赫斯 (HES) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2012 Hess Corporation earnings conference call. My name is Erin, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of today's conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I will now turn the presentation over to your host for today's conference, Mr. Jay Wilson, Vice President of Investor Relations. Please proceed.

Thank you, Erin. Good morning, everyone, and thank you for participating in our fourth-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. Welcome to our fourth-quarter conference call. I would like to review the progress we are making in executing our strategy, our key achievements for 2012 and our guidance for 2013. Greg Hill will then discuss our Exploration and Production business, and John Rielly will go over our financial results.

This past year has been one of significant change and progress for Hess. On our July call, we explained that Hess was in the midst of a five-year transition to transform itself from an integrated oil and gas company to a predominantly exploration and production company and shift its exploration and production growth strategy from one based primarily on high-impact exploration to one based on a combination of lower risk unconventionals, exploitation of existing discoveries, and a smaller, more focused exploratory program.

On the first point, with the closure of our HOVENSA joint venture refinery in early 2012 and Monday's announcement that we will close our Port Reading, New Jersey refinery in February, Hess will have completely exited the Refining business.

We also announced on Monday, after careful study, that we will seek to sell our terminal network along the US East Coast and St. Lucia, as we believe we have the ability to access refined products from third parties to securely supply our Retail and Energy Marketing businesses.

As a result of these actions, over 90% of Hess' capital employed will be in our Exploration and Production business.

We also have made significant progress in executing our Exploration and Production growth strategy. This three-pronged strategy, as you know, has been driven principally by our success in the Bakken Shale oil play in North Dakota where we enjoy a leadership position.

On our July call, we advise that at current oil prices, the significant upfront capital spend, typical of unconventional shale oil development, would likely result in a funding deficit of about $3 billion in 2012, moderate in 2013 due to lower spending, and approach a balance in 2014.

We also said that most if not all of these cumulative deficits would be funded by asset sales as the Company rebalances its Exploration and Production portfolio in favor of lower risk, higher return and geographically more secure assets.

Lastly, we stated that the new reserves and production base established as a consequence of these actions would be lower than it was before the divestitures, but our profitability on a per unit basis would be higher.

Here is where we stand today. First, as to our funding needs, the actual shortfall in 2012 was approximately $2.5 billion. For 2013 we recently announced an 18% decrease in capital spending to $6.8 billion. This reduced level of spend is driven by lower well costs associated with our transition to pad drilling and decreased investments in infrastructure projects. Our 2013 budget also includes a 30% drop in exploratory spend to $550 million, consistent with our strategy of pursuing a smaller, more focused exploratory program. For 2014 we continue to believe that at current prices, capital expenditures should more closely approach operating cash flow.

As to the reshaping of our portfolio, to date we have announced divestitures totaling $2.4 billion, including our interests in the Bittern, Beryl, and Schiehallion fields in the United Kingdom; the Snohvit Field in Norway; and the ACG fields in Azerbaijan.

In addition, we have also announced we are in the process of selling our Russian subsidiary, Samara-Nafta, and our Eagle Ford assets in Texas.

Also, as previously mentioned, we plan to divest our terminal network, which, in addition to its sales proceeds, should also allow us to release approximately $1 billion of working capital for redeployment to fund Hess' future growth opportunities.

Assuming the successful completion of these divestitures, we expect to more than cover our funding requirements, generating excess proceeds available to reduce our short-term debt. While these divestitures will complete the strategic reshaping of our portfolio, we will, in the normal course of business, continue to optimize and upgrade its composition in the future.

Looking back, last year was an important inflection point in the development and execution of Hess' long-term corporate strategy. However, looking forward, this year will also be important as we expect to complete our announced divestitures by eight year-end 2013 and in so doing, solidify this year's production and earnings base from which Hess will grow in the future.

We expect production in 2013 to average between 375,000 and 390,000 barrels of oil equivalent per day. This forecast assumes that the sale of Samara-Nafta, which produces approximately 50,000 barrels of oil equivalent per day, closes at the end of the year. However, excluding the contribution from assets planned for divestiture this year, our new base production level is expected to be in the range of 325,000 to 340,000 barrels of oil equivalent per day.

In terms of 2014 production, we anticipate that the expected decrease in production resulting from our 2013 asset sales will be largely offset by increased production from the Bakken and the Valhall Field, as well as the startup of the Tubular Bells field in the deepwater Gulf of Mexico and North Malay Basin development.

With regard to our 2012 results, consolidated net income was $2.2 billion. Exploration and Production earned $2.4 billion, and Marketing and Refining earned $231 million. Compared to 2011, our results were positively impacted by higher crude oil sales volumes and improved Marketing and Refining results, which more than offset the negative impact of lower realized crude oil selling prices.

With regard to Exploration and Production, in 2012 we replaced 141% of production at an FDN cost of approximately $38 per barrel. At year end, our proved reserves stood at 1.553 billion barrels of oil equivalent, and our reserve life was 10.3 years. Including last year's results, our five-year average reserve replacement ratio was 148%, and our average FD&A cost is about $27 per barrel of oil equivalent.

In 2012 our crude oil and natural gas production was 406,000 barrels of oil equivalent per day, a 10% increase from 2011. The increase resulted from the restoration and production in Libya and strong operating performance in the Bakken and across our portfolio.

In the Bakken Shale oil play in North Dakota, net production averaged 56,000 barrels of oil equivalent per day in 2012, up 87% year over year. In 2013 we forecast net production from the Bakken to average between 64,000 and 70,000 barrels of oil equivalent per day.

We have built a strong position in the Bakken, which is arguably one of the best shale oil plays in the world. In 2012 we drove our drilling and completion costs down by more than 30% during the course of the year while significantly increasing production.

In the fourth quarter, we transitioned the majority of our rigs to pad drilling which will allow us to drive further improvement in capital efficiency and financial returns.

Regarding developments, in the third quarter of 2012, we entered into an agreement with PETRONAS to develop nine discovered natural gas fields offshore Peninsula of Malaysia. The North Malay Basin project in which Hess has a 50% interest and is the operator is expected to commence production in the fourth quarter of 2013 at a net rate of approximately 40 million cubic feet per day and to increase to 125 million cubic feet per day in 2016.

Also, we continue to advance our Tubular Bells project in the deepwater Gulf of Mexico in which Hess has a 57% interest and is the operator. Production is planned to commence in mid-2014 at a net rate of 25,000 barrels of oil equivalent per day.

In terms of our 2012 exploration results, we enjoyed considerable success offshore Ghana, where we have six discoveries to date on the deepwater Tano/Cape Three Points block, in which Hess has a 90% interest.

Our financial position remains strong. Our debt to capitalization ratio at year end 2012 was 27%. This ratio is expected to improve in 2013 as our asset sales are completed. A strong balance sheet and investment-grade rating remain a priority to enable us to have the financial flexibility to fund future growth opportunities.

We are confident that our strategy of selling non-core assets and investing in lower-risk and higher-return projects in Exploration and Production is the right one and will produce profitable growth and create long-term value for our shareholders.

I will now turn the call over to Greg Hill.

Thanks, John. I would like to give an update on our progress in the Bakken and the Utah conventional shale plays, as well as Valhall and exploration.

We made good progress in the Bakken during 2012. In the first half of the year, we transitioned from a higher-cost, 38-stage hybrid completion design to a lower-cost sliding sleeve design. This, along with other efficiency gains, allowed us to drive our drilling and completion costs down by more than 38% over the course of the year from $13.4 million per well in the first quarter to $9.0 million in the fourth quarter.

Also in the fourth quarter of 2012, we transitioned the majority of our rigs from held-by-production drilling to pad drilling. This transition will enable us to drive further improvement in capital efficiency and financial returns.

However, as we mentioned in our third-quarter conference call, this process change will result in a one-time flattening to slightly declining production during the first half of 2013 as the number of new wells online will be skewed to the back half of the year. In the first half of 2013, we plan to bring 70 wells to production, whereas in the second half of 2013, we expect to bring 105 wells to production.

Fourth-quarter production from the Bakken averaged 64,000 barrels of oil equivalent per day, up 68% from the fourth quarter of 2011. As John mentioned, full-year 2012 averaged 56,000 barrels per day, up 87% from 2011. We expect 2013 net production to average between 64,000 and 70,000 barrels of oil equivalent per day and for most of the growth to occur in the second half of the year.

Our 2013 capital budget for the Bakken is $2.2 billion versus $3.1 billion in 2012, a reduction of nearly 30%. Primary drivers for this decrease are lower drilling and completion costs and a lower level of infrastructure spend. We expect to operate a 14-rig program in 2013.

In 2012 we drilled 176 Hess-operated wells and completed 206. The average 30-day initial production rate for the wells we completed was 750 to 900 barrels of oil per day. Our estimated ultimate recovery per well averaged between 550,000 and 650,000 barrels of oil equivalent per well. In 2013 we plan to drill 185 Hess-operated wells and complete 175, of which approximately two-thirds will target the middle Bakken and the remainder will target the Three Forks.

With regard to our Bakken infrastructure, in April of 2012, we commissioned our Tioga crude oil rail loading facility, and in the second half of the year, we shipped an average of 41,000 barrels per day via rail to higher-value markets. Our Tioga gas plant expansion project is targeted to be commissioned late in the fourth quarter of 2013, enabling us to capture more value from our own gas and third-party volumes, which will generate attractive returns and cash flow for shareholders.

In the Utica, we continue to appraise our position. We are encouraged by the results based on data from our own wells and industry wells. In 2012 we drilled two wells and completed one of those wells on our 100%-owned acreage. This well, the NAC3H3, tested at a rate of 11 million cubic feet per day and is currently maintaining a rate of 4 million cubic feet per day under surface facility constraints.

On our CONSOL joint venture acreage, we drilled two Hess-operated wells and completed one of them. This well, the Athens 1H-24, tested at a rate of 13.9 million cubic feet per day and 1056 barrels of condensate per day.

In 2012 our joint venture partner, CONSOL, also drilled eight wells of which four were completed and three were tested. In 2013 we plan to drill five wells on our 100%-owned acreage, and the joint venture is planning to drill 27 wells, mainly concentrated in Harrison, Guernsey and Noble Counties.

Moving to the Valhall Field in Norway, in which Hess has a 64% interest, the field redevelopment project was completed earlier this month, and the operator resumed production on January 26 after being shut in since August of 2012. We expect Valhall net production to average between 24,000 and 28,000 barrels of oil equivalent per day in 2013, which is approximately double 2012 production of 13,000 barrels of oil equivalent per day. The majority of the activities going forward at Valhall will focus on development drilling to fully utilize platform capacity.

Regarding exploration, as John said, we enjoyed considerable success in Ghana where we have six discoveries to date. As announced in December, our fifth discovery, the Pecan-1 well, encountered 245 feet of net oil pay in a Turonian-aged reservoir.

In January of 2013, we completed drilling our sixth discovery, the Cobb prospect, results of which are being kept confidential due to it being a leased line well.

Also in January, we spud the Pecan North-1 well, which is located approximately seven miles north of Pecan-1 and is expected to reach TD in February, targeting Turonian-aged oil reservoirs. We have begun pre-development activities and plan to submit an appraisal plan to the government in the third quarter.

Drilling activities were also completed on two outside-operated exploration wells, [Nesdeep-1] in the deepwater Gulf of Mexico operated by BHP, and Ajek-1 in Indonesia operated by Niko Resources. Both wells encountered non-commercial quantities of hydrocarbons and were expensed in the fourth quarter.

In Kurdistan we are continuing our seismic acquisition on the Dinarta and Shakrok Blocks and plan to spud two wells in the second half of 2013. Hess has an 80% interest in these blocks and is the operator.

In closing, our focus in 2013 will be on executing our strategic plan, improving capital efficiency, and delivering higher financial returns.

I will now hand the call over to John Rielly.

Thank you, Greg. Hello, everyone. In my remarks today, I will compare fourth-quarter 2012 results to the third quarter.

The Corporation generated consolidated net income of $566 million in the fourth quarter of 2012 compared with $557 million in the third quarter. Excluding items affecting comparability of earnings between periods, the Corporation had earnings of $409 million in the fourth quarter of 2012 and $495 million in the previous quarter.

Turning to Exploration and Production, Exploration and Production reported earnings of $517 million in the fourth quarter of 2012 compared with $608 million in the third quarter. Excluding items affecting comparability, Exploration and Production had income of $431 million in the fourth quarter of 2012 and $546 million in the third quarter.

Fourth-quarter results included an after-tax gain of $172 million related to the sale of the Corporation's interest in the Bittern field and a income tax charge of $86 million for a disputed application of an international tax treaty.

Third-quarter results included net after-tax income of $62 million from items affecting comparability of earnings between periods. Excluding these items, the changes in the after-tax components of the results were as follows -- higher natural gas selling prices increased earnings by $43 million; lower sales volumes decreased earnings by $32 million; higher exploration expenses, primarily for dry hole expenses, decreased earnings by $110 million. All other items net to a decrease in earnings of $16 million for an overall decrease in fourth-quarter adjusted earnings of $115 million.

Our E&P operations were underlifted in the quarter compared with production, resulting in decreased after-tax income of approximately $30 million. The E&P effective income tax rate, excluding items affecting comparability, was 45% for the full year of 2012.

Turning to Marketing and Refining, Marketing and Refining generated income of $159 million in the fourth quarter of 2012 compared with $53 million in the third quarter. Marketing earnings were $152 million in the fourth quarter of 2012 and $17 million in the third quarter. Fourth-quarter marketing results included after-tax income of $104 million from the partial liquidation of LIFO inventories, partly offset by after-tax charges totaling $33 million for asset impairments and other charges.

Fourth-quarter marketing results also reflect the impact of higher margins.

Port Reading refining operations reported income of $8 million in the fourth quarter of 2012 and $18 million in the third quarter, principally due to lower margins. Trading activities generated a loss of $1 million in the fourth quarter of 2012 compared with earnings of $18 million in the third quarter.

Turning to corporate, net corporate expenses were $43 million in the fourth quarter of 2012 compared with $38 million in the third quarter. After-tax interest expense was $67 million in the fourth quarter of 2012, which was comparable with the third quarter.

Turning to cash flow, net cash provided by operating activities in the fourth quarter, including an increase of $443 million from changes in working capital, was $1,573,000,000. Capital expenditures were $1,779,000,000. Proceeds from the sale of Bittern were $187 million. Net borrowings were $246 million. All other items amounted to a decrease in cash of $110 million, resulting in a net increase in cash and cash equivalents in the fourth quarter of $114 million.

We had $642 million of cash and cash equivalents at December 31, 2012 and $351 million at December 31, 2011. Total debt was $8,111,000,000 at December 31, 2012 and $6,057,000,000 at December 31, 2011. The Corporation's debt-to-capitalization ratio at December 31, 2012, was 27.5% compared with 24.6% at the end of 2011. This ratio is expected to improve in 2013 as our asset sales are completed.

With our 2013 capital program and the uncertain financial markets, we thought it prudent to have some price insurance. Therefore, in January we hedged 55,000 barrels per day for the remainder of 2013 at an average Brent price of $108.50 per barrel.

Turning to 2013 guidance, in addition to the 2013 production and capital expenditure guidance provided by John Hess, I would like to provide estimates for certain 2013 metrics based on our expected production range of 375,000 to 390,000 barrels of oil equivalent per day.

For full-year 2013 unit costs, E&P cash operating costs are expected to be in the range of $21 to $22 per barrel of oil equivalent produced. Depreciation, depletion and amortization expenses are expected to be in the range of $19 to $20 per barrel for a total production unit cost of $40 to $42.

For the full year of 2013, we expect our E&P effective tax rate to be in the range of 46% to 50%.

Net corporate expenses in 2013 are estimated to be in the range of $160 million to $170 million. We expect our 2013 after-tax interest expense to be in the range of $255 million to $265 million.

This concludes my remarks. We will be happy to answer any questions. I will now turn the call over to the operator.

(Operator Instructions). Doug Leggate, Bank of America Merrill Lynch.

John, first of all, I think you guys should be congratulated on the progress you have delivered in the last year or so. However, obviously there is a lot of news of clearly an activist involved now.

Could you share your thoughts, not specifically about their suggestions in terms of business strategy, but more about their proposals for the board, Constitution, any thoughts you could share there, please? And then I have a follow-up on production.

I think it's important to just make a point here. We look at everything to enhance long-term shareholder value. We have no sacred cows in the business. We have no sacred cows in the board room. It should be obvious that we have made a lot of moves with a multi-year strategy to put our Company in a position to generate long-term shareholder value, that we look at things for all shareholders benefit.

And as a consequence, we are happy to discuss with shareholders their ideas. And specifically in terms of Elliott's proposals, we're looking carefully at them and the presentation. We will have a response to that presentation in a short period of time, but this earnings call is not the appropriate forum to respond to Elliott.

Great. My follow-up, John, I just wanted to try and understand what you are trying to tell us about production. Maybe I am being a little dumb here, but could you walk us through what essentially the sequential growth that you expect between 2013 and 2014, excluding the asset sales? Because if I heard you right, you are basically -- I will let you answer the question -- but it sounds like you are suggesting the flat production before adjusting for disposals, in other words, up around 40,000 barrels a day year over year. Could you just give us some help as to how we get through that math?

Doug, thanks for the question. I think the way that John said in his opening remarks really kind of characterize what we were trying to say. So if you back the sales out, so you re-base the Company, what John said is in terms of 2014 production, we expect that the increase -- or the decrease in production resulting from those sales is going to be largely offset by the increased production from the Bakken and the Valhall Field, the startup of Tubular Bells and the North Malay Basin developments.

So what is that number, Greg?

We're not giving guidance yet, Doug, on 2014, but obviously you can get close by what I just said.

Okay. I think I can figure it out from here. Thanks very much, fellas.

Evan Calio.

With the announced terminal sales, potential sale earlier in the week, should we draw any conclusions on your intent to form an MLP? I know it's been a topic on the last two earnings calls. I know there is infrastructure assets that you will need to control, primarily in the Bakken like the gas plant ramping up in 4Q that you discussed, and owning a GP of an MLP would achieve that control. Yet with this sale to a potential third party, we lose some MLP-able EBITDA. So should we read anything into this sale and your potential intent to utilize that structure?

No. Obviously, we are going to look at all strategic options to maximize value in terms of the divestiture of our terminal network in the United States. Most likely, it will be an outright sale. I think it's important that we will take the appropriate steps to ensure supply, security competitive prices and maintain the high quality service for our customers in the Retail and Energy Marketing businesses, which are very profitable and a good source of US income.

But at the end of the day, we're just starting the sale process for those terminals, and obviously, when we have a transaction completed, we will give you an update on that. So all options are on the table, but most likely we are looking at an outright cash sale. So I think it's important to understand that for our terminal network divestiture.

In terms of an MLP in the Bakken, for our infrastructure, this is not new, this idea. It's been in the industry for some time. We've done study on it constantly. We are very aware of the benefits that it might create. And so as a consequence, if it makes sense to create long-term shareholder value, it will be given serious consideration, but we certainly do not believe that an MLP in the Bakken is appropriate at this time.

Okay. I appreciate that. A follow-up, I know that you have been reshaping the portfolio over the year and into 2013, got a comprehensive update this morning, but did I understand your comments that the major portion of this will be completing following the sale of Russia, Eagle Ford and the terminals, and the other potential sales will be more in the ordinary course of portfolio management? So I guess the question is, do we largely know all of the larger moving pieces at this juncture? Is that a fair statement?

I absolutely -- that is a correct understanding of my remarks that the major moves to reshape our portfolio in terms of divestiture, to complete the strategic reshaping of our portfolio will have been completed by the end of 2013. But I think it has to be very clear, we have, we will continue to do so and currently look at all opportunities to enhance long-term shareholder value for our shareholders. There are no sacred cows. It should be obvious by our behavior over the last several years and most recently, and we will in the normal course of business continue to look at opportunities to optimize and upgrade our portfolio in the future.

Excellent. Thanks, guys.

Paul Sankey, Deutsche Bank.

So one interesting question that has been raised is whether it's a good idea to mix the global business with the domestic business. Can you just remind us what the global footprint mix with the Bakken growth gives you and what kind of competitive advantage you have in that particular area?

And could you continue into the subject of exploration -- how that's gone, and very specifically, finally, on a positive note, talk a little bit more about Ghana? Thank you.

We have been clear we are very proud of the global portfolio we have. We definitely believe that our three-pronged strategy we had been too focused on high impact exploration, which we have addressed by cutting it way back bringing it more focus. Greg talked about it. Obviously some good news in Ghana. We can talk about that a little bit more. Greg will address that.

But our strategy now of balancing and combining low-risk unconventionals, exploitation of existing discoveries such as the North Malay Basin gas development that we are in and the smaller, more focused exploratory program, is the right strategy. It's being recognized, obviously, in the market, and our key objective now is to stay focused on executing it to deliver long-term value for our shareholders.

So the global reach and balance, some of those assets -- our conventional portfolio generate the cash needed to fund the unconventional growth that we have in the Bakken and the Utica. And just having the Bakken and Utica stand alone, they would not be self funding. They could not get access to the credit markets, and that's a real issue.

So this balanced approach we definitely think is the right one that will create the most returns, financial returns for our shareholders over the long term.

So we feel very good about our global portfolio. We feel very good about the balance of unconventionals and conventional from a financial return perspective and a funding perspective, and I think the strategy is being recognized.

I think another point to bring out here, Paul, is that in these divestitures we have gotten rid of of about a third of our assets. So often hidden in your question could be -- you are global, you are too spread out. Well, actually, Hess has brought down the focus considerably of the portfolio of assets that we have.

So we are very, very comfortable that we can manage it, that we can execute it, and we can deliver long-term shareholder value from it. So hopefully that gives you some perspective on both the global portfolio and the benefits of it in terms of diversifying risk and maximizing return and also having the funding that we need for the unconventionals, but also that we have much more focus to our portfolio than hopefully will be recognized by investors, and we believe that that strategy is the right one and is being recognized.

I might turn the call just over about expiration, one, what we are doing in exploration, but two, more specifically, the focus that we have there and talk about Ghana a little bit.

Thanks, John. Again, just to reiterate what John said, we've been refocusing exploration, and we've significantly reduced investment. We are at $550 million of investments this year focused on our three primary areas, the Gulf of Mexico, Southeast Asia, Malaysia, in particular, and then also the West Africa play, which Ghana is clearly a part of.

As I said in my opening remarks about Ghana, we've got six discoveries under our belts on Ghana. December, our fifth discovery came out, which was the Pecan-1 well, which had 245 feet of pay in Turonian pay. And then in January we announced the Cobb well, which was another discovery. So that brought our discovery count again to six.

Now, we can't talk much about Cobb just because it is a lease line well, so it has to stay confidential for now. In fact, our competitors are in the midst of drilling the adjacent well on the leased line.

And so the last well that we are currently going to drill in 2013 we are on right now, and we expect to reach TD in February. And that is north of the Pecan-1 well, which was a big discovery, the big Turonian oil discovery. And that, again, is targeting Turonian aged oil reservoirs.

So we are in pre-development studies now. So we are looking at all of these discoveries and how are we going to develop all these? We plan to file an appraisal plan with the government mid-year. So we are progressing Ghana.

We don't expect to drill any more wells in 2013, most likely anymore drilling, appraisal drilling will be in 2014.

Are you still pursuing a partner there?

Yes, we will. Yes, we will. That's, again, part of our stated strategy and exploration to continue to partner these things. Obviously, now we have significant discoveries, so our partnering strategy, we will pick the right kind of partner to help us with that.

Great. Thank you both. Just a brief other question on Russia. Is there anything you can add about that disposal, given its size and importance to how we look at volumes for the year? Thank you.

Well, I think, as John said in his opening remarks, Russia currently makes about 50,000 barrels a day, and that is about what it is projected to make in 2013.

Yes, and specifically in terms of the sale, when we can give you an update on the progress or the consummation of it, we will.

Thank you very much.

Ed Westlake, Credit Suisse.

We are clearly seeing some of the signs of progress in terms of reshaping, which we like. Just as people focus on the Bakken, obviously you have worked there for a while. At this point, would you have an estimate of, say, acreage that you think is in the core or perhaps even -- this might be a long shot -- the economic well inventory that you have across the Bakken and Three Forks, say, at $100 per barrel, Brent?

I think on the acreage, as we've said before, we've got between 558,000 and 600,000 net acres that we call core in the Bakken. Our acreage count is actually higher, but we think that 550,000 to 600,000 is really the core part of the play.

As far as wells, a lot of it depends up on infield spacing -- all of those questions that are still being answered as we speak. But eventually it will be on the order of 2000 to 3000 wells built out in the Bakken. So, obviously, a very significant drilling and completion program.

Great. And then just on you said complete reshaping, which makes sense, but say there was a collapse in oil prices and you still wanted to fund and maybe the debt markets closed up, and you were looking to sell further international assets beyond which you have already identified. Have you looked -- would tax leakage be a constraint on further asset sales?

No, they would not, Ed.

Okay. Thanks very much. And just a final one. Any actual resource estimate for Ghana from what you've drilled so far that you could release?

No, not yet. We really want to get this next well down and, importantly, get our predevelopment studies done. Because there's a number of accumulations on the block -- how they tie back, which ones you can time back, etc. So we don't have a commercial estimate yet.

Thank you very much.

Pavel Molchanov, Raymond James.

Just conceptually you've stated in the past your preference to retain the fuel distribution asset for now. Since there is very little precedent in the industry for essentially any HBP pure play with a fuel marketing division, can you just talk about the logic for retaining that as opposed as to a spinoff or sale?

Yes, just to be clear, it's not a fuel marketing business. If it were just a feel marketing business, we probably wouldn't have kept it. But we have morphed our fuel marketing business into an energy marketing business where the same customer that might -- and these are commercial and industrial accounts, about 22,000 of them from Massachusetts down to South Carolina across to Ohio where we sell or are currently selling over 1.5 billion cubic feet a day of gas, which obviously will help us if we find gas in the Utica and certainly put us in a good position so we wouldn't have to discount that gas. So there are going to be some strategic benefits there. And we also sell 4500 megawatt hours around the clock to those customers, as well.

It's a very profitable business. It makes, I'd say, very acceptable, strong returns. So the fact that it is US income, it gives us some marketing capability. We have a strong brand. We think that if anything, it enhances the Company from a financial and reputational point of view.

Okay. Can I also just get a quick update on your plans for Kurdistan this year?

Yes, we are shooting seismic, and we plan to drill two wells in 2013, one on the Shakrok Block and one on the Dinarta Block.

Okay. Thanks very much.

Brandon Mei, Tudor, Pickering.

On the Bakken, can you provide a split in production for Q4 actual and 2013 guidance for the operated and nonoperated portion?

Yes, I can. I can give you 2012 actuals. If you look at operated production, fourth quarter was about 55,000 barrels a day of operated. Outside operated was about 9500 barrels. So that brings you to the 64,500 for the quarter.

Okay. And what about 2013 guidance?

You can assume a similar split.

Okay. And then on a similar basis, do you have a split on CapEx?

Next year we will spend about $150 million in outside-operated wells and capital and the balance being on our own account.

Okay. And then my final question is on -- do you have a debt-to-cap target? And I guess if you are in a position where you meet that target, can you just walk through the pecking order of investment opportunities that could attract capital?

Yes, I think the most important thing there is we want to have a strong investment-grade rating, and we want to pay off the debt that we have incurred as we've made this transition into unconventionals and get our strong balance sheet back. And as John Rielly reflected, by the end of 2013, we should be there.

And then it's going to be a function looking forward at attractive investment opportunities, current returns to shareholders and getting the balance right. As it turns out, our Company is a growth Company and has very attractive investments. They have to compete for capital. They have to meet our 15% hurdle rate, meaning meet or exceed our 15% hurdle rate at $100 Brent. And I wouldn't want to speculate on where we are going to be investing the money a year from now until some of the investment growth opportunities we have have more time to mature such as the Utica, potentially Ghana, potentially Stampede and the deepwater Gulf.

Thank you very much.

Let me just come back to your question on the Bakken, just to be clear in 2013. So if you look at the capital spend next year in the Bakken, the external guidance was $2.2 billion. About $500 million of that is facilities, so that is a significant reduction from last year. About $1.4 billion or so or $1.5 billion is owned wells, and the rest is outside operated, and we have a small amount of land in seismic and studying money in there as well. I just wanted to make that clear.

Thank you.

(Operator Instructions). John Herrlin, Societe Generale.

Two quick ones for me on the Bakken. With the Three Forks, Greg, are you going to be pursuing that earlier or later in the year versus the middle Bakken number?

We are actually going to where the best wells are. So we have some outstanding wells in the Three Forks, and they are just going to be part of our normal mix of wells. We are doing a very small amount of appraisal work in the Three Forks so that most of the Three Forks drilling next year is in proven, high-profitability, high-return areas.

Okay. I know you said that you finished the HBP nature of your drilling program. Have you given any thought to piloting higher-density programs or greater density programs?

Well, as you know, as we've said before, we do have an ongoing close space pilot in the middle Bakken. We plan to continue that pilot into this year. And so, again, the spacing varies by the drilling unit, depending on the quality of the rock and all those factors. So there won't be a generic spacing that you can say for the Bakken. It's really going to depend upon the quality of the rock, at the end of the day.

Yes, I was just shooting for whether or not you would go for greater density.

Okay. The last question for me is with respect to both Port Reading and the terminalling. Are there any environmental tales or liabilities that we should be concerned of or aware about?

No, there are not.

Thanks.

Arjun Murti, Goldman Sachs.

Just a question on the exploration expense, which you are taking down to about $550 million this year, and you have talked about rightsizing that. Is this still a transition year and we can expect further reductions in the years ahead, or do you view that as an appropriately-sized program for a Company of your size?

I think general for now that is an appropriate-size program. Guidance in 2014, obviously, we can't give. I will say part of that will depend upon Ghana.

And Greg, thanks for all the detail in the Bakken. Do you have any update on your long-term targets there? I think it was 120,000 barrels a day out five years, but wondering if you had updated thoughts on that?

I think 120,000 barrels a day remains our goal. It will largely be a function of our investment levels, which, in turn, obviously are a function of oil prices and competing investment opportunities in the portfolio.

Do you want to keep a year to that target, or is that just a generic goal based on the factors you just mentioned?

No, I think we've said before mid-decade is our goal.

That's great. Thank you so much.

Doug Leggate, Bank of America Merrill Lynch.

Sorry for queuing up again, but there is a parallel call going on, as I'm sure you are aware. Just two quick ones, if I may. I guess they are both for John Rielly.

John, deferred taxes, how should we think about -- you've given us a tax rate, but can you talk about Norway? Can you talk about the tax position in the US? And in answering the question, could you tell us what the current status is of retail, in terms of whether you spun it or not, how would that change your IDC allowances? And I've got a quick follow-up, please.

Sure, Doug. So for Norway, we don't expect to be paying cash taxes in Norway until 2015. So over the next several years, our cash taxes will be fairly level. And I'm going beyond 2015 with that.

As you look in the US and I think your particular question is about the IDC costs and how they are deducted and whether as an integrator, you have a 70% limit. And if you are not integrated, you have 100% ability to take all the IDCs.

That's right, yes.

With our closure of HOVENSA actually, the way the rules work, we actually exited the refining business under the rules during 2012. And then so long as we have a structure where the marketing business that we have on the downstream side is segregated from the E&P operations, you are allowed then -- we are not classified as integrated, and therefore, we can get 100% on the IDC deduction. So starting right at the beginning of 2013, we have the 100% IDC deduction. So there's nothing else that we need to do to attain that.

Just to be clear, do you still get to have the tax shield on the US earnings from retail coming from the E&P?

Absolutely, yes. So I mean we have excess deductions being generated out of the Bakken that we can use in retail and our other US assets.

Great. Thanks. And my follow-up, I don't know who wants to take this one, but can you quantify the level of interest in the Eagle Ford and Russia in terms of Bittern activity and so on? And I'll leave it there. Thank you.

Yes, there is strong interest on both, Doug. So that is, I think, as far as we can go. And once the sale process consummates, we will inform you to the outcome.

All right. Thanks.

And there are no further questions at this time. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.