UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended March 31, 2016
or
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-1204
HESS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
13-4921002
(I.R.S. 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)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its Corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer |
x |
Accelerated Filer |
¨ |
Non-Accelerated Filer |
¨ |
Smaller Reporting Company |
¨ |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
At March 31, 2016, there were 316,719,379 shares of Common Stock outstanding.
Form 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2016 |
|
|
2015 |
|
||
|
|
(In millions, |
|
|||||
|
|
except share amounts) |
|
|||||
Assets |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,557 |
|
|
$ |
2,716 |
|
Accounts receivable |
|
|
|
|
|
|
|
|
Trade |
|
|
612 |
|
|
|
847 |
|
Other |
|
|
240 |
|
|
|
312 |
|
Inventories |
|
|
416 |
|
|
|
399 |
|
Other current assets |
|
|
120 |
|
|
|
130 |
|
Total current assets |
|
|
4,945 |
|
|
|
4,404 |
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
Total — at cost |
|
|
47,693 |
|
|
|
46,826 |
|
Less: Reserves for depreciation, depletion, amortization and lease impairment |
|
|
21,452 |
|
|
|
20,474 |
|
Property, plant and equipment — net |
|
|
26,241 |
|
|
|
26,352 |
|
Goodwill |
|
|
375 |
|
|
|
375 |
|
Deferred income taxes |
|
|
2,832 |
|
|
|
2,653 |
|
Other assets |
|
|
415 |
|
|
|
373 |
|
Total Assets |
|
$ |
34,808 |
|
|
$ |
34,157 |
|
Liabilities |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
346 |
|
|
$ |
457 |
|
Accrued liabilities |
|
|
1,660 |
|
|
|
1,997 |
|
Taxes payable |
|
|
93 |
|
|
|
88 |
|
Current maturities of long-term debt |
|
|
94 |
|
|
|
86 |
|
Total current liabilities |
|
|
2,193 |
|
|
|
2,628 |
|
Long-term debt |
|
|
6,498 |
|
|
|
6,506 |
|
Deferred income taxes |
|
|
1,320 |
|
|
|
1,334 |
|
Asset retirement obligations |
|
|
2,175 |
|
|
|
2,158 |
|
Other liabilities and deferred credits |
|
|
988 |
|
|
|
1,130 |
|
Total liabilities |
|
|
13,174 |
|
|
|
13,756 |
|
Equity |
|
|
|
|
|
|
|
|
Hess Corporation stockholders’ equity |
|
|
|
|
|
|
|
|
Preferred stock, par value $1.00 , Authorized - 20,000,000 shares |
|
|
|
|
|
|
|
|
Series A 8% Cumulative Mandatory Convertible; $1,000 per share liquidation preference; Issued — 575,000 shares (2015: 0) |
|
|
1 |
|
|
|
— |
|
Common stock, par value $1.00; Authorized — 600,000,000 shares |
|
|
|
|
|
|
|
|
Issued — 316,719,379 shares (2015: 286,045,586) |
|
|
317 |
|
|
|
286 |
|
Capital in excess of par value |
|
|
5,722 |
|
|
|
4,127 |
|
Retained earnings |
|
|
16,042 |
|
|
|
16,637 |
|
Accumulated other comprehensive income (loss) |
|
|
(1,484 |
) |
|
|
(1,664 |
) |
Total Hess Corporation stockholders’ equity |
|
|
20,598 |
|
|
|
19,386 |
|
Noncontrolling interests |
|
|
1,036 |
|
|
|
1,015 |
|
Total equity |
|
|
21,634 |
|
|
|
20,401 |
|
Total Liabilities and Equity |
|
$ |
34,808 |
|
|
$ |
34,157 |
|
See accompanying Notes to Consolidated Financial Statements.
2
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME (UNAUDITED)
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(In millions, except per share amounts) |
|
|||||
Revenues and Non-Operating Income |
|
|
|
|
|
|
|
|
Sales and other operating revenues |
|
$ |
973 |
|
|
$ |
1,538 |
|
Other, net |
|
|
20 |
|
|
|
12 |
|
Total revenues and non-operating income |
|
|
993 |
|
|
|
1,550 |
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
Cost of products sold (excluding items shown separately below) |
|
|
189 |
|
|
|
278 |
|
Operating costs and expenses |
|
|
436 |
|
|
|
506 |
|
Production and severance taxes |
|
|
19 |
|
|
|
36 |
|
Exploration expenses, including dry holes and lease impairment |
|
|
132 |
|
|
|
269 |
|
General and administrative expenses |
|
|
98 |
|
|
|
147 |
|
Interest expense |
|
|
85 |
|
|
|
85 |
|
Depreciation, depletion and amortization |
|
|
868 |
|
|
|
956 |
|
Total costs and expenses |
|
|
1,827 |
|
|
|
2,277 |
|
Income (Loss) from Continuing Operations Before Income Taxes |
|
|
(834 |
) |
|
|
(727 |
) |
Provision (benefit) for income taxes |
|
|
(346 |
) |
|
|
(351 |
) |
Income (Loss) from Continuing Operations |
|
|
(488 |
) |
|
|
(376 |
) |
Income (Loss) from Discontinued Operations, Net of Income Taxes |
|
|
— |
|
|
|
(13 |
) |
Net Income (Loss) |
|
|
(488 |
) |
|
|
(389 |
) |
Less: Net income (loss) attributable to noncontrolling interests |
|
|
21 |
|
|
|
— |
|
Net Income (Loss) Attributable to Hess Corporation |
|
|
(509 |
) |
|
|
(389 |
) |
Less: Preferred stock dividends |
|
|
6 |
|
|
|
— |
|
Net Income (Loss) Applicable to Hess Corporation Common Stockholders |
|
$ |
(515 |
) |
|
$ |
(389 |
) |
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Hess Corporation Per Common Share |
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(1.72 |
) |
|
$ |
(1.32 |
) |
Discontinued operations |
|
|
— |
|
|
|
(0.05 |
) |
Net Income (Loss) Per Common Share |
|
$ |
(1.72 |
) |
|
$ |
(1.37 |
) |
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(1.72 |
) |
|
$ |
(1.32 |
) |
Discontinued operations |
|
|
— |
|
|
|
(0.05 |
) |
Net Income (Loss) Per Common Share |
|
$ |
(1.72 |
) |
|
$ |
(1.37 |
) |
|
|
|
|
|
|
|
|
|
Weighted Average Number of Common Shares Outstanding (Diluted) |
|
|
299.8 |
|
|
|
283.5 |
|
Common Stock Dividends Per Share |
|
$ |
0.25 |
|
|
$ |
0.25 |
|
See accompanying Notes to Consolidated Financial Statements.
3
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(In millions) |
|
|||||
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
(488 |
) |
|
$ |
(389 |
) |
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as cash flow hedges |
|
|
|
|
|
|
|
|
Change in fair value of cash flow hedges |
|
|
— |
|
|
|
20 |
|
Income taxes on change in fair value of cash flow hedges |
|
|
— |
|
|
|
(7 |
) |
Net change in fair value of cash flow hedges |
|
|
— |
|
|
|
13 |
|
Change in derivatives designated as cash flow hedges, after taxes |
|
|
— |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement plans |
|
|
|
|
|
|
|
|
Amortization of net actuarial losses |
|
|
16 |
|
|
|
19 |
|
Income taxes on amortization of net actuarial losses |
|
|
(5 |
) |
|
|
(6 |
) |
Net effect of amortization of net actuarial losses |
|
|
11 |
|
|
|
13 |
|
Change in pension and other postretirement plans, after taxes |
|
|
11 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
169 |
|
|
|
(120 |
) |
Change in foreign currency translation adjustment |
|
|
169 |
|
|
|
(120 |
) |
|
|
|
|
|
|
|
|
|
Total Other Comprehensive Income (Loss) |
|
|
180 |
|
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) |
|
|
(308 |
) |
|
|
(483 |
) |
Less: Comprehensive income (loss) attributable to noncontrolling interests |
|
|
21 |
|
|
|
— |
|
Comprehensive Income (Loss) Attributable to Hess Corporation |
|
$ |
(329 |
) |
|
$ |
(483 |
) |
See accompanying Notes to Consolidated Financial Statements.
4
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(In millions) |
|
|||||
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(488 |
) |
|
$ |
(389 |
) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
868 |
|
|
|
956 |
|
Exploratory dry hole costs |
|
|
85 |
|
|
|
169 |
|
Exploration lease impairment |
|
|
9 |
|
|
|
54 |
|
Stock compensation expense |
|
|
25 |
|
|
|
26 |
|
Provision (benefit) for deferred income taxes and other tax accruals |
|
|
(351 |
) |
|
|
(347 |
) |
(Income) loss from discontinued operations, net of income taxes |
|
|
— |
|
|
|
13 |
|
Change in operating assets and liabilities |
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable |
|
|
317 |
|
|
|
319 |
|
(Increase) decrease in inventories |
|
|
(13 |
) |
|
|
(27 |
) |
Increase (decrease) in accounts payable and accrued liabilities |
|
|
(360 |
) |
|
|
(222 |
) |
Increase (decrease) in taxes payable |
|
|
(15 |
) |
|
|
(14 |
) |
Change in other operating assets and liabilities |
|
|
(137 |
) |
|
|
(91 |
) |
Cash provided by (used in) operating activities - continuing operations |
|
|
(60 |
) |
|
|
447 |
|
Cash provided by (used in) operating activities - discontinued operations |
|
|
— |
|
|
|
(11 |
) |
Net cash provided by (used in) operating activities |
|
|
(60 |
) |
|
|
436 |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
Additions to property, plant and equipment - E&P |
|
|
(568 |
) |
|
|
(1,251 |
) |
Additions to property, plant and equipment - Bakken Midstream |
|
|
(52 |
) |
|
|
(60 |
) |
Other, net |
|
|
7 |
|
|
|
(10 |
) |
Cash provided by (used in) investing activities - continuing operations |
|
|
(613 |
) |
|
|
(1,321 |
) |
Cash provided by (used in) investing activities - discontinued operations |
|
|
— |
|
|
|
95 |
|
Net cash provided by (used in) investing activities |
|
|
(613 |
) |
|
|
(1,226 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
Debt with maturities of greater than 90 days |
|
|
|
|
|
|
|
|
Borrowings |
|
|
5 |
|
|
|
— |
|
Repayments |
|
|
(17 |
) |
|
|
(17 |
) |
Proceeds from issuance of preferred stock |
|
|
557 |
|
|
|
— |
|
Proceeds from issuance of common stock |
|
|
1,087 |
|
|
|
— |
|
Common stock acquired and retired |
|
|
— |
|
|
|
(67 |
) |
Cash dividends paid |
|
|
(80 |
) |
|
|
(72 |
) |
Other, net |
|
|
(38 |
) |
|
|
8 |
|
Cash provided by (used in) financing activities - continuing operations |
|
|
1,514 |
|
|
|
(148 |
) |
Cash provided by (used in) financing activities - discontinued operations |
|
|
— |
|
|
|
— |
|
Net cash provided by (used in) financing activities |
|
|
1,514 |
|
|
|
(148 |
) |
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
841 |
|
|
|
(938 |
) |
Cash and Cash Equivalents at Beginning of Year |
|
|
2,716 |
|
|
|
2,444 |
|
Cash and Cash Equivalents at End of Period |
|
$ |
3,557 |
|
|
$ |
1,506 |
|
See accompanying Notes to Consolidated Financial Statements.
5
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED EQUITY (UNAUDITED)
|
|
Mandatory |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Convertible |
|
|
|
|
|
|
Capital in |
|
|
|
|
|
|
Other |
|
|
Total Hess |
|
|
|
|
|
|
|
|
|
||||
|
|
Preferred |
|
|
Common |
|
|
Excess of |
|
|
Retained |
|
|
Comprehensive |
|
|
Stockholders’ |
|
|
Noncontrolling |
|
|
Total |
|
||||||||
|
|
Stock |
|
|
Stock |
|
|
Par |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
||||||||
|
|
(In millions) |
|
|||||||||||||||||||||||||||||
Balance at January 1, 2016 |
|
$ |
— |
|
|
$ |
286 |
|
|
$ |
4,127 |
|
|
$ |
16,637 |
|
|
$ |
(1,664 |
) |
|
$ |
19,386 |
|
|
$ |
1,015 |
|
|
$ |
20,401 |
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(509 |
) |
|
|
— |
|
|
|
(509 |
) |
|
|
21 |
|
|
|
(488 |
) |
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
180 |
|
|
|
180 |
|
|
|
— |
|
|
|
180 |
|
Stock issuance |
|
|
1 |
|
|
|
29 |
|
|
|
1,577 |
|
|
|
— |
|
|
|
— |
|
|
|
1,607 |
|
|
|
— |
|
|
|
1,607 |
|
Activity related to restricted common stock awards, net |
|
|
— |
|
|
|
2 |
|
|
|
10 |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
|
— |
|
|
|
12 |
|
Employee stock options, including income tax benefits |
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
Performance share units |
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
6 |
|
Dividends on preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6 |
) |
|
|
— |
|
|
|
(6 |
) |
|
|
— |
|
|
|
(6 |
) |
Dividends on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(80 |
) |
|
|
— |
|
|
|
(80 |
) |
|
|
— |
|
|
|
(80 |
) |
Balance at March 31, 2016 |
|
$ |
1 |
|
|
$ |
317 |
|
|
$ |
5,722 |
|
|
$ |
16,042 |
|
|
$ |
(1,484 |
) |
|
$ |
20,598 |
|
|
$ |
1,036 |
|
|
$ |
21,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2015 |
|
$ |
— |
|
|
$ |
286 |
|
|
$ |
3,277 |
|
|
$ |
20,052 |
|
|
$ |
(1,410 |
) |
|
$ |
22,205 |
|
|
$ |
115 |
|
|
$ |
22,320 |
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(389 |
) |
|
|
— |
|
|
|
(389 |
) |
|
|
— |
|
|
|
(389 |
) |
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(94 |
) |
|
|
(94 |
) |
|
|
— |
|
|
|
(94 |
) |
Activity related to restricted common stock awards, net |
|
|
— |
|
|
|
1 |
|
|
|
18 |
|
|
|
— |
|
|
|
— |
|
|
|
19 |
|
|
|
— |
|
|
|
19 |
|
Employee stock options, including income tax benefits |
|
|
— |
|
|
|
— |
|
|
|
9 |
|
|
|
— |
|
|
|
— |
|
|
|
9 |
|
|
|
— |
|
|
|
9 |
|
Performance share units |
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
|
— |
|
|
|
5 |
|
Dividends on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(72 |
) |
|
|
— |
|
|
|
(72 |
) |
|
|
— |
|
|
|
(72 |
) |
Common stock acquired and retired |
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
|
|
(13 |
) |
|
|
— |
|
|
|
(16 |
) |
|
|
— |
|
|
|
(16 |
) |
Noncontrolling interests, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(115 |
) |
|
|
(115 |
) |
Balance at March 31, 2015 |
|
$ |
— |
|
|
$ |
287 |
|
|
$ |
3,306 |
|
|
$ |
19,578 |
|
|
$ |
(1,504 |
) |
|
$ |
21,667 |
|
|
$ |
— |
|
|
$ |
21,667 |
|
See accompanying Notes to Consolidated Financial Statements.
6
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The financial statements included in this report reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of our consolidated financial position at March 31, 2016 and December 31, 2015, the consolidated results of operations for the three months ended March 31, 2016 and 2015, and consolidated cash flows for the three months ended March 31, 2016 and 2015. The unaudited results of operations for the interim periods reported are not necessarily indicative of results to be expected for the full year.
The financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by generally accepted accounting principles (GAAP) in the United States have been condensed or omitted from these interim financial statements. These statements, therefore, should be read in conjunction with the consolidated financial statements and related notes included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015.
In the second quarter of 2015, we established the Bakken Midstream operating segment. See Note 5, Bakken Midstream Joint Venture and Note 9, Segment Information. Certain prior period information has been reclassified to conform to the current period presentation reflecting our two operating segments, Exploration and Production and Bakken Midstream.
In the first quarter of 2016, we adopted Accounting Standard Update (ASU) 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct reduction to the associated debt liability. The Consolidated Balance Sheet at December 31, 2015 has been recast to reduce Other assets and Long-term debt by $38 million.
In the first quarter of 2016, we adopted ASU 2015-02, Amendments to the Consolidation Analysis, which makes changes to both the variable interest model and the voting interest model, which is applicable to all reporting entities involved with limited partnerships or similar entities. The adoption of this standard did not have an impact on our consolidated financial statements.
New Accounting Pronouncements: In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers, as a new Accounting Standards Codification (ASC) Topic, ASC 606. This ASU is effective for us beginning in the first quarter of 2018, with early adoption permitted from the first quarter of 2017. We are currently assessing the impact of the ASU on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, as a new ASC Topic, ASC 842. The new standard will require the recognition of assets and liabilities for all leases with lease terms greater than one year, including leases currently treated as operating leases under the existing standard. This ASU is effective for us beginning in the first quarter of 2019, with early adoption permitted. We are currently assessing the impact of the ASU on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU makes changes to various provisions associated with share-based accounting, including provisions affecting the accounting for income taxes, the accounting for forfeitures, and the consideration of net settlement provisions on the balance sheet classification of the share-based award. This ASU is effective for us beginning in the first quarter of 2017, with early adoption permitted. We are currently assessing the impact of the ASU on our consolidated financial statements.
2. Common and Preferred Stock Issuance
In February 2016, we issued 28,750,000 shares of common stock and depositary shares representing 575,000 shares of 8% Series A Mandatory Convertible Preferred Stock (Convertible Preferred Stock), par value $1 per share, with a liquidation preference of $1,000 per share, for total net proceeds of approximately $1.6 billion after deducting underwriting discounts, commissions, and offering expenses. The dividends on the Convertible Preferred Stock will be payable on a cumulative basis. Unless converted earlier, each share of Convertible Preferred Stock will automatically convert into between 21.822 shares and 25.642 shares of our common stock based on the average share price over a period of twenty consecutive trading days ending prior to February 1, 2019 (the “Final Average Price”), subject to anti-dilution adjustments.
We also entered into capped call transactions that are expected generally to reduce the potential dilution to our common
7
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
stock upon conversion of the Convertible Preferred Stock if the Final Average Price exceeds $45.83 per share, subject to anti-dilution adjustments. The number of common shares to be delivered by the counterparties to us will be the value of the capped call transactions at conversion divided by the Final Average Price. The value of the capped call transactions will be zero if the Final Average Price is $45.83 or less and can be up to the capped value of approximately $98 million if the Final Average Price is $53.625 or higher. For any Final Average Price between $45.83 and $53.625, the value of the capped call transactions will be 12.55 million covered shares multiplied by the difference between the Final Average Price and $45.83. The premium paid for the capped call transactions was $37 million, which was recorded against Capital in excess of par in the Statement of Consolidated Equity.
Inventories consisted of the following:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2016 |
|
|
2015 |
|
||
|
|
(In millions) |
|
|||||
Crude oil and natural gas liquids |
|
$ |
144 |
|
|
$ |
144 |
|
Materials and supplies |
|
|
272 |
|
|
|
255 |
|
Total inventories |
|
$ |
416 |
|
|
$ |
399 |
|
4. Capitalized Exploratory Well Costs
The following table discloses the net changes in capitalized exploratory well costs pending determination of proved reserves during the three months ended March 31, 2016 (in millions):
Balance at January 1, 2016 |
|
$ |
1,415 |
|
Additions to capitalized exploratory well costs pending the determination of proved reserves |
|
|
60 |
|
Capitalized exploratory well costs charged to expense |
|
|
(25 |
) |
Balance at March 31, 2016 |
|
$ |
1,450 |
|
Capitalized exploratory wells costs charged to expense in the preceding table primarily relate to the non-operated Melmar exploration well in the Gulf of Mexico, where noncommercial quantities of hydrocarbons were encountered. In addition, we expensed $60 million of exploratory well costs incurred during 2016 related to the Melmar exploration well that are not reflected in the preceding table.
Capitalized exploratory well costs capitalized for greater than one year following completion of drilling were $1,055 million at March 31, 2016 and primarily related to:
Australia: Approximately 75% of the capitalized well costs in excess of one year relates to our Equus project on license WA-390-P, offshore Western Australia, where development planning and commercial activities for our natural gas discoveries are ongoing. In December 2014, we executed a non-binding letter of intent with the North West Shelf (NWS), a third-party joint venture with existing natural gas processing and liquefaction facilities. In the first quarter of 2016, we continued a joint front-end engineering study with NWS and also continued discussions with potential long-term purchasers of liquefied natural gas. Successful execution of binding agreements with NWS is necessary before we can execute a gas sales agreement and sanction development of the project. In addition, in March 2016, we were awarded a retention lease through 2021 covering certain areas within the WA-390-P License which include our Equus discoveries. At our adjacent WA-474-P license which could become part of the Equus project, we commenced drilling of an exploration commitment well in 2016.
Ghana: Approximately 25% of the capitalized well costs in excess of one year relates to offshore Ghana. Since 2014, we have completed three appraisal wells and continue to progress subsurface evaluation, and development planning. The government of Côte d’Ivoire has challenged the maritime border between it and the country of Ghana, which includes a portion of our Deepwater Tano/Cape Three Points license. We are unable to proceed with development of this license until there is a resolution of this matter, which may also impact our ability to develop the license. The International Tribunal for Law of the Sea is expected to render a final ruling on the maritime border dispute in 2017. Under terms of our license and
8
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
subject to resolution of the border dispute, we have declared commerciality for three discoveries, including the Pecan Field in March 2016, which would be the primary development hub for the block. The deadline to submit a plan of development for the Pecan Field is in September 2016. We have requested an extension for this deadline and will continue to work with the government on how best to progress work on the block given the maritime border dispute.
5. Bakken Midstream Joint Venture
On July 1, 2015, we sold a 50% interest in Hess Infrastructure Partners LP (HIP) to Global Infrastructure Partners (GIP) for net cash consideration of approximately $2.6 billion. HIP and its affiliates primarily comprise our Bakken Midstream operating segment which provides fee-based services including crude oil and natural gas gathering, processing of natural gas and the fractionation of natural gas liquids, terminaling and loading crude oil and natural gas liquids, transportation of crude oil by rail car and the storage and terminaling of propane, primarily located in the Bakken shale play of North Dakota.
We consolidate the activities of HIP, which qualifies as a variable interest entity under U.S. generally accepted accounting principles. At March 31, 2016, HIP liabilities totaling $788 million (December 31, 2015: $824 million) are on a nonrecourse basis to Hess Corporation, which includes total long-term debt of $709 million (December 31, 2015: $704 million). HIP assets available to settle its obligations include Cash and cash equivalents totaling $2 million (December 31, 2015: $3 million) and Property, plant and equipment with a net book carrying value of $2,388 million (December 31, 2015: $2,358 million).
Components of net periodic pension cost consisted of the following:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(In millions) |
|
|||||
Service cost |
|
$ |
16 |
|
|
$ |
17 |
|
Interest cost |
|
|
28 |
|
|
|
26 |
|
Expected return on plan assets |
|
|
(42 |
) |
|
|
(42 |
) |
Amortization of unrecognized net actuarial losses |
|
|
16 |
|
|
|
19 |
|
Pension expense |
|
$ |
18 |
|
|
$ |
20 |
|
In 2016, we expect to contribute $27 million to our funded pension plans. Through March 31, 2016, we contributed $6 million of this amount.
9
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. Weighted Average Common Shares
The Net income (loss) and weighted average number of common shares used in the basic and diluted earnings per share computations were as follows:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(In millions, |
|
|||||
|
|
except per share amounts) |
|
|||||
Net income (loss) attributable to Hess Corporation Common Stockholders: |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income taxes |
|
$ |
(488 |
) |
|
$ |
(376 |
) |
Less: Net income (loss) attributable to noncontrolling interests |
|
|
21 |
|
|
|
— |
|
Net income (loss) from continuing operations attributable to Hess Corporation |
|
|
(509 |
) |
|
|
(376 |
) |
Less: Preferred stock dividends |
|
|
6 |
|
|
|
— |
|
Net income (loss) from continuing operations attributable to Hess Corporation Common Stockholders |
|
|
(515 |
) |
|
|
(376 |
) |