<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ------------
COMMISSION FILE NUMBER 1-1204
--------------------------
AMERADA HESS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
13-4921002
(I.R.S. employer identification number)
1185 AVENUE OF THE AMERICAS, NEW YORK, N.Y.
(Address of principal executive offices)
10036
(Zip Code)
(Registrant's telephone number, including area code is (212) 997-8500)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
At June 30, 2000, 90,083,505 shares of Common Stock were outstanding.
================================================================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
------------------ ------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES
Sales (excluding excise taxes) and
other operating revenues $2,644 $1,430 $5,475 $2,969
Non-operating income
Gain on asset sales -- 62 -- 108
Equity in income of HOVENSA L.L.C 41 1 52 17
Other 29 40 57 92
------ ------ ------ ------
Total revenues 2,714 1,533 5,584 3,186
------ ------ ------ ------
COSTS AND EXPENSES
Cost of products sold 1,717 865 3,592 1,864
Production expenses 129 97 262 215
Marketing expenses 122 86 228 180
Other operating expenses 51 59 108 116
Exploration expenses, including dry holes
and lease impairment 90 78 152 141
General and administrative expenses 51 64 102 114
Interest expense 39 38 77 77
Depreciation, depletion and amortization 167 137 341 275
------ ------ ------ ------
Total costs and expenses 2,366 1,424 4,862 2,982
------ ------ ------ ------
Income before income taxes 348 109 722 204
Provision for income taxes 146 32 296 56
------ ------ ------ ------
NET INCOME $ 202 $ 77 $ 426 $ 148
====== ====== ====== ======
NET INCOME PER SHARE
Basic $ 2.25 $ .86 $ 4.74 $ 1.65
====== ====== ====== ======
Diluted $ 2.24 $ .86 $ 4.71 $ 1.65
====== ====== ====== ======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 90.5 90.1 90.5 90.0
COMMON STOCK DIVIDENDS PER SHARE $ .15 $ .15 $ .30 $ .30
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
PART I - FINANCIAL INFORMATION (CONT'D.)
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions of dollars)
<TABLE>
<CAPTION>
A S S E T S
JUNE 30, DECEMBER 31,
2000 1999
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 178 $ 41
Accounts receivable 1,896 1,175
Inventories 242 373
Other current assets 556 239
-------- --------
Total current assets 2,872 1,828
-------- --------
INVESTMENTS AND ADVANCES
HOVENSA L.L.C 761 710
Other 221 282
-------- --------
Total investments and advances 982 992
-------- --------
PROPERTY, PLANT AND EQUIPMENT
Total - at cost 11,482 11,065
Less reserves for depreciation, depletion,
amortization and lease impairment 7,273 7,013
-------- --------
Property, plant and equipment - net 4,209 4,052
-------- --------
NOTE RECEIVABLE 539 539
-------- --------
DEFERRED INCOME TAXES AND OTHER ASSETS 278 317
-------- --------
TOTAL ASSETS $ 8,880 $ 7,728
======== ========
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
CURRENT LIABILITIES
Accounts payable - trade $ 1,174 $ 772
Accrued liabilities 1,002 625
Taxes payable 327 159
Notes payable 20 18
Current maturities of long-term debt 55 5
-------- --------
Total current liabilities 2,578 1,579
-------- --------
LONG-TERM DEBT 2,039 2,287
-------- --------
DEFERRED LIABILITIES AND CREDITS
Deferred income taxes 468 442
Other 387 382
-------- --------
Total deferred liabilities and credits 855 824
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00
Authorized - 20,000,000 shares for issuance in series
3% cumulative convertible series
Authorized -- 330,000 shares
Issued -- 326,805 shares in 2000 (liquidation preference of $16) -- --
Common stock, par value $1.00
Authorized - 200,000,000 shares
Issued - 90,083,505 shares at June 30, 2000;
90,676,405 shares at December 31, 1999 90 91
Capital in excess of par value 815 782
Retained earnings 2,633 2,287
Accumulated other comprehensive income (130) (122)
-------- --------
Total stockholders' equity 3,408 3,038
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,880 $ 7,728
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
PART I - FINANCIAL INFORMATION (CONT'D.)
AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
SIX MONTHS ENDED JUNE 30
(in millions)
<TABLE>
<CAPTION>
2000 1999
----- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 426 $ 148
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 341 275
Exploratory dry hole costs 65 29
Lease impairment 13 13
Gain on asset sales -- (108)
Provision (benefit) for deferred income taxes 89 (33)
Undistributed earnings of affiliates (42) (6)
----- -----
892 318
Changes in operating assets and liabilities and other 16 (90)
----- -----
Net cash provided by operating activities 908 228
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (405) (420)
Proceeds from asset sales and other 10 185
----- -----
Net cash used in investing activities (395) (235)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in notes payable 2 14
Long-term borrowings -- 370
Repayment of long-term debt (294) (338)
Cash dividends paid (41) (41)
Common stock acquired (62) --
Stock options exercised 20 10
----- -----
Net cash provided by (used in) financing activities (375) 15
----- -----
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1) --
----- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS 137 8
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 41 74
----- -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 178 $ 82
===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
PART I - FINANCIAL INFORMATION (CONT'D.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions)
Note 1 - The financial statements included in this report reflect all normal and
recurring adjustments which, in the opinion of management, are
necessary for a fair presentation of the Corporation's consolidated
financial position at June 30, 2000 and December 31, 1999, and the
consolidated results of operations for the three- and six-month periods
ended June 30, 2000 and 1999 and the consolidated cash flows for the
six-month periods ended June 30, 2000 and 1999. The unaudited results
of operations for the interim periods reported are not necessarily
indicative of results to be expected for the full year.
Certain notes and other information have been condensed or omitted from
these interim financial statements. Such statements, therefore, should
be read in conjunction with the consolidated financial statements and
related notes included in the 1999 Annual Report to Stockholders, which
have been incorporated by reference in the Corporation's Form 10-K for
the year ended December 31, 1999.
Note 2 - Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----- -----
<S> <C> <C>
Crude oil and other charge stocks $ 99 $ 67
Refined and other finished products 348 393
Less: LIFO adjustment (281) (149)
----- -----
166 311
Materials and supplies 76 62
----- -----
Total inventories $ 242 $ 373
===== =====
</TABLE>
Note 3 - The Corporation accounts for its investment in HOVENSA L.L.C. using the
equity method. Summarized income statement information for HOVENSA
follows:
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30
------------------ ------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total revenues $1,343 $ 725 $2,472 $1,269
Costs and expenses 1,261 723 2,367 1,233
------ ------ ------ ------
Net income $ 82 $ 2 $ 105 $ 36
====== ====== ====== ======
Amerada Hess
Corporation's share $ 41 $ 1 $ 52 $ 17
====== ====== ====== ======
</TABLE>
4
<PAGE> 6
PART I - FINANCIAL INFORMATION (CONT'D.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions)
In February 2000, HOVENSA reached agreement on a $600 bank financing
for the construction of a 58 thousand barrel per day delayed coking
unit and related facilities at its refinery and for general working
capital requirements. In connection with this financing, the
Corporation and PDVSA V.I. agreed to amend the note received by the
Corporation at the formation of the joint venture. PDVSA V.I. deferred
principal payments on the note until after completion of coker
construction but not later than February 14, 2003. Principal payments
are due ratably until maturity on February 14, 2011. The interest rate
on the note increased to 9.46%. PDVSA V.I. has the option to reduce the
interest rate to the original rate of 8.46% by repaying principal in
accordance with the original amortization schedule.
Note 4 - The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30
--------------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current $ 83 $ 35 $207 $ 89
Deferred 63 (3) 89 (33)
---- ---- ---- ----
Total $146 $ 32 $296 $ 56
==== ==== ==== ====
</TABLE>
Note 5 - Foreign currency gains (losses), after income tax effects, amounted to
the following:
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30
----------------- ----------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Foreign currency
gains (losses) $ (2) $ 9 $ 2 $ 35
===== ===== ===== =====
</TABLE>
Note 6 - The weighted average number of common shares used in the basic and
diluted earnings per share computations are as follows:
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30
------------------ ------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Common shares - basic 89.8 89.6 89.9 89.5
Effect of dilutive securities
(equivalent shares)
Nonvested common stock .3 .4 .4 .4
Stock options .3 .1 .2 .1
Convertible preferred
stock .1 -- -- --
------ ------ ------ ------
Common shares - diluted 90.5 90.1 90.5 90.0
====== ====== ====== ======
</TABLE>
5
<PAGE> 7
PART I - FINANCIAL INFORMATION (CONT'D.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions)
Note 7 - 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. These contracts correlate to
movements in the value of inventory and the prices of crude oil and
natural gas, and as hedges, any resulting gains or losses are recorded
as part of the hedged transaction. After-tax deferred losses on the
Corporation's petroleum hedging contracts expiring through 2001 were
$160 at June 30, 2000, including $136 of unrealized losses.
Note 8 - Interest costs related to certain long-term construction projects have
been capitalized in accordance with FAS No. 34 as follows:
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30
---------------- ----------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Interest capitalized $ -- $ 6 $ 3 $ 11
===== ===== ===== =====
</TABLE>
Note 9 - Comprehensive income, which includes net income and the effects of
foreign currency translation recorded directly in stockholders' equity,
is as follows:
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30
---------------- ----------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Comprehensive income $ 195 $ 78 $ 418 $ 141
===== ===== ===== =====
</TABLE>
Note 10 - On May 15, 2000, the Corporation acquired the 51% of The Meadville
Corporation's outstanding stock that it did not already own for
approximately $168 in cash, deferred payments and preferred stock. The
deferred payments are non-interest bearing and have been discounted to
$97 using a market rate. The Corporation accounted for this acquisition
using the purchase method. The Meadville Corporation owned and operated
178 Merit retail gasoline stations located in the northeastern United
States. This acquisition does not materially affect the Corporation's
financial position or results of operations.
6
<PAGE> 8
PART I - FINANCIAL INFORMATION (CONT'D.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions)
Note 11 - The Corporation's results by operating segment were as follows:
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30
--------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenues
Exploration and production (1) $ 870 $ 596 $ 1,920 $ 1,219
Refining, marketing
and shipping 1,959 941 3,889 1,923
------- ------- ------- -------
Total $ 2,829 $ 1,537 $ 5,809 $ 3,142
======= ======= ======= =======
Net income (loss)
Exploration and production (2) $ 178 $ 51 $ 396 $ 108
Refining, marketing
and shipping (3) 64 59 112 112
Corporate, including interest (40) (33) (82) (72)
------- ------- ------- -------
Total $ 202 $ 77 $ 426 $ 148
======= ======= ======= =======
</TABLE>
(1) Includes transfers to affiliates of $185 and $334 during the three- and
six-month periods ended June 30, 2000, respectively, compared to $107
and $173 for the corresponding periods of 1999.
(2) Includes gains on asset sales of $30 during the six-months ended June
30, 1999.
(3) Includes gains on asset sales of $40 in the three- and six-month
periods ended June 30, 1999.
7
<PAGE> 9
PART I - FINANCIAL INFORMATION (CONT'D.)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS
Operating earnings for the second quarter of 2000 amounted to
$202 million compared with earnings of $37 million in the second
quarter of 1999. Operating earnings in the first half of 2000 were $426
million compared with earnings of $78 million in the first half of
1999.
The after-tax results by major operating activity for the
three and six months ended June 30, 2000 and 1999 were as follows (in
millions, except per share data):
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30
----------------- -----------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Exploration and production $ 178 $ 51 $ 396 $ 78
Refining, marketing and shipping 64 19 112 72
Corporate (10) (5) (22) (15)
Interest expense (30) (28) (60) (57)
----- ----- ----- -----
Operating earnings 202 37 426 78
Gains on asset sales -- 40 -- 70
----- ----- ----- -----
Net income $ 202 $ 77 $ 426 $ 148
===== ===== ===== =====
Net income per share (diluted) $2.24 $ .86 $4.71 $1.65
===== ===== ===== =====
</TABLE>
The net gain from asset sales in the second quarter of 1999
reflects the sale of southeast pipeline terminals and certain retail
sites in South Carolina. The net gain from asset sales in the first
half of 1999 also includes the sale of natural gas properties in
California.
Exploration and Production
Operating earnings from exploration and production activities
increased by $127 million in the second quarter of 2000 and $318
million in the first half of 2000, reflecting higher worldwide crude
oil and natural gas selling prices and sales volumes.
8
<PAGE> 10
PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
The Corporation's average selling prices, including the
effects of hedging, were as follows:
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Crude oil (per barrel)
United States $ 24.46 $ 14.78 $ 23.55 $ 12.90
Foreign 24.09 15.08 24.89 13.00
Natural gas liquids (per barrel)
United States $ 18.69 $ 10.31 $ 19.84 $ 9.51
Foreign 20.64 10.90 21.60 10.13
Natural gas (per Mcf)
United States $ 3.37 $ 2.06 $ 2.90 $ 1.91
Foreign 2.10 1.72 2.09 1.87
</TABLE>
The Corporation's net daily worldwide production was as
follows (in thousands):
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Crude oil (barrels per day)
United States 55 55 53 51
United Kingdom 112 90 112 106
Norway 27 25 25 25
Denmark 19 -- 25 --
Gabon 7 11 8 11
Indonesia and Azerbaijan 7 4 7 4
--- --- --- ---
Total 227 185 230 197
=== === === ===
Natural gas liquids (barrels per day)
United States 12 8 13 7
Foreign 10 8 9 8
--- --- --- ---
Total 22 16 22 15
=== === === ===
Natural gas (Mcf per day)
United States 298 329 296 334
United Kingdom 299 245 322 253
Norway 24 32 25 31
Denmark 25 -- 29 --
Indonesia and Thailand 33 3 35 3
--- --- --- ---
Total 679 609 707 621
=== === === ===
Barrels of oil equivalent 362 303 370 316
=== === === ===
</TABLE>
9
<PAGE> 11
PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
The increase in United Kingdom crude oil and natural gas
production in the second quarter and first half of 2000 reflects
production from new fields and the effect of temporary production
interruptions in several United Kingdom fields in 1999. Production
commenced from the South Arne Field in Denmark in the third quarter of
1999 and was temporarily curtailed in the second quarter of 2000.
Production from South Arne has resumed at a rate of approximately
36,000 net barrels of oil equivalent per day. Overall the Corporation's
oil and gas production, on a barrel of oil equivalent basis, increased
by 19% in the second quarter and 17% in the first half of 2000 compared
with the corresponding periods of 1999.
Depreciation, depletion, and amortization charges relating to
exploration and production activities were higher in the second quarter
and first half of 2000 compared with the corresponding periods of 1999.
The increases reflect higher production volumes as described above,
development drilling in the North Sea and the mix of production from
various fields. Production expenses were also higher in the second
quarter and first half of 2000 reflecting increased production volumes,
mix of production and workovers. Exploration expenses were higher in
the second quarter of 2000 reflecting increased activity in the Gulf of
Mexico and international exploration areas outside of the North Sea.
General and administrative expenses relating to exploration and
production activities were lower, primarily as a result of cost
reductions in the United Kingdom.
The effective income tax rate on exploration and production
earnings in the first half of 2000 was 42%. This rate exceeds the
effective rate in the first half of 1999 when United Kingdom taxes were
reduced by unusual currency translation adjustments and certain
deductible allowances which expired in June 1999. The Corporation fully
utilized its loss carryforward in Denmark for financial reporting
purposes in the first quarter of 2000, which will increase the
effective rate somewhat over the remainder of the year.
In the first half of 1999, operating earnings from exploration
and production activities included net nonrecurring income of $18
million, principally reflecting foreign currency exchange gains,
partially offset by charges for the renegotiation and termination of
certain long-term contracts on drilling rigs and related service
vessels.
Crude oil and natural gas selling prices continue to be
volatile. Exploration and production earnings would be adversely
affected by lower selling prices in the future.
10
<PAGE> 12
PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
Refining, Marketing and Shipping
Operating earnings for refining, marketing and shipping
activities amounted to $64 million and $112 million in the second
quarter and first half of 2000, compared with $19 million and $72
million in the corresponding periods of 1999. The Corporation's
downstream operations include its 50% equity share of HOVENSA, a
refining joint venture.
HOVENSA
The Corporation's share of HOVENSA's income was $41 million in
the second quarter of 2000 compared with $1 million in the second
quarter of 1999. The Corporation's share of HOVENSA's income in the
first half of 2000 was $52 million compared with $17 million in 1999.
Refined product margins improved in the second quarter of 2000,
principally reflecting higher selling prices for gasoline. Throughout
most of 1999 and early 2000 refined product margins were weak. The
Corporation's share of HOVENSA's refining runs amounted to 212,000
barrels per day in the first half of 2000 compared with 222,000 barrels
per day in the first half of 1999. In 2000, HOVENSA's earnings
constitute a significant portion of the Corporation's total refining
and marketing earnings. Income taxes are not recorded on HOVENSA's
results due to available loss carryforwards.
Operating earnings from refining, marketing and shipping
activities in the first half of 2000 and 1999 also include interest
income of $25 million and $24 million, respectively, on the note
received from PDVSA V.I. in connection with the formation of the joint
venture.
Retail, energy marketing and other
Results from retail gasoline operations were lower in the
second quarter and first half of 2000, compared with the corresponding
periods of 1999, as selling prices did not keep pace with rising
product costs. Results of energy marketing activities were comparable
in the second quarter of each year but higher in the first half of 2000
due to a period of cold weather in the Corporation's marketing area.
Total refined product sales volumes amounted to 68 million barrels in
the first half of 2000 compared with 64 million barrels in the first
half of 1999. Marketing expenses increased in the second quarter and
first half of 2000, principally reflecting expanded retail operations.
11
<PAGE> 13
PART I - FINANCIAL INFORMATION (CONT'D.)
RESULTS OF OPERATIONS (CONTINUED)
The Corporation has a 50% voting interest in a consolidated
partnership which trades energy commodities. The Corporation also
periodically takes forward positions on energy contracts in addition to
its hedging program. The Corporation's results from trading activities,
including its share of the earnings of the trading partnership which
was profitable in 2000 and 1999, amounted to a loss of $10 million in
the first half of 2000 compared with income of $19 million in the first
half of 1999. Expenses of the trading partnership are included in
marketing expenses.
The results of refining, marketing and shipping activities
will continue to be volatile, reflecting competitive industry
conditions and supply and demand factors, including the effects of
weather.
Corporate
Corporate administrative expenses were comparable in 2000 and
1999. However, the difference in net expenses of $5 million in the
second quarter of 2000, compared with 1999, primarily reflects dividend
income from reinsurers, with a greater amount received in 1999.
Consolidated Operating Revenues
Sales and other operating revenues increased by approximately
85% in the second quarter and first half of 2000 compared with the
corresponding periods of 1999. The increases were primarily due to
higher crude oil and refined product selling prices and sales volumes.
The Corporation's cost of products sold also increased as a result of
higher prices for purchased products.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities, including changes
in operating assets and liabilities, amounted to $908 million in the
first half of 2000 compared with $228 million in the first half of
1999. The increase was primarily due to improved operating results. The
sale of fixed assets, including southeast pipeline terminals, South
Carolina gasoline stations and natural gas properties in California
generated proceeds of $169 million in the first half of 1999.
Total debt was $2,114 million at June 30, 2000 compared with
$2,310 million at December 31, 1999. The debt to capitalization ratio
decreased to 38% at June 30 compared with 43% at year-end. At June 30,
2000, the Corporation had $2 billion of additional borrowing capacity
available under its revolving credit agreements and additional unused
lines of credit under uncommitted arrangements with banks of $351
million.
12
<PAGE> 14
PART I - FINANCIAL INFORMATION (CONT'D.)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Corporation's Board of Directors approved a $300 million
stock repurchase program in March 2000. Through June 30, 2000, 972,000
shares have been repurchased for approximately $62 million.
The Corporation uses futures, forwards, options and swaps to
reduce the effects of changes in the selling prices of crude oil,
natural gas and refined products. These instruments fix the selling
prices of a portion of the Corporation's production and the related
gains or losses are an integral part of the Corporation's selling
prices. At June 30, 2000, the Corporation had open hedge positions
equal to 33% of its estimated worldwide crude oil production over the
next twelve months and approximately 12% of its production for the
succeeding twelve months. As market conditions change, the Corporation
will adjust its hedge positions.
The Corporation uses value at risk to estimate the potential
effects of changes in fair values of derivatives and other instruments
used in hedging activities and derivatives and commodities used in
trading activities. The Corporation estimates that at June 30, 2000,
the value at risk was $23 million ($13 million at December 31, 1999)
related to hedging activities and $17 million ($6 million at December
31, 1999) on trading activities.
The Corporation reduces its exposure to fluctuating foreign
exchange rates by using forward contracts to fix the exchange rate on a
portion of the currency required in its North Sea operations. At June
30, 2000, the Corporation had $658 million of foreign currency exchange
contracts outstanding. In addition, the Corporation uses interest-rate
conversion agreements to balance its exposure to interest rates. At
June 30, the Corporation had substantially all fixed-rate debt and had
$450 million of notional value, interest-rate swaps that increased its
percentage of floating-rate debt to 23%.
At June 30, 2000, the Corporation had a remaining reserve of
$27 million for the decline in market value of drilling service
fixed-price contracts. During the first half of 2000, the reserve was
reduced by $28 million for contract payments.
In May, the Corporation acquired the 51% of The Meadville
Corporation's outstanding stock that it did not already own for
approximately $168 million in cash, deferred payments and preferred
stock. The purchase includes 178 Merit retail gasoline stations located
in the northeastern United States.
13
<PAGE> 15
PART I - FINANCIAL INFORMATION (CONT'D.)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In April, the Corporation reached an agreement with the
Algerian National Oil Company to form a joint venture, 49% owned by the
Corporation, to redevelop three Algerian oil fields. The fields
currently produce 30,000 barrels of crude oil per day that the joint
venture plans to increase by 2003 as a result of the development work.
The Corporation will invest $55 million in 2000 and up to $500 million
over the next five years for new wells, workovers of existing wells and
water injection and gas compression facilities. A significant portion
of the $500 million will be funded by the cash flows from these fields.
In July, the Corporation announced an agreement to acquire an
additional 2.08% interest in three fields in Azerbaijan. The total
purchase price is $150 million in cash and notes. The Corporation owned
a 1.68% interest in these fields. The purchase is subject to the
consent of the government of Azerbaijan and co-venturers in the fields.
Capital expenditures in the first half of 2000 amounted to
$405 million compared with $420 million in the first half of 1999.
Capital expenditures for exploration and production activities were
$321 million in the first half of 2000 and $383 million in the first
half of 1999. For the remainder of 2000, capital expenditures,
excluding acquisitions, are expected to be approximately $500 million
and will be financed by internally generated funds.
FORWARD LOOKING INFORMATION
Certain sections of Management's Discussion and Analysis of
Results of Operations and Financial Condition, including references to
the Corporation's future results of operations and financial position,
contain forward looking information. These disclosures are based on the
Corporation's current assessments and reasonable assumptions about the
future. Actual results may differ from these disclosures because of
changes in market conditions, government actions and other factors.
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<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As disclosed in Registrant's Annual Report on Form 10-K for
the period ended December 31, 1999, Registrant investigated and
disclosed to the Texas Natural Resource Conservation Commission
("TNRCC") allegations made to the Registrant's internal reporting
hotline of noncompliance with state environmental regulations at the
Galena Park, Texas terminal formerly owned by Registrant. The
Registrant's investigation focused on whether (i) the vapor control
system at Galena Park met applicable regulatory requirements during
loading of marine vessels; and (ii) Galena Park implemented required
controls on air emissions resulting from tank cleaning operations. On
June 28, 2000, TNRCC proposed a civil administrative penalty of $87,500
to resolve the noncompliances disclosed by Registrant relating to the
tank cleaning operations. It is not possible at this time for
Registrant to state whether any other proceedings arising out of the
investigations will be commenced against the Registrant, or what claims
would be asserted or what relief would be sought.
ITEM 2. CHANGES IN SECURITIES AND USE IN PROCEEDS.
On May 15, 2000, The Meadville Corporation ("Meadville") was
merged into the Registrant pursuant to an Agreement and Plan of Merger
between the Registrant and Meadville dated February 10, 2000 (the
"Merger Agreement"). In connection therewith, 326,805 shares of
Registrant's preferred stock, 3% cumulative convertible series, par
value $1.00 per share and liquidation value $50 per share (the
"Preferred Stock") were issued to certain holders of Meadville common
stock. Pursuant to the Merger Agreement, each outstanding share of
Meadville's common stock not held by Meadville or Registrant was
automatically converted at the election of the beneficial holder
thereof into 30.9 shares of Preferred Stock or $1,645 in cash payable
in three installments on the date of the merger and on each of the
first and second anniversary dates of the merger. Of the 108,579 shares
of Meadville Common Stock outstanding not held by the Registrant,
holders of 10,576.25 shares elected to convert such shares into shares
of Preferred Stock. There were no underwriters in connection with the
issuance of Preferred Stock.
The Preferred Stock is convertible into shares of Registrant's
Common Stock, par value $1.00 per share (the "Common Stock") at the
option of the holder thereof at any time after the date of the merger
upon surrender of certificates evidencing the Preferred Stock at a rate
of .6261 shares of Common Stock for each share of Preferred Stock. The
number of shares of Common Stock into which shares of Preferred Stock
is convertible is subject to adjustment in the event Registrant
declares a dividend payable in shares of Common Stock, or in the event
Registrant subdivides, combines or reclassifies shares of its Common
Stock.
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<PAGE> 17
PART II - OTHER INFORMATION (CONT'D.)
The conversion ratio is also subject to adjustment in
accordance with specified formulas if Registrant (i) distributes rights
or warrants to all holders of Common Stock allowing them to purchase,
within 60 days following the record date for such distribution, shares
of Common Stock at a price less than the then current market price of
the Common Stock, or (ii) distributes to all holders of Common Stock
any of its assets (other than cash) or debt securities or rights to
purchase securities of Registrant.
In addition, if any other transaction applicable to holders of
the Common Stock generally adversely affects the conversion ratio of
Preferred Stock but is not strictly addressed by the foregoing
provisions, Registrant will appoint a disinterested financial expert to
determine, or the Board of Directors shall determine, the adjustment,
if any, necessary to preserve the conversion rights without dilution of
the Preferred Stock.
The shares of Preferred Stock are not redeemable at the option
of the holder. Shares of Preferred Stock may not be redeemed by
Registrant for 20 years and one month following the date of the merger.
On or after such date, shares of Preferred Stock may be redeemed by
Registrant at $50 per share plus all accrued and unpaid dividends to
the redemption date.
Holders of shares of Preferred Stock have no voting rights
except in certain limited circumstances involving non-payment of
dividends thereon.
Shares of Preferred Stock were issued without registration
under the Securities Act of 1933 in reliance upon the exemption set
forth in Section 4(2) thereof and the rules and regulations promulgated
thereunder. Each holder of Meadville common stock who elected to
receive Preferred Stock was an accredited investor as defined in
Regulation D promulgated under the Securities Act of 1933.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Annual Meeting of Stockholders of the Registrant was held
on May 3, 2000. The Inspectors of Election reported that 78,040,319
shares of Common Stock of the Registrant were represented in person or
by proxy at the meeting, constituting 86.1% of the votes entitled to be
cast. At the meeting, stockholders voted upon the election of five
nominees for the Board of Directors for the three-year term expiring in
2003, the ratification of the selection by the Board of Directors of
Ernst & Young LLP as the independent auditors of the Registrant for the
fiscal year ended December 31, 2000, and approval of the adoption of
the Corporation's Amended and Restated 1995 Long-Term Incentive Plan.
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<PAGE> 18
PART II - OTHER INFORMATION (CONT'D.)
With respect to the election of directors, the inspectors of
election reported as follows:
<TABLE>
<CAPTION>
For Withhold Authority to Vote
Name Nominee Listed For Nominee Listed
<S> <C> <C>
Peter S. Hadley 76,935,331 1,104,988
John B. Hess 65,010,283 13,030,036
William R. Johnson 76,949,297 1,091,022
John Y. Schreyer 76,946,765 1,093,554
William I. Spencer 76,925,089 1,115,230
</TABLE>
The inspectors reported that 77,748,763 votes were cast for
the ratification of the selection of Ernst & Young LLP as independent
auditors for the fiscal year ending December 31, 2000, 45,939 votes
were cast against said ratification and holders of 245,617 votes
abstained.
The inspectors further reported that 69,676,273 votes were
cast for approval of the adoption of the Corporation's Amended and
Restated 1995 Long-Term Incentive Plan, 3,423,058 votes were cast
against approval, 323,875 votes abstained and there were 4,617,113
broker non-votes.
There were no broker non-votes with respect to the election of
directors or the ratification of the selection of independent auditors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
4 - Certificate of Designations, Preferences and Rights of 3%
Cumulative Convertible Preferred Stock of Registrant.
10 - Amended and Restated 1995 Long-Term Incentive Plan.
(b) Reports on Form 8-K
The Registrant filed no report on Form 8-K during the three
months ended June 30, 2000.
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<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERADA HESS CORPORATION
(REGISTRANT)
By /s/ John B. Hess
----------------------------
JOHN B. HESS
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
By /s/ John Y. Schreyer
----------------------------
JOHN Y. SCHREYER
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: August 10, 2000
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