Hess 2000 Annual Report Download - page 23

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HOVENSA has been accounted for on the equity method
since the formation of the joint venture in November 1998.
Prior to that time, refinery results were consolidated. In
1998, the following amounts for HOVENSA were included
in the Corporation’s income statement (in millions): sales
revenue — $622, cost of products sold — $439, operating
expenses — $83 and depreciation — $70.
Retail, energy marketing and other: Results from retail
gasoline operations declined in 2000 compared with
1999 as selling prices generally did not keep pace with
rising product costs. Results of energy marketing activities
improved in 2000, largely reflecting increased seasonal
demand for fuel oils. Earnings from the Corporation’s cat-
alytic cracking facility in New Jersey also improved in
2000 reflecting improved refining margins. Total refined
product sales volumes increased to 134 million barrels in
2000 from 126 million barrels in 1999.
Marketing expenses increased in 2000 compared with
1999 reflecting expanded retail operations, including the
cost of operating acquired gasoline stations and an
increased number of convenience stores. Other operating
expenses increased in 2000, largely reflecting higher fuel
costs for the catalytic cracking facility in New Jersey and
the Corporation’s shipping operations.
The Corporation has a 50% voting interest in a consolidated
partnership which trades energy commodities and deriva-
tives. The Corporation also takes forward positions on
energy contracts in addition to its hedging program. The
combined results of these trading activities were gains of
$22 million in 2000, $19 million in 1999 and a loss of
$26 million in 1998. Expenses of the trading partnership are
included in marketing expenses in the income statement.
Refining, marketing and shipping results were higher in
1999 than in 1998, primarily due to improved results from
the catalytic cracking facility in New Jersey, higher earn-
ings from retail operations and increased trading income.
Future results of the Corporation’s refining and marketing
operations will continue to be volatile, reflecting competi-
tive industry conditions and supply and demand factors,
including the effects of weather.
Corporate: Net corporate expenses amounted to $43 mil-
lion in 2000, $31 million in 1999 and $37 million in 1998.
The increase in 2000 reflects lower earnings of an insur-
ance subsidiary and higher compensation and related
costs. In 1999, earnings from the insurance subsidiary
included dividends from reinsurers, which exceeded
dividends received in 2000.
Interest: After-tax interest expense increased slightly in
2000 compared with 1999. The increase was due to higher
interest rates and lower amounts capitalized, partially off-
set by reduced average borrowings.
Consolidated Operating Revenues: Sales and other operating
revenues increased by 70% in 2000 principally reflecting
significantly higher worldwide crude oil, natural gas
and refined product selling prices. Sales volumes of for-
eign crude oil and natural gas also increased, as well as
sales of refined products and purchased natural gas in the
United States.
Sales and other operating revenues increased by approxi-
mately 18% in 1999, excluding third party sales of the
St. Croix refinery in 1998. The increase in the Corpora-
tion’s revenues in 1999 was principally due to higher
crude oil and refined product selling prices and increased
crude oil and natural gas sales volumes.