Hess 2008 Annual Report Download - page 42

2007: The gain from asset sales relates to the sale of the Corporation’s interests in the Scott and Telford fields
in the United Kingdom North Sea. The charge for asset impairments relates to two mature fields also in the United
Kingdom North Sea. The estimated production imbalance settlements represent a charge for adjustments to prior
meter readings at two offshore fields, which are recorded as a reduction of sales and other operating revenues.
2006: The gains from asset sales relate to the sale of certain United States oil and gas producing properties
located in the Permian Basin in Texas and New Mexico and onshore Gulf Coast. The accrued office closing cost
relates to vacated leased office space in the United Kingdom. The related expenses are reflected principally in
general and administrative expenses. The income tax adjustment represents a one-time adjustment to the
Corporation’s deferred tax liability resulting from an increase in the supplementary tax on petroleum
operations in the United Kingdom from 10% to 20%.
The Corporation’s future Exploration and Production earnings may be impacted by external factors, such as
political risk, volatility in the selling prices of crude oil and natural gas, reserve and production changes, industry
cost inflation, exploration expenses, the effects of weather and changes in foreign exchange and income tax rates.
Marketing and Refining
Earnings from Marketing and Refining activities amounted to $277 million in 2008, $300 million in 2007 and
$394 million in 2006. After considering the liquidation of LIFO inventories reflected in the table on page 21 and
discussed below, the earnings were $277 million, $276 million and $394 million, respectively.
Refining: Refining earnings, which consist of the Corporation’s share of HOVENSA’s results, Port Reading
earnings, interest income on a note receivable from PDVSA and results of other miscellaneous operating activities,
were $73 million in 2008, $193 million in 2007, and $240 million in 2006.
The Corporation’s share of HOVENSA’s net income was $27 million ($44 million before income taxes) in
2008, $108 million ($176 million before income taxes) in 2007 and $124 million ($201 million before income
taxes) in 2006. The lower earnings in 2008 and 2007, compared with the respective prior years, were principally due
to lower refining margins. The 2008 utilization rate for the fluid catalytic cracking unit at HOVENSA reflects lower
utilization due to weak refining margins, planned and unplanned maintenance of certain units, and a refinery wide
shut down for Hurricane Omar. In 2007, the coker unit at HOVENSAwas shutdown for approximately 30 days for a
scheduled turnaround. Certain related processing units were also included in this turnaround. In 2006, the fluid
catalytic cracking unit at HOVENSA was shutdown for approximately 22 days of unscheduled maintenance. Cash
distributions received by the Corporation from HOVENSA were $50 million in 2008, $300 million in 2007 and
$400 million in 2006.
Pre-tax interest income on the PDVSA note was $4 million, $9 million and $15 million in 2008, 2007 and
2006, respectively. Interest income is reflected in other income in the income statement. At December 31, 2008, the
remaining balance of the PDVSA note was $15 million, which was fully repaid in February 2009.
Port Reading and other after-tax refining earnings were $43 million in 2008, $79 million in 2007 and
$107 million in 2006, also reflecting lower refining margins.
The following table summarizes refinery utilization rates:
Refinery
Capacity 2008 2007 2006
Refinery Utilization
(Thousands of
barrels per day)
HOVENSA
Crude ................................... 500 88.2% 90.8% 89.7%
Fluid catalytic cracker ....................... 150 72.7% 87.1% 84.3%
Coker ................................... 58 92.4% 83.4% 84.3%
Port Reading ............................... 70* 90.7% 93.2% 97.4%
* Refinery utilization in 2007 and 2006 is based on capacity of 65 thousand barrels per day.
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