Hess 2014 Annual Report Download - page 71

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HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. Summary of Significant Accounting Policies
Nature of Business: Hess Corporation (the Registrant) with its subsidiaries (collectively referred to as the Corporation or Hess) is
a global Exploration and Production (E&P) company that develops, produces, purchases, transports and sells crude oil, natural gas
liquids and natural gas with production operations primarily in the United States (U.S.), Denmark, Equatorial Guinea, the Joint
Development Area of Malaysia/Thailand (JDA), Malaysia, and Norway.
In the first quarter of 2013, the Corporation announced several initiatives to continue its transformation into a focused pure play
E&P company. As part of its transformation, the Corporation sold mature or lower margin E&P assets in Azerbaijan, Indonesia,
Norway, Russia, Thailand, the United Kingdom (UK) North Sea, and certain interests onshore in the U.S. over the period of 2012
through 2014. In addition, the transformation plan included fully exiting the Corporation’s Marketing and Refining (M&R)
businesses including its terminal, retail, energy marketing, and energy trading operations, as well as the permanent shutdown of
refining operations at its Port Reading facility. HOVENSA L.L.C. (HOVENSA), a 50/50 joint venture between the Corporation’s
subsidiary, Hess Oil Virgin Islands Corp. (HOVIC), and a subsidiary of Petroleos de Venezuela S.A. (PDVSA), had previously shut
down its United States (U.S.) Virgin Islands refinery in January 2012 and continued operating solely as an oil storage terminal. All
downstream businesses were sold or shutdown as of December 31, 2014, except for the energy trading joint venture, Hess Energy
Trading Corporation (HETCO), which was sold in February 2015, and Hovensa. See Note 2, Discontinued Operations,Note 3,
Dispositions, and Note 22, Subsequent Events for additional disclosures related to the divestitures and Note 18, Guarantees and
Contingencies for additional information related to HOVENSA in the Notes to the Consolidated Financial Statements.
Principles of Consolidation and Basis of Presentation: The consolidated financial statements include the accounts of
Hess Corporation and entities in which the Corporation owns more than a 50% voting interest or entities that the Corporation controls.
The Corporation consolidates the energy trading joint venture in which it owns a 50% voting interest and over which it exercises
control. The Corporation’s undivided interests in unincorporated oil and gas exploration and production ventures are proportionately
consolidated. Investments in affiliated companies, 20% to 50% owned and where the Corporation has the ability to influence the
operating or financial decisions of the affiliate, are accounted for using the equity method.
The prior years’ financial information has been recast to reflect consolidated results of operations, cash flows and other information
of the Corporation’s divested consolidated downstream businesses, the Port Reading refining facility, and HETCO as discontinued
operations. See also Note 2, Discontinued Operations in the Notes to the Consolidated Financial Statements. Certain other
information in the financial statements and notes has been reclassified to conform to the current period presentation.
Estimates and Assumptions: In preparing financial statements in conformity with U.S. generally accepted accounting principles
(GAAP), management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the Consolidated
Balance Sheet and revenues and expenses in the Statement of Consolidated Income. Actual results could differ from those estimates.
Estimates made by management include oil and gas reserves, asset and other valuations, depreciable lives, pension liabilities, legal and
environmental obligations, asset retirement obligations and income taxes.
Revenue Recognition: The Corporation recognizes revenues from the sale of crude oil, natural gas liquids, and natural gas, when
title passes to the customer. The Corporation recognizes revenues from the production of natural gas properties based on sales to
customers. Differences between E&P natural gas volumes sold and the Corporation’s entitlement share of natural gas production are
not material. Sales of refined petroleum products and other merchandise from divested downstream operations were also recognized
when title passed to customers.
In its E&P activities, the Corporation engages in crude oil purchase and sale transactions with the same counterparty that are
entered into in contemplation of one another for the primary purpose of changing location or quality. These arrangements are reported
net in Sales and other operating revenues in the Statement of Consolidated Income.
Exploration and Development Costs: E&P activities are accounted for using the successful efforts method. Costs of acquiring
unproved and proved oil and gas leasehold acreage, including lease bonuses, brokers’ fees and other related costs are capitalized.
Annual lease rentals, exploration expenses and exploratory dry hole costs are expensed as incurred. Costs of drilling and equipping
productive wells, including development dry holes, and related production facilities are capitalized. In production operations, costs of
injected CO2 for tertiary recovery are expensed as incurred. The costs of exploratory wells that find oil and gas reserves are
capitalized pending determination of whether proved reserves have been found. Exploratory drilling costs remain capitalized after
drilling is completed if (1) the well has found a sufficient quantity of reserves to justify completion as a producing well and
(2) sufficient progress is being made in assessing the reserves and the economic and operational viability of the project. If either of
those criteria is not met, or if there is substantial doubt about the economic or operational viability of a project, the capitalized well
costs are charged to expense. Indicators of sufficient progress in assessing reserves and the economic and operating viability of a