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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
| | | | | | | | | | | | | | |
☒ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended March 31, 2023
or
| | | | | | | | |
☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-1204
HESS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
13-4921002
(I.R.S. Employer Identification Number)
1185 AVENUE OF THE AMERICAS, NEW YORK, NY
(Address of Principal Executive Offices)
10036
(Zip Code)
(Registrant’s Telephone Number, Including Area Code is (212) 997-8500)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol | Name of exchange on which registered |
Common Stock | HES | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
Emerging growth company | | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
At March 31, 2023, there were 307,051,889 shares of Common Stock outstanding.
HESS CORPORATION
Form 10-Q
TABLE OF CONTENTS
Unless the context indicates otherwise, references to “Hess”, the “Corporation”, “Registrant”, “we”, “us”, “our” and “its” refer to the consolidated business operations of Hess Corporation and its subsidiaries.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| | | |
| (In millions, except share amounts) |
Assets | | | |
Current Assets: | | | |
Cash and cash equivalents | $ | 2,100 | | | $ | 2,486 | |
Accounts receivable: | | | |
From contracts with customers | 1,064 | | | 1,041 | |
Joint venture and other | 143 | | | 121 | |
Inventories | 229 | | | 217 | |
Other current assets | 263 | | | 66 | |
Total current assets | 3,799 | | | 3,931 | |
Property, plant and equipment: | | | |
Total — at cost | 33,276 | | | 32,592 | |
Less: Reserves for depreciation, depletion, amortization and lease impairment | 17,864 | | | 17,494 | |
Property, plant and equipment — net | 15,412 | | | 15,098 | |
Operating lease right-of-use assets — net | 542 | | | 570 | |
Finance lease right-of-use assets — net | 121 | | | 126 | |
Goodwill | 360 | | | 360 | |
Deferred income taxes | 131 | | | 133 | |
Post-retirement benefit assets | 663 | | | 648 | |
Other assets | 910 | | | 829 | |
Total Assets | $ | 21,938 | | | $ | 21,695 | |
Liabilities | | | |
Current Liabilities: | | | |
Accounts payable | $ | 344 | | | $ | 285 | |
Accrued liabilities | 1,663 | | | 1,840 | |
Taxes payable | 59 | | | 47 | |
Current portion of long-term debt | 5 | | | 3 | |
Current portion of operating and finance lease obligations | 237 | | | 221 | |
Total current liabilities | 2,308 | | | 2,396 | |
Long-term debt | 8,382 | | | 8,278 | |
Long-term operating lease obligations | 422 | | | 469 | |
Long-term finance lease obligations | 174 | | | 179 | |
Deferred income taxes | 454 | | | 418 | |
Asset retirement obligations | 1,050 | | | 1,034 | |
Other liabilities and deferred credits | 427 | | | 425 | |
Total Liabilities | 13,217 | | | 13,199 | |
Equity | | | |
Hess Corporation stockholders’ equity: | | | |
Common stock, par value $1.00; Authorized — 600,000,000 shares | | | |
Issued 307,051,889 shares (2022: 306,176,864) | 307 | | | 306 | |
Capital in excess of par value | 6,254 | | | 6,206 | |
Retained earnings | 1,686 | | | 1,474 | |
Accumulated other comprehensive income (loss) | (114) | | | (131) | |
Total Hess Corporation stockholders’ equity | 8,133 | | | 7,855 | |
Noncontrolling interests | 588 | | | 641 | |
Total Equity | 8,721 | | | 8,496 | |
Total Liabilities and Equity | $ | 21,938 | | | $ | 21,695 | |
See accompanying Notes to Consolidated Financial Statements.
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME (UNAUDITED)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| | | |
| (In millions, except per share amounts) |
Revenues and Non-Operating Income | | | |
Sales and other operating revenues | $ | 2,411 | | | $ | 2,313 | |
Gains on asset sales, net | — | | | 22 | |
Other, net | 42 | | | 36 | |
Total revenues and non-operating income | 2,453 | | | 2,371 | |
Costs and Expenses | | | |
Marketing, including purchased oil and gas | 603 | | | 682 | |
Operating costs and expenses | 382 | | | 313 | |
Production and severance taxes | 48 | | | 61 | |
Exploration expenses, including dry holes and lease impairment | 66 | | | 43 | |
General and administrative expenses | 136 | | | 110 | |
Interest expense | 123 | | | 123 | |
Depreciation, depletion and amortization | 491 | | | 337 | |
| | | |
Total costs and expenses | 1,849 | | | 1,669 | |
Income Before Income Taxes | 604 | | | 702 | |
Provision for income taxes | 176 | | | 197 | |
Net Income | 428 | | | 505 | |
Less: Net income attributable to noncontrolling interests | 82 | | | 88 | |
Net Income Attributable to Hess Corporation | $ | 346 | | | $ | 417 | |
| | | |
Net Income Attributable to Hess Corporation Per Common Share: |
Basic | $ | 1.13 | | | $ | 1.35 | |
Diluted | $ | 1.13 | | | $ | 1.34 | |
Weighted Average Number of Common Shares Outstanding: | | | |
Basic | 305.4 | | | 308.9 | |
Diluted | 307.3 | | | 310.4 | |
Common Stock Dividends Per Share | $ | 0.4375 | | | $ | 0.3750 | |
See accompanying Notes to Consolidated Financial Statements.
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| | | |
| (In millions) |
Net Income | $ | 428 | | | $ | 505 | |
Other Comprehensive Income (Loss): | | | |
Derivatives designated as cash flow hedges | | | |
Effect of hedge (gains) losses reclassified to income | 34 | | | 92 | |
Income taxes on effect of hedge (gains) losses reclassified to income | — | | | — | |
Net effect of hedge (gains) losses reclassified to income | 34 | | | 92 | |
Change in fair value of cash flow hedges | (17) | | | (455) | |
Income taxes on change in fair value of cash flow hedges | — | | | — | |
Net change in fair value of cash flow hedges | (17) | | | (455) | |
Change in derivatives designated as cash flow hedges, after taxes | 17 | | | (363) | |
Pension and other postretirement plans | | | |
(Increase) reduction in unrecognized actuarial losses | — | | | — | |
Income taxes on actuarial changes in plan liabilities | — | | | — | |
(Increase) reduction in unrecognized actuarial losses, net | — | | | — | |
Amortization of net actuarial losses | — | | | 3 | |
Income taxes on amortization of net actuarial losses | — | | | — | |
Net effect of amortization of net actuarial losses | — | | | 3 | |
Change in pension and other postretirement plans, after taxes | — | | | 3 | |
Other Comprehensive Income (Loss) | 17 | | | (360) | |
Comprehensive Income | 445 | | | 145 | |
Less: Comprehensive income attributable to noncontrolling interests | 82 | | | 88 | |
Comprehensive Income Attributable to Hess Corporation | $ | 363 | | | $ | 57 | |
See accompanying Notes to Consolidated Financial Statements.
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| | | |
| (In millions) |
Cash Flows From Operating Activities | | | |
Net income | $ | 428 | | | $ | 505 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
(Gains) losses on asset sales, net | — | | | (22) | |
Depreciation, depletion and amortization | 491 | | | 337 | |
| | | |
Exploratory dry hole costs | 31 | | | — | |
Exploration lease impairment | 5 | | | 6 | |
| | | |
Stock compensation expense | 35 | | | 33 | |
Noncash (gains) losses on commodity derivatives, net | — | | | 55 | |
Provision for deferred income taxes and other tax accruals | 42 | | | 38 | |
Changes in operating assets and liabilities: | | | |
(Increase) decrease in accounts receivable | (202) | | | (642) | |
(Increase) decrease in inventories | (12) | | | (20) | |
Increase (decrease) in accounts payable and accrued liabilities | (23) | | | 81 | |
Increase (decrease) in taxes payable | 12 | | | (399) | |
Changes in other operating assets and liabilities | (169) | | | (128) | |
Net cash provided by (used in) operating activities | 638 | | | (156) | |
Cash Flows From Investing Activities | | | |
Additions to property, plant and equipment - E&P | (773) | | | (491) | |
Additions to property, plant and equipment - Midstream | (64) | | | (55) | |
Proceeds from asset sales, net of cash sold | — | | | 24 | |
Other, net | (4) | | | — | |
Net cash provided by (used in) investing activities | (841) | | | (522) | |
Cash Flows From Financing Activities | | | |
Net borrowings (repayments) of debt with maturities of 90 days or less | 103 | | | 1 | |
Debt with maturities of greater than 90 days: | | | |
Borrowings | — | | | — | |
Repayments | — | | | (505) | |
Cash dividends paid | (137) | | | (119) | |
Common stock acquired and retired | (20) | | | — | |
| | | |
Noncontrolling interests, net | (131) | | | (74) | |
Employee stock options exercised | 3 | | | 33 | |
Payments on finance lease obligations | (2) | | | (2) | |
Other, net | 1 | | | 1 | |
Net cash provided by (used in) financing activities | (183) | | | (665) | |
Net Increase (Decrease) in Cash and Cash Equivalents | (386) | | | (1,343) | |
Cash and Cash Equivalents at Beginning of Year | 2,486 | | | 2,713 | |
Cash and Cash Equivalents at End of Period | $ | 2,100 | | | $ | 1,370 | |
See accompanying Notes to Consolidated Financial Statements.
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED EQUITY (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Capital in Excess of Par | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Hess Stockholders' Equity | | Noncontrolling Interests | | Total Equity |
| | | | | | | | | | | | | |
| |
For the Three Months Ended March 31, 2023 | | | | | | | | | | | | | |
Balance at January 1, 2023 | $ | 306 | | | $ | 6,206 | | | $ | 1,474 | | | $ | (131) | | | $ | 7,855 | | | $ | 641 | | | $ | 8,496 | |
Net income | — | | | — | | | 346 | | | — | | | 346 | | | 82 | | | 428 | |
Other comprehensive income (loss) | — | | | — | | | — | | | 17 | | | 17 | | | — | | | 17 | |
Share-based compensation | 1 | | | 40 | | | — | | | — | | | 41 | | | — | | | 41 | |
Dividends on common stock | — | | | — | | | (134) | | | — | | | (134) | | | — | | | (134) | |
Repurchase of Class B units of Hess Midstream Operations LP | — | | | 8 | | | — | | | — | | | 8 | | | (54) | | | (46) | |
Noncontrolling interests, net | — | | | — | | | — | | | — | | | — | | | (81) | | | (81) | |
Balance at March 31, 2023 | $ | 307 | | | $ | 6,254 | | | $ | 1,686 | | | $ | (114) | | | $ | 8,133 | | | $ | 588 | | | $ | 8,721 | |
For the Three Months Ended March 31, 2022 | | | | | | | | | | |
Balance at January 1, 2022 | $ | 310 | | | $ | 6,017 | | | $ | 379 | | | $ | (406) | | | $ | 6,300 | | | $ | 726 | | | $ | 7,026 | |
Net income | — | | | — | | | 417 | | | — | | | 417 | | | 88 | | | 505 | |
Other comprehensive income (loss) | — | | | — | | | — | | | (360) | | | (360) | | | — | | | (360) | |
Share-based compensation | 1 | | | 66 | | | — | | | — | | | 67 | | | — | | | 67 | |
Dividends on common stock | — | | | — | | | (116) | | | — | | | (116) | | | — | | | (116) | |
Noncontrolling interests, net | — | | | — | | | — | | | — | | | — | | | (74) | | | (74) | |
Balance at March 31, 2022 | $ | 311 | | | $ | 6,083 | | | $ | 680 | | | $ | (766) | | | $ | 6,308 | | | $ | 740 | | | $ | 7,048 | |
See accompanying Notes to Consolidated Financial Statements.
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The financial statements included in this report reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of our consolidated financial position at March 31, 2023 and December 31, 2022, the consolidated results of operations for the three months ended March 31, 2023 and 2022, and consolidated cash flows for the three months ended March 31, 2023 and 2022. The unaudited results of operations for the interim periods reported are not necessarily indicative of results to be expected for the full year.
The financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by generally accepted accounting principles (GAAP) in the United States have been condensed or omitted from these interim financial statements. These statements, therefore, should be read in conjunction with the consolidated financial statements and related notes included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022.
2. Inventories
Inventories consisted of the following:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| | | |
| (In millions) |
Crude oil and natural gas liquids | $ | 67 | | | $ | 63 | |
Materials and supplies | 162 | | | 154 | |
Total Inventories | $ | 229 | | | $ | 217 | |
3. Property, Plant and Equipment
Capitalized Exploratory Well Costs:
The following table discloses the net changes in capitalized exploratory well costs pending determination of proved reserves during the three months ended March 31, 2023 (in millions):
| | | | | |
Balance at January 1, 2023 | $ | 886 | |
Additions to capitalized exploratory well costs pending the determination of proved reserves | 49 | |
Capitalized exploratory well costs charged to expense | (2) | |
Balance at March 31, 2023 | $ | 933 | |
In the first quarter, additions to capitalized exploratory well costs pending determination of proved reserves primarily related to wells drilled on the Stabroek Block (Hess 30%), offshore Guyana. At March 31, 2023, 38 exploration and appraisal wells on the Stabroek Block, with a total cost of $776 million, were capitalized pending determination of proved reserves. The preceding table excludes well costs of $29 million that were incurred and expensed during the first three months of 2023.
At March 31, 2023, exploratory well costs capitalized for greater than one year following completion of drilling of $615 million was comprised of the following:
Guyana: Approximately 92% of the capitalized well costs in excess of one year relate to successful exploration wells where hydrocarbons were encountered on the Stabroek Block. In April 2023, the Government of Guyana and the partners sanctioned the development of the Uaru Field, the fifth sanctioned project on the block. Approximately $80 million of capitalized exploratory well costs at March 31, 2023 related to the Uaru Field will be reclassified to wells, facilities and equipment in the second quarter of 2023. The operator also plans further appraisal drilling on the block and is conducting pre-development planning for additional phases of development.
Joint Development Area (JDA): Approximately 6% of the capitalized well costs in excess of one year relate to the JDA (Hess 50%) in the Gulf of Thailand, where hydrocarbons were encountered in three successful exploration wells drilled in the western part of Block A-18. The operator has submitted a development plan concept to the regulator to facilitate ongoing commercial negotiations for an extension of the existing gas sales contract to include development of the western part of the block.
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Malaysia: Approximately 2% of the capitalized well costs in excess of one year relate to the North Malay Basin (Hess 50%), offshore Peninsular Malaysia, where hydrocarbons were encountered in one successful exploration well. Pre-development studies are ongoing.
4. Hess Midstream LP
At March 31, 2023, Hess Midstream LP (Hess Midstream), a variable interest entity that is fully consolidated by Hess Corporation, had liabilities totaling $3,119 million (December 31, 2022: $3,027 million) that are on a nonrecourse basis to Hess Corporation, while Hess Midstream assets available to settle the obligations of Hess Midstream included cash and cash equivalents totaling $4 million (December 31, 2022: $3 million), property, plant and equipment with a carrying value of $3,183 million (December 31, 2022: $3,173 million) and an equity-method investment in the Little Missouri 4 (LM4) gas processing plant of $93 million (December 31, 2022: $94 million).
LM4 is a 200 million standard cubic feet per day gas processing plant located south of the Missouri River in McKenzie County, North Dakota, that was constructed as part of a 50/50 joint venture between Hess Midstream and Targa Resources Corp. Hess Midstream has a natural gas processing agreement with LM4 under which it pays a processing fee and reimburses LM4 for its proportionate share of electricity costs. The processing fees included in Operating costs and expenses in the Statement of Consolidated Income for the three months ended March 31, 2023 were $5 million (2022: $5 million).
In March 2023, Hess Midstream Operations LP (HESM Opco), a consolidated subsidiary of Hess Midstream LP, repurchased approximately 3.6 million HESM Opco Class B units held by a subsidiary of Hess Corporation and an affiliate of Global Infrastructure Partners (GIP) for $100 million, which was financed by HESM Opco's revolving credit facility. The transaction resulted in an increase in Capital in excess of par and a decrease in Noncontrolling interests of $8 million, and an increase in deferred tax assets and Noncontrolling interests of $4 million resulting from a change in the difference between the carrying amount and tax basis of Hess Midstream LP's investment in HESM Opco. The $50 million paid to GIP reduced Noncontrolling interests. After giving effect to this transaction, Hess Corporation continues to own an approximate 41% interest in Hess Midstream LP, on a consolidated basis, at March 31, 2023.
5. Accrued Liabilities
Accrued Liabilities consisted of the following:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| | | |
| (In millions) |
Accrued operating and marketing expenditures | $ | 545 | | | $ | 522 | |
Accrued capital expenditures | 454 | | | 499 | |
Accrued payments to royalty and working interest owners | 190 | | | 201 | |
Current portion of asset retirement obligations | 176 | | | 207 | |
Accrued interest on debt | 111 | | | 143 | |
Accrued compensation and benefits | 67 | | | 132 | |
Other accruals | 120 | | | 136 | |
Total Accrued Liabilities | $ | 1,663 | | | $ | 1,840 | |
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. Revenue
Revenue from contracts with customers on a disaggregated basis was as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Exploration and Production | | Midstream | | Eliminations | | Total |
| United States | | Guyana | | Malaysia and JDA | | Other (a) | | E&P Total | | | | | | |
| | | | | | | | | | | | | | | |
Three Months Ended March 31, 2023 | | | | | | | | | | | | | | | |
Sales of net production volumes: | | | | | | | | | | | | | | | |
Crude oil revenue | $ | 669 | | | $ | 825 | | | $ | 29 | | | $ | — | | | $ | 1,523 | | | $ | — | | | $ | — | | | $ | 1,523 | |
Natural gas liquids revenue | 141 | | | — | | | — | | | — | | | 141 | | | — | | | — | | | 141 | |
Natural gas revenue | 54 | | | — | | | 180 | | | — | | | 234 | | | — | | | — | | | 234 | |
Sales of purchased oil and gas | 527 | | | 17 | | | — | | | — | | | 544 | | | — | | | — | | | 544 | |
Intercompany revenue | — | | | — | | | — | | | — | | | — | | | 303 | | | (303) | | | — | |
Total sales (b) | 1,391 | | | 842 | | | 209 | | | — | | | 2,442 | | | 303 | | | (303) | | | 2,442 | |
Other operating revenues (c) | (26) | | | (7) | | | — | | | — | | | (33) | | | 2 | | | — | | | (31) | |
Total sales and other operating revenues | $ | 1,365 | | | $ | 835 | | | $ | 209 | | | $ | — | | | $ | 2,409 | | | $ | 305 | | | $ | (303) | | | $ | 2,411 | |
Three Months Ended March 31, 2022 | | | | | | | | | | | | | | | |
Sales of net production volumes: | | | | | | | | | | | | | | | |
Crude oil revenue | $ | 836 | | | $ | 226 | | | $ | 31 | | | $ | 146 | | | $ | 1,239 | | | $ | — | | | $ | — | | | $ | 1,239 | |
Natural gas liquids revenue | 181 | | | — | | | — | | | — | | | 181 | | | — | | | — | | | 181 | |
Natural gas revenue | 85 | | | — | | | 190 | | | 5 | | | 280 | | | — | | | — | | | 280 | |
Sales of purchased oil and gas | 660 | | | 4 | | | — | | | 35 | | | 699 | | | — | | | — | | | 699 | |
Intercompany revenue | — | | | — | | | — | | | — | | | — | | | 312 | | | (312) | | | — | |
Total sales (b) | 1,762 | | | 230 | | | 221 | | | 186 | | | 2,399 | | | 312 | | | (312) | | | 2,399 | |
Other operating revenues (c) | (58) | | | (15) | | | — | | | (13) | | | (86) | | | — | | | — | | | (86) | |
Total sales and other operating revenues | $ | 1,704 | | | $ | 215 | | | $ | 221 | | | $ | 173 | | | $ | 2,313 | | | $ | 312 | | | $ | (312) | | | $ | 2,313 | |
(a)Other includes our interest in the Waha Concession in Libya, which was sold in November 2022.
(b)Guyana crude oil revenue includes $108 million of revenue from non-customers in the first quarter of 2023 (2022: $0 million).
(c)Other operating revenues are not a component of revenues from contracts with customers, and primarily includes gains (losses) on commodity derivatives.
There have been no significant changes to contracts with customers or the composition thereof during the three months ended March 31, 2023. Generally, we receive payments from customers on a monthly basis, shortly after the physical delivery of the crude oil, natural gas liquids, or natural gas. At March 31, 2023, contract liabilities of $24 million (December 31, 2022: $24 million) resulted from a take-or-pay deficiency payment received in the fourth quarter of 2021 that is subject to a make-up period expiring in December 2023. At March 31, 2023 and December 31, 2022, there were no contract assets.
7. Retirement Plans
Components of net periodic benefit cost consisted of the following:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| | | |
| (In millions) |
| | | |
Service cost | $ | 9 | | | $ | 13 | |
Interest cost (a) | 25 | | | 16 | |
Expected return on plan assets (a) | (39) | | | (53) | |
Amortization of unrecognized net actuarial losses (a) | — | | | 3 | |
Net periodic benefit cost (income) (a) | $ | (5) | | | $ | (21) | |
(a) Net non-service cost, which is included in Other, net in the Statement of Consolidated Income, was income of $14 million for the three months ended March 31, 2023 (2022: $34 million of income).
In 2023, we expect to contribute approximately $2 million to our funded pension plans.
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
8. Weighted Average Common Shares
The Net income and weighted average number of common shares used in the basic and diluted earnings per share computations were as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| | | |
| (In millions) |
Net income attributable to Hess Corporation: | | | |
Net income | $ | 428 | | | $ | 505 | |
Less: Net income attributable to noncontrolling interests | 82 | | | 88 | |
Net income attributable to Hess Corporation | $ | 346 | | | $ | 417 | |
Weighted average number of common shares outstanding: | | | |
Basic | 305.4 | | | 308.9 | |
Effect of dilutive securities | | | |
Restricted common stock | 0.7 | | | 0.7 | |
Stock options | 0.7 | | | 0.6 | |
Performance share units | 0.5 | | | 0.2 | |
Diluted | 307.3 | | | 310.4 | |
The following table summarizes the number of antidilutive shares excluded from the computation of diluted shares:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Restricted common stock | 121,189 | | | 97 | |
Stock options | 52,973 | | | 75,413 | |
Performance share units | — | | | 31,352 | |
During the three months ended March 31, 2023, we granted 446,508 shares of restricted stock (2022: 562,530), 130,272 performance share units (2022: 178,008) and 189,479 stock options (2022: 269,748).
9. Guarantees and Contingencies
We are subject to loss contingencies with respect to various claims, lawsuits and other proceedings. A liability is recognized in our consolidated financial statements when it is probable that a loss has been incurred and the amount can be reasonably estimated. If the risk of loss is probable, but the amount cannot be reasonably estimated or the risk of loss is only reasonably possible, a liability is not accrued; however, we disclose the nature of those contingencies. We cannot predict with certainty if, how or when existing claims, lawsuits and proceedings will be resolved or what the eventual relief, if any, may be, particularly for proceedings that are in their early stages of development or where plaintiffs seek indeterminate damages.
We, along with many companies that have been or continue to be engaged in refining and marketing of gasoline, have been a party to lawsuits and claims related to the use of methyl tertiary butyl ether (MTBE) in gasoline. A series of similar lawsuits, many involving water utilities or governmental entities, were filed in jurisdictions across the United States against producers of MTBE and petroleum refiners who produced gasoline containing MTBE, including us. The principal allegation in all cases was that gasoline containing MTBE was a defective product and that these producers and refiners are strictly liable in proportion to their share of the gasoline market for damage to groundwater resources and are required to take remedial action to ameliorate the alleged effects on the environment of releases of MTBE. The majority of the cases asserted against us have been settled. There are two remaining active cases, filed by Pennsylvania and Maryland. In June 2014, the Commonwealth of Pennsylvania filed a lawsuit alleging that we and all major oil companies with operations in Pennsylvania, have damaged the groundwater by introducing thereto gasoline with MTBE. The Pennsylvania suit has been forwarded to the existing MTBE multidistrict litigation pending in the Southern District of New York. In December 2017, the State of Maryland filed a lawsuit alleging that we and other major oil companies damaged the groundwater in Maryland by introducing thereto gasoline with MTBE. The suit, filed in Maryland state court, was served on us in January 2018 and has been removed to federal court by the defendants.
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In March 2014, we received an Administrative Order from the EPA requiring us and 26 other parties to undertake the Remedial Design for the remedy selected by the EPA for the Gowanus Canal Superfund Site in Brooklyn, New York. Our alleged liability derives from our former ownership and operation of a fuel oil terminal and connected shipbuilding and repair facility adjacent to the Canal. The remedy selected by the EPA includes dredging of surface sediments and the placement of a cap over the deeper sediments throughout the Canal and in-situ stabilization of certain contaminated sediments that will remain in place below the cap. The EPA’s original estimate was that this remedy would cost $506 million; however, the ultimate costs that will be incurred in connection with the design and implementation of the remedy remain uncertain. We have complied with the EPA’s March 2014 Administrative Order and contributed funding for the Remedial Design based on an allocation of costs among the parties determined by a third-party expert. In January 2020, we received an additional Administrative Order from the EPA requiring us and several other parties to begin Remedial Action along the uppermost portion of the Canal. We intend to comply with this Administrative Order. The remediation work began in the fourth quarter of 2020. Based on currently known facts and circumstances, we do not believe that this matter will result in a significant liability to us, and the costs will continue to be allocated amongst the parties, as they were for the Remedial Design.
From time to time, we are involved in other judicial and administrative proceedings relating to environmental matters. We periodically receive notices from the EPA that we are a “potential responsible party” under the Superfund legislation with respect to various waste disposal sites. Under this legislation, all potentially responsible parties may be jointly and severally liable. For any site for which we have received such a notice, the EPA’s claims or assertions of liability against us relating to these sites have not been fully developed, or the EPA’s claims have been settled or a settlement is under consideration, in all cases for amounts that are not material. Beginning in 2017, certain states, municipalities and private associations in California, Delaware, Maryland, Rhode Island and South Carolina separately filed lawsuits against oil, gas and coal producers, including us, for alleged damages purportedly caused by climate change. These proceedings include claims for monetary damages and injunctive relief. Beginning in 2013, various parishes in Louisiana filed suit against approximately 100 oil and gas companies, including us, alleging that the companies’ operations and activities in certain fields violated the State and Local Coastal Resource Management Act of 1978, as amended, and caused contamination, subsidence and other environmental damages to land and water bodies located in the coastal zone of Louisiana. The plaintiffs seek, among other things, the payment of the costs necessary to clear, re-vegetate and otherwise restore the allegedly impacted areas. The ultimate impact of such climate and other aforementioned environmental proceedings, and of any related proceedings by private parties, on our business or accounts cannot be predicted at this time due to the large number of other potentially responsible parties and the speculative nature of clean-up cost estimates.
Hess Corporation and its subsidiary HONX, Inc. have been named as defendants in various personal injury claims alleging exposure to asbestos and/or other alleged toxic substances while working at a former refinery (owned and operated by subsidiaries or related entities) located in St. Croix, U.S. Virgin Islands. On April 28, 2022, HONX, Inc. initiated a Chapter 11 § 524G process in the United States Bankruptcy Court for the Southern District of Texas, Houston Division, to resolve these asbestos-related claims. In February 2023, Hess, HONX, Inc., the Unsecured Creditors’ Committee, and counsel representing claimants, reached a mediated resolution of the matter, contingent upon final approvals of all parties and confirmation by the Bankruptcy Court. As of March 31, 2023, we have a provision of $116 million for the amounts expected to be funded to the § 524G trust established for the settlement of claims, based on the mediated resolution.
We are also involved in other judicial and administrative proceedings from time to time in addition to the matters described above, including claims related to post-production deductions from royalty and working interest payments. We may also be exposed to future decommissioning liabilities for divested assets in the event the current or future owners of facilities previously owned by us are determined to be unable to perform such actions, whether due to bankruptcy or otherwise. We cannot predict with certainty if, how or when such proceedings will be resolved or what the eventual relief, if any, may be, particularly for proceedings that are in their early stages of development or where plaintiffs seek indeterminate damages. Numerous issues may need to be resolved, including through potentially lengthy discovery and determination of important factual matters before a loss or range of loss can be reasonably estimated for any proceeding.
Subject to the foregoing, in management’s opinion, based upon currently known facts and circumstances, the outcome of lawsuits, claims and proceedings, including the matters disclosed above, is not expected to have a material adverse effect on our financial condition, results of operations or cash flows. However, we could incur judgments, enter into settlements, or revise our opinion regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations in the period in which the amounts are accrued and our cash flows in the period in which the amounts are paid.
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
10. Segment Information
We currently have two operating segments, Exploration and Production and Midstream. All unallocated costs are reflected under Corporate, Interest and Other. The following table presents operating segment financial data:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Exploration and Production | | Midstream | | Corporate, Interest and Other | | Eliminations | | Total |
| | | | | | | | | |
| (In millions) |
For the Three Months Ended March 31, 2023 | | | | | | | | | |
Sales and Other Operating Revenues | $ | 2,409 | | | $ | 2 | | | $ | — | | | $ | — | | | $ | 2,411 | |
Intersegment Revenues | — | | | 303 | | | — | | | (303) | | | — | |
Sales and Other Operating Revenues | $ | 2,409 | | | $ | 305 | | | $ | — | | | $ | (303) | | | $ | 2,411 | |
| | | | | | | | | |
Net Income (Loss) attributable to Hess Corporation | $ | 405 | | | $ | 61 | | | $ | (120) | | | $ | — | | | $ | 346 | |
Depreciation, Depletion and Amortization | 443 | | | 47 | | | 1 | | | — | | | 491 | |
Provision for Income Taxes | 170 | | | 6 | | | — | | | — | | | 176 | |
Capital Expenditures | 735 | | | 57 | | | — | | | — | | | 792 | |
For the Three Months Ended March 31, 2022 | | | | | | | | | |
Sales and Other Operating Revenues | $ | 2,313 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,313 | |
Intersegment Revenues | — | | | 312 | | | — | | | (312) | | | — | |
Sales and Other Operating Revenues | $ | 2,313 | | | $ | 312 | | | $ | — | | | $ | (312) | | | $ | 2,313 | |
| | | | | | | | | |
Net Income (Loss) attributable to Hess Corporation | $ | 460 | | | $ | 72 | | | $ | (115) | | | $ | — | | | $ | 417 | |
Depreciation, Depletion and Amortization | 292 | | | 45 | | | — | | | — | | | 337 | |
Provision for Income Taxes | 192 | | | 5 | | | — | | | — | | | 197 | |
Capital Expenditures | 543 | | | 37 | | | — | | | — | | | 580 | |
Corporate, Interest and Other had interest income of $20 million in the first quarter of 2023 (2022 Q1: $0 million) which is included in Other, net in the Statement of Consolidated Income.
Identifiable assets by operating segment were as follows:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| | | |
| (In millions) |
Exploration and Production | $ | 15,497 | | | $ | 15,022 | |
Midstream | 3,780 | | | 3,775 | |
Corporate, Interest and Other | 2,661 | | | 2,898 | |
Total | $ | 21,938 | | | $ | 21,695 | |
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
11. Financial Risk Management Activities
In the normal course of our business, we are exposed to commodity risks related to changes in the prices of crude oil and natural gas, as well as changes in interest rates and foreign currency values. Financial risk management activities include transactions designed to reduce risk in the selling prices of crude oil or natural gas we produce or reduce our exposure to foreign currency or interest rate movements. Generally, futures, swaps or option strategies may be used to fix the forward selling price, or establish a floor price or a range banded with a floor and ceiling price, for a portion of our crude oil or natural gas production. Forward contracts or swaps may also be used to purchase certain currencies in which we conduct business with the intent of reducing exposure to foreign currency fluctuations. At March 31, 2023, these instruments relate to the British Pound and Malaysian Ringgit. Interest rate swaps may be used to convert interest payments on certain long-term debt from fixed to floating rates.
The notional amounts of outstanding financial risk management derivative contracts were as follows:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| | | |
| (In millions) |
Commodity - crude oil hedge contracts (millions of barrels) | 35.8 | | | — | |
| | | |
Foreign exchange forwards / swaps | $ | 184 | | | $ | 177 | |
Interest rate swaps | $ | 100 | | | $ | 100 | |
In the first quarter of 2023, we have hedged 80,000 barrels of oil per day (bopd) with WTI put options with an average monthly floor price of $70 per barrel, and 50,000 bopd with Brent put options with an average monthly floor price of $75 per barrel for the remainder of 2023.
The table below reflects the fair values of risk management derivative instruments.
| | | | | | | | | | | |
| Assets | | Liabilities |
| | | |
| (In millions) |
March 31, 2023 | | | |
Derivative Contracts Designated as Hedging Instruments: | | | |
Crude oil put options | $ | 173 | | | $ | — | |
Interest rate swaps | — | | | (3) | |
Total derivative contracts designated as hedging instruments | 173 | | | (3) | |
Derivative Contracts Not Designated as Hedging Instruments: | | | |
Foreign exchange forwards and swaps | — | | | (2) | |
Total derivative contracts not designated as hedging instruments | — | | | (2) | |
Gross fair value of derivative contracts | 173 | | | (5) | |
Gross amounts offset in the Consolidated Balance Sheet | — | | | — | |
Net Amounts Presented in the Consolidated Balance Sheet | $ | 173 | | | $ | (5) | |
December 31, 2022 | | | |
Derivative Contracts Designated as Hedging Instruments: | | | |
Interest rate swaps | $ | — | | | $ | (4) | |
Total derivative contracts designated as hedging instruments | — | | | (4) | |
Derivative Contracts Not Designated as Hedging Instruments: | | | |
Foreign exchange forwards and swaps | — | | | (2) | |
Total derivative contracts not designated as hedging instruments | — | | | (2) | |
Gross fair value of derivative contracts | — | | | (6) | |
Gross amounts offset in the Consolidated Balance Sheet | — | | | — | |
Net Amounts Presented in the Consolidated Balance Sheet | $ | — | | | $ | (6) | |
The fair value of our crude oil hedge contracts is presented within Other current assets in our Consolidated Balance Sheet. The fair value of our interest rate swaps is presented within Other liabilities and deferred credits in our Consolidated Balance Sheet. The fair value of our foreign exchange forwards and swaps is presented within Accrued liabilities in our Consolidated Balance Sheet. All fair values in the table above are based on Level 2 inputs.
Derivative contracts designated as hedging instruments:
Crude oil derivatives designated as cash flow hedges: Crude oil hedging contracts decreased Sales and other operating revenues by $34 million in the three months ended March 31, 2023 (2022 Q1: decrease by $92 million). At March 31, 2023, pre-tax deferred gains in Accumulated other comprehensive income (loss) related to outstanding crude oil hedging contracts were $17 million ($17 million after income taxes), all of which will be reclassified into earnings during the remainder of 2023 as the hedged crude oil
PART I - FINANCIAL INFORMATION (CONT’D.)
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
sales are recognized in earnings.
Derivative contracts not designated as hedging instruments:
Foreign exchange: Foreign exchange gains and losses, which are reported in Other, net in Revenues and non-operating income in the Statement of Consolidated Income, were gains of $2 million in the three months ended March 31, 2023 (2022 Q1: nil). A component of foreign exchange gains and losses is the result of foreign exchange derivative contracts that are not designated as hedges, which amounted to net losses of $2 million in the three months ended March 31, 2023 (2022 Q1: net gains of $4 million).
Fair Value Measurement:
At March 31, 2023, our total long-term debt, which was substantially comprised of fixed-rate debt instruments, had a carrying value of $8,387 million and a fair value of $8,460 million based on Level 2 inputs in the fair value measurement hierarchy. We also have short-term financial instruments, primarily cash equivalents, accounts receivable and accounts payable, for which the carrying value approximated fair value at March 31, 2023 and December 31, 2022.
PART I - FINANCIAL INFORMATION (CONT'D.)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with the unaudited consolidated financial statements and accompanying footnotes for the quarter ended March 31, 2023 included under Item 1. Financial Statements of this Form 10-Q and the audited consolidated financial statements and related notes included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2022.
Overview
Hess Corporation is a global E&P company engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids, and natural gas with production operations located in the United States, Guyana, the Malaysia/Thailand Joint Development Area (JDA) and Malaysia. We conduct exploration activities primarily offshore Guyana, in the U.S. Gulf of Mexico, and offshore Suriname and Canada. At the Stabroek Block (Hess 30%), offshore Guyana, we and our partners have discovered a significant resource base and are executing a multi-phased development of the block. We currently plan to have six FPSOs with an aggregate expected production capacity of more than 1.2 million gross bopd on the Stabroek Block by the end of 2027, and the potential for up to ten FPSOs to develop the current discovered recoverable resource base.
Our Midstream operating segment, which is comprised of Hess Corporation’s approximate 41% consolidated ownership interest in Hess Midstream LP at March 31, 2023, provides fee-based services, including gathering, compressing and processing natural gas and fractionating natural gas liquids (NGL); gathering, terminaling, loading and transporting crude oil and NGL; storing and terminaling propane, and water handling services primarily in the Bakken shale play in the Williston Basin area of North Dakota.
2023 Outlook
Our E&P capital and exploratory expenditures are forecast to be approximately $3.7 billion for 2023. Oil and gas net production in 2023 is forecast to be in the range of 365,000 boepd to 375,000 boepd. For the remainder of 2023, we have WTI put options for 80,000 bopd with an average monthly floor price of $70 per barrel and Brent put options for 50,000 bopd with an average monthly floor price of $75 per barrel.
First Quarter Results
In the first quarter of 2023, net income was $346 million, compared with $417 million in the first quarter of 2022. Excluding items affecting comparability of earnings between periods detailed on page 23, adjusted net income was $404 million in the first quarter of 2022. The decrease in adjusted after-tax earnings in the first quarter of 2023 compared with the prior-year quarter was primarily due to lower realized selling prices partially offset by the net impact of higher production volumes in the first quarter of 2023. Exploration and Production Results
In the first quarter of 2023, E&P had net income of $405 million compared with $460 million in the first quarter of 2022. Total net production averaged 374,000 boepd in the first quarter 2023, compared with 276,000 boepd, proforma for asset sold, in the first quarter of 2022. The average realized crude oil selling price, including hedging, was $74.23 per barrel in the first quarter of 2023, compared with $86.75 per barrel in the first quarter of 2022. The average realized NGL selling price in the first quarter of 2023 was $24.25 per barrel, compared with $39.79 per barrel in the prior-year quarter, while the average realized natural gas selling price was $4.39 per thousand cubic feet (mcf) in the first quarter of 2023, compared with $5.28 per mcf in the first quarter of 2022.
The following is an update of our ongoing E&P activities:
•In North Dakota, net production from the Bakken averaged 163,000 boepd for the first quarter of 2023 (2022 Q1: 152,000 boepd), primarily due to higher NGL volumes received under percentage of proceeds contracts and increased drilling and completion activity. We added a fourth drilling rig in July 2022 and drilled 25 wells, completed 26 wells, and brought 24 new wells online during the first quarter of 2023.
•In the Gulf of Mexico, net production for the first quarter of 2023 averaged 33,000 boepd (2022 Q1: 30,000 boepd) primarily due to an additional well brought online at the Llano Field.
•At the Stabroek Block (Hess 30%), offshore Guyana, net production from the Liza Destiny and Liza Unity FPSOs totaled 112,000 bopd for the first quarter of 2023 (2022 Q1: 30,000 bopd). Net production from Guyana in the first quarter of 2023 included 15,000 bopd of tax barrels (2022 Q1: 0 bopd). The Liza Unity FPSO, which commenced production in February 2022, reached its production capacity of approximately 220,000 gross bopd in July 2022. In the first quarter of 2023, we sold nine cargos of crude oil from Guyana compared with two cargos in the prior year quarter.
PART I - FINANCIAL INFORMATION (CONT'D.)
Overview (continued)
The third development, Payara, which will utilize the Prosperity FPSO with a production capacity of approximately 220,000 gross bopd, is targeted for startup early in the fourth quarter of 2023. The Prosperity FPSO arrived at the Stabroek Block on April 11th and hook-up and commissioning activities have commenced. The fourth development, Yellowtail, was sanctioned in April 2022 and will utilize the ONE GUYANA FPSO with a production capacity of approximately 250,000 gross bopd, with first production expected in 2025.
In April, we announced the final investment decision to proceed with the development of the Uaru Field, the fifth development on the Stabroek Block, after the development plan received approval from the Government of Guyana. Uaru will have a production capacity of approximately 250,000 gross bopd with production targeted to startup in 2026. Up to ten drill centers and 44 production and injection wells are planned.
In April, we announced an oil discovery at the Lancetfish-1 well which encountered approximately 92 feet of oil bearing sandstone reservoir. The well was drilled in 5,843 feet of water by the Noble Don Taylor and is located approximately 4 miles southeast of the Fangtooth discovery.
In April, the operator completed drilling of the Kokwari-1 exploration well. The well did not encounter commercial quantities of hydrocarbons and well costs of $20 million incurred through March 31, 2023 were expensed. We estimate approximately $10 million of exploration expense will be recognized in the second quarter of 2023 for well costs incurred after March 31, 2023.
•In the Gulf of Thailand, net production from Block A-18 of the JDA averaged 37,000 boepd for the first quarter of 2023 (2022 Q1: 38,000 boepd), including contribution from unitized acreage in Malaysia. Net production from North Malay Basin, offshore Peninsular Malaysia, averaged 29,000 boepd for the first quarter of 2023 (2022 Q1: 26,000 boepd).
The following is an update of significant Midstream activities:
•In March 2023, HESM Opco, a consolidated subsidiary of Hess Midstream LP, repurchased approximately 3.6 million HESM Opco Class B units held by a subsidiary of Hess Corporation and an affiliate of GIP for $100 million, financed by HESM Opco's revolving credit facility, of which we received net proceeds of $50 million. After giving effect to this transaction, we continue to own an approximate 41% interest in Hess Midstream LP, on a consolidated basis.
PART I - FINANCIAL INFORMATION (CONT'D.)
Consolidated Results of Operations
The after-tax income (loss) by major operating activity is summarized below:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| | | |
| (In millions, except per share amounts) |
Net Income Attributable to Hess Corporation: | | | |
Exploration and Production | $ | 405 | | | $ | 460 | |
Midstream | 61 | | | 72 | |
Corporate, Interest and Other | (120) | | | (115) | |
Total | $ | 346 | | | $ | 417 | |
Net Income Attributable to Hess Corporation Per Common Share: | | | |
Basic | $ | 1.13 | | | $ | 1.35 | |
Diluted | $ | 1.13 | | | $ | 1.34 | |
Items Affecting Comparability of Earnings Between Periods
The following table summarizes, on an after-tax basis, items of income (expense) that are included in net income and affect comparability of earnings between periods:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| | | |
| (In millions) |
Items Affecting Comparability of Earnings Between Periods, After-Tax: | | | |
Exploration and Production | $ | — | | | $ | — | |
Midstream | — | | | — | |
Corporate, Interest and Other | — | | | 13 | |
Total | $ | — | | | $ | 13 | |
The items in the table above are explained on page 23. Reconciliations of GAAP and non-GAAP measures
The following table reconciles reported net income attributable to Hess Corporation and adjusted net income attributable to Hess Corporation:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| | | |
| (In millions) |
Adjusted Net Income Attributable to Hess Corporation: | | | |
Net income attributable to Hess Corporation | $ | 346 | | | $ | 417 | |
Less: Total items affecting comparability of earnings between periods, after-tax | — | | | 13 | |
Adjusted Net Income Attributable to Hess Corporation | $ | 346 | | | $ | 404 | |
The following table reconciles reported net cash provided by (used in) operating activities and net cash provided by (used in) operating activities before changes in operating assets and liabilities:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| | | |
| (In millions) |
Net cash provided by (used in) operating activities before changes in operating assets and liabilities: | | | |
Net cash provided by (used in) operating activities | $ | 638 | | | $ | (156) | |
Changes in operating assets and liabilities | 394 | | | 1,108 | |
Net cash provided by (used in) operating activities before changes in operating assets and liabilities | $ | 1,032 | | | $ | 952 | |
PART I - FINANCIAL INFORMATION (CONT'D.)
Consolidated Results of Operations (continued)
Adjusted net income attributable to Hess Corporation is a non-GAAP financial measure, which we define as reported net income attributable to Hess Corporation excluding items identified as affecting comparability of earnings between periods, which are summarized on page 23. Management uses adjusted net income to evaluate the Corporation’s operating performance and believes that investors’ understanding of our performance is enhanced by disclosing this measure, which excludes certain items that management believes are not directly related to ongoing operations and are not indicative of future business trends and operations. Net cash provided by (used in) operating activities before changes in operating assets and liabilities presented in this report is a non-GAAP measure, which we define as reported net cash provided by (used in) operating activities excluding changes in operating assets and liabilities. Management uses net cash provided by (used in) operating activities before changes in operating assets and liabilities to evaluate the Corporation’s ability to internally fund capital expenditures, pay dividends and service debt and believes that investors’ understanding of our ability to generate cash to fund these items is enhanced by disclosing this measure, which excludes working capital and other movements that may distort assessment of our performance between periods.
These measures are not, and should not be viewed as, substitutes for U.S. GAAP net income and net cash provided by (used in) operating activities.
In the following discussion and elsewhere in this report, the financial effects of certain transactions are disclosed on an after-tax basis. Management reviews segment earnings on an after-tax basis and uses after-tax amounts in its review of variances in segment earnings. Management believes that after-tax amounts are a preferable method of explaining variances in earnings, since they show the entire effect of a transaction rather than only the pre-tax amount. After-tax amounts are determined by applying the income tax rate in each tax jurisdiction to pre-tax amounts.
Comparison of Results
Exploration and Production
Following is a summarized income statement of our E&P operations:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| | | |
| (In millions) |
Revenues and Non-Operating Income | | | |
Sales and other operating revenues | $ | 2,409 | | | $ | 2,313 | |
| | | |
Other, net | 14 | | | 33 | |
Total revenues and non-operating income | 2,423 | | | 2,346 | |
Costs and Expenses | | | |
Marketing, including purchased oil and gas | 619 | | | 703 | |
Operating costs and expenses | 323 | | | 251 | |
Production and severance taxes | 48 | | | 61 | |
Midstream tariffs | 283 | | | 287 | |
Exploration expenses, including dry holes and lease impairment | 66 | | | 43 | |
General and administrative expenses | 66 | | | 57 | |
Depreciation, depletion and amortization | 443 | | | 292 | |
| | | |
Total costs and expenses | 1,848 | | | 1,694 | |
Results of Operations Before Income Taxes | 575 | | | 652 | |
Provision for income taxes | 170 | | | 192 | |
Net Income Attributable to Hess Corporation | $ | 405 | | | $ | 460 | |
The changes in E&P results are primarily attributable to changes in selling prices, production and sales volumes, marketing expenses, cash operating costs, Midstream tariffs, depreciation, depletion and amortization, exploration expenses and income taxes, as discussed below.
PART I - FINANCIAL INFORMATION (CONT'D.)
Consolidated Results of Operations (continued)
Selling Prices: Lower realized selling prices in the first quarter of 2023 reduced after-tax earnings by approximately $410 million compared to the same period in 2022. Average selling prices were as follows: