1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1996
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
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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 officers)
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, 1996, 93,139,005 shares of Common Stock were outstanding.
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2
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
-------------------------------- --------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
REVENUES
Sales (excluding excise taxes) and
other operating revenues $ 1,746,574 $ 1,641,904 $ 6,055,951 $ 5,307,441
Non-operating revenues
Asset sales 100,262 -- 529,271 --
Other 23,060 21,349 60,978 112,195
-------------- -------------- -------------- --------------
Total revenues 1,869,896 1,663,253 6,646,200 5,419,636
-------------- -------------- -------------- --------------
COSTS AND EXPENSES
Cost of products sold and operating expenses 1,284,545 1,200,956 4,526,936 3,832,837
Exploration expenses, including dry holes 64,464 82,379 187,639 224,266
Selling, general and administrative expenses 149,824 170,579 451,526 474,439
Interest expense 33,594 58,879 128,301 186,856
Depreciation, depletion, amortization and
lease impairment 166,733 218,603 551,841 648,329
Provision for income taxes 72,909 36,440 259,706 172,549
-------------- -------------- -------------- --------------
Total costs and expenses 1,772,069 1,767,836 6,105,949 5,539,276
-------------- -------------- -------------- --------------
NET INCOME (LOSS) $ 97,827 $ (104,583) $ 540,251 $ (119,640)
============== ============== ============== ==============
NET INCOME (LOSS) PER SHARE $ 1.05 $ (1.13) $ 5.80 $ (1.29)
============== ============== ============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (FULLY DILUTED BASIS) 93,159 93,007 93,101 92,999
COMMON STOCK DIVIDENDS PER SHARE $ .15 $ .15 $ .45 $ .45
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)
A S S E T S
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------- ------------------
CURRENT ASSETS
Cash and cash equivalents $ 84,764 $ 56,071
Accounts receivable 601,931 798,331
Inventories 1,132,299 838,770
Other current assets 168,577 269,372
----------------- ------------------
Total current assets 1,987,571 1,962,544
----------------- ------------------
INVESTMENTS AND ADVANCES 199,524 185,522
----------------- ------------------
PROPERTY, PLANT AND EQUIPMENT
Total - at cost 11,443,360 13,064,212
Less reserves for depreciation, depletion,
amortization and lease impairment 6,599,591 7,694,496
----------------- ------------------
Property, plant and equipment - net 4,843,769 5,369,716
----------------- ------------------
DEFERRED INCOME TAXES AND OTHER ASSETS 273,892 238,588
----------------- ------------------
TOTAL ASSETS $ 7,304,756 $ 7,756,370
================= ==================
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 $ 536,586 $ 443,513
Accrued liabilities 579,157 575,886
Deferred revenue 14,633 151,416
Taxes payable 277,674 239,080
Notes payable - - 90,000
Current maturities of long-term debt 114,685 104,685
----------------- ------------------
Total current liabilities 1,522,735 1,604,580
----------------- ------------------
LONG-TERM DEBT 1,636,256 2,523,181
----------------- ------------------
CAPITALIZED LEASE OBLIGATIONS 56,051 64,202
----------------- ------------------
DEFERRED LIABILITIES AND CREDITS
Deferred income taxes 560,659 602,792
Other 326,447 301,219
----------------- ------------------
Total deferred liabilities and credits 887,106 904,011
----------------- ------------------
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 - 93,139,005 shares at September 30, 1996;
93,011,255 shares at December 31, 1995 93,139 93,011
Capital in excess of par value 750,868 744,252
Retained earnings 2,515,390 2,017,064
Equity adjustment from foreign currency translation (156,789) (193,931)
----------------- ------------------
Total stockholders' equity 3,202,608 2,660,396
----------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,304,756 $ 7,756,370
================= ==================
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)
1996 1995
--------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 540,251 $ (119,640)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation, depletion, amortization and lease impairment 551,841 648,329
Exploratory dry hole costs 100,835 133,308
Pre-tax gain on asset sales (529,271) --
Changes in operating assets and liabilities 19,398 198,024
Deferred income taxes and other items (13,359) 60,003
--------------- ----------------
Net cash provided by operating activities 669,695 920,024
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (610,038) (509,607)
Proceeds from asset sales and other 998,358 3,120
--------------- ----------------
Net cash provided by (used in) investing activities 388,320 (506,487)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable (90,046) 66,247
Long-term borrowings - - 92,808
Repayment of long-term debt and capitalized lease obligations (885,054) (484,990)
Cash dividends paid and other (55,902) (55,790)
--------------- ----------------
Net cash used in financing activities (1,031,002) (381,725)
--------------- ----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,680 3,773
--------------- ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 28,693 35,585
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 56,071 53,135
--------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 84,764 $ 88,720
=============== ================
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 September 30, 1996 and December 31, 1995, and the
consolidated results of operations for the three and nine- month
periods ended September 30, 1996 and 1995 and the consolidated cash
flows for the nine-month periods ended September 30, 1996 and 1995. 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 1995 Annual Report to Stockholders, which
have been incorporated by reference in the Corporation's Form 10-K for
the year ended December 31, 1995.
Note 2 - Inventories consist of the following:
September 30, December 31,
1996 1995
---------- ----------
Crude oil and other charge stocks $ 398,934 $ 240,425
Refined and other finished products 616,794 492,613
Materials and supplies 116,571 105,732
---------- ----------
Total inventories $1,132,299 $ 838,770
========== ==========
Note 3 - The provision for income taxes consists of the following:
Three months Nine months
ended September 30 ended September 30
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
Current $ 56,756 $ 11,362 $234,532 $107,200
Deferred 16,153 25,078 25,174 65,349
-------- -------- -------- --------
Total $ 72,909 $ 36,440 $259,706 $172,549
======== ======== ======== ========
Note 4 - Foreign currency exchange transactions are reflected in selling,
general and administrative expenses. The net effect of foreign currency
exchange transactions, after applicable income taxes, amounted to gains
of $282 and $2,925, respectively, for the three and nine-month periods
ended September 30, 1996, compared to a loss of $1,135 and a gain of
$359 for the corresponding periods of 1995.
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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 unrealized losses on the Corporation's
petroleum hedging activities were approximately $30,000 at September
30, 1996.
Note 6 - In the third quarter of 1996, certain exploration and production
properties in the United States and United Kingdom were sold resulting
in a net gain of $71,100. The net gain from asset sales for the nine
months ended September 30, 1996 amounts to $421,200, including the
sale of the Corporation's Canadian operations.
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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
Net income for the third quarter of 1996 amounted to $98
million ($1.05 per share) compared with a net loss of $105 million
($1.13 per share) in the third quarter of 1995. The results for
the third quarter of 1996 include net gains of $71 million ($.76
per share) from the sale of exploration and production properties
in the United Kingdom and the United States. Special items in the
third quarter of 1995 included charges for costs associated with
Hurricane Marilyn of $19 million and staff reduction costs
amounting to $14 million, as well as income of $7 million from a
business interruption insurance recovery.
Net income for the first nine months of 1996 was $540
million ($5.80 per share) compared with a net loss of $120 million
($1.29 per share) in the first nine months of 1995. Earnings for
the first nine months of 1996 reflect net gains of $421 million
($4.52 per share) from the sale of exploration and production
properties, including the sale of the Corporation's Canadian
subsidiary. The results for the first nine months of 1995 included
the 1995 special items referred to above and income of $44 million
from the refund of windfall profits taxes and related interest.
The after-tax results by major operating activity for the
three and nine month periods ended September 30, 1996 and 1995
were as follows (in millions):
Three months Nine months
ended September 30 ended September 30
------------------ ------------------
1996 1995(*) 1996 1995(*)
---- ------- ---- -------
Exploration and production $ 22 $ 12 $ 121 $ 75
Refining, marketing and shipping 37 (33) 116 (33)
Corporate (3) (13) (14) (33)
Interest expense (29) (45) (104) (147)
----- ----- ----- -----
Income (loss), excluding special items 27 (79) 119 (138)
Gain on asset sales 71 -- 421 --
1995 special items, described above -- (26) -- 18
----- ----- ----- -----
Net income (loss) $ 98 $(105) $ 540 $(120)
===== ===== ===== =====
(*) Restated to conform with current period presentation.
Excluding special items, earnings from exploration and
production activities increased by $10 million in the third
quarter of 1996 and $46 million in the first nine months of 1996.
The increases in both periods were primarily due to higher foreign
crude oil selling prices.
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PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
The Corporation's average selling prices, including the
effects of hedging, were as follows:
Three months Nine months
ended September 30 ended September 30
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Crude oil and natural gas liquids
(per barrel)
United States $15.55 $15.85 $15.59 $15.91
Foreign 20.27 16.30 19.15 16.93
Natural gas (per Mcf)
United States(*) 2.13 1.55 2.33 1.62
Foreign 1.93 1.46 1.78 1.58
(*) Includes sales of purchased gas.
The United States crude oil selling prices indicated above
did not increase in 1996 because hedge positions limited the
impact of increasing market prices. Hedge positions in 1995 had
a positive effect on selling prices.
The Corporation's net daily worldwide production was as
follows:
Three months Nine months
ended September 30 ended September 30
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Crude oil and natural gas liquids
(barrels per day)
United States 43,168 61,452 51,816 63,188
Foreign 167,406 202,309 182,546 188,456
------- ------- ------- -------
Total 210,574 263,761 234,362 251,644
======= ======= ======= =======
Natural gas (Mcf per day)
United States 285,089 389,261 348,838 401,852
Foreign 166,018 399,025 352,417 451,720
------- ------- ------- -------
Total 451,107 788,286 701,255 853,572
======= ======= ======= =======
United States crude oil and natural gas production was lower
in 1996, principally reflecting the effects of asset sales and
natural decline. The decrease in foreign crude oil production
reflects the sale of the Corporation's Canadian and Abu Dhabi
operations in April and June of 1996, respectively, and in the
third quarter of 1996, reflects a decline in United Kingdom
production, largely due to operational problems on two of the
Corporation's fields. The decline in foreign natural gas
production is principally due to the sale of the Corporation's
operations in Canada.
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PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
Lower exploration expenses in the third quarter and nine
months of 1996 were primarily attributable to foreign areas,
including the United Kingdom and Denmark. Depreciation, depletion
and amortization charges were also lower reflecting asset sales,
lower production volumes, reduced asset carrying values and
positive crude oil reserve revisions at the end of 1995. The
effective income tax rate on exploration and production earnings
continues to be higher than the United States statutory rate due
to special petroleum taxes on certain fields in the United Kingdom
and in Norway.
The Corporation's program to sell certain exploration
and production assets is substantially complete. Oil and gas
production in the short-term will be lower than pre-sale
levels, however, net income is not expected to be materially
affected. New United States and foreign crude oil and natural gas
developments will add to production in the future. There is no
assurance that market prices of crude oil or natural gas will
continue at current levels.
Refining, marketing and shipping operations had income of
$37 million in the third quarter of 1996 compared with a loss of
$33 million in the third quarter of 1995. In the first nine months
of 1996, refining, marketing and shipping income increased by $149
million over the comparable period of 1995. Refined product
margins improved in 1996, as the average selling price increased
by more than $3.00 per barrel, largely due to the improved selling
prices of distillates and residual fuel oils. The cost of crude
oil also increased in 1996, but was more than offset by higher
selling prices. In the first nine months of 1996, a substantial
amount of income was generated by a refining subsidiary, for
which income taxes are not provided on earnings due to available
loss carryforwards. The Corporation's inventories are accounted
for on the first-in, first-out and average cost methods.
Refined product sales volumes increased to 140 million
barrels in the first nine months of 1996 from 131 million
barrels in the first nine months of 1995.
Corporate interest expense (after-tax) decreased by 36% in
the third quarter of 1996 and 29% in the first nine months of
1996, compared with the corresponding periods of 1995. The
decrease reflects the use of cash flow from operations and the
proceeds of asset sales to reduce debt.
Other corporate expenses decreased to $3 million and $14
million in the third quarter and first nine months of 1996
compared with $13 million and $33 million in the corresponding
periods of 1995. The decreases were primarily due to the effect of
foreign source income on the provision for United States taxes.
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PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
Sales and other operating revenues in the third quarter and
first nine months of 1996 increased by approximately 6% and 14%,
respectively, compared to the corresponding periods of 1995. The
increases were primarily due to higher refined product selling
prices and sales volumes. Also contributing to the increase were
higher foreign crude oil selling prices and increased domestic
natural gas selling prices, particularly sales of purchased gas.
Non-operating revenues include the pre-tax gain on asset sales in
the first nine months of 1996 of $529 million and the refund of
windfall profits taxes and related interest of $67 million in the
first nine months of 1995. Selling, general and administrative
expenses were lower in 1996, principally because of the
$24 million pre-tax charge for staff reduction costs in the
third quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities, including changes
in operating assets and liabilities, amounted to $670 million in
the first nine months of 1996 compared with $920 million in the
first nine months of 1995. The decrease was primarily due to
changes in working capital items, including inventory. In 1996,
the Corporation generated proceeds of $968 million from the sale
of its Canadian operations, certain United States and United
Kingdom producing properties, and Abu Dhabi assets. The proceeds
from asset sales were used to repay debt.
Total debt was $1,824 million at September 30, 1996 compared
with $2,718 million at December 31, 1995. The debt to total
capitalization ratio decreased to 36% from 50% at year-end 1995.
At September 30, 1996, the Corporation had additional borrowing
capacity available under existing revolving credit agreements of
$1,737 million and additional unused lines of credit under
uncommitted arrangements with banks of $751 million.
In August 1996, the Corporation announced that its Board of
Directors had authorized up to $250 million to repurchase shares
of common stock. The stock will be purchased from time to time in
the open market or as otherwise permitted under applicable rules.
In September 1996, the Corporation purchased a 33.33%
interest in the Jabung Production Sharing Contract in Indonesia
for $39 million. The acquisition includes proved reserves, which
are in the process of being developed, and exploration prospects.
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 and purchase 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 and costs. At September
30, 1996, the Corporation had open hedge positions equal to
approximately 8% of its estimated worldwide crude oil production
9
11
PART 1 - FINANCIAL INFORMATION (CONT'D.)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
over the next twelve months and approximately 1% of its production
for the succeeding twelve months. In certain circumstances, hedge
counterparties may elect to purchase up to an additional 1% of
this production. In addition, the Corporation had open option
contracts, providing varying degrees of protection against
declines in market prices, covering 1% of crude oil production
through September 1997. The Corporation also had open contracts
equal to approximately 10% of its estimated United States natural
gas production over the next twelve months and approximately 2% of
its production for the succeeding twelve months. In addition, the
Corporation had hedges covering approximately 6% of its refining,
marketing and shipping inventories and had additional short
positions, principally crack spreads, approximating 2% 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 1996
amounted to $610 million compared with $510 million in 1995.
Capital expenditures for exploration and production activities
were $574 million in the first nine months of 1996 compared with
$460 million in the corresponding period of 1995.
Capital expenditures for the remainder of 1996 are currently
expected to be approximately $250 million and will be financed
primarily by internally generated funds.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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). The complaint alleges that HOVIC did
not determine whether two wastes generated from maintenance
activities at HOVIC's petroleum refinery in St. Croix, United
States Virgin Islands, were hazardous, and that on six occasions
in 1994, these wastes were placed on HOVIC's land treatment units
in violation of federal land disposal restrictions regulations.
EPA is seeking a penalty of $165,917. HOVIC and Registrant have
filed answers to the complaint, which contest the validity of
EPA's allegations and the amount of the penalty assessed.
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, 1996.
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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 11, 1996
12
5
1,000
9-MOS
DEC-31-1996
JAN-01-1996
SEP-30-1996
84,764
0
601,931
0
1,132,299
1,987,571
11,443,360
6,599,591
7,304,756
1,522,735
1,636,256
0
0
93,139
3,109,469
7,304,756
6,055,951
6,646,200
4,526,936
4,526,936
0
0
128,301
799,957
259,706
540,251
0
0
0
540,251
5.80
5.80
