Hess Navigates Oil Price Headwinds to Outperform Analysts in Q1 2025

Hess Corporation (HES) reported first-quarter 2025 earnings that defied expectations despite a challenging environment marked by lower crude oil prices and reduced sales volumes. While net income fell sharply year-over-year, the company’s adjusted earnings per share (EPS) exceeded Wall Street’s forecasts, signaling operational resilience and strategic progress in key growth areas like Guyana.

The Earnings Beat: Adjusted EPS Outperforms, but Oil Prices Weigh Heavily

Hess reported net income of $430 million, or $1.39 per diluted share, for Q1 2025—a 55.8% drop from the $3.16 per share reported in Q1 2024. The decline was largely attributed to a 11.1% year-over-year drop in average realized crude oil prices, which fell to $71.22 per barrel from $80.06 in the prior year. However, the company’s adjusted EPS of $1.81 (excluding a $129 million legal charge in North Dakota) surpassed the $1.61 analyst consensus estimate, underscoring its ability to manage costs and capitalize on operational strengths.

Operational Stability Amid Headwinds

Despite the price slump, Hess maintained net production at 476,000 barrels of oil equivalent per day (boepd)—unchanged from Q1 2024. Key亮点 included:
- Guyana’s Stabroek Block: Production dipped slightly to 183,000 barrels per day (bopd) due to reduced tax barrels, but Hess anticipates a rebound with the Yellowtail development, expected to add 250,000 bopd capacity by Q3 2025.
- Bakken Shale: Output rose to 195,000 boepd, reflecting increased drilling activity.
- Gulf of America: The Pickerel well contributed to a 41,000 boepd output increase.

The company’s cash flow also held up: $1.4 billion in operating cash flow for Q1 2025, up from $885 million a year earlier, though this included adjustments for working capital and legal charges.

Strategic Leverage: Guyana’s Growth Engine and Financial Fortitude

Hess’s long-term prospects hinge on Guyana’s Stabroek Block, where the Yellowtail FPSO—a critical $10 billion project—will significantly boost production capacity. The company also plans to advance the Uaru development, targeting an additional 250,000 bopd by 2026. These projects align with Hess’s $4.5 billion 2025 capital budget, nearly half of which is allocated to Guyana.

Financially, Hess remains disciplined. Its debt-to-capital ratio of 27.8% (as of Q1 2025) and $1.3 billion in cash provide a buffer against volatility. While E&P capital expenditures rose to $1.085 billion in Q1 2025, the company emphasized that these investments are “strategic, high-return opportunities.”

Risks and Considerations

• Oil Price Sensitivity: Hess’s performance remains tied to crude prices. A prolonged period below $70/bbl could pressure margins.
• Merger with Chevron: The pending tie-up with Chevron (CVX) could reshape Hess’s operations and reporting structure, though details remain unclear.
• Regulatory and Operational Risks: Legal disputes in North Dakota and potential delays in Guyana’s projects pose tail risks.

Conclusion: A Stock Positioned for Long-Term Gains Amid Near-Term Challenges

Hess’s Q1 results highlight a company navigating short-term headwinds while investing in high-potential projects. The adjusted EPS beat and stable production demonstrate operational discipline, while Guyana’s upcoming developments position Hess for significant growth starting in 2025.

Crucial data points to watch:
- Guyana Production: Yellowtail’s Q3 2025 startup could lift Hess’s net output to 480,000–490,000 boepd in Q2 2025 and beyond.
- Balance Sheet: With a debt-to-capital ratio under 30% and ample liquidity, Hess has the flexibility to weather oil price fluctuations.
- Valuation: At $132.54 per share (as of April 29, 2025), Hess trades at a 12x forward P/E ratio, below its five-year average of 14x—a potential buying opportunity if oil prices rebound.

Investors should view Hess as a hold-to-buy play, with its Guyana assets and disciplined capital allocation creating a solid foundation for outperformance once crude prices stabilize or rise. The EPS beat in Q1 suggests the company can weather current challenges, but the real test lies in executing its growth plans and capitalizing on the Yellowtail windfall later this year.