1
Exhibit 13
AMERADA HESS
1998 ANNUAL REPORT
2
- --------------------------------------------------------------------------------
EXPLORATION AND PRODUCTION
- --------------------------------------------------------------------------------
UNITED STATES
Amerada Hess brought the Baldpate Field on Garden Banks Blocks 259/260 in
the Gulf of Mexico on stream in the third quarter of 1998 using a
technologically innovative compliant tower. In the first half of 1999, Amerada
Hess will commence production from the Penn State discovery on Garden Banks
Block 216 through a sub-sea system tied back to the Baldpate production
facilities. Combined production from the Baldpate and Penn State Fields is
expected to exceed gross levels of 50,000 barrels of oil per day and 150,000 Mcf
of natural gas per day by the middle of this year. Amerada Hess is the operator
of Baldpate and Penn State with a 50% interest.
Northwest of the Baldpate Field, Amerada Hess discovered the Conger Field
(AHC 37.50%) on Garden Banks Block 215 in 1997. The Corporation plans to develop
the Conger Field with a sub-sea system tied back to the B platform on the nearby
Enchilada Field. Additional drilling is scheduled in 1999 as part of the Conger
development plan, as is design and procurement of required high-pressure,
sub-sea system components and materials. The Conger Field is expected to
commence production late in 2000.
In the Enchilada Field, production from the A platform began in 1997. The A
platform produces from Garden Banks Blocks 83, 84, 127 and 128, in each of which
Amerada Hess has a 25% interest. In the third quarter of 1998, production began
from the B platform on Garden Banks Block 172 (AHC 60%). Net production for
Amerada Hess from the Enchilada Field is expected to peak at 60,000 Mcf of
natural gas per day and 3,000 barrels of oil per day in 2000.
Amerada Hess drilled a discovery well in 1,750 feet of water on its
Northwestern prospect on Garden Banks Block 200 (AHC 50%) in 1998. The well
encountered 163 feet of net pay. The Company is formulating plans for
delineation drilling and evaluating development options for the prospect.
During 1998, Amerada Hess acquired 37 blocks in the Gulf of Mexico at a net
cost of $36 million. Thirty-five of the blocks are in water depths in excess of
600 feet.
Onshore activities were reduced in 1998 and concentrated on maximizing
value in North Dakota and the Gulf Coasts of Texas and Louisiana. Three
successful development wells were drilled in the Egypt Field (AHC
- --------------------------------------------------------------------------------
6
- --------------------------------------------------------------------------------
3
GARDEN BANKS BLOCK 215
----------------------
GULF OF MEXICO
--------------
[Graphic Omitted]
4
SCHIEHALLION
- -----------------
NORTH SEA
- --------------
[Graphic Omitted]
5
- --------------------------------------------------------------------------------
75%) in Wharton County, Texas, bringing daily gross production to 30,000 Mcf of
natural gas per day and 800 barrels of oil per day.
In the Maurice Field in South Louisiana, two wells were drilled by the
Company, bringing gross daily production to 20,000 Mcf of natural gas per day
and 400 barrels of oil per day. The Company has a 58% interest in the Maurice
Field.
UNITED KINGDOM
Production began from three new developments in the United Kingdom North
Sea in 1998 and development of five new fields is expected to be completed in
1999.
The Schiehallion Field came on stream in the third quarter of 1998. Amerada
Hess Limited, the Company's British subsidiary, has a 15.67% interest in the
Schiehallion Field and its share of production is expected to reach 17,000
barrels of oil per day in 1999.
In the fourth quarter of 1998, production began from the Amerada Hess
Limited operated Flora Field. The Flora Field was developed by subsea tieback to
the Fife Field. Amerada Hess Limited has an 85% interest in both the Flora and
Fife Fields and its share of production from the Flora Field is expected to peak
at 12,000 barrels of oil per day this year.
The Bittern Field, located on Blocks 29/1a and 29/1b, will come on stream
late in 1999. Amerada Hess Limited manages the joint team that is developing and
will operate the production facilities. Amerada Hess Limited has a 29.12%
interest in the Bittern Field. Its share of production is expected to reach
17,000 barrels per day near the end of 1999.
The Renee and Rubie Fields were brought on stream in February 1999. The
fields are producing through the Amerada Hess Limited operated Ivanhoe/Rob Roy
facilities on Block 15/21. Amerada Hess Limited's share of production from the
Renee and Rubie Fields is expected to reach 4,000 barrels of oil per day in
1999.
The Buckland Field (AHL 14.07%) is scheduled to commence production in the
fourth quarter of 1999. Peak production for Amerada Hess Limited will be 4,000
barrels of oil per day and 5,000 Mcf of natural gas per day in 2000.
Phase two of the development of the Nevis Field (AHL 37.35%) was completed in
1998. Phase three will come on stream through the Beryl production facilities in
the third quarter of 1999. Amerada Hess Limited's share of production from Nevis
will peak at 12,000
- --------------------------------------------------------------------------------
9
- --------------------------------------------------------------------------------
6
- --------------------------------------------------------------------------------
barrels of oil per day and 13,000 Mcf of natural gas per day in 2000.
Amerada Hess Limited has a 27.68% interest in a number of natural gas
fields in the Easington Catchment Area, in the southern North Sea. Production
from these fields is expected to begin in 1999. Amerada Hess Limited expects to
receive peak production of 60,000 Mcf of natural gas per day from these fields.
An appraisal well is being drilled on the Blake Field located on Block
13/24b (AHL 30%) to further appraise previous discoveries. A decision to develop
the Blake Field has been delayed pending appraisal. Similarly, a development
decision on the discovery known as Goldeneye on Blocks 20/4b (AHL 40%) and
14/29a has been delayed. Late in 1998, the Company concluded that the Mariner
Field (AHL 26.67%) was not likely to be developed in the current oil price
environment. The Mariner Field contains a large but complex heavy oil reservoir.
The Company wrote-off its capitalized costs in the Mariner Field in the fourth
quarter of 1998.
Development plans are being formulated for two fields that are economic at
current prices. The Cook Field (AHL 28.46%) on Block 21/20a is likely to be
developed by tieback to the Anasuria floating production, storage and offloading
vessel. Peak production for Amerada Hess Limited is expected to reach 4,000
barrels of oil per day in 2001.
Consideration is being given to developing the Bell Field (AHL 23.08%) by
dual tiebacks to the Bessemer Field and the Callisto Field. Production from the
Bell Field is expected to peak at 15,000 Mcf of natural gas per day for Amerada
Hess Limited in 2000.
NORWAY
A large enhanced-recovery, waterflood project for the Valhall Field remains
under evaluation in light of the current low oil prices. Amerada Hess Norge A/S,
the Company's Norwegian subsidiary, has a 28.09% interest in the Valhall Field.
Net production for Amerada Hess Norge from the Valhall Field averaged 22,556
barrels of oil per day and 24,912 Mcf of natural gas per day in 1998.
- --------------------------------------------------------------------------------
10
- --------------------------------------------------------------------------------
7
- --------------------------------------------------------------------------------
DENMARK
Amerada Hess A/S, the Company's Danish subsidiary, is in the final stages of
developing the South Arne Field which it operates with a 57.48% interest. The
South Arne Field is scheduled to commence production in the third quarter of
this year and is expected to provide net production peaking at 30,000 barrels of
oil per day and 40,000 Mcf of natural gas per day in 2000. Successful
development drilling and the installation of waterflood facilities resulted in a
significant, positive reserve revision for the South Arne Field in 1998.
GABON
The Company acquired the minority interest in Amerada Hess Production Gabon,
its Gabonese subsidiary, in 1998. That subsidiary had a 10% interest in the Rabi
Kounga Field, the largest producing field in Gabon.
Amerada Hess Production Gabon has a 40% interest in the development of the
Atora Field. Production is expected to begin in 2000 and to reach a net level of
6,000 barrels of oil per day for Amerada Hess Production Gabon late in 2000.
AZERBAIJAN
Amerada Hess acquired a 1.68% interest in the AIOC Consortium in the
Caspian Sea in 1998. Net production for Amerada Hess currently is averaging
about 1,500 barrels of oil per day and is expected to peak at 12,000 barrels of
oil per day in 2007.
In January 1999, Amerada Hess and a partner acquired a 20% interest in the
Kursanga and Karabagly Fields onshore Azerbaijan, subject to final ratification
by the Azerbaijan Parliament. A plan to redevelop the fields is being completed
and is expected to be submitted for approval later this year.
THAILAND
Amerada Hess has a 15% interest in the Pailin gas field being developed
offshore Thailand. The field will come on stream late this year. Production for
Amerada Hess is expected to average 25,000 Mcf of natural gas per day in 2000
rising to a peak of 50,000 Mcf per day in 2002.
- --------------------------------------------------------------------------------
11
- --------------------------------------------------------------------------------
8
- --------------------------------------------------------------------------------
INDONESIA
Amerada Hess has a 30% interest in the Jabung PSC which contains the North
Geragai Field and the Makmur Field. Net production from those fields is
averaging an aggregate of 3,000 barrels of oil per day.
Elsewhere on the Jabung PSC, crude oil and natural gas discoveries were
made on the North Betara and Gemah prospects in 1998, with additional drilling
planned on Gemah in 1999. Following these discoveries and successful appraisal
drilling on Northeast Betara, gas reserves of about 300 Bcf net to Amerada Hess
have been found. Discussions are in progress for the sale of this gas.
Development plans are being finalized for the Betara complex and additional
drilling is planned for the Gemah prospect.
Amerada Hess is the operator and has a 50% interest in the Lematang
Production Sharing Contract in Southern Sumatra, on which a discovery well in
1997 tested at 30,000 Mcf of natural gas per day. A second well is planned on
this discovery, and development plans are being formulated for gross production
of up to 50,000 Mcf of natural gas per day.
An exploration well drilled on the Pangkah PSC (AHC 36%) tested at 20,000
Mcf of natural gas per day and 987 barrels of oil per day. The discovery is in
shallow water on the East Coast of Java. Development options are being studied.
Amerada Hess has reached agreement to acquire a 25% interest in the Jambi
Merang contract onshore South Sumatra. This block contains part of the Gelam
Field, a producing natural gas field, and also contains a gas discovery that is
currently being appraised.
MALAYSIA
Amerada Hess obtained a 70% interest in Block PM304 offshore Malaysia and
an 80% interest in Block SK306 offshore Sarawak in Malaysia. Both blocks contain
undeveloped discoveries, and the Company plans to acquire and process 3D seismic
on these blocks in 1999 prior to drilling in 2000.
BRAZIL
Amerada Hess acquired 32% interests in Blocks BC-8 in the Southern Campos
Basin and BS-2 in the Northern Santos Basin offshore Brazil early in 1999. These
blocks aggregate 7,500 square kilometers. This marks the first time that a
non-Brazilian company has been granted exploration acreage in the Campos Basin.
Amerada Hess will conduct a 3D seismic survey on these blocks in 1999.
- --------------------------------------------------------------------------------
12
- --------------------------------------------------------------------------------
9
SOUTH ARNE
-------------
DENMARK
----------
[Graphic Omitted]
10
HESS EXPRESS
- -----------------
TAMPA, FLORIDA
- --------------------
[Graphic Omitted]
11
- --------------------------------------------------------------------------------
REFINING, MARKETING AND
ENVIRONMENTAL MANAGEMENT
- --------------------------------------------------------------------------------
REFINING
Refinery runs at the HOVENSA refinery in St. Croix, United States Virgin
Islands, which is 50% owned by Amerada Hess and 50% owned by Petroleos de
Venezuela, S.A., averaged 421,000 barrels per day in 1998 versus 411,000 barrels
per day in 1997. The fluid catalytic cracking unit operated at a rate in excess
of 130,000 barrels per day in 1998 and reached a rate as high as 135,000 barrels
per day during the year.
Plans are proceeding for the construction of a delayed coking unit at the
HOVENSA refinery. Current plans call for the unit to have capacity of 58,000
barrels per day. Permits are being acquired and it is estimated that
construction will take between two and three years. The coking unit will enable
the refinery to process lower cost, heavy crude oil that will improve financial
returns and make the refinery one of the most sophisticated in the world.
Operating rates at the Company's Port Reading fluid catalytic cracking unit
averaged 60,000 barrels per day in 1998. The unit makes gasoline and distillates
from feedstocks of vacuum gas oil and residual fuel oil.
MARKETING
The Company continues to build new, high volume HESS gasoline and HESS
EXPRESS convenience retail sites, upgrade existing gasoline stations and
convenience stores, make acquisitions in key geographic areas and increase the
number of independent HESS branded retailers. During 1998, 18 new HESS EXPRESS
stores were opened in key markets and construction began on nine others.
Thirteen retail sites were acquired in upstate New York markets. A total of 116
stations were upgraded. The largest of the new stations contain 5,000 square
foot HESS EXPRESS convenience stores and offer up to four fast food outlets.
Early in 1999, the Company reached agreement to purchase 10 retail sites,
which include convenience stores, in Florida. Agreement also was reached to
purchase 50 retail sites in central Pennsylvania from the Allentown area to as
far west as Harrisburg.
As part of the repositioning of assets, the Company is pursuing the sale of
approximately 40 retail marketing outlets in Georgia and in the Greenville,
South Carolina area.
- --------------------------------------------------------------------------------
15
- --------------------------------------------------------------------------------
12
- --------------------------------------------------------------------------------
The Company has entered into additional thruput agreements with other oil
companies under which products will be stored at HESS terminals along the East
Coast of the United States. In addition, the consummation of the joint venture
for the Virgin Islands refinery is resulting in transportation and storage
synergies with Petroleos de Venezuela.
In 1998, Amerada Hess pursued opportunities on the East Coast being created
by the deregulation of the natural gas and electricity markets. The Company's
historical fuel oil sales activities were expanded to market natural gas and
electricity. At year-end 1998, over 9,000 commercial and industrial customers
were under contract with Amerada Hess. Initial sales of electricity commenced in
New York and Pennsylvania as part of pilot projects. The Company's vision is to
be a leading provider of a range of energy products and related services in its
key East Coast markets.
ENVIRONMENTAL MANAGEMENT
Excellent environmental performance is an integral part of the Company's
goal of achieving superior financial and operating results while continuing to
maintain the highest ethical standards.
In 1998, Amerada Hess published its first Environmental, Health and Safety
Report.
In 1998, the Company also approved and began to implement an integrated
environmental management system (EMS) for all business activities. The objective
is to ensure that the Company's activities are conducted in a consistent,
environmentally responsible manner. An Environmental Council consisting of
senior line management was also formed.
As part of these efforts, the Company focused attention on its St. Lucia
terminal. In January 1999, the St. Lucia terminal was awarded ISO 14001
certification, the international standard for environmental management.
In addition, the Company maintained ISO 14001 certification for its United
Kingdom operations, which was originally received in 1997.
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
13
FINANCIAL REVIEW
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition
CONSOLIDATED RESULTS OF OPERATIONS
The results of operations for 1998, excluding special items, amounted to a loss
of $196 million compared with income of $14 million in 1997 and $236 million in
1996.
The after-tax results by major operating activity for 1998, 1997 and 1996
are summarized below (in millions):
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
Exploration and production $ (18) $ 258 $ 210
Refining, marketing
and shipping (18) (110) 181
Corporate (37) (16) (19)
Interest (123) (118) (136)
- -------------------------------------------------------------------------------
Income (loss) excluding
special items (196) 14 236
Special items (263) (6) 424
- -------------------------------------------------------------------------------
Net income (loss) $(459) $ 8 $ 660
===============================================================================
Net income (loss) per
share (diluted) $(5.12) $ .08 $7.09
===============================================================================
COMPARISON OF RESULTS
Exploration and Production: Excluding special items, exploration and production
earnings decreased by $276 million in 1998, primarily due to substantially lower
worldwide crude oil selling prices and lower United Kingdom crude oil sales
volumes. Natural gas selling prices in the United States and United Kingdom were
also lower. Partially offsetting these factors were lower exploration expenses,
principally in the Gulf of Mexico and North Sea.
Exploration and production earnings increased by $48 million in 1997
compared with 1996. The increase primarily reflected higher average crude oil
and natural gas selling prices in the United States and higher natural gas
selling prices and a lower effective income tax rate in the United Kingdom.
The Corporation's average selling prices, including the effects of hedging,
were as follows:
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Crude oil and natural gas
liquids (per barrel)
United States $ 12.02 $ 18.43 $ 16.49
Foreign 13.05 19.16 20.18
Natural gas (per Mcf)
United States 2.08 2.42 2.13
Foreign 2.26 2.46 2.03
================================================================================
The Corporation's net daily worldwide production was as follows:
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Crude oil and natural gas
liquids (barrels per day)
United States 44,920 43,950 50,125
Foreign 161,069 174,622 186,672
- --------------------------------------------------------------------------------
Total 205,989 218,572 236,797
- --------------------------------------------------------------------------------
Natural gas (Mcf per day)
United States 293,849 311,915 337,653
Foreign 282,628 257,339 347,013
- --------------------------------------------------------------------------------
Total 576,477 569,254 684,666
================================================================================
The decrease in foreign crude oil production in 1998 largely reflects
maintenance related interruptions at three United Kingdom fields. United States
natural gas production was lower in 1998, principally reflecting first quarter
asset sales and natural decline. Foreign natural gas production increased in
1998 due to higher demand in the United Kingdom. Lower United States and foreign
production in 1997 was primarily due to asset sales in 1996. Limited production
began from several new fields in the second half of 1998 and the Corporation has
several developments which are expected to commence production in 1999. These
projects will add approximately 20% to 1999 production volumes.
- --------------------------------------------------------------------------------
18
- --------------------------------------------------------------------------------
14
- --------------------------------------------------------------------------------
Depreciation, depletion and amortization charges were lower in 1998,
principally reflecting lower foreign crude oil production. In addition, the
Corporation had positive oil and gas reserve revisions at the end of 1997, which
reduced depreciation and amortization charges in 1998. Exploration expenses were
lower in 1998 due to reduced drilling in the United States and United Kingdom in
response to lower oil prices. Selling, general and administrative expenses
related to exploration and production operations were higher in 1998, primarily
due to the expansion of natural gas marketing in the United Kingdom and
increased foreign exploration and production activity outside of the North Sea.
The effective income tax rate on exploration and production earnings was
higher in 1998 than in 1997. The increase was primarily due to exploration
expenses in certain foreign areas outside of the United States and North Sea,
for which income tax benefits have not been currently provided. Although
international exploration expenses were comparable in both years, the impact was
greater in 1998 due to lower pre-tax exploration and production earnings. Both
years included the benefit of tax adjustments for reductions in the United
Kingdom statutory income tax rate. The effective income tax rate on exploration
and production earnings in 1997 was lower than in 1996, principally reflecting
lower Petroleum Revenue Taxes in the United Kingdom.
Earnings from exploration and production activities have been severely
affected by low crude oil prices. The Corporation cannot predict how long low
crude oil prices will continue. The Corporation had net additions to oil and gas
reserves at the end of 1998, however, constrained exploration and production
spending may negatively affect reserve additions in the future.
Refining, Marketing and Shipping: Excluding special items, the results of
refining, marketing and shipping operations amounted to losses of $18 million in
1998 and $110 million in 1997 compared with income of $181 million in 1996.
Refining margins were weak in both 1998 and 1997, and in addition, there was an
inventory write-down at the end of 1997. The results in both years were
negatively affected by relatively mild winter weather, which impacted heating
oil and residual fuel oil margins. Gasoline margins were adversely affected by
extremely competitive market conditions.
The Corporation is expanding its retail operations by purchasing and
constructing gasoline stations. The Corporation is also expanding its energy
marketing activities. The cost of operating the expanded retail and energy
marketing businesses increased selling, general and administrative expenses in
1998.
As described in Note 2 to the financial statements, on October 30, 1998,
the Corporation completed a refinery joint venture, HOVENSA L.L.C. (HOVENSA),
with a subsidiary of Petroleos de Venezuela, S.A. (PDVSA). The Corporation
accounts for its 50% investment in the joint venture using the equity method and
recorded a loss of $16 million for the two months since inception. The loss was
due to a write-down of inventory values at year-end. Income taxes or benefits
are not recorded on HOVENSA results due to available loss carryforwards.
Refining and marketing results include interest income of $8 million on the
PDVSA note received in connection with the formation of the joint venture.
Total refined product sales volumes amounted to 176 million barrels in
1998, 186 million barrels in 1997 and 181 million barrels in 1996. As a result
of the formation of, and equity accounting for, HOVENSA, sales made to third
parties are no longer included in the Corporation's reported revenues. Through
the first ten months of 1998, these sales accounted for 32 million barrels and
$600 million in revenues.
In 1997, refined product selling prices were lower than in 1996. The lower
selling prices in relation to the Corporation's inventory costs resulted in
lower margins on the sales of refined products and a reduction in inventory
values at year-end.
- --------------------------------------------------------------------------------
19
- --------------------------------------------------------------------------------
15
- --------------------------------------------------------------------------------
Refined product margins continued to be severely depressed in early 1999,
reflecting oversupply of petroleum products due to competitive market conditions
and supply and demand factors, including the effects of weather. Refining and
marketing results will continue to be adversely affected as long as such
conditions prevail.
HOVENSA accounts for inventories on the last-in, first-out (LIFO) method.
Effective January 1, 1999, the Corporation also adopted LIFO for its refining
and marketing inventories.
The Corporation is considering the sale of several non-strategic U.S.
storage terminals and retail sites. The terminals are located on the Gulf Coast
and along the Colonial Pipeline in the southeast United States and represent
approximately one-third of the Corporation's United States storage network. The
Corporation expects to sell approximately 40 retail gasoline outlets located in
Georgia and South Carolina.
Corporate: Net corporate expenses amounted to $37 million in 1998, $16 million
in 1997 and $19 million in 1996. Administrative expenses were comparable in each
period. The variances in net expenses are primarily due to Corporate income tax
adjustments, including the impact of foreign source earnings on United States
income taxes and recognition of capital loss carryforwards in 1997.
Interest: After-tax interest expense increased by 4% in 1998 compared with a
decrease of 13% in 1997. The increase in 1998 reflects higher outstanding
borrowings, offset by lower interest rates and increased interest
capitalization. Assuming interest rates comparable to 1998, interest expense in
1999 is anticipated to be somewhat higher than in 1998, reflecting a higher
average debt balance.
Consolidated Operating Revenues: Sales and other operating revenues decreased by
approximately 20% in 1998, principally due to lower crude oil and refined
product selling prices and, to a lesser extent, lower sales volumes. Sales and
other operating revenues declined slightly in 1997 compared with 1996.
SPECIAL ITEMS
After-tax special items in 1998, 1997 and 1996 are summarized below (in
millions):
- -------------------------------------------------------------------------------
REFINING,
EXPLORATION MARKETING
AND AND
TOTAL PRODUCTION SHIPPING
- -------------------------------------------------------------------------------
1998
Gain (loss) on asset sales $ (50) $ 56 $(106)
Impairment of assets
and operating leases (198) (154) (44)
Severance (15) (15) --
------------------------------------------------------------------------------
Total $(263) $(113) $(150)
------------------------------------------------------------------------------
1997
Asset impairment $ (55) $ (55) $ --
Foreign tax refund 38 38 --
Gain on asset sale 11 11 --
------------------------------------------------------------------------------
Total $ (6) $ (6) $ --
------------------------------------------------------------------------------
1996
Gain on asset sales $ 421 $ 421 $ --
Litigation settlement 25 25 --
Asset write-downs (22) (22) --
------------------------------------------------------------------------------
Total $ 424 $ 424 $ --
==============================================================================
- --------------------------------------------------------------------------------
20
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
The 1998 special items include a loss of $106 million on the sale of 50% of
the St. Croix refinery and formation of the HOVENSA joint venture. The
Corporation also had gains of $56 million on the sale of oil and gas assets in
the United States and Norway. Asset impairment in 1998 includes $44 million for
the Corporation's crude oil storage terminal in St. Lucia. The terminal's value
was affected by reduced storage requirements as a result of the crude oil supply
provisions of the HOVENSA joint venture. In addition, the Corporation recorded
$42 million for the reduction in carrying value of certain exploration and
production assets, including $29 million for its share of asset impairment of
Premier Oil plc, an equity affiliate. It is estimated that these charges will
reduce future expenses by approximately $19 million in 1999 and $9 million in
2000.
The Corporation also recorded a charge of $77 million for the decline in
value of fixed-price drilling service contracts and $35 million for the
impairment of a North Sea oil discovery. The Corporation's accrual for
fixed-price drilling service contracts includes amounts that will be paid, and
otherwise would have been expensed, in 1999 and 2000 of approximately $30
million and $47 million (after income tax effect). Severance of $15 million was
also recorded in 1998 and is expected to result in an annual benefit of a
comparable amount. Approximately $2 million of severance has been paid in 1998
and substantially all of the remainder will be paid in 1999.
The 1997 special items include an after-tax charge of $55 million for the
reduction in carrying values and provision for future costs of two United
Kingdom North Sea oil fields. Approximately 70% of the remaining crude oil from
these fields was produced during 1998 and the balance will be produced in 1999.
Other 1997 special items included income of $38 million from a refund of United
Kingdom Petroleum Revenue Taxes and a gain of $11 million on the sale of a
United States natural gas field.
The net gain on asset sales in 1996 of $421 million reflected the sale of
the Corporation's Canadian operations, certain United States and United Kingdom
producing properties and Abu Dhabi assets. The other 1996 special items included
income from the settlement of litigation on the right to drill certain South
Atlantic leases and a charge principally to reduce the carrying values of
certain United States undeveloped leases.
See Note 3 to the financial statements for additional information on the
special items affecting the Corporation's earnings.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities, including changes in operating assets
and liabilities, amounted to $519 million in 1998, $1,250 million in 1997 and
$808 million in 1996. The variance between 1998 and 1997 was largely due to
operating results and working capital changes, principally reduced inventory
balances in 1997 and increased prepaid expenses in 1998.
The Corporation received proceeds of approximately $370 million on
finalization of the refining joint venture, including $307 million for inventory
and other working capital sold to HOVENSA and $62.5 million from PDVSA
representing the cash portion of the purchase price. These amounts are reflected
in proceeds from asset sales in the statement of cash flows. The Corporation
also recorded a note for $562.5 million bearing interest at 8.46% per annum. In
addition, the sale of three oil and gas properties in the United States and
Norway generated proceeds of $98 million in 1998. In the first quarter of 1999,
the Corporation also sold onshore United States natural gas properties for $54
million.
In connection with its asset rationalization program, the Corporation
periodically reviews and considers for sale those assets that are
underperforming or non-strategic. When determining its capital budget, the
Corporation takes into account the estimated proceeds from these anticipated
asset sales, as well as estimates of cash to be provided by operations. In 1998,
these amounts totaled $987 million, consisting of $519 million in cash provided
by operating activities and $468 million in proceeds from major asset sales.
- --------------------------------------------------------------------------------
21
- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------
Total debt was $2,652 million at December 31, 1998 compared with $2,127
million at December 31, 1997. The debt to capitalization ratio increased to
50.1% from 39.8% at year-end 1997. At December 31, 1998, floating rate debt
amounted to 32% of total debt, including the effect of interest rate conversion
(swap) agreements. At December 31, 1998, the Corporation had $805 million of
additional borrowing capacity available under its long-term revolving credit
agreement, $300 million under a committed revolving credit line maturing in
August 1999 and additional unused lines of credit under uncommitted arrangements
with banks of $362 million. The existing borrowing arrangements, including
restrictive covenants, are more fully described in Note 7 to the financial
statements.
During 1998, the Corporation completed private placements of $225 million
of fixed rate debt with three insurance companies having a weighted average
maturity of 7.4 years. The Corporation also completed the sale and leaseback of
its interests in the production platforms and related facilities of two Gulf of
Mexico producing properties. These transactions have been accounted for as
financings.
In 1998 and 1997, the Corporation sold subsequent year crude oil production
for $249 million and $174 million, respectively, which is recorded as deferred
revenue and resulted in reduced debt at the end of each year.
During 1998, the Corporation purchased 1,071,500 shares of common stock for
$56 million under its $250 million stock repurchase program which is scheduled
to expire on March 31, 1999. Through December 31, 1998, $190 million has been
spent on repurchased shares under this program.
The Corporation conducts foreign exploration and production activities in
the United Kingdom, Norway, Denmark, Gabon, Indonesia, Azerbaijan and in other
countries. Therefore, the Corporation is subject to the risks associated with
foreign operations. These risks include the effects of changes in values of
currencies on the financial statements. However, the effect of foreign currency
translation on the Corporation's earnings and stockholders' equity has not been
material and has not affected its liquidity or ability to raise capital.
Although the financial problems in Asia and other parts of the world have
contributed to the worldwide decline in crude oil prices, the Asian financial
problems have not had a material adverse effect on the carrying values of the
Corporation's foreign investments.
CAPITAL EXPENDITURES
The following table summarizes the Corporation's capital expenditures in
1998, 1997 and 1996 (in millions):
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Exploration and production
Exploration $ 242 $ 286 $ 236
Development 915 679 512
Acquisitions 150 193 40
- --------------------------------------------------------------------------------
1,307 1,158 788
Refining, marketing and shipping 132 188 73
- --------------------------------------------------------------------------------
Total $1,439 $1,346 $ 861
================================================================================
Development expenditures include approximately $690 million and $460
million in 1998 and 1997, respectively, for major new oil and gas developments.
Acquisitions in 1998 reflect $100 million for exploration and production
interests in Azerbaijan and $50 million for an increased interest in a
consolidated subsidiary with proved crude oil reserves and exploration licenses
in Gabon. Acquisitions in 1997 principally represent purchases of developed and
undeveloped oil and gas properties in the United Kingdom. Refining and marketing
expenditures in 1997 include the purchase of a chain of retail marketing
properties in Florida.
- --------------------------------------------------------------------------------
22
- --------------------------------------------------------------------------------
18
- --------------------------------------------------------------------------------
Oil and gas development expenditures are expected to be lower in 1999 as
new fields come onstream and the Corporation has significantly reduced planned
exploration expenditures due to lower crude oil prices. As a result, the
Corporation expects its total capital expenditures, excluding acquisitions, if
any, to approximate $900 million in 1999. These expenditures will be financed by
internally generated funds and external borrowings.
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation is exposed to market risks related to volatility in the
selling prices of crude oil, natural gas and refined products, as well as to
changes in interest rates and foreign currency values. Derivative instruments
are used to reduce the risks of these price and rate fluctuations and the
Corporation has guidelines for, and controls over, the use of such instruments.
Futures, forwards, options and swaps are used to reduce the effects of
changes in the selling prices of crude oil, natural gas and refined products.
These instruments fix the selling prices of a portion of the Corporation's
products and the related gains or losses are an integral part of the
Corporation's selling prices. At December 31, the Corporation had open hedge
positions equal to 3% of its estimated 1999 United States natural gas
production. In addition, the Corporation had hedges covering 9% of its refining
and marketing inventories. As market conditions change, the Corporation will
adjust its hedge positions.
The Corporation owns an interest in a partnership that trades energy
commodities and energy derivatives. The accounts of the partnership are
consolidated with those of the Corporation. The Corporation also engages in
trading for its own account.
The Corporation uses value at risk to estimate the potential effects of
changes in fair values of derivatives and other instruments used in hedging
activities and derivatives and commodities used in trading activities. This
method determines the potential one-day change in fair value with 95%
confidence. The analysis is based on historical volatility, historical
simulation and other assumptions. The Corporation estimates that at December 31,
1998, the value at risk related to hedging activities, excluding the physical
inventory hedged, was $1 million ($5 million at December 31, 1997). During 1998,
the average value at risk for hedging activities was $4 million, the high was $5
million and the low was $1 million. The value at risk on trading activities,
predominantly partnership trading, was $4 million at December 31, 1998 ($2
million at December 31, 1997). During 1998, the average value at risk for
trading activities was $5 million, the high was $6 million and the low was $3
million.
The Corporation also uses interest-rate conversion agreements to reduce
exposure to rising interest rates. At December 31, 1998, the Corporation has
$400 million of notional-value, interest-rate conversion agreements that
effectively reduce its percentage of floating rate debt from 47% to 32% ($300
million at December 31, 1997). These agreements relate to the Corporation's
outstanding debt of $2,652 million, which together with the interest-rate swaps
has a fair value of $2,735 million at December 31, 1998. A 10% change in
interest rates would change the fair values of debt and related swaps by $64
million at December 31, 1998 ($48 million at December 31, 1997).
The Corporation also hedges a portion of its exposure to fluctuating
foreign exchange rates, principally the Pound Sterling. Generally, the
Corporation uses forward contracts to fix the exchange rate on a portion of the
currency used in its North Sea operations. The possible change in fair value of
these contracts from a 10% change in the exchange rate is estimated to be $10
million at December 31, 1998 ($18 million at December 31, 1997). See Note 13 to
the financial statements for additional information on financial instruments,
hedging and trading activities.
- --------------------------------------------------------------------------------
23
- --------------------------------------------------------------------------------
19
- --------------------------------------------------------------------------------
YEAR 2000
Some older computer software and embedded computer systems use two digits rather
than four to reflect dates used in performing calculations. Because these
computer programs and embedded systems may not properly recognize the year 2000,
errors may result causing potentially serious disruptions. In addition, third
parties with which the Corporation does business face the same problems.
The Corporation has a worldwide program to identify software and hardware
that is not year 2000 compliant. The Corporation is also determining the year
2000 status of major vendors and customers and has begun contingency planning.
The Corporation's year 2000 project is jointly managed by its Chief Information
Officer and its Vice President of Internal Audit.
Status of year 2000 project: Since 1995, the Corporation has been installing new
financial and business systems as part of its reengineering project. Although
the primary purpose of the project is to increase efficiency and effectiveness,
the new software is year 2000 compliant. These new systems have replaced, or
will replace, approximately 70% of noncompliant software. The final phase of the
new software installation is scheduled for completion in the second quarter of
1999.
The Corporation has assessed its remaining software. Remediation of the
remaining software is largely complete and testing of changes is in progress.
Testing is scheduled to be complete by the third quarter of 1999. The
Corporation has completed approximately 70% of this portion of the project at
December 31. The Corporation principally uses external consultants on this phase
of the project.
There are embedded computer systems used throughout the Corporation's
operations. The Corporation has hired consultants to evaluate embedded systems.
The inventory and assessment phases will be completed at the end of the first
quarter of 1999. Remediation of critical systems, where required, should finish
in the second quarter of 1999. Remediation of all other systems, where required,
will be completed in the third quarter. At December 31, assessment and
remediation of embedded computer systems is approximately 65% complete.
The Corporation has also undertaken a supplier and customer analysis of
year 2000 readiness. The identification process is complete. Communication with
third parties to assess their progress in addressing year 2000 problems is in
progress. The third party analysis will be completed by the end of the second
quarter of 1999 and is approximately 60% complete at December 31.
Costs: The new systems that replace approximately 70% of noncompliant software
will have a total cost of approximately $50 million (of which approximately 85%
has been expended at December 31). The Corporation expects to spend an
additional $12 million for remediation of remaining systems, primarily for
outside consultants, which is being expensed as incurred. To date, the
Corporation has expended approximately $6 million of the expected total.
The Corporation has not deferred ongoing information technology projects
because of year 2000 efforts.
- --------------------------------------------------------------------------------
24
- --------------------------------------------------------------------------------
20
- --------------------------------------------------------------------------------
Risks: There are uncertainties inherent in the year 2000 problem, partially
resulting from the readiness of customers and suppliers. The failure to correct
material year 2000 problems could interrupt business and operations.
Uncorrected, these interruptions could have a material effect on the
Corporation's financial position and results of operations. Consequently, the
Corporation cannot determine whether year 2000 failures will materially affect
its financial position or results of operations. However, the objective of the
Corporation's year 2000 project is to reduce these risks.
Contingency planning: Contingency plans are necessary to ensure that risks
associated with year 2000 are mitigated. In the normal course of business, the
Corporation has developed contingency plans to ensure that it has alternate
suppliers for critical materials and equipment and that production of crude oil,
natural gas and refined products can be sold. The Corporation is in the design
phase of contingency planning for year 2000 and expects to use existing
contingency plans in this process. Contingency planning will be completed by the
third quarter of 1999 and updated at year-end, if appropriate.
In addition, the Corporation has engaged external consultants to review and
benchmark the progress of its year 2000 project.
Safe Harbor: Certain information in this section on year 2000 is forward
looking. This includes projected costs, time tables for, and percentages of,
completion of projects and possible effects. These disclosures are based on the
Corporation's current understanding and assessment of the year 2000 problem.
Assumptions used, such as availability of resources, and the status of its year
2000 assessment and remediation projects may change. In addition, suppliers and
customers may fail to be ready for year 2000. Consequently, actual results may
differ from these disclosures.
ENVIRONMENTAL MANAGEMENT
The Corporation is aware of its environmental responsibilities and the relevant
environmental regulations with which it must comply at the federal, state and
local level. Accordingly, the Corporation incurs ongoing operating costs and
capital investment. The Corporation believes that it has made the necessary
expenditures to comply with existing legislation and that it is well positioned
to meet currently proposed regulations.
The Corporation continues to focus on energy conservation, pollution
control and waste minimization and treatment. There are also programs for
compliance evaluation, facility auditing and employee training to monitor
operational activities and to prevent conditions that might threaten the
environment.
In 1998, the Corporation published its first Environmental, Health and
Safety Report. The report includes the Corporation's environmental policy and
summarizes environmental performance and emissions data for 1997. The
Corporation's Executive Committee approved an environmental business plan in
July 1998 and implementation of the plan has begun. As part of the plan, the
Corporation will develop an integrated environmental management system. The
Corporation's objective is to ensure that its activities are conducted in an
environmentally responsible and consistent manner.
The Corporation expects continuing expenditures for environmental
assessment and remediation. Sites where corrective action may be necessary
include gasoline stations, terminals, refineries (including solid waste
management units under permits issued pursuant to the Resource Conservation and
Recovery Act) and, although not significant, Superfund sites where the
Corporation has been named a potentially responsible party under the Superfund
legislation. The Corporation expects that existing reserves for environmental
liabilities will adequately cover costs of assessing and remediating known
sites.
The Corporation expended $9 million in 1998, $12 million in 1997 and $13
million in 1996 for remediation. In addition, capital expenditures for
facilities, primarily to comply with federal, state and local environmental
standards, were $4 million in 1998, $5 million in 1997 and $7 million in 1996.
- --------------------------------------------------------------------------------
25
- --------------------------------------------------------------------------------
21
- --------------------------------------------------------------------------------
FORWARD LOOKING INFORMATION
Certain sections of the Financial Review, including references to the
Corporation's future results of operations and financial position, capital
expenditures, planned asset sales, derivative disclosures and year 2000 and
environmental sections, represent forward looking information. The disclosures
are based on the Corporation's current understanding and assessment of these
activities and reasonable assumptions about the future. Actual results may
differ from these disclosures because of changes in market conditions,
government actions and other factors.
DIVIDENDS
Cash dividends on common stock totaled $.60 per share ($.15 per quarter)
during 1998 and 1997.
STOCK MARKET INFORMATION
The common stock of Amerada Hess Corporation is traded principally on the New
York Stock Exchange (ticker symbol: AHC). High and low sales prices in 1998 and
1997 were as follows:
- ---------------------------------------------------------------------
1998 1997
------------------ ------------------
QUARTER ENDED HIGH LOW HIGH LOW
- ---------------------------------------------------------------------
March 31 61 1/16 48 5/16 62 52 3/8
June 30 59 1/8 50 5/16 56 3/8 47 3/8
September 30 59 5/8 46 62 3/4 54 3/16
December 31 59 1/8 48 64 1/2 49 5/16
=====================================================================
QUARTERLY FINANCIAL DATA
Quarterly results of operations for the years ended December 31, 1998 and 1997
follow (millions of dollars, except per share data):
- -------------------------------------------------------------------------------
INCOME NET
SALES (LOSS) INCOME
AND OTHER EXCLUDING NET (LOSS)
OPERATING GROSS SPECIAL SPECIAL INCOME PER SHARE
QUARTER REVENUES PROFIT(a) ITEMS ITEMS (LOSS) (DILUTED)
- -------------------------------------------------------------------------------
1998
First $1,826 $ 253 $ (69) $ 56(b) $ (13) $ (.14)
Second 1,617 259 (22) -- (22) (.24)
Third 1,531 239 (6) -- (6) (.07)
Fourth 1,616 158 (99) (319)(c) (418) (4.70)
- ---------------------------------------------------------------------
Total $6,590 $ 909 $ (196) $ (263) $ (459)
=====================================================================
1997
First $2,397 $ 336 $ 4 $ -- $ 4 $ .05
Second 1,834 312 31 11(b) 42 .45
Third 1,885 342 23 -- 23 .25
Fourth 2,118 270 (44) (17)(d) (61) (.67)
- ---------------------------------------------------------------------
Total $8,234 $1,260 $ 14 $ (6) $ 8
=====================================================================
(a) Gross profit represents sales and other operating revenues less cost of
products sold and operating expenses and depreciation, depletion and
amortization.
(b) Represents net gains on asset sales.
(c) Includes a loss of $106 million on the formation of a refining joint
venture, impairment of assets and operating leases of $198 million and
accrued severance costs of $15 million.
(d) Reflects an after-tax charge of $55 million for the impairment of two oil
fields in the United Kingdom North Sea and income of $38 million from a
refund of United Kingdom taxes.
The results of operations for the periods reported herein should not be
considered as indicative of future operating results.
- --------------------------------------------------------------------------------
26
- --------------------------------------------------------------------------------
22
STATEMENT OF CONSOLIDATED INCOME
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
- ---------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31
----------------------------------------------------
THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
REVENUES
Sales (excluding excise taxes) and
other operating revenues $6,590,009 $8,233,723 $8,272,186
Non-operating revenues
Gain (loss) on asset sales (25,679) 16,463 529,271
Equity in loss of HOVENSA L.L.C (15,848) -- --
Other 68,984 89,860 128,254
- ---------------------------------------------------------------------------------------------------------------------------------
Total revenues 6,617,466 8,340,046 8,929,711
- ---------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of products sold and operating expenses 5,024,405 6,301,046 6,074,695
Exploration expenses, including dry holes and
lease impairment 337,518 373,180 342,860
Selling, general and administrative expenses 753,251 649,815 602,329
Interest expense 152,934 136,149 165,501
Depreciation, depletion and amortization 656,991 672,669 730,382
Impairment of assets and operating leases 206,478 80,602 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 7,131,577 8,213,461 7,915,767
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (514,111) 126,585 1,013,944
Provision (benefit) for income taxes (55,218) 119,085 353,845
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (458,893) $ 7,500 $ 660,099
=================================================================================================================================
NET INCOME (LOSS) PER SHARE
Basic $(5.12) $.08 $7.13
Diluted $(5.12) $.08 $7.09
=================================================================================================================================
STATEMENT OF CONSOLIDATED RETAINED EARNINGS
- ---------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31
-------------------------------------------------------
THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT BEGINNING OF YEAR $2,463,005 $2,613,920 $2,017,064
Net income (loss) (458,893) 7,500 660,099
Dividends declared--common stock
($.60 per share in 1998, 1997 and 1996) (54,520) (55,090) (55,761)
Common stock acquired and retired (45,526) (103,325) (7,482)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $1,904,066 $2,463,005 $2,613,920
=================================================================================================================================
See accompanying notes to consolidated financial statements.
27
23
CONSOLIDATED BALANCE SHEET
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
- ---------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31
-----------------------------
THOUSANDS OF DOLLARS 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 73,791 $ 91,154
Accounts receivable
Trade 954,353 951,796
Other 58,831 41,302
Inventories 482,182 937,949
Current portion of deferred income taxes 114,194 105,391
Other current assets 203,355 76,040
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 1,886,706 2,203,632
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS AND ADVANCES
HOVENSA L.L.C 702,581 --
Other 232,826 250,458
- ---------------------------------------------------------------------------------------------------------------------------------
Total investments and advances 935,407 250,458
- ---------------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Exploration and production 9,718,424 8,779,807
Refining 73,244 2,688,403
Marketing 1,120,109 1,025,178
Shipping 115,462 128,247
- ---------------------------------------------------------------------------------------------------------------------------------
Total--at cost 11,027,239 12,621,635
Less reserves for depreciation, depletion, amortization and lease impairment 6,835,301 7,430,841
- ---------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment--net 4,191,938 5,190,794
- ---------------------------------------------------------------------------------------------------------------------------------
NOTE RECEIVABLE 538,500 --
- ---------------------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES AND OTHER ASSETS 330,432 289,735
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $7,882,983 $7,934,619
=================================================================================================================================
28
24
- -----------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31
-----------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable--trade $ 713,831 $ 752,576
Accrued liabilities 554,632 491,644
Deferred revenue 251,328 175,684
Taxes payable 100,686 195,692
Notes payable 3,500 17,825
Current maturities of long-term debt 172,820 106,430
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,796,797 1,739,851
- -----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 2,476,145 2,003,033
- -----------------------------------------------------------------------------------------------------------------------------------
DEFERRED LIABILITIES AND CREDITS
Deferred income taxes 483,843 562,371
Other 482,786 413,665
- -----------------------------------------------------------------------------------------------------------------------------------
Total deferred liabilities and credits 966,629 976,036
- -----------------------------------------------------------------------------------------------------------------------------------
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--90,356,705 shares in 1998; 91,451,205 shares in 1997 90,357 91,451
Capital in excess of par value 764,412 774,631
Retained earnings 1,904,066 2,463,005
Equity adjustment from foreign currency translation (115,423) (113,388)
- -----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,643,412 3,215,699
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,882,983 $ 7,934,619
===================================================================================================================================
The consolidated financial statements reflect the successful efforts method of
accounting for oil and gas exploration and producing activities.
See accompanying notes to consolidated financial statements.
29
25
STATEMENT OF CONSOLIDATED CASH FLOWS
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31
--------------------------------------------------
THOUSANDS OF DOLLARS 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (458,893) $ 7,500 $ 660,099
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation, depletion and amortization 656,991 672,669 730,382
Impairment of assets and operating leases 206,478 80,602 --
Exploratory dry hole costs 159,435 191,351 164,601
Lease impairment 47,440 37,185 52,825
(Gain) loss on asset sales 25,679 (16,463) (529,271)
(Increase) decrease in accounts receivable 6,335 (148,488) (66,452)
(Increase) decrease in inventories 122,204 333,477 (434,206)
Increase in accounts payable, accrued liabilities and
deferred revenue 185,403 198,596 110,736
Increase (decrease) in taxes payable (87,118) (46,626) 32,623
Provision (benefit) for deferred income taxes (137,922) (80,208) 43,483
Changes in prepaid expenses and other (207,244) 20,412 42,901
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 518,788 1,250,007 807,721
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
Exploration and production (1,306,438) (1,157,938) (788,286)
Refining, marketing and shipping (132,240) (187,652) (72,339)
- -----------------------------------------------------------------------------------------------------------------------------------
Total capital expenditures (1,438,678) (1,345,590) (860,625)
Proceeds from asset sales and other 502,854 63,017 1,037,073
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (935,824) (1,282,573) 176,448
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance (repayment) of notes (14,342) 1,982 (72,046)
Long-term borrowings 848,320 398,391 --
Repayment of long-term debt and capitalized
lease obligations (317,144) (209,000) (794,527)
Cash dividends paid (54,647) (55,373) (55,746)
Common stock acquired (59,167) (122,283) (8,236)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 403,020 13,717 (930,555)
- -----------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,347) (2,519) 2,837
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (17,363) (21,368) 56,451
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 91,154 112,522 56,071
- -----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 73,791 $ 91,154 $ 112,522
===================================================================================================================================
See accompanying notes to consolidated financial statements.
30
26
STATEMENT OF CONSOLIDATED CHANGES IN COMMON STOCK AND CAPITAL IN EXCESS OF PAR
VALUE
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
- -------------------------------------------------------------------------------------------------
COMMON STOCK
------------------------
CAPITAL IN
NUMBER OF EXCESS OF
THOUSANDS OF DOLLARS SHARES AMOUNT PAR VALUE
- -------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 1996 93,011,255 $ 93,011 $ 744,252
Distributions to trustee under executive incentive
compensation and stock ownership plans (net) 211,750 212 11,300
Common stock acquired and retired (154,700) (155) (1,247)
Employee stock options exercised 5,000 5 254
- -------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 93,073,305 93,073 754,559
Distributions to trustee under executive incentive
compensation and stock ownership plans (net) 719,000 719 38,145
Common stock acquired and retired (2,368,100) (2,368) (19,419)
Employee stock options exercised 27,000 27 1,346
- -------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 91,451,205 91,451 774,631
Cancellations under executive incentive
compensation and stock ownership plans (net) (26,000) (26) (1,292)
Common stock acquired and retired (1,071,500) (1,071) (9,073)
Employee stock options exercised 3,000 3 146
- -------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 90,356,705 $ 90,357 $ 764,412
=================================================================================================
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
- -------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31
------------------------------------------
THOUSANDS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------------------------------------
COMPONENTS OF COMPREHENSIVE INCOME (LOSS)
Net income (loss) $(458,893) $ 7,500 $ 660,099
Change in foreign currency translation adjustment (2,035) (35,467) 116,010
- -------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $(460,928) $ (27,967) $ 776,109
=================================================================================================
See accompanying notes to consolidated financial statements.
31
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: Amerada Hess Corporation and subsidiaries (the
"Corporation") engage in the exploration for and the production, purchase,
transportation and sale of crude oil and natural gas. These activities are
conducted primarily in the United States, United Kingdom, Norway and Gabon. The
Corporation also has oil and gas activities in Azerbaijan, Denmark, Indonesia,
Thailand and other countries. In addition, the Corporation manufactures,
purchases, transports and markets refined petroleum and other energy products.
The Corporation owns 50% of a refinery joint venture in the United States Virgin
Islands. An additional refining facility, terminals and retail outlets are
located principally on the East Coast of the United States.
In preparing financial statements, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities in the
balance sheet and revenues and expenses in the income statement. Actual results
could differ from those estimates. Among the estimates made by management are:
oil and gas reserves, inventory and other asset valuations, pension liabilities,
environmental obligations, depreciation, depletion and amortization,
dismantlement costs and income taxes.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Amerada Hess Corporation and subsidiaries. The Corporation's
interests in oil and gas exploration and production ventures are proportionately
consolidated.
Investments in affiliated companies, 20% to 50% owned, including HOVENSA
L.L.C., the Corporation's refining joint venture, are stated at cost of
acquisition plus the Corporation's equity in undistributed net income since
acquisition. The change in the equity in net income of these companies is
included in non-operating revenues in the income statement.
Intercompany transactions and accounts are eliminated in consolidation.
Certain amounts in prior years' financial statements have been reclassified
to conform with current year presentation.
CASH AND CASH EQUIVALENTS: Cash equivalents consist of highly liquid
investments, which are readily convertible into cash and have maturities of
three months or less.
INVENTORIES: Crude oil and refined product inventories are valued at the
lower of cost or market value. Cost is determined principally on the average
cost method.
Inventories of materials and supplies are valued at or below cost.
EXPLORATION AND DEVELOPMENT COSTS: Oil and gas exploration and production
activities are accounted for on the successful efforts method. Costs of
acquiring undeveloped oil and gas leasehold acreage, including lease bonuses,
brokers' fees and other related costs, are capitalized. Provisions for
impairment of undeveloped oil and gas leases are based on periodic evaluations
and other factors.
Annual lease rentals and exploration expenses, including geological and
geophysical expenses and exploratory dry hole costs, are charged against income
as incurred.
Costs of drilling and equipping productive wells, including development dry
holes, and related production facilities are capitalized.
DEPRECIATION, DEPLETION AND AMORTIZATION: Depreciation, depletion and
amortization of oil and gas production equipment, properties and wells are
determined on the unit-of-production method based on estimated recoverable oil
and gas reserves. Depreciation of all other plant and equipment is determined on
the straight-line method based on estimated useful lives.
The estimated costs of dismantlement, restoration and abandonment, less
estimated salvage values, of offshore oil and gas production platforms and
certain other facilities are taken into account in determining depreciation.
RETIREMENT OF PROPERTY, PLANT AND EQUIPMENT: Costs of property, plant and
equipment retired or otherwise disposed of, less accumulated reserves, are
reflected in net income.
MAINTENANCE AND REPAIRS: The estimated costs of major maintenance, including
turnarounds at the Port Reading refining facility, are accrued. Other
expenditures for maintenance and repairs are charged against income as incurred.
Renewals and improvements are treated as additions to property, plant and
equipment, and items replaced are treated as retirements.
- --------------------------------------------------------------------------------
32
- --------------------------------------------------------------------------------
28
- --------------------------------------------------------------------------------
ENVIRONMENTAL EXPENDITURES: The Corporation capitalizes environmental
expenditures that increase the life or efficiency of property or that reduce or
prevent environmental contamination. The Corporation accrues for environmental
expenses resulting from existing conditions related to past operations when the
costs are probable and reasonably estimable.
EMPLOYEE STOCK OPTIONS AND NONVESTED COMMON STOCK AWARDS: The Corporation uses
the intrinsic value method to account for employee stock options. Because the
exercise prices of employee stock options equal or exceed the market price of
the stock on the date of grant, the Corporation does not recognize compensation
expense. The Corporation records compensation expense for nonvested common stock
awards ratably over the vesting period.
FOREIGN CURRENCY TRANSLATION: The local currency is the functional currency
(primary currency in which business is conducted) for the Corporation's United
Kingdom and Norwegian operations. The U.S. dollar is the functional currency for
other foreign operations. Adjustments resulting from translating foreign
functional currency assets and liabilities into U.S. dollars are recorded in a
separate component of stockholders' equity entitled "Equity adjustment from
foreign currency translation." Gains or losses resulting from transactions in
other than the functional currency are reflected in net income. The Corporation
is studying a change to the U.S. dollar functional currency for its United
Kingdom operations for 1999 reporting.
HEDGING: The Corporation uses futures, forwards, options and swaps to hedge the
effects of fluctuations in the prices of crude oil, natural gas and refined
products and changes in interest rates and foreign currency values. These
transactions meet the requirements for hedge accounting, including designation
and correlation. The resulting gains or losses, measured by quoted market
prices, termination values or other methods, are accounted for as part of the
transactions being hedged, except that losses not expected to be recovered upon
the completion of hedged transactions are expensed. On the balance sheet,
deferred gains and losses are included in current assets and liabilities.
TRADING: The results of commodity trading activities are marked to market, with
gains and losses recorded in operating revenue.
2. REFINING JOINT VENTURE
On October 30, 1998, the Corporation formed a joint venture with Petroleos de
Venezuela, S.A. (PDVSA). Pursuant to this transaction, PDVSA, V.I., Inc. (PDVSA
V.I.), a wholly-owned subsidiary of PDVSA, purchased a 50% interest in the fixed
assets of the Corporation's Virgin Islands refinery for $62,500,000 in cash, a
10-year note from PDVSA V.I. for $562,500,000, bearing interest at 8.46% per
annum and requiring principal payments over its term, and a $125,000,000,
10-year, contingent note, also bearing interest at 8.46% per annum (which
contingent note was not valued for accounting purposes). PDVSA V.I.'s payment
obligations under both notes are guaranteed by PDVSA and secured by a pledge of
PDVSA V.I.'s interest in the joint venture. The Corporation's Virgin Islands
subsidiary and PDVSA V.I. each contributed their 50% interest in the refinery
fixed assets to HOVENSA L.L.C. (HOVENSA). HOVENSA is 50% owned by this
subsidiary of the Corporation and 50% owned by PDVSA V.I. and operates the
Virgin Islands refinery. The Corporation purchased refined products from HOVENSA
at a cost of approximately $151,000,000 during the two months ended December 31,
1998.
At closing, the Corporation also received $307,000,000 from HOVENSA as
payment for the net working capital of the refinery. The Corporation's
investment in the joint venture is accounted for using the equity method.
Summarized financial information for HOVENSA as of December 31, 1998 and for the
two months since inception follows:
- ---------------------------------------------------------------------------
Thousands of dollars 1998
- ---------------------------------------------------------------------------
SUMMARIZED BALANCE SHEET INFORMATION
At December 31
Current assets $ 352,171
Net fixed assets 1,343,712
Other assets 27,711
Current liabilities (133,454)
Long-term debt (250,000)
Deferred liabilities and credits (27,718)
- ---------------------------------------------------------------------------
Partners' equity $ 1,312,422
- ---------------------------------------------------------------------------
SUMMARIZED INCOME STATEMENT INFORMATION
For the period ended December 31
Total revenues $ 344,896
Costs and expenses (343,904)
Inventory market value changes (31,999)
- ---------------------------------------------------------------------------
Net loss $ (31,007)*
===========================================================================
* The Corporation's share of HOVENSA's loss was $15,848.
- --------------------------------------------------------------------------------
33
- --------------------------------------------------------------------------------
29
- --------------------------------------------------------------------------------
3. SPECIAL ITEMS
1998: In connection with the sale of a 50% interest in the fixed assets of the
Corporation's Virgin Islands refinery, the Corporation recorded a loss of
$106,000,000. The contingent note of $125,000,000 received from PDVSA V.I. was
not valued for accounting purposes. The Corporation also recorded an additional
noncash charge of $44,000,000 for the reduction in carrying value of its crude
oil storage terminal in St. Lucia, which will be used less as a result of the
joint venture. The amount of this charge was based on an estimate of fair value
of the facility determined by discounting anticipated future net cash flows. No
income tax benefit was recorded on either charge.
Exploration and production results included a special after-tax charge of
$77,000,000 for the reduction in market value of fixed-priced drilling service
contracts due to the decline in worldwide crude oil prices. This charge reflects
estimated costs that will not be recovered through subcontracts on several
drilling rigs. Pre-tax excess costs of approximately $90,000,000 were recorded
as liabilities in the balance sheet. A charge of $54,000,000 ($35,000,000 after
income taxes) was also recorded for the impairment of capitalized costs related
to a North Sea oil discovery, which is uneconomic at current prices. The
Corporation also expensed $29,000,000 for its share of asset impairment of an
equity affiliate and $13,000,000 for the reduction in carrying value of
developed and undeveloped properties in the United States and United Kingdom.
Net expenses of approximately $15,000,000 were also recorded for severance
covering approximately 400 exploration and production employees (of which
approximately 200 had been terminated at year-end). Approximately $2,000,000 of
severance has been paid in 1998. In addition, the Corporation recorded gains of
$56,200,000 on the sale of oil and gas assets in the United States and Norway.
The impairment of carrying values of the crude oil storage terminal and
exploration and production assets, including the loss on drilling service
contracts, is reflected in a separate impairment line in the income statement.
Gains (losses) on asset sales and equity in net income (loss) of affiliates are
included in non-operating revenues. Severance and related costs, before income
tax effect, are included in selling, general and administrative expenses.
1997: The Corporation recorded a charge of $80,600,000 (approximately
$55,000,000 after income taxes) for impairment of long-lived assets and a
long-term operating lease, as a result of reserve revisions on two oil fields in
the United Kingdom North Sea. The Corporation also recorded income of
$38,200,000 from a refund of United Kingdom Petroleum Revenue Taxes. In 1997,
the Corporation also sold its interest in a United States natural gas field
resulting in an after-tax gain of $10,700,000.
1996: The Corporation sold exploration and production assets in 1996
resulting in a net gain of $421,150,000. These sales included the Corporation's
Canadian operations, certain United States and United Kingdom producing
properties and Abu Dhabi assets.
4. ACCOUNTING CHANGES
On January 1, 1998, the Corporation began capitalizing the cost of internal use
software in accordance with AICPA Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. This
accounting change increased net income for the year by $13,867,000 ($.15 per
share).
Effective January 1, 1999, the Corporation adopted the last-in, first-out
(LIFO) method of accounting for its refining and marketing inventory.
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The Corporation
must adopt this statement by January 1, 2000. The Corporation has not yet
determined the effect of FAS No. 133 on its earnings and financial position.
5. INVENTORIES
Inventories at December 31 are as follows:
- -----------------------------------------------------------------------------
THOUSANDS OF DOLLARS 1998 1997
- -----------------------------------------------------------------------------
Crude oil and other charge stocks $ 35,818 $269,783
Refined and other finished products 386,917 564,973
- -----------------------------------------------------------------------------
422,735 834,756
Materials and supplies 59,447 103,193
- -----------------------------------------------------------------------------
Total $482,182* $937,949
=============================================================================
* Excludes inventories of 50% owned refinery joint venture, HOVENSA L.L.C.,
accounted for using the equity method.
- --------------------------------------------------------------------------------
34
- --------------------------------------------------------------------------------
30
- --------------------------------------------------------------------------------
6. SHORT-TERM NOTES AND RELATED LINES OF CREDIT
Short-term notes payable to banks amounted to $3,500,000 at December 31, 1998
and $17,825,000 at December 31, 1997. The weighted average interest rates on
these borrowings were 8.8% and 7.0% at December 31, 1998 and 1997, respectively.
At December 31, 1998, the Corporation has uncommitted arrangements with banks
for unused lines of credit aggregating $362,000,000. No compensating balances or
fees are required for these lines of credit. In addition, the Corporation has an
unused committed short-term credit line of $300,000,000 with facility fees of
.10% maturing in August 1999.
7. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
- -------------------------------------------------------------------------
THOUSANDS OF DOLLARS 1998 1997
- -------------------------------------------------------------------------
6.1% Marine Terminal Revenue
Bonds--Series 1994--
City of Valdez, Alaska,
due 2024 $ 20,000 $ 20,000
Pollution Control Revenue Bonds,
weighted average rate 6.6%,
due through 2022 52,607 52,590
Fixed rate notes, payable principally
to insurance companies,
weighted average rate 8.1%,
due through 2014 1,154,285 1,013,376
Global Revolving Credit Facility
with banks, weighted average
rate 6.1%*, due 2002 1,195,000 968,000
Project lease financing, weighted
average rate 5.1%, due
through 2014 185,513 --
Capitalized lease obligations,
weighted average rate 6.7%, due
through 2010 35,960 49,497
Other loans, weighted average rate
8.2%, due through 2007 5,600 6,000
- -------------------------------------------------------------------------
2,648,965 2,109,463
Less amount included in
current maturities 172,820 106,430
- -------------------------------------------------------------------------
Total $2,476,145 $2,003,033
=========================================================================
* Includes effect of interest rate conversion agreements.
The aggregate long-term debt maturing during the next five years is as
follows (in thousands): 1999--$172,820 (included in current liabilities);
2000--$4,923; 2001--$25,409; 2002--$1,395,693 and 2003--$80,986.
The Corporation's long-term debt agreements contain various restrictions
and conditions, including working capital requirements and limitations on total
borrowings and cash dividends. At December 31, 1998, the Corporation meets the
required working capital ratio of 1 to 1. The Corporation has additional
borrowing capacity of $1,313,000,000 for the construction or acquisition of
assets and $213,000,000 of retained earnings free of dividend restrictions.
The Corporation has a $2,000,000,000 Global Revolving Credit Facility (the
"Facility"), of which $1,195,000,000 is outstanding at December 31, 1998.
Outstanding amounts are due to be repaid in 2002, but may be extended for an
additional two years with the consent of the lenders. 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 .20% above
LIBOR. Facility fees of .125% per annum are payable on the amount of the credit
line.
During 1998, the Corporation entered into the sale and leaseback of its
interests in the production platforms and related facilities of two Gulf of
Mexico producing properties. These transactions have been accounted for as
financings. At December 31, the outstanding obligations amount to $185,513,000,
maturing through 2014.
The Corporation sold a portion of its subsequent year crude oil production
in 1998 and 1997 and used the proceeds to repay revolving credit debt.
Accordingly, at December 31, 1998 and 1997, $249,325,000 and $173,681,000,
respectively, are included in deferred revenue on the balance sheet.
At December 31, 1998, the Corporation has interest rate conversion
agreements, accounted for by the accrual method, that effectively convert
floating rate debt to fixed rate debt, reducing the percentage of its floating
rate debt from 47% to 32%.
In 1998 and 1997, the Corporation capitalized interest of $23,559,000 and
$10,284,000 on major development projects. The total amount of interest paid
(net of amounts capitalized), principally on short-term and long-term debt, in
1998, 1997 and 1996 was $154,419,000, $146,795,000 and $176,033,000,
respectively.
- --------------------------------------------------------------------------------
35
- --------------------------------------------------------------------------------
31
- --------------------------------------------------------------------------------
8. STOCKHOLDERS' EQUITY
The Corporation has outstanding stock options and nonvested common stock under
its 1995 Long-Term Incentive Plan and its Executive Long-Term Incentive
Compensation and Stock Ownership Plan (which expired in 1997). Generally, stock
options vest one year from the date of grant and the exercise price equals or
exceeds the market price on the date of grant. Nonvested common stock vests
three or five years from the date of grant, depending on the terms of the award.
The Corporation's stock option activity in 1998, 1997 and 1996 consisted of
the following:
- -----------------------------------------------------------------------------
WEIGHTED-
AVERAGE
OPTIONS EXERCISE PRICE
(THOUSANDS) PER SHARE
- -----------------------------------------------------------------------------
Granted in 1995, approved in 1996 863 $56.39
Granted in 1996 629 62.22
Exercised (5) 51.75
Forfeited (66) 56.39
- -----------------------------------------------------------------------------
Outstanding at December 31, 1996 1,421 58.99
Granted 873 54.75
Exercised (27) 50.86
Forfeited (19) 59.52
- -----------------------------------------------------------------------------
Outstanding at December 31, 1997 2,248 57.43
Granted 873 53.05
Exercised (3) 49.75
Forfeited (23) 56.22
- -----------------------------------------------------------------------------
Outstanding at December 31, 1998 3,095 $56.21
=============================================================================
Exercisable at December 31, 1996 792 $56.42
Exercisable at December 31, 1997 1,376 59.14
Exercisable at December 31, 1998 2,230 57.44
=============================================================================
Exercise prices for employee stock options at December 31, 1998 ranged from
$49.00 to $64.75 per share. The weighted-average remaining contractual life of
employee stock options is 8.3 years.
The Corporation uses the Black-Scholes model to estimate the fair value of
employee stock options for pro forma disclosure of the effects on net income and
earnings per share. The Corporation used the following weighted-average
assumptions in the Black-Scholes model for 1998, 1997 and 1996, respectively:
risk-free interest rates of 5.6%, 5.9% and 5.8%; expected stock price volatility
of .218, .220 and .213; a dividend yield of 1.1%; and an expected life of seven
years. The Corporation's net income would have been reduced by approximately
$19,100,000 in 1998, $7,600,000 in 1997 and $7,700,000 in 1996 ($.21 per share
in 1998 and $.08 per share in 1997 and 1996, diluted) if option expense were
recorded using the fair value method.
The weighted-average fair values of options granted for which the exercise
price equaled the market price on the date of grant were $17.50 in 1998, $18.69
in 1997 and $18.91 in 1996. In 1996, the fair value of options granted for which
the exercise price exceeded the market price on the date of grant was $15.47.
Total compensation expense for nonvested common stock was $15,975,000 in
1998, $11,553,000 in 1997 and $5,915,000 in 1996. Awards of nonvested common
stock were as follows:
- --------------------------------------------------------------------------
SHARES OF
NONVESTED WEIGHTED-
COMMON STOCK AVERAGE
AWARDED PRICE ON DATE
(THOUSANDS) OF GRANT
- --------------------------------------------------------------------------
Granted in 1995, approved in 1996 203 $49.81
Granted in 1996 95 57.30
Granted in 1997 746 53.94
Granted in 1998 18 53.08
==========================================================================
At December 31, 1998, the number of common shares reserved for issuance is
as follows:
- --------------------------------------------------------------------------
1995 Long-Term Incentive Plan
Future awards 621,000
Stock options outstanding 3,094,500
Stock appreciation rights 52,000
Warrants* 1,051,584
- --------------------------------------------------------------------------
Total 4,819,084
==========================================================================
* Issued in connection with an insurance company financing, exercisable
through June 27, 2001 at $64.66 per share.
9. FOREIGN CURRENCY TRANSLATION
Foreign currency exchange transactions reflected in net income (after income tax
effect) amounted to gains of $2,511,000 in 1998, $5,073,000 in 1997 and
$1,813,000 in 1996.
- --------------------------------------------------------------------------------
36
- --------------------------------------------------------------------------------
32
- --------------------------------------------------------------------------------
10. PENSION PLANS
The Corporation has defined benefit pension plans for substantially all of its
employees. The following table reconciles the benefit obligation and fair value
of plan assets and discloses the funded status:
- ----------------------------------------------------------------------------
THOUSANDS OF DOLLARS 1998 1997
- ----------------------------------------------------------------------------
Reconciliation of pension benefit obligation
Benefit obligation at January 1 $ 464,728 $ 419,798
Service cost 19,280 17,751
Interest cost 32,841 31,565
Actuarial loss 48,855 18,273
Benefit payments (23,000) (22,659)
- ----------------------------------------------------------------------------
Pension benefit obligation at
December 31 542,704 464,728
- ----------------------------------------------------------------------------
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1 427,912 381,532
Actual return on plan assets 54,311 60,216
Employer contributions 16,833 8,204
Employee contributions 793 619
Benefit payments (23,000) (22,659)
- ----------------------------------------------------------------------------
Fair value of plan assets at
December 31 476,849 427,912
- ----------------------------------------------------------------------------
Funded status at December 31
Funded status (65,855) (36,816)
Unrecognized prior service cost 11,166 10,321
Unrecognized (gain) loss 736 (27,193)
- ----------------------------------------------------------------------------
Accrued pension liability $ (53,953) $ (53,688)
============================================================================
The pension information shown above, which indicates a pension benefit
obligation in excess of plan assets of $65,855,000, is based on Financial
Accounting Standard No. 87, Employer's Accounting for Pensions. This standard
requires using a current discount rate at which the pension obligation could be
effectively settled. The rate is based on the rates of return of high-quality,
fixed-income investments. In determining the funding requirements of U.S.
pension plans in accordance with income tax regulations, the expected long-term
rate of return on the pension funds' investments is used as the discount rate.
This rate has historically been higher than the discount rate required by FAS
87, because pension assets are invested in equity and fixed income securities.
Had the long-term rate of return been used to discount the pension benefit
obligation, the present value of the Corporation's pension liability at December
31, 1998 would have been reduced by approximately $100,000,000. Accordingly, the
Corporation and its actuaries believe that its pension plans are adequately
funded. The Corporation's United States pension plan also meets the full funding
requirements under income tax regulations.
Pension expense consisted of the following:
- ----------------------------------------------------------------------------
THOUSANDS OF DOLLARS 1998 1997 1996
- ----------------------------------------------------------------------------
Service cost $ 19,280 $ 19,109 $ 17,915
Interest cost 32,841 33,162 29,961
Expected return on
plan assets (36,221) (32,390) (29,128)
Amortization of
transition obligation (72) (3,052) (3,064)
Amortization of prior
service cost 1,280 1,280 568
Amortization of net gain (22) (1,692) (778)
- ----------------------------------------------------------------------------
Pension expense $ 17,086 $ 16,417 $ 15,474
============================================================================
Prior service costs and gains and losses in excess of 10% of the greater of
the benefit obligation and the market value of assets are amortized over the
average remaining service period of active employees.
The weighted-average actuarial assumptions used by the Corporation's
pension plans at December 31 were as follows:
- ----------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------
Discount rate 6.4% 7.0%
Expected long-term rate of return on
plan assets 8.3% 8.5%
Rate of compensation increases 4.9% 5.1%
============================================================================
The Corporation also has a nonqualified supplemental pension plan covering
certain employees. The supplemental pension plan provides for incremental
pension payments from the Corporation's funds so that total pension payments
equal amounts that would have been payable from the Corporation's principal
pension plan were it not for limitations imposed by income tax regulations. The
benefit obligation related to this unfunded plan totaled $41,802,000 at December
31, 1998 and $35,606,000 at December 31, 1997. Pension expense for the plan was
$6,271,000 in 1998, $5,098,000 in 1997 and $3,970,000 in 1996. At December 31,
1998, the Corporation has accrued $25,205,000 for this plan. The trust
established to fund the supplemental plan held assets valued at $6,209,000 at
December 31, 1998.
- --------------------------------------------------------------------------------
37
- --------------------------------------------------------------------------------
33
- --------------------------------------------------------------------------------
11. PROVISION FOR INCOME TAXES
The provision (benefit) for income taxes consisted of:
- -----------------------------------------------------------------------------
THOUSANDS OF DOLLARS 1998 1997 1996
- -----------------------------------------------------------------------------
United States Federal
Current $ 9,510 $ 16,210 $ 20,156
Deferred (68,203) (27,254) 6,528
State 1,702 1,418 4,904
- -----------------------------------------------------------------------------
(56,991) (9,626) 31,588
- -----------------------------------------------------------------------------
Foreign
Current 71,492 181,665* 285,302
Deferred (66,310) (41,599) 36,955
- -----------------------------------------------------------------------------
5,182 140,066 322,257
- -----------------------------------------------------------------------------
Adjustment of deferred tax
liability for foreign
income tax rate change (3,409) (11,355) --
- -----------------------------------------------------------------------------
Total $ (55,218) $ 119,085 $ 353,845
=============================================================================
* Includes income tax refund of $38,180.
Income (loss) before income taxes consisted of the following:
- -----------------------------------------------------------------------------
THOUSANDS OF DOLLARS 1998 1997 1996
- -----------------------------------------------------------------------------
United States $ (205,522) $ 3,533 $ 55,678
Foreign* (308,589) 123,052 958,266
- -----------------------------------------------------------------------------
Total $ (514,111) $ 126,585 $1,013,944
=============================================================================
* Foreign income includes the Corporation's Virgin Islands, shipping and
other operations located outside of the United States.
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. A summary of the components of deferred tax liabilities and assets
at December 31 follows:
- ----------------------------------------------------------------------------
THOUSANDS OF DOLLARS 1998 1997
- ----------------------------------------------------------------------------
Deferred tax liabilities
Fixed assets and investments $ 272,461 $ 390,214
Foreign petroleum taxes 238,568 294,004
Other 58,251 51,778
- ----------------------------------------------------------------------------
Total deferred tax liabilities 569,280 735,996
- -----------------------------------------------------------------------------
Deferred tax assets
Accrued liabilities 194,109 170,730
Net operating and capital loss
carryforwards 224,765 471,583
Tax credit carryforwards 126,590 132,014
Other 41,592 41,826
- ----------------------------------------------------------------------------
Total deferred tax assets 587,056 816,153
Valuation allowance (141,113) (330,119)
- ----------------------------------------------------------------------------
Net deferred tax assets 445,943 486,034
- -----------------------------------------------------------------------------
Net deferred tax liabilities $ 123,337 $ 249,962
============================================================================
The difference between the Corporation's effective income tax rate and the
United States statutory rate is reconciled below:
- ---------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------
United States statutory rate (35.0)% 35.0% 35.0%
Effect of foreign operations,
including foreign tax credits 24.2 72.3 (.6)
Effect of capital and other
loss carryforwards (.2) (8.3) .5
State income taxes, net of
Federal income tax benefit .2 .7 .3
Prior year adjustments (.3) (3.5) (.1)
Tax credits -- (.8) (.1)
Other .4 (1.3) (.1)
- ---------------------------------------------------------------------------
Total (10.7)% 94.1% 34.9%
===========================================================================
The Corporation has not recorded deferred income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely reinvested
in foreign operations. Undistributed earnings amounted to approximately $750
million at December 31, 1998, excluding amounts which, if remitted, generally
would not result in any additional U.S. income taxes because of available
foreign tax credits. If the earnings of such foreign subsidiaries were not
indefinitely reinvested, a deferred tax liability of approximately $140 million
would have been required.
- --------------------------------------------------------------------------------
38
- --------------------------------------------------------------------------------
34
- --------------------------------------------------------------------------------
For income tax reporting at December 31, 1998, the Corporation has general
business credit carryforwards of approximately $27 million, principally expiring
in 1999 through 2001. In addition, the Corporation has alternative minimum tax
credit carryforwards of approximately $100 million, which can be carried forward
indefinitely. A net operating loss carryforward of approximately $1.1 billion is
also available to offset income of the HOVENSA joint venture partners.
Income taxes paid (net of refunds) in 1998, 1997 and 1996 amounted to
$140,470,000, $259,767,000 and $294,905,000, respectively.
12. NET INCOME PER SHARE
The weighted average number of common shares used in the basic and diluted
earnings per share computations are summarized below:
- -----------------------------------------------------------------------------
THOUSANDS OF SHARES 1998 1997 1996
- -----------------------------------------------------------------------------
Common shares--basic 89,585 91,254 92,552
Effect of dilutive securities
Nonvested common stock -- 428 539
Stock options -- 51 19
- -----------------------------------------------------------------------------
Common shares--diluted 89,585 91,733 93,110
=============================================================================
Diluted common shares include shares that would be outstanding assuming the
fulfillment of restrictions on nonvested shares and the exercise of stock
options. In 1998, the above table excludes the antidilutive effect of 666,000
nonvested common shares and 78,000 stock options. The table also excludes the
effect of out-of-the-money options on 1,626,000 shares, 867,000 shares and
336,000 shares in 1998, 1997 and 1996, respectively.
13. FINANCIAL INSTRUMENTS, HEDGING AND TRADING ACTIVITIES
The Corporation uses futures, forwards, options and swaps, individually or
in combination, to reduce the effects of fluctuations in crude oil, natural gas
and refined product prices and in fixed-price sales contracts. In addition, the
Corporation uses interest-rate conversion agreements to fix the interest rates
on a portion of its long-term, floating-rate debt. Foreign currency contracts
are used to protect the Corporation from fluctuations in exchange rates.
COMMODITY HEDGING: At December 31, 1998, the Corporation's hedging activities
included commodity and financial contracts, maturing mainly in 1999, covering
3,000,000 net barrels of crude oil and refined products (12,700,000 net barrels
in 1997) and 4,500,000 net Mcf of natural gas (9,300,000 net Mcf in 1997). In
1998, the crude oil and refined product hedges related to refining and marketing
operations. In 1997, the crude oil and refined product hedges included 7,300,000
barrels related to exploration and production activities, and the remainder
related to refining and marketing operations.
The Corporation produced 75,000,000 barrels of crude oil and natural gas
liquids and 210,000,000 Mcf of natural gas in 1998, and had approximately
22,000,000 barrels of crude oil and refined products in its refining and
marketing inventories at December 31, 1998. Since the contracts described above
are designated as hedges and correlate to price movements of crude oil, natural
gas and refined products, any gains or losses resulting from market changes will
be offset by losses or gains on the Corporation's hedged inventory or
production. Net deferred gains from the Corporation's hedging activities were
$5,000,000 at December 31, 1998, including $2,000,000 of unrealized gains
($22,000,000 at December 31, 1997, including $17,000,000 of unrealized gains).
The Corporation also had a net loss on certain contracts and offsetting
fixed-price sales commitments of approximately $1,700,000 in 1998 and a net gain
of $600,000 in 1997.
FINANCIAL INSTRUMENTS: At December 31, 1998, the Corporation has $400,000,000 in
interest-rate conversion agreements outstanding ($300,000,000 at December 31,
1997). The Corporation has $97,200,000 of notional value foreign currency
forward and purchased option contracts maturing generally in 1999 ($179,200,000
at December 31, 1997) and $137,900,000 in letters of credit outstanding
($66,100,000 at December 31, 1997). Notional amounts do not quantify risk or
represent
- --------------------------------------------------------------------------------
39
- --------------------------------------------------------------------------------
35
- --------------------------------------------------------------------------------
assets or liabilities of the Corporation, but are used in the calculation of
cash settlements under the contracts.
FAIR VALUE DISCLOSURE: The carrying amounts of cash and cash equivalents,
short-term debt and long-term, variable-rate debt approximate fair value. The
Corporation estimates the fair value of its long-term, fixed-rate debt generally
using discounted cash flow analysis based on the Corporation's current borrowing
rates for debt with similar maturities. Interest-rate conversion agreements and
foreign currency exchange contracts are valued based on current termination
values or quoted market prices of comparable contracts. The Corporation's
valuation of commodity contracts considers quoted market prices, time value,
volatility of the underlying commodities and other factors.
The carrying amounts of the Corporation's financial instruments and
commodity contracts, including those used in the Corporation's hedging and
trading activities, generally approximate their fair values at December 31,
1998, except as follows:
- -----------------------------------------------------------------------------
1998 1997
------------------- --------------------
BALANCE BALANCE
MILLIONS OF DOLLARS, SHEET FAIR SHEET FAIR
ASSET (LIABILITY) AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------------------
Long-term, fixed-rate
debt $(1,418) $(1,477) $(1,091) $(1,194)
Interest rate conversion
agreements -- (24) -- (4)
Foreign currency
exchange agreements
and options -- 2 -- 4
============================================================================
MARKET AND CREDIT RISKS: The Corporation's financial instruments expose it to
market and credit risks and may at times be concentrated with certain
counterparties or groups of counterparties. Counterparties to the Corporation's
financial instruments are major financial institutions and their credit
worthiness is subject to continuing review and full performance is anticipated.
COMMODITY TRADING: The Corporation, including a consolidated partnership formed
in 1997, trades energy commodities, including futures, forwards, options and
swaps, based on expectations of future market conditions. The Corporation's
results from trading activities, including its share of the earnings of the
trading partnership, amounted to a net loss of approximately $26,000,000 in 1998
and net income of approximately $4,000,000 in 1997.
The following table presents the year-end fair values of energy commodities
and derivative instruments used in trading activities and the average aggregate
fair values during the year:
- -----------------------------------------------------------------------------
FAIR VALUE
--------------------------------------------
AT AVERAGE AT AVERAGE
MILLIONS OF DOLLARS, DEC. 31, FOR DEC. 31, FOR
ASSET (LIABILITY) 1998 1998 1997 1997
- ----------------------------------------------------------------------------
Commodities $ 98 $ 75 $ 33 $ 21
Futures and forwards
Assets 29 43 20 13
Liabilities (29) (39) (14) (9)
Options
Held (7) (3) (4) (2)
Written 8 5 6 1
Swaps
Assets 110 59 3 4
Liabilities (117) (60) (1) (1)
============================================================================
Notional amounts of commodities and derivatives relating to trading
activities follow:
- -----------------------------------------------------------------------------
AT DECEMBER 31,
------------------
MILLIONS OF BARRELS OF OIL EQUIVALENT 1998 1997
- ----------------------------------------------------------------------------
Commodities 7 2
Futures and forwards--Long 39 26
--Short (51) (28)
Options--Held 20 8
--Written (21) (10)
Swaps*--Held 83 7
--Written (81) (9)
============================================================================
* Includes 18 million barrels long and 20 million barrels short related to
basis swaps at December 31, 1998 (4 million barrels long and 6 million
barrels short in 1997).
- --------------------------------------------------------------------------------
40
- --------------------------------------------------------------------------------
36
- --------------------------------------------------------------------------------
14. LEASED ASSETS
The Corporation and certain of its subsidiaries lease floating production
systems, drilling rigs, tankers, gasoline stations, office space and other
assets for varying periods. At December 31, 1998, the Corporation had net
capital lease assets of $75,971,000, representing natural gas production and
transportation facilities in the United Kingdom, which are included in property,
plant and equipment in the balance sheet.
At December 31, 1998, future minimum rental payments applicable to capital
and noncancelable operating leases with remaining terms of one year or more
(other than oil and gas leases) are as follows:
- -----------------------------------------------------------------------------
OPERATING CAPITAL
THOUSANDS OF DOLLARS LEASES LEASES
- -----------------------------------------------------------------------------
1999 $ 339,672 $28,632
2000 323,195 1,149
2001 130,987 1,149
2002 104,072 1,149
2003 88,634 1,149
Remaining years 367,248 6,896
- -----------------------------------------------------------------------------
Total minimum lease payments 1,353,808 40,124
Less: Imputed interest -- 4,164
Income from subleases 28,228 --
- -----------------------------------------------------------------------------
Net minimum lease payments $1,325,580* $35,960
=============================================================================
Capitalized lease obligations--
Current $28,004
Long-term 7,956
- -----------------------------------------------------------------------------
Total $35,960
=============================================================================
* Of the total future minimum payments under operating leases, $156,126 has
been accrued at December 31, 1998.
Rental expense for all operating leases, other than rentals applicable to
oil and gas leases, was as follows:
- -----------------------------------------------------------------------------
THOUSANDS OF DOLLARS 1998 1997 1996
- -----------------------------------------------------------------------------
Total rental expense $178,560 $195,246 $185,669
Less income from subleases 29,979 11,792 5,264
- -----------------------------------------------------------------------------
Net rental expense $148,581 $183,454 $180,405
=============================================================================
15. SEGMENT INFORMATION
The Corporation adopted FAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, during the fourth quarter of 1998. FAS No. 131 requires
financial information by geographic area and operating segment.
Financial information by major geographic area for each of the three years
ended December 31, 1998 follows:
- -----------------------------------------------------------------------------
UNITED CONSOLI-
MILLIONS OF DOLLARS STATES* EUROPE OTHER DATED
- -----------------------------------------------------------------------------
1998
Operating revenues $5,051 $1,479 $ 60 $6,590
Property, plant and
equipment (net) 1,457 2,351 384 4,192
=============================================================================
1997
Operating revenues $6,557 $1,619 $ 58 $8,234
Property, plant and
equipment (net) 2,872 2,106 213 5,191
=============================================================================
1996
Operating revenues $6,589 $1,568 $115 $8,272
Property, plant and
equipment (net) 2,671 2,020 216 4,907
=============================================================================
* Includes U.S. Virgin Islands and shipping operations.
The Corporation operates principally in the petroleum industry and its
operating segments are (1) exploration and production and (2) refining,
marketing and shipping. Exploration and production operations include the
exploration for and the production, purchase, gathering, transportation and sale
of crude oil and natural gas. Refining, marketing and shipping operations
include the manufacture, purchase, transportation, and marketing of petroleum
and other energy products.
- --------------------------------------------------------------------------------
41
- --------------------------------------------------------------------------------
37
- --------------------------------------------------------------------------------
15. SEGMENT INFORMATION (CONTINUED)
The following table presents financial data by major operating segment for each
of the three years ended December 31, 1998:
- ----------------------------------------------------------------------------------------------------------------------------
EXPLORATION REFINING,
AND MARKETING
MILLIONS OF DOLLARS PRODUCTION AND SHIPPING CORPORATE CONSOLIDATED*
- ----------------------------------------------------------------------------------------------------------------------------
1998
Operating revenues
Total operating revenues $1,985 $4,722 $ 1
Less: Transfers between affiliates 118 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Operating revenues from unaffiliated customers $1,867 $4,722 $ 1 $6,590
============================================================================================================================
Operating profit (loss) $ (29) $ (54) $ (37) $ (120)
Earnings of equity affiliates 7 (13) 5 (1)
Interest income 11 11 1 23
Interest expense -- -- (153) (153)
(Provision) benefit for income taxes (7) 38 24 55
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before special items (18) (18) (160) (196)
Special items (113) (150) -- (263)
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (131) $ (168) $(160) $ (459)
============================================================================================================================
Depreciation, depletion, amortization and lease impairment $ 577 $ 125 $ 2 $ 704
Investments in equity affiliates 96 781 56 933
Identifiable assets 4,286 3,126 471 7,883
Capital employed 3,231 2,065 -- 5,296
Capital expenditures 1,307 129 3 1,439
============================================================================================================================
1997
Operating revenues
Total operating revenues $3,091 $5,285 $ 1
Less: Transfers between affiliates 142 1 --
- ----------------------------------------------------------------------------------------------------------------------------
Operating revenues from unaffiliated customers $2,949 $5,284 $ 1 $8,234
============================================================================================================================
Operating profit (loss) $ 387 $ (119) $ (49) $ 219
Earnings of equity affiliates 21 6 5 32
Interest income 14 3 1 18
Interest expense -- -- (136) (136)
(Provision) benefit for income taxes (164) -- 45 (119)
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before special items 258 (110) (134) 14
Special items (6) -- -- (6)
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 252 $ (110) $(134) $ 8
============================================================================================================================
Depreciation, depletion, amortization and lease impairment $ 553 $ 118 $ 2 $ 673
Investments in equity affiliates 114 77 53 244
Identifiable assets 3,727 3,713 495 7,935
Capital employed 2,468 2,875 -- 5,343
Capital expenditures 1,158 183 5 1,346
============================================================================================================================
1996
Operating revenues
Total operating revenues $3,166 $5,283 $ 2
Less: Transfers between affiliates 177 1 1
- ----------------------------------------------------------------------------------------------------------------------------
Operating revenues from unaffiliated customers $2,989 $5,282 $ 1 $8,272
============================================================================================================================
Operating profit (loss) $ 608 $ 163 $ (51) $ 720
Earnings of equity affiliates 13 9 3 25
Interest income 7 2 2 11
Interest expense -- -- (166) (166)
(Provision) benefit for income taxes (418) 7 57 (354)
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before special items 210 181 (155) 236
Special items 424 -- -- 424
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 634 $ 181 $(155) $ 660
============================================================================================================================
Depreciation, depletion, amortization and lease impairment $ 603 $ 125 $ 2 $ 730
Investments in equity affiliates 92 71 50 213
Identifiable assets 3,600 3,802 382 7,784
Capital employed 2,156 3,167 -- 5,323
Capital expenditures 788 68 5 861
============================================================================================================================
* After elimination of transactions between affiliates, which are valued at
approximate market prices.
42
38
REPORT OF MANAGEMENT
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
- --------------------------------------------------------------------------------
The consolidated financial statements of Amerada Hess Corporation and
consolidated subsidiaries were prepared by and are the responsibility of
management. These financial statements conform with generally accepted
accounting principles and are, in part, based on estimates and judgements of
management. Other information included in this Annual Report is consistent with
that in the consolidated financial statements.
The Corporation maintains a system of internal controls designed to provide
reasonable assurance that assets are safeguarded and that transactions are
properly executed and recorded. Judgements are required to balance the relative
costs and benefits of this system of internal controls.
The Corporation's consolidated financial statements have been audited by
Ernst & Young LLP, independent auditors, who have been selected by the Audit
Committee of the Board of Directors and approved by the stockholders. Ernst &
Young LLP assesses the Corporation's system of internal controls and performs
tests and procedures that they consider necessary to arrive at an opinion on the
fairness of the consolidated financial statements.
The Audit Committee of the Board of Directors, which consists solely of
nonemployee directors, meets periodically with the independent auditors,
internal auditors and management to review and discuss the Corporation's
financial information, the system of internal controls and the results of
internal and external audits. Ernst & Young LLP and the Corporation's internal
auditors have unrestricted access to the Audit Committee to discuss audit
findings and other financial matters.
/s/ John B. Hess
John B. Hess
Chairman of the Board and Chief Executive Officer
/s/ John Y. Schreyer
John Y. Schreyer
Executive Vice President and Chief Financial Officer
- --------------------------------------------------------------------------------
43
- --------------------------------------------------------------------------------
39
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors and Stockholders
Amerada Hess Corporation
We have audited the accompanying consolidated balance sheet of Amerada Hess
Corporation and consolidated subsidiaries as of December 31, 1998 and 1997 and
the related consolidated statements of income, retained earnings, changes in
common stock and capital in excess of par value, cash flows and comprehensive
income for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Amerada Hess
Corporation and consolidated subsidiaries at December 31, 1998 and 1997 and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements, in 1998
the Corporation adopted AICPA Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use.
/s/ Ernst & Young LLP
- ---------------------
Ernst & Young LLP
New York, NY
February 22, 1999
- --------------------------------------------------------------------------------
44
- --------------------------------------------------------------------------------
40
SUPPLEMENTARY OIL AND GAS DATA
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
- --------------------------------------------------------------------------------
The supplementary oil and gas data that follows is presented in accordance with
Statement of Financial Accounting Standards (FAS) No. 69, Disclosures about Oil
and Gas Producing Activities, and includes (1) costs incurred, capitalized costs
and results of operations relating to oil and gas producing activities, (2) net
proved oil and gas reserves, and (3) a standardized measure of discounted future
net cash flows relating to proved oil and gas reserves, including a
reconciliation of changes therein.
The Corporation produces crude oil and natural gas in the United States,
Europe, Gabon, Indonesia and Azerbaijan. Exploration and/or development
activities are also conducted, or are planned, in Thailand, Kazakstan, Brazil
and in certain other countries.
During 1996, the Corporation sold its Canadian and Abu Dhabi operations and
certain United States and United Kingdom producing properties. In the geographic
data which follows, information on Canada and Abu Dhabi has been combined for
disclosure purposes.
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
- ---------------------------------------------------------------------------------------------------------------------------
UNITED AFRICA, ASIA CANADA AND
FOR THE YEARS ENDED DECEMBER 31 (MILLIONS OF DOLLARS) TOTAL STATES EUROPE AND OTHER ABU DHABI
- ---------------------------------------------------------------------------------------------------------------------------
1998
Property acquisitions $203 $ 41 $ 7 $155 $ --
Exploration 319 106 145 68 --
Development 915 182 650 83 --
- ---------------------------------------------------------------------------------------------------------------------------
1997
Property acquisitions $237 $ 39 $193 $ 5 $ --
Exploration 383 131 215 37 --
Development 679 231 408 40 --
- ---------------------------------------------------------------------------------------------------------------------------
1996
Property acquisitions $ 70 $ 32 $ 1 $ 37 $ --
Exploration 332 135 160 22 15
Development 512 152 337 12 11
===========================================================================================================================
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
- ---------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31 (MILLIONS OF DOLLARS) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Unproved properties $ 434 $ 449
Proved properties 1,596 1,425
Wells, equipment and related facilities 7,688 6,906
- ---------------------------------------------------------------------------------------------------------------------------
Total costs 9,718 8,780
Less: Reserve for depreciation, depletion, amortization and lease impairment 6,131 5,687
- ---------------------------------------------------------------------------------------------------------------------------
Net capitalized costs $3,587 $3,093
===========================================================================================================================
45
41
- --------------------------------------------------------------------------------
The results of operations for oil and gas producing activities shown below
exclude sales of purchased crude oil and natural gas, non-operating revenues
(including gains on sales of oil and gas properties), interest expense and gains
and losses resulting from foreign currency exchange transactions. Therefore,
these results differ from the net income from exploration and production
operations in Note 15 to the financial statements.
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
- --------------------------------------------------------------------------------------------------------------------------------
AFRICA, CANADA
UNITED ASIA AND AND
FOR THE YEARS ENDED DECEMBER 31 (MILLIONS OF DOLLARS) TOTAL STATES EUROPE OTHER ABU DHABI
- --------------------------------------------------------------------------------------------------------------------------------
1998
Sales and other operating revenues
Unaffiliated customers $1,355 $344 $ 975 $ 36 $--
Inter-company 144 84 -- 60 --
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues 1,499 428 975 96 --
- --------------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Production expenses, including related taxes 463 129 317 17 --
Exploration expenses, including dry holes and lease impairment 338 127 146 65 --
Other operating expenses 226* 72 103 51 --
Depreciation, depletion and amortization 528 155 345 28 --
Impairment of assets and operating leases 162 7 104 51 --
- --------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 1,717 490 1,015 212 --
- --------------------------------------------------------------------------------------------------------------------------------
Results of operations before income taxes (218) (62) (40) (116) --
Provision (benefit) for income taxes (38) (22) (22) 6 --
- --------------------------------------------------------------------------------------------------------------------------------
Results of operations $ (180) $(40) $ (18) $(122) $--
================================================================================================================================
1997
Sales and other operating revenues
Unaffiliated customers $1,983 $496 $1,454 $ 33 $--
Inter-company 134 76 -- 58 --
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues 2,117 572 1,454 91 --
- --------------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Production expenses, including related taxes 557 157 390 10 --
Exploration expenses, including dry holes and lease impairment 373 145 187 41 --
Other operating expenses 186 58 94 34 --
Depreciation, depletion and amortization 552 126 408 18 --
Impairment of assets and operating leases 81 -- 81 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 1,749 486 1,160 103 --
- --------------------------------------------------------------------------------------------------------------------------------
Results of operations before income taxes 368 86 294 (12) --
Provision for income taxes 143 30 107 6 --
- --------------------------------------------------------------------------------------------------------------------------------
Results of operations $ 225 $ 56 $ 187 $ (18) $--
================================================================================================================================
1996
Sales and other operating revenues
Unaffiliated customers $2,034 $474 $1,473 $ 11 $76
Inter-company 184 102 -- 78 4
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues 2,218 576 1,473 89 80
- --------------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Production expenses, including related taxes 619 182 410 7 20
Exploration expenses, including dry holes and lease impairment 343 183 124 27 9
Other operating expenses 203 66 105 23 9
Depreciation, depletion and amortization 603 165 405 16 17
- --------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 1,768 596 1,044 73 55
- --------------------------------------------------------------------------------------------------------------------------------
Results of operations before income taxes 450 (20) 429 16 25
Provision (benefit) for income taxes 266 (6) 276 (4) --
- --------------------------------------------------------------------------------------------------------------------------------
Results of operations $ 184 $(14) $ 153 $ 20 $25
================================================================================================================================
* Includes severance and related costs of approximately $32 million.
46
42
- --------------------------------------------------------------------------------
The Corporation's net oil and gas reserves have been estimated by DeGolyer
and MacNaughton, independent consultants. The reserves in the tabulation below
include proved undeveloped crude oil and natural gas reserves that will require
substantial future development expenditures. The estimates of the Corporation's
proved reserves of crude oil and natural gas (after deducting royalties and
operating interests owned by others) follow:
OIL AND GAS RESERVES
- -------------------------------------------------------------------------------------------------------------------------------
UNITED AFRICA, ASIA CANADA AND
TOTAL STATES EUROPE AND OTHER ABU DHABI
- -------------------------------------------------------------------------------------------------------------------------------
NET PROVED DEVELOPED AND UNDEVELOPED RESERVES
CRUDE OIL, INCLUDING CONDENSATE AND NATURAL
GAS LIQUIDS (MILLIONS OF BARRELS)
At January 1, 1996 695 205 412 18 60
Revisions of previous estimates 13 6 2 5 --
Improved recovery 6 6 -- -- --
Extensions, discoveries and other additions 45 5 40 -- --
Purchases of minerals in-place 4 -- -- 4 --
Sales of minerals in-place (98) (33) (8) -- (57)
Production (87) (18) (63) (3) (3)
- ----------------------------------------------------------------------------------------------------------------------------
At December 31, 1996 578 171 383 24 --
Revisions of previous estimates 47 7 40 -- --
Extensions, discoveries and other additions 39 12 21 6 --
Purchases of minerals in-place 14 1 13 -- --
Sales of minerals in-place (3) (1) (2) -- --
Production (80) (16) (60) (4) --
- ----------------------------------------------------------------------------------------------------------------------------
At December 31, 1997 595 174 395 26 --
Revisions of previous estimates 80 6 72 2 --
Extensions, discoveries and other additions 55 6 22 27 --
Purchases of minerals in-place 45 -- 2 43 --
Sales of minerals in-place (5) -- (5) -- --
Production (75) (17) (52) (6) --
- ----------------------------------------------------------------------------------------------------------------------------
At December 31, 1998 695 169 434 92 --
============================================================================================================================
NATURAL GAS (MILLIONS OF MCF)
At January 1, 1996 2,481 1,038 927 53 463
Revisions of previous estimates 108 34 74 -- --
Improved recovery 3 3 -- -- --
Extensions, discoveries and other additions 84 50 34 -- --
Purchases of minerals in-place 39 4 -- 35 --
Sales of minerals in-place (598) (158) -- -- (440)
Production (251) (124) (104) -- (23)
- ----------------------------------------------------------------------------------------------------------------------------
At December 31, 1996 1,866 847 931 88 --
Revisions of previous estimates 78 16 54 8 --
Extensions, discoveries and other additions 195 68 48 79 --
Purchases of minerals in-place 44 -- 44 -- --
Sales of minerals in-place (41) (8) (33) -- --
Production (207) (114) (93) -- --
- ----------------------------------------------------------------------------------------------------------------------------
At December 31, 1997 1,935 809 951 175 --
Revisions of previous estimates 147 35 113 (1) --
Extensions, discoveries and other additions 227 80 54 93 --
Purchases of minerals in-place 3 1 2 -- --
Sales of minerals in-place (47) (38) (9) -- --
Production (210) (107) (102) (1) --
- ----------------------------------------------------------------------------------------------------------------------------
At December 31, 1998 2,055 780* 1,009 266 --
============================================================================================================================
NET PROVED DEVELOPED RESERVES
CRUDE OIL, INCLUDING CONDENSATE AND NATURAL
GAS LIQUIDS (MILLIONS OF BARRELS)
At January 1, 1996 540 157 310 13 60
At December 31, 1996 412 121 280 11 --
At December 31, 1997 420 123 280 17 --
At December 31, 1998 452 132 293 27 --
NATURAL GAS (MILLIONS OF MCF)
At January 1, 1996 2,036 755 823 -- 458
At December 31, 1996 1,368 553 815 -- --
At December 31, 1997 1,342 497 796 49 --
At December 31, 1998 1,330 525 753 52 --
============================================================================================================================
* Excludes 483 million Mcf of carbon dioxide gas for sale or use in company
operations.
47
43
- --------------------------------------------------------------------------------
The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves required to be disclosed by FAS No. 69 is based on
assumptions and judgements. As a result, the future net cash flow estimates are
highly subjective and could be materially different if other assumptions were
used. Therefore, caution should be exercised in the use of the data presented
below.
Future net cash flows are calculated by applying year-end oil and gas
selling prices (adjusted for price changes provided by contractual arrangements,
including hedges) to estimated future production of proved oil and gas reserves,
less estimated future development and production costs and future income tax
expenses. Future net cash flows are discounted at the prescribed rate of 10%. No
recognition is given in the discounted future net cash flow estimates to
depreciation, depletion, amortization and lease impairment, exploration
expenses, interest expense, general and administrative expenses and changes in
future prices and costs. The selling prices of crude oil and natural gas have
decreased significantly during 1998 and are highly volatile.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES
- ------------------------------------------------------------------------------------------------------------------------------
UNITED AFRICA, ASIA
AT DECEMBER 31 (MILLIONS OF DOLLARS) TOTAL STATES EUROPE AND OTHER
- ------------------------------------------------------------------------------------------------------------------------------
1998
Future revenues $10,826 $2,866 $ 6,457 $1,503
- ------------------------------------------------------------------------------------------------------------------------------
Less:
Future development and production costs 6,412 1,479 4,183 750
Future income tax expenses 1,411 374 795 242
- ------------------------------------------------------------------------------------------------------------------------------
7,823 1,853 4,978 992
- ------------------------------------------------------------------------------------------------------------------------------
Future net cash flows 3,003 1,013 1,479 511
Less: Discount at 10% annual rate 980 403 326 251
- ------------------------------------------------------------------------------------------------------------------------------
Standardized measure of discounted future
net cash flows $ 2,023 $ 610 $ 1,153 $ 260
==============================================================================================================================
1997
Future revenues $13,001 $4,078 $ 8,207 $ 716
- ------------------------------------------------------------------------------------------------------------------------------
Less:
Future development and production costs 6,033 1,533 4,243 257
Future income tax expenses 3,127 831 2,073 223
- ------------------------------------------------------------------------------------------------------------------------------
9,160 2,364 6,316 480
- ------------------------------------------------------------------------------------------------------------------------------
Future net cash flows 3,841 1,714 1,891 236
Less: Discount at 10% annual rate 1,424 692 648 84
- ------------------------------------------------------------------------------------------------------------------------------
Standardized measure of discounted future
net cash flows $ 2,417 $1,022 $ 1,243 $ 152
==============================================================================================================================
1996
Future revenues $18,479 $5,936 $11,630 $ 913
- ------------------------------------------------------------------------------------------------------------------------------
Less:
Future development and production costs 6,551 1,906 4,382 263
Future income tax expenses 5,297 1,319 3,632 346
- ------------------------------------------------------------------------------------------------------------------------------
11,848 3,225 8,014 609
- ------------------------------------------------------------------------------------------------------------------------------
Future net cash flows 6,631 2,711 3,616 304
Less: Discount at 10% annual rate 2,447 1,160 1,213 74
- ------------------------------------------------------------------------------------------------------------------------------
Standardized measure of discounted future
net cash flows $ 4,184 $1,551 $ 2,403 $ 230
==============================================================================================================================
48
44
- --------------------------------------------------------------------------------
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET
CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31 (MILLIONS OF DOLLARS) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Standardized measure of discounted future net cash flows at beginning of year $ 2,417 $ 4,184 $ 3,758
- ------------------------------------------------------------------------------------------------------------------------------------
Changes during the year
Sales and transfers of oil and gas produced during year, net of
production costs (1,036) (1,558) (1,603)
Development costs incurred during year 915 679 512
Net changes in prices and production costs applicable to future production (2,215) (3,304) 2,577
Net change in estimated future development costs (273) (392) (168)
Extensions and discoveries (including improved recovery) of oil and
gas reserves, less related costs 220 140 315
Revisions of previous oil and gas reserve estimates 233 271 311
Purchases (sales) of minerals in-place, net 126 90 (983)
Accretion of discount 435 769 600
Net change in income taxes 1,036 1,355 (814)
Revision in rate or timing of future production and other changes 165 183 (321)
- ------------------------------------------------------------------------------------------------------------------------------------
Total (394) (1,767) 426
- ------------------------------------------------------------------------------------------------------------------------------------
Standardized measure of discounted future net cash flows at end of year $ 2,023 $ 2,417 $ 4,184
====================================================================================================================================
49
45
TEN-YEAR SUMMARY OF FINANCIAL DATA
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF CONSOLIDATED INCOME
Revenues
Sales (excluding excise taxes) and other operating revenues
Crude oil (including sales of purchased oil) $ 893,921 $ 1,435,848 $ 1,528,692
Natural gas (including sales of purchased gas) 1,710,743 1,414,314 1,364,833
Petroleum products 3,464,229 4,960,986 5,080,790
Other operating revenues 521,116 422,575 297,871
- ------------------------------------------------------------------------------------------------------------------------------------
Total 6,590,009 8,233,723 8,272,186
Non-operating revenues (including asset sales) 27,457 106,323 657,525(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues 6,617,466 8,340,046 8,929,711
- ------------------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of products sold and operating expenses 5,024,405 6,301,046 6,074,695
Exploration expenses, including dry holes
and lease impairment 337,518 373,180 342,860
Selling, general and administrative expenses 753,251 649,815 602,329
Interest expense 152,934 136,149 165,501
Depreciation, depletion and amortization 656,991 672,669 730,382
Asset impairment 206,478 80,602 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 7,131,577 8,213,461 7,915,767
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (514,111) 126,585 1,013,944
Provision (benefit) for income taxes (55,218) 119,085 353,845
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (458,893)(a) $ 7,500 $ 660,099
====================================================================================================================================
Net income (loss) per share
Basic $ (5.12) $ .08 $ 7.13
Diluted (5.12) .08 7.09
====================================================================================================================================
DIVIDENDS PER SHARE OF COMMON STOCK $ .60 $ .60 $ .60
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (DILUTED)--in thousands 89,585 91,733 93,110
====================================================================================================================================
(a) Includes after-tax special charges aggregating $262,800 ($2.93 per share)
representing impairments of assets and operating leases, a net loss on
asset sales and accrued severance.
(b) Includes a pre-tax gain on asset sales of $529,271. The net gain, after
applicable income taxes, was $421,150 ($4.52 per share).
(c) Reflects a charge for impairment of long-lived assets on adoption of FAS
No. 121. The net effect, after income taxes, was $415,542 ($4.47 per
share).
See accompanying notes to consolidated financial statements.
50
46
- -------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------
$ 1,565,310 $ 1,228,045 $ 1,219,750 $ 1,362,118 $ 1,448,793 $ 1,248,193 $ 904,233
1,120,450 1,063,560 1,020,563 787,996 574,004 458,615 315,578
4,311,082 3,980,563 3,348,900 3,428,702 3,897,748 4,587,646 4,107,770
305,465 329,816 290,308 279,541 346,300 653,051 261,373
- -------------------------------------------------------------------------------------------------------------------------
7,302,307 6,601,984 5,879,521 5,858,357 6,266,845 6,947,505 5,588,954
222,482 96,809 21,153 95,352 149,496 133,593 90,373
- -------------------------------------------------------------------------------------------------------------------------
7,524,789 6,698,793 5,900,674 5,953,709 6,416,341 7,081,098 5,679,327
- -------------------------------------------------------------------------------------------------------------------------
5,226,157 4,454,219 4,291,539 4,043,880 4,414,332 4,712,125 3,840,300
350,378 306,687 323,187 298,596 373,171 339,103 223,549
617,871 577,247 583,419 567,142 568,949 503,105 414,791
247,465 245,149 156,615 147,099 177,850 224,200 187,811
851,406 879,679 769,390 773,507 765,877 687,064 492,510
584,161 (c) -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
7,877,438 6,462,981 6,124,150 5,830,224 6,300,179 6,465,597 5,158,961
- -------------------------------------------------------------------------------------------------------------------------
(352,649) 235,812 (223,476) 123,485 116,162 615,501 520,366
41,764 162,098 44,727 115,940 31,854 132,788 44,017
- -------------------------------------------------------------------------------------------------------------------------
$ (394,413) $ 73,714 $ (268,203) $ 7,545 $ 84,308 $ 482,713 $ 476,349
=========================================================================================================================
$ (4.26) $ .80 $ (2.91) $ .09 $ 1.05 $ 5.99 $ 5.89
(4.26) .79 (2.91) .09 1.04 5.96 5.87
=========================================================================================================================
$ .60 $ .60 $ .60 $ .60 $ .60 $ .60 $ .60
92,509 92,968 92,213 87,286 81,087 81,023 81,176
=========================================================================================================================
51
47
TEN-YEAR SUMMARY OF FINANCIAL DATA
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
- ---------------------------------------------------------------------------------------------------------------------------------
THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
SELECTED BALANCE SHEET DATA AT YEAR-END
Cash and cash equivalents $ 73,791 $ 91,154 $ 112,522
Working capital 89,909 463,781 689,864
Property, plant and equipment
Exploration and production $ 9,718,424 $ 8,779,807 $ 8,233,445
Refining, marketing and other 1,308,815 3,841,828 3,668,974
- ---------------------------------------------------------------------------------------------------------------------------------
Total--at cost 11,027,239 12,621,635 11,902,419
Less reserves 6,835,301 7,430,841 6,995,136
- ---------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment--net $ 4,191,938 $ 5,190,794 $ 4,907,283
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 7,882,983 $ 7,934,619 $ 7,784,481
Total debt 2,652,465 2,127,288 1,939,288
Stockholders' equity 2,643,412 3,215,699 3,383,631
Stockholders' equity per share $29.26 $35.16 $36.35
=================================================================================================================================
SUMMARIZED STATEMENT OF CASH FLOWS
Net cash provided by operating activities $ 518,788 $ 1,250,007 $ 807,721
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures
Exploration and production (1,306,438) (1,157,938) (788,286)
Refining, marketing and other (132,240) (187,652) (72,339)
- ---------------------------------------------------------------------------------------------------------------------------------
Total capital expenditures (1,438,678) (1,345,590) (860,625)
Proceeds from sales of property, plant and equipment and other 502,854 63,017 1,037,073
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (935,824) (1,282,573) 176,448
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Issuance (repayment) of notes (14,342) 1,982 (72,046)
Long-term borrowings 848,320 398,391 --
Repayment of long-term debt and capitalized lease obligations (317,144) (209,000) (794,527)
Issuance of common stock -- -- --
Cash dividends paid (54,647) (55,373) (55,746)
Common stock retired (59,167) (122,283) (8,236)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 403,020 13,717 (930,555)
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (3,347) (2,519) 2,837
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents $ (17,363) $ (21,368) $ 56,451
=================================================================================================================================
STOCKHOLDER DATA AT YEAR-END
Number of common shares outstanding (in thousands) 90,357 91,451 93,073
Number of stockholders (based on number of holders of record) 8,959 9,591 10,153
Market price of common stock $49.75 $54.88 $57.88
=================================================================================================================================
52
48
- -------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------
$ 56,071 $ 53,135 $ 79,635 $ 141,014 $ 120,170 $ 129,914 $ 120,300
357,964 520,247 245,026 551,459 625,370 603,244 493,168
$ 9,392,184 $ 9,790,468 $ 9,360,871 $ 9,203,951 $ 9,306,435 $ 8,340,951 $ 6,531,956
3,672,028 4,514,358 4,426,369 3,886,814 3,223,397 2,817,032 2,635,300
- -------------------------------------------------------------------------------------------------------------------------
13,064,212 14,304,826 13,787,240 13,090,765 12,529,832 11,157,983 9,167,256
7,694,496 7,938,824 7,052,328 6,646,801 6,339,232 5,594,399 4,688,142
- -------------------------------------------------------------------------------------------------------------------------
$ 5,369,716 $ 6,366,002 $ 6,734,912 $ 6,443,964 $ 6,190,600 $ 5,563,584 $ 4,479,114
- -------------------------------------------------------------------------------------------------------------------------
$ 7,756,370 $ 8,337,940 $ 8,641,546 $ 8,721,756 $ 8,841,435 $ 9,056,636 $ 6,867,411
2,717,866 3,339,788 3,687,922 3,186,199 3,266,195 2,925,285 2,697,184
2,660,396 3,099,629 3,028,911 3,387,599 3,131,982 3,106,029 2,560,628
$28.60 $33.33 $32.71 $36.59 $38.63 $38.34 $31.69
=========================================================================================================================
$ 1,241,007 $ 957,018 $ 819,423 $ 1,137,707 $ 1,364,268 $ 1,326,444 $ 805,848
- -------------------------------------------------------------------------------------------------------------------------
(626,518) (532,189) (755,419) (916,536) (1,295,039) (1,267,506) (1,730,072)
(65,593) (64,095) (592,622) (641,258) (417,276) (193,921) (98,597)
- -------------------------------------------------------------------------------------------------------------------------
(692,111) (596,284) (1,348,041) (1,557,794) (1,712,315) (1,461,427) (1,828,669)
145,792 72,804 12,436 25,423 37,788 (12,012) 6,644
- -------------------------------------------------------------------------------------------------------------------------
(546,319) (523,480) (1,335,605) (1,532,371) (1,674,527) (1,473,439) (1,822,025)
- -------------------------------------------------------------------------------------------------------------------------
26,247 (54,153) 117,791 (159,756) (183,351) 46,744 13,823
25,000 289,843 547,704 675,016 786,280 461,413 1,203,994
(689,355) (642,112) (167,769) (524,384) (269,414) (287,531) (194,870)
-- -- -- 497,360 -- -- --
(55,788) (55,711) (41,603) (64,194) (36,468) (60,681) (48,785)
-- -- -- -- -- (6,213) (43,632)
- -------------------------------------------------------------------------------------------------------------------------
(693,896) (462,133) 456,123 424,042 297,047 153,732 930,530
- -------------------------------------------------------------------------------------------------------------------------
2,144 2,095 (1,320) (8,534) 3,468 2,877 (7,237)
- -------------------------------------------------------------------------------------------------------------------------
$ 2,936 $ (26,500) $ (61,379) $ 20,844 $ (9,744) $ 9,614 $ (92,884)
=========================================================================================================================
93,011 92,996 92,587 92,584 81,068 81,019 80,804
11,294 11,506 12,000 13,088 13,732 14,669 16,638
$53.00 $45.63 $45.13 $46.00 $47.50 $46.38 $48.75
=========================================================================================================================
53
49
TEN-YEAR SUMMARY OF OPERATING DATA
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
PRODUCTION PER DAY (NET)
Crude oil (barrels)
United States 36,784 35,707 41,020
United Kingdom 109,463 126,427 134,726
Norway 26,943 29,516 27,603
Africa 14,345 10,127 9,725
Indonesia and Azerbaijan 2,949 531 --
Canada and Abu Dhabi -- -- 5,929
- ------------------------------------------------------------------------------------------------------------------------------------
Total 190,484 202,308 219,003
====================================================================================================================================
Natural gas liquids (barrels)
United States 8,136 8,243 9,105
United Kingdom 5,990 6,364 6,628
Norway 1,379 1,657 1,585
Canada -- -- 476
- ------------------------------------------------------------------------------------------------------------------------------------
Total 15,505 16,264 17,794
====================================================================================================================================
Natural gas (Mcf)
United States 293,849 311,915 337,653
United Kingdom 251,000 225,804 253,983
Norway 27,828 30,312 30,445
Indonesia 3,800 1,223 --
Canada -- -- 62,585
- ------------------------------------------------------------------------------------------------------------------------------------
Total 576,477 569,254 684,666
====================================================================================================================================
WELL COMPLETIONS (NET)
Oil wells 28 42 39
Gas wells 20 11 25
Dry holes 25 24 40
PRODUCTIVE WELLS AT YEAR-END (NET)
Oil wells 721 860 854
Gas wells 252 447 455
- ------------------------------------------------------------------------------------------------------------------------------------
Total 973 1,307 1,309
====================================================================================================================================
UNDEVELOPED NET ACREAGE (HELD AT END OF YEAR)
United States 748,000 915,000 891,000
Foreign(a) 16,927,000 10,180,000 7,455,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total 17,675,000 11,095,000 8,346,000
====================================================================================================================================
SHIPPING
Vessels owned or under charter at year-end 9 14 13
Total deadweight tons 952,000 1,602,000 1,236,000
REFINING (BARRELS DAILY)
Amerada Hess Corporation(b) 419,000 411,000 396,000
HOVENSA L.L.C.(c) 433,000 -- --
PETROLEUM PRODUCTS SOLD (BARRELS DAILY)
Gasoline, distillates and other light products 411,000 436,000 412,000
Residual fuel oils 71,000 73,000 83,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total 482,000 509,000 495,000
====================================================================================================================================
STORAGE CAPACITY AT YEAR-END (BARRELS) 56,070,000 87,000,000 86,986,000
NUMBER OF EMPLOYEES (AVERAGE) 9,777 9,216 9,085
====================================================================================================================================
(a) Includes acreage held under production sharing contracts.
(b) Through ten months of 1998.
(c) Reflects 100% of HOVENSA refinery crude runs from November 1, 1998.
54
50
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
52,284 55,638 60,173 62,517 66,063 62,434 60,992
135,429 122,043 80,019 86,265 59,979 56,027 38,707
25,576 24,279 26,388 29,598 28,619 24,351 24,135
9,512 8,857 8,301 6,910 8,952 -- --
-- -- -- -- -- -- --
16,976 17,854 21,540 22,678 21,832 17,969 16,408
- ------------------------------------------------------------------------------------------------------------------------------------
239,777 228,671 196,421 207,968 185,445 160,781 140,242
====================================================================================================================================
10,722 11,964 11,798 11,063 10,047 9,436 9,986
6,900 6,756 3,783 1,468 766 805 466
1,414 1,320 1,432 1,707 1,752 2,004 2,016
1,647 1,809 1,956 1,981 1,997 1,704 1,732
- ------------------------------------------------------------------------------------------------------------------------------------
20,683 21,849 18,969 16,219 14,562 13,949 14,200
====================================================================================================================================
401,581 427,103 502,459 601,824 583,740 457,042 335,112
239,307 208,742 188,024 153,599 128,014 145,921 126,643
27,743 24,417 28,987 31,858 26,947 25,656 24,371
-- -- -- -- -- -- --
215,500 185,856 167,839 137,680 104,151 76,768 72,855
- ------------------------------------------------------------------------------------------------------------------------------------
884,131 846,118 887,309 924,961 842,852 705,387 558,981
====================================================================================================================================
33 28 48 33 45 17 19
41 44 49 20 41 33 19
50 24 37 22 36 38 31
2,154 2,160 2,189 2,082 2,103 2,111 2,048
1,160 1,146 1,115 966 927 905 714
- ------------------------------------------------------------------------------------------------------------------------------------
3,314 3,306 3,304 3,048 3,030 3,016 2,762
====================================================================================================================================
1,440,000 1,685,000 1,854,000 1,819,000 1,802,000 1,716,000 1,589,000
5,871,000 4,570,000 4,310,000 3,168,000 3,480,000 3,329,000 3,083,000
- ------------------------------------------------------------------------------------------------------------------------------------
7,311,000 6,255,000 6,164,000 4,987,000 5,282,000 5,045,000 4,672,000
====================================================================================================================================
16 17 15 21 21 23 22
2,010,000 2,265,000 2,398,000 3,223,000 2,825,000 3,012,000 3,081,000
377,000 388,000 351,000 335,000 320,000 383,000 397,000
-- -- -- -- -- -- --
401,000 375,000 291,000 275,000 285,000 296,000 299,000
86,000 93,000 95,000 102,000 128,000 132,000 171,000
- ------------------------------------------------------------------------------------------------------------------------------------
487,000 468,000 386,000 377,000 413,000 428,000 470,000
====================================================================================================================================
89,165,000 94,597,000 94,380,000 95,199,000 94,879,000 93,867,000 91,794,000
9,574 9,858 10,173 10,263 10,317 9,645 8,740
====================================================================================================================================
55