Hess 2002 Annual Report Download - page 37

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 amount becomes $40 million until
completion of construction required to meet final low sulfur fuel
regulations, after which the amount reduces to $15 million.
At formation of the joint venture, PDVSA V.I., a wholly-owned sub-
sidiary of PDVSA, purchased a 50% interest in the fixed assets of the
Corporation’s Virgin Islands refinery for $62.5 million in cash and a
10-year note from PDVSA V.I. for $562.5 million bearing interest at
8.46% per annum and requiring principal payments over its term. At
December 31, 2002 and December 31, 2001, the principal balance of
the note was $395 million and $443 million, respectively. In October
2002, the Corporation cancelled the $125 million contingent note
of PDVSA V.I. also issued to it in connection with the formation of
HOVENSA. The contingent note was not valued for accounting pur-
poses and its cancellation had no effect on the Corporation’s finan-
cial position. At the same time, there were amendments of certain
contracts relating to the HOVENSA joint venture, including a six-year
extension of the contract for the supply of Mesa crude oil by an affili-
ate of PDVSA, an amendment to the pricing formula for the Merey
crude oil supplied by an affiliate of PDVSA and an amendment to
the services agreement between the Corporation and HOVENSA.
6. Property, Plant and Equipment
Property, plant and equipment at December 31 consists of
the following:
Millions of dollars 2002 2001
Exploration and production
Unproved properties $ 1,020 $ 1,099
Proved properties 2,843 3,804
Wells, equipment and related facilities 10,836 10,291
Refining and marketing 1,450 1,433
Total — at cost 16,149 16,627
Less reserves for depreciation, depletion,
amortization and lease impairment 9,117 8,462
Property, plant and equipment, net $ 7,032 $ 8,165
7. Short-Term Notes and Related Lines of Credit
Short-term notes payable to banks amounted to $2 million at
December 31, 2002 and $106 million at December 31, 2001. The
weighted average interest rates on these borrowings were 1.4% and
2.5% at December 31, 2002 and 2001, respectively. At December 31,
2002, the Corporation has uncommitted arrangements with banks
for unused lines of credit aggregating $206 million.
5. Refining Joint Venture
The Corporation has an investment in HOVENSA L.L.C., a 50% joint
venture with Petroleos de Venezuela, S.A. (PDVSA). HOVENSA owns
and operates a refinery in the Virgin Islands, previously wholly-owned
by the Corporation.
The Corporation accounts for its investment in HOVENSA using
the equity method. Summarized financial information for HOVENSA
as of December 31, 2002, 2001 and 2000 and for the years then
ended follows:
Millions of dollars 2002 2001 2000
Summarized Balance Sheet
At December 31
Current assets $ 520 $ 491 $ 523
Net fixed assets 1,895 1,846 1,595
Other assets 40 35 37
Current liabilities (335) (294) (425)
Long-term debt (467) (365) (131)
Deferred liabilities
and credits (45) (23) (22)
Partners’ equity $ 1,608 $ 1,690 $ 1,577
Summarized Income Statement
For the years ended December 31
Total revenues $ 3,783 $ 4,209 $ 5,243
Costs and expenses (3,872) (4,089) (4,996)
Net income (loss)* $ (89) $ 120 $ 247
*The Corporation’s share of HOVENSA’s loss was $47 million in 2002, compared with income
of $58 million in 2001 and $121 million in 2000.
The Corporation has agreed to purchase 50% of HOVENSA’s produc-
tion of refined products at market prices, after sales by HOVENSA to
unaffiliated parties. Such purchases amounted to approximately
$1,280 million during 2002, $1,500 million during 2001 and $2,080
million during 2000. The Corporation sold crude oil to HOVENSA for
approximately $80 million during 2002, $110 million during 2001 and
$98 million during 2000. 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 representative 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.
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