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JOHN B. HESS
Chairman of the Board
and Chief Executive Officer
In 2004, we had a strong year of operating and financial results. We are pleased with the performance of our assets and proud of the accomplishments of our organization. During the year, we made significant progress in advancing our development projects, pursuing our exploration program, growing our reserves and strengthening our financial position.
Our strategy is to build a portfolio of assets that will sustain financial performance and provide long-term profitable growth for our shareholders. In executing this strategy, we will continue to concentrate on growing exploration and production and maximizing financial returns from refining and marketing. We have attractive investment opportunities that we will pursue while maintaining capital discipline and financial flexibility.
2004 HIGHLIGHTS
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Net income was $977 million, the second highest in the
Corporation's history. Exploration and production
earned $755 million, while refining and marketing
contributed $451 million.
Worldwide oil and natural gas production averaged 342,000 barrels of oil equivalent per day compared to our original forecast of 325,000 barrels of oil equivalent per day. In 2005, we project worldwide crude oil and natural gas production to average 350,000 barrels of oil equivalent per day. We replaced 110% of production, at a finding and development cost of approximately $11 per barrel. Proved reserves at year-end were 1.046 billion barrels of oil equivalent and our reserve to production ratio improved to 8.2 years from 7.5 years in 2003. Our development projects made significant progress during the year. These projects, combined with an exciting high impact exploration and appraisal drilling program, will drive reserve and production growth. |
| • • • • • |
In the deep water Gulf of Mexico, production from the
Llano Field commenced and is currently averaging
approximately 20,000 barrels of oil equivalent per day
net to the Corporation.
In Equatorial Guinea, the development plan for the Okume Complex was approved by the government. The major contracts for construction have been awarded and the development is expected to commence production in early 2007. In Algeria, the scope of our project to redevelop the Gassi El Agreb fields was expanded. Since 2000, we have more than doubled production from the fields, and we see additional opportunities to increase reserves and production. In Block A-18 in the Joint Development Area (JDA) between Malaysia and Thailand, additional gas sales were negotiated that will allow us to double our proved reserves in the JDA over the next several years and contribute significant production growth. First sales of natural gas from the JDA began in February 2005. In Indonesia, the Ujung Pangkah development was sanctioned. Gas sales from the Pangkah Field are expected to commence by early 2007. |
Our exploration strategy continues to be successful. Encouraging drilling results in 2004 at our Shenzi discovery in the deepwater Gulf of Mexico, and the Phu Horm and Belud discoveries in Southeast Asia will provide opportunities for future reserve and production growth. In addition, our prospect inventory is strong, and we plan to drill approximately 15 high impact exploration and appraisal wells in 2005.
REFINING AND MARKETING
The HOVENSA and Port Reading refineries operated near maximum capacity for most of the year, enabling them to take advantage of the strong margins experienced in 2004. Furthermore, profitability was enhanced by a significant price differential between light and heavy crude oil and HOVENSA's capability to process lower cost, heavy crude oil.
Our HESS EXPRESS retail sites are industry leaders in terms of gasoline volumes and convenience store sales per site. In 2004, the HESS retail network continued to expand, growing to 1,254 sites, further solidifying our position as the leading independent gasoline convenience store marketer on the East Coast. Our energy marketing business performed well despite warmer than normal weather. We continue to look for opportunities to grow our retail and energy marketing businesses.
IMPROVED FINANCIAL POSITION
In 2004, our debt to capitalization ratio improved to 40.7% at the end of the year. With our improved balance sheet, strong cash flow and a new $2.5 billion revolving credit facility, we have the financial flexibility to fund our attractive investment opportunities.
In May, after 14 years of distinguished service, John Y. Schreyer retired as a Director and Chief Financial Officer. We thank John for his financial leadership and commitment throughout his long association with the Corporation. We will miss his sound advice and invaluable contributions.
In June, Dr. Risa Lavizzo-Mourey was elected a new member of our Board of Directors. She is President and Chief Executive Officer of the Robert Wood Johnson Foundation and brings important experience in business and social responsibility to our Board.
Our thoughts and prayers are with those impacted by the devastating tsunami in Asia and we are deeply appreciative of the extraordinary efforts being made by the relief organizations. To assist in their work, the Corporation made a $2 million donation to two relief agencies working in Indonesia and Thailand and has also matched employee contributions.
Our success in 2004 could not have been achieved without the hard work and dedication of our employees. We are proud and deeply appreciative of their many contributions during the past year. We also thank our Directors for their guidance and leadership and our stockholders for their support.
Chairman of the Board
and Chief Executive Officer
March 2, 2005