10-Q 1 hes-10q_20180630.htm 10-Q hes-10q_20180630.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, 2018

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

(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, 2018, there were 299,688,199 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, 2018, and December 31, 2017

2

 

Statement of Consolidated Income for the Three and Six Months Ended June 30, 2018, and 2017

3

 

Statement of Consolidated Comprehensive Income for the Three and Six Months Ended June 30, 2018, and 2017

4

 

Statement of Consolidated Cash Flows for the Six Months Ended June 30, 2018, and 2017

5

 

Statement of Consolidated Equity for the Six Months Ended June 30, 2018, and 2017

6

 

Notes to Consolidated Financial Statements (Unaudited)

7

 

Note 1 - Basis of Presentation

7

 

Note 2 - Revenue

8

 

Note 3 - Common Stock Repurchase Program

11

 

Note 4 - Debt

11

 

Note 5 - Inventories

11

 

Note 6 - Property, Plant and Equipment

11

 

Note 7 - Hess Infrastructure Partners LP

12

 

Note 8 - Severance Costs

12

 

Note 9 - Retirement Plans

12

 

Note 10 - Weighted Average Common Shares

13

 

Note 11 - Guarantees and Contingencies

14

 

Note 12 - Segment Information

16

 

Note 13 - Financial Risk Management Activities

17

 

Note 14 - Subsequent Event

19

 

 

 

2.

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

20

3.

Quantitative and Qualitative Disclosures about Market Risk

33

4.

Controls and Procedures

33

 

 

 

 

PART II - OTHER INFORMATION

 

1.

Legal Proceedings

34

2.

Share Repurchase Activities

34

6.

Exhibits

35

 

Signatures

36

 

Certifications

 

 

 

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.

 


PART I - FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements.

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (UNAUDITED)

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(In millions,

 

 

 

except share amounts)

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,908

 

 

$

4,847

 

Accounts receivable:

 

 

 

 

 

 

 

 

From contracts with customers

 

 

784

 

 

 

677

 

Joint venture and other

 

 

291

 

 

 

347

 

Inventories

 

 

231

 

 

 

232

 

Assets held for sale

 

 

421

 

 

 

 

Other current assets

 

 

59

 

 

 

54

 

Total current assets

 

 

4,694

 

 

 

6,157

 

Property, plant and equipment:

 

 

 

 

 

 

 

 

Total — at cost

 

 

32,040

 

 

 

32,504

 

Less: Reserves for depreciation, depletion, amortization and lease impairment

 

 

16,171

 

 

 

16,312

 

Property, plant and equipment — net

 

 

15,869

 

 

 

16,192

 

Goodwill

 

 

360

 

 

 

360

 

Deferred income taxes

 

 

18

 

 

 

21

 

Other assets

 

 

523

 

 

 

382

 

Total Assets

 

$

21,464

 

 

$

23,112

 

Liabilities

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

363

 

 

$

435

 

Accrued liabilities

 

 

1,446

 

 

 

1,337

 

Taxes payable

 

 

49

 

 

 

83

 

Current maturities of long-term debt

 

 

87

 

 

 

580

 

Total current liabilities

 

 

1,945

 

 

 

2,435

 

Long-term debt

 

 

6,352

 

 

 

6,397

 

Deferred income taxes

 

 

424

 

 

 

429

 

Asset retirement obligations

 

 

773

 

 

 

753

 

Other liabilities and deferred credits

 

 

634

 

 

 

744

 

Total Liabilities

 

 

10,128

 

 

 

10,758

 

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 (2017: 575,000)

 

 

1

 

 

 

1

 

Common stock, par value $1.00; Authorized — 600,000,000 shares

 

 

 

 

 

 

 

 

Issued — 299,688,199 shares (2017: 315,053,615)

 

 

300

 

 

 

315

 

Capital in excess of par value

 

 

5,501

 

 

 

5,824

 

Retained earnings

 

 

4,692

 

 

 

5,597

 

Accumulated other comprehensive income (loss)

 

 

(522

)

 

 

(686

)

Total Hess Corporation stockholders’ equity

 

 

9,972

 

 

 

11,051

 

Noncontrolling interests

 

 

1,364

 

 

 

1,303

 

Total equity

 

 

11,336

 

 

 

12,354

 

Total Liabilities and Equity

 

$

21,464

 

 

$

23,112

 

See accompanying Notes to Consolidated Financial Statements.

2

 


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,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In millions, except per share amounts)

 

Revenues and Non-Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and other operating revenues

 

$

1,534

 

 

$

1,197

 

 

$

2,880

 

 

$

2,455

 

Gains on asset sales, net

 

 

11

 

 

 

2

 

 

 

18

 

 

 

2

 

Other, net

 

 

21

 

 

 

3

 

 

 

58

 

 

 

(1

)

Total revenues and non-operating income

 

 

1,566

 

 

 

1,202

 

 

 

2,956

 

 

 

2,456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing, including purchased oil and gas

 

 

450

 

 

 

253

 

 

 

808

 

 

 

453

 

Operating costs and expenses

 

 

288

 

 

 

374

 

 

 

576

 

 

 

732

 

Production and severance taxes

 

 

42

 

 

 

30

 

 

 

81

 

 

 

61

 

Exploration expenses, including dry holes and lease impairment

 

 

62

 

 

 

52

 

 

 

102

 

 

 

110

 

General and administrative expenses

 

 

129

 

 

 

95

 

 

 

239

 

 

 

190

 

Interest expense

 

 

98

 

 

 

82

 

 

 

201

 

 

 

166

 

Loss on debt extinguishment

 

 

26

 

 

 

 

 

 

53

 

 

 

 

Depreciation, depletion and amortization

 

 

444

 

 

 

741

 

 

 

861

 

 

 

1,478

 

Total costs and expenses

 

 

1,539

 

 

 

1,627

 

 

 

2,921

 

 

 

3,190

 

Income (Loss) Before Income Taxes

 

 

27

 

 

 

(425

)

 

 

35

 

 

 

(734

)

Provision (benefit) for income taxes

 

 

114

 

 

 

(8

)

 

 

187

 

 

 

(21

)

Net Income (Loss)

 

 

(87

)

 

 

(417

)

 

 

(152

)

 

 

(713

)

Less: Net income (loss) attributable to noncontrolling interests

 

 

43

 

 

 

32

 

 

 

84

 

 

 

60

 

Net Income (Loss) Attributable to Hess Corporation

 

 

(130

)

 

 

(449

)

 

 

(236

)

 

 

(773

)

Less: Preferred stock dividends

 

 

12

 

 

 

11

 

 

 

23

 

 

 

23

 

Net Income (Loss) Attributable to Hess Corporation Common Stockholders

 

$

(142

)

 

$

(460

)

 

$

(259

)

 

$

(796

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) Attributable to Hess Corporation Per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.48

)

 

$

(1.46

)

 

$

(0.85

)

 

$

(2.53

)

Diluted

 

$

(0.48

)

 

$

(1.46

)

 

$

(0.85

)

 

$

(2.53

)

Weighted Average Number of Common Shares Outstanding (Diluted)

 

 

297.5

 

 

 

314.4

 

 

 

303.5

 

 

 

314.2

 

Common Stock Dividends Per Share

 

$

0.25

 

 

$

0.25

 

 

$

0.50

 

 

$

0.50

 

See accompanying Notes to Consolidated Financial Statements.

 

3

 


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,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

(87

)

 

$

(417

)

 

$

(152

)

 

$

(713

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of hedge (gains) losses reclassified to income

 

 

49

 

 

 

(20

)

 

 

80

 

 

 

(20

)

Income taxes on effect of hedge (gains) losses reclassified to income

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of hedge (gains) losses reclassified to income

 

 

49

 

 

 

(20

)

 

 

80

 

 

 

(20

)

Change in fair value of cash flow hedges

 

 

(13

)

 

 

72

 

 

 

(35

)

 

 

76

 

Income taxes on change in fair value of cash flow hedges

 

 

 

 

 

2

 

 

 

 

 

 

 

Net change in fair value of cash flow hedges

 

 

(13

)

 

 

74

 

 

 

(35

)

 

 

76

 

Change in derivatives designated as cash flow hedges, after taxes

 

 

36

 

 

 

54

 

 

 

45

 

 

 

56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and other postretirement plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Increase) reduction in unrecognized actuarial losses

 

 

5

 

 

 

(2

)

 

 

130

 

 

 

5

 

Income taxes on actuarial changes in plan liabilities

 

 

(1

)

 

 

1

 

 

 

(31

)

 

 

(2

)

(Increase) reduction in unrecognized actuarial losses, net

 

 

4

 

 

 

(1

)

 

 

99

 

 

 

3

 

Amortization of net actuarial losses

 

 

9

 

 

 

23

 

 

 

21

 

 

 

40

 

Income taxes on amortization of net actuarial losses

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of amortization of net actuarial losses

 

 

9

 

 

 

23

 

 

 

21

 

 

 

40

 

Change in pension and other postretirement plans, after taxes

 

 

13

 

 

 

22

 

 

 

120

 

 

 

43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

73

 

 

 

 

 

 

87

 

Change in foreign currency translation adjustment

 

 

 

 

 

73

 

 

 

 

 

 

87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss)

 

 

49

 

 

 

149

 

 

 

165

 

 

 

186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income (Loss)

 

 

(38

)

 

 

(268

)

 

 

13

 

 

 

(527

)

Less: Comprehensive income (loss) attributable to noncontrolling interests

 

 

43

 

 

 

32

 

 

 

84

 

 

 

60

 

Comprehensive Income (Loss) Attributable to Hess Corporation

 

$

(81

)

 

$

(300

)

 

$

(71

)

 

$

(587

)

See accompanying Notes to Consolidated Financial Statements.

 

4

 


PART I - FINANCIAL INFORMATION (CONT’D.)

 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)

 

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2017

 

 

 

(In millions)

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(152

)

 

$

(713

)

Adjustments to reconcile to net cash provided by (used in) operating activities

 

 

 

 

 

 

 

 

(Gains) losses on asset sales, net

 

 

(18

)

 

 

(2

)

Depreciation, depletion and amortization

 

 

861

 

 

 

1,478

 

Exploratory dry hole costs

 

 

13

 

 

 

 

Exploration lease and other impairment

 

 

20

 

 

 

15

 

Stock compensation expense

 

 

32

 

 

 

44

 

Noncash (gains) losses on commodity derivatives, net

 

 

85

 

 

 

30

 

Provision (benefit) for deferred income taxes and other tax accruals

 

 

(34

)

 

 

(47

)

Loss on debt extinguishment

 

 

53

 

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

 

(68

)

 

 

119

 

(Increase) decrease in inventories

 

 

1

 

 

 

(52

)

Increase (decrease) in accounts payable and accrued liabilities

 

 

(64

)

 

 

(150

)

Increase (decrease) in taxes payable

 

 

(34

)

 

 

(35

)

Changes in other operating assets and liabilities

 

 

(60

)

 

 

(173

)

Net cash provided by (used in) operating activities

 

 

635

 

 

 

514

 

 

 

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

Additions to property, plant and equipment - E&P

 

 

(793

)

 

 

(786

)

Additions to property, plant and equipment - Midstream

 

 

(100

)

 

 

(84

)

Payments for Midstream equity investments

 

 

(41

)

 

 

 

Proceeds from asset sales

 

 

33

 

 

 

179

 

Other, net

 

 

(5

)

 

 

 

Net cash provided by (used in) investing activities

 

 

(906

)

 

 

(691

)

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

Net borrowings (repayments) of debt with maturities of 90 days or less

 

 

 

 

 

4

 

Debt with maturities of greater than 90 days

 

 

 

 

 

 

 

 

Borrowings

 

 

 

 

 

 

Repayments

 

 

(591

)

 

 

(77

)

Proceeds from issuance of Hess Midstream Partnership LP units

 

 

 

 

 

366

 

Common stock acquired and retired

 

 

(890

)

 

 

 

Cash dividends paid

 

 

(176

)

 

 

(182

)

Noncontrolling interests, net

 

 

(23

)

 

 

(175

)

Other, net

 

 

12

 

 

 

1

 

Net cash provided by (used in) financing activities

 

 

(1,668

)

 

 

(63

)

 

 

 

 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

(1,939

)

 

 

(240

)

Cash and Cash Equivalents at Beginning of Year

 

 

4,847

 

 

 

2,732

 

Cash and Cash Equivalents at End of Period

 

$

2,908

 

 

$

2,492

 

See accompanying Notes to Consolidated Financial Statements.

5

 


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, 2018

 

$

1

 

 

$

315

 

 

$

5,824

 

 

$

5,597

 

 

$

(686

)

 

$

11,051

 

 

$

1,303

 

 

$

12,354

 

Cumulative effect of adoption of new accounting standards

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(236

)

 

 

 

 

 

(236

)

 

 

84

 

 

 

(152

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

165

 

 

 

165

 

 

 

 

 

 

165

 

Share-based compensation, including income taxes

 

 

 

 

 

1

 

 

 

47

 

 

 

 

 

 

 

 

 

48

 

 

 

 

 

 

48

 

Dividends on preferred stock

 

 

 

 

 

 

 

 

 

 

 

(23

)

 

 

 

 

 

(23

)

 

 

 

 

 

(23

)

Dividends on common stock

 

 

 

 

 

 

 

 

 

 

 

(153

)

 

 

 

 

 

(153

)

 

 

 

 

 

(153

)

Common stock acquired and retired

 

 

 

 

 

(16

)

 

 

(370

)

 

 

(494

)

 

 

 

 

 

(880

)

 

 

 

 

 

(880

)

Noncontrolling interests, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23

)

 

 

(23

)

Balance at June 30, 2018

 

$

1

 

 

$

300

 

 

$

5,501

 

 

$

4,692

 

 

$

(522

)

 

$

9,972

 

 

$

1,364

 

 

$

11,336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

186

 

 

 

186