hes-10q_20160630.htm

 

 

 

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 June 30, 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 June 30, 2016, there were 316,674,357 shares of Common Stock outstanding.

 

 

 

 

 

 


 

HESS CORPORATION

Form 10-Q

TABLE OF CONTENTS

 

Item

No.

 

Page

Number

 

PART I FINANCIAL INFORMATION

 

1.

Financial Statements (Unaudited)

 

 

Consolidated Balance Sheet at June 30, 2016, and December 31, 2015

2

 

Statement of Consolidated Income for the Three and Six Months Ended June 30, 2016, and 2015

3

 

Statement of Consolidated Comprehensive Income for the Three and Six Months Ended June 30, 2016, and 2015

4

 

Statement of Consolidated Cash Flows for the Six Months Ended June 30, 2016, and 2015

5

 

Statement of Consolidated Equity for the Six Months Ended June 30, 2016, and 2015

6

 

Notes to Consolidated Financial Statements

7

 

Basis of Presentation

7

 

Common and Preferred Stock Issuance

7

 

Inventories

8

 

Capitalized Exploratory Well Costs

8

 

Impairment

9

 

Bakken Midstream Joint Venture

9

 

Debt

9

 

Retirement Plans

9

 

Weighted Average Common Shares

10

 

Guarantees and Contingencies

11

 

Segment Information

12

 

Financial Risk Management Activities

13

 

 

 

2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

3.

Quantitative and Qualitative Disclosures about Market Risk

29

4.

Controls and Procedures

29

 

 

 

 

PART II OTHER INFORMATION

 

1.

Legal Proceedings

30

6.

Exhibits and Reports on Form 8-K

31

 

Signatures

32

 

Certifications

 

 

 

 


 

PART I - FINANCIAL INFORMATION

 

Item 1.

Financial Statements.

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (UNAUDITED)

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

(In millions,

 

 

 

except share amounts)

 

Assets

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,095

 

 

$

2,716

 

Accounts receivable

 

 

 

 

 

 

 

 

Trade

 

 

843

 

 

 

847

 

Other

 

 

205

 

 

 

312

 

Inventories

 

 

377

 

 

 

399

 

Other current assets

 

 

111

 

 

 

130

 

Total current assets

 

 

4,631

 

 

 

4,404

 

Property, plant and equipment:

 

 

 

 

 

 

 

 

Total — at cost

 

 

47,908

 

 

 

46,826

 

Less: Reserves for depreciation, depletion, amortization and lease impairment

 

 

22,139

 

 

 

20,474

 

Property, plant and equipment — net

 

 

25,769

 

 

 

26,352

 

Goodwill

 

 

375

 

 

 

375

 

Deferred income taxes

 

 

3,043

 

 

 

2,653

 

Other assets

 

 

416

 

 

 

373

 

Total Assets

 

$

34,234

 

 

$

34,157

 

Liabilities

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

525

 

 

$

457

 

Accrued liabilities

 

 

1,421

 

 

 

1,997

 

Taxes payable

 

 

91

 

 

 

88

 

Current maturities of long-term debt

 

 

102

 

 

 

86

 

Total current liabilities

 

 

2,139

 

 

 

2,628

 

Long-term debt

 

 

6,450

 

 

 

6,506

 

Deferred income taxes

 

 

1,227

 

 

 

1,334

 

Asset retirement obligations

 

 

2,238

 

 

 

2,158

 

Other liabilities and deferred credits

 

 

1,006

 

 

 

1,130

 

Total liabilities

 

 

13,060

 

 

 

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 — 316,674,357 shares (2015: 286,045,586)

 

 

317

 

 

 

286

 

Capital in excess of par value

 

 

5,741

 

 

 

4,127

 

Retained earnings

 

 

15,559

 

 

 

16,637

 

Accumulated other comprehensive income (loss)

 

 

(1,499

)

 

 

(1,664

)

Total Hess Corporation stockholders’ equity

 

 

20,119

 

 

 

19,386

 

Noncontrolling interests

 

 

1,055

 

 

 

1,015

 

Total equity

 

 

21,174

 

 

 

20,401

 

Total Liabilities and Equity

 

$

34,234

 

 

$

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

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(In millions, except per share amounts)

 

Revenues and Non-Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and other operating revenues

 

$

1,224

 

 

$

1,953

 

 

$

2,197

 

 

$

3,491

 

Other, net

 

 

45

 

 

 

(18

)

 

 

65

 

 

 

(6

)

Total revenues and non-operating income

 

 

1,269

 

 

 

1,935

 

 

 

2,262

 

 

 

3,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of products sold (excluding items shown separately below)

 

 

277

 

 

 

356

 

 

 

466

 

 

 

634

 

Operating costs and expenses

 

 

455

 

 

 

503

 

 

 

891

 

 

 

1,009

 

Production and severance taxes

 

 

28

 

 

 

45

 

 

 

47

 

 

 

81

 

Exploration expenses, including dry holes and lease impairment

 

 

199

 

 

 

90

 

 

 

331

 

 

 

359

 

General and administrative expenses

 

 

106

 

 

 

151

 

 

 

204

 

 

 

298

 

Interest expense

 

 

85

 

 

 

86

 

 

 

170

 

 

 

171

 

Depreciation, depletion and amortization

 

 

797

 

 

 

1,028

 

 

 

1,665

 

 

 

1,984

 

Impairment

 

 

 

 

 

385

 

 

 

 

 

 

385

 

Total costs and expenses

 

 

1,947

 

 

 

2,644

 

 

 

3,774

 

 

 

4,921

 

Income (Loss) from Continuing Operations Before Income Taxes

 

 

(678

)

 

 

(709

)

 

 

(1,512

)

 

 

(1,436

)

Provision (benefit) for income taxes

 

 

(305

)

 

 

(156

)

 

 

(651

)

 

 

(507

)

Income (Loss) from Continuing Operations

 

 

(373

)

 

 

(553

)

 

 

(861

)

 

 

(929

)

Income (Loss) from Discontinued Operations, Net of Income Taxes

 

 

 

 

 

(14

)

 

 

 

 

 

(27

)

Net Income (Loss)

 

 

(373

)

 

 

(567

)

 

 

(861

)

 

 

(956

)

Less: Net income (loss) attributable to noncontrolling interests

 

 

19

 

 

 

 

 

 

40

 

 

 

 

Net Income (Loss) Attributable to Hess Corporation

 

 

(392

)

 

 

(567

)

 

 

(901

)

 

 

(956

)

Less: Preferred stock dividends

 

 

12

 

 

 

 

 

 

18

 

 

 

 

Net Income (Loss) Applicable to Hess Corporation Common Stockholders

 

$

(404

)

 

$

(567

)

 

$

(919

)

 

$

(956

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) Attributable to Hess Corporation Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(1.29

)

 

$

(1.94

)

 

$

(3.00

)

 

$

(3.27

)

Discontinued operations

 

 

 

 

 

(0.05

)

 

 

 

 

 

(0.10

)

Net Income (Loss) Per Common Share

 

$

(1.29

)

 

$

(1.99

)

 

$

(3.00

)

 

$

(3.37

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(1.29

)

 

$

(1.94

)

 

$

(3.00

)

 

$

(3.27

)

Discontinued operations

 

 

 

 

 

(0.05

)

 

 

 

 

 

(0.10

)

Net Income (Loss) Per Common Share

 

$

(1.29

)

 

$

(1.99

)

 

$

(3.00

)

 

$

(3.37

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Number of Common Shares Outstanding (Diluted)

 

 

313.2

 

 

 

284.3

 

 

 

306.5

 

 

 

283.9

 

Common Stock Dividends Per Share

 

$

0.25

 

 

$

0.25

 

 

$

0.50

 

 

$

0.50

 

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

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

(373

)

 

$

(567

)

 

$

(861

)

 

$

(956

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of cash flow hedges

 

 

 

 

 

(18

)

 

 

 

 

 

2

 

Income taxes on change in fair value of cash flow hedges

 

 

 

 

 

6

 

 

 

 

 

 

(1

)

Net change in fair value of cash flow hedges

 

 

 

 

 

(12

)

 

 

 

 

 

1

 

Change in derivatives designated as cash flow hedges, after taxes

 

 

 

 

 

(12

)

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and other postretirement plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Increase) reduction in unrecognized actuarial losses

 

 

4

 

 

 

(15

)

 

 

4

 

 

 

(15

)

Income taxes on actuarial changes in plan liabilities

 

 

(2

)

 

 

6

 

 

 

(2

)

 

 

6

 

(Increase) reduction in unrecognized actuarial losses, net

 

 

2

 

 

 

(9

)

 

 

2

 

 

 

(9

)

Amortization of net actuarial losses

 

 

16

 

 

 

25

 

 

 

32

 

 

 

44

 

Income taxes on amortization of net actuarial losses

 

 

(6

)

 

 

(8

)

 

 

(11

)

 

 

(14

)

Net effect of amortization of net actuarial losses

 

 

10

 

 

 

17

 

 

 

21

 

 

 

30

 

Change in pension and other postretirement plans, after taxes

 

 

12

 

 

 

8

 

 

 

23

 

 

 

21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(27

)

 

 

72

 

 

 

142

 

 

 

(48

)

Change in foreign currency translation adjustment

 

 

(27

)

 

 

72

 

 

 

142

 

 

 

(48

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Other Comprehensive Income (Loss)

 

 

(15

)

 

 

68

 

 

 

165

 

 

 

(26

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income (Loss)

 

 

(388

)

 

 

(499

)

 

 

(696

)

 

 

(982

)

Less: Comprehensive income (loss) attributable to noncontrolling interests

 

 

19

 

 

 

 

 

 

40

 

 

 

 

Comprehensive Income (Loss) Attributable to Hess Corporation

 

$

(407

)

 

$

(499

)

 

$

(736

)

 

$

(982

)

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)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

(In millions)

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(861

)

 

$

(956

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities

 

 

 

 

 

 

 

 

(Gains) losses on asset sales, net

 

 

(27

)

 

 

 

Depreciation, depletion and amortization

 

 

1,665

 

 

 

1,984

 

Exploratory dry hole costs

 

 

218

 

 

 

176

 

Exploration lease impairment

 

 

24

 

 

 

78

 

Impairments

 

 

 

 

 

385

 

Stock compensation expense

 

 

47

 

 

 

51

 

Provision (benefit) for deferred income taxes and other tax accruals

 

 

(661

)

 

 

(534

)

(Income) loss from discontinued operations, net of income taxes

 

 

 

 

 

27

 

Change in operating assets and liabilities

 

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

 

79

 

 

 

221

 

(Increase) decrease in inventories

 

 

25

 

 

 

(47

)

Increase (decrease) in accounts payable and accrued liabilities

 

 

(197

)

 

 

(88

)

Increase (decrease) in taxes payable

 

 

(19

)

 

 

3

 

Change in other operating assets and liabilities

 

 

(156

)

 

 

(203

)

Cash provided by (used in) operating activities - continuing operations

 

 

137

 

 

 

1,097

 

Cash provided by (used in) operating activities - discontinued operations

 

 

 

 

 

(21

)

Net cash provided by (used in) operating activities

 

 

137

 

 

 

1,076

 

 

 

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

Additions to property, plant and equipment - E&P

 

 

(1,115

)

 

 

(2,314

)

Additions to property, plant and equipment - Bakken Midstream

 

 

(120

)

 

 

(109

)

Proceeds from asset sales

 

 

80

 

 

 

 

Other, net

 

 

15

 

 

 

(13

)

Cash provided by (used in) investing activities - continuing operations

 

 

(1,140

)

 

 

(2,436

)

Cash provided by (used in) investing activities - discontinued operations

 

 

 

 

 

95

 

Net cash provided by (used in) investing activities

 

 

(1,140

)

 

 

(2,341

)

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

Debt with maturities of greater than 90 days

 

 

 

 

 

 

 

 

Borrowings

 

 

5

 

 

 

 

Repayments

 

 

(60

)

 

 

(34

)

Proceeds from issuance of preferred stock

 

 

557

 

 

 

 

Proceeds from issuance of common stock

 

 

1,087

 

 

 

 

Common stock acquired and retired

 

 

 

 

 

(78

)

Cash dividends paid

 

 

(169

)

 

 

(144

)

Other, net

 

 

(38

)

 

 

8

 

Cash provided by (used in) financing activities - continuing operations

 

 

1,382

 

 

 

(248

)

Cash provided by (used in) financing activities - discontinued operations

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

 

1,382

 

 

 

(248

)

 

 

 

 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

379

 

 

 

(1,513

)

Cash and Cash Equivalents at Beginning of Year

 

 

2,716

 

 

 

2,444

 

Cash and Cash Equivalents at End of Period

 

$

3,095

 

 

$

931

 

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)

 

 

 

 

 

 

 

 

 

 

 

(901

)

 

 

 

 

 

(901

)

 

 

40

 

 

 

(861

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

165

 

 

 

165

 

 

 

 

 

 

165

 

Stock issuance

 

 

1

 

 

 

29

 

 

 

1,577

 

 

 

 

 

 

 

 

 

1,607

 

 

 

 

 

 

1,607

 

Activity related to restricted common stock awards, net

 

 

 

 

 

2

 

 

 

23

 

 

 

 

 

 

 

 

 

25

 

 

 

 

 

 

25

 

Employee stock options, including income tax benefits

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Performance share units

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

10

 

Dividends on preferred stock

 

 

 

 

 

 

 

 

 

 

 

(18

)

 

 

 

 

 

(18

)

 

 

 

 

 

(18

)

Dividends on common stock

 

 

 

 

 

 

 

 

 

 

 

(159

)

 

 

 

 

 

(159

)

 

 

 

 

 

(159

)

Balance at June 30, 2016

 

$

1

 

 

$

317

 

 

$

5,741

 

 

$

15,559

 

 

$

(1,499

)

 

$

20,119

 

 

$

1,055

 

 

$

21,174