Hess 2008 Annual Report Download - page 85

Download and view the complete annual report

Please find page 85 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

The following table presents the fair values at December 31 of financial instruments and derivatives used in
non-trading and trading activities:
2008 2007
(Millions of dollars,
asset (liability))
Futures and forwards
Assets ..................................................... $ 1,047 $ 431
Liabilities ................................................... (314) (215)
Options
Held ...................................................... 518 508
Written .................................................... (637) (277)
Swaps
Assets ..................................................... 1,488 473
Liabilities (including hedging contracts) . . . ......................... (3,528) (3,377)
The carrying amounts of the Corporation’s financial instruments and derivatives, including those used in the
Corporation’s non-trading and trading activities, generally approximate their fair values at December 31, 2008 and
2007, except fixed rate long-term debt which had a carrying value of $3,103 million and a fair value of
$3,031 million at December 31, 2008 and a carrying value of $3,124 million and a fair value of
$3,407 million at December 31, 2007.
The Corporation offsets cash collateral received or paid against the fair value of its derivative instruments
executed with the same counterparty. At December 31, 2008 and 2007, the Corporation is holding cash from
counterparties of approximately $705 million and $393 million, respectively. The Corporation has posted cash to
counterparties at December 31, 2008 and 2007 of approximately $394 million and $380 million, respectively.
Credit Risks: The Corporation’s financial instruments expose it to credit risks and may at times be
concentrated with certain counterparties or groups of counterparties. Trade receivables in the Exploration and
Production and Marketing and Refining businesses are generated from a diverse domestic and international
customer base. The Corporation continuously monitors counterparty concentration and credit risk. The Corporation
reduces its risk related to certain counterparties by using master netting agreements and requiring collateral,
generally cash or letters of credit.
15. Fair Value Measurements
The Corporation adopted the provisions of FAS 157 effective January 1, 2008 (see Note 1, “Summary of
Significant Accounting Policies”). FAS 157 establishes a hierarchy for the inputs used to measure fair value based
on the source of the input, which generally range from quoted prices for identical instruments in a principal trading
market (Level 1) to estimates determined using related market data (Level 3). Multiple inputs may be used to
measure fair value, however, the level of fair value for each financial asset or liability presented below is based on
the lowest significant input level within this fair value hierarchy. The following table provides the fair value
hierarchy of the Corporation’s financial assets and (liabilities) as of December 31, 2008 (in millions):
Level 1 Level 2 Level 3
Collateral and
Counterparty
Netting Total
Supplemental pension plan investments .... $ 55 $ — $ 10 $ — $ 65
Derivative contracts
Assets . .......................... 449 1,795 695 (1,023) 1,916
Liabilities ........................ (397) (3,413) (555) 712 (3,653)
69
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)