hes-10k_20151231.htm

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

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

 

13-4921002

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

1185 AVENUE OF THE AMERICAS,

 

10036

NEW YORK, N.Y.

 

(Zip Code)

(Address of principal executive offices)

 

 

(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

 

Name of Each Exchange on Which Registered

Common Stock (par value $1.00)

 

New York Stock Exchange

Depositary Shares, each representing 1/20th interest in a share of 8% Series A Mandatory Convertible Preferred Stock (par value $1.00)

 

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No þ

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 þ No ¨

Indicate by check mark whether the registrant submitted electronically and posted on its Corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer        þ

  

Accelerated filer        ¨

  

Non-accelerated filer        ¨

  

Smaller reporting company        ¨

 

  

(Do not check if a smaller reporting company)

  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

The aggregate market value of voting stock held by non-affiliates of the Registrant amounted to $16,710,000,000, computed using the outstanding common shares and closing market price on June 30, 2015, the last business day of the Registrant’s most recently completed second fiscal quarter.

At February 19, 2016, there were 315,240,299 shares of Common Stock outstanding.

Part III is incorporated by reference from the Proxy Statement for the 2016 annual meeting of stockholders.

 

 

 


 

 HESS CORPORATION

Form 10-K

TABLE OF CONTENTS

 

Item No.

 

 

 

Page

 

 

PART I

 

 

1 and 2.

 

Business and Properties

 

2

1A.

 

Risk Factors

 

14

1B.

 

Unresolved Staff Comments

 

17

3.

 

Legal Proceedings

 

17

4.

 

Mine Safety Disclosures

 

19

 

 

PART II

 

 

5.

 

Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

20

6.

 

Selected Financial Data

 

23

7.

 

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

 

24

7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

45

8.

 

Financial Statements and Supplementary Data

 

47

9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

93

9A.

 

Controls and Procedures

 

93

9B.

 

Other Information

 

93

 

 

PART III

 

 

10.

 

Directors, Executive Officers and Corporate Governance

 

93

11.

 

Executive Compensation

 

95

12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

95

13.

 

Certain Relationships and Related Transactions, and Director Independence

 

95

14.

 

Principal Accounting Fees and Services

 

95

 

 

PART IV

 

 

15.

 

Exhibits, Financial Statement Schedules

 

96

 

 

Signatures

 

97

 

 

 

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.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain sections in this Annual Report on Form 10-K, including information incorporated by reference herein, and those made under the captions Business and Properties, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk contain “forward-looking” statements, as defined under the Private Securities Litigation Reform Act of 1995.  Generally, the words “anticipate,” “estimate,” “expect,” “forecast,” “guidance,” “could,” “may,” “should,” “believe,” “intend,” “project,” “plan,” “predict,” “will,” “target” and similar expressions identify forward-looking statements, which generally are not historical in nature.  Forward-looking statements related to our operations are based on our current understanding, assessments, estimates and projections.  Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our current projections or expectations.  As and when made, we believe that these forward-looking statements are reasonable.  However, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made and there can be no assurance that such forward-looking statements will occur.  We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  Risk factors that could materially impact future actual results are discussed under Item 1A. Risk Factors within this document.

 

 

 

1


 

PART I

Items 1 and 2.  Business and Properties

Hess Corporation, incorporated in the State of Delaware in 1920, is a global Exploration and Production (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 primarily in the United States (U.S.), Denmark, Equatorial Guinea, the Joint Development Area of Malaysia/Thailand (JDA), Malaysia, and Norway.  The Bakken Midstream operating segment, which was established in the second quarter of 2015, provides fee-based services, including crude oil and natural gas gathering, processing of natural gas and the fractionation of natural gas liquids, transportation of crude oil by rail car, terminaling and loading crude oil and natural gas liquids, and the storage and terminaling of propane, primarily in the Bakken shale play of North Dakota.  In July 2015, we sold a 50% interest in Hess Infrastructure Partners LP (HIP) for net cash consideration of approximately $2.6 billion.  HIP and its affiliates primarily comprise the Bakken Midstream operating segment.

In 2013, we announced several initiatives to continue our transformation from an integrated energy company into a more geographically focused pure play E&P company. These initiatives represented the culmination of a multi-year strategic transformation designed to leverage our lean manufacturing capabilities across unconventional assets, exploit our deepwater drilling and project development capabilities, and execute a smaller, more targeted exploration program.  This transformation was completed in 2015.

During 2013 through 2015, the Corporation sold mature or lower margin E&P assets in Algeria, Azerbaijan, Indonesia, Russia, Thailand, the United Kingdom (UK) North Sea, and certain interests onshore in the U.S.  In addition, the transformation plan included fully exiting the Corporation’s Marketing and Refining (M&R) business, including its terminal, retail, energy marketing and energy trading operations, as well as the permanent shutdown of refining operations at its Port Reading, NJ facility.  HOVENSA L.L.C. (HOVENSA), a 50/50 joint venture between the Corporation’s subsidiary, Hess Oil Virgin Islands Corp. (HOVIC), and a subsidiary of Petroleos de Venezuela S.A. (PDVSA), had previously shut down its U.S. Virgin Islands refinery in 2012 and continued operating solely as an oil storage terminal through the first quarter of 2015.  In September 2015, HOVENSA filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States District Court of the Virgin Islands.  In December 2015, the Government of St. Croix ratified a new operating agreement with the buyer of HOVENSA’s storage terminals, refining units, and marine infrastructure (St. Croix Facility) and in January 2016, the buyer completed the purchase of the assets of the St. Croix Facility.  Under the court approved Chapter 11 plan of liquidation (the “Liquidation Plan”), HOVENSA established a liquidating trust to distribute certain assets and sale proceeds to its creditors, established an environmental response trust to administer to HOVENSA’s remaining environmental obligations and will conduct an orderly wind-down of its remaining activities.  See Item 3. Legal Proceedings.

See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for further details.

 

2


 

Exploration and Production

Proved Reserves

Proved reserves are calculated using the average price during the twelve month period ending December 31 determined as an unweighted arithmetic average of the price on the first day of each month within the year, unless prices are defined by contractual agreements, excluding escalations based on future conditions.  Crude oil prices used in the determination of proved reserves at December 31, 2015 were $55.10 per barrel for Brent (2014: $101.35) and $50.13 per barrel for WTI (2014: $94.42).  Negative reserve revisions resulting from lower crude oil prices in 2015 reduced proved reserves at December 31, 2015 by 234 million barrels of oil equivalent (boe), and represent the primary reason for the decrease in total proved reserves year-on-year.  These negative revisions represent primarily proved undeveloped reserves that were not economically producible at the stipulated lower prices.

Our total proved developed and undeveloped reserves at December 31 were as follows:

 

 

Crude Oil, Condensate &

 

 

 

 

 

 

 

 

 

 

Total Barrels of Oil

 

 

 

Natural Gas Liquids (a)

 

 

Natural Gas

 

 

Equivalent  (BOE) (b)

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(Millions of barrels)

 

 

(Millions of mcf)

 

 

(Millions of barrels)

 

Developed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

304

 

 

 

320

 

 

 

368

 

 

 

350

 

 

 

365

 

 

 

378

 

Europe (c)

 

 

126

 

 

 

123

 

 

 

123

 

 

 

96

 

 

 

147

 

 

 

139

 

Africa

 

 

148

 

 

 

163

 

 

 

137

 

 

 

144

 

 

 

171

 

 

 

187

 

Asia

 

 

5

 

 

 

3

 

 

 

643

 

 

 

329

 

 

 

112

 

 

 

58

 

 

 

 

583

 

 

 

609

 

 

 

1,271

 

 

 

919

 

 

 

795

 

 

 

762

 

Undeveloped

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

116

 

 

 

311

 

 

 

137

 

 

 

270

 

 

 

139

 

 

 

356

 

Europe (c)

 

 

104

 

 

 

168

 

 

 

111

 

 

 

124

 

 

 

122

 

 

 

189

 

Africa

 

 

24

 

 

 

25

 

 

 

11

 

 

 

11

 

 

 

26

 

 

 

27

 

Asia

 

 

 

 

 

4

 

 

 

24

 

 

 

557

 

 

 

4

 

 

 

97

 

 

 

 

244

 

 

 

508

 

 

 

283

 

 

 

962

 

 

 

291

 

 

 

669

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

420

 

 

 

631

 

 

 

505

 

 

 

620

 

 

 

504

 

 

 

734

 

Europe (c)

 

 

230

 

 

 

291

 

 

 

234

 

 

 

220

 

 

 

269

 

 

 

328

 

Africa

 

 

172

 

 

 

188

 

 

 

148

 

 

 

155

 

 

 

197

 

 

 

214

 

Asia

 

 

5

 

 

 

7

 

 

 

667

 

 

 

886

 

 

 

116

 

 

 

155

 

 

 

 

827

 

 

 

1,117

 

 

 

1,554

 

 

 

1,881

 

 

 

1,086

 

 

 

1,431

 

(a)

Total proved reserves of natural gas liquids were 101 million barrels (proved developed - 63 million barrels; proved undeveloped – 38 million barrels) at December 31, 2015, and 145 million barrels (proved developed - 65 million barrels; proved undeveloped - 80 million barrels) at December 31, 2014.  Of the total proved natural gas liquids reserves, 72% were in the U.S. and 28% were in Norway at December 31, 2015 (2014:  82% and 18%, respectively).  Natural gas liquids do not sell at prices equivalent to crude oil.  See the average selling prices in the table on page 8.

(b)

Reflects natural gas reserves converted on the basis of relative energy content of six mcf equals one barrel of oil equivalent (one mcf represents one thousand cubic feet).  Barrel of oil equivalence does not necessarily result in price equivalence, as the equivalent price of natural gas on a barrel of oil equivalent basis has been substantially lower than the corresponding price for crude oil over the recent past.  See the average selling prices in the table on page 8.

(c)

Proved reserves in Norway, which represented 21% of our total reserves at December 31, 2015 (2014: 20%), were as follows:

 

 

Crude Oil, Condensate &

 

 

 

 

 

 

 

 

 

 

Total Barrels of Oil

 

 

 

Natural Gas Liquids

 

 

Natural Gas

 

 

Equivalent (BOE) (b)

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(Millions of barrels)

 

 

(Millions of mcf)

 

 

(Millions of barrels)

 

Developed

 

 

98

 

 

 

95

 

 

 

84

 

 

 

67

 

 

 

112

 

 

 

106

 

Undeveloped

 

 

100

 

 

 

161

 

 

 

107

 

 

 

113

 

 

 

118

 

 

 

180

 

Total

 

 

198

 

 

 

256

 

 

 

191

 

 

 

180

 

 

 

230

 

 

 

286

 

Proved undeveloped reserves were 27% of our total proved reserves at December 31, 2015 on a boe basis (2014: 47%).  Proved reserves held under production sharing contracts totaled 5% of our crude oil and natural gas liquids reserves, and 44% of our natural gas reserves at December 31, 2015 (2014:  5% and 49%, respectively).

For additional information regarding our proved oil and gas reserves, see the Supplementary Oil and Gas Data to the Consolidated Financial Statements presented on pages 83 through 91, which includes a discussion of the implications that potential sustained lower crude oil prices may have on proved reserves at December 31, 2016.


 

3


 

Production

Worldwide crude oil, natural gas liquids and natural gas production was as follows:

 

 

2015

 

 

2014

 

 

2013

 

Crude oil (thousands of barrels per day)

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Bakken

 

 

81

 

 

 

66

 

 

 

55

 

Other Onshore

 

 

10

 

 

 

10

 

 

 

10

 

Total Onshore

 

 

91

 

 

 

76

 

 

 

65

 

Offshore

 

 

56

 

 

 

51

 

 

 

43

 

Total United States

 

 

147

 

 

 

127

 

 

 

108

 

Europe

 

 

 

 

 

 

 

 

 

 

 

 

Norway

 

 

27

 

 

 

25

 

 

 

20

 

Denmark

 

 

11

 

 

 

11

 

 

 

8

 

Russia

 

 

 

 

 

 

 

 

16

 

 

 

 

38

 

 

 

36

 

 

 

44

 

Africa

 

 

 

 

 

 

 

 

 

 

 

 

Equatorial Guinea

 

 

44

 

 

 

43

 

 

 

44

 

Libya

 

 

 

 

 

4

 

 

 

13

 

Algeria

 

 

7

 

 

 

7

 

 

 

5

 

 

 

 

51

 

 

 

54

 

 

 

62

 

Asia

 

 

 

 

 

 

 

 

 

 

 

 

Azerbaijan

 

 

 

 

 

 

 

 

2

 

Indonesia

 

 

 

 

 

 

 

 

5

 

Joint Development Area of Malaysia/Thailand (JDA) and Other

 

 

2

 

 

 

3

 

 

 

4

 

 

 

 

2

 

 

 

3

 

 

 

11

 

Total

 

 

238

 

 

 

220

 

 

 

225

 

 

 

 

2015

 

 

2014

 

 

2013

 

Natural gas liquids (thousands of barrels per day)

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Bakken

 

 

20

 

 

 

10

 

 

 

6

 

Other Onshore

 

 

12

 

 

 

7

 

 

 

4

 

Total Onshore

 

 

32

 

 

 

17

 

 

 

10

 

Offshore

 

 

6

 

 

 

6

 

 

 

5

 

Total United States

 

 

38

 

 

 

23

 

 

 

15

 

Europe

 

 

1

 

 

 

1

 

 

 

1

 

Asia

 

 

 

 

 

 

 

 

1

 

Total

 

 

39

 

 

 

24

 

 

 

17

 

 

 

4


 

 

 

2015

 

 

2014

 

 

2013

 

Natural gas (thousands of mcf per day)

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Bakken

 

 

64

 

 

 

40

 

 

 

38

 

Other Onshore

 

 

109

 

 

 

47

 

 

 

25

 

Total Onshore

 

 

173

 

 

 

87

 

 

 

63

 

Offshore

 

 

87

 

 

 

78

 

 

 

61

 

Total United States

 

 

260

 

 

 

165

 

 

 

124

 

Europe

 

 

 

 

 

 

 

 

 

 

 

 

Norway

 

 

28

 

 

 

25

 

 

 

15

 

Denmark

 

 

15

 

 

 

11

 

 

 

7

 

United Kingdom

 

 

 

 

 

 

 

 

1

 

 

 

 

43

 

 

 

36

 

 

 

23

 

Asia and Other

 

 

 

 

 

 

 

 

 

 

 

 

Joint Development Area of Malaysia/Thailand (JDA)

 

 

230

 

 

 

222

 

 

 

235

 

Thailand

 

 

 

 

 

29

 

 

 

87

 

Indonesia

 

 

 

 

 

1

 

 

 

52

 

Malaysia (a)

 

 

52

 

 

 

60

 

 

 

33

 

Other

 

 

 

 

 

 

 

 

11

 

 

 

 

282

 

 

 

312

 

 

 

418

 

Total

 

 

585

 

 

 

513

 

 

 

565

 

Barrels of oil equivalent (per day) (b)

 

 

375

 

 

 

329

 

 

 

336

 

(a)

Includes 15 mmcf, 20 mmcf, and 27 mmcf per day of production for 2015, 2014, and 2013, respectively from Block PM301 which is unitized into the JDA.

(b)

Reflects natural gas production converted on the basis of relative energy content (six mcf equals one barrel of oil equivalent).  Barrel of oil equivalence does not necessarily result in price equivalence as the equivalent price of natural gas on a barrel of oil equivalent basis has been substantially lower than the corresponding price for crude oil over the recent past.  In addition, natural gas liquids do not sell at prices equivalent to crude oil.  See the average selling prices in the table on page 8.

E&P Operations

A description of our significant E&P operations is as follows:

United States

Our production in the U.S. was from onshore properties, principally in the Bakken oil shale play in the Williston Basin of North Dakota, the Utica Basin of Ohio, the Permian Basin of Texas and offshore properties in the Gulf of Mexico.

Onshore:

Bakken: At December 31, 2015, we held 583,000 net acres in the Bakken.  During 2015, we operated an average of 8.5 rigs, drilled 182 wells, completed 212 wells, and brought on production 219 wells, bringing the total operated production wells to 1,201.  In 2016, we plan to operate an average of 2 rigs to drill approximately 50 wells and bring approximately 80 wells on production.  The improved efficiency of our drilling operations can largely be attributed to application of our lean manufacturing capabilities.

Utica: We own a 50% working interest in approximately 50,000 net acres in the wet gas area of the Utica Basin of Ohio.  During 2015, a total of 24 wells were drilled, 32 wells were completed and 32 wells were brought on production.  In June 2015, we and our joint venture partner reduced drilling activity to a single Hess operated rig, and in 2016 we plan to suspend drilling activities after we bring onto production 14 wells.  In 2015, we sold approximately 13,000 acres of Utica dry gas acreage for consideration of approximately $120 million.

Permian:  We operate and hold a 34% interest in the Seminole‑San Andres Unit in the Permian Basin.

Offshore:  At December 31, 2015, we held interests in 108 blocks in the deepwater Gulf of Mexico.  Our production offshore in the Gulf of Mexico was principally from the Tubular Bells (Hess 57%), Shenzi (Hess 28%), Llano (Hess 50%), Conger (Hess 38%), Baldpate (Hess 50%), Hack Wilson (Hess 25%) and Penn State (Hess 50%) fields.  In addition, we are operator of the Stampede development project (Hess 25%) and have interests in non-operated exploration blocks including Sicily (Hess 25%) and Melmar (Hess 35%).  At December 31, 2015, we held 75 exploration blocks containing approximately 250,000 net undeveloped acres of which leases for 46 exploration blocks containing 165,000 net undeveloped acres are due to expire in the next three years.  During 2015, our interests in 73 exploration blocks expired or were relinquished.


 

5


 

Descriptions of our significant operations in the Offshore, U.S. is as follows:

Tubular Bells:  At this Hess operated field, we achieved our first full year of production following first oil in late 2014. Four production wells have been completed to date.  In 2016, we intend to complete one water injector well, drill one production well, perform two wellbore stimulations, and complete a workover on a third well to open a stuck subsurface safety valve.

Shenzi:  At this BHP Billiton Petroleum operated field, drilling continued during 2015 with the completion of two production wells and one appraisal well.  In 2016, the operator plans to complete a water injection well.

Stampede:  At this Hess operated project in the Green Canyon area of the Gulf of Mexico, the co-owners sanctioned the field development and committed to two deepwater drilling rigs in 2014.  The first rig is expected to commence drilling in the first quarter of 2016 and the second rig is expected to commence drilling in the first quarter of 2017.  Construction of production facilities and subsea equipment is underway, with first production from the field targeted for 2018 at an expected net rate of 15,000 barrels of oil equivalent per day (boepd).

Sicily:  At this Chevron operated prospect in the Keathley Canyon area of the deepwater Gulf of Mexico, the operator successfully completed drilling and logging activities of its initial exploration well in 2015.  The discovery well was drilled to a depth of 30,214 feet and is being evaluated.  Drilling of an appraisal well to further evaluate the discovery commenced in December 2015.

Melmar:  At this ConocoPhillips operated prospect in the Alaminos Canyon area of the deepwater Gulf of Mexico, the operator commenced drilling of an initial exploration well in December 2015.

Europe

Norway:  At the BP operated offshore Valhall Field (Hess 64%), in 2015 the operator drilled one well and completed three wells.  In the first quarter of 2013, the operator completed the installation of a new production, utilities and accommodation platform that extended the field life by approximately 40 years.  In 2016, the operator is expected to continue a multi-year well abandonment program.

Denmark:  At the Hess operated offshore South Arne Field (Hess 62%), we expect to complete drilling of a previously sanctioned eleven well multi-year program in the first quarter of 2016.

Africa

Equatorial Guinea: At the Hess operated offshore Block G (Hess 85% paying interest, national oil company of Equatorial Guinea 5% carried interest), we have production from the Okume and Ceiba Fields.  In 2015, we deferred the remaining portion of an infill drilling program on the Okume Field.

Algeria:  Prior to its sale on December 31, 2015, we had a 49% interest in a venture with the Algerian national oil company that redeveloped three onshore oil fields.

Ghana:  At the Hess operated offshore Deepwater Tano/Cape Three Points license (Hess 50% license interest), we have drilled seven successful exploration wells on the block since 2011.  In May 2013, we submitted appraisal plans for each of the seven discoveries, which comprise both oil and natural gas, to the Ghanaian government for approval.  Five appraisal plans have been approved and discussions continue with the Ghanaian government to receive approval on the remaining two appraisal plans.  In 2014, we drilled three successful appraisal wells.  Well results continue to be evaluated and development planning is progressing.  The government of Côte d’Ivoire has challenged the maritime border between it and the country of Ghana, which includes a portion of our Deepwater Tano/Cape Three Points license.  We are unable to proceed with development of this license until there is a resolution of this matter, which may also impact our ability to develop the license.  The International Tribunal for Law of the Sea is expected to render a final ruling on the maritime border dispute in 2017.  Under terms of our license, the deadline to declare commerciality for the Pecan Field, which would be the primary development hub for the block, is in March 2016, and the deadline to submit a plan of development is in September 2016.  We have requested an extension of the submission deadline for a plan of development for the Pecan Field, and will continue to work with the government on how best to progress work on the Block given the maritime border dispute.  See Capitalized Exploratory Well Costs in Note 5, Property, Plant and Equipment in the Notes to the Consolidated Financial Statements for details of wells capitalized at December 31, 2015 and previously capitalized well costs charged to expense in 2015.

Libya:  At the onshore Waha concession in Libya, which include the Defa, Faregh, Gialo, North Gialo and Belhedan Fields (Hess 8%), the operator shut in production in 2015 and for much of 2014 due to civil unrest.  Net production averaged 4,000 bopd in 2014 and 13,000 bopd in 2013.  Since December 2014, the national oil company of Libya has declared force majeure with respect to the Waha concession.  We have after-tax net book value in our Libyan operations of approximately $120 million and total proved reserves of 159 million boe at December 31, 2015.

 

6


 

Asia and Other

Joint Development Area of Malaysia/Thailand (JDA):  At the Carigali Hess operated offshore Block A-18 in the Gulf of Thailand (Hess 50%), the operator continued development drilling in 2015 and made progress on a booster compression project that is expected to be completed by the third quarter of 2016.

Malaysia:  Our production in Malaysia comes from our interest in Block PM301 (Hess 50%), which is adjacent to and is unitized with Block A‑18 of the JDA and our 50% interest in Blocks PM302, PM325 and PM326B located in the North Malay Basin (NMB), offshore Peninsular Malaysia, where we operate a multi‑phase natural gas development project.  NMB achieved first production in October 2013 from an Early Production System.  We expect net production to increase from approximately 40 million cubic feet per day in 2016 to approximately 165 million cubic feet per day following the completion of full field development in 2017.

Australia:  At the WA‑390‑P Block (Hess 100%) in the Carnarvon Basin, offshore Western Australia (also known as Equus) covering approximately 780,000 acres, we have drilled 13 natural gas discoveries.  In late 2014, we executed a non-binding letter of intent with a potential liquefaction partner and began joint front-end engineering studies in 2015.  Discussions with potential long-term purchasers of liquefied natural gas were also initiated in 2015.  Successful negotiation of a binding agreement with the third-party liquefaction partner is necessary before we can execute a gas sales agreement and sanction development of the project.  At our adjacent WA-474-P Block (Hess 100%), which could become part of the Equus project, we plan to drill a commitment well in 2016.  See Capitalized Exploratory Well Costs in Note 5, Property, Plant and Equipment in the Notes to the Consolidated Financial Statements for details of wells capitalized at December 31, 2015 and previously capitalized well costs charged to expense in 2015.

Guyana:  At the Esso Exploration and Production Guyana Limited operated offshore Stabroek Block (Hess 30% participating interest), the operator announced a significant oil discovery at the Liza-1 well in the second quarter of 2015.  The operator plans to drill two appraisal wells, including one sidetrack with a production test, and two exploration wells in 2016.  A new 17,000 square kilometer 3D seismic shoot is near completion and the operator, along with its partners, continues to evaluate the resource potential of the block.

Kurdistan Region of Iraq:  We relinquished our interests at the Hess operated Dinarta Block (80% paying interest, 64% working interest), and exited operations in the region in 2015.

Canada:  In 2014 we acquired a 40% participating interest in four exploration licenses offshore Nova Scotia.  We expect the operator, BP, to drill the first exploration well in 2017 and a second exploration well in 2018.

Sales Commitments

We have contracts to sell fixed quantities of our natural gas and natural gas liquids production.  The natural gas contracts principally relate to producing fields in Asia.  The most significant of these net commitments relates to the JDA where the minimum contract quantity of natural gas is estimated at 48 billion cubic feet per year based on current entitlements under a sales contract with the national oil companies of Malaysia and Thailand expiring in 2027.  At the North Malay Basin development project, we have a commitment to deliver a minimum of 12 billion cubic feet of natural gas per year through 2033 from full field development start-up, which is expected in 2017.  The Company’s estimated total volume of production subject to sales commitments is approximately 0.8 trillion cubic feet of natural gas.  We also have natural gas liquids delivery commitments in the Bakken and Permian Basin of Texas through 2023 of approximately 9 million barrels per year, or approximately 97 million barrels over the life of the contracts.

We have not experienced any significant constraints in satisfying the committed quantities required by our sales commitments, and we anticipate being able to meet future requirements from available proved and probable reserves and projected third-party supply.


 

7


 

Selling Prices and Production Costs

The following table presents our average selling prices and average production costs:

 

 

2015

 

 

2014

 

 

2013

 

Average selling prices (a)

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil - per barrel (including hedging)

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Onshore

 

$

42.67

 

 

$

81.89

 

 

$

90.00

 

Offshore

 

 

46.21

 

 

 

95.05

 

 

 

103.83

 

Total United States

 

 

44.01

 

 

 

87.21

 

 

 

95.50

 

Europe (b)

 

 

55.10

 

 

 

104.21

 

 

 

88.03

 

Africa

 

 

53.89

 

 

 

97.31

 

 

 

108.70

 

Asia

 

 

52.74

 

 

 

89.71

 

 

 

107.40

 

Worldwide

 

 

47.85

 

 

 

92.59

 

 

 

98.48

 

Crude oil - per barrel (excluding hedging)

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Onshore

 

$

41.22

 

 

$

81.89

 

 

$

89.81

 

Offshore

 

 

46.21

 

 

 

92.22

 

 

 

103.15

 

Total United States

 

 

43.11

 

 

 

86.06

 

 

 

95.11

 

Europe (b)

 

 

52.37

 

 

 

99.20

 

 

 

87.45

 

Africa

 

 

51.57

 

 

 

93.70

 

 

 

108.07

 

Asia

 

 

52.74

 

 

 

89.71

 

 

 

107.40

 

Worldwide

 

 

46.37

 

 

 

90.20

 

 

 

98.01

 

Natural gas liquids - per barrel

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Onshore

 

$

9.18

 

 

$

28.92

 

 

$

43.14

 

Offshore

 

 

14.40

 

 

 

30.40

 

 

 

29.18

 

Total United States

 

 

10.02

 

 

 

29.32

 

 

 

38.07

 

Europe (b)

 

 

24.59

 

 

 

52.66

 

 

 

58.31

 

Asia

 

 

 

 

 

 

 

 

74.94

 

Worldwide

 

 

10.52

 

 

 

30.59

 

 

 

40.68

 

Natural gas - per mcf

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Onshore

 

$

1.64

 

 

$

3.18

 

 

$

3.08

 

Offshore

 

 

2.03

 

 

 

3.79

 

 

 

2.83

 

Total United States

 

 

1.77

 

 

 

3.47

 

 

 

2.96

 

Europe (b)

 

 

6.72

 

 

 

10.00

 

 

 

11.06

 

Asia and other

 

 

5.97

 

 

 

6.94

 

 

 

7.50

 

Worldwide

 

 

4.16

 

 

 

6.04

 

 

 

6.64

 

Average production (lifting) costs per barrel

   of oil equivalent produced (c)

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

Onshore

 

$

21.17

 

 

$

27.08

 

 

$

25.55

 

Offshore

 

 

7.03

 

 

 

5.06

 

 

 

4.98

 

Total United States

 

 

16.46

 

 

 

18.32

 

 

 

17.16

 

Europe (b)

 

 

23.73

 

 

 

29.14

 

 

 

36.02

 

Africa

 

 

23.31

 

 

 

22.39

 

 

 

19.26

 

Asia and other

 

 

8.46

 

 

 

10.67

 

 

 

12.89

 

Worldwide

 

 

17.23

 

 

 

19.14

 

 

 

19.28

 

(a)

Includes inter‑company transfers valued at approximate market prices adjusted for certain processing and distribution fees.

(b)

The average selling prices in Norway for 2015 were $54.89 per barrel for crude oil (including hedging), $52.15 per barrel for crude oil (excluding hedging), $24.59 per barrel for natural gas liquids and $8.58 per mcf for natural gas (2014: $105.35, $100.34, $52.13 and $12.22, respectively; 2013: $110.25, $109.41, $57.87 and $13.50, respectively).  The average production (lifting) costs in Norway were $25.94 per barrel of oil equivalent in 2015 (2014:  $33.76; 2013: $44.69).

(c)

Production (lifting) costs consist of amounts incurred to operate and maintain our producing oil and gas wells, related equipment and facilities, transportation costs (including Bakken Midstream tariff expense starting in 2014, which amounted to $3.28 per barrel of oil equivalent in 2015 and $1.77 per barrel of oil equivalent in 2014) and production and severance taxes.  The average production costs per barrel of oil equivalent reflect the crude oil equivalent of natural gas production converted on the basis of relative energy content (six mcf equals one barrel).

Lifting costs included in the table above do not include costs of finding and developing proved oil and gas reserves, or the costs of related general and administrative expenses, interest expense and income taxes.


 

8


 

Gross and Net Undeveloped Acreage

At December 31, 2015 gross and net undeveloped acreage amounted to:

 

 

Undeveloped

 

 

 

Acreage (a)

 

 

 

Gross

 

 

Net

 

 

 

(In thousands)

 

United States

 

 

716

 

 

 

459

 

Europe

 

 

9

 

 

 

1

 

Africa

 

 

6,433

 

 

 

3,123

 

Asia and other

 

 

14,883

 

 

 

6,974

 

Total (b)

 

 

22,041

 

 

 

10,557

 

(a)

Includes acreage held under production sharing contracts.

(b)

At December 31, 2015, licenses covering approximately 48% of our net undeveloped acreage held are scheduled to expire during the next three years pending the results of exploration activities.  These scheduled expirations are largely in Australia and Africa.

Gross and Net Developed Acreage, and Productive Wells

At December 31, 2015 gross and net developed acreage and productive wells amounted to:

 

 

Developed Acreage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Applicable to

 

 

Productive Wells (a)

 

 

 

Productive Wells

 

 

Oil

 

 

Gas

 

 

 

Gross

 

 

Net

 

 

Gross

 

 

Net

 

 

Gross

 

 

Net

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

1,288

 

 

 

824

 

 

 

2,724

 

 

 

1,300

 

 

 

156

 

 

 

78

 

Europe (b)

 

 

102

 

 

 

59

 

 

 

69

 

 

 

44

 

 

 

 

 

 

 

Africa

 

 

9,629

 

 

 

833

 

 

 

779

 

 

 

104

 

 

 

 

 

 

 

Asia and other

 

 

259

 

 

 

129

 

 

 

 

 

 

 

 

 

88

 

 

 

44

 

Total

 

 

11,278

 

 

 

1,845

 

 

 

3,572

 

 

 

1,448

 

 

 

244

 

 

 

122

 

(a)

Includes multiple completion wells (wells producing from different formations in the same bore hole) totaling 101 gross wells and 59 net wells.

(b)

Gross and net developed acreage in Norway was approximately 57 thousand and 36 thousand, respectively.  Gross and net productive oil wells in Norway were 49 and 31, respectively.

Exploratory and Development Wells

Net exploratory and net development wells completed during the years ended December 31 were:

 

Net Exploratory Wells

 

 

Net Development Wells

 

 

2015

 

 

2014

 

 

2013

 

 

2015

 

 

2014

 

 

2013

 

Productive wells

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

8

 

 

 

10

 

 

 

181

 

 

 

202

 

 

 

146

 

Europe

 

 

 

 

 

 

 

 

 

 

5

 

 

 

4

 

 

 

1

 

Africa

 

 

 

 

2

 

 

 

2

 

 

 

 

 

 

4

 

 

 

2

 

Asia and other

 

3

 

 

 

 

 

 

4

 

 

 

1

 

 

 

4

 

 

 

18

 

 

 

3