.
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
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 ☒ 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, 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 |
|
☐ |
|
|
|
|
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, there were 304,280,819 shares of Common Stock outstanding.
Securities registered or to be registered in 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 |
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, |
|
||
|
|
2019 |
|
|
2018 |
|
||
|
|
(In millions, |
|
|||||
|
|
except share amounts) |
|
|||||
Assets |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,300 |
|
|
$ |
2,694 |
|
Accounts receivable: |
|
|
|
|
|
|
|
|
From contracts with customers |
|
|
868 |
|
|
|
771 |
|
Joint venture and other |
|
|
248 |
|
|
|
230 |
|
Inventories |
|
|
274 |
|
|
|
245 |
|
Other current assets |
|
|
144 |
|
|
|
519 |
|
Total current assets |
|
|
3,834 |
|
|
|
4,459 |
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
Total — at cost |
|
|
33,446 |
|
|
|
33,222 |
|
Less: Reserves for depreciation, depletion, amortization and lease impairment |
|
|
17,548 |
|
|
|
17,139 |
|
Property, plant and equipment — net |
|
|
15,898 |
|
|
|
16,083 |
|
Operating lease right-of-use assets — net |
|
|
713 |
|
|
|
— |
|
Finance lease right-of-use assets — net |
|
|
332 |
|
|
|
— |
|
Goodwill |
|
|
360 |
|
|
|
360 |
|
Deferred income taxes |
|
|
22 |
|
|
|
21 |
|
Other assets |
|
|
557 |
|
|
|
510 |
|
Total Assets |
|
$ |
21,716 |
|
|
$ |
21,433 |
|
Liabilities |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
399 |
|
|
$ |
495 |
|
Accrued liabilities |
|
|
1,369 |
|
|
|
1,560 |
|
Taxes payable |
|
|
89 |
|
|
|
81 |
|
Current maturities of long-term debt |
|
|
12 |
|
|
|
67 |
|
Current portion of operating and finance lease obligations |
|
|
402 |
|
|
|
— |
|
Total current liabilities |
|
|
2,271 |
|
|
|
2,203 |
|
Long-term debt |
|
|
6,550 |
|
|
|
6,605 |
|
Long-term operating lease obligations |
|
|
436 |
|
|
|
— |
|
Long-term finance lease obligations |
|
|
250 |
|
|
|
— |
|
Deferred income taxes |
|
|
420 |
|
|
|
421 |
|
Asset retirement obligations |
|
|
745 |
|
|
|
741 |
|
Other liabilities and deferred credits |
|
|
491 |
|
|
|
575 |
|
Total Liabilities |
|
|
11,163 |
|
|
|
10,545 |
|
Equity |
|
|
|
|
|
|
|
|
Hess Corporation stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, par value $1.00; Authorized — 20,000,000 shares |
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
Issued — 304,280,819 shares (2018: 291,434,534) |
|
|
304 |
|
|
|
291 |
|
Capital in excess of par value |
|
|
5,481 |
|
|
|
5,386 |
|
Retained earnings |
|
|
4,207 |
|
|
|
4,257 |
|
Accumulated other comprehensive income (loss) |
|
|
(650 |
) |
|
|
(306 |
) |
Total Hess Corporation stockholders’ equity |
|
|
9,342 |
|
|
|
9,629 |
|
Noncontrolling interests |
|
|
1,211 |
|
|
|
1,259 |
|
Total equity |
|
|
10,553 |
|
|
|
10,888 |
|
Total Liabilities and Equity |
|
$ |
21,716 |
|
|
$ |
21,433 |
|
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 |
|
|||||
|
|
March 31, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
|
|
(In millions, except per share amounts) |
|
|||||
Revenues and Non-Operating Income |
|
|
|
|
|
|
|
|
Sales and other operating revenues |
|
$ |
1,572 |
|
|
$ |
1,346 |
|
Gains on asset sales, net |
|
|
— |
|
|
|
7 |
|
Other, net |
|
|
27 |
|
|
|
37 |
|
Total revenues and non-operating income |
|
|
1,599 |
|
|
|
1,390 |
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
Marketing, including purchased oil and gas |
|
|
408 |
|
|
|
358 |
|
Operating costs and expenses |
|
|
266 |
|
|
|
288 |
|
Production and severance taxes |
|
|
39 |
|
|
|
39 |
|
Exploration expenses, including dry holes and lease impairment |
|
|
34 |
|
|
|
40 |
|
General and administrative expenses |
|
|
87 |
|
|
|
110 |
|
Interest expense |
|
|
98 |
|
|
|
103 |
|
Loss on debt extinguishment |
|
|
— |
|
|
|
27 |
|
Depreciation, depletion and amortization |
|
|
498 |
|
|
|
417 |
|
Total costs and expenses |
|
|
1,430 |
|
|
|
1,382 |
|
Income (Loss) Before Income Taxes |
|
|
169 |
|
|
|
8 |
|
Provision (benefit) for income taxes |
|
|
94 |
|
|
|
73 |
|
Net Income (Loss) |
|
|
75 |
|
|
|
(65 |
) |
Less: Net income (loss) attributable to noncontrolling interests |
|
|
43 |
|
|
|
41 |
|
Net Income (Loss) Attributable to Hess Corporation |
|
|
32 |
|
|
|
(106 |
) |
Less: Preferred stock dividends |
|
|
4 |
|
|
|
11 |
|
Net Income (Loss) Attributable to Hess Corporation Common Stockholders |
|
$ |
28 |
|
|
$ |
(117 |
) |
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Hess Corporation Per Common Share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.09 |
|
|
$ |
(0.38 |
) |
Diluted |
|
$ |
0.09 |
|
|
$ |
(0.38 |
) |
Weighted Average Number of Common Shares Outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
297.4 |
|
|
|
309.5 |
|
Diluted |
|
|
299.7 |
|
|
|
309.5 |
|
Common Stock Dividends Per Share |
|
$ |
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 |
|
|||||
|
|
March 31, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
|
|
(In millions) |
|
|||||
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
75 |
|
|
$ |
(65 |
) |
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as cash flow hedges |
|
|
|
|
|
|
|
|
Effect of hedge (gains) losses reclassified to income |
|
|
(15 |
) |
|
|
31 |
|
Income taxes on effect of hedge (gains) losses reclassified to income |
|
|
— |
|
|
|
— |
|
Net effect of hedge (gains) losses reclassified to income |
|
|
(15 |
) |
|
|
31 |
|
Change in fair value of cash flow hedges |
|
|
(346 |
) |
|
|
(22 |
) |
Income taxes on change in fair value of cash flow hedges |
|
|
— |
|
|
|
— |
|
Net change in fair value of cash flow hedges |
|
|
(346 |
) |
|
|
(22 |
) |
Change in derivatives designated as cash flow hedges, after taxes |
|
|
(361 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement plans |
|
|
|
|
|
|
|
|
(Increase) reduction in unrecognized actuarial losses |
|
|
6 |
|
|
|
125 |
|
Income taxes on actuarial changes in plan liabilities |
|
|
— |
|
|
|
(30 |
) |
(Increase) reduction in unrecognized actuarial losses, net |
|
|
6 |
|
|
|
95 |
|
Amortization of net actuarial losses |
|
|
11 |
|
|
|
12 |
|
Income taxes on amortization of net actuarial losses |
|
|
— |
|
|
|
— |
|
Net effect of amortization of net actuarial losses |
|
|
11 |
|
|
|
12 |
|
Change in pension and other postretirement plans, after taxes |
|
|
17 |
|
|
|
107 |
|
Other Comprehensive Income (Loss) |
|
|
(344 |
) |
|
|
116 |
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) |
|
|
(269 |
) |
|
|
51 |
|
Less: Comprehensive income (loss) attributable to noncontrolling interests |
|
|
43 |
|
|
|
41 |
|
Comprehensive Income (Loss) Attributable to Hess Corporation |
|
$ |
(312 |
) |
|
$ |
10 |
|
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 March 31, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
|
|
(In millions) |
|
|||||
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
75 |
|
|
$ |
(65 |
) |
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 |
|
Exploration lease and other impairment |
|
|
7 |
|
|
|
10 |
|
Stock compensation expense |
|
|
27 |
|
|
|
13 |
|
Noncash (gains) losses on commodity derivatives, net |
|
|
29 |
|
|
|
38 |
|
Provision (benefit) for deferred income taxes and other tax accruals |
|
|
(1 |
) |
|
|
(36 |
) |
Loss on debt extinguishment |
|
|
— |
|
|
|
27 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable |
|
|
(117 |
) |
|
|
(11 |
) |
(Increase) decrease in inventories |
|
|
(29 |
) |
|
|
(7 |
) |
Increase (decrease) in accounts payable and accrued liabilities |
|
|
(204 |
) |
|
|
(135 |
) |
Increase (decrease) in taxes payable |
|
|
8 |
|
|
|
(1 |
) |
Changes in other operating assets and liabilities |
|
|
(55 |
) |
|
|
(33 |
) |
Net cash provided by (used in) operating activities |
|
|
238 |
|
|
|
210 |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
Additions to property, plant and equipment - E&P |
|
|
(521 |
) |
|
|
(363 |
) |
Additions to property, plant and equipment - Midstream |
|
|
(150 |
) |
|
|
(37 |
) |
Payments for Midstream equity investments |
|
|
(7 |
) |
|
|
(24 |
) |
Proceeds from asset sales, net of cash sold |
|
|
— |
|
|
|
6 |
|
Other, net |
|
|
(2 |
) |
|
|
(4 |
) |
Net cash provided by (used in) investing activities |
|
|
(680 |
) |
|
|
(422 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
Net borrowings (repayments) of debt with maturities of 90 days or less |
|
|
199 |
|
|
|
— |
|
Debt with maturities of greater than 90 days: |
|
|
|
|
|
|
|
|
Repayments |
|
|
(3 |
) |
|
|
(434 |
) |
Payments on finance lease obligations |
|
|
(23 |
) |
|
|
— |
|
Common stock acquired and retired |
|
|
(25 |
) |
|
|
(371 |
) |
Cash dividends paid |
|
|
(88 |
) |
|
|
(89 |
) |
Noncontrolling interests, net |
|
|
(13 |
) |
|
|
(12 |
) |
Other, net |
|
|
1 |
|
|
|
(3 |
) |
Net cash provided by (used in) financing activities |
|
|
48 |
|
|
|
(909 |
) |
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
(394 |
) |
|
|
(1,121 |
) |
Cash and Cash Equivalents at Beginning of Year |
|
|
2,694 |
|
|
|
4,847 |
|
Cash and Cash Equivalents at End of Period |
|
$ |
2,300 |
|
|
$ |
3,726 |
|
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 |
|
||||||||
|
|
(In millions) |
|
|||||||||||||||||||||||||||||
Balance at January 1, 2019 |
|
$ |
1 |
|
|
$ |
291 |
|
|
$ |
5,386 |
|
|
$ |
4,257 |
|
|
$ |
(306 |
) |
|
$ |
9,629 |
|
|
$ |
1,259 |
|
|
$ |
10,888 |
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
32 |
|
|
|
— |
|
|
|
32 |
|
|
|
43 |
|
|
|
75 |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(344 |
) |
|
|
(344 |
) |
|
|
— |
|
|
|
(344 |
) |
Preferred stock conversion |
|
|
(1 |
) |
|
|
12 |
|
|
|
(11 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Share-based compensation activity |
|
|
— |
|
|
|
1 |
|
|
|
28 |
|
|
|
— |
|
|
|
— |
|
|
|
29 |
|
|
|
— |
|
|
|
29 |
|
Dividends on preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4 |
) |
|
|
— |
|
|
|
(4 |
) |
|
|
— |
|
|
|
(4 |
) |
Dividends on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(78 |
) |
|
|
— |
|
|
|
(78 |
) |
|
|
— |
|
|
|
(78 |
) |
Sale of water business to Hess Infrastructure Partners |
|
|
— |
|
|
|
— |
|
|
|
78 |
|
|
|
— |
|
|
|
— |
|
|
|
78 |
|
|
|
(78 |
) |
|
|
— |
|
Noncontrolling interests, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(13 |
) |
|
|
(13 |
) |
Balance at March 31, 2019 |
|
$ |
— |
|
|
$ |
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)
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, 2019 and December 31, 2018, the consolidated results of operations for the three months ended March 31, 2019 and 2018, and consolidated cash flows for the three months ended March 31, 2019 and 2018. 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.
On January 1, 2019, 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 to the current "incurred loss" model. We expect to adopt this ASU in the first quarter of 2020 when the standard becomes effective. We continue to evaluate this ASU but do not believe it will have a material impact on our Consolidated Financial Statements.
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 term 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.
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: