Hess 2012 Annual Report Download

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2012 ANNUAL REPORT

Table of contents

  • Page 1
    2012 ANNUAL REPORT

  • Page 2
    ... 1 Financial and Operating Highlights Letter to Shareholders Exploration and Production Corporate and Social Responsibility Board of Directors and Corporate Officers 2 4 10 14 Important Additional Information Hess Corporation, its directors and certain of its executive officers may be deemed...

  • Page 3
    ...Total equity Debt to capitalization ratio Common stock price (a) 2012 $ 43,441 $ 8,111 27.7 % $ 52.96 $ 21,203 2011 $ 39,136 $ 6,057 $ 18,592 24.6 % $ 56.80 Operating - for the year Production - net Crude oil and natural gas liquids (thousands of barrels per day) United States International Total...

  • Page 4
    ... Hess into a more focused and higher growth exploration and production company. On March 4, 2013, we announced the culmination of that process by exiting our downstream businesses and becoming a pure play E&P company. Specifically, we are divesting our retail, energy marketing and trading businesses...

  • Page 5
    ...narrowing our exploration focus to a few key areas such as offshore Ghana; further divesting upstream assets to focus on our growth engines; continuing to reduce our exposure to downstream by completing our exit from the refining business with the closure of our Port Reading, New Jersey refinery and...

  • Page 6
    EXPLORATION AND PRODUCTION 4

  • Page 7
    EXPLORATION DRILLING, OFFSHORE GHANA

  • Page 8
    ... Tioga Rail Terminal, which commenced operation in April, and the Tioga gas plant expansion, expected to start up in late 2013. In Libya, production averaged 21,000 barrels of oil equivalent per day, up from 4,000 barrels of oil equivalent per day the previous year. In the deepwater Gulf of Mexico...

  • Page 9
    TIOGA RAIL TERMINAL, NORTH DAKOTA

  • Page 10
    APPRAISAL DRILLING OPERATIONS, OHIO

  • Page 11
    ... Hess' extensive experience in Equatorial Guinea, where the geology is similar, the company plans to submit an appraisal plan to the Ghanaian government for approval during the second quarter of 2013. In parallel, Hess has begun pre-development studies on the block. Hess holds a 90 percent working...

  • Page 12
    CORPORATE AND SOCIAL RESPONSIBILITY 10

  • Page 13
    FISHERMAN'S COOPERATIVE, GHANA

  • Page 14
    ... process at the asset level and plan to build on that work in 2013. In 2012, the company invested in projects in education, health, and community development. In Ghana, we launched the Hess scholars program, a three-year initiative to increase access to secondary education for promising low-income...

  • Page 15
    HESS SUCCEED 2020 EDUCATIONAL PROGRAM, NORTH DAKOTA

  • Page 16
    ... of Directors, Johnson & Johnson (1) Member of Executive Committee (2) Member of Audit Committee (3) Member of Compensation and Management Development Committee (4) Member of Corporate Governance and Nominating Committee Gregory P. Hill Executive Vice President; President, Worldwide Exploration...

  • Page 17
    ANNUAL REPORT FORM 10-K

  • Page 18

  • Page 19
    ... Employer Identification Number) 1185 AVENUE OF THE AMERICAS, NEW YORK, N.Y. (Address of principal executive offices) 10036 (Zip Code) (Registrant's telephone number, including area code, is (212) 997-8500) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of...

  • Page 20

  • Page 21
    ... Properties ...Risk Factors Related to Our Business and Operations ...Legal Proceedings ...PART II Market for the Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities ...Selected Financial Data ...Management's Discussion and Analysis of Financial Condition...

  • Page 22
    ... The E&P segment explores for, develops, produces, purchases, transports and sells crude oil and natural gas. The M&R segment purchases, markets and trades refined petroleum products, natural gas and electricity. The Corporation also operates terminals and retail gasoline stations, most of which...

  • Page 23
    ... in the accompanying financial statements for additional information on the Corporation's oil and gas reserves. Worldwide crude oil, natural gas liquids and natural gas production was as follows: 2012 2011 2010 Crude oil (thousands of barrels per day) United States Bakken ...Other Onshore ...Total...

  • Page 24
    ... play (Bakken). In 2012, the Corporation invested $3.1 billion in drilling and infrastructure projects in the Bakken and substantially completed its "held by production" drilling program undertaken during 2011 and 2012 to hold acreage from the acquisitions in 2010 of TRZ Energy, LLC and American Oil...

  • Page 25
    ... and drilling of the Llano #4 production well commenced in fourth quarter of 2012. At the operated Conger Field, the Corporation plans to acquire seismic data during 2013. At the Tubular Bells Field (Hess 57%) in the Mississippi Canyon Area of the deepwater Gulf of Mexico, the field development was...

  • Page 26
    ...of 2013. Libya: The Corporation, in conjunction with its Oasis Group partners, has production operations in the Waha concessions in Libya (Hess 8%). The Corporation also owns a 100% interest in offshore exploration Area 54 in the Mediterranean Sea, where two wells discovered natural gas. In response...

  • Page 27
    ... is the operator of Blocks PM302, PM325 and PM326B located in the North Malay Basin (NMB), offshore Peninsular Malaysia, where in 2012 it signed agreements with its partner to develop nine discovered natural gas fields as well as acquire seismic and drill exploration wells. First production from an...

  • Page 28
    ...11.00 8.16 12.61 (a) Includes inter-company transfers valued at approximate market prices and the effect of the Corporation's hedging activities. (b) The average selling prices in Norway for 2012 were $109.23 per barrel for crude oil, $58.48 per barrel for natural gas liquids and $12.21 per mcf for...

  • Page 29
    .... Gross and net productive oil wells in Norway were 46 and 30, respectively. Number of net exploratory and development wells drilled at December 31 Net Exploratory Wells 2012 2011 2010 Net Development Wells 2012 2011 2010 Productive wells United States ...Europe ...Africa ...Asia and other...

  • Page 30
    ...have convenience stores on the sites. Most of the Corporation's gasoline stations are in New York, New Jersey, Pennsylvania, Florida, Massachusetts, North Carolina and South Carolina. The table below summarizes marketing sales volumes: 2012* 2011* 2010* Refined petroleum product sales (thousands of...

  • Page 31
    ...Reading, New Jersey, with a capacity of 70,000 barrels per day. This facility, which processes residual fuel oil and vacuum gas oil, operated at a rate of 59,000 barrels per day in 2012, 63,000 barrels per day in 2011 and 55,000 barrels per day in 2010. Substantially all of Port Reading's production...

  • Page 32
    ...that are studying better ways to assess the risk of and prevent onshore and offshore incidents, access and control blowouts in subsea environments, and improve containment and recovery methods. The task forces are working closely with the oil and gas industry and international government agencies to...

  • Page 33
    ... trading markets as well as other supply and demand factors may also influence the selling prices of crude oil, natural gas, refined petroleum products and electricity. To the extent that we engage in hedging activities to mitigate commodity price volatility, we may not realize the benefit of price...

  • Page 34
    ...be required to provide information about payments made to governments for the commercial development of oil, natural gas, or minerals. Political instability in areas where we operate can adversely affect our business. Some of the international areas in which we operate, and the partners with whom we...

  • Page 35
    ... refined petroleum products, natural gas and electricity. Many competitors, including national oil companies, are larger and have substantially greater resources. We are also in competition with producers and marketers of other forms of energy. Increased competition for worldwide oil and gas assets...

  • Page 36
    ...asserted violations. In July 2004, Hess Oil Virgin Islands Corp. (HOVIC), a wholly owned subsidiary of the Corporation, and HOVENSA, each received a letter from the Commissioner of the Virgin Islands Department of Planning and Natural Resources and Natural Resources Trustees, advising of the Trustee...

  • Page 37
    ... Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities Stock Market Information The common stock of Hess Corporation is traded principally on the New York Stock Exchange (ticker symbol: HES). High and low sales prices were as follows: 2012 Quarter Ended High Low High 2011...

  • Page 38
    ... Registrant's equity compensation plan. The Corporation has a Stock Award Program pursuant to which each non-employee director annually receives approximately $175,000 in value of the Corporation's common stock. These awards are made from shares purchased by the Corporation in the open market. See...

  • Page 39
    ... of purchased gas) ...Refined petroleum products ...Electricity ...Convenience store sales and other operating revenues ...Total ...Net income attributable to Hess Corporation ...Earnings per share Basic ...Diluted ...Total assets ...Total debt ...Total equity ...Dividends per share of common stock...

  • Page 40
    ...2013 Annual Meeting. Among other things, Elliott stated its view that Hess should (1) spin off the Corporation's Bakken assets along with the Eagle Ford and Utica acreage; (2) divest the Corporation's downstream assets and place midstream assets into a master limited partnership (MLP) or real estate...

  • Page 41
    ...in 2011 and earnings of $58 million in 2010. In January 2012, HOVENSA shut down its refinery in St. Croix, U.S. Virgin Islands. The Corporation and its joint venture partner plan to pursue the sale of HOVENSA, while the complex is operated as an oil storage terminal. In January 2013, the Corporation...

  • Page 42
    ... the income tax rate in each tax jurisdiction to pre-tax amounts. Comparison of Results Exploration and Production Following is a summarized income statement of the Corporation's E&P operations: 2012 2011 (In millions) 2010 Sales and other operating revenues* ...Gains on asset sales ...Other...

  • Page 43
    ...income taxes) in 2011 and $338 million ($533 million before income taxes) in 2010. Both of these hedge programs matured as of December 31, 2012. In January and February 2013, the Corporation entered into Brent crude oil hedges using fixed-price swap contracts to hedge 90,000 boepd of crude oil sales...

  • Page 44
    The Corporation's net daily worldwide production was as follows: 2012 2011 2010 (In thousands) Crude oil - barrels per day United States Bakken ...Other Onshore ...Total Onshore ...Offshore ...Total United States ...Europe ...Africa ...Asia ...Total ...Natural gas liquids - barrels per day United ...

  • Page 45
    ... the North Red Sea Block 1, offshore Egypt. Income Taxes: Excluding the impact of items affecting comparability of earnings between periods, the effective income tax rates for E&P operations were 45% in 2012, 38% in 2011 and 44% in 2010. The increase in the effective income tax rate in 2012 compared...

  • Page 46
    ... income taxes). As a result of a competitive bidding process, the Corporation obtained additional information relating to the fair value of its interests in the Cotulla area of the Eagle Ford Shale in Texas in February 2013. Based on this information and management's anticipated plan for the assets...

  • Page 47
    ...2010, the Corporation recorded an impairment charge of $300 million before income taxes ($289 million after income taxes) to reduce the carrying value of its equity investment in HOVENSA to fair value. Marketing: Marketing operations, which consist principally of retail gasoline and energy marketing...

  • Page 48
    ... to cease refining operations in February at its Port Reading facility. The Corporation has a 50% voting interest in a consolidated partnership that trades energy commodities and energy derivatives. The Corporation also takes trading positions for its own account. The Corporation's after-tax results...

  • Page 49
    ... Utica Shale play in Ohio, $214 million for interests in two blocks in the Kurdistan Region of Iraq and $116 million for an additional 4% interest in the South Arne Field in Denmark. Capital expenditures in 2010 included acquisitions of 167,000 net acres in the Bakken oil shale play in North Dakota...

  • Page 50
    ...fourth quarter 2012 dividend, which historically would have been paid in the first quarter of 2013. The Corporation received net proceeds from the exercise of stock options, including related income tax benefits of $11 million, $88 million and $54 million in 2012, 2011 and 2010, respectively. Future...

  • Page 51
    ... 31, 2012, including asset retirement obligations, pension plan liabilities and estimates for uncertain income tax positions. The Corporation and certain of its subsidiaries lease gasoline stations, drilling rigs, tankers, office space and other assets for varying periods under leases accounted for...

  • Page 52
    ...Financial Statements. Foreign Operations The Corporation conducts exploration and production activities outside the United States, principally in Algeria, Australia, Azerbaijan, Brunei, China, Denmark, Equatorial Guinea, France, Ghana, Indonesia, the Kurdistan region of Iraq, Libya, Malaysia, Norway...

  • Page 53
    ... The Corporation operates its exploration and production segment as a single, global business. • Each component produces oil and gas. • The exploration and production processes are similar in each component. • The methods used by each component to market and distribute oil and gas are similar...

  • Page 54
    ... of oil and gas reserves and selling prices that are consistent with the Corporation's internal business forecasts. Additionally, the Corporation has income taxes which have been deferred on intercompany transactions eliminated in consolidation related to transfers of property, plant and equipment...

  • Page 55
    ... in the prices of crude oil, natural gas, refined petroleum products and electricity, as well as changes in interest and foreign currency exchange rates. In trading activities, the Corporation, principally through a consolidated partnership, trades energy-related commodities and derivatives...

  • Page 56
    ... or are positions with longer durations. For example, in its energy marketing business, the Corporation sells natural gas and electricity to customers and offsets the price exposure by purchasing forward contracts. The fair value of these sales and purchases may be based on specific prices at less...

  • Page 57
    ... Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk, include references to the Corporation's future results of operations and financial position, liquidity and capital resources, capital expenditures, asset sales, oil and gas production, tax rates...

  • Page 58
    ... are used to obtain supply and reduce margin volatility or lower costs related to sales contracts with customers. Corporate risk management: Corporate risk management activities include transactions designed to reduce risk in the selling prices of crude oil, refined petroleum products or natural gas...

  • Page 59
    ... entity intends to generate earnings through various strategies primarily using energy commodities, securities and derivatives. The Corporation also takes trading positions for its own account. Following is the value at risk for the Corporation's trading activities: 2011 2012 (In millions) At...

  • Page 60
    ...HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND SCHEDULE Page Number Management's Report on Internal Control over Financial Reporting ...Reports of Independent Registered Public Accounting Firm ...Consolidated Balance Sheet at December 31, 2012 and 2011 ...Statement...

  • Page 61
    ...public accounting firm, Ernst & Young LLP, has audited the effectiveness of the Corporation's internal control over financial reporting as of December 31, 2012, as stated in their report, which is included herein. By John P. Rielly Senior Vice President and Chief Financial Officer February 28, 2013...

  • Page 62
    ... standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Hess Corporation and consolidated subsidiaries as of December 31, 2012 and 2011, and the related statements of consolidated income, comprehensive income, cash flows and equity for each of...

  • Page 63
    ... Public Accounting Firm The Board of Directors and Stockholders Hess Corporation We have audited the accompanying consolidated balance sheet of Hess Corporation and consolidated subsidiaries (the "Corporation") as of December 31, 2012 and 2011, and the related statements of consolidated income...

  • Page 64
    ...TERM DEBT ...DEFERRED INCOME TAXES ...ASSET RETIREMENT OBLIGATIONS ...OTHER LIABILITIES AND DEFERRED CREDITS ...Total liabilities ...EQUITY Hess Corporation Stockholders' Equity Common stock, par value $1.00 Authorized - 600,000,000 shares Issued: 2012 - 341,527,617 shares; 2011 - 339,975,610 shares...

  • Page 65
    HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME Years Ended December 31, 2012 2011 2010 (In millions, except per share amounts) REVENUES AND NON-OPERATING INCOME Sales (excluding excise taxes) and other operating revenues ...Loss from equity investment in HOVENSA ...

  • Page 66
    HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME Years Ended December 31, 2012 2011 2010 (In millions) NET INCOME ...OTHER COMPREHENSIVE INCOME (LOSS): Derivatives designated as cash flow hedges Effect of hedge losses reclassified to income ...Income ...

  • Page 67
    ... impairment ...Stock compensation expense ...Gains on asset sales ...Provision (benefit) for deferred income taxes ...Changes in operating assets and liabilities: (Increase) decrease in accounts receivable ...(Increase) decrease in inventories ...Increase (decrease) in accounts payable and accrued...

  • Page 68
    HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES STATEMENT OF CONSOLIDATED EQUITY Accumulated Capital in Other Total Hess Common Excess of Retained Comprehensive Stockholders' Noncontrolling Stock Par Earnings Income (Loss) Equity Interests (In millions) Total Equity Balance at January 1, 2010 ......

  • Page 69
    ... FINANCIAL STATEMENTS Summary of Significant Accounting Policies Nature of Business: Hess Corporation and its subsidiaries (the Corporation or Hess) operate in two segments, Exploration and Production (E&P) and Marketing and Refining (M&R). The E&P segment explores for, develops, produces, purchases...

  • Page 70
    ...straight-line method based on estimated useful lives. Retail gas stations and equipment related to a leased property, are depreciated over the estimated useful lives not to exceed the remaining lease period. The Corporation records the cost of acquired customers in its energy marketing activities as...

  • Page 71
    ... fluctuations in prices of crude oil, natural gas, refined petroleum products and electricity, as well as changes in interest and foreign currency exchange rates. In trading activities, the Corporation, principally through a consolidated partnership, trades energy-related commodities and derivatives...

  • Page 72
    ... its energy marketing business, the Corporation enters into contracts to sell natural gas and electricity to customers and offsets the price exposure by purchasing forward contracts. The fair value of these sales and purchases may be based on specific prices at less liquid delivered locations, which...

  • Page 73
    ... Property, Plant and Equipment in the notes to the Consolidated Financial Statements for a description of the assets held for sale at December 31, 2012. 2011: In February 2011, the Corporation completed the sale of its interests in certain natural gas producing assets in the United Kingdom North Sea...

  • Page 74
    HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 2010: In December, the Corporation acquired approximately 167,000 net acres in the Bakken oil shale play (Bakken) in North Dakota from TRZ Energy, LLC for $1,075 million in cash. In December, the ...

  • Page 75
    ...discount rate (a Level 3 fair value measurement). The Corporation's investment in HOVENSA is accounted for using the equity method. In accordance with Rule 3-09 of Regulation S-X, the Corporation has filed financial statements for HOVENSA in this report on Form 10-K. 6. Property, Plant and Equipment...

  • Page 76
    ... proved reserves primarily related to projects in Indonesia, Russia and the Joint Development Area of Malaysia/Thailand. At December 31, 2012, exploratory drilling costs capitalized in excess of one year past completion of drilling were incurred as follows (in millions): 2011 ...2010 ...2009 ...2008...

  • Page 77
    ...to the fair value of its interests in the Cotulla area of the Eagle Ford Shale in Texas in February 2013. Based on this information and management's anticipated plan for the assets as of December 31, 2012, the Corporation recorded an impairment charge of $315 million ($192 million after income taxes...

  • Page 78
    ...in long-term debt related to progress on construction of a leased floating production system to be used at the Tubular Bells project. At December 31, 2012, the Corporation's fixed-rate public notes have a principal amount of $5,300 million ($5,274 million net of unamortized discount). Interest rates...

  • Page 79
    ... Income Taxes After Income Taxes 2012 2011 2010 2012 2011 2010 (In millions) Stock options ...Restricted stock ...Performance share units ...Total ... $ 34 57 8 $ 99 $ 51 53 - $104 $ 52 60 - $112 $ 21 35 5 $ 61 $ 31 32 - $ 63 $ 32 37 - $ 69 Based on share-based compensation awards outstanding...

  • Page 80
    ... options was five years. The Corporation uses the Black-Scholes model to estimate the fair value of stock options. The following weighted average assumptions were utilized for stock options awarded: 2012 2011 2010 Risk free interest rate ...Stock price volatility ...Dividend yield ...Expected life...

  • Page 81
    ... an increase to stockholders' equity of $169 million at December 31, 2012 and a reduction to stockholders' equity of $84 million at December 31, 2011. 13. Retirement Plans The Corporation has funded noncontributory defined benefit pension plans for a significant portion of its employees. In addition...

  • Page 82
    ... the Corporation recorded charges related to plan settlements of $9 million ($5 million after income taxes) due to employee retirements. Amounts recognized in the Consolidated Balance Sheet at December 31 consisted of the following: Funded Pension Plans 2012 2011 Unfunded Pension Plan 2012 2011 (In...

  • Page 83
    ... and foreign equities, fixed income, and other investments, including hedge funds, real estate and private equity. Investment managers are prohibited from investing in securities issued by the Corporation unless indirectly held as part of an index strategy. The majority of plan assets are highly...

  • Page 84
    ...income: Treasury and government issued (a) ...Government related (b) ...Mortgage-backed securities (c) ...Corporate ...Other: Hedge funds ...Private equity funds ...Real estate funds ...Diversified commodities funds ...December 31, 2011 Cash and short-term investment funds ...Equities: U.S. equities...

  • Page 85
    ... funds classified as: Fixed Income* Hedge Funds Private Equity Funds (In millions) Real Estate Funds Total Balance at January 1, 2011 ...Actual return on plan assets: Related to assets held at December 31, 2011 ...Related to assets sold during 2011 ...Purchases, sales or other settlements...

  • Page 86
    ... Foreign income includes the Corporation's Virgin Islands and other operations located outside of the United States. The components of deferred tax liabilities, deferred tax assets and taxes deferred at December 31 were as follows: 2011 2012 (In millions) Deferred tax liabilities Property, plant...

  • Page 87
    ... Corporation's effective income tax rate and the United States statutory rate is reconciled below: 2012 2011 2010 United States statutory rate ...Effect of foreign operations* ...State income taxes, net of Federal income tax ...Change in enacted tax rate ...Gains on asset sales ...Effect of equity...

  • Page 88
    ... Financial Statements. The following table presents the calculation of basic and diluted earnings per share: 2012 2011 2010 (In millions, except per share amounts) Net income attributable to Hess Corporation ...Weighted average common shares: Basic ...Effect of dilutive securities ...Stock options...

  • Page 89
    ... Corporation and certain of its subsidiaries lease gasoline stations, drilling rigs, tankers, office space and other assets for varying periods under contractual obligations accounted for as operating leases. Certain operating leases provide an option to purchase the related property at fixed prices...

  • Page 90
    ... Exploration and Production Marketing and Corporate Refining and Interest (In millions) Consolidated (a) 2012 Operating revenues Total operating revenues (b) ...Less: Transfers between affiliates ...Operating revenues from unaffiliated customers ...Net income (loss) attributable to Hess Corporation...

  • Page 91
    ... in 2012, 2011 and 2010, respectively. (c) E&P, M&R and Corporate only. Calculated as equity plus debt. Financial information by major geographic area is as follows: United States Europe Africa (In millions) Asia and Other Consolidated 2012 Operating revenues ...Property, plant and equipment (net...

  • Page 92
    ..., 2011 related to the refinery shutdown, which was paid in 2012. 20. Risk Management and Trading Activities In the normal course of its business, the Corporation is exposed to commodity risks related to changes in the prices of crude oil, natural gas, refined petroleum products and electricity, as...

  • Page 93
    ... in Cost of products sold were a loss of $4 million in 2011 and a gain of $2 million in 2010. There was no ineffectiveness in 2012. The pre-tax amount of deferred hedge losses is reflected in Accounts payable and the related income tax benefits are recorded as deferred income tax assets, which are...

  • Page 94
    ..., net in Revenues and non-operating income in the Statement of Consolidated Income. Net realized and unrealized pre-tax gains (losses) on derivative contracts used for Corporate risk management and not designated as hedges amounted to the following: 2012 2011 2010 (In millions) Commodity ...Foreign...

  • Page 95
    ...The gross and net fair values of the Corporation's risk management and trading derivative instruments were as follows: Accounts Accounts Payable Receivable (In millions) December 31, 2012 Derivative contracts designated as hedging instruments Commodity ...Interest rate and other ...Total derivative...

  • Page 96
    ... STATEMENTS - (Continued) The Corporation determines fair value in accordance with the fair value measurements accounting standard which established a hierarchy that categorizes the sources of inputs, which generally range from quoted prices for identical instruments in a principal trading market...

  • Page 97
    ... 2012 are comprised of $(44) million reflected in Sales and other operating revenues and $(34) million reflected in Cost of products sold in the Statement of Consolidated Income. (b) The unrealized pre-tax gains (losses) included in Other comprehensive income are reflected in the Net change in fair...

  • Page 98
    ... 31, 2012 are concentrated with the following counterparty and customer industry segments: Integrated Oil Companies -23%, Refiners -15%, Government Entities -11%, Real Estate -8%, Services -8% and Manufacturing -6%. The Corporation reduces its risk related to certain counterparties by using master...

  • Page 99
    ...2013 Annual Meeting. Among other things, Elliott stated its view that Hess should (1) spin off the Corporation's Bakken assets along with the Eagle Ford and Utica acreage; (2) divest the Corporation's downstream assets and place midstream assets into a master limited partnership (MLP) or real estate...

  • Page 100
    ...of changes therein. The Corporation produces crude oil, natural gas liquids and/or natural gas principally in Algeria, Azerbaijan, Denmark, Equatorial Guinea, Indonesia, Libya, Malaysia, Norway, Russia, Thailand, the United Kingdom and the United States. Exploration activities are also conducted, or...

  • Page 101
    ... Total United States Europe (a) Africa (In millions) Asia and Other (b) 2012 Sales and other operating revenues Unaffiliated customers ...$ 10,818 $ Inter-company ...75 Total revenues ...10,893 Costs and expenses Production expenses, including related taxes ...2,752 Exploration expenses, including...

  • Page 102
    ... States Europe (a) Africa (In millions) Asia and Other (b) 2010 Sales and other operating revenues Unaffiliated customers ...$ 8,601 $ 2,310 $ 2,251 $ 2,750 $ 1,290 Inter-company ...143 143 - - - Total revenues ...Costs and expenses Production expenses, including related taxes ...Exploration...

  • Page 103
    ... on oil and gas industry subsurface and reservoir engineering technologies and evaluation techniques. Mr. Heck is also responsible for the Corporation's Global Reserves group, which is the internal organization responsible for establishing the policies and processes used within the operating units...

  • Page 104
    ...barrels in 2011 and 15 million barrels in 2010 of crude oil reserves relating to a noncontrolling interest owner of a corporate joint venture. (c) Excludes approximately 290 million mcf of carbon dioxide gas for sale or use in company operations. (d) Natural gas liquids net proved developed reserves...

  • Page 105
    ... to proved developed reserves resulting from continuing development activity and new wells principally in North Dakota, Texas and the Gulf of Mexico in the United States, Libya, Indonesia, Equatorial Guinea and at the Joint Development Area of Malaysia/Thailand (JDA). The Corporation estimates that...

  • Page 106
    ... do not include exploration expenses, interest expense or corporate general and administrative expenses. The selling prices of crude oil and natural gas are highly volatile. The prices which are required to be used for the discounted future net cash flows do not include the effects of hedges and may...

  • Page 107
    ... December 31 Total United States Europe* (In millions) Africa Asia 2012 Future revenues ...$126,603 $39,900 $44,387 $27,162 $15,154 Less: Future production costs ...32,529 12,603 13,277 3,547 3,102 Future development costs ...17,363 6,465 6,648 1,623 2,627 Future income tax expenses ...44,201...

  • Page 108
    ... relating to proved reserves in Norway were as follows: 2012 Future revenues ...Less: Future production costs ...Future development costs ...Future income tax expenses ...Future net cash flows ...Less: Discount at 10% annual rate ...Standardized measure of discounted future net cash flows ...2011...

  • Page 109
    ...supplementary tax rate, partially offset by after-tax gains of $103 million related to asset sales. (h) Includes an after-tax charge of $525 million related to the shutdown of the HOVENSA L.L.C. (HOVENSA) refinery in St. Croix, U.S. Virgin Islands. The results of operations for the periods reported...

  • Page 110
    ...Executive Officers and Corporate Governance Information relating to Directors is incorporated herein by reference to "Election of Directors" from the Registrant's definitive proxy statement for the 2013 annual meeting of stockholders. The Corporation has adopted a Code of Business Conduct and Ethics...

  • Page 111
    ... of Directors - Ownership of Equity Securities by Management" from the Registrant's definitive proxy statement for the 2013 annual meeting of stockholders. See Equity Compensation Plans in Item 5 for information pertaining to securities authorized for issuance under equity compensation plans. Item...

  • Page 112
    ... Statement Schedules (a) 1. and 2. Financial statements and financial statement schedules The financial statements filed as part of this Annual Report on Form 10-K are listed in the accompanying index to financial statements and schedules in Item 8, Financial Statements and Supplementary Data...

  • Page 113
    ...A of Registrant's definitive proxy statement dated March 23, 2012. Compensation program description for non-employee directors, incorporated by reference to Item 1.01 of Form 8-K of Registrant filed on January 4, 2007. Amended and Restated Change of Control Termination Benefits Agreement dated as of...

  • Page 114
    ...and 9.01, a news release dated November 2, 2012 reporting results for the third quarter of 2012 and furnishing under Items 7.01 and 9.01 the prepared remarks of John B. Hess, Chairman of the Board of Directors and Chief Executive Officer of Hess Corporation, at a public conference call held November...

  • Page 115
    ..., on the 28th day of February 2013. HESS CORPORATION (Registrant) By /S/ JOHN P. RIELLY (John P. Rielly) Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf...

  • Page 116
    ...II HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2012, 2011 and 2010 Additions Charged to Costs Charged Deductions and to Other from Expenses Accounts Reserves (In millions) Description Balance January 1 Balance December 31 2012...

  • Page 117
    ... on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and...

  • Page 118
    ... ASSETS Cash and cash equivalents ...Debt service fund ...Accounts receivable: Members and affiliates ...Trade (less allowance in 2012 of $6,859 and 2011 of $52,416) ...Other ...Inventories ...Deposits and prepaid expenses ...Total current assets ...PROPERTY, PLANT AND EQUIPMENT Land ...Refinery...

  • Page 119
    ... 31, 2012 2011 2010 (Unaudited) (Audited) (Audited) SALES ...OPERATING EXPENSES Product costs ...Operating expenses ...Depreciation and amortization ...Asset impairments and shutdown related charges ...Total operating expenses ...OPERATING INCOME (LOSS) ...OTHER NON-OPERATING INCOME (EXPENSE...

  • Page 120
    ... December 31, 2012 2011 2010 (Unaudited) (Audited) (Audited) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ...Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ...Asset impairments and shutdown related charges...

  • Page 121
    ... and Hess Corporation ("Hess"), to own and operate the Company's refinery located in St. Croix, United States (U.S.) Virgin Islands. The Company's members are PDVSA V.I., Inc., a subsidiary of PDVSA, and Hess Oil Virgin Islands Corp. ("HOVIC"), a subsidiary of Hess. Through January 2012, the Company...

  • Page 122
    ... or less when acquired. Debt Service Fund The debt service fund is cash held by a trustee representing six months of interest and fees payable on the Company's outstanding tax-exempt revenue bonds. Inventories Inventories of crude oil and refined products used in refining operations are valued at...

  • Page 123
    ...the members. Accordingly, no effect of income tax has been recognized in the accompanying financial statements. Retirement Plans The Company recognizes on its balance sheet the underfunded status of its defined benefit retirement plans measured as the difference between the fair value of plan assets...

  • Page 124
    ... other products at market prices. Purchases and sales under these agreements ceased on April 1, 2012 following the shutdown of refining operations. A summary of all material transactions between the Company, its members and affiliates follows: 2012 (Unaudited) 2011 (Audited) 2010 (Audited) Sales...

  • Page 125
    ... carried at below market costs, which improved operating results by approximately $745,000 and $270,000 respectively. During 2013, the Company intends to liquidate its remaining crude oil, refined and other finished products inventory. 6. Tax Exempt Revenue Bonds and Other Long-term Debt Outstanding...

  • Page 126
    ... condition, results of operations and cash flows. 9. Retirement Plans The Company has a funded non-contributory, defined benefit pension plan for substantially all of its employees. The plan provides defined benefits based on years of service and final average salary. At December 31, 2012 and 2011...

  • Page 127
    ... using related market data (Level 3). The following tables provide the fair value hierarchy of the financial assets of the qualified pension plan as of December 31, 2012 and 2011: Level 1 December 31, 2012 (Unaudited) Cash and short-term investment funds ...U.S. equities (domestic) ...International...

  • Page 128
    ...the projected benefit obligation includes a change in actuarial assumptions to reflect the transition of the refinery to an oil storage terminal. This plan will also remain in place and meet future obligations in accordance with terms of the plan, but terminated employees will no longer earn service...

  • Page 129
    ... and Amendment Agreement dated April 15, 1998 and effective October 30, 1998 among Hess Oil Virgin Islands Corp., PDVSA V.I., Inc., HOVENSA L.L.C. and the Government of the Virgin Islands incorporated by reference to Exhibit 10(4) of Form 10-K of Registrant for the fiscal year ended December...

  • Page 130
    ...A of Registrant's definitive proxy statement dated March 23, 2012. Compensation program description for non-employee directors, incorporated by reference to Item 1.01 of Form 8-K of Registrant filed on January 4, 2007. Amended and Restated Change of Control Termination Benefits Agreement dated as of...

  • Page 131
    ...26, 1998, among PDVSA V.I., Inc., Hess Oil Virgin Islands Corp. and HOVENSA L.L.C. (including Glossary of definitions) incorporated by reference to Exhibit 2.1 of Form 8-K of Registrant filed on November 13, 1998. Amended and Restated Limited Liability Company Agreement of HOVENSA L.L.C. dated as of...

  • Page 132
    ... HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT Name of Company Hess (Netherlands) Oil & Gas Holdings C.V...Hess (Netherlands) U.S. GOM Ventures B.V...Hess Capital Services Corporation ...Hess Capital Services L.L.C...Hess Energy Exploration Limited ...Hess Equatorial...

  • Page 133
    ... subsidiaries and the effectiveness of internal control over financial reporting of Hess Corporation and our report dated February 27, 2012 with respect to the financial statements of HOVENSA L.L.C., included in this Annual Report (Form 10-K) for the year ended December 31, 2012. New York, New...

  • Page 134
    ... 75244 February 28, 2013 Hess Corporation 1185 Avenue of the Americas New York, New York 10036 Ladies and Gentlemen: We hereby consent to the use of the name DeGolyer and MacNaughton, to references to DeGolyer and MacNaughton as an independent petroleum engineering consulting firm, to references...

  • Page 135
    ..., process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By John B. Hess Chairman of the Board and Chief Executive Officer...

  • Page 136
    ...process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By John P. Rielly Senior Vice President and Chief Financial Officer...

  • Page 137
    ... with the Annual Report of Hess Corporation (the Corporation) on Form 10-K for the period ending December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, John B. Hess, Chairman of the Board and Chief Executive Officer of the Corporation, certify...

  • Page 138
    ... with the Annual Report of Hess Corporation (the Corporation) on Form 10-K for the period ending December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, John P. Rielly, Senior Vice President and Chief Financial Officer of the Corporation, certify...

  • Page 139
    ....hess.com DOCUMENTS AVAILABLE Copies of the Corporation's 2012 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and its annual proxy statement filed with the Securities and Exchange Commission, as well as the Corporation's Code of Business Conduct and Ethics...

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