Filed Pursuant to Rule 424(b)(3)

Registration No. 333-169009

 

 

PROPOSED MERGER TRANSACTION — YOUR VOTE IS VERY IMPORTANT

 

Dear Stockholder:

 

I am pleased to inform you that American Oil & Gas Inc., or American, and Hess Corporation, or Hess, have agreed to a strategic business combination transaction whereby Hess and American will merge their businesses and American will become a wholly-owned subsidiary of Hess. The combination is structured as a merger in which each outstanding share of American common stock will be exchanged for 0.1373 shares of Hess common stock pursuant to an agreement and plan of merger that Hess and American entered into on July 27, 2010. Based on the $53.30 closing price of shares of Hess common stock on July 27, 2010, the last trading day prior to the announcement of the merger, the offer would represent a value to American stockholders of approximately $7.32 per share, representing a premium of 9.4% over the closing price of $6.69 per share of American common stock on July 27, 2010. Hess expects to issue approximately 8.6 million shares of Hess common stock on a net settlement basis as merger consideration, which would result in American stockholders holding approximately 2.6% of the total outstanding shares of Hess common stock after the merger.

 

You are cordially invited to attend a special meeting of our stockholders to be held on December 17, 2010, at 9:00 a.m., local time, at the offices of Patton Boggs LLP, 1801 California Street, Suite 4900, Denver, Colorado 80202 to vote on the approval of the agreement and plan of merger. As described in the accompanying proxy statement/prospectus, American’s board of directors has unanimously approved and adopted the agreement and plan of merger and determined that the agreement and plan of merger and the strategic business combination contemplated thereby are advisable and in the best interests of American stockholders. American’s board of directors unanimously recommends that you vote “FOR” the approval of the agreement and plan of merger.

 

American cannot complete the merger unless American stockholders approve the agreement and plan of merger. Such approval requires the affirmative vote by the holders of a majority of the outstanding shares of American common stock on the record date. In connection with American’s entering into the agreement and plan of merger, certain directors and executive officers of American (including myself) and certain beneficial owners of shares of American common stock have agreed with Hess, in their capacities as stockholders, to vote the shares of American common stock they beneficially own, which represent approximately 20.5% of the outstanding shares of American common stock, in favor of the approval of the agreement and plan of merger.

 

The notice of special meeting and the proxy statement/prospectus that accompany this letter provide you with extensive information about the agreement and plan of merger, the merger and the special meeting. We encourage you to read these materials carefully, including the section in the proxy statement/prospectus entitled “Risk Factors” beginning on page 17 of the proxy statement/prospectus.

 

Your vote is important. Whether or not you plan to attend the special meeting, please read the enclosed proxy statement/prospectus and promptly complete, sign, date and return the enclosed proxy card in the postage-paid envelope provided or submit a proxy through the Internet or by telephone in accordance with the directions set forth on the proxy card. Your shares will then be represented at the special meeting. If you attend the special meeting, you may, by following the procedures discussed in the accompanying documents, vote in person notwithstanding the fact that you may have previously submitted or appointed a proxy. Please note, however, that if your shares are held of record by a broker, bank, trustee or other nominee and you wish to vote at the meeting, you must obtain from your nominee a proxy issued in your name. Thank you for your continued support.

 

Sincerely,

 

Patrick D. O’Brien
Chairman of the Board of Directors

 

This transaction has not been approved or disapproved by the Securities and Exchange Commission, nor has the Securities and Exchange Commission passed upon the fairness or merits of this transaction or the accuracy or adequacy of the information contained in this proxy statement/prospectus. Any representation to the contrary is unlawful.

 

This proxy statement/prospectus is dated November 15, 2010, and is first being mailed, along with the attached proxy card, to American stockholders on or about November 16, 2010.

 

REFERENCES TO ADDITIONAL INFORMATION

 

This proxy statement/prospectus incorporates important business and financial information about Hess and American from documents that are not included in or delivered with this proxy statement/prospectus. This information is available to you without charge upon your written or oral request. You can obtain documents related to Hess and American that are incorporated by reference in this proxy statement/prospectus, other than certain exhibits to the documents, without charge, by requesting them in writing or by telephone from the appropriate company.

 

 

In addition, if you have questions about the merger or the special meeting, need additional copies of this document or need to obtain proxy cards or other information related to the proxy solicitation, you may contact the appropriate contact listed below. You will not be charged for any of these documents that you request.

 

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, New York 10005

1-800-859-8509 (toll free) or 1-212-269-5550 (call collect)

 

To receive timely delivery of requested documents in advance of the special meeting, you should make your request no later than December 10, 2010.

 

For additional information about documents incorporated by reference into this proxy statement/prospectus please see “Where You Can Find More Information” beginning on page 90.

 

AMERICAN OIL & GAS INC.
1050 17^th Street, Suite 2400
Denver, Colorado 80265

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON DECEMBER 17, 2010

 

To Stockholders of American Oil & Gas Inc.:

 

The special meeting of stockholders of American Oil & Gas Inc., or American, will be held on December 17, 2010, at 9:00 a.m., local time, at the offices of Patton Boggs LLP, 1801 California Street, Suite 4900, Denver, Colorado 80202, unless adjourned or postponed to a later date. The special meeting will be held for the following purposes:

 

1. To consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of July 27, 2010, by and among Hess Corporation, Hess Investment Corp. and American, pursuant to which American will become a wholly-owned subsidiary of Hess Corporation;

 

2. To approve adjournments or postponements of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to approve the agreement and plan of merger; and

 

3. To consider and vote upon such other business as may properly come before the special meeting or any adjournment or postponement thereof.

 

Only holders of record of American common stock at the close of business on November 15, 2010, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements thereof. Each share of American common stock entitles its holder to one vote on all matters that come before the special meeting.

 

American’s board of directors unanimously recommends that American stockholders vote “FOR” approval of the agreement and plan of merger. American cannot complete the merger unless the agreement and plan of merger is approved by American stockholders. Approval of the agreement and plan of merger requires the affirmative vote by the holders of a majority of the outstanding shares of American common stock on the record date.

 

Stockholders owning an aggregate of approximately 20.5% of American’s common stock entitled to vote at the special meeting have agreed with Hess to vote in favor of the merger at the special meeting, including if it is adjourned to a later date. These stockholders have also agreed with Hess to vote their shares against alternative transaction proposals and not to sell or transfer their shares. The voting and lockup agreements will terminate if the agreement and plan of merger terminates. The stockholders who have entered into these voting and lockup agreements include Wayne P. Neumiller, Michael J. Neumiller and North Finn LLC, who account for an aggregate of approximately 6.3% of the shares eligible to vote at the special meeting. Additionally, Patrick D. O’Brien, our chief executive officer and the chairman of our board of directors, Andrew P. Calerich, our president and a director, Bobby G. Solomon, our vice-president, Economics and Financial Evaluation, Kendell V. Tholstrom, our manager of operations, Joseph B. Feiten, our chief financial officer, Nick DeMare, a director, C. Scott Hobbs, a director, and Jon R. Whitney, a director, have entered into the voting and lockup agreements in their capacities as stockholders of American. These stockholders have financial interests in the merger that are in addition to and/or different from your interests. See “The Merger — Interests of American’s Executive Officers and Directors in the Merger,” beginning on page 49.

The merger is described in the accompanying proxy statement/prospectus, which you are urged to read carefully. A copy of the agreement and plan of merger is attached to the proxy statement/prospectus as Appendix A.

 

American’s board of directors also recommends that American stockholders vote “FOR” any adjournment or postponement of the special meeting to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to approve the agreement and plan of merger.

 

American’s board of directors is not aware of any matters that may be brought before the special meeting other than those set forth in this Notice of Special Meeting of Stockholders. If other matters properly come before the special meeting, the persons named in the accompanying proxy card will vote the shares represented by all properly submitted proxies on such matters in accordance with any recommendation of the board of directors or, in the absence of such recommendation, in their discretion.

 

Please give this information your careful attention. Under Nevada law, no holder of American common stock will be entitled to appraisal or dissenters’ rights or similar rights to a court valuation of the fair value of their shares in connection with the merger. See “The Merger — Appraisal or Dissenters’ Rights” beginning on page 61.

 

Whether or not you plan to attend the special meeting in person, please complete, sign, date and return the enclosed proxy card in the postage-paid envelope provided or appoint a proxy over the Internet or by telephone, in accordance with the directions set forth on the proxy card, to ensure that your shares will be represented at the special meeting. If you do attend the special meeting and wish to vote in person, you may do so notwithstanding the fact that you previously submitted or appointed a proxy. Please note, however, that if your shares are held of record by a broker, bank, trustee or other nominee and you wish to vote at the meeting, you must obtain from your nominee a proxy issued in your name.

 

Please do not send your stock certificates at this time. If the merger is completed, you will be sent instructions regarding the surrender of your stock certificates.

 

By Order of the Board of Directors,

 

Patrick D. O’Brien

Chairman of the Board of Directors

November 15, 2010

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Oil & Gas Inc.

1050 17th Street, Suite 2400

Denver, Colorado 80265

Attention: Andrew P. Calerich, President

 

 

 

 

Transfer Agency

Corporate Stock Transfer

3200 Cherry Creek Drive South, Suite 430

Denver, Colorado 80209

 

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, New York 10005

1-800-859-8509 (toll free) or 1-212-269-5550 (call collect)

 

If your broker holds your shares, then you should also contact your broker for additional information.

 

The Merger (page 28)

 

American Stockholders Will Receive Shares of Hess Common Stock in the Merger (page 62)

 

Comparative Market Prices and Share Information (page 15)

										American
		Hess				American				Common Stock
		Common Stock				Common Stock				Pro Forma Equivalent
July 27, 2010		$	53.30			$	6.69			$	7.32
November 12, 2010		$	70.06			$	9.57			$	9.62

 

Special Dividend (page 57)

 

American’s Financial Advisor Has Delivered an Opinion to American’s Board of Directors that the Consideration to be Received in the Merger and the Special Dividend (if any) were Fair, from a Financial Point of View, to American Stockholders (page 40)

 

Material United States Federal Income Tax Considerations to Holders of American Common Stock (page 52)

 

Holders of American Common Stock Do Not Have Appraisal or Dissenters’ Rights in the Merger (page 61)

 

American’s Board of Directors Unanimously Recommends that You Vote “FOR” the Approval of the Agreement and Plan of Merger (page 26)

 

American’s Executive Officers and Directors Have Financial and Other Interests in the Merger that are in Addition to and/or Different from Your Interests (page 49)

	•	At the effective time of the merger, restricted stock held by American employees, including executive officers of American and directors of American, will vest and will thereafter be converted into the merger consideration in the same manner as other American common stock.
	•	American has granted to Don E. Schroeder, American’s Vice President, Land, 8,000 restricted shares of American common stock that will be issued upon a change in control of American and will, at the effective time of the merger, vest and thereafter be converted into Hess common stock in the same manner as other American common stock.
	•	Immediately prior to the effective time of the merger, unvested stock options held by American employees, including certain executive officers of American, will become fully exercisable and any stock option held by certain executive officers and directors of American that is in-the-money as of the effective time of the merger and that is not exercised prior to the effective time of the merger will be entitled to receive a number of shares of Hess common stock equal to the product of (i) 0.1373 multiplied by (ii) the product of (A) the number of shares of American common stock issuable upon the exercise of the relevant stock option multiplied by (B) the quotient obtained by dividing (1) the excess of (I) the closing price of shares of American common stock on the last full trading day prior to the effective time of the merger over (II) the exercise price per share of the applicable stock option, by (2) the closing price of shares of American common stock on the last full trading day prior to the effective time of the merger.
	•	Hess has agreed to provide certain severance payments to American’s employees, including current executive officers of American, who are employed immediately prior to the effective time of the merger and who remain employed with the surviving entity, equal to any such employee’s monthly base salary immediately prior to such termination for an aggregate period of six months, following any involuntary termination of any such employee’s employment without cause within the 12-month period following the effective date of the merger, subject to certain conditions. Any employee who is a party to a written agreement with American (which includes all executive officers) providing for six months of severance pay will receive severance in accordance with the employment agreement.

	•	Hess has agreed to offer to American’s employees, including current executive officers of American, selected by Hess, who are employed immediately prior to the effective time of the merger and who remain employed with the surviving entity, an additional month of base salary as severance pay for each full calendar month such employee remains continuously employed by Hess immediately following the calendar month of the closing of the merger, up to six additional months of severance pay.
	•	The agreement and plan of merger provides for director and officer indemnification arrangements for each of American’s directors and executive officers who are currently covered by American’s indemnification arrangements and a directors’ and officers’ liability insurance policy that will continue for six years following completion of the merger.
	•	American’s and Hess’ boards of directors have agreed to take steps to exempt from short-swing liability under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act, any dispositions of American’s common stock by directors, executive officers and principal stockholders who are subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to American.

 

Your Rights as a Holder of Hess Common Stock Will Be Different from Your Rights as a Holder of American Common Stock (page 80)

 

Board of Directors and Management of Hess Following Completion of the Merger (page 55)

 

The Companies (page 27)

 

The Special Meeting of American Stockholders (page 23)

	1.	To consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of July 27, 2010, by and among Hess, Merger Sub and American, pursuant to which American will become a wholly-owned subsidiary of Hess;
	2.	To approve adjournments or postponements of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to approve the agreement and plan of merger; and
	3.	To consider and vote upon such other business as may properly come before the special meeting or any adjournment or postponement thereof.

 

The Voting and Lockup Agreements (page 78)

 

Hess Stockholder Approval

 

The Agreement and Plan of Merger (page 62)

 

Completion of the Merger is Subject to Conditions (page 73)

 

The Agreement and Plan of Merger May Be Terminated under Certain Circumstances (page 74)

	•	by mutual written consent of Hess and American; or
	•	by either Hess or American if:

	•	any governmental entity has issued, enacted, entered, promulgated or enforced any law, order or injunction (that is final and nonappealable and that has not been vacated, withdrawn or overturned) or taken any other action restraining, enjoining or otherwise prohibiting the merger or making it illegal;
	•	the merger has not been completed by January 31, 2011, although neither Hess nor American may terminate the agreement and plan of merger for this reason if its breach of any obligation under the agreement and plan of merger has resulted in the failure of the merger to occur by that date; or
	•	if American stockholders do not vote to approve the agreement and plan of merger at a stockholder meeting in which a quorum is present and such vote is taken; or

	•	by Hess if:

	•	American has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements, which breach or failure to perform would result in a failure of certain conditions to Hess’ obligation to complete the merger and which breach is not curable or, if curable, is not cured within 30 days after written notice of the breach is given by Hess to American, provided Hess is not in breach of the agreement and plan of merger;
	•	American has breached its obligations under the section of the agreement and plan of merger imposing restrictions on the solicitation of alternative proposals, including its obligation to notify Hess of an alternative proposal;
	•	American enters into an agreement or letter of intent (other than certain permitted confidentiality agreements) with respect to certain alternative transactions; or
	•	(i) American’s board of directors fails to recommend the agreement and plan of merger with Hess, fails to include its recommendation that American stockholders approve the agreement and plan of merger in the proxy statement relating to the American special meeting or makes a change in recommendation in any manner adverse to Hess (including by failing to reconfirm the board of directors’ recommendation within three business days of a request to do so by Hess) or (ii) American’s board of directors shall have authorized, endorsed, approved or publicly recommended an alternative transaction; or

	•	by American if:

	•	Hess has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements, which breach or failure to perform would result in a failure of certain conditions to American’s obligation to complete the merger and which breach is not curable or, if curable, is not cured within 30 days after written notice of the breach is given by American to Hess, provided, that American is not in breach of the agreement and plan of merger; or
	•	prior to the approval of the agreement and plan of merger by American stockholders, American’s board of directors authorizes American to enter into a definitive agreement concerning a transaction that constitutes a superior alternative proposal and American pays all fees and expenses required to be paid under the agreement and plan of merger as a result of such termination; provided, that American has complied in all material respects with, and the alternative proposal did not otherwise result from a breach of, the section of the agreement and plan of merger imposing restrictions on the solicitation of alternative proposals, including its obligation to notify Hess of the alternative proposal and give Hess three business days to revise the agreement and plan of merger so that the alternative proposal is no longer superior.

 

American May Be Required to Pay a Termination Fee under Certain Circumstances (page 75)

	•	American enters into an agreement or letter of intent (other than certain permitted confidentiality agreements) with respect to certain alternative transactions; or
	•	(i) American’s board of directors fails to recommend the agreement and plan of merger with Hess, fails to include its recommendation that American stockholders approve the agreement and plan of merger in the proxy statement relating to the American special meeting or makes a change in recommendation in any manner adverse to Hess (including by failing to reconfirm the board of directors’ recommendation within three business days of a request to do so by Hess) or (ii) American’s board of directors shall have authorized, endorsed, approved or publicly recommended an alternative transaction.

	•	by either Hess or American because the merger is not completed by January 31, 2011 and (i) a vote of American stockholders to approve the agreement and plan of merger has not occurred and (ii) a proposal with respect to an alternative transaction has been publicly announced (or any third party shall have communicated an intention to propose an alternative transaction) prior to termination of the agreement and plan of merger;
	•	by either Hess or American because American stockholders fail to approve the agreement and plan of merger at the stockholders’ meeting called for that purpose, if a proposal with respect to an alternative transaction has been publicly announced (or any third party shall have communicated an intention to propose an alternative transaction) prior to the date of such meeting;
	•	by Hess because American’s representations or warranties fail to be true and correct or American has breached any covenant or other agreement to be performed by it, which breach or failure to be true and correct resulted in a failure of certain conditions to Hess’ obligation to complete the merger and which breach is not curable or, if curable, is not cured within 30 days after written notice of the breach is given by Hess to American, provided Hess is not in breach of the agreement and plan of merger; or
	•	by Hess because American has breached its obligations under the section of the agreement and plan of merger imposing restrictions on the solicitation of alternative proposals, including its obligation to notify Hess of an alternative proposal.

 

Regulatory Approvals Required for the Merger (page 55)

 

Litigation Relating to the Merger (page 57)

 

Debt Financing (page 59)

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF HESS

		Nine Months Ended
		September 30,								Year Ended December 31,
		2010				2009*				2009*				2008*				2007*				2006*				2005*
		(Millions of dollars, except per share amounts and per unit data)
Sales and other operating revenues		$	24,855			$	20,936			$	29,614			$	41,134			$	31,727			$	28,176			$	22,831
Net income attributable to Hess Corporation		$	2,067	(a)		$	382	(b)		$	740	(c)		$	2,360	(d)		$	1,832	(e)		$	1,920	(f)		$	1,226	(g)
Less: Preferred stock dividends			—				—				—				—				—				44				48
Net income applicable to Hess Corporation common stockholders		$	2,067			$	382			$	740			$	2,360			$	1,832			$	1,876			$	1,178
Earnings per share:**
Basic		$	6.36			$	1.18			$	2.28			$	7.35			$	5.86			$	6.75			$	4.32
Diluted		$	6.31			$	1.17			$	2.27			$	7.24			$	5.74			$	6.08			$	3.93
Total assets		$	33,485			$	28,437			$	29,465			$	28,589			$	26,131			$	22,442			$	19,158
Total debt			5,584				4,379				4,467				3,955				3,980				3,772				3,785
Total equity			15,828				13,007				13,528				12,391				10,000				8,376				6,469
Dividends per share of common stock**		$	.30			$	.30			$	.40			$	.40			$	.40			$	.40			$	.40
Operating Data:
Average daily production:
Crude oil (thousands of barrels per day)			288				277				279				252				260				242				228
Natural gas liquids (thousands of barrels per day)			17				14				14				14				15				15				16
Natural gas (thousands of mcf per day)			672				687				690				689				613				612				544
Barrels of oil equivalent (thousands per day)***			417				406				408				381				377				359				335
Average realized price:
Crude oil — per barrel		$	64.44			$	47.09			$	51.62			$	82.04			$	63.44			$	55.31			$	33.38
Natural gas liquids — per barrel			48.84				33.90				38.47				67.61				53.72				46.59				38.08
Natural gas — per mcf			5.74				4.74				4.85				7.17				5.60				5.50				5.65
Proved reserves:
Crude oil & natural gas liquids (millions of barrels)			N/A				N/A				967				970				885				832				692
Natural gas (millions of mcf)			N/A				N/A				2,821				2,773				2,668				2,466				2,406
Total barrels of oil equivalent (millions of barrels)***			N/A				N/A				1,437				1,432				1,330				1,243				1,093

*		Reflects the retrospective adoption of a new accounting standard for noncontrolling interests in consolidated subsidiaries effective January 1, 2009.

**		Per share amounts in all periods reflect the 3-for-1 stock split on May 31, 2006.

***		Reflects natural gas reserves converted on the basis of relative energy content (six mcf equals one barrel). 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.

(a)		Includes net after-tax income of $776 million relating to gains on asset dispositions, partially offset by charges for an asset impairment and premiums on bond repurchases.

(b)		Includes net after-tax income of $41 million relating to resolution of the United States royalty dispute, partially offset by charges for asset impairments, retirement benefits and employee severance.

(c)		Includes after-tax expenses totaling $104 million relating to bond repurchases, retirement benefits, employee severance costs and asset impairments, partially offset by after-tax income totaling $101 million principally relating to resolution of a United States royalty dispute.

(d)		Includes after-tax expenses totalling $26 million primarily relating to asset impairments and hurricanes in the Gulf of Mexico.

(e)		Includes net after-tax expenses of $75 million primarily relating to asset impairments, estimated production imbalance settlements and a charge for MTBE litigation, partially offset by income from LIFO inventory liquidations and gains from asset sales.

(f)		Includes net after-tax income of $173 million primarily from sales of assets, partially offset by income tax adjustments and accrued leased office closing costs.

(g)		Includes net after-tax expenses of $37 million primarily relating to income taxes on repatriated earnings, premiums on bond repurchases and hurricane related expenses, partially offset by gains from asset sales and a LIFO inventory liquidation.

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF AMERICAN

		Nine Months Ended September 30,								Year Ended December 31,
		2010				2009				2009				2008				2007				2006				2005
		(In thousands, except per share amounts and realized prices)
Sales and other operating revenues
Production Revenues		$	8,084			$	1,286			$	1,885			$	2,895			$	1,957			$	2,257			$	4,691
Service fee and other revenues			—				—				—				—				12				1,530				—
Total sales and other operating revenues		$	8,084			$	1,286			$	1,885			$	2,895			$	1,969			$	3,787			$	4,691
Net income (loss) attributable to American Oil & Gas Inc.		$	27,661	(a)		$	(8,892	)(b)		$	(10,341	)(c)		$	(23,532	)(d)		$	(2,743	)		$	1,211	(e)		$	1,033
Less: Preferred stock dividends			—				—				—				(328	)			(603	)			(1,080	)			(479	)
Deemed dividends on warrant extensions			—				—				—				(300	)			(450	)			—				—
Net income (loss) applicable to
American Oil & Gas Inc. common stockholders		$	27,661			$	(8,892	)		$	(10,341	)		$	(24,160	)		$	(3,796	)		$	131			$	554
Earnings (loss) per share:
Basic		$	0.46			$	(0.18	)		$	(0.21	)		$	(0.51	)		$	(0.09	)		$	—			$	0.02
Diluted		$	0.45			$	(0.18	)		$	(0.21	)		$	(0.51	)		$	(0.09	)		$	—			$	0.02
Total assets		$	151,146			$	56,200			$	84,772			$	67,389			$	88,091			$	69,136			$	45,775
Total equity			126,311				54,574				83,303				62,568				84,877				62,088				42,331
Operating Data:
Total production for the period:
Crude oil (barrels)			119				14				20				19				17				35				79
Natural gas (mcf)			68				183				223				173				140				48				60
Barrels of oil equivalent*			131				45				57				48				41				43				89
Average realized price:
Crude oil — per barrel		$	64.25			$	46.87			$	52.75			$	86.96			$	64.11			$	54.79			$	53.89
Natural gas — per mcf			6.06				3.42				3.72				7.06				6.09				7.53				7.31
Proved reserves:
Crude oil and natural gas liquids (barrels)			N/A				N/A				148				87				150				92				555
Natural gas (mcf)			N/A				N/A				957				1,147				1,307				810				378
Total barrels of oil equivalent*			N/A				N/A				307				278				368				227				618

*		Reflects natural gas reserves converted on the basis of relative energy content (six mcf equals one barrel). 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.
(a)		Includes a pre-tax gain of $36,400,000 related to the sale of assets.
(b)		Includes pre-tax expenses totaling $4,516,000 related to asset impairments.
(c)		Includes pre-tax expenses totaling $5,066,000 relating to asset impairments.
(d)		Includes net pre-tax expenses totaling $19,480,000 relating to asset and goodwill impairments, partially offset by a gain related to the sale of assets.
(e)		Includes pre-tax expenses of $4,360,000 relating to asset impairments.

 

COMPARATIVE PER SHARE DATA

 

Hess Historical and Unaudited Pro Forma Common Share Data

		Nine Months Ended				Year Ended
		September 30, 2010				December 31, 2009
Basic Earnings Per Share:
Hess historical		$	6.36			$	2.28
Hess pro forma combined			6.20				2.22
Diluted Earnings Per Share:
Hess historical			6.31				2.27
Hess pro forma combined			6.17				2.21
Dividends Per Share:
Hess historical			0.30				0.40
Hess pro forma combined(1)			0.30				0.40
Book Value Per Share at Period End:
Hess historical(2)			48.18				41.34
Hess pro forma combined(3)			48.77				42.11

(1)		Equal to Hess’ historical dividend as no change in dividend policy is expected as a result of the merger.
(2)		Historical book value per share is calculated by dividing stockholders’ equity by the number of shares of Hess common stock outstanding at the end of the period.
(3)		Pro forma book value per share is computed by dividing pro forma stockholders’ equity by the pro forma combined number of shares of Hess common stock outstanding at the end of the period.

 

American Historical and Unaudited Pro Forma Equivalent Share Data

		Nine Months Ended				Year Ended
		September 30, 2010				December 31, 2009
Basic Earnings Per Share:
American historical		$	0.46			$	(0.21	)
American pro forma equivalent(2)			0.85				0.31
Diluted Earnings Per Share:
American historical			0.45				(0.21	)
American pro forma equivalent(2)			0.85				0.30
Dividends Per Share:
American historical			—				—
American pro forma equivalent(2)			0.04				0.05
Book Value Per Share at Period End:
American historical(1)			2.07				1.46
American pro forma equivalent(2)			6.70				5.78

(1)		Historical book value per share is calculated by dividing stockholders’ equity by the number of American common shares outstanding at the end of the period.
(2)		Amounts are calculated by multiplying the Hess unaudited pro forma combined per share amounts by the exchange ratio of 0.1373.

 

COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

		Hess								American
		Common Stock*								Common Stock*
		High				Low				High				Low
Year Ended December 31, 2009		$	69.74			$	46.33			$	4.50			$	0.50
Quarterly for 2009:
First Quarter			66.84				49.28				1.15				0.50
Second Quarter			69.74				49.72				1.59				0.65
Third Quarter			57.83				46.33				2.05				0.79
Fourth Quarter			62.18				51.41				4.50				1.81
Quarterly for 2010:
First Quarter			66.49				55.89				7.00				3.72
Second Quarter			66.22				48.70				7.74				4.10
Third Quarter			59.79				48.71				8.18				5.79
Fourth Quarter (through November 11, 2010)			71.99				59.23				9.84				8.09

*		Source: Bloomberg

		Hess								American
		Common Stock*								Common Stock*
		High				Low				High				Low
May 2010			64.62				49.50				7.74				4.10
June 2010			57.45				48.70				7.30				5.95
July 2010			54.74				48.71				7.33				5.79
August 2010			56.59				49.60				7.73				6.73
September 2010			59.79				51.18				8.18				6.94
October 2010			64.68				59.23				8.84				8.09
November 2010 (through November 11, 2010)			71.99				63.72				9.84				8.67

*		Source: Bloomberg

										American
		Hess				American				Common Stock
		Common Stock				Common Stock				Pro Forma Equivalent
July 27, 2010		$	53.30			$	6.69			$	7.32
November 12, 2010		$	70.06			$	9.57			$	9.62

		Declared Dividends
		Hess				American
Year Ended December 31, 2009		$	0.40			$	—
Quarterly for 2009:
First Quarter			0.10				—
Second Quarter			0.10				—
Third Quarter			0.10				—
Fourth Quarter			0.10				—
Quarterly for 2010:
First Quarter			0.10				—
Second Quarter			0.10				—
Third Quarter			0.10				—

 

In addition to the other information included or incorporated by reference in this proxy statement/prospectus, you should carefully consider the matters described below relating to the proposed merger in deciding whether to vote for approval of the agreement and plan of merger. Although Hess and American believe that the matters described below cover the material risks related to the merger that are currently known or reasonably foreseeable, they may not contain all of the information that is important to you in evaluating the merger. Accordingly, we urge you to read this entire proxy statement/prospectus, including the appendices and the information included or incorporated by reference in this document. Please also refer to the additional risk factors identified in the periodic reports and other documents of Hess and American incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 91.

 

The price of Hess common stock might decline, which would decrease the value of the merger consideration to be received by American stockholders in the merger.

 

The market price of Hess common stock may vary significantly from the price on the date of the agreement and plan of merger or from the price on the date of the American special meeting. Upon completion of the merger, American stockholders will be entitled to receive 0.1373 shares of Hess common stock for each share of American common stock that they own. The exchange ratio is fixed and will not be adjusted for changes in the stock prices of either company before the merger is completed. As a result, any changes in the market price of Hess common stock will have a corresponding effect on the market value of the merger consideration. Neither party, however, has a right to terminate the agreement and plan of merger based on changes in the market price of Hess or American common stock.

 

Stock price changes may result from a variety of factors that are beyond the control of Hess and American, including:

 

 

At the American special meeting, American stockholders will not know the exact value of Hess common stock that will be issued in the merger.

 

The date when the merger is completed will be later than the date of the American special meeting. Therefore, when you vote on the approval of the agreement and plan of merger, you will know the market price of Hess common stock as of that date, but you will not know the future market prices of Hess common stock when the merger is completed or at any time thereafter. The value of Hess common stock you will receive in the merger will depend on the market price of such Hess common stock which, when the merger is completed and thereafter, could be lower or higher than the market price of Hess common stock at the time that you vote at the American special meeting.

 

We may fail to realize the anticipated benefits of the merger.

 

Hess and American entered into the agreement and plan of merger with the expectation that the merger would result in various benefits, including, among other things, from the combination of American’s strategic acreage position in the Bakken shale region in North Dakota with Hess’ nearby infrastructure, capital strength, project

management capabilities and technology development program. The success of the merger will depend, in part, on our ability to realize such anticipated benefits from combining the businesses of Hess and American. The anticipated benefits of the merger may not be realized fully, or at all, or may take longer to realize than expected. Failure to achieve anticipated benefits could result in increased costs and decreases in the amounts of expected revenues of the combined company.

 

The market price for shares of Hess common stock may be affected by factors different from those affecting the market price for shares of American common stock.

 

Upon completion of the merger, holders of American common stock will become holders of Hess common stock. Hess’ business differs in certain respects from that of American, and accordingly the results of operations of Hess will be affected by some factors different from those currently affecting the results of operations of American. In particular, American’s business is focused on onshore exploration and production of oil and gas in the Rocky Mountain region of the United States. Hess’ business, however, is more global in nature and can be affected by circumstances existing outside of the United States or circumstances that affect offshore exploration and production activities. In addition, Hess is involved in the marketing and refining businesses, in which American is not currently involved. For a discussion of the businesses of Hess and American and of certain important factors to consider in connection with those businesses, see the documents incorporated by reference in this proxy statement/prospectus and referred to in the section entitled “Where You Can Find More Information” beginning on page 91.

 

American stockholders may receive a lower return on their investment after the merger.

 

Although Hess and American believe that the merger will create financial, operational and strategic benefits for the combined company and its stockholders, these benefits may not be achieved. The combination of Hess’ and American’s businesses, even if conducted in an efficient, effective and timely manner, may not result in combined financial performance that is better than what each company would have achieved independently if the merger had not occurred.

 

The rights of American stockholders will change as a result of the merger.

 

Following the completion of the merger, American stockholders will no longer be stockholders of American, a Nevada company, but will instead be stockholders of Hess, a Delaware corporation. There will be differences between your current rights as a stockholder of American, on the one hand, and the rights to which you will be entitled as a stockholder of Hess, on the other hand. For a more detailed discussion of the differences between the rights of stockholders of American and stockholders of Hess, see “Comparison of Stockholder Rights” beginning on page 80.

 

Directors and executive officers of American have interests in the merger that may differ from the interests of American stockholders including, if the merger is completed, the receipt of financial and other benefits.

 

When considering the recommendation of American’s board of directors, you should be aware that executive officers and directors of American have interests in the merger that are different from your interests because they have stock-based awards that will vest in connection with the merger. In addition, the agreement and plan of merger provides for director and officer indemnification arrangements for each of American’s directors and executive officers who are currently covered by American’s indemnification arrangements and a directors’ and officers’ liability insurance policy that will continue for six years following completion of the merger. Current executive officers of American will also receive certain severance payments following any termination without cause of such executive officer’s employment. These and certain other additional interests of American’s directors and executive officers may create potential conflicts of interest and cause some of these persons to view the proposed merger differently than you view it, as a stockholder. For a more detailed discussion of these interests, see “The Merger — Interests of American’s Executive Officers and Directors in the Merger” beginning on page 49.

 

The agreement and plan of merger, the voting and lockup agreements and the $45.0 million senior secured revolving credit facility contain provisions that may discourage other companies from trying to acquire American for greater merger consideration.

 

The agreement and plan of merger, the voting and lockup agreements and the $45.0 million senior secured revolving credit facility provided by Hess to American contain provisions that may discourage a third party from submitting a business combination proposal to American that might result in greater value to American stockholders than the proposed merger. Under the terms of the agreement and plan of merger these provisions include a general prohibition on American from soliciting any acquisition proposal or offers for competing transactions. Additionally, if American receives a proposal for an alternative transaction or if another person or entity seeks to discuss or negotiate an alternative transaction with American, American must notify Hess promptly of such activities and keep Hess informed on a reasonably prompt basis of any material developments. American is also required to pay a termination fee of $13.5 million, Hess’ expenses in connection with the transaction in an amount up to $2.25 million, and all principal and accrued interest due under the senior secured revolving credit facility to be provided by Hess, if any, if the agreement and plan of merger is terminated in specified circumstances. See “The Agreement and Plan of Merger — Termination Fees and Expenses; Repayment of Interim Facility” beginning on page 75.

 

In addition, under the terms of the voting and lockup agreements, stockholders owning an aggregate of approximately 20.5% of American’s common stock entitled to vote at the special meeting have agreed with Hess to vote in favor of the merger at the special meeting, including if it is adjourned to a later date. These stockholders have also agreed with Hess to vote their shares against alternative transaction proposals and not to sell or transfer their shares.

 

These provisions could discourage a third party that might have an interest in acquiring all or a significant part of American from considering or proposing an acquisition, even if that party were prepared to pay consideration with a higher per share value than the current proposed merger consideration. Furthermore, the termination fee may result in a potential competing acquirer proposing to pay a lower per share price to acquire American than it might otherwise have proposed to pay.

 

The integration process could adversely impact Hess’ and American’s ongoing operations.

 

Hess and American have operated independently and until the completion of the merger will continue to operate independently. It is possible that the integration process could result in the loss of employees, the disruption of American’s ongoing business or inconsistencies in standards, controls, procedures or policies that adversely affect our ability to achieve the anticipated benefits of the merger. Integration efforts between the two companies will also divert management attention and resources. The integration may take longer than anticipated and may have unanticipated adverse results.

 

Hess and American may waive one or more of the conditions to the merger without resoliciting stockholder approval for the merger and may terminate the agreement and plan of merger even if adopted by American stockholders.

 

Each of the conditions to Hess’ and American’s obligations to complete the merger may be waived, in whole or in part, to the extent permitted by applicable law, by agreement of Hess and American if the condition is a condition to both Hess’ and American’s obligation to complete the merger, or by the party for which such condition is a condition of its obligation to complete the merger. The boards of directors of Hess and American may evaluate the materiality of any such waiver to determine whether amendment of this proxy statement/prospectus and resolicitation of proxies is necessary. If Hess and American determine that a waiver is not significant enough to require resolicitation of stockholders, American will have the discretion to complete the merger without seeking further stockholder approval. In addition, Hess and American can agree at any time to terminate the agreement and plan of merger, even if American stockholders have already voted to adopt and approve the agreement and plan of merger and the transactions contemplated thereby.

If the merger is not consummated by January 31, 2011, either Hess or American may choose not to proceed with the merger.

 

Either Hess or American may terminate the agreement and plan of merger if the merger has not been completed by January 31, 2011, unless the party seeking to terminate breached any provision of the agreement and the breach was the principal cause of the failure of the merger to occur by that date. See “The Agreement and Plan of Merger — Termination” beginning on page 74.

 

If the conditions to the merger are not met, the merger may not occur.

 

Specified conditions set forth in the agreement and plan of merger must be satisfied or waived to complete the merger. For a more complete discussion of the conditions to the merger, please see the section entitled “The Agreement and Plan of Merger — Conditions to the Merger” beginning on page 73. The following conditions, in addition to other customary closing conditions, must be satisfied or waived before either Hess or American, as applicable, is obligated to complete the merger:

 

 

Additionally, the following conditions must be satisfied or waived before Hess is obligated to complete the merger:

 

 

The following conditions must be satisfied or waived before American is obligated to complete the merger:

 

 

Failure to complete the merger could have adverse consequences.

 

If the merger is not completed:

 

 

Hess and American also could be subject to litigation related to any failure to complete the merger or related to any enforcement proceeding commenced against Hess or American to perform their respective obligations under the agreement and plan of merger. If the merger is not completed, these risks may materialize and may adversely affect Hess’ and American’s business, financial results and stock price.

 

Multiple lawsuits have been filed against American and Hess challenging the merger, and an adverse ruling in any such lawsuit may prevent the merger from being completed.

 

American, members of American’s board of directors, Hess and Merger Sub have been named as defendants in a number of putative class action lawsuits brought by certain American stockholders challenging the merger, generally alleging, among other things, that the director defendants, aided and abetted by American and Hess, breached their fiduciary duties by agreeing to the merger via an unfair process and at an unfair price and seeking, among other things, to enjoin Hess and American from completing the merger on the agreed terms or to rescind the merger to the extent already implemented. On November 12, 2010, certain plaintiffs, on behalf of themselves and the Proposed Settlement Class, entered into the Stipulation of Settlement with the defendants to fully and finally resolve the Proposed Settlement Class members’ claims challenging the proposed merger. For more information about the lawsuits related to the merger and the terms of the Stipulation of Settlement, see “The Merger — Litigation Relating to the Merger” beginning on page 57.

 

It is a condition to the obligations of both Hess and American to complete the merger that no governmental or regulatory authority has issued, enacted, entered, promulgated or enforced any applicable law, court order or injunction (that has not been vacated, withdrawn or overturned) that restrains, enjoins or otherwise prohibits the merger or makes it illegal. Furthermore, it is a condition to Hess’ obligation to complete the merger that there be no legal proceedings threatened, commenced or instituted (and which remain pending at the closing date of the merger) seeking to restrain, enjoin or otherwise prohibit consummation of the merger or make it illegal. The existence of the lawsuits mentioned above could jeopardize American’s and Hess’ ability to complete the merger.

 

If the merger is not completed, American will likely need to promptly seek alternative financing solutions to continue to pursue its exploration and production activities in the near term.

 

Hess entered into the Credit Agreement, pursuant to which Hess agreed to provide a revolving credit facility of $45.0 million to help finance American’s planned exploration and production activities and other working capital needs through the effective date of the merger. If the merger is not completed, American will be required to repay amounts outstanding under the Credit Agreement and will likely need to promptly seek alternative financing solutions to continue to pursue its exploration and production activities in the near term. The terms of any alternative equity or debt financing could be dilutive or unavailable on terms advantageous to American. If American is unsuccessful in obtaining financing and in repaying Hess, American’s assets could be foreclosed upon and its operations curtailed by Hess.

 

Some of the statements contained or incorporated by reference in this proxy statement/prospectus, including those relating to Hess’ and American’s strategies and other statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “will,” “should,” “may” or similar expressions, are forward looking statements within the meaning of Section 21E of the Exchange Act and Section 27A of the U.S. Securities Act of 1933, as amended, or Securities Act. Without limiting the generality of the preceding sentence, statements contained in the sections “The Merger — Hess’ Reasons for the Merger,” “— American’s Reasons for the Merger” and “— Opinion of American’s Financial Advisor” include forward looking statements. These statements are not historical facts but instead represent only Hess’ and/or American’s expectations, estimates and projections regarding future events.

 

The forward looking statements contained or incorporated by reference in this proxy statement/prospectus are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. The future results and stockholder values of Hess and American may differ materially from those expressed in the forward looking statements contained or incorporated by reference in this proxy statement/prospectus due to, among other factors, the matters set forth under “Risk Factors” beginning on page 17, the parties’ ability to obtain the regulatory and other approvals required for the merger on the terms and within the time expected, the risk that Hess will not be able to integrate successfully the businesses of American or that such integration will be more time consuming or costly than expected, and the risk that expected benefits of the merger will not be realized within the expected time frame or at all. Additional factors that could cause Hess’ and American’s results to differ materially from those described in the forward looking statements can be found in each company’s filings with the SEC, including the factors detailed in Hess’ Form 10-K for the year ended December 31, 2009 and its subsequent quarterly reports on Form 10-Q and current reports on Form 8-K and American’s annual report on Form 10-K for the year ended December 31, 2009 and its subsequent quarterly reports on Form 10-Q and current reports on Form 8-K.

 

We caution you not to place undue reliance on forward looking statements, which speak only as of the date of this proxy statement/prospectus, in the case of forward looking statements contained in this proxy statement/prospectus, or the dates of the documents incorporated by reference into this proxy statement/prospectus, in the case of forward looking statements made in those incorporated documents. Neither Hess nor American undertakes any obligation to update or release any revisions to these forward looking statements to reflect events or circumstances after the date of this proxy statement/prospectus or to reflect the occurrence of unanticipated events, except as required by law.

 

This section contains information for American stockholders about the special meeting that American has called to allow its stockholders to consider and approve the agreement and plan of merger. American is mailing this proxy statement/prospectus to its stockholders on or about November 16, 2010. Together with this proxy statement/prospectus, American is sending a notice of the special meeting and a form of proxy that American’s board of directors is soliciting for use at the special meeting.

 

The special meeting of American stockholders will be held on December 17, 2010, at 9:00 a.m., local time, at the offices of Patton Boggs LLP, 1801 California Street, Suite 4900, Denver, Colorado 80202, unless adjourned or postponed to a later date.

 

At the special meeting, American stockholders will be asked to:

 

 

 

If you are a stockholder of record (that is, you hold stock certificates registered in your own name), you may attend the special meeting and vote in person, or you may vote by proxy by completing and returning the proxy card accompanying this proxy statement/prospectus or by telephone or through the Internet by following the instructions described on your proxy card. If your shares are held through a bank, broker, trustee or other nominee (that is, if your shares are held beneficially in “street name”), you will receive separate voting instructions from your bank, broker, trustee or other nominee with your proxy materials. Although most banks, brokers, trustees and other nominees offer telephone and Internet voting, availability and specific processes will depend on the specific nominee’s voting arrangements. You can revoke a proxy at any time before the vote is taken at the special meeting by submitting a properly executed proxy of a later date by mail, telephone or Internet, or by attending the special meeting and voting in person. Communications about revoking American proxies should be addressed to:

 

American Oil & Gas Inc.

1050 17th Street, Suite 2400

Denver, Colorado 80265

Attention: Andrew P. Calerich, President

 

If your shares are held beneficially in street name, you should follow the instructions of your bank, broker, trustee or other nominee regarding the revocation of proxies.

 

All shares represented by valid proxies that American receives through this solicitation, and that are not revoked, will be voted in accordance with the instructions on the proxy card. If you make no specification on your proxy card as to how you want your shares voted before signing and returning it, your proxy will be voted “FOR” the approval of the agreement and plan of merger and “FOR” the proposal to adjourn or postpone the special meeting, if necessary or appropriate, including to solicit additional proxies. American’s board of directors is currently unaware of any other matters that may be presented for action at the special meeting. If other matters properly come before the special meeting, or at any adjournment or postponement of the special meeting, American intends that shares represented by properly submitted proxies will be voted, or not voted, in accordance with any recommendation of the board of directors or, in the absence of such recommendation, in the discretion of the persons named as proxies on the proxy card.

 

American will bear the entire cost of soliciting proxies from its stockholders, except that Hess and American will share equally the costs of printing this proxy statement/prospectus. In addition to solicitation of proxies by mail, American will request that banks, brokers, trustees and other record holders send proxies and proxy material to the beneficial owners of American common stock and secure their voting instructions, if necessary. American will reimburse the record holders for their reasonable expenses in taking those actions.

 

American has also made arrangements with D.F. King & Co., Inc. to assist in soliciting proxies in connection with approval of the agreement and plan of merger and in communicating with stockholders and has agreed to pay it a minimum of $10,000 for phone and additional services plus disbursements for these services. Proxies may also be solicited by directors, officers and employees of American in person or by telephone or other means, for which such persons will receive no special compensation.

 

American’s board of directors has fixed the close of business on November 15, 2010 as the record date for determining the American stockholders entitled to receive notice of and to vote at the special meeting. At that time, 61,029,656 shares of American common stock were outstanding, held by approximately 60 holders of record.

 

The presence, in person or by properly executed proxy, of the holders of one-third of the outstanding shares of American common stock is necessary to constitute a quorum at the special meeting. Abstentions and broker non-votes will be counted towards the presence of a quorum.

 

If a quorum is not obtained, or if fewer shares of American common stock are voted in favor of the approval of the agreement and plan of merger at the special meeting than the number of shares necessary to approve the agreement and plan of merger, American may seek to adjourn the special meeting to allow additional time for obtaining additional proxies or votes. At any subsequent reconvening of the special meeting, all proxies will be voted in the same manner as those proxies would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn before the reconvened special meeting. References to the American special meeting in this document are to that special meeting as adjourned or postponed.

 

Approval of the agreement and plan of merger requires the affirmative vote of a majority of the outstanding shares of American common stock on the record date. Only American stockholders of record on the record date will be entitled to vote at the special meeting. You are entitled to one vote for each full share of American common stock you held as of the record date.

 

American’s board of directors urges American stockholders to complete, date and sign the accompanying proxy card and return it promptly in the enclosed postage paid envelope, or to vote by telephone or through the Internet.

 

A non-vote generally occurs when a bank, broker, trustee or other nominee holding shares on your behalf does not vote on a proposal because the bank, broker, trustee or other nominee has not received your voting instructions and lacks discretionary power to vote the shares. Abstentions, failures to vote and broker non-votes will have the same effect as a vote against approval of the agreement and plan of merger. A broker is not permitted to vote on the proposal to approve the agreement and plan of merger without instruction from the beneficial owner of the American shares held by the broker.

 

If the proposal to approve an adjournment of the special meeting to permit the solicitation of additional proxies is presented for a vote, it will be approved, whether or not there is a quorum, if a majority of the American common stock present in person or represented by proxy and entitled to vote at the special meeting vote in favor of the adjournment proposal.

 

As of the record date, directors and executive officers of American and their affiliates owned (directly or indirectly) and had the right to vote approximately 7,019,262 million shares of American common stock, representing approximately 11.50% of the outstanding shares of American common stock entitled to be voted at the special meeting. American currently expects that its directors and executive officers will vote such shares “FOR” the approval of the agreement and plan of merger and “FOR” the proposal to adjourn or postpone the special meeting, if necessary or appropriate, including to solicit additional proxies.

 

Patrick D. O’Brien, American’s chief executive officer and the chairman of American’s board of directors, Andrew P. Calerich, American’s president and a director of American, Bobby G. Solomon, American’s vice-president, Economics and Financial Evaluation, Joseph B. Feiten, American’s chief financial officer, Nick DeMare, a director of American, C. Scott Hobbs, a director of American, and Jon R. Whitney, a director of American, in their capacities as stockholders of American, have agreed with Hess to vote in favor of the merger at the special meeting, including if it is adjourned to a later date. These stockholders have also agreed with Hess to vote their shares against alternative transaction proposals and not to sell or transfer their shares. The voting and lockup agreements will terminate if the agreement and plan of merger terminates.

 

Many stockholders of American have the option to submit their proxies or voting instructions by telephone or electronically through the Internet instead of submitting proxies by mail on the enclosed proxy card. Please note that there are separate arrangements for using the telephone and the Internet depending on whether your stock certificates are registered in your name or in the name of a brokerage firm or bank. You should check your proxy card or the voting instruction form forwarded by your broker, bank, trustee or other nominee of record to see which options are available.

 

American stockholders of record may submit proxies:

 

 

Please note that although there is no charge to you for voting by telephone or electronically through the Internet, there may be costs associated with electronic access such as usage charges for Internet service providers and telephone companies. American does not cover these costs; they are solely your responsibility.

 

To reduce the expenses of delivering duplicate proxy materials to American stockholders, American is relying on SEC rules that permit it to deliver only one proxy statement/prospectus to multiple stockholders who share an address unless American receives contrary instructions from any stockholder at that address. If you share an address with another stockholder and have received only one proxy statement/prospectus, you may call American at (303) 991-0173 or write American as specified below to request a separate copy of this document and it will promptly send it to you at no cost to you:

 

American Oil & Gas Inc.

1050 17th Street, Suite 2400

Denver, Colorado 80265

Attention: Andrew P. Calerich, President

 

American’s board of directors has determined that the agreement and plan of merger and the strategic business combination contemplated thereby are advisable and in the best interests of American stockholders and has unanimously approved and adopted the agreement and plan of merger. American’s board of directors unanimously recommends that American stockholders vote “FOR” the approval of the agreement and plan of merger.

 

Hess Corporation

1185 Avenue of the Americas

New York, New York 10036

(212) 997-8500

 

Hess is a global integrated energy company engaged in the exploration for and the production, purchase, transportation and sale of crude oil and natural gas, as well as the production and sale of refined petroleum products. Exploration and production activities take place primarily in Algeria, Australia, Azerbaijan, Brazil, Colombia, Denmark, Egypt, Equatorial Guinea, Gabon, Ghana, Indonesia, Libya, Malaysia, Norway, Peru, Russia, Thailand, the United Kingdom and the United States. The majority of Hess’ capital employed is in exploration and production and almost all of Hess’ capital expenditures are spent in the exploration for, and the development and production of, crude oil and natural gas.

 

Refined petroleum products are manufactured at the HOVENSA refinery in St. Croix, United States Virgin Islands, which is owned jointly with Petróleos de Venezuela S.A. (PDVSA). The HOVENSA refinery, which is one of the world’s largest with a crude oil processing capacity of approximately 500,000 barrels of oil per day (BPD), produces high-quality, clean-burning fuel oils, gasoline and other petroleum products. Hess also has a 70,000 BPD fluid catalytic cracking facility in Port Reading, New Jersey which mostly produces gasoline and heating oil. Hess’ strategically placed terminals provide it with extensive storage capacity on the East Coast of the United States, through which Hess distributes HESS products to customers from Massachusetts to Florida. Hess markets refined petroleum products, natural gas and electricity to wholesale distributors, industrial and commercial users, other petroleum companies, governmental agencies and public utilities. Hess also markets refined petroleum products to the motoring public through approximately 1,350 HESS brand retail gasoline and convenience store outlets.

 

Additional information about Hess and its subsidiaries is included in documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 91.

 

Hess Investment Corp.

c/o Hess Corporation

1185 Avenue of the Americas

New York, New York 10036

(212) 997-8500

 

Merger Sub is a newly-formed corporation organized under the laws of State of Nevada and a direct wholly-owned subsidiary of Hess. Merger Sub was formed exclusively for the purpose of completing the merger. At the effective time of the merger, Merger Sub will merge with and into American and the separate corporate existence of Merger Sub will terminate.

 

American Oil & Gas Inc.

1050 17th Street, Suite 2400

Denver, Colorado 80265

(303) 991-0173

 

American is an independent oil and gas exploration and production company, engaged in acquiring oil and gas mineral leases and the exploration and development of crude oil and natural gas reserves and production in the US Rocky Mountain region. American’s management team has focused on building large acreage positions in the Rocky Mountain region and performing initial drilling and completion activities in an attempt to establish commercial production in these areas. American’s operations are focused primarily in its Goliath, Bakken and Three Forks projects located in the Williston Basin in North Dakota where American currently controls approximately 85,000 net acres.

 

Additional information about American and its subsidiaries is included in documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 91.

 

The following discussion contains material information about the merger. The discussion is subject, and qualified in its entirety by reference, to the agreement and plan of merger included as Appendix A to this proxy statement/prospectus. We urge you to read carefully this entire proxy statement/prospectus, including the agreement and plan of merger included as Appendix A, for a more complete understanding of the merger.

 

Hess’ and American’s boards of directors have approved the agreement and plan of merger. The agreement and plan of merger provides that Merger Sub, a newly-formed wholly-owned subsidiary of Hess, will merge with and into American, with American as the surviving corporation. Following the merger, American will become a wholly-owned subsidiary of Hess and will continue its corporate existence under the laws of the State of Nevada under the name American Oil & Gas Inc. or such other name as Hess may specify. Concurrently, the separate corporate existence of Merger Sub will terminate.

 

In the merger, each share of American common stock will be exchanged for 0.1373 shares of Hess common stock. Shares of Hess common stock issued and outstanding at the completion of the merger will remain outstanding and those stock certificates will be unaffected by the merger. Shares of Hess common stock will continue to trade on the New York Stock Exchange under the symbol “HES” following the merger.

 

For additional and more detailed information regarding the legal documents that govern the merger, including information about the conditions to the completion of the merger and the provisions for terminating or amending the agreement and plan of merger, see “The Agreement and Plan of Merger” beginning on page 62.

 

In October 2005, American made its initial acreage acquisition of approximately 25,000 net acres in the Williston Basin of North Dakota. Through continued leasing, and three separate transactions in late 2009, American now controls approximately 85,000 net acres in the Goliath project area. The Williston Basin has become one of the most actively drilled basins in the continental United States and recent advancements in drilling, completion and stimulation technologies used by other operators have resulted in commercially successful Bakken and Three Forks wells in this basin. Additionally, in early 2010, the results of American’s initial drilling activities in the Williston Basin indicated that American would have commercially successful wells in the Goliath project area.

 

Recognizing the challenges of successfully financing and developing its acreage position, American has devoted considerable resources to evaluating the potential for developing strategic participations and joint ventures with respect to its Williston Basin acreage positions. As American increased its acreage position in the Williston Basin, it also faced the challenge of the increasing drilling and completion costs of wells which served as a further impetus for seeking out strategic partners. Although American successfully closed on a $31,500,000 public offering of its common stock in December 2009, American recognized that, due to stock market and oil price volatility, the impact of poor general economic conditions and the difficulty in small capitalization companies accessing the capital markets, it could be difficult for American to obtain further substantial financing on a timely basis and on terms advantageous to American. American had not engaged in debt financing and management concluded that the cost of such financing, if available, and risks associated with debt financing, would likely have made debt financing undesirable and could be prohibitive. In addition to the conditions noted regarding equity financing, American’s lack of significant reserves and an absence of a history of operating substantial wells would likely have made American an unattractive candidate for bank financing. American established specific criteria for selecting candidates for discussion of potential strategic transactions. A preferred candidate would:

 

 

 

Since February 2008, American’s management, from time to time, has engaged in preliminary discussions with numerous potential joint venture or strategic partners. Several companies with which American had such discussions took the opportunity to evaluate American’s oil and gas properties and to explore the potential for a merger with or acquisition of American. American has been receptive to such overtures as a potential means to maximize stockholder value. In addition to Hess, American’s management, since February 2008, had preliminary discussions with and provided information for evaluation to one private company and 14 public companies with market capitalizations ranging from approximately $300 million to over $30 billion, including one publicly held oil and gas company with properties in the Williston Basin that we refer to as Company A.

 

Beginning in December 2008, American had exploratory discussions and shared data and other materials with Company A regarding a potential merger with Company A. In January 2009, American and Company A signed a mutual confidentiality agreement. American received a letter of intent dated March 18, 2009 from Company A that included a non-binding proposal for a merger in which Company A would have been the surviving entity. Based on the stock price of Company A on March 18, 2009, the proposed per share merger consideration represented a premium of approximately 18.8% over the closing price of $0.72 per share of American’s common stock on that date. American did not sign the letter of intent, but continued to consider the proposal from Company A.

 

On April 3, 2009, American’s board of directors held a special meeting and decided to create a special committee comprised of American’s three outside directors to review the potential for a merger with Company A and to retain an investment banking firm to assist in the review. On April 21, 2009, a draft merger agreement was received by American from counsel for Company A. At a special committee meeting on April 21, 2009, the special committee decided to hire an investment banking firm to assist the special committee in its evaluation of Company A’s proposal, and an engagement letter was signed with SMH Capital Inc. on April 22, 2009. From April 22, 2009 to May 1, 2009, representatives of American, SMH Capital Inc., Company A and Company A’s investment banker discussed relative valuations, with particular emphasis on the valuation of American’s undeveloped acreage.

 

On May 1, 2009, American received from Company A a revised letter of intent for a merger with merger consideration representing a 58.5% premium over American’s stock price of $0.69 per share, and representatives of Company A and American and their respective investment bankers met at American’s offices for several hours. The focus of the discussion was American’s view that the American stock was undervalued by the market and that any offer should reflect this undervaluation. Company A did not revise its offer, noting the substantial premium to the American stock price.

 

On May 7, 2009, the special committee of American’s board met and decided to reject the offer from Company A as inadequate and to terminate discussions with Company A. As a result, the special committee was formally disbanded and the engagement of SMH Capital Inc. formally terminated.

 

During late summer of 2009, American became aware through its relationship with industry participants that Hess might be interested in expanding its presence in the Bakken region. Thereafter, in early October 2009, Mr. Patrick O’Brien, Chairman and CEO of American, contacted Mr. Tom Stone, Manager, Drilling Operations U.S. Onshore with Hess, whom Mr. O’Brien knew from previous oil and gas projects, to ask Mr. Stone if Hess would be interested in reviewing the Company’s operations in the Bakken region. In response, Mr. Stone indicated that he did not know whether Hess would be interested in engaging in this review, and he referred Mr. O’Brien to Mr. Randy Pharr, Hess’ Land Manager — U.S. Onshore, who Mr. Stone thought would know whether Hess would have an interest in speaking with the Company. Mr. Stone then related this conversation to Mr. Pharr and provided him with Mr. O’Brien’s contact information.

 

On October 6, 2009, Mr. Pharr called Mr. O’Brien to discuss potential opportunities for the two companies to work together in the Bakken region. During this call, the parties discussed the operations of American and Hess in the Williston Basin and possible business opportunities. Mr. Pharr informed Mr. O’Brien that, as a result of their conversation, Hess would undertake further internal evaluation. To do this, Hess would require additional

information about American’s operations and Mr. O’Brien committed to deliver to Mr. Pharr a plat map and acreage information, which Mr. Pharr received in the days following the telephone call.

 

Following this initial telephone call, through November 2009, Mr. O’Brien and Mr. Pharr had a number of telephone calls and email exchanges in which Hess requested and American provided additional information regarding American’s Goliath leaseholds, including maps, expiration terms and acreage. On November 18, Mr. O’Brien and Mr. Pharr first discussed the possibility of a strategic transaction. These calls and exchanges were for general information gathering purposes and did not involve any substantive discussions regarding the terms of any strategic transaction between Hess and American.

 

While American was exploring the possibility of a strategic transaction with Hess, during the fourth quarter of 2009 and in the months prior to the merger announcement with Hess, American continued its efforts to identify and communicate with other potential strategic partners regarding possible joint venture and corporate transactions that could benefit American’s stockholders. These efforts were conducted by American’s management with the knowledge and support of American’s board of directors. During this period, American held informal board calls on November 10, 2009, December 12, 2009, January 4, 2010 and May 5, 2010, as well as board meetings on January 26, 2010, February 25, 2010, March 10, 2010, April 6, 2010 and April 22, 2010, during which management discussed with, and took direction from, the board regarding operational developments and the status of discussions with various parties, including Hess, regarding potential strategic transactions. Informal calls were typically held on a monthly basis during months in which the board did not have a formal meeting. It is the recollection of American’s management that American’s board of directors was first informed about discussions with Hess on November 10, 2009. During the period from the fourth quarter of 2009 and in the months prior to the merger announcement with Hess, American engaged in discussions with eleven potential strategic partners regarding a possible transaction with American, seven of which were contacted independently by American, three of which independently contacted American, and one of which was introduced to American by a third party investment banking firm, Rodman & Renshaw, LLC, on an unsolicited and uncompensated basis. The seven companies contacted independently by American met the preferred criteria of American noted above, including, among other things, being significantly larger than American, having quality oil and gas exploration and production assets, having considerable cash flow, having an interest in expanding its drilling position, or in establishing a drilling presence, in the Bakken formation and having significant operational expertise and internal infrastructure, and, in each company, there were people with whom American employees had had previous business contacts. Five of these companies signed confidentiality agreements with American, and all eleven of the companies conducted valuation analysis and due diligence on American. The evaluation process for each of these companies included at least one full day of meetings at American’s offices at which there was a technical review of land, geology, operations and engineering data. American did not conduct any due diligence on these companies because discussions with such companies were never advanced enough to warrant the allocation of resources required for a diligence exercise. The possible transactions discussed with all of the companies included joint ventures or a merger with American and sales of some or all of American’s assets. Each of the companies informed American that their internal valuation of American was less than American’s then current market capitalization. As a result, none of the companies elected to pursue the potential of a merger with American. Four of the companies terminated discussions prior to May 2010, three terminated discussions in May 2010, two terminated discussions in June 2010 and two terminated discussions in July 2010.

 

American also continued its efforts to determine if Hess would be interested in pursuing a strategic transaction. On December 1, 2009, Mr. O’Brien sent an email correspondence to Mr. Pharr containing the test results for Brigham Exploration wells that had been announced publicly by Brigham Exploration that morning with high initial production rates in Williams County, North Dakota, southwest of American’s Goliath block. Mr. O’Brien also stated that American was starting to build the Tong Trust well location in 157N-96WSEC20. Mr. O’Brien also mentioned recent positive results on American’s Wallis 6-23 well at Fetter in the Powder River Basin of Wyoming (which was then owned by American) by attaching a press release that had been issued by American the preceding day. Mr. O’Brien also inquired about Hess’ interest in entering into a strategic transaction with American.

 

On January 21, 2010, Mr. O’Brien again contacted Mr. Pharr by email to provide further updated information regarding American’s well activity in the Goliath project area and proposing a meeting with Mr. Pharr at American’s headquarters in Denver, Colorado. On January 24, 2010, Mr. Pharr called Mr. O’Brien and indicated that, based on Hess’ initial review of American’s properties in the Williston Basin region, Hess wanted to conduct additional due

diligence. Mr. Pharr and Mr. O’Brien agreed to schedule a visit by Hess representatives to American’s offices for the following week to conduct a technical review of acreage and drilling sites.

 

On February 4, 2010 Mr. John Vozzo, Petroleum Engineering Advisor, Mr. Thomas Lenney, Senior Geological Advisor, and Mr. Pharr from Hess met with Mr. O’Brien, Bobby Solomon, Vice President, Economics and Financial Evaluation, Andy Calerich, President, Ken Tholstrom, Manager of Operations, Don Schroeder, Vice President Land, Brenda Beeman, Land Manager, Peter Loeffler, Vice President, Exploration and Development and Ron Lowrey, Senior Geologist, of American at American’s office in Denver. There was a general discussion of American’s business and outstanding projects, including a technical review of the Goliath project area and American’s exploration and development activities in the Goliath project area. Discussion also was held regarding American’s properties in the Powder River Basin in Wyoming. The Hess and American teams also discussed the possibilities for cooperation or strategic partnership between Hess and American without discussing any particular terms or valuations.

 

On February 8, 2010, Mr. Pharr contacted Mr. O’Brien and requested additional information regarding American’s operations in the Bakken region. Mr. O’Brien sent a confidentiality agreement to Mr. Pharr on February 8, 2010. On February 9, 2010, American and Hess executed the confidentiality agreement which allowed Hess and its advisors to access confidential information regarding American’s drilling operations, finances and structure. American thereafter provided Hess with a schedule of its anticipated drilling activities and additional information with respect to the expiration provisions of its Goliath leaseholds.

 

Prior to executing the confidentiality agreement between Hess and American, none of the discussions between Hess and American proceeded beyond preliminary exploratory expressions of interest, and none of the information provided by American to Hess was confidential. Following the early February contacts, Hess continued to explore internally the possibility of a strategic transaction with American.

 

On February 25, 2010, American issued a news release announcing a letter of intent with Chesapeake Energy for the sale by American of American’s Powder River Basin properties in Wyoming.

 

On March 2, 2010, Mr. Louis Jones, Hess’ Vice President of Developments — Unconventional Resources, contacted Mr. O’Brien to arrange a trip to American’s offices for himself and Mr. Chuck Van Allen, Hess’ Vice President of Production — Americas. Mr. Jones indicated to American that the purpose of his trip would be an attempt to begin negotiations regarding a possible transaction pursuant to which Hess would acquire American.

 

On March 4, 2010, a conference call occurred among Mr. O’Brien, Mr. Solomon, and Mr. Calerich of American and Mr. Jones and Mr. Pharr of Hess. During this call, Mr. Jones and Mr. Pharr confirmed that Hess management was interested in pursuing discussions regarding a possible corporate transaction between the two companies.

 

During most of March 2010 American’s internal attention was devoted to preparing for the closing of the sale of its Powder River Basin properties to Chesapeake Energy. The sale closed on March 31, 2010.

 

On April 6, 2010, Mr. Jones, Mr. Lenney, Mr. Pharr and Scott Sollee, Bakken Project Manager, of Hess met with Mr. O’Brien, Mr. Calerich, Mr. Loeffler, Mr. Lowrey, Mr. Solomon, Mr. Tholstrom, Mr. Schroeder and Ms. Beeman of American to discuss lease expirations and geology in the Goliath project area.

 

On June 8, 2010, Mr. Pharr of Hess called Mr. O’Brien of American and informed him that Hess’ senior management was seriously evaluating a possible merger with American. Mr. Pharr told Mr. O’Brien that a merger proposal would be presented to senior management of Hess at a meeting in New York in approximately one week. On June 15, 2010, Mr. Jones contacted Mr. O’Brien to inform him that Hess senior management would generate and deliver to Mr. O’Brien a transaction proposal for American to consider. At a previously scheduled meeting of American’s board of directors held on June 15, 2010 following American’s annual meeting of stockholders, Mr. O’Brien informed American’s board of directors that Hess was continuing to evaluate American, and that Mr. Jones had advised Mr. O’Brien to expect a proposal for American to consider.

 

On June 18, 2010, Mr. Jones contacted Mr. O’Brien to discuss the status of Hess’ due diligence review of American. During this discussion, Mr. Jones indicated that Hess was interested in pursuing a merger with American in which American stockholders would receive common stock of Hess as the merger consideration. Mr. Jones informed Mr. O’Brien that Hess’ board of directors had authorized Hess’ senior management to proceed to negotiate

the transaction. Mr. Jones requested that American execute an exclusivity agreement pursuant to which Hess would have the exclusive right for a two week period to complete its due diligence. Mr. Jones informed Mr. O’Brien that Hess would send American a non-binding letter of intent in the next few days describing the proposed transaction. Mr. Jones also suggested that Hess was willing to pay a reasonable premium over and above the then-current American stock price, but he did not disclose a particular view on value. Mr. Jones followed up the telephone call by delivering to Mr. O’Brien a draft exclusivity letter on June 21, 2010.

 

On June 22, 2010, American’s board of directors held a special meeting to consider Hess’ request for an exclusivity period pursuant to the draft exclusivity letter delivered by Hess. During this meeting American’s board of directors determined that a merger with Hess was worthy of consideration and evaluation. American’s board of directors also reviewed the exclusivity agreement prepared by Hess, and determined that it was generally supportive of such a short term exclusivity period. American’s board of directors objected, however, to a provision that precluded American from continuing to provide information to other companies with whom American was already communicating, assisting with valuation and supporting due diligence. Accordingly, American’s board of directors authorized management to execute an exclusivity agreement, so long as the agreement permitted American to continue its existing discussions and information sharing with other parties while simultaneously continuing discussions with Hess. Also at this meeting, American’s board of directors authorized management to identify and interview investment banking firms to assist the board in evaluating any potential transaction that might be proposed by Hess. American’s board of directors determined not to form a special committee because, unlike the proposed transaction with Company A, it was not contemplated that any executive officers of American would enter into new employment agreements with Hess or the surviving corporation after the merger. Although, as disclosed under “The Merger — Interests of American’s Executive Officers and Directors in the Merger,” beginning on page 49, American’s officers and directors have certain interests in the transaction that are additional to the interests of American’s stockholders generally, American’s board of directors considered these interests and determined at the meeting held on June 22, 2010 that these interests were not significant enough to constitute a conflict of interest that required the appointment of a special committee. Later that day, American executed an exclusivity agreement with Hess, which provided that, for a two week period, American would not knowingly initiate or solicit certain change of control or similar transactions with a party other than Hess, or initiate or participate in substantive negotiations with any third party regarding such a transaction with a party other than Hess, or enter into an agreement that could reasonably be expected to lead to such a transaction, while Hess performed additional due diligence. The exclusivity agreement, however, did not preclude American from continuing to provide information regarding American to other interested parties. The term of the exclusivity agreement expired on July 6, 2010.

 

On June 28, 2010, seven Hess representatives, including Mr. Jones, travelled to American’s headquarters to conduct further legal and business due diligence investigations of American, focusing on the operations and assets of American, as well as the proposed valuations of American’s undeveloped oil and gas properties in the Bakken region and financial, land, engineering, geology and legal issues. Mr. Jones stayed in Denver to meet with American management on June 29, 2010, to discuss Hess’ evaluation of American, the respective positions, responsibilities and duties of certain officers and employees of American and personnel who might be important to Hess in a transition process.

 

On July 6, 2010, Mr. Jones returned to American’s offices and met with Mr. O’Brien, Mr. Calerich and Mr. Tholstrom. Mr. Jones presented American with a written proposal for a merger transaction between Hess and American, which proposal was subject to further confirmatory due diligence and the negotiation and execution of a definitive agreement and plan of merger. The proposal contemplated a merger of Hess and American pursuant to which Hess would issue to the holders of American common stock 8,500,000 shares of Hess common stock in exchange for all of the outstanding shares of American common stock. The proposal also contemplated the potential payment of a cash dividend to American stockholders, based on American’s working capital and available cash at closing. Hess included the dividend proposal to respond to American’s expressed desire to reflect in the merger consideration the value of American’s positive working capital, if any.

 

On July 7, 2010, American’s board of directors met in a special meeting together with its legal advisor, Patton Boggs LLP, to consider Hess’ July 6 proposal. American’s board of directors discussed the transaction proposed by Hess focusing on the share consideration proposed by Hess and noting that it represented a 14% premium to the closing American stock price on July 6. American’s board of directors noted that, despite all the efforts undertaken by Mr. O’Brien and American’s management during late 2009 and early 2010, the Hess proposal was the only

concrete proposal that American had received for a strategic business combination transaction and the valuation proposed was higher than any valuation parameters previously discussed with any other party, as no other party had proposed paying a premium over American’s stock price. Mr. O’Brien informed American’s board of directors that of the eleven companies that had been evaluating American data only two of the companies still had not communicated a definitive decision to American. American’s board of directors determined to pursue the proposed transaction as outlined in the proposal letter but directed Mr. O’Brien to make a counter-proposal in which the consideration to be paid by Hess would be equivalent to at least $8.00 per share of American common stock. The $8.00 per share figure was slightly higher than the all time high price of American’s stock. On July 8, 2010, Mr. O’Brien delivered an email message to Mr. Jones suggesting that the Hess proposal be revised to account for the then current cash balance on American’s books which could be reflected as an increase in the number of Hess shares to be delivered to American stockholders from 8,500,000 to approximately 9,200,000. On July 9, 2010, Hess sent a revised written proposal letter which increased the proposed Hess stock consideration to 8,600,000 shares, which represented a valuation of approximately $7.40 per share of American common stock. The proposal by its terms would expire at 5:00 p.m. New York time on July 9, 2010 unless American agreed to extend the exclusivity period through July 30, 2010 while the parties negotiated definitive transaction documentation. If American executed the revised exclusivity agreement, Hess’ proposal would expire on July 30, 2010.

 

American’s board of directors held a special meeting on July 9, 2010 to discuss Hess’ revised July 9 proposal. During this meeting, American’s board of directors determined that Hess’ proposal to issue 8,600,000 shares of Hess common stock in exchange for all of the outstanding shares of American common stock (which as of July 9, 2010 was 62,877,732 shares on a fully-diluted basis), based on the $54.10 closing price of Hess common stock on July 8, 2010, represented an aggregate consideration to American stockholders of $465,260,000 (not taking into consideration the potential for a cash dividend based on American’s working capital and available cash at closing) and consideration per share of American common stock equal to $7.40 per share, which represented a 15.4% premium over the $6.41 closing price of American common stock on July 8, 2010. The new exclusivity agreement required by Hess extended the exclusivity period to July 30, 2010 and required that American cease any existing activities, discussions or negotiations with other third parties regarding potential change of control or similar transactions. Mr. O’Brien informed American’s board of directors that the two companies that had shown an interest in a possible transaction with American were no longer interested in pursuing a merger because their internal valuation of American was less than American’s market capitalization at that time. In light of the improved proposal from Hess, the absence of any other proposal for a similar transaction from any other party and its belief that acceptable terms for a definitive transaction agreement could be negotiated with Hess, American’s board of directors directed Mr. O’Brien to inform Mr. Jones that American would enter into the exclusivity agreement, but had not yet approved the terms of Hess’ July 9 proposal. At this meeting American’s board of directors determined to obtain a written proposal for an engagement letter from Tudor Pickering regarding the potential delivery by Tudor Pickering to American’s board of directors of an opinion regarding the fairness, from a financial point of view, of the consideration to be received by American’s stockholders in the transaction. American selected Tudor Pickering because of Tudor Pickering’s expertise, reputation and familiarity with the oil and gas industry and because its investment banking professionals have substantial experience with comparable transactions. Tudor Pickering did not have any relationships with American or Hess during the preceding two years and did not otherwise have any conflicts of interest of which American was aware. The Board determined to engage Tudor Pickering for this limited engagement to ensure that it could avail itself of relevant financial support in an efficient manner that did not unduly burden American with unnecessary transaction costs. Mr. O’Brien called Mr. Jones on July 9, 2010 to inform him that American’s board of directors had agreed to the exclusivity agreement, but not the proposed merger terms. Additionally, as required by Hess, on July 9, 2010, Hess and American entered into a new exclusivity agreement granting Hess the exclusive right to negotiate a definitive agreement for a strategic transaction with American through July 30, 2010. Hess and its advisors then began preparing a draft agreement and plan of merger based primarily on the terms in Hess’ July 9 proposal.

 

Hess continued its due diligence review of American, with its representatives making additional visits to American’s offices in Denver during the weeks of July 11 and July 18, 2010.

 

On July 16, 2010, Hess’ outside legal counsel provided a draft agreement and plan of merger to American’s outside legal counsel. The proposed agreement and plan of merger also included a provision requiring that certain significant

stockholders of American would enter into voting and lockup agreements in support of the transaction. Hess, American and their respective legal counsels negotiated the terms of the agreement and plan of merger while Hess’ and American’s due diligence investigations continued. After disclosure of the proposed terms of the agreement and plan of merger, American’s board of directors confirmed its determination at its June 22, 2010 meeting that the formation of a special committee was not required for the reasons discussed on page 32.

 

On July 20, 2010, American’s board of directors held a special meeting to discuss, together with its legal counsel, the due diligence process with Hess, the initial draft of the agreement and plan of merger and the need to retain a financial advisor to evaluate the fairness from a financial point of view of the proposed merger consideration and render an opinion to that effect. During a portion of this meeting, representatives of Tudor Pickering joined by telephone to discuss the process used by their firm to provide fairness opinions and the terms of the engagement letter that they had presented to American on July 19, 2010. American’s board of directors determined to engage Tudor Pickering solely to provide American’s board with a potential fairness opinion related to the proposed transaction pursuant to the terms of the engagement letter with Tudor Pickering dated July 19, 2010.

 

On July 20, 2010, Hess provided American with a draft of the form of voting and lockup agreement to be signed by significant stockholders of American. The voting and lockup agreement provided that each such stockholder would vote his shares of American common stock in favor of the approval and adoption of the agreement and plan of merger and against alternative transactions and would not sell or transfer his shares. The voting and lockup agreements would terminate 18 months following the termination of the agreement and plan of merger.

 

On July 21, 2010, Hess and American executed a mutual confidentiality agreement to enable American and its advisors to receive access to certain confidential information regarding Hess necessary for American’s evaluation of the proposed transaction and to conduct its due diligence investigation with respect to Hess’ business and legal, tax, regulatory and other matters.

 

On July 21, 2010, American sent a revised version of the agreement and plan of merger based on discussions between American’s advisors, senior management and board of directors. The significant revisions requested by American included: expansion of Hess’ representations; provisions which would allow American to incur indebtedness in the period between signing the agreement and closing the transaction and to make additional capital expenditures; relaxation of some of the restrictions on American’s ability to solicit alternative transaction proposals or engage in discussions related to such an alternative transaction proposal; a significant reduction in the termination fee and expense reimbursement payable if the agreement and plan of merger were to be terminated in certain circumstances; and a reduction in the amount of time Hess would have to try to match any superior transaction proposal that emerges. Hess had initially proposed a 5% termination fee and unlimited expense reimbursement if the agreement and plan of merger was terminated in certain circumstances; American rejected that and proposed a reduction to a 2% termination fee and a cap on expense reimbursement at 0.5% of the merger consideration. Additionally, the revised draft indicated that American wanted further discussion regarding the potential cash dividend payable to its stockholders and the merger consideration.

 

On July 22, 2010, representatives of Hess held a telephone call with representatives of American to negotiate the terms of the agreement and plan of merger. In particular, the provisions in the agreement and plan of merger regarding (i) how to measure working capital for the purpose of the potential special dividend, (ii) the amount of the termination fee and a cap on expense reimbursement payable by American to Hess and the circumstances in which American would be obligated to pay such fee and reimbursement and (iii) the requirement that American use its commercially reasonable efforts to sell certain properties were discussed. The parties also discussed whether the merger consideration would be reflected in the agreement and plan of merger as a fixed exchange ratio designed to approximate the 8.6 million shares that Hess had proposed as the transaction consideration. During these negotiations, the representatives of American emphasized that in light of the timing to complete the merger, and American’s ongoing exploration and development activities and related capital needs, it was important to American that Hess provide interim financing for such activities in connection with the agreement and plan of merger or allow American to obtain such financing independently.

 

On July 23, 2010, American’s board of directors and its legal advisors held a special meeting to discuss the agreement and plan of merger following the discussion among the legal representatives of Hess and American the previous day. At this meeting, Tudor Pickering presented American’s board of directors with a financial analysis of the

total consideration to be received by American stockholders in the transaction. American’s board of directors also discussed Hess’ requirement for the voting and lockup agreements. American subsequently delivered a revised draft of the form of voting and lockup agreement which reflected American’s objection to the provision whereby the voting and lockup agreements would survive for 18 months following the termination of the agreement and plan of merger.

 

Later that day, Hess delivered to American and its representatives its proposed revised draft of the agreement and plan of merger. The revised draft included the expanded Hess representations that were requested and reduced Hess’ proposed termination fee from 5% to 3.5% and capped expense reimbursement at the requested 0.5%. It also reduced the amount of time for Hess to try to match a superior transaction proposal. The revised agreement and plan of merger also referenced the fact that Hess would provide an interim working capital financing facility. A term sheet for such a facility in the amount of $25 million was sent to American’s representatives contemporaneously with the delivery of the revised agreement and plan of merger. The revised draft of the agreement and plan of merger and the term sheet for the interim financing facility made it clear that the facility would have to be repaid if the agreement and plan of merger were terminated.

 

On July 24, 2010, American delivered to Hess its draft disclosure letter, which contained disclosures related to American’s representations and warranties in the agreement and plan of merger. The disclosures included information regarding American’s subsidiaries, outstanding equity awards, including stock options, restricted stock and warrants, beneficial owners of American common stock, transactions with affiliates, history of SEC comment letters, the absence of pending litigation, the current status of American’s business, environmental matters, certain contracts, American’s employee benefit plans, real property leases, and oil and gas well drilling and production. and Hess reviewed this document over the weekend of July 24/25 and determined that none of the disclosures in the letter materially affected Hess’ conclusions from its diligence review. Additionally, American delivered comments to the interim financing term sheet and indicated that American would require not only a term sheet for the interim financing but a firm commitment from Hess in the amount of $30 million. Representatives from Hess and American had a further telephonic negotiation on July 25, 2010 with respect to the credit facility, voting and lockup agreements and agreement and plan of merger. Among other things discussed, American’s counsel indicated that American’s board of directors was still concerned that the termination fee was too high. Additionally, American’s counsel asserted that the definition of working capital for purposes of the potential special dividend should give credit to American for certain land acquisition costs and potentially other costs that would be incurred and that would otherwise reduce cash available for the special dividend. On July 25, 2010, Mr. Louis Jones and Mr. Pat O’Brien discussed the working capital issue and agreed to credit certain land acquisition costs but not make any additional changes.

 

On July 26, 2010, Hess delivered to American a draft commitment letter and a revised draft term sheet for a short-term revolving credit facility in the amount of $30 million. Representatives of Hess also indicated that Hess was willing to reduce the termination fee to 3% as a final compromise on the termination fee, which was calculated to equal $13.5 million. Expense reimbursement remained capped at 0.5%, which was calculated to equal $2.25 million. Hess’ board of directors approved the proposed transaction with American subject to final negotiations, and later that day, Hess delivered to American a proposed final version of the agreement and plan of merger, which incorporated all of the revisions previously agreed upon by respective legal counsel for American and Hess. Prior to receiving a revised draft of the agreement and plan of merger and as the respective legal counsels continued to negotiate the commitment letter for the financing and the voting and lockup agreements, American’s board of directors held a meeting on July 26, 2010 to discuss the status of the negotiations. At this meeting, American’s board of directors also received from Tudor Pickering an updated analysis. Subsequently, the agreement and plan of merger was finalized, as were the commitment letter for the interim financing and the voting and lockup agreements.

 

American’s board of directors held another meeting on July 27, 2010 at which Patton Boggs LLP, its outside legal counsel, presented a copy of the final draft of the agreement and plan of merger, the voting and lockup agreements and the financing commitment letter to American’s board of directors. After responding to questions from members of American’s board of directors on the agreement and plan of merger, American’s outside counsel discussed the terms of the proposed agreements. At this meeting, Tudor Pickering presented its financial analysis with respect to the potential transaction and answered questions from American’s board of directors. Tudor Pickering verbally rendered its opinion that, as of July 27, 2010, the total consideration (including the potential special dividend, if any) provided in the agreement and plan of merger was fair to the holders of American common stock from a financial point of view. This opinion was subsequently confirmed in writing as of the same date and is

attached hereto as Appendix C. Also at this meeting, Patton Boggs LLP discussed with American’s directors the legal standards applicable to its decision to approve the agreement and plan of merger and the transactions contemplated thereby. In particular, American’s directors reviewed their duties of care and loyalty, to act in good faith and in the best interests of shareholders as a whole and to reasonably inform themselves of relevant factors before making a decision. Senior management of American, and American’s board of directors, reviewed the terms of the proposed agreement and plan of merger. American’s board of directors concluded that the proposed transaction with Hess was in the best interests of American and its stockholders, and recommended that American stockholders approve the merger and the agreement and plan of merger. After further discussion among the members of American’s board of directors and consideration of the factors described under “American’s Reasons for the Merger,” American’s board of directors voted unanimously to approve the agreement and plan of merger and the transactions contemplated thereby as being in the best interests of the stockholders of American. American’s board of directors authorized senior management to execute the agreement and plan of merger and the financing commitment letter. In the evening of July 27, 2010, Hess, Merger Sub and American executed the agreement and plan of merger and the commitment letter, and Hess and American issued a joint press release publicly announcing the transaction. In addition, on July 27, 2010, the voting and lockup agreements were executed by the stockholders party thereto and by Hess. On July 29, 2010, American filed a Report on Form 8-K with the Securities and Exchange Commission announcing that the agreement and plan of merger had been signed.

 

Hess’ board of directors believes that the merger is in the best interest of Hess and its stockholders and approved the agreement and plan of merger after it consulted with Hess’ senior management with respect to strategic and operational matters and with its legal advisors with respect to the agreement and plan of merger and related issues. In making its determinations regarding the merger, Hess’ board of directors discussed a number of factors, including:

 

 

In view of the wide variety of factors considered in connection with its evaluation of the merger, Hess’ board of directors did not consider it practicable to, and did not attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its determination. Hess’ board of directors viewed its position and recommendations as being based on all of the information and the factors presented to and considered by it. In addition, individual directors may have given different weights to different information and factors.

 

American’s board of directors has unanimously approved and adopted the agreement and plan of merger and determined that the agreement and plan of merger and the strategic business combination contemplated thereby are advisable and in the best interests of American stockholders. In the course of reaching its decision to approve the agreement and plan of merger, American’s board of directors consulted with American’s financial and legal

advisors and considered a number of factors that it believed supported its decision. The material factors in support of its decision are set forth below.

 

 

 

 

 

 

 

 

 

 

 

 

 

American’s board of directors also considered a variety of risks and other potential negative factors concerning the agreement and plan of merger, the merger and the transactions contemplated thereby. The material negative factors considered by American’s board of directors are set forth below.

 

 

 

 

The foregoing discussion of the factors considered by American’s board of directors is not exhaustive but American believes it includes the material factors considered by American’s board of directors in its consideration of the merger, the agreement and plan of merger and the transactions contemplated thereby. After considering these factors, American’s board of directors concluded that the considerations in favor of the merger, the agreement and plan of merger and the transactions contemplated thereby outweighed the negative factors. In view of the wide variety of factors considered, American’s board of directors did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual directors may have assigned different weights to various factors. American’s board of directors unanimously approved and adopted the agreement and plan of merger and determined the agreement and plan of merger and the strategic business combination contemplated thereby to be in the best interests of American stockholders and recommends that the stockholders approve the agreement and plan of merger based upon the totality of the information presented to and considered by it.

 

American retained Tudor Pickering solely to provide an opinion to American’s board of directors in connection with the merger. American instructed Tudor Pickering to evaluate the fairness, from a financial point of view, of the merger consideration and special dividend, if any, referred to collectively as the total consideration, to be paid to the holders of American common stock in the merger (other than shares held by American, Hess, Merger Sub or any of their affiliates). At a meeting of American’s board of directors held on July 27, 2010, Tudor Pickering rendered its opinion orally to American’s board of directors that, as of July 27, 2010, based upon and subject to the factors and assumptions set forth in the opinion and based upon such other matters as Tudor Pickering considered relevant, the total consideration to be paid to the holders of American common stock pursuant to the agreement and plan of merger was fair from a financial point of view to such holders. Upon execution of the agreement and plan of merger on July 27, 2010, Tudor Pickering confirmed its opinion in writing to American’s board of directors.

 

The opinion speaks only as of the date it was delivered and not as of the time the merger will be completed. The opinion does not reflect changes that may occur or may have occurred after July 27, 2010, which could significantly alter the value of American or Hess or the respective trading prices of their common stock, which are factors on which Tudor Pickering’s opinion was based.

 

The full text of the Tudor Pickering opinion, dated July 27, 2010, which sets forth, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations of the review undertaken by Tudor Pickering in rendering its opinion, is attached hereto as Appendix C and is incorporated herein by reference. The summary of the Tudor Pickering opinion set forth in this document is qualified in its entirety by reference to the full text of the opinion. American stockholders are urged to read

the Tudor Pickering opinion carefully and in its entirety. Tudor Pickering provided its opinion for the information and assistance of American’s board of directors in connection with its consideration of the merger. The Tudor Pickering opinion does not constitute a recommendation as to how any holder of interests in American should vote or act with respect to the merger or any other matter.

 

Tudor Pickering’s opinion and its presentation to American’s board of directors were among many factors taken into consideration by American’s board of directors in approving the agreement and plan of merger and making its recommendation regarding the merger.

 

In connection with rendering its opinion and performing its related financial analysis, Tudor Pickering reviewed, among other things:

 

 

Tudor Pickering also held discussions with members of the senior managements of American and Hess regarding their assessment of the strategic rationale for, and the potential benefits of, the merger and the past and current business operations, financial condition and future prospects of their respective entities. In addition, Tudor Pickering reviewed the reported price and trading activity for the American common stock and Hess common stock, compared certain financial and stock market information for American and Hess with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the oil and natural gas exploration, development and production industry specifically and in other industries generally and performed such other studies and analyses, and considered such other factors, as it considered appropriate.

 

For purposes of its opinion, Tudor Pickering assumed and relied upon the accuracy and completeness of all of the financial, accounting, legal, tax and other information provided to, discussed with or reviewed by or for it, or publicly available, and did not independently verify such information. Furthermore, Tudor Pickering relied upon the assurances of the senior management of American that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. In that regard, Tudor Pickering assumed with American’s consent that (i) the internal financial information and forecasts referenced above (including the forecasted amount of working capital which will be paid to holders of the American common stock as the special dividend discussed below) were reasonably prepared on a basis reflecting the best currently available estimates and good faith judgments of American, and that such forecasts will be realized in the amounts and the time periods contemplated thereby, (ii) the publicly available research analyst reports of Hess were a reasonable basis upon which to evaluate

the future financial performance of Hess and that Hess will perform substantially in accordance with such projections, and (iii) the estimated proved reserves of American as of December 31, 2009 prepared by Ryder Scott Company L.P., the estimated proved reserves of American effective April 1, 2010 prepared by management of American and the estimated future production and cash flows associated with the producing assets and undeveloped inventory of American effective July 1, 2010 were a reasonable basis upon which to evaluate the proved reserve levels and non-proved resource levels of American. Tudor Pickering also assumed the accuracy of the representations and warranties contained in the agreement and plan of merger and all agreements related thereto and that the transactions contemplated by the agreement and plan of merger will be consummated in accordance with the terms of the agreement and plan of merger without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary governmental, regulatory or other consents, approvals, releases and waivers, no delay, limitation, restriction or condition will be imposed that would have a material adverse effect on American, Hess, Hess Investment Corp., the holders of American common stock or the expected benefits of the transactions contemplated by the agreement and plan of merger in any way meaningful to its analysis. In addition, Tudor Pickering did not conduct a physical inspection of the properties and facilities of American or any of its subsidiaries or Hess or any of its subsidiaries and did not make or obtain an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of American or any of its subsidiaries or Hess or any of its subsidiaries and was not furnished with any such evaluation or appraisal. Tudor Pickering’s opinion does not address any legal, regulatory, tax or accounting matters.

 

Tudor Pickering’s opinion is necessarily based upon economic, monetary, market and other conditions as in effect on, and the information made available to it as of, July 27, 2010. Tudor Pickering has disclaimed any obligation to update, revise or reaffirm its opinion based on circumstances, developments or events occurring after the date of its opinion.

 

The estimates contained in Tudor Pickering’s analysis and the results from any particular analysis are not necessarily indicative of future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value of businesses or assets neither purport to be appraisals nor do they necessarily reflect the prices at which businesses or assets may actually be sold. Accordingly, Tudor Pickering’s analysis and estimates are inherently subject to substantial uncertainty.

 

The description set forth below constitutes a summary of the analyses employed and factors considered by Tudor Pickering in rendering its opinion to American’s board of directors. The preparation of a fairness opinion is a complex, analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and is not necessarily susceptible to partial analysis or summary description. In arriving at its opinion, Tudor Pickering did not attribute any particular weight to any particular analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Several analytical methodologies were employed by Tudor Pickering in its analyses, and no one method of analysis should be regarded as critical to the overall conclusion reached by Tudor Pickering. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. Accordingly, Tudor Pickering believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors in their entirety, could create a misleading or incomplete view of the evaluation process underlying its opinion. The conclusion reached by Tudor Pickering, therefore, is based on the application of Tudor Pickering’s own experience and judgment to all analyses and factors considered by Tudor Pickering, taken as a whole. Tudor Pickering’s opinion was reviewed and approved by its fairness opinion committee.

 

No company or transaction used in the analyses of comparable transactions summarized below is identical or directly comparable to American, Hess or the merger. Accordingly, these analyses must take into account differences in the financial and operating characteristics of the selected publicly traded companies and differences in the structure and timing of the selected transactions and other factors that would affect the public trading value and acquisition value of the companies considered. The companies and transactions included in the comparisons summarized below were those deemed by Tudor Pickering to be relevant to such comparisons based on Tudor Pickering’s judgment.

Tudor Pickering’s opinion relates solely to the fairness, from a financial point of view, to the holders of the outstanding shares of American common stock (other than shares held by American, Hess, the surviving company or any of their affiliates) of the total consideration to be paid to such holders in the merger as contemplated by the agreement and plan of merger.

 

Tudor Pickering’s opinion does not address the relative merits of the merger as compared to any alternative business transaction or strategic alternative that might be available to American, nor does it address the underlying business decision of American to engage in the merger. Tudor Pickering does not express any view on, and its opinion does not address, any other term or aspect of the agreement and plan of merger or the merger, including, without limitation, the fairness of the merger to, or any consideration received in connection therewith by, creditors or other constituencies of American or Hess, nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of American or Hess, or any class of such persons, in connection with the merger. Tudor Pickering has not been asked to consider, and its opinion does not address, the price at which Hess common stock will trade at any time. Tudor Pickering is not rendering any legal or accounting advice and understands American is relying on its legal counsel and accounting advisors as to legal and accounting matters in connection with the merger.

 

Tudor Pickering was not requested to, and did not, solicit indications of interest or proposals from third parties regarding a possible acquisition of all or any part of American or any alternative transaction. Tudor Pickering was not retained to, and it did not materially, participate in the negotiation of the terms of the agreement and plan of merger or the transactions contemplated thereby, nor was Tudor Pickering retained to, and it did not materially, provide any advice or services in connection with the agreement and plan of merger or the transactions contemplated thereby other than the delivery of its opinion. Tudor Pickering expresses no view or opinion as to any such matters and has assumed, with the consent of American, that the terms of the agreement and plan of merger are, from the perspective of American and its stockholders, the most beneficial that could be obtained.

 

The data and analyses summarized herein are from Tudor Pickering’s presentation to American’s board of directors delivered on July 27, 2010, which primarily utilized market closing prices as of July 26, 2010. The analyses summarized herein include information presented in tabular format. In order to fully understand the financial analyses performed, the tables must be read with the text of each summary. For purposes of its analysis, Tudor Pickering defined EBITDAX as net income plus income taxes, interest expense (less interest income), depreciation and amortization, and exploration expenses. Cash flow represents cash flow provided by operations before changes in working capital.

 

Tudor Pickering and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for estate, corporate and other purposes. American selected Tudor Pickering to provide a fairness opinion in connection with the merger because of Tudor Pickering’s expertise, reputation and familiarity with the oil and gas industry and because its investment banking professionals have substantial experience in transactions comparable to the merger.

 

Pursuant to its engagement letter with Tudor Pickering, American agreed to pay Tudor Pickering $1 million upon delivery of its opinion. The engagement letter also provides for additional fees contingent upon the consummation of the merger, equal to $500,000 payable upon consummation of the merger. The amount and timing of the payment of the fees to Tudor Pickering was determined based on negotiations between American and Tudor Pickering, and the timing of the $500,000 payment on closing was made at the request of American as a means of controlling costs in case the merger was not completed. American has also agreed to reimburse Tudor Pickering for reasonable out-of-pocket expenses incurred by Tudor Pickering in performing its services, including reasonable fees and expenses of its legal counsel, and to indemnify Tudor Pickering against specific liabilities and expenses relating to or arising out of its engagement, including liabilities under the federal securities laws.

 

In the ordinary course of its business, Tudor Pickering and its affiliates may actively trade or hold the securities of American and Hess for its own account or for the account of its customers and, accordingly, may at any time hold a long or short position in such securities. In addition, Tudor Pickering and its affiliates and certain of its employees, including members of the team performing services in connection with the merger, as well as certain private equity

funds associated or affiliated with Tudor Pickering, in which they may have financial interests, may from time to time acquire, hold or make direct or indirect investments in or otherwise finance a wide variety of companies, including American and Hess, other prospective purchasers and their respective affiliates. Tudor Pickering and its affiliates may provide investment banking or other financial services to Hess or any of the other parties to the transaction or their respective stockholders, affiliates or portfolio companies in the future. In connection with such investment banking or other financial services, it may receive compensation.

 

Summary of Tudor Pickering’s Analysis

 

In the merger, holders of American common stock will receive 0.1373 shares of Hess common stock for each share of American common stock, which is referred to as the merger consideration. Additionally, the agreement and plan of merger provides for a possible cash dividend to holders of American common stock to the extent of American’s positive working capital as of the closing date of the merger, subject to available cash, which is referred to as the special dividend. The merger consideration and the special dividend, if any, are collectively referred to in this section as the total consideration. Based on the last trading price of Hess common stock of $52.78 on July 26, 2010 and assuming no special dividend is payable pursuant to the terms of the agreement and plan of merger, the value of the total consideration to be received by American stockholders was $7.25 per share, and assuming a special dividend of $6.9 million in the aggregate, the value of the total consideration to be received by American stockholders was $7.36 per share. Tudor Pickering concluded that, as of July 27, 2010, based upon and subject to the factors and assumptions set forth in the opinion and based upon such other matters as Tudor Pickering considered relevant, the total consideration to be paid to the holders of American common stock pursuant to the agreement and plan of merger, including the special dividend if it is paid, was fair from a financial point of view to such holders.

 

Commodity Price Assumptions

 

The annual commodity price assumptions used by Tudor Pickering in certain of its analyses are summarized below. Tudor Pickering used the applicable 2015 NYMEX Forward Strip prices for the periods after 2015 in its analyses that called for NYMEX Forward Strip prices in periods after 2015. Tudor Pickering used the applicable 2014 Wall Street Consensus prices for periods after 2014 that called for Wall Street Consensus prices in periods after 2014.

 

NYMEX Forward Strip as of July 26, 2010 (“Strip”)

 

 

Wall Street Research Consensus (“Consensus”) (Source: Bloomberg)

 

 

10 Year Historical Monthly Average (“10 Year Average”)

 

Select Public Company Trading Statistics Analysis

 

Tudor Pickering reviewed and compared certain financial, operating and stock market information of American to corresponding information of selected publicly traded companies with assets and operations deemed by Tudor Pickering to be most similar to American, which included Brigham Exploration Company, Kodiak Oil & Gas Corp., Oasis Petroleum Inc. and Northern Oil & Gas, Inc.

 

For the public trading analysis, select trading multiples were analyzed, including:

 

 

The enterprise value of each selected company was obtained by adding the market value of its common stock, its outstanding debt, and the book value of its preferred stock, minus its cash balance, as appropriate. Tudor Pickering utilized estimated future production, cash flow and EBITDAX for this analysis based on internal forecasts prepared by American management and on analyst consensus forecasts. The observed multiple ranges from the public trading analysis as compared to the resulting implied transaction range of multiples resulting from the proposed total consideration are summarized below. For purposes of the following table, total consideration was calculated based on the closing price of Hess common stock of $52.78 on July 26, 2010, multiplied by the exchange ratio of 0.1373, multiplied by the 62.6 million shares (based on the treasury stock method) of American common stock outstanding as of July 26, 2010, or $454 million.

 

 

Tudor Pickering noted that the observed ratios of enterprise value were identical whether or not the special dividend was included because the special dividend, if any, would be paid from American’s cash balances and so it would not impact what Hess pays as merger consideration.

 

Select Oil-Weighted Transaction Statistics Analysis

 

Tudor Pickering reviewed the 29 domestic oil-weighted transactions in the upstream energy industry of which Tudor Pickering was aware with the following criteria: (i) transaction value greater than or equal to $100 million, (ii) assets or target entity reserve base comprised of greater than 50% oil, predominantly onshore, and (iii) announced since January 1, 2009. Of these 29 transactions, 21 were asset sales, seven were corporate transactions, and one was a bankruptcy-related transaction. Three of these 29 transactions were also included in the

Selected Corporate Transaction Statistics Analysis described below. Tudor Pickering conducted a comparable transactions analysis to assess how similar transactions were valued.

 

For the comparable transactions analysis, select transaction multiples were analyzed including:

 

 

 

The observed multiple ranges from the comparable transaction analysis as compared to the resulting implied transaction multiples resulting from the proposed total consideration are summarized below. For purposes of the following table, total consideration was calculated based on the closing price of Hess common stock of $52.78 on July 26, 2010, multiplied by the exchange ratio of 0.1373, multiplied by the 62.6 million shares (based on the treasury stock method) of American common stock outstanding as of July 26, 2010, or $454 million.

 

 

Selected Corporate Transaction Statistics Analysis

 

Tudor Pickering reviewed certain corporate transactions in the upstream energy industry with the following criteria: (i) publicly traded target entity, (ii) target entity reserve base comprised of greater than 50% oil, and (iii) announced since 2005. Tudor Pickering conducted a comparable transactions analysis to assess how similar transactions were valued. The selected transactions and year of announcement are set forth below:

 

 

For the comparable transactions analysis, select transaction multiples were analyzed including:

 

 

Tudor Pickering utilized estimated EBITDAX for this analysis based on internal forecasts prepared by American management and on analyst consensus forecasts. The observed multiple ranges from the comparable transaction analysis as compared to the resulting implied transaction range of multiples resulting from the proposed total consideration are summarized below. For purposes of the following table, total consideration was calculated based on the closing price of Hess common stock of $52.78 on July 26, 2010, multiplied by the exchange ratio of

0.1373, multiplied by the 62.6 million shares (based on the treasury stock method) of American common stock outstanding as of July 26, 2010, or $454 million.

 

 

Selected Transaction Premiums Analysis

 

Tudor Pickering reviewed certain corporate transactions in the upstream energy industry with the following criteria: (i) 100% stock consideration and (ii) announced since 2001. Tudor Pickering calculated the premium of the $7.25 or $7.36 per share total consideration (calculated by multiplying the 0.1373 exchange ratio by Hess’s closing price as of July 26, 2010 and, in the latter case, adding the assumed per share amount of the aggregate $6.9 million special dividend) to the last trading day prior and the trading day seven days prior to the announcement of the transaction and to the 52-week high and 52-week low. The selected transactions and results of the analysis are summarized below:

 

 

 

Target Price Comparison

 

Tudor Pickering compared the implied value of the total consideration per share to be received by holders of the American common stock pursuant to the agreement and plan of merger based on the median analyst price target of Hess common stock of $74.00 per share to the median analyst price target of American common stock of $8.50 per share. The premiums of the implied value of the total consideration of $10.16 and $10.27 per share (calculated by multiplying the 0.1373 exchange ratio by Hess’s median analyst price target of $74.00 per share and, in the latter case, adding the assumed per share amount of the aggregate $6.9 million special dividend) compared to median analyst target price of American were 20% and 21%, respectively.

Net Asset Valuation Analysis

 

Tudor Pickering performed an illustrative net asset value analysis of American. Tudor Pickering calculated the present value of the after-tax (including the utilization of American’s net operating loss carry-forwards) future cash flows that American could be expected to generate from its estimate of future production and cash flow associated with its producing assets and undeveloped inventory effective July 1, 2010, as provided by the management of American. Tudor Pickering estimated net asset value by adding (i) the present value of the cash flows generated by these producing assets and undeveloped inventory multiplied by probability weightings ranging from 100% to 10% to reflect Tudor Pickering’s judgment regarding the relative certainty of the individual reserve categories, less (ii) pre-tax general and administrative expenses as provided by the management of American, less (iii) the expected income taxes to be paid. The resulting asset value was then adjusted by American’s estimated net debt amount (total debt less cash) as of September 30, 2010, as provided by management of American, to calculate equity value as of October 1, 2010. All cash flows associated with American’s producing assets and undeveloped inventory through 2050 were discounted at a rate of 11% to 15%. This discount rate range was selected based on Tudor Pickering’s estimate of the weighted average cost of capital of American. Tudor Pickering utilized Strip commodity prices to derive the cash flows. Based on the foregoing assumptions, the net asset value calculation resulted in an implied American common stock valuation range of $4.34 to $6.16 per share. Tudor Pickering calculated the impact of commodity prices, capital expenditures and the probability weightings applied to the cash flows generated by the producing assets and undeveloped inventory on net asset value discounted at a rate of 11% to 15%. For commodity price sensitivities, Tudor Pickering applied (i) 10 year historical monthly average prices (“10 Year Average”) (ii) Wall Street research consensus prices (“Consensus”) and (iii) flat pricing using a range of $60 to $100 oil with a 14:1 oil to gas ratio which resulted in an implied American common stock valuation range of $0.30 to $8.74. Tudor Pickering increased and decreased capital expenditures by 20% in the Strip commodity price case, which resulted in an implied American common stock valuation range of $3.10 to $7.48 per share. Tudor Pickering increased and decreased the probability weighting applied to the cash flows generated by the undeveloped inventory by 25% in the Strip commodity price case, which resulted in an implied American common stock valuation range of $2.66 to $8.87 per share.

 

Discounted Cash Flow Analysis

 

Tudor Pickering performed a discounted cash flow analysis of American using financial forecasts through 2016, including the utilization of American’s net operating loss carry-forwards, as provided by American. Tudor Pickering utilized Strip commodity prices as described above under “— Commodity Price Assumptions” to derive the cash flows. The cash flows associated with the projected drilling and production activities were multiplied by probability weightings ranging from 100% to 10% to reflect Tudor Pickering’s judgment regarding the relative certainty of these activities. Terminal values were calculated at December 31, 2015 using a multiple range of 3.0x to 5.5x 2016E EBITDAX. This range of EBITDAX multiples was based on multiples for companies that Tudor Pickering judged to be similar to American at the terminal value date. Discount rates of 11% to 15% were used to calculate the present value of the annual free cash flows and the terminal value. This discount rate range was selected based on Tudor Pickering’s estimate of the weighted average cost of capital of American. The resulting enterprise value was then adjusted by American’s estimated net debt amount (total debt less cash) as of September 30, 2010 as provided by management to calculate equity value as of October 1, 2010. Based on the foregoing assumptions, the discounted cash flow calculation resulted in an implied American common stock valuation range of $5.34 to $11.09 per share. Tudor Pickering calculated the impact of commodity price assumptions on discounted cash flow value. For commodity price sensitivities, Tudor Pickering applied (i) 10 Year Average prices (ii) Consensus prices and (iii) flat pricing using a range of $60 to $100 oil with a 14:1 oil to gas ratio. The Consensus commodity pricing assumption applied to the discounted cash flow calculation resulted in an implied American common stock valuation range of $6.22 to $12.02 per share. The 10 Year Average commodity pricing assumption applied to the discounted cash flow calculation resulted in an implied American common stock valuation range of $0.67 to $4.54 per share. The flat commodity pricing assumption applied to the discounted cash flow calculation resulted in an implied American common stock valuation range of $0.89 to $14.14 per share.

 

In considering the recommendation of American’s board of directors to vote “FOR” the approval of the agreement and plan of merger, American stockholders should be aware that members of American’s board of directors and American’s executive officers have interests in the transaction that are different from, and/or in addition to, the interests of American stockholders generally. These interests, to the extent material, are described below. The independent members of American’s board of directors were aware of these differing interests and potential conflicts and considered them, among other matters, in evaluating and negotiating the agreement and plan of merger, the merger and other transactions contemplated by the agreement and plan of merger and in recommending to American stockholders that the agreement and plan of merger be approved.

 

The additional payments and benefits that the executive officers and directors of American are entitled to receive upon the consummation of the merger are summarized below.

 

Restricted Stock

 

At the effective time of the merger, restricted stock held by American employees, including executive officers of American and directors of American, will vest and will thereafter be converted into the merger consideration in the same manner as other American common stock.

 

American has granted to Don E. Schroeder, American’s Vice President Land, 8,000 shares of restricted American common stock that will be issued upon a change in control of American and will, at the effective time of the merger, vest and thereafter be converted into Hess common stock in the same manner as other American common stock.

 

As of November 11, 2010, American’s executive officers and directors, in the aggregate, were granted or held 517,557 shares of restricted American common stock, which will convert, at the effective time of the merger, into the right to receive, in the aggregate, 71,059 shares of Hess common stock.

 

The chart below sets forth certain information, as of November 11, 2010, with respect to the restricted American common stock held by, or granted to, certain of American’s directors and executive officers that will be converted into the merger consideration and an estimate of the total value of shares of Hess common stock to be paid as merger consideration with respect to restricted stock that will vest at the effective time of the merger: