Hess Reports Estimated Results for the Fourth Quarter of 2017

Key Highlights:

  • A sixth oil discovery on the Stabroek block, offshore Guyana (Hess 30 percent), was announced at the Ranger-1 exploration well located approximately 60 miles to the northwest of the Liza Field
  • Total recoverable resources estimate from five previous Guyana discoveries increased to more than 3.2 billion barrels of oil equivalent (boe) from previous range of 2.5 billion to 2.8 billion boe
  • The Liza Phase 1 development on the Stabroek Block is on plan with first production expected in March 2020; start up of the Liza Phase 2 development is expected by mid 2022
  • The Corporation successfully completed the sale of its interests in Equatorial Guinea and Norway, bringing year-end 2017 cash and cash equivalents to $4.8 billion, which will fund Phases 1 and 2 of the Liza Field development, an increase from four rigs to six rigs in the Bakken, a $500 million stock repurchase program, and $500 million in debt retirement
  • Year-end proved reserves were 1,154 million boe, reserve replacement was 351 percent for 2017 at a finding and development (F&D) cost of $5.15 per boe

Fourth Quarter Financial and Operating Highlights:

  • Primarily as a result of non-cash accounting charges, net loss was $2,677 million, or $8.57 per common share, compared with a net loss of $4,892 million, or $15.65 per common share, in the fourth quarter of 2016. Net after-tax special charges totaling $2,373 million were taken in the fourth quarter of 2017 that include a $1,700 million non-cash accounting charge to reduce the carrying value of Hess’ interests in the Stampede and Tubular Bells Fields in the Gulf of Mexico as a result of a lower long-term crude oil price outlook
  • Adjusted net loss was $304 million, or $1.01 per common share, compared to an adjusted net loss of $305 million, or $1.01 per common share, in the fourth quarter of last year; adjusted pre-tax loss was $104 million in the fourth quarter of 2017, down from $499 million in the year-ago quarter
  • Net production averaged 282,000 barrels of oil equivalent per day (boepd), excluding Libya, reflecting unplanned downtime at the third-party operated Enchilada platform in the Gulf of Mexico which reduced fourth quarter production by approximately 17,000 boepd; Bakken production was 110,000 boepd
  • E&P capital and exploratory expenditures were $568 million in the quarter and $2,047 million for the year ended December 31, 2017
  • The Corporation returned $210 million to shareholders in the quarter through share repurchases and dividends, including the repurchase of 2.6 million common shares for approximately $120 million

2018 Guidance:

  • E&P capital and exploratory expenditures are expected to be $2.1 billion
  • Oil and gas production, excluding Libya and reflecting an estimated 15,000 boepd reduction due to the extended Enchilada platform shutdown, is forecast to be in the range of 245,000 to 255,000 boepd, compared to full year pro forma 2017 net production, excluding Libya and assets sold, of 242,000 boepd

NEW YORK--()--Hess Corporation (NYSE:HES) today reported a net loss of $2,677 million, or $8.57 per common share, in the fourth quarter of 2017, compared with a net loss of $4,892 million, or $15.65 per common share, in the fourth quarter of 2016. Fourth quarter 2017 results reflect net after-tax charges totaling $2,373 million, including a non-cash accounting charge of $1,700 million to reduce the carrying value of Hess' interests in the Stampede and Tubular Bells Fields in the Gulf of Mexico, as a result of a lower long-term crude oil price outlook.  

  On an adjusted basis, the Corporation reported an after-tax net loss of $304 million, or $1.01 per common share, in the fourth quarter of 2017, compared with an adjusted net loss of $305 million, or $1.01 per common share, in the prior-year quarter. On an adjusted pre-tax basis, the Corporation reported a loss of $104 million in the fourth quarter of 2017, down from $499 million in the year-ago quarter. The improved pre-tax adjusted results reflect higher realized crude oil selling prices and lower operating costs and depreciation, depletion and amortization. Fourth quarter 2017 adjusted results were adversely impacted by lower deferred tax benefits, primarily in the United States, compared to the prior-year quarter following a required change in deferred tax accounting.

   “In the past year, our company successfully completed an ambitious asset sales program, replaced 351 percent of production at an attractive F&D cost of just over $5 per barrel, continued our extraordinary exploration success on the Stabroek Block in Guyana and sanctioned the Liza Phase 1 development with plans underway for the next two phases,” Chief Executive Officer John Hess said. “We enter 2018 well positioned to deliver a decade plus of capital efficient growth with increasing cash generation and returns to shareholders.”

  After-tax income (loss) by major operating activity was as follows:

                                                                         

  Three Months Ended  

  Year Ended
December 31,

  December 31,  

(unaudited) (unaudited)
2017   2016 2017   2016
(In millions, except per share amounts)

Net Income (Loss) Attributable to Hess Corporation

   
Exploration and Production $ (2,592 ) $ (3,949 ) $ (3,653 ) $ (4,964 )
Midstream 20 2 42 42
Corporate, Interest and Other   (105 )   (945 )     (463 )     (1,210 )
Net income (loss) attributable to Hess Corporation $ (2,677 ) $ (4,892 ) $   (4,074 ) $   (6,132 )
 
Net income (loss) per common share (diluted) (a) $ (8.57 ) $ (15.65 ) $   (13.12 ) $   (19.92 )
 

Adjusted Net Income (Loss) Attributable to Hess Corporation (b)

Exploration and Production $ (219 ) $ (256 ) $ (1,044 ) $ (1,265 )
Midstream 20 23 76 63
Corporate, Interest and Other   (105 )   (72 )     (433 )     (287 )
Adjusted net income (loss) attributable to Hess Corporation $ (304 ) $ (305 ) $   (1,401 ) $   (1,489 )
 
Adjusted net income (loss) per common share (diluted) (a) $ (1.01 ) $ (1.01 ) $   (4.61 ) $   (4.94 )
 
Weighted average number of shares (diluted)   313.6   313.3     314.1     309.9
 

(a)

 

Calculated as net income (loss) attributable to Hess Corporation less preferred stock dividends, divided by weighted average number of diluted shares.

(b)

Adjusted net income (loss) attributable to Hess Corporation excludes items affecting comparability summarized on page 7. A reconciliation of net income (loss) attributable to Hess Corporation to adjusted net income (loss) attributable to Hess Corporation is provided on page 9.

 

Exploration and Production:

  Exploration and Production (E&P) net loss in the fourth quarter of 2017 was $2,592 million, compared to a net loss of $3,949 million in the fourth quarter of 2016. On an adjusted basis, fourth quarter 2017 net loss was $219 million, compared to a net loss of $256 million in the prior-year quarter. The Corporation’s average realized crude oil selling price, including the effect of hedging, was $55.44 per barrel in the fourth quarter of 2017, up from $45.97 per barrel in the year-ago quarter. The average realized natural gas liquids selling price in the fourth quarter of 2017 was $22.78 per barrel, versus $14.68 per barrel in the prior-year quarter, while the average realized natural gas selling price was $3.69 per mcf, compared with $3.24 per mcf in the fourth quarter of 2016.

  Net production, excluding Libya, was 282,000 boepd in the fourth quarter of 2017, compared to 307,000 boepd in the prior-year quarter. Lower volumes were due to asset sales (26,000 boepd), unplanned downtime resulting from a fire at the third-party operated Enchilada platform in the Gulf of Mexico (17,000 boepd) and natural decline and other net reductions (19,000 boepd), partially offset by higher production in the Bakken (15,000 boepd) and from North Malay Basin (22,000 boepd).

  Excluding items affecting comparability of earnings between periods, cash operating costs, which include operating costs and expenses, production and severance taxes, and E&P general and administrative expenses, were $14.72 per boe in the fourth quarter, down 10 percent from $16.35 per boe in the prior-year quarter. Our fourth quarter 2017 cash operating costs per boe were adversely impacted by the Enchilada platform shutdown. The E&P effective tax rate, excluding items affecting comparability and Libya, was an expense of 21 percent in the fourth quarter of 2017, compared to a benefit of 43 percent in the fourth quarter of 2016.

Oil and Gas Reserve Estimates:

  Oil and gas proved reserves were 1,154 million boe at December 31, 2017, compared with 1,109 million boe at December 31, 2016. Proved reserve net additions and technical revisions added 397 million boe in 2017, primarily relating to the Bakken, Guyana and North Malay Basin in Malaysia. Asset sales reduced proved reserves by 239 million boe. The net additions and revisions of 397 million boe, which are subject to final review, replaced 351 percent of the Corporation’s 2017 production at a finding and development cost of $5.15 per boe, and resulted in a year-end 2017 reserve life of 10.2 years.

U.S. Tax Cuts and Jobs Act:

  The Corporation expects no U.S. federal cash tax on the deemed repatriation of unremitted earnings of foreign subsidiaries under the new law. The decrease in the corporate tax rate to 21 percent from 35 percent resulted in a $1,475 million reduction to our U.S. net deferred tax asset as of December 31, 2017, with a corresponding reduction in the previously established U.S. valuation allowance. Consequently, the remeasurement of deferred taxes using the newly enacted tax rate had no impact on net income or the balance sheet.

Operational Highlights for the Fourth Quarter of 2017:

  Bakken (Onshore U.S.): Net production from the Bakken increased 16 percent to 110,000 boepd from 95,000 boepd in the year-ago quarter due to increased drilling activity in 2017. The Corporation operated an average of 4 rigs in the fourth quarter, drilling 27 wells and bringing 34 new wells online.

  Gulf of Mexico (Offshore U.S.): Net production from the Gulf of Mexico was 40,000 boepd, compared to 61,000 boepd in the prior-year quarter primarily due to a fire at the third-party operated Enchilada platform. Prior to the shutdown in November, we were producing approximately 30,000 boepd from the Llano, Conger, Baldpate and Penn State fields through infrastructure associated with Enchilada. At the Stampede development (Hess operated - 25 percent), we completed subsea work, received regulatory approval for production operations, and continued drilling at the fourth production well and first water injection well. First production at Stampede commenced in January 2018.

  Guyana (Offshore): At the Stabroek Block (Hess - 30 percent), operated by Esso Exploration and Production Guyana Limited, the Ranger-1 exploration well encountered approximately 230 feet of high-quality, oil-bearing carbonate reservoir and is the sixth significant oil discovery on the Stabroek Block, offshore Guyana. Development activities associated with the Liza Phase 1 project are on schedule and first production is expected in March 2020. Start up of the Liza Phase 2 development is expected by mid 2022. Excluding Ranger, total discovered recoverable resources on the block are now estimated to be more than 3.2 billion boe.

Midstream:

  The Midstream segment, comprised primarily of Hess Infrastructure Partners LP (HIP), our 50/50 midstream joint venture, had net income of $20 million in the fourth quarter of 2017, compared to net income of $2 million in the prior-year quarter. Excluding items affecting comparability of earnings between periods, fourth quarter 2017 net income attributable to Hess Corporation was $20 million, compared to $23 million in the fourth quarter of 2016. The lower fourth quarter 2017 adjusted results primarily reflect the recognition of an entire year of shortfall fees in the fourth quarter of 2016, as a result of changes in commercial agreements at the end of 2016, versus one quarter of shortfall fees recognized in the fourth quarter of 2017, and higher income allocated to noncontrolling interests following the Hess Midstream Partners LP initial public offering in April 2017.

Corporate, Interest and Other:

  Net results were an after-tax loss of $105 million in the fourth quarter of 2017, down from $945 million in the fourth quarter of 2016. On an adjusted basis, fourth quarter 2017 was an after-tax loss of $105 million compared to a loss of $72 million in the prior-year quarter. The fourth quarter 2017 effective tax rate benefit of 14 percent was lower than the 36 percent benefit, excluding items affecting comparability, in 2016 due to the required change in deferred tax accounting.

Capital and Exploratory Expenditures:

  E&P capital and exploratory expenditures were $568 million in the fourth quarter of 2017, up from $411 million in the prior-year quarter, which included increased drilling activity at the Bakken and Liza Phase 1 development activity following sanction in June 2017. Midstream capital expenditures were $46 million in the fourth quarter of 2017, down from $89 million in the year-ago quarter.

Liquidity:

  Net cash provided by operating activities was $343 million in the fourth quarter of 2017, compared to $326 million in the fourth quarter of 2016. Net cash provided by operating activities before changes in working capital was $492 million in the fourth quarter of 2017, up from $128 million in the year-ago quarter. Changes in working capital during the fourth quarter of 2017 was a net outflow of $149 million due to higher accounts receivable from increased crude oil prices, pension contributions, and abandonment expenditures.

  Excluding the Midstream segment, the Corporation had cash and cash equivalents of $4,491 million and total debt of $5,997 million at December 31, 2017. The Corporation’s debt to capitalization ratio was 36.1 percent at December 31, 2017 and 30.4 percent at December 31, 2016.

  The Midstream segment had cash and cash equivalents of $356 million and total debt of $980 million at December 31, 2017. In the fourth quarter, HIP issued $800 million of senior notes with a 5.625% coupon rate due in 2026, with the proceeds used to repay $480 million net under its existing credit facilities, to fund a distribution of $50 million to its sponsors and for general partnership purposes. These notes are non-recourse to Hess Corporation. In addition, HIP increased commitments under its undrawn revolving credit facility to $600 million, and extended its maturity to November 2022.

2018 Cost Reduction Program:

  As part of our portfolio reshaping, we have begun implementation of an organization restructuring and cost reduction effort targeting annual savings of $150 million. In addition to direct headcount reductions as part of our assets sales, we eliminated approximately 400 employee and contractor positions in January and expect to record employee severance of $40 to $50 million in the first quarter. Since the end of 2014, total employee and contractor positions have been reduced by approximately 50 percent. In addition to the workforce reduction, we have identified further cost reductions in logistics, information technology, property, professional fees, and other operating costs resulting from our portfolio reshaping. The benefit from this $150 million annualized cost reduction will begin to be realized over the second half of 2018.

Items Affecting Comparability of Earnings Between Periods:

  The following table reflects the total after-tax income (expense) of items affecting comparability of earnings between periods:

                                                                           

  Three Months Ended  

  Year Ended
December 31,

  December 31,  

(unaudited) (unaudited)
2017   2016 2017   2016
(In millions)
Exploration and Production $ (2,373 ) $ (3,693 ) $   (2,609 ) $   (3,699 )
Midstream (21 ) (34 ) (21 )
Corporate, Interest and Other     (873 )     (30 )     (923 )
Total items affecting comparability of earnings between periods $ (2,373 ) $ (4,587 ) $   (2,673 ) $   (4,643 )
 

  The following table summarizes the items affecting comparability of earnings between periods by line item in the income statement:

                                                                             

  Three Months Ended  

  Year Ended
December 31,

  December 31,  

(unaudited) (unaudited)
2017   2016 2017   2016
(In millions)
   
Sales and other operating revenues $ (22 ) $ $ (22 ) $
Gains (losses) on asset sales, net (371 ) (98 ) 27
Operating costs and expenses (128 ) (164 )
Exploration expenses, including dry holes and lease impairment (280 ) (946 ) (280 ) (1,029 )
General and administrative expenses (1 ) (11 ) (1 )
Loss on debt extinguishment (68 ) (148 )
Depreciation, depletion and amortization (19 )

Impairment

  (1,700 )   (67 )     (4,203 )     (67 )
Total pre-tax items affecting comparability (2,373 ) (1,210 ) (4,633 ) (1,382 )
Provision (benefit) for income taxes (a) 3,410 (1,953 ) 3,294
Noncontrolling interests     33     7     33
Total items affecting comparability of earnings between periods $ (2,373 ) $ (4,587 ) $   (2,673 ) $   (4,643 )
 

(a)

 

Amounts include the tax effect associated with pre-tax items affecting comparability of earnings between periods.

 

  Fourth quarter 2017 results include:

  • An after-tax gain of $486 million ($486 million pre-tax) from the sale of our interests in Equatorial Guinea in November.
  • An after-tax loss of $857 million ($857 million pre-tax) from the sale of our interests in Norway in December. The after-tax loss from the transaction includes the recognition of $900 million for cumulative translation adjustments that were previously reflected within accumulated other comprehensive income (loss) in stockholders’ equity.
  • After-tax impairment charges totaling $1,700 million ($1,700 million pre-tax) to reduce the carrying value of our interests in the Stampede and Tubular Bells Fields in the Gulf of Mexico, primarily as a result of an updated long-term crude oil price outlook used in our fourth quarter impairment analysis.
  • An after-tax charge of $280 million ($280 million pre-tax) to fully impair the carrying value of our interest at the Hess operated offshore Deepwater Tano/Cape Three Points license, offshore Ghana (Hess 50 percent license interest) based on management’s decision to not develop the discoveries. The Corporation is currently evaluating options to monetize our Ghana asset.
  • A noncash after-tax charge of $22 million ($22 million pre-tax) related to de-designated crude oil hedging contracts as a result of the fire at the third-party operated Enchilada platform in the Gulf of Mexico.

  Fourth quarter 2016 results include:

  • A noncash charge of $3,749 million (E&P: $2,920 million; Corporate, Interest and Other: $829 million) to establish valuation allowances against net deferred tax assets as of December 31, 2016, as required under accounting standards following a three-year cumulative loss.
  • An after-tax charge of $693 million ($938 million pre-tax) to fully impair the carrying value of our interests in offshore Australia.
  • Other after-tax charges attributable to Hess Corporation of $145 million ($272 million pre-tax) related to exit costs for an offshore drilling rig, loss on debt extinguishment, impairment of rail cars (Midstream), severance and other charges.

Reconciliation of U.S. GAAP to Non-GAAP measures:

  The following table reconciles reported income (loss) before income taxes and adjusted income (loss) before income taxes:

                                                                       

  Three Months Ended  

  Year Ended
December 31,

  December 31,  

(unaudited) (unaudited)
2017   2016 2017   2016
(In millions)
Income (loss) before income taxes $ (2,477 ) $ (1,709 ) $   (5,778 ) $   (3,854 )
Less: Total items affecting comparability of earnings between periods   (2,373 )   (1,210 )     (4,633 )     (1,382 )
Adjusted income (loss) before income taxes $ (104 ) $ (499 ) $   (1,145 ) $   (2,472 )

The following table reconciles reported net income (loss) attributable to Hess Corporation and adjusted net income (loss):

                                                                       

  Three Months Ended  

  Year Ended
December 31,

  December 31,  

(unaudited) (unaudited)
2017   2016 2017   2016
(In millions)
Net income (loss) attributable to Hess Corporation $ (2,677 ) $ (4,892 ) $   (4,074 ) $   (6,132 )
Less: Total items affecting comparability of earnings between periods   (2,373 )   (4,587 )     (2,673 )     (4,643 )
Adjusted net income (loss) attributable to Hess Corporation $ (304 ) $ (305 ) $   (1,401 ) $   (1,489 )
 

  The following table reconciles reported net cash provided by (used in) operating activities from cash provided by operating activities before changes in operating assets and liabilities:

                                     

  Three Months Ended  

    Year Ended
December 31,

      December 31,      

(unaudited) (unaudited)
2017   2016 2017   2016
(In millions)
Cash provided by operating activities before changes in operating assets and liabilities $ 492 $ 128 $   1,725 $   842
Changes in operating assets and liabilities   (149 )   198     (780 )     (47 )
Net cash provided by (used in) operating activities $ 343 $ 326 $   945 $   795

Hess Corporation will review fourth quarter financial and operating results and other matters on a webcast at 10 a.m. today. For details about the event, refer to the Investor Relations section of our website at www.hess.com.

Hess Corporation is a leading global independent energy company engaged in the exploration and production of crude oil and natural gas. More information on Hess Corporation is available at www.hess.com.

Forward-looking Statements

Certain statements in this release may constitute "forward-looking statements" within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Forward-looking statements are subject to known and unknown risks and uncertainties and other factors which may cause actual results to differ materially from those expressed or implied by such statements, including, without limitation, uncertainties inherent in the measurement and interpretation of geological, geophysical and other technical data. Estimates and projections contained in this release are based on the Corporation’s current understanding and assessment based on reasonable assumptions. Actual results may differ materially from these estimates and projections due to certain risk factors discussed in the Corporation’s periodic filings with the Securities and Exchange Commission and other factors.

Non-GAAP financial measure

The Corporation has used non-GAAP financial measures in this earnings release. “Adjusted net income (loss)” presented in this release is defined as reported net income (loss) attributable to Hess Corporation excluding items identified as affecting comparability of earnings between periods. “Adjusted income (loss) before income taxes” presented in this release is defined as income (loss) before income taxes excluding items identified as affecting comparability of earnings between periods. “Cash provided by operating activities before changes in operating assets and liabilities” presented in this release is defined as Cash provided by operating activities excluding changes in operating assets and liabilities. Management uses adjusted net income (loss) and adjusted income (loss) before income taxes to evaluate the Corporation’s operating performance and believes that investors’ understanding of our performance is enhanced by disclosing these measures, which excludes certain items that management believes are not directly related to ongoing operations and are not indicative of future business trends and operations. Management believes that cash provided by operating activities before changes in operating assets and liabilities demonstrates the Corporation’s ability to internally fund capital expenditures, pay dividends and service debt. These measures are not, and should not be viewed as, a substitute for U.S. GAAP net income (loss) or net cash provided by (used in) operating activities. A reconciliation of reported net income (loss) attributable to Hess Corporation (U.S. GAAP) to adjusted net income (loss), a reconciliation of reported income (loss) before income taxes (U.S. GAAP) to adjusted income (loss) before income taxes and a reconciliation of net cash provided by (used in) operating activities (U.S. GAAP) to cash provided by operating activities before changes in operating assets and liabilities are provided in the release.

Cautionary Note to Investors

We use certain terms in this release relating to resources other than proved reserves, such as unproved reserves or resources. Investors are urged to consider closely the oil and gas disclosures in Hess’ Form 10-K, File No. 1-1204, available from Hess Corporation, 1185 Avenue of the Americas, New York, New York 10036 c/o Corporate Secretary and on our website at www.hess.com. You can also obtain this form from the SEC on the EDGAR system.

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)

(IN MILLIONS)

 
                                                Fourth   Fourth   Third
Quarter Quarter Quarter
2017 2016 2017

Income Statement

                             
 
Revenues and non-operating income
Sales and other operating revenues $ 1,663 $ 1,388 $ 1,348
Gains (losses) on asset sales, net (362 ) (4 ) 274
Other, net             (5 )             2             22
Total revenues and non-operating income             1,296             1,386             1,644
 
Costs and expenses
Marketing, including purchased oil and gas 476 375 338
Operating costs and expenses 359 568 352
Production and severance taxes 31 27 27
Exploration expenses, including dry holes and lease impairment 356 1,033 40
General and administrative expenses 125 105 113
Interest expense 80 84 79
Loss on debt extinguishment 68
Depreciation, depletion and amortization 646 768 759

Impairment

            1,700             67             2,503
Total costs and expenses             3,773             3,095             4,211
 
Income (loss) before income taxes (2,477 ) (1,709 ) (2,567 )
Provision (benefit) for income taxes             158             3,189             (1,974 )
Net income (loss) (2,635 ) (4,898 ) (593 )
Less: Net income (loss) attributable to noncontrolling interests             42             (6 )             31
Net income (loss) attributable to Hess Corporation (2,677 ) (4,892 ) (624 )
Less: Preferred stock dividends             12             11             11
Net income (loss) attributable to Hess Corporation common stockholders $           (2,689 ) $           (4,903 ) $           (635 )
 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)

(IN MILLIONS)

 
                                             

   Year Ended December 31,   

2017     2016

Income Statement

                                           
 
Revenues and non-operating income
Sales and other operating revenues $ 5,466 $ 4,762
Gains (losses) on asset sales, net (86 ) 23
Other, net                         25                         59
Total revenues and non-operating income                         5,405                         4,844
 
Costs and expenses
Marketing, including purchased oil and gas 1,267 1,063
Operating costs and expenses 1,445 1,880
Production and severance taxes 119 101
Exploration expenses, including dry holes and lease impairment 507 1,442
General and administrative expenses 434 415
Interest expense 325 338
Loss on debt extinguishment 148
Depreciation, depletion and amortization 2,883 3,244

Impairment

                        4,203                         67
Total costs and expenses                         11,183                         8,698
 
Income (loss) before income taxes (5,778 ) (3,854 )
Provision (benefit) for income taxes                         (1,837 )                         2,222
Net income (loss) (3,941 ) (6,076 )
Less: Net income (loss) attributable to noncontrolling interests                         133                         56
Net income (loss) attributable to Hess Corporation (4,074 ) (6,132 )
Less: Preferred stock dividends                         46                         41
Net income (loss) attributable to Hess Corporation common stockholders $                       (4,120 ) $                       (6,173 )
 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)

(IN MILLIONS)

 
                                                                               

  December 31,  

2017     2016

Balance Sheet Information

                                           
 
Cash and cash equivalents $ 4,847 $ 2,732
Other current assets 1,310 1,544
Property, plant and equipment – net 16,192 23,595
Other long-term assets                         763                         750
Total assets $                       23,112 $                       28,621
 
Current maturities of long-term debt $ 580 $ 112
Other current liabilities 1,855 2,139
Long-term debt 6,397 6,694
Other long-term liabilities 1,926 4,085
Total equity excluding other comprehensive income (loss) 11,737 16,238
Accumulated other comprehensive income (loss) (686 ) (1,704 )
Noncontrolling interests                         1,303                         1,057
Total liabilities and equity $                       23,112 $                       28,621
 
                                                                                                                                                December 31,
2017         2016
Total Debt                                                
 
Hess $ 5,997 $ 6,073
Midstream (a)                           980                           733
Hess Consolidated $                         6,977 $                         6,806
 

(a)

 

Midstream debt is non-recourse to Hess Corporation.

 
                                                                                                                                              December 31,
2017       2016

Debt to capitalization ratio

                                                       
 
Hess Consolidated 36.1 % 30.4 %
 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)

(IN MILLIONS)

 
    Fourth   Fourth   Third

     Quarter     

     Quarter     

     Quarter     

2017 2016 2017

Cash Flow Information

     
 
Cash Flows from Operating Activities
Net income (loss) $ (2,635 ) $ (4,898 ) $ (593 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
(Gains) losses on asset sales, net 362 4 (274 )
Depreciation, depletion and amortization 646 768 759
Impairment 1,700 67 2,503
Exploratory dry hole costs 268 830
Exploration lease and other impairment 22 112 7
Stock compensation expense 21 4 21
Non-cash (gains) losses on commodity derivatives, net 54 13
Provision (benefit) for deferred income taxes and other tax accruals 54 3,173 (2,008 )
Loss on debt extinguishment         68    
Cash provided by operating activities before changes in operating assets and liabilities 492 128 428
Changes in operating assets and liabilities     (149 )     198     (340 )
Net cash provided by (used in) operating activities     343     326     88
 
Cash Flows from Investing Activities
Additions to property, plant and equipment - E&P (513 ) (399 ) (489 )
Additions to property, plant and equipment - Midstream (41 ) (88 ) (24 )
Proceeds from asset sales, net of cash sold 2,513 60 604
Other, net         3     (1 )
Net cash provided by (used in) investing activities     1,959     (424 )     90
 
Cash Flows from Financing Activities
Net borrowings (repayments) of debt with maturities of 90 days or less (168 ) 57 11
Debt with maturities of greater than 90 days
Borrowings 800
Repayments (352 ) (649 ) (30 )
Common stock acquired and retired (110 )
Cash dividends paid (90 ) (90 ) (91 )
Noncontrolling interests, net (35 ) (23 ) (33 )
Other, net     (26 )     6     (1 )
Net cash provided by (used in) financing activities     19     (699 )     (144 )
 
Net Increase (Decrease) in Cash and Cash Equivalents 2,321 (797 ) 34
Cash and Cash Equivalents at Beginning of Period     2,526     3,529     2,492
Cash and Cash Equivalents at End of Period $   4,847 $   2,732 $   2,526
 
 

Additions to Property, Plant and Equipment included within Investing Activities:

Capital expenditures incurred $ (547 ) $ (409 ) $ (553 )
Increase (decrease) in related liabilities     (7 )     (78 )     40
Additions to property, plant and equipment $   (554 ) $   (487 ) $   (513 )
 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)

(IN MILLIONS)

 
   

             Year Ended December 31,             

2017       2016

Cash Flow Information

           
Cash flows From Operating Activities
Net income (loss) $ (3,941 ) $ (6,076 )

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

(Gains) losses on asset sales, net 86 (23 )
Depreciation, depletion and amortization 2,883 3,244
Impairment 4,203 67
Exploratory dry hole costs 268 1,064
Exploration lease and other impairment 44 145
Stock compensation expense 86 73
Non-cash (gains) losses on commodity derivatives, net 97
Provision (benefit) for deferred income taxes and other tax accruals (2,001 ) 2,200
Loss on debt extinguishment                 148
Cash provided by operating activities before changes in operating assets and liabilities 1,725 842
Changes in operating assets and liabilities         (780 )         (47 )
Net cash provided by (used in) operating activities         945         795
 
Cash Flows from Investing Activities
Additions to property, plant and equipment - E&P (1,788 ) (1,974 )
Additions to property, plant and equipment - Midstream (149 ) (277 )
Proceeds from asset sales, net of cash sold 3,296 140
Other, net         (1 )         21
Net cash provided by (used in) investing activities         1,358         (2,090 )
 
Cash Flows from Financing Activities
Net borrowings (repayments) of debt with maturities of 90 days or less (153 ) 43
Debt with maturities of greater than 90 days
Borrowings 800 1,496
Repayments (459 ) (1,455 )
Proceeds from issuance of Hess Midstream Partnership LP units 366
Proceeds from issuance of preferred stock 557
Proceeds from issuance of common stock 1,087
Common stock acquired and retired (110 )
Cash dividends paid (363 ) (350 )
Noncontrolling interests, net (243 ) (23 )
Other, net         (26 )         (44 )
Net cash provided by (used in) financing activities         (188 )         1,311
 
Net Increase (Decrease) in Cash and Cash Equivalents 2,115 16
Cash and Cash Equivalents at Beginning of Year         2,732         2,716

Cash and Cash Equivalents at End of Year

$       4,847 $       2,732
 
 
 

Additions to Property, Plant and Equipment included within Investing Activities:

Capital expenditures incurred $ (1,973 ) $ (1,921 )
Increase (decrease) in related liabilities         36         (330 )
Additions to property, plant and equipment $       (1,937 ) $       (2,251 )
 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)

(IN MILLIONS)

 
                                                          Fourth       Fourth       Third

Quarter

Quarter

Quarter

2017 2016 2017

Capital and Exploratory Expenditures

                           
 
E&P Capital and exploratory expenditures
United States
Bakken $ 200 $ 99 $ 186
Other Onshore                   5         2         8
Total Onshore 205 101 194
Offshore                   162         171         191
Total United States                   367         272         385
Europe 51 2 34
Africa 3 13
Asia and other                   150         134         126
E&P Capital and exploratory expenditures $                 568 $       411 $       558
 
Total exploration expenses charged to income included above $                 67 $       91 $       32
 
Midstream Capital expenditures $                 46 $       89 $       27
 
 
Year Ended December 31,
2017 2016

Capital and Exploratory Expenditures

 
E&P Capital and exploratory expenditures
United States
Bakken $ 624 $ 429
Other Onshore         30         46
Total Onshore 654 475
Offshore         702         735
Total United States         1,356         1,210
Europe 142 65
Africa 30 10
Asia and other         519         586
E&P Capital and exploratory expenditures $       2,047 $       1,871
 
Total exploration expenses charged to income included above $       195 $       233
 
Midstream Capital expenditures $       121 $       283
 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

EXPLORATION AND PRODUCTION EARNINGS (UNAUDITED)

(IN MILLIONS)

 
                                                                Fourth Quarter 2017

Income Statement

United States International Total
       
Total revenues and non-operating income
Sales and other operating revenues $ 1,064 $ 599 $ 1,663
Gains (losses) on asset sales, net (5 ) (364 ) (369 )
Other, net   (4 )     (10 )         (14 )
Total revenues and non-operating income   1,055     225         1,280
 
Costs and expenses
Marketing, including purchased oil and gas (a) 477 12 489
Operating costs and expenses 159 155 314
Production and severance taxes 30 1 31
Midstream tariffs 144 144
Exploration expenses, including dry holes and lease impairment 39 317 356
General and administrative expenses 52 9 61
Depreciation, depletion and amortization 453 163 616

Impairment

  1,700             1,700
Total costs and expenses   3,054     657         3,711
 
Results of operations before income taxes (1,999 ) (432 ) (2,431 )
Provision (benefit) for income taxes   (10 )     171         161
Net income (loss) attributable to Hess Corporation $ (1,989 ) (b) $   (603 ) (c) $       (2,592 )
 
Fourth Quarter 2016

Income Statement

United States International Total
 
Total revenues and non-operating income
Sales and other operating revenues $ 942 $ 445 $ 1,387
Other, net   (8 )     (3 )         (11 )
Total revenues and non-operating income   934     442         1,376
 
Costs and expenses
Marketing, including purchased oil and gas (a) 350 41 391
Operating costs and expenses 315 195 510
Production and severance taxes 26 1 27
Midstream tariffs 148 148
Exploration expenses, including dry holes and lease impairment 41 992 1,033
General and administrative expenses 55 2 57
Depreciation, depletion and amortization   471     261         732
Total costs and expenses   1,406     1,492         2,898
 
Results of operations before income taxes (472 ) (1,050 ) (1,522 )
Provision (benefit) for income taxes   969 (d)     1,458 (d)         2,427
Net income (loss) attributable to Hess Corporation $ (1,441 ) $   (2,508 ) $       (3,949 )
 

(a)

 

Includes amounts charged from the Midstream segment.

(b)

After-tax results from crude oil hedging activities included $25 million of option premium amortization for contracts expiring in the quarter, and unrealized losses of $27 million.

(c)

After-tax results from crude oil hedging activities included $5 million of option premium amortization for contracts expiring in the quarter, and unrealized gains of $3 million.

(d)

Includes charges of $1,144 million (U.S.) and $1,776 million (International) to establish valuation allowances against net deferred tax assets.

 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

EXPLORATION AND PRODUCTION EARNINGS (UNAUDITED)

(IN MILLIONS)

 
                                                                Third Quarter 2017

Income Statement

United States International Total
       
Total revenues and non-operating income
Sales and other operating revenues $ 901 $ 446 $ 1,347
Gain on asset sales, net 330 330
Other, net   (5 )     20         15
Total revenues and non-operating income   1,226     466         1,692
 
Costs and expenses
Marketing, including purchased oil and gas (a) 337 14 351
Operating costs and expenses 148 162 310
Production and severance taxes 26 1 27
Midstream tariffs 140 140
Exploration expenses, including dry holes and lease impairment 16 24 40
General and administrative expenses 55 55
Depreciation, depletion and amortization 437 272 709
Impairment       2,503         2,503
Total costs and expenses   1,159     2,976         4,135
 
Results of operations before income taxes 67 (2,510 ) (2,443 )
Provision (benefit) for income taxes   2     (1,971 )         (1,969 )
Net income (loss) attributable to Hess Corporation $ 65 (b) $   (539 ) (c) $       (474 )
 

(a)

 

Includes amounts charged from the Midstream segment.

(b)

After-tax results from crude oil hedging activities included $7 million of option premium amortization, net of settlement proceeds, for contracts settling in the quarter, and unrealized gains of $8 million.

(c)

After-tax results from crude oil hedging activities included a gain of $1 million of option premium amortization, net of settlement proceeds, for contracts settling in the quarter, and unrealized gains of $4 million.

 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

EXPLORATION AND PRODUCTION EARNINGS (UNAUDITED)

(IN MILLIONS)

 
                                                              Year Ended December 31, 2017

Income Statement

United States International Total
       
Total revenues and non-operating income
Sales and other operating revenues $ 3,686 $ 1,774 $ 5,460
Gains (losses) on asset sales, net 325 (364 ) (39 )
Other, net   (19 )     21         2
Total revenues and non-operating income   3,992     1,431         5,423
 
Costs and expenses
Marketing, including purchased oil and gas (a) 1,354 (19 ) 1,335
Operating costs and expenses 652 598 1,250
Production and severance taxes 116 3 119
Midstream tariffs 543 543
Exploration expenses, including dry holes and lease impairment 106 401 507
General and administrative expenses 208 17 225
Depreciation, depletion and amortization 1,819 917 2,736
Impairment   1,700     2,503         4,203
Total costs and expenses   6,498     4,420         10,918
 
Results of operations before income taxes (2,506 ) (2,989 ) (5,495 )
Provision (benefit) for income taxes   (31 )     (1,811 )         (1,842 )
Net income (loss) attributable to Hess Corporation $ (2,475 ) (b) $   (1,178 ) (c) $       (3,653 )
 
Year Ended December 31, 2016

Income Statement

United States International Total
 
Total revenues and non-operating income
Sales and other operating revenues $ 3,078 $ 1,677 $ 4,755
Gains on asset sales, net 27 27
Other, net   (12 )     28         16
Total revenues and non-operating income   3,093     1,705         4,798
 
Costs and expenses
Marketing, including purchased oil and gas (a) 1,023 105 1,128
Operating costs and expenses 920 742 1,662
Production and severance taxes 94 7 101
Midstream tariffs 497 497
Exploration expenses, including dry holes and lease impairment 342 1,100 1,442
General and administrative expenses 215 17 232
Depreciation, depletion and amortization   2,012     1,101         3,113
Total costs and expenses   5,103     3,072         8,175
 
Results of operations before income taxes (2,010 ) (1,367 ) (3,377 )
Provision (benefit) for income taxes   385 (d)     1,202 (d)         1,587
Net income (loss) attributable to Hess Corporation $ (2,395 ) $   (2,569 ) $       (4,964 )
 

(a)

 

Includes amounts charged from the Midstream segment.

(b)

After-tax results from crude oil hedging activities included $31 million of option premium amortization, net of settlement proceeds, for contracts settling in the year, and unrealized losses of $26 million.

(c)

After-tax results from crude oil hedging activities included $2 million of option premium amortization, net of settlement proceeds, for contracts settling in the year.

(d)

Includes charges of $1,144 million (U.S.) and $1,776 million (International) to establish valuation allowances against net deferred tax assets.

 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

EXPLORATION AND PRODUCTION SUPPLEMENTAL OPERATING DATA

 
                                                                                                                Fourth     Fourth     Third

     Quarter     

     Quarter     

     Quarter     

2017 2016 2017

Net Production Per Day (in thousands)

                 
 
Crude oil - barrels
United States
Bakken 69 62 63
Other Onshore (a)       2       8       4
Total Onshore 71 70 67
Offshore       30       45       43
Total United States       101       115       110
 
Europe (b) 27 37 25
Africa (c) (d) 35 32 39
Asia       3       2       2
Total       166       186       176
 
Natural gas liquids - barrels
United States
Bakken 30 24 29
Other Onshore (a)       6       10       8
Total Onshore 36 34 37
Offshore       4       5       5
Total United States       40       39       42
 
Europe (b)       1       1       1
Total       41       40       43
 
Natural gas - mcf
United States
Bakken 66 52 63
Other Onshore       77       123       85
Total Onshore 143 175 148
Offshore       34       68       69
Total United States       177       243       217
 
Europe (b) 30 45 29
Asia and other       349       224       306
Total       556       512       552
 
Barrels of oil equivalent       300       311       311
 

(a)

 

The Corporation sold its Permian assets in August 2017. Production was 7,000 boepd in the fourth quarter of 2016 and 3,000 boepd in the third quarter of 2017.

(b)

The Corporation sold its Norway assets in December 2017. Production was 24,000 boepd in the fourth quarter of 2017, 32,000 boepd in the fourth quarter of 2016 and 20,000 boepd in the third quarter of 2017.

(c)

The Corporation sold its Equatorial Guinea assets in November 2017. Production was 17,000 boepd in the fourth quarter of 2017, 28,000 boepd in the fourth quarter of 2016 and 27,000 boepd in the third quarter of 2017.

(d)

Production from Libya recommenced in the fourth quarter of 2016. Production was 18,000 boepd in the fourth quarter of 2017, 4,000 bopd in the fourth quarter of 2016 and 12,000 bopd in the third quarter of 2017.

 

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES

EXPLORATION AND PRODUCTION SUPPLEMENTAL OPERATING DATA

 
                                                                                                               

              Year Ended December 31,              

2017       2016

Net Production Per Day (in thousands)

                               
 
Crude oil - barrels
United States
Bakken 67 68
Other Onshore (a)                 6                 9
Total Onshore 73 77
Offshore                 39                 45
Total United States                 112                 122
Europe (b) 28 33
Africa (c) (d) 35 34
Asia                 2                 2
Total                 177                 191
 
Natural gas liquids - barrels
United States
Bakken 28 27
Other Onshore (a)                 8                 11
Total Onshore 36 38
Offshore                 5                 5
Total United States                 41                 43
Europe (b)                 1                 1
Total                 42                 44
 
Natural gas - mcf
United States
Bakken 62 61
Other Onshore                 92                 133
Total Onshore