Hess Corporation’s Q1 Earnings Decline Amid Strategic Investments and Guyana Growth Potential

Hess Corporation (HES) reported a significant year-over-year decline in Q1 2025 adjusted earnings and revenue, driven by lower crude oil prices and operational headwinds. However, the company’s financial results also highlighted strategic investments in high-potential projects and resilience in cash flow management. Below, we analyze the key takeaways from Hess’s latest earnings report and assess its long-term outlook.

Earnings Overview: A Mixed Bag

Hess’s net income fell to $430 million ($1.39 per share) in Q1 2025, down sharply from $972 million ($3.16 per share) in the same period of 2024. Adjusted net income also dropped to $559 million ($1.81 per share), missing the consensus estimate of $1.77 per share but exceeding some analyst forecasts. The decline was primarily attributed to a 11% drop in realized crude oil prices ($71.22 per barrel in 2025 vs. $80.06 in 2024) and reduced sales volumes.

Revenue totaled $2.912 billion, a 12% year-over-year decline from $3.309 billion in Q1 2024. While this missed the consensus forecast of $3.01 billion, it beat lower estimates of $2.71 billion, underscoring the company’s ability to generate revenue despite challenging market conditions.

Operational Performance: Steady Production, Strategic Growth

Despite the earnings slump, Hess maintained 476,000 barrels of oil equivalent per day (boepd) in total production, unchanged from Q1 2024. Key regional performances:
- Bakken Shale (U.S. Onshore): Production rose to 195,000 boepd (vs. 190,000 boepd in 2024) due to increased drilling activity. Hess now forecasts Q2 Bakken output of 210,000–215,000 boepd, signaling further growth.
- Guyana: Hess’s crown jewel, the Stabroek Block, saw net production dip to 183,000 barrels per day (bopd) (vs. 190,000 bopd in 2024) due to reduced tax barrels. However, the Yellowtail project, the largest on the block, is on track to begin production in Q3 2025 with a 250,000 bopd capacity using the ONE GUYANA FPSO.

• Gulf of America: Output rose to 41,000 boepd (vs. 31,000 boepd in 2024), aided by the Pickerel well’s production start in mid-2024.
• Southeast Asia: Production fell to 57,000 boepd (vs. 65,000 boepd in 2024), likely due to aging fields or operational challenges.

Financials: Cash Flow Strength Amid Elevated Costs

Hess’s cash flow from operations improved to $1.401 billion in Q1 2025, up from $885 million in 2024, reflecting disciplined capital allocation. However, cash operating costs surged to $12.27 per boe (vs. $10.79 per boe in 2024) due to maintenance in North Dakota and expected further increases in Q2.

The company’s debt-to-capitalization ratio remained healthy at 27.8%, with $1.3 billion in cash and $5.3 billion in debt as of March 31, 2025. Hess also faced a $129 million pre-tax charge for legal claims related to North Dakota gathering fees, a one-time hit that skewed adjusted results.

Future Outlook: Guyana as the Growth Engine

Hess’s long-term prospects hinge on its Guyana projects, which are set to deliver exponential growth. Beyond Yellowtail, upcoming projects include:
- Uaru (2026): 250,000 bopd capacity.
- Whiptail (2027): 250,000 bopd.
- Hammerhead (2029): 150,000 bopd, pending approvals.

By 2027, Hess expects total production from Guyana to reach 1.2 million bopd, a staggering 6-fold increase from current levels. This pipeline positions Hess to dominate global deepwater oil production, even as legacy assets in regions like Southeast Asia decline.

Risks and Challenges

• Oil Price Volatility: Lower crude prices remain a threat to near-term profitability.
• Cost Inflation: Rising maintenance and operational expenses could pressure margins.
• Regulatory Risks: Bans on fracking or shifts in tax regimes in key regions (e.g., North Dakota, Guyana) could disrupt production.
• Chevron Merger Uncertainty: The pending merger with Chevron—valued at $39.1 billion—introduces execution risks and regulatory hurdles.

Conclusion: A Steep Path to Reward

Hess’s Q1 earnings decline is a reflection of macroeconomic headwinds and strategic reinvestment in high-growth projects. While lower oil prices and elevated costs have dampened short-term results, the company’s Guyana investments represent a once-in-a-decade opportunity. By 2027, Guyana’s output alone could contribute over $10 billion annually to Hess’s revenue at current prices, far exceeding today’s total earnings.

Investors should also consider the Chevron merger, which could unlock synergies and provide access to Chevron’s global infrastructure. Despite near-term risks, Hess’s robust liquidity ($1.3B cash) and disciplined capital allocation suggest it can weather current challenges.

Final Verdict: Hess’s stock (HES) is a long-term bet on its Guyana projects. While current earnings remain pressured, the scale of its future production growth—paired with Chevron’s support—justifies cautious optimism for investors willing to endure near-term volatility.