Hess 2014 Annual Report Download - page 46

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For 2015, cash operating costs are estimated to be in the range of $19.50 to $20.50 per boe and depreciation, depletion and
amortization costs are estimated to be in the range of $28.50 to $29.50 per boe, resulting in total production unit costs of
$48.00 to $50.00 per boe assuming no contribution from Libya.
Exploration Expenses: Exploration expenses, excluding items affecting comparability of earnings, were lower in 2014
compared to 2013, primarily due to lower leasehold impairment expense, geologic and seismic costs, and employee expenses.
Exploration expenses decreased in 2013 compared to 2012, primarily due to lower dry hole expenses and geological and
seismic expenses partly offset by higher leasehold impairment expenses.
Income Taxes: Excluding the impact of items affecting comparability of earnings between periods provided below, the
effective income tax rates for E&P operations were 41% in 2014, 43% in 2013 and 45% in 2012. The decline in the effective
income tax rate in 2014 compared with 2013 and in 2013 compared with 2012 was primarily due to the impact of shut-in
production in Libya from the third quarter of 2013. Based on current strip crude oil prices, we are forecasting a pre-tax loss
for 2015 and, as a result, the E&P effective tax rate, excluding items affecting comparability, is expected to be a benefit in the
range of 38% to 42% excluding Libyan operations.
Items Affecting Comparability of Earnings Between Periods: Reported E&P earnings included the following items
affecting comparability of income (expense) before and after income taxes:
Before Income Taxes After Income Taxes
2014 2013 2012 2014 2013 2012
(In millions)
Gains on asset sales, net ......................................... $ 801 $ 2,195 $ 584 $ 774 $ 2,145 $ 557
N
oncontrolling interest share of gain on asset sale — (168) — — (168) —
Dry hole and related expenses ............................... (169) (260) (86) (105 ) (163) (56)
Leasehold impairment expenses ............................ (135) (327) (582) (68 ) (210) (344)
Employee severance and exit costs ........................ (28) (129) — (11 ) (117) —
Income taxes .......................................................... — — — (48 ) 624 (201)
$ 469 $ 1,311 $ (84) $ 542
$ 2,111 $ (44)
2014: In April 2014, the Corporation completed the sale of its Thailand assets for cash proceeds of approximately $805
million. This transaction resulted in a pre-tax gain of $706 million ($706 million after income taxes). The assets in Thailand
were producing at an aggregate net rate of approximately 19,000 boepd at the time of sale and had a total of 45 million boe of
proved reserves at December 31, 2013. During 2014, the Corporation sold approximately 77,000 net acres, including related
wells and facilities, in the dry gas area of the Utica shale play, for total cash proceeds of approximately $1,075 million, which
resulted in a pre-tax gain of $62 million ($35 million after income taxes). Production and proved reserves from the disposed
Utica acreage were not material. In the third quarter, the Corporation completed the sale of an exploration asset in the United
Kingdom North Sea, for cash proceeds of $53 million, which resulted in a pre-tax gain of $33 million ($33 million after
income taxes). In 2014, the Corporation recorded dry hole and other exploration expenses for the write-off of a previously
capitalized exploration well in the western half of Block 469 in the Gulf of Mexico of $169 million ($105 million after
income taxes) and other charges totaling $135 million pre-tax ($68 million after income taxes) to write-off leasehold acreage
in the Paris Basin of France, the Shakrok Block in Kurdistan and the Corporation’s interest in a natural gas exploration
project, offshore Sabah, Malaysia. In 2014, the Corporation recorded pre-tax severance and other exit costs of $28 million
($11 million after income taxes) resulting from its transformation to a more focused pure play E&P company. In addition,
the Corporation recorded an income tax charge of $48 million for remeasurement of deferred taxes resulting from legal entity
restructurings.
2013: In the fourth quarter, the Corporation announced the sale of its Indonesian assets for after-tax proceeds of
approximately $1.3 billion. The sale was executed in two separate transactions with the sale of Natuna A completing in
December 2013 and the sale of Pangkah closing in January 2014, as a result of a partner exercising their preemptive rights.
The sale of Natuna A, which had sales proceeds of approximately $656 million, resulted in a pre-tax gain of $388 million
($343 million after income taxes). The Natuna Field was producing at an aggregate net rate of approximately 5,500 boepd at
the time of sale and had a total of 21 million boe of proved reserves at December 31, 2012. In April, the Corporation
completed the sale of its Russian subsidiary, Samara-Nafta, for cash proceeds of $2.1 billion after working capital and other
adjustments. Based on the Corporation’s 90% interest in Samara-Nafta, after-tax proceeds to Hess were approximately
$1.9 billion. This transaction resulted in a pre-tax gain of $1,119 million ($1,119 million after income taxes), which was
reduced by $168 million for the noncontrolling interest holder’s share of the gain, resulting in a net gain attributable to the