In 2005, we made significant progress in executing our
strategy to grow shareholder value over the long term.
That strategy is to grow reserves and production in
a sustainable and financially disciplined manner and
to deliver consistent financial performance from our
Marketing and Refining assets for more immediate
returns and free cash flow.
Our Corporation delivered another year of strong
operating and financial results. Earnings rose to a
record $1.2 billion as the effect of higher crude oil
and natural gas prices more than offset the negative
impact on production from Hurricanes Katrina and
Rita. Our capital and exploratory expenditures in 2005
totaled $2.5 billion, of which approximately $2.4 billion
was invested in Exploration and Production and about
$100 million in Marketing and Refining. Our Exploration
and Production expenditures included more than
$1 billion for field developments.
In Exploration and Production, we made substantial
progress in advancing our field developments, building
a high-impact exploration program and capturing
long-term growth opportunities through several new
country entries. Our proved reserves increased to
1.1 billion barrels of oil equivalent at year-end, and
we replaced approximately 140% of our production at
a finding, development and acquisition cost of about
$13.60 per barrel. Our reserve life improved to 8.8
years, marking the third consecutive year in which
we have lengthened our reserve life. We are building
a sustainable and profitable business with excellent
visibility of growth in reserves and production.
In Marketing and Refining, we continued to grow our
retail and energy marketing businesses and delivered
strong operating performance at our refineries. Our
tightly focused regional business model and well
known brand allow us to be very competitive and
generate strong financial performance.
In 2005, significant progress was made in our major
field developments, including three new field start-ups -
Block A-18 in the Joint Development Area between
Malaysia and Thailand (JDA), the Clair Field in the
United Kingdom, and ACG Phase I in Azerbaijan. In
addition, the Phu Horm gas development in Thailand
was sanctioned in 2005. Approvals of the Shenzi
development in the deepwater Gulf of Mexico and the
Ujung Pangkah oil development in Indonesia are expected
during 2006. Over the next several years, we will bring
on production from major new field developments in
the deepwater Gulf of Mexico, the North Sea, West Africa
and Southeast Asia. All of our operated development
projects continue to be on schedule and on budget.
With regard to exploration, we added new acreage in
Libya, Egypt, Brazil and the deepwater Gulf of Mexico.
Our drilling program for 2006 includes approximately
seven high-impact wells in the Gulf of Mexico.
As part of our strategy to add profitable, long-lived
reserves, we established operations in two new
countries, Russia and Egypt, and re-entered our
former operations in Libya.
• In early 2005, Amerada Hess acquired a controlling
interest in the Samara-Nafta joint venture in the
Volga-Urals region of Russia and added additional
assets and licenses to the venture during the year.
We currently have invested about $400 million in
Russia and have recognized 87 million barrels of
proved reserves.
• Amerada Hess acquired a 55% interest in, and
the operatorship of, the deepwater portion of
the West Med Block in Egypt. The block contains
existing natural gas discoveries as well as
exploration opportunities.
• After a 19-year absence, we, along with our Oasis
Group partners, successfully concluded negotiations
to resume operations in Libya where we have an
8% interest in the Waha concessions. We began to
recognize production and reserves in 2006.
Marketing and Refining had another impressive year of
performance in 2005. The HOVENSA and Port Reading
refineries both underwent successful turnarounds of
their fluid catalytic cracking (FCC) units in the first
quarter and benefited from an exceptional year of
strong margins. Despite a challenging hurricane season
and warmer than normal winter temperatures, our retail
and energy marketing businesses also delivered another
year of strong operational results. Retail marketing
experienced solid growth in 2005, with year-over-year
average gasoline volumes per station increasing by
7%, and convenience store revenue rising by 4%.
In 2005, Amerada Hess Corporation reported record
net income of $1.2 billion, or $11.94 per share.
Exploration and Production earned nearly $1.1 billion
and Marketing and Refining earned $515 million.
As a result of strong operating performance and the
favorable pricing environment in 2005, our debt to
capitalization ratio improved by three percentage
points to 37.6 percent at the end of the year.
In response to the tragic devastation caused by
Hurricanes Katrina and Rita, the Corporation and our
employees donated $1.6 million to the American
Red Cross to assist in the relief efforts in the Gulf
Coast. In addition, the Corporation donated 50,000
of our 2005 Hess Toy Trucks to the United States
Marine Corps Reserve Toys for Tots program, which
were distributed to children impacted by the storms.
We are pleased with the performance of our assets
and our organization in 2005 and remain optimistic
that the investments we are making for the future will
grow our reserves and production profitably and create
sustainable long-term value for our shareholders.
We deeply appreciate our employees for their
dedication and hard work, our Directors for their
guidance and leadership, and our stockholders for
their continued interest and support.
Chairman of the Board and
Chief Executive Officer
March 1, 2006
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