Hess 2008 Annual Report Download - page 41

production in 2007 compared with 2006 was principally due to new production from the Sinphuhorm onshore gas
project in Thailand which commenced in November 2006 and production from the Ujung Pangkah Field which
commenced in April 2007. These increases were partially offset by the planned shut-down of the JDA to install
facilities required for Phase 2 gas sales.
Sales volumes: Higher sales volumes and other operating revenues increased revenue by approximately
$200 million in 2008 compared with 2007 and $240 million in 2007 compared with 2006.
Operating costs and depreciation, depletion and amortization: Cash operating costs, consisting of
production expenses and general and administrative expenses, increased by $321 million in 2008 and
$409 million in 2007 compared with the corresponding amounts in prior years (excluding the charges for
hurricane related costs in 2008 and vacated leased office space in 2006 that are discussed below). The
increases in 2008 and 2007 were primarily due to higher production volumes, increased production taxes (due
to higher realized selling prices), increased costs of services and materials and higher employee costs. Cash
operating costs per barrel of oil equivalent were $15.49 in 2008, $13.36 in 2007 and $10.92 in 2006. Cash operating
costs in 2009 are estimated to be in the range of $15.00 to $16.00 per barrel of oil equivalent.
Excluding the pre-tax amount of asset impairments, depreciation, depletion and amortization charges
increased by $531 million and $232 million in 2008 and 2007, respectively. The increases were primarily due
to higher production volumes and per barrel costs. Depreciation, depletion and amortization costs per barrel of oil
equivalent were $13.79 in 2008, $10.11 in 2007 and $8.85 in 2006. Depreciation, depletion and amortization costs
for 2009 are estimated to be in the range of $13.00 to $14.00 per barrel.
Exploration expenses: Exploration expenses were higher in 2008 compared with 2007, principally due to
higher dry hole costs. Exploration expenses were lower in 2007 compared with 2006, primarily reflecting lower dry
hole costs, partially offset by increased seismic studies.
Income taxes: After considering the items in the table below, the effective income tax rates for Exploration
and Production operations were 49% in 2008, 50% in 2007 and 54% in 2006. The effective income tax rate for E&P
operations in 2009 is estimated to be in the range of 57% to 61%. The increase from the 2008 effective rate largely
reflects the impact of Libyan taxes in a lower commodity price environment.
Foreign Exchange: The after-tax foreign currency loss was $84 million in 2008, compared with a loss of
$7 million in 2007 and a gain of $10 million in 2006. The increased foreign currency loss reflects the effect of
significant exchange rate movements in the fourth quarter of 2008 on the remeasurement of assets, liabilities and
foreign currency forward contracts by certain foreign businesses.
Reported Exploration and Production earnings include the following items of income (expense) before and
after income taxes:
2008 2007 2006 2008 2007 2006
Before Income Taxes After Income Taxes
(Millions of dollars)
Gains from asset sales ...................... $— $ 21 $369 $— $ 15 $236
Asset impairments . . . ...................... (30) (112) — (17) (56) —
Hurricane related costs...................... (15) ——(9) ——
Estimated production imbalance settlements ...... — (64) — — (33) —
Accrued office closing costs.................. — — (30) — — (18)
Income tax adjustments ..................... — — — — — (45)
$(45) $(155) $339 $(26) $(74) $173
2008: The charge for asset impairments relates to mature fields in the United States and the United Kingdom
North Sea. The pre-tax amount of this charge is reflected in depreciation, depletion and amortization. The hurricane
costs relate to expenses associated with Hurricanes Gustav and Ike in the Gulf of Mexico and are recorded in
production expenses.
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