Hess Corporation (NYSE:HES) plans to spend billions in 2012 on production and development expenditures in various unconventional plays in the onshore United States. The company will focus this capital mostly on the Bakken formation in North Dakota. (To know more about oil and gas, read Oil And Gas Industry Primer.)
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

2012 Capital Budget
Hess Corporation has budgeted $6.8 billion for capital spending in 2012, with approximately $2.5 billion, or 37%, allocated towards unconventional plays. The company plans to spend an additional $3.4 billion on production and development activities in the Gulf of Mexico, offshore Africa and Norway. The balance of the 2012 capital will be directed towards exploration activity in a number of prospective areas across its global portfolio.

Unconventional Plays
Hess Corporation's main focus in the unconventional area will continue to be the Bakken play in North Dakota, where the company made several large acquisitions in 2010. These include the purchase of American Oil & Gas Inc., which added 85,000 net acres to its position. The company also picked up an additional 167,000 net acres from TRZ Energy, LLC for $1.05 billion.

Hess Corporation wasted no time after closing on these deals in December 2010, and operated 15 rigs in the Bakken in 2011 and also made substantial investments in infrastructure to process and transport production. The company plans to add an additional rig here in 2012.

This investment yielded results quickly for Hess Corporation and the company reported net production of 39,000 barrels of oil equivalent (BOE) per day from the Bakken as of October 2011. The company estimates that production will average 60,000 BOE per day in 2012 and 120,000 BOE per day by 2015.

Utica Shale
Hess Corporation entered another emerging unconventional play in 2011 through a joint venture with CONSOL Energy (NYSE:CNX) in the Utica Shale in Ohio. The company purchased a 50% share in 200,000 net acres for total consideration of $593 million. Hess Corporation also purchased an additional 85,000 net acres in the Utica Shale from various parties for $750 million.

Hess Corporation will operate part of the acreage in this joint venture and plans to continue appraisal drilling here in 2012.

Eagle Ford Shale
Hess Corporation also has a position in the Eagle Ford Shale and has been conducting appraisal drilling as it works towards delineating its acreage in this play. The company has drilled 22 wells into the Eagle Ford Shale through the third quarter of 2011, and brought eight wells onto production with average initial production rates of approximately 500 BOE per day.

Other Projects
Hess Corporation is involved with other oil and gas projects, including several in the Gulf of Mexico that will require capital in 2012. The company is the operator of the Tubular Bells field, and is partnering with Chevron (NYSE:CVX) here. The companies expect first production from this field in 2014.

Hess Corporation has also allocated capital for additional drilling at the Shenzi Field in the deepwater Gulf of Mexico. This field is operated by BHP Billiton (NYSE:BHP) and has been producing since 2009.

Exploration
Hess Corporation has budgeted $800 million for exploration in 2012, with wells planned in Brunei, Ghana, Indonesia and the Gulf of Mexico. The company plans to drill three exploration wells on the Deepwater Tano Cape Three Points Block in Ghana, with the first well scheduled for the first quarter of 2012.

The Bottom Line
Hess Corporation has spent a considerable amount of capital to set up positions in several onshore unconventional plays in the United States. The company must now focus on execution and leverage these plays to help generate profitable growth going forward. (For additional reading, check out A Guide To Investing In Oil Markets.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Fortinet: A Great Play on Cybersecurity

    Discover how a healthy product mix, large-business deal growth and the boom of the cybersecurity industry are all driving Fortinet profits.
  2. Stock Analysis

    2 Catalysts Driving Intrexon to All-Time Highs

    Examine some of the main reasons for Intrexon stock tripling in price between 2014 and 2015, and consider the company's future prospects.
  3. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  4. Savings

    Do Natural Gas Prices Always Follow Oil Trends?

    Prices for oil and natural gas are highly correlated. But investors should be aware of different factors affecting the prices of these commodities.
  5. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  6. Technical Indicators

    4 Ways to Find a Penny Stock Worth Millions

    Thinking of trading in risky penny stocks? Use this checklist to find bargains, not scams.
  7. Professionals

    Chinese Slowdown Affects Iron Ore Market

    The Chinese economy's ongoing slowdown is having a major impact on iron ore demand.
  8. Investing Basics

    Why do Debt to Equity Ratios Vary From Industry to Industry?

    Obtain a better understanding of the debt/equity ratio, and learn why this fundamental financial metric varies significantly between industries.
  9. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  10. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
RELATED FAQS
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!