Hess 2008 Annual Report Download - page 28

Environmental Risk: Our oil and gas operations, like those of the industry, are subject to environmental risk
such as oil spills, produced water spills, gas leaks and ruptures and discharges of substances or gases that could
expose us to substantial liability for pollution or other environmental damage. Our operations are also subject to
numerous United States federal, state, local and foreign environmental laws and regulations. Non-compliance with
these laws and regulations may subject us to administrative, civil or criminal penalties, remedial clean-ups and
natural resource damages or other liabilities. In addition, increasingly stringent environmental regulations,
particularly relating to the production of motor and other fuels and the potential for controls on greenhouse
gas emissions, have resulted, and will likely continue to result, in higher capital expenditures and operating
expenses for us and the oil and gas industry in general.
Competitive Risk: The petroleum industry is highly competitive and very capital intensive. We encounter
competition from numerous companies in each of our activities, including acquiring rights to explore for crude oil
and natural gas, and in purchasing and marketing of refined products and natural gas. Many competitors, including
national oil companies, are larger and have substantially greater resources. We are also in competition with
producers and marketers of other forms of energy. Increased competition for worldwide oil and gas assets has
significantly increased the cost of acquisitions. In addition, competition for drilling services, technical expertise and
equipment has affected the availability of technical personnel and drilling rigs and has increased capital and
operating costs.
Catastrophic Risk: Although we maintain a level of insurance coverage consistent with industry practices
against property and casualty losses, our oil and gas operations are subject to unforeseen occurrences which may
damage or destroy assets or interrupt operations. Examples of catastrophic risks include hurricanes, fires,
explosions and blowouts. These occurrences have affected us from time to time. During 2008, our annual Gulf
of Mexico production of crude oil and natural gas was reduced by an estimated 7,000 boepd due to the impact of
Hurricanes Ike and Gustav.
Item 3. Legal Proceedings
The Registrant, along with many other companies engaged in refining and marketing of gasoline, has been a
party to lawsuits and claims related to the use of methyl tertiary butyl ether (MTBE) in gasoline. A series of similar
lawsuits, many involving water utilities or governmental entities, were filed in jurisdictions across the United States
against producers of MTBE and petroleum refiners who produced gasoline containing MTBE, including the
Registrant. While the majority of the cases were settled in 2008, the Registrant remains a defendant in
approximately 20 cases. These cases have been consolidated for pre-trial purposes in the Southern District of
New York as part of a multi-district litigation proceeding, with the exception of an action brought in state court by
the State of New Hampshire. The principal allegation in all cases is that gasoline containing MTBE is a defective
product and that these parties are strictly liable in proportion to their share of the gasoline market for damage to
groundwater resources and are required to take remedial action to ameliorate the alleged effects on the environment
of releases of MTBE. The damages claimed in these actions are substantial and in almost all cases, punitive
damages are also sought. In the fourth quarter 2007, the Corporation recorded a pre-tax charge of $40 million
related to MTBE litigation, including amounts for the cases settled in 2008.
Over the last several years, many refiners have entered into consent agreements to resolve the United States
Environmental Protection Agency’s (EPA) assertions that refining facilities were modified or expanded without
complying with New Source Review regulations that require permits and new emission controls in certain
circumstances and other regulations that impose emissions control requirements. These consent agreements,
which arise out of an EPA enforcement initiative focusing on petroleum refiners and utilities, have typically
imposed substantial civil fines and penalties and required (i) significant capital expenditures to install emissions
control equipment over a three to eight year time period and (ii) changes to operations which resulted in increased
operating costs. The capital expenditures, penalties and supplemental environmental projects for individual
refineries covered by the settlements can vary significantly, depending on the size and configuration of the
refinery, the circumstances of the alleged modifications and whether the refinery has previously installed more
advanced pollution controls. EPA initially contacted Registrant and HOVENSA regarding the Petroleum Refinery
Initiative in August 2003. Negotiations with EPA and the relevant states and the Virgin Islands are continuing and
substantial progress has been made toward resolving this matter for both the Corporation and HOVENSA. While
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