Hess Corporation

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Hess is one of the largest operators in the Bakken Shale. The company was well position with acreage that was already held by production when the Bakken boom began expanding into North Dakota in the mid-2000s. Hess has approximately 800,000 net acres targeting the North Dakota Bakken Shale. The company is cut its development program back in 2013, but operated 16 rigs throughout 2012. The company plans to continue expanding its infrastructure assets and has a goal of reaching 120,000 b/d or production.

Production from the Bakken has grown from less than 10,000 b/d in 2008 to more than 50,000 b/d in 2012. All while drilling times have fallen. The company’s number of days from spud to total depth (TD) has fallen from 37 days to less than 32 days since mid-2011. Drilling and completion costs have also fallen from $13 million to less than $10 million during the same time frame.

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Hess Corporation Bakken Shale Quarterly Commentary

November 2, 2012

Net production from the Bakken averaged 62,000 boe/d in the third quarter, an increase of 94% over the year ago. And we shipped approximately 37,000 barrels per day of crude oil from our Tioga rail-loading facility to higher value markets to improve price realizations.

In addition, we are currently evaluating the feasibility of building a rail unloading facility at our Port Reading, New Jersey complex to market Bakken crude oil on the East Coast.

Now we expect production guidance for 2012 for the Bakken to average between 54,000-58,000 boe/d. Our main focus is on capital efficiency. And as a result, we’ve reduced average drilling complete cost to $9.5 million in the third quarter. That’s reference to $13.4 million in the first quarter. The 29% reduction was primarily driven by the switch to providing fleet completion designs, which was used in nearly all of our wells in the third quarter. Looking forward in the fourth quarter, our HBP drilling will be substantially completed, and therefore, we expect to see further decreases in our average well costs as we transition to pad drilling. And currently, 15 of our 16 rigs are operating in pad drilling mode. The switch to pad drilling is going to allow us to further improve our capital efficiency and optimize the pace of development. Our approach is going to be to sequentially drill a number of wells on a pad using a walking rig; then once drilling operations are finished, we will move completion crews in to then sequentially fracture the wells. Now this will lead to the temporary flattening of the production profile until mid-2013, at which steady-state operations will allow us to resume our upward growth trajectory. So the production curve in 2013 will be a bit back-end loaded. Now we believe that this lean manufacturing approach will result in significant efficiency gains and cost savings and further improve our returns in the Bakken.

I think the 30-day average IPs from this new sliding sleeve design, which is 25 to 34 stage, are slightly lower, they’re 800 to 900 boe/d. I think with regard to EURs, we continue to think that 500 to 600 is a good average used for the entire acreage position. However, as we focus on higher quality parts of the play in 2013, we expect EURs in the Middle Bakken to be closer to 600,000 to 700,000 barrels.

…The Tioga Gas Plant side for extracting liquids out of the natural gas we’re going to have there, because Bakken associated gas is very rich in content of NGLs and LPGs.

So for the Bakken right now, we plan on spending approximately $750 million this year on infrastructure. And again, that’s going to be infill pipelines. You’ve got your gas plant. You’ve got the rail facility. And obviously, we had spent some of that beforehand. There’s various rate years that are used for the DD&A. I’d say you’ve got a 20- to 25-type year depreciation on those facilities.