Hess 1999 Annual Report Download - page 35

Depreciation, Deplet ion and Amort izat ion: Depreciation,
depletion and amortization of oil and gas production equip-
ment, properties and wells are determined on the unit-of-pro-
duction method based on estimated recoverable oil and gas
reserves. Depreciation of all other plant and equipment is
determined on the straight-line method based on estimated
useful lives.
The estimated costs of dismantlement, restoration and
abandonment, less estimated salvage values, of offshore oil
and gas production platforms and certain other facilities are
taken into account in determining depreciation.
Retirement of Property, Plant and Equipment: Costs of prop-
erty, plant and equipment retired or otherwise disposed of,
less accumulated reserves, are reflected in net income.
Impairment of Long-Lived Asset s: The Corporation reviews
long-lived assets, including oil and gas properties, for impair-
ment whenever events or changes in circumstances indicate
that the carrying amounts may not be recovered. If the
carrying amounts are not expected to be recovered by undis-
counted future cash flows, the assets are impaired and an
impairment loss is recorded. The amount of impairment is
based on the estimated fair value of the assets determined by
discounting anticipated future net cash flows. The net present
value of future cash flows is based on the Corporation’s esti-
mates, including future oil and gas prices applied to projected
production profiles, discounted at a rate commensurate with
the risks involved. Oil and gas prices used for determining
asset impairments may differ from those used at year-end in
the standardized measure of discounted future net cash flows.
Provisions for impairment of undeveloped oil and gas
leases are based on periodic evaluations and other factors.
Maintenance and Repairs: The estimated costs of major
maintenance, including turnarounds at the Port Reading
refining facility, are accrued. Other expenditures for mainte-
nance and repairs are charged against income as incurred.
Renewals and improvements are treated as additions to
property, plant and equipment, and items replaced are treated
as retirements.
Environment al Expenditures: The Corporation capitalizes
environmental expenditures that increase the life or efficiency
of property or that reduce or prevent environmental contami-
nation. The Corporation accrues for environmental expenses
resulting from existing conditions related to past operations
when the future costs are probable and reasonably estimable.
Employee Stock Options and Nonvest ed Common St ock
Awards: The Corporation uses the intrinsic value method
to account for employee stock options. Because the exercise
prices of employee stock options equal or exceed the market
price of the stock on the date of grant, the Corporation does
not recognize compensation expense. The Corporation
records compensation expense for nonvested common stock
awards ratably over the vesting period.
Foreign Currency Translat ion: The U.S. dollar is the functional
currency (primary currency in which business is conducted)
for most foreign operations. For these operations, adjustments
resulting from translating foreign currency assets and liabili-
ties into U.S. dollars are recorded in income. For operations
that use the local currency as the functional currency, adjust-
ments resulting from translating foreign functional currency
assets and liabilities into U.S. dollars are recorded in a separate
component of stockholders’ equity entitled “Accumulated
other comprehensive income.” Gains or losses resulting from
transactions in other than the functional currency are
reflected in net income.
Hedging: The Corporation uses futures, forwards, options
and swaps to hedge the effects of fluctuations in the prices of
crude oil, natural gas and refined products and changes in
interest rates and foreign currency values. These transactions
meet the requirements for hedge accounting, including desig-
nation and correlation. The resulting gains or losses, mea-
sured by quoted market prices, termination values or other
methods, are accounted for as part of the transactions being
hedged, except that losses not expected to be recovered upon
the completion of hedged transactions are expensed. On the
balance sheet, deferred gains and losses are included in cur-
rent assets and liabilities.
Trading: Commodity trading activities are marked to market,
with gains and losses recorded in operating revenue.
33