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.

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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.

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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

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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.

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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%.

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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.

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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

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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):

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