Attached files
file | filename |
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10-K/A - FORM 10-K/A - HESS CORP | y87607e10vkza.htm |
EX-31.1 - EX-31.1 - HESS CORP | y87607exv31w1.htm |
EX-23.2 - EX-23.2 - HESS CORP | y87607exv23w2.htm |
EX-31.2 - EX-31.2 - HESS CORP | y87607exv31w2.htm |
Exhibit 99(1)
DeGolyer and MacNaughton
5001 Spring Valley Road
Suite 800 East
Dallas, Texas 75244
5001 Spring Valley Road
Suite 800 East
Dallas, Texas 75244
November 5, 2010
Board of Directors
Hess Corporation
1185 Avenue of the Americas
New York, New York 10036
Hess Corporation
1185 Avenue of the Americas
New York, New York 10036
Gentlemen:
Pursuant to your request, we have conducted a reserves audit of the net proved crude oil,
condensate, natural gas liquids (NGL), and natural gas reserves, as of December 31, 2009, of
certain selected properties of Hess Corporation (Hess) to determine the reasonableness of Hess
estimates. Hess has represented to us that these properties account for 79 percent on a net
equivalent barrel basis of Hess net proved reserves, as of December 31, 2009. We have reviewed
information provided to us by Hess that it represents to be Hess estimates of the net reserves, as
of December 31, 2009, for the same properties as those which we evaluated. The report was completed
January 15, 2010, but is being revised to add additional clarification requested by the U.S.
Securities and Exchange Commission.
Reserves included herein are expressed as net reserves as represented by Hess. Gross reserves
are defined as the total estimated petroleum to be produced from these properties after December
31, 2009. Net reserves are defined as that portion of the gross reserves attributable to the
interests owned by Hess after deducting all interests owned by others, except in Russia, where Hess
owns 80 percent of a consolidated corporate joint venture. As a result, Hess net reserves include
20 percent of the Russian joint venture reserves not owned by Hess.
Certain properties in which Hess has an interest are subject to the terms of various profit sharing
agreements. The terms of these agreements generally allow for working interest participants to be
reimbursed for portions of capital costs and operating expenses and to share in the profits. The
reimbursements and profit proceeds are converted to a barrel of oil equivalent or standard cubic
foot of gas equivalent by dividing by product prices to determine the entitlement reserves.
DeGolyer and MacNaughton
These entitlement reserves are equivalent in principle to net reserves and are used to calculate an
equivalent net share, termed an entitlement interest. In this report, Hess net reserves or
interest for certain properties subject to these agreements is the entitlement based on Hess
working interest.
Estimates of oil, condensate, NGL, and natural gas reserves should be regarded only as
estimates. Such estimates are based upon information that is currently available and may change as
further production history and additional information become available. Such estimates are also
subject to the uncertainties inherent in the application of judgmental factors in interpreting such
information.
Data used in this audit were obtained from reviews with Hess personnel, Hess files, from
records on file with the appropriate regulatory agencies, and from public sources. Additionally,
this information includes data supplied by Petroleum Information/Dwights LLC; Copyright 2009
Petroleum Information/Dwights LLC. In the preparation of this report we have relied, without
independent verification, upon such information furnished by Hess with respect to property
interests, production from such properties, costs of operation and development, prices for
production, agreements relating to current and future operations and sale of production, and
various other information and data that were accepted as represented. A field examination of the
properties was not considered necessary for the purposes of this report. In our opinion, the
adequacy and quality of the data provided to us was sufficient for us to conduct this reserves
audit.
The Hess net proved reserves attributable to these properties as of December 31, 2009, and
which represent approximately 79 percent of total Hess net reserves on a net equivalent barrel
basis, are as follows, expressed in millions of barrels (MMbbl), billions of cubic feet (Bcf), and
millions of barrels of oil equivalent (MMboe):
Estimated by Hess | ||||||||||||||||
Net Proved Reserves as of December 31, 2009 | ||||||||||||||||
Oil and Condensate | Natural Gas Liquids | Natural Gas | Oil Equivalent | |||||||||||||
(MMbbl) | (MMbbl) | (Bcf) | (MMboe) | |||||||||||||
United States |
144.7 | 23.4 | 200.6 | 201.5 | ||||||||||||
Europe including Russia |
216.9 | 17.0 | 463.7 | 311.2 | ||||||||||||
Africa |
257.5 | 0.0 | 48.2 | 265.5 | ||||||||||||
Asia and other |
61.1 | 7.7 | 1,724.8 | 356.3 | ||||||||||||
Total |
680.2 | 48.1 | 2,437.3 | 1,134.5 |
Note: | Gas is converted to oil equivalent using a factor of 6,000 cubic feet of gas per 1 barrel of oil equivalent. |
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Opinion
The assumptions, data, methods and procedures used by DeGolyer and MacNaughton to conduct the
reserves audit are appropriate for purposes of this report.
In our opinion, the estimated net proved reserves prepared by Hess as shown in the table above
comply with the definitions and disclosure guidelines of Paragraphs 932-235-50-4, 932-235-50-6
through 932-235-50-9 of the Accounting Standards Update 932-235-50, Extractive Industries Oil and
Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures (January 2010) of the Financial
Accounting Standards Board and Rules 410(a) (1)(32) of Regulation SX and Items 1201, 1202(a)(1),
(2), (3), (4) and 1203 of Regulation S-K of the Securities and Exchange Commission (SEC) and the
reserves estimation methodologies employed are appropriate.
In comparing the detailed net proved reserves estimates by field prepared by us and by Hess,
we have found differences, both positive and negative, resulting in an aggregate difference of 3
percent when compared on the basis of net equivalent barrels. It is our opinion that the total net
proved reserves estimates prepared by Hess as of December 31, 2009, on the properties reviewed by
us and referred to in the table above, when compared on the basis of net equivalent barrels, do not
differ materially from those prepared by us
Methodology and Procedures
Estimates of reserves were prepared by the use of standard geological and engineering methods
generally accepted by the petroleum industry. The method or combination of methods used in the
analysis of each reservoir was tempered by experience with similar reservoirs, stage of
development, quality and completeness of basic data, and production history.
When applicable, the volumetric method was used to estimate the original oil in place (OOIP)
and the original gas in place (OGIP). Structure and isopach maps were constructed to estimate
reservoir volume. Electrical logs, radioactivity logs, core analyses, and other available data were
used to prepare these maps as well as to estimate representative values for porosity and water
saturation. When adequate
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data were available and when circumstances justified, material balance
and other engineering methods were used to estimate OOIP or OGIP.
Estimates of ultimate recovery were obtained after applying recovery factors to OOIP or OGIP.
These recovery factors were based on consideration of the type of energy inherent in the
reservoirs, analyses of the fluid properties, the structural positions of the properties, and the
production histories. When applicable, material balance and other engineering methods were used to
estimate recovery factors. An analysis of reservoir performance, including production rate,
reservoir pressure, and gas-oil ratio behavior, was used in the estimation of reserves.
For depletion-type reservoirs or those whose performance disclosed a reliable decline in
producing-rate trends or other diagnostic characteristics, reserves were estimated by the
application of appropriate decline curves or other performance relationships. In the analyses of
production-decline curves, reserves were estimated only to the limits of economic production or to
the limit of the production licenses as appropriate.
Petroleum reserves estimated by Hess and by us are classified as proved and are judged to be
economically producible in future years from known reservoirs under existing economic and operating
conditions and assuming continuation of current regulatory practices using conventional production
methods and equipment. Reserves were estimated only to the limit of economic production rates under
existing economic and operating conditions using prices and costs consistent with the effective
date of this report, including consideration of changes in existing prices provided only by
contractual arrangements but not including escalations based upon future conditions.
Definition of Reserves
Proved reserves classifications used in this report are in accordance with the reserves
definitions of Rules 410(a) (1)(32) of Regulation SX of the SEC of the United States. The
petroleum reserves are classified as follows:
Proved oil and gas reserves Proved oil and gas reserves are those quantities of
oil and gas, which, by analysis of geoscience and engineering data, can be
estimated with reasonable certainty to be economically produciblefrom a given
date forward, from known
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reservoirs, and under existing economic conditions,
operating methods, and government regulationsprior to the time at which contracts
providing the right to operate expire, unless evidence indicates that renewal is
reasonably certain, regardless of whether deterministic or probabilistic methods
are used for the estimation. The project to extract the hydrocarbons must have
commenced or the operator must be reasonably certain that it will commence the
project within a reasonable time.
(i) The area of the reservoir considered as proved includes: (A) The area
identified by drilling and limited by fluid contacts, if any; and, (B)
Adjacent undrilled portions of the reservoir that can, with reasonable
certainty, be judged to be continuous with it and to contain economically
producible oil or gas on the basis of available geoscience and engineering
data.
(ii) In the absence of data on fluid contacts, proved quantities in a
reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a
well penetration unless geoscience, engineering, or performance data and
reliable technology establishes a lower contact with reasonable certainty.
(iii) Where direct observation from well penetrations has defined a
highest known oil (HKO) elevation and the potential exists for an
associated gas cap, proved oil reserves may be assigned in the
structurally higher portions of the reservoir only if geoscience,
engineering, or performance data and reliable technology establish the
higher contact with reasonable certainty.
(iv) Reserves which can be produced economically through application of
improved recovery techniques (including, but not limited to, fluid
injection) are included in the proved classification when:
(A) Successful testing by a pilot project in an area of the reservoir with
properties no more favorable than in the reservoir as a whole, the
operation of an installed program in the reservoir or an analogous
reservoir, or other evidence using reliable technology establishes the
reasonable certainty of the
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engineering analysis on which the project or
program was based; and, (B) The project has been approved for development
by all necessary parties and entities, including governmental entities.
(v) Existing economic and operating conditions include prices and costs at
which economic producibility from a reservoir is to be determined. The
price shall be the average price during the 12-month period prior to the
ending date of the period covered by the report, determined as an
unweighted arithmetic average of the first-day-of-the-month price for each
month within such period, unless prices are defined by contractual
arrangements, excluding escalations based upon future conditions.
Developed oil and gas reserves Developed oil and gas reserves are reserves of
any category that can be expected to be recovered:
(i) Through existing wells with existing equipment and operating methods
or in which the cost of the required equipment is relatively minor
compared to the cost of a new well; and
(ii) Through installed extraction equipment and infrastructure operational
at the time of the reserves estimate if the extraction is by means not
involving a well.
Undeveloped oil and gas reserves Undeveloped oil and gas reserves are reserves
of any category that are expected to be recovered from new wells on undrilled
acreage, or from existing wells where a relatively major expenditure is required
for recompletion.
(i) Reserves on undrilled acreage shall be limited to those directly
offsetting development spacing areas that are reasonably certain of
production when drilled, unless evidence using reliable technology exists
that establishes reasonable certainty of economic producibility at greater
distances.
(ii) Undrilled locations can be classified as having undeveloped reserves
only if a development plan has been adopted
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indicating that they are scheduled to be drilled within five years,
unless the specific circumstances justify a longer time.
(iii) Under no circumstances shall estimates for undeveloped reserves be
attributable to any acreage for which an application of fluid injection or
other improved recovery technique is contemplated, unless such techniques
have been proved effective by actual projects in the same reservoir or an
analogous reservoir, as defined in Rule 4-10(a)(2) of Regulation S-X, or
by other evidence using reliable technology establishing reasonable
certainty.
Primary Economic Assumptions
The following economic assumptions were used for estimating existing and future prices and
costs:
Oil and Condensate Prices
Hess has represented that the oil and condensate prices were based on a
12-month average price (reference price), calculated as the unweighted
arithmetic average of the first-day-of-the-month price for each month
within the 12-month period prior to the end of the reporting period,
unless prices are defined by contractual arrangements. The 12-month
average reference prices used were $61.18 per barrel for West Texas
Intermediate and $59.91 per barrel for Dated Brent. Hess supplied
appropriate differentials by field to the relevant reference prices and
the prices were held constant thereafter. The volume weighted average
price was $58.94 per barrel.
NGL Prices
Hess has represented that the NGL prices were based on a 12-month average
price, calculated as the unweighted arithmetic average of the
first-day-of-the-month price for each month within the 12-month period
prior to the end of the reporting period, unless prices are defined by
contractual arrangements. These prices were held constant over the lives of
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the properties. The volume weighted average NGL price was $37.69 per barrel.
Natural Gas Prices
Hess has represented that the non-contracted natural gas prices were based
on a reference prices, calculated as the unweighted arithmetic average of
the first-day-of-the-month price for each month within the 12-month period
prior to the end of the reporting period, unless prices are defined by
contractual arrangements. The 12-month average reference price for NYMEX
was $4.19 per thousand cubic feet and the UK International Petroleum
Exchange reference price was $5.33 per thousand cubic feet. The gas prices
were adjusted for each property using differentials to NYMEX or the UK
International Petroleum Exchange furnished by Hess and held constant
thereafter. A portion of the gas reserves evaluated are in international
properties where the gas is sold based on contracted prices. The contract
was used to determine the gas price but inflation was not taken into
account in the calculation of the average price. The volume average
weighted gas price for all gas was $4.87 per thousand of cubic feet.
Operating Expenses and Capital Costs
Operating expenses and capital costs, based on information provided by
Hess, were used in estimating future costs required to operate the
properties. Future costs are typically based on existing costs and where
appropriate adjusted to reflect planned changes in operating conditions.
These costs were not escalated for inflation.
Possible Effects of Regulations
Hess oil and gas reserves have been estimated assuming the continuation of the current
regulatory environment. Foreign oil producing countries, including
members of the Organization of Petroleum Exporting Countries (OPEC) may impose production quotas
which limit the supply of oil that can be produced. Generally,
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these production quotas affect the timing of production, rather than the total volume of oil or gas
reserves estimated.
Changes in the regulatory environment by host governments may impact the operating environment
and oil and gas reserves estimates of industry participants. Such regulatory changes could include
increased mandatory government participation in producing contracts, changes in royalty terms,
cancellation or amendment of contract rights, or expropriation or nationalization of property.
While the oil and gas industry is subject to regulatory changes that could affect an industry
participants ability to recover its oil and gas reserves, neither we nor Hess are aware of any
such governmental actions which restrict the recovery of the December 31, 2009, estimated oil and
gas volumes.
DeGolyer and MacNaughton is an independent petroleum engineering consulting firm that has been
providing petroleum consulting services throughout the world for over 70 years. DeGolyer and
MacNaughton does not have any financial interest, including stock ownership, in Hess. Our fees were
not contingent on the results of our evaluation. This letter report has been prepared at the
request of Hess. DeGolyer and MacNaughton has used all data, procedures, assumptions and methods
that it considers necessary to prepare this report.
Submitted, |
||||
/s/ DeGolyer and MacNaughton | ||||
DeGOLYER and MacNAUGHTON | ||||
Texas Registered Engineering Firm F-716 |
/s/ James W. Hail, Jr., P.E. | ||||
James W. Hail, Jr., P.E. | ||||
[SEAL] | President DeGolyer and MacNaughton |
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CERTIFICATE of QUALIFICATION
I, James W. Hail, Jr., Petroleum Engineer with DeGolyer and MacNaughton, 5001 Spring Valley Road,
Suite 800 East, Dallas, Texas, 75244 U.S.A., hereby certify:
1. | That I am the President of DeGolyer and MacNaughton, which company did prepare the letter report dated January 15, 2010, and revised November 5, 2010, on the proved reserves audit of certain properties attributable to Hess Corporation, and that I, as President, was responsible for the preparation of this report. | ||
2. | That I attended the Texas A&M University, and that I graduated with a Bachelor of Science degree in Chemical Engineering in 1972; that I am a Registered Professional Engineer in the State of Texas; that I am a member of the International Society of Petroleum Engineers; the American Association of Petroleum Geologists; and the Society of Petroleum Evaluation Engineers and that I have in excess of 35 years of experience in oil and gas reservoir studies and reserves evaluations. |
/s/ James W. Hail, Jr., P.E. | ||||
James W. Hail, Jr., P.E. | ||||
President DeGolyer and MacNaughton |
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