HOVENSA L.L.C. Joint Venture

12 Months Ended

Dec. 31, 2011

Joint Venture [Abstract]

Joint Venture

5. HOVENSA L.L.C. Joint Venture

The Corporation has a 50% interest in HOVENSA L.L.C. (HOVENSA), a joint venture with a subsidiary of Petroleos de Venezuela, S.A. (PDVSA), which owns a refinery in the U.S. Virgin Islands. The Corporation’s investment in HOVENSA is accounted for using the equity method. In accordance with Rule 3-09 of Regulation S-X, the Corporation has filed the audited financial statements for HOVENSA in this report on Form 10-K. Summarized financial information for HOVENSA as of December 31 and for the years then ended follows:

	2011			2010			2009
	(Millions of dollars)
Summarized Balance Sheet, at December 31
Cash and cash equivalents	$	42		$	45		$	78
Other current assets		329			668			580
Net fixed assets		—			1,987			2,080
Other assets		10			27			33
Current liabilities, including member support		(1,858	)		(1,001	)		(953	)
Long-term debt		—	*		(706	)		(356	)
Deferred liabilities and credits		(115	)		(135	)		(137	)
Members’ equity	$	(1,592	)	$	885		$	1,325
Carrying value of Hess Corporation’s equity investment	$	—		$	158		$	681
Summarized Income Statement, for the years ended December 31
Sales	$	13,126		$	12,258		$	10,048
Costs and expenses		(15,613	)		(12,696	)		(10,499	)
Net income (loss)	$	(2,487	)	$	(438	)	$	(451	)
Hess Corporation’s income (loss) from equity investment in HOVENSA L.L.C.	$	(1,073	)**	$	(522	)**	$	(229	)

* Long-term debt of $356 million was classified as a current liability, resulting from HOVENSA’S tender offer in January 2012 to repurchase the debt.

** The Corporation’s share of HOVENSA’s 2011 loss excludes $300 million previously recorded in 2010 for the partial impairment of the Corporation’s investment.

In 2011, HOVENSA experienced continued substantial operating losses due to global economic conditions and competitive disadvantages versus other refiners, despite efforts to improve operating performance by reducing refining capacity to 350,000 from 500,000 barrels per day in the first half of the year. Operating losses were also projected to continue. In January 2012, HOVENSA announced a decision to shut down its refinery and operate the complex as an oil storage terminal. As a result of these developments, HOVENSA prepared an impairment analysis as of December 31, 2011, which concluded that undiscounted future cash flows would not recover the carrying value of its long-lived assets, and recorded an impairment charge and other charges related to the decision to shut down the refinery. For 2011, the Corporation recorded a total of $1,073 million of losses from its equity investment in HOVENSA. These pre-tax losses included $875 million ($525 million after income taxes) due to the impairment recorded by HOVENSA and other charges associated with its decision to shut down the refinery. The Corporation’s share of the impairment related losses recorded by HOVENSA represents an amount equivalent to the Corporation’s financial support to HOVENSA at December 31, 2011, its planned future funding commitments for costs related to the refinery shutdown, and a charge of $135 million for the write-off of related assets held by the subsidiary which owns the Corporation’s investment in HOVENSA. At December 31, 2011, the Corporation has a liability of $487 million for its planned funding commitments, which is expected to be incurred in 2012. A deferred income tax benefit of $350 million, consisting primarily of U.S. income taxes, has been recorded on the Corporation’s share of HOVENSA’s impairment and refinery shutdown related charges.

In December 2010, the Corporation recorded an impairment charge of $300 million before income taxes ($289 million after income taxes) to reduce the carrying value of its equity investment in HOVENSA to its fair value, which was recorded in Income (loss) from equity investment in HOVENSA L.L.C. The investment had been adversely affected by consecutive annual operating losses resulting from continued weak refining margins and refinery utilization and a fourth quarter 2010 debt rating downgrade. As a result of a strategic assessment in 2010, HOVENSA decided to lower crude oil refining capacity to 350,000 from 500,000 barrels per day in 2011. The Corporation performed an impairment analysis and concluded that its investment had experienced an other than temporary decline in value. The fair value was determined based on an income approach using estimated refined petroleum product selling prices and volumes, related costs of product sold, capital and operating expenditures and a market based discount rate (a Level 3 fair value measurement).

In February 2012, HOVENSA completed a tender offer to repurchase its outstanding tax exempt bonds at par.