Edgar Filing: HESS CORP

hes-10q_20170630.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 June 30, 2017

☐	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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At June 30, 2017, there were 317,843,665 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, 2017, and December 31, 2016	2
	Statement of Consolidated Income for the Three and Six Months Ended June 30, 2017, and 2016	3
	Statement of Consolidated Comprehensive Income for the Three and Six Months Ended June 30, 2017, and 2016	4
	Statement of Consolidated Cash Flows for the Six Months Ended June 30, 2017, and 2016	5
	Statement of Consolidated Equity for the Six Months Ended June 30, 2017, and 2016	6
	Notes to Consolidated Financial Statements (Unaudited)	7
	Basis of Presentation	7
	Inventories	8
	Property, Plant and Equipment	8
	Goodwill	9
	Hess Infrastructure Partners LP	9
	Hess Midstream Partners LP – Initial Public Offering	9
	Retirement Plans	10
	Weighted Average Common Shares	10
	Guarantees and Contingencies	11
	Segment Information	13
	Financial Risk Management Activities	14
	Subsequent Event	16

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
3.	Quantitative and Qualitative Disclosures about Market Risk	30
4.	Controls and Procedures	30

	PART II - OTHER INFORMATION
1.	Legal Proceedings	31
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,
	2017			2016
	(In millions,
	except share amounts)
Assets
Current Assets:
Cash and cash equivalents	$	2,492		$	2,732
Accounts receivable
Trade		801			940
Other		137			86
Inventories		376			323
Assets held for sale		340			106
Other current assets		124			89
Total current assets		4,270			4,276
Property, plant and equipment:
Total — at cost		47,058			46,907
Less: Reserves for depreciation, depletion, amortization and lease impairment		24,265			23,312
Property, plant and equipment — net		22,793			23,595
Goodwill		350			375
Deferred income taxes		25			59
Other assets		360			316
Total Assets	$	27,798		$	28,621
Liabilities
Current Liabilities:
Accounts payable	$	504		$	433
Accrued liabilities		1,430			1,609
Taxes payable		63			97
Current maturities of long-term debt		121			112
Total current liabilities		2,118			2,251
Long-term debt		6,612			6,694
Deferred income taxes		1,115			1,144
Asset retirement obligations		1,919			1,912
Other liabilities and deferred credits		956			1,029
Total Liabilities		12,720			13,030
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 (2016: 575,000)		1			1
Common stock, par value $1.00; Authorized — 600,000,000 shares
Issued — 317,843,665 shares (2016: 316,523,200)		318			317
Capital in excess of par value		5,826			5,773
Retained earnings		9,153			10,147
Accumulated other comprehensive income (loss)		(1,518	)		(1,704	)
Total Hess Corporation stockholders’ equity		13,780			14,534
Noncontrolling interests		1,298			1,057
Total equity		15,078			15,591
Total Liabilities and Equity	$	27,798		$	28,621

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						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
	(In millions, except per share amounts)
Revenues and Non-Operating Income
Sales and other operating revenues	$	1,216		$	1,224		$	2,493		$	2,197
Other, net		12			45			10			65
Total revenues and non-operating income		1,228			1,269			2,503			2,262

Costs and Expenses
Cost of products sold (excluding items shown separately below)		272			277			491			466
Operating costs and expenses		375			455			734			891
Production and severance taxes		30			28			61			47
Exploration expenses, including dry holes and lease impairment		53			199			111			331
General and administrative expenses		100			106			196			204
Interest expense		82			85			166			170
Depreciation, depletion and amortization		741			797			1,478			1,665
Total costs and expenses		1,653			1,947			3,237			3,774
Income (Loss) Before Income Taxes		(425	)		(678	)		(734	)		(1,512	)
Provision (benefit) for income taxes		(8	)		(305	)		(21	)		(651	)
Net Income (Loss)		(417	)		(373	)		(713	)		(861	)
Less: Net income (loss) attributable to noncontrolling interests		32			19			60			40
Net Income (Loss) Attributable to Hess Corporation		(449	)		(392	)		(773	)		(901	)
Less: Preferred stock dividends		11			12			23			18
Net Income (Loss) Attributable to Hess Corporation Common Stockholders	$	(460	)	$	(404	)	$	(796	)	$	(919	)

Net Income (Loss) Attributable to Hess Corporation Per Common Share:
Basic	$	(1.46	)	$	(1.29	)	$	(2.53	)	$	(3.00	)
Diluted	$	(1.46	)	$	(1.29	)	$	(2.53	)	$	(3.00	)
Weighted Average Number of Common Shares Outstanding (Diluted)		314.4			313.2			314.2			306.5
Common Stock Dividends Per Share	$	0.25		$	0.25		$	0.50		$	0.50

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						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
	(In millions)

Net Income (Loss)	$	(417	)	$	(373	)	$	(713	)	$	(861	)

Other Comprehensive Income (Loss):

Derivatives designated as cash flow hedges
Effect of hedge (gains) losses reclassified to income		(20	)		—			(20	)		—
Income taxes on effect of hedge (gains) losses reclassified to income		—			—			—			—
Net effect of hedge (gains) losses reclassified to income		(20	)		—			(20	)		—
Change in fair value of cash flow hedges		72			—			76			—
Income taxes on change in fair value of cash flow hedges		2			—			—			—
Net change in fair value of cash flow hedges		74			—			76			—
Change in derivatives designated as cash flow hedges, after taxes		54			—			56			—

Pension and other postretirement plans
(Increase) reduction in unrecognized actuarial losses		(2	)		4			5			4
Income taxes on actuarial changes in plan liabilities		1			(2	)		(2	)		(2	)
(Increase) reduction in unrecognized actuarial losses, net		(1	)		2			3			2
Amortization of net actuarial losses		23			16			40			32
Income taxes on amortization of net actuarial losses		—			(6	)		—			(11	)
Net effect of amortization of net actuarial losses		23			10			40			21
Change in pension and other postretirement plans, after taxes		22			12			43			23

Foreign currency translation adjustment
Foreign currency translation adjustment		73			(27	)		87			142
Change in foreign currency translation adjustment		73			(27	)		87			142

Other Comprehensive Income (Loss)		149			(15	)		186			165

Comprehensive Income (Loss)		(268	)		(388	)		(527	)		(696	)
Less: Comprehensive income (loss) attributable to noncontrolling interests		32			19			60			40
Comprehensive Income (Loss) Attributable to Hess Corporation	$	(300	)	$	(407	)	$	(587	)	$	(736	)

See accompanying Notes to Consolidated Financial Statements.

PART I - FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)

	Six Months Ended
	June 30,
	2017			2016
	(In millions)
Cash Flows From Operating Activities
Net income (loss)	$	(713	)	$	(861	)
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		1,478			1,665
Exploratory dry hole costs		—			218
Exploration lease and other impairment		15			24
Stock compensation expense		44			47
Provision (benefit) for deferred income taxes and other tax accruals		(49	)		(661	)
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable		149			79
(Increase) decrease in inventories		(52	)		25
Increase (decrease) in accounts payable and accrued liabilities		(150	)		(197	)
Increase (decrease) in taxes payable		(35	)		(19	)
Changes in other operating assets and liabilities		(173	)		(156	)
Net cash provided by (used in) operating activities		514			137

Cash Flows From Investing Activities
Additions to property, plant and equipment - E&P		(786	)		(1,114	)
Additions to property, plant and equipment - Midstream		(84	)		(121	)
Proceeds from asset sales		179			80
Other, net		—			15
Net cash provided by (used in) investing activities		(691	)		(1,140	)

Cash Flows From Financing Activities
Net borrowings (repayments) of debt with maturities of 90 days or less		4			(20	)
Debt with maturities of greater than 90 days
Borrowings		—			—
Repayments		(77	)		(35	)
Proceeds from issuance of Hess Midstream Partners LP units		366			—
Proceeds from issuance of preferred stock		—			557
Proceeds from issuance of common stock		—			1,087
Cash dividends paid		(182	)		(169	)
Noncontrolling interests, net		(175	)		—
Other, net		1			(38	)
Net cash provided by (used in) financing activities		(63	)		1,382

Net Increase (Decrease) in Cash and Cash Equivalents		(240	)		379
Cash and Cash Equivalents at Beginning of Year		2,732			2,716
Cash and Cash Equivalents at End of Period	$	2,492		$	3,095

See accompanying Notes to Consolidated Financial Statements.

PART I - FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENT OF CONSOLIDATED EQUITY (UNAUDITED)

	Mandatory Convertible Preferred Stock		Common Stock		Capital in Excess of Par		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Hess Stockholders' Equity			Noncontrolling Interests			Total Equity
	(In millions)
Balance at January 1, 2017	$	1	$	317	$	5,773	$	10,147		$	(1,704	)	$	14,534		$	1,057		$	15,591
Cumulative effect of adoption of new accounting standards		—		—		2		(39	)		—			(37	)		—			(37	)
Net income (loss)		—		—		—		(773	)		—			(773	)		60			(713	)
Other comprehensive income (loss)		—		—		—		—			186			186			—			186
Share-based compensation, including income taxes		—		1		51		—			—			52			—			52
Dividends on preferred stock		—		—		—		(23	)		—			(23	)		—			(23	)
Dividends on common stock		—		—		—		(159	)		—			(159	)		—			(159	)
Hess Midstream Partners LP units issuance		—		—		—		—			—			—			356			356
Noncontrolling interests, net		—		—		—		—			—			—			(175	)		(175	)
Balance at June 30, 2017	$	1	$	318	$	5,826	$	9,153		$	(1,518	)	$	13,780		$	1,298		$	15,078

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
Common stock issuance		1		29		1,577		—			—			1,607			—			1,607
Share-based compensation, including income taxes		—		2		37		—			—			39			—			39
Dividends on preferred stock		—		—