Well costs incurred and expensed

PART I - FINANCIAL INFORMATION (CONT’D.)HESS CORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES 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 our consolidated financial position at September 30, 2022 and December 31, 2021, the consolidated results of operations for the three and nine months ended September 30, 2022 and 2021, and consolidated cash flows for the nine months ended September 30, 2022 and 2021.  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 generally accepted accounting principles (GAAP) in the United States 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 Annual Report on Form 10-K for the year ended December 31, 2021. 2.  InventoriesInventories consisted of the following:

|  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |
|  | September 30,2022 |  | December 31,2021 |
|  |  |  |  |
|   | (In millions) |
| Crude oil and natural gas liquids | $ | 96  |  |  | $ | 52  |  |
| Materials and supplies | 182  |  |  | 171  |  |
| Total Inventories | $ | 278  |  |  | $ | 223  |  |

3.  Property, Plant and EquipmentCapitalized Exploratory Well Costs:  The following table discloses the net changes in capitalized exploratory well costs pending determination of proved reserves during the nine months ended September 30, 2022 (in millions):  


|  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |
| Balance at January 1, 2022 | $ | 681  |  |
| Additions to capitalized exploratory well costs pending the determination of proved reserves | 267  |  |
| Reclassifications to wells, facilities and equipment based on the determination of proved reserves | (93) |  |
| Balance at September 30, 2022 | $ | 855  |  |

The preceding table excludes well costs of $19 million incurred and expensed during the first nine months of 2022. Additions to capitalized exploratory well costs pending the determination of proved reserves are related to wells drilled on the Stabroek Block (Hess 30%), offshore Guyana, the Huron-1 well (Hess 40%) in the Gulf of Mexico, and the Zanderij-1 well on Block 42 (Hess 33%), offshore Suriname. Reclassifications to wells, facilities and equipment based on the determination of proved reserves resulted from the sanction of the Yellowtail Field development project, the fourth sanctioned project on the Stabroek Block. At September 30, 2022, exploratory well costs capitalized for greater than one year following completion of drilling of $497 million was comprised of the following:Guyana: Approximately 90% of the capitalized well costs in excess of one year relate to successful exploration wells where hydrocarbons were encountered on the Stabroek Block.  The operator plans further appraisal drilling on the Block and is conducting pre-development planning for additional phases of development.Joint Development Area (JDA):  Approximately 8% of the capitalized well costs in excess of one year relates to the JDA (Hess 50%) in the Gulf of Thailand, where hydrocarbons were encountered in three successful exploration wells drilled in the western part of Block A-18. The operator has submitted a development plan concept to the regulator to facilitate ongoing commercial negotiations for an extension of the existing gas sales contract to include development of the western part of the Block.Malaysia:  Approximately 2% of the capitalized well costs in excess of one year relate to the North Malay Basin (Hess 50%), offshore Peninsular Malaysia, where hydrocarbons were encountered in one successful exploration well.  Subsurface evaluation and pre-development studies are ongoing.7
