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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-1204
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AMERADA 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 X No
----- -----
At June 30, 1997, 91,739,105 shares of Common Stock were outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
(in thousands, except per share data)
Three Months Six Months
Ended June 30 Ended June 30
----------------------- ----------------------
1997 1996 1997 1996
---------- ---------- --------- ----------
REVENUES
SALES (excluding excise taxes) and
other operating revenues $1,833,960 $2,094,840 $4,230,790 $4,309,377
Non-operating revenues
Asset sales 16,463 429,009 16,463 429,009
Other 28,401 19,907 47,669 37,918
---------- ---------- ---------- ----------
Total revenues 1,878,824 2,543,756 4,294,922 4,776,304
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of products sold and operating expenses 1,360,588 1,597,520 3,231,487 3,242,391
Exploration expenses, including dry holes 79,143 61,489 129,323 123,175
Selling, general and administrative expenses 158,806 151,570 307,880 301,702
Interest expense 33,755 41,902 67,407 94,707
Depreciation, depletion, amortization
and lease impairment 170,331 183,559 367,826 385,108
Provision for income taxes 34,544 131,269 144,754 186,797
---------- ---------- ---------- ----------
Total costs and expenses 1,837,167 2,167,309 4,248,677 4,333,880
---------- ---------- ---------- ----------
NET INCOME $ 41,657 $ 376,447 $ 46,245 $ 442,424
========== ========== ========== ==========
NET INCOME PER SHARE $ .45 $ 4.04 $ .50 $ 4.75
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 92,256 93,132 92,604 93,077
COMMON STOCK DIVIDENDS PER SHARE $ .15 $ .15 $ .30 $ .30
See accompanying notes to consolidated financial statements.
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PART I - FINANCIAL INFORMATION (CONT'D.)
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
A S S E T S
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 186,957 $ 112,522
Accounts receivable 520,339 848,129
Inventories 993,253 1,272,312
Other current assets 141,450 193,881
------------ ------------
Total current assets 1,841,999 2,426,844
------------ ------------
INVESTMENTS AND ADVANCES 233,159 218,573
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
Total - at cost 12,090,972 11,902,419
Less reserves for depreciation, depletion,
amortization and lease impairment 7,114,764 6,995,136
------------ ------------
Property, plant and equipment - net 4,976,208 4,907,283
------------ ------------
DEFERRED INCOME TAXES AND OTHER ASSETS 296,439 231,781
------------ ------------
TOTAL ASSETS $ 7,347,805 $ 7,784,481
============ ============
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
CURRENT LIABILITIES
Accounts payable - trade $ 481,099 $ 666,172
Accrued liabilities 429,898 501,369
Deferred revenue 2,003 103,031
Taxes payable 314,694 258,723
Notes payable 155,000 18,000
Current maturities of long-term debt 189,685 189,685
------------ ------------
Total current liabilities 1,572,379 1,736,980
------------ ------------
LONG-TERM DEBT 1,493,771 1,660,998
------------ ------------
CAPITALIZED LEASE OBLIGATIONS 39,058 50,818
------------ ------------
DEFERRED LIABILITIES AND CREDITS
Deferred income taxes 586,316 616,900
Other 350,279 335,154
------------ ------------
Total deferred liabilities and credits 936,595 952,054
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00
Authorized - 20,000,000 shares for issuance in series -- --
Common stock, par value $1.00
Authorized - 200,000,000 shares
Issued - 91,739,105 shares at June 30, 1997;
93,073,305 shares at December 31, 1996 91,739 93,073
Capital in excess of par value 755,210 754,559
Retained earnings 2,565,235 2,613,920
Equity adjustment from foreign currency translation (106,182) (77,921)
------------ ------------
Total stockholders' equity 3,306,002 3,383,631
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,347,805 $ 7,784,481
============ ============
See accompanying notes to consolidated financial statements.
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PART I - FINANCIAL INFORMATION (CONT'D.)
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Six Months Ended June 30
(in thousands)
1997 1996
--------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 46,245 $ 442,424
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion, amortization and lease impairment 367,826 385,108
Exploratory dry hole costs 76,466 67,039
Pre-tax gain on asset sales (16,463) (429,009)
Changes in operating assets and liabilities 343,315 121,270
Deferred income taxes and other items (25,640) (10,556)
--------- -----------
Net cash provided by operating activities 791,749 576,276
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (611,958) (330,666)
Proceeds from asset sales and other 59,873 877,164
--------- -----------
Net cash provided by (used in) investing activities (552,085) 546,498
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable 137,000 (77,200)
Long-term borrowings 29,000 --
Repayment of long-term debt and capitalized lease obligations (205,910) (1,027,558)
Cash dividends paid (41,637) (41,794)
Common stock acquired (81,965) --
--------- -----------
Net cash used in financing activities (163,512) (1,146,552)
--------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,717) 1,857
--------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 74,435 (21,921)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 112,522 56,071
--------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 186,957 $ 34,150
========= ===========
See accompanying notes to consolidated financial statements.
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PART I - FINANCIAL INFORMATION (CONT'D.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Note 1 - 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 the Company's consolidated
financial position at June 30, 1997 and December 31, 1996, and the
consolidated results of operations for the three and six-month
periods ended June 30, 1997 and 1996 and the consolidated cash flows
for the six-month periods ended June 30, 1997 and 1996. The
unaudited results of operations for the interim periods reported are
not necessarily indicative of results to be expected for the full
year.
Certain notes and other information have been condensed or omitted
from these interim financial statements. Such statements, therefore,
should be read in conjunction with the consolidated financial
statements and related notes included in the 1996 Annual Report to
Stockholders, which have been incorporated by reference in the
Corporation's Form 10-K for the year ended December 31, 1996.
Note 2 - Inventories consist of the following:
June 30, December 31,
1997 1996
-------- ----------
Crude oil and other charge stocks $341,579 $ 441,071
Refined and other finished products 554,452 734,141
Materials and supplies 97,222 97,100
-------- ----------
Total inventories $993,253 $1,272,312
======== ==========
Note 3 - The provision for income taxes consisted of the following:
Three months Six months
ended June 30 ended June 30
------------------------ -------------------------
1997 1996 1997 1996
-------- -------- --------- --------
Current $ 44,620 $101,992 $ 145,406 $177,776
Deferred (10,076) 29,277 (652) 9,021
-------- -------- --------- --------
Total $ 34,544 $131,269 $ 144,754 $186,797
======== ======== ========= ========
Note 4 - Foreign currency exchange transactions are reflected in selling,
general and administrative expenses. The net effect, after
applicable income taxes, amounted to losses of $1,832 and $449,
respectively, for the three and six-month periods ended June 30,
1997 compared to gains of $516 and $2,643 for the corresponding
periods of 1996.
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PART I - FINANCIAL INFORMATION (CONT'D.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Note 5 - The Corporation uses futures, forwards, options and swaps to reduce
the impact of fluctuations in the prices of crude oil, natural gas
and refined products. These contracts correlate to movements in the
value of inventory and the prices of crude oil and natural gas, and
as hedges, any resulting gains or losses are recorded as part of the
hedged transaction. Net deferred losses resulting from the
Corporation's hedging activities were approximately $6,000 at June
30, 1997, including $1,000 of unrealized losses.
Note 6 - Interest cost related to certain long-term construction projects has
been capitalized in accordance with FAS No. 34. During the three and
six-month periods ended June 30, 1997, interest cost of $1,770 and
$3,287, respectively, was capitalized. There was no interest
capitalized for the corresponding periods of 1996.
Note 7 - In the second quarter of 1997, the Corporation refinanced its
revolving credit agreements in the United States and the United
Kingdom. These agreements were replaced with a new revolving credit
facility with an available global borrowing capacity of $2,000,000.
The Corporation's United Kingdom and Norwegian subsidiaries may
borrow on an unguaranteed basis subject to sub-limits of $1,000,000
and $250,000, respectively. Other subsidiaries may borrow with a
parent company guarantee.
The new facility is due in 2002 and may be extended with the consent
of the lenders. Capacity may be increased by $400,000, also with
lender approval. Borrowings bear interest at a margin above the
London Interbank Offered Rate ("LIBOR") based on the Corporation's
capitalization ratio. The current borrowing rate is .165% above
LIBOR. Facility fees of .11% per annum are payable on the amount of
the credit line.
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PART I - FINANCIAL INFORMATION (CONT'D.)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS
Income excluding asset sales for the second quarter of 1997
amounted to $31 million compared with $26 million for the second
quarter of 1996. Income excluding asset sales for the first half of
1997 was $35 million compared with $92 million for the first half of
1996. Net gains on asset sales amounted to $11 million in 1997 and
$350 million in 1996.
The after-tax results by major operating activity for the three
and six month periods ended June 30, 1997 and 1996 were as follows (in
millions):
Three months Six months
ended June 30 ended June 30
----------------- ------------------
1997 1996 1997 1996
---- ----- ----- -----
Exploration and production $ 64 $ 31 $ 161 $ 99
Refining, marketing and shipping 3 35 (53) 79
Corporate (7) (6) (14) (11)
Interest expense (29) (34) (59) (75)
---- ----- ----- -----
Income excluding asset sales 31 26 35 92
Net gains on asset sales 11 350 11 350
---- ----- ----- -----
Net income $ 42 $ 376 $ 46 $ 442
==== ===== ===== =====
Net income per share $.45 $4.04 $ .50 $4.75
==== ===== ===== =====
The 1997 asset sale represents the sale of a small onshore United
States natural gas property. The 1996 asset sales reflect the
disposals of the Corporation's Canadian operations, certain United
States oil and gas properties and Abu Dhabi assets.
Excluding asset sales, earnings from exploration and production
activities increased by $33 million in the second quarter of 1997 and
$62 million in the first half of 1997, compared with the corresponding
periods of 1996. The increases were primarily due to higher crude oil
selling prices (including the effects of hedging) in the United States,
increased earnings of a foreign equity investment and lower effective
income tax rates on foreign earnings.
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PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
The Corporation's average selling prices, including the effects of
hedging, were as follows:
Three months Six months
ended June 30 ended June 30
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
Crude oil and natural gas liquids
(per barrel)
United States $ 17.92 $ 15.41 $ 19.29 $ 15.61
Foreign 17.66 19.12 19.61 18.66
Natural gas (per Mcf)
United States(*) 2.11 2.20 2.42 2.42
Foreign 2.32 1.79 2.34 1.75
(*) Includes sales of purchased gas.
The increase in the United States crude oil selling price
indicated above largely reflects improved hedging results in 1997. The
increase in the average foreign natural gas price reflects higher
selling prices in the United Kingdom and the absence of lower priced
Canadian gas in 1997. The Corporation's Canadian operations were sold
in April 1996.
The Corporation's net daily worldwide production was as follows:
Three months Six months
ended June 30 ended June 30
-------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- -------
Crude oil and natural gas liquids
(barrels per day)
United States 43,158 55,197 43,018 56,186
Foreign 164,867 182,980 178,297 190,201
------- ------- ------- -------
Total 208,025 238,177 221,315 246,387
======= ======= ======= =======
Natural gas (Mcf per day)
United States 313,570 361,114 319,728 381,062
Foreign 250,823 316,373 286,857 446,641
------- ------- ------- -------
Total 564,393 677,487 606,585 827,703
======= ======= ======= =======
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PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
United States crude oil and natural gas production was lower in
1997, principally reflecting asset sales in the second and third
quarters of 1996. The decrease in foreign crude oil production
reflects lower United Kingdom volumes due to temporary production
interruptions on certain fields, partially offset by production from
new fields. 1996 asset sales also contributed to reduced foreign crude
oil and natural gas production, particularly the sale of the
Corporation's Canadian operations.
Depreciation, depletion, amortization and lease impairment charges
were lower in 1997 primarily reflecting the lower production volumes
discussed above. Exploration expenses were higher in the second
quarter of 1997, due to increased activity in the North Sea and other
international areas, partially offset by reduced exploration expenses
in the United States. The effective income tax rate on foreign
exploration and production earnings was lower in 1997, primarily due
to lower Petroleum Revenue Taxes ("PRT") in the United Kingdom,
reflecting lower pre-tax earnings from PRT paying fields and increased
deductible allowances. Income taxes were also reduced by the
utilization of a net operating loss carryforward of a foreign
subsidiary. It is expected that this subsidiary will be in a taxable
position in the second half of the year.
The Corporation's exploration and production earnings are subject
to changes in the selling prices of crude oil and natural gas, the
level of exploration spending, the extent of field maintenance,
effective income tax rates and other factors. The Corporation
anticipates that a substantial amount of its 1997 exploration
expenditures will be incurred in the third quarter.
Refining, marketing and shipping operations had income of $3
million in the second quarter of 1997 compared with $35 million in the
second quarter of 1996. The decrease was due to lower refined product
margins. Selling prices decreased by approximately $2.00 per barrel,
while product costs, accounted for on the first-in, first-out and
average cost methods, decreased to a lesser extent.
In the first half of 1997, refining, marketing and shipping
operations incurred a loss of $53 million compared with income of $79
million in the first half of 1996. Refined product margins were lower
in 1997, including margins for distillates and residual fuel oils
which were negatively impacted by the relatively mild winter on the
east coast of the United States. A substantial amount of the 1997 loss
related to a refining subsidiary for which income tax benefits are not
provided due to a cumulative loss carryforward.
Refined product sales volumes amounted to 95 million barrels in
the first half of 1997 compared with 101 million barrels in the first
half of 1996. Refining and marketing earnings will continue to be
volatile because of competitive industry conditions and other supply
and demand factors, including the effects of weather.
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PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
Interest expense (after-tax) decreased by 15% in the second
quarter of 1997 and 21% in the first half of 1997, compared with the
corresponding periods of 1996, due to lower debt levels. Interest in
the second half of 1997 is expected to approximate the amount incurred
in the corresponding period of 1996.
Corporate expenses were comparable in the second quarters of 1997
and 1996, but increased slightly in the first half of 1997 compared
with the first half of 1996. The increase resulted largely from
Corporate income tax adjustments.
Sales and other operating revenues decreased by 12% in the second
quarter of 1997, principally reflecting lower sales volumes and
selling prices of refined products. Sales and operating revenues in
the first half of 1997 were 2% below the corresponding period of 1996
due to lower refined product sales volumes. Non-operating revenues
included the gain of $429 million from the Corporation's program of
asset sales in the first half of 1996. Selling, general and
administrative expenses include approximately $16 million and $12
million in the first half of 1997 and 1996, respectively, for the
Corporation's financial reengineering project and related systems and
software.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities, including changes in
operating assets and liabilities, amounted to $792 million in the
first half of 1997 compared with $576 million in the first half of
1996. The increase was primarily due to changes in working capital
components. Cash flow resulting from net income excluding asset sales,
adjusted for non-cash charges, amounted to $479 million and $553
million in the first half of 1997 and 1996, respectively. In 1996, the
Corporation generated proceeds of approximately $860 million from
asset sales, resulting in a substantial decrease in debt.
Total debt was $1,898 million at June 30, 1997 compared with
$1,939 million at December 31, 1996, resulting in debt to total
capitalization ratios of 36.5% and 36.4%, respectively. At June 30,
1997, the Corporation had additional borrowing capacity available
under its revolving credit agreement of $1,523 million and additional
unused lines of credit under uncommitted arrangements with banks of
$378 million.
In the second quarter of 1997, the Corporation refinanced its
revolving credit agreements in the United States and the United
Kingdom with a $2 billion, five-year, unsecured global revolving
credit facility. The new facility replaced $2.2 billion in credit
facilities, which would have begun to expire in 1999. The new facility
has interest rate differentials and fees which are lower than under
the credit agreements that were replaced.
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PART 1 - FINANCIAL INFORMATION (CONT'D.)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Since inception of the Corporation's stock repurchase program in
August 1996, through June 30, 1997, 1,756,400 shares have been
purchased at a cost of approximately $91 million, including $82
million in 1997.
In the second quarter of 1997, the Corporation received
approximately $25 million under a United Kingdom court ruling in a
legal dispute related to a natural gas pipeline partially owned by the
Corporation. A substantial amount of the after-tax gain has been
deferred pending the outcome of an appeal of the ruling.
The Corporation uses futures, forwards, options and swaps to
reduce the effects of fluctuations in the prices of crude oil, natural
gas and refined products. These instruments are used to set the
selling prices of crude oil, natural gas and refined products and the
related gains or losses are an integral part of the Corporation's
selling prices. At June 30, 1997, the Corporation had open hedge
positions equal to 6% of its estimated worldwide crude oil production
over the next twelve months. In certain circumstances, hedge
counterparties may elect to purchase up to an additional 1% of this
production. The Corporation also had open contracts equal to 3% of its
estimated United States natural gas production over the next twelve
months and approximately 1% of its production for the succeeding
twelve months. The Corporation had hedges covering 64% of its refining
and marketing inventories and had additional short positions
approximating 6% of refined products to be manufactured in the next
twelve months. As market conditions change, the Corporation will
adjust its hedge positions.
Capital expenditures in the first half of 1997 amounted to $612
million compared with $331 million in the first half of 1996. Capital
expenditures in 1997 include $155 million for the acquisition of oil
and gas properties in the United Kingdom North Sea and a chain of
retail marketing properties in Florida. Capital expenditures for
exploration and production activities were $507 million in the first
half of 1997 compared with $314 million in the first six months of
1996.
Capital expenditures for the remainder of 1997 are currently
expected to be approximately $700 million, the majority of which is
expected to be financed by internally generated funds and the
remainder by increased long-term borrowings.
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Annual Meeting of Stockholders of the Registrant was held on
May 7, 1997. The Inspectors of Election reported that 78,343,285
shares of Common Stock of the Registrant were represented in person or
by proxy at the meeting, constituting 84.9% of the votes entitled to
be cast. At the meeting, stockholders voted upon the election of five
nominees for the Board of Directors for the three-year term expiring
in 2000 and the ratification of the selection by the Board of
Directors of Ernst & Young LLP as the independent auditors of the
Registrant for the fiscal year ended December 31, 1997.
With respect to the election of directors, the inspectors of
election reported as follows:
For Withhold Authority to Vote
Name Nominee Listed For Nominee Listed
---- -------------- --------------------------
Peter S. Hadley 77,165,932 1,177,353
John B. Hess 77,173,045 1,170,240
William R. Johnson 70,116,670 8,226,615
John Y. Schreyer 77,173,103 1,170,182
William I. Spencer 77,147,970 1,195,315
The inspectors further reported that 78,157,723 votes were cast
for the ratification of the selection of Ernst & Young LLP as
independent auditors for the fiscal year ending December 31, 1997,
76,966 votes were cast against said ratification and holders of 108,596
votes abstained.
There were no broker non-votes with respect to the election of
directors or the ratification of the selection of independent auditors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
4 - Credit Agreement dated as of May 20, 1997 among Registrant, the
Subsidiary Borrowers thereunder, The Chase Manhattan Bank as
Administrative Agent and the Lenders party thereto.
(b) Reports on Form 8-K
The Registrant filed no report on Form 8-K during the three
months ended June 30, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERADA HESS CORPORATION
(REGISTRANT)
By s/s John B. Hess
----------------------------
JOHN B. HESS
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
By s/s John Y.Schreyer
----------------------------
JOHN Y. SCHREYER
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: August 11, 1997
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EXHIBIT INDEX
4 - Credit Agreement dated as of May 20, 1997 among Registrant, the
Subsidiary Borrowers thereunder, The Chase Manhattan Bank as
Administrative Agent and the Lenders party thereto.