þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
REVENUES AND NON-OPERATING INCOME |
||||||||||||||||
Sales (excluding excise taxes) and other operating revenues |
$ | 7,451 | $ | 7,035 | $ | 22,191 | $ | 20,912 | ||||||||
Non-operating income
|
||||||||||||||||
Equity in income of HOVENSA L.L.C. |
19 | 67 | 156 | 172 | ||||||||||||
Gain on asset sales |
| | 21 | 369 | ||||||||||||
Other, net |
34 | 25 | 56 | 59 | ||||||||||||
Total revenues and non-operating income |
7,504 | 7,127 | 22,424 | 21,512 | ||||||||||||
COSTS AND EXPENSES |
||||||||||||||||
Cost of products sold (excluding items shown separately below) |
5,322 | 4,899 | 15,922 | 14,854 | ||||||||||||
Production expenses |
394 | 323 | 1,118 | 892 | ||||||||||||
Marketing expenses |
238 | 230 | 701 | 686 | ||||||||||||
Exploration expenses, including dry holes and lease impairment |
131 | 221 | 314 | 412 | ||||||||||||
Other operating expenses |
45 | 32 | 115 | 89 | ||||||||||||
General and administrative expenses |
133 | 115 | 406 | 354 | ||||||||||||
Interest expense |
59 | 49 | 185 | 150 | ||||||||||||
Depreciation, depletion and amortization |
365 | 323 | 1,046 | 871 | ||||||||||||
Total costs and expenses |
6,687 | 6,192 | 19,807 | 18,308 | ||||||||||||
INCOME BEFORE INCOME TAXES |
817 | 935 | 2,617 | 3,204 | ||||||||||||
Provision for income taxes |
422 | 639 | 1,295 | 1,643 | ||||||||||||
NET INCOME |
$ | 395 | $ | 296 | $ | 1,322 | $ | 1,561 | ||||||||
Less preferred stock dividends |
| 12 | | 36 | ||||||||||||
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS |
$ | 395 | $ | 284 | $ | 1,322 | $ | 1,525 | ||||||||
NET INCOME PER SHARE |
||||||||||||||||
BASIC |
$ | 1.26 | $ | 1.03 | $ | 4.24 | $ | 5.54 | ||||||||
DILUTED |
1.23 | .94 | 4.15 | 4.95 | ||||||||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (DILUTED) |
319.9 | 316.0 | 318.6 | 315.5 | ||||||||||||
COMMON STOCK DIVIDENDS PER SHARE |
$ | .10 | $ | .10 | $ | .30 | $ | .30 |
1
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 565 | $ | 383 | ||||
Accounts receivable |
3,076 | 3,873 | ||||||
Inventories |
1,341 | 1,005 | ||||||
Other current assets |
287 | 587 | ||||||
Total current assets |
5,269 | 5,848 | ||||||
INVESTMENTS IN AFFILIATES |
||||||||
HOVENSA
L.L.C. |
1,011 | 1,055 | ||||||
Other |
180 | 188 | ||||||
Total investments in affiliates |
1,191 | 1,243 | ||||||
PROPERTY, PLANT AND EQUIPMENT |
||||||||
Total at cost |
25,122 | 21,980 | ||||||
Less reserves for depreciation, depletion, amortization and lease impairment |
10,849 | 9,672 | ||||||
Property, plant and equipment net |
14,273 | 12,308 | ||||||
GOODWILL |
1,225 | 1,253 | ||||||
DEFERRED INCOME TAXES |
1,634 | 1,430 | ||||||
OTHER ASSETS |
344 | 360 | ||||||
TOTAL ASSETS |
$ | 23,936 | $ | 22,442 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Accounts payable |
$ | 4,440 | $ | 4,803 | ||||
Accrued liabilities |
1,458 | 1,477 | ||||||
Taxes payable |
458 | 432 | ||||||
Current maturities of long-term debt |
46 | 27 | ||||||
Total current liabilities |
6,402 | 6,739 | ||||||
LONG-TERM DEBT |
3,939 | 3,745 | ||||||
DEFERRED INCOME TAXES |
2,310 | 2,116 | ||||||
ASSET RETIREMENT OBLIGATIONS |
826 | 824 | ||||||
OTHER LIABILITIES |
950 | 871 | ||||||
Total liabilities |
14,427 | 14,295 | ||||||
STOCKHOLDERS EQUITY |
||||||||
Preferred stock, $1.00 par value, 20,000 shares authorized
|
||||||||
3% cumulative convertible series
|
||||||||
Authorized 330 shares
|
||||||||
Issued 284 shares ($14 million liquidation preference) |
| | ||||||
Common stock, $1.00 par value
|
||||||||
Authorized 600,000 shares
|
||||||||
Issued 319,449 shares at September 30, 2007; 315,018 shares at December 31, 2006 |
319 | 315 | ||||||
Capital in excess of par value |
1,831 | 1,689 | ||||||
Retained earnings |
8,933 | 7,707 | ||||||
Accumulated other comprehensive income (loss) |
(1,574 | ) | (1,564 | ) | ||||
Total stockholders equity |
9,509 | 8,147 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 23,936 | $ | 22,442 | ||||
See accompanying notes to consolidated financial statements.
2
Nine Months Ended | ||||||||
September 30, | ||||||||
2007 | 2006 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net income |
$ | 1,322 | $ | 1,561 | ||||
Adjustments to reconcile net income to net cash provided by operating activities |
||||||||
Depreciation, depletion and amortization |
1,046 | 871 | ||||||
Exploratory dry hole costs |
25 | 192 | ||||||
Lease impairment |
50 | 79 | ||||||
Pre-tax gain on asset sales |
(21 | ) | (369 | ) | ||||
Provision for deferred income taxes |
66 | 286 | ||||||
Distributed earnings of HOVENSA L.L.C., net |
44 | 128 | ||||||
Changes in other operating assets and liabilities |
169 | (36 | ) | |||||
Net cash provided by operating activities |
2,701 | 2,712 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Capital expenditures |
(2,773 | ) | (2,883 | ) | ||||
Proceeds from asset sales |
93 | 444 | ||||||
Payments received on notes receivable |
46 | 61 | ||||||
Other |
(52 | ) | 20 | |||||
Net cash used in investing activities |
(2,686 | ) | (2,358 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Debt with maturities of greater than 90 days |
||||||||
Borrowings |
761 | 21 | ||||||
Repayments |
(548 | ) | (31 | ) | ||||
Cash dividends paid |
(127 | ) | (148 | ) | ||||
Employee stock options exercised |
81 | 35 | ||||||
Net cash provided by (used in) financing activities |
167 | (123 | ) | |||||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
182 | 231 | ||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
383 | 315 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 565 | $ | 546 | ||||
3
1. | 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 Corporations (the Corporation) consolidated financial position at September 30, 2007 and December 31, 2006, the consolidated results of operations for the three and nine month periods ended September 30, 2007 and 2006 and the consolidated cash flows for the nine month periods ended September 30, 2007 and 2006. 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. These statements, therefore, should be read in conjunction
with the consolidated financial statements and related notes included in the
Corporations Form 10-K for the year ended December 31, 2006. |
||
Effective January 1, 2007, the Corporation adopted Financial Accounting Standards Board (FASB) Staff Position (FSP) AUG AIR-1, Accounting for Planned Major Maintenance Activities. This FSP eliminates the previously acceptable accrue-in-advance method of accounting for planned major maintenance. As a result, the Corporation retrospectively changed its method of accounting to recognize expenses associated with refinery turnarounds when such costs are incurred. The impact of adopting this FSP decreased previously reported third quarter 2006 net income by $1 million with no impact to diluted earnings per share and increased previously reported net income for the nine months ended September 30, 2006 by $4 million ($.02 per diluted share). The impact on the fourth quarter of 2006 was not material. In addition, previously reported net income for the year ended December 31, 2005 decreased by $16 million and retained earnings as of January 1, 2005 increased by $48 million. Prior period financial information in the financial statements and notes reflect this retrospective accounting change. | ||
Effective January 1, 2007, the Corporation adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 prescribes the financial statement recognition and measurement criteria for a tax position taken or expected to be taken in a tax return. FIN 48 also requires additional disclosures related to uncertain income tax positions. See note 9, Income Taxes, for further information. | ||
2. | Acquisition | |
In February 2007, the Corporation completed the acquisition of a 28% interest in the Genghis Khan oil and gas development located in the deepwater Gulf of Mexico on Green Canyon Blocks 652 and 608 for $371 million, of which $342 million was allocated to proved and unproved properties and the remainder to wells and equipment. The Genghis Khan development is part of the same geologic structure as the Shenzi development. This transaction was accounted for as an acquisition of assets. |
4
3. | Inventories | |
Inventories consist of the following (in millions): |
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
Crude oil and other charge stocks |
$ | 346 | $ | 202 | ||||
Refined products and natural gas |
1,484 | 1,185 | ||||||
Less: LIFO adjustment |
(847 | ) | (676 | ) | ||||
983 | 711 | |||||||
Merchandise, materials and supplies |
358 | 294 | ||||||
Total inventories |
$ | 1,341 | $ | 1,005 | ||||
4. | Refining Joint Venture | |
The Corporation accounts for its investment in HOVENSA L.L.C. (HOVENSA) using the equity method. | ||
Summarized financial information for HOVENSA follows (in millions): |
September 30, | December 31, | |||||||
2007 | 2006* | |||||||
Summarized balance sheet |
||||||||
Cash and short-term investments |
$ | 355 | $ | 290 | ||||
Other current assets |
991 | 943 | ||||||
Net fixed assets |
2,161 | 2,123 | ||||||
Other assets |
42 | 32 | ||||||
Current liabilities |
(1,149 | ) | (1,013 | ) | ||||
Long-term debt |
(356 | ) | (252 | ) | ||||
Deferred liabilities and credits |
(75 | ) | (70 | ) | ||||
Members equity |
$ | 1,969 | $ | 2,053 | ||||
Three months | Nine months | |||||||||||||||
ended September 30, | ended September 30, | |||||||||||||||
2007 | 2006* | 2007 | 2006* | |||||||||||||
Summarized income statement |
||||||||||||||||
Total sales |
$ | 3,539 | $ | 3,319 | $ | 9,181 | $ | 9,041 | ||||||||
Cost and expenses |
(3,500 | ) | (3,184 | ) | (8,866 | ) | (8,692 | ) | ||||||||
Net income |
$ | 39 | $ | 135 | $ | 315 | $ | 349 | ||||||||
Hess Corporations share,
before income taxes |
$ | 19 | $ | 67 | $ | 156 | $ | 172 | ||||||||
(*) | Reflects the impact of the retrospective adoption of a new accounting pronouncement related to expensing the costs of refinery turnarounds. |
5
5. | Capitalized Exploratory Well Costs | |
The following table discloses the net changes in capitalized exploratory well costs pending determination of proved reserves for the nine months ended September 30, 2007 (in millions): |
Beginning balance at January 1 |
$ | 399 | ||
Additions to capitalized exploratory well costs pending the
determination of proved reserves |
195 | |||
Reclassifications to wells, facilities, and equipment based on the
determination of proved reserves |
(20 | ) | ||
Ending balance at September 30 |
$ | 574 | ||
The preceding table excludes costs related to exploratory dry holes of $25 million, which were incurred and subsequently expensed in 2007. Capitalized exploratory well costs greater than one year old after completion of drilling were $130 million as of September 30, 2007 and $71 million as of December 31, 2006. | ||
6. | Long-Term Debt and Capitalized Interest | |
At September 30, 2007, the Corporation classified an aggregate of $457 million of borrowings under short-term credit facilities as long-term debt, based on the available capacity under the $3 billion syndicated revolving credit facility, substantially all of which is committed through May 2012. | ||
Capitalized interest on development projects amounted to the following (in millions): |
Three months | Nine months | |||||||||||||||
ended September 30 | ended September 30 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Capitalized interest |
$ | 18 | $ | 25 | $ | 49 | $ | 75 |
7. | Foreign Currency | |
Pre-tax foreign currency gains (losses) amounted to the following (in millions): |
Three months | Nine months | |||||||||||||||
ended September 30 | ended September 30 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Foreign currency gains (losses) |
$ | 20 | $ | (2 | ) | $ | 14 | $ | 11 |
6
8. | Retirement Plans | |
Components of net periodic pension cost consisted of the following (in millions): |
Three months | Nine months | |||||||||||||||
ended September 30 | ended September 30 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Service cost |
$ | 11 | $ | 9 | $ | 29 | $ | 26 | ||||||||
Interest cost |
18 | 17 | 52 | 49 | ||||||||||||
Expected return on plan assets |
(18 | ) | (18 | ) | (52 | ) | (49 | ) | ||||||||
Amortization of prior service cost |
| | | 1 | ||||||||||||
Amortization of net loss |
6 | 8 | 16 | 20 | ||||||||||||
Pension expense |
$ | 17 | $ | 16 | $ | 45 | $ | 47 | ||||||||
In 2007, the Corporation expects to contribute approximately $75 million to its funded pension plans and $15 million to the trust established for its unfunded pension plan. Through September 30, 2007, the Corporation contributed $58 million to its pension plans. | ||
9. | Income Taxes | |
The provision for income taxes consisted of the following (in millions): |
Three months | Nine months | |||||||||||||||
ended September 30 | ended September 30 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Current |
$ | 362 | $ | 546 | $ | 1,229 | $ | 1,357 | ||||||||
Deferred |
60 | 48 | 71 | 241 | ||||||||||||
Adjustment of deferred tax liability for
foreign income tax rate change |
| 45 | (5 | ) | 45 | |||||||||||
Total |
$ | 422 | $ | 639 | $ | 1,295 | $ | 1,643 | ||||||||
The Corporation adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, effective January 1, 2007. The impact of adoption was not material to the Corporations financial position, results of operations or cash flows. A deferred tax asset of $28 million related to an acquired net operating loss carryforward was recorded in conjunction with adopting FIN 48 and goodwill was reduced. | ||
At January 1, 2007, the Corporation had $142 million of unrecognized income tax benefits, of which $76 million, if recognized, would affect the Corporations effective income tax rate. The Corporation has elected to classify interest and penalties associated with uncertain tax positions as income tax expense. | ||
The Corporation and its subsidiaries file income tax returns in the United States and various foreign jurisdictions. The Corporation is no longer subject to examinations by income tax authorities in most jurisdictions for years prior to 2002. | ||
In July 2006, the United Kingdom increased by 10% the supplementary tax on petroleum operations with an effective date of January 1, 2006. As a result, in the third quarter of 2006 the Corporation recorded a charge of $105 million consisting of an incremental income tax of $60 million on operating earnings for the first half of 2006 and $45 million to adjust the United Kingdom deferred tax liability. |
7
10. | Weighted Average Common Shares | |
The weighted average number of common shares used in the basic and diluted earnings per share computations are as follows (in thousands): |
Three months | Nine months | |||||||||||||||
ended September 30 | ended September 30 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Common shares basic |
313,617 | 275,680 | 311,986 | 275,320 | ||||||||||||
Effect of dilutive securities
|
||||||||||||||||
Restricted common stock |
2,802 | 2,889 | 3,078 | 2,701 | ||||||||||||
Stock options |
2,856 | 3,237 | 2,889 | 3,187 | ||||||||||||
Convertible preferred stock |
590 | 34,243 | 601 | 34,243 | ||||||||||||
Common shares diluted |
319,865 | 316,049 | 318,554 | 315,451 | ||||||||||||
11. | Share-based Compensation | |
Share-based compensation expense was as follows (in millions): |
Three months | Nine months | |||||||||||||||
ended September 30 | ended September 30 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Before income taxes |
$ | 21 | $ | 18 | $ | 65 | $ | 49 | ||||||||
After income taxes |
14 | 11 | 41 | 32 |
The Corporation issued 3,025,800 stock options and 1,015,350 shares of restricted stock in the first nine months of 2007 and 2,804,100 stock options and 957,600 shares of restricted stock in the first nine months of 2006. | ||
12. | Comprehensive Income | |
Comprehensive income (loss) was as follows (in millions): |
Three months | Nine months | |||||||||||||||
ended September 30 | ended September 30 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Net income |
$ | 395 | $ | 296 | $ | 1,322 | $ | 1,561 | ||||||||
Deferred gains (losses) on cash flow hedges, after tax
|
||||||||||||||||
Effect of hedge losses recognized in income |
98 | 102 | 209 | 257 | ||||||||||||
Net change in fair value of cash flow hedges |
(91 | ) | 186 | (267 | ) | (356 | ) | |||||||||
Change in minimum postretirement plan liabilities,
after tax |
4 | | 12 | | ||||||||||||
Change in foreign currency translation adjustment and
other |
30 | (10 | ) | 36 | 23 | |||||||||||
Comprehensive income |
$ | 436 | $ | 574 | $ | 1,312 | $ | 1,485 | ||||||||
At September 30, 2007, accumulated other comprehensive income (loss) included after-tax unrealized deferred losses of $1,396 million primarily related to crude oil contracts used as hedges of future Exploration and Production sales. The pre-tax amount of deferred hedge losses is reflected in accounts payable and the related income tax benefits are recorded as deferred tax assets on the balance sheet. |
8
13. | Segment Information | |
The Corporations results by operating segment were as follows (in millions): |
Three months ended | Nine months ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Operating revenues |
||||||||||||||||
Exploration and Production |
$ | 1,803 | $ | 1,736 | $ | 5,283 | $ | 5,085 | ||||||||
Marketing and Refining |
5,691 | 5,360 | 17,058 | 16,051 | ||||||||||||
Less: Transfers between affiliates |
(43 | ) | (61 | ) | (150 | ) | (224 | ) | ||||||||
Total * |
$ | 7,451 | $ | 7,035 | $ | 22,191 | $ | 20,912 | ||||||||
Net income (loss) |
||||||||||||||||
Exploration and Production |
$ | 414 | $ | 206 | $ | 1,259 | $ | 1,413 | ||||||||
Marketing and Refining |
46 | 152 | 269 | 327 | ||||||||||||
Corporate, including interest |
(65 | ) | (62 | ) | (206 | ) | (179 | ) | ||||||||
Total |
$ | 395 | $ | 296 | $ | 1,322 | $ | 1,561 | ||||||||
* | Operating revenues are reported net of excise and similar taxes of approximately $500 million in the third quarter of both 2007 and 2006 and $1,500 million during the first nine months of both 2007 and 2006. |
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
Exploration and Production |
$ | 16,181 | $ | 14,397 | ||||
Marketing and Refining |
5,674 | 6,228 | ||||||
Corporate |
2,081 | 1,817 | ||||||
Total |
$ | 23,936 | $ | 22,442 | ||||
9
Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition. | ||
Overview |
| In September, gas production commenced at the Snohvit Field located offshore Norway (Hess 3.26%) and in early October crude oil production commenced at the Genghis Khan Field in the Gulf of Mexico (Hess 28%). | ||
| On October 10, the Corporation completed facilities installation work at Block A-18 of the Joint Development Area of Malaysia and Thailand (JDA) (Hess 50%) required for Phase 2 of the development. Production has resumed at the development after being temporarily suspended for 50 days for the upgrade. | ||
| During the third quarter, exploration drilling commenced at the Bob North prospect in the Mississippi Canyon area (Hess 30%) in the deepwater Gulf of Mexico and is expected to be completed in the fourth quarter. In October, the Corporation resumed operations at the Pony discovery (Hess 100%), after it was temporarily suspended for a required drilling rig inspection, and commenced drilling an appraisal well at the Tubular Bells discovery (Hess 20%). | ||
| In September, the Corporation secured a new drillship for use in its global deepwater exploration and development activities beginning in the middle of 2009. The rig will be equipped to drill in up to 7,500 feet of water. The Corporation will make total payments of approximately $950 million under this five year contract. |
Marketing and Refining: M&R earnings were $46 million in the third quarter of 2007 compared with $152 million in the corresponding period of 2006. The decrease principally reflects lower margins and less favorable trading results. During the third quarter of 2007, the Corporation received a cash distribution of $75 million from HOVENSA. |
10
Three months ended | Nine months ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Exploration and Production |
$ | 414 | $ | 206 | $ | 1,259 | $ | 1,413 | ||||||||
Marketing and Refining |
46 | 152 | 269 | 327 | ||||||||||||
Corporate |
(28 | ) | (31 | ) | (91 | ) | (83 | ) | ||||||||
Interest expense |
(37 | ) | (31 | ) | (115 | ) | (96 | ) | ||||||||
Net income |
$ | 395 | $ | 296 | $ | 1,322 | $ | 1,561 | ||||||||
Net income per share (diluted) |
$ | 1.23 | $ | .94 | $ | 4.15 | $ | 4.95 | ||||||||
Three months ended | Nine months ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Exploration and Production |
||||||||||||||||
Estimated production imbalance settlements |
$ | (33 | ) | $ | | $ | (33 | ) | $ | | ||||||
Gains from asset sales |
| | 15 | 236 | ||||||||||||
Income tax adjustments |
| (105 | ) | | (45 | ) | ||||||||||
Accrued office closing costs |
| | | (18 | ) | |||||||||||
$ | (33 | ) | $ | (105 | ) | $ | (18 | ) | $ | 173 | ||||||
11
Three months ended | Nine months ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Sales and other operating revenues* |
$ | 1,747 | $ | 1,665 | $ | 5,060 | $ | 4,842 | ||||||||
Non-operating income, net |
30 | 15 | 52 | 407 | ||||||||||||
Total revenues |
1,777 | 1,680 | 5,112 | 5,249 | ||||||||||||
Cost and expenses
|
||||||||||||||||
Production expenses, including related taxes |
394 | 323 | 1,118 | 892 | ||||||||||||
Exploration expenses, including dry holes
and lease impairment |
131 | 221 | 314 | 412 | ||||||||||||
General, administrative and other expenses |
64 | 46 | 183 | 163 | ||||||||||||
Depreciation, depletion and amortization |
345 | 306 | 991 | 823 | ||||||||||||
Total costs and expenses |
934 | 896 | 2,606 | 2,290 | ||||||||||||
Results of operations before income taxes |
843 | 784 | 2,506 | 2,959 | ||||||||||||
Provision for income taxes |
429 | 578 | 1,247 | 1,546 | ||||||||||||
Results of operations |
$ | 414 | $ | 206 | $ | 1,259 | $ | 1,413 | ||||||||
* | Amounts differ from E&P operating revenues in Note 13 Segment Information primarily due to the exclusion of sales of hydrocarbons purchased from unrelated third parties. |
12
Three months ended | Nine months ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Average selling prices |
||||||||||||||||
Crude oil per barrel (including hedging) |
||||||||||||||||
United States |
$ | 73.20 | $ | 65.41 | $ | 62.88 | $ | 62.22 | ||||||||
Europe |
62.06 | 59.97 | 56.95 | 58.41 | ||||||||||||
Africa |
64.38 | 54.52 | 57.72 | 51.86 | ||||||||||||
Asia and other |
70.69 | 67.24 | 66.59 | 64.39 | ||||||||||||
Worldwide |
65.26 | 58.81 | 58.82 | 57.10 | ||||||||||||
Crude oil per barrel (excluding hedging) |
||||||||||||||||
United States |
$ | 73.20 | $ | 65.41 | $ | 62.88 | $ | 62.22 | ||||||||
Europe |
62.06 | 62.79 | 56.95 | 60.85 | ||||||||||||
Africa |
73.49 | 66.43 | 66.47 | 65.52 | ||||||||||||
Asia and other |
70.69 | 67.24 | 66.59 | 64.39 | ||||||||||||
Worldwide |
69.85 | 64.73 | 62.66 | 62.75 | ||||||||||||
Natural gas liquids per barrel |
||||||||||||||||
United States |
$ | 51.27 | $ | 49.17 | $ | 47.43 | $ | 47.07 | ||||||||
Europe |
48.44 | 50.30 | 51.55 | 48.50 | ||||||||||||
Worldwide |
50.58 | 49.54 | 48.83 | 47.51 | ||||||||||||
Natural gas per Mcf |
||||||||||||||||
United States |
$ | 5.80 | $ | 5.99 | $ | 6.75 | $ | 6.68 | ||||||||
Europe |
6.09 | 5.37 | 5.03 | 6.47 | ||||||||||||
Asia and other |
4.69 | 3.91 | 4.55 | 3.93 | ||||||||||||
Worldwide |
5.38 | 4.94 | 5.08 | 5.59 |
13
Three months ended | Nine months ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Crude oil (barrels per day) |
||||||||||||||||
United States |
31 | 34 | 31 | 38 | ||||||||||||
Europe |
83 | 102 | 96 | 109 | ||||||||||||
Africa |
123 | 86 | 112 | 84 | ||||||||||||
Asia and other |
20 | 13 | 20 | 11 | ||||||||||||
Total |
257 | 235 | 259 | 242 | ||||||||||||
Natural gas liquids (barrels per day) |
||||||||||||||||
United States |
11 | 11 | 10 | 10 | ||||||||||||
Europe |
3 | 5 | 5 | 4 | ||||||||||||
Total |
14 | 16 | 15 | 14 | ||||||||||||
Natural gas (Mcf per day) |
||||||||||||||||
United States |
87 | 109 | 87 | 116 | ||||||||||||
Europe |
188 | 274 | 249 | 266 | ||||||||||||
Asia and other |
241 | 226 | 254 | 218 | ||||||||||||
Total |
516 | 609 | 590 | 600 | ||||||||||||
Barrels of oil equivalent per day * |
357 | 352 | 372 | 356 | ||||||||||||
* | Natural gas production is converted assuming six Mcf equals one barrel. |
14
Three months ended | Nine months ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Before income taxes |
$ | 20 | $ | (3 | ) | $ | 16 | $ | 11 | |||||||
After income taxes |
1 | (1 | ) | (8 | ) | 5 |
15
Refinery utilization | ||||||||||||||||||||
Refinery | Three months ended | Nine months ended | ||||||||||||||||||
capacity | September 30 | September 30 | ||||||||||||||||||
(thousands of | ||||||||||||||||||||
barrels per day) | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||
HOVENSA |
||||||||||||||||||||
Crude |
500 | 91.9 | % | 94.9 | % | 88.4 | % | 88.3 | % | |||||||||||
Fluid catalytic cracker |
150 | 82.4 | % | 92.0 | % | 87.8 | % | 82.0 | % | |||||||||||
Coker |
58 | 92.6 | % | 88.3 | % | 78.1 | % | 82.4 | % | |||||||||||
Port Reading |
65 | 93.8 | % | 95.8 | % | 92.2 | % | 97.1 | % |
16
Three months ended | Nine months ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Total interest incurred |
$ | 77 | $ | 74 | $ | 234 | $ | 225 | ||||||||
Less: capitalized interest |
18 | 25 | 49 | 75 | ||||||||||||
Interest expense before income taxes |
59 | 49 | 185 | 150 | ||||||||||||
Less: income taxes |
22 | 18 | 70 | 54 | ||||||||||||
After-tax interest expense |
$ | 37 | $ | 31 | $ | 115 | $ | 96 | ||||||||
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
Cash and cash equivalents |
$ | 565 | $ | 383 | ||||
Current portion of long-term debt |
46 | 27 | ||||||
Total debt |
3,985 | 3,772 | ||||||
Stockholders equity |
9,509 | 8,147 | ||||||
Debt to capitalization ratio* |
29.5 | % | 31.6 | % |
* | Total debt as a percentage of the sum of total debt plus stockholders equity. |
17
Nine months ended | ||||||||
September 30 | ||||||||
2007 | 2006 | |||||||
Net cash provided by (used in): |
||||||||
Operating activities |
$ | 2,701 | $ | 2,712 | ||||
Investing activities |
(2,686 | ) | (2,358 | ) | ||||
Financing activities |
167 | (123 | ) | |||||
Net increase in cash and cash equivalents |
$ | 182 | $ | 231 | ||||
Nine months ended | ||||||||
September 30 | ||||||||
2007 | 2006 | |||||||
Exploration and Production |
||||||||
Exploration |
$ | 293 | $ | 468 | ||||
Production and development |
1,973 | 1,504 | ||||||
Property acquisitions (including leasehold) |
413 | 789 | ||||||
2,679 | 2,761 | |||||||
Marketing, Refining and Corporate |
94 | 122 | ||||||
Total |
$ | 2,773 | $ | 2,883 | ||||
18
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
Lines of Credit |
||||||||
Revolving credit facility |
$ | | $ | 1 | ||||
Asset backed credit facility |
509 | | ||||||
Committed short-term letter of credit facilities |
1,150 | 1,875 | ||||||
Uncommitted lines |
1,516 | 1,603 | ||||||
$ | 3,175 | $ | 3,479 | |||||
19
20
Brent Crude Oil | |||||||||
Average | Thousands | ||||||||
Selling | of Barrels | ||||||||
Price | per Day | ||||||||
Maturities |
|||||||||
2007 |
$ | 25.85 | 24 | ||||||
2008 |
25.56 | 24 | |||||||
2009 |
25.54 | 24 | |||||||
2010 |
25.78 | 24 | |||||||
2011 |
26.37 | 24 | |||||||
2012 |
26.90 | 24 |
21
2007 | 2006 | |||||||
Fair value of contracts outstanding at January 1 |
$ | 365 | $ | 1,109 | ||||
Change in fair value of contracts outstanding
at the beginning of the year and still
outstanding at September 30 |
(69 | ) | (271 | ) | ||||
Reversal of fair value for contracts closed
during the period |
(133 | ) | (186 | ) | ||||
Fair value of contracts entered into
during the period and still outstanding |
(37 | ) | (168 | ) | ||||
Fair value of contracts outstanding
at September 30 |
$ | 126 | $ | 484 | ||||
Instruments Maturing | ||||||||||||||||||||
2010 | ||||||||||||||||||||
and | ||||||||||||||||||||
Source
of Fair
Value |
Total | 2007 | 2008 | 2009 | beyond | |||||||||||||||
Prices actively quoted |
$ | 119 | $ | 57 | $ | 20 | $ | 13 | $ | 29 | ||||||||||
Other external sources |
7 | (8 | ) | 6 | 9 | | ||||||||||||||
Internal estimates |
| | | | | |||||||||||||||
Total |
$ | 126 | $ | 49 | $ | 26 | $ | 22 | $ | 29 | ||||||||||
Investment grade determined by outside sources |
$ | 243 | ||
Investment grade determined internally (*) |
48 | |||
Less than investment grade |
48 | |||
Fair value of net receivables outstanding at end of period |
$ | 339 | ||
(*) | Based on information provided by counterparties and other available sources. |
22
23
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Item 4. | Controls and Procedures |
24
Item 1. | Legal Proceedings |
Item 6. | Exhibits and Reports on Form 8-K |
31 | (1) | Certification required by Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a)) | ||||
31 | (2) | Certification required by Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a)) | ||||
32 | (1) | Certification required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) | ||||
32 | (2) | Certification required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) |
(i) | Filing dated July 25, 2007 reporting under Items 2.02 and 9.01 a news release dated July 25, 2007 reporting results for the second quarter of 2007. |
25
HESS CORPORATION | ||||||
(REGISTRANT) | ||||||
By | /s/ John B. Hess
|
|||||
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER |
||||||
By | /s/ John P. Rielly
|
|||||
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER |
26
1. | I have reviewed this quarterly report on Form 10-Q of Hess Corporation; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and the internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
27
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
By | /s/ John B. Hess
|
|||||
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER |
28
1. | I have reviewed this quarterly report on Form 10-Q of Hess Corporation; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and the internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
29
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
By | /s/ John P. Rielly
|
|||||
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER |
30
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. |
By | /s/ John B. Hess
|
|||||
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER Date: November 7, 2007 |
31
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. |
By | /s/ John P. Rielly
|
|||||
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Date: November 7, 2007 |
32