Hess 2002 Annual Report Download - page 19

17
Special Items
After-tax special items in 2002, 2001 and 2000 are summarized below:
Exploration Refining
and and
Millions of dollars Total Production Marketing Corporate
2002
Asset impairments $(786) $(786) $ — $ —
Net gain from asset sales 82 15 67 —
Charge for increase in United
Kingdom income tax rate (43) (43) ——
Reduction in carrying value of
intangible assets (14) — (14) —
Severance accrual (8) — (8) —
Total $(769) $(814) $ 45 $ —
2001
Charge related to
Enron bankruptcy $ (19) $ (19) $ — $ —
Severance accrual (12) (10) (2) —
Total $ (31) $ (29) $ (2) $ —
2000
Gain on termination
of acquisition $60 $ — $ — $60
Cost associated with
research and develop-
ment venture (24) — (24) —
Total $36 $ — $(24) $60
In 2002, the Corporation recorded a $530 million after-tax impair-
ment charge ($706 million before income taxes) relating to the Ceiba
field in Equatorial Guinea. The charge resulted from a reduction in
estimates of probable reserves amounting to approximately 12% of
total field reserves, as well as anticipated additional development
costs needed to produce the remaining reserves over a longer field
life. These two factors resulted in projected discounted cash flows
less than the book value of the field, which includes allocated pur-
chase price from the Triton acquisition. Excluding 2002 production,
the net proved reserves of the Ceiba field did not change. However,
proved reserves related to primary recovery were revised downward
by 38 million barrels and improved recovery reserves of 38 million
barrels were added.
The Corporation also recorded an after-tax impairment charge of
$256 million ($394 million before income taxes) to reduce the
carrying value of oil and gas properties located primarily in the
Main Pass/Breton Sound area of the Gulf of Mexico. Most of these
properties were obtained in the 2001 LLOG acquisition and consist
of producing oil and gas fields with proved and probable reserves
and exploration acreage. This charge principally reflects reduced
reserve estimates on these fields resulting from unfavorable produc-
tion performance. The fair values of producing properties were
determined by using discounted cash flows. Exploration properties
were evaluated by using results of drilling and production data
from nearby fields and seismic data for these and other properties
in the area.
In the third quarter of 2002, the Corporation completed the sale of
six United States flag vessels for $161 million in cash and a note for
$29 million. The sale resulted in a net gain of $67 million. The
Corporation has agreed to support the buyer’s charter rate for these
vessels for up to five years. A pre-tax gain of $50 million has been
deferred as part of the sale transaction to reflect potential obliga-
tions under the support agreement. Under the support agreement,
if the actual contracted rate for the charter of a vessel is less than
the stipulated charter rate in the agreement for such vessel, the
Corporation is required to pay to the buyer the difference between
the contracted rate and the stipulated rate for each vessel. If the
actual contracted rate exceeds the stipulated rate, the buyer must
apply such amount to reimburse the Corporation for any payments
made by it up to that date. While the Corporation’s eventual obliga-
tions under the support agreement could exceed the amount of the
deferred gain, based on current charter rates the amount recorded
is appropriate. During 2002, the Corporation paid $2 million relating
to this support agreement.
A net gain of $15 million was recorded during 2002 from sales of oil
and gas producing properties in the United States, United Kingdom
and Azerbaijan, and the Corporation’s energy marketing business in
the United Kingdom.
During 2002, the United Kingdom government enacted a 10% sup-
plementary tax on profits from oil and gas production. As a result of
this tax law change, the Corporation recorded a one-time charge of
$43 million to increase the deferred tax liability on its balance sheet.
The Corporation also recorded an after-tax charge of $14 million in
2002 for the write-off of intangible assets in its U.S. energy market-
ing business. In addition, after-tax accrued severance of $8 million
was recorded for cost reduction initiatives in refining and marketing,
principally in energy marketing. Approximately 165 positions were
eliminated and an office was closed. The estimated annual savings
from the staff reductions is $10 million, after-tax.