1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
COMMISSION FILE NUMBER 1-1204
_________________
AMERADA HESS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
13-4921002
(I.R.S. employer identification number)
1185 AVENUE OF THE AMERICAS, NEW YORK, N.Y.
(Address of principal executive offices)
10036
(Zip Code)
(Registrant's telephone number, including area code is (212) 997-8500)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
At September 30, 1997, 91,675,105 shares of Common Stock were outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
(in thousands, except per share data)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
--------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
REVENUES
Sales (excluding excise taxes) and
other operating revenues $1,884,578 $1,746,574 $6,115,368 $6,055,951
Non-operating revenues
Asset sales -- 100,262 16,463 529,271
Other 16,719 23,060 64,388 60,978
---------- ---------- ---------- ----------
Total revenues 1,901,297 1,869,896 6,196,219 6,646,200
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of products sold and operating expenses 1,377,183 1,284,545 4,608,670 4,526,936
Exploration expenses, including dry holes 112,013 64,464 241,336 187,639
Selling, general and administrative expenses 168,154 149,824 476,034 451,526
Interest expense 33,819 33,594 101,226 128,301
Depreciation, depletion, amortization
and lease impairment 173,176 166,733 541,002 551,841
Provision for income taxes 14,273 72,909 159,027 259,706
---------- ---------- ---------- ----------
Total costs and expenses 1,878,618 1,772,069 6,127,295 6,105,949
---------- ---------- ---------- ----------
NET INCOME $ 22,679 $ 97,827 $ 68,924 $ 540,251
========== ========== ========== ==========
NET INCOME PER SHARE $ .25 $ 1.05 $ .75 $ 5.80
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 91,765 93,159 92,352 93,101
COMMON STOCK DIVIDENDS PER SHARE $ .15 $ .15 $ .45 $ .45
See accompanying notes to consolidated financial statements.
1
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PART I - FINANCIAL INFORMATION (CONT'D.)
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
A S S E T S
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 130,570 $ 112,522
Accounts receivable 636,840 848,129
Inventories 1,108,311 1,272,312
Other current assets 197,946 193,881
------------ ------------
Total current assets 2,073,667 2,426,844
------------ ------------
INVESTMENTS AND ADVANCES 239,745 218,573
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
Total - at cost 12,224,761 11,902,419
Less reserves for depreciation, depletion,
amortization and lease impairment 7,215,181 6,995,136
------------ ------------
Property, plant and equipment - net 5,009,580 4,907,283
------------ ------------
DEFERRED INCOME TAXES AND OTHER ASSETS 314,912 231,781
------------ ------------
TOTAL ASSETS $ 7,637,904 $ 7,784,481
============ ============
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
CURRENT LIABILITIES
Accounts payable - trade $ 597,553 $ 666,172
Accrued liabilities 448,241 501,369
Deferred revenue 2,003 103,031
Taxes payable 308,794 258,723
Notes payable 54,529 18,000
Current maturities of long-term debt 159,685 189,685
------------ ------------
Total current liabilities 1,570,805 1,736,980
------------ ------------
LONG-TERM DEBT 1,780,468 1,660,998
------------ ------------
CAPITALIZED LEASE OBLIGATIONS 37,939 50,818
------------ ------------
DEFERRED LIABILITIES AND CREDITS
Deferred income taxes 577,466 616,900
Other 381,375 335,154
------------ ------------
Total deferred liabilities and credits 958,841 952,054
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00
Authorized - 20,000,000 shares for issuance in series -- --
Common stock, par value $1.00
Authorized - 200,000,000 shares
Issued - 91,675,105 shares at September 30,1997;
93,073,305 shares at December 31, 1996 91,675 93,073
Capital in excess of par value 754,987 754,559
Retained earnings 2,570,558 2,613,920
Equity adjustment from foreign currency translation (127,369) (77,921)
------------ ------------
Total stockholders' equity 3,289,851 3,383,631
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,637,904 $ 7,784,481
============ ============
See accompanying notes to consolidated financial statements.
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4
PART I - FINANCIAL INFORMATION (CONT'D.)
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Nine Months Ended September 30
(in thousands)
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 68,924 $ 540,251
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion, amortization and lease impairment 541,002 551,841
Exploratory dry hole costs 151,464 100,835
Pre-tax gain on asset sales (16,463) (529,271)
Changes in operating assets and liabilities 225,107 19,398
Deferred income taxes and other items (48,967) (13,359)
----------- -----------
Net cash provided by operating activities 921,067 669,695
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (934,289) (610,038)
Proceeds from asset sales and other 56,994 998,358
----------- -----------
Net cash provided by (used in) investing activities (877,295) 388,320
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable 38,712 (90,046)
Long-term borrowings 236,000 --
Repayment of long-term debt and capitalized lease obligations (156,310) (885,054)
Cash dividends paid (55,386) (55,750)
Common stock acquired (86,240) (152)
----------- -----------
Net cash used in financing activities (23,224) (1,031,002)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,500) 1,680
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 18,048 28,693
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 112,522 56,071
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 130,570 $ 84,764
=========== ===========
See accompanying notes to consolidated financial statements.
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5
PART I - FINANCIAL INFORMATION (CONT'D.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Note 1 - The financial statements included in this report reflect all
normal and recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the
Company's consolidated financial position at September 30,
1997 and December 31, 1996, and the consolidated results of
operations for the three and nine-month periods ended
September 30, 1997 and 1996 and the consolidated cash flows
for the nine-month periods ended September 30, 1997 and 1996.
The unaudited results of operations for the interim periods
reported are not necessarily indicative of results to be
expected for the full year.
Certain notes and other information have been condensed or
omitted from these interim financial statements. Such
statements, therefore, should be read in conjunction with the
consolidated financial statements and related notes included
in the 1996 Annual Report to Stockholders, which have been
incorporated by reference in the Corporation's Form 10-K for
the year ended December 31, 1996.
Note 2 - Inventories consist of the following:
September 30, December 31,
1997 1996
---------- ----------
Crude oil and other charge stocks $ 351,794 $ 441,071
Refined and other finished products 644,957 734,141
Materials and supplies 111,560 97,100
---------- ----------
Total inventories $1,108,311 $1,272,312
========== ==========
Note 3 - The provision for income taxes consisted of the following:
Three months Nine months
ended September 30 ended September 30
-------------------------- --------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Current $ 30,281 $ 56,756 $ 175,687 $ 234,532
Deferred (16,008) 16,153 (16,660) 25,174
--------- --------- --------- ---------
Total $ 14,273 $ 72,909 $ 159,027 $ 259,706
========= ========= ========= =========
Note 4 - Foreign currency exchange transactions are reflected in
selling, general and administrative expenses. The net effect
on income, after applicable income taxes, amounted to gains of
$1,045 and $596, respectively, for the three and nine-month
periods ended September 30, 1997 compared to gains of $282 and
$2,925 for the corresponding periods of 1996.
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PART I - FINANCIAL INFORMATION (CONT'D.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Note 5 - The Corporation uses futures, forwards, options and swaps to
reduce the impact of fluctuations in the prices of crude oil,
natural gas and refined products. These contracts correlate to
movements in the value of inventory and the prices of crude
oil and natural gas, and as hedges, any resulting gains or
losses are recorded as part of the hedged transaction. Net
deferred losses resulting from the Corporation's hedging
activities were approximately $27,000 at September 30, 1997,
including $14,000 of unrealized losses.
Note 6 - Interest costs related to certain long-term construction
projects have been capitalized in accordance with FAS No. 34.
During the three and nine-month periods ended September 30,
1997, interest costs of $2,402 and $5,689, respectively, were
capitalized. There were no interest costs capitalized for the
corresponding periods of 1996.
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PART I - FINANCIAL INFORMATION (CONT'D.)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS
Income excluding asset sales for the third quarter of 1997
amounted to $23 million compared with $27 million for the third quarter
of 1996. Income excluding asset sales for the first nine months of 1997
was $58 million compared with $119 million for the first nine months of
1996.
The after-tax results by major operating activity for the
three and nine month periods ended September 30, 1997 and 1996 were as
follows (in millions):
Three months Nine months
ended September 30 ended September 30
------------------ ------------------
1997 1996 1997 1996
----- ----- ----- -----
Exploration and production $ 29 $ 22 $ 190 $ 121
Refining, marketing and shipping 32 37 (21) 116
Corporate (9) (3) (23) (14)
Interest expense (29) (29) (88) (104)
----- ----- ----- -----
Income excluding asset sales 23 27 58 119
Net gains on asset sales -- 71 11 421
----- ----- ----- -----
Net income $ 23 $ 98 $ 69 $ 540
===== ===== ===== =====
Net income per share $ .25 $1.05 $ .75 $5.80
===== ===== ===== =====
Exploration and production earnings in the third quarter of
1997 include income of $11 million from adjustment of United Kingdom
deferred tax liabilities reflecting a reduction in the statutory income
tax rate. The asset sale in the first nine months of 1997 represents
the sale of a small onshore United States natural gas property. The
1996 asset sales reflect sales of certain United Kingdom and United
States oil and gas properties and the Corporation's Canadian and Abu
Dhabi operations.
Excluding asset sales, earnings from exploration and
production activities increased by $7 million in the third quarter of
1997 compared with the third quarter of 1996. The effective income tax
rate on foreign exploration and production earnings was lower in 1997
reflecting the reduction in the statutory Corporate income tax rate
in the United Kingdom and lower Petroleum Revenue Taxes ("PRT") due to
reduced production volumes from PRT paying fields and increased
deductible allowances.
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PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
Worldwide crude oil and natural gas production increased from third
quarter 1996 levels and natural gas selling prices were also higher.
Partially offsetting these factors were increased exploration expenses
of approximately $48 million, principally as a result of increased
exploration activity in the United States and United Kingdom. In
addition, average worldwide crude oil selling prices were lower in the
third quarter of 1997 than in 1996.
Exploration and production earnings increased by $69 million
in the first nine months of 1997 compared with the corresponding period
of 1996. The increase was primarily due to higher average worldwide
crude oil and natural gas selling prices and a lower effective income
tax rate in the United Kingdom, partially offset by increased
exploration expenses. Exploration expenses were higher as a result of
increased activity in the United Kingdom and other international areas,
partially offset by lower exploration expense in the United States. It
is anticipated that exploration expenses for the full year will exceed
the 1996 amount. Increased income taxes on another foreign subsidiary
which has utilized its net operating loss carryforward partially
offset the lower United Kingdom taxes.
The Corporation's average selling prices, including the
effects of hedging, were as follows:
Three months Nine months
ended September 30 ended September 30
------------------- -------------------
1997 1996 1997 1996
------ ------ ------ ------
Crude oil and natural gas liquids
(per barrel)
United States $17.89 $15.55 $18.81 $15.59
Foreign 18.61 20.27 19.29 19.15
Natural gas (per Mcf)
United States(*) 2.31 2.13 2.38 2.33
Foreign 2.06 1.93 2.28 1.78
(*) Includes sales of purchased gas.
The increase in the United States crude oil selling price
indicated above largely reflects improved hedging results in 1997. The
average foreign natural gas price in the first nine months of 1996
reflects the inclusion of lower priced Canadian gas prior to the sale
of the Corporation's Canadian operations in April 1996.
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9
PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
The Corporation's net daily worldwide production was as
follows:
Three months Nine months
ended September 30 ended September 30
1997 1996 1997 1996
------- ------- ------- -------
Crude oil and natural gas liquids
(barrels per day)
United States 44,442 43,168 43,497 51,816
Foreign 172,958 167,406 176,496 182,546
------- ------- ------- -------
Total 217,400 210,574 219,993 234,362
======= ======= ======= =======
Natural gas (Mcf per day)
United States 303,485 285,089 314,254 348,838
Foreign 160,388 166,018 244,238 352,417
------- ------- ------- -------
Total 463,873 451,107 558,492 701,255
======= ======= ======= =======
United States crude oil and natural gas production was lower
in the nine months ended September 30, 1997, principally reflecting the
effect of asset sales in 1996. Foreign asset sales in 1996,
particularly the sale of the Corporation's Canadian operations reduced
foreign crude oil and natural gas production.
The Corporation's exploration and production earnings will
continue to be subject to changes in the selling prices of crude oil
and natural gas, the level of exploration spending, the extent of field
maintenance, effective income tax rates and other factors.
Refining, marketing and shipping operations had income of $32
million in the third quarter of 1997 compared with $37 million in the
third quarter of 1996. Refined product margins were comparable in each
period as selling prices and related product costs were lower by
approximately $1.00 per barrel in 1997. However, the Corporation's
fluid catalytic cracking facility in the Virgin Islands was temporarily
shutdown for unscheduled maintenance in the third quarter. The cost of
repairs and incremental product cost was approximately $8 million.
In the first nine months of 1997, refining, marketing and
shipping operations incurred a loss of $21 million compared with income
of $116 million in the first nine months of 1996. The decrease was
primarily due to lower margins for distillates and residual fuel oils
in the first half of the year, primarily reflecting the relatively mild
winter on the east coast of the United States. A substantial amount of
the refining and marketing results in each period related to a refining
subsidiary for which income taxes or benefits are not provided due to a
cumulative loss carryforward. Refined product sales volumes amounted to
approximately 139 million barrels in the first nine months of each
year. Refining and marketing earnings will continue to be volatile
reflecting industry conditions.
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10
PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
Corporate expenses increased to $9 million and $23 million in
the third quarter and first nine months of 1997 compared with $3
million and $14 million in the corresponding periods of 1996. The
change was primarily due to the benefit from Corporate income tax
adjustments in 1996.
After-tax interest expense in the third quarter of 1997 was
comparable to the amount in the third quarter of 1996. In the first
nine months of 1997, after-tax interest decreased by 15% compared with
the corresponding period of 1996, due to lower debt levels.
Sales and other operating revenues increased by 8% in the
third quarter of 1997, principally reflecting higher gasoline sales
volumes. Sales and other operating revenues in the first nine months of
1997 and 1996 were comparable. Non-operating revenues included asset
sales of $16 million in the first nine months of 1997 compared with
$529 million from the Corporation's program of asset sales in 1996.
Selling, general and administrative expenses were higher in the third
quarter and nine months of 1997, primarily reflecting increased
gasoline station operating costs, including the costs of operating the
chain of Florida retail marketing properties acquired in June. Selling,
general and administrative expenses also include approximately $21
million and $19 million in the first nine months of 1997 and 1996,
respectively, for the Corporation's financial reengineering project and
related systems and software upgrade.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities, including changes
in operating assets and liabilities, amounted to $921 million in the
first nine months of 1997 compared with $670 million in the first nine
months of 1996. The increase was primarily due to changes in working
capital items, particularly inventories. Cash flow, excluding asset
sales and changes in working capital components, amounted to $734
million and $797 million in the respective periods. In 1996, the
Corporation generated proceeds from asset sales of approximately $1
billion, resulting in a substantial decrease in debt.
Total debt was $2,053 million at September 30, 1997 compared
with $1,939 million at December 31, 1996, resulting in debt to total
capitalization ratios of 38.4% and 36.4%, respectively. At September
30, 1997, the Corporation had additional borrowing capacity available
under its revolving credit agreement of $1,236 million and additional
unused lines of credit under uncommitted arrangements with banks of
$441 million.
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PART 1 - FINANCIAL INFORMATION (CONT'D.)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Since inception of the Corporation's stock repurchase program
in August 1996, through September 30, 1997, 1,828,900 shares have been
purchased at a cost of approximately $95 million, including $86 million
in 1997.
The Corporation uses futures, forwards, options and swaps to
reduce the effects of fluctuations in the prices of crude oil, natural
gas and refined products. These instruments are used to set the selling
prices of crude oil, natural gas and refined products and the related
gains or losses are an integral part of the Corporation's selling
prices. At September 30, 1997, the Corporation had open hedge positions
equal to 10% of its estimated worldwide crude oil production over the
next twelve months. The Corporation also had open contracts equal to
23% of its estimated United States natural gas production over the next
twelve months. The Corporation had hedges covering 21% of its refining
and marketing inventories and had additional short positions
approximating 4% of refined products to be manufactured in the next
twelve months. As market conditions change, the Corporation will adjust
its hedge positions.
Capital expenditures in the first nine months of 1997 amounted
to $934 million compared with $610 million in the first nine months of
1996. Capital expenditures in 1997 include $177 million for the
acquisition of oil and gas properties in the United Kingdom North Sea
and a chain of retail marketing properties in Florida. 1997
expenditures also reflect increased development spending for
substantial new oil and gas production expected to come on stream in
late 1998 and 1999. Capital expenditures for exploration and production
activities were $794 million in the first nine months of 1997,
including the acquisition of oil and gas properties described above,
compared with $574 million in the first nine months of 1996.
In October 1997, the Corporation and its partners in the Beryl
Field reached agreement on the acquisition of additional oil and gas
properties in the United Kingdom North Sea. The acquisition consists of
varying interests in three undeveloped oil and gas fields, along with
exploration acreage, at a cost to the Corporation of $65 million. The
transaction is scheduled to be completed by year-end. The Corporation
also announced an agreement to sell its .83% interest in a Norwegian
oil field (including satellite fields) for approximately $23 million.
Capital expenditures for the remainder of 1997 are currently
expected to be approximately $450 million, including the fourth quarter
acquisition described above. The majority of the expenditures are
expected to be financed by internally generated funds and the remainder
by increased long-term borrowings.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As reported in Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, on September 24, 1996, Region II
of the Environmental Protection Agency ("EPA") commenced an
administrative proceeding against Registrant and its wholly-owned
subsidiary, Hess Oil Virgin Islands Corp. ("HOVIC"), alleging that
HOVIC did not determine whether two wastes generated from maintenance
activities at HOVIC's refinery were hazardous, and that on six
occasions in 1994, such wastes were placed on HOVIC's land treatment
units in violation of federal land disposal restrictions regulations.
The proceeding sought civil penalties of $165,917. Effective September
18, 1997, HOVIC and the EPA entered into a consent agreement in full
settlement of all civil liabilities that might have attached as a
result of the allegations in EPA's complaint. Pursuant to the consent
agreement, HOVIC paid a civil penalty of $74,000, without admitting
EPA's allegations in its complaint or EPA's findings of fact or
conclusions of law in the consent agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
The Registrant filed no report on Form 8-K during the three
months ended September 30, 1997.
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13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERADA HESS CORPORATION
(REGISTRANT)
By /s/ John B. Hess
-----------------------------
JOHN B. HESS
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
By /s/ John Y. Schreyer
-----------------------------
JOHN Y. SCHREYER
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: November 10, 1997
12
5
1,000
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
130,570
0
636,840
0
1,108,311
2,073,667
12,224,761
7,215,181
7,637,904
1,570,805
1,780,468
0
0
91,675
3,198,176
7,637,904
6,115,368
6,196,219
4,608,670
4,608,670
0
0
101,226
227,951
159,027
68,924
0
0
0
68,924
.75
.75
