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Hess (HES)
NYSE:HES
Risk Overview Q3, 2022
Risk Distribution
30% Macro & Political
26% Finance & Corporate
17% Production
13% Legal & Regulatory
9% Tech & Innovation
4% Ability to Sell
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Hess Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q3, 2022
Main Risk Category
Macro & Political
With 7 Risks
Macro & Political
With 7 Risks
Number of Disclosed Risks
23
No changes from last report
S&P 500 Average: 31
23
No changes from last report
S&P 500 Average: 31
Recent Changes
5Risks added
0Risks removed
0Risks changed
Since Sep 2022
5Risks added
0Risks removed
0Risks changed
Since Sep 2022
Number of Risk Changed
0
No changes from last report
S&P 500 Average: 3
0
No changes from last report
S&P 500 Average: 3
See the risk highlights of Hess in the last period.
Risk Word Cloud
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 23
Macro & Political
Total Risks: 7/23 (30%)Above Sector Average
Economy & Political Environment1 | 4.3%
Economy & Political Environment - Risk 1
Political instability in areas where we operate can adversely affect our business.Natural and Human Disruptions3 | 13.0%
Natural and Human Disruptions - Risk 1
Climate change and sustainability initiatives may result in significant operational changes and expenditures, reduced demand for our products and adversely affect our business.Natural and Human Disruptions - Risk 2
Our business and operations have been and may continue to be adversely affected by COVID-19 or other similar public health developments and related changes to demand for oil and natural gas.Since 2020, COVID-19 and related actions taken by governments and businesses, including voluntary and mandatory quarantines and travel and other restrictions, have significantly impacted economic activity. As a result of COVID-19, our operations, and those of our business partners, service companies and suppliers, have experienced and may continue to experience further adverse effects, including but not limited to: disruptions, delays or temporary suspensions of operations, including shut-ins of production; temporary inaccessibility or closures of facilities; supply chain issues; and workforce impacts from illness, school closures and other community response measures. We have implemented a variety of health and safety measures, including enhanced cleaning procedures and modified work practices, such as travel restrictions, health screenings, vaccination policies, reduced personnel at offshore platforms and onshore work sites, wherever such reduction can be done safely, and remote working arrangements for office workers. There is no certainty that these or any other future measures will be sufficient to mitigate the risks posed by the virus and its variants, including the risk of infection of key employees, and our ability to perform certain functions could be impaired by these new business practices. For example, our reliance on technology has necessarily increased due to our use of remote communications and other work-from-home practices, which could make us more vulnerable to cyber-attacks. To the extent we or our business partners, service companies or suppliers continue to experience restrictions or other effects, our financial condition, results of operations and future expansion projects may be adversely affected. In addition to the global health concerns, COVID-19 negatively affected the U.S. and global economy and the demand for oil and natural gas. The prolonged continuation or amplification of the outbreak of COVID-19 could result in further economic downturn that may affect our operating results in the long-term. Furthermore, the effects of COVID-19 and concerns regarding the global spread of its variants negatively impacted the domestic and international demand for crude oil and natural gas, which has contributed to price volatility and adversely affected the demand for and marketability of crude oil, natural gas and NGL. Containment measures implemented to mitigate the spread of COVID-19 and its variants could continue to be widespread and lead to sustained adoption of certain behavioral changes, such as reduced travel and enhanced work-from-home policies, which could result in further reductions in demand for and consumption of energy commodities. A reduction in consumer demand for crude oil, natural gas and NGL could require further curtailments and shut-ins of production by the industry and further increase the costs of commercial storage and midstream contracts. The timeline and potential magnitude of COVID-19 remains unknown and will depend on future developments, including, among others, the global availability of vaccines, the efficacy of vaccines against variants and the extent to which normal economic and operating conditions resume. In the event one or more of our business partners is adversely affected by COVID-19 or the current market environment, that may impact our costs and ability to conduct business with them. In addition, we may face an increased risk of changes in the regulation related to our business resulting from COVID-19, such as the imposition of limitations on our workforce's ability to access our facilities. We also are subject to litigation risk and possible loss contingencies related to COVID-19, including with respect to commercial contracts, employee matters and insurance arrangements. We may experience decreases in production and proved reserves, additional asset impairments, and other accounting charges if demand for crude oil, natural gas and NGL decreases. A sustained extension of the current market environment may make it more difficult to comply with covenants and other restrictions in agreements governing our debt, and a lack of confidence in our industry on the part of the financial markets may result in a lack of access to capital, any of which could lead to reduced liquidity. As the impact from COVID-19 remains difficult to predict, the extent to which it may negatively affect our operating results is uncertain. Any impact will depend on future developments and new information that may emerge regarding the severity and duration of COVID-19 and the actions taken by authorities to contain it or treat its impact, all of which are beyond our control.
Natural and Human Disruptions - Risk 3
Catastrophic and other events, whether naturally occurring or man-made, may materially affect our operations and financial condition.Our oil and gas operations are subject to numerous risks and hazards inherent to operating in the crude oil and natural gas industry, including catastrophic events, which may damage or destroy assets, interrupt operations, result in personal injury and have other significant adverse effects. These events include unexpected drilling conditions, pressure conditions or irregularities in reservoir formations, equipment malfunctions or failures, derailments, fires, explosions, blowouts, cratering, pipeline interruptions and ruptures, hurricanes, severe weather, geological events, shortages in availability of skilled labor, cyber-attacks or health measures related to COVID-19. We maintain insurance coverage against many, but not all, potential losses and liabilities in amounts we deem prudent, including for property and casualty losses. There can be no assurance that such insurance will adequately protect us against liability from all potential consequences and damages. For example, we are self-insured against physical damage to property and liability related to windstorms. In 2021 and 2020, hurricane-related downtime reduced net production by 4,000 boepd and 8,000 boepd, respectively, and hurricane related maintenance and repair costs were approximately $7 million in both 2021 and 2020. Moreover, some forms of insurance may be unavailable in the future or be available only on terms that are deemed economically unacceptable. In addition, the frequency and severity of weather conditions which impact our business activities may also be impacted by the effects of climate change. Energy needs could increase or decrease as a result of extreme weather conditions depending on the duration and magnitude of any such climate change. Increased energy use due to weather changes may require us to invest in order to serve increased demand. A decrease in energy use due to weather changes may affect our financial condition through decreased revenues. To the extent the frequency of extreme weather events increases, this could adversely impact our business, results of operations and financial condition.
Capital Markets3 | 13.0%
Capital Markets - Risk 1
Liquidity and Capital ResourcesAdded
Capital Markets - Risk 2
Market Risk DisclosuresAdded
We are exposed in the normal course of business to commodity risks related to changes in the prices of crude oil and natural gas, as well as changes in interest rates and foreign currency values .
See
Note 13, Financial Risk Management Activities , in the
Notes to Consolidated Financial Statements .
We have outstanding foreign exchange contracts with notional amounts totaling $153 million at September 30, 2022 that are used to reduce our exposure to fluctuating foreign exchange rates for various currencies. A 10% strengthening or weakening in the U.S. Dollar exchange rate is estimated to be a gain or loss, respectively, of approximately $15 million at September 30, 2022.
At September 30, 2022, consolidated long-term debt, which was substantially comprised of fixed-rate instruments, had a carrying value of $8,303 million and a fair value of $7,841 million. A 15% increase or decrease in interest rates would decrease or increase the fair value of debt by approximately $485 million or $545 million, respectively. Any changes in interest rates do not impact our cash outflows associated with fixed-rate interest payments or settlement of debt principal, unless a debt instrument is repurchased prior to maturity.
At September 30, 2022, we have WTI put options with an average monthly floor price of $60 per barrel for 90,000 bopd, and Brent put options with an average monthly floor price of $65 per barrel for 60,000 bopd. As of September 30, 2022, an assumed 10% increase in the forward WTI and Brent crude oil prices used in determining the fair value of our put options would reduce the fair value of these derivative instruments by approximately $5 million, while an assumed 10% decrease in the same crude oil prices would increase the fair value of these derivative instruments by approximately $10 million.
Capital Markets - Risk 3
Liquidity and Capital Resources (continued)Added
Operating activities:
Net cash provided by operating activities was $2,692 million in the first nine months of 2022, compared with $1,991 million in the first nine months of 2021. Net cash provided by operating activities before changes in operating assets and liabilities was $3,820 million in the first nine months of 2022, compared with $2,105 million in the first nine months of 2021 primarily due to higher realized selling prices. During the first nine months of 2022, changes in operating assets and liabilities reduced net cash provided by operating activities by $1,128 million (2021: $114 million) reflecting payments made for previously accrued Libyan income tax and royalties of approximately $470 million for the period December 2020 through November 2021, premiums paid of $325 million to remove the ceiling price on outstanding WTI and Brent crude oil price collars effective April 1, 2022, and an increase in accounts receivable due to higher crude oil prices.
Investing activities:
Additions to property, plant and equipment of $1,932 million in the first nine months of 2022 were up $694 million compared with the corresponding period in 2021. The increase is primarily due to higher drilling and development activities in Guyana, the Bakken, Malaysia and JDA, and the Gulf of Mexico. Proceeds from asset sales in the first nine months of 2022 were $28 million and $427 million in the first nine months of 2021.
The following table reconciles capital expenditures incurred on an accrual basis to Additions to property, plant and equipment:
Nine Months EndedSeptember 30, 20222021 (In millions)Additions to property, plant and equipment - E&P: Capital expenditures incurred - E&P$(1,802)$(1,145)Increase (decrease) in related liabilities47 27 Additions to property, plant and equipment - E&P$(1,755)$(1,118)Additions to property, plant and equipment - Midstream: Capital expenditures incurred - Midstream$(169)$(129)Increase (decrease) in related liabilities(8)9 Additions to property, plant and equipment - Midstream$(177)$(120)
Financing activities:
In the first nine months of 2022, we repurchased $340 million of our common stock and paid common stock dividends of $350 million (2021: $234 million). In July 2021, we repaid $500 million of our $1 billion term loan, and in February 2022, we repaid the remaining $500 million.
In the first nine months of 2022, we received net proceeds of $146 million from the public offering of approximately 5.1 million Hess-owned Class A shares in Hess Midstream LP, and in the first nine months of 2021, we received net proceeds of $70 million from the public offering of approximately 3.5 million Hess-owned Class A shares in Hess Midstream LP. Borrowings resulted from the issuance in 2022 by HESM Opco of $400 million of 5.500% fixed-rate senior unsecured notes due 2030, and the issuance in 2021 by HESM Opco of $750 million of 4.250% fixed-rate senior unsecured notes due 2030. Net cash outflows to noncontrolling interests were $430 million in the first nine months of 2022 (2021: $589 million).
Finance & Corporate
Total Risks: 6/23 (26%)Above Sector Average
Accounting & Financial Operations2 | 8.7%
Accounting & Financial Operations - Risk 1
Cash FlowsAdded
Accounting & Financial Operations - Risk 2
There are inherent uncertainties in estimating quantities of proved reserves and discounted future net cash flows, and actual quantities may be lower than estimated.Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues from those reserves. Actual future production, oil and gas prices, revenues, taxes, capital expenditures, operating expenses, and quantities of recoverable oil and gas reserves may vary substantially from those assumed in the estimates and could materially affect the estimated quantities of our proved reserves and the related future net revenues. In addition, reserve estimates may be subject to downward or upward changes based on production performance, purchases or sales of properties, results of future development, prevailing oil and gas prices, production sharing contracts, which may decrease reserves as crude oil and natural gas prices increase, and other factors. Crude oil prices declined in 2020 and 2019, relative to comparative periods, resulting in reductions to our reported proved reserves. In contrast, crude oil prices improved in 2021, relative to the preceding year, resulting in increases to our proved reserves. If crude oil prices in 2022 average below prices used to determine proved reserves at December 31, 2021, it could have an adverse effect on our estimates of proved reserve volumes and on the value of our business. See Crude Oil and Natural Gas Reserves in Critical Accounting Policies and Estimates in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Debt & Financing3 | 13.0%
Debt & Financing - Risk 1
We have substantial capital requirements, and we may not be able to obtain needed financing on satisfactory terms.Debt & Financing - Risk 2
Future Capital Requirements and ResourcesAdded
At September 30, 2022, we had $2.38 billion in cash and cash equivalents, excluding Midstream, and total liquidity, including available committed credit facilities, of approximately $5.73 billion. In the first nine months of 2022, we repurchased $340 million of our common stock. We intend to acquire the remaining Board authorized amount of $310 million in the fourth quarter of 2022. In March 2022, we announced a 50% increase in our dividend on common stock. As we become increasingly free cash flow positive, we plan to return up to 75% of our annual adjusted free cash flow to shareholders through further dividend increases and/or common stock repurchases.
We are currently developing our 2023 budget and plan, which remains subject to board and management approval. In 2023, we expect increased development activity in Guyana and plan to have a four rig drilling program in the Bakken for the full year and the potential for three exploration wells in the Gulf of Mexico. As a result, we expect to increase our 2023 capital and exploratory budget by approximately $1 billion compared with forecasted capital and exploratory expenditures in 2022 of $2.7 billion. In 2023, based on current forward strip crude oil prices, we expect cash flow from operating activities and cash and cash equivalents at September 30, 2022 will be sufficient to fund our capital investment and capital return programs. Depending on market conditions, we may take any of the following steps, or a combination thereof, to improve our liquidity and financial position: reduce the planned capital program and other cash outlays, including dividends, pursue asset sales, borrow against our committed revolving credit facility, or issue debt or equity securities.
Debt & Financing - Risk 3
The alteration or discontinuation of LIBOR may adversely affect our borrowing costs.Certain borrowings on our credit facilities may use LIBOR as a benchmark for establishing the rate. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures are expected to cause LIBOR to be discontinued after June 30, 2023 or to perform differently than in the past. In the U.S., the Alternative Reference Rates Committee, which was convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has proposed SOFR as an alternative to LIBOR. At this time, the consequences of these developments cannot be entirely predicted, but could include fluctuations in interest rates or an increase in the cost of our credit facility borrowings.
Corporate Activity and Growth1 | 4.3%
Corporate Activity and Growth - Risk 1
We do not always control decisions made under joint operating agreements and the parties under such agreements may fail to meet their obligations.Production
Total Risks: 4/23 (17%)Above Sector Average
Manufacturing2 | 8.7%
Manufacturing - Risk 1
An inability to secure personnel, drilling rigs, equipment, supplies and other required services or to retain key employees may result in material negative economic consequences.Manufacturing - Risk 2
If we fail to successfully increase our reserves, our future crude oil and natural gas production will be adversely impacted.We own or have access to a finite amount of oil and gas reserves, which will be depleted over time. Replacement of oil and gas production and reserves, including proved undeveloped reserves, is subject to successful exploration drilling, development activities, and enhanced recovery programs. Therefore, future oil and gas production is dependent on technical success in finding and developing additional hydrocarbon reserves. Exploration activity involves the interpretation of seismic and other geological and geophysical data, which does not always successfully predict the presence of commercial quantities of hydrocarbons. Drilling risks include unexpected adverse conditions, irregularities in pressure or formations, equipment failure, blowouts and weather interruptions. Future developments may be affected by unforeseen reservoir conditions, which negatively affect recovery factors or flow rates. Similar risks may be encountered in the production of oil and gas on properties acquired from others. In addition, replacing reserves and developing future production are also influenced by the price of crude oil and natural gas and costs of drilling and development activities. Lower crude oil and natural gas prices may reduce capital available for our exploration and development activities, render certain development projects uneconomic or delay their completion, and result in negative revisions to existing reserves while increasing drilling and development costs could negatively affect expected economic returns.
Costs2 | 8.7%
Costs - Risk 1
We engage in risk management transactions designed to mitigate commodity price volatility and other risks that may impede our ability to benefit from commodity price increases and can expose us to similar potential counterparty credit risk as amounts due from the sale of hydrocarbons.Costs - Risk 2
Our business and operating results are highly dependent on the market prices of crude oil, NGL and natural gas, which can be very volatile.Our estimated proved reserves, revenue, operating cash flows, operating margins, liquidity, financial condition and future earnings are highly dependent on the benchmark market prices of crude oil, NGL and natural gas, and our associated realized price differentials, which are volatile and influenced by numerous factors beyond our control. The major foreign oil producing countries, including members of OPEC, may exert considerable influence over the supply and price of crude oil and refined petroleum products. Their ability to agree on a common policy on rates of production and other matters may have a significant impact on the oil markets. Other factors include, but are not limited to: worldwide and domestic supplies of and demand for crude oil, NGL and natural gas, political conditions and events (including weather, instability, changes in governments, armed conflict, economic sanctions and outbreaks of infectious diseases, such as COVID-19) around the world and in particular in crude oil or natural gas producing regions, the cost of exploring for, developing and producing crude oil, NGL and natural gas, the price and availability of alternative fuels or other forms of energy, the effect of energy conservation and environmental protection efforts and overall economic conditions globally. The sentiment of commodities trading markets as well as other supply and demand factors, including COVID-19, may also influence the selling prices of crude oil, NGL and natural gas. Average benchmark prices for 2021 were $68.08 per barrel for WTI (2020: $39.34; 2019: $57.04) and $70.95 per barrel for Brent (2020: $43.21; 2019: $64.16). In order to manage the potential volatility of cash flows and credit requirements, we maintain significant bank credit facilities. An inability to access, renew or replace such credit facilities or access other sources of funding as they mature would negatively impact our liquidity. Furthermore, from time to time we have entered into, and may in the future enter into or modify, commodity price hedging arrangements to manage commodity price volatility. These arrangements may limit potential upside from commodity price increases, or expose us to additional risks, such as counterparty credit risk, which could adversely impact our cash flow, liquidity or financial condition.
Legal & Regulatory
Total Risks: 3/23 (13%)Above Sector Average
Regulation1 | 4.3%
Regulation - Risk 1
We are subject to changing laws and regulations and other governmental actions that can significantly and adversely affect our business.Litigation & Legal Liabilities1 | 4.3%
Litigation & Legal Liabilities - Risk 1
One of our subsidiaries is the general partner of a publicly traded limited partnership, Hess Midstream LP. The responsibilities associated with being a general partner expose us to a broader range of legal liabilities.Environmental / Social1 | 4.3%
Environmental / Social - Risk 1
Our oil and gas operations are subject to environmental risks and environmental, health and safety laws and regulations that can result in significant costs and liabilities.Tech & Innovation
Total Risks: 2/23 (9%)Above Sector Average
Innovation / R&D1 | 4.3%
Innovation / R&D - Risk 1
Significant time delays between the estimated and actual occurrence of critical events associated with development projects may result in material negative economic consequences.Cyber Security1 | 4.3%
Cyber Security - Risk 1
Disruption, failure or cyber security breaches affecting or targeting computer, telecommunications systems, and infrastructure used by the Corporation or our business partners may materially impact our business and operations.Ability to Sell
Total Risks: 1/23 (4%)Above Sector Average
Competition1 | 4.3%
Competition - Risk 1
Our industry is highly competitive and many of our competitors are larger and have greater resources and more diverse portfolios than we have.See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
- Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
- Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
- Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
- Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
- Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
- Regulation – risks related to compliance, GDPR, and new legislation.
- Environmental / Social – risks related to environmental regulation and to data privacy.
- Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
- Costs – risks related to costs of production including commodity prices, future contracts, inventory.
- Supply Chain – risks related to the company’s suppliers.
- Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
- Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
- Innovation / R&D – risks related to innovation and new product development.
- Technology – risks related to the company’s reliance on technology.
- Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
- Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
- Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
- Competition – risks related to the company’s competition including substitutes.
- Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
- Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
- Economy & Political Environment – risks related to changes in economic and political conditions.
- Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
- International Operations – risks related to the global nature of the company.
- Capital Markets – risks related to exchange rates and trade, cryptocurrency.