10-K 1 hes-10k_20161231.htm 10-K hes-10k_20161231.htm

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

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

For the fiscal year ended December 31, 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

 

13-4921002

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

1185 AVENUE OF THE AMERICAS,

 

10036

NEW YORK, N.Y.

 

(Zip Code)

(Address of principal executive offices)

 

 

(Registrant’s telephone number, including area code, is (212) 997-8500)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Stock (par value $1.00)

 

New York Stock Exchange

Depositary Shares, each representing 1/20th interest in a share of 8% Series A Mandatory Convertible Preferred Stock (par value $1.00)

 

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes  No 

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 submitted electronically and posted on its Corporate website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

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. (Check one):

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 

The aggregate market value of voting stock held by non-affiliates of the Registrant amounted to $16,770,000,000, computed using the outstanding common shares and closing market price on June 30, 2016, the last business day of the Registrant’s most recently completed second fiscal quarter.

At December 31, 2016, there were 316,523,200 shares of Common Stock outstanding.

Part III is incorporated by reference from the Proxy Statement for the 2017 annual meeting of stockholders.


 

 

 

HESS CORPORATION

Form 10-K

TABLE OF CONTENTS

 

Item No.

 

 

 

Page

 

 

PART I

 

 

1 and 2.

 

Business and Properties

 

4

1A.

 

Risk Factors

 

15

1B.

 

Unresolved Staff Comments

 

18

3.

 

Legal Proceedings

 

18

4.

 

Mine Safety Disclosures

 

19

 

 

PART II

 

 

5.

 

Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

20

6.

 

Selected Financial Data

 

22

7.

 

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

 

23

7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

45

8.

 

Financial Statements and Supplementary Data

 

46

9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

96

9A.

 

Controls and Procedures

 

96

9B.

 

Other Information

 

96

 

 

PART III

 

 

10.

 

Directors, Executive Officers and Corporate Governance

 

96

11.

 

Executive Compensation

 

98

12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

98

13.

 

Certain Relationships and Related Transactions, and Director Independence

 

98

14.

 

Principal Accounting Fees and Services

 

98

 

 

PART IV

 

 

15.

 

Exhibits, Financial Statement Schedules

 

99

 

 

Signatures

 

100

 

Unless the context indicates otherwise, references to “Hess”, the “Corporation”, “Registrant”, “we”, “us”, “our” and “its” refer to the consolidated business operations of Hess Corporation and its subsidiaries.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain sections in this Annual Report on Form 10-K, including information incorporated by reference herein, and those made under the captions Business and Properties, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk contain “forward-looking” statements, as defined under the Private Securities Litigation Reform Act of 1995.  Generally, the words “anticipate,” “estimate,” “expect,” “forecast,” “guidance,” “could,” “may,” “should,” “believe,” “intend,” “project,” “plan,” “predict,” “will,” “target” and similar expressions identify forward-looking statements, which generally are not historical in nature.  Forward-looking statements related to our operations are based on our current understanding, assessments, estimates and projections.  Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our current projections or expectations.  As and when made, we believe that these forward-looking statements are reasonable.  However, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made and there can be no assurance that such forward-looking statements will occur.  We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  Risk factors that could materially impact future actual results are discussed under Item 1A. Risk Factors within this document.

 

 

 

1


Glossary

Throughout this report, the following company or industry specific terms and abbreviations are used:

Appraisal well – An exploration well drilled to confirm the results of a discovery well, or a well used to determine the boundaries of a productive formation.

Bbl – One stock tank barrel, which is 42 United States gallons liquid volume.

Barrel of oil equivalent or Boe – This reflects natural gas reserves converted on the basis of relative energy content of six mcf equals one barrel of oil equivalent (one mcf represents one thousand cubic feet).  Barrel of oil equivalence does not necessarily result in price equivalence, as the equivalent price of natural gas on a barrel of oil equivalent basis has been substantially lower than the corresponding price for crude oil over the recent past.  See the average selling prices in the table on page 9.

Boepd – Barrels of oil equivalent per day.

Bopd – Barrels of oil per day.

Carried interest – An interest in an oil and gas property where the carrying party agrees to pay for all or part of development and operating costs of another party.  The carrying party may then recover a specified amount of costs from the other party’s share of any hydrocarbon revenues.

Condensate – A mixture of hydrocarbons that exists in the gaseous phase at original reservoir temperature and pressure, but that, when produced, is in the liquid phase at surface pressure and temperature.

Development well – A well drilled within the proved area of an oil and/or natural gas reservoir with the intent of producing oil and/or natural gas from that area of the reservoir.

Dry hole or dry well – Exploratory or development well that does not produce oil or gas in commercial quantities.

Exploratory well – A well drilled to find oil or natural gas in an unproved area or find a new reservoir in a field previously found to be productive by another reservoir.

Field – An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition.

Fractionation Fractionation is the process by which the mixture of NGLs that results from natural gas processing is separated into the NGL components, such as ethane, propane, butane, isobutane, and natural gasoline, prior to their sale to various petrochemical and industrial end users.  Fractionation is accomplished by controlling the temperature of the stream of mixed liquids in order to take advantage of the difference in boiling points of separate products.

Gross acreage acreage in which a working interest is held by the Corporation.

Gross well a well in which a working interest is held by the Corporation.

Mcf – One thousand cubic feet of natural gas.

Mmcfd – One thousand mcf of natural gas per day.

Net acreage or Net wells – The sum of the fractional working interests owned by us in gross acres or gross wells.

NGLs or Natural gas liquids – Naturally occurring substances found in natural gas, including ethane, butane, isobutane, propane and natural gasoline that can be collectively removed from produced natural gas, separated into these substances and sold.  Natural gas liquids do not sell at prices equivalent to crude oil.  See the average selling prices in the table on page 9.

Non-operated – Projects in which the Corporation has a working interest but does not perform the role of Operator.

OPEC – Organization of Petroleum Exporting Countries.

Operator – The entity responsible for conducting exploration, development and/or production operations for an oil or gas project.

Participating interest – Reflects the proportion of exploration and production costs each party will bear or the proportion of production each party will receive, as set out in an operating agreement.

Production entitlement – The share of gross production the Corporation is entitled to receive under the terms of a production sharing contract.

 

2


Production sharing contract – An agreement between a host government and the owners (or co-owners) of a well or field regarding the percentage of production each party will receive after the parties have recovered a specified amount of capital and operational expenses.

Productive well – A well that is capable of producing hydrocarbons in sufficient quantities to justify commercial exploitation.

Proved properties – Properties with proved reserves.

Proved reserves – In accordance with Securities and Exchange Commission regulations and practices recognized in the publication of the Society of Petroleum Engineers entitled, “Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information,” those quantities of crude oil and condensate, NGLs and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.  The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

Proved developed reserves – Proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or for which the cost of the required equipment is relatively minor compared to the cost of a new well.

Proved undeveloped reserves – Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.  Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.

Unproved properties – Properties with no proved reserves.

Working interest – An interest in an oil and gas property that provides the owner of the interest the right to drill for and produce oil and gas on the relevant acreage and requires the owner to pay a share of the costs of drilling and production operations.

 

 

 

3


PART I

Items 1 and 2.  Business and Properties

Hess Corporation, incorporated in the State of Delaware in 1920, is a global Exploration and Production (E&P) company engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids, and natural gas with production operations located primarily in the United States (U.S.), Denmark, Equatorial Guinea, the Malaysia/Thailand Joint Development Area (JDA), Malaysia, and Norway.  The Bakken Midstream operating segment, which was established in the second quarter of 2015, provides fee-based services, including gathering, compressing and processing natural gas and fractionating natural gas liquids, or NGLs; gathering, terminaling, loading and transporting crude oil and NGLs; and storing and terminaling propane, primarily in the Bakken and Three Forks Shale plays in the Williston Basin area of North Dakota.

See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for further details.

Exploration and Production

Proved Reserves

Proved reserves are calculated using the average price during the twelve-month period ending December 31 determined as an unweighted arithmetic average of the price on the first day of each month within the year, unless prices are defined by contractual agreements, excluding escalations based on future conditions.  Crude oil prices used in the determination of proved reserves at December 31, 2016 were $42.68 per barrel for WTI (2015: $50.13) and $44.45 per barrel for Brent (2015: $55.10).

Our total proved developed and undeveloped reserves at December 31 were as follows:

 

 

Crude Oil & Condensate

 

 

Natural Gas Liquids

 

 

Natural Gas

 

 

Total Barrels of Oil Equivalent (BOE)

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Millions of bbls)

 

 

(Millions of bbls)

 

 

(Millions of mcf)

 

 

(Millions of bbls)

 

Developed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

245

 

 

 

253

 

 

 

59

 

 

 

51

 

 

 

404

 

 

 

368

 

 

 

371

 

 

 

365

 

Europe (a)

 

 

116

 

 

 

114

 

 

 

3

 

 

 

12

 

 

 

125

 

 

 

123

 

 

 

140

 

 

 

147

 

Africa

 

 

138

 

 

 

148

 

 

 

 

 

 

 

 

 

132

 

 

 

137

 

 

 

160

 

 

 

171

 

Asia

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

739

 

 

 

643

 

 

 

128

 

 

 

112

 

 

 

 

504

 

 

 

520

 

 

 

62

 

 

 

63

 

 

 

1,400

 

 

 

1,271

 

 

 

799

 

 

 

795

 

Undeveloped

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

110

 

 

 

93

 

 

 

27

 

 

 

23

 

 

 

186

 

 

 

137

 

 

 

168

 

 

 

139

 

Europe (a)

 

 

94

 

 

 

89

 

 

 

5

 

 

 

15

 

 

 

95

 

 

 

111

 

 

 

115

 

 

 

122

 

Africa

 

 

24

 

 

 

24

 

 

 

 

 

 

 

 

 

11

 

 

 

11

 

 

 

26

 

 

 

26

 

Asia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

24

 

 

 

1

 

 

 

4

 

 

 

 

228

 

 

 

206

 

 

 

32

 

 

 

38

 

 

 

297

 

 

 

283

 

 

 

310

 

 

 

291

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

355

 

 

 

346

 

 

 

86

 

 

 

74

 

 

 

590

 

 

 

505

 

 

 

539

 

 

 

504

 

Europe (a)

 

 

210

 

 

 

203

 

 

 

8

 

 

 

27

 

 

 

220

 

 

 

234

 

 

 

255

 

 

 

269

 

Africa

 

 

162

 

 

 

172

 

 

 

 

 

 

 

 

 

143

 

 

 

148

 

 

 

186

 

 

 

197

 

Asia

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

744

 

 

 

667

 

 

 

129

 

 

 

116

 

 

 

 

732

 

 

 

726

 

 

 

94

 

 

 

101

 

 

 

1,697

 

 

 

1,554

 

 

 

1,109

 

 

 

1,086

 

(a)

Proved reserves in Norway, which represented 18% of our total proved reserves at December 31, 2016 (2015: 21%), were as follows:

 

 

Crude Oil & Condensate

 

 

Natural Gas Liquids

 

 

Natural Gas

 

 

Total Barrels of Oil Equivalent (BOE)

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Millions of bbls)

 

 

(Millions of bbls)

 

 

(Millions of mcf)

 

 

(Millions of bbls)

 

Developed

 

 

75

 

 

 

86

 

 

 

3

 

 

 

12

 

 

 

72

 

 

 

84

 

 

 

90

 

 

 

112

 

Undeveloped

 

 

90

 

 

 

85

 

 

 

5

 

 

 

15

 

 

 

88

 

 

 

107

 

 

 

110

 

 

 

118

 

Total

 

 

165

 

 

 

171

 

 

 

8

 

 

 

27

 

 

 

160

 

 

 

191

 

 

 

200

 

 

 

230

 

Proved undeveloped reserves were 28% of our total proved reserves at December 31, 2016 on a boe basis (2015: 27%).  Proved reserves held under production sharing contracts totaled 4% of our crude oil reserves and 45% of our natural gas reserves at December 31, 2016 (2015: 5% and 44%, respectively).

 

 

 

4


 

 

For additional information regarding our proved oil and gas reserves, see the Supplementary Oil and Gas Data to the Consolidated Financial Statements presented on pages 84 through 94.

Production

Worldwide crude oil, natural gas liquids and natural gas production was as follows:

 

 

2016

 

 

2015

 

 

2014

 

Crude oil

 

(Thousands of barrels)

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Bakken

 

 

24,881

 

 

 

29,579

 

 

 

23,997

 

Other Onshore

 

 

3,209

 

 

 

3,814

 

 

 

3,587

 

Total Onshore

 

 

28,090

 

 

 

33,393

 

 

 

27,584

 

Offshore

 

 

16,649

 

 

 

20,391

 

 

 

18,702

 

Total United States

 

 

44,739

 

 

 

53,784

 

 

 

46,286

 

Europe

 

 

 

 

 

 

 

 

 

 

 

 

Norway

 

 

8,387

 

 

 

9,985

 

 

 

9,275

 

Denmark

 

 

3,636

 

 

 

3,981

 

 

 

3,994

 

 

 

 

12,023

 

 

 

13,966

 

 

 

13,269

 

Africa

 

 

 

 

 

 

 

 

 

 

 

 

Equatorial Guinea

 

 

11,898

 

 

 

15,881

 

 

 

15,869

 

Libya

 

 

387

 

 

 

20

 

 

 

1,410

 

Algeria

 

 

 

 

 

2,589

 

 

 

2,364

 

 

 

 

12,285

 

 

 

18,490

 

 

 

19,643

 

Asia

 

 

 

 

 

 

 

 

 

 

 

 

JDA and Other

 

 

768

 

 

 

809

 

 

 

1,030

 

 

 

 

768

 

 

 

809

 

 

 

1,030

 

Total

 

 

69,815

 

 

 

87,049

 

 

 

80,228

 

 

 

 

2016

 

 

2015

 

 

2014

 

 

 

(Thousands of barrels)

 

Natural gas liquids

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Bakken

 

 

9,701

 

 

 

7,438

 

 

 

3,759

 

Other Onshore

 

 

4,205

 

 

 

4,215

 

 

 

2,376

 

Total Onshore

 

 

13,906

 

 

 

11,653

 

 

 

6,135

 

Offshore

 

 

1,724

 

 

 

2,258

 

 

 

2,283

 

Total United States

 

 

15,630

 

 

 

13,911

 

 

 

8,418

 

Europe - Norway

 

 

408

 

 

 

499

 

 

 

501

 

Asia

 

 

 

 

 

 

 

 

10

 

Total

 

 

16,038

 

 

 

14,410

 

 

 

8,929

 

 

5


 

 

 

 

 

2016

 

 

2015

 

 

2014

 

Natural gas

 

(Thousands of mcf)

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Bakken

 

 

22,312

 

 

 

23,214

 

 

 

14,612

 

Other Onshore

 

 

48,597

 

 

 

39,929

 

 

 

17,091

 

Total Onshore

 

 

70,909

 

 

 

63,143

 

 

 

31,703

 

Offshore

 

 

23,603

 

 

 

31,751

 

 

 

28,426

 

Total United States

 

 

94,512

 

 

 

94,894

 

 

 

60,129

 

Europe

 

 

 

 

 

 

 

 

 

 

 

 

Norway

 

 

8,541

 

 

 

9,973

 

 

 

8,951

 

Denmark

 

 

7,128

 

 

 

5,588

 

 

 

4,184

 

 

 

 

15,669

 

 

 

15,561

 

 

 

13,135

 

Asia and Other

 

 

 

 

 

 

 

 

 

 

 

 

JDA

 

 

68,031

 

 

 

83,900

 

 

 

80,941

 

Malaysia (a)

 

 

13,151

 

 

 

18,994

 

 

 

21,916

 

Other

 

 

 

 

 

 

 

 

11,031

 

 

 

 

81,182

 

 

 

102,894

 

 

 

113,888

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

191,363

 

 

 

213,349

 

 

 

187,152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Barrels of Oil Equivalent (in millions)

 

 

118

 

 

 

137

 

 

 

120

 

(a)

Includes 3,624 thousand mcf of production for 2016 (2015: 5,321 thousand mcf; 2014: 7,435 thousand mcf) from Block PM301 which is unitized into the JDA.

E&P Operations

A description of our significant E&P operations is as follows:

United States

Our production in the U.S. was from onshore properties, principally in the Bakken oil shale play in the Williston Basin of North Dakota, the Utica Basin of Ohio and the Permian Basin of Texas and from offshore properties in the Gulf of Mexico.

Onshore:

Bakken: At December 31, 2016, we held 577,000 net acres in the Bakken with varying working interest percentages.  During 2016, we operated an average of 3.3 rigs, drilled 71 wells, completed 92 wells, and brought on production 100 wells, bringing the total operated production wells to 1,272.  Drilling and completion costs per operated well averaged $4.8 million in 2016, down 17% from 2015.  In 2016, we also increased our standard well design to a 50-stage completion from the previous 35-stage completion.  The improved efficiency of our drilling operations can largely be attributed to application of our lean manufacturing capabilities.  During 2017, we plan to increase our rig count to six rigs from two rigs, for an average of 3.5 rigs, to drill approximately 80 wells and to bring approximately 75 wells on production.  Net production for full year 2017 is forecast to be in the range of 95,000 boepd to 105,000 boepd.  With the building rig count we expect our Bakken production in the fourth quarter of 2017 to average between 105,000 boepd and 110,000 boepd, which would represent an increase of approximately 15% from the first quarter to the fourth quarter.

Utica: We own a 50% working interest in approximately 45,000 net acres in the wet gas area of the Utica Basin of Ohio.  During 2016, a total of 6 wells were drilled, 6 wells were completed and 14 wells were brought on production.  In March 2016, we and our joint venture partner released the remaining Hess operated rig.  At December 31, 2016, we had 5 wells drilled but not completed on a single well pad.  We do not plan to drill any wells in 2017.

Permian:  We operate and hold a 34% interest in the Seminole‑San Andres Unit in the Permian Basin.

Offshore:  At December 31, 2016, we held interests in 76 blocks in the deepwater Gulf of Mexico.  Our production offshore in the Gulf of Mexico was principally from the Baldpate (Hess 50%), Conger (Hess 38%), Hack Wilson (Hess 25%), Llano (Hess 50%), Penn State (Hess 50%), Shenzi (Hess 28%) and Tubular Bells (Hess 57%) fields. In addition, we are operator of the Stampede development project (Hess 25%).  At December 31, 2016, we held approximately 190,000 net undeveloped acres, of which leases covering approximately 85,000 acres are due to expire in the next three years.


 

6


 

 

A description of our significant operations in the Gulf of Mexico is as follows:

Conger:  At this Hess operated field, we drilled and brought online an additional production well during the year.  In addition, one well was shut-in for an extended period in 2016 in order to replace a subsurface valve.

Penn State:  At this Hess operated field, we intend to drill one production well in 2017.

Shenzi: At this BHP Billiton Petroleum operated field, drilling continued during 2016 with the completion of a water injection well.  In 2017, the operator plans to defer further drilling activity.

Tubular Bells:  At this Hess operated field, we brought online a fifth production well and one water injector well, completing the initial drilling campaign.  Three wells were shut-in for an extended period in 2016 due to subsurface valve failures.  These valves have since been replaced and we are pursuing our options to recover damages for these valve failures.

Stampede:  At this Hess operated project in the Green Canyon area of the Gulf of Mexico, the co-owners sanctioned the field development and committed to two deepwater drilling rigs in 2014.  In 2016, the topsides deck was installed on the hull, and fabrication and pre-commissioning of the topsides continues according to plan.  We also completed installation of subsea equipment at both drill centers in the field, drilled one development well, and commenced drilling on one water injector well.  First production from the field is targeted for 2018, and is expected to ramp up to a net rate of approximately 15,000 boepd.

Europe

Norway:  In 2016, Aker BP assumed operatorship from BP of the offshore Valhall Field (Hess 64%).  During 2016, well abandonment activities were conducted as part of a multi-year program that will continue into 2017.  In 2017, the operator plans to drill two production wells from the existing platform rig, of which one well is expected to be completed in the fourth quarter.  In 2017, net production is expected to average between 25,000 boepd to 30,000 boepd.

Denmark:  At the Hess operated offshore South Arne Field (Hess 62%), we completed drilling of a previously sanctioned eleven well multi-year program.  In addition, the Danish government awarded a 20-year extension to the South Arne Field license, extending expiry to 2047.

Africa

Equatorial Guinea: At the Hess operated offshore Block G (Hess 85% paying interest, national oil company of Equatorial Guinea 5% carried interest), we have production from the Okume and Ceiba Fields.  In 2016, there were no drilling operations and there are no plans for drilling in 2017.

Ghana:  At the Hess operated offshore Deepwater Tano/Cape Three Points license (Hess 50% license interest), we have drilled seven successful exploration wells on the block since 2011.  In May 2013, we submitted appraisal plans for each of the seven discoveries, which comprise both oil and natural gas, to the Ghanaian government for approval.  Five appraisal plans have been approved.  In 2014, we drilled three successful appraisal wells.  Well results continue to be evaluated and development planning is progressing.  The government of Côte d’Ivoire has challenged the maritime border between it and the country of Ghana, which includes a portion of our Deepwater Tano/Cape Three Points license.  We are unable to proceed with development of this license until there is a resolution of this matter, which may also impact our ability to develop the license.  The International Tribunal for Law of the Sea is expected to render a final ruling on the maritime border dispute in 2017.  Under terms of our license and subject to resolution of the border dispute, we have declared commerciality for four discoveries, including the Pecan Field in March 2016, which would be the primary development hub for the block.  We are continuing to work with the government on how best to progress work on the block given the maritime border dispute.  See Capitalized Exploratory Well Costs in Note 4, Property, Plant and Equipment in the Notes to Consolidated Financial Statements for details of wells capitalized at December 31, 2016.

Libya:  At the onshore Waha concession in Libya, which include the Defa, Faregh, Gialo, North Gialo and Belhedan Fields (Hess 8%), the operator has shut in production for extended periods over the last three years due to force majeure caused by civil unrest. The national oil company of Libya lifted force majeure in September 2016 and production recommenced in October 2016.  Net production averaged 1,000 bopd in 2016, zero in 2015, and 4,000 bopd in 2014.  We have after-tax net book value in our Libyan operations of approximately $135 million and total proved reserves of 159 million boe at December 31, 2016.


 

7


 

 

Asia and Other

Malaysia/Thailand Joint Development Area (JDA):  At the Carigali Hess operated offshore Block A-18 in the Gulf of Thailand (Hess 50%), the operator continued development drilling and completed installation and commissioning of a major booster compression project in 2016.  No drilling is planned for 2017 as contracted volumes are expected to be met as a result of the booster compression project.

Malaysia:  Our production in Malaysia comes from our interest in Block PM301 (Hess 50%), which is adjacent to and is unitized with Block A‑18 of the JDA and our 50% interest in Blocks PM302, PM325 and PM326B located in the North Malay Basin (NMB), offshore Peninsular Malaysia, where we operate a multi‑phase natural gas development project.  In 2016, we completed the installation of three remote wellhead platforms and the jacket of the central processing platform.  We also achieved mechanical completion of the central processing platform topsides and transport to the field via a heavy lift vessel is planned for the first quarter of 2017.  We expect net production from NMB to increase from 26 million cubic feet per day in 2016 to approximately 165 million cubic feet per day following the completion of full field development in the third quarter of 2017.

Australia:  At the WA‑390‑P and WA-474-P blocks (Hess 100%) in the Carnarvon Basin, offshore Western Australia (also known as Equus) covering approximately 658,000 acres, we have drilled 13 natural gas discoveries and 6 appraisal wells.  In the fourth quarter of 2016, we terminated a joint front-end engineering study with a third party natural gas liquefaction joint venture and notified the government of Australia of our intent to defer further development of the project.  As a result, we recognized an after-tax charge of $693 million to expense capitalized exploratory well costs and other project related costs.

Guyana:  At the Esso Exploration and Production Guyana Limited operated offshore Stabroek Block (Hess 30% participating interest), the operator announced a significant oil discovery at the Liza-1 well in 2015.  During 2016, the operator completed a 17,000 square kilometer 3D seismic acquisition on the Stabroek Block and drilled the Liza-2 and Liza-3 wells, both of which encountered hydrocarbons.  Pre-development planning and appraisal activities are underway and we expect to be in a position to sanction the first phase of the Liza development in mid-2017 with first production expected in 2020.  At the Skipjack prospect 25 miles northwest of the Liza discovery, the operator completed the drilling of an exploration well, which was unsuccessful and expensed.  In November 2016, the operator commenced drilling of the Payara-1 exploration well, located approximately 10 miles northwest of the Liza discovery, and in January 2017 announced results confirming the well as a second oil discovery on the block.  In 2017, the operator plans to drill a well at the Snoek exploration prospect, a Liza-4 appraisal well, and a Payara-2 appraisal well.  In addition, the operator will evaluate additional exploration opportunities on the broader Stabroek block.

Suriname:  In 2016 we acquired a 33% non-operated participating interest in the Kosmos Energy Ltd. operated Block 42 contract area, offshore Suriname, which is located in the Guyana-Suriname basin.  The operator completed a 6,500 square kilometer 3D seismic shoot in January 2017.  

Canada:  At the four BP operated exploration licenses offshore Nova Scotia (Hess 50% participating interest), the operator expects to drill its first exploration well in 2018.

Sales Commitments

We have certain long-term contracts with fixed minimum sales volume commitments for natural gas and natural gas liquids production.  At the JDA in the Gulf of Thailand, we have annual minimum net sales commitments of approximately 70 billion cubic feet of natural gas per year through 2025 and approximately 40 billion cubic feet per year in 2026 and 2027.  At the North Malay Basin development project offshore Malaysia, we have annual net sales commitments of approximately 50 billion cubic feet per year from completion of full field development which is expected in the third quarter of 2017 through 2024.  The Corporation’s estimated total volume of production subject to sales commitments over the remaining term of the contracts is approximately 1.1 trillion cubic feet of natural gas.  We also have natural gas liquids minimum delivery commitments, primarily in the Bakken through 2023, of approximately 10 million barrels per year, or approximately 70 million barrels over the remaining life of the contracts.

We have not experienced any significant constraints in satisfying the committed quantities required by our sales commitments, and we anticipate being able to meet future requirements from available proved and probable reserves and projected third-party supply.


 

8


 

 

Selling Prices and Production Costs

The following table presents our average selling prices and average production costs:

 

 

2016

 

 

2015

 

 

2014

 

Average selling prices (a)

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil - per barrel (including hedging)

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Onshore

 

$

36.92

 

 

$

42.67

 

 

$

81.89

 

Offshore

 

 

37.47

 

 

 

46.21

 

 

 

95.05

 

Total United States

 

 

37.13

 

 

 

44.01

 

 

 

87.21

 

Europe (b)

 

 

43.33

 

 

 

55.10

 

 

 

104.21

 

Africa

 

 

41.88

 

 

 

53.89

 

 

 

97.31

 

Asia

 

 

42.98

 

 

 

52.74

 

 

 

89.71

 

Worldwide

 

 

39.20

 

 

 

47.85

 

 

 

92.59

 

Crude oil - per barrel (excluding hedging)

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Onshore

 

$

36.92

 

 

$

41.22

 

 

$

81.89

 

Offshore

 

 

37.47

 

 

 

46.21

 

 

 

92.22

 

Total United States

 

 

37.13

 

 

 

43.11

 

 

 

86.06

 

Europe (b)

 

 

43.33

 

 

 

52.37

 

 

 

99.20

 

Africa

 

 

41.88

 

 

 

51.57

 

 

 

93.70

 

Asia

 

 

42.98

 

 

 

52.74

 

 

 

89.71

 

Worldwide

 

 

39.20

 

 

 

46.37

 

 

 

90.20

 

Natural gas liquids - per barrel

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Onshore

 

$

9.18

 

 

$

9.18

 

 

$

28.92

 

Offshore

 

 

13.96

 

 

 

14.40

 

 

 

30.40

 

Total United States

 

 

9.71

 

 

 

10.02

 

 

 

29.32

 

Europe (b)

 

 

19.48

 

 

 

24.59

 

 

 

52.66

 

Worldwide

 

 

9.95

 

 

 

10.52

 

 

 

30.59

 

Natural gas - per mcf

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Onshore

 

$

1.48

 

 

$

1.64

 

 

$

3.18

 

Offshore

 

 

1.99

 

 

 

2.03

 

 

 

3.79

 

Total United States

 

 

1.61

 

 

 

1.77

 

 

 

3.47

 

Europe (b)

 

 

3.97

 

 

 

6.72

 

 

 

10.00

 

Asia

 

 

5.31

 

 

 

5.97

 

 

 

6.94

 

Worldwide

 

 

3.37

 

 

 

4.16

 

 

 

6.04

 

Average production (lifting) costs per barrel of oil equivalent produced (c)

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Onshore

 

$

18.75

 

 

$

18.68

 

 

$

20.90

 

Offshore

 

 

18.88

 

 

 

7.03

 

 

 

5.06

 

Total United States

 

 

18.79

 

 

 

14.80

 

 

 

14.60

 

Europe (b)

 

 

21.28

 

 

 

23.61

 

 

 

28.93

 

Africa

 

 

20.53

 

 

 

23.12

 

 

 

22.41

 

Asia and other

 

 

11.91

 

 

 

8.34

 

 

 

9.11

 

Worldwide

 

 

18.45

 

 

 

16.17

 

 

 

16.86

 

(a)

Includes inter‑company transfers valued at approximate market prices and, primarily onshore United States, is adjusted for certain processing and distribution fees.

(b)

The average selling prices in Norway for 2016 were $43.32 per barrel for crude oil (including hedging), $43.32 per barrel for crude oil (excluding hedging), $19.48 per barrel for natural gas liquids and $5.22 per mcf for natural gas (2015: $54.89, $52.15, $24.59 and $8.58, respectively; 2014: $105.35, $100.34, $52.13 and $12.22, respectively).  The average production (lifting) costs in Norway were $24.70 per barrel of oil equivalent in 2016 (2015:  $25.81; 2014: $33.52).

(c)

Production (lifting) costs consist of amounts incurred to operate and maintain our producing oil and gas wells, related equipment and facilities and transportation costs, including Bakken Midstream tariff expense.  Lifting costs do not include costs of finding and developing proved oil and gas reserves, production and severance taxes, or the costs of related general and administrative expenses, interest expense and income taxes.


 

9


 

 

Gross and Net Undeveloped Acreage

At December 31, 2016 gross and net undeveloped acreage amounted to:

 

 

Undeveloped

 

 

 

Acreage (a)

 

 

 

Gross

 

 

Net

 

 

 

(In thousands)

 

United States

 

 

481

 

 

 

369

 

Europe

 

 

169

 

 

 

91

 

Africa

 

 

3,831

 

 

 

521

 

Asia and other

 

 

13,483

 

 

 

5,758

 

Total (b)

 

 

17,964

 

 

 

6,739

 

(a)

Includes acreage held under production sharing contracts.

(b)

At December 31, 2016, licenses covering approximately 5% of our net undeveloped acreage held are scheduled to expire during the next three years pending the results of exploration activities.

Gross and Net Developed Acreage, and Productive Wells

At December 31, 2016 gross and net developed acreage and productive wells amounted to:

 

 

Developed Acreage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Applicable to

 

 

Productive Wells (a)

 

 

 

Productive Wells

 

 

Oil

 

 

Gas

 

 

 

Gross

 

 

Net

 

 

Gross

 

 

Net

 

 

Gross

 

 

Net

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

1,293

 

 

 

827

 

 

 

2,822

 

 

 

1,365

 

 

 

177

 

 

 

84

 

Europe (b)

 

 

102

 

 

 

59

 

 

 

73

 

 

 

46

 

 

 

 

 

 

 

Africa

 

 

9,629

 

 

 

833

 

 

 

767

 

 

 

94

 

 

 

 

 

 

 

Asia and other

 

 

356

 

 

 

178

 

 

 

 

 

 

 

 

 

83

 

 

 

44

 

Total

 

 

11,380

 

 

 

1,897

 

 

 

3,662

 

 

 

1,505

 

 

 

260

 

 

 

128

 

(a)

Includes multiple completion wells (wells producing from different formations in the same bore hole) totaling 93 gross wells and 55 net wells.

(b)

Gross and net developed acreage in Norway was approximately 57 thousand and 36 thousand, respectively.  Gross and net productive oil wells in Norway were 52 and 33, respectively.

Exploratory and Development Wells

Net exploratory and net development wells completed during the years ended December 31 were:

 

Net Exploratory Wells

 

 

Net Development Wells

 

 

2016

 

 

2015

 

 

2014

 

 

2016

 

 

2015

 

 

2014

 

Productive wells