赫斯 (HES) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Hess Corporation first quarter 2009 conference call. My name is Louisa, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question and answer session towards the end of this conference. (Operator Instructions)

I would now like to turn the call over to Mr. Jay Wilson, Vice President, Investor Relations. Please proceed, sir.

Thank you, Louisa, and good morning, everyone. Thank you for participating in our first quarter earnings conference call. Our earnings release was issued this morning and appears on our website www.hess.com. Today's conference call contains projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements. With me today are John Hess, Chairman of the Board and Chief Executive Officer; Greg Hill, President, Worldwide Exploration and Production; and John Rielly, Senior Vice President and Chief Financial Officer. I will now turn the call over to John Hess.

Thank you, Jay, and welcome to our first quarter conference call. We'll make a few brief comments, after which John Rielly will review our financial results. For the first quarter of 2009, the corporation posted a loss of $59 million. Price of Brent crude oil declined to $46 per barrel in the first quarter of 2009 from $96 per barrel in the year ago quarter. Significantly lower commodity prices negatively impacted our first quarter financial results.

For the first quarter of 2009, exploration production had a loss of $64 million. Crude oil and natural gas production averaged 390,000 barrels of oil equivalent per day, which was roughly even with the same period last year. Hurricane related shut-ins reduced our first quarter 2009 production by 11,000 barrels of oil equivalent per day. By the end of the first quarter, most of these volumes had been restored and we ended the quarter with a production rate of about 400,000 barrels of oil equivalent per day.

Our full year 2009 production forecast remains 380,000 to 390,000 barrels of oil equivalent per day. Regarding our field developments, JDA Phase 2 in the Gulf of Thailand in which Hess has a 50% working interest, commenced production late last year. Our net natural gas production from the JDA complex averaged 285 million cubic feet per day during the first quarter.

In the deepwater Gulf of Mexico, production commenced in March at the Shenzi field, where Hess has a 28% working interest. The field is currently producing at a net rate of about 10,000 barrels of oil equivalent per day and is expected to reach a net rate of 20,000 barrels of oil equivalent per day by the end of the year.

In Indonesia, oil and LPG production commenced during the first quarter from our Ujung Pangkah field in which Hess has a 75% working interest. The addition of liquids production is expected to increase net production from Pangkah to about 18,000 barrels of oil equivalent per day by year end.

With regard to exploration, the operator of the BM-S-22 license offshore Brazil in which Hess has a 40% interest announced in the first quarter that our first well, Azulao was in oil discovery. The operator filed a Notice of Discovery and submitted a plan of evaluation with the government. On March 10, drilling of a second exploration well on the license commenced. The well, known as Guarani, is currently drilling ahead.

In the Carnarvon Basin offshore Western Australia, the operator of the WA-404-P license in which Hess has a 50% interest, reported a natural gas discovery that encountered a gross column of 360 feet. Drilling on our 100% owned WA-390-P license is scheduled to resume in the middle of the year and we expect to complete 5 to 6 additional wells before the end of 2009.

Turing to Marketing and Refining, net income in the first quarter of 2009 was $102 million, which was above last year's first quarter primarily due to higher earnings from both energy marketing and trading, which more than offset weaker results in retail marketing and refining. Energy marketing benefited from colder weather in the first quarter of 2009, which experienced 10% more degree days than the same period last year.

Fuel oil and electricity sales were both up by more than 20%, while natural gas sales grew by about 4% year-over-year. While retail marketing fuel margins declined as a result of wholesale prices increasing faster than pump prices versus the year-ago quarter, average gasoline volume per station was up 2% and convenience store sales were up by about 7%. Refining results were negatively impacted by the weak global economy. Margins at the HOVENSA refinery were lower, particularly for distillate versus last year's first quarter.

In response to the weak economic environment, we have taken a number of actions to strengthen our balance sheet and maintain financial flexibility. In December, we announced a 2009 capital and exploratory budget of $3.2 billion, which was 33% below 2008 expenditures, and sized to reflect the impact of lower commodity prices and protect our long-term growth options.

During the quarter, we implemented company-wide cost reductions. These initiatives included selective personnel reductions, as well as cost savings from many of our suppliers and service providers. Also in the first quarter, we issued $1 billion of 10-year, and $250 million of 5-year debt securities. Proceeds from the offering were used to reduce short-term borrowings and improve near-term liquidity.

We will continue to take the steps required to preserve our financial strength and protect our growth options. Depending on future market conditions and commodity prices, we may consider accessing the financial markets for equity and/or debt. We are committed to maintaining the strength of our balance sheet so that we are well positioned when the economy recovers to capitalize on our exciting future investment opportunities, which will sustain the long-term growth of our reserves in production. I will now turn the call over to John Rielly.

Thanks, John. Hello, everyone. In my remarks today, I will compare first quarter 2009 results to the fourth quarter of 2008. First quarter 2009 consolidated results amounted to a net loss of $59 million compared with a net loss of $74 million in the fourth quarter.

Starting with Exploration and Production. Exploration and Production operations in the first quarter of 2009 had a loss of $64 million compared with a loss of $125 million in the fourth quarter. The first quarter included a $13 million after-tax charge for the impairment of two short-lived fields located offshore UK, while the fourth quarter of 2008 included charges totaling $26 million after-tax for asset impairments and hurricane costs.

Excluding the items affecting comparability and earnings, the after-tax components of the improvement in results are as follows. Lower selling prices, including the effect of hedging decreased earnings by $149 million. Lower expenses increased earnings by $125 million. Lower foreign currency losses increased earnings by $78 million. All other items net to a decrease in earnings of $6 million for an overall increase in first quarter adjusted earnings of $48 million.

As indicated in the earnings release, first quarter production was 390,000 barrels per day of oil equivalent production. In the first quarter of 2009, our E&P operations were under-lifted compared with production, resulting in decreased after-tax income in the quarter of approximately $10 million. In the first quarter of 2009, the unusually high E&P effective tax rate primarily reflects the impact of Libyan taxes in a lower commodity price environment, together with the mix of income and losses from countries with varying tax rates.

Turning to Marketing and Refining, the results of Marketing and Refining operations amounted to income of $102 million in the first quarter of 2009 compared with $152 million in the fourth quarter. Results of refining operations amounted to a loss of $18 million in the first quarter compared with income of $27 million in the fourth quarter.

The corporation's share of HOVENSA's results, after income taxes, amounted to a loss of $25 million in the first quarter compared with income of $13 million in the fourth quarter, primarily reflecting lower refining margins. In February 2009, the corporation received the final payment on its note receivable from PDVSA. (Inaudible) earnings were $7 million in the first quarter compared with $14 million in the fourth quarter. Marketing earnings amounted to $101 million in the first quarter of 2009 compared with $138 million in the fourth quarter, principally reflecting lower margins. Trading activities generated income of $19 million in the first quarter compared with a loss of $13 million in the fourth quarter.

Turning to corporate, net corporate expenses amounted to $49 million in the first quarter of 2009 compared with $59 million in the fourth quarter. Net corporate expenses in the first quarter of 2009 include an after-tax charge of $16 million for retirement benefits and employee severance costs.

As a result of the cost reduction initiatives, as well as lower commodity prices, Exploration and Production cash operating costs are expected to be reduced by $1 to a range of $14 to $15 per BOE. Total unit costs are now anticipated to be in the range of $27 to $29 per BOE for 2009.

In addition, net corporate expenses are expected to be reduced by $10 million to a range of $155 million to $165 million, excluding special items. In February 2009, the corporation issued 1.25 billion of senior unsecured notes. The majority of the proceeds were used to repay revolving credit debt and outstanding borrowings on other credit facilities. After-tax interest expense was $48 million in the first quarter compared with $42 million in the fourth quarter.

Turning to cash flow, net cash provided by operating activities in the first quarter including an increase of $80 million from changes in working capital was $625 million. Net proceeds from our debt offering were $1.246 billion. Repayment of borrowings amounted to $873 million in the quarter. Capital expenditures in the quarter were $704 million. All other items amounted to a decrease in cash flow of $45 million, resulting in a net increase in cash and cash equivalents in the first quarter of $249 million.

We had $1.157 billion of cash and cash equivalents at March 31, 2009 and $908 million at December 31, 2008. Our available revolving credit capacity was $2.406 billion at March 31, 2009. Total debt was $4.328 billion at March 31, 2009 and $3.955 billion at December 31, 2008. Net debt increased by $124 million to $3.171 billion at March 31, 2009. The corporation's debt to capitalization ratio at March 31, 2009 was 26.3% compared with 24.2% at the end of 2008. This concludes my remarks. We will be happy to answer any questions. I will now turn the call over to the operator.

(Operator Instructions) And your first question comes from the line of Robert Kessler with Simmons & Company. Please proceed.

Good morning, gentlemen. I wanted to see if you could provide some more color on BM-S-22, particularly the second well, where you are in terms of the current drilling depth relative to the target depth. And then if in fact you're targeting a second structure with that well, rather than a further delineation of the first structure.

Yes, thanks for the question. Let me just first offer a few contextual comments about Brazil, just to put it all in perspective. I think -- I always want to remind people the size of the block that we're trying to evaluate down there is half the size of Rhode Island. And we do have one well that -- that we saw hydrocarbons in which is a positive sign because that's better than no hydrocarbons in the well. We're on our second well. We're about 80% of the way to TD and we're currently in salt. So, I think the punch line is its still very, very early days for Brazil.

Great. Thanks for that. And then a quick follow-up, with regard to the plan of evaluation, when do you expect approval to be received from the ANP for that plan of evaluation? And based on that, would you expect to move straight to a third well after the second one completes?

Can't really comment too much on that. You know, the operator is currently working with the Brazilian authorities now to -- on the evaluation plan as we speak.

Okay. Thank you.

Your next question comes from the line of Erik Mielke with Merrill Lynch. Please proceed.

Yes, good morning. John, I was a little bit puzzled by something you mentioned in your prepared remarks. You may have used this phrase before, I certainly hadn't come across it in your quarterly conference calls. You talk about access in equity markets. Given your bond issue at the beginning of this quarter, I thought your capitalization and balance sheet was relatively robust, which means you wouldn't need to access further capital. Should I think of this more in terms of new development opportunities rather than (inaudible) issuance rather than a low oil price environment necessitating further finance?

No, fair question and I think the context is important here, obviously we have wonderful growth investment opportunities ahead of us. We want to make sure in these times of financial turmoil that we keep a strong balance sheet so as the economy recovers, we can capitalize on those meaningful investment opportunities. So, you know, we have several options that we have available to us. Certainly keeping CapEx and OpEx under control and reducing them where appropriate to keep our financial strength is first and foremost in our mind in things that we've done. But we also have other options and one of them is to access financial markets as the future unfolds.

So, it's just a question of letting people know that we are very vigilant about keeping a strong balance sheet. The investment grade rating is something we will protect so that we keep our financial strength so that the economy recovers and there's a little more visibility and hopefully strength in oil price, we'll be in a strong position to pursue investment options that will be ahead of us.

Okay. So, if I'm -- just to make sure I understand this correctly. So, the circumstances that would lead you to consider doing acquisitions would either be driven by the opportunity set, which could be organic or inorganic, or a need to maintain your current credit rating?

Yes, it's a question of keeping the appropriate balance in the short-term to stay financially strong, but in the long-term, to keep our growth trajectory intact.

Very good, thanks. If I may, just a second follow-up question for John Rielly on operating costs, can you give a little bit more color on where you -- what you're seeing in the E&P segment on operating costs and your expectations going forward. I know you've given some guidance today, but more -- trying to get a little bit more color on that.

Sure. I mean again, the guidance I give you is what -- I think, going forward you should use for modeling purposes, but let me just give you even more context on what we're doing in our cost cutting initiatives and then I can talk about the industry in general. So, we've initiated a global cost cutting program, which we, right now, expect to reduce costs by approximately $200 million in 2009, of which about $120 million is expected to be ongoing post-2009.

The savings that we are achieving right now, they include operating efficiencies, which is primarily driven by renegotiation of our supplier contracts and optimization initiatives. But as you saw from the charge we took in the quarter, -- we do have reductions in force and we are deferring projects. I guess the important thing that I want to let you know about our cost saving program is it's not one-time. We have our global organization focused on this, so we have an ongoing effort and we hope to achieve additional cost savings as the year progresses.

As we're talking about the industry in general, again, as we're seeing from our supplier contracts and our renegotiations, costs are coming down. Now, again, it all depends on lead time and where we are in our projects. Some of them we've got contracts in place that will take some time before the lower costs, but you've probably heard the numbers when you hear, let's say pipe and steel down about 20% or so in the industry.

The onshore land rigs are down considerably, again, you have to work through where we have contracts or not. But you're seeing in the industry down about 50% as it relates to those onshore land rigs. The deepwater offshore, the latest gen in the deep shore rigs, they're staying pretty tight right now. The utilization's still high. So, you don't see tremendous cost decreases in that area. But again, we have a lot of pending negotiations going on. As I said, it's an ongoing effort for us, so we look to hopefully increase these cost savings as the year progresses.

That's great. Thanks very much.

Your next question comes from the line of Doug Leggate with Howard Weil. Please proceed.

Thank you, good morning, everybody. A couple of questions, when you look back at your strategy over the years when you were trying to, I guess, rebuild the reserve debts, you had, I guess, a policy of taking very large positions in material assets and I guess that's continued in the last couple of years. But in light of your comments, John Hess, about potentially topping the equity markets, I imagine that that is related to the possibility that some of the things you have are really too large for you to finance from your current cash flow. So, I'm wondering if you could put into context, therefore, is that indeed what you're kind of alluding to? And if so, why would you not consider selling down some of the very large positions that you have currently? And I have a follow-up.

Well, first, Doug, thanks for the question. It's a good question. First, we have to get these wonderful growth options more defined, whether it's, God willing, Brazil, or Australia, Libya, you know, the Pony prospect is obviously something we're continuing to work on to refine the cost estimates on. So, you know, we have these growth options. They need more definition. But in the environment we're in, we want to make sure we keep our balance sheet strong and our liquidity strong. We significantly reduced our capital spend to do that, we have ongoing cost reduction efforts that John Rielly just talked about to do that. We did the debt offering in the first quarter to do that. And then depending on future market additions and commodity prices, we will consider various options.

One may be diluting down on some of these investment options once they're more defined. One may be upgrading our portfolio assets with the normal course of some selected asset sales. And another would be considering to use the financial markets, if and when it made sense to do that. So, all we're signaling here is that we have great growth options. They need further definition. We're in uncertain times. And in all of this, we just think it's prudent to keep all our options on the table so that we keep our balance sheet strong so that when the oil price improves, as well as financial markets improve, we will be in a position to capitalize on the growth opportunities we have.

Great. Thank you for answering that one. I'm going to throw the next one to Greg, it's my final question. The -- as I look at your project portfolio this year, Shenzi came on a little early. Pangkah looks like it came on a little ahead of schedule also and you're now fully back in the Gulf of Mexico. So, I'm looking at your production guidance for the year and wondering where the offset comes, because it looks like 380 to 390 could be a little conservative given the success you've had so far. I'm just wondering if you could put into context of underlying decline rates the impact of maybe slowing down the capital program in the Bakken Shale, for example. Initially put in context where the risk lies to that 380 to 390 guidance that you've given us.

Yes. I think -- of course, we'll update our guidance midyear, but as you recall, in the third quarter, that's a heavy maintenance season in the North Sea, so you have to really dial that into your estimates. And so we feel pretty good about the 380 to 390 range still being an acceptable range. So, it's all related to how much maintenance is being done and then we'll see in the third quarter.

Okay, thanks.

Your next question comes from the line of Arjun Murti with Goldman Sachs. Please proceed.

Thank you. I was wondering if you could provide any comments on your follow-up plans in Ghana. I think last time you'd mentioned you were shooting seismic on the western portion of the block, as well as the follow-up plans for Libya and then I think Pony -- it sounded like you're working on the development costs there. Could you just provide an update on Pony as well? Thank you.

Yes, thanks for the question. Let me start with Ghana first. So, yes, we've recently acquired some seismic over the western block. We're in the process of processing that seismic so we don't have anything definitive to say yet, so it's early to talk about, you know, follow-up wells, when and where. Libya, as we've said before, I think, you know, we're excited about the results of the discovery well. It's a large structure that's a direct extension of the basin onshore. We're going to shoot additional seismic in Libya this year and we're likely to drill an appraisal well in Libya in the latter half of the year.

If I turn to Pony, we're in the midst of FEED right now for an owned development of Pony. We're also in discussions with the Knotty Head partners about a potential unitization of our block and their block, which we think would give economies of scale to both parties. So, that's kind of where we are on all three of those areas.

In terms of the Pony, I think the Knotty Head partners are finally going to get their rig in the second half of this year to drill delineation. Are your discussions with them contingent upon them drilling those wells, or could you have unitization in such things before that?

No, our discussions are ongoing either for unitization now or unitization later. So, we're just in advanced discussions on unitization.

That is terrific. Thank you very much.

Your next question comes from the line of Paul Sankey with Deutsche Bank. Please proceed.

Hi, everyone. Good morning. If I could just continue rooting around a little bit in your priorities here with the reference to volumes? Firstly, on a long-term basis, is the 3% to 5% aspiration something that we should consider as a -- if you like, a bed rock aim that you have as a company, or would that be part of the balance that maybe we wouldn't expect quite so much growth from you in the future? And I'm really specifically thinking about the importance of US growth that you've got in the relatively near term against the profitability, the current profitability of the US business. Thanks.

Okay, so let me provide a little context first. So, I think the portfolio definitely has the capacity to grow in excess of 3% per year. But as John said at current prices, it's prudent to reduce capital expenditures and therefore moderate this growth. So, yes, we're going to see lower production growth numbers in the short-term. Of course as prices increase, we'll then increase our growth rate accordingly, so just to reiterate our current strategy, we're moderating our program to stay financially strong in the short-term, while preserving our long-term options.

Right. I've got you. And just in terms of how that affects the US business, could you just talk a bit more about your activity perhaps? I understand what you're saying about this year, but perhaps for next year as well, given that the expected growth that you previously had in that business.

Yes, so I think the -- I mean if I look at the US business, the one program that we have moderated is the Bakken. So we plan to drill about 33 wells this year. It will be a three-rig continuous program through the year and of course as the costs come down -- continue to come down, we will obviously -- and prices go up, we'll moderate that program accordingly. I think -- as John O'Connor said in the fourth quarter, I think the -- you know, the breather's been good for us on the Bakken. We've been working with our suppliers and contractors to bring the drilling and completion costs down further, so our strategy there is to preserve the acreage that we have, continue to work on the costs, and then be ready to ramp up, you know, as prices improve.

Great, thanks. And you've been quite specific about how to think about this year, but I just wondered for this particular quarter, I was a bit surprised by the weakness in European gas. I wonder, given the weather and what we saw in Europe, what am I missing there?

Yes, so the biggest story in Europe on gas is Atlantic Cromarty. We're approaching end of field life at Atlantic Cromarty, and so, we lost a fair amount of production in those two fields. For those of you that have been on the end of gas fields, trying to predict the end of field life is an art much more than a science and so we're moderating those wells accordingly.

Okay, great. And finally from me, there is a positive effect that we're agreeing here, which is that you do have lower costs. Could you provide yet more granularity on geographically where the best gains are in terms of costs? I mean I'm thinking obviously regionally and then also by theme, if there are any particular areas that you can just highlight to give us a better feel for how things are shifting as we go through this $50 environment? And I'll leave it there. Thanks.

Sure. I'll just give you a little bit more update. I mean, just adding on what Greg was saying before there -- obviously, we've had a significant amount of work in working with our suppliers in the US. So, on the onshore, this could be the Permian Basin, but the Bakken in particular. So, from a geographic standpoint, the US with -- now, land rigs, we did have contracted, so we had those costs in there. But for the drilling and completion work there, there's a lot of work that we do with our suppliers. Chemicals and steel, pipe tubulars, things like that. They are all -- those costs are coming down and we're working those hard, so we're seeing reductions in the US.

As I told you, the offshore rigs, I mean, we've got those contracted, we're not seeing much there. Then it just becomes amount of -- as it relates to our steel and our pipe work throughout the company, so a lot of area with our drilling and completions and that goes across the portfolio because we do have an active program. As you know, Pangkah is ramping up, we're drilling -- EG, we're still doing a lot of drilling out there. So, we're seeing costs coming down across the company as well there. And then obviously you have the, the general, with commodity prices being lower, we are obviously seeing reductions in our fuel costs with vessels, production taxes, and even FX, we're seeing a little bit of a benefit there.

Was there anything to say on staffing levels or labor costs?

Well, yes. So, as related, you saw we had a charge -- the charge we took in the first quarter was related to reductions in force. So, again, that is part of those overall cost savings and the changes in our guidance that I gave to you.

Okay. I appreciate it, John. Thanks.

Sure.

Your next question comes from the line of Mark Gilman with The Benchmark Company. Please proceed.

Good morning, guys. Couple questions. First, one deals with Shenzi. Could you give us some kind of read, Greg, maybe on -- I know it's early, but well performance. And I ask, I guess principally because a 20,000 a day year end rate as John has suggested, was perhaps a bit below what I might have expected.

Yes, let me give you just a little more color on Shenzi. So, as you know, Shenzi came on production a little bit ahead of schedule. We're now at 10,000 barrels a day at Shenzi. The wells are doing a little bit better than expected. And that's with six wells on production. We expect to get four more drilled before year end. I think the 20,000 barrel a day number is still good because there is some uncertainty about water -- aquifer influx on Shenzi, so you can't be certain until you get some production under your belt there.

All right, is there any issue in terms of the impact of having produced Genghis Khan up to this point fairly aggressively?

No, we're seeing no impact as a result of that.

Okay, so shift to the northwestern shelf, Greg, and maybe give us a little bit of an idea where you stand to date on your 100% block in terms of a critical mass for development?

So, you know, again, let me provide some overall perspective on Australia. As you know on our block, we have a 16-well commitment. We're 25% of the way through our drilling program, so we've got 4 of 16 wells under our belt, three of which were discovery, so that's very good news. But we still have a long ways to go to understand exactly what we have. We plan to drill another five to six wells beginning in the middle of the year.

I should say, though, that we are beginning preliminary discussions with Woodside and Shell on potential options for liquefaction. So, again, I think we really won't know exactly what we have until sometime in 2010, but we're trying to get ahead of things and starting the discussions on liquefaction. On block 404, you know, the block we share equally with Woodside, they've drilled the first of nine wells, which was also a discovery with some 360 feet of gross gas on the Triassic, so, again here, it's good news, but still very early days on Australia.

Okay. And one more for me, if I could, shifting to the downstream side, the FCC utilization rates, John, has -- I guess it's not surprising to see a number in the 70s and necessarily in the first quarter. But as you look back over the various periods in 2008, it was also 70% kind of utilization rates. Is there something going on here? And is that operating rate at the FCC at HOVENSA, higher now given the shift in [road] of product economics?

Yes, its just Mark -- and I understand the reason you're asking the question. A combination of planned and unplanned maintenance, not only in the recent quarter, but in the last year, as well as the economic signals we get. Obviously with the weak gasoline spreads, it did not make sense to run that at high rates and high severity. And, you know, we cut back on it some just dealing with the economic markets that we were dealing with and that's sort of an ongoing thing. I would say that the rates are higher now and running better in part because of some of that maintenance work that was done, as well as [slightly] improved economics. But the economics of the refining business, as you know, are still very poor.

Okay, John. Thanks.

Your next question comes from the line of Paul Cheng with Barclays Capital. Please proceed.

Hey, guys. John or Greg, when you're talking about BM-S-22, the second well, did you indicate that —- is that an appraisal well to the first discovery or just really looking at a different fuel structure?

Could you repeat your question again, so you're talking about the second well?

Right. The second well that you are drilling, is that a appraisal to the same fuel structure of the first discovery or that this is targeting a different structure in the same (inaudible)?

Yes, so it's appraisal on a different type of structure. There's really -- there's really four -- four kind of structures that we would like to test on that block.

So, this is a different structure that you are testing?

Yes, it's all four different kind of facies, yes, but it's all pre-salt.

Right. But I mean, it's a different structure, it's not exactly the same field that you're testing?

Yes, meaning -- and keep in mind, Paul, the size of this block.

Oh, absolutely. Fully understand.

Half the size of Rhode Island.

That's why I was asking that whether it's the same field as an appraisal or that this is a different structure. And Greg, I know that it's early days. Can you tell us that -- what's the process, I mean, one -- let's say you've finished the second well and there's a discovery. Do you have -- from a regulatory standpoint and limitation, when that you need to submit in terms of the development plan or that further appraisal plan?

Paul, that's all -- Paul, that's all part of the ongoing discussions between the operator and the government right now as to what the evaluation plan's going to be in Brazil. So, I really can't talk about that. That's -- that's what the operators, you know, in discussions now.

Okay, and I could assume that maybe this is for -- either John Hess or John Rielly, the 2009 CapEx, the $3.2 billion that you assume there's no change at this point?

Right. There's no change in our guidance right now in this year. And then again, as we get to the second quarter conference call, we'll update our guidance for the year.

John, out of the $101 million in the marketing profit for this quarter, how much is related to the home heating operation?

Paul, we don't get that kind of granularity when we give out that kind of information.

Any rough -- I mean I don't need an exact number, but is it 30%, 40%, or --

Generally, energy marketing had a good quarter. Again, with the way the weather -- and you can see the volumes that were there. So, I can tell you it was -- it was a good quarter from that standpoint, but that's as far as the detail we give on that.

And how about in the $200 million --

Paul, the point there is, you know, natural gas sales and energy marketing did well. Fuel oil sales did well. Electricity sales did well. And heating oil sales did well, simply because we had a normal winter and degree days were 10% ahead of last year, so it was really more across the board than just singling out one product or another.

Sure. John, since I -- since I got you here, in terms of M&A opportunity, I mean some of your peer group, may be short in cash. Do you see opportunity to pick up some interesting asset or that you already feel your plate is too full and you really want to focus on your existing portfolio?

Obviously we don't comment on specifics of M&A, and you know that. Having said that -- how do we think about the business? You know, we've worked hard to develop an organic platform to sustain the growth in our reserves in production. We are focused -- two things, keeping a strong balance sheet in the short-term, so that these exciting exploration and development opportunities that we had ahead of us, we can execute and pursue when the timing's right.

Obviously there are things out there in the marketplace that we look at from time to time and if they enhance the portfolio strategically or financially, we compare them to the things that we already have in our own portfolio and, quite frankly, the majority of the time, the opportunity set we have in-house is a better investment for our shareholders because of the organic focus that we have.

So, it sounds like that you would be -- the priority would be focusing on your organic -- existing portfolio at this moment?

That's correct.

And, John, can you give us an idea that -- what is the EG production, Equatorial Guinea, on [Klomeen]? And then how they are doing? Are they still holding up pretty close to the peak? Or that you would start to seeing that the more rapid decline there?

No, the Equatorial Guinea is holding firm at about, currently it's at about 75,000 barrels a day net.

Okay, and you don't -- you haven't seen any sign that it's start to be more rapid decline yet?

Not yet.

Greg, can you give us an update about West Med in Egypt? How's that appraisal process? You guys haven't really talked much lately. Any update there?

No, I think that same status as we reported. There will be additional seismic -- additional seismic processing and we're in the midst of understanding what our next steps are.

So, any timeframe, say, in six months that you have more of the data that you can share or is it going to take a year? Any kind of time frame you can share?

No, we haven't set a time frame yet, you know we -- at this point we are saying that we are going to need further drilling to appraise the block, but in terms of timing, can't really give any definitive guidance.

Very good. Thank you.

Your next question comes from the line of Mark Flannery with Credit Suisse. Please proceed.

Thank you. My question is on the CapEx program, which is now down to $3.2 billion. This is in context with what you were mentioning earlier about potentially accessing the debt and the equity markets. But if you look at that $3.2 billion, how much more easy deferral would you say is in there, if you don't need to give a precise number, but I'm wondering where we are in the -- in the CapEx program reduction cycle, if you will.

Mark, we're continuing to look at actually all our spend, be it CapEx or operating. But at this point, again, you know, as the year goes on, you have ins and outs that are coming through. And again, we're still working on trying to get efficiencies from our suppliers. What I would tell you right now is the $3.2 billion is our guidance. We're staying with this at this point. We'll continue to monitor it. And then on the second quarter conference call, we'll give you updated guidance then.

Okay. Let me ask a slightly different question, which is -- you said you were expecting continued cost reductions through the year. Maybe I missed the number here, but do you have a target in dollars millions for where you think you'll be by year end?

No, we didn't give a target for where we'll be by year end. So, as I said in my opening remarks, we do -- we are giving guidance now that our costs will be down $1 per barrel on the cash operating side. And then from an after-tax standpoint in our corporate expenses, down $10 million. And so we'll, again, continue as this year goes on -- if the guidance changes, we get additional savings, I'll add to that guidance as we go throughout the year.

Great. Okay. Thank you very much.

Thank you.

Your next question comes from the line of Neil McMahon with Sanford Bernstein. Please proceed.

Hi. I've got a number of questions, maybe going back to Ghana again. Based on the latest wells just a bit north of you, it seems very much for certain that we're dealing with stratographic traps in the Ghana area. And just wanted to get a sense of what you were seeing in the deeper water blocks to the south and was your first well more aimed at a structural trap than at a stratographic trap? Secondly, just on Ghana itself, how much interest do you have in potentially getting -- purchasing the Kosmos interest to get more information on that general area? And I've got a follow-up on Brazil, too.

Okay. On Ghana, again, I think, you know, Neil, we're still processing the seismic. We shot additional seismic, trying to figure out what we have there to the west. And so, you know, it's early days to be talking about what we think there. So, we're in the midst of all that now, got the seismic back, and we're in the process of processing it all currently, so very, very early days. As far as the Kosmos block, no, we don't have any interest in that.

Maybe just on that 3G survey, did you use different parameters shooting this survey from the last one?

Can't answer that, Neil. Have to get back with you on that.

Okay. Maybe just turning to Brazil, I find it a bit strange -- maybe I'm reading far too much into this -- that your comments on BM-S-22, it sounded a bit more like the old oil industry term, a technical success rather than something to be jumping up and down on. I'm just wondering, on that particular block, since they're sitting on top of a very hard structural high and it's relatively shallow to all our subsalt discoveries. Are you seeing some reservoir issues or tighter reservoirs than you may have seen in other locations -- or heard about in other locations in the basin?

No, I think, you know, I think, Neil, on that, again, it's just too early days on Brazil to really make any definitive comments about what we have or we don't have. Again, on the second well, we're 80% of the way to TD. We're in the midst of salt right now. I think what we can say about the second well and its position is we believe it's in a better rock quality position than the first well. But that's about it.

And you can't -- sorry, it's just pretty interesting. That's all. I was just wondering as well, the older wells in the basin target three reservoir units, whereas on BM-S-22, it's pretty obvious that the upper Sag reservoir's in existence. The lower to sort of syn-rift reservoir units don't appear to be that obvious. Is that what the blocks, where the additional wells are aimed at -- lower reservoir structures rather than that upper Sag reservoir?

Neil, it's, again, it's just -- its really early days. I don't want to get into all the technical details about Brazil and what we're trying to do because obviously it's quite a sensitive area competitively, so I don't want to talk about what we're trying to target.

Okay. Worth a try.

Thanks.

(Operator Instructions) And your next question comes from the line of Faisel Khan with CitiGroup. Please proceed.

Good morning. Just curious -- on your -- so, I'm looking at your operating cash flow and your current CapEx for the quarter, do you think that your cost cutting initiatives should be able to bring operating cash flow in line with the current run rate of CapEx?

I hate to continue to use the early days here in the year, but I'm going to use that. I mean, again, it is early days. I don't want to speculate on what commodity prices will be. I mean that --

Assuming the commodity prices are kind of flat.

With commodity prices -- with commodity prices kind of flat, if you're going to say the cash flow is around that number there and I gave you the target for cash operating costs, you can see that cash operating cost number, if you have a dollar reduction in our production guidance, that's $140 million there. So, you can see what that number is and you can run it through and compare it to our CapEx number. So, again, I -- we run all sorts of scenarios on what commodity prices will be and what our cost savings can target and we'll continue to update you throughout the year on where we see our guidance will be.

Okay, and in your prepared remarks, when you talk about raising -- either raising access in the debt market to the equity markets, I was wondering, did you -- were there any conversations that you have in the rating agencies that kind of stemmed you to talk about those potential capital raisings?

No. Actually, again, as John Hess said earlier, it's just, you know, as we look out, and depending on future conditions, we will consider all options with the point being that we want to maintain our liquidity position and maintain a good strong balance sheet through these uncertain times. And so that's why we're considering various options and it did not have anything to do with discussions with the rating agencies.

Okay, and just a question on your discovery in Libya in the fourth quarter. Was that -- you talked about it being a hydrocarbon discovery, but can you give us a little more color? Is it oil, gas, is it both, or is it too early to say?

It's too early to say.

Okay. Got you. Thanks for the time.

Your next question comes from the line of Mark Gilman with The Benchmark Company. Please proceed.

Thanks. John Rielly, this is an off-the-wall one, so forgive me for it. But, I think I noticed for the first time a somewhat unusual line in the income statement entitled net income or loss attributable to non-controlling interests right before the bottom line net income attributable to Hess Corporation. Could you explain to me what this is about?

Sure, and you should be seeing that on a majority of companies coming out this quarter. If you look, I don't know -- if you saw on the income statement, we have an asterisk at the bottom. And it reflects the adoption of FASB 160, accounting for non-controlling interest. So, there's a new accounting standard that came out that changes the classification of the way we disclose non-controlling interest, on our balance sheet, as well as the income statement. That's why you see that new line there. So, where we have non-controlling interest, they just show up, I guess, giving more transparency to the number.

So, John, what's the difference between that and overall equity earnings? Any?

No. So, before, that number, if you want to pick this quarter, that 42 just would have been up in our income statement in various lines and it's the minority interest in some of our ventures. So, that's all it is and it would have been in various line items in prior quarters. So, really no change to the bottom line at all. It's just the way you disclose the minority interest.

Okay, thanks.

Sure.

With no further questions in the queue, I would like to thank you for your participation in today's conference. This concludes your presentation. You may now disconnect and have a great day.