Hess 2011 Annual Report Download - page 53

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Foreign Exchange: The after-tax foreign currency losses were $16 million in 2011, $9 million in 2010
and $10 million in 2009.
Items Affecting Comparability of Earnings: Reported E&P earnings include the following items affecting
comparability of income (expense) before and after income taxes for the years ended December 31:
Before Income Taxes After Income Taxes
2011 2010 2009 2011 2010 2009
(Millions of dollars)
Gainsonassetsales ................ $446 $1,208 $ — $413 $1,130 $—
Royalty dispute resolution ........... —— 143 ——89
Asset impairments ................. (358) (532) (54) (140) (334) (26)
Dryholeexpense.................. —(101) — —(64) —
Reductions in carrying values of
assets ......................... —— (23) —— (18)
Incometaxadjustment ............. —— — (29) — —
$ 88 $ 575 $ 66 $244 $ 732 $45
2011: In February 2011, the Corporation completed the sale of its interests in the Easington Catchment
Area (Hess 30%), the Bacton Area (Hess 23%), the Everest Field (Hess 19%) and the Lomond Field (Hess 17%)
in the United Kingdom North Sea for cash proceeds of $359 million, after post-closing adjustments. These
disposals resulted in pre-tax gains totaling $343 million ($310 million after income taxes). These assets had a
productive capacity of approximately 15,000 boepd. The total combined net book value of the disposed assets
prior to the sale was $16 million, including allocated goodwill of $14 million. In August 2011, the Corporation
completed the sale of its interests in the Snorre Field (Hess 1%), offshore Norway and the Cook Field (Hess
28%) in the United Kingdom North Sea for cash proceeds of $131 million, after post-closing adjustments. These
disposals resulted in non-taxable gains totaling $103 million. The total combined net book value of the disposed
assets prior to the sale was $28 million, including allocated goodwill of $11 million.
In the third quarter of 2011, the Corporation recorded impairment charges of $358 million ($140 million after
income taxes) related to increases in the Corporation’s estimated abandonment liabilities primarily for
non-producing properties which resulted in the book value of the properties exceeding their fair value. See Note 9,
Asset Retirement Obligations in the notes to the Consolidated Financial Statements.
In July 2011, the United Kingdom increased the supplementary tax rate on petroleum operations to 32%
from 20% with an effective date of March 24, 2011. As a result, the Corporation recorded a charge of $29 million
to increase the deferred tax liability in the United Kingdom.
2010: The Corporation completed the exchange of its interests in Gabon and the Clair Field in the United
Kingdom for additional interests of 28% and 25%, respectively, in the Valhall and Hod fields in Norway. This
non-monetary transaction, which was recorded at fair value, resulted in a pre-tax gain of $1,150 million ($1,072
million after income taxes). The Corporation also completed the sale of its interest in the Jambi Merang natural
gas development project in Indonesia for a gain of $58 million.
The Corporation recorded a charge of $532 million ($334 million after income taxes) to fully impair the
carrying value of its 55% interest in the West Mediterranean Block 1 concession (West Med Block), located
offshore Egypt. This interest was acquired in 2006 and included four natural gas discoveries and additional
exploration prospects. The Corporation and its partners subsequently explored and further evaluated the area, made
a fifth discovery, conducted development planning, and held negotiations with the Egyptian authorities to amend the
existing gas sales agreement. In September 2010, the Corporation and its partners notified the Egyptian authorities
of their decision to cease exploration activities and to relinquish a significant portion of the block. As a result, the
Corporation fully impaired the carrying value of its interest in the West Med Block. The West Med Block was
relinquished in 2011. The Corporation also recorded $101 million ($64 million after income taxes) of dry hole
expenses related to previously suspended well costs on the West Med Block offshore Egypt and Block BM-S-22
offshore Brazil, both of which were drilled prior to 2010.
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