Hess 2002 Annual Report Download - page 21

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Following is a table showing aggregated information about certain
contractual obligations at December 31, 2002:
Payments due by Period
2004 and 2006 and
Millions of dollars Total 2003 2005 2007 Thereafter
Short-term notes $2$2$ — $ — $ —
Long-term debt,
including capital
leases 4,990 14 623 826 3,527
Operating leases 1,297 107 166 131 893
Purchase obligations
Supply commitments 12,143 4,196 3,986 3,961 *
Capital expenditures 194 164 30
——
Operating expenses 429 225 101 63 40
Other long-term
liabilities 215 14 132 12 57
*The Corporation intends to continue purchasing its refined product supply from HOVENSA.
Current purchases amount to approximately $2 billion annually.
The Corporation has leveraged lease financings not included in its
balance sheet primarily related to retail gasoline station leases. The
commitments under these leases are included in the operating lease
obligations shown in the accompanying table. The net present value
of the financings is $449 million at December 31, 2002, using inter-
est rates inherent in the leases. The Corporation’s December 31,
2002 debt to capitalization ratio would increase from 54.0%
to 56.2% if the leveraged lease financings were included.
In the preceding table, the Corporation’s supply commitments
include its estimated purchases of 50% of HOVENSA’s production of
refined products, after anticipated sales by HOVENSA to unaffiliated
parties. Also included are normal term purchase agreements for
additional gasoline necessary to supply the Corporation’s retail
marketing system and feedstocks for the Port Reading refining
facility. In addition, the Corporation has commitments to purchase
natural gas for use in supplying contracted customers in its energy
marketing business. These commitments were computed based on
year-end market prices.
The table also reflects that portion of the Corporation’s planned capi-
tal expenditures which are contractually committed at December 31.
The Corporation’s 2003 capital expenditures are estimated to be
$1,475 million and are more fully explained on page 20. Obligations
for operating expenses include commitments for transportation, seis-
mic purchases, oil and gas production expenses and other normal
business expenses. Other long-term liabilities reflect contractually
committed obligations on the balance sheet at December 31, includ-
ing minimum pension plan funding requirements.
None of the Corporation’s debt or lease obligations would be termi-
nated, nor would principal or interest payments be accelerated, as
a result of a credit rating downgrade. However, if the Corporation’s
credit rating were reduced below its present level, certain fees and
interest rates would increase and certain contracts with hedging and
trading counterparties would require additional cash margin or col-
lateral. The amount of potential margin fluctuates depending on trad-
ing volumes and market prices and at December 31, 2002 was
estimated to be approximately $82 million.
If the Corporation’s credit rating was reduced below investment
grade, the Corporation may be required to provide additional security
under a lease with remaining payments of $50 million and to comply
with more stringent financial covenants contained in debt instru-
ments assumed in the Triton acquisition, unless it elected to defease
these obligations. The Corporation would have been in compliance
with such covenants as of December 31, 2002. In addition, the
amount of cash margin or collateral required under contracts with
hedging and trading counterparties at December 31, 2002 would
increase by $42 million to $124 million.
The Corporation guarantees the payment of up to 50% of the value
of HOVENSA’s crude oil purchases from suppliers other than PDVSA.
At December 31, 2002, this amount was $280 million. This amount
fluctuates based on the volume of crude oil purchased and the
related crude oil prices. The year-end amount guaranteed is not rep-
resentative of the normal contingent obligation because reduced
crude oil shipments from Venezuela in December caused HOVENSA
to purchase additional crude oil from other parties. Generally, this
contingent obligation is approximately $100 million.
In addition, the Corporation has agreed to provide funding, in propor-
tion to its 50% interest, to the extent HOVENSA does not have funds to
meet its senior debt obligations due prior to the completion of coker
construction, as defined. At December 31, 2002, the Corporation’s pro
rata share of HOVENSA’s senior debt was $221 million, after deducting
HOVENSA funds available for debt service. After completion of the
coker construction project, this pro-rata share becomes $40 million
until completion of construction required to meet final low sulfur fuel
regulations, after which the amount reduces to $15 million.
The Corporation has a contingent purchase obligation to acquire the
remaining 50% interest in a retail marketing and gasoline station
joint venture for $90 million.