Hess 2008 Annual Report Download - page 66

Download and view the complete annual report

Please find page 66 of the 2008 Hess annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Business: Hess Corporation and subsidiaries (the Corporation) engage in the exploration for and
the development, production, purchase, transportation and sale of crude oil and natural gas. These activities are
conducted 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. In
addition, the Corporation manufactures, purchases, transports, trades and markets refined petroleum and other
energy products. The Corporation owns 50% of HOVENSA L.L.C. (HOVENSA), a refinery joint venture in the
United States Virgin Islands. An additional refining facility, terminals and retail gasoline stations, most of which
include convenience stores, are located on the East Coast of the United States.
In preparing financial statements in conformity with U.S. generally accepted accounting principles (GAAP),
management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the
balance sheet and revenues and expenses in the income statement. Actual results could differ from those estimates.
Among the estimates made by management are oil and gas reserves, asset valuations, depreciable lives, pension
liabilities, legal and environmental obligations, asset retirement obligations and income taxes.
Principles of Consolidation: The consolidated financial statements include the accounts of Hess
Corporation and entities in which the Corporation owns more than a 50% voting interest or entities that the
Corporation controls. The Corporation’s undivided interests in unincorporated oil and gas exploration and
production ventures are proportionately consolidated.
Investments in affiliated companies, 20% to 50% owned, including HOVENSA, are stated at cost of
acquisition plus the Corporation’s equity in undistributed net income since acquisition. The Corporation
consolidates the trading partnership in which it owns a 50% voting interest and over which it exercises control.
Intercompany transactions and accounts are eliminated in consolidation.
Revenue Recognition: The Corporation recognizes revenues from the sale of crude oil, natural gas,
petroleum products and other merchandise when title passes to the customer. Sales are reported net of excise
and similar taxes in the consolidated statement of income. The Corporation recognizes revenues from the
production of natural gas properties based on sales to customers. Differences between natural gas volumes
sold and the Corporation’s share of natural gas production are not material. Revenues from natural gas and
electricity sales by the Corporation’s marketing operations are recognized based on meter readings and estimated
deliveries to customers since the last meter reading.
In its exploration and production activities, the Corporation enters into crude oil purchase and sale transactions
with the same counterparty that are entered into in contemplation of one another for the primary purpose of
changing location or quality. Similarly, in its marketing activities, the Corporation also enters into refined product
purchase and sale transactions with the same counterparty. These arrangements are reported net in sales and other
operating revenues in the consolidated statement of income.
Derivatives: The Corporation utilizes derivative instruments for both non-trading and trading activities. In
non-trading activities, the Corporation uses futures, forwards, options and swaps, individually or in combination, to
mitigate its exposure to fluctuations in prices of crude oil, natural gas, refined products and electricity, and changes
in foreign currency exchange rates. In trading activities, the Corporation, principally through a consolidated
partnership, trades energy commodities derivatives, including futures, forwards, options and swaps based on
expectations of future market conditions.
All derivative instruments are recorded at fair value in the Corporation’s balance sheet. The Corporation’s
policy for recognizing the changes in fair value of derivatives varies based on the designation of the derivative. The
changes in fair value of derivatives that are not designated as hedges under FAS 133, Accounting for Derivative
Instruments and Hedging Activities, are recognized currently in earnings. Derivatives may be designated as hedges
of expected future cash flows or forecasted transactions (cash flow hedges) or hedges of firm commitments (fair
50