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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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
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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)
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS
Common Stock (par value $1.00)
NAME OF EACH EXCHANGE
ON WHICH REGISTERED
New York Stock Exchange
Toronto Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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 __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant amounted to $4,595,000,000 as of February 28, 1998.
At February 28, 1998, 91,415,205 shares of Common Stock were outstanding.
Certain items in Parts I and II incorporate information by reference from
the 1997 Annual Report to Stockholders and Part III is incorporated by reference
from the Proxy Statement for the annual meeting of stockholders to be held on
May 6, 1998.
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PART I
ITEM 1. BUSINESS
Amerada Hess Corporation (the "Registrant") was incorporated in 1920 in the
State of Delaware. The Registrant and its subsidiaries (collectively referred to
herein as the "Corporation") engage in the exploration for and the production,
purchase, transportation and sale of crude oil and natural gas. The Corporation
also manufactures, purchases, transports and markets refined petroleum products.
EXPLORATION AND PRODUCTION
The Corporation's exploration and production activities are located
primarily in the United States, United Kingdom, Norway and Gabon. The
Corporation also conducts exploration and/or production activities in Denmark,
Indonesia, Thailand and other parts of the world. Of the Company's proved
reserves (on a barrel of oil equivalent basis), 34% are located in the United
States, 60% are located in the United Kingdom, Norwegian and Danish sectors of
the North Sea and the remainder are located in Gabon, Indonesia and Thailand.
Worldwide crude oil and natural gas liquids production amounted to 218,572
barrels per day in 1997 compared with 236,797 barrels per day in 1996. Worldwide
natural gas production was 569,254 Mcf per day in 1997 compared with 684,666 Mcf
per day in 1996.
At December 31, 1997, the Corporation had 595 million barrels of proved
crude oil and natural gas liquids reserves compared with 578 million barrels at
the end of 1996. Proved natural gas reserves were 1,935 million Mcf at December
31, 1997 compared with 1,866 million Mcf at December 31, 1996. The Corporation
has a number of oil and gas developments underway in the United States, United
Kingdom and in other international areas. It also has an inventory of domestic
and foreign drillable prospects. In 1996, the Corporation sold its Canadian and
Abu Dhabi operations and certain non-core United States and United Kingdom
producing properties.
UNITED STATES. The Corporation operates principally offshore in the Gulf
of Mexico and onshore in the states of Texas, Louisiana and North Dakota. During
1997, 20% of the Corporation's crude oil and natural gas liquids production and
55% of its natural gas production were from United States operations.
The table below sets forth the Corporation's average daily net production
by area in the United States:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
CRUDE OIL, INCLUDING CONDENSATE AND
NATURAL GAS LIQUIDS (BARRELS PER DAY)
Texas..................................................... 16,136 19,204
North Dakota.............................................. 12,077 12,366
Gulf of Mexico............................................ 10,295 10,642
Louisiana................................................. 1,700 2,155
Other..................................................... 3,742 5,758
------- -------
Total............................................. 43,950 50,125
======= =======
NATURAL GAS (MCF PER DAY)
Gulf of Mexico............................................ 104,803 133,878
North Dakota.............................................. 59,576 46,934
Texas..................................................... 52,402 30,632
Louisiana................................................. 43,668 46,713
California................................................ 17,779 16,870
New Mexico................................................ 17,467 22,253
Mississippi............................................... 14,972 17,341
Other..................................................... 1,248 23,032
------- -------
Total............................................. 311,915 337,653
======= =======
</TABLE>
The Corporation is developing the Baldpate Field in the Gulf of Mexico and
is participating in other developments and evaluating additional discoveries,
principally in the Garden Banks area.
UNITED KINGDOM. The Corporation's activities in the United Kingdom are
conducted by its wholly-owned subsidiary, Amerada Hess Limited. During 1997, 61%
of the Corporation's crude oil and natural gas liquids production and 40% of its
natural gas production were from United Kingdom operations.
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The table below sets forth the Corporation's average daily net production
in the United Kingdom by field and the Corporation's interest in each at
December 31, 1997:
<TABLE>
<CAPTION>
INTEREST 1997 1996
PRODUCING FIELD -------- ---- ----
<S> <C> <C> <C>
CRUDE OIL, INCLUDING CONDENSATE AND
NATURAL GAS LIQUIDS (BARRELS PER
DAY)
Scott............................... 34.95% 41,040 51,877
Fife/Fergus......................... 85.00/65.00 25,981 31,430
Beryl/Ness.......................... 22.22 17,697 19,037
Telford............................. 31.42 10,548 626
Arbroath/Montrose/Arkwright......... 28.21 9,617 9,320
Ivanhoe/Rob Roy/Hamish.............. 42.08 8,795 14,163
Hudson.............................. 28.00 8,456 8,343
Nevis............................... 37.34 5,359 869
Other............................... Various 5,298 5,689
------- -------
Total.......................... 132,791 141,354
======= =======
NATURAL GAS (MCF PER DAY)
Everest/Lomond...................... 18.67/16.67% 50,732 44,591
Davy/Bessemer....................... 27.78/23.08 41,292 40,551
Beryl/Ness.......................... 22.22 37,076 45,581
Indefatigable....................... 23.08 27,360 32,736
Leman............................... 21.74 21,454 37,967
Scott............................... 34.95 18,811 22,760
Other............................... Various 29,079 29,797
------- -------
Total.......................... 225,804 253,983
======= =======
</TABLE>
The Corporation is developing several oil and gas fields in the United
Kingdom North Sea and is evaluating other discoveries. Production from the
Schiehallion and Flora Fields is expected to commence in 1998.
NORWAY. The Corporation's activities in Norway are conducted through its
wholly-owned Norwegian subsidiary, Amerada Hess Norge A/S. The Corporation's
Norwegian operations accounted for crude oil and natural gas liquids production
of 31,173 and 29,188 net barrels per day in 1997 and 1996, respectively.
Approximately 70% of the 1997 production is from the Corporation's 28.09%
interest in the Valhall Field.
GABON. The Corporation has a 5.5% interest in the Rabi Kounga oil field
onshore Gabon. The Corporation's share of production from Gabon averaged 10,127
and 9,725 net barrels of crude oil per day in 1997 and 1996, respectively.
OTHER INTERNATIONAL. Production from one of the Corporation's interests in
Indonesia commenced in 1997 and is averaging approximately 2,000 barrels of
crude oil per day. Additional developments are underway in Indonesia and
Thailand. The Corporation is also developing the South Arne Field in Denmark
with production scheduled to commence in 1999. The Corporation is continuing its
active international exploration program.
REFINING AND MARKETING
The Corporation's refining facilities are located in St. Croix, United
States Virgin Islands and Port Reading, New Jersey. Total crude runs averaged
411,000 barrels per day in 1997 and 396,000 barrels per day in 1996. The
Corporation's Virgin Islands refinery was supplied principally under contracts
of one year or less with third parties and through spot purchases on the open
market. In 1997, the Corporation's production supplied less than 5% of its crude
runs. Approximately 80% of the refined products marketed in 1997 was obtained
from the Corporation's refineries. The Corporation purchased the balance from
others under short-
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term supply contracts and by spot purchases from various sources. Sales of
refined products averaged 509,000 barrels per day in 1997 and 495,000 barrels
per day in 1996.
HESS OIL VIRGIN ISLANDS REFINERY. The Corporation owns and operates a
petroleum refinery in St. Croix, United States Virgin Islands through its
wholly-owned subsidiary, Hess Oil Virgin Islands Corp. ("HOVIC"). In 1997,
refined products produced were approximately 72% gasoline and distillates, 7%
refinery feedstocks and the remainder principally residual fuel oil. In addition
to crude distillation capacity, the refinery has a fluid catalytic cracking
unit, which is currently operating at a rate of approximately 135,000 barrels
per day. The refinery also has catalytic reforming units, vacuum distillation
capacity, visbreakers, a sulfolane unit, a penex unit, distillate desulfurizers,
vacuum gas oil desulfurizers and sulfur recovery facilities. HOVIC has
approximately 31 million barrels of storage capacity.
The refinery has the capability to process a variety of crude oils,
including high-sulfur crudes. The refinery has a 60-foot-deep harbor and docking
facilities for ten ocean-going tankers. The refinery's harbor accommodates very
large crude carriers after a portion of their crude oil cargo is lightered at
the Corporation's storage and transshipment facility in Saint Lucia, which has a
90-foot-deep harbor. The Saint Lucia facility has approximately 9 million
barrels of storage capacity.
On February 3, 1998, the Corporation announced an agreement in principle
with Petroleos de Venezuela, S.A. ("PDVSA") to create a joint venture, 50% owned
by each party, to own and operate the Corporation's Virgin Islands refinery.
Under the proposed terms of the transaction, PDVSA will acquire a 50%
interest in the refinery for $625 million, consisting of $62.5 million in cash
and an interest-bearing note payable over ten years. The Corporation will also
receive an additional note for $125 million, which is contingently payable over
ten years based on the joint venture's future cash flows. This note will not be
included in the purchase price for accounting purposes.
At closing, the joint venture will purchase the crude oil and refined
product inventories and other working capital of the refinery. The joint venture
will also enter into a long-term supply contract to purchase Venezuelan crude
oil. In addition, the joint venture will finance and construct a coker and
related facilities, which will enable the refinery to process lower-cost, heavy
crude oil from Venezuela to be purchased under a separate long-term supply
contract. These long-term supply contracts cover more than 50% of the refinery's
crude oil requirements at its current operating rate.
The transaction is subject to the preparation of definitive contracts,
Virgin Islands governmental authorizations and corporate board approvals.
PORT READING FACILITY. The Corporation owns and operates a fluid catalytic
cracking facility in Port Reading, New Jersey, which processes vacuum gas oil
and residual fuel oil and currently operates at a rate of approximately 60,000
barrels per day. The Port Reading facility primarily produces gasoline and
heating oil.
MARKETING. The Corporation markets refined petroleum products principally
on the East Coast of the United States to the motoring public, wholesale
distributors, industrial and commercial users, other petroleum companies,
commercial airlines, governmental agencies and public utilities. The Corporation
also markets natural gas to utilities and other industrial and commercial
customers.
At December 31, 1997, the Corporation had 638 HESS(R) gasoline stations of
which approximately 80% were operated by the Corporation. Most of the
Corporation's stations are concentrated in relatively densely populated areas,
principally in New York, New Jersey and Florida. Of the Corporation's stations,
288 have convenience stores. The Corporation owns in fee approximately 70% of
the properties on which its stations are located. The Corporation also has 41
terminals located throughout its marketing area, with aggregate storage capacity
of approximately 45 million barrels.
COMPETITION AND MARKET CONDITIONS
The petroleum industry is highly competitive. The Corporation encounters
competition from numerous companies in each of its activities, particularly in
acquiring rights to explore for crude oil and natural gas and
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in the purchasing and marketing of refined products. Many competitors are larger
and have substantially greater resources than the Corporation. The Corporation
is also in competition with producers and marketers of other forms of energy.
The petroleum business involves large-scale capital expenditures and
risk-taking. In the search for new oil and gas reserves, long lead times are
often required from successful exploration to subsequent production. Operations
in the petroleum industry depend on a depleting natural resource. The number of
areas where it can be expected that hydrocarbons will be discovered in
commercial quantities is constantly diminishing and exploration risks are high.
Areas where hydrocarbons may be found are often in remote locations or offshore
where exploration and development activities are capital intensive and operating
costs are high.
The major foreign oil producing countries, including members of the
Organization of Petroleum Exporting Countries ("OPEC"), exert considerable
influence over the supply and price of crude oil and refined petroleum products.
Their ability or inability to agree on a common policy on rates of production,
oil prices, and other matters has a significant impact on oil markets and the
Corporation. The derivatives markets are also important in influencing the
prices of crude oil, natural gas and refined products. The Corporation cannot
predict the extent to which future market conditions may be affected by OPEC,
the derivatives markets or other external influences.
A substantial decline in crude oil and refined product selling prices
occurred in late 1997 and is continuing in the first quarter of 1998, as world
supply has increased more than demand. The Corporation's results of operations
from exploration and production and refining and marketing operations are
extremely sensitive to these selling prices and earnings are being negatively
affected. The Corporation cannot predict how long these conditions will
continue.
OTHER ITEMS
The Corporation's operations may be affected by federal, state, local,
territorial and foreign laws and regulations relating to tax increases and
retroactive tax claims, expropriation of property, cancellation of contract
rights, and changes in import regulations, as well as other political
developments. The Corporation has been affected by certain of these events in
various countries in which it operates. The Corporation markets motor fuels
through lessee-dealers and wholesalers in certain states where legislation
prohibits producers or refiners of crude oil from directly engaging in retail
marketing of motor fuels. Similar legislation has been periodically proposed in
the U.S. Congress and in various other states. The Corporation, at this time,
cannot predict the effect of any of the foregoing on its future operations.
Compliance with various environmental and pollution control regulations
imposed by federal, state and local governments is not expected to have a
materially adverse effect on the Corporation's earnings and competitive position
within the industry. Capital expenditures for facilities, primarily to comply
with federal, state and local environmental standards, were $5 million in 1997
and the Corporation anticipates comparable capital expenditures in 1998. In
addition, the Corporation expended $12 million in 1997 for environmental
remediation, with a comparable amount anticipated for 1998.
The number of persons employed by the Corporation averaged 9,216 in 1997
and 9,085 in 1996.
Additional operating and financial information relating to the business and
properties of the Corporation appears in the text on pages 6 through 13 under
the heading "Exploration and Production," on pages 14 through 18 under the
heading "Refining and Marketing," on pages 20 through 26 under the heading
"Financial Review" and on pages 27 through 53 of the accompanying 1997 Annual
Report to Stockholders, which information is incorporated herein by reference.*
- --------------------------------------------------------------------------------
* Except as to information specifically incorporated herein by reference under
Items 1, 2, 5, 6, 7, 7A and 8, no other information or data appearing in the
1997 Annual Report to Stockholders is deemed to be filed with the Securities
and Exchange Commission (SEC) as part of this Annual Report on Form 10-K, or
otherwise subject to the SEC's regulations or the liabilities of Section 18 of
the Securities Exchange Act of 1934, as amended.
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ITEM 2. PROPERTIES
Reference is made to Item 1 and the operating and financial information
relating to the business and properties of the Corporation, which is
incorporated in Item 1 by reference.
Additional information relating to the Corporation's oil and gas operations
follows.
1. OIL AND GAS RESERVES
The Corporation's net proved oil and gas reserves at the end of 1997, 1996
and 1995 are presented under Supplementary Oil and Gas Data in the accompanying
1997 Annual Report to Stockholders, which has been incorporated herein by
reference.
During 1997, the Corporation provided oil and gas reserve estimates for
1996 to the Department of Energy. Such estimates are compatible with the
information furnished to the SEC on Form 10-K, although not necessarily directly
comparable due to the requirements of the individual requests. There were no
differences in excess of 5%.
The Corporation has no contracts or agreements in excess of one year's
duration to sell fixed quantities of its crude oil production. Approximately 50%
of the Corporation's 1997 natural gas sales was made under long-term contracts
to various purchasers. Contractual commitments in 1998 (which are expected to be
comparable to 1997) will be filled from the Corporation's production and from
contractual purchases.
2. AVERAGE SELLING PRICES AND AVERAGE PRODUCTION COSTS
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
- -----------------------------------------------------------
Average selling prices (Note A)
Crude oil, including condensate and natural gas
liquids (per barrel)
United States.................................... $18.43 $16.49 $15.82
Europe........................................... 19.20 20.23 17.05
Africa and Asia.................................. 18.48 20.95 17.06
Canada and Abu Dhabi............................. - 17.91 16.02
Average.......................................... 19.01 19.41 16.68
Natural gas (per Mcf)
United States (Note B)........................... $ 2.47 $ 2.43 $ 1.70
Europe........................................... 2.36 2.05 2.05
Africa and Asia.................................. 1.05 - -
Canada........................................... - 1.35 1.02
Average.......................................... 2.45 2.31 1.67
</TABLE>
- --------------------------------------------------------------------------------
Note A: Includes inter-company transfers valued at approximate market
prices and the effect of the Corporation's hedging activities. The increase in
the United States crude oil selling price in 1997 reflects improved hedging
results.
Note B: Includes sales of purchased gas.
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<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
- -----------------------------------------------------------
Average production (lifting) costs per barrel of
production (Note C)
United States.................................... $4.39 $4.56 $4.29
Europe........................................... 5.62 5.30 4.34
Africa and Asia.................................. 2.55 2.02 1.99
Canada and Abu Dhabi............................. - 3.21 3.00
Average.......................................... 5.13 4.88 4.09
</TABLE>
- --------------------------------------------------------------------------------
Note C: Production (lifting) costs consist of amounts incurred to operate
and maintain the Corporation's producing oil and gas wells, related equipment
and facilities (including lease costs of floating production and storage
facilities) and production and severance taxes. The average production costs per
barrel reflect the crude oil equivalent of natural gas production converted on
the basis of relative energy content (6 Mcf equals one barrel).
The foregoing tabulation does not include substantial costs and charges
applicable to finding and developing proved oil and gas reserves, nor does it
reflect significant outlays for related general and administrative expenses,
interest expense and income taxes.
3. GROSS AND NET DEVELOPED ACREAGE AND PRODUCTIVE WELLS AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
DEVELOPED
ACREAGE PRODUCTIVE WELLS (NOTE A)
APPLICABLE TO -------------------------
PRODUCTIVE WELLS OIL GAS
(IN THOUSANDS) ------------ -----------
- ---------------------------------------------------------------------------------------
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
United States............................. 1,882 525 2,829 791 837 417
Europe.................................... 613 138 371 58 138 28
Africa and Asia........................... 65 12 139 11 4 2
----- --- ----- --- ---- ---
Total........................... 2,560 675 3,339 860 979 447
===== === ===== === ==== ===
</TABLE>
- --------------------------------------------------------------------------------
Note A: Includes multiple completion wells (wells producing from different
formations in the same bore hole) totaling 83 gross wells and 43 net wells.
4. GROSS AND NET UNDEVELOPED ACREAGE AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
UNDEVELOPED ACREAGE
(IN THOUSANDS)
--------------------
GROSS NET
- --------------------------------------------------------------------------------
<S> <C> <C>
United States........................................ 1,428 915
Europe............................................... 9,601 3,478
Africa, Asia and other............................... 21,375 6,300
------ ------
Total...................................... 32,404 10,693
====== ======
</TABLE>
- --------------------------------------------------------------------------------
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5. NUMBER OF NET EXPLORATORY AND DEVELOPMENT WELLS DRILLED
<TABLE>
<CAPTION>
NET EXPLORATORY WELLS NET DEVELOPMENT WELLS
------------------------ ------------------------
1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------
Productive wells
United States........................ 5 8 20 27 22 25
Europe............................... 5 6 3 8 12 10
Africa, Asia and other............... 2 - - 6 1 1
Canada and Abu Dhabi................. - 7 3 - 8 12
--- --- --- --- --- ---
Total........................... 12 21 26 41 43 48
--- --- --- --- --- ---
Dry holes
United States........................ 11 22 24 3 - 3
Europe............................... 8 8 6 1 2 -
Africa, Asia and other............... 1 2 1 - - -
Canada and Abu Dhabi................. - 5 14 - 1 2
--- --- --- --- --- ---
Total........................... 20 37 45 4 3 5
--- --- --- --- --- ---
Total..................................... 32 58 71 45 46 53
=== === === === === ===
</TABLE>
- --------------------------------------------------------------------------------
6. NUMBER OF WELLS IN PROCESS OF DRILLING AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
GROSS NET
WELLS WELLS
- --------------------------------------------------------------------------------
<S> <C> <C>
United States.............................................. 6 3
Europe..................................................... 7 2
Africa, Asia and other..................................... 2 1
-- --
Total............................................ 15 6
== ==
</TABLE>
- --------------------------------------------------------------------------------
7. NUMBER OF WATERFLOODS AND PRESSURE MAINTENANCE PROJECTS IN PROCESS OF
INSTALLATION AT DECEMBER 31, 1997 -- None
- --------------------------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS
On April 27, 1993, the Texas Natural Resource Conservation Commission
("TNRCC", then known as the Texas Water Commission) notified the Registrant of
alleged violations of the Texas Water Code as a result of alleged discharges of
hydrocarbon compounds into the groundwater in the vicinity of the Registrant's
terminal in Corpus Christi, Texas. Penalties provided for these violations
include administrative penalties not to exceed $10,000 per day. Although there
are many potential sources for hydrocarbon discharge in this vicinity, the
Registrant is continuing a groundwater assessment, corrective measures program
and other appropriate responses to these groundwater conditions. On December 9,
1994, the Executive Director of the TNRCC forwarded a Notice of Executive
Director's Preliminary Report and Petition for a TNRCC Order Assessing
Administrative Penalties and Requiring Certain Actions of Registrant. This
Notice recommended a $542,400 penalty be assessed and the Registrant be ordered
to undertake remedial actions at the Corpus Christi terminal. The Registrant is
engaging in settlement discussions with the TNRCC regarding this matter.
The Corporation periodically receives notices from the U.S. Environmental
Protection Agency (the "EPA") that the Corporation is a "potentially responsible
party" under the Superfund legislation with respect to various waste disposal
sites. Under this legislation, all potentially responsible parties are jointly
and severally liable. For certain sites, EPA's claims or assertions of liability
against the Corporation relating to these sites have not been fully developed.
With respect to the remaining sites, EPA's claims have been settled, or a
proposed settlement is under consideration, in all cases for amounts which are
not material. The ultimate impact of these proceedings, and of any related
proceedings by private parties, on the business or accounts of
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the Corporation cannot be predicted at this time due to the large number of
other potentially responsible parties and the speculative nature of clean-up
cost estimates, but is not expected to be material.
The Corporation is from time to time involved in other judicial and
administrative proceedings, including proceedings relating to other
environmental matters. Although the ultimate outcome of these proceedings cannot
be ascertained at this time and some of them may be resolved adversely to the
Corporation, no such proceeding is required to be disclosed under applicable
rules of the Securities and Exchange Commission. In management's opinion, based
upon currently known facts and circumstances, such proceedings in the aggregate
will not have a material adverse effect on the financial condition of the
Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, no matter was submitted to a vote of
security holders through the solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table presents information as of February 1, 1998 regarding
executive officers of the Registrant:
<TABLE>
<CAPTION>
YEAR
INDIVIDUAL
BECAME AN
EXECUTIVE
NAME AGE OFFICE HELD* OFFICER
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John B. Hess............ 43 Chairman of the Board, Chief Executive Officer and 1983
Director
W. S. H. Laidlaw........ 42 President, Chief Operating Officer and Director 1986
Leon Hess............... 83 Chairman of the Executive Committee and Director 1969
J. Barclay Collins II... 53 Executive Vice President, General Counsel and 1986
Director
John Y. Schreyer........ 58 Executive Vice President, Chief Financial Officer and 1990
Director
Alan A. Bernstein....... 53 Senior Vice President 1987
F. Lamar Clark.......... 64 Senior Vice President 1990
John A. Gartman......... 50 Senior Vice President 1997
Neal Gelfand............ 53 Senior Vice President 1980
Daniel F. McCarthy...... 53 Senior Vice President 1995
Lawrence H. Ornstein.... 46 Senior Vice President 1995
Rene L. Sagebien........ 57 Senior Vice President 1990
F. Borden Walker........ 44 Senior Vice President 1996
Gerald A. Jamin......... 56 Treasurer 1985
</TABLE>
- --------------------------------------------------------------------------------
* All officers referred to herein hold office in accordance with the
By-Laws until the first meeting of the Directors following the annual meeting of
stockholders of the Registrant, and until their successors shall have been duly
chosen and qualified. Each of said officers was elected to the office set forth
opposite his name on May 7, 1997, except that Mr. Gartman was elected to his
present office by the Board of Directors at its regular meeting on October 1,
1997. The first meeting of Directors following the next annual meeting of
stockholders of the Registrant is scheduled to be held May 6, 1998.
Except for Messrs. Walker and Gartman, each of the above officers has been
employed by the Registrant in various managerial and executive capacities for
more than five years. Prior to his employment with the Registrant in August
1996, Mr. Walker had been a general manager in the areas of gasoline marketing,
convenience store development and advertising at Mobil Corporation. Mr. Gartman
had been a vice president of Public Service Electric and Gas Company in the area
of energy marketing prior to his employment with the Registrant in October 1997.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Information pertaining to the market for the Registrant's Common Stock,
high and low sales prices of the Common Stock in 1997 and 1996, dividend
payments and restrictions thereon and the number of holders of Common Stock is
presented on page 26 (Financial Review), page 34 (Long-Term Debt) and on page 50
(Ten-Year Summary of Financial Data) of the accompanying 1997 Annual Report to
Stockholders, which has been incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
A Ten-Year Summary of Financial Data is presented on pages 48 through 51 of
the accompanying 1997 Annual Report to Stockholders, which has been incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is presented on pages 20 through 26
of the accompanying 1997 Annual Report to Stockholders, which has been
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is presented under "Derivative
Financial Instruments" on pages 24 and 25 and in Footnote 12 on pages 37 to 39
of the accompanying 1997 Annual Report to Stockholders, which has been
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, including the Report of Ernst &
Young LLP, Independent Auditors, the Supplementary Oil and Gas Data (unaudited)
and the Quarterly Financial Data (unaudited) are presented on pages 26 through
47 of the accompanying 1997 Annual Report to Stockholders, which has been
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
------------------------
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to Directors is incorporated herein by reference to
"Election of Directors" from the Registrant's definitive proxy statement for the
annual meeting of stockholders to be held on May 6, 1998.
Information regarding executive officers is included in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is incorporated herein by
reference to "Election of Directors-Executive Compensation and Other
Information," other than information under "Compensation Committee Report on
Executive Compensation" and "Performance Graph" included therein, from the
Registrant's definitive proxy statement for the annual meeting of stockholders
to be held on May 6, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information pertaining to security ownership of certain beneficial owners
and management is incorporated herein by reference to "Election of
Directors-Ownership of Voting Securities by Certain Beneficial Owners" and
"Election of Directors-Ownership of Equity Securities by Management" from the
Registrant's definitive proxy statement for the annual meeting of stockholders
to be held on May 6, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to this item is incorporated herein by reference to
"Election of Directors" from the Registrant's definitive proxy statement for the
annual meeting of stockholders to be held on May 6, 1998.
------------------------
9
<PAGE> 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. AND 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The financial statements filed as part of this Annual Report on
Form 10-K are listed in the accompanying index to financial statements
and schedules.
3. EXHIBITS
<TABLE>
<S> <C> <C>
3(1) -Restated Certificate of Incorporation of Registrant
incorporated by reference to Exhibit 19 of Form 10-Q of
Registrant for the three months ended September 30, 1988.
3(2) -By-Laws of Registrant incorporated by reference to Exhibit
3(2) of Form 10-K of Registrant for the fiscal year ended
December 31, 1985.
4(1) -Note and Warrant Purchase Agreement, dated June 27, 1991
(including the form of the Common Stock Purchase Warrant
expiring June 27, 2001, included as Exhibit B thereof)
incorporated by reference to Exhibit 4 of Form 10-Q of
Registrant for the three months ended June 30, 1991.
4(2) -Amendment, dated as of May 15, 1992 to the Note and Warrant
Purchase Agreement, dated June 27, 1991 (including the
form of the common stock purchase warrant expiring June
27, 2001, included as Exhibit B thereof), incorporated by
reference to Exhibit 19 of Form 10-Q of Registrant for the
three months ended June 30, 1992.
4(3) -Credit Agreement dated as of May 20, 1997 among Registrant,
the Subsidiary Borrowers thereunder, The Chase Manhattan
Bank as Administrative Agent and the Lenders party
thereto, incorporated by reference to Exhibit 4 of Form
10-Q of Registrant for the three months ended June 30,
1997.
-Other instruments defining the rights of holders of
long-term debt of Registrant and its consolidated
subsidiaries are not being filed since the total amount of
securities authorized under each such instrument does not
exceed 10 percent of the total assets of Registrant and
its subsidiaries on a consolidated basis. Registrant
agrees to furnish to the Commission a copy of any
instruments defining the rights of holders of long-term
debt of Registrant and its subsidiaries upon request.
10(1) -Extension and Amendment Agreement between the Government of
the Virgin Islands and Hess Oil Virgin Islands Corp.
incorporated by reference to Exhibit 10(4) of Form 10-Q of
Registrant for the three months ended June 30, 1981.
10(2) -Restated Second Extension and Amendment Agreement dated
July 27, 1990 between Hess Oil Virgin Islands Corp. and
the Government of the Virgin Islands incorporated by
reference to Exhibit 19 of Form 10-Q of Registrant for the
three months ended September 30, 1990.
10(3) -Technical Clarifying Amendment dated as of November 17,
1993 to Restated Second Extension and Amendment Agreement
between the Government of the Virgin Islands and Hess Oil
Virgin Islands Corp. incorporated by reference to Exhibit
10(3) of Form 10-K of Registrant for the fiscal year ended
December 31, 1993.
10(4)* -Incentive Compensation Award Plan for Key Employees of
Amerada Hess Corporation and its subsidiaries incorporated
by reference to Exhibit 10(2) of Form 10-K of Registrant
for the fiscal year ended December 31, 1980.
10(5)* -Financial Counseling Program description incorporated by
reference to Exhibit 10(3) of Form 10-K of Registrant for
the fiscal year ended December 31, 1980.
</TABLE>
10
<PAGE> 12
3. EXHIBITS (continued)
<TABLE>
<S> <C> <C>
10(6)* -Executive Long-Term Incentive Compensation and Stock
Ownership Plan of Registrant dated June 3, 1981
incorporated by reference to Exhibit 10(5) of Form 10-Q of
Registrant for the three months ended June 30, 1981.
10(7)* -Amendment dated as of December 5, 1990 to the Executive
Long-Term Incentive Compensation and Stock Ownership Plan
of Registrant incorporated by reference to Exhibit 10(9)
of Form 10-K of Registrant for the fiscal year ended
December 31, 1990.
10(8)* -Amerada Hess Corporation Pension Restoration Plan dated
January 19, 1990 incorporated by reference to Exhibit
10(9) of Form 10-K of Registrant for the fiscal year ended
December 31, 1989.
10(9)* -Letter Agreement dated August 8, 1990 between Registrant
and Mr. John Y. Schreyer relating to Mr. Schreyer's
participation in the Amerada Hess Corporation Pension
Restoration Plan incorporated by reference to Exhibit
10(11) of Form 10-K of Registrant for the fiscal year
ended December 31, 1991.
10(10)* -1995 Long-Term Incentive Plan, as amended, incorporated by
reference to Appendix A of Registrant's definitive proxy
statement dated March 28, 1996 for the Annual Meeting of
Stockholders held on May 1, 1996.
10(11)* -Stock Award Program for non-employee directors dated August
6, 1997.
13 -1997 Annual Report to Stockholders of Registrant.
21 -Subsidiaries of Registrant.
23 -Consent of Ernst & Young LLP, Independent Auditors, dated
March 20, 1998, to the incorporation by reference in
Registrant's Registration Statements on Form S-8 (Nos.
333-43569, 333-43571 and 33-65115) of its report relating
to Registrant's financial statements, which consent
appears on page F-2 herein.
27 -Financial Data Schedule (for electronic filing only).
</TABLE>
- --------------------------------------------------------------------------------
* These exhibits relate to executive compensation plans and arrangements.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of Registrant's
fiscal year ended December 31, 1997.
11
<PAGE> 13
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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, ON THE 20TH DAY OF
MARCH 1998.
AMERADA HESS CORPORATION
(REGISTRANT)
By /s/ JOHN Y. SCHREYER
................................
(JOHN Y. SCHREYER)
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Director, Chairman of
the Board and
Chief Executive Officer
/s/ JOHN B. HESS (Principal Executive Officer) March 20, 1998
............................................................................................................
(JOHN B. HESS)
Director, President and Chief
/s/ W.S.H. LAIDLAW Operating Officer March 20, 1998
............................................................................................................
(W.S.H. LAIDLAW)
/s/ NICHOLAS F. BRADY Director March 20, 1998
............................................................................................................
(NICHOLAS F. BRADY)
/s/ J. BARCLAY COLLINS II Director March 20, 1998
............................................................................................................
(J. BARCLAY COLLINS II)
/s/ PETER S. HADLEY Director March 20, 1998
............................................................................................................
(PETER S. HADLEY)
/s/ LEON HESS Director March 20, 1998
............................................................................................................
(LEON HESS)
Director March 20, 1998
............................................................................................................
(EDITH E. HOLIDAY)
Director March 20, 1998
............................................................................................................
(WILLIAM R. JOHNSON)
/s/ THOMAS H. KEAN Director March 20, 1998
............................................................................................................
(THOMAS H. KEAN)
/s/ FRANK A. OLSON Director March 20, 1998
............................................................................................................
(FRANK A. OLSON)
/s/ H. W. MCCOLLUM Director March 20, 1998
............................................................................................................
(H. W. MCCOLLUM)
Director March 20, 1998
............................................................................................................
(ROGER B. ORESMAN)
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Director, Executive Vice President
and Chief Financial Officer
(Principal Accounting and
/s/ JOHN Y. SCHREYER Financial Officer) March 20, 1998
............................................................................................................
(JOHN Y. SCHREYER)
Director March 20, 1998
............................................................................................................
(WILLIAM I. SPENCER)
/s/ ROBERT N. WILSON Director March 20, 1998
............................................................................................................
(ROBERT N. WILSON)
/s/ ROBERT F. WRIGHT Director March 20, 1998
............................................................................................................
(ROBERT F. WRIGHT)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 15
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
- ------------------------------------------------------------
Statement of Consolidated Income for each of the three years
in the period ended December 31, 1997..................... *
Statement of Consolidated Retained Earnings for each of the
three years in the period ended December 31, 1997......... *
Consolidated Balance Sheet at December 31, 1997 and 1996.... *
Statement of Consolidated Cash Flows for each of the three
years in the period ended December 31, 1997............... *
Statement of Consolidated Changes in Common Stock and
Capital in Excess of Par Value for each of the three years
in the period ended December 31, 1997..................... *
Notes to Consolidated Financial Statements.................. *
Report of Ernst & Young LLP, Independent Auditors........... *
Quarterly Financial Data.................................... *
Supplementary Oil and Gas Data.............................. *
Consent of Independent Auditors............................. F-2
Schedules................................................... **
</TABLE>
- --------------------------------------------------------------------------------
* The financial statements and notes thereto together with the Report of
Ernst & Young LLP, Independent Auditors, on pages 27 through 42, the Quarterly
Financial Data (unaudited) on page 26, and the Supplementary Oil and Gas Data
(unaudited) on pages 43 through 47 of the accompanying 1997 Annual Report to
Stockholders are incorporated herein by reference.
** All schedules have been omitted because of the absence of the conditions
under which they are required or because the required information is presented
in the financial statements or the notes thereto.
F-1
<PAGE> 16
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Amerada Hess Corporation of our report dated February 19, 1998,
included in the 1997 Annual Report to Stockholders of Amerada Hess Corporation.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8, Nos. 333-43569, 333-43571 and 33-65115) pertaining to the
Amerada Hess Corporation Employees' Savings and Stock Bonus Plan, Amerada Hess
Corporation Savings and Stock Bonus Plan for Retail Operations Employees and the
1995 Long-Term Incentive Plan, of our report dated February 19, 1998, with
respect to the consolidated financial statements incorporated herein by
reference.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, N.Y.
March 20, 1998
F-2
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
3(1) -- Restated Certificate of Incorporation of Registrant
incorporated by reference to Exhibit 19 of Form 10-Q of
Registrant for the three months ended September 30, 1988.
3(2) -- By-Laws of Registrant incorporated by reference to Exhibit
3(2) of Form 10-K of Registrant for the fiscal year ended
December 31, 1985.
4(1) -- Note and Warrant Purchase Agreement, dated June 27, 1991
(including the form of the Common Stock Purchase Warrant
expiring June 27, 2001, included as Exhibit B thereof)
incorporated by reference to Exhibit 4 of Form 10-Q of
Registrant for the three months ended June 30, 1991.
4(2) -- Amendment, dated as of May 15, 1992 to the Note and
Warrant Purchase Agreement, dated June 27, 1991 (including
the form of the common stock purchase warrant expiring
June 27, 2001, included as Exhibit B thereof),
incorporated by reference to Exhibit 19 of Form 10-Q of
Registrant for the three months ended June 30, 1992.
4(3)* -- Credit Agreement dated as of May 20, 1997 among
Registrant, the Subsidiary Borrowers thereunder, The Chase
Manhattan Bank as Administrative Agent and the Lenders
party thereto, incorporated by reference to Exhibit 4 of
Form 10-Q of Registrant for the three months ended June
30, 1997.
-- Other instruments defining the rights of holders of
long-term debt of Registrant and its consolidated
subsidiaries are not being filed since the total amount of
securities authorized under each such instrument does not
exceed 10 percent of the total assets of Registrant and
its subsidiaries on a consolidated basis. Registrant
agrees to furnish to the Commission a copy of any
instruments defining the rights of holders of long-term
debt of Registrant and its subsidiaries upon request.
10(1) -- Extension and Amendment Agreement between the Government
of the Virgin Islands and Hess Oil Virgin Islands Corp.
incorporated by reference to Exhibit 10(4) of Form 10-Q of
Registrant for the three months ended June 30, 1981.
10(2) -- Restated Second Extension and Amendment Agreement dated
July 27, 1990 between Hess Oil Virgin Islands Corp. and
the Government of the Virgin Islands incorporated by
reference to Exhibit 19 of Form 10-Q of Registrant for the
three months ended September 30, 1990.
10(3) -- Technical Clarifying Amendment dated as of November 17,
1993 to Restated Second Extension and Amendment Agreement
between the Government of the Virgin Islands and Hess Oil
Virgin Islands Corp. incorporated by reference to Exhibit
10(3) of Form 10-K of Registrant for the fiscal year ended
December 31, 1993.
10(4)* -- Incentive Compensation Award Plan for Key Employees of
Amerada Hess Corporation and its subsidiaries incorporated
by reference to Exhibit 10(2) of Form 10-K of Registrant
for the fiscal year ended December 31, 1980.
10(5)* -- Financial Counseling Program description incorporated by
reference to Exhibit 10(3) of Form 10-K of Registrant for
the fiscal year ended December 31, 1980.
10(6)* -- Executive Long-Term Incentive Compensation and Stock
Ownership Plan of Registrant dated June 3, 1981
incorporated by reference to Exhibit 10(5) of Form 10-Q of
Registrant for the three months ended June 30, 1981.
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
10(7)* -- Amendment dated as of December 5, 1990 to the Executive
Long-Term Incentive Compensation and Stock Ownership Plan
of Registrant incorporated by reference to Exhibit 10(9)
of Form 10-K of Registrant for the fiscal year ended
December 31, 1990.
10(8)* -- Amerada Hess Corporation Pension Restoration Plan dated
January 19, 1990 incorporated by reference to Exhibit
10(9) of Form 10-K of Registrant for the fiscal year ended
December 31, 1989.
10(9)* -- Letter Agreement dated August 8, 1990 between Registrant
and Mr. John Y. Schreyer relating to Mr. Schreyer's
participation in the Amerada Hess Corporation Pension
Restoration Plan incorporated by reference to Exhibit
10(11) of Form 10-K of Registrant for the fiscal year
ended December 31, 1991.
10(10)* -- 1995 Long-Term Incentive Plan, as amended, incorporated by
reference to Appendix A of Registrant's definitive proxy
statement dated March 28, 1996 for the Annual Meeting of
Stockholders held on May 1, 1996.
10(11)* -- Stock Award Program for non-employee directors dated
August 6, 1997.
13 -- 1997 Annual Report to Stockholders of Registrant.
21 -- Subsidiaries of Registrant.
23 -- Consent of Ernst & Young LLP, Independent Auditors, dated
March 20, 1998, to the incorporation by reference in
Registrant's Registration Statements on Form S-8 (Nos.
333-43569, 333-43571 and 33-65115) of its report relating
to Registrant's financial statements, which consent
appears on page F-2 herein.
27 -- Financial Data Schedule (for electronic filing only).
</TABLE>
- --------------------------------------------------------------------------------
* These exhibits relate to executive compensation plans and arrangements.
<PAGE> 1
EXHIBIT 10(11)
Stock Award Program for Non-Employee Directors
August 6, 1997
On August 6, 1997, in an effort to increase the commonality of interest of
non-employee directors and stockholders, the Board of Directors approved a plan
to award each non-employee director of the Corporation 200 shares of Common
Stock of the Corporation on the first business day of each year commencing in
1998. Such awards shall be made from treasury shares purchased from time to
time by the Corporation in the open market.
<PAGE> 1
AMERADA HESS
1997 Annual Report
<PAGE> 2
Exploration
& Production
Baldpate Project
Amerada Hess is constructing a compliant tower taller
than the world's tallest building for the Baldpate Field.
[Graphic Omitted]
6
<PAGE> 3
[Graphic Omitted]
7
<PAGE> 4
Significant discoveries made
in Garden Banks area
United States
Amerada Hess repositioned its exploration program in 1997 to reflect its
commitment to deeper water prospects in the Gulf of Mexico and continued
sharpening the focus of its onshore efforts. The Corporation acquired 50 new
offshore leases in deeper water covering more than 150,000 net acres at a total
cost of $28.1 million.
Development of the Baldpate Field on Garden Banks Block 260 proceeded in
1997. Pre-drilling of the production wells is substantially complete. The
compliant tower, being constructed as part of the production facilities, is
scheduled to be towed to location late in the first quarter of 1998.
Production from the Baldpate Field is scheduled to begin in the third
quarter of 1998 with peak gross production of about 40,000 barrels of oil per
day and 150,000 Mcf of natural gas per day expected to be reached late in 1998.
The Corporation has a 50% interest in the Baldpate Field and is the operator.
Northeast of the Baldpate Field, Amerada Hess, as operator, drilled two
successful wells on Garden Banks Block 216 (AHC 50%). The Corporation will
develop the shallower discovery on Block 216 by subsea tieback to the Baldpate
production facilities and is evaluating the deeper discovery.
Northwest of Baldpate, the Corporation has made two discoveries on the
north half of Garden Banks Block 215, which it operates with a 37.50% interest.
The first well, drilled in February 1997, encountered 170 feet of net
hydrocarbon bearing sands and the second well, drilled early in 1998,
encountered 300 feet of net pay. Development options are being studied.
Production from the A Platform (AHC 25%) on the Enchilada Field has begun
while development drilling continues. The platform will produce from Garden
Banks Blocks 83, 84, 127 and 128. First production from the B Platform on Garden
Banks Block 172 (AHC 60%) is expected by July 1998.
In the Seminole San Andres Unit in West Texas, which Amerada Hess operates
with a 34% interest, a pilot project is underway to determine the technical and
economic feasibility of recovering residual oil from the aquifer underlying the
main San Andres Field using carbon dioxide. Gross production from the Seminole
San Andres Unit, which came on stream in 1934, currently is averaging about
31,500 barrels of oil per day, primarily due to the successful tertiary recovery
project initiated by the Corporation in 1983.
8
<PAGE> 5
Exploration successes in North Sea
lead to additional developments
United Kingdom
Initial production from the Schiehallion Field is expected in mid-1998. Amerada
Hess Limited, the Corporation's British subsidiary, has a 15.67% interest in the
Schiehallion Field and expects its share of production to peak at about 19,000
barrels of oil per day late in 1998.
Amerada Hess Limited discovered the Flora Field on Block 31/26a (AHL 85%)
in 1997. The discovery well tested at 6,500 barrels of oil per day and an
appraisal well was successful. Amerada Hess Limited will tieback the Flora Field
to the Fife Field, which it operates with an 85% interest. First production is
anticipated in the second half of 1998 with peak net production estimated at
17,000 barrels of oil per day late in 1998.
Agreement was reached in 1997 to develop the Bittern Field (AHL 29.12%) on
Blocks 29/1a and 29/1b. Amerada Hess Limited will be manager of the joint team
that will develop and operate the facilities on the Bittern Field and expects
its share of production to reach 17,000 barrels of oil per day late in 1999.
Development of the Renee and Rubie Fields has begun. The fields will be
produced through the Amerada Hess Limited operated Ivanhoe/Rob Roy production
facilities on Block 15/21. Production will begin late in 1998 with a peak level
of 4,000 barrels of oil per day expected for Amerada Hess Limited in 1999.
Three other significant discoveries in the United Kingdom North Sea are
likely to lead to additional developments. The Appleton Beta (AHL 48.46%)
discovery on Block 30/11b flowed at a rate of 6,329 barrels of oil per day and
13,400 Mcf of natural gas per day. An appraisal well is being drilled.
A crude oil discovery on Block 13/24b (AHL 30%) tested at 2,600 barrels per
day. An appraisal well early in 1998 was successful. Development plans are being
formulated.
A discovery made by Amerada Hess Limited on Block 20/4b (AHL 40%)
delineated a discovery on Block 14/29a known as Goldeneye. The well tested at
41,500 Mcf of natural gas per day and 2,055 barrels of condensate per day.
Development options are being studied.
Amerada Hess Limited acquired additional interests in the northern United
Kingdom North Sea. In addition to obtaining increased interests in the Beryl,
Nevis and Ness Fields and in Katrine, a satellite of Beryl, the acquisitions
also included interests in the Buckland, Sorby and Maclure developments. These
developments should be completed by 2000 with net total production for Amerada
Hess Limited forecast at 7,000 barrels of oil per day and 8,000 Mcf of natural
gas per day. In 1997, Amerada Hess Limited also increased its interests in
attractive exploration acreage that includes the Halley and Appleton Fields to
48.46% from 28.46%.
9
<PAGE> 6
First production from
Denmark expected in 1999
Amerada Hess Limited has a 27.68% interest in natural gas fields in the
southern United Kingdom North Sea referred to as the ECA (Easington Catchment
Area). These fields are being developed and will come on stream in 1999. In
2000, Amerada Hess Limited will receive production of 70,000 Mcf of natural gas
per day from these fields.
Norway
Amerada Hess Norge A/S, the Corporation's Norwegian subsidiary, replaced 175% of
its production in 1997. The reserve increase was the result of extensions and
revisions in the Valhall Field (AHN 28.09%). Studies are continuing for
implementation of a waterflood enhanced recovery program in the Valhall Field.
Amerada Hess Norge is evaluating development options for the Mjolner Field
(AHN 50%), from which production for Amerada Hess Norge will peak at a rate of
7,000 barrels of oil per day.
Denmark
Amerada Hess A/S, the Corporation's Danish subsidiary, is proceeding with the
development of the South Arne Field, which it operates with a 57.48% interest.
The South Arne Field is scheduled to commence production in 1999 and currently
is expected to provide Amerada Hess A/S with 26,000 barrels of oil per day and
35,000 Mcf of natural gas per day in 2000. A very prolific development well
completed in 1998 could lead to significantly upgraded reserves and production
rates from this field.
Gabon
The Corporation's production in Gabon averaged 10,000 barrels of oil per day in
1997, the same level as 1996. The production comes from the Rabi Kounga Field in
which the Corporation has a net interest of 5.5%.
A well drilled on the Atora Prospect on RGA Block 11 onshore Gabon
discovered oil. Early in 1998 the discovery was declared commercial. Amerada
Hess will have an interest in this development.
Thailand
Development of the Pailin Field (AHC 15%) offshore Thailand is proceeding
with first production expected in 1999. The Corporation's share of production is
expected to peak at 50,000 Mcf of natural gas per day in 2000.
Two appraisal wells in the Moragot Field offshore Thailand were successful
in 1997. The first well tested at daily rates of 11,000 Mcf of natural gas and
200 barrels of condensate; the second tested at a cumulative rate of 12,800 Mcf
of natural gas per day and 400 barrels of oil per day. Development options for
the Moragot Field are being studied.
Amerada Hess, as operator, is drilling the Phu Wiang-1 exploration well on
Block 5440/38 onshore Thailand. The Corporation has a 31.50% interest in this
well.
10
<PAGE> 7
[Graphic Omitted]
Flora Well, North Sea
- --------------------------------------------------------------------------------
11
<PAGE> 8
Phu-Wiang Well, Northern Thailand
- --------------------------------------------------------------------------------
[Graphic Omitted]
12
<PAGE> 9
New fields being developed in
Gabon, Thailand and Indonesia
Indonesia
Production has begun from the North Geragai Field. The Corporation's share of
production is averaging about 2,000 barrels of oil per day.
The second Makmur exploration well tested at 2,950 barrels of oil per day.
The original discovery well tested at 2,960 barrels of oil per day in one zone
and 770 barrels per day from two other zones. Amerada Hess has a 30% interest in
the Makmur discovery and its share of production is expected to peak at 3,000
barrels of oil per day late in 1998.
A well drilled on the Lematang production sharing contract in southern
Sumatra tested at 30,700 Mcf of natural gas per day. The Corporation is operator
on this prospect with a 50% interest and is formulating a development plan.
Malaysia
In Malaysia, the Corporation signed production sharing contracts under which it
became the operator with a 70% interest in Block PM304 in the Malay Basin and
became the operator with an 80% interest in Block SK306, offshore Sarawak.
Seismic data will be obtained and analyzed in 1998.
Kazakstan
Amerada Hess has interests as operator in four exploration blocks covering 4,300
net square miles in Kazakstan. Exploration drilling will begin in 1998.
Falkland Islands
The Corporation will drill the first exploration well ever drilled in Falkland
Islands' waters in the second quarter of 1998. The well will be drilled in the
Tranche A license area which comprises approximately 625 square miles. The
Corporation is operator with a 25% interest.
13
<PAGE> 10
Refining
& Marketing
[Graphic Omitted]
14
<PAGE> 11
[Graphic Omitted]
Refinery in St. Croix, Virgin Islands
- --------------------------------------------------------------------------------
The HESS Refinery in St. Croix is one of the
largest, most flexible in the world.
15
<PAGE> 12
Virgin Islands catcracker
operating at 135,000 barrels per day
Refining
Hess Oil Virgin Islands Corp., the Corporation's Virgin Islands subsidiary,
continues to implement initiatives designed to maximize the manufacture of high
value products with minimal capital investment and reduce costs at its Virgin
Islands refinery.
The fluid catalytic cracking unit's operating rates reached a level of
130,000 barrels per day in 1997 and recently the unit has been running at a rate
of 135,000 barrels per day. The fluid catalytic cracking unit manufactures
gasoline from feedstocks of heavy gas oil and residual fuel oil. The increased
operating rate allows a greater percentage of the refinery's yield to be sold as
high-value gasoline.
Refinery runs at the Virgin Islands refinery averaged 411,000 barrels per
day in 1997 compared with 396,000 barrels per day in 1996.
In 1996, HOVIC initiated a program to increase the use of advanced computer
controls for maximizing the operational performance of processing units at the
refinery. An advanced computer control system was installed on the fluid
catalytic cracking unit in 1996. By the middle of 1998, advanced computer
controls will be operating throughout most of the refinery.
Following receipt of a modified air permit from the New Jersey
Environmental Protection Agency, the Corporation operated its fluid catalytic
cracking unit at Port Reading, New Jersey at rates up to 62,000 barrels per day
in 1997. The Port Reading facility upgrades residual fuel oil and other
feedstocks into gasoline and distillates.
Marketing
In 1997, Amerada Hess continued to implement a strategy designed to make the
Corporation the leading independent retail gasoline marketer in its market
areas. The program includes the development and rollout of new, large-scale,
high-volume gasoline and HESS EXPRESS convenience store retail sites, upgrades
to existing gasoline stations and convenience stores, acquisitions in key
geographic areas and continued growth in the number of independent HESS branded
retailers.
The HESS EXPRESS retail outlets are high-volume facilities that generally
include 3,400 square foot convenience stores with two fast food offerings, a
proprietary gourmet coffee, an enlarged beverage fountain program and enhanced
color graphics. The Corporation opened seven HESS EXPRESS outlets in 1997 and
will continue the growth of these new, high-volume outlets through new builds as
well as rebuilds on appropriate existing sites throughout its network.
16
<PAGE> 13
[Graphic Omitted]
HESS Express, Venice, Florida
- --------------------------------------------------------------------------------
17
<PAGE> 14
HESS acquires 66 retail sites
on west coast of Florida
The most significant event in 1997 was the purchase of the 66 "Pick Kwik"
retail sites on the west coast of Florida, primarily in the Tampa/St. Petersburg
market. Pick Kwik was a leading independent gasoline and convenience store
retail marketer on Florida's west coast. The acquisition significantly increases
the HESS presence in this rapidly growing market.
The Corporation also continues to increase the number of independent
branded retailers in order to increase gasoline sales under the HESS brand name
without significant additional capital outlay. By year end, there were 60 HESS
brand independent retailers in key geographic markets with plans to continue
growth through this marketing channel.
In terminal operations, the Corporation has entered into a number of
thruput agreements with other oil companies under which products will be stored
at HESS terminals in certain locations on the east coast of the United States.
The Corporation also has entered into a joint venture agreement for the
operation of its terminal in Syracuse, New York. These initiatives will increase
operating efficiencies and reduce terminal operating costs.
The Corporation has established an energy marketing unit. For over forty
years, HESS refined petroleum products have been marketed to utilities,
industrial customers, hospitals, large commercial buildings and large
residential users. More recently, the Corporation has been marketing natural gas
to many local distribution companies, primarily on the east coast of the United
States. With the deregulation of natural gas and local distribution companies,
the Corporation is building an energy marketing business that capitalizes on its
marketing experience.
Product sales increased to 509,000 barrels per day in 1997, compared with
495,000 barrels per day in 1996. Sales of gasoline increased to 214,000 barrels
per day in 1997, compared with 191,000 barrels per day in 1996.
18
<PAGE> 15
Financial
Review
Amerada Hess Corporation and Consolidated Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Consolidated Results of Operations
Income excluding special items for 1997 amounted to $14 million compared with
$236 million in 1996 and a loss of $65 million in 1995.
The after-tax results by major operating activity for 1997, 1996 and 1995
are summarized below (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Exploration and production $ 258 $ 210 $ 129
Refining, marketing
and shipping (110) 181 9
Corporate (16) (19) (10)
Interest (118) (136) (193)
- -------------------------------------------------------------------------------
Income (loss) excluding
special items 14 236 (65)
Special items (6) 424 (329)
- -------------------------------------------------------------------------------
Net income (loss) $ 8 $ 660 $(394)
===============================================================================
Net income (loss) per
share (diluted) $ .08 $7.09 $(4.26)
===============================================================================
</TABLE>
Comparison of Results
Exploration and Production: Excluding special items, exploration and production
earnings increased by $48 million in 1997, due to improved earnings in the
United States and United Kingdom. The increase in the United States reflects
higher average crude oil and natural gas selling prices, including the effects
of hedging, and lower exploration expenses. The United Kingdom increase was
primarily due to higher natural gas prices and a lower effective income tax
rate, partially offset by lower crude oil sales volumes and selling prices and
increased exploration expenses.
The $81 million increase in exploration and production earnings in 1996
resulted primarily from higher average worldwide crude oil selling prices and
increased United States natural gas prices.
The Corporation's average selling prices, including the effects of hedging,
were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Crude oil and natural gas
liquids (per barrel)
United States $18.43 $16.49 $15.82
Foreign 19.16 20.18 16.95
Natural gas (per Mcf)
United States(*) 2.47 2.43 1.70
Foreign 2.36 1.93 1.60
================================================================================
</TABLE>
(*) Includes sales of purchased gas.
The increase in the United States crude oil selling price in 1997 reflects
improved hedging results. The average spot price of crude oil in 1997 was lower
than in 1996. The increase in the average foreign natural gas selling price in
1997 principally reflects improved market prices in the United Kingdom.
The Corporation's net daily worldwide production was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Crude oil and natural gas
liquids (barrels per day)
United States 43,950 50,125 63,006
Foreign 174,622 186,672 197,454
- --------------------------------------------------------------------------------
Total 218,572 236,797 260,460
- --------------------------------------------------------------------------------
Natural gas (Mcf per day)
United States 311,915 337,653 401,581
Foreign 257,339 347,013 482,550
- --------------------------------------------------------------------------------
Total 569,254 684,666 884,131
================================================================================
</TABLE>
In the United States, both crude oil and natural gas production are lower
in 1997 and 1996 principally reflecting the effect of asset sales in mid-1996.
Lower foreign crude oil production also reflects asset sales in 1996, as well as
production interruptions and natural decline in certain United Kingdom fields in
1997. The decrease in foreign natural gas production principally reflects the
sale of the Corporation's Canadian operations in 1996.
20
<PAGE> 16
Depreciation, depletion and amortization charges were lower in 1997 and
1996, largely reflecting lower production volumes, primarily due to asset sales.
Exploration expenses were higher in 1997 as a result of increased activity in
the United Kingdom and other international areas. Selling, general and
administrative expenses also increased in 1997, reflecting the increased scope
of international activities. Exploration expenses were lower in 1996 than in
1995, largely due to reduced activity in the United Kingdom and Denmark.
The effective income tax rate on United Kingdom earnings decreased to
approximately 35% in 1997 from 55% in 1996, reflecting lower Petroleum Revenue
Taxes ("PRT") and a reduction in the statutory Corporate income tax rate. The
lower PRT is partially due to reduced production volumes from PRT paying fields.
Also, PRT deductible allowances increased, resulting in income tax benefits of
more than $20 million. An additional income tax benefit of $11 million was
recorded in 1997 from the adjustment of deferred tax liabilities for the
reduction in the statutory Corporate rate. Increased income taxes on another
foreign subsidiary, which has utilized its net operating loss carryforward,
partially offset the lower United Kingdom taxes. The overall effective income
tax rate on exploration and production earnings in 1996 was lower than in 1995.
The market prices of crude oil declined significantly in late 1997 and
early 1998 and will impact the Corporation's exploration and production
earnings, which are sensitive to changes in the selling prices of crude oil and
natural gas. Future earnings may also be negatively impacted by changes in
foreign tax laws.
Refining, Marketing and Shipping: The results of refining, marketing and
shipping operations amounted to a loss of $110 million in 1997, compared with
income of $181 million in 1996 and $9 million in 1995 (excluding special items).
During 1997, refined product selling prices fell by approximately $7.00 per
barrel from the beginning to the end of the year and averaged below 1996 prices
for the year. The lower selling prices in relation to the Corporation's cost of
crude oil and refined product inventories resulted in lower margins on the sales
of refined products and a reduction in inventory values at year-end. Relatively
mild winters at both the beginning and end of the year lowered distillate and
residual fuel oil prices contributing to the lower margins. The Corporation's
costs of crude oil and refined product inventories are accounted for on the
first-in, first-out and average cost methods, generally resulting in lower
earnings during periods of falling refined product prices and higher earnings
during periods of rising prices.
In 1996, average refined product selling prices increased by approximately
$4.00 per barrel over 1995, resulting in higher margins throughout the year.
Total refined product sales volumes amounted to 186 million barrels in
1997, 181 million barrels in 1996 and 178 million barrels in 1995. The majority
of this increase is in sales of gasoline resulting from expansion of the fluid
catalytic cracking unit in the Virgin Islands, which is currently operating at
approximately 130,000 barrels per day.
In 1997 and 1996, a substantial portion of the refining and marketing
results were recorded by the Corporation's Virgin Islands subsidiary for which
income taxes or benefits are not recorded due to available loss carryforwards.
The absence of income tax provisions increases the volatility of reported
refining and marketing results.
The Corporation's refining and marketing results will continue to be
volatile reflecting competitive industry conditions and supply and demand
factors, including the effects of weather.
On February 3, 1998, the Corporation announced an agreement in principle
with Petroleos de Venezuela, S.A. ("PDVSA") to create a joint venture, 50% owned
by each party, to own and operate the Corporation's Virgin Islands refinery.
Under the proposed terms of the transaction, PDVSA will acquire a 50%
interest in the refinery for $625 million, consisting of $62.5 million in cash
and an interest-bearing note payable over ten years. The Corporation will also
receive an additional note for $125 million, which is contingently payable based
on the joint venture's future cash flow over ten years. This note will not be
included in the purchase price for accounting purposes.
At closing, the joint venture will purchase the crude oil and refined
product inventories and other working capital of the refinery. The joint venture
will also enter into a long-term supply contract to purchase Venezuelan crude
oil. In addition, the joint
21
<PAGE> 17
venture will finance and construct a coker and related facilities, which will
enable the refinery to process lower-cost, heavy crude oil from Venezuela, which
will be purchased under a separate long-term supply contract.
Upon completion of the transaction, the Corporation presently estimates
that it will record a loss for financial statement purposes of approximately
$125 million. The transaction is subject to the preparation of definitive
contracts, Virgin Islands governmental authorizations and corporate board
approvals. The Corporation plans to account for its investment in the joint
venture on the equity method.
Corporate: Net corporate expenses amounted to $16 million in 1997, $19 million
in 1996 and $10 million in 1995 (excluding special items). The variances in each
period are primarily due to Corporate income tax adjustments, including the
effect of foreign source earnings on the provision for United States income
taxes.
Interest: After-tax interest expense decreased by 13% in 1997 and 30% in 1996,
primarily reflecting lower average outstanding debt. Assuming interest rates
comparable to 1997, interest expense in 1998 is anticipated to be somewhat
higher than 1997, as average debt balances are expected to increase reflecting
1998 capital requirements.
Special Items
After-tax special items in 1997, 1996 and 1995 are summarized below (in
millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Refining,
Exploration Marketing
and and
Total Production Shipping Corporate
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Asset write-downs $ (55) $ (55) $ -- $ --
Foreign tax refund 38 38 -- --
Gain on asset sale 11 11 -- --
- --------------------------------------------------------------------------------
Total $ (6) $ (6) $ -- $ --
- --------------------------------------------------------------------------------
1996
Gain on asset sales $ 421 $ 421 $ -- $ --
Litigation settlement 25 25 -- --
Asset write-downs (22) (22) -- --
- --------------------------------------------------------------------------------
Total $ 424 $ 424 $ -- $ --
- --------------------------------------------------------------------------------
1995
FAS No. 121 asset
impairment $(416) $ (69) $(347) $ --
Gain on asset sales 68 40 3 25
Windfall profits
tax refund 44 44 -- --
Insurance recovery 8 8 -- --
Hurricane costs (19) -- (19) --
Staff-reduction costs (14) -- -- (14)
- --------------------------------------------------------------------------------
Total $(329) $ 23 $(363) $ 11
================================================================================
</TABLE>
The 1997 special items include an after-tax charge of $55 million ($.60 per
share) for the reduction in carrying values and provision for future costs of
the Durward and Dauntless Fields in the United Kingdom North Sea and income of
$38 million ($.42 per share) from a refund of United Kingdom Petroleum Revenue
Taxes. The Corporation also sold a small United States natural gas field in
1997. Asset impairments and asset sales are more fully described in Note 3 to
the financial statements.
22
<PAGE> 18
The net gain on asset sales in 1996 of $421 million ($4.52 per share)
reflected the sale of the Corporation's Canadian operations, certain United
States and United Kingdom producing properties and Abu Dhabi assets. The other
1996 special items included income from the settlement of litigation on the
right to drill certain South Atlantic leases and a charge principally to reduce
the carrying values of certain United States undeveloped leases.
Special items in 1995 included an after-tax charge of $416 million ($4.47
per share) resulting from the adoption of Financial Accounting Standard (FAS)
No. 121 on asset impairment. The 1995 results also included net gains from asset
sales, principally United States pipeline and gathering assets and an interest
in an undeveloped United Kingdom natural gas field.
Gains on asset sales, the litigation settlement and windfall profits tax
refund were reflected in non-operating revenues. The 1997 income tax refund was
recorded as a reduction of income tax expense.
The Corporation is reengineering its financial functions in the United
States and installing new financial systems. The costs of these projects in 1997
and 1996 for exploration and production and refining and marketing operations
aggregated approximately $27 million and $22 million, respectively, and are
included in selling, general and administrative expenses. The Corporation
expects to benefit from these projects in 1998 and future years.
Consolidated Operating Revenues
Sales and other operating revenues amounted to $8,234 million in 1997, a
decrease of $38 million from 1996. Sales revenues from refined products were
lower, reflecting lower average selling prices, particularly for distillates and
residual fuel oils, partially offset by increased sales volumes of gasoline.
Revenues from sales of crude oil were lower, partially offset by increased
natural gas revenues, including sales of purchased natural gas.
Sales and other operating revenues amounted to $8,272 million in 1996, an
increase of $970 million, or 13%, from 1995. The increase was primarily due to
the higher selling prices of refined products. Also contributing to the increase
were higher average crude oil and natural gas selling prices and higher sales
volumes of purchased gas.
Liquidity and Capital Resources
Net cash provided by operating activities, including changes in operating assets
and liabilities, amounted to $1,250 million in 1997, $808 million in 1996 and
$1,241 million in 1995. The change in each year was primarily due to changes in
working capital items, particularly inventories. Cash flow, excluding special
items and changes in working capital components, amounted to $798 million in
1997, $1,040 million in 1996 and $987 million in 1995, largely reflecting
changes in operating income. In 1996, the Corporation generated proceeds from
asset sales of approximately $1 billion. The Corporation also generated $22
million in proceeds from the sale of a small natural gas field in 1997 and has
two additional asset sales pending, with estimated proceeds of $70 million, that
are expected to be completed in the first half of 1998. The Corporation
continuously reviews the financial performance of its assets.
Total debt was $2,127 million at December 31, 1997 compared with $1,939
million at December 31, 1996. The debt to capitalization ratio increased to
39.8% from 36.4% at year-end 1996. At December 31, 1997, floating rate debt
amounted to 35% of total debt, including the effect of interest rate conversion
(swap) agreements.
During 1997, the Corporation refinanced its revolving credit agreements in
the United States and United Kingdom with a $2 billion, five-year, unsecured
global revolving credit facility. At December 31, 1997, the Corporation had
additional borrowing capacity under its revolving credit agreement of $1,032
million and additional unused lines of credit under uncommitted arrangements
with banks of $464 million. The existing borrowing arrangements, including
restrictive covenants, are more fully described in Note 6 to the financial
statements.
In 1997 and 1996, the Corporation sold following year crude oil production
for $174 million and $101 million, respectively, which is recorded in current
liabilities and reduced debt at the end of each year.
During 1997, the Corporation purchased 2,368,100 shares of common stock for
$125 million under its stock repurchase program. Since the inception of the
program in August 1996 through December 1997, $134 million has been spent on
stock purchases. The Corporation expects to purchase additional shares in 1998.
23
<PAGE> 19
The Corporation conducts foreign exploration and production activities,
principally in the United Kingdom, Norway, Denmark, Gabon, Indonesia and
Thailand, and intends to increase its exploration activities in other
international areas. Therefore, the Corporation is subject to business risks
associated with foreign operations. These risks include the effects of changes
in values of currencies on the financial statements. However, the effect of
foreign currency translation on the Corporation's earnings and stockholders'
equity has not been material and has not affected the Corporation's liquidity or
ability to raise capital. The financial problems in certain Asian countries have
not had a material adverse effect on the value of the Corporation's Asian
investments.
Capital Expenditures
The following table summarizes the Corporation's capital expenditures in 1997,
1996 and 1995 (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Exploration and production
Exploration $ 286 $ 236 $ 245
Development 679 512 377
Oil and gas acquisitions 193 40 4
- --------------------------------------------------------------------------------
1,158 788 626
Refining, marketing and other 188 73 66
- --------------------------------------------------------------------------------
Total $1,346 $ 861 $ 692
================================================================================
</TABLE>
Development expenditures in 1997 and 1996 include approximately $460
million and $280 million, respectively, for major new oil and gas field
developments. Expenditures for major developments are expected to increase in
1998. Oil and gas acquisitions in 1997 represent purchases of developed and
undeveloped oil and gas properties and exploration acreage in the United
Kingdom. Refining and marketing expenditures include the purchase of a chain of
retail marketing properties in Florida. Excluding possible acquisitions, capital
expenditures in 1998 are expected to be approximately $1.3 billion and will be
financed by internally generated funds and external borrowings.
Derivative Financial Instruments
The Corporation is exposed to market risks related to volatility in the selling
prices of crude oil, natural gas and refined products, as well as to changes in
interest rates and foreign currency values. Derivative instruments are used to
reduce the risks of these price and rate fluctuations. The Corporation has
guidelines for, and controls over, the use of derivative instruments.
Futures, forwards, options and swaps are used to reduce the effects of
changes in the selling prices of crude oil, natural gas and refined products.
These instruments 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 December 31, 1997, the Corporation had open
hedge positions equal to 10% of its estimated 1998 worldwide crude oil
production. The Corporation also had open contracts equal to 8% of its estimated
1998 United States natural gas production. 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.
The Corporation owns an interest in a partnership which trades energy
commodities and energy derivatives. The accounts of the partnership are
consolidated with those of the Corporation. The Corporation also engages in
limited trading for its own account.
The Corporation uses value at risk to estimate the potential effect of
changes in fair values of derivatives and other instruments used in hedging
activities and derivatives and commodities used in trading activities. This
method determines the potential one-day change in fair value with 95%
confidence. The analysis is based on historical volatility, variance/covariance
modeling and other assumptions. The Corporation estimates that at December 31,
1997, the value at risk related to hedging activities, excluding the physical
inventory hedged, was $5 million and the value at risk on trading activities,
predominantly partnership trading, was $2 million.
The Corporation also uses interest rate conversion agreements to reduce
exposure to rising interest rates. At December 31, 1997, the Corporation has
$300 million of notional value interest rate conversion agreements which
effectively reduce its percentage of floating rate debt from 49% to 35%. These
agreements relate to the Corporation's outstanding debt of $2,127 million, which
24
<PAGE> 20
together with the interest rate swaps, has a fair value of $2,234 million at
December 31. A 10% change in interest rates would change the fair values of debt
and related swaps by $48 million.
The Corporation also hedges a portion of its exposure to fluctuating
foreign exchange rates, principally the Pound Sterling. Generally, the
Corporation uses forward contracts to fix the exchange rate on a portion of the
currency used in its North Sea operations. The possible change in fair value of
those contracts from a 10% change in the exchange rate is estimated to be $18
million at December 31.
Year 2000
Some older computer programs use two digits rather than four to reflect dates
used in performing calculations. As a result, these programs may not properly
recognize the year 2000 and errors may result. The Corporation has instituted a
program to identify these computer programs and modify or replace its systems so
that they will function properly in the year 2000. Since 1995, the Corporation
has been installing new financial systems in its United States operations as
part of its financial reengineering project. While the primary purpose of this
project is to increase efficiency and effectiveness, the software being
installed is year 2000 compliant.
The Corporation is also taking actions, using internal and external
resources, to modify or replace the remaining United States and foreign computer
applications that are not year 2000 compliant. The Corporation is expensing
these costs as incurred and expects that the total future costs of this program
will be approximately $15 million, a portion of which is included in its normal
information technology budget. The Corporation does not presently expect that
its operations will be materially affected by problems with its computer systems
or those of third parties with whom it deals.
Environment, Health and Safety
The Corporation's awareness of its environmental responsibilities and
environmental regulations at the federal, state and local levels have led to
programs requiring higher operating costs and capital investments by the
Corporation. The Corporation believes that it has made the necessary
expenditures to comply with current laws and that it is well positioned to meet
currently proposed regulations.
The Corporation continues to focus on energy conservation, pollution
control and waste minimization and treatment. There are also programs for
compliance evaluation, facility auditing and employee training to monitor
operational activities and to prevent conditions that might threaten the
environment.
The Corporation produces gasolines that meet the current requirements for
oxygenated and reformulated gasolines of the Clean Air Act of 1990. Reformulated
gasolines decrease emissions of volatile and toxic organic compounds. The
Corporation's production of reformulated gasolines from the Virgin Islands and
Port Reading facilities meets its marketing requirements. The Corporation's
Virgin Islands refinery can also produce gasolines that comply with the
requirements for reformulated gasolines that begin in 2000. This refinery also
has desulfurization capabilities enabling it to produce low-sulfur diesel fuel
that meets the requirements of the Clean Air Act. The Corporation can also
produce gasoline and diesel fuel that meet the requirements of the California
Air Resources Board.
The Corporation expects continuing expenditures for environmental
assessment and remediation. Sites where corrective action may be necessary
include gasoline stations, terminals, refineries (including solid waste
management units under permits issued pursuant to the Resource Conservation and
Recovery Act) and, although not significant, Superfund sites where the
Corporation has been named a potentially responsible party under the Superfund
legislation. The Corporation expects that existing reserves for environmental
liabilities will adequately cover costs of assessing and remediating known
sites.
The Corporation expended $12 million in 1997, $13 million in 1996 and $15
million in 1995 for remediation. In addition, capital expenditures for
facilities, primarily to comply with federal, state and local environmental
standards, were $5 million in 1997, $7 million in 1996 and $15 million in 1995.
25
<PAGE> 21
Forward Looking Information
Certain sections of the Financial Review, including references to the
Corporation's future results of operations and financial position, capital
expenditures, the proposed refining joint venture, derivative disclosures and
year 2000 and environmental sections, represent forward looking information. The
disclosures are based on the Corporation's current understanding and assessment
of these activities and reasonable assumptions about the future. Actual results
may differ from these disclosures because of changes in market conditions,
governmental actions and other factors.
Dividends
Cash dividends on common stock totaled $.60 per share ($.15 per quarter) during
1997 and 1996.
Stock Market Information
The common stock of Amerada Hess Corporation is traded principally on the New
York Stock Exchange (ticker symbol: AHC). High and low sales prices in 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996
------------------- ------------------
Quarter Ended High Low High Low
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31 62 52 3/8 55 3/4 50 3/4
June 30 56 3/8 47 3/8 59 7/8 52 1/8
September 30 62 3/4 54 3/16 54 5/8 47 1/2
December 31 64 1/2 49 5/16 60 1/2 52 1/2
================================================================================
</TABLE>
Quarterly Financial Data
Quarterly results of operations for the years ended December 31, 1997 and 1996
follow (millions of dollars, except per share data):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Income Net
Sales (loss) income
and other excluding Net (loss)
operating Gross special Special income per share
Quarter revenues profit(a) items items (loss) (diluted)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997
First $2,397 $ 336 $ 4 $ -- $ 4 $ .05
Second 1,834 312 31 11(b) 42 .45
Third 1,885 342 23 -- 23 .25
Fourth 2,118 270 (44) (17)(c) (61) (.67)
- -------------------------------------------------------------------------------------------
Total $8,234 $1,260 $ 14 $ (6) $ 8 $ .08
===========================================================================================
1996
First $2,215 $ 376 $ 66 $ -- $ 66 $ .71
Second 2,095 320 26 350(b) 376 4.04
Third 1,746 300 27 71(b) 98 1.05
Fourth 2,216 471 117 3(d) 120 1.29
- -------------------------------------------------------------------------------------------
Total $8,272 $1,467 $ 236 $ 424 $ 660 $ 7.09
===========================================================================================
</TABLE>
(a) Gross profit represents sales and other operating revenues less cost of
products sold and operating expenses and depreciation, depletion and
amortization.
(b) Represents net gains on asset sales.
(c) Reflects an after-tax charge of $55 million for the impairment of the
Durward and Dauntless Fields in the United Kingdom North Sea and income of
$38 million from a refund of United Kingdom taxes.
(d) Includes income of $25 million from the settlement of litigation on the
right to drill certain South Atlantic leases and a charge of $22 million
principally to reduce the carrying values of certain undeveloped leases.
The results of operations for the periods reported herein should not be
considered as indicative of future operating results.
26
<PAGE> 22
Statement of
Consolidated Income
Amerada Hess Corporation and Consolidated Subsidiaries
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31
------------------------------------------------
Thousands of dollars, except per share data 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Sales (excluding excise taxes) and other operating revenues $ 8,233,723 $ 8,272,186 $ 7,302,307
Non-operating revenues
Asset sales 16,463 529,271 96,010
Other 89,860 128,254 126,472
- -----------------------------------------------------------------------------------------------------------------------
Total revenues 8,340,046 8,929,711 7,524,789
- -----------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Cost of products sold and operating expenses 6,301,046 6,074,695 5,226,157
Exploration expenses, including dry holes and lease impairment 373,180 342,860 350,378
Selling, general and administrative expenses 649,815 602,329 617,871
Interest expense 136,149 165,501 247,465
Depreciation, depletion and amortization 672,669 730,382 851,406
Asset impairment 80,602 -- 584,161
Provision for income taxes 119,085 353,845 41,764
- -----------------------------------------------------------------------------------------------------------------------
Total costs and expenses 8,332,546 8,269,612 7,919,202
- -----------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 7,500 $ 660,099 $ (394,413)
=======================================================================================================================
Net Income (Loss) Per Share
Basic $ .08 $ 7.13 $ (4.26)
Diluted $ .08 $ 7.09 $ (4.26)
=======================================================================================================================
</TABLE>
Statement of
Consolidated Retained Earnings
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31
------------------------------------------------
Thousands of dollars, except per share data 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at Beginning of Year $2,613,920 $2,017,064 $2,467,267
Net income (loss) 7,500 660,099 (394,413)
Dividends declared--common stock
($.60 per share in 1997, 1996 and 1995) (55,090) (55,761) (55,790)
Common stock acquired and retired (103,325) (7,482) --
- -----------------------------------------------------------------------------------------------------------------------
Balance at End of Year $2,463,005 $2,613,920 $2,017,064
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 23
Consolidated
Balance Sheet
Amerada Hess Corporation and Consolidated Subsidiaries
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
At December 31
-----------------------------
Thousands of dollars 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 91,154 $ 112,522
Accounts receivable
Trade 951,796 812,175
Other 41,302 35,954
Inventories 937,949 1,272,312
Other current assets 181,431 193,881
- -----------------------------------------------------------------------------------------------------------------
Total current assets 2,203,632 2,426,844
- -----------------------------------------------------------------------------------------------------------------
Investments and Advances 250,458 218,573
- -----------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment
Exploration and production 8,779,807 8,233,445
Refining 2,688,403 2,650,486
Marketing 1,025,178 883,555
Shipping 128,247 134,933
- -----------------------------------------------------------------------------------------------------------------
Total--at cost 12,621,635 11,902,419
Less reserves for depreciation, depletion, amortization and lease impairment 7,430,841 6,995,136
- -----------------------------------------------------------------------------------------------------------------
Property, plant and equipment--net 5,190,794 4,907,283
- -----------------------------------------------------------------------------------------------------------------
Deferred Income Taxes and Other Assets 289,735 231,781
- -----------------------------------------------------------------------------------------------------------------
Total Assets $ 7,934,619 $ 7,784,481
=================================================================================================================
</TABLE>
28
<PAGE> 24
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
At December 31
-----------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable--trade $ 752,576 $ 666,172
Accrued liabilities 513,389 501,369
Deferred revenue 175,684 103,031
Taxes payable 195,692 258,723
Notes payable 17,825 18,000
Current maturities of long-term debt 84,685 189,685
- -----------------------------------------------------------------------------------------------------
Total current liabilities 1,739,851 1,736,980
- -----------------------------------------------------------------------------------------------------
Long-Term Debt 1,975,281 1,660,998
- -----------------------------------------------------------------------------------------------------
Capitalized Lease Obligations 27,752 50,818
- -----------------------------------------------------------------------------------------------------
Deferred Liabilities and Credits
Deferred income taxes 562,371 616,900
Other 413,665 335,154
- -----------------------------------------------------------------------------------------------------
Total deferred liabilities and credits 976,036 952,054
- -----------------------------------------------------------------------------------------------------
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--91,451,205 shares in 1997; 93,073,305 shares in 1996 91,451 93,073
Capital in excess of par value 774,631 754,559
Retained earnings 2,463,005 2,613,920
Equity adjustment from foreign currency translation (113,388) (77,921)
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 3,215,699 3,383,631
- -----------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 7,934,619 $ 7,784,481
=====================================================================================================
</TABLE>
The consolidated financial statements reflect the successful efforts method of
accounting for oil and gas exploration and producing activities.
See accompanying notes to consolidated financial statements.
29
<PAGE> 25
Statement of
Consolidated Cash Flows
Amerada Hess Corporation and Consolidated Subsidiaries
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31
-----------------------------------------------
Thousands of dollars 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 7,500 $ 660,099 $ (394,413)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation, depletion and amortization 672,669 730,382 851,406
Asset impairment 80,602 -- 584,161
Exploratory dry hole costs and lease impairment 228,536 217,426 220,544
Pre-tax gain on asset sales (16,463) (529,271) (96,010)
Increase in accounts receivable (148,488) (66,452) (226,790)
(Increase) decrease in inventories 333,477 (434,206) 106,357
Increase in accounts payable, accrued liabilities and
deferred revenue 198,596 110,736 328,457
Increase (decrease) in taxes payable (46,626) 32,623 67,229
Changes in deferred income taxes and other (59,796) 86,384 (199,934)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,250,007 807,721 1,241,007
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Capital expenditures
Exploration and production (1,157,938) (788,286) (626,518)
Refining, marketing and other (187,652) (72,339) (65,593)
- -----------------------------------------------------------------------------------------------------------------------
Total capital expenditures (1,345,590) (860,625) (692,111)
Proceeds from asset sales and other 63,017 1,037,073 177,344
Investment in affiliate -- -- (31,552)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (1,282,573) 176,448 (546,319)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Issuance (repayment) of notes 1,982 (72,046) 26,247
Long-term borrowings 398,391 -- 25,000
Repayment of long-term debt and capitalized lease obligations (209,000) (794,527) (689,355)
Cash dividends paid (55,373) (55,746) (55,788)
Common stock acquired (122,283) (8,236) --
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 13,717 (930,555) (693,896)
- -----------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash (2,519) 2,837 2,144
- -----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (21,368) 56,451 2,936
Cash and Cash Equivalents at Beginning of Year 112,522 56,071 53,135
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 91,154 $ 112,522 $ 56,071
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 26
Statement of Consolidated Changes in
Common Stock and Capital in Excess of Par Value
Amerada Hess Corporation and Consolidated Subsidiaries
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Common stock
---------------------------- Capital in
Number of excess of
Thousands of dollars shares Amount par value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1995 92,995,755 $ 92,996 $ 743,537
Distribution to trustee under executive incentive
compensation and stock ownership plan (net) 15,500 15 715
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 93,011,255 93,011 744,252
Distribution to trustee under executive incentive
compensation and stock ownership plans (net) 211,750 212 11,300
Common stock acquired and retired (154,700) (155) (1,247)
Employee stock options exercised 5,000 5 254
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 93,073,305 93,073 754,559
Distribution to trustee under executive incentive
compensation and stock ownership plans (net) 719,000 719 38,145
Common stock acquired and retired (2,368,100) (2,368) (19,419)
Employee stock options exercised 27,000 27 1,346
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 91,451,205 $ 91,451 $ 774,631
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 27
Notes to
Consolidated Financial Statements
Amerada Hess Corporation and Consolidated Subsidiaries
1. Summary of Significant Accounting Policies
Nature of Business: Amerada Hess Corporation and subsidiaries (the
"Corporation") engage in the exploration for and the production, purchase,
transportation and sale of crude oil and natural gas. These activities are
conducted primarily in the United States, United Kingdom, Norway and Gabon. The
Corporation also has oil and gas activities in Denmark, Indonesia, Thailand and
other parts of the world. In addition, the Corporation manufactures, purchases,
transports and markets refined petroleum products. The Corporation's major
refining facility is in the United States Virgin Islands. Terminals and retail
outlets are located principally on the East Coast of the United States.
In preparing financial statements, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities in the
balance sheet and revenues and expenses in the income statement. Actual results
could differ from those estimates. Among the estimates made by management are:
oil and gas reserves, inventory valuations, pension liabilities, environmental
obligations, depreciation, depletion and amortization, dismantlement costs and
income taxes.
Principles of Consolidation: The consolidated financial statements include the
accounts of Amerada Hess Corporation and subsidiaries. The Corporation's
interests in oil and gas exploration and production ventures are proportionately
consolidated.
Investments in affiliated companies, owned 20% to 50% inclusive, are stated
at cost of acquisition plus the Corporation's equity in undistributed net income
since acquisition. The change in the equity in net income of these companies is
included in non-operating revenues in the income statement.
Intercompany transactions and accounts are eliminated in consolidation.
Certain amounts in prior years' financial statements have been reclassified
to conform with current year presentation, principally the inclusion of lease
impairment as exploration expense.
Cash and Cash Equivalents: Cash equivalents consist of highly liquid
investments, which are readily convertible into cash and have maturities of
three months or less.
Inventories: Crude oil and refined product inventories are valued at the lower
of cost or market value. Cost is determined on the first-in, first-out method
for approximately 60% of the inventories and the average cost method for the
remainder.
Inventories of materials and supplies are valued at or below cost.
Exploration and Development Costs: Oil and gas exploration and production
activities are accounted for on the successful efforts method. Costs of
acquiring undeveloped oil and gas leasehold acreage, including lease bonuses,
brokers' fees and other related costs, are capitalized. Provisions for
impairment of undeveloped oil and gas leases are based on periodic evaluations
and other factors.
Annual lease rentals and exploration expenses, including geological and
geophysical expenses and exploratory dry hole costs, are charged against income
as incurred.
Costs of drilling and equipping productive wells, including development dry
holes, and related production facilities are capitalized.
Depreciation, Depletion and Amortization: Depreciation, depletion and
amortization of oil and gas production equipment, properties and wells are
determined on the unit-of-production method based on estimated recoverable oil
and gas reserves. Depreciation of refinery facilities is determined on the
unit-of-production method based on estimated throughput volumes. Depreciation of
all other plant and equipment is determined on the straight-line method based on
estimated useful lives.
The estimated costs of dismantlement, restoration and abandonment, less
estimated salvage values, of offshore oil and gas production platforms and
certain other facilities are taken into account in determining depreciation.
Retirement of Property, Plant and Equipment: Costs of property, plant and
equipment retired or otherwise disposed of, less accumulated reserves, are
reflected in net income.
Maintenance and Repairs: The estimated costs of major maintenance, including
turnarounds at refineries, are accrued. Other expenditures for maintenance and
repairs are charged against income as incurred. Renewals and improvements are
treated as additions to property, plant and equipment, and items replaced are
treated as retirements.
32
<PAGE> 28
Environmental Expenditures: The Corporation capitalizes environmental
expenditures that increase the life or efficiency of property or that reduce or
prevent environmental contamination. The Corporation accrues for environmental
expenses resulting from existing conditions related to past operations when the
costs are probable and reasonably estimable.
Employee Stock Options and Nonvested Common Stock Awards: The Corporation uses
the intrinsic value method to account for employee stock options. Because the
exercise prices of employee stock options equal or exceed the market price of
the stock on the date of grant, the Corporation does not recognize compensation
expense. The Corporation records compensation expense for nonvested common stock
awards ratably over the vesting period.
Foreign Currency Translation: The local currency is the functional currency
(primary currency in which business is conducted) for the Corporation's North
Sea operations. The U.S. dollar is the functional currency for other foreign
operations. Adjustments resulting from translating foreign functional currency
assets and liabilities into U.S. dollars are recorded in a separate component of
stockholders' equity entitled "Equity adjustment from foreign currency
translation." Gains or losses resulting from transactions in other than the
functional currency are reflected in net income.
Hedging: The Corporation uses futures, forwards, options and swaps to hedge the
effects of fluctuations in the prices of crude oil, natural gas and refined
products and changes in interest rates and foreign currency values. These
transactions meet the requirements for hedge accounting, including designation
and correlation. The resulting gains or losses, measured by quoted market
prices, termination values or other methods, are accounted for as part of the
transactions being hedged, except that losses not expected to be recovered upon
the completion of hedged transactions are expensed. On the balance sheet,
deferred gains and losses are included in current assets and liabilities.
Trading: The results of commodity trading activities are marked to market, with
gains and losses recorded in operating revenue.
Income Taxes: Deferred income taxes are determined on the liability method. No
provision is made for U.S. income taxes applicable to undistributed earnings of
foreign subsidiaries that are indefinitely reinvested in foreign operations.
2. Refining Joint Venture
In February 1998, the Corporation and Petroleos de Venezuela, S.A. ("PDVSA")
signed an agreement in principle to create a joint venture to own and operate
the Corporation's Virgin Islands refinery. PDVSA will acquire a 50% interest in
the refinery for $625,000,000, consisting of $62,500,000 in cash and an
interest-bearing note payable over ten years. The Corporation will also receive
an additional note for $125,000,000, which is contingently payable based on the
joint venture's future cash flow over ten years. This note will not be included
in the purchase price for accounting purposes. Upon completion of the
transaction, the Corporation presently estimates that it will record a loss of
approximately $125,000,000.
The transaction is subject to the preparation of definitive contracts,
Virgin Islands governmental authorizations and corporate board approvals. The
Corporation plans to account for its investment in the joint venture on the
equity method.
3. Asset Impairment and Asset Sales
1997: The Corporation recorded a charge of $80,602,000 (approximately
$55,000,000 after income taxes) for impairment of long-lived assets and a
long-term operating lease, as a result of reserve revisions on its Durward and
Dauntless Fields in the United Kingdom North Sea. The amount of the charge was
determined by estimating the fair values of these facilities based on future net
cash flows.
In 1997, the Corporation also sold its interest in a small United States
natural gas field resulting in an after-tax gain of $10,700,000.
1996: The Corporation sold exploration and production assets in 1996 resulting
in a net gain of $421,150,000. These sales included the Corporation's Canadian
operations, certain United States and United Kingdom producing properties and
Abu Dhabi assets.
1995: Upon adoption of FAS No. 121, the Corporation recorded an impairment
charge for long-lived assets and a long-term operating lease of $584,161,000
($415,542,000 after income taxes). Of the after-tax amount, $346,396,000 related
to refining, marketing and shipping operations, principally a refining facility
and ocean going vessels. The remainder related to oil and gas producing
properties.
33
<PAGE> 29
In 1995 the Corporation also sold a crude oil pipeline and gathering system
in the southeastern United States, an interest in an undeveloped United Kingdom
natural gas field and various other assets. The net gain from these asset sales
was $68,100,000.
4. Inventories
Inventories at December 31 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Thousands of dollars 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Crude oil and other charge stocks $ 269,783 $ 441,071
Refined and other finished products 564,973 734,141
- --------------------------------------------------------------------------------
834,756 1,175,212
Materials and supplies 103,193 97,100
- --------------------------------------------------------------------------------
Total $ 937,949 $1,272,312
================================================================================
</TABLE>
5. Short-Term Notes Payable and Related Lines of Credit
Short-term notes payable to banks totaled $17,825,000 and $18,000,000 at
December 31, 1997 and 1996, respectively. The weighted average interest rates on
these borrowings were 7.0% and 7.5%. At December 31, 1997, the Corporation has
unused lines of credit under uncommitted arrangements with banks aggregating
approximately $464,000,000. No compensating balances or fees are required for
these lines of credit.
6. Long-Term Debt
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Thousands of dollars 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
6.1% Marine Terminal Revenue Bonds--
Series 1994--City of Valdez, Alaska,
due 2024 $ 20,000 $ 20,000
Pollution Control Revenue Bonds, weighted
average rate 6.6%, due through 2022 52,590 52,574
Fixed rate notes, payable principally to
insurance companies, weighted
average rate 8.5%, due through 2014 1,013,376 1,202,100
Global Revolving Credit Facility with
banks, weighted average rate 6.1%*,
due 2002 968,000 --
Revolving Credit Agreements with banks -- 571,609
Other loans, weighted average rate 8.2%,
due through 2007 6,000 4,400
- --------------------------------------------------------------------------------
2,059,966 1,850,683
Less amount included in
current maturities 84,685 189,685
- --------------------------------------------------------------------------------
Total $1,975,281 $1,660,998
================================================================================
</TABLE>
* Includes effect of interest rate conversion agreements.
The aggregate long-term debt maturing during the next five years is as
follows (in thousands): 1998--$84,685 (included in current liabilities);
1999--$141,686; 2000--$400; 2001--$20,400 and 2002--$1,163,400.
The Corporation's long-term debt agreements contain various restrictions
and conditions, including working capital requirements and limitations on total
borrowings and cash dividends. At December 31, 1997, the ratio of current assets
to current liabilities of 1.3 to 1 exceeds the required working capital ratio of
1 to 1. The Corporation has additional borrowing capacity of $1,032,000,000 for
the construction or acquisition of assets and $678,000,000 of retained earnings
free of dividend restrictions.
During 1997, the Corporation refinanced its revolving credit agreements in
the United States and United Kingdom with a $2,000,000,000 Global Revolving
Credit Facility (the "Facility"), of which $968,000,000 is outstanding at
December 31. Outstanding amounts are due to be repaid in 2002, but may be
extended for an additional two years with the consent of the lenders. Borrowings
bear interest at a margin above the London Interbank Offered Rate ("LIBOR")
based on the Corporation's capitalization ratio. The current borrowing rate is
.165% above LIBOR. Facility fees of .11% per annum are payable on the amount of
the credit line.
The Corporation sold a portion of its following year crude oil production
in 1997 and 1996 and used the proceeds to repay revolving credit debt.
Accordingly, at December 31, 1997 and 1996, $173,681,000 and $101,028,000,
respectively, are included in deferred revenue on the balance sheet.
At December 31, 1997, the Corporation has interest rate conversion
agreements, accounted for by the accrual method, that effectively convert
floating rate debt to fixed rate debt, reducing the percentage of its floating
rate debt from 49% to 35%.
In 1997, the Corporation capitalized interest of $10,284,000 on major
development projects. No interest was capitalized in 1996 or 1995.
The total amount of interest paid, principally on short-term and long-term
debt, in 1997, 1996 and 1995 was $146,795,000, $176,033,000 and $254,760,000,
respectively.
34
<PAGE> 30
7. Stockholders' Equity
The Corporation has outstanding stock options and nonvested common stock under
its Executive Long-Term Incentive Compensation and Stock Ownership Plan (which
expired in 1997) and its 1995 Long-Term Incentive Plan. Generally, stock options
vest one year from the date of grant and the exercise price equals or exceeds
the market price on the date of grant. Nonvested common stock vests three or
five years from the date of grant, depending on the terms of the award.
The Corporation's stock option activity in 1997 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Weighted-
average
Options exercise price
(thousands) per share
- --------------------------------------------------------------------------------
<S> <C> <C>
Granted in 1995, approved in 1996 863 $56.39
Granted in 1996 629 62.22
Exercised (5) 51.75
Forfeited (66) 56.39
- --------------------------------------------------------------------------------
Outstanding at December 31, 1996 1,421 58.99
Granted 873 54.75
Exercised (27) 50.86
Forfeited (19) 59.52
- --------------------------------------------------------------------------------
Outstanding at December 31, 1997 2,248 $57.43
================================================================================
Exercisable at December 31, 1997 1,376 $59.14
================================================================================
</TABLE>
Exercise prices for employee stock options at December 31, 1997 ranged from
$49.00 to $64.75 per share. The weighted-average remaining contractual life of
employee stock options is 9 years.
In complying with FAS No. 123, Accounting for Stock-Based Compensation, the
Corporation used the Black-Scholes model to estimate the fair value of employee
stock options for pro forma disclosure of the effects on net income and earnings
per share. The Corporation used the following weighted-average assumptions in
the Black-Scholes model for 1997 and 1996, respectively: risk-free interest
rates of 5.9% and 5.8%; expected stock price volatility of .220 and .213; a
dividend yield of 1.1%; and an expected life of seven years. The Corporation's
net income would have been reduced by approximately $7,600,000 in 1997 and
$7,700,000 in 1996 ($.08 per share, diluted, in both years) if option expense
were recorded using the fair value method.
The weighted-average fair values of options granted for which the exercise
price equaled the market price on the date of grant were $18.69 in 1997 and
$18.91 in 1996. In 1996, the fair value of options granted for which the
exercise price exceeded the market price on the date of grant was $15.47.
Total compensation expense for nonvested common stock was $11,553,000 in
1997 and $5,915,000 in 1996. Awards of nonvested common stock were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares of
nonvested Weighted-
common stock average
awarded price on date
(thousands) of grant
- --------------------------------------------------------------------------------
<S> <C> <C>
Granted in 1995, approved in 1996 203 $49.81
Granted in 1996 95 57.30
Granted in 1997 746 53.94
================================================================================
</TABLE>
At December 31, 1997, the number of common shares reserved for issuance is
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
1995 Long-Term Incentive Plan
Future distributions 1,452,500
Stock options outstanding 2,248,000
Stock appreciation rights 52,000
Warrants* 1,051,584
- --------------------------------------------------------------------------------
Total 4,804,084
================================================================================
</TABLE>
* Issued in connection with an insurance company financing, exercisable
through June 27, 2001 at $64.66 per share.
In January 1998, the Corporation issued an additional 862,500 options under
the 1995 Long-Term Incentive Plan.
8. Foreign Currency Translation
Foreign currency exchange transactions reflected in net income (after income tax
effect) amounted to gains of $5,073,000 in 1997, $1,813,000 in 1996 and
$1,475,000 in 1995.
The equity adjustment from foreign currency translation, reflected in the
balance sheet as a reduction of stockholders' equity, increased by $35,467,000
in 1997. The change was due to the stronger U.S. dollar at year-end, which
resulted in lower translated values for net foreign assets recorded in local
currencies. In 1996, the equity account decreased by $116,010,000 as a result of
a weaker dollar than in 1995 and the sale of the Corporation's Canadian
operations, which had a cumulative translation adjustment of $33,541,000.
35
<PAGE> 31
9. Pension Plans
The Corporation has noncontributory, defined benefit pension plans covering
substantially all employees, except those covered by union pension plans.
Retirement benefits are based on credited service and final average
compensation. The Corporation's policy is to fund pension costs accrued, except
where funding limitations are imposed under income tax regulations.
Pension expense consisted of:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Thousands of dollars 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost of benefits earned $ 19,109 $ 17,915 $ 27,270
Accrued interest on
projected benefit
obligation 33,162 29,961 26,149
Return on plan assets (63,598) (40,960) (67,063)
Net amortization and deferral 27,744 8,558 39,707
- --------------------------------------------------------------------------------
Total pension expense $ 16,417 $ 15,474 $ 26,063
================================================================================
</TABLE>
Plan assets include fixed income and equity securities, including
investments in commingled funds. A summary of the funded status of the
Corporation's pension plans at December 31 follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Thousands of dollars 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Market value of plan assets $ 427,912 $ 381,532
Book reserves 53,688 47,517
- --------------------------------------------------------------------------------
Total assets and reserves 481,600 429,049
- --------------------------------------------------------------------------------
Actuarial present value of benefit obligation
Vested 375,697 339,442
Non-vested 12,071 13,355
- --------------------------------------------------------------------------------
Total 387,768 352,797
Effects of projected future salary increases 76,960 67,001
- --------------------------------------------------------------------------------
Projected benefit obligation 464,728 419,798
- --------------------------------------------------------------------------------
Total assets and reserves in excess
of projected benefit obligation $ 16,872 $ 9,251
================================================================================
Components of assets and reserves
in excess of projected benefit obligation
Unrecognized prior service costs $ (10,321) $ (11,601)
Unrecognized net experience gains 27,193 20,852
- --------------------------------------------------------------------------------
Total $ 16,872 $ 9,251
================================================================================
</TABLE>
The discount rate and assumed rate of future salary increases used in
determining the actuarial present value of the projected benefit obligation were
7% and 5%, respectively, in 1997 and 7.5% and 5.5%, respectively, in 1996. The
assumed long-term rate of return on plan assets was 8.5% in 1997 and 1996.
The Corporation has a nonqualified supplemental pension plan covering
certain employees, which provides for incremental pension payments from the
Corporation's funds so that total pension payments equal amounts that would have
been payable from the Corporation's principal pension plan if it were not for
limitations imposed by income tax regulations. The projected benefit obligation
related to this unfunded plan totaled $35,606,000 at December 31, 1997 and
$29,562,000 at December 31, 1996. Pension expense for the plan was $5,098,000 in
1997, $3,970,000 in 1996 and $3,706,000 in 1995. At December 31, 1997, the
Corporation has accrued $20,138,000 for this plan. The Corporation has
established a trust for use in funding the supplemental pension plan.
10. Provision for Income Taxes
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Thousands of dollars 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States Federal
Current $ 16,210 $ 20,156 $ 4,411
Deferred (27,254) 6,528 (190,512)
State 1,418 4,904 2,796
- --------------------------------------------------------------------------------
(9,626) 31,588 (183,305)
- --------------------------------------------------------------------------------
Foreign
Current 181,665(a) 285,302 190,609
Deferred (41,599) 36,955 34,460
- --------------------------------------------------------------------------------
140,066 322,257 225,069
- --------------------------------------------------------------------------------
Adjustment of deferred tax
liability for foreign
income tax rate change (11,355) -- --
- --------------------------------------------------------------------------------
Total $ 119,085 $ 353,845 $ 41,764
================================================================================
</TABLE>
(a) Includes income tax refund of $38,180.
Income (loss) before income taxes consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Thousands of dollars 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 3,533 $ 55,678 $ (656,190)
Foreign* 123,052 958,266 303,541
- --------------------------------------------------------------------------------
Total $ 126,585 $1,013,944 $ (352,649)
================================================================================
</TABLE>
*Foreign income includes the Corporation's Virgin Islands, shipping and other
operations located outside of the United States.
36
<PAGE> 32
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. A summary of the components of deferred tax liabilities and assets
at December 31 follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Thousands of dollars 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities
Fixed assets $ 390,214 $ 405,617
Foreign petroleum taxes 294,004 316,942
Other 51,778 50,823
- --------------------------------------------------------------------------------
Total deferred tax liabilities 735,996 773,382
- --------------------------------------------------------------------------------
Deferred tax assets
Accrued liabilities 170,730 152,323
Net operating and capital loss
carryforwards 471,583 396,872
Tax credit carryforwards 132,014 124,455
Other 41,826 18,390
- --------------------------------------------------------------------------------
Total deferred tax assets 816,153 692,040
Valuation allowance (330,119) (271,213)
- --------------------------------------------------------------------------------
Net deferred tax assets 486,034 420,827
- --------------------------------------------------------------------------------
Net deferred tax liabilities $ 249,962 $ 352,555
================================================================================
</TABLE>
The difference between the Corporation's effective income tax rate and the
United States statutory rate is reconciled below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States statutory rate 35.0% 35.0% (35.0)%
Effect of foreign operations,
including foreign tax credits
--Virgin Islands subsidiary 60.9 (2.6) 9.4
--Other 11.4 2.0 37.3
Effect of capital
loss carryforward (8.3) .5 1.1
State income taxes, net of
Federal income tax benefit .7 .3 .5
Prior year adjustments (3.5) (.1) (.7)
Tax credits (.8) (.1) (.6)
Other (1.3) (.1) (.2)
- --------------------------------------------------------------------------------
Total 94.1% 34.9% 11.8%
================================================================================
</TABLE>
The Corporation has not recorded deferred income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely reinvested
in foreign operations. Undistributed earnings amounted to approximately $1.1
billion at December 31, 1997, excluding amounts which, if remitted, generally
would not result in any additional U.S. income taxes because of available
foreign tax credits. If the earnings of such foreign subsidiaries were not
indefinitely reinvested, a deferred tax liability of approximately $200 million
would have been required.
For income tax reporting at December 31, 1997, the Corporation has general
business credit carryforwards of approximately $25 million, principally expiring
in 1999 through 2001. In addition, the Corporation has alternative minimum tax
credit carryforwards of approximately $95 million, which can be carried forward
indefinitely. The Corporation's Virgin Islands refining subsidiary, which is the
subject of an agreement in principle to form a 50% joint venture, has a net
operating loss carryforward of approximately $1.2 billion, expiring through
2012.
Income taxes paid (net of refunds) in 1997, 1996 and 1995 amounted to
$259,767,000, $294,905,000 and $101,066,000, respectively.
11. Net Income Per Share
The weighted average number of common shares used in the basic and diluted
earnings per share computations are summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Thousands of shares 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shares--basic 91,254 92,552 92,509
Effect of dilutive securities
Nonvested common stock 858 539 --
Stock options 51 19 --
- --------------------------------------------------------------------------------
Common shares--diluted 92,163 93,110 92,509
================================================================================
</TABLE>
Diluted common shares include shares that would be outstanding assuming the
fulfillment of restrictions on nonvested shares and the exercise of stock
options. The above table excludes the effect of out-of-the-money options on
867,000 shares and 337,000 shares in 1997 and 1996, respectively. In 1995, the
table excludes the antidilutive effect of 493,000 nonvested common shares.
12. Financial Instruments, Hedging and Trading Activities
The Corporation uses futures, forwards, options and swaps, individually or in
combination, to reduce the effects of fluctuations in crude oil, natural gas and
refined product prices. In addition, the Corporation uses interest rate
conversion agreements to fix the interest rates on a portion of its long-term,
floating-rate debt. Foreign currency contracts are used to protect the
Corporation from changes in exchange rates.
37
<PAGE> 33
Commodity Hedging: At December 31, 1997, the Corporation's hedging activities
included commodity and financial contracts maturing mainly in 1998, covering
11,800,000 barrels of crude oil and refined products (17,200,000 barrels in
1996) and 9,300,000 Mcf of natural gas (24,300,000 Mcf in 1996). Of the crude
oil and refined product hedges, 7,300,000 barrels related to exploration and
production activities (6,900,000 barrels in 1996), and the remainder related to
refining and marketing operations.
The Corporation produced 80,000,000 barrels of crude oil and natural gas
liquids and 207,000,000 Mcf of natural gas in 1997, and had approximately
41,000,000 barrels of crude oil and refined products in its refining and
marketing inventories at December 31, 1997. Since the contracts described above
are designated as hedges and correlate to price movements of crude oil, natural
gas and refined products, any gains or losses resulting from market changes will
be offset by losses or gains on the Corporation's hedged inventory or
production. Net deferred gains from the Corporation's hedging activities were
approximately $22,000,000 at December 31, 1997, including $17,000,000 of
unrealized gains.
Financial Instruments: At December 31, 1997, the Corporation has $300,000,000 in
interest rate conversion agreements outstanding (none at December 31, 1996). The
Corporation has $179,150,000 of notional value foreign currency forward and
purchased option contracts maturing generally in 1998 ($270,300,000 at December
31, 1996) and $38,800,000 in letters of credit outstanding ($37,000,000 at
December 31, 1996). Notional amounts do not quantify risk or represent assets or
liabilities of the Corporation, but are used in the calculation of cash
settlements under the contracts.
Fair Value Disclosure: The carrying amounts of cash and cash equivalents,
short-term debt and long-term, variable-rate debt approximate fair value. The
Corporation estimates the fair value of its long-term, fixed-rate debt generally
using discounted cash flow analysis based on the Corporation's current borrowing
rates for debt with similar maturities. Interest rate conversion agreements and
foreign currency exchange contracts are valued based on current termination
values or quoted market prices of comparable contracts. The Corporation's
valuation of commodity contracts considers quoted market prices, time value,
volatility of the underlying commodities and other factors.
The carrying amounts of the Corporation's financial instruments and
commodity contracts, including those used in the Corporation's hedging
activities, generally approximate their fair values at December 31, except as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
1997 1996
---------------------- ----------------------
Balance Balance
sheet Fair sheet Fair
Millions of dollars, asset (liability) amount value amount value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term, fixed-rate debt $(1,091) $(1,194) $(1,279) $(1,379)
Interest rate conversion
agreements -- (4) -- --
Foreign currency exchange
agreements and options -- 4 -- 18
============================================================================================
</TABLE>
Market and Credit Risks: The Corporation's financial instruments expose it to
market and credit risks and may at times be concentrated with certain
counterparties or groups of counterparties. Counterparties to the Corporation's
financial instruments are major financial institutions and their credit
worthiness is subject to continuing review, however, full performance is
anticipated.
Commodity Trading: The Corporation, principally through a consolidated
partnership formed in 1997, trades energy commodities, including futures,
forwards, options and swaps, based on expectations of future market conditions.
The Corporation's 1997 net income from trading activities, including its share
of the results of the trading partnership, was approximately $4,000,000.
The following table presents the year-end fair values of energy commodities
and derivative instruments used in trading activities and the average aggregate
fair values during the year.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fair Value
----------------------------
At
December 31, Average for
Millions of dollars, asset (liability) 1997 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Commodities $ 33 $ 21
Futures and forwards
Assets 20 13
Liabilities (14) (9)
Options
Held (4) (2)
Written 6 1
Swaps
Assets 3 4
Liabilities (1) (1)
================================================================================
</TABLE>
38
<PAGE> 34
Notional amounts of commodities and derivatives relating to trading
activities follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
At
December 31,
Millions of barrels of oil equivalent 1997
- --------------------------------------------------------------------------------
<S> <C>
Commodities 2
Futures and forwards--Long 26
--Short (28)
Options--Held 8
--Written (10)
Swaps*--Long 7
--Short (9)
================================================================================
</TABLE>
* Includes 4 million barrels long and 6 million barrels short related to basis
swaps.
13. Leased Assets
The Corporation and certain of its subsidiaries lease floating production
systems, drilling rigs, tankers, gasoline stations, office space and other
assets for varying periods. At December 31, 1997, the Corporation had net
capital lease assets of $74,912,000, representing natural gas production and
transportation facilities in the United Kingdom, which are included in property,
plant and equipment in the balance sheet.
At December 31, 1997, future minimum rental payments applicable to capital
and noncancelable operating leases with remaining terms of one year or more
(other than oil and gas leases) are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Operating Capital
Thousands of dollars Leases Leases
- --------------------------------------------------------------------------------
<S> <C> <C>
1998 $ 296,772 $ 24,018
1999 276,036 27,966
2000 254,983 --
2001 94,391 --
2002 70,889 --
Remaining years 398,726 --
- --------------------------------------------------------------------------------
Total minimum lease payments 1,391,797 51,984
Less: Imputed interest -- 2,487
Income from subleases 50,324 --
- --------------------------------------------------------------------------------
Net minimum lease payments $1,341,473 $ 49,497
================================================================================
Capitalized lease obligations--
Current $ 21,745
Long-term 27,752
- --------------------------------------------------------------------------------
Total $ 49,497
================================================================================
</TABLE>
Rental expense for all operating leases, other than rentals applicable to
oil and gas leases, was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Thousands of dollars 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total rental expense $195,246 $185,669 $179,255
Less income from subleases 11,792 5,264 1,748
- --------------------------------------------------------------------------------
Net rental expense $183,454 $180,405 $177,507
================================================================================
</TABLE>
14. Information on Major Operating Activities
Financial data by major geographic area for each of the three years ended
December 31, 1997 follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Consol-
Millions of dollars United States(a) Europe Other idated(b)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Operating revenues
Unaffiliated customers $ 6,557 $ 1,619 $ 58 $ 8,234
Intergeographic
transfers -- -- 77
Operating profit (loss)(c) (93) 321 19 247
Gain on asset sales 16 -- -- 16
Identifiable assets 5,115 2,573 247 7,935
Net assets 2,041 936 239 3,216
======================================================================================
1996
Operating revenues
Unaffiliated customers $ 6,589 $ 1,568 $ 115 $ 8,272
Intergeographic
transfers -- -- 104
Operating profit(c) 123 451 77 651
Gain on asset sales 196 56 277 529
Identifiable assets 5,046 2,502 236 7,784
Net assets 2,054 1,038 292 3,384
======================================================================================
1995
Operating revenues
Unaffiliated customers $ 5,750 $ 1,320 $ 232 $ 7,302
Intergeographic
transfers -- 71 96
Operating profit (loss)(c) (611) 286 124 (201)
Gain (loss) on asset sales 75 23 (2) 96
Identifiable assets 4,804 2,308 644 7,756
Net assets 1,236 869 555 2,660
======================================================================================
</TABLE>
(a) Includes U.S. Virgin Islands and shipping operations.
(b) After elimination of transactions between affiliates, which are valued at
approximate market prices.
(c) Excludes asset sales.
39
<PAGE> 35
14. Information on Major Operating Activities (Continued)
The following table presents financial data by major operating activity for
each of the three years ended December 31, 1997:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Exploration and Refining, Marketing
Millions of dollars Production and Shipping Corporate Consolidated(a)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Operating revenues
Total operating revenues $ 3,091 $ 5,285 $ 1
Less: Transfers between affiliates 142 1 --
- ----------------------------------------------------------------------------------------------------------------------
Operating revenues from unaffiliated customers $ 2,949 $ 5,284 $ 1 $ 8,234
======================================================================================================================
Operating profit (loss)(b) $ 400 $ (110) $ (43) $ 247
Gain on asset sales 16 -- -- 16
Interest expense -- -- (136) (136)
(Provision) benefit for income taxes (164) -- 45 (119)
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 252 $ (110) $ (134) $ 8
======================================================================================================================
Depreciation, depletion and amortization $ 553 $ 118 $ 2 $ 673
Asset impairment 81 -- -- 81
Identifiable assets 3,727 3,713 495 7,935
Capital expenditures 1,158 183 5 1,346
======================================================================================================================
1996
Operating revenues
Total operating revenues $ 3,166 $ 5,283 $ 2
Less: Transfers between affiliates 177 1 1
- ----------------------------------------------------------------------------------------------------------------------
Operating revenues from unaffiliated customers $ 2,989 $ 5,282 $ 1 $ 8,272
======================================================================================================================
Operating profit (loss)(b) $ 523 $ 174 $ (46) $ 651
Gain on asset sales 529 -- -- 529
Interest expense -- -- (166) (166)
(Provision) benefit for income taxes (418) 7 57 (354)
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 634 $ 181 $ (155) $ 660
======================================================================================================================
Depreciation, depletion and amortization $ 603 $ 125 $ 2 $ 730
Identifiable assets 3,600 3,802 382 7,784
Capital expenditures 788 68 5 861
======================================================================================================================
1995
Operating revenues
Total operating revenues $ 2,888 $ 4,528 $ 197
Less: Transfers between affiliates 245 2 64
- ----------------------------------------------------------------------------------------------------------------------
Operating revenues from unaffiliated customers $ 2,643 $ 4,526 $ 133 $ 7,302
======================================================================================================================
Operating profit (loss)(b) $ 351 $ (514) $ (38) $ (201)
Gain on asset sales 51 7 38 96
Interest expense -- -- (247) (247)
(Provision) benefit for income taxes (250) 153 55 (42)
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 152 $ (354) $ (192) $ (394)
======================================================================================================================
Depreciation, depletion and amortization $ 682 $ 164 $ 5 $ 851
Asset impairment 106 478 -- 584
Identifiable assets 3,920 3,476 360 7,756
Capital expenditures 626 63 3 692
======================================================================================================================
</TABLE>
(a) After elimination of transactions between affiliates, which are valued at
approximate market prices.
(b) Excludes asset sales.
40
<PAGE> 36
Report
of Management
Amerada Hess Corporation and Consolidated Subsidiaries
The consolidated financial statements of Amerada Hess Corporation and
consolidated subsidiaries were prepared by and are the responsibility of
management. These financial statements conform with generally accepted
accounting principles and are, in part, based on estimates and judgements of
management. Other information included in this Annual Report is consistent with
that in the consolidated financial statements.
The Corporation maintains a system of internal controls designed to provide
reasonable assurance that assets are safeguarded and that transactions are
properly executed and recorded. Judgements are required to balance the relative
costs and benefits of this system of internal controls.
The Corporation's consolidated financial statements have been audited by
Ernst & Young LLP, independent auditors, who have been selected by the Audit
Committee of the Board of Directors and approved by the stockholders. Ernst &
Young LLP assesses the Corporation's system of internal controls and performs
tests and procedures that they consider necessary to arrive at an opinion on the
fairness of the consolidated financial statements.
The Audit Committee of the Board of Directors, which consists solely of
nonemployee directors, meets periodically with the independent auditors,
internal auditors and management to review and discuss the Corporation's
financial information, the system of internal controls and the results of
internal and external audits. Ernst & Young LLP and the Corporation's internal
auditors have unrestricted access to the Audit Committee to discuss audit
findings and other financial matters.
/s/ John B. Hess
John B. Hess
Chairman of the Board and Chief Executive Officer
/s/ John Y. Schreyer
John Y. Schreyer
Executive Vice President and Chief Financial Officer
41
<PAGE> 37
Report
of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Amerada Hess Corporation
We have audited the accompanying consolidated balance sheet of Amerada Hess
Corporation and consolidated subsidiaries as of December 31, 1997 and 1996 and
the related consolidated statements of income, retained earnings, changes in
common stock and capital in excess of par value and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Amerada Hess
Corporation and consolidated subsidiaries at December 31, 1997 and 1996 and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, in 1995
the Corporation adopted Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, NY
February 19, 1998
42
<PAGE> 38
Supplementary
Oil and Gas Data
Amerada Hess Corporation and Consolidated Subsidiaries
The supplementary oil and gas data that follows is presented in accordance with
Statement of Financial Accounting Standards (FAS) No. 69, Disclosures about Oil
and Gas Producing Activities, and includes (1) costs incurred, capitalized costs
and results of operations relating to oil and gas producing activities, (2) net
proved oil and gas reserves, and (3) a standardized measure of discounted future
net cash flows relating to proved oil and gas reserves, including a
reconciliation of changes therein.
During 1996, the Corporation sold its Canadian and Abu Dhabi operations and
certain United States and United Kingdom producing properties. In the geographic
data which follows, information on Canada and Abu Dhabi has been combined for
disclosure purposes.
Costs Incurred in Oil and Gas Producing Activities
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
United Africa, Asia Canada and
For the Years Ended December 31 (Millions of dollars) Total States Europe and other Abu Dhabi
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Property acquisitions $237 $ 39 $193 $ 5 $--
Exploration 383 131 215 37 --
Development 679 231 408 40 --
- -----------------------------------------------------------------------------------------------------------------------------
1996
Property acquisitions $ 70 $ 32 $ 1 $37 $--
Exploration 332 135 160 22 15
Development 512 152 337 12 11
- -----------------------------------------------------------------------------------------------------------------------------
1995
Property acquisitions $ 48 $ 36 $ 2 $ 2 $ 8
Exploration 331 148 145 8 30
Development 377 107 242 5 23
=============================================================================================================================
<CAPTION>
Capitalized Costs Relating to Oil and Gas Producing Activities
- -----------------------------------------------------------------------------------------------------------------------------
At December 31 (Millions of dollars) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unproved properties $ 449 $ 279
Proved properties 1,425 1,437
Wells, equipment and related facilities 6,906 6,517
- -----------------------------------------------------------------------------------------------------------------------------
Total costs 8,780 8,233
Less: Reserve for depreciation, depletion, amortization and lease impairment 5,687 5,364
- -----------------------------------------------------------------------------------------------------------------------------
Net capitalized costs $3,093 $2,869
=============================================================================================================================
</TABLE>
43
<PAGE> 39
The results of operations for oil and gas producing activities shown below
exclude sales of purchased crude oil and natural gas, non-operating revenues
(including gains on sales of oil and gas properties), interest expense and gains
and losses resulting from foreign currency exchange transactions. Therefore,
these results differ from the net income from exploration and production
operations in Note 14 to the financial statements.
Results of Operations for Oil and Gas Producing Activities
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
United Africa, Asia Canada and
For the Years Ended December 31 (Millions of dollars) Total States Europe and other Abu Dhabi
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Sales and other operating revenues
Unaffiliated customers $1,991 $496 $1,462 $ 33 $ --
Inter-company 134 76 -- 58 --
- -----------------------------------------------------------------------------------------------------------------------------
Total revenues 2,125 572 1,462 91 --
- -----------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Production expenses, including related taxes 567 159 403 5 --
Exploration expenses, including dry holes
and lease impairment 373 145 187 41 --
Other operating expenses 184 56 89 39 --
Depreciation, depletion and amortization 552 126 408 18 --
Asset impairment 81 -- 81 -- --
Provision for income taxes 143 30 107 6 --
- -----------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 1,900 516 1,275 109 --
- -----------------------------------------------------------------------------------------------------------------------------
Results of operations $ 225 $ 56 $ 187 $(18) $ --
=============================================================================================================================
1996
Sales and other operating revenues
Unaffiliated customers $2,061 $474 $1,500 $ 11 $ 76
Inter-company 184 102 -- 78 4
- -----------------------------------------------------------------------------------------------------------------------------
Total revenues 2,245 576 1,500 89 80
- -----------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Production expenses, including related taxes 651 182 438 9 22
Exploration expenses, including dry holes
and lease impairment 343 183 124 27 9
Other operating expenses 209 66 115 21 7
Depreciation, depletion and amortization 603 165 405 16 17
Provision for income taxes 262 (6) 272 (4) --
- -----------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 2,068 590 1,354 69 55
- -----------------------------------------------------------------------------------------------------------------------------
Results of operations $ 177 $(14) $ 146 $ 20 $ 25
=============================================================================================================================
1995
Sales and other operating revenues
Unaffiliated customers $1,988 $540 $1,247 $ 15 $186
Inter-company 241 102 67 64 8
- -----------------------------------------------------------------------------------------------------------------------------
Total revenues 2,229 642 1,314 79 194
- -----------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Production expenses, including related taxes 638 219 350 12 57
Exploration expenses, including dry holes
and lease impairment 350 151 156 11 32
Other operating expenses 208 52 126 10 20
Depreciation, depletion and amortization 682 201 410 24 47
Asset impairment 106 106 -- -- --
Provision for income taxes 197 (30) 207 1 19
- -----------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 2,181 699 1,249 58 175
- -----------------------------------------------------------------------------------------------------------------------------
Results of operations $ 48 $(57) $ 65 $ 21 $ 19
=============================================================================================================================
</TABLE>
44
<PAGE> 40
The Corporation's net oil and gas reserves have been estimated by DeGolyer
and MacNaughton, independent consultants. The reserves in the tabulation below
include proved undeveloped crude oil and natural gas reserves that will require
substantial future development expenditures. The estimates of the Corporation's
proved reserves of crude oil and natural gas (after deducting royalties and
operating interests owned by others) follow:
Oil and Gas Reserves
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
United Africa, Asia Canada and
Total States Europe and other Abu Dhabi
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Proved Developed and Undeveloped Reserves
Crude Oil, Including Condensate and Natural Gas Liquids
(Millions of barrels)
At January 1, 1995 644 198 373 14 59
Revisions of previous estimates 68 11 44 6 7
Extensions, discoveries and other additions 95 30 61 1 3
Sales of minerals in-place (17) (11) (4) -- (2)
Production (95) (23) (62) (3) (7)
- ------------------------------------------------------------------------------------------------------------------------------
At December 31, 1995 695 205 412 18 60
Revisions of previous estimates 13 6 2 5 --
Improved recovery 6 6 -- -- --
Extensions, discoveries and other additions 45 5 40 -- --
Purchases of minerals in-place 4 -- -- 4 --
Sales of minerals in-place (98) (33) (8) -- (57)
Production (87) (18) (63) (3) (3)
- ------------------------------------------------------------------------------------------------------------------------------
At December 31, 1996 578 171 383 24 --
Revisions of previous estimates 47 7 40 -- --
Extensions, discoveries and other additions 39 12 21 6 --
Purchases of minerals in-place 14 1 13 -- --
Sales of minerals in-place (3) (1) (2) -- --
Production (80) (16) (60) (4) --
- ------------------------------------------------------------------------------------------------------------------------------
At December 31, 1997 595 174 395 26 --
==============================================================================================================================
Natural Gas (Millions of Mcf)
At January 1, 1995 2,581 1,002 998 -- 581
Revisions of previous estimates 53 6 57 -- (10)
Extensions, discoveries and other additions 270 200 7 53 10
Sales of minerals in-place (100) (23) (38) -- (39)
Production (323) (147) (97) -- (79)
- ------------------------------------------------------------------------------------------------------------------------------
At December 31, 1995 2,481 1,038 927 53 463
Revisions of previous estimates 108 34 74 -- --
Improved recovery 3 3 -- -- --
Extensions, discoveries and other additions 84 50 34 -- --
Purchases of minerals in-place 39 4 -- 35 --
Sales of minerals in-place (598) (158) -- -- (440)
Production (251) (124) (104) -- (23)
- ------------------------------------------------------------------------------------------------------------------------------
At December 31, 1996 1,866 847 931 88 --
Revisions of previous estimates 78 16 54 8 --
Extensions, discoveries and other additions 195 68 48 79 --
Purchases of minerals in-place 44 -- 44 -- --
Sales of minerals in-place (41) (8) (33) -- --
Production (207) (114) (93) -- --
- ------------------------------------------------------------------------------------------------------------------------------
At December 31, 1997 1,935 809* 951 175 --
==============================================================================================================================
Net Proved Developed Reserves
Crude Oil, Including Condensate and Natural Gas Liquids
(Millions of barrels)
At January 1, 1995 505 171 263 11 60
At December 31, 1995 540 157 310 13 60
At December 31, 1996 412 121 280 11 --
At December 31, 1997 420 123 280 17 --
Natural Gas (Millions of Mcf)
At January 1, 1995 2,210 838 814 -- 558
At December 31, 1995 2,036 755 823 -- 458
At December 31, 1996 1,368 553 815 -- --
At December 31, 1997 1,342 497 796 49 --
==============================================================================================================================
</TABLE>
* Excludes 481 million Mcf of carbon dioxide gas for sale or use in company
operations.
45
<PAGE> 41
The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves required to be disclosed by FAS No. 69 is based on
assumptions and judgements. As a result, the future net cash flow estimates are
highly subjective and could be materially different if other assumptions were
used. Therefore, caution should be exercised in the use of the data presented
below.
Future net cash flows are calculated by applying year-end oil and gas
selling prices (adjusted for price changes provided by contractual arrangements,
including hedges) to estimated future production of proved oil and gas reserves,
less estimated future development and production costs and future income tax
expenses. Future net cash flows are discounted at the prescribed rate of 10%. No
recognition is given in the discounted future net cash flow estimates to
depreciation, depletion, amortization and lease impairment, exploration
expenses, interest expense, general and administrative expenses and changes in
future prices and costs. The selling prices of crude oil and natural gas are
highly volatile.
Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
United Africa, Asia Canada and
At December 31 (Millions of dollars) Total States Europe and other Abu Dhabi
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Future revenues $13,001 $4,078 $ 8,207 $716 $ --
- -----------------------------------------------------------------------------------------------------------------------------
Less:
Future development and production costs 6,033 1,533 4,243 257 --
Future income tax expenses 3,127 831 2,073 223 --
- -----------------------------------------------------------------------------------------------------------------------------
9,160 2,364 6,316 480 --
- -----------------------------------------------------------------------------------------------------------------------------
Future net cash flows 3,841 1,714 1,891 236 --
Less: Discount at 10% annual rate 1,424 692 648 84 --
- -----------------------------------------------------------------------------------------------------------------------------
Standardized measure of discounted future
net cash flows $ 2,417 $1,022 $ 1,243 $152 $ --
=============================================================================================================================
1996
Future revenues $18,479 $5,936 $11,630 $913 $ --
- -----------------------------------------------------------------------------------------------------------------------------
Less:
Future development and production costs 6,551 1,906 4,382 263 --
Future income tax expenses 5,297 1,319 3,632 346 --
- -----------------------------------------------------------------------------------------------------------------------------
11,848 3,225 8,014 609 --
- -----------------------------------------------------------------------------------------------------------------------------
Future net cash flows 6,631 2,711 3,616 304 --
Less: Discount at 10% annual rate 2,447 1,160 1,213 74 --
- -----------------------------------------------------------------------------------------------------------------------------
Standardized measure of discounted future
net cash flows $ 4,184 $1,551 $ 2,403 $230 $ --
=============================================================================================================================
1995
Future revenues $17,201 $5,343 $ 9,857 $423 $1,578
- -----------------------------------------------------------------------------------------------------------------------------
Less:
Future development and production costs 7,352 2,289 4,273 46 744
Future income tax expenses 4,034 921 2,631 90 392
- -----------------------------------------------------------------------------------------------------------------------------
11,386 3,210 6,904 136 1,136
- -----------------------------------------------------------------------------------------------------------------------------
Future net cash flows 5,815 2,133 2,953 287 442
Less: Discount at 10% annual rate 2,057 899 952 40 166
- -----------------------------------------------------------------------------------------------------------------------------
Standardized measure of discounted future
net cash flows $ 3,758 $1,234 $ 2,001 $247 $ 276
=============================================================================================================================
</TABLE>
46
<PAGE> 42
Changes in Standardized Measure of Discounted Future Net
Cash Flows Relating to Proved Oil and Gas Reserves
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31 (Millions of dollars) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Standardized measure of discounted future net cash flows at beginning of year $4,184 $3,758 $3,260
- ------------------------------------------------------------------------------------------------------------------------------
Changes during the year
Sales and transfers of oil and gas produced during year, net of
production costs (1,558) (1,603) (1,574)
Development costs incurred during year 679 512 377
Net changes in prices and production costs applicable to future production (3,304) 2,577 1,195
Net change in estimated future development costs (392) (168) (118)
Extensions and discoveries (including improved recovery) of oil and
gas reserves, less related costs 140 315 451
Revisions of previous oil and gas reserve estimates 271 311 277
Purchases (sales) of minerals in-place, net 90 (983) (165)
Accretion of discount 769 600 498
Net change in income taxes 1,355 (814) (758)
Revision in rate or timing of future production and other changes 183 (321) 315
- ------------------------------------------------------------------------------------------------------------------------------
Total (1,767) 426 498
- ------------------------------------------------------------------------------------------------------------------------------
Standardized measure of discounted future net cash flows at end of year $2,417 $4,184 $3,758
==============================================================================================================================
</TABLE>
47
<PAGE> 43
Ten-Year Summary
of Financial Data
Amerada Hess Corporation and Consolidated Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Thousands of dollars, except per share data 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statement of Consolidated Income
Revenues
Sales (excluding excise taxes) and other operating revenues
Crude oil (including sales of purchased oil) $1,435,848 $1,528,692 $1,565,310
Natural gas (including sales of purchased gas) 1,414,314 1,364,833 1,120,450
Petroleum products 4,960,986 5,080,790 4,311,082
Other operating revenues 422,575 297,871 305,465
- --------------------------------------------------------------------------------------------------------------------------------
Total 8,233,723 8,272,186 7,302,307
Non-operating revenues (including asset sales) 106,323 657,525(a) 222,482
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues 8,340,046 8,929,711 7,524,789
- --------------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of products sold and operating expenses 6,301,046 6,074,695 5,226,157
Exploration expenses, including dry holes and lease impairment 373,180 342,860 350,378
Selling, general and administrative expenses 649,815 602,329 617,871
Interest expense 136,149 165,501 247,465
Depreciation, depletion and amortization 672,669 730,382 851,406
Asset impairment 80,602 -- 584,161(b)
Provision for income taxes 119,085 353,845 41,764
- --------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 8,332,546 8,269,612 7,919,202
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 7,500 $ 660,099 $ (394,413)
================================================================================================================================
Net income (loss) per share
Basic $.08 $7.13 $(4.26)
Diluted .08 7.09 (4.26)
================================================================================================================================
Dividends Per Share of Common Stock $.60 $ .60 $ .60
Weighted Average Number of Shares Outstanding (diluted)--
in thousands 92,163 93,110 92,509
================================================================================================================================
</TABLE>
(a) Includes a pre-tax gain on asset sales of $529,271. The net gain, after
applicable income taxes, was $421,150 ($4.52 per share).
(b) Reflects a charge for impairment of long-lived assets on adoption of FAS
No. 121. The net effect, after income taxes, was $415,542 ($4.47 per
share).
(c) Includes a benefit of $29,459 ($.32 per share) from the cumulative effect
of the change in accounting for income taxes required by FAS No. 109.
See accompanying notes to consolidated financial statements.
48
<PAGE> 44
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1,228,045 $1,219,750 $1,362,118 $1,448,793 $1,248,193 $ 904,233 $ 872,757
1,063,560 1,020,563 787,996 574,004 458,615 315,578 288,915
3,980,563 3,348,900 3,428,702 3,897,748 4,587,646 4,107,770 2,864,342
329,816 290,308 279,541 346,300 653,051 261,373 179,997
- ----------------------------------------------------------------------------------------------------------------------------
6,601,984 5,879,521 5,858,357 6,266,845 6,947,505 5,588,954 4,206,011
96,809 21,153 95,352 149,496 133,593 90,373 57,533
- ----------------------------------------------------------------------------------------------------------------------------
6,698,793 5,900,674 5,953,709 6,416,341 7,081,098 5,679,327 4,263,544
- ----------------------------------------------------------------------------------------------------------------------------
4,454,219 4,291,539 4,043,880 4,414,332 4,712,125 3,840,300 2,966,534
306,687 323,187 298,596 373,171 339,103 223,549 253,958
577,247 583,419 567,142 568,949 503,105 414,791 374,169
245,149 156,615 147,099 177,850 224,200 187,811 145,439
879,679 769,390 773,507 765,877 687,064 492,510 373,661
-- -- -- -- -- -- --
162,098 44,727(c) 115,940 31,854 132,788 44,017 25,566
- ----------------------------------------------------------------------------------------------------------------------------
6,625,079 6,168,877 5,946,164 6,332,033 6,598,385 5,202,978 4,139,327
- ----------------------------------------------------------------------------------------------------------------------------
$ 73,714 $ (268,203) $ 7,545 $ 84,308 $ 482,713 $ 476,349 $ 124,217
============================================================================================================================
$.80 $(2.91) $.09 $1.05 $5.99 $5.89 $1.52
.79 (2.91) .09 1.04 5.96 5.87 1.51
============================================================================================================================
$.60 $ .60 $.60 $ .60 $ .60 $ .60 $ .60
92,968 92,213 87,286 81,087 81,023 81,176 82,034
============================================================================================================================
</TABLE>
49
<PAGE> 45
Ten-Year Summary
of Financial Data
Amerada Hess Corporation and Consolidated Subsidiaries
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Thousands of dollars, except per share data 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Selected Balance Sheet Data at Year-End
Cash and cash equivalents $ 91,154 $ 112,522 $ 56,071
Working capital 463,781 689,864 357,964
Property, plant and equipment
Exploration and production $ 8,779,807 $ 8,233,445 $ 9,392,184
Refining, marketing and other 3,841,828 3,668,974 3,672,028
- ------------------------------------------------------------------------------------------------------------------------------
Total--at cost 12,621,635 11,902,419 13,064,212
Less reserves 7,430,841 6,995,136 7,694,496
- ------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment--net $ 5,190,794 $ 4,907,283 $ 5,369,716
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 7,934,619 $ 7,784,481 $ 7,756,370
Total debt 2,127,288 1,939,288 2,717,866
Stockholders' equity 3,215,699 3,383,631 2,660,396
Stockholders' equity per share $35.16 $36.35 $28.60
==============================================================================================================================
Summarized Statement of Cash Flows
Net cash provided by operating activities $ 1,250,007 $ 807,721 $ 1,241,007
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures
Exploration and production (1,157,938) (788,286) (626,518)
Refining, marketing and other (187,652) (72,339) (65,593)
- ------------------------------------------------------------------------------------------------------------------------------
Total capital expenditures (1,345,590) (860,625) (692,111)
Proceeds from sales of property, plant and equipment and other 63,017 1,037,073 145,792
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (1,282,573) 176,448 (546,319)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Issuance (repayment) of notes 1,982 (72,046) 26,247
Long-term borrowings 398,391 -- 25,000
Repayment of long-term debt and capitalized lease obligations (209,000) (794,527) (689,355)
Issuance of common stock -- -- --
Cash dividends paid (55,373) (55,746) (55,788)
Common stock retired (122,283) (8,236) --
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 13,717 (930,555) (693,896)
- ------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (2,519) 2,837 2,144
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents $ (21,368) $ 56,451 $ 2,936
==============================================================================================================================
Stockholder Data at Year-End
Number of common shares outstanding (in thousands) 91,451 93,073 93,011
Number of stockholders (based on number of holders of record) 9,591 10,153 11,294
Market price of common stock $54.88 $57.88 $53.00
==============================================================================================================================
</TABLE>
50
<PAGE> 46
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 53,135 $ 79,635 $ 141,014 $ 120,170 $ 129,914 $ 120,300 $ 213,184
520,247 245,026 551,459 625,370 603,244 493,168 285,074
$ 9,790,468 $ 9,360,871 $ 9,203,951 $ 9,306,435 $ 8,340,951 $ 6,531,956 $5,488,339
4,514,358 4,426,369 3,886,814 3,223,397 2,817,032 2,635,300 2,550,122
- -----------------------------------------------------------------------------------------------------------------------------
14,304,826 13,787,240 13,090,765 12,529,832 11,157,983 9,167,256 8,038,461
7,938,824 7,052,328 6,646,801 6,339,232 5,594,399 4,688,142 4,358,765
- -----------------------------------------------------------------------------------------------------------------------------
$ 6,366,002 $ 6,734,912 $ 6,443,964 $ 6,190,600 $ 5,563,584 $ 4,479,114 $3,679,696
- -----------------------------------------------------------------------------------------------------------------------------
$ 8,337,940 $ 8,641,546 $ 8,721,756 $ 8,841,435 $ 9,056,636 $ 6,867,411 $5,371,979
3,339,788 3,687,922 3,186,199 3,266,195 2,925,285 2,697,184 1,672,329
3,099,629 3,028,911 3,387,599 3,131,982 3,106,029 2,560,628 2,215,154
$33.33 $32.71 $36.59 $38.63 $38.34 $31.69 $27.02
=============================================================================================================================
$ 957,018 $ 819,423 $ 1,137,707 $ 1,364,268 $ 1,326,444 $ 805,848 $ 747,393
- -----------------------------------------------------------------------------------------------------------------------------
(532,189) (755,419) (916,536) (1,295,039) (1,267,506) (1,730,072) (652,859)
(64,095) (592,622) (641,258) (417,276) (193,921) (98,597) (77,070)
- -----------------------------------------------------------------------------------------------------------------------------
(596,284) (1,348,041) (1,557,794) (1,712,315) (1,461,427) (1,828,669) (729,929)
72,804 12,436 25,423 37,788 (12,012) 6,644 16,401
- -----------------------------------------------------------------------------------------------------------------------------
(523,480) (1,335,605) (1,532,371) (1,674,527) (1,473,439) (1,822,025) (713,528)
- -----------------------------------------------------------------------------------------------------------------------------
(54,153) 117,791 (159,756) (183,351) 46,744 13,823 (205,414)
289,843 547,704 675,016 786,280 461,413 1,203,994 416,161
(642,112) (167,769) (524,384) (269,414) (287,531) (194,870) (191,159)
-- -- 497,360 -- -- -- --
(55,711) (41,603) (64,194) (36,468) (60,681) (48,785) (49,248)
-- -- -- -- (6,213) (43,632) (7,420)
- -----------------------------------------------------------------------------------------------------------------------------
(462,133) 456,123 424,042 297,047 153,732 930,530 (37,080)
- -----------------------------------------------------------------------------------------------------------------------------
2,095 (1,320) (8,534) 3,468 2,877 (7,237) (10,114)
- -----------------------------------------------------------------------------------------------------------------------------
$ (26,500) $ (61,379) $ 20,844 $ (9,744) $ 9,614 $ (92,884) $ (13,329)
=============================================================================================================================
92,996 92,587 92,584 81,068 81,019 80,804 81,979
11,506 12,000 13,088 13,732 14,669 16,638 18,031
$45.63 $45.13 $46.00 $47.50 $46.38 $48.75 $31.50
=============================================================================================================================
</TABLE>
51
<PAGE> 47
Ten-Year Summary
of Operating Data
Amerada Hess Corporation and Consolidated Subsidiaries
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Production Per Day (net)(a)
Crude oil (barrels)
United States 35,707 41,020 52,284
United Kingdom 126,427 134,726 135,429
Norway 29,516 27,603 25,576
Africa 10,127 9,725 9,512
Indonesia 531 -- --
Canada -- 3,145 9,749
Abu Dhabi -- 2,784 7,227
- -------------------------------------------------------------------------------------------------------------------------------
Total 202,308 219,003 239,777
===============================================================================================================================
Natural gas liquids (barrels)
United States 8,243 9,105 10,722
United Kingdom 6,364 6,628 6,900
Norway 1,657 1,585 1,414
Canada -- 476 1,647
- -------------------------------------------------------------------------------------------------------------------------------
Total 16,264 17,794 20,683
===============================================================================================================================
Natural gas (Mcf)
United States 311,915 337,653 401,581
United Kingdom 225,804 253,983 239,307
Norway 30,312 30,445 27,743
Indonesia 1,223 -- --
Canada -- 62,585 215,500
- -------------------------------------------------------------------------------------------------------------------------------
Total 569,254 684,666 884,131
===============================================================================================================================
Well Completions (net)
Oil wells 42 39 33
Gas wells 11 25 41
Dry holes 24 40 50
Productive Wells at Year-End (net)
Oil wells 860 854 2,154
Gas wells 447 455 1,160
- -------------------------------------------------------------------------------------------------------------------------------
Total 1,307 1,309 3,314
===============================================================================================================================
Undeveloped Net Acreage (held at end of year)
United States 915,000 891,000 1,440,000
Canada -- -- 799,000
Other international 9,778,000 7,455,000 5,072,000
- -------------------------------------------------------------------------------------------------------------------------------
Total 10,693,000 8,346,000 7,311,000
===============================================================================================================================
Shipping
Vessels owned or under charter at year-end 14 13 16
Total deadweight tons 1,602,000 1,236,000 2,010,000
Refining (barrels daily)
Refinery crude runs 411,000 396,000 377,000
Petroleum Products Sold (barrels daily)
Gasoline, distillates and other light products 436,000 412,000 401,000
Residual fuel oils 73,000 83,000 86,000
- -------------------------------------------------------------------------------------------------------------------------------
Total 509,000 495,000 487,000
===============================================================================================================================
Storage Capacity at Year-End (barrels) 87,000,000 86,986,000 89,165,000
Number of Employees (average) 9,216 9,085 9,574
===============================================================================================================================
</TABLE>
(a) In 1996, the Corporation sold its Canadian and Abu Dhabi operations and
certain United States and United Kingdom producing properties.
52
<PAGE> 48
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55,638 60,173 62,517 66,063 62,434 60,992 60,782
122,043 80,019 86,265 59,979 56,027 38,707 32,223
24,279 26,388 29,598 28,619 24,351 24,135 21,782
8,857 8,301 6,910 8,952 -- -- --
-- -- -- -- -- -- --
10,581 11,536 11,528 11,966 9,494 9,178 9,251
7,273 10,004 11,150 9,866 8,475 7,230 9,374
- ------------------------------------------------------------------------------------------------------------------------------
228,671 196,421 207,968 185,445 160,781 140,242 133,412
==============================================================================================================================
11,964 11,798 11,063 10,047 9,436 9,986 7,183
6,756 3,783 1,468 766 805 466 295
1,320 1,432 1,707 1,752 2,004 2,016 1,884
1,809 1,956 1,981 1,997 1,704 1,732 1,529
- ------------------------------------------------------------------------------------------------------------------------------
21,849 18,969 16,219 14,562 13,949 14,200 10,891
==============================================================================================================================
427,103 502,459 601,824 583,740 457,042 335,112 283,114
208,742 188,024 153,599 128,014 145,921 126,643 141,139
24,417 28,987 31,858 26,947 25,656 24,371 20,389
-- -- -- -- -- -- --
185,856 167,839 137,680 104,151 76,768 72,855 61,653
- ------------------------------------------------------------------------------------------------------------------------------
846,118 887,309 924,961 842,852 705,387 558,981 506,295
==============================================================================================================================
28 48 33 45 17 19 39
44 49 20 41 33 19 8
24 37 22 36 38 31 35
2,160 2,189 2,082 2,103 2,111 2,048 2,014
1,146 1,115 966 927 905 714 612
- ------------------------------------------------------------------------------------------------------------------------------
3,306 3,304 3,048 3,030 3,016 2,762 2,626
==============================================================================================================================
1,685,000 1,854,000 1,819,000 1,802,000 1,716,000 1,589,000 1,556,000
743,000 788,000 840,000 842,000 835,000 582,000 786,000
3,827,000 3,522,000 2,328,000 2,638,000 2,494,000 2,501,000 3,936,000
- ------------------------------------------------------------------------------------------------------------------------------
6,255,000 6,164,000 4,987,000 5,282,000 5,045,000 4,672,000 6,278,000
==============================================================================================================================
17 15 21 21 23 22 21
2,265,000 2,398,000 3,223,000 2,825,000 3,012,000 3,081,000 2,719,000
388,000 351,000 335,000 320,000 383,000 397,000 296,000
375,000 291,000 275,000 285,000 296,000 299,000 222,000
93,000 95,000 102,000 128,000 132,000 171,000 157,000
- ------------------------------------------------------------------------------------------------------------------------------
468,000 386,000 377,000 413,000 428,000 470,000 379,000
==============================================================================================================================
94,597,000 94,380,000 95,199,000 94,879,000 93,867,000 91,794,000 90,798,000
9,858 10,173 10,263 10,317 9,645 8,740 8,151
==============================================================================================================================
</TABLE>
53
<PAGE> 1
EXHIBIT 21
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Organized under
Name of Subsidiary the laws of
- ------------------ ---------------
A.H. Shipping Guaranty Corporation ........................ Delaware
Amerada Hess (Denmark) A/S ................................ Denmark
Amerada Hess Limited ...................................... United Kingdom
Amerada Hess Norge A/S .................................... Norway
Amerada Hess (Port Reading) Corporation ................... Delaware
Amerada Hess Production Gabon ............................. Gabon
Amerada Hess Shipping Corporation ......................... Liberia
Hess Energy Trading Company, LLC .......................... Delaware
Hess Oil Virgin Islands Corp. ............................. U.S. Virgin Islands
Jamestown Insurance Company Limited ....................... Bermuda
Tioga Gas Plant, Inc. ..................................... Delaware
Tug New York Company ...................................... Delaware
Other subsidiaries (names omitted because such unnamed subsidiaries, considered
in the aggregate as a single subsidiary, would not constitute a significant
subsidiary)
Each of the foregoing subsidiaries conducts business under the name listed, and
is 100% owned by the Registrant, except for Amerada Hess Production Gabon,
which is 55% owned by the Registrant, and Hess Energy Trading Company, LLC,
which is a trading company that is a joint venture between the Registrant and
unrelated parties.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 91,154 130,570 186,957 299,727
<SECURITIES> 0 0 0 0
<RECEIVABLES> 993,098 636,840 520,339 673,636
<ALLOWANCES> 0 0 0 0
<INVENTORY> 937,949 1,108,311 993,253 996,254
<CURRENT-ASSETS> 2,203,632 2,073,667 1,841,999 2,081,255
<PP&E> 12,621,635 12,224,761 12,090,972 11,847,685
<DEPRECIATION> 7,430,841 7,215,181 7,114,764 7,023,692
<TOTAL-ASSETS> 7,934,619 7,637,904 7,347,805 7,378,855
<CURRENT-LIABILITIES> 1,739,851 1,570,805 1,572,379 1,571,453
<BONDS> 1,975,281 1,780,468 1,493,771 1,504,665
0 0 0 0
0 0 0 0
<COMMON> 91,451 91,675 91,739 92,806
<OTHER-SE> 3,124,248 3,198,176 3,214,263 3,226,163
<TOTAL-LIABILITY-AND-EQUITY> 7,934,619 7,637,904 7,347,805 7,378,855
<SALES> 8,233,723 6,115,368 4,230,790 2,396,830
<TOTAL-REVENUES> 8,340,046 6,196,219 4,294,922 2,416,098
<CGS> 6,301,046 4,612,195 3,233,837 1,872,074
<TOTAL-COSTS> 6,301,046 4,612,195 3,233,837 1,872,074
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 136,149 101,226 67,407 33,652
<INCOME-PRETAX> 126,585 227,951 190,999 114,798
<INCOME-TAX> 119,085 159,027 144,754 110,210
<INCOME-CONTINUING> 7,500 68,924 46,245 4,588
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 7,500 68,924 46,245 4,588
<EPS-PRIMARY><BASIC> .08 .75 .50 .05
<EPS-DILUTED> .08 .75 .50 .05
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996
<CASH> 112,522 84,764 34,150 71,692
<SECURITIES> 0 0 0 0
<RECEIVABLES> 848,129 601,931 690,481 769,077
<ALLOWANCES> 0 0 0 0
<INVENTORY> 1,272,312 1,132,299 910,401 898,632
<CURRENT-ASSETS> 2,426,844 1,987,571 1,819,709 2,007,998
<PP&E> 11,902,419 11,443,360 11,819,850 13,080,365
<DEPRECIATION> 6,995,136 6,599,591 7,055,371 7,817,892
<TOTAL-ASSETS> 7,784,481 7,304,756 7,036,773 7,731,284
<CURRENT-LIABILITIES> 1,736,980 1,522,735 1,482,480 1,478,104
<BONDS> 1,660,998 1,636,256 1,523,569 2,576,230
0 0 0 0
0 0 0 0
<COMMON> 93,073 93,139 93,136 92,989
<OTHER-SE> 3,290,558 3,109,469 3,018,280 2,607,097
<TOTAL-LIABILITY-AND-EQUITY> 7,784,481 7,304,756 7,036,773 7,731,284
<SALES> 8,272,186 6,055,951 4,309,377 2,214,537
<TOTAL-REVENUES> 8,929,711 6,646,200 4,776,304 2,232,548
<CGS> 6,074,695 4,530,986 3,245,091 1,646,221
<TOTAL-COSTS> 6,074,695 4,530,986 3,245,091 1,646,221
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 165,501 128,301 94,707 52,805
<INCOME-PRETAX> 1,013,944 799,957 629,221 121,505
<INCOME-TAX> 353,845 259,706 186,797 55,528
<INCOME-CONTINUING> 660,099 540,251 442,424 65,977
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 660,099 540,251 442,424 65,977
<EPS-PRIMARY><BASIC> 7.13 5.84 4.78 .71
<EPS-DILUTED> 7.09 5.80 4.75 .71
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 56,071
<SECURITIES> 0
<RECEIVABLES> 798,331
<ALLOWANCES> 0
<INVENTORY> 838,770
<CURRENT-ASSETS> 1,962,544
<PP&E> 13,064,212
<DEPRECIATION> 7,694,496
<TOTAL-ASSETS> 7,756,370
<CURRENT-LIABILITIES> 1,604,580
<BONDS> 2,523,181
0
0
<COMMON> 93,011
<OTHER-SE> 2,567,385
<TOTAL-LIABILITY-AND-EQUITY> 7,756,370
<SALES> 7,302,307
<TOTAL-REVENUES> 7,524,789
<CGS> 5,226,157
<TOTAL-COSTS> 5,226,157
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 247,465
<INCOME-PRETAX> (352,649)
<INCOME-TAX> 41,764
<INCOME-CONTINUING> (394,413)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (394,413)
<EPS-PRIMARY><BASIC> (4.26)
<EPS-DILUTED> (4.26)
</TABLE>
