Hess 2008 Annual Report Download - page 48

purchased and related prices and at December 31, 2008 amounted to $78 million. In addition, the Corporation has
agreed to provide funding up to a maximum of $15 million to the extent HOVENSA does not have funds to meet its
senior debt obligations.
The Corporation is contingently liable under letters of credit and under guarantees of the debt of other entities
directly related to its business, as follows:
Total
(Millions of
dollars)
Letters of credit....................................................... $126
Guarantees .......................................................... 93
$219
Off-Balance Sheet Arrangements
The Corporation has leveraged leases not included in its balance sheet, primarily related to retail gasoline
stations that the Corporation operates. The net present value of these leases is $491 million at December 31, 2008
compared with $493 million at December 31, 2007. The Corporation’s December 31, 2008 debt to capitalization
ratio would increase from 24.3% to 26.5% if these leases were included as debt.
See also Note 4, “Refining Joint Venture,” and Note 16, “Guarantees and Contingencies,” in the notes to the
financial statements.
Foreign Operations
The Corporation conducts exploration and production activities principally in Algeria, Australia, Azerbaijan,
Brazil, Denmark, Egypt, Equatorial Guinea, Gabon, Ghana, Indonesia, Libya, Malaysia, Norway, Peru, Russia,
Thailand, the United Kingdom and the United States. Therefore, the Corporation is subject to the risks associated
with foreign operations, including political risk, tax law changes, and currency risk.
HOVENSA owns and operates a refinery in the United States Virgin Islands. In 2002, there was a political
disruption in Venezuela that reduced the availability of Venezuelan crude oil used in refining operations; however,
this disruption did not have a material adverse effect on the Corporation’s financial position.
See also Item 1A. Risk Factors Related to Our Business and Operations.
Accounting Policies
Critical Accounting Policies and Estimates
Accounting policies and estimates affect the recognition of assets and liabilities on the Corporation’s balance
sheet and revenues and expenses on the income statement. The accounting methods used can affect net income,
stockholders’ equity and various financial statement ratios. However, the Corporation’s accounting policies
generally do not change cash flows or liquidity.
Accounting for Exploration and Development Costs: Exploration and production activities are accounted
for using the successful efforts method. Costs of acquiring unproved and proved oil and gas leasehold acreage,
including lease bonuses, brokers’ fees and other related costs, are capitalized. Annual lease rentals, exploration
expenses and exploratory dry hole costs are expensed as incurred. Costs of drilling and equipping productive wells,
including development dry holes, and related production facilities are capitalized.
The costs of exploratory wells that find oil and gas reserves are capitalized pending determination of whether
proved reserves have been found. Exploratory drilling costs remain capitalized after drilling is completed if (1) the
well has found a sufficient quantity of reserves to justify completion as a producing well and (2) sufficient progress
is being made in assessing the reserves and the economic and operating viability of the project. If either of those
criteria is not met, or if there is substantial doubt about the economic or operational viability of the project, the
32