Hess Oil Company

Hess Oil Company

While the United States was not the first to discover oil deposits we have certainly become dependent on it. Our team has chosen to review Hess Corporation which has two areas in the oil industry. The first division is exploration and production of crude oil and the second is marketing and refining. We will include an industry and corporate overview, organization and corporate issues, and their treasury status.

Industry Overview

According to the Department of Energy petroleum is the single largest energy source used in the United States (2004). Petroleum is a derivative of crude oil which is found by drilling into the earth's crust. The crude oil then goes through a process of refining which produces gasoline, jet fuel, kerosene, asphalt, wax, and solvents just to name a few. The industry currently includes over 6,000 businesses according some market research with revenues over $300 billion (IBIS World, 2012). The industry is considered to have five areas to it which are upstream (exploration), downstream (refining), pipeline, mining, and service and supply (Energy, 2004). This industry is not one that can be easily entered as the cost of capital is high. The market for oil is not stable and can be hard to determine future profits. A major factor in the volatility of the market is the continued focus on greener energy sources and trying to reduce our dependency on foreign suppliers. The biggest factor in the industry is the current economy and it is not only affected by the local economy but the global as well. According to an article by Chris Kahn the government reduced the projection per gallon price by about 15 cents and this is contributed to slow economy and the European recession (2012).

Corporate Overview

In 1919 British oil entrepreneur Lord Cowdray formed Amerada Corporation (now Hess Oil Corporation) to explore for oil in North America (Funding Universe, n.d.). The firm was incorporated February 7, 1920, in Delaware as a holding company for its principal subsidiary, the Amerada Petroleum Corporation. Currently Hess Corporation is based out of New York City, New York. (Wikipedia, n.d.)

Everette DeGolyer became president of Amerada in 1929, and chairman of the board in 1930. By 1932 DeGolyer resigned from the company to continue work as an independent consultant and exploration company (Perez, n.d.). In 1968 Leon Hess, then the owner of Hess Oil and Chemical, purchased 10% of Amerada's stock. Later on, in 1969, the two companies merged in what would be called Amerada Hess Corporation (Funding Universe, n.d.). In May 1994 Leon Hess retired and by 1995 his son John was named chairman and CEO. John Hess is still currently Chairman of the board and CEO. John P. Rielly is Senior Vice President and Chief Financial Officer, Gregory P. Hill is Executive Vice President, and F. Borden Walker is Executive Vice President and President of Marketing and Refining.

The company's first operations centered on wildcat (an oil or natural-gas well drilled in an area not known to be productive) and development fields in Kansas, Oklahoma, Texas, Louisiana, and Alabama. They were one of the first companies in systematic exploration for certain kinds of oil traps around salt domes.

Success of the Amerada Corporation before and during the Depression was due to its pioneering use of geophysical exploration methods (Funding Universe, n.d.). In 1922 they conducted the first survey of an oil deposit at the famous Spindletop Salt Dome in Texas using advanced geophysical techniques. To further develop and perfect these methods, in 1925, Amerada organized a subsidiary company, Geophysical Research Corporation (GRC) of New Jersey, which established numerous patents and which eventually spawned Geophysical Service, Incorporated, now Texas Instruments (Funding Universe, n.d.).

In the late 1930s, the business was refocused to post-refinery residual oil, usually treated as waste and used as fuel only for large boilers and utility operations. This subsequently created a tank-truck fleet specifically designed to transport residual oil to power plants. By 1957 Amerada Petroleum had ranked first in profit margin on crude oil and natural gas (Mattera, 2010).

Between 1966 and 1967, the Hess Oil & Chemical Corporation built a refinery on St. Croix in the Virgin Islands. In May 1970, Amerada drilled the first successful wildcat well in Prudhoe Bay on Alaska's North Slope (Mattera, 2010). During 1971, Amerada was one of seven oil companies invited by the Canadian government to explore the building of pipelines from oil fields in Alaska's North Slope through Canada to the United States (Funding Universe, n.d.) In 1979 Amerada was the major supplier of jet and fuel oil to the Defense Supply Agency, the Defense Logistics Agency, and the Defense Fuel Supply center (Funding Universe, n.d.). Hess had also long been a chief supplier of residual and fuel oil to numerous community power and light companies. By 1986 Amerada had considerable exploration success and in 1993, the company finished construction on its Central Area Transmission System pipeline between the North Sea and the United Kingdom.

The exploration and the oil extraction operations are the main core of the company, accounting for approximately 70% of the entire assets. The main operations are in South East Asia and North Africa but the company also has extraction operations going on in the US, Northern Europe, Russia, some former Soviet republics, and Central Africa (Wikipedia, n.d.).

There have been a few acquisitions Amerada Hess has engaged in. In 1985, Amerada Hess acquired Monsanto Oil Company in the United Kingdom and it became a wholly owned subsidiary (Associated Press, n.d.). In 1989, Amerada Hess acquired a 37 percent interest in major offshore oil and gas properties in the northern Gulf of Mexico from the TXP Operating Company; a Texas limited partnership affiliated with the Transco Energy Company (Shook, 1989). During 1990, Amerada acquired assets from Placer Cego Petroleum Ltd. in Alberta and British Columbia. Then in 2001 Amerada merged with Triton Energy Ltd., an international exploration and production company focused on the West African, Latin American, and Southeast Asian regions (Amerada Hess Corporation, 2001). The deal also gave Amerada Hess access to Triton's assets in Equatorial Guinea and Gabon. On July 27, 2010, Hess Corporation announced that it had agreed to acquire American Oil & Gas, Inc. in a stock-only transaction worth as much as $488 million (Davis, n.d.).

Amerada Hess has significantly increased their net income over the years. In 1971, net reported earnings were $133 million and increased to $246 million in 1973 and to $577 million by 1980. Net income dropped from $483 million