Hess 2008 Annual Report Download - page 55

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Value-at-Risk: The Corporation uses value-at-risk to monitor and control commodity risk within its trading
and non-trading activities. The value-at-risk model uses historical simulation and the results represent the potential
loss in fair value over one day at a 95% confidence level. The model captures both first and second order sensitivities
for options. The following table summarizes the value-at-risk results for trading and non-trading activities. These
results may vary from time to time as strategies change in trading activities or hedging levels change in non-trading
activities.
Trading
Activities
Non-trading
Activities
(Millions of dollars)
2008
At December 31 ........................................... $17 $ 13
Average .................................................. 13 90
High .................................................... 17 140
Low .................................................... 11 13
2007
At December 31 ........................................... $10 $ 72
Average .................................................. 12 63
High .................................................... 13 72
Low .................................................... 10 54
Non-trading: The Corporation’s non-trading activities may include hedging of crude oil and natural gas
production. Futures and swaps are used to fix the selling prices of a portion of the Corporation’s future production
and the related gains or losses are an integral part of the Corporation’s selling prices. In October 2008, the
Corporation closed its Brent crude oil hedge positions by entering into offsetting contracts with the same
counterparty covering 24,000 barrels per day from 2009 through 2012 at a per barrel price of $86.95 each
year. The after-tax deferred losses related to closed crude oil contracts will be recorded in earnings as the contracts
mature.
There were no hedges of WTI crude oil or natural gas production at December 31, 2008. The Corporation also
markets energy commodities including refined petroleum products, natural gas and electricity. The Corporation
uses futures, swaps and options to manage the risk in its marketing activities. Accumulated other comprehensive
income (loss) at December 31, 2008 includes after-tax deferred losses of $1,478 million primarily related to closed
crude oil contracts that were used as hedges of exploration and production sales.
The Corporation uses foreign exchange contracts to reduce its exposure to fluctuating foreign exchange rates
by entering into forward contracts for various currencies including the British pound, the Norwegian krone and the
Danish krone. At December 31, 2008, the Corporation had $896 million of notional value foreign exchange
contracts maturing in 2009. The fair value of the foreign exchange contracts was a payable of $75 million at
December 31, 2008. The change in fair value of the foreign exchange contracts from a 20% change in exchange
rates is estimated to be approximately $165 million at December 31, 2008.
The Corporation’s outstanding debt of $3,955 million has a fair value of $3,883 million at December 31, 2008.
A 15% decrease in the rate of interest would increase the fair value of debt by approximately $85 million at
December 31, 2008.
Trading: In trading activities, the Corporation is primarily exposed to changes in crude oil, natural gas and
refined product prices. The trading partnership in which the Corporation has a 50% voting interest trades energy
commodities, securities and derivatives. The accounts of the partnership are consolidated with those of the
Corporation. The Corporation also takes trading positions for its own account. The information that follows
represents 100% of the trading partnership and the Corporation’s proprietary trading accounts.
39