FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended June 30, 2008
or
|
|
|
o |
|
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
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)
(Registrants 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 preceeding 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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer
o
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yeso No þ
At June 30, 2008, there were 325,335,776 shares of Common Stock outstanding.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME (UNAUDITED)
(In millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
REVENUES AND NON-OPERATING INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales (excluding excise taxes) and other operating revenues |
|
$ |
11,717 |
|
|
$ |
7,421 |
|
|
$ |
22,384 |
|
|
$ |
14,740 |
|
Equity in income (loss) of HOVENSA L.L.C. |
|
|
(19 |
) |
|
|
81 |
|
|
|
(29 |
) |
|
|
137 |
|
Gain on asset sales |
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
21 |
|
Other, net |
|
|
37 |
|
|
|
23 |
|
|
|
100 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and non-operating income |
|
|
11,735 |
|
|
|
7,546 |
|
|
|
22,455 |
|
|
|
14,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold (excluding items shown separately below) |
|
|
8,354 |
|
|
|
5,190 |
|
|
|
16,072 |
|
|
|
10,600 |
|
Production expenses |
|
|
494 |
|
|
|
377 |
|
|
|
918 |
|
|
|
724 |
|
Marketing expenses |
|
|
267 |
|
|
|
241 |
|
|
|
500 |
|
|
|
463 |
|
Exploration expenses, including dry holes and lease impairment |
|
|
158 |
|
|
|
90 |
|
|
|
310 |
|
|
|
183 |
|
Other operating expenses |
|
|
47 |
|
|
|
37 |
|
|
|
92 |
|
|
|
70 |
|
General and administrative expenses |
|
|
156 |
|
|
|
142 |
|
|
|
308 |
|
|
|
273 |
|
Interest expense |
|
|
65 |
|
|
|
62 |
|
|
|
132 |
|
|
|
126 |
|
Depreciation, depletion and amortization |
|
|
482 |
|
|
|
354 |
|
|
|
934 |
|
|
|
681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
10,023 |
|
|
|
6,493 |
|
|
|
19,266 |
|
|
|
13,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
|
1,712 |
|
|
|
1,053 |
|
|
|
3,189 |
|
|
|
1,800 |
|
Provision for income taxes |
|
|
812 |
|
|
|
496 |
|
|
|
1,530 |
|
|
|
873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
900 |
|
|
$ |
557 |
|
|
$ |
1,659 |
|
|
$ |
927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC |
|
$ |
2.81 |
|
|
$ |
1.78 |
|
|
$ |
5.20 |
|
|
$ |
2.98 |
|
DILUTED |
|
|
2.76 |
|
|
|
1.75 |
|
|
|
5.11 |
|
|
|
2.92 |
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (DILUTED) |
|
|
326.2 |
|
|
|
318.6 |
|
|
|
325.0 |
|
|
|
317.9 |
|
COMMON STOCK DIVIDENDS PER SHARE |
|
$ |
.10 |
|
|
$ |
.10 |
|
|
$ |
.20 |
|
|
$ |
.20 |
|
See accompanying notes to consolidated financial statements.
1
PART I FINANCIAL INFORMATION (CONTD.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(In millions of dollars, thousands of shares)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,479 |
|
|
$ |
607 |
|
Accounts receivable |
|
|
6,266 |
|
|
|
4,708 |
|
Inventories |
|
|
1,473 |
|
|
|
1,250 |
|
Other current assets |
|
|
474 |
|
|
|
361 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
9,692 |
|
|
|
6,926 |
|
|
|
|
|
|
|
|
INVESTMENTS IN AFFILIATES |
|
|
|
|
|
|
|
|
HOVENSA L.L.C. |
|
|
855 |
|
|
|
933 |
|
Other |
|
|
183 |
|
|
|
184 |
|
|
|
|
|
|
|
|
Total investments in affiliates |
|
|
1,038 |
|
|
|
1,117 |
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT |
|
|
|
|
|
|
|
|
Total at cost |
|
|
26,967 |
|
|
|
24,831 |
|
Less reserves for depreciation, depletion, amortization and lease impairment |
|
|
11,213 |
|
|
|
10,197 |
|
|
|
|
|
|
|
|
Property, plant and equipment net |
|
|
15,754 |
|
|
|
14,634 |
|
|
|
|
|
|
|
|
GOODWILL |
|
|
1,225 |
|
|
|
1,225 |
|
DEFERRED INCOME TAXES |
|
|
2,704 |
|
|
|
1,873 |
|
OTHER ASSETS |
|
|
326 |
|
|
|
356 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
30,739 |
|
|
$ |
26,131 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
7,804 |
|
|
$ |
5,741 |
|
Accrued liabilities |
|
|
2,030 |
|
|
|
1,638 |
|
Taxes payable |
|
|
1,335 |
|
|
|
583 |
|
Current maturities of long-term debt |
|
|
68 |
|
|
|
62 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
11,237 |
|
|
|
8,024 |
|
|
|
|
|
|
|
|
LONG-TERM DEBT |
|
|
3,877 |
|
|
|
3,918 |
|
DEFERRED INCOME TAXES |
|
|
2,463 |
|
|
|
2,362 |
|
ASSET RETIREMENT OBLIGATIONS |
|
|
1,062 |
|
|
|
1,016 |
|
OTHER LIABILITIES |
|
|
998 |
|
|
|
1,037 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
19,637 |
|
|
|
16,357 |
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Preferred stock, par value $1.00, 20,000 shares authorized
3% cumulative convertible series
Authorized 330 shares
Issued 284 shares ($14 million liquidation preference) |
|
|
|
|
|
|
|
|
Common stock, par value $1.00
Authorized 600,000 shares
Issued 325,336 shares at June 30, 2008; 320,600 shares at December 31, 2007 |
|
|
325 |
|
|
|
321 |
|
Capital in excess of par value |
|
|
2,038 |
|
|
|
1,882 |
|
Retained earnings |
|
|
11,007 |
|
|
|
9,412 |
|
Accumulated other comprehensive income (loss) |
|
|
(2,268 |
) |
|
|
(1,841 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
11,102 |
|
|
|
9,774 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
30,739 |
|
|
$ |
26,131 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
2
PART I FINANCIAL INFORMATION (CONTD.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,659 |
|
|
$ |
927 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
934 |
|
|
|
681 |
|
Exploratory dry hole costs and lease impairment |
|
|
105 |
|
|
|
47 |
|
Pre-tax gain on asset sales |
|
|
|
|
|
|
(21 |
) |
(Benefit) provision for deferred income taxes |
|
|
(112 |
) |
|
|
6 |
|
(Undistributed) distributed earnings of HOVENSA L.L.C., net |
|
|
79 |
|
|
|
(12 |
) |
Changes in other operating assets and liabilities |
|
|
202 |
|
|
|
210 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
2,867 |
|
|
|
1,838 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(2,005 |
) |
|
|
(2,038 |
) |
Proceeds from asset sales |
|
|
|
|
|
|
93 |
|
Other |
|
|
39 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,966 |
) |
|
|
(1,948 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Debt with maturities of greater than 90 days |
|
|
|
|
|
|
|
|
Borrowings |
|
|
297 |
|
|
|
563 |
|
Repayments |
|
|
(332 |
) |
|
|
(344 |
) |
Cash dividends paid |
|
|
(97 |
) |
|
|
(95 |
) |
Employee stock options exercised |
|
|
103 |
|
|
|
85 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(29 |
) |
|
|
209 |
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
872 |
|
|
|
99 |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
|
|
607 |
|
|
|
383 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
1,479 |
|
|
$ |
482 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
3
PART I FINANCIAL INFORMATION (CONTD.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 June 30, 2008 and
December 31, 2007, and the consolidated results of operations and the consolidated cash
flows for the three and six month periods ended June 30, 2008 and 2007. 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
Corporations
Form 10-K for the year ended December 31, 2007.
Effective January 1, 2008, the Corporation adopted Financial Accounting Standards
Board (FASB) Statement No. 157, Fair Value Measurements (FAS 157) for financial assets
and liabilities that are required to be measured at fair value. FAS 157 established a
framework for measuring fair value and requires disclosure of a fair value hierarchy (see
Note 8, Fair Value Measurements). The impact of adopting FAS 157 was not material to the
Corporations results of operations. Upon adoption, the Corporation recorded a reduction
in the net deferred hedge losses reflected in accumulated other comprehensive income,
which increased stockholders equity by approximately $190 million, after income taxes.
In December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements-an amendment of ARB No. 51 (FAS 160). FAS 160 changes
the accounting for and reporting of noncontrolling interests in a subsidiary. The
Corporation is currently evaluating the impact of adoption on its financial statements
and, as required, will adopt the provisions of FAS 160 effective January 1, 2009.
Inventories consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Crude oil and other charge stocks |
|
$ |
509 |
|
|
$ |
338 |
|
Refined products and natural gas |
|
|
2,030 |
|
|
|
1,577 |
|
Less: LIFO adjustment |
|
|
(1,481 |
) |
|
|
(1,029 |
) |
|
|
|
|
|
|
|
|
|
|
1,058 |
|
|
|
886 |
|
Merchandise, materials and supplies |
|
|
415 |
|
|
|
364 |
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
1,473 |
|
|
$ |
1,250 |
|
|
|
|
|
|
|
|
4
PART I FINANCIAL INFORMATION (CONTD.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. |
|
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):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Summarized balance sheet |
|
|
|
|
|
|
|
|
Cash and short-term investments |
|
$ |
537 |
|
|
$ |
279 |
|
Other current assets |
|
|
1,323 |
|
|
|
1,183 |
|
Net fixed assets |
|
|
2,164 |
|
|
|
2,181 |
|
Other assets |
|
|
74 |
|
|
|
62 |
|
Current liabilities |
|
|
(1,994 |
) |
|
|
(1,459 |
) |
Long-term debt |
|
|
(356 |
) |
|
|
(356 |
) |
Deferred liabilities and credits |
|
|
(86 |
) |
|
|
(75 |
) |
|
|
|
|
|
|
|
|
Members equity |
|
$ |
1,662 |
|
|
$ |
1,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
|
Six months |
|
|
|
ended June 30, |
|
|
ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Summarized income statement |
Total sales |
|
$ |
5,438 |
|
|
$ |
2,800 |
|
|
$ |
9,739 |
|
|
$ |
5,642 |
|
Cost and expenses |
|
|
(5,474 |
) |
|
|
(2,638 |
) |
|
|
(9,793 |
) |
|
|
(5,366 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(36 |
) |
|
$ |
162 |
|
|
$ |
(54 |
) |
|
$ |
276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hess Corporations share,
before income taxes |
|
$ |
(19 |
) |
|
$ |
81 |
|
|
$ |
(29 |
) |
|
$ |
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first half of 2008 and 2007, the Corporation received cash distributions
from HOVENSA of $50 million and $125 million, respectively.
4. |
|
Capitalized Exploratory Well Costs |
The following table discloses the net changes in capitalized exploratory well costs
pending determination of proved reserves for the six months ended June 30, 2008 (in
millions):
|
|
|
|
|
Balance at beginning of period |
|
$ |
608 |
|
Additions to capitalized exploratory well costs pending the
determination of proved reserves |
|
|
264 |
|
Reclassifications to wells, facilities, and equipment based on the
determination of proved reserves |
|
|
(6 |
) |
Capitalized exploratory well costs charged to expense |
|
|
(7 |
) |
|
|
|
|
Balance at end of period |
|
$ |
859 |
|
|
|
|
|
The preceding table excludes costs related to exploratory dry holes of $51 million
which were incurred and subsequently expensed in 2008. Capitalized exploratory well
costs greater than one year old after completion of drilling were $406 million as of June
30, 2008 and $304 million as of December 31, 2007.
5
PART I FINANCIAL INFORMATION (CONTD.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. |
|
Long-Term Debt and Capitalized Interest |
At June 30, 2008, the Corporation classified an aggregate of $536 million of
borrowings under short-term credit facilities as long-term debt, based on the available
capacity under its $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 |
|
Six months |
|
|
ended June 30, |
|
ended June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Capitalized interest |
|
$ |
1 |
|
|
$ |
16 |
|
|
$ |
2 |
|
|
$ |
31 |
|
Pre-tax foreign currency gains (losses) amounted to the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Six months |
|
|
ended June 30, |
|
ended June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Foreign currency gain (losses) |
|
$ |
11 |
|
|
$ |
|
|
|
$ |
44 |
|
|
$ |
(6 |
) |
The pre-tax amount of foreign currency gains (losses) is included in other, net
within revenues and non-operating income.
Components of net periodic pension cost consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
|
Six months |
|
|
|
ended June 30, |
|
|
ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Service cost |
|
$ |
10 |
|
|
$ |
9 |
|
|
$ |
20 |
|
|
$ |
18 |
|
Interest cost |
|
|
20 |
|
|
|
17 |
|
|
|
40 |
|
|
|
34 |
|
Expected return on plan assets |
|
|
(20 |
) |
|
|
(17 |
) |
|
|
(40 |
) |
|
|
(34 |
) |
Amortization of net loss |
|
|
3 |
|
|
|
5 |
|
|
|
6 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension expense |
|
$ |
13 |
|
|
$ |
14 |
|
|
$ |
26 |
|
|
$ |
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008, the Corporation expects to contribute approximately $75 million to its
funded pension plans and $25 million to the trust established for its unfunded pension
plan. Through June 30, 2008, the Corporation contributed $61 million to its pension
plans.
6
PART I FINANCIAL INFORMATION (CONTD.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
8. |
|
Fair Value Measurements |
The Corporation adopted the provisions of FAS 157 effective January 1, 2008 (see
Note 1, Basis of Presentation). 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 hierarchy of the Corporations
financial assets and (liabilities) as of June 30, 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
counterparty |
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
netting |
|
Total |
Supplemental
pension plan
investments |
|
$ |
80 |
|
|
$ |
|
|
|
$ |
17 |
|
|
$ |
|
|
|
$ |
97 |
|
Derivative contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
473 |
|
|
|
2,302 |
|
|
|
1,026 |
|
|
|
(2,012 |
) |
|
|
1,789 |
|
Liabilities |
|
|
(430 |
) |
|
|
(5,918 |
) |
|
|
(484 |
) |
|
|
1,900 |
|
|
|
(4,932 |
) |
Details on the methods and assumptions used to determine the fair values of the
financial assets and liabilities are as follows:
Fair value measurements based on Level 1 inputs:
Measurements that are most observable are based on quoted prices of identical
instruments obtained from the principal markets in which they are traded. Closing prices
are both readily available and representative of fair value. Market transactions occur
with sufficient frequency and volume to assure liquidity. The fair value of certain of
the Corporations exchange traded futures and options are considered Level 1. In
addition, fair values for the majority of the pension investments are considered Level 1,
since they are determined using quotations from national securities exchanges.
Fair value measurements based on Level 2 inputs:
Measurements derived indirectly from observable inputs or from quoted prices from
markets that are less liquid are considered Level 2. Measurements based on Level 2 inputs
include over-the-counter derivative instruments that are priced on an exchange traded
curve, but have contractual terms that are not identical to exchange traded contracts.
The Corporation utilizes fair value measurements based on Level 2 inputs for certain
forwards, swaps and options. The liability related to the Corporations crude oil
hedging program is classified as Level 2.
Fair value measurements based on Level 3 inputs:
Measurements that are least observable are estimated from related market data or
determined from sources with little or no market activity for comparable contracts. For
example, in its energy marketing business, the Corporation sells natural gas and
electricity to customers and offsets the price exposure by purchasing forward contracts.
The fair value of these sales and purchases may be based on specific prices at less
liquid delivered locations, which are classified as Level 3. There may be offsets to
these positions that are priced based on more liquid markets, which are, therefore,
classified as Level 1 or Level 2.
7
PART I FINANCIAL INFORMATION (CONTD.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table provides changes in financial assets and liabilities that are
measured at fair value based on Level 3 inputs for the three and six months ended June
30, 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
|
Six months |
|
|
|
ended June 30, |
|
|
ended June 30, |
|
Balance at beginning of period |
|
$ |
336 |
|
|
$ |
(4 |
) |
Unrealized gains (losses) |
|
|
|
|
|
|
|
|
Included in earnings (*) |
|
|
(98 |
) |
|
|
(23 |
) |
Included in other comprehensive income |
|
|
431 |
|
|
|
605 |
|
Purchases, sales or other settlements during the period |
|
|
(29 |
) |
|
|
35 |
|
Net transfers in to (out of) Level 3 |
|
|
(81 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
559 |
|
|
$ |
559 |
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Reflected in sales and other operating revenue. |
9. |
|
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 |
|
|
Six months |
|
|
|
ended June 30, |
|
|
ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Common shares basic |
|
|
320,936 |
|
|
|
311,971 |
|
|
|
319,167 |
|
|
|
311,225 |
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
3,192 |
|
|
|
2,798 |
|
|
|
3,343 |
|
|
|
2,899 |
|
Restricted common stock |
|
|
1,515 |
|
|
|
3,203 |
|
|
|
1,945 |
|
|
|
3,181 |
|
Convertible preferred stock |
|
|
534 |
|
|
|
608 |
|
|
|
534 |
|
|
|
608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares diluted |
|
|
326,177 |
|
|
|
318,580 |
|
|
|
324,989 |
|
|
|
317,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
|
Six months |
|
|
|
ended June 30, |
|
|
ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
900 |
|
|
$ |
557 |
|
|
$ |
1,659 |
|
|
$ |
927 |
|
Deferred gains (losses) on cash flow hedges, after tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of hedge losses recognized in income |
|
|
100 |
|
|
|
69 |
|
|
|
187 |
|
|
|
111 |
|
Net change in fair value of cash flow hedges |
|
|
(722 |
) |
|
|
(192 |
) |
|
|
(653 |
) |
|
|
(176 |
) |
Change in minimum postretirement plan liabilities,
after tax |
|
|
2 |
|
|
|
4 |
|
|
|
5 |
|
|
|
8 |
|
Change in foreign currency translation adjustment and
other |
|
|
3 |
|
|
|
9 |
|
|
|
33 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
283 |
|
|
$ |
447 |
|
|
$ |
1,231 |
|
|
$ |
876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation reclassifies hedging gains and losses included in other
comprehensive income (loss) to earnings at the time the hedged transactions are
recognized. Hedging decreased Exploration and Production results for the three and six
months ended June 30, 2008 by $234 million ($144 million after income taxes) and $386
million ($239 million after income taxes), respectively. For the three and six months
ended June 30, 2007, hedging decreased Exploration and Production results by $93 million
($56 million after income taxes) and $157 million ($95 million after income taxes),
respectively.
8
PART I FINANCIAL INFORMATION (CONTD.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
At June 30, 2008, accumulated other comprehensive income (loss) included net
after-tax unrealized deferred losses of $2,138 million, primarily related to crude oil
contracts used as hedges of future Exploration and Production sales. The pre-tax amount
of any deferred hedge losses and gains is reflected in accounts payable and accounts
receivable, respectively, and the related income tax impact is recorded in deferred
income taxes on the balance sheet.
The Corporations results by operating segment were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
|
Six months |
|
|
|
ended June 30, |
|
|
ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and Production |
|
$ |
3,234 |
|
|
$ |
1,916 |
|
|
$ |
5,886 |
|
|
$ |
3,480 |
|
Marketing and Refining |
|
|
8,564 |
|
|
|
5,558 |
|
|
|
16,647 |
|
|
|
11,367 |
|
Less: Transfers between affiliates |
|
|
(81 |
) |
|
|
(53 |
) |
|
|
(149 |
) |
|
|
(107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (*) |
|
$ |
11,717 |
|
|
$ |
7,421 |
|
|
$ |
22,384 |
|
|
$ |
14,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and Production |
|
$ |
1,025 |
|
|
$ |
505 |
|
|
$ |
1,849 |
|
|
$ |
845 |
|
Marketing and Refining |
|
|
(52 |
) |
|
|
122 |
|
|
|
(36 |
) |
|
|
223 |
|
Corporate, including interest |
|
|
(73 |
) |
|
|
(70 |
) |
|
|
(154 |
) |
|
|
(141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
900 |
|
|
$ |
557 |
|
|
$ |
1,659 |
|
|
$ |
927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Operating revenues exclude excise and similar taxes of approximately
$550 million and $500 million in the second quarter of 2008 and 2007,
respectively, and $1,050 million and $950 million during the first half of 2008
and 2007, respectively. |
Identifiable assets by operating segment were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Exploration and Production |
|
$ |
19,402 |
|
|
$ |
17,008 |
|
Marketing and Refining |
|
|
7,702 |
|
|
|
6,667 |
|
Corporate |
|
|
3,635 |
|
|
|
2,456 |
|
|
|
|
|
|
|
|
Total |
|
$ |
30,739 |
|
|
$ |
26,131 |
|
|
|
|
|
|
|
|
9
PART I FINANCIAL INFORMATION (CONTD.)
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Results of Operations and Financial Condition. |
Hess Corporation (the Corporation) is a global integrated energy company that
operates in two segments, Exploration and Production (E&P) and Marketing and Refining
(M&R). The E&P segment explores for, develops, produces, purchases, transports and
sells crude oil and natural gas. The M&R segment manufactures, purchases, transports,
trades and markets refined petroleum products, natural gas and electricity. Net income
was $900 million for the second quarter of 2008, compared with $557 million in the
second quarter of 2007.
Exploration and Production: E&P earnings were $1,025 million for the second
quarter of 2008, compared with $505 million in the second quarter of 2007. The increase
in earnings primarily reflects higher average selling prices and natural gas production
volumes, partially offset by higher operating and exploration costs.
Worldwide crude oil and natural gas production was 393,000 barrels of oil
equivalent per day (boepd) in the second quarter of 2008 compared with 378,000 boepd in
the same period of 2007. The Corporation anticipates that its production for the full
year of 2008 will average between 380,000 and 390,000 boepd.
In the second quarter of 2008, the Corporations average worldwide crude oil
selling price, including the effect of hedging, was $104.29 per barrel compared with
$60.05 per barrel in the second quarter of 2007. The Corporations average worldwide
natural gas selling price, including the effect of hedging, was $7.81 per Mcf in the
second quarter of 2008 compared with $4.88 per Mcf in the second quarter of 2007.
The following is an update of Exploration and Production activities during the second
quarter of 2008:
|
|
|
In the deepwater Gulf of Mexico, development of the Shenzi Field (Hess 28%)
progressed with installation of the tension leg platform hull and topsides on
location. Installation of subsea facilities is ongoing and commissioning and first
production are expected in the first half of 2009. |
|
|
|
|
In Indonesia, development of the oil leg at the Ujung Pangkah Field (Hess 75%)
is continuing. Construction of the offshore platforms and onshore processing
facilities is on schedule and oil production is expected to commence in the first
half of 2009. |
|
|
|
|
In June 2008, the Corporation successfully completed drilling an appraisal well
at its Pony discovery (Hess 100%) located on Green Canyon Block 468 in the
deepwater Gulf of Mexico. The Corporation is evaluating development options for
production from the Pony prospect before making a final investment decision. |
|
|
|
|
In June 2008, the Corporations Glencoe-1 exploration well on Block WA-390-P
(Hess 100%) located in Australias Northwest Shelf, encountered 92 feet of net
natural gas pay. In addition, in July 2008, the Briseis-1 exploration well
encountered 151 feet of net natural gas pay on the same block. The Corporation
plans to drill two additional exploration wells on this block in 2008. The next
well, Nimblefoot-1, will be drilled about 14 kilometers southwest of the Glencoe-1
discovery and is expected to spud in August. |
10
PART I FINANCIAL INFORMATION (CONTD.)
|
|
|
In the fourth quarter of 2008, the Corporation expects to spud deepwater
wells on Block 54
(Hess 100%) in Libya, Cape Three Points (Hess 100%) in Ghana, and BM-S-22 (Hess 40%)
in Brazil. |
|
|
|
|
In the Williston Basin of North Dakota, the Corporation increased its net
acreage position in the Bakken Play to approximately 500,000 acres. The
Corporation currently has seven rigs operating in the Bakken and will add one
additional rig in the fourth quarter. |
Marketing and Refining: M&R results generated a loss of $52 million in the second
quarter of 2008, compared with income of $122 million in the second quarter of 2007,
primarily due to lower margins and trading results. The Corporation received a cash
distribution of $25 million from HOVENSA in the second quarter of 2008.
The after-tax results by major operating activity were as follows (in millions,
except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Exploration and Production |
|
$ |
1,025 |
|
|
$ |
505 |
|
|
$ |
1,849 |
|
|
$ |
845 |
|
Marketing and Refining |
|
|
(52 |
) |
|
|
122 |
|
|
|
(36 |
) |
|
|
223 |
|
Corporate |
|
|
(33 |
) |
|
|
(32 |
) |
|
|
(72 |
) |
|
|
(63 |
) |
Interest expense |
|
|
(40 |
) |
|
|
(38 |
) |
|
|
(82 |
) |
|
|
(78 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
900 |
|
|
$ |
557 |
|
|
$ |
1,659 |
|
|
$ |
927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share (diluted) |
|
$ |
2.76 |
|
|
$ |
1.75 |
|
|
$ |
5.11 |
|
|
$ |
2.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items Affecting Comparability Between Periods |
The following items of income, on an after-tax basis, affect the comparability of
earnings between periods (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Exploration and Production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from asset sales |
|
$ |
|
|
|
$ |
15 |
|
|
$ |
|
|
|
$ |
15 |
|
During the second quarter of 2007, the Corporation recorded a net gain of $15
million ($21 million before income taxes) related to the sale of its interests in the
Scott and Telford fields located in the United Kingdom.
In the discussion that follows, the financial effects of certain transactions are
disclosed on an after-tax basis. Management reviews segment earnings on an after-tax
basis and uses after-tax amounts in its review of variances in segment earnings.
Management believes that after-tax amounts are preferable to pre-tax amounts for
explaining variances in earnings, since they show the entire effect of a transaction.
After-tax amounts are determined by applying the appropriate income tax rate in each tax
jurisdiction to pre-tax amounts.
11
PART I FINANCIAL INFORMATION (CONTD.)
|
|
Results of Operations (continued) |
|
|
Exploration and Production |
Following is a summarized income statement of the Corporations Exploration and
Production operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Sales and other operating revenues(*) |
|
$ |
3,075 |
|
|
$ |
1,802 |
|
|
$ |
5,682 |
|
|
$ |
3,313 |
|
Non-operating income |
|
|
22 |
|
|
|
28 |
|
|
|
69 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
3,097 |
|
|
|
1,830 |
|
|
|
5,751 |
|
|
|
3,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production expenses, including related taxes |
|
|
494 |
|
|
|
377 |
|
|
|
918 |
|
|
|
724 |
|
Exploration expenses, including dry holes
and lease impairment |
|
|
158 |
|
|
|
90 |
|
|
|
310 |
|
|
|
183 |
|
General, administrative and other expenses |
|
|
73 |
|
|
|
62 |
|
|
|
136 |
|
|
|
119 |
|
Depreciation, depletion and amortization |
|
|
462 |
|
|
|
337 |
|
|
|
896 |
|
|
|
646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
1,187 |
|
|
|
866 |
|
|
|
2,260 |
|
|
|
1,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of operations before income taxes |
|
|
1,910 |
|
|
|
964 |
|
|
|
3,491 |
|
|
|
1,663 |
|
Provision for income taxes |
|
|
885 |
|
|
|
459 |
|
|
|
1,642 |
|
|
|
818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of operations |
|
$ |
1,025 |
|
|
$ |
505 |
|
|
$ |
1,849 |
|
|
$ |
845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Amounts differ from E&P operating revenues in Note 11 Segment
Information primarily due to the exclusion of sales of hydrocarbons purchased
from unrelated third parties. |
|
|
Selling prices: Higher average realized selling prices of crude oil and natural gas
increased Exploration and Production revenues by approximately $1,250 million and $2,175
million in the second quarter and first half of 2008, respectively, compared with the
corresponding periods of 2007. The Corporations average selling prices were as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Average selling prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil per barrel (including hedging) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
120.23 |
|
|
$ |
61.41 |
|
|
$ |
106.42 |
|
|
$ |
57.46 |
|
Europe |
|
|
104.98 |
|
|
|
58.94 |
|
|
|
93.32 |
|
|
|
54.98 |
|
Africa |
|
|
97.32 |
|
|
|
58.02 |
|
|
|
88.44 |
|
|
|
53.68 |
|
Asia and other |
|
|
120.59 |
|
|
|
70.73 |
|
|
|
106.28 |
|
|
|
65.08 |
|
Worldwide |
|
|
104.29 |
|
|
|
60.05 |
|
|
|
93.75 |
|
|
|
55.66 |
|
12
PART I FINANCIAL INFORMATION (CONTD.)
|
|
Results of Operations (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Crude oil per barrel (excluding
hedging) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
120.23 |
|
|
$ |
61.41 |
|
|
$ |
106.42 |
|
|
$ |
57.46 |
|
Europe |
|
|
104.98 |
|
|
|
58.94 |
|
|
|
93.32 |
|
|
|
54.98 |
|
Africa |
|
|
117.49 |
|
|
|
67.04 |
|
|
|
105.98 |
|
|
|
62.22 |
|
Asia and other |
|
|
120.59 |
|
|
|
70.73 |
|
|
|
106.28 |
|
|
|
65.08 |
|
Worldwide |
|
|
113.79 |
|
|
|
63.94 |
|
|
|
101.66 |
|
|
|
59.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas liquids per barrel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
76.60 |
|
|
$ |
47.97 |
|
|
$ |
70.71 |
|
|
$ |
45.36 |
|
Europe |
|
|
92.67 |
|
|
|
58.26 |
|
|
|
85.78 |
|
|
|
52.44 |
|
Worldwide |
|
|
81.52 |
|
|
|
51.68 |
|
|
|
74.90 |
|
|
|
48.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas per Mcf (including hedging) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
11.00 |
|
|
$ |
7.24 |
|
|
$ |
9.69 |
|
|
$ |
7.22 |
|
Europe |
|
|
10.33 |
|
|
|
4.54 |
|
|
|
9.61 |
|
|
|
4.66 |
|
Asia and other |
|
|
5.23 |
|
|
|
4.42 |
|
|
|
5.12 |
|
|
|
4.49 |
|
Worldwide |
|
|
7.81 |
|
|
|
4.88 |
|
|
|
7.43 |
|
|
|
4.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas per Mcf (excluding hedging) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
11.00 |
|
|
$ |
7.24 |
|
|
$ |
9.69 |
|
|
$ |
7.22 |
|
Europe |
|
|
10.84 |
|
|
|
4.54 |
|
|
|
9.90 |
|
|
|
4.66 |
|
Asia and other |
|
|
5.23 |
|
|
|
4.42 |
|
|
|
5.12 |
|
|
|
4.49 |
|
Worldwide |
|
|
8.01 |
|
|
|
4.88 |
|
|
|
7.55 |
|
|
|
4.95 |
|
Crude oil and natural gas hedges reduced Exploration and Production earnings by
$144 million and $239 million in the second quarter and first half of 2008 ($234 million
and $386 million before income taxes). Crude oil hedges reduced Exploration and
Production earnings by $56 million and $95 million in the second quarter and first half
of 2007 ($93 million and $157 million before income taxes).
Sales and production volumes: The Corporations crude oil and natural gas production,
on a barrel of oil equivalent basis, was 393,000 boepd in the second quarter of 2008
compared with 378,000 boepd in the same period of 2007. Production in the first half of
2008 was 392,000 boepd compared with 380,000 boepd in the first half of 2007. The
Corporation anticipates that its production for the full year of 2008 will average
between 380,000 boepd and 390,000 boepd.
The Corporations net daily worldwide production by region was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Crude oil (barrels per day) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
36 |
|
|
|
31 |
|
|
|
36 |
|
|
|
30 |
|
Europe |
|
|
83 |
|
|
|
96 |
|
|
|
83 |
|
|
|
103 |
|
Africa |
|
|
128 |
|
|
|
115 |
|
|
|
123 |
|
|
|
107 |
|
Asia and other |
|
|
12 |
|
|
|
26 |
|
|
|
15 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
259 |
|
|
|
268 |
|
|
|
257 |
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas liquids (barrels per day) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
11 |
|
|
|
10 |
|
|
|
11 |
|
|
|
10 |
|
Europe |
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
15 |
|
|
|
14 |
|
|
|
15 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
PART I FINANCIAL INFORMATION (CONTD.)
|
|
Results of Operations (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Natural gas (Mcf per day) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
83 |
|
|
|
86 |
|
|
|
88 |
|
|
|
88 |
|
Europe |
|
|
267 |
|
|
|
212 |
|
|
|
282 |
|
|
|
280 |
|
Asia and other |
|
|
364 |
|
|
|
277 |
|
|
|
353 |
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
714 |
|
|
|
575 |
|
|
|
723 |
|
|
|
628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels of oil equivalent per day (*) |
|
|
393 |
|
|
|
378 |
|
|
|
392 |
|
|
|
380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Natural gas production is converted assuming six Mcf
equals one barrel. |
United States: Crude oil production in the United States was higher in the second
quarter and first half of 2008, principally due to production from new wells in North
Dakota and the deepwater Gulf of Mexico.
Europe: Crude oil production in Europe in the second quarter and first half of 2008
was lower than the comparable periods of 2007, reflecting the sale of the Corporations
interests in the Scott and Telford fields in the United Kingdom, cessation of production
at the Fife Field and natural decline. Natural gas production in the second quarter of
2008 was higher than in the second quarter of 2007, principally reflecting increased
production from the Cromarty Field in the United Kingdom, which was shut-in in the
second quarter of 2007 in response to market conditions.
Africa: Higher crude oil production in the second quarter and first half of 2008
was due to the ramp-up of the Okume Complex in Equatorial Guinea, partially offset by a
lower entitlement to Algerian production.
Asia and other: Crude oil production in Asia was lower in the second quarter and
first half of 2008 reflecting a reduced entitlement to production in Azerbaijan.
Natural gas production increased in the second quarter and first half of 2008,
principally due to production from the Pangkah Field in Indonesia, which commenced in
April 2007, and increased production from Block A-18 of the Joint Development Area of
Malaysia and Thailand (JDA).
Sales volumes: Higher crude oil sales volumes increased revenue by approximately
$25 million in the second quarter and $200 million in the first half of 2008 compared
with the corresponding periods of 2007.
Operating costs and depreciation, depletion and amortization: Cash operating costs,
consisting of production expenses and general and administrative expenses, increased by
$128 million and $211 million in the second quarter and first half of 2008 compared with
the corresponding periods of 2007. The increases principally reflect higher production
volumes, increased production taxes, higher costs of services and materials and
increased employee related costs. Depreciation, depletion and amortization charges were
higher in 2008 reflecting higher production volumes and per barrel rates.
Exploration expenses: Exploration expenses were higher in the second quarter and
first half of 2008 compared with the corresponding periods of 2007, reflecting higher
dry hole costs and increased costs of seismic studies. The Corporations planned
exploratory drilling activities are expected to increase in the second half of the year.
Income Taxes: The effective income tax rate for Exploration and Production operations
in the first half of 2008 was 47% compared with 49% in the first half of 2007. The
effective income tax rate for Exploration and Production operations for the full year of
2008 is expected to be in the range of 47% to 51%.
14
PART I FINANCIAL INFORMATION (CONTD.)
Results of Operations (continued)
Other: The after-tax foreign currency gain related to Exploration and Production
activities was $1 million in the second quarter of 2008 compared with a loss of $6
million in the second quarter of 2007. The after-tax foreign currency gain was $12
million for the six months ended June 30, 2008 and a loss of $9 million for the six
months ended June 30, 2007.
The Corporations future Exploration and Production earnings may be impacted by
external factors, such as volatility in the selling prices of crude oil and natural gas,
reserve and production changes, industry cost inflation, exploration expenses, changes
in foreign exchange and income tax rates, political risk and the effects of weather.
Marketing and Refining
Results from Marketing and Refining activities amounted to a loss of $52 million
and $36 million in the second quarter and first half of 2008, respectively, compared
with income of $122 million and $223 million in the second quarter and first half of
2007, respectively. The Corporations downstream operations include HOVENSA L.L.C.
(HOVENSA), a 50% owned refining joint venture with a subsidiary of Petroleos de
Venezuela S.A. (PDVSA), which is accounted for using the equity method. Additional
Marketing and Refining activities include a fluid catalytic cracking facility in Port
Reading, New Jersey, as well as retail gasoline stations, energy marketing and trading
operations.
Refining: Refining operations generated income of $3 million in the second quarter
of 2008 and were breakeven in the first half of 2008 compared with income of $87 million
in the second quarter of 2007 and $141 million in the first half of 2007. The
Corporations share of HOVENSAs results, after income taxes, was a loss of $12 million
in the second quarter of 2008 compared with income of $49 million in the second quarter
of 2007. The Corporations share of HOVENSAs results, after income taxes, was a loss of
$18 million in the first half of 2008 compared with income of $84 million in 2007,
principally reflecting lower refining margins.
At June 30, 2008, the remaining balance of the PDVSA note was $46 million, which is
scheduled to be fully repaid by February 2009. Interest income on the PDVSA note after
income taxes was $1 million in the second quarter and $2 million in the first half of
2008 compared with $1 million in the second quarter and $3 million in the first half of
2007.
Port Readings after tax earnings were $14 million and $16 million in the second
quarter and first half of 2008 compared with $35 million and $52 million in the
corresponding periods of 2007, reflecting lower margins.
The following table summarizes refinery capacity and utilization rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refinery |
|
Refinery utilization |
|
|
capacity |
|
Three months ended |
|
Six months ended |
|
|
(thousands of |
|
June 30, |
|
June 30, |
|
|
barrels per day) |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
HOVENSA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude |
|
|
500 |
|
|
|
94.2 |
% |
|
|
79.4 |
% |
|
|
91.6 |
% |
|
|
86.7 |
% |
Fluid catalytic cracker |
|
|
150 |
|
|
|
73.1 |
% |
|
|
87.9 |
% |
|
|
73.7 |
% |
|
|
90.5 |
% |
Coker |
|
|
58 |
|
|
|
99.5 |
% |
|
|
53.3 |
%* |
|
|
95.5 |
% |
|
|
70.8 |
% |
Port Reading |
|
|
70 |
** |
|
|
91.3 |
% |
|
|
97.9 |
% |
|
|
89.2 |
% |
|
|
91.4 |
% |
|
|
|
* |
|
Coker utilization reflects a planned 30 day turnaround. |
|
** |
|
Refinery utilization in 2007 is based on a capacity of 65,000 barrels per day. |
15
PART I FINANCIAL INFORMATION (CONTD.)
Results of Operations (continued)
Marketing: Marketing operations, which consist principally of energy marketing and
retail gasoline operations, generated a loss of $40 million in the second quarter of
2008 compared with breakeven results in the second quarter of 2007. Marketing
operations had a loss of $8 million in the first half of 2008 compared with earnings of
$43 million in the first half of 2007. The decreases principally reflect lower margins
on refined product sales. Total refined product sales volumes were 475,000 barrels per
day in the first half of 2008 and 452,000 barrels per day in the first half of 2007.
The Corporation has a 50% voting interest in a consolidated partnership that trades
energy commodities and energy derivatives. The Corporation also takes trading positions
for its own account. The Corporations after-tax results from trading activities,
including its share of the earnings of the trading partnership, amounted to a loss of
$15 million in the second quarter and $28 million in the first half of 2008 compared
with income of $35 million in the second quarter of 2007 and $39 million in the first
half of 2007.
Marketing expenses increased in the second quarter and first half of 2008 compared
with the corresponding periods of 2007, principally reflecting growth in energy
marketing activities, higher credit card fees in retail gasoline operations and
increased transportation costs.
The Corporations future Marketing and Refining earnings may be impacted by
volatility in marketing and refining margins, competitive industry conditions,
government regulatory changes, credit risk and supply and demand factors, including the
effects of weather.
Corporate
After-tax corporate expenses were $33 million in the second quarter of 2008 and $72
million in the first half of 2008 compared with $32 million in the second quarter and
$63 million in the first half of 2007. The increase principally reflects higher
employee related expenses and professional fees.
Interest
Interest expense was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Total interest incurred |
|
$ |
66 |
|
|
$ |
78 |
|
|
$ |
134 |
|
|
$ |
157 |
|
Less: capitalized interest |
|
|
1 |
|
|
|
16 |
|
|
|
2 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense before income taxes |
|
|
65 |
|
|
|
62 |
|
|
|
132 |
|
|
|
126 |
|
Less: income taxes |
|
|
25 |
|
|
|
24 |
|
|
|
50 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax interest expense |
|
$ |
40 |
|
|
$ |
38 |
|
|
$ |
82 |
|
|
$ |
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in interest incurred in 2008 principally reflects lower average debt.
The decrease in capitalized interest in 2008 reflects the completion of several
development projects in 2007.
Sales and Other Operating Revenues
Sales and other operating revenues increased by 58% in the second quarter and 52%
in the first half of 2008 compared with the corresponding periods of 2007, primarily due
to higher crude oil and refined product selling prices and increased sales of
electricity. The increase in cost of goods sold principally reflects higher refined
product costs and increased purchases of electricity.
16
PART I FINANCIAL INFORMATION (CONTD.)
Liquidity and Capital Resources
The following table sets forth certain relevant measures of the Corporations
liquidity and capital resources (in millions, except ratios):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2008 |
|
2007 |
Cash and cash equivalents |
|
$ |
1,479 |
|
|
$ |
607 |
|
Current portion of long-term debt |
|
|
68 |
|
|
|
62 |
|
Total debt |
|
|
3,945 |
|
|
|
3,980 |
|
Stockholders equity |
|
|
11,102 |
|
|
|
9,774 |
|
Debt to capitalization ratio(*) |
|
|
26.2 |
% |
|
|
28.9 |
% |
|
|
|
(*) |
|
Total debt as a percentage of the sum of total debt plus stockholders equity. |
Cash
Flows
The following table sets forth a summary of the Corporations cash flows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
2,867 |
|
|
$ |
1,838 |
|
Investing activities |
|
|
(1,966 |
) |
|
|
(1,948 |
) |
Financing activities |
|
|
(29 |
) |
|
|
209 |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
$ |
872 |
|
|
$ |
99 |
|
|
|
|
|
|
|
|
Operating Activities: Net cash provided by operating activities, including changes
in operating assets and liabilities, amounted to $2,867 million in the first half of
2008 compared with $1,838 million in 2007, reflecting increased earnings. In the first
half of 2008, the Corporation received a cash distribution of $50 million from HOVENSA
compared with $125 million in 2007.
Investing Activities: The following table summarizes the Corporations capital
expenditures (in millions):
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
Exploration and Production |
|
$ |
1,938 |
|
|
$ |
1,982 |
|
Marketing, Refining and Corporate |
|
|
67 |
|
|
|
56 |
|
|
|
|
|
|
|
|
Total |
|
$ |
2,005 |
|
|
$ |
2,038 |
|
|
|
|
|
|
|
|
In the first half of 2007, proceeds from the sale of the Corporations interests in
the Scott and Telford fields in the United Kingdom were $93 million.
Financing Activities: In the first half of 2008, there was a net decrease in
borrowings of $35 million from year-end 2007. Dividends paid were $97 million in the
first half of 2008 ($95 million in the first half of 2007). During the first half of
2008, the Corporation received proceeds from the exercise of stock options totaling
$103 million ($85 million in the same period of 2007).
17
PART I FINANCIAL INFORMATION (CONTD.)
Liquidity and Capital Resources (continued)
Future Capital Requirements and Resources
The Corporation anticipates investing a total of approximately $5 billion in
capital and exploratory expenditures during 2008, of which $4.9 billion relates to
Exploration and Production operations. The Corporation expects that it will fund its
2008 operations, including capital expenditures, dividends, pension contributions and
required debt repayments, with existing cash on-hand, cash flow from operations and its
available credit facilities.
At June 30, 2008, the Corporation has $2,718 million of available borrowing
capacity under its $3 billion syndicated revolving credit facility (the Revolver),
substantially all of which is committed through May 2012. Outstanding borrowings under
the Revolver were $281 million at June 30, 2008 compared with $220 million at December
31, 2007. In addition, at June 30, 2008, the Corporation had $336 million in outstanding
borrowings and $534 million of outstanding letters of credit under its 364-day
asset-backed credit facility (the Asset-backed Facility) compared with $250 million and
$534 million, respectively, at December 31, 2007. The borrowings and outstanding letters
of credit under the Asset-backed Facility were collateralized by approximately $1,360
million of Marketing and Refining accounts receivable. These receivables are not
available to pay the general obligations of the Corporation before satisfaction of the
Corporations obligations under the Asset-backed Facility. At June 30, 2008, the
Corporation classified an aggregate of $536 million of borrowings under short-term
credit facilities and the Asset-backed Facility as long-term debt, based on the
available capacity under the Revolver.
The Corporation also has a shelf registration under which it may issue additional
debt securities, warrants, common stock or preferred stock.
Outstanding letters of credit were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Lines of Credit |
|
|
|
|
|
|
|
|
Revolving credit facility |
|
$ |
1 |
|
|
$ |
|
|
Asset backed credit facility |
|
|
534 |
|
|
|
534 |
|
Committed short-term letter of credit facilities |
|
|
2,218 |
|
|
|
995 |
|
Uncommitted lines |
|
|
1,219 |
|
|
|
1,510 |
|
|
|
|
|
|
|
|
|
|
$ |
3,972 |
|
|
$ |
3,039 |
|
|
|
|
|
|
|
|
A loan agreement covenant based on the Corporations debt to equity ratio allows
the Corporation to borrow up to an additional $14.6 billion for the construction or
acquisition of assets at June 30, 2008. The Corporation has the ability to borrow up to
an additional $2.8 billion of secured debt at June 30, 2008 under the loan agreement
covenants.
Off-Balance Sheet Arrangements
The Corporation has leveraged leases not included in its balance sheet, primarily
related to retail gasoline stations that the Corporation operates. The net present
value of these leases is $491 million at June 30, 2008. The Corporations June 30, 2008
debt to capitalization ratio would increase from 26.2% to 28.5% if the leases were
included as debt.
18
PART I FINANCIAL INFORMATION (CONTD.)
Liquidity and Capital Resources (continued)
The Corporation guarantees the payment of up to 50% of HOVENSAs crude oil
purchases from suppliers other than PDVSA. At June 30, 2008, the guarantee amounted to
$192 million. This amount fluctuates based on the volume of crude oil purchased and
related prices. In addition, the Corporation has agreed to provide funding up to a
maximum of $15 million to the extent HOVENSA does not have funds to meet its senior debt
obligations.
Change in Accounting Policies
Effective January 1, 2008, the Corporation adopted Financial Accounting Standards
Board (FASB) Statement No. 157, Fair Value Measurements (FAS 157) for financial assets
and liabilities that are required to be measured at fair value. FAS 157 established a
framework for measuring fair value and requires disclosure of a fair value hierarchy (see
Note 8, Fair Value Measurements). The impact of adopting FAS 157 was not material to the
Corporations results of operations. Upon adoption, the Corporation recorded a reduction
in the net deferred hedge losses reflected in accumulated other comprehensive income,
which increased stockholders equity by approximately $190 million, after income taxes.
Recently Issued Accounting Standard
In December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements-an amendment of ARB No. 51 (FAS 160). FAS 160 changes
the accounting for and reporting of noncontrolling interests in a subsidiary. The
Corporation is currently evaluating the impact of adoption on its financial statements
and, as required, will adopt the provisions of FAS 160 effective January 1, 2009.
Market Risk Disclosure
In the normal course of its business, the Corporation is exposed to commodity risks
related to changes in the prices of crude oil, natural gas, refined products and
electricity, as well as to changes in interest rates and foreign currency values. In
the disclosures that follow, these operations are referred to as non-trading activities.
The Corporation also has trading operations, principally through a 50% voting interest
in a trading partnership. These activities are also exposed to commodity risks
primarily related to the prices of crude oil, natural gas and refined products.
Instruments: The Corporation primarily uses forward commodity contracts, foreign
exchange forward contracts, futures, swaps, options and energy commodity based
securities in its non-trading and trading activities. Generally, these contracts are
widely traded instruments with standardized terms.
Value-at-Risk: The Corporation uses value-at-risk to monitor and control commodity risk
within its trading and non-trading activities. The value-at-risk model uses historical
simulation and the results represent the potential loss in fair value over one day at a
95% confidence level. The model captures both first and second order sensitivities for
options. The potential change in fair value based on commodity price risk is presented
in the non-trading and trading sections below.
19
PART I FINANCIAL INFORMATION (CONTD.)
Market Risk Disclosure (continued)
Non-Trading: The Corporations Exploration and Production segment uses futures and swaps
to fix the selling prices of a portion of its future production and the related gains or
losses are an integral part of its selling prices. Following is a summary of the
Corporations outstanding Brent crude oil hedges at
June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Thousands |
|
|
Selling |
|
of Barrels |
|
|
Price |
|
per Day |
Maturities |
|
|
|
|
|
|
|
|
2008 |
|
$ |
25.56 |
|
|
|
24 |
|
2009 |
|
|
25.54 |
|
|
|
24 |
|
2010 |
|
|
25.78 |
|
|
|
24 |
|
2011 |
|
|
26.37 |
|
|
|
24 |
|
2012 |
|
|
26.90 |
|
|
|
24 |
|
There were no hedges of WTI crude oil at June 30, 2008. At June 30, 2008, the
Corporation also had outstanding United Kingdom natural gas hedges of 50 thousand Mcf
per day through October 2008 at an average selling price of approximately $11.05 per
Mcf. As market conditions change, the Corporation may adjust its hedge positions. The
Corporation also markets energy commodities including refined petroleum products,
natural gas and electricity. The Corporation uses derivatives to manage the risk in its
marketing activities.
Accumulated other comprehensive income (loss) at June 30, 2008 includes after-tax
unrealized deferred losses of $2,138 million primarily related to crude oil contracts
used as hedges of 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.
The Corporation estimates that at June 30, 2008, the value-at-risk for commodity
related derivatives used in non-trading activities was $135 million compared with $72
million at December 31, 2007. The results may vary from time to time as hedge levels
change.
Trading: In trading activities, the Corporation is exposed to changes in crude oil,
natural gas and refined product prices. The trading partnership, in which the
Corporation has a 50% voting interest, trades energy commodities and derivatives. The
accounts of the partnership are consolidated with those of the Corporation. The
Corporation also takes trading positions for its own account. The information that
follows represents 100% of the trading partnership and the Corporations proprietary
trading accounts.
Total net realized losses for the first half of 2008 amounted to $259 million
($60 million of realized gains for the first half of 2007). The following table
provides an assessment of the factors affecting the changes in fair value of trading
activities (in millions):
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Fair value of contracts outstanding at January 1 |
|
$ |
154 |
|
|
$ |
365 |
|
Change in fair value of contracts outstanding
at the beginning of the year and still
outstanding at June 30 |
|
|
511 |
|
|
|
(28 |
) |
Reversal of fair value for contracts closed
during the period |
|
|
22 |
|
|
|
(30 |
) |
Fair value of contracts entered into
during the period and still outstanding |
|
|
(339 |
) |
|
|
119 |
|
|
|
|
|
|
|
|
Fair value of contracts outstanding at June 30 |
|
$ |
348 |
|
|
$ |
426 |
|
|
|
|
|
|
|
|
20
PART I FINANCIAL INFORMATION (CONTD.)
Market Risk Disclosure (continued)
The Corporation uses observable market values for determining the fair value of its
trading instruments. In cases where actively quoted prices are not available, other
external sources are used which incorporate information about commodity prices in
actively quoted markets, quoted prices in less active markets and other market
fundamental analysis. Internal estimates are based on internal models incorporating
underlying market information such as commodity volatilities and correlations. The
Corporations risk management department regularly compares valuations to independent
sources and models. The following table summarizes the sources of fair values of
derivatives used in the Corporations trading activities at June 30, 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments Maturing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
Source of Fair Value |
|
Total |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
beyond |
|
Prices actively quoted |
|
$ |
264 |
|
|
$ |
(413 |
) |
|
$ |
523 |
|
|
$ |
159 |
|
|
$ |
(5 |
) |
Other external sources |
|
|
83 |
|
|
|
91 |
|
|
|
(15 |
) |
|
|
|
|
|
|
7 |
|
Internal estimates |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
348 |
|
|
$ |
(321 |
) |
|
$ |
508 |
|
|
$ |
159 |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation estimates that at June 30, 2008, the value-at-risk for trading
activities, including commodities, was $11 million compared with $10 million at December
31, 2007. The results may change from time to time as strategies change to capture
potential market rate movements.
The following table summarizes the fair values of net receivables relating to the
Corporations trading activities and the credit ratings of counterparties at June 30,
2008 (in millions):
|
|
|
|
|
Investment grade determined by outside sources |
|
$ |
533 |
|
Investment grade determined internally (*) |
|
|
178 |
|
Less than investment grade |
|
|
152 |
|
|
|
|
|
Fair value of net receivables outstanding at end of period |
|
$ |
863 |
|
|
|
|
|
|
|
|
|
|
(*) Based on information provided by counterparties and other available sources. |
Forward-Looking Information
Certain sections of Managements Discussion and Analysis of Results of Operations
and Financial Condition, including references to the Corporations future results of
operations and financial position, liquidity and capital resources, capital
expenditures, oil and gas production, tax rates, debt repayment, hedging, derivative and
market risk disclosures and off-balance sheet arrangements include forward-looking
information. Forward-looking disclosures are based on the Corporations current
understanding and assessment of these activities and reasonable assumptions about the
future. Actual results may differ from these disclosures because of changes in market
conditions, government actions and other factors.
21
PART I FINANCIAL INFORMATION (CONTD.)
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures about Market Risk |
The information required by this item is presented under Item 2, Managements Discussion
and Analysis of Results of Operations and Financial Condition Market Risk Disclosure.
|
|
|
Item 4. |
|
Controls and Procedures |
Based upon their evaluation of the Corporations disclosure controls and procedures (as
defined in Exchange Act Rules 13a 15(e) and 15d 15(e)) as of June 30, 2008, John B.
Hess, Chief Executive Officer, and John P. Rielly, Chief Financial Officer, concluded that
these disclosure controls and procedures were effective as of June 30, 2008.
There was no change in internal control over financial reporting identified in connection
with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 in the quarter
ended June 30, 2008 that has materially affected, or is reasonably likely to materially
affect, internal control over financial reporting.
22
PART II OTHER INFORMATION
|
|
|
Item 4. |
|
Submission of Matters to a Vote of Security Holders |
The Annual Meeting of Stockholders of the Registrant was held on May 7, 2008. The
Inspectors of Election reported that 284,667,801 shares of common stock of the Registrant
were represented in person or by proxy at the meeting, constituting 88% of the votes
entitled to be cast. At the meeting, stockholders voted on:
|
|
|
The election of five nominees for the Board of Directors for the three-year term
expiring in 2011. |
|
|
|
|
The ratification of the selection by the Audit Committee of the Board of Directors
of Ernst & Young LLP as the independent registered public accounting firm of the
Registrant for the fiscal year ending December 31, 2008. |
|
|
|
|
A proposal to amend the Registrants Certificate of Incorporation and By-Laws to
declassify the Board of Directors. |
|
|
|
|
A proposal to approve the Registrants 2008 Long-Term Incentive Plan. |
With respect to the election of directors, the inspector of election reported as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For |
|
Withholding Authority |
Name |
|
|
Nominee Listed |
|
to Vote For Nominee Listed |
Edith E. Holiday |
|
|
|
277,728,970 |
|
|
|
6,938,831 |
|
John H. Mullin |
|
|
|
282,525,666 |
|
|
|
2,142,135 |
|
John J. OConnor |
|
|
|
281,368,147 |
|
|
|
3,299,654 |
|
F. Borden Walker |
|
|
|
281,368,758 |
|
|
|
3,299,043 |
|
Robert N. Wilson |
|
|
|
280,435,182 |
|
|
|
4,232,619 |
|
The inspectors reported that 281,043,829 votes were cast for the ratification of the
selection of Ernst & Young LLP as the independent auditors of the Registrant for the fiscal
year ending December 31, 2008, 1,923,224 votes were cast against said ratification and
holders of 1,700,748 votes abstained.
The inspectors reported that 245,741,757 votes were cast for the proposal to amend the
certificate of incorporation and by-laws to declassify the board, constituting 76.25% of the
outstanding shares and less than the 80% required for amendment, 37,112,017 votes were cast
against said proposal and holders of 1,814,027 votes abstained. There were no broker
non-votes with respect to this matter.
The inspectors reported that 255,032,299 votes were cast for the approval of the 2008
Long-Term Incentive Plan, 14,432,410 votes were cast against said proposal and holders of
1,798,830 votes abstained. There were 13,404,262 broker non-votes with respect to this
matter.
23
PART II OTHER INFORMATION (CONTD.)
|
|
|
Item 6. |
|
Exhibits and Reports on Form 8-K |
a. Exhibits
|
10(1) |
|
2008 Long-Term Incentive Plan, incorporated by reference to Annex B
to Registrants definitive proxy statement filed on March 27, 2008. |
|
|
10(2) |
|
Forms of awards under Registrants 2008 Long-Term Incentive Plan. |
|
|
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) |
b. Reports on Form 8-K
During the quarter ended June 30, 2008, Registrant filed one report on Form 8-K:
|
(i) |
|
Filing dated April 30, 2008 reporting under Items 2.02 and 9.01 a
news release dated April 30, 2008 reporting results for the first quarter of 2008. |
24
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.
|
|
|
|
|
|
|
|
|
HESS CORPORATION |
|
|
|
|
(REGISTRANT) |
|
|
|
|
|
|
|
|
|
|
|
By
|
|
/s/ John B. Hess
|
|
|
|
|
|
|
JOHN B. HESS |
|
|
|
|
|
|
CHAIRMAN OF THE BOARD AND |
|
|
|
|
|
|
CHIEF EXECUTIVE OFFICER |
|
|
|
|
|
|
|
|
|
|
|
By
|
|
/s/ John P. Rielly |
|
|
|
|
|
|
|
|
|
|
|
|
|
JOHN P. RIELLY |
|
|
|
|
|
|
SENIOR VICE PRESIDENT AND |
|
|
|
|
|
|
CHIEF FINANCIAL OFFICER |
|
|
Date: August 6, 2008
25