Edgar Filing: HESS CORP

hes-10q_20160930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 2016

☐	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 ☒ 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 ☒ 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	☒	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 ☒

At September 30, 2016, there were 316,621,058 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 September 30, 2016, and December 31, 2015	2
	Statement of Consolidated Income for the Three and Nine Months Ended September 30, 2016, and 2015	3
	Statement of Consolidated Comprehensive Income for the Three and Nine Months Ended September 30, 2016, and 2015	4
	Statement of Consolidated Cash Flows for the Nine Months Ended September 30, 2016, and 2015	5
	Statement of Consolidated Equity for the Nine Months Ended September 30, 2016, and 2015	6
	Notes to Consolidated Financial Statements	7
	Basis of Presentation	7
	Common and Preferred Stock Issuance	7
	Debt Issuance and Notes Tender Offer	8
	Inventories	8
	Capitalized Exploratory Well Costs	8
	Bakken Midstream Joint Venture	9
	Impairment	9
	Dispositions	9
	Retirement Plans	10
	Income Taxes	10
	Weighted Average Common Shares	11
	Guarantees and Contingencies	12
	Segment Information	13
	Financial Risk Management Activities	14
	Subsequent Events	16

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
3.	Quantitative and Qualitative Disclosures about Market Risk	31
4.	Controls and Procedures	31

	PART II OTHER INFORMATION
1.	Legal Proceedings	32
2.	Share Repurchase Activities	32
6.	Exhibits and Reports on Form 8-K	33
	Signatures	34
	Certifications

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (UNAUDITED)

	September 30,			December 31,
	2016			2015
	(In millions,
	except share amounts)
Assets
Current Assets:
Cash and cash equivalents	$	3,529		$	2,716
Accounts receivable
Trade		771			847
Other		82			312
Inventories		403			399
Other current assets		108			130
Total current assets		4,893			4,404
Property, plant and equipment:
Total — at cost		48,416			46,826
Less: Reserves for depreciation, depletion, amortization and lease impairment		22,879			20,474
Property, plant and equipment — net		25,537			26,352
Goodwill		375			375
Deferred income taxes		3,257			2,653
Other assets		397			373
Total Assets	$	34,459		$	34,157
Liabilities
Current Liabilities:
Accounts payable	$	458		$	457
Accrued liabilities		1,433			1,997
Taxes payable		60			88
Current maturities of long-term debt		666			86
Total current liabilities		2,617			2,628
Long-term debt		6,671			6,506
Deferred income taxes		1,214			1,334
Asset retirement obligations		2,098			2,158
Other liabilities and deferred credits		944			1,130
Total Liabilities		13,544			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 — 316,621,058 shares (2015: 286,045,586)		317			286
Capital in excess of par value		5,763			4,127
Retained earnings		15,129			16,637
Accumulated other comprehensive income (loss)		(1,372	)		(1,664	)
Total Hess Corporation stockholders’ equity		19,838			19,386
Noncontrolling interests		1,077			1,015
Total equity		20,915			20,401
Total Liabilities and Equity	$	34,459		$	34,157

See accompanying Notes to Consolidated Financial Statements.

PART I - FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENT OF CONSOLIDATED INCOME (UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
	(In millions, except per share amounts)

Revenues and Non-Operating Income
Sales and other operating revenues	$	1,177		$	1,671		$	3,374		$	5,162
Other, net		19			18			84			12
Total revenues and non-operating income		1,196			1,689			3,458			5,174

Costs and Expenses
Cost of products sold (excluding items shown separately below)		222			356			688			990
Operating costs and expenses		421			508			1,312			1,517
Production and severance taxes		27			29			74			110
Exploration expenses, including dry holes and lease impairment		78			144			409			503
General and administrative expenses		106			119			310			417
Interest expense		84			84			254			255
Loss on debt extinguishment		80			—			80			—
Depreciation, depletion and amortization		811			988			2,476			2,972
Impairment		—			—			—			385
Total costs and expenses		1,829			2,228			5,603			7,149
Income (Loss) from Continuing Operations Before Income Taxes		(633	)		(539	)		(2,145	)		(1,975	)
Provision (benefit) for income taxes		(316	)		(300	)		(967	)		(807	)
Income (Loss) from Continuing Operations		(317	)		(239	)		(1,178	)		(1,168	)
Income (Loss) from Discontinued Operations, Net of Income Taxes		—			(13	)		—			(40	)
Net Income (Loss)		(317	)		(252	)		(1,178	)		(1,208	)
Less: Net income (loss) attributable to noncontrolling interests		22			27			62			27
Net Income (Loss) Attributable to Hess Corporation		(339	)		(279	)		(1,240	)		(1,235	)
Less: Preferred stock dividends		12			—			30			—
Net Income (Loss) Applicable to Hess Corporation Common Stockholders	$	(351	)	$	(279	)	$	(1,270	)	$	(1,235	)

Net Income (Loss) Attributable to Hess Corporation Per Common Share
Basic:
Continuing operations	$	(1.12	)	$	(0.94	)	$	(4.11	)	$	(4.21	)
Discontinued operations		—			(0.04	)		—			(0.14	)
Net Income (Loss) Per Common Share	$	(1.12	)	$	(0.98	)	$	(4.11	)	$	(4.35	)

Diluted:
Continuing operations	$	(1.12	)	$	(0.94	)	$	(4.11	)	$	(4.21	)
Discontinued operations		—			(0.04	)		—			(0.14	)
Net Income (Loss) Per Common Share	$	(1.12	)	$	(0.98	)	$	(4.11	)	$	(4.35	)

Weighted Average Number of Common Shares Outstanding (Diluted)		313.2			283.5			308.7			283.8
Common Stock Dividends Per Share	$	0.25		$	0.25		$	0.75		$	0.75

See accompanying Notes to Consolidated Financial Statements.

PART I - FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
	(In millions)

Net Income (Loss)	$	(317	)	$	(252	)	$	(1,178	)	$	(1,208	)

Other Comprehensive Income (Loss):

Derivatives designated as cash flow hedges
Effect of hedge (gains) losses reclassified to income		—			(34	)		—			(34	)
Income taxes on effect of hedge (gains) losses reclassified to income		—			13			—			13
Net effect of hedge (gains) losses reclassified to income		—			(21	)		—			(21	)
Change in fair value of cash flow hedges		—			109			—			111
Income taxes on change in fair value of cash flow hedges		—			(41	)		—			(42	)
Net change in fair value of cash flow hedges		—			68			—			69
Change in derivatives designated as cash flow hedges, after taxes		—			47			—			48

Pension and other postretirement plans
(Increase) reduction in unrecognized actuarial losses		—			(5	)		4			(20	)
Income taxes on actuarial changes in plan liabilities		—			1			(2	)		7
(Increase) reduction in unrecognized actuarial losses, net		—			(4	)		2			(13	)
Amortization of net actuarial losses		15			29			47			73
Income taxes on amortization of net actuarial losses		(5	)		(10	)		(16	)		(24	)
Net effect of amortization of net actuarial losses		10			19			31			49
Change in pension and other postretirement plans, after taxes		10			15			33			36

Foreign currency translation adjustment
Foreign currency translation adjustment		117			(208	)		259			(256	)
Change in foreign currency translation adjustment		117			(208	)		259			(256	)

Other Comprehensive Income (Loss)		127			(146	)		292			(172	)

Comprehensive Income (Loss)		(190	)		(398	)		(886	)		(1,380	)
Less: Comprehensive income (loss) attributable to noncontrolling interests		22			27			62			27
Comprehensive Income (Loss) Attributable to Hess Corporation	$	(212	)	$	(425	)	$	(948	)	$	(1,407	)

See accompanying Notes to Consolidated Financial Statements.

PART I - FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)

	Nine Months Ended
	September 30,
	2016			2015
	(In millions)
Cash Flows From Operating Activities
Net income (loss)	$	(1,178	)	$	(1,208	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
(Gains) losses on asset sales, net		(27	)		(50	)
Depreciation, depletion and amortization		2,476			2,972
Exploratory dry hole costs		234			180
Exploration lease impairment		33			139
Impairment		—			385
Loss from equity affiliates		—			10
Stock compensation expense		69			71
Provision (benefit) for deferred income taxes and other tax accruals		(973	)		(819	)
Loss on debt extinguishment		80			—
(Income) loss from discontinued operations, net of income taxes		—			40
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable		278			489
(Increase) decrease in inventories		1			(17	)
Increase (decrease) in accounts payable and accrued liabilities		(266	)		(449	)
Increase (decrease) in taxes payable		(28	)		(230	)
Changes in other operating assets and liabilities		(230	)		(124	)
Cash provided by (used in) operating activities - continuing operations		469			1,389
Cash provided by (used in) operating activities - discontinued operations		—			(31	)
Net cash provided by (used in) operating activities		469			1,358

Cash Flows From Investing Activities
Additions to property, plant and equipment - E&P		(1,578	)		(3,232	)
Additions to property, plant and equipment - Bakken Midstream		(186	)		(154	)
Proceeds from asset sales		80			25
Other, net		18			(44	)
Cash provided by (used in) investing activities - continuing operations		(1,666	)		(3,405	)
Cash provided by (used in) investing activities - discontinued operations		—			108
Net cash provided by (used in) investing activities		(1,666	)		(3,297	)

Cash Flows From Financing Activities
Debt with maturities of greater than 90 days
Borrowings		1,501			600
Repayments		(825	)		(51	)
Proceeds from issuance of preferred stock		557			—
Proceeds from issuance of common stock		1,087			—
Common stock acquired and retired		—			(142	)
Cash dividends paid		(260	)		(215	)
Noncontrolling interests, net		—			2,329
Other, net		(50	)		(13	)
Cash provided by (used in) financing activities - continuing operations		2,010			2,508
Cash provided by (used in) financing activities - discontinued operations		—			—
Net cash provided by (used in) financing activities		2,010			2,508

Net Increase (Decrease) in Cash and Cash Equivalents		813			569
Cash and Cash Equivalents at Beginning of Year		2,716			2,444
Cash and Cash Equivalents at End of Period	$	3,529		$	3,013

See accompanying Notes to Consolidated Financial Statements.

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)		—		—		—		(1,240	)		—			(1,240	)		62		(1,178	)
Other comprehensive income (loss)		—		—		—		—			292			292			—		292
Stock issuance		1		29		1,577		—			—			1,607			—		1,607
Activity related to restricted common stock awards, net		—		2		40		—			—			42			—		42
Employee stock options, including income tax benefits		—		—		6		—