0000950123-09-032096 | 10-Q | XBRL Viewer

Document and Company Information - USD ($)	6 Months Ended
Document and Company Information - USD ($)	Jun. 30, 2009	Jun. 30, 2008
Document and Company Information [Abstract]
Entity Registrant Name	Hess Corporation
Entity Central Index Key	0000004447
Document Type	10-Q
Document Period End Date	Jun. 30, 2009
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float		$ 36,438,000,000
Entity Common Stock, Shares Outstanding (actual number)	327,052,233

Statement of Consolidated Income - USD ($) shares in Millions, $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2009	Jun. 30, 2008	Jun. 30, 2009	Jun. 30, 2008
REVENUES AND NON-OPERATING INCOME
Sales (excluding excise taxes) and other operating revenues	$ 6,751	$ 11,711	$ 13,666	$ 22,358
Equity in income (loss) of HOVENSA L.L.C.	(75)	(19)	(116)	(29)
Other, net	79	37	77	100
Total revenues and non-operating income	6,755	11,729	13,627	22,429
COSTS AND EXPENSES
Cost of products sold (excluding items shown separately below)	4,705	8,337	9,887	16,042
Production expenses	444	494	853	918
Marketing expenses	245	267	502	500
Exploration expenses, including dry holes and lease impairment	312	158	505	310
Other operating expenses	43	47	91	92
General and administrative expenses	136	156	296	308
Interest expense	95	65	172	132
Depreciation, depletion and amortization	558	482	1,044	934
Total costs and expenses	6,538	10,006	13,350	19,236
INCOME BEFORE INCOME TAXES	217	1,723	277	3,193
Provision for income taxes	115	812	192	1,530
Net income	102	911	85	1,663
Less: Net income attributable to noncontrolling interests	2	11	44	4
NET INCOME ATTRIBUTABLE TO HESS CORPORATION	$ 100	$ 900	$ 41	$ 1,659
NET INCOME PER SHARE ATTRIBUTABLE TO HESS CORPORATION
BASIC	$ 0.31	$ 2.81	$ 0.13	$ 5.2
DILUTED	$ 0.31	$ 2.76	$ 0.13	$ 5.11
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (DILUTED)	325.8	326.2	325.7	325.0
COMMON STOCK DIVIDENDS PER SHARE	$ 0.1	$ 0.1	$ 0.2	$ 0.2

Consolidated Balance Sheet - USD ($) $ in Millions	Jun. 30, 2009	Dec. 31, 2008
CURRENT ASSETS
Cash and cash equivalents	$ 1,063	$ 908
Accounts receivable	4,097	4,297
Inventories	1,358	1,308
Other current assets	990	819
Total current assets	7,508	7,332
INVESTMENTS IN AFFILIATES
HOVENSA L.L.C.	804	919
Other	209	208
Total investments in affiliates	1,013	1,127
PROPERTY, PLANT AND EQUIPMENT
Total - at cost	28,387	27,437
Less reserves for depreciation, depletion, amortization and lease impairment	11,966	11,166
Property, plant and equipment - net	16,421	16,271
GOODWILL	1,225	1,225
DEFERRED INCOME TAXES	2,413	2,292
OTHER ASSETS	336	342
TOTAL ASSETS	28,916	28,589
CURRENT LIABILITIES
Accounts payable	5,331	5,045
Accrued liabilities	1,679	1,905
Taxes payable	468	637
Current maturities of long-term debt	135	143
Total current liabilities	7,613	7,730
LONG-TERM DEBT	4,178	3,812
DEFERRED INCOME TAXES	2,235	2,241
ASSET RETIREMENT OBLIGATIONS	1,249	1,164
OTHER LIABILITIES	1,263	1,251
Total liabilities	16,538	16,198
Hess Corporation Stockholders' Equity
Common stock, par value $1.00; Authorized - 600,000 shares; Issued 327,052 shares at June 30, 2009; 326,133 shares at December 31, 2008	327	326
Capital in excess of par value	2,415	2,347
Retained earnings	11,617	11,642
Accumulated other comprehensive income (loss)	(2,100)	(2,008)
Total Hess Corporation stockholders' equity	12,259	12,307
Noncontrolling interests	119	84
Total equity	12,378	12,391
TOTAL LIABILITIES AND EQUITY	$ 28,916	$ 28,589

Statement of Consolidated Cash Flows - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2009	Jun. 30, 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 85	$ 1,663
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, depletion and amortization	1,044	934
Exploratory dry hole costs and lease impairment	304	105
Benefit for deferred income taxes	(304)	(112)
Equity in (income) loss of HOVENSA L.L.C., net of distributions	116	79
Changes in operating assets and liabilities and other	(4)	246
Net cash provided by operating activities	1,241	2,915
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(1,389)	(2,005)
Other, net	32	39
Net cash used in investing activities	(1,357)	(1,966)
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of debt with maturities of 90 days or less	(850)	(3)
Debt with maturities of greater than 90 days
Borrowings	1,247	0
Repayments	(39)	(32)
Cash dividends paid	(98)	(97)
Distributions to noncontrolling interests	(1)	(48)
Employee stock options exercised, including income tax benefits	12	103
Net cash provided by (used in) financing activities	271	(77)
NET INCREASE IN CASH AND CASH EQUIVALENTS	155	872
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	908	607
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$ 1,063	$ 1,479

Basis of Presentation

6 Months Ended

Jun. 30, 2009

Basis of Presentation [Abstract]

Basis of Presentation

Basis of Presentation

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 Hess Corporation’s (the Corporation) consolidated financial position at June 30, 2009 and December 31, 2008 and the consolidated results of operations for the three and six-month periods ended June 30, 2009 and 2008 and the consolidated cash flows for the six month periods ended June 30, 2009 and 2008. The unaudited results of operations for the interim periods reported are not necessarily indicative of results to be expected for the full year.

The financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by U.S. generally accepted accounting principles (GAAP) have been condensed or omitted from these interim financial statements. These statements, therefore, should be read in conjunction with the consolidated financial statements and related notes included in the Corporation’s Form 10-K for the year ended December 31, 2008.

Effective January 1, 2009, the Corporation adopted Financial Accounting Standards Board (FASB) Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (FAS 160), which changes the accounting for and reporting of noncontrolling interests in a consolidated subsidiary. As required, the Corporation retrospectively applied the presentation and disclosure requirements of FAS 160. At June 30, 2009 and December 31, 2008 noncontrolling interests of $119 million and $84 million, respectively, have been classified as a component of equity. Previously the noncontrolling interests had been classified in other liabilities. Net income attributable to the noncontrolling interests of $2 million for the three months ended and $44 million for the six months ended June 30, 2009 and $11 million for the three months ended and $4 million for the six months ended June 30, 2008 are included in net income. Certain amounts in the consolidated financial statements and footnotes have been reclassified to conform with the presentation requirements of
FAS 160.

Effective January 1, 2009, the Corporation also adopted FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities, which expands the disclosure requirements for an entity’s use of derivative instruments. See Note 8, Derivative Instruments, Hedging, and Trading Activities, for these disclosures.

The Corporation adopted FASB Staff Position FAS No. 157-2, Effective Date of FASB Statement No. 157, effective January 1, 2009, which requires the application of the fair value measurement and disclosure provisions of FAS 157 to nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis. The impact of adoption was not material to the Corporation’s consolidated financial statements.

Effective June 30, 2009, the Corporation adopted FASB Statement No. 165 (FAS 165), Subsequent Events. FAS 165 provides guidance on the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The adoption of FAS 165 did not impact the Corporation’s existing practice of evaluating subsequent events through the date the financial statements are filed with the SEC. These financial statements were evaluated for subsequent events through August 7, 2009.

In June 2009, the FASB issued Statements No. 166, Accounting for Transfers of Financial Assets- an amendment of FASB Statement No. 140 (FAS 166) and No. 167, Amendments to FASB Interpretation No. FIN 46(R) (FAS 167). FAS 166 eliminates the concept of a qualifying special-purpose entity, which did not require consolidation under existing GAAP, and limits the circumstances in which transferred financial assets should be derecognized. FAS 167 requires additional analysis of variable interest entities to determine if consolidation is necessary. The Corporation is currently evaluating the impact of FAS 166 and FAS 167 on its financial statements and, as required, will adopt the provisions of these standards effective January 1, 2010.

Derivative Instruments, Hedging, and Trading Activities

6 Months Ended

Jun. 30, 2009

Derivative Instruments, Hedging, and Trading Activities [Abstract]

Derivative Instruments, Hedging, and Trading Activities

Derivative Instruments, Hedging, and Trading Activities

The Corporation utilizes derivative instruments for both non-trading and trading activities. In non-trading activities, the Corporation uses futures, forwards, options and swaps individually or in combination, to mitigate its exposure to fluctuations in prices of crude oil, natural gas, refined products and electricity, and changes in foreign currency exchange rates. In trading activities, the Corporation, principally through a consolidated partnership (in which the Corporation has a 50% voting interest), trades energy commodities and energy derivatives, including futures, forwards, options and swaps, based on expectations of future market conditions. The following information includes 100% of the trading partnership’s accounts.

The Corporation maintains a control environment under the direction of its chief risk officer and through its corporate risk policy, which the Corporation’s senior management has approved. Controls include volumetric, term and value-at-risk limits. Risk limits are monitored daily and exceptions are reported to business units and to senior management. The Corporation’s risk management department also performs independent verifications of sources of fair values and validations of valuation models. These controls apply to all of the Corporation’s non-trading and trading activities, including the consolidated trading partnership.

The table below shows the total volume of the Corporation’s trading and non-trading derivative instruments outstanding at June 30, 2009:


	Volume*
Commodity Contracts
Crude oil, refined products, and natural gas liquids (millions of barrels)		2,149
Natural gas (millions of mcf)		9,282
Electricity (millions of megawatt hours)		191
Other Contracts
Foreign exchange (millions of U.S. dollars)		2,116


*		Gross notional amounts represent both long and short positions, including long and short positions that offset in a closed position that has not reached contractual maturity. Gross notional amounts do not quantify risk or represent assets or liabilities of the Corporation, but are used in the calculation of cash settlements under the contracts.

The Corporation records all derivative instruments on the balance sheet at fair value (see Note 9, Fair Value Measurements). The table below reflects the gross and net fair values of the Corporation’s derivative instruments as of June 30, 2009 (in millions):


	Accounts			Accounts
	Receivable			Payable
Derivative contracts designated as hedging instruments
Commodity	$	1,118		$	(1,940	)


Derivative contracts not designated as hedging instruments*
Commodity		11,881			(13,106	)
Foreign exchange		78			(39	)
Other		12			(13	)

Total derivative contracts not designated as hedging instruments		11,971			(13,158	)


Gross fair value of derivative contracts		13,089			(15,098	)
Master netting arrangements		(11,270	)		11,270
Cash collateral (received) posted		(281	)		94

Net fair value of derivative contracts	$	1,538		$	(3,734	)


*		Includes trading derivatives and derivatives used for risk management.

The Corporation generally enters into master netting arrangements to mitigate counterparty credit risk. Master netting arrangements are standardized contracts that govern all specified transactions with the same counterparty and allow the Corporation to terminate all contracts upon occurrence of certain events, such as a counterparty’s default or bankruptcy. Because these arrangements provide the right of offset, and the Corporation’s intent and practice is to offset amounts in the case of contract terminations, the Corporation records fair value on a net basis in accordance with FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts.

Non-trading activities

Cash Flow Hedges: The Corporation uses commodity contracts to hedge variability of expected future cash flows and forecasted transactions (cash flow hedges). At June 30, 2009, the Corporation used cash flow hedges principally to fix the cost of supply in its energy marketing business. The length of time over which the Corporation hedges exposure to variability in future cash flows is predominantly two years or less. For contracts outstanding at June 30, 2009, the maximum length of time was five years.

The Corporation records the effective portion of changes in the fair value of cash flow hedges as a component of other comprehensive income. Amounts recorded in accumulated other comprehensive income are reclassified into cost of products sold in the same period that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of cash flow hedges is recognized immediately in cost of products sold.

The Corporation may use futures and swaps to hedge crude oil and natural gas production in its Exploration and Production business. In October 2008, the Corporation closed its Brent crude oil cash flow hedges by entering into offsetting contracts with the same counterparty, covering 24,000 barrels per day from 2009 through 2012. As a result, the Corporation no longer accounts for these contracts as cash flow hedges. Because the underlying cash flows from the originally hedged production are still probable, the deferred losses within accumulated other comprehensive income as of the date the contracts were closed will be recorded in sales and other operating revenues as the contracts mature. There were no open hedges of crude oil or natural gas production at June 30, 2009.

At June 30, 2009, the after-tax deferred losses in accumulated other comprehensive income relating to cash flow hedges were $1,591 million. The Corporation estimates that approximately $715 million of this amount will be reclassified into earnings over the next twelve months.

Other Risk Management Derivatives: The Corporation mitigates certain risks in its energy marketing business using commodity contracts that it does not designate as hedges. Changes in fair value of the commodity contracts, which include forward purchases and sales of energy marketing products, are recognized currently in earnings. Revenues from the sales contracts are recognized in sales and other operating revenues and supply contract purchases are recognized in cost of products sold. The Corporation also uses foreign exchange contracts that it does not designate as hedges with the intent to reduce its exposure to fluctuations in foreign exchange rates. Changes in the fair value of the foreign exchange contracts are recognized currently in other non-operating income. Net pretax gains on these derivative contracts amounted to the following (in millions):


	Three months		Six months
	ended June 30,		ended June 30,
	2009		2009
Commodity	$	7	$	89
Foreign exchange		110		107

Total	$	117	$	196

Trading Activities

In trading activities, the Corporation is primarily exposed to changes in crude oil, natural gas, and refined product prices. Pre-tax gains (losses) recorded in sales and other operating revenues from trading activities amounted to the following (in millions):


	Three months		Six months
	ended June 30,		ended June 30,
	2009		2009
Commodity	$	10	$	100
Foreign exchange		23		30
Other		7		15

Total	$	40	$	145

Credit Risk

The Corporation is exposed to credit risks that may at times be concentrated with certain counterparties or groups of counterparties. Accounts receivable are generated from a diverse domestic and international customer base. The Corporation reduces its risk related to certain counterparties by using master netting arrangements and requiring collateral, generally cash or letters of credit. The Corporation records the cash collateral received or posted as an offset of the fair value of derivatives executed with the same counterparty.

At June 30, 2009, the Corporation had a total of $4,290 million of outstanding letters of credit, primarily issued to satisfy margin and collateral requirements. Certain of the Corporation’s agreements also contain contingent collateral provisions that could require the Corporation to post additional collateral if the Corporation’s credit rating declines. As of June 30, 2009, the net liability related to derivatives with contingent collateral provisions was approximately $2,960 million before cash collateral posted of approximately $65 million. At June 30, 2009, all three major credit rating agencies that rate the Corporation’s debt had assigned an investment grade rating. If two of the three agencies were to downgrade the Corporation’s rating to below investment grade, the Corporation would be required as of June 30, 2009 to post additional collateral of approximately $334 million.

Fair Value Measurements

6 Months Ended

Jun. 30, 2009

Fair Value Measurements [Abstract]

Fair Value Measurements

Fair Value Measurements

The Corporation measures fair value in accordance with the provisions of FASB Statement No. 157, Fair Value Measurements, (FAS 157). FAS 157 establishes a hierarchy for the inputs used to measure fair value based on the source of the input, which generally range from quoted prices for identical instruments in a principal trading market (Level 1) to estimates determined using related market data (Level 3). Multiple inputs may be used to measure fair value, however, the level of fair value for each financial asset or liability presented below is based on the lowest significant input level within this fair value hierarchy. The following table provides the fair value of the Corporation’s financial assets and (liabilities) based on this hierarchy (in millions):


										Collateral and			Balance at
										counterparty			June 30,
	Level 1			Level 2			Level 3			netting			2009
Supplemental pension plan investments	$	54		$	—		$	14		$	—		$	68
Derivative contracts
Assets		160			1,338			468			(428	)		1,538
Liabilities		(166	)		(3,112	)		(697	)		241			(3,734	)

The following table provides changes in financial assets and liabilities that are measured at fair value based on Level 3 inputs (in millions):


	Three months			Six months
	ended June 30,			ended June 30,
	2009			2009
Balance at beginning of period	$	(165	)	$	149
Unrealized gains (losses)
Included in earnings		(12	)		50
Included in other comprehensive income (loss)		(19	)		(224	)
Purchases, sales or other settlements during the period		16			16
Net transfers in to (out of) Level 3		(35	)		(206	)

Balance at end of period	$	(215	)	$	(215	)

The carrying amounts of the Corporation’s financial instruments generally approximate their fair values at June 30, 2009 except fixed rate long term debt, which had a carrying value of $4,313 million and a fair value of $4,611 million.

Comprehensive Income and Equity

6 Months Ended

Jun. 30, 2009

Comprehensive Income and Equity [Abstract]

Comprehensive Income and Equity

11.

Equity and Comprehensive Income

The table below summarizes changes in equity (amounts in millions):


	Hess			Non-
	Stockholders’			Controlling
	Equity			Interest			Total Equity
Balance January 1, 2009	$	12,307		$	84		$	12,391

Net Income		41			44			85
Deferred gains (losses) on cash flow hedges, after tax
Effect of hedge losses recognized in income		419			—			419
Net change in fair value of cash flow hedges		(532	)		—			(532	)
Change in foreign currency translation adjustments and other		2			(8	)		(6	)
Change in post retirement plan liabilities, after tax		19			—			19

Comprehensive income (loss)		(51	)		36			(15	)

Activity related to restricted common stock awards, net		27			—			27
Employee stock options, including income tax benefits		42			—			42
Cash dividends declared		(66	)		—			(66	)
Distributions to non-controlling interests		—			(1	)		(1	)

Balance June 30, 2009	$	12,259		$	119		$	12,378


Balance January 1, 2008	$	9,774		$	226		$	10,000

Net Income		1,659			4			1,663
Deferred gains (losses) on cash flow hedges, after tax
Effect of hedge losses recognized in income		187			—			187
Net change in fair value of cash flow hedges		(653	)		—			(653	)
Change in foreign currency translation adjustments and other		29			4			33
Change in post retirement plan liabilities, after tax		5			—			5

Comprehensive income (loss)		1,227			8			1,235

Activity related to restricted common stock awards, net		32			—			32
Employee stock options, including income tax benefits		130			—			130
Cash dividends declared		(65	)		—			(65	)
Distributions to non-controlling interests		—			(48	)		(48	)

Balance June 30, 2008	$	11,098		$	186		$	11,284

Comprehensive income was $248 million ($239 million attributable to Hess Corporation) for the three months ended June 30, 2009 and $290 million ($279 million attributable to Hess Corporation) for the three months ended June 30, 2008.

Consolidated Balance Sheet (Parenthetical) - USD ($) shares in Thousands	Jun. 30, 2009	Dec. 31, 2008
Statement [Line Items]
Common stock, par value	$ 1	$ 1
Common stock, shares authorized	600,000	600,000
Common stock, shares issued	327,052	326,133