<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1998
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ----------------- to ------------------
COMMISSION FILE NUMBER 1-1204
-----------------------------
AMERADA HESS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
13-4921002
(I.R.S. employer identification number)
1185 AVENUE OF THE AMERICAS, NEW YORK, N.Y.
(Address of principal executive offices)
10036
(Zip Code)
(Registrant's telephone number, including area code is (212) 997-8500)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
At September 30, 1998, 90,364,705 shares of Common Stock were outstanding.
================================================================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
------------------------------- -------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Sales (excluding excise taxes) and
other operating revenues $ 1,530,941 $ 1,884,578 $ 4,973,984 $ 6,115,368
Non-operating revenues
Asset sales -- -- 80,321 16,463
Other 19,783 16,719 63,731 64,388
----------- ----------- ----------- -----------
Total revenues 1,550,724 1,901,297 5,118,036 6,196,219
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of products sold and operating expenses 1,133,185 1,378,358 3,742,669 4,612,195
Exploration expenses, including dry holes
and lease impairment 59,677 123,980 257,003 276,925
Selling, general and administrative expenses 164,639 164,404 523,951 464,784
Interest expense 41,709 33,819 109,026 101,226
Depreciation, depletion and amortization 158,380 163,784 480,197 513,138
Provision (benefit) for income taxes (547) 14,273 45,822 159,027
----------- ----------- ----------- -----------
Total costs and expenses 1,557,043 1,878,618 5,158,668 6,127,295
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (6,319) $ 22,679 $ (40,632) $ 68,924
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE -
BASIC AND DILUTED $ (.07) $ .25 $ (.45) $ .75
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 89,268 91,311 89,732 91,943
COMMON STOCK DIVIDENDS PER SHARE $ .15 $ .15 $ .45 $ .45
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
PART I - FINANCIAL INFORMATION (CONT'D.)
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 67,181 $ 91,154
Accounts receivable 1,083,820 993,098
Inventories 925,285 937,949
Other current assets 277,270 181,431
------------ ------------
Total current assets 2,353,556 2,203,632
------------ ------------
INVESTMENTS AND ADVANCES 266,079 250,458
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
Total - at cost 13,621,549 12,621,635
Less reserves for depreciation, depletion,
amortization and lease impairment 7,914,207 7,430,841
------------ ------------
Property, plant and equipment - net 5,707,342 5,190,794
------------ ------------
DEFERRED INCOME TAXES AND OTHER ASSETS 318,192 289,735
------------ ------------
TOTAL ASSETS $ 8,645,169 $ 7,934,619
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 965,390 $ 752,576
Accrued liabilities 414,351 513,389
Deferred revenue 177,023 175,684
Taxes payable 254,095 195,692
Notes payable 37,000 17,825
Current maturities of long-term debt 139,685 84,685
------------ ------------
Total current liabilities 1,987,544 1,739,851
------------ ------------
LONG-TERM DEBT 2,488,309 1,975,281
------------ ------------
CAPITALIZED LEASE OBLIGATIONS 24,489 27,752
------------ ------------
DEFERRED LIABILITIES AND CREDITS
Deferred income taxes 581,877 562,371
Other 456,384 413,665
------------ ------------
Total deferred liabilities and credits 1,038,261 976,036
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00
Authorized - 20,000,000 shares for issuance in series -- --
Common stock, par value $1.00
Authorized - 200,000,000 shares
Issued - 90,364,705 shares at September 30, 1998;
91,451,205 shares at December 31, 1997 90,365 91,451
Capital in excess of par value 764,844 774,631
Retained earnings 2,335,861 2,463,005
Equity adjustment from foreign currency translation (84,504) (113,388)
------------ ------------
Total stockholders' equity 3,106,566 3,215,699
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,645,169 $ 7,934,619
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
PART I - FINANCIAL INFORMATION (CONT'D.)
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Nine Months Ended September 30
(in thousands)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (40,632) $ 68,924
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation, depletion and amortization 480,197 513,138
Exploratory dry hole costs and lease impairment 160,978 179,328
Pre-tax gain on asset sales (80,321) (16,463)
Changes in operating assets and liabilities 26,846 225,107
Deferred income taxes and other items (30,397) (48,967)
----------- -----------
Net cash provided by operating activities 516,671 921,067
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,120,360) (934,289)
Proceeds from asset sales and other 119,288 56,994
----------- -----------
Net cash used in investing activities (1,001,072) (877,295)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in notes payable 19,158 38,712
Long-term borrowings 644,000 236,000
Repayment of long-term debt and capitalized lease obligations (86,228) (156,310)
Cash dividends paid (54,668) (55,386)
Common stock acquired (58,667) (86,240)
----------- -----------
Net cash provided by (used in) financing activities 463,595 (23,224)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,167) (2,500)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (23,973) 18,048
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 91,154 112,522
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 67,181 $ 130,570
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
PART I - FINANCIAL INFORMATION (CONT'D.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Note 1 - The financial statements included in this report reflect all normal
and recurring adjustments which, in the opinion of management, are
necessary for a fair presentation of the Company's consolidated
financial position at September 30, 1998 and December 31, 1997, and
the consolidated results of operations for the three and nine-month
periods ended September 30, 1998 and 1997 and the consolidated cash
flows for the nine-month periods ended September 30, 1998 and 1997.
The unaudited results of operations for the interim periods reported
are not necessarily indicative of results to be expected for the full
year.
Certain notes and other information have been condensed or omitted
from these interim financial statements. These statements, therefore,
should be read in conjunction with the consolidated financial
statements and related notes included in the 1997 Annual Report to
Stockholders, which have been incorporated by reference in the
Corporation's Form 10-K for the year ended December 31, 1997.
Note 2 - On January 1, 1998, the Corporation began capitalizing the costs of
internal use software in accordance with AICPA Statement of Position
98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. This accounting change increased net income
for the nine months ended September 30, 1998 by $9,888 ($.11 per
share).
Note 3 - Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------- --------
<S> <C> <C>
Crude oil and other charge stocks $313,921 $269,783
Refined and other finished products 497,059 564,973
Materials and supplies 114,305 103,193
-------- --------
Total inventories $925,285 $937,949
======== ========
</TABLE>
Note 4 - In the third quarter of 1998, the Corporation issued $225,000 of notes
to insurance companies, due through 2008. The weighted average
interest rate of these notes is 6.6% and the weighted average maturity
is 7.4 years. In addition, the Corporation entered into a 364-day
revolving credit agreement with an available borrowing capacity of
$300,000. The Corporation also completed a $120,000 sale and leaseback
of its interest in a Gulf of Mexico oil and gas production platform.
This transaction is being accounted for as a financing, and
accordingly, is reflected in long-term debt at quarter end. The
Corporation sold forward a portion of its 1999 crude oil production
for $155,000, which is included in deferred revenue on the balance
sheet.
4
<PAGE> 6
PART I - FINANCIAL INFORMATION (CONT'D.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Note 5 - The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
------------------------------- -------------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current $ 8,694 $ 30,281 $ 55,660 $ 175,687
Deferred (9,241) (16,008) (9,838) (16,660)
--------- --------- --------- ---------
Total $ (547) $ 14,273 $ 45,822 $ 159,027
========= ========= ========= =========
</TABLE>
Note 6 - Foreign currency exchange transactions are reflected in selling,
general and administrative expenses. The net effect, after applicable
income taxes, amounted to gains of $1,357 and $1,672, respectively,
for the three and nine-month periods ended September 30, 1998 compared
to gains of $1,045 and $596 for the corresponding periods of 1997.
Note 7 - The weighted average number of common shares used in the basic and
diluted earnings per share computations are as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
------------------------ ------------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Common shares - basic 89,268 90,810 89,732 91,508
Effect of dilutive securities
(equivalent shares)
Nonvested common stock -- 447 -- 392
Stock options -- 54 -- 43
------ ------ ------ ------
Common shares - diluted 89,268 91,311 89,732 91,943
====== ====== ====== ======
</TABLE>
The antidilutive effects of 695 nonvested common shares and 40 stock
options and 648 common shares and 90 stock options are excluded in the
three months and nine months ended September 30, 1998, respectively.
Note 8 - The Corporation uses futures, forwards, options and swaps to reduce
the impact of fluctuations in the prices of crude oil, natural gas and
refined products. These contracts correlate to movements in the value
of inventory and the prices of crude oil and natural gas, and as
hedges, any resulting gains or losses are recorded as part of the
hedged transaction. Net deferred gains resulting from the
Corporation's petroleum hedging activities were approximately $7,103
at September 30, 1998, including $834 of unrealized losses.
5
<PAGE> 7
PART I - FINANCIAL INFORMATION (CONT'D.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Note 9 - Interest costs related to certain long-term construction projects have
been capitalized in accordance with FAS No. 34. During the three and
nine-month periods ended September 30, 1998, interest costs of $5,897
and $19,093, respectively, were capitalized compared to $2,402 and
$5,689 for the corresponding periods of 1997.
Note 10 - Comprehensive income, which includes net income and the effects of
foreign currency translation recorded directly in stockholders'
equity, is as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
--------------------------- ----------------------------
1998 1997 1998 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Comprehensive income (loss) $ 18,399 $ 1,492 $(11,748) $19,476
======== ======== ======== =======
</TABLE>
Note 11 - In October 1998, the Corporation completed a refinery joint venture
transaction with Petroleos de Venezuela, S.A. (PDVSA). The equally
owned joint venture company, HOVENSA L.L.C., will own and operate the
refinery in St. Croix, United States Virgin Islands, previously owned
by Amerada Hess.
At closing, the Corporation received from PDVSA $62,500 in cash and a
10-year interest-bearing note in the principal amount of $562,500. The
Corporation also received $307,000 (subject to final adjustment) from
HOVENSA as payment for the refinery's net working capital. In
connection with the closing, in October the Corporation recorded a
loss of $106,000 resulting from the sale of the 50% interest in the
refinery to PDVSA and an additional non-cash, after-tax charge of
$44,000 representing a reduction of the book value of related refining
and marketing assets. The investment in the joint venture will be
accounted for on the equity method.
6
<PAGE> 8
PART I - FINANCIAL INFORMATION (CONT'D.)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS
The results of operations for the third quarter of 1998 amounted
to a net loss of $6 million compared with net income of $23 million in
the third quarter of 1997. The net loss for the first nine months of
1998 amounted to $41 million compared with net income of $69 million
in the first nine months of 1997. Excluding gains on asset sales, the
loss in the first nine months of 1998 was $97 million compared with
income of $58 million in the first nine months of 1997.
The after-tax results by major operating activity for the three
and nine-month periods ended September 30, 1998 and 1997 were as
follows (in millions, except per share data):
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
------------------- -------------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Exploration and production $ 6 $ 29 $ 8 $ 190
Refining, marketing and shipping 33 32 18 (21)
Corporate (12) (9) (33) (23)
Interest expense (33) (29) (90) (88)
----- ----- ----- -----
Income (loss) excluding asset sales (6) 23 (97) 58
Gains on asset sales -- -- 56 11
----- ----- ----- -----
Net income (loss) $ (6) $ 23 $ (41) $ 69
===== ===== ===== =====
Net income (loss)
per share (diluted) $(.07) $ .25 $(.45) $ .75
===== ===== ===== =====
</TABLE>
The net gain on asset sales in 1998 of $56 million reflects the
sale of three oil and gas properties in the United States and Norway.
The 1997 asset sale represents the sale of a United States natural gas
property.
Exploration and Production
Excluding gains on asset sales, earnings from exploration and
production activities decreased by $23 million in the third quarter of
1998 and $182 million in the first nine months of 1998, compared with
the corresponding periods of 1997. The decreases were primarily due to
lower worldwide crude oil selling prices and lower United Kingdom
crude oil sales volumes. Natural gas selling prices in the United
States were also lower. Partially offsetting these factors were lower
exploration expenses, particularly in the third quarter of 1998.
7
<PAGE> 9
PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
The Corporation's average selling prices, including the effects of
hedging, were as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
------------------------ ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Crude oil and natural gas liquids
(per barrel)
United States $ 11.26 $ 17.89 $ 12.33 $ 18.81
Foreign 12.55 18.61 13.64 19.29
Natural gas (per Mcf)
United States 1.93 2.18 2.08 2.38
Foreign 2.07 2.06 2.21 2.28
</TABLE>
The Corporation's net daily worldwide production was as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
---------------------- ----------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Crude oil and natural gas liquids
(barrels per day)
United States 43,404 44,442 44,141 43,497
Foreign 148,384 172,958 157,246 176,496
------- ------- ------- -------
Total 191,788 217,400 201,387 219,993
======= ======= ======= =======
Natural gas (Mcf per day)
United States 280,807 303,485 288,979 314,254
Foreign 250,891 160,388 285,540 244,238
------- ------- ------- -------
Total 531,698 463,873 574,519 558,492
======= ======= ======= =======
</TABLE>
The decrease in foreign crude oil production reflects the effects
of natural decline, maintenance activities and temporary interruptions
in production from several United Kingdom fields. The decrease in
United States natural gas production was due to natural decline and
the effect of asset sales in the first quarter of 1998. The increase
in foreign natural gas production principally reflects higher demand
in the United Kingdom. Limited production commenced from the
Schiehallion Field in the United Kingdom and the Baldpate Field in the
United States in the third quarter of 1998. These and other
developments will add to crude oil production in the fourth quarter of
1998 and in 1999.
8
<PAGE> 10
PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
Depreciation, depletion and amortization charges were lower in the
third quarter and first nine months of 1998, principally reflecting
lower foreign crude oil production. The Corporation also had positive
oil and gas reserve revisions at the end of 1997, which reduced
depreciation and related charges in 1998. Exploration expenses were
substantially lower in the third quarter of 1998, due to reduced
drilling in the United States and United Kingdom. Exploration expenses
were also lower on a year-to-date basis reflecting reduced activity as
a result of lower oil prices. In the first nine months of 1998,
selling, general and administrative expenses were higher, principally
due to the expansion of natural gas marketing activities in the United
Kingdom.
The effective income tax rate on exploration and production
earnings was higher in 1998 than in 1997. United Kingdom income taxes
in the third quarter of 1997 included a benefit of $11 million from
adjustment of deferred tax liabilities for a reduction in the
statutory income tax rate. The 1998 United Kingdom effective income
tax rate was also impacted by the increased effect of non-deductible
items at the current low income levels. In addition, income tax
benefits for exploration expenses have not been recorded in certain
international areas outside of the North Sea.
The Corporation's exploration and production earnings are very
sensitive to crude oil selling prices and the Corporation cannot
predict how long prices will remain at current low levels.
Refining, Marketing and Shipping
Refining, marketing and shipping operations had income of $33
million in the third quarter of 1998 compared with $32 million in the
third quarter of 1997. Income for the first nine months of 1998
amounted to $18 million compared with a loss of $21 million in the
first nine months of 1997. Refined product margins were comparable in
the third quarter of each year in spite of continued low selling
prices for gasoline and other refined products. The results in the
third quarter of 1998 improved from the first half of the year when
earnings were negatively impacted by relatively mild weather which
depressed margins for distillates and residual fuel oils.
Refined product sales volumes amounted to 138 million barrels in
the first nine months of each year. Selling, general and
administrative expenses relating to Marketing activities were higher
in 1998, reflecting in part an emphasis on expanding retail activity
including the costs of operating the chain of 66 retail marketing
properties in Florida, which was acquired in June 1997. There was also
an increase in selling, general and administrative expenses
attributable to energy marketing activities. In 1998 and 1997, income
taxes or benefits were not recorded on the results of the
Corporation's Virgin Islands subsidiary due to available loss
carryforwards. The absence of income tax provisions increases the
volatility of reported refining and marketing results.
9
<PAGE> 11
PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
On October 30, 1998, the Corporation completed a joint venture
transaction with Petroleos de Venezuela, S.A. (PDVSA). Pursuant to
this transaction, PDVSA, V.I., Inc. (PDVSA V.I.), a wholly-owned
subsidiary of PDVSA, purchased a 50% interest in the refinery fixed
assets for $62.5 million in cash, a $562.5 million, 10-year note from
PDVSA V.I., bearing interest at 8.46% per annum and requiring
principal payments over its term, and a $125 million, 10-year,
contingent note from PDVSA V.I., also bearing interest at 8.46% per
annum. PDVSA V.I.'s payment obligation under both the note and the
contingent note are guaranteed by PDVSA and secured by a pledge of
PDVSA V.I.'s membership interest in the joint venture. HOVIC and PDVSA
V.I. each contributed their 50% interest in the refinery fixed assets
to HOVENSA, L.L.C. (HOVENSA). HOVENSA is 50% owned by HOVIC and 50%
owned by PDVSA V.I. and will operate the Virgin Islands refinery.
At closing, the Corporation also received $307 million (subject to
final adjustment) from HOVENSA as payment for the net working capital
of the refinery. The Corporation recorded a loss of $106 million
resulting from this transaction and an additional noncash, after-tax
charge of $44 million representing a reduction of the book value of
related refining and marketing assets.
Pursuant to a long-term supply contract, HOVENSA will immediately
begin purchasing approximately 155,000 barrels per day of Venezuelan
Mesa crude oil. A delayed coking unit will be constructed at the
refinery. Upon completion of construction, PDVSA will sell an
additional 115,000 barrels per day of Venezuelan Merey crude oil to
HOVENSA. The investment in the joint venture will be accounted for on
the equity method. For financial reporting purposes, HOVENSA has
elected the last-in, first-out (LIFO) method of accounting for
inventory.
Corporate and Interest
Net corporate expenses increased by $3 million and $10 million in
the third quarter and first nine months of 1998 compared with the
corresponding periods of 1997. The changes principally reflect the
effect of foreign source earnings on the provision for United States
income taxes.
After-tax interest expense increased by $4 million in the third
quarter of 1998 and $2 million in the first nine months of 1998
compared with the same periods in 1997. The increases were due to
higher outstanding borrowings to fund capital expenditures for oil and
gas field developments, offset by lower interest rates and increased
interest capitalization. Interest expense over the remainder of the
year is anticipated to be somewhat higher than the 1997 level.
10
<PAGE> 12
PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
Consolidated Revenues
Sales and other operating revenues decreased by approximately 19%
in the third quarter and first nine months of 1998 compared with the
comparable periods of 1997. The decreases were primarily due to lower
crude oil and refined product selling prices. Crude oil sales volumes
were also lower in 1998. Refined product sales volumes increased
slightly in the third quarter of 1998 and were comparable with 1997
sales volumes on a year-to-date basis.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities, including changes in
operating assets and liabilities, amounted to $517 million in the
first nine months of 1998 compared with $921 million in the first nine
months of 1997. The decrease was primarily due to changes in working
capital items, including inventories. Cash flow, excluding special
items and changes in working capital components, amounted to $490
million in 1998 and $696 million in 1997. The difference largely
resulted from lower operating earnings. The sale of three oil and gas
properties in the United States and Norway generated proceeds of $98
million in 1998.
Total debt was $2,714 million at September 30, 1998 compared with
$2,127 million at December 31, 1997, resulting in debt to total
capitalization ratios of 46.6% and 39.8%, respectively. At September
30, 1998, floating rate debt amounted to 35% of total debt, including
the effect of interest rate conversion (swap) agreements. At September
30, 1998, the Corporation had $733 million of additional borrowing
capacity available under its long-term revolving credit agreement, $300
million under a 364-day revolving credit line and additional unused
lines of credit under uncommitted arrangements with banks of $362
million. Upon finalization of the refining joint venture in October,
the Corporation received approximately $370 million which will be used
to fund capital expenditures in the fourth quarter.
In the third quarter, the Corporation completed private placements
of $225 million of fixed rate debt with three insurance companies. The
weighted average maturity of the three notes is 7.4 years. In
addition, the Corporation entered into a 364-day revolving credit
facility of $300 million. Also in the third quarter, the Corporation
sold 1999 crude oil production for $155 million which reduced debt and
is recorded as deferred revenue in the balance sheet. The Corporation
also completed the $120 million sale and leaseback of its interest in
a Gulf of Mexico oil and gas production platform. This transaction has
been accounted for as a financing. The Corporation anticipates
completing a similar $65 million sale and leaseback arrangement in the
fourth quarter.
11
<PAGE> 13
PART I - FINANCIAL INFORMATION (CONT'D.)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In August 1998, the Corporation's Board of Directors extended the
term of the Corporation's $250 million stock repurchase program to
March 31, 1999. As of September 30, 1998, 3,594,300 shares had been
purchased under the program at a cost of approximately $190 million.
Futures, forwards, options and swaps are used to reduce the
effects of changes in the selling prices of crude oil, natural gas and
refined products. These instruments are used to set the selling prices
of the Corporation's products and the related gains or losses are an
integral part of the Corporation's selling prices. At September 30,
1998, the Corporation had open hedge positions equal to 1% of its
estimated worldwide crude oil production over the next twelve months.
The Corporation also had open contracts equal to 6% of its estimated
United States natural gas production over the next twelve months. In
addition, the Corporation had hedges covering 11% of its refining and
marketing inventories. As market conditions change, the Corporation
will adjust its hedge positions.
Capital expenditures in the first nine months of 1998 amounted to
$1,120 million compared with $934 million in the first nine months of
1997. Capital expenditures for exploration and production activities
were $1,034 million in the first nine months of 1998 compared with
$794 million in the first nine months of 1997. Capital expenditures in
1998 included $109 million for exploration and production interests in
Azerbaijan and $50 million for an increased interest in a consolidated
subsidiary with proved crude oil reserves and exploration licenses in
Gabon. Capital expenditures also included approximately $500 million
in 1998 and $300 million in 1997 for major oil and gas development
projects.
Capital expenditures for the remainder of 1998 are expected to be
approximately $300 million and will be financed primarily by
internally generated funds.
YEAR 2000
Some older computer software and embedded computer systems use two
digits rather than four to reflect dates used in performing
calculations. Because these computer programs and embedded systems may
not properly recognize the year 2000, errors may result causing
potentially serious disruptions. In addition, third parties with which
the Corporation does business face the same problems. The
12
<PAGE> 14
PART I - FINANCIAL INFORMATION (CONT'D.)
YEAR 2000 (CONTINUED)
Corporation has instituted a worldwide program to identify software
and hardware that is not year 2000 compliant. The Corporation is also
determining the year 2000 status of major vendors and customers. In
addition, the Corporation has begun contingency planning.
Status of year 2000 project: Since 1995, the Corporation has been
installing new financial and business systems as part of its
reengineering project. Although the primary purpose of the project is
to increase efficiency and effectiveness, the new software is year
2000 compliant. These new systems have replaced, or will replace,
approximately 70% of noncompliant software. The reengineering project
is scheduled for completion in the second quarter of 1999.
The Corporation has assessed its remaining software. Remediation and
testing of changes is expected to be complete by the end of the second
quarter of 1999. The Corporation has used internal resources and
external consultants on this project.
There are embedded computer systems used throughout the Corporation's
operations. The Corporation has hired consultants to evaluate embedded
systems. The assessment phase should be complete by the end of 1998.
Remediation, where required, should finish in the third quarter of
1999.
The Corporation has also undertaken a supplier and customer analysis
of year 2000 readiness. This project is currently in progress and will
be completed by the end of the second quarter of 1999.
Costs: The Corporation expenses year 2000 project costs as incurred.
The Corporation expects to spend approximately $15 million on this
project. To date, the Corporation has expended approximately $5
million of the expected total. This does not include the costs of the
reengineering project. Internally generated funds and external
borrowings will finance year 2000 project expenditures.
The Corporation has not deferred ongoing information technology
projects because of year 2000 efforts.
Risks: There are uncertainties inherent in the year 2000 problem,
partially resulting from the readiness of third party customers and
suppliers. The failure to correct material year 2000 problems could
interrupt business and operations. Uncorrected, these interruptions
could have a material effect on the Corporation's financial position
and results of operations. Consequently, the Corporation cannot
determine whether year 2000 failures will materially affect financial
position or results of operations. However, the objective of the
Corporation's year 2000 project is to reduce these risks.
13
<PAGE> 15
PART I - FINANCIAL INFORMATION (CONT'D.)
YEAR 2000 (CONTINUED)
Contingency planning: Contingency plans are necessary to ensure that
risks associated with year 2000 are mitigated. In the normal course of
business, the Corporation has developed contingency plans to ensure
that it has alternate suppliers for critical materials and equipment
and that production of crude oil, natural gas and refined products can
be sold. The Corporation is in the preliminary phase of contingency
planning for year 2000 and expects to use existing contingency plans
in this process. Contingency planning will be finished by the middle
of 1999.
In addition, the Corporation has engaged external consultants to
review and benchmark the progress of its year 2000 project.
Safe Harbor: Certain information in this section on year 2000 is
forward looking. This includes projected costs, time tables for
completion of projects and possible effects. These disclosures are
based on the Corporation's current understanding and assessment of the
year 2000 problem. Assumptions used, such as availability of
resources, and the status of its year 2000 assessment and remediation
projects may change. In addition, suppliers and customers may fail to
be ready for year 2000. Consequently, actual results may differ from
these disclosures.
14
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
The Registrant filed no report on Form 8-K during the three
months ended September 30, 1998. In November 1998, the Registrant
will file a report on Form 8-K, dated October 30, 1998. The
report covers Item 2 - Acquisition or Disposition of Assets and
deals with the sale of 50% of the Registrant's Virgin Islands
refinery and subsequent formation of a refining joint venture,
50% owned by the Registrant.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERADA HESS CORPORATION
(REGISTRANT)
By /s/ John B. Hess
----------------------------------------
JOHN B. HESS
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
By /s/ John Y. Schreyer
----------------------------------------
JOHN Y. SCHREYER
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: November 10, 1998
16
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