In the conventional space, Hess Corp. operates a diverse offshore oil and gas portfolio that includes stakes in Norway’s Valhall play, the Shenzi and Pony fields in the US Gulf of Mexico (GoM), Brazil’s Tano Cape Three Points field, the Malaysia/Thailand joint development area, the Australian North West Shelf, the Andalan prospect at Semai in Indonesia, and prospects in Equatorial Guinea.

The company also is expanding its unconventional footprint.

"Unconventional oil growth is going to be increasingly important," said Greg Hill, Hess Corp.'s executive vice president and president of Worldwide E&P, in an exclusive interview after his opening keynote address at Hart Energy's 2011 Developing Unconventional Oil (DUO) Conference in May.

Hill shared his growth and diversification plans for long-term E&P operations at Hess with attendees at the annual conference. These are centered on balancing conventional and unconventional opportunities in the world's best liquid and gas basins while operating marketing and refining assets for near-term return and cash flow, he said.

Hill took part in an exclusive interview following his opening keynote address at Hart Energy’s 2011 DUO Conference in Denver, Colorado.

Hess smartly tapped Hill in January 2009 to manage a growing oil, liquids, and gas portfolio that blankets the globe at every stage of E&P.

Before joining Hess, Hill was executive vice president, Asia Pacific E&P, at Royal Dutch Shell and was responsible for US onshore and European offshore production.

Hill said he is executing his global vision for unconventional oil and gas by capitalizing on Hess' rapidly unfolding success in US tight resource plays. He also intends to leverage unconventional technology and knowhow at overseas opportunities and with partners.

According to Hill, the company has developed a profit-enhancing lean manufacturing approach and an advantaged infrastructure position in the Bakken, which should enable it to meet a 35% compound average growth rate and an 80,000 boe net daily production target in the play by 2015.

In addition to Hess' 900,000 net acre stake in the Bakken, Hill manages more than 1 million gross acres in the Paris basin, where French politics have delayed the company's 2011 drilling program. Hess also has interests in more than 2.5 million China basin acres in three emerging unconventional joint study areas.

Farther out, Hess has lined up interests in 6 million partnership acres in Australia's Beetaloo basin, where seismic shoots are scheduled to begin in 2011.

Hart Energy: Why is unconventional oil critical for the US?

Hill: Start with the energy security of the US. How many presidents have said we are addicted to foreign oil? That’s true. But for the first time in decades, US oil production is on the climb. And unconventional oil growth is going to be increasingly important.

Hart Energy: Do US unconventional resources plays have an advantage over others?

Hill: Of course, the US is the most mature of the plays. There is an advantage in regions with production experience – for instance at the Eagle Ford trend in Texas, where we are producing in the liquids-rich condensate zone versus the Paris basin in France or the Beetaloo play in Australia.

Hart Energy: What factors into Hess' acquisitions of unconventional holdings?

Hill: Firstly, we look at fundamental geology. If you don't get the rocks right, the rest doesn't matter.

Secondly, we look at geopolitical "above-ground" risk. You think about doing business in certain places. In France, we knew that the public perception was a risk we were going to have to deal with.

Thirdly, we consider the commercial construct. That includes infrastructure, which is really important for unconventional plays. Producers need access to reasonably priced infrastructure for takeaway.

Hart Energy: Which interests Hess more, unconventional oil or natural gas?

Hill: For Hess, we are more interested and more preferential to the oily plays or the condensate plays because of the obvious liquids advantages versus natural gas. That holds unless you are talking about plays in Asia, since they have a very strong market for natural gas.

For US gas prices, we are bullish long-term on natural gas, meaning we expect gas prices of US $6/MMBtu over the longer term.

Hart Energy: How does Hess prepare its oil and gas forecasts?

Hill: We use outside sources of information, but we do our own strategy planning and run our own supply and demand balances in an internal research group. If you look at the fundamentals of oil and what is driving that demand, you just don't see anything structurally that is going to cause downward pressure in the long term on oil. It's a physics problem.

Hart Energy: What does Hess see as the most important demand driver?

Hill: China. It's incredible to see it. China is trying to grow its middle class at a rate that is acceptable to society … through increasing energy consumption. But there has also been a lot of social unrest in Chinese cities associated with pollution. So they are trying to balance these two while climbing the growth curve. They are therefore looking at natural gas and unconventional resources. They want to replace coal and more to deal with the social unrest while still being able to climb the energy curve.

Hart Energy Editor Greg Haas sat down with Greg Hill, executive vice president and president of worldwide E&P at Hess, to discuss the company’s global strategy.

Hart Energy: Your DUO keynote address mentioned lean manufacturing. How does that work in unconventional resources?

Hill: We started lean manufacturing in the Bakken two years ago. We are seeing productivity gains of 25% to 30% on nearly everything we apply it to. One example is the pad drilling technique where we drill, complete, and produce all on one pad. We have been able to cut spud-to-well-on-production cycle time by 25%. There is just a lot of motion, transportation, and waste. If you analyze that in detail, you will be able to make a significant impact on cost structure and productivity. Not easy to do, and it’s something that you have to learn to do.

Hart Energy: Does the market view Hess more as an exploration play or more of a production play?

Hill: More of an exploration play. Before I arrived in 2009 and under my predecessor, John O'Connor, the company was viewed as a high-impact explorer.

When I came in, I looked at the portfolio and I said "I like that." Usually those opportunities have a "B" as in "billion" associated with their resource numbers. I like that exposure, but it's still wildcat exploration where, by definition, you are going to be wrong two-thirds of the time.

What I wanted to do was to rebalance the portfolio to give investors a little more certainty on the growth curve while giving them the beta or the upside associated with high-impact exploration.

Hart Energy: How do unconventional resources play into that?

Hill: We have rebalanced and reshifted. We direct a certain portion of our investment dollars into unconventional resource plays because of the scale, scope, and time frame. We can climb the growth ramp more predictably. Then with continued exploration in high-impact offshore areas like Ghana and Semai, investors are offered optionality for significant upside as well. We think it is a really good combination.

Hart Energy: Has visibility dimmed for offshore production?

Hill: The timing of new deepwater production in the US GoM is sliding to the right. In its favor, deepwater production does have scale, but it also has the time element. In deep water, it takes seven years to get things into development. In unconventional plays, you can be in production fairly quickly.

Hart Energy: Is the rightward GoM schedule shift a secular phenomenon?

Hill: I think it is for the industry, generally. Permitting times are just going to go up. It works just like the Department of Motor Vehicles. You submit your permit and then they raise a few intelligent questions for which you need to prepare answers. You go to the back of the queue and take another number. You wait your turn again and they may ask two or three more intelligent questions. Then you go back to the end of the queue. Not only are they understaffed, but the process is kind of broken.

Hart Energy: Is no-go or slow-go the new normal for the GoM?

Hill: I am an optimist. Things are starting to move. It will just take longer and cost more. The industry does have its well containment systems in place, so that’s not a barrier going forward. Another thing is that the BOEMRE is starting to ask for help from the industry. They are seeking referrals of any industry retirees who could assist by working there.

Hart Energy: Any sense of the magnitude of the rightward GoM shift?

Hill: We just don't know yet. We are all still obviously trying to figure it out yet. Everything moves to the right at least one year and counting.

Hart Energy: North of the border, is there a role for unconventional liquids in Canada's oil sands industry?

Hill: I think Canada will take every bit of diluent that they can get because diluents represent about 30% of a barrel of diluted bitumen. It looks like the oil sands are going through another renaissance of expansion and development. Fortunately, the Bakken is a fairly wet play. I think the nearby oil sands region makes a natural home for those liquids.

Contact the author, Greg Haas, at ghaas@hartenergy.com.