Hess - 10-Q quarterly report FY

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2009

or


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File Number 1-1204

HESS CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)

13-4921002
(I.R.S. Employer Identification Number)

1185 AVENUE OF THE AMERICAS, NEW YORK, N.Y.
(Address of Principal Executive Offices)

10036
(Zip Code)

(Registrant’s Telephone Number, Including Area Code is (212) 997-8500)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

At June 30, 2009, there were 327,052,233 shares of Common Stock outstanding.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
REVENUES AND NON-OPERATING INCOME
Sales (excluding excise taxes) and other operating revenues	$	6,751		$	11,711		$	13,666		$	22,358
Equity in income (loss) of HOVENSA L.L.C.		(75	)		(19	)		(116	)		(29	)
Other, net		79			37			77			100

Total revenues and non-operating income		6,755			11,729			13,627			22,429

COSTS AND EXPENSES
Cost of products sold (excluding items shown separately below)		4,705			8,337			9,887			16,042
Production expenses		444			494			853			918
Marketing expenses		245			267			502			500
Exploration expenses, including dry holes and lease impairment		312			158			505			310
Other operating expenses		43			47			91			92
General and administrative expenses		136			156			296			308
Interest expense		95			65			172			132
Depreciation, depletion and amortization		558			482			1,044			934

Total costs and expenses		6,538			10,006			13,350			19,236

INCOME BEFORE INCOME TAXES		217			1,723			277			3,193
Provision for income taxes		115			812			192			1,530

NET INCOME		102			911			85			1,663
Less: Net income attributable to noncontrolling interests		2			11			44			4

NET INCOME ATTRIBUTABLE TO HESS CORPORATION	$	100		$	900		$	41		$	1,659

NET INCOME PER SHARE ATTRIBUTABLE TO HESS CORPORATION
BASIC	$	.31		$	2.81		$	.13		$	5.20
DILUTED		.31			2.76			.13			5.11
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (DILUTED)		325.8			326.2			325.7			325.0
COMMON STOCK DIVIDENDS PER SHARE	$	.10		$	.10		$	.20		$	.20

See accompanying notes to consolidated financial statements.

1

PART I — FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(In millions of dollars, thousands of shares)


	June 30,			December 31,
	2009			2008
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,063		$	908
Accounts receivable		4,097			4,297
Inventories		1,358			1,308
Other current assets		990			819

Total current assets		7,508			7,332

INVESTMENTS IN AFFILIATES
HOVENSA L.L.C.		804			919
Other		209			208

Total investments in affiliates		1,013			1,127

PROPERTY, PLANT AND EQUIPMENT
Total — at cost		28,387			27,437
Less reserves for depreciation, depletion, amortization and lease impairment		11,966			11,166

Property, plant and equipment — net		16,421			16,271

GOODWILL		1,225			1,225
DEFERRED INCOME TAXES		2,413			2,292
OTHER ASSETS		336			342

TOTAL ASSETS	$	28,916		$	28,589


LIABILITIES AND EQUITY

CURRENT LIABILITIES
Accounts payable	$	5,331		$	5,045
Accrued liabilities		1,679			1,905
Taxes payable		468			637
Current maturities of long-term debt		135			143

Total current liabilities		7,613			7,730

LONG-TERM DEBT		4,178			3,812
DEFERRED INCOME TAXES		2,235			2,241
ASSET RETIREMENT OBLIGATIONS		1,249			1,164
OTHER LIABILITIES		1,263			1,251

Total liabilities		16,538			16,198

EQUITY
Hess Corporation Stockholders’ Equity
Common stock, par value $1.00
Authorized — 600,000 shares
Issued 327,052 shares at June 30, 2009; 326,133 shares at December 31, 2008		327			326
Capital in excess of par value		2,415			2,347
Retained earnings		11,617			11,642
Accumulated other comprehensive income (loss)		(2,100	)		(2,008	)

Total Hess Corporation stockholders’ equity		12,259			12,307
Noncontrolling interests		119			84

Total equity		12,378			12,391

TOTAL LIABILITIES AND EQUITY	$	28,916		$	28,589

See accompanying notes to consolidated financial statements.

2

PART I — FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In millions of dollars)


	Six Months Ended
	June 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	85		$	1,663
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, depletion and amortization		1,044			934
Exploratory dry hole costs and lease impairment		304			105
Benefit for deferred income taxes		(304	)		(112	)
Equity in (income) loss of HOVENSA L.L.C., net of distributions		116			79
Changes in operating assets and liabilities and other		(4	)		246

Net cash provided by operating activities		1,241			2,915

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(1,389	)		(2,005	)
Other, net		32			39

Net cash used in investing activities		(1,357	)		(1,966	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of debt with maturities of 90 days or less		(850	)		(3	)
Debt with maturities of greater than 90 days
Borrowings		1,247			—
Repayments		(39	)		(32	)
Cash dividends paid		(98	)		(97	)
Distributions to noncontrolling interests		(1	)		(48	)
Employee stock options exercised, including income tax benefits		12			103

Net cash provided by (used in) financing activities		271			(77	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		155			872
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		908			607

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,063		$	1,479

See accompanying notes to consolidated financial statements.

3

PART I — FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.

Basis of Presentation

The financial statements included in this report reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of Hess Corporation’s (the Corporation) consolidated financial position at June 30, 2009 and December 31, 2008 and the consolidated results of operations for the three and six-month periods ended June 30, 2009 and 2008 and the consolidated cash flows for the six month periods ended June 30, 2009 and 2008. The unaudited results of operations for the interim periods reported are not necessarily indicative of results to be expected for the full year.

The financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by U.S. generally accepted accounting principles (GAAP) have been condensed or omitted from these interim financial statements. These statements, therefore, should be read in conjunction with the consolidated financial statements and related notes included in the Corporation’s Form 10-K for the year ended December 31, 2008.

Effective January 1, 2009, the Corporation adopted Financial Accounting Standards Board (FASB) Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (FAS 160), which changes the accounting for and reporting of noncontrolling interests in a consolidated subsidiary. As required, the Corporation retrospectively applied the presentation and disclosure requirements of FAS 160. At June 30, 2009 and December 31, 2008 noncontrolling interests of $119 million and $84 million, respectively, have been classified as a component of equity. Previously the noncontrolling interests had been classified in other liabilities. Net income attributable to the noncontrolling interests of $2 million for the three months ended and $44 million for the six months ended June 30, 2009 and $11 million for the three months ended and $4 million for the six months ended June 30, 2008 are included in net income. Certain amounts in the consolidated financial statements and footnotes have been reclassified to conform with the presentation requirements of
FAS 160.

Effective January 1, 2009, the Corporation also adopted FASB Statement No. 161,Disclosures about Derivative Instruments and Hedging Activities, which expands the disclosure requirements for an entity’s use of derivative instruments. See Note 8, Derivative Instruments, Hedging, and Trading Activities, for these disclosures.

The Corporation adopted FASB Staff Position FAS No. 157-2, Effective Date of FASB Statement No. 157, effective January 1, 2009, which requires the application of the fair value measurement and disclosure provisions of FAS 157 to nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis. The impact of adoption was not material to the Corporation’s consolidated financial statements.

Effective June 30, 2009, the Corporation adopted FASB Statement No. 165 (FAS 165),Subsequent Events. FAS 165 provides guidance on the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The adoption of FAS 165 did not impact the Corporation’s existing practice of evaluating subsequent events through the date the financial statements are filed with the SEC. These financial statements were evaluated for subsequent events through August 7, 2009.

4

PART I — FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In June 2009, the FASB issued Statements No. 166, Accounting for Transfers of Financial Assets- an amendment of FASB Statement No. 140 (FAS 166) and No. 167,Amendments to FASB Interpretation No. FIN 46(R) (FAS 167). FAS 166 eliminates the concept of a qualifying special-purpose entity, which did not require consolidation under existing GAAP, and limits the circumstances in which transferred financial assets should be derecognized. FAS 167 requires additional analysis of variable interest entities to determine if consolidation is necessary. The Corporation is currently evaluating the impact of FAS 166 and FAS 167 on its financial statements and, as required, will adopt the provisions of these standards effective January 1, 2010.

2.

Inventories

Inventories consist of the following (in millions):


	June 30,			December 31,
	2009			2008
Crude oil and other charge stocks	$	396		$	383
Refined products and natural gas		1,193			988
Less: LIFO adjustment		(664	)		(500	)

		925			871
Merchandise, materials and supplies		433			437

Total inventories	$	1,358		$	1,308

3.

Refining Joint Venture

The Corporation accounts for its investment in HOVENSA L.L.C. (HOVENSA) using the equity method. Summarized financial information for HOVENSA follows (in millions):


	June 30,			December 31,
	2009			2008
Summarized balance sheet
Cash and short-term investments	$	201		$	75
Other current assets		683			664
Net fixed assets		2,089			2,136
Other assets		53			58
Current liabilities		(996	)		(679	)
Long-term debt		(356	)		(356	)
Deferred liabilities and credits		(107	)		(104	)

Members’ equity	$	1,567		$	1,794


	Three months						Six months
	ended June 30,						ended June 30,
	2009			2008			2009			2008
Summarized income statement
Total revenues	$	2,640		$	5,446		$	4,663		$	9,757
Cost and expenses		(2,787	)		(5,482	)		(4,891	)		(9,811	)

Net loss	$	(147	)	$	(36	)	$	(228	)	$	(54	)

Hess Corporation’s share, before income taxes	$	(75	)	$	(19	)	$	(116	)	$	(29	)

During the first half of 2008, the Corporation received a cash distribution of $50 million from HOVENSA.

5

PART I — FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.

Capitalized Exploratory Well Costs

The following table discloses the net changes in capitalized exploratory well costs pending determination of proved reserves for the six months ended June 30, 2009 (in millions):


Beginning balance at January 1	$	1,094
Additions to capitalized exploratory well costs pending the determination of proved reserves		162
Reclassifications to wells, facilities, and equipment based on the determination of proved reserves		(10	)
Capitalized exploratory wells charged to expense		(54	)

Ending balance at June 30	$	1,192

The preceding table excludes costs related to exploratory dry holes of $131 million which were incurred and subsequently expensed in 2009. Capitalized exploratory well costs greater than one year old after completion of drilling were $665 million as of June 30, 2009 and $381 million as of December 31, 2008. This increase is primarily related to the Pony and Tubular Bells projects in the deepwater Gulf of Mexico, where development options are being evaluated.

5.

Long-Term Debt

In February 2009, the Corporation issued $250 million of 5 year senior unsecured notes with a coupon of 7% and $1 billion of 10 year senior unsecured notes with a coupon of 8.125%. The majority of the proceeds were used to repay revolving credit debt and outstanding borrowings on other credit facilities.

6.

Foreign Currency

Pre-tax foreign currency gains amounted to the following (in millions):


	Three months				Six months
	ended June 30,				ended June 30,
	2009		2008		2009		2008
Foreign currency gains	$	35	$	11	$	31	$	44

The pre-tax amount of foreign currency gains is included in other, net within revenues and non-operating income.

7.

Retirement Plans

Components of net periodic pension cost consisted of the following (in millions):


	Three months						Six months
	ended June 30,						ended June 30,
	2009			2008			2009			2008
Service cost	$	10		$	10		$	20		$	20
Interest cost		20			20			40			40
Expected return on plan assets		(15	)		(20	)		(30	)		(40	)
Amortization of net loss		14			3			28			6

Pension expense	$	29		$	13		$	58		$	26

In 2009, the Corporation expects to contribute approximately $100 million to its pension plans. Through June 30, 2009, the Corporation had contributed $43 million to its pension plans.

6

PART I — FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

8.

Derivative Instruments, Hedging, and Trading Activities

The Corporation utilizes derivative instruments for both non-trading and trading activities. In non-trading activities, the Corporation uses futures, forwards, options and swaps individually or in combination, to mitigate its exposure to fluctuations in prices of crude oil, natural gas, refined products and electricity, and changes in foreign currency exchange rates. In trading activities, the Corporation, principally through a consolidated partnership (in which the Corporation has a 50% voting interest), trades energy commodities and energy derivatives, including futures, forwards, options and swaps, based on expectations of future market conditions. The following information includes 100% of the trading partnership’s accounts.

The Corporation maintains a control environment under the direction of its chief risk officer and through its corporate risk policy, which the Corporation’s senior management has approved. Controls include volumetric, term and value-at-risk limits. Risk limits are monitored daily and exceptions are reported to business units and to senior management. The Corporation’s risk management department also performs independent verifications of sources of fair values and validations of valuation models. These controls apply to all of the Corporation’s non-trading and trading activities, including the consolidated trading partnership.

The table below shows the total volume of the Corporation’s trading and non-trading derivative instruments outstanding at June 30, 2009:


	Volume*
Commodity Contracts
Crude oil, refined products, and natural gas liquids (millions of barrels)		2,149
Natural gas (millions of mcf)		9,282
Electricity (millions of megawatt hours)		191
Other Contracts
Foreign exchange (millions of U.S. dollars)		2,116


*		Gross notional amounts represent both long and short positions, including long and short positions that offset in a closed position that has not reached contractual maturity. Gross notional amounts do not quantify risk or represent assets or liabilities of the Corporation, but are used in the calculation of cash settlements under the contracts.

The Corporation records all derivative instruments on the balance sheet at fair value (see Note 9, Fair Value Measurements). The table below reflects the gross and net fair values of the Corporation’s derivative instruments as of June 30, 2009 (in millions):


	Accounts			Accounts
	Receivable			Payable
Derivative contracts designated as hedging instruments
Commodity	$	1,118		$	(1,940	)


Derivative contracts not designated as hedging instruments*
Commodity		11,881			(13,106	)
Foreign exchange		78			(39	)
Other		12			(13	)

Total derivative contracts not designated as hedging instruments		11,971			(13,158	)


Gross fair value of derivative contracts		13,089			(15,098	)
Master netting arrangements		(11,270	)		11,270
Cash collateral (received) posted		(281	)		94

Net fair value of derivative contracts	$	1,538		$	(3,734	)


*		Includes trading derivatives and derivatives used for risk management.

7

PART I — FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Corporation generally enters into master netting arrangements to mitigate counterparty credit risk. Master netting arrangements are standardized contracts that govern all specified transactions with the same counterparty and allow the Corporation to terminate all contracts upon occurrence of certain events, such as a counterparty’s default or bankruptcy. Because these arrangements provide the right of offset, and the Corporation’s intent and practice is to offset amounts in the case of contract terminations, the Corporation records fair value on a net basis in accordance with FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts.

Non-trading activities

Cash Flow Hedges: The Corporation uses commodity contracts to hedge variability of expected future cash flows and forecasted transactions (cash flow hedges). At June 30, 2009, the Corporation used cash flow hedges principally to fix the cost of supply in its energy marketing business. The length of time over which the Corporation hedges exposure to variability in future cash flows is predominantly two years or less. For contracts outstanding at June 30, 2009, the maximum length of time was five years.

The Corporation records the effective portion of changes in the fair value of cash flow hedges as a component of other comprehensive income. Amounts recorded in accumulated other comprehensive income are reclassified into cost of products sold in the same period that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of cash flow hedges is recognized immediately in cost of products sold.

The Corporation may use futures and swaps to hedge crude oil and natural gas production in its Exploration and Production business. In October 2008, the Corporation closed its Brent crude oil cash flow hedges by entering into offsetting contracts with the same counterparty, covering 24,000 barrels per day from 2009 through 2012. As a result, the Corporation no longer accounts for these contracts as cash flow hedges. Because the underlying cash flows from the originally hedged production are still probable, the deferred losses within accumulated other comprehensive income as of the date the contracts were closed will be recorded in sales and other operating revenues as the contracts mature. There were no open hedges of crude oil or natural gas production at June 30, 2009.

At June 30, 2009, the after-tax deferred losses in accumulated other comprehensive income relating to cash flow hedges were $1,591 million. The Corporation estimates that approximately $715 million of this amount will be reclassified into earnings over the next twelve months.

Other Risk Management Derivatives: The Corporation mitigates certain risks in its energy marketing business using commodity contracts that it does not designate as hedges. Changes in fair value of the commodity contracts, which include forward purchases and sales of energy marketing products, are recognized currently in earnings. Revenues from the sales contracts are recognized in sales and other operating revenues and supply contract purchases are recognized in cost of products sold. The Corporation also uses foreign exchange contracts that it does not designate as hedges with the intent to reduce its exposure to fluctuations in foreign exchange rates. Changes in the fair value of the foreign exchange contracts are recognized currently in other non-operating income. Net pretax gains on these derivative contracts amounted to the following (in millions):


	Three months		Six months
	ended June 30,		ended June 30,
	2009		2009
Commodity	$	7	$	89
Foreign exchange		110		107

Total	$	117	$	196

8

PART I — FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Trading Activities

In trading activities, the Corporation is primarily exposed to changes in crude oil, natural gas, and refined product prices. Pre-tax gains (losses) recorded in sales and other operating revenues from trading activities amounted to the following (in millions):


	Three months		Six months
	ended June 30,		ended June 30,
	2009		2009
Commodity	$	10	$	100
Foreign exchange		23		30
Other		7		15

Total	$	40	$	145

Credit Risk

The Corporation is exposed to credit risks that may at times be concentrated with certain counterparties or groups of counterparties. Accounts receivable are generated from a diverse domestic and international customer base. The Corporation reduces its risk related to certain counterparties by using master netting arrangements and requiring collateral, generally cash or letters of credit. The Corporation records the cash collateral received or posted as an offset of the fair value of derivatives executed with the same counterparty.

At June 30, 2009, the Corporation had a total of $4,290 million of outstanding letters of credit, primarily issued to satisfy margin and collateral requirements. Certain of the Corporation’s agreements also contain contingent collateral provisions that could require the Corporation to post additional collateral if the Corporation’s credit rating declines. As of June 30, 2009, the net liability related to derivatives with contingent collateral provisions was approximately $2,960 million before cash collateral posted of approximately $65 million. At June 30, 2009, all three major credit rating agencies that rate the Corporation’s debt had assigned an investment grade rating. If two of the three agencies were to downgrade the Corporation’s rating to below investment grade, the Corporation would be required as of June 30, 2009 to post additional collateral of approximately $334 million.

9

PART I — FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9.

Fair Value Measurements

The Corporation measures fair value in accordance with the provisions of FASB Statement No. 157, Fair Value Measurements, (FAS 157). FAS 157 establishes a hierarchy for the inputs used to measure fair value based on the source of the input, which generally range from quoted prices for identical instruments in a principal trading market (Level 1) to estimates determined using related market data (Level 3). Multiple inputs may be used to measure fair value, however, the level of fair value for each financial asset or liability presented below is based on the lowest significant input level within this fair value hierarchy. The following table provides the fair value of the Corporation’s financial assets and (liabilities) based on this hierarchy (in millions):


										Collateral and			Balance at
										counterparty			June 30,
	Level 1			Level 2			Level 3			netting			2009
Supplemental pension plan investments	$	54		$	—		$	14		$	—		$	68
Derivative contracts
Assets		160			1,338			468			(428	)		1,538
Liabilities		(166	)		(3,112	)		(697	)		241			(3,734	)

The following table provides changes in financial assets and liabilities that are measured at fair value based on Level 3 inputs (in millions):


	Three months			Six months
	ended June 30,			ended June 30,
	2009			2009
Balance at beginning of period	$	(165	)	$	149
Unrealized gains (losses)
Included in earnings		(12	)		50
Included in other comprehensive income (loss)		(19	)		(224	)
Purchases, sales or other settlements during the period		16			16
Net transfers in to (out of) Level 3		(35	)		(206	)

Balance at end of period	$	(215	)	$	(215	)

The carrying amounts of the Corporation’s financial instruments generally approximate their fair values at June 30, 2009 except fixed rate long term debt, which had a carrying value of $4,313 million and a fair value of $4,611 million.

10

PART I — FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

10.

Weighted Average Common Shares

The weighted average numbers of common shares used in the basic and diluted earnings per share computations are as follows (thousands of shares):


	Three months				Six months
	ended June 30,				ended June 30,
	2009		2008		2009		2008
Common shares – basic		323,975		320,936		323,676		319,167
Effect of dilutive securities
Restricted common stock		986		1,515		1,128		1,945
Stock options		818		3,192		885		3,343
Convertible preferred stock		—		534		—		534

Common shares – diluted		325,779		326,177		325,689		324,989

The Corporation issued 3,050,250 stock options and 1,022,050 shares of restricted stock in the first six months of 2009. The table above excludes the effect of out-of-the-money options on 3,546,000 shares and 4,073,000 shares for the quarter and six months ended June 30, 2009, respectively.

11.

Equity and Comprehensive Income

The table below summarizes changes in equity (amounts in millions):


	Hess			Non-
	Stockholders’			Controlling
	Equity			Interest			Total Equity
Balance January 1, 2009	$	12,307		$	84		$	12,391

Net Income		41			44			85
Deferred gains (losses) on cash flow hedges, after tax
Effect of hedge losses recognized in income		419			—			419
Net change in fair value of cash flow hedges		(532	)		—			(532	)
Change in foreign currency translation adjustments and other		2			(8	)		(6	)
Change in post retirement plan liabilities, after tax		19			—			19

Comprehensive income (loss)		(51	)		36			(15	)

Activity related to restricted common stock awards, net		27			—			27
Employee stock options, including income tax benefits		42			—			42
Cash dividends declared		(66	)		—			(66	)
Distributions to non-controlling interests		—			(1	)		(1	)

Balance June 30, 2009	$	12,259		$	119		$	12,378


Balance January 1, 2008	$	9,774		$	226		$	10,000

Net Income		1,659			4			1,663
Deferred gains (losses) on cash flow hedges, after tax
Effect of hedge losses recognized in income		187			—			187
Net change in fair value of cash flow hedges		(653	)		—			(653	)
Change in foreign currency translation adjustments and other		29			4			33
Change in post retirement plan liabilities, after tax		5			—			5

Comprehensive income (loss)		1,227			8			1,235

Activity related to restricted common stock awards, net		32			—			32
Employee stock options, including income tax benefits		130			—			130
Cash dividends declared		(65	)		—			(65	)
Distributions to non-controlling interests		—			(48	)		(48	)

Balance June 30, 2008	$	11,098		$	186		$	11,284

Comprehensive income was $248 million ($239 million attributable to Hess Corporation) for the three months ended June 30, 2009 and $290 million ($279 million attributable to Hess Corporation) for the three months ended June 30, 2008.

11

PART I — FINANCIAL INFORMATION (CONT’D.)

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

12.

Segment Information

The Corporation’s results by operating segment were as follows (in millions):


	Three months						Six months
	ended June 30,						ended June 30,
	2009			2008			2009			2008
Operating revenues
Exploration and Production	$	1,825		$	3,234		$	3,027		$	5,886
Marketing and Refining		4,952			8,558			10,693			16,621
Less: Transfers between affiliates		(26	)		(81	)		(54	)		(149	)

Total*	$	6,751		$	11,711		$	13,666		$	22,358


Net income (loss) attributable to Hess Corporation
Exploration and Production	$	215		$	1,025		$	151		$	1,849
Marketing and Refining		(30	)		(52	)		72			(36	)
Corporate, including interest		(85	)		(73	)		(182	)		(154	)

Total	$	100		$	900		$	41		$	1,659


*		Operating revenues exclude excise and similar taxes of approximately $500 million and $550 million in the second quarter of 2009 and 2008, respectively, and $1,000 million and $1,050 million during the first half of 2009 and 2008, respectively.

Identifiable assets by operating segment were as follows (in millions):


	June 30,		December 31,
	2009		2008
Identifiable assets
Exploration and Production	$	20,637	$	19,506
Marketing and Refining		6,371		6,680
Corporate		1,908		2,403

Total	$	28,916	$	28,589

12

PART I — FINANCIAL INFORMATION (CONT’D.)

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition.

Overview

Hess Corporation (the Corporation) is a global integrated energy company that operates in two segments, Exploration and Production (E&P) and Marketing and Refining (M&R). The E&P segment explores for, develops, produces, purchases, transports and sells crude oil and natural gas. The M&R segment manufactures refined petroleum products and purchases, trades and markets refined petroleum products, natural gas and electricity. The Corporation reported net income of $100 million in the second quarter of 2009, compared with $900 million in the second quarter of 2008.

Exploration and Production: E&P reported income of $215 million for the second quarter of 2009, compared with income of $1,025 million in the second quarter of 2008. The decrease in earnings mainly reflects significantly lower average oil and gas selling prices.

In the second quarter of 2009, the Corporation’s average worldwide crude oil selling price, including the effect of hedging, was $49.27 per barrel compared with $104.29 per barrel in the second quarter of 2008. The Corporation’s average worldwide natural gas selling price was $4.56 per thousand cubic feet (mcf) in the second quarter of 2009 compared with $7.81 per mcf in the second quarter of 2008.

Worldwide crude oil and natural gas production was 407,000 barrels of oil equivalent per day (boepd) in the second quarter of 2009 compared with 393,000 boepd in the same period of 2008. The Corporation now anticipates that its production for the full year of 2009 will average between 390,000 and 400,000 boepd.

The following is an update of Exploration and Production activities during the second quarter of 2009.

	•		Production increased during the second quarter at the Shenzi Field (Hess 28%) in the deepwater Gulf of Mexico, which commenced production at the end of the first quarter of 2009. Net production averaged 21,000 boepd for the quarter.

	•		In July, the Corporation announced that the Guarani well on the BM-S-22 (Hess 40%) license in the Santos Basin offshore Brazil has been completed and no notice of discovery was filed with the Brazilian government by the field operator. The Corporation’s portion of the well costs was expensed in the second quarter. The next steps are to analyze the significant amount of log and core data gathered from the first two wells, and to plan the location of a third well to further evaluate the BM-S-22 license.

	•		The Corporation commenced a planned 12 well program on permit WA-390-P (Hess 100%) offshore Western Australia designed to further appraise the block.

Marketing and Refining: M&R reported a loss of $30 million for the second quarter of 2009, compared with a loss of $52 million in the second quarter of 2008, primarily reflecting improved energy marketing and trading results, partially offset by lower refining and retail margins.

13

PART I — FINANCIAL INFORMATION (CONT’D.)

Results of Operations

The after-tax results by major operating activity were as follows (in millions, except per share data):


	Three months ended						Six months ended
	June 30,						June 30,
	2009			2008			2009			2008
Exploration and Production	$	215		$	1,025		$	151		$	1,849
Marketing and Refining		(30	)		(52	)		72			(36	)
Corporate		(26	)		(33	)		(75	)		(72	)
Interest expense		(59	)		(40	)		(107	)		(82	)

Net income (loss) attributable to Hess Corporation	$	100		$	900		$	41		$	1,659

Net income (loss) per share (diluted)	$	.31		$	2.76		$	.13		$	5.11

Items Affecting Comparability Between Periods

The following table summarizes, on an after-tax basis, items of income (expense) that are included in net income and affect comparability between periods (amounts in millions). The items in the table below are explained and the pre-tax amounts are shown on pages 17 and 19.


	Three months ended					Six months ended
	June 30,					June 30,
	2009			2008		2009			2008
Exploration and Production	$	(31	)	$	—	$	(44	)	$	—
Corporate		—			—		(16	)		—

Total	$	(31	)	$	—	$	(60	)	$	—

In the discussion that follows, the financial effects of certain transactions are disclosed on an after-tax basis. Management reviews segment earnings on an after-tax basis and uses after-tax amounts in its review of variances in segment earnings. Management believes that after-tax amounts are preferable to pre-tax amounts for explaining variances in earnings, since they show the entire effect of a transaction. After-tax amounts are determined by applying the appropriate income tax rate in each tax jurisdiction to pre-tax amounts.

14

PART I — FINANCIAL INFORMATION (CONT’D.)

Results of Operations (continued)

Comparison of Results

Exploration and Production

Following is a summarized income statement of the Corporation’s E&P operations (in millions):


	Three months ended				Six months ended
	June 30,				June 30,
	2009		2008		2009		2008
Sales and other operating revenues*	$	1,699	$	3,075	$	2,830	$	5,682
Non-operating income		57		22		65		69

Total revenues and non-operating income		1,756		3,097		2,895		5,751

Cost and expenses
Production expenses, including related taxes		444		494		853		918
Exploration expenses, including dry holes and lease impairment		312		158		505		310
General, administrative and other expenses		61		73		117		136
Depreciation, depletion and amortization		538		462		1,003		896

Total costs and expenses		1,355		1,187		2,478		2,260

Results of operations before income taxes		401		1,910		417		3,491
Provision for income taxes		186		885		266		1,642

Results of operations attributable to Hess Corporation	$	215	$	1,025	$	151	$	1,849


*		Amounts differ from E&P operating revenues in Note 12 “Segment Information” primarily due to the exclusion of sales of hydrocarbons purchased from unrelated third parties.

After considering the items affecting comparability between periods, the remaining changes in E&P earnings are primarily attributable to changes in selling prices, sales volumes and exploration expenses as discussed below.

Selling prices: Lower average realized selling prices of crude oil and natural gas decreased E&P revenues by approximately $1,860 million and $3,060 million in the second quarter and first half of 2009 compared with the corresponding periods of 2008. The Corporation’s average selling prices were as follows:


	Three months ended				Six months ended
	June 30,				June 30,
	2009		2008		2009		2008
Average selling prices
Crude oil — per barrel (including hedging)
United States	$	55.53	$	120.23	$	49.56	$	106.42
Europe		47.41		104.98		41.09		93.32
Africa		47.16		97.32		40.29		88.44
Asia and other		55.84		120.59		51.50		106.28
Worldwide		49.27		104.29		42.62		93.75

Crude oil — per barrel (excluding hedging)
United States	$	55.53	$	120.23	$	49.56	$	106.42
Europe		47.41		104.98		41.09		93.32
Africa		57.13		117.49		51.58		105.98
Asia and other		55.84		120.59		51.50		106.28
Worldwide		54.03		113.79		47.84		101.66

Natural gas liquids — per barrel
United States	$	31.03	$	76.60	$	30.12	$	70.71
Europe		36.51		92.67		36.61		85.78
Asia and other		35.92		—		35.92		—
Worldwide		32.97		81.52		32.25		74.90

15

PART I — FINANCIAL INFORMATION (CONT’D.)

Results of Operations (continued)


	Three months ended				Six months ended
	June 30,				June 30,
	2009		2008		2009		2008
Natural gas — per mcf (including hedging)
United States	$	3.26	$	11.00	$	3.61	$	9.69
Europe		4.53		10.33		5.56		9.61
Asia and other		4.82		5.23		4.76		5.12
Worldwide		4.56		7.81		4.82		7.43

Natural gas — per mcf (excluding hedging)
United States	$	3.26	$	11.00	$	3.61	$	9.69
Europe		4.53		10.84		5.56		9.90
Asia and other		4.82		5.23		4.76		5.12
Worldwide		4.56		8.01		4.82		7.55

In October 2008, the Corporation closed its Brent crude oil cash flow hedges by entering into offsetting contracts with the same counterparty, covering 24,000 barrels per day from 2009 through 2012. The deferred after tax loss as of the date the hedge positions were closed will be recorded in earnings as the contracts mature. The estimated annual after-tax loss from the closed positions will be approximately $335 million from 2009 through 2012. Crude oil hedges reduced E&P earnings by $83 million and $165 million in the second quarter and first half of 2009 ($133 million and $264 million before income taxes). Crude oil and natural gas hedges reduced E&P earnings by $144 million and $239 million in the second quarter and first half of 2008 ($234 million and $386 million before income taxes).

Sales and production volumes: The Corporation’s crude oil and natural gas production was 407,000 boepd in the second quarter of 2009 compared with 393,000 boepd in the same period of 2008. Production in the first half of 2009 was 398,000 boepd compared with 392,000 boepd for the same period in 2008. The Corporation anticipates that its full year production will average between 390,000 and 400,000 boepd.

The Corporation’s net daily worldwide production by region was as follows (in thousands):


	Three months ended				Six months ended
	June 30,				June 30,
	2009		2008		2009		2008
Crude oil (barrels per day)
United States		58		36		45		36
Europe		76		83		82		83
Africa		124		128		125		123
Asia and other		16		12		16		15

Total		274		259		268		257


Natural gas liquids (barrels per day)
United States		10		11		10		11
Europe		3		4		3		4
Asia and other		1		—		—		—

Total		14		15		13		15


Natural gas (mcf per day)
United States		92		83		85		88
Europe		160		267		170		282
Asia and other		459		364		449		353

Total		711		714		704		723

Barrels of oil equivalent per day*		407		393		398		392


*		Natural gas production is converted assuming six mcf equals one barrel.

United States: Crude oil production in the United States was higher in the second quarter and first half of 2009 compared to the corresponding periods in 2008, primarily due to the Shenzi field which commenced production at the end of the first quarter of 2009.

16

PART I — FINANCIAL INFORMATION (CONT’D.)

Results of Operations (continued)

Europe: Crude oil production in Europe in the second quarter and first half of 2009 was lower than the same periods in 2008, primarily due to an unplanned 75 day shutdown at the Valhall field in Norway and natural decline in the U.K. North Sea, partly offset by increased production in Russia. Natural gas production in the second quarter and first half of 2009 was lower than the same periods in 2008, primarily due to decline at the Atlantic and Cromarty fields in the U.K. North Sea and the shutdown at the Valhall field in Norway.

Asia and Other: The increase in natural gas production in the second quarter and first half of 2009 compared to the corresponding periods in 2008 was principally due to Phase 2 gas sales from Block A-18 of the Joint Development Area of Malaysia and Thailand (JDA), which commenced in November 2008.

Sales Volumes: Higher crude oil and natural gas sales volumes increased revenue by approximately $480 million in the second quarter of 2009 and $200 million in the first half of 2009, compared with the corresponding periods of 2008. During the second quarter of 2009, the Corporation’s sales volumes exceeded production volumes which resulted in an increase in second quarter after tax income of approximately $50 million.

Operating costs and depreciation, depletion and amortization: Cash operating costs, consisting of production expenses and general and administrative expenses, decreased by $87 million and $109 million in the second quarter and first half of 2009 compared with the corresponding periods of 2008, excluding the impact of items affecting comparability discussed below. The decrease in expenses reflects lower commodity price-driven production taxes, the cessation of production at two fields in the U.K. North Sea, the favorable impact of foreign exchange rates and cost saving initiatives.

Depreciation, depletion and amortization expenses increased by $50 million and $55 million in the second quarter and first half of 2009 compared with the corresponding periods of 2008, excluding the impact of items affecting comparability discussed below. The increase was primarily due to production increases in the U.S. and the JDA, partly offset by lower production in Norway and the U.K. North Sea.

In the second quarter of 2009, after-tax charges of $31 million ($51 million before income taxes) were recorded to reduce the carrying values of production equipment in the U.K. North Sea and materials inventory in Equatorial Guinea and the United States. In the first quarter of 2009, the Corporation recorded an after-tax charge of $13 million ($26 million before income taxes) to reduce the carrying values of two short-lived fields in the U.K. North Sea. The pre-tax amount of the reductions in carrying value of production equipment and the short-lived fields is reflected in depreciation, depletion and amortization and the reduction in carrying values of inventory of $25 million is reflected in production expenses in the statement of consolidated income.

Excluding the impact of items affecting comparability discussed above, E&P cash operating costs for full year 2009 are expected to be in a range of $14 to $15 per boe and total production unit costs (cash operating costs plus depreciation, depletion, and amortization) are anticipated to be in the range of $27 to $29 per boe.

Exploration expenses: Exploration expenses were higher by $154 million and $195 million in the second quarter and first half of 2009 compared with the same periods in 2008. The increases principally reflect higher dry hole expense and lease impairment.

Income taxes: The effective income tax rate for the six months ended June 30, 2009 for E&P operations was 60% compared to 47% for the six months ended June 30, 2008, excluding the impact of items affecting comparability discussed above. The higher rate in 2009 primarily reflects the impact of Libyan taxes in a lower commodity price environment. The effective tax rate for the full year 2009 is estimated to be in the range of 53% to 57%.

17

PART I — FINANCIAL INFORMATION (CONT’D.)

Results of Operations (continued)

Foreign Exchange: The after-tax foreign currency gain relating to E&P activities was $1 million in the second quarter of 2009 and 2008. The after-tax foreign currency loss was $5 million for the six months ended June 30, 2009, compared to a gain of $12 million for the same period in 2008.

The Corporation’s future E&P earnings may be impacted by external factors, such as political risk, volatility in the selling prices of crude oil and natural gas, reserve and production changes, industry cost inflation, exploration expenses, the effects of weather and changes in foreign exchange and income tax rates.

Marketing and Refining

Results from M&R activities amounted to a loss of $30 million in the second quarter of 2009 compared with a loss of $52 million in the second quarter of 2008. M&R generated income of $72 million for the six months ended June 30, 2009 compared to a loss of $36 million for the six months ended June 30, 2008. The Corporation’s downstream operations include HOVENSA L.L.C. (HOVENSA), a 50% owned refining joint venture with a subsidiary of Petroleos de Venezuela S.A. (PDVSA), which is accounted for using the equity method. Additional M&R activities include a fluid catalytic cracking facility in Port Reading, New Jersey, as well as retail gasoline stations, energy marketing and trading operations.

Refining: Refining operations generated losses of $26 million and $44 million in the second quarter and the first half of 2009, compared with income of $3 million in the second quarter and a breakeven result in the first half of 2008. The Corporation’s share of HOVENSA’s results, after income taxes, amounted to losses of $46 million and $71 million in the second quarter and first half of 2009 compared with losses of $12 million and $18 million in the second quarter and first half of 2008. These decreases primarily reflect lower refining margins. Port Reading’s after-tax earnings were $19 million in the second quarter and $27 million in the first half of 2009 compared with $14 million and $16 million for the same periods in 2008, reflecting improved margins.

The following table summarizes refinery capacity and utilization rates:


			Refinery utilization
	Refinery		Three months ended						Six months ended
	capacity		June 30,						June 30,
	(thousands of
	barrels per day)		2009			2008			2009			2008
HOVENSA
Crude		500		88.4	%		94.2	%		85.2	%		91.6	%
Fluid catalytic cracker		150		71.2	%		73.1	%		71.3	%		73.7	%
Coker		58		91.2	%		99.5	%		85.9	%		95.5	%
Port Reading		70		93.0	%		91.3	%		90.6	%		89.2	%

Marketing: Marketing results, which consist principally of energy marketing and retail gasoline operations, were losses of $13 million in the second quarter of 2009 compared with losses of $40 million in the same period of 2008, reflecting improved energy marketing results. Earnings were $88 million in the first half of 2009 compared to a loss of $8 million for the six months ended June 30, 2008, reflecting improved energy marketing results. Total refined product sales volumes were 455,000 barrels per day and 478,000 barrels per day in the second quarter and first half of 2009, compared with 454,000 barrels per day and 475,000 barrels per day in the second quarter and first half of 2008. Total energy marketing natural gas sales volumes were approximately 1.7 million mcf per day and 2.1 million mcf per day in the second quarter and first half of 2009, which were comparable to the volumes in the corresponding 2008 periods. In addition, energy marketing sold electricity volumes at the rate of 4,500 megawatts (round the clock) and 4,100 megawatts (round the clock) in the second quarter and first half of 2009 compared with 3,100 megawatts (round the clock) in the second quarter and first half of 2008.

18

PART I — FINANCIAL INFORMATION (CONT’D.)

Results of Operations (continued)

The Corporation has a 50% voting interest in a consolidated partnership that trades energy commodities and energy derivatives. The Corporation also takes trading positions for its own account. The Corporation’s after-tax results from trading activities, including its share of the results of the trading partnership, amounted to income of $9 million and $28 million in the second quarter and first half of 2009 compared with losses of $15 million and $28 million in the second quarter and first half of 2008.

Marketing expenses decreased by 8% in the second quarter of 2009 compared with the same period in 2008 due to lower retail expenses. Marketing expenses were comparable for the first six months of 2009 and 2008.

The Corporation’s future M&R earnings may be impacted by volatility in margins, competitive industry conditions, government regulatory changes, credit risk and supply and demand factors, including the effects of weather.

Corporate

The following table summarizes corporate expenses (in millions):


	Three months ended						Six months ended
	June 30,						June 30,
	2009			2008			2009			2008
Corporate expenses (including the item described below)	$	34		$	48		$	117		$	106
Income tax benefits		(8	)		(15	)		(42	)		(34	)

		26			33			75			72

Items affecting comparability between periods, after-tax		—			—			(16	)		—

Net corporate expenses	$	26		$	33		$	59		$	72

After-tax corporate expenses were lower in the second quarter and first half of 2009 compared with the same periods in 2008, mainly due to higher income from pension related investments and lower costs as a result of cost saving initiatives. In the first half of 2009, a charge of $25 million before income taxes ($16 million after tax) relating to retirement benefits and employee severance costs was recorded in general and administrative expenses. After-tax corporate expenses in 2009 are estimated to be in the range of $155 to $165 million, excluding items affecting comparability.

Interest

Interest expense was as follows (in millions):


	Three months ended						Six months ended
	June 30,						June 30,
	2009			2008			2009			2008
Total interest incurred	$	97		$	66		$	175		$	134
Less: capitalized interest		2			1			3			2

Interest expense before income taxes		95			65			172			132
Income tax benefits		(36	)		(25	)		(65	)		(50	)

After-tax interest expense	$	59		$	40		$	107		$	82

19

PART I — FINANCIAL INFORMATION (CONT’D.)

Results of Operations (continued)

Increased interest expense for the second quarter and first half of 2009 principally reflects higher average debt resulting from the Corporation’s $1.25 billion debt offering in February 2009 (see Note 5, Long-Term Debt) and higher fees relating to letters of credit.

Sales and Other Operating Revenues

Sales and other operating revenues decreased by 42% and 39% in the second quarter and first half of 2009 compared with the corresponding periods of 2008, primarily due to lower crude oil, natural gas and refined product selling prices. The decrease in cost of products sold principally reflects lower prices of refined products and purchased natural gas.

Liquidity and Capital Resources

The following table sets forth certain relevant measures of the Corporation’s liquidity and capital resources (in millions, except ratios):


	June 30,			December 31,
	2009			2008
Cash and cash equivalents	$	1,063		$	908
Current portion of long-term debt		135			143
Total debt		4,313			3,955
Total equity		12,378			12,391
Debt to capitalization ratio*		25.8	%		24.2	%


*		Total debt as a percentage of the sum of total debt plus total equity.

Cash Flows

The following table sets forth a summary of the Corporation’s cash flows (in millions):


	Six months ended
	June 30,
	2009			2008
Net cash provided by (used in):
Operating activities	$	1,241		$	2,915
Investing activities		(1,357	)		(1,966	)
Financing activities		271			(77	)

Net increase in cash and cash equivalents	$	155		$	872

Operating Activities: Net cash provided by operating activities decreased in the first half of 2009 compared with 2008, principally reflecting decreased earnings.

Investing Activities: The following table summarizes the Corporation’s capital expenditures (in millions):


	Six months ended
	June 30,
	2009		2008
Exploration and Production	$	1,328	$	1,938
Marketing, Refining and Corporate		61		67

Total	$	1,389	$	2,005

20

PART I — FINANCIAL INFORMATION (CONT’D.)

Liquidity and Capital Resources (continued)

Financing Activities: In the first half of 2009, net borrowings totaled $358 million. In February 2009, the Corporation issued $250 million of 5 year senior unsecured notes with a coupon of 7% and $1 billion of 10 year senior unsecured notes with a coupon of 8.125%. The majority of the proceeds were used to repay outstanding borrowings. Dividends paid were $98 million in the first half of 2009 compared with $97 million in the first half of 2008. Additional proceeds from financing activities were $11 million in the first half of 2009 and $55 million in the same period of 2008, primarily reflecting the exercise of employee stock options, partially offset by distributions to noncontrolling interests.

Future Capital Requirements and Resources

The Corporation anticipates investing a total of approximately $3.2 billion in capital and exploratory expenditures during 2009, of which $3.1 billion relates to Exploration and Production operations. The Corporation has the ability to fund its 2009 operations, including capital expenditures, dividends, pension contributions and required debt repayments, with existing cash on-hand, cash flow from operations and its available credit facilities. Crude oil and natural gas prices are volatile and difficult to predict. In addition, unplanned increases in the Corporation’s capital expenditure program could occur. The Corporation will take steps as necessary to protect its financial flexibility and may pursue other sources of liquidity, including the issuance of debt securities, the issuance of equity securities, and/or asset sales.

The table below summarizes the capacity, usage, and remaining availability of the Corporation’s borrowing and letter of credit facilities at June 30, 2009 (in millions):


	Expiration					Letters of				Remaining
	Date	Capacity		Borrowings		Credit Issued		Total Used		Capacity
Revolving credit facility	May 2012*	$	3,000	$	—	$	36	$	36	$	2,964
Asset backed credit facility	October 2009		500		—		500		500		—
Committed lines	Various**		1,665		—		1,596		1,596		69
Uncommitted lines	Various**		2,158		—		2,158		2,158		—

Total		$	7,323	$	—	$	4,290	$	4,290	$	3,033


*		$75 million expires in May 2011.

**		Committed and uncommitted lines have expiration dates primarily through 2010.

The Corporation maintains a $3.0 billion syndicated, revolving credit facility, of which $2,925 million is committed through May 2012. This facility can be used for borrowings and letters of credit. At June 30, 2009, available capacity under the facility was $2,964 million.

The Corporation has a 364-day asset-backed credit facility securitized by certain accounts receivable from its Marketing and Refining operations. At June 30, 2009, under the terms of this financing arrangement, the Corporation has the ability to borrow or issue letters of credit of up to $500 million, subject to the availability of sufficient levels of eligible receivables. At June 30, 2009, outstanding letters of credit under this facility were collateralized by $921 million of accounts receivable, which are held by a wholly owned subsidiary. These receivables are not available to pay the general obligations of the Corporation before satisfaction of the outstanding obligations under the asset backed facility. In July 2009, the Corporation amended the asset-backed facility to increase the capacity to $1.0 billion, subject to the availability of eligible receivables, and to extend the expiration date to July 2010.

The Corporation also has a shelf registration under which it may issue additional debt securities, warrants, common stock or preferred stock.

At June 30, 2009, a loan agreement covenant based on the Corporation’s debt to capitalization ratio permitted the Corporation to borrow up to an additional $16.3 billion for the construction or acquisition of assets. Under a separate loan agreement covenant, the Corporation has the ability to borrow up to $3.5 billion of additional secured debt at June 30, 2009.

21

PART I — FINANCIAL INFORMATION (CONT’D.)

Liquidity and Capital Resources (continued)

The Corporation’s $4,290 million of letters of credit outstanding at June 30, 2009 were primarily issued to satisfy margin and collateral requirements. See also Note 8 “Derivative Instruments, Hedging, and Trading Activities”.

Off-Balance Sheet Arrangements

The Corporation has leveraged leases not included in its balance sheet, primarily related to retail gasoline stations that the Corporation operates. The net present value of these leases was $486 million at June 30, 2009. The Corporation’s June 30, 2009 debt to capitalization ratio would increase from 25.8% to 27.9% if the leases were included as debt.

The Corporation guarantees the payment of up to 50% of HOVENSA’s crude oil purchases from suppliers other than PDVSA. At June 30, 2009, the guarantee amounted to $134 million. This amount fluctuates based on the volume of crude oil purchased and related prices. In addition, the Corporation has agreed to provide funding up to a maximum of $15 million to the extent HOVENSA does not have funds to meet its senior debt obligations.

Change in Accounting Policies

Effective January 1, 2009, the Corporation adopted Financial Accounting Standards Board (FASB) Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (FAS 160), which changes the accounting for and reporting of noncontrolling interests in a consolidated subsidiary. As required, the Corporation retrospectively applied the presentation and disclosure requirements of FAS 160. At June 30, 2009 and December 31, 2008, noncontrolling interests of $119 million and $84 million, respectively, have been classified as a component of equity. Previously the noncontrolling interests had been classified in other liabilities. Net income attributable to the noncontrolling interests of $2 million for the three months ended and $44 million for the six months ended June 30, 2009 and $11 million for the three months ended and $4 million for the six months ended June 30, 2008 are included in net income. Certain amounts in the consolidated financial statements and footnotes have been reclassified to conform with the presentation requirements of
FAS 160.

Effective January 1, 2009, the Corporation also adopted FASB Statement No. 161,Disclosures about Derivative Instruments and Hedging Activities, which expands the disclosure requirements for an entity’s use of derivative instruments. See Note 8, Derivative Instruments, Hedging, and Trading Activities, for these disclosures.

The Corporation adopted FASB Staff Position FAS No. 157-2, Effective Date of FASB Statement No. 157, effective January 1, 2009, which requires the application of the fair value measurement and disclosure provisions of FAS 157 to nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis. The impact of adoption was not material to the Corporation’s consolidated financial statements.

Effective June 30, 2009, the Corporation adopted FASB Statement No. 165 (FAS 165),Subsequent Events. FAS 165 provides guidance on the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The adoption of FAS 165 did not impact the Corporation’s existing practice of evaluating subsequent events through the date the financial statements are filed with the SEC. These financial statements were evaluated for subsequent events through August 6, 2009.

22

PART I — FINANCIAL INFORMATION (CONT’D.)

Recently Issued Accounting Standards

In June 2009, the FASB issued Statements No. 166, Accounting for Transfers of Financial Assets- an amendment of FASB Statement No. 140 (FAS 166) and No. 167, Amendments to FASB Interpretation No. FIN 46(R) (FAS 167). FAS 166 eliminates the concept of a qualifying special-purpose entity, which did not require consolidation under existing GAAP, and limits the circumstances in which transferred financial assets should be derecognized. FAS 167 requires additional analysis of variable interest entities to determine if consolidation is necessary. The Corporation is currently evaluating the impact of FAS 166 and FAS 167 on its financial statements and, as required, will adopt the provisions of these standards effective January 1, 2010.

Market Risk Disclosure

In the normal course of its business, the Corporation is exposed to commodity risks related to changes in the prices of crude oil, natural gas, refined products and electricity, as well as to changes in interest rates and foreign currency values. In the disclosures that follow, these operations are referred to as non-trading activities. The Corporation also has trading operations, principally through a 50% voting interest in a trading partnership. These trading operations are also exposed to commodity risks primarily related to the prices of crude oil, natural gas and refined products.

Instruments: The Corporation primarily uses forward commodity contracts, foreign exchange forward contracts, futures, swaps, options and energy securities in its non-trading and trading activities.

Value-at-Risk: The Corporation uses value-at-risk to monitor and control commodity risk within its trading and non-trading activities. The value-at-risk model uses historical simulation and the results represent the potential loss in fair value over one day at a 95% confidence level. The model captures both first and second order sensitivities for options. The potential change in fair value based on commodity price risk is presented in the non-trading and trading sections below.

Non-Trading: The Corporation’s non-trading activities may include hedging of crude oil and natural gas production. Futures and swaps are used to fix the selling prices of a portion of the Corporation’s future production and the related gains or losses are an integral part of the Corporation’s selling prices. In October 2008, the Corporation closed its Brent crude oil hedges by entering into offsetting positions with the same counterparty covering 24,000 barrels per day from 2009 through 2012. The estimated annual after-tax loss that will be reflected in earnings related to the closed crude oil positions will be $335 million from 2009 to 2012. There were no open hedges of crude oil or natural gas production at June 30, 2009.

The Corporation also markets energy commodities including refined petroleum products, natural gas, and electricity. The Corporation uses futures, swaps, and options to manage the risk in its marketing activities. The Corporation estimates that at June 30, 2009, the value-at-risk for commodity related derivatives that are settled in cash and used in non-trading activities was $10 million compared with $13 million at December 31, 2008. The results may vary from time to time as hedge levels change.

The Corporation uses foreign exchange contracts to reduce its exposure to fluctuating foreign exchange rates by entering into forward contracts for various currencies, including the British pound, the Norwegian krone, the Danish krone, and the Thai baht.

23

PART I — FINANCIAL INFORMATION (CONT’D.)

Market Risk Disclosure (continued)

Trading: In trading activities, the Corporation is primarily exposed to changes in crude oil, natural gas and refined product prices. The trading partnership in which the Corporation has a 50% voting interest trades energy commodities and derivatives. The accounts of the partnership are consolidated with those of the Corporation. The Corporation also takes trading positions for its own account. The information that follows represents 100% of the trading partnership and the Corporation’s proprietary trading accounts.

Total net realized gains for the first half of 2009 amounted to $528 million compared with losses of $259 million for the first six months of 2008. The following table provides an assessment of the factors affecting the changes in fair value of trading activities (in millions):


	2009			2008
Fair value of contracts outstanding at January 1	$	864		$	154
Change in fair value of contracts outstanding at the beginning of the year and still outstanding at June 30		40			511
Reversal of fair value for contracts closed during the period		(498	)		22
Fair value of contracts entered into during the period and still outstanding		(79	)		(339	)

Fair value of contracts outstanding at June 30	$	327		$	348

The Corporation measures fair value in accordance with FAS 157. The following table summarizes the sources of fair values of derivatives used in the Corporation’s trading activities at June 30, 2009 (in millions):


	Instruments Maturing
												2012
												and
Source of Fair Value	Total			2009		2010			2011			beyond
Level 1	$	(41	)	$	17	$	(174	)	$	128		$	(12	)
Level 2		341			114		189			(17	)		55
Level 3		27			2		3			26			(4	)

Total	$	327		$	133	$	18		$	137		$	39

The Corporation estimates that at June 30, 2009, the value-at-risk for trading activities, including commodities, was $10 million compared with $17 million at December 31, 2008. The results may change from time to time as strategies change to capture potential market rate movements.

The following table summarizes the fair values of net receivables relating to the Corporation’s trading activities and the credit ratings of counterparties at June 30, 2009 (in millions):


Investment grade determined by outside sources	$	177
Investment grade determined internally*		74
Less than investment grade		47

Fair value of net receivables outstanding at end of period	$	298


*		Based on information provided by counterparties and other available sources.

24

PART I — FINANCIAL INFORMATION (CONT’D.)

Forward-Looking Information

Certain sections of Management’s Discussion and Analysis of Results of Operations and Financial Condition, including references to the Corporation’s future results of operations and financial position, liquidity and capital resources, capital expenditures, oil and gas production, tax rates, debt repayment, hedging, derivative and market risk disclosures and off-balance sheet arrangements include forward-looking information. Forward-looking disclosures are based on the Corporation’s current understanding and assessment of these activities and reasonable assumptions about the future. Actual results may differ from these disclosures because of changes in market conditions, government actions and other factors.

25

PART I — FINANCIAL INFORMATION (CONT’D.)

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The information required by this item is presented under Item 2, “Management’s Discussion and Analysis of Results of Operations and Financial Condition – Market Risk Disclosure.”

Item 4. Controls and Procedures

Based upon their evaluation of the Corporation’s disclosure controls and procedures (as defined in Exchange Act Rules 13a — 15(e) and 15d — 15(e)) as of June 30, 2009, John B. Hess, Chief Executive Officer, and John P. Rielly, Chief Financial Officer, concluded that these disclosure controls and procedures were effective as of June 30, 2009.

There was no change in internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 in the quarter ended June 30, 2009 that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

26

PART II — OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

The Annual Meeting of Stockholders of the Registrant was held on May 6, 2009. The inspectors of election reported that 281,826,350 shares of common stock of the Registrant were represented in person or by proxy at the meeting, constituting 86.1% of the votes entitled to be cast. At the meeting, stockholders voted on:

	•		The election of five nominees for the Board of Directors for the three-year term expiring in 2012 and;

	•		The ratification of the selection by the Audit Committee of the Board of Directors of Ernst & Young LLP as the independent registered public accounting firm of the Registrant for the fiscal year ending December 31, 2009.

With respect to the election of directors, the inspectors of election reported as follows:


	For		Withholding Authority
Name	Nominee Listed		to Vote For Nominee Listed
John B. Hess		278,232,918		3,593,432
Samuel W. Bodman		280,715,747		1,110,603
Risa Lavizzo-Mourey		280,644,070		1,182,280
Craig G. Matthews		280,552,517		1,273,833
Ernst H. von Metzsch		279,212,483		2,613,867

The inspectors reported that 279,223,971 votes were cast for the ratification of the selection of Ernst & Young LLP as the independent auditors of the Registrant for the fiscal year ending December 31, 2009, 2,550,801 votes were cast against said ratification and holders of 51,578 votes abstained.

27

PART II — OTHER INFORMATION (CONT’D.)

Item 6. Exhibits and Reports on Form 8-K

a.

Exhibits

			10(1) Amended and Restated Change of Control Termination Benefits Agreement dated as of May 29, 2009 between Registrant and F. Borden Walker. Substantially identical agreements (differing only in the signatories thereto) were entered into between Registrant and John B. Hess and J. Barclay Collins.

			10(2) Amended and Restated Change of Control Termination Benefits Agreements dated as of May 29, 2009 between Registrant and Brian J. Bohling. Substantially identical agreements (differing only in the signatories thereto) were entered into between Registrant and other executive officers (other than the named executive officers referred to in Exhibit 10(1)).

			31(1) Certification required by Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a))

			31(2) Certification required by Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a))

			32(1) Certification required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)

			32(2) Certification required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)

			101(INS) XBRL Instance Document

			101(SCH) XBRL Schema Document

			101(CAL) XBRL Calculation Linkbase Document

			101(LAB) XBRL Label Linkbase Document

			101(PRE) XBRL Presentation Linkbase Document

			101(DEF) XBRL Definition Linkbase Document

	b.		Reports on Form 8-K

			During the quarter ended June 30, 2009, Registrant filed the following report on Form 8-K:

(i)

Filing dated April 29, 2009 reporting under Items 2.02 and 9.01 a news release dated April 29, 2009 reporting results for the first quarter of 2009.

28

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	HESS CORPORATION (REGISTRANT)
	By	/s/ John B. Hess
		JOHN B. HESS
		CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER


	By	/s/ John P. Rielly
		JOHN P. RIELLY
		SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

Date: August 7, 2009

29

Hess - 10-Q quarterly report FY

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