In Hess’ day-to-day business operations, we rely on suppliers and contractors to provide key goods and services and perform essential tasks. These companies are critical to our success and our ability to maximize the efficiency of operations while minimizing operational risks. In 2019, we purchased approximately $3.7 billion in commercial goods and services from approximately 3,000 suppliers, whose workhours comprised more than 70% of our total workforce hours.
We work collaboratively with our suppliers to improve performance and create shared value. We jointly review processes, procedures and data with many suppliers to help drive the right actions and foster continuous improvement. For example, we continue to work with suppliers to implement Lean principles across our assets. Through Lean, we are finding new ways to integrate our efforts to create win–win solutions that eliminate waste and improve efficiencies. As part of that effort, we work with suppliers to develop standardized approaches – including standardized work instructions and material requirements – with the objective of improving work efficiency and quality.
While this section describes our general approach to engagement with our suppliers, these practices may differ in certain instances, if necessary, to comply with applicable local laws and requirements or if otherwise appropriate.
We continue to enhance our capabilities to understand the market and strategically manage our suppliers with cross-functional teams that work collaboratively to reach safety, quality, delivery and cost targets. Using this approach, our Category Management team members – together with critical organizational functions such as operations, engineering and finance – work to create efficiencies while also building long term, strategic relationships with key suppliers.
Our Procurement Policy specifies who should participate in the evaluation of tenders, management of contracts and ongoing procurement of goods and services. It also includes code of ethics and conflict of interest guidelines and states that employees who violate the Procurement Policy are subject to disciplinary actions. A central goal of our supply chain management system, including our Procurement Policy, is to help ensure that suppliers understand and abide by our high ethical, safety and other performance standards, while helping us avoid unexpected commitments and leverage our spend more effectively.
Hess follows a standardized approach to evaluate and measure the performance of key potential and current suppliers on the basis of total value, including safety, quality, delivery and cost. We have a centralized global system in place that houses contract templates and other key materials and manages the procurement process. We also use a central global electronic sourcing system to collect bids and evaluate suppliers. This system supports the efficient creation of online Requests for Proposals and encourages the use of best practices.
We employ a systematic prequalification and selection process to help ensure we are working with qualified and safe suppliers. Prospective suppliers are given a scope of work and environment, health and safety (EHS) expectations during the sourcing phase. Where appropriate, potential suppliers – as determined by a risk-based decision matrix – undergo a risk review; an anti-bribery, anti-corruption and legal compliance review; and a review of EHS performance and programs. In addition, our procurement staff reviews, where appropriate, the potential suppliers’ insurance, tax and quality information. If discrepancies with our applicable requirements arise, the relevant function within Hess conducts an additional review and develops mitigation plans, as needed.
Contracts that involve higher risk, due to factors such as the number of workhours or the scope of work, are subject to an EHS review during the procurement process that covers training qualifications, safety programs and performance, environmental management systems and measurement, and emergency preparedness and response, among other topics. As one part of the EHS review, we use recognized industry prequalification systems for our areas of operation in the U.S. and Europe. In Malaysia, we use a standardized process with a questionnaire based on the 14 HOMS elements.
Potential suppliers receive a grade based on this review, and where the grade does not meet our requirements, the supplier must develop an improvement plan before they can contract with Hess. Should an operational situation occur (such as an emergency) that requires the use of a supplier that has not completed the prequalification process or that has received an unsatisfactory grade, the asset vice president or director must approve the use of the supplier, and asset management must provide increased oversight.
At our operated assets, we perform periodic assessments of suppliers and help them develop improvement plans, if we find any gaps in their EHS processes or performance.
We are working to improve how we integrate and collaborate with our supplier base, so that we can plan more effectively, sense and respond more quickly to performance issues and eliminate waste and inefficiency across the value chain. For example, we have been utilizing Hess 360, a collaboration and visibility platform that integrates multiple systems, helping to reduce inefficiency through interconnected work flows and enabling proactive and integrated discussions with our key suppliers about performance gaps and innovation opportunities.
Supply Chain Transparency and Compliance
The companies that supply Hess with goods and services must comply with all applicable laws and regulations, including in areas such as EHS, conflicts of interest and anti-corruption, and must maintain any applicable licensing or permitting requirements for their activities. Suppliers are also required to meet the expectations set forth in our Code of Business Conduct and Ethics and Hess’ Voluntary Commitments regarding labor and human rights. Standard contract clauses include requirements with respect to ethical business practices, human rights, social responsibility, business integrity, search and seizure, EHS and quality of materials and services. In addition, clauses that cover federal contractor requirements are included in our domestic contract templates for suppliers. Contracts typically also include a requirement for suppliers to cooperate with all audits and inspections.
For activities deemed as high risk, we utilize tools such as bridging documents to address potential gaps between the supplier’s EHS management system and Hess’ EHS requirements.
Our Code of Business Conduct and Ethics prohibits the use of local military or law enforcement personnel for activities in furtherance of our operations except where required by local authorities or in emergency situations. If the use of local military or law enforcement personnel is unavoidable, asset managers are required to seek prior approval from Hess’ Legal and Global Security functions.
In operating locations where security services are necessary, we contract for these services locally with support from our Global Security and Global Supply Chain functions. Contracts with security service providers include clauses covering security and human rights expectations. These clauses detail our requirements that security providers adhere to applicable international law enforcement principles, humanitarian law and human rights law. They also require our security service providers to communicate our human rights, social responsibility and ethical expectations to their employees and subcontractors, as well as demonstrate compliance. The aim of these clauses is to deliver a consistent message of performance expectations for security service providers across Hess’ operations. These expectations are detailed in our enterprisewide Security and Human Rights Policy and reaffirmed in our Security and Human Rights Toolkit, which can be used locally for training security personnel on human rights issues.
In the event of a security incident with human rights implications, a report is made to the head of Global Security. Reports are also issued for those occurrences, such as peaceful community protests, that highlight potential future risk to our operations. We are not aware of any Hess-related incidents where public or private security forces engaged community members in 2019, and no incident reports of this nature were filed. Global Security continues to utilize Hess’ incident management system for reporting of security incidents.
Internationally we often prioritize local suppliers when performing under production-sharing contracts or other agreements with host countries. These agreements vary by country, but may include use of an approved supplier list, requirements for government approval of suppliers or threshold specifications for local companies or workers.
In Malaysia, for example, we use an approved vendor list that includes Malaysian-owned companies, and we also require our suppliers to prioritize hiring local staff. Hess’ joint venture in Guyana also seeks to employ local nationals and support local suppliers. Since launching operations in Guyana in 2017, the joint venture has invested $4.4 million in supplier development, technical and vocational education and economic development, much of it with a focus on building local suppliers’ ability to obtain work in the oil and gas sector or broader economy. Through the Centre for Local Business Development, this investment has supported nearly 40 supplier forums and more than 500 business assessments to ascertain the strengths and weaknesses of Guyanese firms; helped register more than 2,000 Guyanese businesses for access to opportunities through the Supplier Registration Portal; and conducted almost 3,000 training days covering procurement, the fundamentals of offshore oil and gas, supply chain management, financial management and human resource management.
Supplier Engagement and Sustainability
Hess continues to engage with suppliers on issues that are important to our industry and our stakeholders. Since 2009, we have worked with current and prospective suppliers of hydraulic fracturing services to define acceptable fracturing fluid systems, including restrictions on the selection and use of certain chemicals. Subject to the limited exceptions described in this paragraph, we require suppliers to publish fracturing fluid chemical composition and quantities via the FracFocus website. While the majority of chemicals are identified by unique identification numbers issued by the Chemical Abstracts Service (CAS) and are listed on the publicly available CAS Registry, we allow our suppliers to use generic names for proprietary ingredients. Our suppliers’ reporting, through FracFocus or otherwise, may therefore exclude details on chemicals protected by claims of confidential business information by our suppliers. Our close relationships with strategic suppliers and monitoring of the market also help mitigate risks of inferior chemicals being used for hydraulic fracturing activities.
See more on Hess’ expectations and requirements for suppliers at suppliers.hess.com