Hess 2008 Annual Report Download - page 35

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Corporation is a global integrated energy company that operates in two segments, Exploration and
Production (E&P) and Marketing and Refining (M&R). The E&P segment explores for, develops, produces,
purchases, transports and sells crude oil and natural gas. The M&R segment manufactures, purchases, transports,
trades and markets refined petroleum products, natural gas and electricity.
Net income in 2008 was $2,360 million compared with $1,832 million in 2007 and $1,920 million in 2006.
Diluted earnings per share were $7.24 in 2008 compared with $5.74 in 2007 and $6.08 in 2006. A table of items
affecting comparability between periods is shown on page 21.
Exploration and Production
The Corporation’s strategy for the E&P segment is to profitably grow reserves and production in a sustainable
and financially disciplined manner. The Corporation’s total proved reserves were 1,432 million barrels of oil
equivalent (boe) at December 31, 2008 compared with 1,330 million boe at December 31, 2007 and 1,243 million
boe at December 31, 2006. Total proved reserves at year end 2008 increased 102 million boe or 8% from the end of
2007.
E&P net income was $2,423 million in 2008, $1,842 million in 2007 and $1,763 million in 2006. The improved
results in 2008 as compared to 2007 were primarily driven by higher average crude oil selling prices. At
December 31, 2008, crude oil selling prices were significantly below the average prices in 2008.
Production averaged 381,000 barrels of oil equivalent per day (boepd) in 2008 compared with 377,000 boepd
in 2007 and 359,000 boepd in 2006. Production in 2008 increased 4,000 boepd or 1% from 2007. In 2009, the
Corporation currently estimates total worldwide production to be approximately 380,000 boepd to 390,000 boepd.
During 2008, the Corporation progressed the following development projects that will add to its production in
future years:
• In November 2008, upon the commissioning of a third-party gas export pipeline to Thailand, Phase 2 gas
sales commenced at Block A-18 of the Joint Development Area of Malaysia and Thailand (JDA) (Hess
50%).
• In the deepwater Gulf of Mexico, development of the Shenzi Field (Hess 28%) progressed. Tension leg
platform tendons, hull and topsides were installed and flowlines were laid and tested. First production is
expected in the second quarter of 2009.
• Additional production from a Phase 2 oil project at the Ujung Pangkah Field (Hess 75%) in Indonesia is
expected in mid 2009.
• Development of a residual oil zone advanced at the Seminole-San Andres Unit (Hess 34%) with the
installation of facilities and equipment.
During 2008, the Corporation’s exploration activities included:
• In the Pony prospect on Green Canyon Block 468 (Hess 100%) in the deepwater Gulf of Mexico, the
Corporation successfully completed drilling an appraisal well. The Corporation is evaluating development
options for Pony.
• At the Corporation’s Tubular Bells prospect (Hess 20%) located in the Mississippi Canyon area of the
deepwater Gulf of Mexico, a third well was successfully drilled during 2008. The operator is evaluating
development options for Tubular Bells.
• The Corporation completed drilling its initial four exploration wells of a 16 well commitment on the
WA-Block-390-P offshore Western Australia (Hess 100%). Three of the four wells discovered natural gas
and the Corporation plans to drill five additional exploration wells in 2009. The operator of the
WA-Block 404-P (Hess 50%) offshore Western Australia plans to drill three exploration wells in 2009.
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