10-Q 1 hes-10q_20180930.htm 10-Q hes-10q_20180930.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 September 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 every Interactive Data File required to be submitted 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 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

 

  

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 September 30, 2018, there were 296,253,136 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 September 30, 2018, and December 31, 2017

2

 

Statement of Consolidated Income for the Three and Nine Months Ended September 30, 2018, and 2017

3

 

Statement of Consolidated Comprehensive Income for the Three and Nine Months Ended September 30, 2018, and 2017

4

 

Statement of Consolidated Cash Flows for the Nine Months Ended September 30, 2018, and 2017

5

 

Statement of Consolidated Equity for the Nine Months Ended September 30, 2018, and 2017

6

 

Notes to Consolidated Financial Statements (Unaudited)

7

 

Note 1 - Basis of Presentation

7

 

Note 2 - Revenue

9

 

Note 3 - Common Stock Repurchase Program

11

 

Note 4 - Debt

11

 

Note 5 - Inventories

11

 

Note 6 - Capitalized Exploratory Well Costs

12

 

Note 7 - Hess Infrastructure Partners LP

12

 

Note 8 - Exit and Disposal Costs

12

 

Note 9 - Dispositions

13

 

Note 10 - Impairment

13

 

Note 11 - Retirement Plans

13

 

Note 12 - Weighted Average Common Shares

14

 

Note 13 - Guarantees and Contingencies

14

 

Note 14 - Segment Information

16

 

Note 15 - Financial Risk Management Activities

17

 

Note 16 - Subsequent Events

19

 

 

 

2.

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

20

3.

Quantitative and Qualitative Disclosures about Market Risk

35

4.

Controls and Procedures

35

 

 

 

 

PART II - OTHER INFORMATION

 

1.

Legal Proceedings

36

2.

Share Repurchase Activities

36

6.

Exhibits

37

 

Signatures

38

 

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)

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(In millions,

 

 

 

except share amounts)

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,004

 

 

$

4,847

 

Accounts receivable:

 

 

 

 

 

 

 

 

From contracts with customers

 

 

891

 

 

 

677

 

Joint venture and other

 

 

291

 

 

 

347

 

Inventories

 

 

263

 

 

 

232

 

Other current assets

 

 

52

 

 

 

54

 

Total current assets

 

 

4,501

 

 

 

6,157

 

Property, plant and equipment:

 

 

 

 

 

 

 

 

Total — at cost

 

 

32,619

 

 

 

32,504

 

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

 

 

16,606

 

 

 

16,312

 

Property, plant and equipment — net

 

 

16,013

 

 

 

16,192

 

Goodwill

 

 

360

 

 

 

360

 

Deferred income taxes

 

 

10

 

 

 

21

 

Other assets

 

 

583

 

 

 

382

 

Total Assets

 

$

21,467

 

 

$

23,112

 

Liabilities

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

383

 

 

$

435

 

Accrued liabilities

 

 

1,394

 

 

 

1,337

 

Taxes payable

 

 

96

 

 

 

83

 

Current maturities of long-term debt

 

 

85

 

 

 

580

 

Total current liabilities

 

 

1,958

 

 

 

2,435

 

Long-term debt

 

 

6,609

 

 

 

6,397

 

Deferred income taxes

 

 

425

 

 

 

429

 

Asset retirement obligations

 

 

772

 

 

 

753

 

Other liabilities and deferred credits

 

 

657

 

 

 

744

 

Total Liabilities

 

 

10,421

 

 

 

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 — 296,253,136 shares (2017: 315,053,615)

 

 

296

 

 

 

315

 

Capital in excess of par value

 

 

5,445

 

 

 

5,824

 

Retained earnings

 

 

4,410

 

 

 

5,597

 

Accumulated other comprehensive income (loss)

 

 

(502

)

 

 

(686

)

Total Hess Corporation stockholders’ equity

 

 

9,650

 

 

 

11,051

 

Noncontrolling interests

 

 

1,396

 

 

 

1,303

 

Total equity

 

 

11,046

 

 

 

12,354

 

Total Liabilities and Equity

 

$

21,467

 

 

$

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In millions, except per share amounts)

 

Revenues and Non-Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and other operating revenues

 

$

1,793

 

 

$

1,348

 

 

$

4,673

 

 

$

3,803

 

Gains on asset sales, net

 

 

14

 

 

 

274

 

 

 

32

 

 

 

276

 

Other, net

 

 

21

 

 

 

22

 

 

 

79

 

 

 

21

 

Total revenues and non-operating income

 

 

1,828

 

 

 

1,644

 

 

 

4,784

 

 

 

4,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing, including purchased oil and gas

 

 

491

 

 

 

338

 

 

 

1,299

 

 

 

791

 

Operating costs and expenses

 

 

266

 

 

 

353

 

 

 

842

 

 

 

1,085

 

Production and severance taxes

 

 

47

 

 

 

27

 

 

 

128

 

 

 

88

 

Exploration expenses, including dry holes and lease impairment

 

 

169

 

 

 

41

 

 

 

271

 

 

 

151

 

General and administrative expenses

 

 

143

 

 

 

111

 

 

 

382

 

 

 

301

 

Interest expense

 

 

99

 

 

 

79

 

 

 

300

 

 

 

245

 

Loss on debt extinguishment

 

 

 

 

 

 

 

 

53

 

 

 

 

Depreciation, depletion and amortization

 

 

489

 

 

 

759

 

 

 

1,350

 

 

 

2,237

 

Impairment

 

 

 

 

 

2,503

 

 

 

 

 

 

2,503

 

Total costs and expenses

 

 

1,704

 

 

 

4,211

 

 

 

4,625

 

 

 

7,401

 

Income (Loss) Before Income Taxes

 

 

124

 

 

 

(2,567

)

 

 

159

 

 

 

(3,301

)

Provision (benefit) for income taxes

 

 

121

 

 

 

(1,974

)

 

 

308

 

 

 

(1,995

)

Net Income (Loss)

 

 

3

 

 

 

(593

)

 

 

(149

)

 

 

(1,306

)

Less: Net income (loss) attributable to noncontrolling interests

 

 

45

 

 

 

31

 

 

 

129

 

 

 

91

 

Net Income (Loss) Attributable to Hess Corporation

 

 

(42

)

 

 

(624

)

 

 

(278

)

 

 

(1,397

)

Less: Preferred stock dividends

 

 

11

 

 

 

11

 

 

 

34

 

 

 

34

 

Net Income (Loss) Attributable to Hess Corporation Common Stockholders

 

$

(53

)

 

$

(635

)

 

$

(312

)

 

$

(1,431

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.18

)

 

$

(2.02

)

 

$

(1.04

)

 

$

(4.55

)

Diluted

 

$

(0.18

)

 

$

(2.02

)

 

$

(1.04

)

 

$

(4.55

)

Weighted Average Number of Common Shares Outstanding (Diluted)

 

 

294.3

 

 

 

314.5

 

 

 

300.4

 

 

 

314.3

 

Common Stock Dividends Per Share

 

$

0.25

 

 

$

0.25

 

 

$

0.75

 

 

$

0.75

 

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

3

 

 

$

(593

)

 

$

(149

)

 

$

(1,306

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of hedge (gains) losses reclassified to income

 

 

49

 

 

 

(18

)

 

 

129

 

 

 

(38

)

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

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of hedge (gains) losses reclassified to income

 

 

49

 

 

 

(18

)

 

 

129

 

 

 

(38

)

Change in fair value of cash flow hedges

 

 

(49

)

 

 

(76

)

 

 

(84

)

 

 

 

Income taxes on change in fair value of cash flow hedges

 

 

12

 

 

 

 

 

 

12

 

 

 

 

Net change in fair value of cash flow hedges

 

 

(37

)

 

 

(76

)

 

 

(72

)

 

 

 

Change in derivatives designated as cash flow hedges, after taxes

 

 

12

 

 

 

(94

)

 

 

57

 

 

 

(38

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and other postretirement plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Increase) reduction in unrecognized actuarial losses

 

 

 

 

 

 

 

 

130

 

 

 

5

 

Income taxes on actuarial changes in plan liabilities

 

 

 

 

 

2

 

 

 

(31

)

 

 

 

(Increase) reduction in unrecognized actuarial losses, net

 

 

 

 

 

2

 

 

 

99

 

 

 

5

 

Amortization of net actuarial losses

 

 

8

 

 

 

17

 

 

 

29

 

 

 

57

 

Income taxes on amortization of net actuarial losses

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of amortization of net actuarial losses

 

 

8

 

 

 

17

 

 

 

29

 

 

 

57

 

Change in pension and other postretirement plans, after taxes

 

 

8

 

 

 

19

 

 

 

128

 

 

 

62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

121

 

 

 

 

 

 

208

 

Change in foreign currency translation adjustment

 

 

 

 

 

121

 

 

 

 

 

 

208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss)

 

 

20

 

 

 

46

 

 

 

185

 

 

 

232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income (Loss)

 

 

23

 

 

 

(547

)

 

 

36

 

 

 

(1,074

)

Less: Comprehensive income (loss) attributable to noncontrolling interests

 

 

45

 

 

 

31

 

 

 

129

 

 

 

91

 

Comprehensive Income (Loss) Attributable to Hess Corporation

 

$

(22

)

 

$

(578

)

 

$

(93

)

 

$

(1,165

)

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)

 

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

 

(In millions)

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(149

)

 

$

(1,306

)

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

 

 

 

 

 

 

 

 

(Gains) losses on asset sales, net

 

 

(32

)

 

 

(276

)

Depreciation, depletion and amortization

 

 

1,350

 

 

 

2,237

 

Impairment

 

 

 

 

 

2,503

 

Exploratory dry hole costs

 

 

132

 

 

 

 

Exploration lease and other impairment

 

 

28

 

 

 

22

 

Stock compensation expense

 

 

53

 

 

 

65

 

Noncash (gains) losses on commodity derivatives, net

 

 

134

 

 

 

43

 

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

 

 

(28

)

 

 

(2,055

)

Loss on debt extinguishment

 

 

53

 

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

 

(247

)

 

 

(88

)

(Increase) decrease in inventories

 

 

(35

)

 

 

(48

)

Increase (decrease) in accounts payable and accrued liabilities

 

 

(140

)

 

 

(189

)

Increase (decrease) in taxes payable

 

 

9

 

 

 

3

 

Changes in other operating assets and liabilities

 

 

(70

)

 

 

(309

)

Net cash provided by (used in) operating activities

 

 

1,058

 

 

 

602

 

 

 

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

Additions to property, plant and equipment - E&P

 

 

(1,265

)

 

 

(1,275

)

Additions to property, plant and equipment - Midstream

 

 

(168

)

 

 

(108

)

Payments for Midstream equity investments

 

 

(67

)

 

 

 

Proceeds from asset sales, net of cash sold

 

 

607

 

 

 

783

 

Other, net

 

 

(8

)

 

 

(1

)

Net cash provided by (used in) investing activities

 

 

(901

)

 

 

(601

)

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

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

 

 

 

 

 

15

 

Debt with maturities of greater than 90 days

 

 

 

 

 

 

 

 

Borrowings

 

 

 

 

 

 

Repayments

 

 

(610

)

 

 

(107

)

Proceeds from issuance of Hess Midstream Partnership LP units

 

 

 

 

 

366

 

Common stock acquired and retired

 

 

(1,120

)

 

 

 

Cash dividends paid

 

 

(262

)

 

 

(273

)

Noncontrolling interests, net

 

 

(36

)

 

 

(208

)

Other, net

 

 

28

 

 

 

 

Net cash provided by (used in) financing activities

 

 

(2,000

)

 

 

(207

)

 

 

 

 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

(1,843

)

 

 

(206

)

Cash and Cash Equivalents at Beginning of Year

 

 

4,847

 

 

 

2,732

 

Cash and Cash Equivalents at End of Period

 

$

3,004

 

 

$

2,526

 

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)

 

 

 

 

 

 

 

 

 

 

 

(278

)

 

 

 

 

 

(278

)

 

 

129

 

 

 

(149

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

185

 

 

 

185

 

 

 

 

 

 

185

 

Share-based compensation, including income taxes

 

 

 

 

 

1

 

 

 

83

 

 

 

 

 

 

 

 

 

84

 

 

 

 

 

 

84

 

Dividends on preferred stock

 

 

 

 

 

 

 

 

 

 

 

(34

)

 

 

 

 

 

(34

)

 

 

 

 

 

(34

)

Dividends on common stock

 

 

 

 

 

 

 

 

 

 

 

(228

)

 

 

 

 

 

(228

)

 

 

 

 

 

(228

)

Common stock acquired and retired

 

 

 

 

 

(20

)

 

 

(462

)

 

 

(648

)

 

 

 

 

 

(1,130

)

 

 

 

 

 

(1,130

)

Noncontrolling interests, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36

)

 

 

(36

)

Balance at September 30, 2018

 

$

1

 

 

$

296

 

 

$

5,445

 

 

$

4,410

 

 

$

(502

)

 

$

9,650

 

 

$

1,396

 

 

$

11,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

(1,397

)

 

 

 

 

 

(1,397

)

 

 

91

 

 

 

(1,306

)

Other comprehensive income