Exploring Success in Shale Zhiyong Zhao, Vice President, Hess Corp

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Three Pronged Strategy to Drive Growth

Unconventional • Bakken free cash flow positive

in 2015 • Large inventory of high return

Bakken well locations • Leading position in emerging

Utica shale play

Exploitation • High return infill drilling opportunities • Tubular Bells first oil expected

mid 2014 • North Malay Basin early production

commences 4Q13; full field in 2017

Exploration • Geographically focused • Ghana – 7 consecutive discoveries;

appraisal to commence in 2014 • Large lease inventory in deepwater

Gulf of Mexico (~200 blocks)

Mbo

e/d

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Hess Shale Strategy

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Growing Shale Portfolio

Paris Basin • ~650,000 net acres • 3 vertical wells in 2013

Utica Shale • ~135,000 net acres • ~30 wells in 2013

China • JSAs in the east China • PSC signed with CNPC for ~200,000 acres in Santanghu Basin

Bakken Shale • ~645,000 net acres • 14 rig program in 2013

Canning Basin • ~30 MM net acres • Processing aeromagnetic survey in 2013

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Technology Focus - Shale

Sweet spot identification

Rock mechanics

QA / QC of microseismic

Reduced Footprint

Water handling

Drill Cutting disposal

Emissions

In-Place Resource

Pay Indicators

Rock / Fluid Typing

Cutting handling

Well Factory Efficiency

Safety

Production Analysis

Coupled flow Geomechanics

Re-Perm, SCAL, PVT

Simulation

Env. Friendly Drilling

Multi-laterals

Stimulations

Frac technologies

Production logging

Geo-Steering

Reservoir Characterization

Life-Cycle Water Mgmt.

Petroleum Systems

GeoModeling Shale

Technology Focus

Environment

Geoscience

Petrophysics

Operations & Facilities

Drilling & Completions

Reservoir Engineering

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The Challenge

Tight Gas Tight Oil Conventional

Shale Plays

How can liquid production be enhanced in low permeability formations?

Bigger Initial Production and greater Recovery at reduced costs

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Shale oil characteristics

Hydrocarbon liquids found in low permeability formations • Shales, siltstones, sandstones and carbonates

Resource unlocked by technology application similar to shale gas • Horizontal drilling

• Multi-stage hydraulic fracturing

• Pad drilling

First mover play was the Bakken, in North Dakota • Currently at 1 million bbl/d with ~1,000+ wells completed

Other plays are fast followers - Eagle Ford, Utica, Niobrara, Permian …

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Development of technology

1821 1821

First Frac’ed shale gas well

Fredonia, New York

1947

First Commercially Frac’ed well in US

Development of downhole Motors accelerates – key to

Directional drilling

1970’s 1980’s

First commercial Horizontal wells

2000

Initial development of Barnett Shale

2002-2008

Multi-stage fracturing emerges for both vertical

and horizontal wells

Trial & Error approach

2012 +

Gel Fracs Foam Fracs Gas Fracs

1990

Modified from US Dept of Energy, EIA, 2010

Macro Micro Science Nano Science

Gas production increases as Technology improves

2009

Liquid Rich Shales Evolution

Multi-well Pads

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Technology impact on shale oil

2000 2010 2020 2030

Oil

Rec

over

y %

? • Long laterals 3,000 meters + • High flow capacity proppant • Multiport frac sleeves

• Artificial lift for horizontals • Sweet-Spot identification • Green frac fluids • Enhanced proppants • Full physics based modeling • Improved system conductivity • Extended reach wells > 6,000 m • EOR processes • Improved wellbore integrity • Waterless fracturing

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North Dakota Bakken Shale

Asset Details •645,000 net acres

•Current net production ~70 MBOED

•Goal of net production ~120 Mboe/d in 2016

•Typical well interest (Working Interest / Net Royalty Interest)

- Operated: 80% / 65% - Non-Operated : 12% / 10%

•Producing wells - 626 Operated, 663 Non-Operated

•Operating 14 drilling rigs

•Driving value through ‘Lean’ manufacturing and technology

•Well cost and productivity heading to industry leading position

•Play at early stage – material value upside yet to come

Red Sky

Avalanche

East Nesson

Keene

Stony Creek

Buffalo Wallow

Little Knife

Murphy Creek

Panther

Goliath

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Drilling and Completions

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10,000’ TVD; 20,000’ MD; Geo-steering 25-30 Days/Well Drilling Hess Drilling ~170 wells/year

Up to 38 Sleeve Frac Stages/Well 60k lbs Sand per Frac Hess Pumps ~6,000 Frac Stages/year

Typical Well - Completion Typical Well - Drilling

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Drilling

• Education & Training

• Real Time MSE use

• Optimum drilling parameters

• Drilling system optimization

• One-bit run whole section

• Limiter identification

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Technology Optimizes Completions

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• Multi-stage sleeve system first used in Bakken in 2008 • Thoroughly tested and field proven technology • Eliminates cementing and perforating operations • Continuous fracturing operations • Primary and re-fracturing applications • Open or Cased hole • New technology will allow 40+ stages

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Reservoir Assessment

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Net/Gross Thickness Estimated OOIP/Section

Total Organic Carbon (TOC) Maturity (Vitrinite Reflectance)

Organic Porosity

HC Filled Porosity

Mineralogy - Brittleness

Reservoir Pressure Fractures – Ability to Fracture

Source Rock Type (I,II,III,IV)

Inorganic Porosity

GOR Viscosity

Resource Generation

Storage

Deliverability

Bakken Core Photos

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Micro-Seismic Application

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• Microseismic of 42 Frac Stages, Showing Induced Fractures

• Vertical Observation Wells Used to Monitor Seismic Events

Well Bores

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Geophysics - Subsurface Imaging

Standard VHF Lumina

New Seismic Processing to increase resolution using sound wave harmonics

Lumina processing technology uses Music Theory of sound waves having multiple harmonics. Each harmonic is processed separately then combined resulting in increased resolution

Relating seismic attributes to Productivity

Evaluation of > 90 seismic attributes using cluster analysis and multivariate statistics result in a high correlation to 90-day cumulative production

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Seismic Application Improves Well Performance Seismic Dip Top Bakken

Dip Change Indicates Higher Fracture/Subseismic Faulting Probability – Observed During Drilling as Gas/Oil Influx

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Seismic Through Simulation Workflows Understanding Unconventional Rock, Improving Predictions & Maximizing Recovery

Seismic & Geology Static DFN Geo-Stress Microseismic Stimulated DFN Reservoir Simulation

(Petrel) (Petrel or Fracman) (Visage or Abaqus) (Petrel) (Eclipse or Intersect) (MShale, Mangrove, or Abaqus)

‘Small-scale’ Effects Large-scale Heterogeneity Enrichment Using Advanced Numerical Simulation

Cohesive Elements (FEA) Discrete Elements (DEM)

Molecular Dynamics (MD) Computational Fluid Dynamics (Finite Volume)

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Lean Manufacturing

Plan

Do

Check

Adjust

1) Establish “Standard” Design/Procedures • Robust Well Design

• Disciplined Work Flow

2) Select Metrics & Track Performance

•Cycle time (costs) •Defects (rework)

3) Identify Improvements • Celebrate/Reward Transparency • Find Root Causes of Problems

4) Implement Modifications •Change Specs

•Modify Procedures

Culture – Engage Workforce; Create Transparency; Relentlessly Improve

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FRAME ASSEMBLY

PAINT DELIVER TO CUSTOMER

WINDOW ASSEMBLY

DOORS & EXTERIOR

INTERIOR ASSEMBLY

WHEEL ASSEMBLY

The Automobile Assembly Line

The objectives of the assembly line

• Operate safely

• Continually improve quality

• Meet takt time (rate of production to meet customer demand)

• Continually reduce cycle time & cost

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WELL SCOPING

WELL PLANNING

HANDOVER TO OPS

FLOWBACK FRACKING DRILLING SITE CONSTRUCTION

The Well Factory Assembly Line

PERMIT

RIGHT

OF

WAY

LEASEPERMIT

RIGHT

OF

WAY

PERMIT

RIGHT

OF

WAY

PERMITPERMIT

RIGHT

OF

WAYRIGHT

OF

WAY

LEASELEASE

The objectives of the well factory

• Strive for perfect safety and environmental record

• Hand over perfect wells to Operations

• Meet takt time

• Continually shorten cycle time and reduce costs make money faster!

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Also Requires Complete System Perspective

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Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Reducing Bakken Well Costs…

…While Optimizing Well Productivity

Hess Wells

Peer Wells

Hess has 11 of the Top 25 (or 18 of Top 50) Wells in the Bakken

Drilling Performance: Spud-to-Spud (Days) Drilling & Completion Costs ($ MM)

Bakken Production and Well Delivery Highlights

30-Day Initial Production Rate (BOPD) Average 90-Day Initial Production Rate (MBO)

40% Improvement 37% Improvement

~100% Improvement Industry Data

Hess Data

Source: NDIC, Hess

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The Hess Shale Story

•Shale resource development is leading to a new era of accessible and safe energy supplies around the world

•Hess applies industry leading technology to develop innovative solutions

•Hess respects the environment and ensures the health/safety of our people, partners and the community

•We work hard to be a trusted partner in communities where we operate

•Shale plays create jobs and positive economic effects

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