Hess 2014 Annual Report Download - page 104

89 89
(a) Results of operations for oil and gas producing activities in Norway were as follows for the years ended December 31.
2014 2013 2012
(In millions)
Sales and other operating revenues ..................................................................................................................................... $ 1,102 $ 860 $ 518
Costs and expenses
Operating costs and expenses ........................................................................................................................................ 37
6
37
6
29
7
Production and severance taxes .................................................................................................................................... 3
6
5
Exploration expenses, including dry holes and lease impairment ................................................................................
—
6
—
General, administrative and other expenses .................................................................................... .............................. 4 8 10
Depreciation, depletion and amortization ..................................................................................................................... 513 364 139
Total costs and expenses .......................................................................................................................................... 89
6
760 451
R
esults of operations before income taxes ........................................................................................................................... 20
6
100 6
7
Provision(benefit) for income taxes ............................................................................................................................... 103 3
6
(82
)
R
esults of operations ............................................................................................................................................................ $ 103 $ 64 $ 149
(b) Includes other countries where exploration activities are ongoing. Net losses for other countries were $266 million, $223 million and $373 million in 2014, 2013
and 2012, respectively.
(c) Excludes a deferred tax benefit of $674 million which represents the effect of the Denmark hydrocarbon income tax law change to the Chapter 3A regime from the
Chapter 3 regime in December 2013.
(d) Asia and Other excludes an income tax charge of $86 million for a disputed application of an international tax treaty.
Oil and Gas Reserves
The Corporation’s proved oil and gas reserves are calculated in accordance with the Securities and Exchange Commission (SEC)
regulations and the requirements of the Financial Accounting Standards Board. Proved oil and gas reserves are quantities, which by
analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from known
reservoirs under existing economic conditions, operating methods and government regulations. The Corporation’s estimation of net
recoverable quantities of liquid hydrocarbons and natural gas is a highly technical process performed by internal teams of geoscience
professionals and reservoir engineers. Estimates of reserves were prepared by the use of appropriate geologic, petroleum engineering,
and evaluation principals and techniques that are in accordance with practices generally recognized by the petroleum industry as
presented in the publication of the Society of Petroleum Engineers entitled “Standards Pertaining to the Estimating and Auditing of
Oil and Gas Reserves Information (Revision as of February 19, 2007).” The method or combination of methods used in the analysis
of each reservoir is based on the maturity of the reservoir, the completeness of the subsurface data available at the time of the estimate,
the stage of reservoir development and the production history. Where applicable, reliable technologies may be used in reserve
estimation, as defined in the SEC regulations. These technologies, including computational methods, must have been field tested and
demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an
analogous formation. In order for reserves to be classified as proved, any required government approvals must be obtained and
depending on the cost of the project, either senior management or the Board of Directors must commit to fund the development. The
Corporation’s proved reserves are subject to certain risks and uncertainties, which are discussed in Item 1A, Risk Factors Related to
Our Business and Operations of this Form 10-K.
Internal Controls
The Corporation maintains internal controls over its oil and gas reserve estimation processes which are administered by the
Corporation’s Vice President of E&P Technology & Excellence and its Chief Financial Officer. Estimates of reserves are prepared by
technical staff that work directly with the oil and gas properties using standard reserve estimation guidelines, definitions and
methodologies. Each year, reserve estimates for a selection of the Corporation’s assets are subject to internal technical audits and
reviews. In addition, an independent third party reserve engineer reviews and audits a significant portion of the Corporation’s
reported reserves (see pages 90 through 91). Reserve estimates are reviewed by senior management and the Board of Directors.
Qualifications
The person primarily responsible for overseeing the preparation of the Corporation’s oil and gas reserves during 2014 was
Mr. Randy Johnson, Vice President of E&P Technology & Excellence. Mr. Johnson is a member of the Society of Petroleum
Engineers and has over 30 years of experience in the oil and gas industry with a BS degree in Engineering and a MS degree in
Petroleum Engineering. He is a licensed professional engineer in Texas. His experience includes over 20 years primarily focused on
oil and gas subsurface understanding and reserves estimation in both domestic and international areas. The Corporation’s upstream
technology organization, which Mr. Johnson manages, focuses on oil and gas industry subsurface and reservoir engineering
technologies and evaluation techniques. Mr. Johnson 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 to estimate reserves and
perform internal technical reserve audits and reviews.