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ANNUAL REPORT

Table of contents

  • Page 1
    ANNUAL REPORT

  • Page 2
    TABLE OF CONTENTS: Financial Highlights Letter to Stockholders Global Focused Committed Exploration & Production Refining & Marketing Index to Financial Information Board of Directors and Corporate Officers 1 2 4 6 8 10 12 14 70 Cover: Deep water production operations in the Gulf of Mexico

  • Page 3
    ... HIGHLIGHTS Amerada Hess Corporation and Consolidated Subsidiaries Dollar amounts in millions, except per share data 2003 2002 FINANCIAL - FOR THE YEAR Sales and other operating revenues Income (loss) from continuing operations Net income (loss) Net income (loss) per share-diluted Common stock...

  • Page 4
    ... through an increase in new field developments, sales of lower value, mature properties and a focused, higher impact exploration program." John B. Hess, Chairman of the Board and Chief Executive Officer Our strategic plan is to build a portfolio of assets that enhance financial performance...

  • Page 5
    ... the field to 50% . We also exchanged our 25% stake in Premier Oil plc for a 23% interest in the Natuna Sea Block A in Indonesia. • RESTRUCTURING OUR EXPLORATION AND PRODUCTION ORGANIZATION Net income per barrel of refined products sold ranked in the top quartile versus competitors for 2003. The...

  • Page 6
    GL BAL Joint Development Area, Malaysia / Thailand 4

  • Page 7
    ...M-T JDA Ujung Pangkah PRIMARY PRODUCT Natural Gas / NGL Oil / Condensate PROFITABLE GROWTH WILL BE DRIVEN BY NEW DEVELOPMENT PROJECTS We have built an inventory of global development projects which combined with recent exploration successes will profitably grow our business for the long-term. 5

  • Page 8
    F CUSED HESS EXPRESS, Pennsylvania 6

  • Page 9
    VT NH NY MA PA Port Reading NJ DE VA NC Refinery Terminals SC GA Marketing FL HOVENSA BUILDING THE HESS BRAND Our Refining and Marketing business is focused on the East Coast with a growing convenience store network, an expanding energy marketing business, a world class merchant refinery ...

  • Page 10
    C MMITTED 8

  • Page 11
    ... of corporate citizenship by protecting the health and safety of our employees, by safeguarding the environment, and by creating a long-lasting, positive impact on the communities in which we operate. In 2003 we continued to demonstrate our commitment through the support of numerous social programs...

  • Page 12
    ...gas production was from the North Sea. 10 The Ceiba Field (AHC 85% ), located in Block G in Equatorial Guinea, is responding favorably to water injection and is expected to produce approximately 25,000 net barrels per day in 2004 compared to 22,000 barrels per day in 2003. DEVELOPMENT Amerada Hess...

  • Page 13
    ... Guneshli fields (AHC 2.72% ), in Azerbaijan, is on schedule. Net production is currently 2,000 barrels of oil equivalent per day, and is expected to increase to over 25,000 barrels per day by 2009. EXPLORATION Exploration is a key component of future growth. Amerada Hess has a strong position in...

  • Page 14
    .... MARKETING Retail The HESS retail network has become the leading independent gasoline convenience store marketer on the East Coast. In 2003, four new locations were built, while 10 existing sites were upgraded with the addition of HESS EXPRESS convenience stores. HESS EXPRESS stores generally...

  • Page 15
    ...North Carolina market. With that purchase, the total number of Hess branded retail facilities increased to approximately 1,250. Energy Marketing In energy marketing, the Corporation is a major supplier of natural gas, fuel oil and electricity, with more than 24,000 commercial and industrial customer...

  • Page 16
    ... of Par Value; Statement of Consolidated Comprehensive Income Notes to Consolidated Financial Statements Report of Management Report of Ernst & Young LLP, Independent Auditors Supplementary Oil and Gas Data Ten-Year Summary of Financial Data Ten-Year Summary of Operating Data 40 57 58 59 64 68 14

  • Page 17
    ... program. During the past three years the Corporation has reshaped its E&P asset portfolio by: • Acquiring exploration, development and production assets in West Africa and Southeast Asia. • Selling higher cost properties predominantly in the shallow water Gulf of Mexico and the North Sea...

  • Page 18
    ...of crude oil, natural gas liquids and natural gas increased exploration and production revenues from continuing operations by approximately $170 million in 2003 compared with 2002. In 2002, the change in average selling prices did not significantly affect revenues compared with 2001. The Corporation...

  • Page 19
    ...2002, crude oil production was higher than in 2001 and natural gas production was lower. The net effect of these volume changes was an increase in revenues of $100 million. The Corporation's net daily worldwide production was as follows: Operating costs and exploration expenses: Operating costs and...

  • Page 20
    ... of this charge was $53 million, of which $32 million relates to leased office space. The remainder of $21 million relates to severance for positions that were eliminated in London, Aberdeen and Houston. Over 700 employee and contractor positions have been or will be eliminated. Approximately 240...

  • Page 21
    ... Venezuela S.A. (PDVSA), accounted for on the equity method. Additional refining and marketing activities include a fluid catalytic cracking facility in Port Reading, New Jersey, as well as retail gasoline stations, energy marketing and trading operations. HOVENSA: The Corporation's share of HOVENSA...

  • Page 22
    ... trades energy commodities and energy derivatives. The Corporation also takes trading positions in addition to its hedging program. The Corporation's after-tax results from trading activities, including its share of the earnings of the trading partnership amounted to income of $17 million in 2003...

  • Page 23
    ... in 2003 also includes $40 million of income from operations prior to the sales of these assets. The Corporation has hedged the selling prices of a significant portion of its crude oil and natural gas production in 2004 and 2005 to help generate a level of cash flow that will meet operating and...

  • Page 24
    ... impact of its program of asset exchanges and sales of properties has not reduced its liquidity in the short-term or over the next five years. In 2002, the Corporation sold United States Flag vessels, its energy marketing business in the United Kingdom and several small oil and gas fields for net...

  • Page 25
    ... current estimates of production, capital expenditures and other factors, and assuming West Texas Intermediate oil prices average $24 per barrel and United States natural gas prices average $4.25 per Mcf, the Corporation anticipates it will fund its future operations, including capital expenditures...

  • Page 26
    ... Foreign Operations: The Corporation conducts exploration and production activities in many foreign countries, including the United Kingdom, Norway, Denmark, Gabon, Indonesia, Thailand, Azerbaijan, Algeria, Malaysia and Equatorial Guinea. Therefore, the Corporation is subject to the risks associated...

  • Page 27
    ... commodity risks primarily related to the prices of crude oil, natural gas and refined products. The following describes how these risks are controlled and managed. Controls: The Corporation maintains a control environment under the direction of its chief risk officer and through its corporate risk...

  • Page 28
    ... during the year The Corporation also markets energy commodities including refined petroleum products, natural gas and electricity. The Corporation uses futures and swaps to fix the purchase prices of commodities to be sold under fixed-price sales contracts. The Corporation uses foreign exchange...

  • Page 29
    ... the Corporation's proprietary trading accounts. In trading activities, the Corporation is exposed to changes in crude oil, natural gas and refined product prices, primarily in North America and Europe. Trading positions include futures, swaps and options. In some cases, physical purchase and sale...

  • Page 30
    ... Accounting for Exploration and Development Costs: The Corporation uses the successful efforts method of accounting for oil and gas producing activities. Costs to acquire or lease unproved and proved oil and gas properties are capitalized. Costs incurred in connection with the drilling and equipping...

  • Page 31
    ... and production processes are similar in each component. • The methods used by each component to market and distribute oil and gas are similar. • Customers of each component are similar. • The components share resources and are supported by a worldwide exploration team and a shared services...

  • Page 32
    ...the market price an acquirer would pay for potential synergies including cost savings, access to new business opportunities, enterprise control, improved processes and increased market share. The Corporation also considers the relative market valuation of similar exploration and production companies...

  • Page 33
    ... of mineral rights could amount to approximately $2.3 billion at December 31, 2003 and $2.2 billion at December 31, 2002, if the Corporation is required to include the purchase price allocated to hydrocarbon reserves obtained in acquisitions of oil and gas properties. The determination...

  • Page 34
    ...the 7% cumulative mandatory convertible preferred stock will total $3.50 per share ($.875 per quarter). 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 2003 and 2002 were as...

  • Page 35
    ... Condition, including references to the Corporation's future results of operations and financial position, liquidity and capital resources, capital expenditures, oil and gas production, tax rates, debt repayment, hedging, derivative, market risk and environmental disclosures, off-balance sheet...

  • Page 36
    ... Accounts receivable Trade Other Inventories Other current assets Total current assets $ 518 1,717 185 579 187 3,186 $ 197 1,785 187 492 95 2,756 INVESTMENTS AND ADVANCES HOVENSA L.L.C. Other Total investments and advances 960 135 1,095 842 780 1,622 PROPERTY, PLANT AND EQUIPMENT Exploration...

  • Page 37
    ... taxes Asset retirement obligations Other Total deferred liabilities and credits 1,144 462 500 2,106 1,044 - 440 1,484 STOCKHOLDERS' EQUITY Preferred stock, par value $1.00, 20,000 shares authorized 7% cumulative mandatory convertible series Authorized-13,500 shares Issued-13,500 shares in 2003...

  • Page 38
    ... sold Production expenses Marketing expenses Exploration expenses, including dry holes and lease impairment Other operating expenses General and administrative expenses Interest expense Depreciation, depletion and amortization Asset impairments Total costs and expenses Income (loss) from continuing...

  • Page 39
    ... TED RETAINED EARNINGS Amerada Hess Corporation and Consolidated Subsidiaries For the Years Ended December 31 Millions of dollars, except per share data 2003 $3,482 643 (... stock ($1.20 per share in 2003, 2002 and 2001) Dividends on preferred stock ($.34 per share in 2003) Common stock acquired ...

  • Page 40
    ... sales Provision (benefit) for deferred income taxes Undistributed earnings of affiliates Non-cash effect of discontinued operations Changes in other operating assets and liabilities (Increase) decrease in accounts receivable (Increase) decrease in inventories Increase (decrease) in accounts payable...

  • Page 41
    ... Amerada Hess Corporation and Consolidated Subsidiaries Preferred Stock Common Stock Capital in excess of par value Millions of dollars; thousands of shares Number of shares Amount Number of shares Amount BALANCE AT JANUARY 1, 2001 Distributions to trustee of nonvested common stock awards...

  • Page 42
    ..., Equatorial Guinea and Algeria. The Corporation also has oil and gas activities in Azerbaijan, Gabon, Indonesia, Malaysia, Thailand and other countries. In addition, the Corporation manufactures, purchases, transports, trades and markets refined petroleum and other energy products. The Corporation...

  • Page 43
    ... of production method over proved developed oil and gas reserves. Depreciation of all other plant and equipment is determined on the straightline method based on estimated useful lives. other externally reported information. Oil and gas prices used for determining asset impairments will generally...

  • Page 44
    ... share Basic Diluted $ (218) $ 914 7 5 8 effects of fluctuations in crude oil, natural gas and refined product selling prices. The Corporation also uses derivatives in its energy marketing activities to fix the purchase prices of commodities to be sold under fixed-price contracts. Related hedge...

  • Page 45
    ...flows were less than the book value of the field, which included allocated purchase price from the Triton acquisition. The Corporation also recorded a pre-tax impairment charge of $318 million to reduce the carrying value of oil and gas properties located primarily in the Main Pass/Breton Sound area...

  • Page 46
    ..., which holds a 50% interest in a production sharing contract with natural gas reserves in the joint development area of Malaysia and Thailand. At the time of the exchange, the exploration and production segment included the net book value of fixed assets in Colombia of $670 million ($685 million at...

  • Page 47
    ..., the Corporation acquired 100% of the outstanding ordinary shares of Triton Energy Limited, an international oil and gas exploration and production company. The Corporation's consolidated financial statements include Triton's results of operations from August 14, 2001. The purchase price resulted...

  • Page 48
    ...purchase 50% of HOVENSA's production of refined products at market During 2003, the Corporation recorded non-cash additions to fixed assets of $1,340 million. Of this total, $485 million related to assets that were previously accounted for as an equity investment in a company that holds natural gas...

  • Page 49
    reserves in Malaysia and Thailand. The remaining $855 million resulted from asset exchanges. The Corporation also recorded deferred income tax liabilities of $105 million related to the asset exchanges. The assets and liabilities relinquished in these exchanges included fixed assets of approximately...

  • Page 50
    ... 31, 2003, the number of common shares reserved for issuance under the 1995 Long-Term Incentive Plan is as follows (in thousands): Future awards Stock options outstanding Stock appreciation rights Total 479 4,157 4 4,640 12. FOREIGN CURRENCY TRANSLATION Exercise prices for employee stock options at...

  • Page 51
    ... equal amounts that would have been payable from the Corporation's principal pension plans, were it not for limitations imposed by income tax regulations. The plans provide defined benefits based on years of service and final average salary. The Corporation uses December 31 as the measurement...

  • Page 52
    ... benefit obligation or the market value of assets are amortized over the average remaining service period of active employees. The weighted-average actuarial assumptions used by the Corporation's funded and unfunded pension plans were as follows: 2003 2002 2001 The Corporation's funded pension plan...

  • Page 53
    ...income includes the Corporation's Virgin Islands, shipping and other operations located outside of the United States. United States statutory rate Effect of foreign operations, including foreign tax credits Loss on repurchase of bonds State income taxes, net of Federal income tax benefit Prior year...

  • Page 54
    ... the average closing price of the Corporation's common stock over a 20-day period before conversion. The Corporation has reserved 13,903,650 shares of common stock for the conversion of these preferred shares. Holders of the cumulative mandatory convertible preferred stock have the right to convert...

  • Page 55
    ..., natural gas and refined product selling prices. The Corporation also uses derivatives in its energy marketing activities to fix the purchase prices of commodities to be sold under fixed-price contracts. Related hedge gains or losses are an integral part of the selling or purchase prices. Generally...

  • Page 56
    ...), including $71 million of unrealized losses. In its energy marketing business, the Corporation has entered into cash flow hedges to fix the purchase prices of natural gas, heating oil, residual fuel oil and electricity. At December 31, 2003, the net after tax deferred gains in accumulated other...

  • Page 57
    .... Exploration and production operations include the exploration for and the production, purchase, transportation and sale of crude oil and natural gas. Refining and marketing operations include the manufacture, purchase, transportation, trading and marketing of petroleum and other energy products...

  • Page 58
    ... segment for each of the three years ended December 31, 2003: Millions of dollars Exploration and Production Refining and Marketing Corporate and Interest Consolidated* 2003 Operating revenues Total operating revenues Less: Transfers between affiliates $ 3,153 316 $ 2,837 $ 414 170 7 591 13...

  • Page 59
    ... required by generally accepted auditing standards. Ernst & Young LLP and the Corporation's internal auditors have unrestricted access to the Audit Committee. John B. Hess Chairman of the Board and Chief Executive Officer John Y. Schreyer Executive Vice President and Chief Financial Officer 57

  • Page 60
    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, 2003 and 2002 and the related consolidated ...

  • Page 61
    ...relating to proved oil and gas reserves, including a reconciliation of changes therein. The Corporation produces crude oil and/or natural gas in the United States, Europe, Equatorial Guinea, Algeria, Gabon, Indonesia, Thailand and Azerbaijan. Exploration activities are also conducted, or are planned...

  • Page 62
    ... operations Discontinued operations Results of operations 2002 Sales and other operating revenues Unaffiliated customers Inter-company Total revenues Costs and expenses Production expenses, including related taxes Exploration expenses, including dry holes and lease impairment General, administrative...

  • Page 63
    ...crude oil reserves and 43% of natural gas reserves held under production sharing contracts. These reserves are located outside of the United States and are subject to different political and economic risks. (e) Excludes 443 million Mcf of carbon dioxide gas for sale or use in company operations. 61

  • Page 64
    ...to depreciation, depletion, amortization and lease impairment, exploration expenses, interest expense, corporate general and administrative expenses and changes in future prices and costs. The selling prices of crude oil and natural gas are highly volatile. The year-end prices, which are required to...

  • Page 65
    ... in prices and production costs applicable to future production Net change in estimated future development costs Extensions and discoveries (including improved recovery) of oil and gas reserves, less related costs Revisions of previous oil and gas reserve estimates Purchases (sales) of minerals in...

  • Page 66
    ...TA Amerada Hess Corporation and Consolidated Subsidiaries Millions of dollars, except per share data 2003 2002 2001 STATEMENT OF CONSOLIDATED INCOME Revenues and Non-operating Income Sales (excluding excise taxes) and other operating revenues Crude oil (including sales of purchased oil) Natural...

  • Page 67
    2000 1999(f) 1998 1997 1996 1995 1994 $ 2,022 3,239 5,539 947 11,747 - 121 165 12,033 7,885 522 542 282 234 222 162 676 - 10,525 1,508 591 917(e) 106 - $ 1,023 - $ 1,023 $ 10.29 11.48 $ 10.20 11.38 $ .60 $ 1,322 1,800 3,003 770 6,895 273 7 140 7,315 4,239 453 387 260 217 232 158 610 128 6,...

  • Page 68
    ...cash equivalents Working capital Property, plant and equipment Exploration and production Refining and marketing Total-at cost Less reserves Property, plant and equipment-net Total assets Total debt Stockholders' equity Stockholders' equity per share, assuming conversion of preferred stock $ 518 517...

  • Page 69
    2000 1999 1998 1997 1996 1995 1994 $ 312 577 $ 41 249 $ 74 90 $ 91 464 $ 113 690 $ 56 358 $ 53 520 $10,499 1,399 11,898 7,575 $ 4,323 $10,274 2,050 3,883 $ 43.58 $ 9,974 1,091 11,065 7,013 $ 4,052 $ 7,728 2,310 3,038 $ 33.51 $ 9,718 1,309 11,027 6,835 $ 4,192 $ 7,883 2,652 2,...

  • Page 70
    TEN-YEAR SUMMARY OF OPERA TING DA TA Amerada Hess Corporation and Consolidated Subsidiaries 2003 PRODUCTION PER DAY (NET) Crude oil (thousands of barrels) United States United Kingdom Norway Denmark Equatorial Guinea Algeria Gabon Indonesia Azerbaijan Colombia Other Total 2002 2001 44 89 24 24 ...

  • Page 71
    2000 1999 1998 1997 1996 1995 1994 55 119 25 25 - 2 7 4 3 - - 240 12 6 2 1 - 21 288 297 23 37 24 10 - 679 374 29 11 18 774 188 962 616 14,419 15,035 - 211 304 62 366 37,487 9,891 55 112 25 7 - - 10 3 2 - - 214 10 5 2 1 - 18 338 258 8 3 31 5 - 643 339 28 11 9 735 161 896 678 15,858 16,536 - ...

  • Page 72
    ... University; Former Governor State of New Jersey John Y. Schreyer Executive Vice President and Chief Financial Officer J. Barclay Collins II Executive Vice President and General Counsel and Management Development Committee (4) Member of Corporate Governance and Nominating Committee Ernst H. von...

  • Page 73
    ...Box 11258 Church Street Station New York, New York 10286 1-800-524-4458 e-mail: shareowner-svcs@ bankofny.com OPERATING OFFICES Exploration and Production Amerada Hess Corporation One Allen Center 500 Dallas Street Houston, Texas 77002 Amerada Hess Limited 33 Grosvenor Place London SW1X 7HY England...

  • Page 74
    AMERADA HESS CORPORATION 1185 Avenue of the Americas New York, New York 10036 www.hess.com