2. Revenue

In the first quarter of 2018, revenue from contracts with customers on a disaggregated basis was as follows:

	Exploration and Production												Midstream		Eliminations			Total
	United States			Europe		Africa		Asia		E&P Total
Revenues from sales of our net production volumes:
Crude oil revenue	$	593		$	33	$	99	$	43	$	768		$	—	$	—		$	768
Natural gas liquids revenue		71			—		—		—		71			—		—			71
Natural gas revenue		39			3		8		128		178			—		—			178
Revenue from sale of third-party purchased volumes		325			—		24		14		363			—		—			363
Intercompany revenue		—			—		—		—		—			167		(167	)		—
Total revenues from contracts with customers		1,028			36		131		185		1,380			167		(167	)		1,380
Other operating revenue (a)		(34	)		—		—		—		(34	)		—		—			(34	)
Total sales and other operating revenues	$	994		$	36	$	131	$	185	$	1,346		$	167	$	(167	)	$	1,346

(a)	Includes gains (losses) on commodity derivatives.

Exploration and Production

The E&P segment recognizes revenue from the sale of crude oil, natural gas liquids (NGLs), and natural gas as performance obligations under contracts with customers are satisfied. Our responsibilities to deliver each unit of quantity of crude oil, NGL, and natural gas under these contracts represent separate, distinct performance obligations. These performance obligations are satisfied at the point in time control of each unit of quantity transfers to the customer. Pricing is determined subsequent to contract inception, but prior to the transfer of control or shortly thereafter if required per contractual terms, with reference to a particular market or pricing index, plus or minus adjustments reflecting quality or location differentials. As a result, the entire transaction price at contract inception is variable. We do not apply a constraint to the transaction price at contract inception.

Our responsibility to stand-ready to provide a minimum volume over each commitment period under long-term international gas contracts with take-or-pay provisions represent separate, distinct performance obligations. Shortfall payments received from customers that occur when volumes purchased are below the minimum volume commitment under contracts with customer make-up rights are deferred upon receipt as a contract liability. Revenue is recognized at the earlier of when we deliver the make-up volumes in subsequent periods or when it becomes remote that the customer will exercise their make-up rights. Price discounts owed against future deliveries of international natural gas due to delivery of natural gas volumes below minimum volume commitments are recognized as reductions to revenue in the commitment period when the shortfall occurs.

Certain crude oil, NGL, and natural gas volumes are purchased by Hess from third-parties, including working interest partners and royalty owners in certain Hess-operated properties, before they are sold to customers. Where control over the crude oil, NGLs, or natural gas transfers to Hess before the volumes are transferred to the customer, revenue and the associated cost of purchased volumes are presented on a gross basis in the Statement of Consolidated Income. Where control of crude oil, NGLs, or natural gas is not transferred to Hess, revenue is presented net of the associated cost of purchased volumes.

Contract types

The following is a summary of contract types for our E&P segment:

Crude oil, natural gas liquids, and natural gas – U.S.: Contracts with customers for the sale of U.S. crude oil, NGLs, and natural gas primarily include those contracts that involve the short-term sale of volumes during a specified period, and those contracts that automatically renew on a periodic basis until either party cancels. We have certain long-term contracts with customers for the sale of U.S. natural gas and NGLs that have remaining durations of less than ten years. Contracts may specify a fixed volume for delivery subject to tolerance thresholds, or may specify a percentage of production to be delivered from a particular location. Pricing is determined with reference to a particular market or pricing index, plus or minus adjustments reflecting quality or location differentials, prior to transfer of control.

Crude oil – International: Contracts with customers for the sale of international crude oil involve the short-term sale of volumes during a specified period. These contracts specify a fixed volume for delivery subject to tolerance thresholds. Pricing is determined with reference to a particular market or pricing index, plus or minus adjustments reflecting quality or location differentials, shortly after control of the volumes transfers to the customer.

Natural Gas – International: Contracts with customers for the sale of natural gas are in the form of natural gas sales agreements with government entities that have durations that are aligned with the durations of production sharing contracts or other contractual arrangements with host governments. Pricing is determined, prior to the recognition of revenue, using contractual formulas that are based on the price of alternative fuels as obtained from price indices, and other factors. These contracts also specify a minimum volume we are obligated to make available during specified periods within the contract term, and may specify minimum volumes the customer is obligated to purchase during specified periods within the contract term. If we do not deliver the volume properly nominated by the customer, the customer is entitled to a price discount on future volumes equivalent to the shortfall delivery. Under certain international natural gas sales agreements, if the customer purchases natural gas volumes below the minimum volume commitment, the customer is required to pay us for the shortfall volumes and may receive make-up volumes in subsequent periods at no additional cost.

Revenue from sale of third-party purchased volumes: Crude oil, NGLs, and natural gas are purchased by Hess from third-parties, including working interest partners and royalty owners in certain Hess-operated properties, before they are sold to customers. The types of contracts with customers for the sale of third-party purchased volumes are the same as those described above.

Contract Balances

Our right to receive or collect payment from the customer is aligned with the timing of revenue recognition except in situations when we receive shortfall payments under contracts with take-or-pay provisions with customer make-up rights. Shortfall payments received from customers under contracts with take-or-pay provisions with customer make-up rights are deferred upon receipt and reflected as a contract liability. At March 31, 2018 and December 31, 2017, there were no contract assets or contract liabilities. In the three months ended March 31, 2018, there were no credit losses on receivables with customers.

Transaction Price Allocated to Remaining Performance Obligations

At March 31, 2018, the transaction price allocated to our unsatisfied performance obligations on uncompleted contracts was entirely variable. We have elected under the provisions of ASC 606 the exemption from disclosure of revenue recognizable in future periods as these performance obligations are satisfied.

Sales-based Taxes

We exclude sales-based taxes that are collected from customers from the transaction price in our contracts with customers. Accordingly, revenue from contracts with customers is net of sales-based taxes that are collected from customers and remitted to taxing authorities.

Midstream

Our Midstream segment provides gathering, compression, processing, fractionation, storage, terminaling, loading and transportation services.

The Midstream segment has multiple long-term, fee-based commercial agreements with a marketing subsidiary of Hess, each with an initial ten-year term that can be extended for an additional ten-year term at the unilateral right of our Midstream segment. These contracts have minimum volumes the customer is obligated to provide each calendar quarter. The minimum volume commitments are subject to fluctuation based on nominations covering substantially all of our E&P segment’s production and projected third-party volumes that will be purchased in the Bakken. As the minimum volume commitments are subject to fluctuation, and as these contracts contain fee inflation escalators and fee recalculation mechanisms, substantially all of the transaction price at contract inception is variable.

The Midstream segment’s responsibilities to provide each of the above services for each year under each of the commercial agreements are considered separate, distinct performance obligations. Revenue is recognized for each performance obligation under these commercial agreements over-time as services are rendered using the output method. The Midstream segment has elected the practical expedient under the provisions of ASC 606 to recognize revenue in the amount it is entitled to invoice. If the commercial agreements have take-or-pay provisions, the Midstream segment’s responsibility to stand-ready to service a minimum volume over each quarterly commitment period represent separate, distinct performance obligations. Shortfall payments received under take-or-pay provisions are recognized as revenue in the calendar quarter the shortfall occurs as the customer does not have make-up rights beyond the calendar quarter end of the quarterly commitment period. All revenues, receivables, and contract balances arising from the commercial agreements between the Midstream segment and the Hess marketing subsidiary that is the counterparty to the commercial agreements are eliminated upon consolidation.