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 March 31, 1998
/ / 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
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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 March 31, 1998, 91,390,005 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
Three Months Ended March 31
(in thousands, except per share data)
1998 1997
----------- -----------
REVENUES
Sales (excluding excise taxes) and other operating revenues $ 1,825,789 $ 2,396,830
Non-operating revenues
Asset sales 80,321 --
Other 16,876 19,268
----------- -----------
Total revenues 1,922,986 2,416,098
----------- -----------
COSTS AND EXPENSES
Cost of products sold and operating expenses 1,411,373 1,872,074
Exploration expenses, including dry holes and lease impairment 104,467 61,788
Selling, general and administrative expenses 178,486 145,324
Interest expense 33,988 33,652
Depreciation, depletion and amortization 161,769 188,462
Provision for income taxes 45,497 110,210
----------- -----------
Total costs and expenses 1,935,580 2,411,510
----------- -----------
NET INCOME (LOSS) $ (12,594) $ 4,588
=========== ===========
NET INCOME (LOSS) PER SHARE
BASIC $ (.14) $ .05
=========== ===========
DILUTED $ (.14) $ .05
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 90,079 92,712
COMMON STOCK DIVIDENDS PER SHARE $ .15 $ .15
See accompanying notes to consolidated financial statements.
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PART I - FINANCIAL INFORMATION (CONT'D.)
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
ASSETS
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 79,538 $ 91,154
Accounts receivable 726,724 993,098
Inventories 826,874 937,949
Other current assets 189,269 181,431
------------ ------------
Total current assets 1,822,405 2,203,632
------------ ------------
INVESTMENTS AND ADVANCES 259,214 250,458
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
Total - at cost 12,811,126 12,621,635
Less reserves for depreciation, depletion,
amortization and lease impairment 7,540,547 7,430,841
------------ ------------
Property, plant and equipment - net 5,270,579 5,190,794
------------ ------------
DEFERRED INCOME TAXES AND OTHER ASSETS 324,249 289,735
------------ ------------
TOTAL ASSETS $ 7,676,447 $ 7,934,619
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 602,830 $ 752,576
Accrued liabilities 373,043 513,389
Deferred revenue 123,187 175,684
Taxes payable 185,699 195,692
Notes payable 3,600 17,825
Current maturities of long-term debt 214,685 84,685
------------ ------------
Total current liabilities 1,503,044 1,739,851
------------ ------------
LONG-TERM DEBT 1,935,383 1,975,281
------------ ------------
CAPITALIZED LEASE OBLIGATIONS 27,873 27,752
------------ ------------
DEFERRED LIABILITIES AND CREDITS
Deferred income taxes 551,938 562,371
Other 459,148 413,665
------------ ------------
Total deferred liabilities and credits 1,011,086 976,036
------------ ------------
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 - 91,390,005 shares at March 31, 1998;
91,451,205 shares at December 31, 1997 91,390 91,451
Capital in excess of par value 773,673 774,631
Retained earnings 2,434,179 2,463,005
Equity adjustment from foreign currency translation (100,181) (113,388)
------------ ------------
Total stockholders' equity 3,199,061 3,215,699
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,676,447 $ 7,934,619
============ ============
See accompanying notes to consolidated financial statements.
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PART I - FINANCIAL INFORMATION (CONT'D.)
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Three Months Ended March 31
(in thousands)
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (12,594) $ 4,588
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation, depletion and amortization 161,769 188,462
Exploratory dry hole costs and lease impairment 67,141 33,959
Pre-tax gain on asset sales (80,321) --
Changes in operating assets and liabilities 41,226 388,024
Deferred income taxes and other items (18,833) (2,317)
--------- ---------
Net cash provided by operating activities 158,388 612,716
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (318,392) (219,537)
Proceeds from asset sales and other 107,103 12,101
--------- ---------
Net cash used in investing activities (211,289) (207,436)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable (14,241) (18,000)
Long-term borrowings 260,000 --
Repayment of long-term debt and capitalized lease obligations (169,494) (156,524)
Cash dividends paid (27,445) (27,893)
Common stock acquired (6,441) (13,936)
--------- ---------
Net cash provided by (used in) financing activities 42,379 (216,353)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,094) (1,722)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,616) 187,205
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 91,154 112,522
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 79,538 $ 299,727
========= =========
See accompanying notes to consolidated financial statements.
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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 March 31, 1998 and December 31, 1997, and the
consolidated results of operations and the consolidated cash flows for
the three-month periods ended March 31, 1998 and 1997. 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 1997 Annual Report to Stockholders, which
have been incorporated by reference in the Corporation's Form 10-K for
the year ended December 31, 1997.
Note 2 - On January 1, 1998, the Corporation began capitalizing the costs of
internal use software in accordance with AICPA Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." This accounting change increased net income
during the quarter ended March 31, 1998 by $2,907 ($ .03 per share).
Note 3 - Inventories consist of the following:
March 31, December 31,
1998 1997
---------- ------------
Crude oil and other charge stocks $255,759 $269,783
Refined and other finished products 469,016 564,973
Materials and supplies 102,099 103,193
-------- --------
Total inventories $826,874 $937,949
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Note 4 - The provision for income taxes consisted of the following:
Three months
ended March 31
-------------------------
1998 1997
---------- ----------
Current $ 52,265 $100,786
Deferred ( 6,768) 9,424
-------- --------
Total $ 45,497 $110,210
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PART I - FINANCIAL INFORMATION (CONT'D.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Note 5 - Foreign currency exchange transactions are reflected in selling,
general and administrative expenses. The net effect, after applicable
income taxes, amounted to a loss of $278 compared with a gain of $1,383
for the three-month periods ended March 31, 1998 and 1997,
respectively.
Note 6 - The weighted average number of common shares used in the basic and
diluted earnings per share computations are as follows:
Three months
ended March 31
---------------------
1998 1997
-------- --------
Common shares - basic 90,079 92,321
Effect of dilutive securities
(equivalent shares)
Nonvested common stock -- 347
Stock options -- 44
------ ------
Common shares - diluted 90,079 92,712
====== ======
In the first quarter of 1998, the table excludes the antidilutive
effect of 594 nonvested common shares and 113 stock options.
Note 7 - 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 gains resulting from the Corporation's
petroleum hedging activities were approximately $17,000 at March 31,
1998, including $15,000 of unrealized gains.
Note 8 - Interest costs related to certain long-term construction projects
have been capitalized in accordance with FAS No. 34. During the three
months ended March 31, 1998 and 1997, interest costs of $5,593 and
$1,517, respectively, were capitalized.
Note 9 - Comprehensive income includes net income and the effects of foreign
currency translation recorded in stockholders' equity. Comprehensive
income (loss) for the three months ended March 31, 1998 and 1997 was
$613 and $(35,849), respectively.
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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
The results of operations for the first quarter of 1998
amounted to a net loss of $13 million compared with net income of $5
million in the first quarter of 1997. Excluding gains on asset sales of
$56 million, the loss in the first quarter of 1998 was $69 million.
The after-tax results by major operating activity for the
first quarters of 1998 and 1997 were as follows (in millions, except
per share data):
Three Months
ended March 31
------------------
1998 1997
------ ------
Exploration and production $ 8 $ 97
Refining, marketing and shipping (33) (56)
Corporate (15) (7)
Interest expense (29) (29)
----- ----
Income (loss) excluding asset sales (69) 5
Gain on asset sales 56 --
----- ----
Net income (loss) $ (13) $ 5
===== ====
Net income (loss) per share (diluted) $(.14) $.05
===== ====
Excluding asset sales, earnings from exploration and
production activities decreased by $89 million in the first quarter of
1998 primarily due to lower worldwide crude oil selling prices and
higher exploration expenses. Natural gas selling prices in the United
States were also lower. The Corporation's average selling prices,
including the effects of hedging, were as follows:
Three months
ended March 31
---------------------
1998 1997
------ ------
Crude oil and natural gas liquids
(per barrel)
United States $13.89 $20.68
Foreign 14.56 21.43
Natural gas (per Mcf)
United States 2.21 2.70
Foreign 2.47 2.36
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PART I - FINANCIAL INFORMATION (CONT'D.)
Results of Operations (Continued)
The Corporation's net daily worldwide production was as
follows:
Three months
ended March 31
------------------------
1998 1997
------ ------
Crude oil and natural gas liquids
(barrels per day)
United States 44,825 42,876
Foreign 164,291 191,878
------- -------
Total 209,116 234,754
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Natural gas (Mcf per day)
United States 298,882 325,955
Foreign 283,459 323,291
------- -------
Total 582,341 649,246
======= =======
The decrease in foreign crude oil production reflects natural
decline and temporary production interruptions in certain United
Kingdom fields. The decrease in United States natural gas production
was due to natural decline and the effect of asset sales. The decrease
in foreign natural gas production principally reflects lower demand
in the United Kingdom.
Depreciation, depletion, and amortization charges were lower
in 1998, reflecting lower production volumes and positive oil and gas
reserve revisions at the end of 1997. Exploration expenses were higher
in 1998 due to increased activity in the early part of the year in the
United States and United Kingdom. Exploration expenses for the full
year of 1998 are expected to be comparable to the 1997 level. Selling,
general and administrative expenses were higher largely due to
increased activity in new international areas. The effective income tax
rate on exploration and production earnings was higher in 1998 than in
1997, reflecting a higher effective rate in the United Kingdom due to
the increased impact of non-deductible items at lower earnings levels
and the accrual of an ACT refund in 1997.
The United Kingdom government has proposed changes in oil and
gas taxation which, if enacted, will materially increase the cost of
the Corporation's operations in the United Kingdom. The Corporation's
earnings are very sensitive to crude oil selling prices and the
Corporation cannot predict how long prices will remain at current low
levels.
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PART I - FINANCIAL INFORMATION (CONT'D.)
Results of Operations (Continued)
Refining, marketing and shipping operations had a loss of $33
million in the first quarter of 1998, compared with a loss of $56
million in the first quarter of 1997. Gross margins in both periods
were depressed, as refined product selling prices were low in
comparison to the Corporation's cost of crude oil and refined product
inventories. The first quarter of each year was negatively impacted by
relatively mild weather which depressed margins for distillates and
residual fuel oils. A substantial portion of the refining and marketing
results were recorded by the Corporation's Virgin Islands subsidiary
for which income tax benefits are not recorded due to available loss
carryforwards.
Refined product sales volumes in the first quarter of 1998
amounted to 49 million barrels compared with 52 million barrels in the
first quarter of 1997. Refining and marketing earnings will continue to
be volatile.
In February 1998, the Corporation announced an agreement in
principle with Petroleos de Venezuela, S.A. (PDVSA) to form a joint
venture, 50% owned by each party, to own and operate the Corporation's
Virgin Islands refinery. At closing, the Corporation will receive the
first installment of $62.5 million on a ten-year, $625 million note, as
well as an additional note of $125 million, payment of which is
contingent on the future cash flow of the joint venture. At closing,
the joint venture will also purchase the crude oil and refined product
inventories and other working capital of the refinery. The Corporation
estimates that it will record a loss of approximately $125 million at
closing. Joint venture discussions and planning are continuing.
Net corporate expenses amounted to $15 million in the first
quarter of 1998 compared with $7 million in the first quarter of 1997.
The change includes the effects of timing of accruals for anticipated
expenditures and taxes related to foreign source income.
After-tax interest expense was comparable in the first
quarters of 1998 and 1997. For the full year of 1998, interest expense
is anticipated to be somewhat higher than in 1997, reflecting increased
borrowing to fund spending on oil and gas development projects.
Sales and other operating revenues in the first quarter of
1998 amounted to $1,826 million, a decrease of $571 million, or 24%,
from the corresponding period of 1996. The decrease was primarily due
to lower crude oil and refined product selling prices and sales
volumes.
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PART I - FINANCIAL INFORMATION (CONT'D.)
Liquidity and Capital Resources
Net cash provided by operating activities, including changes
in operating assets and liabilities, amounted to $158 million in the
first quarter of 1998 compared with $613 million in the first quarter
of 1997. The decrease was primarily due to changes in working capital
items, particularly inventories. Cash flow, excluding special items and
changes in working capital components, amounted to $117 million in 1998
and $225 million in 1997, with the difference largely reflecting
changes in operating income. The sale of three oil and gas properties
in the United States and Norway generated proceeds of $98 million in
1998.
Total debt was $2,204 million at March 31, 1998 compared with
$2,127 million at December 31, 1997, resulting in debt to total
capitalization ratios of 40.8% and 39.8%, respectively. At March 31,
1998, floating rate debt amounted to 35% of total debt, including the
effect of interest rate conversion (swap) agreements. At March 31,
1998, the Corporation had additional borrowing capacity available under
its revolving credit agreement of $942 million and additional unused
lines of credit under uncommitted arrangements with banks of $418
million.
Since inception of the Corporation's stock repurchase program
in August 1996, through March 31, 1998, 2,573,000 shares have been
purchased at a cost of approximately $137 million.
Futures, forwards, options and swaps are used to reduce the
effects of changes in the selling prices of crude oil, natural gas and
refined products. These instruments are used to set the selling prices
of the Corporation's products and the related gains or losses are an
integral part of the Corporation's selling prices. At March 31, 1998,
the Corporation had open hedge positions equal to 6% of its estimated
worldwide crude oil production over the next twelve months. The
Corporation also had open contracts equal to 22% of its estimated
United States natural gas production over the next twelve months. In
addition, the Corporation had hedges covering 12% of its refining and
marketing inventories and had additional short positions, primarily
crack spreads, approximating 3% of refined products to be manufactured
in the next twelve months. As market conditions change, the Corporation
will adjust its hedge positions.
In April 1998, the Corporation purchased an increased interest
in an affiliated company with proved crude oil reserves and exploration
licenses in Gabon. In addition, the Corporation reached agreement,
subject to existing preemptive rights, to acquire various interests in
three companies operating in Azerbaijan with production sharing
contracts covering developed and undeveloped oil and gas reserves,
exploration prospects and transportation rights. The cost to the
Corporation of these acquisitions is expected to be approximately $150
million.
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PART I - FINANCIAL INFORMATION (CONT'D.)
Liquidity and Capital Resources (Continued)
Capital expenditures in the first quarter of 1998 amounted to
$318 million compared with $220 million in the first quarter of 1997.
Capital expenditures for exploration and production activities were
$295 million in the first quarter of 1998 compared with $199 million in
the first three months of 1997.
Capital expenditures for the remainder of 1998, including the
oil and gas reserve acquisitions described above, are currently
expected to be approximately $1,150 million and will be financed by
internally generated funds and external borrowings.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
During the first quarter of 1998, the Registrant filed a
report on Form 8-K, dated February 3, 1998. Such report
disclosed the issuance of a press release announcing the
agreement in principle between Registrant and Petroleos de
Venezuela, S.A. to own and operate the Hess petroleum
refinery in St. Croix, U.S. Virgin Islands.
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SIGNATURE
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 Y. Schreyer
-------------------------------
JOHN Y. SCHREYER
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER
AND AUTHORIZED SIGNATORY)
Date: May 11, 1998
12
5
1,000
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
79,538
0
726,724
0
826,874
1,822,405
12,811,126
7,540,547
7,676,447
1,503,044
1,935,383
0
0
91,390
3,107,671
7,676,447
1,825,789
1,922,986
1,411,373
1,411,373
0
0
33,988
32,903
45,497
(12,594)
0
0
0
(12,594)
(.14)
(.14)
