hes-10q_20150930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 2015

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)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its Corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer 

 x

Accelerated Filer 

¨

Non-Accelerated Filer 

 ¨ 

Smaller Reporting Company 

¨

                                     (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

At September 30, 2015, there were 286,097,193 shares of Common Stock outstanding.

 

 

 

 

 


HESS CORPORATION

Form 10-Q

TABLE OF CONTENTS

 

Item

No.

 

Page

Number

 

PART I FINANCIAL INFORMATION

 

1.

Financial Statements (Unaudited)

 

 

Consolidated Balance Sheet at September 30, 2015, and December 31, 2014

2

 

Statement of Consolidated Income for the Three and Nine Months Ended September 30, 2015, and 2014

3

 

Statement of Consolidated Comprehensive Income for the Three and Nine Months Ended September 30, 2015, and 2014

4

 

Statement of Consolidated Cash Flows for the Nine Months Ended September 30, 2015, and 2014

5

 

Statement of Consolidated Equity for the Nine Months Ended September 30, 2015, and 2014

6

 

Notes to Consolidated Financial Statements

7

2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

3.

Quantitative and Qualitative Disclosures about Market Risk

33

4.

Controls and Procedures

33

 

 

 

 

PART II OTHER INFORMATION

 

1.

Legal Proceedings

34

2.

Share Repurchase Activities

34

6.

Exhibits and Reports on Form 8-K

35

 

Signatures

36

 

Certifications

 

 

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (UNAUDITED)

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

 

 

(In millions,

 

 

 

except share amounts)

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,013

 

 

$

2,444

 

Accounts receivable

 

 

 

 

 

 

 

 

Trade

 

 

1,211

 

 

 

1,642

 

Other

 

 

311

 

 

 

431

 

Inventories

 

 

535

 

 

 

527

 

Other current assets

 

 

527

 

 

 

1,643

 

Total current assets

 

 

5,597

 

 

 

6,687

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

 

 

 

Total — at cost

 

 

48,138

 

 

 

46,522

 

Less: Reserves for depreciation, depletion, amortization and lease impairment

 

 

21,255

 

 

 

19,005

 

Property, plant and equipment — net

 

 

26,883

 

 

 

27,517

 

GOODWILL

 

 

1,473

 

 

 

1,858

 

DEFERRED INCOME TAXES

 

 

2,109

 

 

 

2,169

 

OTHER ASSETS

 

 

394

 

 

 

347

 

TOTAL ASSETS

 

$

36,456

 

 

$

38,578

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$

537

 

 

$

708

 

Accrued liabilities

 

 

1,930

 

 

 

3,781

 

Taxes payable

 

 

79

 

 

 

294

 

Current maturities of long-term debt

 

 

78

 

 

 

68

 

Total current liabilities

 

 

2,624

 

 

 

4,851

 

LONG-TERM DEBT

 

 

6,474

 

 

 

5,919

 

DEFERRED INCOME TAXES

 

 

1,618

 

 

 

2,009

 

ASSET RETIREMENT OBLIGATIONS

 

 

2,161

 

 

 

2,281

 

OTHER LIABILITIES AND DEFERRED CREDITS

 

 

1,216

 

 

 

1,198

 

Total liabilities

 

 

14,093

 

 

 

16,258

 

EQUITY

 

 

 

 

 

 

 

 

Hess Corporation stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, par value $1.00

 

 

 

 

 

 

 

 

Authorized — 600,000,000 shares

 

 

 

 

 

 

 

 

Issued — 286,097,193 shares at September 30, 2015; 285,834,964 shares at

   December 31, 2014

 

 

286

 

 

 

286

 

Capital in excess of par value

 

 

4,097

 

 

 

3,277

 

Retained earnings

 

 

18,530

 

 

 

20,052

 

Accumulated other comprehensive income (loss)

 

 

(1,582

)

 

 

(1,410

)

Total Hess Corporation stockholders’ equity

 

 

21,331

 

 

 

22,205

 

Noncontrolling interests

 

 

1,032

 

 

 

115

 

Total equity

 

 

22,363

 

 

 

22,320

 

TOTAL LIABILITIES AND EQUITY

 

$

36,456

 

 

$

38,578

 

 

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(In millions, except per share amounts)

 

REVENUES AND NON-OPERATING INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and other operating revenues

 

$

1,671

 

 

$

2,678

 

 

$

5,162

 

 

$

8,180

 

Gains on asset sales, net

 

 

50

 

 

 

31

 

 

 

50

 

 

 

820

 

Other, net

 

 

(32

)

 

 

27

 

 

 

(38

)

 

 

(89

)

Total revenues and non-operating income

 

 

1,689

 

 

 

2,736

 

 

 

5,174

 

 

 

8,911

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of products sold (excluding items shown separately below)

 

 

356

 

 

 

423

 

 

 

990

 

 

 

1,208

 

Operating costs and expenses

 

 

508

 

 

 

511

 

 

 

1,517

 

 

 

1,551

 

Production and severance taxes

 

 

29

 

 

 

69

 

 

 

110

 

 

 

209

 

Exploration expenses, including dry holes and lease impairment

 

 

144

 

 

 

90

 

 

 

503

 

 

 

669

 

General and administrative expenses

 

 

119

 

 

 

139

 

 

 

417

 

 

 

424

 

Interest expense

 

 

84

 

 

 

75

 

 

 

255

 

 

 

241

 

Depreciation, depletion and amortization

 

 

988

 

 

 

838

 

 

 

2,972

 

 

 

2,349

 

Impairment

 

 

 

 

 

 

 

 

385

 

 

 

 

Total costs and expenses

 

 

2,228

 

 

 

2,145

 

 

 

7,149

 

 

 

6,651

 

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE

INCOME TAXES

 

 

(539

)

 

 

591

 

 

 

(1,975

)

 

 

2,260

 

Provision (benefit) for income taxes

 

 

(300

)

 

 

232

 

 

 

(807

)

 

 

563

 

INCOME (LOSS) FROM CONTINUING OPERATIONS

 

 

(239

)

 

 

359

 

 

 

(1,168

)

 

 

1,697

 

INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF

INCOME TAXES

 

 

(13

)

 

 

671

 

 

 

(40

)

 

 

684

 

NET INCOME (LOSS)

 

 

(252

)

 

 

1,030

 

 

 

(1,208

)

 

 

2,381

 

Less: Net income (loss) attributable to noncontrolling interests

 

 

27

 

 

 

22

 

 

 

27

 

 

 

56

 

NET INCOME (LOSS) ATTRIBUTABLE TO HESS CORPORATION

 

$

(279

)

 

$

1,008

 

 

$

(1,235

)

 

$

2,325

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO HESS CORPORATION

PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.94

)

 

$

1.19

 

 

$

(4.21

)

 

$

5.51

 

Discontinued operations

 

 

(0.04

)

 

 

2.16

 

 

 

(0.14

)

 

 

2.03

 

NET INCOME (LOSS) PER SHARE

 

$

(0.98

)

 

$

3.35

 

 

$

(4.35

)

 

$

7.54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.94

)

 

$

1.18

 

 

$

(4.21

)

 

$

5.43

 

Discontinued operations

 

 

(0.04

)

 

 

2.13

 

 

 

(0.14

)

 

 

2.01

 

NET INCOME (LOSS) PER SHARE

 

$

(0.98

)

 

$

3.31

 

 

$

(4.35

)

 

$

7.44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES

   OUTSTANDING (DILUTED)

 

 

283.5

 

 

 

305.0

 

 

 

283.8

 

 

 

312.7

 

COMMON STOCK DIVIDENDS PER SHARE

 

$

0.25

 

 

$

0.25

 

 

$

0.75

 

 

$

0.75

 

 

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

(252

)

 

$

1,030

 

 

$

(1,208

)

 

$

2,381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of hedge (gains) losses reclassified to income

 

 

(34

)

 

 

(8

)

 

 

(34

)

 

 

(18

)

Income taxes on effect of hedge (gains) losses reclassified to income

 

 

13

 

 

 

3

 

 

 

13

 

 

 

7

 

Net effect of hedge (gains) losses reclassified to income

 

 

(21

)

 

 

(5

)

 

 

(21

)

 

 

(11

)

Change in fair value of cash flow hedges

 

 

109

 

 

 

90

 

 

 

111

 

 

 

64

 

Income taxes on change in fair value of cash flow hedges

 

 

(41

)

 

 

(34

)

 

 

(42

)

 

 

(24

)

Net change in fair value of cash flow hedges

 

 

68

 

 

 

56

 

 

 

69

 

 

 

40

 

Change in derivatives designated as cash flow hedges, after taxes

 

 

47

 

 

 

51

 

 

 

48

 

 

 

29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and other postretirement plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Increase) reduction in unrecognized actuarial losses

 

 

(5

)

 

 

 

 

 

(20

)

 

 

(4

)

Income taxes on actuarial changes in plan liabilities

 

 

1

 

 

 

 

 

 

7

 

 

 

2

 

(Increase) reduction in unrecognized actuarial losses, net

 

 

(4

)

 

 

 

 

 

(13

)

 

 

(2

)

Amortization of net actuarial losses

 

 

29

 

 

 

19

 

 

 

73

 

 

 

42

 

Income taxes on amortization of net actuarial losses

 

 

(10

)

 

 

(7

)

 

 

(24

)

 

 

(15

)

Net effect of amortization of net actuarial losses

 

 

19

 

 

 

12

 

 

 

49

 

 

 

27

 

Change in pension and other postretirement plans, after taxes

 

 

15

 

 

 

12

 

 

 

36

 

 

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(208

)

 

 

(166

)

 

 

(256

)

 

 

(203

)

Change in foreign currency translation adjustment

 

 

(208

)

 

 

(166

)

 

 

(256

)

 

 

(203

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)

 

 

(146

)

 

 

(103

)

 

 

(172

)

 

 

(149

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME (LOSS)

 

 

(398

)

 

 

927

 

 

 

(1,380

)

 

 

2,232

 

Less: Comprehensive income (loss) attributable to noncontrolling interests

 

 

27

 

 

 

22

 

 

 

27

 

 

 

56

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO HESS CORPORATION

 

$

(425

)

 

$

905

 

 

$

(1,407

)

 

$

2,176

 

 

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)

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

 

(In millions)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(1,208

)

 

$

2,381

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities

 

 

 

 

 

 

 

 

(Gains) losses on asset sales, net

 

 

(50

)

 

 

(820

)

Depreciation, depletion and amortization

 

 

2,972

 

 

 

2,349

 

Impairment

 

 

385

 

 

 

 

Loss from equity affiliates

 

 

10

 

 

 

84

 

Exploratory dry hole costs

 

 

180

 

 

 

297

 

Exploration lease impairment

 

 

139

 

 

 

183

 

Stock compensation expense

 

 

71

 

 

 

65

 

Provision (benefit) for deferred income taxes

 

 

(819

)

 

 

220

 

(Income) loss from discontinued operations, net of income taxes

 

 

40

 

 

 

(684

)

Changes in operating assets and liabilities

 

 

(331

)

 

 

(657

)

Cash provided by (used in) operating activities - continuing operations

 

 

1,389

 

 

 

3,418

 

Cash provided by (used in) operating activities - discontinued operations

 

 

(31

)

 

 

(35

)

Net cash provided by (used in) operating activities

 

 

1,358

 

 

 

3,383

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(3,386

)

 

 

(3,686

)

Proceeds from asset sales

 

 

25

 

 

 

2,978

 

Other, net

 

 

(44

)

 

 

(136

)

Cash provided by (used in) investing activities - continuing operations

 

 

(3,405

)

 

 

(844

)

Cash provided by (used in) investing activities - discontinued operations

 

 

108

 

 

 

2,407

 

Net cash provided by (used in) investing activities

 

 

(3,297

)

 

 

1,563

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Debt with maturities of greater than 90 days

 

 

 

 

 

 

 

 

Borrowings

 

 

600

 

 

 

598

 

Repayments

 

 

(51

)

 

 

(553

)

Common stock acquired and retired

 

 

(142

)

 

 

(2,638

)

Cash dividends paid

 

 

(215

)

 

 

(232

)

Employee stock options exercised, including income tax benefits

 

 

11

 

 

 

191

 

Noncontrolling interests, net

 

 

2,329

 

 

 

(4

)

Other, net

 

 

(24

)

 

 

 

Cash provided by (used in) financing activities - continuing operations

 

 

2,508

 

 

 

(2,638

)

Cash provided by (used in) financing activities - discontinued operations

 

 

 

 

 

(2

)

Net cash provided by (used in) financing activities

 

 

2,508

 

 

 

(2,640

)

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

569

 

 

 

2,306

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

 

 

2,444

 

 

 

1,814

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

3,013

 

 

$

4,120

 

 

See accompanying Notes to Consolidated Financial Statements.

 


5


PART I - FINANCIAL INFORMATION (CONT’D.)

 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENT OF CONSOLIDATED EQUITY (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

 

 

Other

 

 

Total Hess

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Excess of

 

 

Retained

 

 

Comprehensive

 

 

Stockholders’

 

 

Noncontrolling

 

 

Total

 

 

 

Stock

 

 

Par

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

 

Interests

 

 

Equity

 

 

 

(In millions)

 

BALANCE AT JANUARY 1, 2015

 

$

286

 

 

$

3,277

 

 

$

20,052

 

 

$

(1,410

)

 

$

22,205

 

 

$

115

 

 

$

22,320

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

(1,235

)

 

 

 

 

 

 

(1,235

)

 

 

27

 

 

 

(1,208

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(172

)

 

 

(172

)

 

 

 

 

 

(172

)

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,407

)

 

 

27

 

 

 

(1,380

)

Activity related to restricted common stock awards, net

 

 

1

 

 

 

46

 

 

 

 

 

 

 

 

 

47

 

 

 

 

 

 

47

 

Employee stock options, including income tax benefits

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

14

 

Performance share units

 

 

 

 

 

19

 

 

 

 

 

 

 

 

 

19

 

 

 

 

 

 

19

 

Cash dividends declared

 

 

 

 

 

 

 

 

(215

)

 

 

 

 

 

(215

)

 

 

 

 

 

(215

)

Common stock acquired and retired

 

 

(1

)

 

 

(18

)

 

 

(72

)

 

 

 

 

 

(91

)

 

 

 

 

 

(91

)

Formation of Bakken Midstream joint venture

 

 

 

 

 

759

 

 

 

 

 

 

 

 

 

759

 

 

 

1,305

 

 

 

2,064

 

Noncontrolling interests, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(415

)

 

 

(415

)

BALANCE AT SEPTEMBER 30, 2015

 

$

286

 

 

$

4,097

 

 

$

18,530

 

 

$

(1,582

)

 

$

21,331

 

 

$

1,032

 

 

$

22,363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT JANUARY 1, 2014

 

$

325

 

 

$

3,498