In 2009, our company delivered strong financial and operational performance in a challenging economic environment and generated earnings of $740 million, or $2.27 per share. While our earnings were lower than the previous year, our results reflected a significant increase in production, successful cost reduction efforts and crude oil prices that rose throughout the year.

As in the past, we continued to execute our strategy to generate sustainable growth over the long term in Exploration and Production and operate Marketing and Refining for current returns and free cash flow.

Exploration and Production, which earned $1.04 billion, had outstanding growth in production, which rose 7 percent to 408,000 barrels of oil equivalent per day. We replaced 103 percent of production at a finding, development and acquisition cost of about $20 per barrel of oil equivalent. At year end, our proved reserves were 1.44 billion barrels of oil equivalent and our reserve life was 9.5 years.

Marketing and Refining earned $127 million by reducing costs and increasing efficiency in a difficult economy. Refining was negatively impacted by lower margins. Energy Marketing had a strong performance with higher sales than the previous year. Retail Marketing had reduced margins and gasoline volumes, but these were partially offset by an 11 percent increase in convenience store sales.

We are fortunate to have an attractive portfolio of investment opportunities to deliver sustainable growth in our reserves and production. For 2010, our capital and exploratory budget is $4.1 billion, with substantially all of it targeted to Exploration and Production: $2.4 billion budgeted for production operations, $800 million for developments and $850 million for exploration.

We plan to invest about $1 billion per year over the next five years in the Bakken shale play in North Dakota to boost net production from 11,000 barrels of oil equivalent per day currently to 80,000 barrels of oil equivalent per day in 2015. We also announced a strategic trade with Shell to increase our interests in the Valhall and Hod fields in Norway in exchange for Hess’ share in the Clair Field in the United Kingdom and all of our interests in Gabon.

Higher production in 2009 was underpinned by strong volumes from the Shenzi Field in the deepwater Gulf of Mexico, a full year of Phase 2 natural gas sales at the Malaysia/Thailand JDA and overall solid operating performance.

We advanced several key developments in our global portfolio throughout the year, including the Valhall redevelopment and gas lift projects, offshore development at Ujung Pangkah in Indonesia, front-end engineering and design for the Tioga Gas Plant expansion in North Dakota and development options for the Pony Field in the deepwater Gulf of Mexico.

In exploration, we strengthened our future growth options with continued success at our 100 percent owned WA-390-P Block offshore Australia, where in 2009 we drilled seven wells, six of which were natural gas discoveries. In offshore Libya, we successfully tested the A1 discovery well on our 100 percent owned Area 54 license and subsequently drilled and successfully tested an appraisal well.

Our financial results in Marketing and Refining were lower in 2009 than the previous year as the weak economy had a negative impact on our business, particularly in refining, where our HOVENSA joint venture experienced losses from significantly lower distillate crack spreads and narrower light/heavy crude oil differentials.

Energy Marketing, which provides energy to more than 18,000 commercial and industrial customers in the eastern United States, generated continued growth with increased sales of natural gas, fuel oil and electricity.

Retail Marketing, which has 1,357 gasoline and convenience stores along the East Coast of the U.S., experienced a decline in fuel volumes and margins but an increase in convenience store sales, which were bolstered by the continued roll-out of Dunkin’ Donuts offerings.

In 2009, our safety performance improved for the fifth consecutive year as we reduced our combined employee and contractor incident rate by nearly 25 percent. This progress is a result of the engagement of our entire work force and the success of our management systems.

Our company is committed to making a long-lasting positive impact on the communities where we operate. Our educational partnership in Equatorial Guinea is helping transform primary education across the nation through model schools and teacher training, with 900 teachers enrolled in a two-year certification course graduating in early 2010. In Libya, we started work with the National Oil Corporation and Partners Harvard Medical International on a program to address the high rate of diabetes in the country, concentrating on disease prevention and treatment and the training of medical personnel. In St. Lucia, we partnered with the International Medical Corps to assess the needs of St. Jude Hospital following a devastating fire. We contributed initial emergency supplies and developed a long term plan to provide equipment and medical training.

Hess received significant recognition last year for our efforts to build a sustainable enterprise. We were honored to receive the Responsible CEO of the Year Award from CRO Magazine, achieve a grade of A+ by the Global Reporting Initiative for our annual Sustainability Report and rank in the Carbon Disclosure Project Global 500 Leadership Index.

We deeply appreciate the hard work and dedication of our employees to build a company that has the speed, agility and entrepreneurial spirit of an independent and the global reach of companies many times our size. We are grateful, as always, for the outstanding advice and guidance of our Board of Directors. We especially want to thank you, our stockholders, for your continued interest and support.

 

John B. Hess
Chairman of the Board and Chief Executive Officer
March 3, 2010