Hess 2008 Annual Report Download - page 84

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Operating lease expenses for drilling rigs used to drill development wells and successful exploration wells are
capitalized.
Rental expense was as follows:
2008 2007 2006
(Millions of dollars)
Total rental expense .......................................... $270 $266 $198
Less: income from subleases .................................... 12 13 15
Net rental expense .......................................... $258 $253 $183
The Corporation accrued $30 million in 2006 for vacated leased office space in the United Kingdom. The
related expenses are reflected principally in general and administrative expense in the income statement. The
accrual balance was $16 million at December 31, 2008 and $31 million at December 31, 2007. Payments were
$15 million in 2008 and $15 million in 2007.
14. Financial Instruments, Non-trading and Trading Activities
Non-trading: The Corporation uses futures, forwards, options and swaps, individually or in combination to
mitigate its exposure to fluctuations in the prices of crude oil, natural gas, refined products and electricity and
changes in foreign currency exchange rates. Hedging activities decreased Exploration and Production revenues by
$685 million in 2008, $399 million in 2007 and $449 million in 2006. The amount of hedge ineffectiveness gains
(losses) reflected in revenue in 2008, 2007 and 2006 was $(13) million, $6 million and $(5) million respectively.
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 deferred after-tax losses related to the closed crude oil contracts will be recorded in
earnings as the contracts mature. The estimated annual after-tax loss from the closed positions will be
approximately $355 million from 2009 through 2012.
Accumulated other comprehensive income (loss) at December 31, 2008 includes after-tax deferred losses of
$1,478 million ($1,672 at December 31, 2007) related to closed crude oil contracts and certain energy marketing
contracts. Approximately $515 million of after-tax deferred losses is expected to be reclassified into earnings in
2009. The pre-tax amount of deferred hedge losses is reflected in accounts payable and the related income tax
benefits are recorded as deferred tax assets on the balance sheet.
Commodity Trading: The Corporation, principally through a consolidated partnership, trades energy
commodities, securities and derivatives including futures, forwards, options and swaps, based on expectations
of future market conditions. The Corporation’s income (loss) before income taxes from trading activities, including
its share of the earnings of the trading partnership, amounted to $(57) million in 2008, $49 million in 2007 and
$83 million in 2006.
Other Financial Instruments: At December 31, 2008, the Corporation has $896 million of notional value
foreign currency forward contracts maturing through 2009 ($977 million at December 31, 2007). Notional amounts
do not quantify risk or represent assets or liabilities of the Corporation, but are used in the calculation of cash
settlements under the contracts. The fair value of the foreign currency forward contracts recorded by the
Corporation were payables of $75 million and $1 million at December 31, 2008 and December 31, 2007,
respectively.
68
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)