Business model of Hess Corporation

Customer Segments

Hess provides a range of products and services to commercial customers operating primarily in the oil and gas sector. The Company’s two operating segments serve different customers segments:

• Exploration and Production, which sells crude oil, natural gas, and natural gas liquids to companies operating across the automotive, aviation, chemicals processing, refining, and fuel and lubricants markets, among others;
• Bakken Midstream, which provides a range of midstream services to various industrial customers, including oil and natural gas producers, natural gas liquid and natural gas gathering and processing companies, propane distributors, ethanol producers, petrochemical and refining companies, natural gas distribution companies, electric-generation facilities, large industrial companies, and marketing companies.

Hess also serves certain government bodies, including municipal, state, and federal organisations. The Company does not name any of its major clients on its website.

Hess principally provides products and services to customers in its domestic market of the US. The Company also serves clients across three other geographic categories: Africa, Europe, and Asia and Other Countries.

Value Propositions

Hess provides value to its customers in the following ways:

• Its industry standing and track record, with the Company established as a reliable and efficient supplier of crude oil, natural gas, and natural gas liquids, as well as related services, having a positive reputation within the oil and gas industry
• Its portfolio of products and services, with the Company providing services to a broad spectrum of industries, including processing, fractionation, terminaling and loading, and transportation services;
• Its international reach, with the Company serving an extensive customer base in the US, as well as an international network of clients across Africa, Europe, and Asia, as well as in certain other jurisdictions;
• Its technology and processes, with the Company employing state-of-the-art processes and technologies across its operating segments and facilities to ensure that it is able to provide effective and reliable services to its customers; and
• Its industry expertise and experience, with the Company employing specialist technical personnel across its operating segments and facilities, as well as a team of experienced industry executives.

Channels

Hess operates a website at www.hess.com, through which it provides information on its various products, services, and operating locations. The Company does not operate an online sales channel, nor does it provide customers with an online customer portal.

Hess operates an in-house direct sales force, which is organised by geographic region and operating department. These sales personnel deal directly with the Company’s customers and operate of the Company’s international network of office, including its principal offices in New York, Houston, and Kuala Lumpur, as well as an international network of local and regional offices spanning the Americas, Africa, Europe, and Asia. Hess’s Bakken Midstream segment provides services directly to customers through its own dedicated sales and service teams.

Hess operates its own exploration and production assets, primarily across the US, Europe, and Africa, as well as parts of Asia and Latin America. The Company also operates its own processing and distribution infrastructure, including various refining, terminaling, storage, pipeline, and distribution facilities around the world.

Customer Relationships

Hess does not provide products and services to its customers on a self-service basis. The Company makes its sales through its own in-house sales personnel, who consult directly with clients in order to fully ascertain their individual needs and conditions. The Company works closely with its large commercial clients, seeking to establish longstanding relationships and secure recurring business.

Hess provides support to its customers through dedicated account management teams and account executives, who serve as the first point of contact. The Company also provides contact details for all of its offices around the world, enabling customers to contact the relevant offices with queries and concerns. New and existing customers can also make enquires with the Company through an online contact form.

Additionally, Hess provides a range of online support resources. This includes media, news coverage, project information, and sustainability information. Customers can also follow the Company’s operations, and interact with staff directly, through its social media accounts, including with Facebook, Twitter, LinkedIn, and YouTube

Key Activities

Hess is an oil and gas exploration and production company. The Company is engaged in exploration, development, production, transportation, processing, and the purchase and sale of crude oil, natural gas liquids, and natural gas.

Hess operates through two reportable business segments: Exploration and Production, which is engaged in the sale of crude oil, natural gas liquids and natural gas; and Bakken Midstream, which provides services, including crude oil and natural gas gathering, processing, fractionation of natural gas liquids, transportation of crude oil by rail car, terminaling and loading crude oil and natural gas liquids, and the storage and terminaling of propane, primarily through facilities located in the Bakken shale play of North Dakota.

Hess has production operations located in the US, Denmark, Equatorial Guinea, the Joint Development Area of Malaysia and Thailand, Malaysia and Norway, and serves an international customer base.

Key Partners

Hess works in conjunction with a range of companies and organisations that support and supplement the Company’s services across its operating segments. These partners can be categorised broadly as:

• Supplier and Vendor Partners, including suppliers of materials, equipment, services tools, and technologies that are used in the Company’s various production, processing, and distribution operations;
• Manufacturing and Contracting Partners, including oil and gas production companies and other contracting firms that work with the Company on various production projects around the world;
• Joint Venture Partners, including oil and gas companies across the production and distribution chain with which the Company jointly provides services and products through mutually owned entities; and
• Sustainability and Community Partners, including various non-profits and charitable organisations, with which the Company collaborates on sustainability and community projects worldwide.

Hess has a number of joint venture partnerships in place, including a 50/50 operation with a subsidiary of Petroleos de Venezuela SA. The Company has also recently partnered with Exxon Mobil on an exploration project, and agreed a farm-out deal with Kosmos Energy in Suriname.

Key Resources

Hess’s key resources are its materials and supply chains, its operating and exploration licenses and permits, its exploration and production equipment and infrastructure, its midstream and distribution infrastructure, its sales channels, its partnerships, and its personnel.

Hess owns and or leases a range of physical properties and facilities around the world that are key to its ongoing activities. This notably includes its production and exploration assets, as well as its network of offices, its pipeline network, its processing and refining facilities, its storage and distribution centres, its terminaling infrastructure, and its rail loading facilities.

Despite its use of technology and state-of-the-art equipment, searches of records published by the US Patent and Trademark Office identified no patent applications filed in Hess’s name.

Cost Structure

Hess incurs costs in relation to the procurement of materials and equipment – including the purchase of crude oil, the operation of its exploration and production assets, the operation of it midstream and distribution infrastructure, the operation of its sales channels, the management of its partnerships, and the retention of its personnel.

In 2015 Hess recorded cost of products sold in the amount of $1.29 billion and total operating costs and expenses in the amount of $2.03 billion. The Company also accrued exploration costs totalling $881 million and general and administrative costs in the amount of $557 million.

Revenue Streams

Hess generates revenue through the operation of oil and gas exploration and production assets, as well as midstream and distribution services. The Company’s revenue can be divided into two principal streams:

• Sales revenue derived from the sale of crude oil, natural gas, and natural gas liquids; and
• Service revenue derived from long-term, fee-based service agreements for its midstream services.

In 2015 Hess generated annual revenue of $6.64 billion, down on the $10.74 billion recorded by the Company in 2014. The Company attributed this to reduced drilling activity and divestment of certain assets. The majority of the Company’s revenue, around $5.90 billion, was generated through the sale of Crude oil and natural gas liquids, with natural gas sales accounting for just $1.05 billion.