Acquisitions and Dispositions

12 Months Ended

Dec. 31, 2011

Acquisitions and Dispositions [Abstract]

Acquisitions and Dispositions

2. Acquisitions and Dispositions

2011:     In the third quarter of 2011, the Corporation entered into agreements to acquire approximately 85,000 net acres in the Utica Shale play in eastern Ohio for approximately $750 million, principally through the acquisition of Marquette Exploration, LLC (Marquette). This acquisition strengthens the Corporation’s portfolio of unconventional assets. The acquisition of Marquette has been accounted for as a business combination and the assets acquired and the liabilities assumed were recorded at fair value. The estimated fair value was based on a valuation approach using market related data which is a Level 3 measurement. The majority of the purchase price was assigned to unproved properties and the remainder to producing wells and working capital. This transaction is subject to normal post-closing adjustments.

In October 2011, the Corporation completed the acquisition of a 50% undivided interest in CONSOL Energy Inc.’s (CONSOL) nearly 200,000 acres, in the Utica Shale play in eastern Ohio, for $59 million in cash at closing and the agreement to fund 50% of CONSOL’s share of the drilling costs up to $534 million within a 5-year period. This transaction has been accounted for as an asset acquisition.

In February 2011, the Corporation completed the sale of its interests in the Easington Catchment Area (Hess 30%), the Bacton Area (Hess 23%), the Everest Field (Hess 19%) and the Lomond Field (Hess 17%) in the United Kingdom North Sea for cash proceeds of $359 million, after post-closing adjustments. These disposals resulted in pre-tax gains totaling $343 million ($310 million after income taxes). These assets had a productive capacity of approximately 15,000 boepd. The total combined net book value of the disposed assets prior to the sale was $16 million, including allocated goodwill of $14 million.

In August 2011, the Corporation completed the sale of its interests in the Snorre Field (Hess 1%), offshore Norway and the Cook Field (Hess 28%) in the United Kingdom North Sea for cash proceeds of $131 million, after post-closing adjustments. These disposals resulted in non-taxable gains totaling $103 million. These assets were producing at a combined net rate of approximately 2,500 boepd at the time of sale. The total combined net book value of the disposed assets prior to the sale was $28 million, including allocated goodwill of $11 million.

2010:    In December, the Corporation acquired approximately 167,000 net acres in the Bakken oil shale play (Bakken) in North Dakota from TRZ Energy, LLC for $1,075 million in cash. In December, the Corporation also completed the acquisition of American Oil & Gas Inc. (American Oil & Gas) for approximately $675 million through the issuance of approximately 8.6 million shares of the Corporation’s common stock, which increased the Corporation’s acreage position in the Bakken by approximately 85,000 net acres. The properties acquired are located near the Corporation’s existing acreage. These acquisitions strengthen the Corporation’s acreage position in the Bakken, leverage existing capabilities and infrastructure and are expected to contribute to future reserve and production growth. Both of these transactions were accounted for as business combinations and the majority of the fair value of the assets acquired was assigned to unproved properties. The total goodwill recorded on these transactions was $332 million after final post-closing adjustments.

In September, the Corporation completed the exchange of its interests in Gabon and the Clair Field in the United Kingdom for additional interests of 28% and 25%, respectively, in the Valhall and Hod fields offshore Norway. This non-monetary exchange was accounted for as a business combination and was recorded at fair value. The transaction resulted in a pre-tax gain of $1,150 million ($1,072 million after income taxes). The total combined carrying amount of the disposed assets prior to the exchange was $702 million, including goodwill of $65 million. The Corporation also acquired, from a different third party, additional interests of 8% and 13% in the Valhall and Hod fields, respectively, for $507 million in cash. This acquisition was accounted for as a business combination. As a result of both of these transactions, the Corporation’s total interests in the Valhall and Hod fields are 64% and 63%, respectively. The primary reason for these transactions was to acquire long-lived crude oil reserves and future production growth. The following table summarizes the fair value of the assets acquired and liabilities assumed in 2010 and adjusted for final post-closing adjustments in both of these transactions:

	Exchange			Acquisition			Total
	(Millions of dollars)
Property, plant and equipment	$	2,020		$	570		$	2,590
Goodwill		688			219			907
Current assets		155			23			178
Total assets acquired		2,863			812			3,675
Current liabilities		(135	)		(32	)		(167	)
Deferred tax liabilities		(688	)		(219	)		(907	)
Asset retirement obligations		(188	)		(54	)		(242	)
Net assets acquired	$	1,852		$	507		$	2,359

For all 2010 acquisitions and the exchange described above, the assets acquired and liabilities assumed are recorded at fair value. The estimated fair value of the property, plant and equipment acquired in the transactions described above was primarily based on an income approach. The significant inputs used in this Level 3 fair value measurement include assumed future production and capital based on anticipated development plans, commodity prices, costs and a risk-adjusted discount rate. The goodwill recorded equals the deferred tax liability recognized for the differences in book and tax bases of the assets acquired. The goodwill is not expected to be deductible for income tax purposes.

In January, the Corporation completed the sale of its interest in the Jambi Merang natural gas development project in Indonesia (Hess 25%) for cash proceeds of $183 million. The transaction resulted in a gain of $58 million, after deducting the net book value of assets including goodwill of $7 million.

2009:    The Corporation acquired for $74 million a 50% interest in Blocks PM301 and PM302 in Malaysia, which are adjacent to Block A-18 of the Joint Development Area of Malaysia/Thailand (JDA) and contain an extension of the Bumi Field. The Corporation also acquired 37 previously leased retail gasoline stations, primarily through the assumption of $65 million of fixed-rate notes.