UPDATE: Hess: Sees 'Minimal' Impact From Gulf Drill Moratorium

28th Jul 2010 16:16

(Updates with additional comments about the drilling moratorium from ongoing conference call; adds stock quote in last paragraph) NEW YORK (Dow Jones)--Hess Corp. (HES) Chief Executive John Hess said Wednesday that the company expects to see "relatively minimal" impact from the drilling moratorium in the Gulf of Mexico in the wake of the massive oil spill. The integrated oil company has a stake in a drilling well in these waters and recently took out its only operating rig in the Gulf. It could be returned once the moratorium is lifted, which is expected to happen in November. But executives said the U.S. regulatory environment could affect the timing. "The drilling of a production well at the Shenzi field in which Hess has a 28% interest was suspended as a result of the moratorium," Hess said during a conference call. "But this delay is expected to have only a very modest impact on our 2010 production." The company's only operating rig in the Gulf, the Stena Forth, left in June "as part of a pre-existing farmout agreement," Hess said during a conference call. It was at the Pony No. 3 location on Green Canyon 469. "We anticipate completing the Pony No. 3 well as soon as practicable following the lifting of the moratorium." The Stena Forth is being farmed out to Cairn Energy PLC (CNE.LN, CRNCY) for a drilling project in Greenland but will be returned to Hess in the fourth quarter. "The plan is to move her to the Northern Red Sea to drill a couple wells there" and then possibly return to the Gulf of Mexico by the middle of 2011 or go to Ghana, said Hess Chief Financial Officer John Reilly. Meanwhile, CEO Hess said the New York company would recommend that the drilling liability for individual companies be capped at $1 billion. It also would advise establishing an insurance-type of cooperative of offshore investors and operators to participate in to deal with catastrophic spills. Increasing the liability cap to more than $1 billion "would be destructive to the competition in the Gulf and wouldn't be in the United States's interest," Hess said. CEO Hess also said the company will pay $496 million in cash to increase its stakes in Norwegian production operations by 7.85% at the Valhall field and by 12.5% at the Hod field, which would together add 45 million barrels of day equivalent of proven reserves. Along with a previously announced asset swap with Royal Dutch Shell (RDSA), Hess will have a 64.05% stake in Valhall and 62.5% interest in Hod. These deals are expected to close by the end of the third quarter. Looking at the fourth quarter, Hess plans to pursue exploration wells at a block in Brazil, in which the company has a 40% stake, and in Ghana, where it has a 100% stake. Hess also will begin drilling at a wholly owned reserve in Indonesia in the first quarter of 2011. Shares of Hess traded recently at $52.70, down 1.1%. -By Naureen S. Malik, Dow Jones Newswires; 212-416-4210; [email protected] Order free Annual Report for Hess Corporation Visit http://djnweurope.ar.wilink.com/?ticker=US42809H1077 or call +44 (0)208 391 6028 (END) Dow Jones Newswires July 28, 2010 11:16 ET (15:16 GMT)