Items 1 and 2. Business and Properties

Hess Corporation, incorporated in the State of Delaware in 1920, is a global Exploration and Production (E&P) company engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids, and natural gas with production operations located primarily in the United States (U.S.), Denmark, Equatorial Guinea, the Malaysia/Thailand Joint Development Area (JDA), Malaysia, and Norway. The Bakken Midstream operating segment, which was established in the second quarter of 2015, provides fee-based services, including gathering, compressing and processing natural gas and fractionating natural gas liquids, or NGLs; gathering, terminaling, loading and transporting crude oil and NGLs; and storing and terminaling propane, primarily in the Bakken and Three Forks Shale plays in the Williston Basin area of North Dakota.

See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for further details.

Exploration and Production

Proved Reserves

Proved reserves are calculated using the average price during the twelve-month period ending December 31 determined as an unweighted arithmetic average of the price on the first day of each month within the year, unless prices are defined by contractual agreements, excluding escalations based on future conditions. Crude oil prices used in the determination of proved reserves at December 31, 2016 were $42.68 per barrel for WTI (2015: $50.13) and $44.45 per barrel for Brent (2015: $55.10).

Our total proved developed and undeveloped reserves at December 31 were as follows:

	Crude Oil & Condensate				Natural Gas Liquids				Natural Gas				Total Barrels of Oil Equivalent (BOE)
	2016		2015		2016		2015		2016		2015		2016		2015
	(Millions of bbls)				(Millions of bbls)				(Millions of mcf)				(Millions of bbls)
Developed
United States		245		253		59		51		404		368		371		365
Europe (a)		116		114		3		12		125		123		140		147
Africa		138		148		—		—		132		137		160		171
Asia		5		5		—		—		739		643		128		112
		504		520		62		63		1,400		1,271		799		795
Undeveloped
United States		110		93		27		23		186		137		168		139
Europe (a)		94		89		5		15		95		111		115		122
Africa		24		24		—		—		11		11		26		26
Asia		—		—		—		—		5		24		1		4
		228		206		32		38		297		283		310		291
Total
United States		355		346		86		74		590		505		539		504
Europe (a)		210		203		8		27		220		234		255		269
Africa		162		172		—		—		143		148		186		197
Asia		5		5		—		—		744		667		129		116
		732		726		94		101		1,697		1,554		1,109		1,086

(a) Proved reserves in Norway, which represented 18% of our total proved reserves at December 31, 2016 (2015: 21%), were as follows:

	Crude Oil & Condensate				Natural Gas Liquids				Natural Gas				Total Barrels of Oil Equivalent (BOE)
	2016		2015		2016		2015		2016		2015		2016		2015
	(Millions of bbls)				(Millions of bbls)				(Millions of mcf)				(Millions of bbls)
Developed		75		86		3		12		72		84		90		112
Undeveloped		90		85		5		15		88		107		110		118
Total		165		171		8		27		160		191		200		230

Proved undeveloped reserves were 28% of our total proved reserves at December 31, 2016 on a boe basis (2015: 27%). Proved reserves held under production sharing contracts totaled 4% of our crude oil reserves and 45% of our natural gas reserves at December 31, 2016 (2015: 5% and 44%, respectively).

For additional information regarding our proved oil and gas reserves, see the Supplementary Oil and Gas Data to the Consolidated Financial Statements presented on pages 84 through 94.

Production

Worldwide crude oil, natural gas liquids and natural gas production was as follows:

	2016		2015		2014
Crude oil	(Thousands of barrels)
United States
Bakken		24,881		29,579		23,997
Other Onshore		3,209		3,814		3,587
Total Onshore		28,090		33,393		27,584
Offshore		16,649		20,391		18,702
Total United States		44,739		53,784		46,286
Europe
Norway		8,387		9,985		9,275
Denmark		3,636		3,981		3,994
		12,023		13,966		13,269
Africa
Equatorial Guinea		11,898		15,881		15,869
Libya		387		20		1,410
Algeria		—		2,589		2,364
		12,285		18,490		19,643
Asia
JDA and Other		768		809		1,030
		768		809		1,030
Total		69,815		87,049		80,228

	2016		2015		2014
	(Thousands of barrels)
Natural gas liquids
United States
Bakken		9,701		7,438		3,759
Other Onshore		4,205		4,215		2,376
Total Onshore		13,906		11,653		6,135
Offshore		1,724		2,258		2,283
Total United States		15,630		13,911		8,418
Europe - Norway		408		499		501
Asia		—		—		10
Total		16,038		14,410		8,929

	2016		2015		2014
Natural gas	(Thousands of mcf)
United States
Bakken		22,312		23,214		14,612
Other Onshore		48,597		39,929		17,091
Total Onshore		70,909		63,143		31,703
Offshore		23,603		31,751		28,426
Total United States		94,512		94,894		60,129
Europe
Norway		8,541		9,973		8,951
Denmark		7,128		5,588		4,184
		15,669		15,561		13,135
Asia and Other
JDA		68,031		83,900		80,941
Malaysia (a)		13,151		18,994		21,916
Other		—		—		11,031
		81,182		102,894		113,888

Total		191,363		213,349		187,152

Total Barrels of Oil Equivalent (in millions)		118		137		120

(a) Includes 3,624 thousand mcf of production for 2016 (2015: 5,321 thousand mcf; 2014: 7,435 thousand mcf) from Block PM301 which is unitized into the JDA.

E&P Operations

A description of our significant E&P operations is as follows:

United States

Our production in the U.S. was from onshore properties, principally in the Bakken oil shale play in the Williston Basin of North Dakota, the Utica Basin of Ohio and the Permian Basin of Texas and from offshore properties in the Gulf of Mexico.

Onshore:

Bakken: At December 31, 2016, we held 577,000 net acres in the Bakken with varying working interest percentages. During 2016, we operated an average of 3.3 rigs, drilled 71 wells, completed 92 wells, and brought on production 100 wells, bringing the total operated production wells to 1,272. Drilling and completion costs per operated well averaged $4.8 million in 2016, down 17% from 2015. In 2016, we also increased our standard well design to a 50-stage completion from the previous 35-stage completion. The improved efficiency of our drilling operations can largely be attributed to application of our lean manufacturing capabilities. During 2017, we plan to increase our rig count to six rigs from two rigs, for an average of 3.5 rigs, to drill approximately 80 wells and to bring approximately 75 wells on production. Net production for full year 2017 is forecast to be in the range of 95,000 boepd to 105,000 boepd. With the building rig count we expect our Bakken production in the fourth quarter of 2017 to average between 105,000 boepd and 110,000 boepd, which would represent an increase of approximately 15% from the first quarter to the fourth quarter.

Utica: We own a 50% working interest in approximately 45,000 net acres in the wet gas area of the Utica Basin of Ohio. During 2016, a total of 6 wells were drilled, 6 wells were completed and 14 wells were brought on production. In March 2016, we and our joint venture partner released the remaining Hess operated rig. At December 31, 2016, we had 5 wells drilled but not completed on a single well pad. We do not plan to drill any wells in 2017.

Permian: We operate and hold a 34% interest in the Seminole‑San Andres Unit in the Permian Basin.

Offshore: At December 31, 2016, we held interests in 76 blocks in the deepwater Gulf of Mexico. Our production offshore in the Gulf of Mexico was principally from the Baldpate (Hess 50%), Conger (Hess 38%), Hack Wilson (Hess 25%), Llano (Hess 50%), Penn State (Hess 50%), Shenzi (Hess 28%) and Tubular Bells (Hess 57%) fields. In addition, we are operator of the Stampede development project (Hess 25%). At December 31, 2016, we held approximately 190,000 net undeveloped acres, of which leases covering approximately 85,000 acres are due to expire in the next three years.

A description of our significant operations in the Gulf of Mexico is as follows:

Conger: At this Hess operated field, we drilled and brought online an additional production well during the year. In addition, one well was shut-in for an extended period in 2016 in order to replace a subsurface valve.

Penn State: At this Hess operated field, we intend to drill one production well in 2017.

Shenzi: At this BHP Billiton Petroleum operated field, drilling continued during 2016 with the completion of a water injection well. In 2017, the operator plans to defer further drilling activity.

Tubular Bells: At this Hess operated field, we brought online a fifth production well and one water injector well, completing the initial drilling campaign. Three wells were shut-in for an extended period in 2016 due to subsurface valve failures. These valves have since been replaced and we are pursuing our options to recover damages for these valve failures.

Stampede: At this Hess operated project in the Green Canyon area of the Gulf of Mexico, the co-owners sanctioned the field development and committed to two deepwater drilling rigs in 2014. In 2016, the topsides deck was installed on the hull, and fabrication and pre-commissioning of the topsides continues according to plan. We also completed installation of subsea equipment at both drill centers in the field, drilled one development well, and commenced drilling on one water injector well. First production from the field is targeted for 2018, and is expected to ramp up to a net rate of approximately 15,000 boepd.

Europe

Norway: In 2016, Aker BP assumed operatorship from BP of the offshore Valhall Field (Hess 64%). During 2016, well abandonment activities were conducted as part of a multi-year program that will continue into 2017. In 2017, the operator plans to drill two production wells from the existing platform rig, of which one well is expected to be completed in the fourth quarter. In 2017, net production is expected to average between 25,000 boepd to 30,000 boepd.

Denmark: At the Hess operated offshore South Arne Field (Hess 62%), we completed drilling of a previously sanctioned eleven well multi-year program. In addition, the Danish government awarded a 20-year extension to the South Arne Field license, extending expiry to 2047.

Africa

Equatorial Guinea: At the Hess operated offshore Block G (Hess 85% paying interest, national oil company of Equatorial Guinea 5% carried interest), we have production from the Okume and Ceiba Fields. In 2016, there were no drilling operations and there are no plans for drilling in 2017.

Ghana: At the Hess operated offshore Deepwater Tano/Cape Three Points license (Hess 50% license interest), we have drilled seven successful exploration wells on the block since 2011. In May 2013, we submitted appraisal plans for each of the seven discoveries, which comprise both oil and natural gas, to the Ghanaian government for approval. Five appraisal plans have been approved. In 2014, we drilled three successful appraisal wells. Well results continue to be evaluated and development planning is progressing. The government of Côte d’Ivoire has challenged the maritime border between it and the country of Ghana, which includes a portion of our Deepwater Tano/Cape Three Points license. We are unable to proceed with development of this license until there is a resolution of this matter, which may also impact our ability to develop the license. The International Tribunal for Law of the Sea is expected to render a final ruling on the maritime border dispute in 2017. Under terms of our license and subject to resolution of the border dispute, we have declared commerciality for four discoveries, including the Pecan Field in March 2016, which would be the primary development hub for the block. We are continuing to work with the government on how best to progress work on the block given the maritime border dispute. See Capitalized Exploratory Well Costs in Note 4, Property, Plant and Equipment in the Notes to Consolidated Financial Statements for details of wells capitalized at December 31, 2016.

Libya: At the onshore Waha concession in Libya, which include the Defa, Faregh, Gialo, North Gialo and Belhedan Fields (Hess 8%), the operator has shut in production for extended periods over the last three years due to force majeure caused by civil unrest. The national oil company of Libya lifted force majeure in September 2016 and production recommenced in October 2016. Net production averaged 1,000 bopd in 2016, zero in 2015, and 4,000 bopd in 2014. We have after-tax net book value in our Libyan operations of approximately $135 million and total proved reserves of 159 million boe at December 31, 2016.

Asia and Other

Malaysia/Thailand Joint Development Area (JDA): At the Carigali Hess operated offshore Block A-18 in the Gulf of Thailand (Hess 50%), the operator continued development drilling and completed installation and commissioning of a major booster compression project in 2016. No drilling is planned for 2017 as contracted volumes are expected to be met as a result of the booster compression project.

Malaysia: Our production in Malaysia comes from our interest in Block PM301 (Hess 50%), which is adjacent to and is unitized with Block A‑18 of the JDA and our 50% interest in Blocks PM302, PM325 and PM326B located in the North Malay Basin (NMB), offshore Peninsular Malaysia, where we operate a multi‑phase natural gas development project. In 2016, we completed the installation of three remote wellhead platforms and the jacket of the central processing platform. We also achieved mechanical completion of the central processing platform topsides and transport to the field via a heavy lift vessel is planned for the first quarter of 2017. We expect net production from NMB to increase from 26 million cubic feet per day in 2016 to approximately 165 million cubic feet per day following the completion of full field development in the third quarter of 2017.

Australia: At the WA‑390‑P and WA-474-P blocks (Hess 100%) in the Carnarvon Basin, offshore Western Australia (also known as Equus) covering approximately 658,000 acres, we have drilled 13 natural gas discoveries and 6 appraisal wells. In the fourth quarter of 2016, we terminated a joint front-end engineering study with a third party natural gas liquefaction joint venture and notified the government of Australia of our intent to defer further development of the project. As a result, we recognized an after-tax charge of $693 million to expense capitalized exploratory well costs and other project related costs.

Guyana: At the Esso Exploration and Production Guyana Limited operated offshore Stabroek Block (Hess 30% participating interest), the operator announced a significant oil discovery at the Liza-1 well in 2015. During 2016, the operator completed a 17,000 square kilometer 3D seismic acquisition on the Stabroek Block and drilled the Liza-2 and Liza-3 wells, both of which encountered hydrocarbons. Pre-development planning and appraisal activities are underway and we expect to be in a position to sanction the first phase of the Liza development in mid-2017 with first production expected in 2020. At the Skipjack prospect 25 miles northwest of the Liza discovery, the operator completed the drilling of an exploration well, which was unsuccessful and expensed. In November 2016, the operator commenced drilling of the Payara-1 exploration well, located approximately 10 miles northwest of the Liza discovery, and in January 2017 announced results confirming the well as a second oil discovery on the block. In 2017, the operator plans to drill a well at the Snoek exploration prospect, a Liza-4 appraisal well, and a Payara-2 appraisal well. In addition, the operator will evaluate additional exploration opportunities on the broader Stabroek block.

Suriname: In 2016 we acquired a 33% non-operated participating interest in the Kosmos Energy Ltd. operated Block 42 contract area, offshore Suriname, which is located in the Guyana-Suriname basin. The operator completed a 6,500 square kilometer 3D seismic shoot in January 2017.

Canada: At the four BP operated exploration licenses offshore Nova Scotia (Hess 50% participating interest), the operator expects to drill its first exploration well in 2018.

Sales Commitments

We have certain long-term contracts with fixed minimum sales volume commitments for natural gas and natural gas liquids production. At the JDA in the Gulf of Thailand, we have annual minimum net sales commitments of approximately 70 billion cubic feet of natural gas per year through 2025 and approximately 40 billion cubic feet per year in 2026 and 2027. At the North Malay Basin development project offshore Malaysia, we have annual net sales commitments of approximately 50 billion cubic feet per year from completion of full field development which is expected in the third quarter of 2017 through 2024. The Corporation’s estimated total volume of production subject to sales commitments over the remaining term of the contracts is approximately 1.1 trillion cubic feet of natural gas. We also have natural gas liquids minimum delivery commitments, primarily in the Bakken through 2023, of approximately 10 million barrels per year, or approximately 70 million barrels over the remaining life of the contracts.

We have not experienced any significant constraints in satisfying the committed quantities required by our sales commitments, and we anticipate being able to meet future requirements from available proved and probable reserves and projected third-party supply.

Selling Prices and Production Costs

The following table presents our average selling prices and average production costs:

	2016		2015		2014
Average selling prices (a)
Crude oil - per barrel (including hedging)
United States
Onshore	$	36.92	$	42.67	$	81.89
Offshore		37.47		46.21		95.05
Total United States		37.13		44.01		87.21
Europe (b)		43.33		55.10		104.21
Africa		41.88		53.89		97.31
Asia		42.98		52.74		89.71
Worldwide		39.20		47.85		92.59
Crude oil - per barrel (excluding hedging)
United States
Onshore	$	36.92	$	41.22	$	81.89
Offshore		37.47		46.21		92.22
Total United States		37.13		43.11		86.06
Europe (b)		43.33		52.37		99.20
Africa		41.88		51.57		93.70
Asia		42.98		52.74		89.71
Worldwide		39.20		46.37		90.20
Natural gas liquids - per barrel
United States
Onshore	$	9.18	$	9.18	$	28.92
Offshore		13.96		14.40		30.40
Total United States		9.71		10.02		29.32
Europe (b)		19.48		24.59		52.66
Worldwide		9.95		10.52		30.59
Natural gas - per mcf
United States
Onshore	$	1.48	$	1.64	$	3.18
Offshore		1.99		2.03		3.79
Total United States		1.61		1.77		3.47
Europe (b)		3.97		6.72		10.00
Asia		5.31		5.97		6.94
Worldwide		3.37		4.16		6.04
Average production (lifting) costs per barrel of oil equivalent produced (c)
United States
Onshore	$	18.75	$	18.68	$	20.90
Offshore		18.88		7.03		5.06
Total United States		18.79		14.80		14.60
Europe (b)		21.28		23.61		28.93
Africa		20.53		23.12		22.41
Asia and other		11.91		8.34		9.11
Worldwide		18.45		16.17		16.86

(a) Includes inter‑company transfers valued at approximate market prices and, primarily onshore United States, is adjusted for certain processing and distribution fees.

(b) The average selling prices in Norway for 2016 were $43.32 per barrel for crude oil (including hedging), $43.32 per barrel for crude oil (excluding hedging), $19.48 per barrel for natural gas liquids and $5.22 per mcf for natural gas (2015: $54.89, $52.15, $24.59 and $8.58, respectively; 2014: $105.35, $100.34, $52.13 and $12.22, respectively). The average production (lifting) costs in Norway were $24.70 per barrel of oil equivalent in 2016 (2015: $25.81; 2014: $33.52).

(c) Production (lifting) costs consist of amounts incurred to operate and maintain our producing oil and gas wells, related equipment and facilities and transportation costs, including Bakken Midstream tariff expense. Lifting costs do not include costs of finding and developing proved oil and gas reserves, production and severance taxes, or the costs of related general and administrative expenses, interest expense and income taxes.

Gross and Net Undeveloped Acreage

At December 31, 2016 gross and net undeveloped acreage amounted to:

	Undeveloped
	Acreage (a)
	Gross		Net
	(In thousands)
United States		481		369
Europe		169		91
Africa		3,831		521
Asia and other		13,483		5,758
Total (b)		17,964		6,739

(a) Includes acreage held under production sharing contracts.

(b) At December 31, 2016, licenses covering approximately 5% of our net undeveloped acreage held are scheduled to expire during the next three years pending the results of exploration activities.

Gross and Net Developed Acreage, and Productive Wells

At December 31, 2016 gross and net developed acreage and productive wells amounted to:

	Developed Acreage
	Applicable to				Productive Wells (a)
	Productive Wells				Oil				Gas
	Gross		Net		Gross		Net		Gross		Net
	(In thousands)
United States		1,293		827		2,822		1,365		177		84
Europe (b)		102		59		73		46		—		—
Africa		9,629		833		767		94		—		—
Asia and other		356		178		—		—		83		44
Total		11,380		1,897		3,662		1,505		260		128

(a) Includes multiple completion wells (wells producing from different formations in the same bore hole) totaling 93 gross wells and 55 net wells.

(b) Gross and net developed acreage in Norway was approximately 57 thousand and 36 thousand, respectively. Gross and net productive oil wells in Norway were 52 and 33, respectively.

Exploratory and Development Wells

Net exploratory and net development wells completed during the years ended December 31 were:

	Net Exploratory Wells						Net Development Wells
	2016		2015		2014		2016		2015		2014
Productive wells
United States		—		—		8		83		181		202
Europe		—		—		—		1		5		4
Africa		—		—		2		—		—		4
Asia and other		—		3		—		—		1		4
		—		3		10		84		187		214

Dry holes
United States		1		—		1		—		—		—
Europe		—		—		—		—		—		—
Africa		—		1		—		—		—		—
Asia and other (a)		1		5		3		—		—		—
		2		6		4		—		—		—
Total		2		9		14		84		187		214

(a) In 2016, we expensed 18 wells relating to our Equus natural gas project, offshore Australia, which were drilled in prior years.

Number of Wells in the Process of Being Drilled

At December 31, 2016 the number of wells in the process of drilling amounted to:

	Gross		Net
	Wells		Wells
United States		17		10
Asia and other		15		7
Total		32		17

Bakken Midstream

In July 2015, we sold a 50% interest in Hess Infrastructure Partners LP (HIP) to Global Infrastructure Partners (GIP) for net cash consideration of approximately $2.6 billion. HIP and its affiliates primarily comprise the Bakken Midstream operating segment which provides fee-based services. The Bakken Midstream operating segment generates substantially all of its revenues by charging fees for gathering, compressing and processing natural gas and fractionating natural gas liquids, or NGLs; gathering, terminaling, loading and transporting crude oil and NGLs; and storing and terminaling propane, primarily in the Bakken and Three Forks Shale plays in the Williston Basin area of North Dakota. The Bakken Midstream operating segment currently generates substantially all of its revenues under long-term, fee-based agreements with our E&P operating segment but intends to pursue additional throughput volumes from third parties in the Williston Basin area. We operate the Bakken Midstream assets and operations under various operational and administrative services agreements.

Bakken Midstream assets include the following:

• Natural Gas Gathering and Compression. A natural gas gathering and compression system located primarily in McKenzie, Williams and Mountrail Counties, North Dakota connecting Hess and third-party owned or operated wells to the Tioga Gas Plant and third-party pipeline facilities. This gathering system consists of approximately 1,211 miles of high and low pressure natural gas and NGL gathering pipelines with a current capacity of up to 345 mmcfd, including an aggregate compression capacity of 174 mmcfd. The system also includes the Hawkeye Gas Facility, which contributes 50 mmcfd of the system’s current compression capacity.

• Crude Oil Gathering. A crude oil gathering system located primarily in McKenzie, Williams and Mountrail Counties, North Dakota, connecting Hess and third-party owned or operated wells to the Ramberg Terminal Facility, the Tioga Rail Terminal and, when completed, the Johnson’s Corner Header System. The crude oil gathering system consists of approximately 365 miles of crude oil gathering pipelines with a current capacity of up to 161,000 bopd. The system also includes the Hawkeye Oil Facility, which contributes 76,000 bopd of the system’s current capacity.

• Tioga Gas Plant. A natural gas processing and fractionation plant located in Tioga, North Dakota, with a current processing capacity of 250 mmcfd and fractionation capacity of 60,000 boepd.

• Mentor Storage Terminal. A propane storage cavern and rail and truck loading and unloading facility located in Mentor, Minnesota, with approximately 328,000 boe of working storage capacity.

• Ramberg Terminal Facility. A crude oil pipeline and truck receipt terminal located in Williams County, North Dakota that is capable of delivering up to 282,000 bopd of crude oil into an interconnecting pipeline for transportation to the Tioga Rail Terminal and to multiple third-party pipelines and storage facilities.

• Tioga Rail Terminal. A 140,000 bopd crude oil and 30,000 boepd NGL rail loading terminal in Tioga, North Dakota that is connected to the Tioga Gas Plant, the Ramberg Terminal Facility and our crude oil gathering system. During the summer of 2016, Hess piloted five third-party NGL unit trains consisting of 60 NGL rail cars that originated at the Tioga Rail Terminal.

• Crude Oil Rail Cars. A total of 550 crude oil rail cars, which we operate as unit trains consisting of approximately 100 to 110 crude oil rail cars. These crude oil rail cars have been constructed to DOT-117 standards, with the exception of electronically controlled pneumatic brakes which, if required, can be added at a later date, prior to the regulation deadline, for minimal cost. In addition, HIP also has 956 older specification crude oil rail cars that are capable of being upgraded to the most recent DOT-117 safety standards. In 2016, we recorded an impairment charge against these older specification rail cars. See Note 6, Impairment in Notes to Consolidated Financial Statements.

• Johnson’s Corner Header System. We are currently constructing the Johnson’s Corner Header System, a crude oil pipeline header system located in McKenzie County, North Dakota that will receive crude oil by pipeline from Hess and third parties and deliver crude oil to third-party interstate pipeline systems. At commissioning, the facility will have a delivery capacity of approximately 100,000 bopd of crude oil. We expect the Johnson’s Corner Header System to enter into service in 2017.

HIP owns 100% of Hess Midstream Partners LP, which was formed to own, operate, develop and acquire a diverse set of midstream assets to provide fee-based services to both Hess Corporation and third party customers as a publicly traded master limited partnership upon the future completion of an initial public offering of limited partnership units. Hess Midstream Partners LP filed an amendment to its registration statement on Form S-1 on February 13, 2017. The assets to be held by Hess Midstream Partners LP at the time of its initial public offering are expected to include a 20% economic interest in Hess North Dakota Pipelines Operations LP (owner of the natural gas gathering and compression and crude oil gathering systems), a 20% economic interest in Hess TGP Operations LP (owner of the Tioga gas plant), a 20% economic interest in

Hess North Dakota Export Logistics Operations LP (owner of the Tioga rail terminal, Ramberg terminal facility and 550 crude oil rail cars), and a 100% interest in Hess Mentor Storage Holdings LLC (owner of the Mentor storage terminal).

Beginning January 1, 2017, Hess’s Midstream segment will include our interest in a Permian gas plant in West Texas and related CO assets, and water handling assets in North Dakota as a result of organizational changes to the management of the assets. These assets are wholly-owned by the Corporation and are not included in our HIP joint venture.

Divested Downstream Businesses

In 2013, we announced several initiatives to continue our transformation from an integrated energy company into a more geographically focused pure play E&P company. The transformation plan included fully exiting the Corporation’s Marketing and Refining (M&R) business, including its terminal, retail, energy marketing and energy trading operations, as well as the permanent shutdown of refining operations at its Port Reading, NJ facility. See Note 9, Discontinued Operations in Notes to Consolidated Financial Statements.

HOVENSA LLC (HOVENSA), a 50/50 joint venture between the Corporation’s subsidiary, Hess Oil Virgin Islands Corp. (HOVIC), and a subsidiary of Petroleos de Venezuela S.A. (PDVSA), had previously shut down its U.S. Virgin Islands refinery in 2012 and filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States District Court of the Virgin Islands in September 2015. In January 2016, a sale of HOVENSA’s terminal and refinery assets to Limetree Bay Terminals, LLC was completed and the Bankruptcy Court entered an order confirming HOVENSA’s Chapter 11 plan of liquidation (the “Liquidation Plan”). Under the Liquidation Plan, HOVENSA established a liquidating trust to distribute certain assets and sale proceeds to its creditors, established an environmental response trust to administer to HOVENSA’s remaining environmental obligations and to conduct an orderly wind-down of its remaining activities. See Note 10, HOVENSA LLC in Notes to Consolidated Financial Statements.

Competition and Market Conditions

See Item 1A. Risk Factors for a discussion of competition and market conditions.

Other Items

Emergency Preparedness and Response Plans and Procedures

We have in place a series of business and asset-specific emergency preparedness, response and business continuity plans that detail procedures for rapid and effective emergency response and environmental mitigation activities. These plans are risk appropriate and are maintained, reviewed and updated as necessary to confirm their accuracy and suitability. Where appropriate, they are also reviewed and approved by the relevant host government authorities.

Responder training and drills are routinely held worldwide to assess and continually improve the effectiveness of our plans. Our contractors, service providers, representatives from government agencies and, where applicable, joint venture partners participate in the drills to help ensure that emergency procedures are comprehensive and can be effectively implemented.

To complement internal capabilities and to help ensure coverage for our global operations, we maintain membership contracts with a network of local, regional and global oil spill response and emergency response organizations. At the regional and global level, these organizations include Clean Gulf Associates (CGA), Marine Spill Response Corporation (MSRC), Marine Well Containment Company (MWCC), Wild Well Control (WWC), Subsea Well Intervention Service (SWIS) and Oil Spill Response Limited (OSRL). CGA and MSRC are domestic spill response organizations and MWCC provides the equipment and personnel to contain underwater well control incidents in the Gulf of Mexico. WWC provides firefighting, well control and engineering services globally. OSRL is a global response organization and is available, when needed, to assist us anywhere in the world. In addition to owning response assets in their own right, the organization maintains business relationships that provide immediate access to additional critical response support services if required. These owned response assets include nearly 300 recovery and storage vessels and barges, more than 250 skimmers, over 600,000 feet of boom, 9 capping stacks and significant quantities of dispersants and other ancillary equipment, including aircraft. In addition to external well control and oil spill response support, we have contracts with wildlife, environmental, meteorology, incident management, medical and security resources. If we were to engage these organizations to obtain additional critical response support services, we would fund such services and seek reimbursement under our insurance coverage, as described below. In certain circumstances, we pursue and enter into mutual aid agreements with other companies and government cooperatives to receive and provide oil spill response equipment and personnel support. We maintain close associations with emergency response organizations through our representation on the Executive Committees of CGA and MSRC, as well as the Board of Directors of OSRL.

We continue to participate in a number of industry‑wide task forces that are studying better ways to assess the risk of and prevent onshore and offshore incidents, access and control blowouts in subsea environments, and improve containment and recovery methods. The task forces are working closely with the oil and gas industry and international government agencies to implement improvements and increase the effectiveness of oil spill prevention, preparedness, response and recovery processes.

Insurance Coverage and Indemnification

We maintain insurance coverage that includes coverage for physical damage to our property, third-party liability, workers’ compensation and employers’ liability, general liability, sudden and accidental pollution and other coverage. This insurance coverage is subject to deductibles, exclusions and limitations and there is no assurance that such coverage will adequately protect us against liability from all potential consequences and damages.

The amount of insurance covering physical damage to our property and liability related to negative environmental effects resulting from a sudden and accidental pollution event, excluding Atlantic Named Windstorm coverage for which we are self‑insured, varies by asset, based on the asset's estimated replacement value or the estimated maximum loss. In the case of a catastrophic event, first party coverage consists of two tiers of insurance. The first $400 million of coverage is provided through an industry mutual insurance group. Above this $400 million threshold, insurance is carried which ranges in value up to $3.19 billion in total, depending on the asset coverage level, as described above. Additionally, we carry insurance that provides third-party coverage for general liability, and sudden and accidental pollution, up to $1.08 billion, which coverage under a standard joint operating arrangement would be reduced to our participating interest.

Our insurance policies renew at various dates each year. Future insurance coverage could increase in cost and may include higher deductibles or retentions, or additional exclusions or limitations. In addition, some forms of insurance may become unavailable in the future or unavailable on terms that are deemed economically acceptable.

Generally, our drilling contracts (and most of our other offshore services contracts) provide for a mutual hold harmless indemnity structure whereby each party to the contract (the Corporation and Contractor) indemnifies the other party for injuries or damages to their personnel and property (and, often, those of its contractors/subcontractors) regardless of fault.

Variations may include indemnity exclusions to the extent a claim is attributable to the gross negligence and/or willful misconduct of a party. Third‑party claims, on the other hand, are generally allocated on a fault basis.

We are customarily responsible for, and indemnify the Contractor against, all claims including those from third‑parties, to the extent attributable to pollution or contamination by substances originating from our reservoirs or other property (regardless of cause, including gross negligence and willful misconduct) and the Contractor is responsible for and indemnifies us for all claims attributable to pollution emanating from the Contractor’s property. Additionally, we are generally liable for all of our own losses and most third‑party claims associated with catastrophic losses such as damage to reservoirs, blowouts, cratering and loss of hole, regardless of cause, although exceptions for losses attributable to gross negligence and/or willful misconduct do exist. Lastly, some offshore services contracts include overall limitations of the Contractor’s liability equal to the value of the contract or a fixed amount.

Under a standard joint operating agreement (JOA), each party is liable for all claims arising under the JOA, to the extent of its participating interest (operator or non-operator). Variations include indemnity exclusions when the claim is based upon the gross negligence and/or willful misconduct of the operator, in which case the operator is solely liable. The parties to the JOA may continue to be jointly and severally liable for claims made by third-parties in some jurisdictions. Further, under some production sharing contracts between a governmental entity and commercial parties, liability of the commercial parties to the government entity is joint and several.

Environmental

Compliance with various existing environmental and pollution control regulations imposed by federal, state, local and foreign governments is not expected to have a material adverse effect on our financial condition or results of operations but increasingly stringent environmental regulations have resulted and will likely continue to result in higher capital expenditures and operating expenses for us and the oil and gas industry in general. We spent approximately $10 million in 2016 for environmental remediation. The level of other expenditures to comply with federal, state, local and foreign country environmental regulations is difficult to quantify as such costs are captured as mostly indistinguishable components of our capital expenditures and operating expenses. For further discussion of environmental matters see Environment, Health and Safety in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Number of Employees

At December 31, 2016, we had 2,304 employees.

Website Access to Our Reports

We make available free of charge through our website at www.hess.com, our annual report on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. The information on our website is not incorporated by reference in this report. Our Code of Business Conduct and Ethics, Corporate Governance Guidelines, and the charters for the Audit Committee, Compensation and Management Development Committee, and Corporate Governance and Nominating Committee of the Board of Directors are available on our website and are also available free of charge upon request to Investor Relations at our principal executive office. We also file with the New York Stock Exchange (NYSE) an annual certification that our Chief Executive Officer is unaware of any violation of the NYSE’s corporate governance standards.

HES - Hess Corporation