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Annual Report 2002

Table of contents

  • Page 1
    Annual Report 2002

  • Page 2
    TABLE OF CONTENTS: Financial Highlights Letter to Stockholders We are a Leading Global Independent Energy Company Building for the Future Making a Positive Impact Exploration & Production Refining & Marketing Index to Financial Information 1 2 4 6 8 10 12 13

  • Page 3
    ... HIGHLIGHTS Amerada Hess Corporation and Consolidated Subsidiaries Dollar amounts in millions, except per share data 2002 2001 Financial - For The Year Sales and other operating revenues Net income (loss) Net income (loss) per share Operating earnings, excluding special items(a) Common stock...

  • Page 4
    ... by production sharing contracts due to high year-end commodity prices and asset sales. • Refining and marketing earnings declined to $40 million in 2002 from $235 million in 2001, due to poor refining margins, a warm winter and narrow retail gasoline margins. Results of Operations Amerada Hess...

  • Page 5
    ...two new members were elected to our Board of Directors. Craig Matthews has had extensive operating and financial experience as Vice Chairman and Chief Operating Officer, as President and as Chief Financial Officer of both KeySpan Corporation and its predecessor, Brooklyn Union Corporation. Ernst von...

  • Page 6
    WE ARE A LEADING GLOBAL INDEPENDENT ENERGY COMPANY Exploration and production is the primary engine of future income and growth. Refining and marketing is focused on improving financial performance. Cakerawala Field, Gulf of Thailand 4

  • Page 7
    Where We Operate Our exploration and production operations are growing internationally, focused in the United States, the North Sea, West Africa and Southeast Asia. Sovereign Explorer, Equatorial Guinea HESS EXPRESS, United States Gassi El Agreb, Algeria 5

  • Page 8
    ... growth. HESS EXPRESS, Florida South Arne, Denmark We are the leading independent convenience retail marketer on the East Coast of the United States. Our retail network extends from Massachusetts to Florida. Convenience store sales at our HESS EXPRESS stores will approach $1 billion this year. 6

  • Page 9
    We are reshaping our exploration and production business to lower our unit costs and increase our reserves to production life. Houston, Texas Shenzi, Gulf of Mexico HOVENSA, St. Croix, Virgin Islands 7

  • Page 10
    MAKING A POSITIVE IMPACT We continue to be a company that cares about our people, our impact, our reputation and always doing the right thing. New Jersey, United States Windmills in St. Croix provide power for ground water remediation system. Grounds For Learning Youth Program, Aberdeen, Scotland...

  • Page 11
    ... to meeting the highest standards of corporate citizenship by protecting the health and safety of our employees, safeguarding the environment and creating a long-lasting, positive impact on the communities in which we do business. Thailand Woodbridge, New Jersey School in Equatorial Guinea, Africa...

  • Page 12
    .... In Indonesia, Amerada Hess will obtain an interest in Amerada Hess made several important oil and gas discoveries in 2002. The Corporation will begin developing a number of these discoveries and is appraising others. Natuna A by transferring its shares of Premier Oil, a British oil company, to...

  • Page 13
    ... about 1,900 square miles in water depths ranging from 2,600 to 6,900 feet. The 2003 exploration program comprises fewer, but higher impact wells. Emphasis is on the deep-water Gulf of Mexico, West Africa and Southeast Asia. 11 Exploration In Equatorial Guinea, Amerada Hess, with an 85% interest...

  • Page 14
    ... five years ago, making HESS the leading independent convenience retail marketer on the East Coast of the United States. During 2002, 25 new HESS EXPRESS convenience store retail facilities were added. The Corporation will continue adding HESS EXPRESS convenience stores on the remaining 20% of sites...

  • Page 15
    ... Stock and Capital in Excess of Par Value; Statement of Consolidated Comprehensive Income Notes to Consolidated Financial Statements Report of Management Report of Ernst & Young LLP, Independent Auditors Supplementary Oil and Gas Data Ten-Year Summary of Financial Data Ten-Year Summary of Operating...

  • Page 16
    ...REVIEW Amerada Hess Corporation and Consolidated Subsidiaries Management's Discussion and Analysis of Results of Operations and Financial Condition The Corporation's average selling prices, including the effects of hedging, were as follows: 2002 Crude oil (per barrel) United States Foreign Natural...

  • Page 17
    ...(PDVSA), accounted for on the equity method. Additional refining and marketing activities include a fluid catalytic cracking facility in Port Reading, New Jersey, as well as retail gasoline stations, energy marketing and trading operations. HOVENSA: The Corporation's share of HOVENSA's 2002 loss was...

  • Page 18
    ... due to higher sales volumes of purchased natural gas related to energy marketing activities in the United States, as well as increased refined products sales. Crude oil and natural gas production volumes were also higher. Retail, Energy Marketing and Other: Retail gasoline operations in 2002 were...

  • Page 19
    ... appropriate. During 2002, the Corporation paid $2 million relating to this support agreement. A net gain of $15 million was recorded during 2002 from sales of oil and gas producing properties in the United States, United Kingdom and Azerbaijan, and the Corporation's energy marketing business in the...

  • Page 20
    ...Ceiba field, also acquired in 2001. The reduced production and reserves will result in lower than expected cash flows and growth from these two fields over the next several years, assuming average 2002 oil and gas prices. In 2002, the Corporation sold United States flag vessels, its energy marketing...

  • Page 21
    ... the Corporation's retail marketing system and feedstocks for the Port Reading refining facility. In addition, the Corporation has commitments to purchase natural gas for use in supplying contracted customers in its energy marketing business. These commitments were computed based on year-end market...

  • Page 22
    ..., the chief risk officer must approve the use of new instruments or commodities. Risk limits are monitored daily and exceptions are reported to business units and to senior management. The Corporation's risk management department also performs independent verifications of sources of fair values and...

  • Page 23
    ... markets energy commodities including refined petroleum products, natural gas and electricity. The Corporation uses futures and swaps to fix the purchase prices of commodities to be sold under fixed-price sales contracts. The following table summarizes the value-at-risk results for commodity related...

  • Page 24
    ... the Corporation's proprietary trading accounts. In trading activities, the Corporation is exposed to changes in crude oil, natural gas and refined product prices, primarily in North America and Europe. Trading positions include futures, swaps and options. In some cases, physical purchase and sale...

  • Page 25
    ... future production volumes (including recovery factors), selling prices, operating and capital costs and the timing of future production, which are updated each time an impairment test is performed. In 2002, the Corporation recorded significant impairments of the Ceiba field and LLOG properties that...

  • Page 26
    ... setting environment, health and safety direction and providing oversight. To ensure that the Corporation meets its goals and the requirements of regulatory authorities, the Corporation has programs for compliance evaluation, facility auditing and employee training. Environment and safety management...

  • Page 27
    ...$6 million in 2001 and $5 million in 2000. Stock Market Information The common stock of Amerada Hess Corporation is traded principally on the New York Stock Exchange (ticker symbol: AHC). High and low sales prices in 2002 and 2001 were as follows: 2002 2001 Quarter Ended March 31 June 30 September...

  • Page 28
    CONSOLIDATED BALANCE SHEET Amerada Hess Corporation and Consolidated Subsidiaries At December 31 Millions of dollars; thousands of shares 2002 2001 Assets Current Assets Cash and cash equivalents Accounts receivable Trade Other Inventories Other current assets Total current assets $ 197 1,785 ...

  • Page 29
    ...shares authorized 3% cumulative convertible series Authorized - 330 shares Issued - 327 shares in 2002 and 2001 ($16 million liquidation preference) Common stock, par value $1.00 Authorized - 200,000 shares Issued - 89,193 shares in 2002; 88,757 shares...method of accounting for oil and gas exploration...

  • Page 30
    ... OF CONSOLIDATED INCOME Amerada Hess Corporation and Consolidated Subsidiaries For the Years Ended December 31 Millions of dollars, except per share data 2002 2001 2000 Revenues and Non-operating Income Sales (excluding excise taxes) and other operating revenues Non-operating income Gain on...

  • Page 31
    ... CASH FLOWS Amerada Hess Corporation and Consolidated Subsidiaries For the Years Ended December 31 Millions of dollars 2002 2001 2000 Cash Flows From Operating Activities Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation...

  • Page 32
    STATEMENT OF CONSOLIDATED CHANGES IN PREFERRED STOCK, COMMON STOCK AND CAPITAL IN EXCESS OF PAR VALUE Amerada Hess Corporation and Consolidated Subsidiaries Preferred Stock Number of shares - - - - 327 327 - - - - 327 - - 327 Common Stock Number of shares 90,676 461 (3,475) 1,082 - 88,744 38 (1,...

  • Page 33
    ... and Equatorial Guinea. The Corporation also has oil and gas activities in Algeria, Azerbaijan, Colombia, Gabon, Indonesia, Malaysia, Thailand and other countries. In addition, the Corporation manufactures, purchases, transports, trades and markets refined petroleum and other energy products. The...

  • Page 34
    ...Plant and Equipment: Costs of property, plant and equipment retired or otherwise disposed of, less accumulated reserves, are reflected in non-operating income. Impairment of Long-Lived Assets: The Corporation reviews longlived assets, including oil and gas properties at a field level, for impairment...

  • Page 35
    .... During 2002, the Corporation paid $2 million relating to this support agreement. A net pre-tax gain of $14 million was recorded during 2002 from sales of oil and gas producing properties in the United States, United Kingdom and Azerbaijan and the Corporation's energy marketing business in the...

  • Page 36
    ... increased the size and scope of the Corporation's exploration and production operations, providing access to long-lived international reserves and exploration potential. The purchase price resulted in the recognition of goodwill. Factors contributing to the recognition of goodwill included the...

  • Page 37
    ... caused HOVENSA to purchase additional crude oil from other parties. Generally, this contingent obligation is approximately $100 million. 2002 2001 Exploration and production Unproved properties Proved properties Wells, equipment and related facilities Refining and marketing Total - at cost...

  • Page 38
    ...283 9. Stock Based Compensation Plans The Corporation has outstanding stock options and nonvested common stock under its Amended and Restated 1995 Long-Term Incentive Plan. Generally, stock options vest one year from the date of grant and the exercise price equals or exceeds the market price on the...

  • Page 39
    ..., the Corporation awarded 742,500 shares of non-vested common stock. Exercise prices for employee stock options at December 31, 2002 ranged from $49.19 to $84.61 per share. The weighted-average remaining contractual life of employee stock options is 7 years. The Corporation uses the Black-Scholes...

  • Page 40
    ...of the greater of the benefit obligation or the market value of assets are amortized over the average remaining service period of active employees. The weighted-average actuarial assumptions used by the Corporation's pension plans at December 31 were as follows: 2002 Discount rate Expected long-term...

  • Page 41
    ...income tax benefit Prior year adjustments Other Total (35.0)% 380.2* (19.8) 6.8 (1.9) (.1) 330.2% 2001 35.0% 1.1 - 1.2 (1.4) .5 36.4% 2000 35.0% 3.5 - .8 (.6) .1 38.8% *Foreign income includes the Corporation's Virgin Islands, shipping and other operations located outside of the United States. *Re...

  • Page 42
    ... on 633,000 shares, 139,000 shares and 1,063,000 shares in 2002, 2001 and 2000, respectively. Certain operating leases provide an option to purchase the related property at fixed prices. Rental expense for all operating leases, other than rentals applicable to oil and gas leases, was as follows...

  • Page 43
    ... in crude oil, natural gas and refined product selling prices. The Corporation also uses derivatives in its energy marketing activities to fix the purchase and selling prices of energy products. Related hedge gains or losses are an integral part of the selling or purchase prices. Generally, these...

  • Page 44
    ... and Contracts Involved in Energy Trading and Risk Management Activities. In accordance with EITF 02-3, the Corporation began accounting for trading inventory purchased after October 25, 2002 at the lower of cost or market. Inventory purchased prior to this date was marked-to-market and reflected in...

  • Page 45
    .... Exploration and production operations include the exploration for and the production, purchase, transportation and sale of crude oil and natural gas. Refining and marketing operations include the manufacture, purchase, transportation, trading and marketing of petroleum and other energy products...

  • Page 46
    ...data by operating segment for each of the three years ended December 31, 2002: Millions of dollars Exploration and Production Refining and Marketing Corporate and Interest Consolidated* 2002 Operating revenues Total operating revenues Less: Transfers between affiliates Operating revenues from...

  • Page 47
    ... required by generally accepted auditing standards. Ernst & Young LLP and the Corporation's internal auditors have unrestricted access to the Audit Committee. John B. Hess Chairman of the Board and Chief Executive Officer John Y. Schreyer Executive Vice President and Chief Financial Officer 45

  • Page 48
    ... position of Amerada Hess Corporation and consolidated subsidiaries at December 31, 2002 and 2001 and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally...

  • Page 49
    ... net cash flows relating to proved oil and gas reserves, including a reconciliation of changes therein. The Corporation produces crude oil and/or natural gas in the United States, Europe, Equatorial Guinea, Gabon, Indonesia, Thailand, Azerbaijan, Algeria and Colombia. Exploration activities are also...

  • Page 50
    ... for Oil and Gas Producing Activities For the Years Ended December 31 (Millions of dollars) Total United States Europe Africa, Asia and other 2002 Sales and other operating revenues Unaffiliated customers Inter-company Total revenues Costs and expenses Production expenses, including related...

  • Page 51
    ...% of crude oil reserves and 33% of natural gas reserves held under production sharing contracts. These reserves are located outside of the United States and are subject to different political and economic risks. (c) Excludes 443 million Mcf of carbon dioxide gas for sale or use in company operations...

  • Page 52
    ..., amortization and lease impairment, exploration expenses, interest expense, corporate general and administrative expenses and changes in future prices and costs. The selling prices of crude oil and natural gas have increased during 2002 and are highly volatile. The year-end prices which are...

  • Page 53
    ... future net cash flows at beginning of year Changes during the year Sales and transfers of oil and gas produced during year, net of production costs Development costs incurred during year Net changes in prices and production costs applicable to future production Net change in estimated future...

  • Page 54
    ... Hess Corporation and Consolidated Subsidiaries Millions of dollars, except per share data 2002 2001 2000 Statement of Consolidated Income Revenues and Non-operating Income Sales (excluding excise taxes) and other operating revenues Crude oil (including sales of purchased oil) Natural gas...

  • Page 55
    1999(e) 1998 1997 1996 1995 1994 1993 $ 1,407 1,856 3,003 773 7,039 273 7 142 7,461 4,240 487 387 261 217 232 158 649 128 6,759 702 264 $ 438(f) $ 894 1,711 3,464 511 6,580 (26) (16) 83 6,621 4,373 518 379 349 224 271 153 662 206 7,135 (514) (55) $ 1,436 1,414 4,961 413 8,224 16 - 120 8,...

  • Page 56
    ...FINANCIAL DATA Amerada Hess Corporation and Consolidated Subsidiaries Millions of dollars, except per share data 2002 2001 2000 Selected Balance Sheet Data at Year-End Cash and cash equivalents Working capital Property, plant and equipment Exploration and production Refining and marketing Total...

  • Page 57
    ....71 $ 746 $ 519 $ 1,250 $ 808 $ 1,241 $ 957 $ 819 (727) (70) (797) 397 (400) (1,060) 990 (273) (54) - 18 (379) $ (33) $ (1,307) (132) (1,439) 500 (939) 213 441 (137) (55) (59) - 403 (17) $ (1,158) (188) (1,346) 61 (1,285) 398 2 (209) (55) (122) - 14 (21) $ (788) (73) (861) 1,040 179...

  • Page 58
    ... OF OPERATING DATA Amerada Hess Corporation and Consolidated Subsidiaries 2002 2001 2000 Production Per Day (net) Crude oil (thousands of barrels) United States United Kingdom Equatorial Guinea Norway Denmark Colombia Algeria Gabon Indonesia Azerbaijan Canada and Abu Dhabi Total Natural gas...

  • Page 59
    1999 1998 1997 1996 1995 1994 1993 55 112 - 25 7 - - 10 3 2 - 214 10 5 2 1 - 18 338 258 3 8 31 5 - - 643 28 11 9 735 161 896 678 15,858 16,536 8 884 - 209 284 60 344 38,343 8,485 37 109 - 27 - - - 14 3 - - 190 8 6 2 - - 16 294 251 - - 28 3 - - 576 28 20 25 721 252 973 748 16,927 17,675 9 952...

  • Page 60
    AMERADA HESS CORPORATION Board of Directors John B. Hess (1) Chairman of the Board and Chief Executive Officer Edith E. Holiday (2) (4) Attorney; Former Assistant to the President and Secretary of the Cabinet; Former General Counsel United States Department of the Treasury Craig G. Mathews ...

  • Page 61
    ... New York Stock Exchange (ticker symbol: AHC) Operating Offices Exploration and Production Amerada Hess Corporation One Allen Center 500 Dallas Street Houston, Texas 77002 Amerada Hess Limited 33 Grosvenor Place London SW1X 7HY England Amerada Hess Norge A/S c/o Regus C.J. Hambros plass 2C Oslo...

  • Page 62
    AMERADA HESS CORPORATION 1185 Avenue of the Americas New York, New York 10036 www.hess.com