see where North Malay Basin is from the startup standpoint on timing and then we'll update our cash cost guidance at that point
<UNK>o the cost reduction doesn't have anything to do with the under lift
In the fourth quarter when you're looking at those numbers, if you remember, we had some non-recurring special items and one of them was an inventory write-off, so on the international side we had approximately a $30 million pre-tax inventory write-off that's in those operating cost in the fourth quarter
<UNK>o you had that special
Then even with that you can see, even across our U.<UNK>
and international though we have reduced cost throughout the portfolio, and are continuing to focus on that
Obviously, good production performance helps, but we did go through a lot of cost reduction efforts through 2016 and it bore some fruit as you can see in the first quarter
Yes, correct, it's normal cost execution
It's just normal execution, good performance across the portfolio
<UNK>o, just to start with the Permian, so in the first quarter, it's still producing 8,000 barrels a day, so it's not an absolute material amount, but it's producing 8,000 barrels a day, and it's generating cash flow for the company
Now, what we have done is from an MLP standpoint, it's the gas plant and the CO2 where you don't take the E&P type commodity price exposure to put it in the Midstream
<UNK>o we are, as I talked about moving the Permian gas plant and the CO2 asset into our Midstream segment, and that happened on January 1, and we did recast the prior 2016. <UNK>o we have taken steps
Now, we still have that 100%
It has not been dropped into our joint venture with GIP, but it's something that's under discussion
<UNK>, so we'll give guidance obviously as we approach 2018. The reason I don't want to be more specific than that is because, remember, our completion design is in flux, right? <UNK>o what the future completion design will be, will be a large factor in saying what the growth rate at the Bakken will be with six rigs
What we do know right now is it takes about 3.25 rigs to hold the Bakken flat at this roughly 100,000 barrels a day, let's call it
<UNK>o, clearly, any rigs above that is going to be growth, but depending on the completion design, the rate of that growth might vary
<UNK>o we'll give guidance as we kind of complete these completion trials and determine what the completion design is on a go forward basis
