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2008 Annual Report OUR COMPANY 2008 Annual Report OUR COMPANY Hess Corporation is a leading global independent energy company engaged in the exploration for and production of crude oil and natural gas, as well as in refining and marketing refined petroleum products, natural gas and electricity. Our strategy is to build a company that will sustain profitable growth and create significant shareholder value. We are committed to meeting the highest standards of corporate citizenship by protecting the health and safety of our employees, safeguarding the environment and making a positive impact on the communities in which we do business. TABLE OF CONTENTS 1 Financial Highlights 2 Letter to Stockholders 4 Exploration and Production 8 Marketing and Refining 10 Corporate and Social Responsibility 12 Board of Directors and Corporate Officers Cover: Shenzi Development, Gulf of Mexico FINANCIAL AND OPERATING HIGHLIGHTS Amounts in millions, except per share data 2008 2007 FINANCIAL – FOR THE YEAR Sales and other operating revenues $ 41,165 $ 31,647 Net income $ 2,360 $ 1,832 Net income per share diluted $ 7.24 $ 5.74 Common stock dividends per share $ 0.40 $ 0.40 Net cash provided by operating activities $ 4,567 $ 3,507 Capital and exploratory expenditures $ 4,828 $ 3,926 Weighted average diluted shares outstanding 325.8 319.3 FINANCIAL – AT YEAR END Total assets $ 28,589 $ 26,131 Total debt $ 3,955 $ 3,980 Stockholders’ equity $ 12,307 $ 9,774 Debt to capitalization ratio(a) 24.3% 28.9% Common stock price $ 53.64 $ 100.86 OPERATING – FOR THE YEAR Production – net Crude oil and natural gas liquids (thousands of barrels per day) United States 42 41 International 224 234 Total 266 275 Natural gas (thousands of Mcf per day) United States 78 88 International 611 525 Total 689 613 Barrels of oil equivalent (thousands of barrels per day) 381 377 Marketing and Refining (thousands of barrels per day) Refining crude runs—HOVENSA L.L.C.(b) 221 227 Refined products sold 472 451 (a) Total debt as a percentage of the sum of total debt and stockholders’ equity. (b) Reflects the Corporation’s 50% share of HOVENSA’s crude runs. See Management’s Discussion and Analysis of Results. 1 TO OUR SHAREHOLDERS • Retail Marketing experienced higher average margins, which more than offset lower sales for gasoline and convenience stores on a per site basis. We continue to build a global franchise in Exploration JOHN B. HESS and Production with world class technical Chairman of the Board and Chief Executive Officer expertise and a portfolio of assets that is balanced geographically between the United States, Europe, Africa and Asia. Our exploration program had a successful year, which positions the company for In 2008, our company delivered another year of future growth in reserves and production. strong fi nancial and operational performance as we As we manage our business through a severe executed our strategy to invest in the sustainable period of economic weakness, we are committed growth of reserves and production in Exploration and to maintaining fi nancial strength while protecting Production and manage for near-term earnings and our long-term growth options. We have responded free cash fl ow in Marketing and Refi ning. to the reduction in global energy demand and the For the year, our company achieved record earnings precipitous drop in crude oil and natural gas prices by of $2.36 billion, or $7.24 per share, on the strength sizing our 2009 capital and exploratory expenditure of high crude oil prices and growth in our worldwide program to $3.2 billion compared with $4.8 billion crude oil and natural gas production. By the end in 2008. As in previous years, nearly all of our of 2008, we had lowered our ratio of debt to 2009 spending will be targeted to Exploration and capitalization to 24.3 percent from 28.9 percent in Production, with $1.4 billion budgeted for production the prior year. operations, $900 million for developments and $800 Exploration and Production, which earned $2.4 billion, million for exploration. delivered outstanding operational performance: EXPLORATION AND PRODUCTION • Proved reserves grew to 1.43 billion barrels of oil Crude oil and natural gas production in 2008 was equivalent, an increase of 8 percent. up one percent versus the prior year despite the • Reserve life increased to 10 years, marking the impact of devastating hurricanes in the Gulf of sixth consecutive year of improvement. Mexico, which reduced our full year production • We replaced 171 percent of production at a fi nding, by about 7,000 barrels of oil equivalent per day. development and acquisition cost of $19 per barrel Production growth was underpinned by strong of oil equivalent. performance at the Hess operated Okume Complex • Worldwide crude oil and natural gas production in Equatorial Guinea and the commencement of grew to an average of 381,000 barrels of oil Phase 2 natural gas sales at the Malaysia/Thailand equivalent per day. Joint Development Area (JDA). Marketing and Refi ning, which earned $277 million, continued to contribute to our company: Throughout the year, we advanced several key developments in our global portfolio, including • Refi ning was negatively impacted by signifi cant the JDA, the Shenzi Field in the deepwater Gulf declines in refi ning margins due to the challenging economic environment. of Mexico, Ujung Pangkah crude oil and liquefied • Energy Marketing results benefi ted from strong petroleum gas in Indonesia and the Valhall Field margins and volume growth. redevelopment in Norway. 2 In exploration, we executed a successful program $3 million to the Greater Houston Community that resulted in offshore discoveries in Australia, Foundation for Hurricane Ike relief efforts. Our Libya and Egypt. We conducted appraisal drilling partnership with the government in Equatorial in our Pony Field in the deepwater Gulf of Mexico, Guinea to improve primary education made where we drilled to a total depth of more than substantial progress in 2008 by training 1,165 32,000 feet. We also made significant additions to teachers and renovating 40 model schools. our exploration acreage, including the acquisition of We are extremely pleased that Greg Hill has joined 47 blocks in the deepwater Gulf of Mexico and the us as President, Worldwide Exploration and Semai V block in Indonesia. Production. Greg had a distinguished 25-year MARKETING AND REFINING career at Shell, where he most recently was While we continued our strategy of running our Executive Vice-President, Asia Pacific E&P. refineries for cash flow, high crude oil prices and weak He also served in leadership roles in the United refined product demand pressured margins for most States and Europe. He brings global experience of 2008, resulting in lower profitability for the year. in operations excellence, technology, development projects and building world-class organizations The growth for Hess Energy Marketing, which through investment in people. provides energy to 17,000 commercial and industrial customers in the eastern United States, Greg succeeds John O’Connor, who is retiring after occurred largely in sales of natural gas and more than seven years of outstanding leadership. electricity. Energy Marketing also introduced a slate We want to express our deep appreciation to John of green products and services, such as Demand for the extraordinary job he has done in developing Response and Carbon Neutral programs. a global franchise in Exploration and Production. His vision to grow reserves and production on a In Retail Marketing, which has 1,366 gasoline and sustainable and financially disciplined basis has convenience stores along the East Coast of the U.S., provided us a strong foundation for the future. higher average margins more than offset weaker gasoline sales. The rollout of Dunkin’ Donuts self- We appreciate our employees’ hard work and service offerings in our retail network has been dedication to build a company that has the enthusiastically received by our customers. capability to meet the world’s energy challenges with the entrepreneurial spirit of an independent. SAFETY AND SOCIAL RESPONSIBILITY We are grateful for the outstanding advice and In 2008 we achieved our best-ever performance guidance of our Board of Directors. We especially in employee safety. While we are proud of the thank you, our stockholders, for your support progress we are making, we remain focused on and interest. building a culture of continuous improvement in safety performance. Our company is committed to making a long-lasting positive impact on the communities in which we operate. Last year, our contributions to support John B. Hess health, education and community development grew Chairman of the Board and Chief Executive Officer to $21 million from $16 million in 2007 and included March 4, 2009 3 EXPLORATION AND PRODUCTION In 2008, Exploration and Production achieved record earnings, 8 percent growth in proved reserves and our objective of a 10 year reserve life. PRODUCTION In 2008, net production In Equatorial Guinea, continued development averaged 381,000 barrels of drilling and strong performance from subsurface oil equivalent per day, up from 377,000 barrels production facilities enabled net production from of oil equivalent per day in 2007. The increase the company-operated Okume Complex (Hess was underpinned by a full year of production at 85%) to achieve peak rates in excess of 50,000 the Okume Complex in Equatorial Guinea and barrels of oil per day. Including the Hess operated increased production at the Malaysia/Thailand Ceiba Field (Hess 85%) total net production from Joint Development Area (JDA). These increases Equatorial Guinea averaged 72,000 barrels per were partially offset by lower profit oil entitlements day in 2008. from PSC price effects, hurricane related downtime in the Gulf of Mexico and declines In the Malaysia/Thailand JDA, Phase 2 natural gas in mature assets primarily in the North Sea.
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