.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended March 31, 2019 2020
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-1204
HESS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
13-4921002 |
(I.R.S. Employer Identification Number)
1185 AVENUE OF THE AMERICAS, NEW YORK, N.Y.
(Address of Principal Executive Offices)
10036
(Zip Code)
(Registrant’s Telephone Number, Including Area Code is (212) 997-8500)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of exchange on which registered |
Common Stock | HES | New York Stock Exchange |
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☒ |
| Accelerated filer |
| ☐ |
Non-accelerated filer |
| ☐ |
| Smaller reporting company |
| ☐ |
Emerging growth company |
| ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
At March 31, 2019,2020, there were 304,280,819307,158,340 shares of Common Stock outstanding.
Securities registered or to be registered in pursuant to Section 12(b) of the Act:
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Form 10-Q
TABLE OF CONTENTS
Unless the context indicates otherwise, references to “Hess”, the “Corporation”, “Registrant”, “we”, “us”, “our” and “its” refer to the consolidated business operations of Hess Corporation and its subsidiaries.
PART I - FINANCIAL INFORMATION
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
|
| March 31, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In millions, |
|
| (In millions, |
| ||||||||||
|
| except share amounts) |
|
| except share amounts) |
| ||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 2,300 |
|
| $ | 2,694 |
|
| $ | 2,080 |
|
| $ | 1,545 |
|
Accounts receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From contracts with customers |
|
| 868 |
|
|
| 771 |
|
|
| 600 |
|
|
| 940 |
|
Joint venture and other |
|
| 248 |
|
|
| 230 |
|
|
| 194 |
|
|
| 230 |
|
Crude oil derivative contracts |
|
| 1,098 |
|
|
| 125 |
| ||||||||
Inventories |
|
| 274 |
|
|
| 245 |
|
|
| 230 |
|
|
| 261 |
|
Other current assets |
|
| 144 |
|
|
| 519 |
|
|
| 68 |
|
|
| 55 |
|
Total current assets |
|
| 3,834 |
|
|
| 4,459 |
|
|
| 4,270 |
|
|
| 3,156 |
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total — at cost |
|
| 33,446 |
|
|
| 33,222 |
|
|
| 31,704 |
|
|
| 35,820 |
|
Less: Reserves for depreciation, depletion, amortization and lease impairment |
|
| 17,548 |
|
|
| 17,139 |
|
|
| 16,893 |
|
|
| 19,006 |
|
Property, plant and equipment — net |
|
| 15,898 |
|
|
| 16,083 |
|
|
| 14,811 |
|
|
| 16,814 |
|
Operating lease right-of-use assets — net |
|
| 713 |
|
|
| — |
|
|
| 386 |
|
|
| 447 |
|
Finance lease right-of-use assets — net |
|
| 332 |
|
|
| — |
|
|
| 187 |
|
|
| 299 |
|
Goodwill |
|
| 360 |
|
|
| 360 |
|
|
| 360 |
|
|
| 360 |
|
Deferred income taxes |
|
| 22 |
|
|
| 21 |
|
|
| 77 |
|
|
| 80 |
|
Other assets |
|
| 557 |
|
|
| 510 |
|
|
| 626 |
|
|
| 626 |
|
Total Assets |
| $ | 21,716 |
|
| $ | 21,433 |
|
| $ | 20,717 |
|
| $ | 21,782 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 399 |
|
| $ | 495 |
|
| $ | 431 |
|
| $ | 411 |
|
Accrued liabilities |
|
| 1,369 |
|
|
| 1,560 |
|
|
| 1,334 |
|
|
| 1,803 |
|
Taxes payable |
|
| 89 |
|
|
| 81 |
|
|
| 33 |
|
|
| 97 |
|
Current maturities of long-term debt |
|
| 12 |
|
|
| 67 |
|
|
| 3 |
|
|
| — |
|
Current portion of operating and finance lease obligations |
|
| 402 |
|
|
| — |
|
|
| 146 |
|
|
| 199 |
|
Total current liabilities |
|
| 2,271 |
|
|
| 2,203 |
|
|
| 1,947 |
|
|
| 2,510 |
|
Long-term debt |
|
| 6,550 |
|
|
| 6,605 |
|
|
| 8,191 |
|
|
| 7,142 |
|
Long-term operating lease obligations |
|
| 436 |
|
|
| — |
|
|
| 357 |
|
|
| 353 |
|
Long-term finance lease obligations |
|
| 250 |
|
|
| — |
|
|
| 233 |
|
|
| 238 |
|
Deferred income taxes |
|
| 420 |
|
|
| 421 |
|
|
| 328 |
|
|
| 415 |
|
Asset retirement obligations |
|
| 745 |
|
|
| 741 |
|
|
| 929 |
|
|
| 897 |
|
Other liabilities and deferred credits |
|
| 491 |
|
|
| 575 |
|
|
| 554 |
|
|
| 521 |
|
Total Liabilities |
|
| 11,163 |
|
|
| 10,545 |
|
|
| 12,539 |
|
|
| 12,076 |
|
Equity |
|
|
|
|
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|
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Hess Corporation stockholders’ equity: |
|
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|
|
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Preferred stock, par value $1.00; Authorized — 20,000,000 shares |
|
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| ||||||||
Series A 8% Cumulative Mandatory Convertible; $1,000 per share liquidation preference; Issued — 0 shares (2018: 574,997) |
|
| — |
|
|
| 1 |
| ||||||||
Common stock, par value $1.00; Authorized — 600,000,000 shares |
|
|
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|
|
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|
|
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Issued ��� 304,280,819 shares (2018: 291,434,534) |
|
| 304 |
|
|
| 291 |
| ||||||||
Issued — 307,158,340 shares (2019: 304,955,472) |
|
| 307 |
|
|
| 305 |
| ||||||||
Capital in excess of par value |
|
| 5,481 |
|
|
| 5,386 |
|
|
| 5,633 |
|
|
| 5,591 |
|
Retained earnings |
|
| 4,207 |
|
|
| 4,257 |
|
|
| 1,021 |
|
|
| 3,535 |
|
Accumulated other comprehensive income (loss) |
|
| (650 | ) |
|
| (306 | ) |
|
| 239 |
|
|
| (699 | ) |
Total Hess Corporation stockholders’ equity |
|
| 9,342 |
|
|
| 9,629 |
|
|
| 7,200 |
|
|
| 8,732 |
|
Noncontrolling interests |
|
| 1,211 |
|
|
| 1,259 |
|
|
| 978 |
|
|
| 974 |
|
Total equity |
|
| 10,553 |
|
|
| 10,888 |
|
|
| 8,178 |
|
|
| 9,706 |
|
Total Liabilities and Equity |
| $ | 21,716 |
|
| $ | 21,433 |
|
| $ | 20,717 |
|
| $ | 21,782 |
|
See accompanying Notes to Consolidated Financial Statements.
2
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME (UNAUDITED)
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In millions, except per share amounts) |
|
| (In millions, except per share amounts) |
| ||||||||||
Revenues and Non-Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues |
| $ | 1,572 |
|
| $ | 1,346 |
|
| $ | 1,354 |
|
| $ | 1,572 |
|
Gains on asset sales, net |
|
| — |
|
|
| 7 |
| ||||||||
Other, net |
|
| 27 |
|
|
| 37 |
|
|
| 15 |
|
|
| 27 |
|
Total revenues and non-operating income |
|
| 1,599 |
|
|
| 1,390 |
|
|
| 1,369 |
|
|
| 1,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, including purchased oil and gas |
|
| 408 |
|
|
| 358 |
|
|
| 378 |
|
|
| 408 |
|
Operating costs and expenses |
|
| 266 |
|
|
| 288 |
|
|
| 303 |
|
|
| 266 |
|
Production and severance taxes |
|
| 39 |
|
|
| 39 |
|
|
| 42 |
|
|
| 39 |
|
Exploration expenses, including dry holes and lease impairment |
|
| 34 |
|
|
| 40 |
|
|
| 189 |
|
|
| 34 |
|
General and administrative expenses |
|
| 87 |
|
|
| 110 |
|
|
| 102 |
|
|
| 87 |
|
Interest expense |
|
| 98 |
|
|
| 103 |
|
|
| 113 |
|
|
| 98 |
|
Loss on debt extinguishment |
|
| — |
|
|
| 27 |
| ||||||||
Depreciation, depletion and amortization |
|
| 498 |
|
|
| 417 |
|
|
| 561 |
|
|
| 498 |
|
Impairment |
|
| 2,126 |
|
|
| — |
| ||||||||
Total costs and expenses |
|
| 1,430 |
|
|
| 1,382 |
|
|
| 3,814 |
|
|
| 1,430 |
|
Income (Loss) Before Income Taxes |
|
| 169 |
|
|
| 8 |
|
|
| (2,445 | ) |
|
| 169 |
|
Provision (benefit) for income taxes |
|
| 94 |
|
|
| 73 |
|
|
| (79 | ) |
|
| 94 |
|
Net Income (Loss) |
|
| 75 |
|
|
| (65 | ) |
|
| (2,366 | ) |
|
| 75 |
|
Less: Net income (loss) attributable to noncontrolling interests |
|
| 43 |
|
|
| 41 |
|
|
| 67 |
|
|
| 43 |
|
Net Income (Loss) Attributable to Hess Corporation |
|
| 32 |
|
|
| (106 | ) |
|
| (2,433 | ) |
|
| 32 |
|
Less: Preferred stock dividends |
|
| 4 |
|
|
| 11 |
|
|
| — |
|
|
| 4 |
|
Net Income (Loss) Attributable to Hess Corporation Common Stockholders |
| $ | 28 |
|
| $ | (117 | ) |
| $ | (2,433 | ) |
| $ | 28 |
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Net Income (Loss) Attributable to Hess Corporation Per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
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|
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Basic |
| $ | 0.09 |
|
| $ | (0.38 | ) |
| $ | (8.00 | ) |
| $ | 0.09 |
|
Diluted |
| $ | 0.09 |
|
| $ | (0.38 | ) |
| $ | (8.00 | ) |
| $ | 0.09 |
|
Weighted Average Number of Common Shares Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 297.4 |
|
|
| 309.5 |
|
|
| 304.0 |
|
|
| 297.4 |
|
Diluted |
|
| 299.7 |
|
|
| 309.5 |
|
|
| 304.0 |
|
|
| 299.7 |
|
Common Stock Dividends Per Share |
| $ | 0.25 |
|
| $ | 0.25 |
|
| $ | 0.25 |
|
| $ | 0.25 |
|
See accompanying Notes to Consolidated Financial Statements.
3
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In millions) |
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| (In millions) |
| ||||||||||
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Net Income (Loss) |
| $ | 75 |
|
| $ | (65 | ) |
| $ | (2,366 | ) |
| $ | 75 |
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Other Comprehensive Income (Loss): |
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Derivatives designated as cash flow hedges |
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Effect of hedge (gains) losses reclassified to income |
|
| (15 | ) |
|
| 31 |
|
|
| (64 | ) |
|
| (15 | ) |
Income taxes on effect of hedge (gains) losses reclassified to income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net effect of hedge (gains) losses reclassified to income |
|
| (15 | ) |
|
| 31 |
|
|
| (64 | ) |
|
| (15 | ) |
Change in fair value of cash flow hedges |
|
| (346 | ) |
|
| (22 | ) |
|
| 990 |
|
|
| (346 | ) |
Income taxes on change in fair value of cash flow hedges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net change in fair value of cash flow hedges |
|
| (346 | ) |
|
| (22 | ) |
|
| 990 |
|
|
| (346 | ) |
Change in derivatives designated as cash flow hedges, after taxes |
|
| (361 | ) |
|
| 9 |
|
|
| 926 |
|
|
| (361 | ) |
|
|
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|
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|
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Pension and other postretirement plans |
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
(Increase) reduction in unrecognized actuarial losses |
|
| 6 |
|
|
| 125 |
|
|
| — |
|
|
| 6 |
|
Income taxes on actuarial changes in plan liabilities |
|
| — |
|
|
| (30 | ) |
|
| — |
|
|
| — |
|
(Increase) reduction in unrecognized actuarial losses, net |
|
| 6 |
|
|
| 95 |
|
|
| — |
|
|
| 6 |
|
Amortization of net actuarial losses |
|
| 11 |
|
|
| 12 |
|
|
| 12 |
|
|
| 11 |
|
Income taxes on amortization of net actuarial losses |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net effect of amortization of net actuarial losses |
|
| 11 |
|
|
| 12 |
|
|
| 12 |
|
|
| 11 |
|
Change in pension and other postretirement plans, after taxes |
|
| 17 |
|
|
| 107 |
|
|
| 12 |
|
|
| 17 |
|
Other Comprehensive Income (Loss) |
|
| (344 | ) |
|
| 116 |
|
|
| 938 |
|
|
| (344 | ) |
|
|
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Comprehensive Income (Loss) |
|
| (269 | ) |
|
| 51 |
|
|
| (1,428 | ) |
|
| (269 | ) |
Less: Comprehensive income (loss) attributable to noncontrolling interests |
|
| 43 |
|
|
| 41 |
|
|
| 67 |
|
|
| 43 |
|
Comprehensive Income (Loss) Attributable to Hess Corporation |
| $ | (312 | ) |
| $ | 10 |
|
| $ | (1,495 | ) |
| $ | (312 | ) |
See accompanying Notes to Consolidated Financial Statements.
4
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
|
| Three Months Ended |
| |||||||||||||
|
| Three Months Ended March 31, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 75 |
|
| $ | (65 | ) |
| $ | (2,366 | ) |
| $ | 75 |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on asset sales, net |
|
| — |
|
|
| (7 | ) | ||||||||
Depreciation, depletion and amortization |
|
| 498 |
|
|
| 417 |
|
|
| 561 |
|
|
| 498 |
|
Impairment |
|
| 2,126 |
|
|
| — |
| ||||||||
Exploratory dry hole costs |
|
| 135 |
|
|
| — |
| ||||||||
Exploration lease and other impairment |
|
| 7 |
|
|
| 10 |
|
|
| 32 |
|
|
| 7 |
|
Stock compensation expense |
|
| 27 |
|
|
| 13 |
|
|
| 29 |
|
|
| 27 |
|
Noncash (gains) losses on commodity derivatives, net |
|
| 29 |
|
|
| 38 |
|
|
| 70 |
|
|
| 29 |
|
Provision (benefit) for deferred income taxes and other tax accruals |
|
| (1 | ) |
|
| (36 | ) |
|
| (85 | ) |
|
| (1 | ) |
Loss on debt extinguishment |
|
| — |
|
|
| 27 |
| ||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable |
|
| (117 | ) |
|
| (11 | ) |
|
| 258 |
|
|
| (117 | ) |
(Increase) decrease in inventories |
|
| (29 | ) |
|
| (7 | ) |
|
| 31 |
|
|
| (29 | ) |
Increase (decrease) in accounts payable and accrued liabilities |
|
| (204 | ) |
|
| (135 | ) |
|
| (263 | ) |
|
| (204 | ) |
Increase (decrease) in taxes payable |
|
| 8 |
|
|
| (1 | ) |
|
| (63 | ) |
|
| 8 |
|
Changes in other operating assets and liabilities |
|
| (55 | ) |
|
| (33 | ) |
|
| (20 | ) |
|
| (55 | ) |
Net cash provided by (used in) operating activities |
|
| 238 |
|
|
| 210 |
|
|
| 445 |
|
|
| 238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment - E&P |
|
| (521 | ) |
|
| (363 | ) |
|
| (740 | ) |
|
| (521 | ) |
Additions to property, plant and equipment - Midstream |
|
| (150 | ) |
|
| (37 | ) |
|
| (78 | ) |
|
| (150 | ) |
Payments for Midstream equity investments |
|
| (7 | ) |
|
| (24 | ) |
|
| — |
|
|
| (7 | ) |
Proceeds from asset sales, net of cash sold |
|
| — |
|
|
| 6 |
| ||||||||
Other, net |
|
| (2 | ) |
|
| (4 | ) |
|
| — |
|
|
| (2 | ) |
Net cash provided by (used in) investing activities |
|
| (680 | ) |
|
| (422 | ) |
|
| (818 | ) |
|
| (680 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) of debt with maturities of 90 days or less |
|
| 199 |
|
|
| — |
|
|
| 60 |
|
|
| 199 |
|
Debt with maturities of greater than 90 days: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
| 1,000 |
|
|
| — |
| ||||||||
Repayments |
|
| (3 | ) |
|
| (434 | ) |
|
| — |
|
|
| (3 | ) |
Payments on finance lease obligations |
|
| (23 | ) |
|
| — |
|
|
| (1 | ) |
|
| (23 | ) |
Common stock acquired and retired |
|
| (25 | ) |
|
| (371 | ) |
|
| — |
|
|
| (25 | ) |
Cash dividends paid |
|
| (88 | ) |
|
| (89 | ) |
|
| (81 | ) |
|
| (88 | ) |
Noncontrolling interests, net |
|
| (13 | ) |
|
| (12 | ) |
|
| (63 | ) |
|
| (13 | ) |
Other, net |
|
| 1 |
|
|
| (3 | ) |
|
| (7 | ) |
|
| 1 |
|
Net cash provided by (used in) financing activities |
|
| 48 |
|
|
| (909 | ) |
|
| 908 |
|
|
| 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
| (394 | ) |
|
| (1,121 | ) |
|
| 535 |
|
|
| (394 | ) |
Cash and Cash Equivalents at Beginning of Year |
|
| 2,694 |
|
|
| 4,847 |
|
|
| 1,545 |
|
|
| 2,694 |
|
Cash and Cash Equivalents at End of Period |
| $ | 2,300 |
|
| $ | 3,726 |
|
| $ | 2,080 |
|
| $ | 2,300 |
|
See accompanying Notes to Consolidated Financial Statements.
5
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED EQUITY (UNAUDITED)
|
| Mandatory Convertible Preferred Stock |
|
| Common Stock |
|
| Capital in Excess of Par |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Total Hess Stockholders' Equity |
|
| Noncontrolling Interests |
|
| Total Equity |
|
| Mandatory Convertible Preferred Stock |
|
| Common Stock |
|
| Capital in Excess of Par |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Total Hess Stockholders' Equity |
|
| Noncontrolling Interests |
|
| Total Equity |
| ||||||||||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended March 31, 2020 | For the Three Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Balance at January 1, 2020 |
| $ | — |
|
| $ | 305 |
|
| $ | 5,591 |
|
| $ | 3,535 |
|
| $ | (699 | ) |
| $ | 8,732 |
|
| $ | 974 |
|
| $ | 9,706 |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,433 | ) |
|
| — |
|
|
| (2,433 | ) |
|
| 67 |
|
|
| (2,366 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 938 |
|
|
| 938 |
|
|
| — |
|
|
| 938 |
| ||||||||||||||||||||||||||||||||
Share-based compensation |
|
| — |
|
|
| 2 |
|
|
| 42 |
|
|
| (5 | ) |
|
| — |
|
|
| 39 |
|
|
| — |
|
|
| 39 |
| ||||||||||||||||||||||||||||||||
Dividends on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (76 | ) |
|
| — |
|
|
| (76 | ) |
|
| — |
|
|
| (76 | ) | ||||||||||||||||||||||||||||||||
Noncontrolling interests, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (63 | ) |
|
| (63 | ) | ||||||||||||||||||||||||||||||||
Balance at March 31, 2020 |
| $ | — |
|
| $ | 307 |
|
| $ | 5,633 |
|
| $ | 1,021 |
|
| $ | 239 |
|
| $ | 7,200 |
|
| $ | 978 |
|
| $ | 8,178 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
For the Three Months Ended March 31, 2019 | For the Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Balance at January 1, 2019 |
| $ | 1 |
|
| $ | 291 |
|
| $ | 5,386 |
|
| $ | 4,257 |
|
| $ | (306 | ) |
| $ | 9,629 |
|
| $ | 1,259 |
|
| $ | 10,888 |
|
| $ | 1 |
|
| $ | 291 |
|
| $ | 5,386 |
|
| $ | 4,257 |
|
| $ | (306 | ) |
| $ | 9,629 |
|
| $ | 1,259 |
|
| $ | 10,888 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 32 |
|
|
| — |
|
|
| 32 |
|
|
| 43 |
|
|
| 75 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 32 |
|
|
| — |
|
|
| 32 |
|
|
| 43 |
|
|
| 75 |
|
Other comprehensive income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (344 | ) |
|
| (344 | ) |
|
| — |
|
|
| (344 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (344 | ) |
|
| (344 | ) |
|
| — |
|
|
| (344 | ) |
Preferred stock conversion |
|
| (1 | ) |
|
| 12 |
|
|
| (11 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| 12 |
|
|
| (11 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation activity |
|
| — |
|
|
| 1 |
|
|
| 28 |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
|
| — |
|
|
| 29 |
| ||||||||||||||||||||||||||||||||
Share-based compensation |
|
| — |
|
|
| 1 |
|
|
| 28 |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
|
| — |
|
|
| 29 |
| ||||||||||||||||||||||||||||||||
Dividends on preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (4 | ) |
Dividends on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (78 | ) |
|
| — |
|
|
| (78 | ) |
|
| — |
|
|
| (78 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (78 | ) |
|
| — |
|
|
| (78 | ) |
|
| — |
|
|
| (78 | ) |
Sale of water business to Hess Infrastructure Partners |
|
| — |
|
|
| — |
|
|
| 78 |
|
|
| — |
|
|
| — |
|
|
| 78 |
|
|
| (78 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 78 |
|
|
| — |
|
|
| — |
|
|
| 78 |
|
|
| (78 | ) |
|
| — |
|
Noncontrolling interests, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13 | ) |
|
| (13 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13 | ) |
|
| (13 | ) |
Balance at March 31, 2019 |
| $ | — |
|
| $ | 304 |
|
| $ | 5,481 |
|
| $ | 4,207 |
|
| $ | (650 | ) |
| $ | 9,342 |
|
| $ | 1,211 |
|
| $ | 10,553 |
|
| $ | — |
|
| $ | 304 |
|
| $ | 5,481 |
|
| $ | 4,207 |
|
| $ | (650 | ) |
| $ | 9,342 |
|
| $ | 1,211 |
|
| $ | 10,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Balance at January 1, 2018 |
| $ | 1 |
|
| $ | 315 |
|
| $ | 5,824 |
|
| $ | 5,597 |
|
| $ | (686 | ) |
| $ | 11,051 |
|
| $ | 1,303 |
|
| $ | 12,354 |
| ||||||||||||||||||||||||||||||||
Cumulative effect of adoption of new accounting standards |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (106 | ) |
|
| — |
|
|
| (106 | ) |
|
| 41 |
|
|
| (65 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 116 |
|
|
| 116 |
|
|
| — |
|
|
| 116 |
| ||||||||||||||||||||||||||||||||
Share-based compensation activity |
|
| — |
|
|
| 1 |
|
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| 13 |
|
|
| — |
|
|
| 13 |
| ||||||||||||||||||||||||||||||||
Dividends on preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11 | ) |
|
| — |
|
|
| (11 | ) |
|
| — |
|
|
| (11 | ) | ||||||||||||||||||||||||||||||||
Dividends on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (78 | ) |
|
| — |
|
|
| (78 | ) |
|
| — |
|
|
| (78 | ) | ||||||||||||||||||||||||||||||||
Common stock acquired and retired |
|
| — |
|
|
| (8 | ) |
|
| (135 | ) |
|
| (237 | ) |
|
| — |
|
|
| (380 | ) |
|
| — |
|
|
| (380 | ) | ||||||||||||||||||||||||||||||||
Noncontrolling interests, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12 | ) |
|
| (12 | ) | ||||||||||||||||||||||||||||||||
Balance at March 31, 2018 |
| $ | 1 |
|
| $ | 308 |
|
| $ | 5,701 |
|
| $ | 5,166 |
|
| $ | (571 | ) |
| $ | 10,605 |
|
| $ | 1,332 |
|
| $ | 11,937 |
|
See accompanying Notes to Consolidated Financial Statements.
6
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of PresentationPresentation
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 our consolidated financial position at March 31, 20192020 and December 31, 2018,2019, the consolidated results of operations for the three months ended March 31, 20192020 and 2018,2019, and consolidated cash flows for the three months ended March 31, 20192020 and 2018.2019. 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 generally accepted accounting principles (GAAP) in the United States have been condensed or omitted from these interim financial statements. These statements, therefore, should be read in conjunction with the consolidated financial statements and related notes included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018.2019.
On January 1, 2019,
In the first quarter of 2020, we adopted Accounting Standards Codification (ASC) Topic 842, Leases. ASC 842 supersedes ASC 840 and requires the recognition of right-of-use assets and lease obligations for all leases with lease terms greater than one year, including leases previously treated as operating leases under ASC 840. We adopted ASC 842 using the modified retrospective method which allows the standard to be applied prospectively. No cumulative effect adjustment was recorded to Retained Earnings at January 1, 2019, and comparative financial statements for periods prior to adoption of ASC 842 were not affected. We elected to apply a number of practical expedients permitted by the standard, including not needing to reassess: (i) whether existing contracts are (or contain) leases, (ii) whether the lease classification for existing leases would differ under ASC 842, (iii) whether initial direct costs incurred for existing leases are capitalizable under ASC 842, and (iv) land easements that were not previously accounted for as leases under ASC 840. We also elected to not recognize a lease liability or right-of-use asset for short-term leases as defined in ASC 842. This standard does not apply to leases acquired for oil and gas producing activities that are accounted for under ASC 932, Extractive Activities – Oil and Gas.
The adoption of ASC 842 did not have an impact on our Statement of Consolidated Income or Statement of Consolidated Cash Flows. The impact of adoption on our Consolidated Balance Sheet on January 1, 2019, was as follows:
|
| December 31, 2018 |
|
| Adjustment for Finance Leases |
|
| Adjustment for Operating Leases |
|
| January 1, 2019 |
| ||||
|
| (In Millions) |
| |||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment — net |
| $ | 16,083 |
|
| $ | (346 | ) |
| $ | — |
|
| $ | 15,737 |
|
Operating lease right-of-use assets — net |
|
| — |
|
|
| — |
|
|
| 804 |
|
|
| 804 |
|
Finance lease right-of-use assets — net |
|
| — |
|
|
| 346 |
|
|
| — |
|
|
| 346 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
| 1,560 |
|
|
| — |
|
|
| (2 | ) |
|
| 1,558 |
|
Current maturities of long-term debt |
|
| 67 |
|
|
| (55 | ) |
|
| — |
|
|
| 12 |
|
Current portion of operating and finance lease obligations |
|
| — |
|
|
| 55 |
|
|
| 382 |
|
|
| 437 |
|
Long-term debt |
|
| 6,605 |
|
|
| (254 | ) |
|
| — |
|
|
| 6,351 |
|
Long-term operating lease obligations |
|
| — |
|
|
| — |
|
|
| 516 |
|
|
| 516 |
|
Long-term finance lease obligations |
|
| — |
|
|
| 254 |
|
|
| — |
|
|
| 254 |
|
Other liabilities and deferred credits |
|
| 575 |
|
|
| — |
|
|
| (92 | ) |
|
| 483 |
|
New Accounting Pronouncements: In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses. This ASU makes changes to the impairment model for trade receivables, net investments in leases, debt securities, loans and certain other instruments. The standard requires the use of a forward-looking "expected loss" model compared towith the currentprior "incurred loss" model. We expectcalculate expected credit losses for our receivables using the probability of default and the expected loss given default. Historical data, current market conditions, and forecasts of future economic conditions are used to adoptdetermine the probability of default and the expected loss given default. The adoption of this ASU did not have a material impact to our financial statements.
2. Impairment
Oil and Gas Properties:
As a result of the significant decline in crude oil prices due to the global economic slowdown from the coronavirus (COVID-19) pandemic, we reviewed our oil and gas properties within the Exploration and Production operating segment for impairment. In the first quarter of 2020, whenwe recognized pre-tax impairment charges to reduce the standard becomes effective.carrying value of our oil and gas properties and certain related right-of-use assets at the North Malay Basin in Malaysia by $755 million ($755 million after income taxes), the South Arne Field in Denmark by $670 million ($594 million after income taxes), and in the Gulf of Mexico, the Stampede Field by $410 million ($410 million after income taxes) and the Tubular Bells Field by $270 million ($270 million after income taxes) primarily as a result of a lower long-term crude oil price outlook. The impairment charges were based on estimates of fair value determined by discounting internally developed future net cash flows, a Level 3 fair value measurement. The total of the fair value estimates was approximately $1.05 billion. Significant inputs used in determining the discounted future net cash flows include future prices, projected production volumes using risk adjusted oil and gas reserves, and discount rates. The future pricing assumptions used were based on forward strip crude oil prices as of March 31, 2020 for the remainder of 2020 through 2022, and $50 per barrel for WTI ($55 per barrel for Brent) in 2023 and thereafter to the end of field life. The weighted average crude oil benchmark price based on total projected crude oil volumes for the impaired assets was $48.82 per barrel. A discount rate of 10% was used in each of the fair value measurements which represents the estimated discount rate a market participant would use. We continuedetermined the discount rate by considering the weighted average cost of capital for a group of peer companies.
Other Assets:
In the first quarter of 2020, we recognized impairment charges totaling $21 million pre-tax ($20 million after income taxes) related to evaluate this ASU but do not believe it will have a material impact on our Consolidated Financial Statements.drilling rig right-of-use assets in the Bakken and surplus materials and supplies.
3. Inventories
Inventories consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
|
| (In millions) |
| |||||
Crude oil and natural gas liquids |
| $ | 74 |
|
| $ | 92 |
|
Materials and supplies |
|
| 156 |
|
|
| 169 |
|
Total Inventories |
| $ | 230 |
|
| $ | 261 |
|
In the first quarter of 2020, we recognized charges of $53 million ($52 million after income taxes) recorded in Marketing, including purchased oil and gas to reflect crude oil inventories at quarter-end market value.
7
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
We determine if an arrangement is an operating lease or a finance lease at inception by evaluating whether the contract conveys the right to control an identified asset during the period of use. Right-of use (ROU) assets represent our right to use an identified asset for the lease term4. Property Plant and lease obligations represent our obligation to make payments as set forth in the lease arrangement. ROU assets and liabilities are recognized in the Consolidated Balance Sheet at the commencement date based on the present value of the minimum lease payments over the lease term. Where the implicit discount rate in a lease is not readily determinable, we use our incremental borrowing rate based on information available at the commencement date for determining the present value of the minimum lease payments. The lease term used in measurement of our lease obligations includes options to extend or terminate the lease when, in our judgment, it is reasonably certain that we will exercise that option. Variable lease payments that depend on an index or a rate are included in the measurement of lease obligations using the index or rate at the commencement date. Variable lease payments that vary because of changes in facts or circumstances after the commencement date of the lease are not included in the minimum lease payments used to measure lease obligations. We have agreements that include financial obligations for lease and nonlease components. For purposes of measuring lease obligations, we have elected not to separate nonlease components from lease components for the following classes of assets: drilling rigs, office space, offshore vessels, and aircraft. We apply a portfolio approach to account for operating lease ROU assets and liabilities for certain vehicles, railcars, field equipment and office equipment leases.Equipment
Finance lease cost is recognized as amortization of the ROU asset and interest expense on the lease liability. Operating lease cost is generally recognized on a straight-line basis. Operating lease costs for drilling rigs used to drill development wells and successful exploration wells are capitalized. Operating lease cost for other ROU assets used in oil and gas producing activities are either capitalized or expensed on a straight-line basis based on the nature of operation for which the ROU asset is utilized.
Leases with an initial term of 12 months or less are not recorded on the balance sheet as permitted under ASC 842. We recognize lease cost for short-term leases on a straight-line basis over the term of the lease. Some of our leases include one or more options to renew. The renewal option is at our sole discretion and is not included in the lease term for measurement of the lease obligation unless we are reasonably certain, at the commencement date of the lease, to renew the lease.
Operating and finance leases presented on the Consolidated Balance Sheet at March 31, 2019 were as follows:
|
| Operating Leases |
|
| Finance Leases |
| ||
| (In millions) |
| ||||||
Right-of-use assets — net (a) |
| $ | 713 |
|
| $ | 332 |
|
Lease obligations: |
|
|
|
|
|
|
|
|
Current |
| $ | 366 |
|
| $ | 36 |
|
Long-term |
|
| 436 |
|
|
| 250 |
|
Total lease obligations |
| $ | 802 |
|
| $ | 286 |
|
|
|
Lease obligations represent 100% of the present value of future minimum lease payments in the lease arrangement. Where we have contracted directly with a lessor in our role as operator of an unincorporated oil and gas venture, we bill our partners their proportionate share for reimbursements as payments under lease agreements become due pursuant to the terms of our joint operating and other agreements.
The nature of our leasing arrangements at March 31, 2019 was as follows:
Operating leases: In the normal course of business, we primarily lease drilling rigs, office space, logistical assets (offshore vessels, aircraft, and shorebases), and equipment.
Finance leases: In 2018, we entered into a sale and lease-back arrangement for a floating storage and offloading vessel (FSO) to handle produced condensate at North Malay Basin, offshore Peninsular Malaysia (Hess operated – 50%). No gain or loss was recognized from the sale transaction. The remaining lease term utilized in the lease obligation is 14.5 years. At March 31, 2019, the carrying value of the Finance lease asset is $256 million and the carrying value of the Finance lease obligation is $266 million. We have another finance lease obligation of $20 million at March 31, 2019 that will be settled in the second quarter of 2019.
8
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Maturities of lease obligations at March 31, 2019 were as follows:
|
| Operating Leases |
|
| Finance Leases |
| ||
| (In millions) |
| ||||||
2019 |
| $ | 308 |
|
| $ | 48 |
|
2020 |
|
| 183 |
|
|
| 36 |
|
2021 |
|
| 71 |
|
|
| 36 |
|
2022 |
|
| 64 |
|
|
| 36 |
|
2023 |
|
| 64 |
|
|
| 36 |
|
Remaining years |
|
| 197 |
|
|
| 248 |
|
Total lease payments |
|
| 887 |
|
|
| 440 |
|
Less: Imputed interest |
|
| (85 | ) |
|
| (154 | ) |
Total lease obligations |
| $ | 802 |
|
| $ | 286 |
|
The following information relates to the Operating and Finance leases recorded at March 31, 2019:
|
| Operating Leases |
|
| Finance Leases |
|
| 4.7 years |
|
| 13.5 years |
| |
Range of remaining lease terms |
| 0.1 - 9.3 years |
|
| 0.2 - 14.5 years |
|
Weighted average discount rate |
| 4.3% |
|
| 7.8% |
|
The components of lease costs in the first quarter of 2019 were as follows (in millions):
| $ | 103 |
| |
Finance lease cost: |
|
|
|
|
Amortization of leased assets |
|
| 13 |
|
Interest on lease obligations |
|
| 6 |
|
Short-term lease cost (a) |
|
| 32 |
|
Variable lease cost (b) |
|
| 19 |
|
Sublease income (c) |
|
| (3 | ) |
Total lease cost |
| $ | 170 |
|
|
|
|
|
|
|
The above lease costs represent 100% of the lease payments due for the period, including where we as operator have contracted directly with suppliers. As the payments under lease agreements where we are operator become due, we bill our partners their proportionate share for reimbursement pursuant to the terms of our joint operating agreements. Reimbursements are not reflected in the table above. Certain lease costs above associated with exploration and development activities are included in capital expenditures.
Supplemental cash flow information related to leases for the first quarter of 2019 was as follows:
|
| Operating Leases |
|
| Finance Leases |
| ||
| (In millions) |
| ||||||
Cash paid for amounts included in the measurement of lease obligations: |
|
|
|
|
|
|
|
|
Operating cash flows |
| $ | 106 |
|
| $ | 6 |
|
Financing cash flows |
|
| — |
|
|
| 23 |
|
Noncash transactions: |
|
|
|
|
|
|
|
|
Leased assets recognized for new lease obligations incurred |
| 3 |
|
|
| — |
|
9
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
On January 31, 2019, the Corporation’s 8.00% Series A Mandatory Convertible Preferred Stock (Preferred Stock) automatically converted into shares of common stock at a rate of 21.822 shares of common stock per share of Preferred Stock. In total, the Preferred Stock was converted into approximately 12.5 million shares of common stock. In connection with the Preferred Stock offering in 2016, the Company entered into capped call transactions to reduce the potential dilution to the Company’s common stock upon conversion of the Preferred Stock, subject to a cap. The Company received approximately 0.9 million shares of common stock upon settlement of the capped call transactions. As a result, the net number of common shares issued by the Company upon conversion of the Preferred Stock was approximately 11.6 million shares.
Revenue from contracts with customers on a disaggregated basis was as follows (in $ millions):
|
| Exploration and Production |
|
| Midstream |
|
| Eliminations |
|
| Total |
| ||||||||||||||||||||
|
| United States |
|
| Denmark |
|
| Libya |
|
| Malaysia & JDA |
|
| E&P Total |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of our net production volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil revenue |
| $ | 682 |
|
| $ | 16 |
|
| $ | 91 |
|
| $ | 21 |
|
| $ | 810 |
|
| $ | — |
|
| $ | — |
|
| $ | 810 |
|
Natural gas liquids revenue |
|
| 68 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 68 |
|
|
| — |
|
|
| — |
|
|
| 68 |
|
Natural gas revenue |
|
| 42 |
|
|
| 3 |
|
|
| 6 |
|
|
| 180 |
|
|
| 231 |
|
|
| — |
|
|
| — |
|
|
| 231 |
|
Sales of purchased oil and gas |
|
| 426 |
|
|
| — |
|
|
| 22 |
|
|
| — |
|
|
| 448 |
|
|
| — |
|
|
| — |
|
|
| 448 |
|
Intercompany revenue |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 190 |
|
|
| (190 | ) |
|
| — |
|
Total revenues from contracts with customers |
|
| 1,218 |
|
|
| 19 |
|
|
| 119 |
|
|
| 201 |
|
|
| 1,557 |
|
|
| 190 |
|
|
| (190 | ) |
|
| 1,557 |
|
Other operating revenues (a) |
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
Total sales and other operating revenues |
| $ | 1,233 |
|
| $ | 19 |
|
| $ | 119 |
|
| $ | 201 |
|
| $ | 1,572 |
|
| $ | 190 |
|
| $ | (190 | ) |
| $ | 1,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018 |
|
|
| |||||||||||||||||||||||||||||
Sales of our net production volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil revenue |
| $ | 593 |
|
| $ | 33 |
|
| $ | 99 |
|
| $ | 43 |
|
| $ | 768 |
|
| $ | — |
|
| $ | — |
|
| $ | 768 |
|
Natural gas liquids revenue |
|
| 71 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 71 |
|
|
| — |
|
|
| — |
|
|
| 71 |
|
Natural gas revenue |
|
| 39 |
|
|
| 3 |
|
|
| 8 |
|
|
| 128 |
|
|
| 178 |
|
|
| — |
|
|
| — |
|
|
| 178 |
|
Sales of purchased oil and gas |
|
| 325 |
|
|
| — |
|
|
| 24 |
|
|
| 14 |
|
|
| 363 |
|
|
| — |
|
|
| — |
|
|
| 363 |
|
Intercompany revenue |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 167 |
|
|
| (167 | ) |
|
| — |
|
Total revenues from contracts with customers |
|
| 1,028 |
|
|
| 36 |
|
|
| 131 |
|
|
| 185 |
|
|
| 1,380 |
|
|
| 167 |
|
|
| (167 | ) |
|
| 1,380 |
|
Other operating revenues (a) |
|
| (34 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (34 | ) |
|
| — |
|
|
| — |
|
|
| (34 | ) |
Total sales and other operating revenues |
| $ | 994 |
|
| $ | 36 |
|
| $ | 131 |
|
| $ | 185 |
|
| $ | 1,346 |
|
| $ | 167 |
|
| $ | (167 | ) |
| $ | 1,346 |
|
|
|
There have been no significant changes to contracts with customers or composition thereof during the first quarter of 2019. Generally, we receive payments from customers on a monthly basis, shortly after the physical delivery of the crude oil, NGLs, or natural gas. We did not recognize any credit losses on receivables with customers in the first quarter of 2019 or 2018.
Inventories consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2019 |
|
| 2018 |
| ||
|
| (In millions) |
| |||||
Crude oil and natural gas liquids |
| $ | 96 |
|
| $ | 74 |
|
Materials and supplies |
|
| 178 |
|
|
| 171 |
|
Total Inventories |
| $ | 274 |
|
| $ | 245 |
|
10
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. Capitalized Exploratory Well CostsCosts:
The following table discloses the net changes in capitalized exploratory well costs pending determination of proved reserves during the three months ended March 31, 20192020 (in millions):
Balance at January 1, 2019 |
| $ | 418 |
|
Additions to capitalized exploratory well costs pending the determination of proved reserves |
|
| 48 |
|
Balance at March 31, 2019 |
| $ | 466 |
|
Balance at January 1, 2020 |
| $ | 584 |
|
Additions to capitalized exploratory well costs pending the determination of proved reserves |
|
| 47 |
|
Capitalized exploratory well costs charged to expense |
|
| (125 | ) |
Balance at March 31, 2020 |
| $ | 506 |
|
In the first quarter of 2020, the Corporation expensed previously capitalized well costs of $125 million, primarily related to the northern portion of the Shenzi Field (Hess 28%) in the Gulf of Mexico due to reprioritization of the Corporation’s forward capital program in response to the significant decline in crude oil prices. The table above does not include well costs incurred and expensed during 2020 of $10 million associated with the Oldfield-1 well in the Gulf of Mexico.Capitalized exploratory well costs capitalized for greater than one year following completion of drilling were $309$319 million at March 31, 20192020 and primarily related to:to:
Guyana: Approximately 45%80% of the capitalized well costs in excess of one year relatesrelate to the Liza-4, Pacora-1, Payara-1, Payara-2, Ranger-1 and Snoek-1twelve successful exploration wells where hydrocarbons were encountered on the Stabroek Block offshore Guyana (Hess 30%), where hydrocarbons were encountered.offshore Guyana. The operator plans to integrate the Liza-4 discovery into the second phasefurther appraisal drilling for certain fields and is conducting pre-development planning for additional phases of development which is expected to commence production by mid-2022. The operator plans to integratebeyond the Pacora-1, Payara-1 and Payara-2 discoveries into the third phasetwo existing sanctioned phases of development, which is expected to commence production as early as 2023. The Snoek discovery is expected to produce into the Liza Phase 1 floating, production storage and offloading (FPSO) vessel under a subsequent phase of development, and the operator is planning further drilling at the Ranger discovery.development.
Gulf of Mexico: Approximately 40% of the capitalized well costs in excess of one year relates to the appraisal of the northern portion of the Shenzi Field (Hess 28%) in the Gulf of Mexico, where hydrocarbons were encountered in the fourth quarter of 2015. Following exploration and appraisal drilling activities completed by the operator in prior years on adjacent blocks to the north of our Shenzi blocks, the operator is planning to acquire 3D seismic in 2019 for use in development planning of the northern portion of the Shenzi Field.
JDA:Joint Development Area (JDA): Approximately 10% of the capitalized well costs in excess of one year relates to the JDA (Hess 50%) in the Gulf of Thailand, (Hess 50%), where hydrocarbons were encountered in three successful exploration wells drilled in the western part of Block A-18. The operator has submitted a development plan concept to the regulator to facilitate ongoing commercial negotiations for an extension of the existing gas sales contract to include development of the western part of the Block.
Malaysia: Approximately 5%10% of the capitalized well costs in excess of one year relatesrelate to the North Malay Basin (Hess 50%), offshore Peninsular Malaysia, (Hess 50%), where hydrocarbons were encountered in onefive successful exploration well drilled in the fourth quarter of 2015. In 2018, we completed four exploration wellswells. Subsurface evaluation and are conducting subsurface evaluationspre-development studies for consideration in future phases of field development.development are ongoing.
7.5. Hess Infrastructure PartnersMidstream LP
We consolidate the activities ofAt March 31, 2020 Hess Infrastructure PartnersMidstream LP (HIP)(Hess Midstream), a 50/50 joint venture between Hess Corporation and Global Infrastructure Partners (GIP), which qualifies as a variable interest entity (VIE) under U.S. GAAP. We have concluded that we are the primary beneficiary of the VIE, as defined in the accounting standards, since we have the power, through our 50% ownership, to direct those activities that most significantly impact the economic performance of HIP.
As of March 31, 2019, the Midstream segment is comprised of HIP, which owns the general partner of Hess Midstream Partners LP (HESM). HESM owns an approximate 20% controlling interest in the operating companies that comprise our midstream joint venture while HIP owns the remaining 80%, other than the water services business that is wholly ownedfully consolidated by HIP as described below. At March 31, 2019, HIPHess Corporation, had liabilities totaling $1,273$1,971 million (December 31, 2018: $1,1052019: $1,941 million) that are on a nonrecourse basis to Hess Corporation, while HIPHess Midstream assets available to settle the obligations of HIPHess Midstream include cash and cash equivalents totaling $6$3 million (December 31, 2018: $1092019: $3 million) and property, plant and equipment with a carrying value of $2,829$3,029 million (December 31, 2018: $2,6642019: $3,010 million).
On6. Debt
In the first quarter of 2020, the Corporation entered into a $1.0 billion three year term loan agreement with JPMorgan Chase Bank N.A. with a maturity date of March 1, 2019, HIP completed16, 2023. The term loan contains provisions that require us to reduce JPMorgan’s initial funded amount of $1.0 billion. The Corporation is currently in the acquisitionprocess of Hess’ water services business for $225 millionsyndicating with other lenders. Borrowings under the term loan bear interest at the applicable interest rates either, at the Corporation’s option, the adjusted LIBOR rate in cash. Aseffect from time to time or the alternate base rate (as described in the term loan agreement) plus the applicable margins specified in the term loan agreement, which generally vary based on the credit rating of the Corporation’s senior, unsecured, non-credit enhanced long-term debt. This loan has been classified as noncurrent in the consolidated balance sheet due to the Corporation’s ability and intent to refinance any amount we are unable to syndicate to other banks on a resultlong-term basis through the Corporation’s existing $3.5 billion revolving credit facility with a maturity date of May 15, 2023. The term loan agreement contains customary representations, warranties and covenants, including a financial covenant limiting the ratio of Total Consolidated Debt to Total Capitalization (as such terms are defined in the term loan agreement) of the Corporation and its consolidated subsidiaries to 65%, and customary events of default. At March 31, 2020, Hess Corporation had borrowings of $1.0 billion under this transaction between entities under common control, we recorded an after-tax gain of $78 millionterm loan agreement and was in additional paid-in-capitalcompliance with an offsetting reduction to noncontrolling interest to reflect the adjustment to GIP’s noncontrolling interest in HIP.this financial covenant.
On March 22, 2019, HIP and HESM acquired crude oil and gas gathering assets, and HIP acquired water gathering assets of Summit Midstream Partners LP’s Tioga Gathering System for aggregate cash consideration of approximately $90 million, with the potential for an additional $10 million of contingent payments in future periods subject to certain future performance metrics.
118
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Components of net periodic pension cost consisted of the following:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||
Service cost |
| $ | 10 |
|
| $ | 14 |
|
| $ | 14 |
|
| $ | 10 |
|
Interest cost (a) |
|
| 24 |
|
|
| 23 |
|
|
| 18 |
|
|
| 24 |
|
Expected return on plan assets (a) |
|
| (45 | ) |
|
| (49 | ) |
|
| (45 | ) |
|
| (45 | ) |
Amortization of unrecognized net actuarial losses (a) |
|
| 11 |
|
|
| 12 |
|
|
| 12 |
|
|
| 11 |
|
Curtailment gains (a) |
|
| — |
|
|
| (2 | ) | ||||||||
Pension (income) expense (a) |
| $ | — |
|
| $ | (2 | ) |
| $ | (1 | ) |
| $ | — |
|
(a) (a) Net non-service pension cost included in Other, net in the Statement of Consolidated Income in the first quarter of 20192020 was income of $10$15 million (2018: $16(2019: $10 million of income).
To preserve cash in 2020, we are minimizing non-required cash contributions to funded pension plans. In 2019,2020, we expect to contribute $40approximately $2 million to our funded pension plans. Through March 31, 2019,2020, we have contributed $10less than $1 million.
In8. Revenue
Revenue from contracts with customers on a disaggregated basis was as follows:
|
| Exploration and Production |
|
| Midstream |
|
| Eliminations |
|
| Total |
| ||||||||||||||||||||||||
|
| United States |
|
| Guyana |
|
| Malaysia & JDA |
|
| Denmark |
|
| Libya |
|
| E&P Total |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| (In millions) |
| |||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of our net production volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil revenue |
| $ | 656 |
|
| $ | 38 |
|
| $ | 2 |
|
| $ | 36 |
|
| $ | — |
|
| $ | 732 |
|
| $ | — |
|
| $ | — |
|
| $ | 732 |
|
Natural gas liquids revenue |
|
| 49 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 49 |
|
|
| — |
|
|
| — |
|
|
| 49 |
|
Natural gas revenue |
|
| 38 |
|
|
| — |
|
|
| 139 |
|
|
| 2 |
|
|
| 2 |
|
|
| 181 |
|
|
| — |
|
|
| — |
|
|
| 181 |
|
Sales of purchased oil and gas |
|
| 324 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 325 |
|
|
| — |
|
|
| — |
|
|
| 325 |
|
Intercompany revenue |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 291 |
|
|
| (291 | ) |
|
| — |
|
Total sales and other operating revenues before other operating revenues |
|
| 1,067 |
|
|
| 39 |
|
|
| 141 |
|
|
| 38 |
|
|
| 2 |
|
|
| 1,287 |
|
|
| 291 |
|
|
| (291 | ) |
|
| 1,287 |
|
Other operating revenues (a) |
|
| 55 |
|
|
| 6 |
|
|
| 1 |
|
|
| 5 |
|
|
| — |
|
|
| 67 |
|
|
| — |
|
|
| — |
|
|
| 67 |
|
Total sales and other operating revenues |
| $ | 1,122 |
|
| $ | 45 |
|
| $ | 142 |
|
| $ | 43 |
|
| $ | 2 |
|
| $ | 1,354 |
|
| $ | 291 |
|
| $ | (291 | ) |
| $ | 1,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of our net production volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil revenue |
| $ | 682 |
|
| $ | — |
|
| $ | 21 |
|
| $ | 16 |
|
| $ | 91 |
|
| $ | 810 |
|
| $ | — |
|
| $ | — |
|
| $ | 810 |
|
Natural gas liquids revenue |
|
| 68 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 68 |
|
|
| — |
|
|
| — |
|
|
| 68 |
|
Natural gas revenue |
|
| 42 |
|
|
| — |
|
|
| 180 |
|
|
| 3 |
|
|
| 6 |
|
|
| 231 |
|
|
| — |
|
|
| — |
|
|
| 231 |
|
Sales of purchased oil and gas |
|
| 426 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
|
| 448 |
|
|
| — |
|
|
| — |
|
|
| 448 |
|
Intercompany revenue |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 190 |
|
|
| (190 | ) |
|
| — |
|
Total sales and other operating revenues before other operating revenues |
|
| 1,218 |
|
|
| — |
|
|
| 201 |
|
|
| 19 |
|
|
| 119 |
|
|
| 1,557 |
|
|
| 190 |
|
|
| (190 | ) |
|
| 1,557 |
|
Other operating revenues (a) |
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
Total sales and other operating revenues |
| $ | 1,233 |
|
| $ | — |
|
| $ | 201 |
|
| $ | 19 |
|
| $ | 119 |
|
| $ | 1,572 |
|
| $ | 190 |
|
| $ | (190 | ) |
| $ | 1,572 |
|
(a) | Includes gains (losses) on commodity derivatives. |
There have been no significant changes to contracts with customers or composition thereof during the first quarter of 2019, HIP and HESM borrowedthree months ended March 31, 2020. Generally, we receive payments from customers on a total of $199 million from their revolving credit facilities. Inmonthly basis, shortly after the first quarter of 2018, we paid $415 million to redeem $350 million principal amount of 8.125% notes due 2019 with a carrying value of $349 million at December 31, 2017, and to purchase other notes with a carrying value of $38 million at December 31, 2017. Concurrent with the redemptionphysical delivery of the 2019 notes, we terminated interest rate swaps with a notional amount of $350 million. First quarter 2018 results included a pre-tax charge of $27 million for the loss on extinguishment of the redeemed and purchased notes.crude oil, natural gas liquids, or natural gas.
9
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Net income (loss) and weighted average number of common shares used in the basic and diluted earnings per share computations were as follows:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||
Net income (loss) attributable to Hess Corporation Common Stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income (loss) |
| $ | 75 |
|
| $ | (65 | ) |
| $ | (2,366 | ) |
| $ | 75 |
|
Less: Net income (loss) attributable to noncontrolling interests |
|
| 43 |
|
|
| 41 |
|
|
| 67 |
|
|
| 43 |
|
Less: Preferred stock dividends |
|
| 4 |
|
|
| 11 |
|
|
| — |
|
|
| 4 |
|
Net income (loss) attributable to Hess Corporation Common Stockholders |
| $ | 28 |
|
| $ | (117 | ) |
| $ | (2,433 | ) |
| $ | 28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic |
|
| 297.4 |
|
|
| 309.5 |
|
|
| 304.0 |
|
|
| 297.4 |
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted common stock |
|
| 1.2 |
|
|
| — |
|
|
| — |
|
|
| 1.2 |
|
Stock options |
|
| 0.2 |
|
|
| — |
|
|
| — |
|
|
| 0.2 |
|
Performance share units |
|
| 0.9 |
|
|
| — |
|
|
| — |
|
|
| 0.9 |
|
Diluted |
|
| 299.7 |
|
|
| 309.5 |
|
|
| 304.0 |
|
|
| 299.7 |
|
12
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes the number of antidilutive shares excluded from the computation of diluted shares:
| Three Months Ended |
|
| Three Months Ended |
| |||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Restricted common stock |
|
| 57,252 |
|
|
| 2,922,316 |
|
|
| 2,015,659 |
|
|
| 57,252 |
|
Stock options |
|
| 3,394,418 |
|
|
| 5,807,579 |
|
|
| 4,086,340 |
|
|
| 3,394,418 |
|
Performance share units |
|
| 65,661 |
|
|
| 623,088 |
|
|
| 1,296,356 |
|
|
| 65,661 |
|
Common shares from conversion of preferred stocks |
|
| 3,930,663 |
|
|
| 12,584,974 |
| ||||||||
Common shares from conversion of preferred stock |
|
| — |
|
|
| 3,930,663 |
|
During the first quarter of 2019,three months ended March 31, 2020, we granted 941,0821,117,009 shares of restricted stock (2018: 1,081,923)(2019: 941,082), 234,866307,999 performance share units (2018: 278,003)(2019: 234,866) and 526,968686,639 stock options (2018: 683,167)(2019: 526,968).
11.10. Guarantees and Contingencies
We are subject to loss contingencies with respect to various claims, lawsuits and other proceedings. A liability is recognized in our consolidated financial statements when it is probable that a loss has been incurred and the amount can be reasonably estimated. If the risk of loss is probable, but the amount cannot be reasonably estimated or the risk of loss is only reasonably possible, a liability is not accrued; however, we disclose the nature of those contingencies. We cannot predict with certainty if, how or when existing claims, lawsuits and proceedings will be resolved or what the eventual relief, if any, may be, particularly for proceedings that are in their early stages of development or where plaintiffs seek indeterminate damages. Numerous issues may need to be resolved, including through lengthy discovery, conciliation and/or arbitration proceedings, or litigation before a loss or range of loss can be reasonably estimated. Subject to the foregoing, in management’s opinion, based upon currently known facts and circumstances, the outcome of such lawsuits, claims and proceedings, including the matters described below, is not expected to have a material adverse effect on our financial condition. However, we could incur judgments, enter into settlements, or revise our opinion regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations in the period in which the amounts are accrued and our cash flows in the period in which the amounts are paid.
We, along with many companies that have been or continue to be engaged in refining and marketing of gasoline, have been a party to lawsuits and claims related to the use of methyl tertiary butyl ether (MTBE) in gasoline. A series of similar lawsuits, many involving water utilities or governmental entities, were filed in jurisdictions across the U.S. against producers of MTBE and petroleum refiners who produced gasoline containing MTBE, including us. The principal allegation in all cases was that gasoline containing MTBE was a defective product and that these producers and refiners are strictly liable in proportion to their share of the gasoline market for damage to groundwater resources and are required to take remedial action to ameliorate the alleged effects on the environment of releases of MTBE. The majority of the cases asserted against us have been settled. There are three3 remaining active cases, filed by Pennsylvania, Rhode Island, and Maryland. In June 2014, the Commonwealth of Pennsylvania filed a lawsuit alleging that we and all major oil companies with operations in Pennsylvania, have damaged the groundwater by introducing thereto gasoline with MTBE. The Pennsylvania suit has been forwarded to the existing MTBE multidistrict litigation pending in the Southern District of New York. In September 2016, the State of Rhode Island also filed a lawsuit alleging that we and other major oil companies damaged the groundwater in Rhode Island by introducing thereto gasoline with MTBE. The suit filed in Rhode Island is proceeding in Federal court. In December 2017, the State of Maryland filed a lawsuit alleging that we and other major oil companies damaged the groundwater in Maryland by introducing thereto
10
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
gasoline with MTBE. The suit filed in Maryland state court, was served on us in January 2018 and has been removed to Federal court by the defendants.
In September 2003, we received a directive from the New Jersey Department of Environmental Protection (NJDEP) to remediate contamination in the sediments of the Lower Passaic River. The NJDEP is also seeking natural resource damages. The directive, insofar as it affects us, relates to alleged releases from a petroleum bulk storage terminal in Newark, New Jersey we previously owned. We and over 70 companies entered into an Administrative Order on Consent with the Environmental Protection Agency (EPA) to study the same contamination; this work remains ongoing. We and other parties settled a cost recovery claim by the State of New Jersey and also agreed with the EPA to fund remediation of a portion of the site. On March 4, 2016, the EPA issued a Record of Decision (ROD) in respect of the lower eight miles of the Lower Passaic River, selecting a remedy that includes bank-to-bank dredging at an estimated cost of $1.38$1.38 billion. The ROD does not address the upper nine miles of the Lower Passaic River or the Newark Bay, which may require additional remedial action. In addition,the Federal trustees for natural resources have begun a separate assessment of damages to natural resources in the Passaic River. Given that the EPA has not selected a remedy for the entirety of the Lower Passaic River or the Newark Bay, total remedial costs cannot be reliably estimated at this time. Based on currently known facts and circumstances, we do not believe that this matter will result in a significant liability to us because our former terminal did not store or use contaminants which
13
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
are of concern in the river sediments and could not have contributed contamination along the river’s length. Further, there are numerous other parties who we expect will bear the cost of remediation and damages.
In March 2014, we received an Administrative Order from the EPA requiring us and 26 other parties to undertake the Remedial Design for the remedy selected by the EPA for the Gowanus Canal Superfund Site in Brooklyn, New York. Our alleged liability derives from our former ownership and operation of a fuel oil terminal and connected shipbuilding and repair facility adjacent to the Canal. The remedy selected by the EPA includes dredging of surface sediments and the placement of a cap over the deeper sediments throughout the Canal and in-situ stabilization of certain contaminated sediments that will remain in place below the cap. The EPA’s original estimate was that this remedy would cost $506 million; however, the ultimate costs that will be incurred in connection with the design and implementation of the remedy remain uncertain. Our alleged liability derives from our former ownership and operation of a fuel oil terminal and connected ship-building and repair facility adjacent to the Canal. We agreed to complyhave complied with the EPAEPA’s March 2014 Administrative Order and are currently contributingcontributed funding for the Remedial Design based on an allocation of costs among the parties determined by a third-party expert.
On September 28, 2017,In January 2020, we received a general notice letter and offer to settlean additional Administrative Order from the U.S. Environmental Protection Agency relatingEPA requiring us and several other parties to Superfund claimsbegin Remedial Action along the uppermost portion of the Canal. We intend to comply with this Administrative Order. The remediation work is anticipated to begin in the fourth quarter of 2020. The costs will continue to be allocated amongst the parties, as they were for the Ector Drum, Inc. Superfund Site in Odessa, Texas. The EPA and Texas Commission on Environmental Quality (TCEQ) took clean-up and response action at the site commencing in 2014 and concluded in December 2015. The site was determined to have improperly stored industrial waste, including drums with oily liquids. The total clean-up cost incurred by the EPA was approximately $3.5 million. We were invited to negotiate a voluntary settlement for our purported share of the clean-up costs. Our share, if any, is undetermined.Remedial Design.
We periodically receive notices from the EPA that we are a “potential responsible party” under the Superfund legislation with respect to various waste disposal sites. Under this legislation, all potentially responsible parties may be jointly and severally liable. For any site for which we have received such a notice, the EPA’s claims or assertions of liability against us relating to these sites have not been fully developed, or the EPA’s claims have been settled or a settlement is under consideration, in all cases for amounts that are not material. The ultimate impact of these proceedings, and of any related proceedings by private parties, on our business or accounts cannot be predicted at this time due to the large number of other potentially responsible parties and the speculative nature of clean-up cost estimates but is not expected to be material.
From time to time, we are involved in other judicial and administrative proceedings, including proceedings relating to other environmental matters. We cannot predict with certainty if, how or when such proceedings will be resolved or what the eventual relief, if any, may be, particularly for proceedings that are in their early stages of development or where plaintiffs seek indeterminate damages. Numerous issues may need to be resolved, including through potentially lengthy discovery and determination of important factual matters before a loss or range of loss can be reasonably estimated for any proceeding.
Subject to the foregoing, in management’s opinion, based upon currently known facts and circumstances, the outcome of lawsuits, claims and proceedings, including the aforementioned proceedingsmatters disclosed above, is not expected to have a material adverse effect on our financial condition, results of operations or cash flows. However, we could incur judgments, enter into settlements, or revise our opinion regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations in the period in which the amounts are accrued and our cash flows in the period in which the amounts are paid.
1411
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
12. Segment11. Segment Information
We currently have two2 operating segments, Exploration and Production and Midstream. All unallocated costs are reflected under Corporate, Interest and Other. The following table presents operating segment financial data:
|
| Exploration and Production |
|
| Midstream |
|
| Corporate, Interest and Other |
|
| Eliminations |
|
| Total |
| |||||
|
| (In millions) |
| |||||||||||||||||
For the Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Other Operating Revenues - Third-parties |
| $ | 1,572 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,572 |
|
Intersegment Revenues |
|
| — |
|
|
| 190 |
|
|
| — |
|
|
| (190 | ) |
|
| — |
|
Sales and Other Operating Revenues |
| $ | 1,572 |
|
| $ | 190 |
|
| $ | — |
|
| $ | (190 | ) |
| $ | 1,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Hess Corporation |
| $ | 109 |
|
| $ | 37 |
|
| $ | (114 | ) |
| $ | — |
|
| $ | 32 |
|
Depreciation, Depletion and Amortization |
|
| 464 |
|
|
| 34 |
|
|
| — |
|
|
| — |
|
|
| 498 |
|
Provision (Benefit) for Income Taxes (a) |
|
| 95 |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| 94 |
|
Capital Expenditures |
|
| 515 |
|
|
| 127 |
|
|
| — |
|
|
| — |
|
|
| 642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Other Operating Revenues - Third-parties |
| $ | 1,346 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,346 |
|
Intersegment Revenues |
|
| — |
|
|
| 167 |
|
|
| — |
|
|
| (167 | ) |
|
| — |
|
Sales and Other Operating Revenues |
| $ | 1,346 |
|
| $ | 167 |
|
| $ | — |
|
| $ | (167 | ) |
| $ | 1,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Hess Corporation |
| $ | (25 | ) |
| $ | 28 |
|
| $ | (109 | ) |
| $ | — |
|
| $ | (106 | ) |
Depreciation, Depletion and Amortization |
|
| 385 |
|
|
| 31 |
|
|
| 1 |
|
|
| — |
|
|
| 417 |
|
Provision (Benefit) for Income Taxes (a) |
|
| 95 |
|
|
| 9 |
|
|
| (31 | ) |
|
| — |
|
|
| 73 |
|
Capital Expenditures |
|
| 354 |
|
|
| 37 |
|
|
| — |
|
|
| — |
|
|
| 391 |
|
|
|
|
| Exploration and Production |
|
| Midstream |
|
| Corporate, Interest and Other |
|
| Eliminations |
|
| Total |
| |||||
|
| (In millions) |
| |||||||||||||||||
For the Three Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Other Operating Revenues - Third parties |
| $ | 1,354 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,354 |
|
Intersegment Revenues |
|
| — |
|
|
| 291 |
|
|
| — |
|
|
| (291 | ) |
|
| — |
|
Sales and Other Operating Revenues |
| $ | 1,354 |
|
| $ | 291 |
|
| $ | — |
|
| $ | (291 | ) |
| $ | 1,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Hess Corporation |
| $ | (2,371 | ) |
| $ | 61 |
|
| $ | (123 | ) |
| $ | — |
|
| $ | (2,433 | ) |
Depreciation, Depletion and Amortization |
|
| 521 |
|
|
| 38 |
|
|
| 2 |
|
|
| — |
|
|
| 561 |
|
Impairment |
|
| 2,126 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,126 |
|
Provision (Benefit) for Income Taxes |
|
| (77 | ) |
|
| 2 |
|
|
| (4 | ) |
|
| — |
|
|
| (79 | ) |
Capital Expenditures |
|
| 609 |
|
|
| 57 |
|
|
| — |
|
|
| — |
|
|
| 666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Other Operating Revenues - Third parties |
| $ | 1,572 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,572 |
|
Intersegment Revenues |
|
| — |
|
|
| 190 |
|
|
| — |
|
|
| (190 | ) |
|
| — |
|
Sales and Other Operating Revenues |
| $ | 1,572 |
|
| $ | 190 |
|
| $ | — |
|
| $ | (190 | ) |
| $ | 1,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Hess Corporation |
| $ | 109 |
|
| $ | 37 |
|
| $ | (114 | ) |
| $ | — |
|
| $ | 32 |
|
Depreciation, Depletion and Amortization |
|
| 464 |
|
|
| 34 |
|
|
| — |
|
|
| — |
|
|
| 498 |
|
Provision (Benefit) for Income Taxes |
|
| 95 |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| 94 |
|
Capital Expenditures |
|
| 515 |
|
|
| 127 |
|
|
| — |
|
|
| — |
|
|
| 642 |
|
Identifiable assets by operating segment were as follows:
|
| March 31, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||
Exploration and Production |
| $ | 16,978 |
|
| $ | 16,109 |
|
| $ | 14,302 |
|
| $ | 16,790 |
|
Midstream |
|
| 3,280 |
|
|
| 3,285 |
|
|
| 3,519 |
|
|
| 3,499 |
|
Corporate, Interest and Other |
|
| 1,458 |
|
|
| 2,039 |
|
|
| 2,896 |
|
|
| 1,493 |
|
Total |
| $ | 21,716 |
|
| $ | 21,433 |
|
| $ | 20,717 |
|
| $ | 21,782 |
|
13.12. Financial Risk Management Activities
In the normal course of our business, we are exposed to commodity risks related to changes in the prices of crude oil and natural gas as well as changes in interest rates and foreign currency values. Financial risk management activities include transactions designed to reduce risk in the selling prices of crude oil or natural gas we produce or by reducing our exposure to foreign currency or interest rate movements. Generally, futures, swaps or option strategies may be used to fix the forward selling price of a portion of our crude oil or natural gas production. Forward contracts may also be used to purchase certain currencies in which we conduct business with the intent of reducing exposure to foreign currency fluctuations. At March 31, 2019,2020, these forward contracts relate to the British Pound.Pound and the Danish Krone. Interest rate swaps may be used to convert interest payments on certain long-term debt from fixed to floating rates.
15The notional amounts of outstanding financial risk management derivative contracts were as follows:
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
|
| (In millions) |
| |||||
Commodity - crude oil (millions of barrels) |
|
| 41.3 |
|
|
| 54.9 |
|
Foreign exchange |
| $ | 65 |
|
| $ | 90 |
|
Interest rate swaps |
| $ | 100 |
|
| $ | 100 |
|
12
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
We present gross notional amounts of both long and short positions in the table below. These amounts include long and short positions that offset in closed positions andFor calendar year 2020 we have not reached contractual maturity. Gross notional amounts do not quantify risk or represent assets or liabilities of the Corporation but are used in the calculation of cash settlements under the contracts.
The gross notional amounts of outstanding financial risk management derivative contracts related to West Texas Intermediate (WTI) instruments asput options with an average monthly floor price of the dates shown below were as follows:
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||
Calendar year program |
| 2019 |
|
| 2019 |
| ||
Instrument type |
| Puts |
|
| Puts |
| ||
Effective date |
| Apr. 1, 2019 |
|
| Jan. 1, 2019 |
| ||
End date |
| Dec. 31, 2019 |
|
| Dec. 31, 2019 |
| ||
Crude oil volumes (millions of barrels) |
|
| 26.1 |
|
|
| 34.7 |
|
Floor price |
| $ | 60 |
|
| $ | 60 |
|
The gross notional amounts$55 per barrel for 130,000 barrels of outstanding financial risk management derivative contracts, excluding commodity contracts, were as follows:
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||
|
| (In millions) |
| |||||
Foreign exchange |
| $ | 43 |
|
| $ | 16 |
|
Interest rate swaps |
| $ | 100 |
|
| $ | 100 |
|
oil per day (bopd), and Brent put options with an average monthly floor price of $60 per barrel for 20,000 bopd.
The table below reflects the gross and net fair values of risk management derivative instruments and their respective financial statement caption in the Consolidated Balance Sheet:
|
| Assets |
|
| Liabilities |
|
| Assets |
|
| Liabilities |
| ||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
| ||||||||
March 31, 2020 |
|
|
|
|
|
|
|
| ||||||||
Derivative Contracts Designated as Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity - Other current assets |
| $ | 96 |
|
| $ | — |
| ||||||||
Interest rate - Other liabilities and deferred credits (noncurrent) |
|
| — |
|
|
| (1 | ) | ||||||||
Crude oil derivative contracts |
| $ | 1,098 |
|
| $ | — |
| ||||||||
Interest rate - Other assets (noncurrent) |
|
| 6 |
|
|
| — |
| ||||||||
Total derivative contracts designated as hedging instruments |
|
| 96 |
|
|
| (1 | ) |
|
| 1,104 |
|
|
| — |
|
Derivative Contracts Not Designated as Hedging Instruments: |
|
|
|
|
|
|
|
| ||||||||
Foreign exchange |
|
| — |
|
|
| (2 | ) | ||||||||
Total derivative contracts not designated as hedging instruments |
|
| — |
|
|
| (2 | ) | ||||||||
Gross fair value of derivative contracts |
|
| 96 |
|
|
| (1 | ) |
|
| 1,104 |
|
|
| (2 | ) |
Master netting arrangements |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net Fair Value of Derivative Contracts |
| $ | 96 |
|
| $ | (1 | ) |
| $ | 1,104 |
|
| $ | (2 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 |
|
|
|
|
|
|
|
| ||||||||
December 31, 2019 |
|
|
|
|
|
|
|
| ||||||||
Derivative Contracts Designated as Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity - Other current assets |
| $ | 484 |
|
| $ | — |
| ||||||||
Interest rate - Other liabilities and deferred credits (noncurrent) |
|
| — |
|
|
| (2 | ) | ||||||||
Crude oil derivative contracts |
| $ | 125 |
|
| $ | — |
| ||||||||
Interest rate - Other assets (noncurrent) |
|
| 1 |
|
|
| — |
| ||||||||
Total derivative contracts designated as hedging instruments |
|
| 484 |
|
|
| (2 | ) |
|
| 126 |
|
|
| — |
|
Derivative Contracts Not Designated as Hedging Instruments: |
|
|
|
|
|
|
|
| ||||||||
Foreign exchange |
|
| — |
|
|
| (1 | ) | ||||||||
Total derivative contracts not designated as hedging instruments |
|
| — |
|
|
| (1 | ) | ||||||||
Gross fair value of derivative contracts |
|
| 484 |
|
|
| (2 | ) |
|
| 126 |
|
|
| (1 | ) |
Master netting arrangements |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net Fair Value of Derivative Contracts |
| $ | 484 |
|
| $ | (2 | ) |
| $ | 126 |
|
| $ | (1 | ) |
All fair values in the table above are based on Level 2 inputs.
Derivative contracts designated as hedging instruments:
Crude oil derivatives: Crude oil price hedging contracts increased Sales and other operating revenues by $64 million and $15 million in the first quarter of 20192020 and decreased Sales and other operating revenue by $30 million in the first quarter of 2018. 2019, respectively. At March 31, 2019,2020, pre-tax deferred gains in Accumulated other comprehensive income (loss) related to outstanding crude oil price hedging contracts were $3$831 million, all of which will be reclassified into earnings during the remainder of 20192020 as the originally hedged crude oil sales are recognized in earnings.
Interest rate swaps designated as fair value hedges: At March 31, 20192020 and December 31, 2018,2019, we had interest rate swaps with gross notional amounts totaling $100 million, which were designated as fair value hedges and relate to debt where we have converted interest payments on certain long-term debt from fixed to floating rates. Changes in the fair value of interest rate swaps and the hedged fixed-ratefixed-rate debt are recorded in Interest expense in the Statement of Consolidated Income. In the first quarter of 2019,2020, the change in fair value of interest rate swaps was aan increase in the asset of $5 million (2019 Q1: decrease in the liability of $1 million (Q1 2018: increase
16
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
in liability of $3 million) with a corresponding adjustment in the carrying value of the hedged fixed‑ratefixed-rate debt. In the first quarter of 2018, we paid $3 million, to terminate interest rate swaps with a gross notional amount of $350 million.
Derivative contracts not designated as hedging instruments:
Foreign exchange:Foreign exchange gains and losses which are reported inOther, netin Revenues and non-operating income in the Statement of Consolidated Income were $5a loss of $1 million in the first quarter of 2019 (20182020 (2019 Q1: $4 million)$5 million gain). A component of foreign exchange gain is the result of foreign exchange derivative contracts that are not designated as hedges which amounted to a lossnet gain of less than $1$2 million in the first quarter of 2019 (20182020 (2019 Q1: gaina net loss of $2less than $1 million).
Crude oil derivatives: In the first quarter of 2018, noncash adjustments to de-designated crude oil price hedging contracts decreased Sales and other operating revenues by $8 million.
Fair Value Measurement:
We have other short-term financial instruments, primarily cash equivalents, accounts receivable and accounts payable, for which the carrying value approximated fair value at March 31, 2019.2020. At March 31, 2019,2020, total long-term debt, which was substantiallyprimarily comprised of fixed-rate debt instruments, had a carrying value of $6,562$8,194 million and a fair value of $6,987$6,468 million based on Level 2 inputs.
On April 18, 2019 the Corporation terminated its existing revolving credit facility maturing in January 2021 and entered into a new fully undrawn $3.5 billion revolving credit facility with a maturity date of May 15, 2023. This facility can be used for borrowings and letters of credit. Borrowings on the new facility will generally bear interest at 1.30% above the London Interbank Offered Rate (LIBOR), though the interest rate is subject to adjustment if the Corporation’s credit rating changes. The facility is subject to customary representations, warranties and covenants, including a financial covenant limiting the ratio of Total Consolidated Debt to Total Capitalization (as such terms are defined in the credit agreement for the facility) of the Corporation and its consolidated subsidiaries to 0.650 to 1.000, and customary events of default.
1713
PART I - FINANCIAL INFORMATION (CONT’D.)
Item 2. |
|
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with the unaudited consolidated financial statements and accompanying footnotes for the quarter ended March 31, 2020 included under Item 1. Financial Statements of this Form 10-Q and the audited consolidated financial statements and related notes included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below under the section entitled “Risk Factors” and those discussed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2019.
Overview
Hess Corporation is a global Exploration and Production (E&P) company engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids (NGLs), and natural gas with production operations located primarily in the United States (U.S.), Denmark,Guyana, the Malaysia/Thailand Joint Development Area (JDA), Malaysia, and Malaysia.Denmark. We conduct exploration activities primarily offshore Guyana, Suriname, Canada and in the U.S. Gulf of Mexico.Mexico, and offshore Suriname and Canada. At the Stabroek Block (Hess 30%), offshore Guyana, we have participated in thirteenannounced sixteen significant discoveries. The Liza Phase 1 development achieved first production in December 2019, with peak production expected to reach up to 120,000 gross bopd. The Liza Phase 2 development was sanctioned in 2017the second quarter of 2019 and is expected to startup by the first quarter of 2020start up in 2022 with production reaching up to 120,000220,000 gross barrels of oil per day (bopd). The discovered resources to date on the Stabroek Block are expected to underpin the potential for at least five floating production, storage and offloading (FPSO) vessels producing more than 750,000 gross bopd by 2025.bopd.
Our Midstream operating segment, which is comprised of Hess Corporation’s 47% consolidated ownership interest in Hess Midstream LP, provides fee-based services, including gathering, compressing and processing natural gas and fractionating natural gas liquids (NGLs);NGL; gathering, terminaling, loading and transporting crude oil and NGLs;NGL; storing and terminaling propane, and water handling services primarily in the Bakken and Three Forks Shale playsshale play in the Williston Basin area of North Dakota.
First Quarter HighlightsHess Response to Global Pandemic and OutlookMarket Conditions
We project ourThe COVID-19 pandemic continues to have a profound impact on society and industry. The Corporation’s first priority in the midst of the COVID-19 pandemic has been the health and safety of the Hess workforce and local communities. A multidisciplinary Hess emergency response team has been overseeing plans and precautions to reduce the risks of COVID-19 in the work environment while maintaining business continuity based on the most current recommendations by government and public health agencies. The Corporation has implemented a variety of health and safety measures including enhanced cleaning procedures and modified work practices such as travel restrictions, health screenings, reduced personnel at offshore platforms and onshore work sites wherever this can be done safely, and remote working arrangements for office workers.
In addition to the global health concerns of COVID-19, the pandemic has severely impacted demand for oil. In response to the resulting sharp decline in oil prices, the Corporation’s focus is on preserving cash and capability, while protecting the long-term value of its assets. Hess entered into a new $1.0 billion three-year term loan agreement and further reduced its E&P capital and exploratory expendituresbudget for 2020 to $1.9 billion, a 37% reduction from the original budget of $3.0 billion. This reduction will be approximately $2.9 billionachieved primarily by shifting from a six-rig program to one rig in 2019. Capital investment for our Midstream operationsthe Bakken and deferring discretionary spending across the portfolio including a six to twelve month deferral in the development of the Payara Field and reduced 2020 drilling activity on the Stabroek Block offshore Guyana.
As a result of the unprecedented reduction in demand due to COVID-19, commercial storage in the United States is expected to reach capacity in the second quarter, which is requiring curtailments and shut-ins of production by the industry. To maximize the value of Hess production, the Corporation has chartered three very large crude carriers (VLCCs) to store 2 million barrels each of May, June and July Bakken crude oil production that is expected to be $430 million including assets acquired from Summit Midstream Partners LP. Oil and gas production in 2019 is forecast to besold in the rangefourth quarter of 270,000 to 280,0002020.
14
PART I - FINANCIAL INFORMATION (CONT’D.)
Overview (continued)
Slowing economic activity caused by the pandemic has impacted natural gas nominations at the Corporation’s North Malay Basin (NMB) and JDA assets in Southeast Asia. Production in the first quarter for NMB and JDA was 58,000 barrels of oil equivalent per day (boepd) excluding Libya.compared to 68,000 boepd in the first quarter of 2019. Nominations have been reduced due to the decline in business activity and production from NMB and JDA is forecast to be approximately 35,000 boepd in the second quarter and approximately 50,000 boepd for the full year 2020. In Guyana, the operator has temporarily idled two of the four drilling rigs on the Stabroek Block due to pandemic-related travel restrictions. The Liza Destiny floating production, offloading, and storage vessel (FPSO) is expected to reach its full capacity of 120,000 gross bopd, in June, with April gross production of approximately 75,000 bopd. Despite pandemic-related delays, the Liza Phase 2 development remains on schedule to start production in 2022.
In the first quarter of 2020, we incurred a net loss of $2,433 million, compared with net income of $32 million in the first quarter of 2019. Excluding items affecting comparability of earnings between periods detailed on page 22, we incurred an adjusted net loss of $182 million in the first quarter of 2020. The decline in adjusted first quarter 2020 results, compared with the prior-year quarter, primarily reflects lower realized selling prices from the weak commodity price environment, partially offset by higher production volumes.
Net cash provided by operating activities was $445 million in the first quarter of 2020, compared with $238 million in the first quarter of 2019, compared to $210 million in the first quarter of 2018.2019. Net cash provided by operating activities before working capital changes wasin operating assets and liabilities were $502 million in the first quarter of 2020 and $635 million in the first quarter of 2019 and $3972019. Capital expenditures were $666 million in the first quarter of 2018. Capital expenditures were2020 and $642 million in the first quarter of 20192019.
2020 Outlook
With our revised capital and $391 millionexploratory budget of $1.9 billion, we forecast oil and gas production in 2020, excluding Libya, to be approximately 320,000 boepd, which is down from the prior-year quarter. Excludingoriginal guidance range of 330,000 boepd to 335,000 boepd. We have in excess of 80% of our Midstream segment, we endedforecasted crude oil production for the first quarterremainder of 20192020 hedged with approximately $2.3 billion$55 WTI put options for 130,000 bopd and $60 Brent put options for 20,000 bopd. We also have no near-term debt maturities aside from the new term loan in cash and cash equivalents. BasedMarch 2023.
In 2020, based on current forward strip crude oil prices, for 2019, we expect cash flow from operating activities, andincluding settlements from crude oil put option contracts, cash and cash equivalents existing at March 31, 20192020 of $2.1 billion, and our available committed revolving credit facility will be sufficient to fund our capital investment program and dividends. Due to the weak commodity price environment, we may take any of the following steps, or a combination thereof, to improve our liquidity and financial position: further reduce the planned capital program and other cash outlays, including dividends, through the end of 2019.issue debt or equity securities, and pursue asset sales.
On January 31, 2019, the 8.00% Series A Mandatory Convertible Preferred Stock automatically converted into shares of common stock. See Note 3, Preferred Stock Conversion in the Notes to Consolidated Financial Statements.
First Quarter15
PART I - FINANCIAL INFORMATION (CONT’D.)
Overview (continued)
Exploration and Production Results
In the first quarter of 2019, we2020, E&P had a net loss of $2,371 million, compared with net income of $32 million, compared to a net loss of $106$109 million in the first quarter of 2018. Excluding items affecting comparability of earnings between periods on pages 26 to 27, the adjusted net loss for the first quarter of 2018 was $72 million. The improved first quarter 2019 results, compared to the adjusted results in the prior year quarter, primarily reflect higher production volumes, partially offset by lower realized crude oil selling prices and higher depreciation, depletion and amortization expense.
Exploration and Production Results
In the first quarter of 2019, E&P had net income of $109 million, compared with a net loss of $25 million in the first quarter of 2018.2019. Excluding items affecting comparability of earnings between periods, the adjusted net incomeloss for the first quarter of 20182020 was $12$120 million. Total net production, excluding Libya, averaged 278,000 344,000 boepd in the first quarter of 2019,2020, compared to 233,000with 278,000 boepd in the first quarter of 2018 which included 13,000 boepd from a divested asset.2019. The average realized crude oil selling price, including hedging, was $55.91$45.94 per barrel, down from $59.32$55.91 per barrel in the first quarter of 2018.2019. The average realized natural gas liquidsNGLs selling price in the first quarter of 20192020 was $18.46$9.32 per barrel, down from $21.11$18.46 per barrel in the prior yearprior-year quarter, while the average realized natural gas selling price was $4.43$3.16 per thousand cubic feet (mcf), updown from $3.86$4.43 per mcf in the first quarter of 2018.
18
PART I - FINANCIAL INFORMATION (CONT’D.)
The following is an update of our ongoing E&P activities:
Producing E&P assets:
In the Gulf of Mexico, net production for the first quarter of 2019 averaged 70,000 boepd (2018 Q1: 41,000 boepd), primarily reflecting higher production from the Conger, Penn State and Llano fields that were impacted by the shutdown of the third-party operated Enchilada platform in the year-ago quarter.
In the Gulf of Thailand, net production from Block A 18 of the JDA averaged 37,000 boepd for first quarter of 2019 (2018 Q1: 34,000 boepd), including contribution from unitized acreage in Malaysia, while net production from North Malay Basin, offshore Peninsular Malaysia, averaged 31,000 boepd for first quarter of 2019 (2018 Q1: 22,000 boepd) reflecting higher buyer nominations in 2019 and downtime from planned maintenance of condensate export equipment in the first quarter of 2018.
Other E&P assets:
At the Stabroek Block, offshore Guyana (Hess – 30%), the operator, Esso Exploration and Production Guyana Limited, announced positive results from the Tilapia-1 and Haimara-1 exploration wells offshore Guyana during the quarter and from the Yellowtail-1 exploration well on April 18, 2019, bringing the total number of discoveries on the Stabroek Block to thirteen. These discoveries further underpin the potential for at least five FPSOs producing more than 750,000 gross bopd by 2025.
The Tilapia, Haimara and Yellowtail discoveries can be summarized as follows:
|
|
|
|
|
|
|
|
The Noble Tom Madden and Stena Carron drillships will next drill the Hammerhead-2 and Hammerhead-3 wells. Drilling plans for 2019 also include a second well at Ranger and three additional exploration wells, the locations of which are being finalized.
Development activities on the block are progressing as follows:
Liza Phase 1: Phase 1 of the Liza development is expected to begin producing up to 120,000 gross bopd by the first quarter of 2020. Drilling of Phase 1 development wells by the Noble Bob Douglas drillship is proceeding and installation of subsea infrastructure is well advanced, with installation of subsea umbilicals, risers, and flowlines planned for the second quarter. Installation of topside modules on the Liza Destiny FPSO is now complete, and commissioning activities are underway. The vessel is expected to arrive offshore Guyana in the third quarter of 2019.
Liza Phase 2: Phase 2 of the Liza Field development, which will use a second FPSO,utilize the Liza Unity will have theFPSO with an expected capacity to produceof up to 220,000 gross bopd, and is expectedremains on target to be producing by mid-2022. Six drill centers are planned with a total of 30 wells, including 15 production wells, 9 water injection wells and 6 gas injection wells.achieve first oil in 2022. A final investment decision is expected soon.
Payara: The operator expects a third development, Payara, with expected production capacity of up to be sanctioned late220,000 gross bopd, is planned. Pending government approval to proceed, some 2020 activities at Payara are now being deferred, creating a potential delay in 2019 with first production expectedof six to twelve months beyond the initial start-up target in 2023. The Payara development
As previously announced a 16th discovery was made in the first quarter at the Uaru-1 well, which encountered approximately 94 feet of high-quality oil-bearing sandstone reservoir and is expected to havelocated approximately 10 miles northeast of the capacity to produce between 180,000 and 220,000 bopd from a third FPSO.Liza Field.
• | In the Gulf of Thailand, net production from Block A-18 of the JDA averaged 32,000 boepd for the first quarter of 2020 (2019 Q1: 37,000 boepd), including contribution from unitized acreage in Malaysia. Net production from North Malay Basin, offshore Peninsular Malaysia, averaged 26,000 boepd for the first quarter of 2020 (2019 Q1: 31,000 boepd). |
• | At the Waha fields (Hess - 8%), onshore Libya, production ceased following the declaration of force majeure in January by the Libyan National Oil Corporation as a result of civil unrest. Net production averaged 5,000 boepd for the first quarter of 2020 (2019 Q1: 21,000 boepd). |
1916
PART I - FINANCIAL INFORMATION (CONT’D.)
The following is an update of our ongoing Midstream activities:
On March 1, 2019, HIP acquired Hess’ existing water services business for $225 million in cash. See Note 7, Hess Infrastructure Partners LP in the Notes to Consolidated Financial Statements.
On March 22, 2019, HIP and HESM acquired crude oil and gas gathering assets, and HIP acquired water gathering assets of Summit Midstream Partners LP’s Tioga Gathering System for aggregate cash consideration of approximately $90 million, with the potential for an additional $10 million of contingent payments in future periods subject to certain future performance metrics.
Consolidated Results of Operations
The after-tax income (loss) by major operating activity is summarized below:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In millions, except per share amounts) |
|
| (In millions, except per share amounts) |
| ||||||||||
Net Income (Loss) Attributable to Hess Corporation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and Production |
| $ | 109 |
|
| $ | (25 | ) |
| $ | (2,371 | ) |
| $ | 109 |
|
Midstream |
|
| 37 |
|
|
| 28 |
|
|
| 61 |
|
|
| 37 |
|
Corporate, Interest and Other |
|
| (114 | ) |
|
| (109 | ) |
|
| (123 | ) |
|
| (114 | ) |
Total |
| $ | 32 |
|
| $ | (106 | ) |
| $ | (2,433 | ) |
| $ | 32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Hess Corporation Per Common Share: |
|
|
|
|
|
|
|
| ||||||||
Basic (a) |
| $ | 0.09 |
|
| $ | (0.38 | ) | ||||||||
Diluted (b) |
| $ | 0.09 |
|
| $ | (0.38 | ) | ||||||||
Net Income (Loss) Attributable to Hess Corporation Per Common Share - Diluted (a) |
| $ | (8.00 | ) |
| $ | 0.09 |
|
(a) |
|
| Calculated as net income (loss) attributable to Hess Corporation less preferred stock dividends, divided by weighted average number of diluted shares. |
Items Affecting Comparability of Earnings Between Periods
The following table summarizes, on an after-tax basis, items of income (expense) that are included in net income (loss) and affect comparability of earnings between periods:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||
Items Affecting Comparability of Earnings Between Periods, After-Tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and Production |
| $ | — |
|
| $ | (37 | ) |
| $ | (2,251 | ) |
| $ | — |
|
Midstream |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Corporate, Interest and Other |
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
Total |
| $ | — |
|
| $ | (34 | ) |
| $ | (2,251 | ) |
| $ | — |
|
The items in the table above are explained on pages 26 to 27.page 22.
Reconciliations of GAAP and non-GAAP measures
The following table reconciles reported net income (loss) attributable to Hess Corporation and adjusted net income (loss) attributable to Hess Corporation:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||
Adjusted Net Income (Loss) Attributable to Hess Corporation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Hess Corporation |
| $ | 32 |
|
| $ | (106 | ) |
| $ | (2,433 | ) |
| $ | 32 |
|
Less: Total items affecting comparability of earnings between periods, after-tax |
|
| — |
|
|
| (34 | ) |
|
| (2,251 | ) |
|
| — |
|
Adjusted Net Income (Loss) Attributable to Hess Corporation |
| $ | 32 |
|
| $ | (72 | ) |
| $ | (182 | ) |
| $ | 32 |
|
20
PART I - FINANCIAL INFORMATION (CONT’D.)
Consolidated Results of Operations (continued)
The following table reconciles reported net cash provided by (used in) operating activities and cash provided by (used in) operating activities before working capital changes:changes in operating assets and liabilities:
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
|
| (In millions) |
| |||||
Cash provided by (used in) operating activities before working capital changes: |
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
| $ | 238 |
|
| $ | 210 |
|
Changes in operating assets and liabilities |
|
| (397 | ) |
|
| (187 | ) |
Cash provided by (used in) operating activities before working capital changes |
| $ | 635 |
|
| $ | 397 |
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| (In millions) |
| |||||
Net cash provided by operating activities before changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
| $ | 445 |
|
| $ | 238 |
|
Less: Changes in operating assets and liabilities |
|
| (57 | ) |
|
| (397 | ) |
Net cash provided by (used in) operating activities before changes in operating assets and liabilities |
| $ | 502 |
|
| $ | 635 |
|
17
PART I - FINANCIAL INFORMATION (CONT’D.)
Consolidated Results of Operations (continued)
Adjusted net income (loss) attributable to Hess Corporation is a non-GAAP financial measure, which we define as reported net income (loss) attributable to Hess Corporation excluding items identified as affecting comparability of earnings between periods.periods, which are summarized on page 22. Management uses adjusted net income (loss) to evaluate the Corporation’s operating performance and believes that investors’ understanding of our performance is enhanced by disclosing this measure, which excludes certain items that management believes are not directly related to ongoing operations and are not indicative of future business trends and operations.
CashNet cash provided by (used in) operating activities before working capital changes in operating assets and liabilities presented in this report is a non-GAAP liquidity measure, which we define as reported net cash provided by (used in) operating activities excluding changes in operating assets and liabilities. Management uses net cash provided by (used in) operating activities before working capital changes in operating assets and liabilities to evaluate the Company’s underlying cash-generation performanceCorporation’s ability to internally fund capital expenditures, pay dividends and service debt and believes that investors’ understanding of our cash-generation ability to generate cash to fund these items is enhanced by disclosing this measure, which excludes working capital and other movements that may distort assessment of business liquidityour performance over time.between periods.
These measures are not, and should not be viewed as, substitutes for U.S. GAAP net income (loss) and net cash provided by (used in) operating activities.
In the following discussion and elsewhere in this report, 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 a preferable method of explaining variances in earnings, since they show the entire effect of a transaction rather than only the pre-tax amount. After-tax amounts are determined by applying the income tax rate in each tax jurisdiction to pre-tax amounts.
21
PART I - FINANCIAL INFORMATION (CONT’D.)
Consolidated Results of Operations (continued)
Comparison of Results
Exploration and Production
Following is a summarized income statement of our E&P operations:
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
|
| (In millions) |
| |||||
Revenues and Non-Operating Income |
|
|
|
|
|
|
|
|
Sales and other operating revenues |
| $ | 1,572 |
|
| $ | 1,346 |
|
Gains on asset sales, net |
|
| — |
|
|
| 2 |
|
Other, net |
|
| 20 |
|
|
| 15 |
|
Total revenues and non-operating income |
|
| 1,592 |
|
|
| 1,363 |
|
Costs and Expenses |
|
|
|
|
|
|
|
|
Marketing, including purchased oil and gas |
|
| 434 |
|
|
| 374 |
|
Operating costs and expenses |
|
| 213 |
|
|
| 247 |
|
Production and severance taxes |
|
| 39 |
|
|
| 39 |
|
Midstream tariffs |
|
| 162 |
|
|
| 151 |
|
Exploration expenses, including dry holes and lease impairment |
|
| 34 |
|
|
| 40 |
|
General and administrative expenses |
|
| 42 |
|
|
| 57 |
|
Depreciation, depletion and amortization |
|
| 464 |
|
|
| 385 |
|
Total costs and expenses |
|
| 1,388 |
|
|
| 1,293 |
|
Results of Operations Before Income Taxes |
|
| 204 |
|
|
| 70 |
|
Provision (benefit) for income taxes (a) |
|
| 95 |
|
|
| 95 |
|
Net Income (Loss) Attributable to Hess Corporation |
| $ | 109 |
|
| $ | (25 | ) |
|
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| (In millions) |
| |||||
Revenues and Non-Operating Income |
|
|
|
|
|
|
|
|
Sales and other operating revenues |
| $ | 1,354 |
|
| $ | 1,572 |
|
Other, net |
|
| 8 |
|
|
| 20 |
|
Total revenues and non-operating income |
|
| 1,362 |
|
|
| 1,592 |
|
Costs and Expenses |
|
|
|
|
|
|
|
|
Marketing, including purchased oil and gas |
|
| 425 |
|
|
| 434 |
|
Operating costs and expenses |
|
| 214 |
|
|
| 213 |
|
Production and severance taxes |
|
| 42 |
|
|
| 39 |
|
Midstream tariffs |
|
| 241 |
|
|
| 162 |
|
Exploration expenses, including dry holes and lease impairment |
|
| 189 |
|
|
| 34 |
|
General and administrative expenses |
|
| 52 |
|
|
| 42 |
|
Depreciation, depletion and amortization |
|
| 521 |
|
|
| 464 |
|
Impairment |
|
| 2,126 |
|
|
| — |
|
Total costs and expenses |
|
| 3,810 |
|
|
| 1,388 |
|
Results of Operations Before Income Taxes |
|
| (2,448 | ) |
|
| 204 |
|
Provision (benefit) for income taxes |
|
| (77 | ) |
|
| 95 |
|
Net Income (Loss) Attributable to Hess Corporation |
| $ | (2,371 | ) |
| $ | 109 |
|
Excluding the E&P Itemsitems affecting comparability of earnings between periods detailed on page 26,22, the changes in E&P earningsresults are primarily attributable to changes in selling prices, production and sales volumes, marketing expenses, cash operating costs, Midstream tariffs, depreciation, depletion and amortization (DD&A), exploration expenses and income taxes, as discussed below.
2218
PART I - FINANCIAL INFORMATION (CONT’D.)
Consolidated Results of Operations (continued)
Selling Prices: Lower realized selling prices in the first quarter of 2019,2020 decreased after-tax results by approximately $10$235 million, compared to the same period in 2018.2019. Average selling prices were as follows:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Average Selling Prices (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil - Per Barrel (Including Hedging) |
|
|
|
|
|
|
|
| ||||||||
Crude Oil – Per Barrel (Including Hedging) |
|
|
|
|
|
|
|
| ||||||||
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Onshore |
| $ | 52.16 |
|
| $ | 56.40 |
|
| $ | 44.05 |
|
| $ | 52.16 |
|
Offshore |
|
| 59.30 |
|
|
| 59.14 |
|
|
| 49.33 |
|
|
| 59.30 |
|
Total United States |
|
| 54.76 |
|
|
| 57.23 |
|
|
| 45.63 |
|
|
| 54.76 |
|
Guyana |
|
| 43.26 |
|
|
| — |
| ||||||||
Malaysia and JDA |
|
| 51.24 |
|
|
| 59.38 |
| ||||||||
Denmark |
|
| 67.26 |
|
|
| 67.37 |
|
|
| 55.60 |
|
|
| 67.26 |
|
Libya |
|
| 62.71 |
|
|
| 66.27 |
|
|
| — |
|
|
| 62.71 |
|
Malaysia and JDA |
|
| 59.38 |
|
|
| 67.69 |
| ||||||||
Worldwide |
|
| 55.91 |
|
|
| 59.32 |
|
|
| 45.94 |
|
|
| 55.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil - Per Barrel (Excluding Hedging) |
|
|
|
|
|
|
|
| ||||||||
Crude Oil – Per Barrel (Excluding Hedging) |
|
|
|
|
|
|
|
| ||||||||
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Onshore |
| $ | 50.91 |
|
| $ | 59.61 |
|
| $ | 40.54 |
|
| $ | 50.91 |
|
Offshore |
|
| 58.05 |
|
|
| 62.31 |
|
|
| 45.65 |
|
|
| 58.05 |
|
Total United States |
|
| 53.51 |
|
|
| 60.43 |
|
|
| 42.07 |
|
|
| 53.51 |
|
Guyana (b) |
|
| 36.79 |
|
|
| — |
| ||||||||
Malaysia and JDA |
|
| 51.24 |
|
|
| 59.38 |
| ||||||||
Denmark |
|
| 67.26 |
|
|
| 67.37 |
|
|
| 49.14 |
|
|
| 67.26 |
|
Libya |
|
| 62.71 |
|
|
| 66.27 |
|
|
| — |
|
|
| 62.71 |
|
Malaysia and JDA |
|
| 59.38 |
|
|
| 67.69 |
| ||||||||
Worldwide |
|
| 54.84 |
|
|
| 61.82 |
|
|
| 42.08 |
|
|
| 54.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Liquids - Per Barrel |
|
|
|
|
|
|
|
| ||||||||
Natural Gas Liquids – Per Barrel |
|
|
|
|
|
|
|
| ||||||||
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Onshore |
| $ | 18.69 |
|
| $ | 20.78 |
|
| $ | 9.31 |
|
| $ | 18.69 |
|
Offshore |
|
| 17.21 |
|
|
| 24.28 |
|
|
| 9.39 |
|
|
| 17.21 |
|
Worldwide |
|
| 18.46 |
|
|
| 21.11 |
|
|
| 9.32 |
|
|
| 18.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas - Per Mcf |
|
|
|
|
|
|
|
| ||||||||
Natural Gas – Per Mcf |
|
|
|
|
|
|
|
| ||||||||
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Onshore |
| $ | 2.46 |
|
| $ | 2.47 |
|
| $ | 1.28 |
|
| $ | 2.46 |
|
Offshore |
|
| 2.54 |
|
|
| 2.08 |
|
|
| 1.32 |
|
|
| 2.54 |
|
Total United States |
|
| 2.50 |
|
|
| 2.38 |
|
|
| 1.30 |
|
|
| 2.50 |
|
Malaysia and JDA |
|
| 4.71 |
|
|
| 5.28 |
| ||||||||
Denmark |
|
| 4.02 |
|
|
| 3.44 |
|
|
| 3.73 |
|
|
| 4.02 |
|
Libya |
|
| 5.14 |
|
|
| 6.93 |
|
|
| 4.89 |
|
|
| 5.14 |
|
Malaysia and JDA |
|
| 5.28 |
|
|
| 4.54 |
| ||||||||
Worldwide |
|
| 4.43 |
|
|
| 3.86 |
|
|
| 3.16 |
|
|
| 4.43 |
|
(a) | Selling prices in the United States are adjusted for certain processing and distribution fees included in Marketing expenses. Excluding these fees Worldwide selling prices for the first quarter of |
(b) | Hess Corporation sold its first allocated one million barrel cargo of oil from the Liza Field in March 2020. The realized price reflects the Brent benchmark prices used in the pricing formula at the time of sale in March. |
Crude oil price hedge contracts increased Saleshedging activities were a net gain of $64 million before and other operating revenues by $15 millionafter income taxes in the first quarter of 2019, compared to2020, and a decreasenet gain of $38$15 million before and after income taxes in the first quarter of 2018. As of March 31, 2019,2019. For calendar year 2020, we have crude oilWTI put options with an average monthly floor price of $55 per barrel for calendar year 2019 that establish a WTI130,000 bopd, and Brent put options with an average monthly floor price of $60 per barrel for 20,000 bopd. At March 31, 2020, the fair value of the put option contracts was $1,098 million. Sales volumes will be underlifted by approximately 4 million barrels of oil in the second quarter and 2 million barrels of oil in the third quarter as a result of using the VLCCs. While we will receive cash for settlement gains as the $55 WTI put option contracts mature, the net realized gain on 95,000 bopd.contracts associated with the 6 million barrels of underlifted oil, comprised of the cash settlement less the associated amortization of premiums paid, will be deferred until the volumes stored in the VLCCs are sold. We now expect noncash put option premium amortization, which will be reflected in realized selling prices, to reduce our second quarter results by approximately $50 million and reduce our full year 2020 results by approximately $280 million, which is unchanged from our previous full-year guidance.
2319
PART I - FINANCIAL INFORMATION (CONT’D.)
Consolidated Results of Operations (continued)
Production Volumes: Our daily worldwide net production was as follows:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In thousands) |
|
| (In thousands) |
| ||||||||||
Crude Oil - Barrels |
|
|
|
|
|
|
|
| ||||||||
Crude Oil – Barrels |
|
|
|
|
|
|
|
| ||||||||
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Dakota (a) |
|
| 86 |
|
|
| 73 |
|
|
| 114 |
|
|
| 86 |
|
Offshore |
|
| 49 |
|
|
| 31 |
|
|
| 48 |
|
|
| 49 |
|
Total United States |
|
| 135 |
|
|
| 104 |
|
|
| 162 |
|
|
| 135 |
|
Guyana |
|
| 15 |
|
|
| — |
| ||||||||
Malaysia and JDA |
|
| 4 |
|
|
| 4 |
| ||||||||
Denmark |
|
| 6 |
|
|
| 6 |
|
|
| 6 |
|
|
| 6 |
|
Libya |
|
| 19 |
|
|
| 20 |
|
|
| 4 |
|
|
| 19 |
|
Malaysia and JDA |
|
| 4 |
|
|
| 4 |
| ||||||||
Total |
|
| 164 |
|
|
| 134 |
|
|
| 191 |
|
|
| 164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Liquids - Barrels |
|
|
|
|
|
|
|
| ||||||||
Natural Gas Liquids – Barrels |
|
|
|
|
|
|
|
| ||||||||
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Dakota (a) |
|
| 34 |
|
|
| 30 |
|
|
| 49 |
|
|
| 34 |
|
Offshore |
|
| 6 |
|
|
| 4 |
|
|
| 7 |
|
|
| 6 |
|
Other (b) |
|
| — |
|
|
| 3 |
| ||||||||
Total United States |
|
| 40 |
|
|
| 37 |
|
|
| 56 |
|
|
| 40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas - Mcf |
|
|
|
|
|
|
|
| ||||||||
Natural Gas – Mcf |
|
|
|
|
|
|
|
| ||||||||
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Dakota (a) |
|
| 79 |
|
|
| 73 |
|
|
| 162 |
|
|
| 79 |
|
Offshore |
|
| 92 |
|
|
| 37 |
|
|
| 113 |
|
|
| 92 |
|
Other (b) |
|
| — |
|
|
| 58 |
| ||||||||
Total United States |
|
| 171 |
|
|
| 168 |
|
|
| 275 |
|
|
| 171 |
|
Malaysia and JDA |
|
| 325 |
|
|
| 381 |
| ||||||||
Denmark |
|
| 7 |
|
|
| 10 |
|
|
| 6 |
|
|
| 7 |
|
Libya |
|
| 13 |
|
|
| 13 |
|
|
| 5 |
|
|
| 13 |
|
Malaysia and JDA |
|
| 381 |
|
|
| 313 |
| ||||||||
Total |
|
| 572 |
|
|
| 504 |
|
|
| 611 |
|
|
| 572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels of Oil Equivalent (c) |
|
| 299 |
|
|
| 255 |
| ||||||||
Barrels of Oil Equivalent (b) |
|
| 349 |
|
|
| 299 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil and natural gas liquids as a share of total production |
|
| 68 | % |
|
| 67 | % |
|
| 71 | % |
|
| 68 | % |
(a) |
|
| Reflects natural gas production converted based on |
We forecast net production, excluding Libya, to be in the range of 310,000 boepd to 315,000 boepd for the second quarter and approximately 320,000 boepd for the full year of 2019 to average between 270,000 boepd and 280,000 boepd excluding Libya.2020.
United States:North Dakota net oil production was higher in the first quarter of 2019,2020, compared to the firstyear-ago quarter, of 2018, primarily due to ongoingincreased drilling activity and improved well performance at the Bakken. Offshorewell performance. North Dakota net natural gas and NGLs production was higher in the first quarter of 2019,2020, compared to the corresponding period in 2018, primarilyyear-ago quarter, also due to higher production from the Conger, Penn State and Llano fields that were impacted byincreased drilling activity, as well as additional natural gas captured with the shutdownstart-up of the third-party operated Enchilada platformLittle Missouri 4 natural gas processing plant in the year-ago quarter.
International: NetJuly 2019 and additional NGLs received under percentage of proceeds contracts resulting from lower NGLs commodity pricing. Total offshore net production was higher from the North Malay Basin in the first quarter of 2019 compared2020 was comparable to the year-ago quarter, reflecting higher buyer nominations in 2019 and downtime from planned maintenance of condensate export equipment in the first quarter of 2018.quarter.
2420
PART I - FINANCIAL INFORMATION (CONT’D.)
Consolidated Results of Operations (continued)
International: Net production at Guyana was higher in the first quarter of 2020, compared to the year-ago quarter, due to commencement of production from the Liza Phase 1 development in December 2019. Net production at Libya was lower due to production cessation in February 2020 following the declaration of force majeure by the Libyan National Oil Corporation caused by civil unrest. Net production was lower at Malaysia and JDA primarily due to lower nominations on reduced gas demand from COVID-19 restrictions.
Sales Volumes:The impact of higher sales volumes improved after-tax results by approximately $190$185 million in the first quarter of 2019,2020, compared to the first quarter of 2018. 2019. Worldwide sales volumes from Hess net production, which excludes sales volumes of crude oil, natural gas liquidsNGLs and natural gas purchased from third-parties,third parties, were as follows:
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
|
| (In thousands) |
| |||||
Crude oil - barrels |
|
| 13,940 |
|
|
| 11,811 |
|
Natural gas liquids - barrels |
|
| 3,631 |
|
|
| 3,308 |
|
Natural gas - mcf |
|
| 51,435 |
|
|
| 45,392 |
|
Barrels of Oil Equivalent (a) |
|
| 26,144 |
|
|
| 22,684 |
|
|
|
|
|
|
|
|
|
|
Crude oil - barrels per day |
|
| 155 |
|
|
| 131 |
|
Natural gas liquids - barrels per day |
|
| 40 |
|
|
| 37 |
|
Natural gas - mcf per day |
|
| 572 |
|
|
| 504 |
|
Barrels of Oil Equivalent Per Day (a) |
|
| 290 |
|
|
| 252 |
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| (In thousands) |
| |||||
Crude oil – barrels |
|
| 16,052 |
|
|
| 13,940 |
|
Natural gas liquids – barrels |
|
| 5,097 |
|
|
| 3,631 |
|
Natural gas – mcf |
|
| 55,620 |
|
|
| 51,435 |
|
Barrels of Oil Equivalent (a) |
|
| 30,419 |
|
|
| 26,144 |
|
|
|
|
|
|
|
|
|
|
Crude oil – barrels per day |
|
| 176 |
|
|
| 155 |
|
Natural gas liquids – barrels per day |
|
| 56 |
|
|
| 40 |
|
Natural gas – mcf per day |
|
| 611 |
|
|
| 572 |
|
Barrels of Oil Equivalent Per Day (a) |
|
| 334 |
|
|
| 290 |
|
(a) | Reflects natural gas production converted based on |
Marketing, including purchased oil and gas:Marketing expense is mainly comprised of costs to purchase crude oil, natural gas liquidsNGL and natural gas from our partners in Hess operated wells or other third-parties,third parties, primarily in the U.S., and transportation and other distribution costs for U.S. marketing activities. The increaseMarketing expense was lower in the first quarter of 2019,2020, compared towith the samecorresponding period in 2018,2019, primarily reflects the purchase of higher volumes, partially offset by the impact ofdue to lower benchmark crude oil prices on the cost of purchased volumes.volumes partially offset by higher purchased volumes and a $53 million pre-tax charge for crude oil inventory valuation.
Cash Operating Costs: Excluding items affecting comparability of earnings, cashCash operating costs consistingconsist of operating costs and expenses, production and severance taxes and E&P general and administrative expenses, were lowerexpenses. Cash operating costs increased on an absolute basis and decreased on a per barrel basis in the first quarter of 2020, compared with the corresponding period in 2019, due to a higher proportion of lower-cost production from the Bakken.
Midstream Tariffs Expense: Tariffs expense increased from 2019, primarily due to lower workover expenses. Cash operating costs on a per-unit basis were also lower, reflectinghigher throughput volumes in 2020. We estimate Midstream tariffs expense to be in the impactrange of increased low-cost production from$215 million to $230 million in the Gulfsecond quarter and in the range of Mexico and$905 million to $930 million for the North Malay Basin.full year 2020.
Depreciation, Depletion and Amortization: Depreciation, depletion and amortization (DD&A)DD&A: DD&A expenses were higher in the first quarter of 20192020 on an absolute andbasis, compared with the corresponding period in 2019, reflecting higher production volumes. DD&A expense on a per-unit basis was lower in the first quarter of 2020, compared towith the samecorresponding period in 2018,2019, primarily due to higher production volumes in the Gulfyear-over-year mix of Mexico, the Bakken and North Malay Basin.production.
Unit Costs: Unit cost per barrel of oil equivalent (boe) information is based on total E&Pnet production volumes and excludes items affecting comparability of earnings as disclosed below.volumes. Actual and forecast unit costs per boe are as follows:
|
| Actual |
|
| Forecast range (a) |
| Actual |
|
| Forecast range (a) | ||||||||||||||
|
| Three Months Ended |
|
| Three Months Ended |
| Twelve Months Ended |
| Three Months Ended |
|
| Three Months Ended |
| Twelve Months Ended | ||||||||||
|
| March 31, |
|
| June 30, |
| December 31, |
| March 31, |
|
| June 30, |
| December 31, | ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
| 2019 |
| 2020 |
|
| 2019 |
|
| 2020 |
| 2020 | ||||
Cash operating costs (b) |
| $ | 11.00 |
|
| $ | 13.46 |
|
| $13.00 — $14.00 |
| $13.00 — $14.00 |
| $ | 9.70 |
|
| $ | 11.00 |
|
| $10.00 — $10.50 |
| $10.00 — $10.50 |
DD&A (c) |
|
| 17.25 |
|
|
| 16.77 |
|
| 18.00 — 19.00 |
| 18.00 — 19.00 |
|
| 16.44 |
|
|
| 17.25 |
|
| 14.00 — 15.00 |
| 15.00 — 16.00 |
Total Production Unit Costs |
| $ | 28.25 |
|
| $ | 30.23 |
|
| $31.00 — $33.00 |
| $31.00 — $33.00 |
| $ | 26.14 |
|
| $ | 28.25 |
|
| $24.00 — $25.50 |
| $25.00 — $26.50 |
(a) | Forecast information excludes any contribution from |
(b) |
|
(c) | DD&A per boe, excluding Libya, was $16.64 in the first quarter of |
|
|
21
PART I - FINANCIAL INFORMATION (CONT’D.)
Consolidated Results of Operations (continued)
Exploration Expenses: Exploration expenses were as follows:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||
Exploration lease and other impairment |
| $ | 7 |
|
| $ | 10 |
| ||||||||
Exploratory dry hole costs (a) |
| $ | 135 |
|
| $ | — |
| ||||||||
Exploration lease and other impairment (b) |
|
| 32 |
|
|
| 7 |
| ||||||||
Geological and geophysical expense and exploration overhead |
|
| 27 |
|
|
| 30 |
|
|
| 22 |
|
|
| 27 |
|
Total Exploration Expense |
| $ | 34 |
|
| $ | 40 |
|
| $ | 189 |
|
| $ | 34 |
|
(a) | First quarter 2020 primarily relates to previously capitalized exploratory wells (see Items Affecting Comparability of Earnings Between Periods below) and the Oldfield-1 exploration well in the Gulf of Mexico. |
(b) | First quarter 2020 includes impaired leasehold costs due to a reprioritization of the Corporation’s forward capital program. |
Exploration expenses, excluding dry hole expense, are estimated to be in the range of $45$35 million to $55$40 million in the second quarter of 20192020 and $200$145 million to $220$155 million for the full year of 2019.
25
PART I - FINANCIAL INFORMATION (CONT’D.)
Consolidated Results of Operations (continued)2020.
Income Taxes: Income The decline in income tax expense is comprised primarily of taxes in Libya in the first quarter of 2019 and 2018. Excluding items affecting comparability of earnings between periods and Libyan operations, the effective income tax rate for E&P operations in the first quarter of 2019 was an expense of 2%,2020, compared to the year-ago quarter, is primarily due to lower pre-tax income in Libya as a small benefitresult of the declaration of force majeure in the first quarter of 2018.January 2020. Excluding items affecting comparability of earnings between periods and Libyan operations, the E&P effective income tax rateexpense was $9 million, compared with an expense of $2 million in the first quarter of 2019. Excluding items affecting comparability of earnings between periods and Libyan operations, E&P income tax expense is expected to be an expense in the range of 5%$5 million to 9% in$10 million for the second quarter of 2019,2020 and an expense of 0%$20 million to 4%$30 million for the full year of 2019.2020.
Items Affecting Comparability of Earnings Between Periods:
The following table summarizes, on a pre-tax and an after-tax basis, income (expense) items affecting comparability of E&P earnings between periods:
|
| Three Months Ended |
| |||||||||||||
|
| March 31, |
| |||||||||||||
|
| Pre-tax |
|
| After-tax |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In millions) |
| |||||||||||||
Impairment |
| $ | (2,126 | ) |
| $ | — |
|
| $ | (2,049 | ) |
| $ | — |
|
Dry hole, lease impairment and other exploration expenses |
|
| (152 | ) |
|
| — |
|
|
| (150 | ) |
|
| — |
|
Crude oil inventories write-down |
|
| (53 | ) |
|
| — |
|
|
| (52 | ) |
|
| — |
|
|
| $ | (2,331 | ) |
| $ | — |
|
| $ | (2,251 | ) |
| $ | — |
|
Impairment:In the first quarter of 2018,2020, we recorded noncash impairment charges totaling $2.1 billion ($2.0 billion after income taxes) related to our oil and gas properties at North Malay Basin in Malaysia, the South Arne Field in Denmark, and the Stampede Field and the Tubular Bells Field in the Gulf of Mexico, primarily as a net after-tax severanceresult of a lower long-term crude oil price outlook. Other charges totaling $21 million pre-tax ($20 million after income taxes) related to drilling rig right-of-use assets in the Bakken and surplus materials and supplies. See Note 2, Impairment in the Notes to Consolidated Financial Statements.
Dry hole, lease impairment and other exploration expenses: In the first quarter of 2020, we incurred pre-tax charges totaling $152 million ($150 million after income taxes), primarily related to the write-off of previously capitalized exploratory wells in the Gulf of Mexico as detailed in Note 4, Property, plant and equipment in the Notes to Consolidated Financial Statements, and to impair certain exploration leasehold costs.
Crude oil inventories write-down: In the first quarter of 2020, we incurred a pre-tax charge of $37$53 million related($52 million after income taxes) to a cost reduction program. The pre-tax amountsreduce crude oil inventories to their net realizable value. These charges are reportedincluded in Operating costsMarketing, including purchased oil and expenses ($19 million), Exploration expenses, including dry holes and lease impairment ($3 million) and General and administrative expenses ($15 million),gas in the Statement of Consolidated Income. See Note 3, Inventories in the Notes to Consolidated Financial Statements.
22
PART I - FINANCIAL INFORMATION (CONT’D.)
Consolidated Results of Operations (continued)
Midstream
Following is a summarized income statement offor our Midstream operations:
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
|
| (In millions) |
| |||||
Revenues and Non-Operating Income |
|
|
|
|
|
|
|
|
Sales and other operating revenues |
| $ | 190 |
|
| $ | 167 |
|
Other, net |
|
| — |
|
|
| 1 |
|
Total revenues and non-operating income |
|
| 190 |
|
|
| 168 |
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
Operating costs and expenses |
|
| 55 |
|
|
| 41 |
|
General and administrative expenses |
|
| 6 |
|
|
| 3 |
|
Depreciation, depletion and amortization |
|
| 34 |
|
|
| 31 |
|
Interest expense |
|
| 15 |
|
|
| 15 |
|
Total costs and expenses |
|
| 110 |
|
|
| 90 |
|
|
|
|
|
|
|
|
|
|
Results of Operations Before Income Taxes |
|
| 80 |
|
|
| 78 |
|
Provision (benefit) for income taxes (a) |
|
| — |
|
|
| 9 |
|
Net Income (Loss) |
|
| 80 |
|
|
| 69 |
|
Less: Net income (loss) attributable to noncontrolling interests (b) |
|
| 43 |
|
|
| 41 |
|
Net Income (Loss) Attributable to Hess Corporation |
| $ | 37 |
|
| $ | 28 |
|
|
|
|
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| (In millions) |
| |||||
Revenues and Non-Operating Income |
|
|
|
|
|
|
|
|
Sales and other operating revenues |
| $ | 291 |
|
| $ | 190 |
|
Other, net |
|
| 2 |
|
|
| — |
|
Total revenues and non-operating income |
|
| 293 |
|
|
| 190 |
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
Operating costs and expenses |
|
| 92 |
|
|
| 55 |
|
General and administrative expenses |
|
| 8 |
|
|
| 6 |
|
Depreciation, depletion and amortization |
|
| 38 |
|
|
| 34 |
|
Interest expense |
|
| 25 |
|
|
| 15 |
|
Total costs and expenses |
|
| 163 |
|
|
| 110 |
|
|
|
|
|
|
|
|
|
|
Results of Operations Before Income Taxes |
|
| 130 |
|
|
| 80 |
|
Provision (benefit) for income taxes |
|
| 2 |
|
|
| — |
|
Net Income (Loss) |
|
| 128 |
|
|
| 80 |
|
Less: Net income (loss) attributable to noncontrolling interests |
|
| 67 |
|
|
| 43 |
|
Net Income (Loss) Attributable to Hess Corporation |
| $ | 61 |
|
| $ | 37 |
|
TotalSales and other operating revenues and non-operating income for the first quarter of 20192020 increased, compared to the first quarter of 2018,2019, primarily due to higher throughput volumes and tariff rates, and increased rail transportation and water trucking revenues associated with third party charges.third-party services. Operating costs and expenses for the first quarter of 20192020 increased, compared to the first quarter of 2018,2019, primarily due to higher maintenance activity, and increased third partythird-party rail transportation and water trucking charges.
NetThe increase in interest expense from 2019 reflects higher borrowings by the Midstream business.
Excluding items affecting comparability of earnings, net income attributable to Hess Corporation from the Midstreamsegment is estimated to be approximately in the range of $40 million to $35 50million in the second quarter of 20192020 and in the range of $170 $185 million to $180$195 million for the full year of 2019.2020.
26
23
PART I - FINANCIAL INFORMATION (CONT’D.)
Consolidated Results of Operations (continued)
Corporate, Interest and Other
The following table summarizes Corporate, Interest and Other expenses:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||
Corporate and other expenses (excluding items affecting comparability) |
| $ | 32 |
|
| $ | 25 |
|
| $ | 39 |
|
| $ | 32 |
|
Interest expense |
|
| 90 |
|
|
| 92 |
|
|
| 88 |
|
|
| 90 |
|
Less: Capitalized interest |
|
| (7 | ) |
|
| (4 | ) |
|
| — |
|
|
| (7 | ) |
Interest expense, net |
|
| 83 |
|
|
| 88 |
|
|
| 88 |
|
|
| 83 |
|
Corporate, Interest and Other expenses before income taxes |
|
| 115 |
|
|
| 113 |
|
|
| 127 |
|
|
| 115 |
|
Provision (benefit) for income taxes |
|
| (1 | ) |
|
| (1 | ) |
|
| (4 | ) |
|
| (1 | ) |
Net Corporate, Interest and Other expenses after income taxes |
|
| 114 |
|
|
| 112 |
|
|
| 123 |
|
|
| 114 |
|
Items affecting comparability of earnings between periods, after-tax |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
Total Corporate, Interest and Other Expenses After Income Taxes |
| $ | 114 |
|
| $ | 109 |
|
| $ | 123 |
|
| $ | 114 |
|
Corporate and other expenses excluding items affecting comparability, were higher in the first quarter of 2019,2020, primarily due to a charge of $7 million for legal costs related to former downstream businesses. Interest expense, net was higher in the first quarter of 2020, compared to the first quarter of 2018, primarily2019, due to lowerthe cessation of capitalized interest income. Interest expense, net was lowerat the Liza Field, offshore Guyana, upon commencement of production in the first quarter of 2019, compared to the first quarter of 2018, primarily due to lower average borrowings and higher capitalized interest. December 2019.
Second quarter 20192020 corporate expenses are expected to be in the range of $25 million to $30 million, and interest expense is expected to be in the range of $80$95 million to $85$100 million. We estimate corporate expenses for full year 20192020 to be in the range of $105$115 million to $115$125 million, and interest expense to be in the range of $315 to $325 million.
Items Affecting Comparability of Earnings Between Periods: In the first quarter of 2018, we incurred pre-tax charges of $27 million ($27 million after income taxes) relating to the premium paid for the early retirement of debt. In addition, as required under accounting standards’ intraperiod allocation rules, we recognized a noncash income tax benefit of $30$375 million to offset a noncash income tax expense recognized in other comprehensive income, resulting from a reduction in our pension liabilities.$385 million.
Other Items Potentially Affecting Future Results
Our future results may be impacted by a variety of factors, including but not limited to, volatility in the selling prices of crude oil, natural gas liquidsNGLs and natural gas, reserve and production changes, asset sales, impairment charges and exploration expenses, industry cost inflation and/or deflation, changes in foreign exchange rates and income tax rates, changes in deferred tax asset valuation allowances, the effects of weather, crude oil storage capacity, political risk, environmental risk and catastrophic risk.risk, including risks associated with COVID-19. For a more comprehensive description of the risks that may affect our business, see the section entitled Item 1A. Risk Factors in this Quarterly Report on Form 10-Q and in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Proved reserves are calculated using the average price during the twelve month period before December 31 determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within the year, unless prices are defined by contractual agreements, excluding escalations based on future conditions. Crude oil prices used in the determination of proved reserves at December 31, 2019 were $55.73 per barrel for WTI and $62.54 per barrel for Brent, which are significantly higher than crude oil prices at March 31, 2020 (WTI - $20.48 per barrel; Brent - $17.68 per barrel). If crude oil prices for the rest of 2020 remain significantly below prices used for proved reserves at December 31, 2019, proved reserves at December 31, 2020 could be significantly lower than proved reserves at December 31, 2019. It is difficult to estimate the magnitude of any net negative change in proved reserves that may result from lower crude oil prices due to a number of factors that are currently unknown, including 2020 crude oil prices, any revisions in proved reserves that may occur based on 2020 reservoir performance, the levels to which industry costs will decline in response to lower prices, and management’s plans as of December 31, 2020 for developing proved undeveloped reserves. Any changes in proved reserves will impact depreciation, depletion and amortization expense and the Standardized Measure of Discounted Future Net Cash Flows.
27
24
PART I - FINANCIAL INFORMATION (CONT’D.)
Liquidity and Capital Resources
The following table sets forth certain relevant measures of our liquidity and capital resources:
|
| March 31, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In millions, except ratio) |
|
| (In millions, except ratio) |
| ||||||||||
Cash and cash equivalents (a) |
| $ | 2,300 |
|
| $ | 2,694 |
|
| $ | 2,080 |
|
| $ | 1,545 |
|
Current maturities of long-term debt |
|
| 12 |
|
|
| 67 |
|
|
| 3 |
|
|
| — |
|
Total debt (b) |
|
| 6,562 |
|
|
| 6,672 |
|
|
| 8,194 |
|
|
| 7,142 |
|
Total equity |
|
| 10,553 |
|
|
| 10,888 |
|
|
| 8,178 |
|
|
| 9,706 |
|
Debt to capitalization ratio (c) |
|
| 39.4 | % |
|
| 38.0 | % | ||||||||
Debt to capitalization ratio as defined under debt covenants (c) |
|
| 42.0 | % |
|
| 39.6 | % |
(a) | Includes |
(b) |
|
(c) | Total debt (including finance lease obligations) as a percentage of the sum of total debt (including finance lease obligations) plus |
Cash Flows
The following table summarizes our cash flows:
|
| Three Months Ended |
| |||||||||||||
|
| Three Months Ended, March 31, |
|
| March 31, |
| ||||||||||
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| |||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
| $ | 238 |
|
| $ | 210 |
|
| $ | 445 |
|
| $ | 238 |
|
Investing activities |
|
| (680 | ) |
|
| (422 | ) |
|
| (818 | ) |
|
| (680 | ) |
Financing activities |
|
| 48 |
|
|
| (909 | ) |
|
| 908 |
|
|
| 48 |
|
Net Increase (Decrease) in Cash and Cash Equivalents |
| $ | (394 | ) |
| $ | (1,121 | ) |
| $ | 535 |
|
| $ | (394 | ) |
Operating activities:Net cash provided by operating activities was $238$445 million in the first quarter of 2019,2020, compared to $210$238million in the first quarter of 2018. The increase in 2019 operating cash flows primarily reflects higher production volumes.2019. Changes in working capitaloperating assets and liabilities was a use of cash of $57 million in the first quarter of 2020, and a use of cash of $397 million in the first quarter of 2019, and a use of cash of $187 million in the first quarter of 2018. Changes in working capital during 2019 which included a one-time repaymentpayment of approximately $130 million to our joint venture partner for its share of sale/leaseback proceeds related to our sale of the North Malay Basin floating storage and offloading vessel completedthat we received in the third quarter of 2018. The remaining working capital items included semi-annual interest payments on debt, an increase in accounts receivable, and a reduction in accounts payable.
Investing activities:Additions to property, plant and equipment were up $271 million, compared to the same period in 2018, primarily reflecting increased drilling activity in the Bakken, increased activity at the Liza Phase 1 development and the Midstream operating segment’s acquisition of assets from Summit Midstream Partners LP, partially offset by lower development expenditures in the Gulf of Mexico. The Midstream segment invested $7 million in its 50/50 joint venture with Targa Resources in the first quarter of 2019, compared to $24$818 million in the first quarter of 2018.2020 were up $147 million compared with the corresponding period in 2019. The increase primarily reflects higher activity in the Bakken and Gulf of Mexico and first quarter payments on accrued fourth quarter 2019 capital expenditures. The first quarter of 2019 included Midstream additions of approximately $90 million associated with the Summit acquisition.
The following table reconciles capital expenditures incurred on an accrual basis to Additions to property, plant and equipment:
|
| Three Months Ended |
| |||||||||||||
|
| Three Months Ended, March 31, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||
Additions to property, plant and equipment - E&P: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures incurred - E&P |
| $ | (515 | ) |
| $ | (354 | ) |
| $ | (609 | ) |
| $ | (515 | ) |
Increase (decrease) in related liabilities |
|
| (6 | ) |
|
| (9 | ) |
|
| (131 | ) |
|
| (6 | ) |
Additions to property, plant and equipment - E&P |
| $ | (521 | ) |
| $ | (363 | ) |
| $ | (740 | ) |
| $ | (521 | ) |
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Additions to property, plant and equipment - Midstream: |
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Capital expenditures incurred - Midstream |
| $ | (127 | ) |
| $ | (37 | ) |
| $ | (57 | ) |
| $ | (127 | ) |
Increase (decrease) in related liabilities |
|
| (23 | ) |
|
| — |
|
|
| (21 | ) |
|
| (23 | ) |
Additions to property, plant and equipment - Midstream |
| $ | (150 | ) |
| $ | (37 | ) |
| $ | (78 | ) |
| $ | (150 | ) |
2825
PART I - FINANCIAL INFORMATION (CONT’D.)
Liquidity and Capital Resources (continued)
Financing activities: Debt repayments with maturities of greater than 90 days were $3 millionBorrowings in the first quarter of 2019 and $434 million in the first quarter of 2018, that included the redemption of2020 include $1.0 billion related to our 8.125% notes due in 2019. HIP and HESMnew three-year term loan. Hess Midstream borrowed a total of $199$60 million from their revolving credit facilities in the first quarter of 2020 and $199 million in the first quarter of 2019. Payments on finance lease obligations, which were reportedWe paid common stock dividends totaling $81 million in debt repayments priorthe first quarter of 2020, compared to January 1, 2019, were $23common stock and preferred dividends of $88 million in the first quarter of 2019. In addition, we paid common and preferred stock dividends totaling $88net cash outflows to noncontrolling interests were $63 million in the first quarter of 2019, compared to $892020 and $13 million in the first quarter of 2018. In the first quarter of 2018, we cash settled the repurchase of $371 million of common stock.2019.
Future Capital Requirements and Resources
Excluding our Midstream segment, At March 31, 2020, we ended the first quarter of 2019 with approximately $2.3had $2.1 billion in cash and cash equivalents,excluding Midstream, and total liquidity, including available committed credit facilities, of approximately $6.7 $5.9 billion. Our fully undrawn $3.5 billion committed revolving credit facility matures in May 2023, and we have no significant near-term debt maturities.maturities aside from the new term loan in March 2023. Oil and gas production in 2020, excluding Libya, is forecast to be approximately 320,000 boepd. We have more than 80% of our remaining crude oil production in 2020 hedged with $55 WTI put options for 130,000 bopd and $60 Brent put options for 20,000 bopd.
Net cash provided by operating activities was $445 million in the first quarter of 2020, compared with $238 million in the first quarter of 2019, compared to $210 million in the first quarter of 2018.2019. Net cash provided by operating activities before working capital changes in operating assets and liabilities was $502 million in the first quarter of 2020 and $635 million in the first quarter of 2019 and $3972019. Capital expenditures were $666 million in the first quarter of 2018. Capital expenditures were2020 and $642 million in the first quarter of 2019 and $391 million in the first quarter of 2018. Based2019. In 2020, based on current forward strip crude oil prices, for 2019, we expect cash flow from operating activities, andincluding settlements from crude oil put option contracts, cash and cash equivalents existing at March 31, 20192020, and our available committed revolving credit facility will be sufficient to fund our capital investment program and dividends. Due to the weak commodity price environment, we may take any of the following steps, or a combination thereof, to improve our liquidity and financial position: further reduce the planned capital program and other cash outlays, including dividends, through the end of 2019.issue debt or equity securities, and pursue asset sales.
The table below summarizes the capacity, usage, and available capacity for borrowings and letters of credit under committed and uncommitted credit facilities at March 31, 2019:2020:
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| Letters of |
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| Letters of |
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| Expiration |
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| Credit |
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| Total |
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| Available |
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| Expiration |
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| Credit |
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| Total |
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| Available |
| ||||||
|
| Date |
| Capacity |
|
| Borrowings |
|
| Issued |
|
| Used |
|
| Capacity |
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| Date |
| Capacity |
|
| Borrowings |
|
| Issued |
|
| Used |
|
| Capacity |
| ||||||||||
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| (In millions) |
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| (In millions) |
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Hess Corporation |
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Revolving credit facility - Hess Corporation |
| January 2021 |
| $ | 4,000 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 4,000 |
| ||||||||||||||||||||||
Revolving credit facility |
| May 2023 |
| $ | 3,500 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 3,500 |
| ||||||||||||||||||||||
Committed lines |
| Various (a) |
|
| 445 |
|
|
| — |
|
|
| 54 |
|
|
| 54 |
|
|
| 391 |
|
| Various (a) |
|
| 345 |
|
|
| — |
|
|
| 54 |
|
|
| 54 |
|
|
| 291 |
|
Uncommitted lines |
| Various (a) |
|
| 240 |
|
|
| — |
|
|
| 240 |
|
|
| 240 |
|
|
| — |
|
| Various (a) |
|
| 205 |
|
|
| — |
|
|
| 205 |
|
|
| 205 |
|
|
| — |
|
Total - Hess Corporation |
|
|
| $ | 4,685 |
|
| $ | — |
|
| $ | 294 |
|
| $ | 294 |
|
| $ | 4,391 |
|
|
|
| $ | 4,050 |
|
| $ | — |
|
| $ | 259 |
|
| $ | 259 |
|
| $ | 3,791 |
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Midstream |
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Revolving credit facility - HIP (b) |
| November 2022 |
| $ | 600 |
|
| $ | 192 |
|
| $ | — |
|
| $ | 192 |
|
| $ | 408 |
| ||||||||||||||||||||||
Revolving credit facility - Hess Midstream Partners LP (c) |
| March 2021 |
|
| 300 |
|
|
| 7 |
|
|
| — |
|
|
| 7 |
|
|
| 293 |
| ||||||||||||||||||||||
Revolving credit facility (b) |
| December 2024 |
| $ | 1,000 |
|
| $ | 92 |
|
| $ | — |
|
| $ | 92 |
|
| $ | 908 |
| ||||||||||||||||||||||
Total - Midstream |
|
|
| $ | 900 |
|
| $ | 199 |
|
| $ | — |
|
| $ | 199 |
|
| $ | 701 |
|
|
|
| $ | 1,000 |
|
| $ | 92 |
|
| $ | — |
|
| $ | 92 |
|
| $ | 908 |
|
(a) | Committed and uncommitted lines have expiration dates through |
(b) | This credit facility may only be utilized by |
|
|
At March 31, 2019, Hess Corporation had no outstanding borrowings or lettersCorporation:
In the first quarter of credit under its then existing facility and was in compliance with its financial covenants.
On April 18, 20192020, the Corporation terminated its existing revolving credit facility maturing in January 2021 and entered into a new fully undrawn$1.0 billion three year term loan agreement with JPMorgan Chase Bank N.A. with a maturity date of March 16, 2023. The term loan agreement contains provisions that require us to reduce JPMorgan’s initial funded amount of $1.0 billion. The Corporation is currently in the process of syndicating with other lenders. Borrowings under the term loan bear interest at the applicable interest rates either, at the Corporation’s option, the adjusted LIBOR rate in effect from time to time or the alternate base rate (as described in the term loan agreement) plus the applicable margins specified in the term loan agreement, which generally vary based on the credit rating of the Corporation’s senior, unsecured, non-credit enhanced long-term debt. This loan has been classified as noncurrent in the consolidated balance sheet due to the Corporation’s ability and intent to refinance any amount we are unable to syndicate to other banks on a long-term basis through the Corporation’s existing $3.5 billion revolving credit facility with a maturity date of May 15, 2023. This facility can be used for borrowings and letters of credit. Borrowings on the new facility will generally bear interest at 1.30% above the London Interbank Offered Rate (LIBOR), though the interest rate is subject to adjustment if the Corporation’s credit rating changes. The facility is subject toterm loan agreement contains customary representations, warranties and covenants, including a financial covenant limiting the ratio of Total Consolidated Debt to Total Capitalization (as such terms are defined in the credit agreement for the facility)term loan agreement) of the Corporation and its consolidated subsidiaries to 0.650 to 1.000,65%, and customary events of default. At March 31, 2020, Hess Corporation had borrowings of $1.0 billion under this term loan agreement and was in compliance with this financial covenant.
At March 31, 2020, Hess Corporation had no outstanding borrowings or letters of credit under its revolving credit facility and was in compliance with its financial covenants.
26
PART I - FINANCIAL INFORMATION (CONT’D.)
Liquidity and Capital Resources (continued)
Two of the three major credit rating agencies that rate our debt have assigned an investment grade rating. In March 2020, Standard and Poor’s Ratings Services affirmed our credit rating at BBB- and revised the outlook to negative (from stable) while Fitch Ratings assigned a BBB- rating to the $1.0 billion term loan, with no change to our BBB- credit rating and stable outlook. In March 2020, Moody’s Investors Service affirmed our credit rating at Ba1 with stable outlook, which is below investment grade.
We also have a shelf registration under which we may issue additional debt securities, warrants, common stock or preferred stock.
29
PART I - FINANCIAL INFORMATION (CONT’D.)
Liquidity and Capital Resources (continued)Midstream:
At March 31, 2019, HIP2020, Hess Midstream Operations LP (formerly Hess Midstream Partners LP, or HESM Opco), a consolidated subsidiary of Hess Midstream LP, had $800 million$1.4 billion of senior secured syndicated credit facilities maturing November 2022,December 16, 2024, consisting of a $600 million$1.0 billion 5-year revolving credit facility and a fully drawn $200$400 million 5-year Term Loanterm loan A facility. The revolving credit facility can be used for borrowings and letters of credit to fund the joint venture’sHESM Opco’s operating activities, capital expenditures, distributions and capital expenditures.for other general corporate purposes. Borrowings under the 5-year Term Loanterm loan A facility will generally bear interest at LIBOR plus an applicable margin ranging from 1.55% to 2.50%, while the applicable margin for the 5-year syndicated revolving credit facility ranges from 1.275% to 2.000%. The interest rate is subject to adjustmentPricing levels for the facility fee and interest-rate margins are based on HIP’s leverageHESM Opco’s ratio which is calculated asof total debt to Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)EBITDA (as defined in the credit facilities). If HIPHESM Opco obtains an investment grade credit rating, as defined in the amended credit agreement, pricing levels will be based on theHESM Opco’s credit ratings in effect from time to time. The credit facilities contain financial covenants that generally require HESM Opco to maintain a leverage ratio of no more than 5.0total debt to 1.0EBITDA (as defined in the credit facilities) for the prior four fiscal quarters of not greater than 5.00 to 1.00 as of the last day of each fiscal quarter (5.50 to 1.00 during the specified period following certain acquisitions) and, prior to HESM Opco obtaining an interest coverageinvestment grade credit rating, a ratio which is calculated asof secured debt to EBITDA to cash interest expense, of no less than 2.25 to 1.0 for the prior four fiscal quarters. The amended credit agreement includes a secured leverage ratio testquarters of not to exceed 3.75greater than 4.00 to 1.00 for so long as of the facilities remain secured. HIP islast day of each fiscal quarter. HESM Opco was in compliance with these financial covenants at March 31, 2019. Outstanding borrowings under this credit facility are non-recourse to Hess Corporation. At March 31, 2019, borrowings of $192 million were drawn under HIP’s revolving credit facility, and borrowings of $195 million, excluding deferred issuance costs, were drawn under HIP’s Term Loan A facility.2020. The credit facilities are secured by first-priority perfected liens on substantially all of HIP’sthe presently owned and certain of its wholly-owned subsidiaries’ directly owned assets, including its equity interests in certain subsidiaries, subject to customary exclusions.
Hess Midstream Partners LP has a $300 million 4-year senior secured syndicated revolving credit facility that became available for utilization at completion of its initial public offering in April 2017. The credit facility can be used for borrowings and letters of credit to fund operating activities and capital expenditures of HESM and expires March 2021. Borrowings on the credit facility will generally bear interest at LIBOR plus an applicable margin of 1.275%. The interest rate is subject to adjustment based on HESM’s leverage ratio, which is calculated as total debt to EBITDA. If HESM obtains credit ratings, pricing levels will be based on the credit ratings in effect from time to time. HESM is subject to customary covenants in the credit agreement, including financial covenants that generally require a leverage ratio of no more than 4.5 to 1.0 for the prior four fiscal quarters. HESM is in compliance with these financial covenants at March 31, 2019. The credit facility is secured by first priority perfected liens on substantially all directly ownedafter-acquired assets of HESM Opco and its wholly-owneddirect and indirect wholly owned material domestic subsidiaries, including equity interests in subsidiaries,directly owned by such entities, subject to certain customary exclusions. OutstandingAt March 31, 2020, borrowings of $92 million were drawn under thisHESM Opco’s revolving credit facility, and borrowings of $400 million, excluding deferred issuance costs, were drawn under HESM Opco’s term loan A facility. Borrowings under these credit facilities are non-recourse to Hess Corporation. At March 31, 2019, borrowings of $7 million were drawn under this facility.
27
PART I - FINANCIAL INFORMATION (CONT’D.)
Market Risk Disclosures
We are exposed in the normal course of business to commodity risks related to changes in the prices of crude oil and natural gas, as well as changes in interest rates and foreign currency values. See Note 13,12, Financial Risk Management Activities, in the Notes to Consolidated Financial Statements.
Financial Risk Management Activities
We have outstanding foreign exchange contracts with notional amounts totaling $43$65 million at March 31, 20192020 that are used to reduce our exposure to fluctuating foreign exchange rates for various currencies. The change in fair value of foreign exchange contracts from a 10% weakening in the U.S. Dollar exchange rate is estimated to be a loss of approximatelyless than $5 million at March 31, 2019.2020.
At March 31, 2019,2020, our total long-term debt, which was substantially comprised of fixed-rate instruments, had a carrying value of $6,562$8,194 million and a fair value of $6,987$6,468 million. A 15% increase or decrease in interest rates would decrease or increase the fair value of debt by approximately $460$500 million or $520$590 million, respectively. Any changes in interest rates do not impact our cash outflows associated with fixed-rate interest payments or settlement of debt principal, unless a debt instrument is repurchased prior to maturity.
At March 31, 2019,2020, we have outstanding West Texas Intermediate (WTI)WTI and Brent crude oil put option contracts. See Note 13, Financial Risk Management Activities in the Notes to Consolidated Financial Statements. As of March 31, 2019,2020, an assumed 10% increase in the forward WTI and Brent crude oil prices used in determining the fair value of our crude put contractsoptions would reduce the fair value of these derivativesderivative instruments by approximately $40$115 million, while an assumed 10% decrease in the same WTI crude oil prices would increase the fair value of these derivative instruments by approximately $90$125 million.
Cautionary Note Regarding Forward-Looking Statements
30
PART I - FINANCIAL INFORMATION (CONT’D.)
Certain sections in thisThis Quarterly Report on Form 10-Q, including information incorporated by reference herein, contain “forward-looking” statements, as defined undercontains “forward-looking statements” within the Privatemeaning of Section 27A of the Securities Litigation Reform Act of 1995. Generally,1933, as amended, and Section 21E of the wordsSecurities Exchange Act of 1934, as amended. Words such as “anticipate,” “estimate,” “expect,” “forecast,” “guidance,” “could,” “may,” “should,” “would,” “believe,” “intend,” “project,” “plan,” “predict,” “will,” “target” and similar expressions identify forward-looking statements, which generally are not historical in nature. Our forward-looking statements may include, without limitation: our future financial and operational results; our business strategy; estimates of our crude oil and natural gas reserves and levels of production; benchmark prices of crude oil, natural gas liquids and natural gas and our associated realized price differentials; our projected budget and capital and exploratory expenditures; our plan to syndicate the $1 billion term loan; expected timing and completion of our development projects; and future economic and market conditions in the oil and gas industry.
Forward-looking statements related to our operations and financial conditions are based on our current understanding, assessments, estimates and projections.projections of relevant factors and reasonable assumptions about the future. Forward-looking statements are subject to certain known and unknown risks and uncertainties that could cause actual results to differ materially from our historical experience and our current projections or expectations. expectations of future results expressed or implied by these forward-looking statements. The following important factors could cause actual results to differ materially from those in our forward-looking statements:
• | fluctuations in market prices of crude oil, natural gas liquids and natural gas and competition in the oil and gas exploration and production industry, including as a result of the global COVID-19 pandemic; |
• | potential disruption or interruption of our operations due to catastrophic events, such as accidents, severe weather, geological events, shortages of skilled labor, cyber-attacks or health measures related to COVID-19; |
• | reduced demand for our products, including due to the global COVID-19 pandemic or the outbreak of any other public health threat, or due to the impact of competing or alternative energy products and political conditions and events, such as instability, changes in governments, armed conflict and economic sanctions; |
• | potential failures or delays in increasing oil and gas reserves, including as a result of unsuccessful exploration activity, drilling risks and unforeseen reservoir conditions; |
• | potential failures or delays in achieving expected production levels given inherent uncertainties in estimating quantities of proved reserves; |
• | changes in tax, property, contract and other laws, regulations and governmental actions applicable to our business, including legislative and regulatory initiatives regarding environmental concerns, such as measures to limit greenhouse gas emissions and well fracking bans; |
• | the ability of our contractual counterparties to satisfy their obligations to us, including the operation of joint ventures under which we may not control; |
• | unexpected changes in technical requirements for constructing, modifying or operating exploration and production facilities and/or the inability to timely obtain or maintain necessary permits; |
• | availability and costs of employees and other personnel, drilling rigs, equipment, supplies and other required services; |
28
PART I - FINANCIAL INFORMATION (CONT’D.)
Cautionary Note Regarding Forward-Looking Statements (continued)
• | any limitations on our access to capital or increase in our cost of capital, including our ability to fully syndicate the term loan, as a result of weakness in the oil and gas industry or negative outcomes within commodity and financial markets; |
• | liability resulting from litigation, including heightened risks associated with being a general partner of Hess Midstream LP; and |
• | other factors described in the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q and in Item 1A—Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019 as well as any additional risks described in our other filings with the SEC. |
As and when made, we believe that theseour forward-looking statements are reasonable. However, given these risks and uncertainties, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made and there can be no assurance that such forward-looking statements will occur. We are not obligatedoccur and actual results may differ materially from those contained in any forward-looking statement we make. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a resultbecause of new information, future events or otherwise. Risk factors that could materially impact future actual results are discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K and in our other filings with the SEC.
3129
PART I - FINANCIAL INFORMATION (CONT’D.)
ItemItem 3. Quantitative and Qualitative Disclosures about Market Risk.
The information required by this item is presented under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk Disclosures.”
Item 4. Controls and Procedures.
Based upon their evaluation of the Corporation’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2019,2020, John B. Hess, Chief Executive Officer, and John P. Rielly, Chief Financial Officer, concluded that these disclosure controls and procedures were effective as of March 31, 2019.2020.
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 March 31, 20192020 that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. We implemented internal controls to ensure we adequately evaluated our contracts against the accounting and disclosure requirements of ASC 842, Leases to facilitate adoption of the standard on January 1, 2019. There were no significant changes to our internal control over financial reporting due to adoption of the new standard.
3230
PART II – OTHER INFORMATION
Information regarding legal proceedings is contained in Note 11,10, Guarantees and Contingencies in the Notes to Consolidated Financial Statements and is incorporated herein by reference.
Item 1A. Risk Factors.
Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019, includes certain risk factors that could materially affect our business, financial condition, or future results. Those risk factors have not materially changed, except as set forth and as supplemented below:
Our business and operations have been and may continue to be adversely affected by the COVID-19 global pandemic or other similar public health developments and the recent reduced demand for oil and natural gas.
The COVID-19 global pandemic and related actions taken by governments and businesses, including voluntary and mandatory quarantines and travel and other restrictions, has resulted in a significant and swift reduction in economic activity. As a result of the COVID-19 pandemic, our operations, and those of our business partners, service companies and suppliers, have experienced and may continue to experience adverse effects, including disruptions, delays or temporary suspensions of operations and supply chains; temporary inaccessibility or closures of facilities; and workforce impacts from illness, school closures and other community response measures. We have implemented a variety of health and safety measures including enhanced cleaning procedures and modified work practices such as travel restrictions, health screenings, reduced personnel at offshore platforms and onshore work sites wherever this can be done safely, and remote working arrangements for office workers. To the extent we or our business partners, service companies or suppliers continue to experience restrictions or other effects, our financial condition, results of operations and future expansion projects may be adversely affected.
The timeline and potential magnitude of the COVID-19 pandemic is currently unknown. In addition to the global health concerns of COVID-19, the pandemic has negatively affected the United States and global economy and severely adversely impacted demand for oil and natural gas. The continuation or amplification of the outbreak of COVID-19 could result in further economic downturn that may affect our operating results in the long-term. In addition, the effects of COVID-19 and concerns regarding its global spread have negatively impacted the domestic and international demand for crude oil and natural gas, which has contributed to price volatility and adversely affected the demand for and marketability of crude oil, natural gas and NGLs, and resulting increased demand for commercial storage which could require further curtailments and shut-ins of production by the industry. In the event one or more of our business partners is adversely affected by COVID-19 or the current market environment, that may impact our costs and ability to conduct business with them. In addition, we may face an increased risk of changes in the regulation related to our business, such as the imposition of limitations on the production of oil and gas by states or other jurisdictions, that may result in additional limits on our products. We also are subject to litigation risk and possible loss contingencies related to COVID-19, including with respect to commercial contracts, employee matters and insurance arrangements. We may face additional asset impairments, decreases in proved reserves, along with other accounting charges as demand for crude oil, natural gas and NGLs decreases. The current environment may make it more difficult to syndicate our term loan and comply with our covenants and other restrictions in agreements governing our debt, and a lack of confidence in our industry on the part of the financial markets may result in a lack of access to capital, any of which could lead to reduced liquidity.
As the potential impact from the COVID-19 pandemic is difficult to predict, the extent to which it may negatively affect our operating results is uncertain. Any impact will depend on future developments and new information that may emerge regarding the severity and duration of COVID-19 and the actions taken by authorities to contain it or treat its impact, all of which are beyond our control. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in our annual report on Form 10-K for the year ended December 31, 2019.
31
PART II – OTHER INFORMATION (CONT’D.)
Our common share repurchase activities for the three months ended March 31, 2019,2020, were as follows:
Period |
| Total Number of Shares Purchased (a) |
|
| Average Price Paid per Share (b) |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (c) (In millions) |
|
| Total Number of Shares Purchased (a) |
|
| Average Price Paid per Share (b) |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (c) (In millions) |
| ||||||||
January |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 650 |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 650 |
|
February |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 650 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 650 |
|
March |
|
| 32,260 |
|
|
| 56.62 |
|
|
| — |
|
|
| 650 |
|
|
| 35,202 |
|
|
| 32.34 |
|
|
| — |
|
|
| 650 |
|
Total |
|
| 32,260 |
|
| $ | 56.62 |
|
|
| — |
|
|
|
|
|
|
| 35,202 |
|
| $ | 32.34 |
|
|
| — |
|
|
|
|
|
(a) | Represents common shares repurchased at a price of |
(b) | The average price paid per share was inclusive of transaction fees. |
(c) | In March 2013, we announced that our Board of Directors approved a stock repurchase program that authorized the purchase of common stock up to a value of $4.0 billion. In May 2014, the share repurchase program was increased to $6.5 billion and in March 2018, it was increased further to $7.5 |
33Item 5. Other Information.
On May 6, 2020, the Board of Directors of the Corporation approved and adopted amendments to the Corporation’s By-Laws (as amended, the By-Laws), to help facilitate the conduct of a virtual annual meeting of stockholders in 2020 as a result of the COVID-19 pandemic.
Article III, Section 1 of the By-Laws was amended to clarify that the Corporation’s meetings of stockholders may be held by means of remote communications and to permit appropriate arrangements relevant to such a meeting, including without limitation, arrangements as to format, procedures and notices, in accordance with applicable law.
The foregoing summary description of the amendments to the By-Laws is subject to, and qualified in its entirety by reference to, the full text of the amended By-Laws, filed as Exhibit 3(1) hereto and incorporated herein by reference.
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PART II – OTHER INFORMATION (CONT’D.)
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By-Laws of Hess Corporation (as amended effective May 6, 2020). |
Form of Restricted Stock Award Agreement under the 2017 Long-Term Incentive Plan. | |||
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Form of Stock Option Award Agreement under the 2017 Long-Term Incentive Plan. |
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101(INS)* |
Inline XBRL Instance |
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101(SCH)* |
Inline XBRL Taxonomy Extension Schema Document. |
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101(CAL)* |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101(LAB)* |
Inline XBRL |
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101(PRE)* |
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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101(DEF)* |
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, has been formatted in Inline XBRL.
* These exhibits relate to executive compensation plans and arrangements.
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) | ||
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By |
| /s/ John B. Hess |
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| JOHN B. HESS |
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| CHIEF EXECUTIVE OFFICER |
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By |
| /s/ John P. Rielly |
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| JOHN P. RIELLY |
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| SENIOR VICE PRESIDENT AND |
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| CHIEF FINANCIAL OFFICER |
Date: May 1, 20197, 2020
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