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.

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, 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)

Securities registered 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

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, a 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 June 30, 2019, there were 304,480,590 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, 2019, and December 31, 2018

2

 

Statement of Consolidated Income for the Three and Six Months Ended June 30, 2019, and 2018

3

 

Statement of Consolidated Comprehensive Income for the Three and Six Months Ended June 30, 2019, and 2018

4

 

Statement of Consolidated Cash Flows for the Six Months Ended June 30, 2019, and 2018

5

 

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

11

 

Note 6 - Capitalized Exploratory Well Costs

12

 

Note 7 - Hess Infrastructure Partners LP

12

 

Note 8 - Retirement Plans

13

 

Note 9 - Debt

13

 

Note 10 - Weighted Average Common Shares

14

 

Note 11 - Guarantees and Contingencies

14

 

Note 12 - Segment Information

16

 

Note 13 - Financial Risk Management Activities

17

 

 

 

2.

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

19

3.

Quantitative and Qualitative Disclosures about Market Risk

33

4.

Controls and Procedures

33

 

 

 

 

PART II - OTHER INFORMATION

 

1.

Legal Proceedings

34

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)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(In millions,

 

 

 

except share amounts)

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,208

 

 

$

2,694

 

Accounts receivable:

 

 

 

 

 

 

 

 

From contracts with customers

 

 

868

 

 

 

771

 

Joint venture and other

 

 

192

 

 

 

230

 

Inventories

 

 

278

 

 

 

245

 

Other current assets

 

 

138

 

 

 

519

 

Total current assets

 

 

3,684

 

 

 

4,459

 

Property, plant and equipment:

 

 

 

 

 

 

 

 

Total — at cost

 

 

34,098

 

 

 

33,222

 

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

 

 

17,991

 

 

 

17,139

 

Property, plant and equipment — net

 

 

16,107

 

 

 

16,083

 

Operating lease right-of-use assets — net

 

 

615

 

 

 

 

Finance lease right-of-use assets — net

 

 

322

 

 

 

 

Goodwill

 

 

360

 

 

 

360

 

Deferred income taxes

 

 

21

 

 

 

21

 

Other assets

 

 

586

 

 

 

510

 

Total Assets

 

$

21,695

 

 

$

21,433

 

Liabilities

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

353

 

 

$

495

 

Accrued liabilities

 

 

1,541

 

 

 

1,560

 

Taxes payable

 

 

95

 

 

 

81

 

Current maturities of long-term debt

 

 

14

 

 

 

67

 

Current portion of operating and finance lease obligations

 

 

329

 

 

 

 

Total current liabilities

 

 

2,332

 

 

 

2,203

 

Long-term debt

 

 

6,511

 

 

 

6,605

 

Long-term operating lease obligations

 

 

395

 

 

 

 

Long-term finance lease obligations

 

 

246

 

 

 

 

Deferred income taxes

 

 

418

 

 

 

421

 

Asset retirement obligations

 

 

738

 

 

 

741

 

Other liabilities and deferred credits

 

 

524

 

 

 

575

 

Total Liabilities

 

 

11,164

 

 

 

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 — 304,480,590 shares (2018: 291,434,534)

 

 

304

 

 

 

291

 

Capital in excess of par value

 

 

5,513

 

 

 

5,386

 

Retained earnings

 

 

4,125

 

 

 

4,257

 

Accumulated other comprehensive income (loss)

 

 

(648

)

 

 

(306

)

Total Hess Corporation stockholders’ equity

 

 

9,294

 

 

 

9,629

 

Noncontrolling interests

 

 

1,237

 

 

 

1,259

 

Total equity

 

 

10,531

 

 

 

10,888

 

Total Liabilities and Equity

 

$

21,695

 

 

$

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

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In millions, except per share amounts)

 

Revenues and Non-Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and other operating revenues

 

$

1,660

 

 

$

1,534

 

 

$

3,232

 

 

$

2,880

 

Gains on asset sales, net

 

 

22

 

 

 

11

 

 

 

22

 

 

 

18

 

Other, net

 

 

15

 

 

 

21

 

 

 

42

 

 

 

58

 

Total revenues and non-operating income

 

 

1,697

 

 

 

1,566

 

 

 

3,296

 

 

 

2,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing, including purchased oil and gas

 

 

477

 

 

 

450

 

 

 

885

 

 

 

808

 

Operating costs and expenses

 

 

285

 

 

 

288

 

 

 

551

 

 

 

576

 

Production and severance taxes

 

 

46

 

 

 

42

 

 

 

85

 

 

 

81

 

Exploration expenses, including dry holes and lease impairment

 

 

43

 

 

 

62

 

 

 

77

 

 

 

102

 

General and administrative expenses

 

 

89

 

 

 

129

 

 

 

176

 

 

 

239

 

Interest expense

 

 

97

 

 

 

98

 

 

 

195

 

 

 

201

 

Loss on debt extinguishment

 

 

 

 

 

26

 

 

 

 

 

 

53

 

Depreciation, depletion and amortization

 

 

494

 

 

 

444

 

 

 

992

 

 

 

861

 

Total costs and expenses

 

 

1,531

 

 

 

1,539

 

 

 

2,961

 

 

 

2,921

 

Income (Loss) Before Income Taxes

 

 

166

 

 

 

27

 

 

 

335

 

 

 

35

 

Provision (benefit) for income taxes

 

 

132

 

 

 

114

 

 

 

226

 

 

 

187

 

Net Income (Loss)

 

 

34

 

 

 

(87

)

 

 

109

 

 

 

(152

)

Less: Net income (loss) attributable to noncontrolling interests

 

 

40

 

 

 

43

 

 

 

83

 

 

 

84

 

Net Income (Loss) Attributable to Hess Corporation

 

 

(6

)

 

 

(130

)

 

 

26

 

 

 

(236

)

Less: Preferred stock dividends

 

 

 

 

 

12

 

 

 

4

 

 

 

23

 

Net Income (Loss) Attributable to Hess Corporation Common Stockholders

 

$

(6

)

 

$

(142

)

 

$

22

 

 

$

(259

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.02

)

 

$

(0.48

)

 

$

0.07

 

 

$

(0.85

)

Diluted

 

$

(0.02

)

 

$

(0.48

)

 

$

0.07

 

 

$

(0.85

)

Weighted Average Number of Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

302.2

 

 

 

297.5

 

 

 

299.8

 

 

 

303.5

 

Diluted

 

 

302.2

 

 

 

297.5

 

 

 

302.1

 

 

 

303.5

 

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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

34

 

 

$

(87

)

 

$

109

 

 

$

(152

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of hedge (gains) losses reclassified to income

 

 

14

 

 

 

49

 

 

 

(1

)

 

 

80

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of hedge (gains) losses reclassified to income

 

 

14

 

 

 

49

 

 

 

(1

)

 

 

80

 

Change in fair value of cash flow hedges

 

 

 

 

 

(13

)

 

 

(346

)

 

 

(35

)

Income taxes on change in fair value of cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

Net change in fair value of cash flow hedges

 

 

 

 

 

(13

)

 

 

(346

)

 

 

(35

)

Change in derivatives designated as cash flow hedges, after taxes

 

 

14

 

 

 

36

 

 

 

(347

)

 

 

45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and other postretirement plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Increase) reduction in unrecognized actuarial losses

 

 

(24

)

 

 

5

 

 

 

(18

)

 

 

130

 

Income taxes on actuarial changes in plan liabilities

 

 

 

 

 

(1

)

 

 

 

 

 

(31

)

(Increase) reduction in unrecognized actuarial losses, net

 

 

(24

)

 

 

4

 

 

 

(18

)

 

 

99

 

Amortization of net actuarial losses

 

 

12

 

 

 

9

 

 

 

23

 

 

 

21

 

Income taxes on amortization of net actuarial losses

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of amortization of net actuarial losses

 

 

12

 

 

 

9

 

 

 

23

 

 

 

21

 

Change in pension and other postretirement plans, after taxes

 

 

(12

)

 

 

13

 

 

 

5

 

 

 

120

 

Other Comprehensive Income (Loss)

 

 

2

 

 

 

49

 

 

 

(342

)

 

 

165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income (Loss)

 

 

36

 

 

 

(38

)

 

 

(233

)

 

 

13

 

Less: Comprehensive income (loss) attributable to noncontrolling interests

 

 

40

 

 

 

43

 

 

 

83

 

 

 

84

 

Comprehensive Income (Loss) Attributable to Hess Corporation

 

$

(4

)

 

$

(81

)

 

$

(316

)

 

$

(71

)

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,

 

 

 

2019

 

 

2018

 

 

 

(In millions)

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

109

 

 

$

(152

)

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