Baker Hughes 2010 Annual Report Download - page 88

6 B a k e r H u g h e s I n c o r p o r a t e d
ENVIRONMENTAL MATTERS
We are committed to the health and safety of people, pro-
tection of the environment and compliance with laws, regula-
tions and our policies. Our past and present operations include
activities that are subject to domestic (including U.S. federal,
state and local) and international regulations with regard to
air and water quality and other environmental matters. We
believe we are in substantial compliance with these regula-
tions. Regulation in this area continues to evolve, and changes
in standards of enforcement of existing regulations, as well
as the enactment and enforcement of new legislation, may
require us and our customers to modify, supplement or replace
equipment or facilities or to change or discontinue present
methods of operation.
We are involved in voluntary remediation projects at some
of our present and former manufacturing locations or other
facilities, the majority of which relate to properties obtained
in acquisitions or to sites no longer actively used in operations.
On rare occasions, remediation activities are conducted as
specified by a government agency-issued consent decree or
agreed order. Estimated remediation costs are accrued using
currently available facts, existing environmental permits, tech-
nology and presently enacted laws and regulations. For sites
where we are primarily responsible for the remediation, our
cost estimates are developed based on internal evaluations
and are not discounted. We record accruals when it is proba-
ble that we will be obligated to pay amounts for environmen-
tal site evaluation, remediation or related activities, and such
amounts can be reasonably estimated. In general, we seek to
accrue costs for the most likely scenario, where known. Accru-
als are recorded even if significant uncertainties exist over the
ultimate cost of the remediation. Ongoing environmental com-
pliance costs, such as obtaining environmental permits, instal-
lation of pollution control equipment and waste disposal, are
expensed as incurred.
The Comprehensive Environmental Response, Compensa-
tion and Liability Act (known as “Superfund” or “CERCLA”)
imposes liability for the release of a “hazardous substance”
into the environment. Superfund liability is imposed without
regard to fault, even if the waste disposal was in compliance
with laws and regulations. The United States Environmental
Protection Agency (the “EPA”) and appropriate state agencies
supervise investigative and cleanup activities at Superfund sites.
We have been identified as a potentially responsible party
(“PRP”) in remedial activities related to various Superfund sites,
and we accrue our share of the estimated remediation costs of
the site based on the ratio of the estimated volume of waste
we contributed to the site to the total volume of waste dis-
posed at the site. PRPs in Superfund actions have joint and
several liability for all costs of remediation. Accordingly, a PRP
may be required to pay more than its proportional share of
such costs. For some projects, it is not possible to quantify our
ultimate exposure because the projects are either in the inves-
tigative or early remediation stage, or allocation information
is not yet available. However, based upon current information,
we do not believe that probable or reasonably possible expen-
ditures in connection with the sites are likely to have a mate-
rial adverse effect on our consolidated financial statements
because we have recorded adequate reserves to cover the esti-
mate we presently believe will be our ultimate liability in the
matter. Further, other PRPs involved in the sites have substan-
tial assets and may reasonably be expected to pay their share
of the cost of remediation, and, in some circumstances, we
have insurance coverage or contractual indemnities from third
parties to cover a portion of the ultimate liability.
Based upon current information, we believe that our over-
all compliance with environmental regulations including rou-
tine environmental compliance costs and capital expenditures
for environmental control equipment will not have a material
adverse effect upon our capital expenditures, earnings or com-
petitive position because we have either established adequate
reserves or our cost for that compliance is not expected to be
material to our consolidated financial statements. Our total
accrual for environmental remediation is $32 million and
$18 million, which includes accruals of $7 million and $6 million
for the various Superfund sites, at December 31, 2010 and
2009, respectively. Approximately $11 million of our total envi-
ronmental accrual at December 31, 2010 relates to properties or
liabilities acquired in connection with the BJ Services acquisition.
We are subject to various other governmental proceedings
and regulations, including foreign regulations, relating to envi-
ronmental matters, but we do not believe that any of these
matters is likely to have a material adverse effect on our con-
solidated financial statements. We continue to focus on reduc-
ing future environmental liabilities by maintaining appropriate
company standards and improving our assurance programs.
ITEM 1A. RISK FACTORS
An investment in our common stock involves various risks.
When considering an investment in our Company, one should
consider carefully all of the risk factors described below, as well
as other information included and incorporated by reference in
this report. There may be additional risks, uncertainties and mat-
ters not listed below, that we are unaware of, or that we cur-
rently consider immaterial. Any of these could adversely affect
our business, financial condition, results of operations and cash
flows and, thus, the value of an investment in our Company.
Risk Factors Related to the Worldwide Oil and
Natural Gas Industry
Our business is focused on providing products and services
to the worldwide oil and natural gas industry; therefore, our
risk factors include those factors that impact, either positively
or negatively, the markets for oil and natural gas. Expenditures
by our customers for exploration, development and production
of oil and natural gas are based on their expectations of future
hydrocarbon demand, the risks associated with developing the
reserves, their ability to finance exploration for and develop-
ment of reserves, and the future value of the reserves. Their
evaluation of the future value is based, in part, on their expec-
tations for global demand, global supply, excess production
capacity, inventory levels, and other factors that influence oil
and natural gas prices. The key risk factors we believe are cur-
rently influencing the worldwide oil and natural gas markets
are discussed below.