Hess Navigates Challenges in Q1 2025 Amid Guyana Growth and Chevron Merger Speculation

Hess Corporation’s first-quarter 2025 results highlight a company balancing operational progress with financial headwinds. While net income fell sharply year-over-year, strategic investments in Guyana’s massive oil projects and steady Bakken production growth underscore long-term potential. However, lower oil prices, legal costs, and the pending Chevron merger create near-term uncertainty. Here’s what investors need to know.

Financial Performance: A Mixed Start to 2025

Hess reported a Q1 2025 net income of $430 million ($1.39/share), down from $972 million ($3.16/share) in Q1 2024. The decline stems primarily from a 10.9% drop in realized crude oil prices ($71.22/barrel vs. $80.06/barrel) and a $129 million pre-tax legal charge tied to North Dakota gathering fees. Adjusted net income (excluding one-time items) was $559 million ($1.81/share), reflecting ongoing cost pressures.

Despite the earnings miss, Hess’s strong liquidity—$1.3 billion in cash and a debt-to-capital ratio of 27.8%—remains a stabilizing factor.

Operational Momentum: Guyana Drives Future Growth

While Hess’s overall production held steady at 476,000 boepd, regional trends reveal both challenges and opportunities:

1. Guyana (Stabroek Block):
2. Q1 net production dipped to 183,000 bopd from 190,000 bopd in 2024 due to tax adjustments, but the Yellowtail development—Hess’s largest single project—will add 250,000 bopd capacity by Q3 2025. The ONE GUYANA FPSO, now offshore, will anchor this expansion.
3. Longer-term projects like Uaru (2026) and Whiptail (2027) promise sustained growth, with Hess’s 30% stake in the block positioning it for ~500,000 bopd+ by 2027.

1. Bakken Shale:

2. Production rose to 195,000 boepd (from 190,000 boepd in 2024), aided by four active rigs and 28 drilled wells. Hess aims to boost Q2 Bakken output to 210,000–215,000 boepd, leveraging improved drilling efficiency.

3. Other Regions:

4. Gulf of America: Production surged to 41,000 boepd (+32% vs. Q1 2024) after the Pickerel well’s mid-2024 startup.
5. Southeast Asia: Declined to 57,000 boepd (-12.3%) due to maturing fields.

Capital Allocation: Betting Big on Guyana

Hess’s Q1 2025 E&P capital spending hit $1.085 billion, a 17% jump from Q1 2024, as Guyana developments dominate the budget. Full-year 2025 capex is projected at $4.5 billion, with over 60% allocated to Stabroek Block projects.

The trade-off? Higher operating costs: Cash costs rose to $12.27/boe (+13.7% YoY), driven by North Dakota maintenance and planned workovers in offshore regions. Hess expects Q2 costs to climb further, but long-term margins should improve as Guyana’s high-margin production scales.

Risks and Uncertainties

• Chevron Merger: The proposed $35 billion merger with Chevron—announced in February 2025—remains in regulatory limbo. While Hess’s Q1 earnings call was skipped to avoid conflicting with merger discussions, investors await clarity on synergies and debt impacts.
• Commodity Prices: Hess’s financial health remains tied to oil prices. A sustained dip below $70/barrel could strain margins, though hedges and production growth offer some cushion.
• Execution Risks: Delays in Guyana’s FPSO integration or permitting for projects like Hammerhead (2029) could disrupt growth timelines.

Valuation and Investment Outlook

Hess’s shares have underperformed peers this year, down ~6% YTD as investors weigh near-term costs against long-term Guyana potential. Key catalysts to watch:
- Q3 2025 Yellowtail startup: A successful ramp-up will validate Hess’s project execution.
- Chevron merger approval: A “yes” could unlock value through cost synergies but may also pressure Hess’s stock until resolved.

Conclusion: A Hold for Now, Buy on Dip?

Hess’s Q1 results reflect a company navigating a tough energy market with strategic clarity. While short-term earnings are pressured by lower oil prices and one-time charges, its Guyana asset base—projected to nearly double production by 2027—positions it for long-term growth.

Investors should note:
- Liquidity: $1.3B cash and a 27.8% debt-to-capital ratio provide resilience.
- Growth Pipeline: ~1M bopd of gross Stabroek Block projects sanctioned or in planning.
- Valuation: At 8x 2025E EV/EBITDA (vs. peers at ~10x), Hess appears undervalued if Guyana delivers.

The Chevron merger’s outcome is critical. If approved, Hess’s stock could rally on synergy optimism. If rejected, its standalone prospects remain solid but less transformative. For now, hold with a buy on dips below $60 (50% discount to 12-month average) until Guyana’s next milestone (Yellowtail) is achieved.

Hess’s story is far from over—it’s a high-risk, high-reward bet on one of the world’s most prolific oil provinces.