10-Q 1 hes-10q_20190331.htm 10-Q hes-10q_20190331.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 March 31, 2019

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 March 31, 2019, there were 304,280,819 shares of Common Stock outstanding.

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

Title of each class

Trading Symbol

Name of exchange on which registered

Common Stock

HES

New York Stock Exchange

 

 

 

 

 


 

HESS CORPORATION

Form 10-Q

TABLE OF CONTENTS

 

Item

No.

 

Page

Number

 

PART I - FINANCIAL INFORMATION

 

1.

Financial Statements (Unaudited)

 

 

Consolidated Balance Sheet at March 31, 2019, and December 31, 2018

2

 

Statement of Consolidated Income for the Three Months Ended March 31, 2019, and 2018

3

 

Statement of Consolidated Comprehensive Income for the Three Months Ended March 31, 2019, and 2018

4

 

Statement of Consolidated Cash Flows for the Three Months Ended March 31, 2019, and 2018

5

 

Statement of Consolidated Equity for the Three Months Ended March 31, 2019, and 2018

6

 

Notes to Consolidated Financial Statements (Unaudited)

7

 

Note 1 - Basis of Presentation

7

 

Note 2 - Leases

8

 

Note 3 - Preferred Stock Conversion

10

 

Note 4 - Revenue

10

 

Note 5 - Inventories

10

 

Note 6 - Capitalized Exploratory Well Costs

11

 

Note 7 - Hess Infrastructure Partners LP

11

 

Note 8 - Retirement Plans

12

 

Note 9 - Debt

12

 

Note 10 - Weighted Average Common Shares

12

 

Note 11 - Guarantees and Contingencies

13

 

Note 12 - Segment Information

15

 

Note 13 - Financial Risk Management Activities

15

 

Note 14 - Subsequent Event

17

 

 

 

2.

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

18

3.

Quantitative and Qualitative Disclosures about Market Risk

32

4.

Controls and Procedures

32

 

 

 

 

PART II - OTHER INFORMATION

 

1.

Legal Proceedings

33

2.

Share Repurchase Activities

33

6.

Exhibits

34

 

Signatures

35

 

 

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)

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(In millions,

 

 

 

except share amounts)

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,300

 

 

$

2,694

 

Accounts receivable:

 

 

 

 

 

 

 

 

From contracts with customers

 

 

868

 

 

 

771

 

Joint venture and other

 

 

248

 

 

 

230

 

Inventories

 

 

274

 

 

 

245

 

Other current assets

 

 

144

 

 

 

519

 

Total current assets

 

 

3,834

 

 

 

4,459

 

Property, plant and equipment:

 

 

 

 

 

 

 

 

Total — at cost

 

 

33,446

 

 

 

33,222

 

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

 

 

17,548

 

 

 

17,139

 

Property, plant and equipment — net

 

 

15,898

 

 

 

16,083

 

Operating lease right-of-use assets — net

 

 

713

 

 

 

 

Finance lease right-of-use assets — net

 

 

332

 

 

 

 

Goodwill

 

 

360

 

 

 

360

 

Deferred income taxes

 

 

22

 

 

 

21

 

Other assets

 

 

557

 

 

 

510

 

Total Assets

 

$

21,716

 

 

$

21,433

 

Liabilities

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

399

 

 

$

495

 

Accrued liabilities

 

 

1,369

 

 

 

1,560

 

Taxes payable

 

 

89

 

 

 

81

 

Current maturities of long-term debt

 

 

12

 

 

 

67

 

Current portion of operating and finance lease obligations

 

 

402

 

 

 

 

Total current liabilities

 

 

2,271

 

 

 

2,203

 

Long-term debt

 

 

6,550

 

 

 

6,605

 

Long-term operating lease obligations

 

 

436

 

 

 

 

Long-term finance lease obligations

 

 

250

 

 

 

 

Deferred income taxes

 

 

420

 

 

 

421

 

Asset retirement obligations

 

 

745

 

 

 

741

 

Other liabilities and deferred credits

 

 

491

 

 

 

575

 

Total Liabilities

 

 

11,163

 

 

 

10,545

 

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 — 0 shares (2018: 574,997)

 

 

 

 

 

1

 

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

 

 

 

 

 

 

 

 

Issued — 304,280,819 shares (2018: 291,434,534)

 

 

304

 

 

 

291

 

Capital in excess of par value

 

 

5,481

 

 

 

5,386

 

Retained earnings

 

 

4,207

 

 

 

4,257

 

Accumulated other comprehensive income (loss)

 

 

(650

)

 

 

(306

)

Total Hess Corporation stockholders’ equity

 

 

9,342

 

 

 

9,629

 

Noncontrolling interests

 

 

1,211

 

 

 

1,259

 

Total equity

 

 

10,553

 

 

 

10,888

 

Total Liabilities and Equity

 

$

21,716

 

 

$

21,433

 

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

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(In millions,

except per share amounts)

 

Revenues and Non-Operating Income

 

 

 

 

 

 

 

 

Sales and other operating revenues

 

$

1,572

 

 

$

1,346

 

Gains on asset sales, net

 

 

 

 

 

7

 

Other, net

 

 

27

 

 

 

37

 

Total revenues and non-operating income

 

 

1,599

 

 

 

1,390

 

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

 

Marketing, including purchased oil and gas

 

 

408

 

 

 

358

 

Operating costs and expenses

 

 

266

 

 

 

288

 

Production and severance taxes

 

 

39

 

 

 

39

 

Exploration expenses, including dry holes and lease impairment

 

 

34

 

 

 

40

 

General and administrative expenses

 

 

87

 

 

 

110

 

Interest expense

 

 

98

 

 

 

103

 

Loss on debt extinguishment

 

 

 

 

 

27

 

Depreciation, depletion and amortization

 

 

498

 

 

 

417

 

Total costs and expenses

 

 

1,430

 

 

 

1,382

 

Income (Loss) Before Income Taxes

 

 

169

 

 

 

8

 

Provision (benefit) for income taxes

 

 

94

 

 

 

73

 

Net Income (Loss)

 

 

75

 

 

 

(65

)

Less: Net income (loss) attributable to noncontrolling interests

 

 

43

 

 

 

41

 

Net Income (Loss) Attributable to Hess Corporation

 

 

32

 

 

 

(106

)

Less: Preferred stock dividends

 

 

4

 

 

 

11

 

Net Income (Loss) Attributable to Hess Corporation Common Stockholders

 

$

28

 

 

$

(117

)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Basic

 

$

0.09

 

 

$

(0.38

)

Diluted

 

$

0.09

 

 

$

(0.38

)

Weighted Average Number of Common Shares Outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

297.4

 

 

 

309.5

 

Diluted

 

 

299.7

 

 

 

309.5

 

Common Stock Dividends Per Share

 

$

0.25

 

 

$

0.25

 

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

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

75

 

 

$

(65

)

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as cash flow hedges

 

 

 

 

 

 

 

 

Effect of hedge (gains) losses reclassified to income

 

 

(15

)

 

 

31

 

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

 

 

 

 

 

 

Net effect of hedge (gains) losses reclassified to income

 

 

(15

)

 

 

31

 

Change in fair value of cash flow hedges

 

 

(346

)

 

 

(22

)

Income taxes on change in fair value of cash flow hedges

 

 

 

 

 

 

Net change in fair value of cash flow hedges

 

 

(346

)

 

 

(22

)

Change in derivatives designated as cash flow hedges, after taxes

 

 

(361

)

 

 

9

 

 

 

 

 

 

 

 

 

 

Pension and other postretirement plans

 

 

 

 

 

 

 

 

(Increase) reduction in unrecognized actuarial losses

 

 

6

 

 

 

125

 

Income taxes on actuarial changes in plan liabilities

 

 

 

 

 

(30

)

(Increase) reduction in unrecognized actuarial losses, net

 

 

6

 

 

 

95

 

Amortization of net actuarial losses

 

 

11

 

 

 

12

 

Income taxes on amortization of net actuarial losses

 

 

 

 

 

 

Net effect of amortization of net actuarial losses

 

 

11

 

 

 

12

 

Change in pension and other postretirement plans, after taxes

 

 

17

 

 

 

107

 

Other Comprehensive Income (Loss)

 

 

(344

)

 

 

116

 

 

 

 

 

 

 

 

 

 

Comprehensive Income (Loss)

 

 

(269

)

 

 

51

 

Less: Comprehensive income (loss) attributable to noncontrolling interests

 

 

43

 

 

 

41

 

Comprehensive Income (Loss) Attributable to Hess Corporation

 

$

(312

)

 

$

10

 

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)

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

 

 

(In millions)

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

75

 

 

$

(65

)

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

 

 

 

 

 

 

 

 

Gains on asset sales, net

 

 

 

 

 

(7

)

Depreciation, depletion and amortization

 

 

498

 

 

 

417

 

Exploration lease and other impairment

 

 

7

 

 

 

10

 

Stock compensation expense

 

 

27

 

 

 

13

 

Noncash (gains) losses on commodity derivatives, net

 

 

29

 

 

 

38

 

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

 

 

(1

)

 

 

(36

)

Loss on debt extinguishment

 

 

 

 

 

27

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

 

(117

)

 

 

(11

)

(Increase) decrease in inventories

 

 

(29

)

 

 

(7

)

Increase (decrease) in accounts payable and accrued liabilities

 

 

(204

)

 

 

(135

)

Increase (decrease) in taxes payable

 

 

8

 

 

 

(1

)

Changes in other operating assets and liabilities

 

 

(55

)

 

 

(33

)

Net cash provided by (used in) operating activities

 

 

238

 

 

 

210

 

 

 

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

Additions to property, plant and equipment - E&P

 

 

(521

)

 

 

(363

)

Additions to property, plant and equipment - Midstream

 

 

(150

)

 

 

(37

)

Payments for Midstream equity investments

 

 

(7

)

 

 

(24

)

Proceeds from asset sales, net of cash sold

 

 

 

 

 

6

 

Other, net

 

 

(2

)

 

 

(4

)

Net cash provided by (used in) investing activities

 

 

(680

)

 

 

(422

)

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

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

 

 

199

 

 

 

 

Debt with maturities of greater than 90 days:

 

 

 

 

 

 

 

 

Repayments

 

 

(3

)

 

 

(434

)

Payments on finance lease obligations

 

 

(23

)

 

 

 

Common stock acquired and retired

 

 

(25

)

 

 

(371

)

Cash dividends paid

 

 

(88

)

 

 

(89

)

Noncontrolling interests, net

 

 

(13

)

 

 

(12

)

Other, net

 

 

1

 

 

 

(3

)

Net cash provided by (used in) financing activities

 

 

48

 

 

 

(909

)

 

 

 

 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

(394

)

 

 

(1,121

)

Cash and Cash Equivalents at Beginning of Year

 

 

2,694

 

 

 

4,847

 

Cash and Cash Equivalents at End of Period

 

$

2,300

 

 

$

3,726

 

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, 2019

 

$

1

 

 

$

291

 

 

$

5,386

 

 

$

4,257

 

 

$

(306

)

 

$

9,629

 

 

$

1,259

 

 

$

10,888

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

32

 

 

 

 

 

 

32

 

 

 

43

 

 

 

75

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(344

)

 

 

(344

)

 

 

 

 

 

(344

)

Preferred stock conversion

 

 

(1

)

 

 

12

 

 

 

(11

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation activity

 

 

 

 

 

1

 

 

 

28

 

 

 

 

 

 

 

 

 

29

 

 

 

 

 

 

29

 

Dividends on preferred stock

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

Dividends on common stock

 

 

 

 

 

 

 

 

 

 

 

(78

)

 

 

 

 

 

(78

)

 

 

 

 

 

(78

)

Sale of water business to Hess Infrastructure Partners

 

 

 

 

 

 

 

 

78

 

 

 

 

 

 

 

 

 

78

 

 

 

(78

)

 

 

 

Noncontrolling interests, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

(13

)

Balance at March 31, 2019

 

$

 

 

$

304

 

 

$

5,481

 

 

$

4,207

 

 

$

(650

)

 

$

9,342

 

 

$

1,211

 

 

$

10,553

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

(106

)

 

 

 

 

 

(106

)

 

 

41

 

 

 

(65

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

116

 

 

 

116

 

 

 

 

 

 

116

 

Share-based compensation activity

 

 

 

 

 

1

 

 

 

12

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

13

 

Dividends on preferred stock

 

 

 

 

 

 

 

 

 

 

 

(11

)

 

 

 

 

 

(11

)

 

 

 

 

 

(11

)

Dividends on common stock

 

 

 

 

 

 

 

 

 

 

 

(78

)

 

 

 

 

 

(78

)

 

 

 

 

 

(78

)

Common stock acquired and retired

 

 

 

 

 

(8

)

 

 

(135

)

 

 

(237

)

 

 

 

 

 

(380

)

 

 

 

 

 

(380

)

Noncontrolling interests, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

(12

)

Balance at March 31, 2018

 

$

1

 

 

$

308

 

 

$

5,701

 

 

$

5,166

 

 

$

(571

)

 

$

10,605

 

 

$

1,332

 

 

$

11,937

 

See accompanying Notes to Consolidated Financial Statements.

 

 

6

 


PART I - FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.  Basis of Presentation

The financial statements included in this report reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of our consolidated financial position at March 31, 2019 and December 31, 2018, the consolidated results of operations for the three months ended March 31, 2019 and 2018, and consolidated cash flows for the three months ended March 31, 2019 and 2018.  The unaudited results of operations for the interim periods reported are not necessarily indicative of results to be expected for the full year.

The financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission (SEC) for interim reporting.  As permitted under those rules, certain notes or other financial information that are normally required by generally accepted accounting principles (GAAP) in the United States have been condensed or omitted from these interim financial statements.  These statements, therefore, should be read in conjunction with the consolidated financial statements and related notes included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018.

On January 1, 2019, we adopted Accounting Standards Codification (ASC) Topic 842, Leases.  ASC 842 supersedes ASC 840 and requires the recognition of right-of-use assets and lease obligations for all leases with lease terms greater than one year, including leases previously treated as operating leases under ASC 840.  We adopted ASC 842 using the modified retrospective method which allows the standard to be applied prospectively.  No cumulative effect adjustment was recorded to Retained Earnings at January 1, 2019, and comparative financial statements for periods prior to adoption of ASC 842 were not affected.  We elected to apply a number of practical expedients permitted by the standard, including not needing to reassess: (i) whether existing contracts are (or contain) leases, (ii) whether the lease classification for existing leases would differ under ASC 842, (iii) whether initial direct costs incurred for existing leases are capitalizable under ASC 842, and (iv) land easements that were not previously accounted for as leases under ASC 840.  We also elected to not recognize a lease liability or right-of-use asset for short-term leases as defined in ASC 842.  This standard does not apply to leases acquired for oil and gas producing activities that are accounted for under ASC 932, Extractive Activities – Oil and Gas.

The adoption of ASC 842 did not have an impact on our Statement of Consolidated Income or Statement of Consolidated Cash Flows.  The impact of adoption on our Consolidated Balance Sheet on January 1, 2019, was as follows:

 

 

December 31,

2018

 

 

Adjustment for

Finance

Leases

 

 

Adjustment for

Operating Leases

 

 

January 1,

2019

 

 

 

(In Millions)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment — net

 

$

16,083

 

 

$

(346

)

 

$

 

 

$

15,737

 

Operating lease right-of-use assets — net

 

 

 

 

 

 

 

 

804

 

 

 

804

 

Finance lease right-of-use assets — net

 

 

 

 

 

346

 

 

 

 

 

 

346

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued liabilities

 

 

1,560

 

 

 

 

 

 

(2

)

 

 

1,558

 

Current maturities of long-term debt

 

 

67

 

 

 

(55

)

 

 

 

 

 

12

 

Current portion of operating and finance lease obligations

 

 

 

 

 

55

 

 

 

382

 

 

 

437

 

Long-term debt

 

 

6,605

 

 

 

(254

)

 

 

 

 

 

6,351

 

Long-term operating lease obligations

 

 

 

 

 

 

 

 

516

 

 

 

516

 

Long-term finance lease obligations

 

 

 

 

 

254

 

 

 

 

 

 

254

 

Other liabilities and deferred credits

 

 

575

 

 

 

 

 

 

(92

)

 

 

483

 

 

New Accounting Pronouncements:  In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses.  This ASU makes changes to the impairment model for trade receivables, net investments in leases, debt securities, loans and certain other instruments.  The standard requires the use of a forward-looking "expected loss" model compared to the current "incurred loss" model.  We expect to adopt this ASU in the first quarter of 2020 when the standard becomes effective.  We continue to evaluate this ASU but do not believe it will have a material impact on our Consolidated Financial Statements.

 


7

 


PART I - FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2.  Leases

We determine if an arrangement is an operating lease or a finance lease at inception by evaluating whether the contract conveys the right to control an identified asset during the period of use.  Right-of use (ROU) assets represent our right to use an identified asset for the lease term and lease obligations represent our obligation to make payments as set forth in the lease arrangement.  ROU assets and liabilities are recognized in the Consolidated Balance Sheet at the commencement date based on the present value of the minimum lease payments over the lease term.  Where the implicit discount rate in a lease is not readily determinable, we use our incremental borrowing rate based on information available at the commencement date for determining the present value of the minimum lease payments.  The lease term used in measurement of our lease obligations includes options to extend or terminate the lease when, in our judgment, it is reasonably certain that we will exercise that option.  Variable lease payments that depend on an index or a rate are included in the measurement of lease obligations using the index or rate at the commencement date.  Variable lease payments that vary because of changes in facts or circumstances after the commencement date of the lease are not included in the minimum lease payments used to measure lease obligations.  We have agreements that include financial obligations for lease and nonlease components.  For purposes of measuring lease obligations, we have elected not to separate nonlease components from lease components for the following classes of assets:  drilling rigs, office space, offshore vessels, and aircraft.  We apply a portfolio approach to account for operating lease ROU assets and liabilities for certain vehicles, railcars, field equipment and office equipment leases.

Finance lease cost is recognized as amortization of the ROU asset and interest expense on the lease liability.  Operating lease cost is generally recognized on a straight-line basis.  Operating lease costs for drilling rigs used to drill development wells and successful exploration wells are capitalized.  Operating lease cost for other ROU assets used in oil and gas producing activities are either capitalized or expensed on a straight-line basis based on the nature of operation for which the ROU asset is utilized.  

Leases with an initial term of 12 months or less are not recorded on the balance sheet as permitted under ASC 842.  We recognize lease cost for short-term leases on a straight-line basis over the term of the lease.  Some of our leases include one or more options to renew.  The renewal option is at our sole discretion and is not included in the lease term for measurement of the lease obligation unless we are reasonably certain, at the commencement date of the lease, to renew the lease.

Operating and finance leases presented on the Consolidated Balance Sheet at March 31, 2019 were as follows:

 

 

Operating

Leases

 

 

Finance

Leases

 

 

 

(In millions)

 

Right-of-use assets  — net (a)

 

$

713

 

 

$

332

 

Lease obligations:

 

 

 

 

 

 

 

 

Current

 

$

366

 

 

$

36

 

Long-term

 

 

436

 

 

 

250

 

Total lease obligations

 

$

802

 

 

$

286

 

(a)