Hess 2011 Annual Report Download - page 52

United States: Crude oil production in the United States was higher in 2011 compared with 2010,
primarily due to new wells in the Bakken oil shale play, partly offset by lower production due to a shut-in well at
the Llano Field. Natural gas production was lower in 2011 compared with 2010, primarily due to this shut-in well
at the Llano Field. Crude oil and natural gas production was higher in 2010 compared with 2009, primarily due to
new production from the Shenzi, Llano, Conger and Bakken fields.
Europe: Crude oil production was comparable in 2011 and 2010, as higher production from Russia was
largely offset by lower production from the Corporation’s United Kingdom North Sea assets. Crude oil
production was higher in 2010 compared with 2009, due to higher production in Russia and in Norway following
the acquisition of additional interests in the Valhall and Hod fields in 2010. Natural gas production was lower in
2011 compared with 2010, primarily due to the sale in February 2011 of certain natural gas producing assets in
the United Kingdom North Sea. Natural gas production was lower in 2010 compared with 2009, primarily due to
downtime at certain United Kingdom gas fields.
Africa: Crude oil production decreased in 2011 compared with 2010 due to the suspension of production
in Libya following civil unrest, the exchange in September 2010 of the Corporation’s interests in Gabon for
increased interests in Norway, lower production entitlement in Equatorial Guinea and Algeria as a result of
higher selling prices, and natural decline in Equatorial Guinea. Crude oil production decreased in 2010 compared
with 2009 following the exchange of Gabon for additional interests in the Valhall and Hod fields in Norway and
lower entitlement to Algerian production.
Asia and other: Natural gas production in 2011 was higher than 2010, primarily due to higher total
nominations at the Joint Development Area of Malaysia and Thailand (JDA) and the adjacent Block PM301 in
Malaysia and first production from the Gajah Baru Complex at the Natuna A Field in Indonesia, which commenced
production in the fourth quarter of 2011. Natural gas production in 2010 was lower than in 2009, primarily due to
downtime at the Pangkah Field in Indonesia and a temporary shut-in at the Bumi Field in the JDA.
Sales Volumes: Lower sales volumes and other operating revenues decreased revenue by approximately
$1,100 million in 2011 compared with 2010 and higher sales volumes and other operating revenues increased
revenue by $135 million in 2010 compared with 2009.
Operating Costs and Depreciation, Depletion and Amortization: Cash operating costs, consisting of
production expenses and general and administrative expenses, increased by $460 million in 2011 compared with
2010 and increased by $145 million in 2010 compared with 2009. The increase in 2011 was primarily due to higher
production taxes as a result of higher selling prices, together with higher operating and maintenance expenses,
mainly in Norway and in the Bakken oil shale play. The increase in costs in 2010 compared to 2009 was primarily
due to higher production taxes as a result of higher selling prices.
Depreciation, depletion and amortization charges increased by $83 million in 2011 and $109 million in
2010, compared with the corresponding amounts in prior years. The increases in both 2011 and 2010 were
primarily due to higher per barrel costs, reflecting higher finding and development costs. In addition, the higher
total per barrel costs in 2011 resulted from a greater proportion of production volumes from the Bakken.
Excluding items affecting comparability between periods, cash operating costs per barrel of oil equivalent
were $19.71 in 2011, $14.45 in 2010 and $13.70 in 2009. Depreciation, depletion and amortization costs per
barrel of oil equivalent were $17.06 in 2011, $14.56 in 2010 and $14.19 in 2009. For 2012, cash operating costs
are estimated to be in the range of $20.00 to $21.00 per barrel and depreciation, depletion and amortization costs
are estimated to be in the range of $20.50 to $21.50 per barrel, resulting in total unit costs in the range of $40.50
to $42.50 per barrel of oil equivalent, excluding Libyan operations.
Exploration Expenses: Exploration expenses increased in 2011 compared to 2010, mainly due to higher
dry hole expenses. Dry hole expenses included amounts relating to two exploration wells on the Semai V Block,
offshore Indonesia and a well in the North Red Sea Block 1, offshore Egypt. Exploration expenses also increased
in 2010 from 2009, primarily due to higher lease amortization.
Income Taxes: Excluding the impact of items affecting comparability, the effective income tax rates for
E&P operations were 38% in 2011, 44% in 2010 and 48% in 2009. The decrease in the effective income tax rate in
2011 compared with 2010 was predominantly due to the suspension of Libyan operations. The effective income tax
rate for E&P operations in 2012 is estimated to be in the range of 36% to 40%, excluding Libyan operations.
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