Hess 2008 Annual Report Download - page 87

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the remaining interest in WilcoHess, a retail gasoline station joint venture. As of December 31, 2008, the estimated
value of the purchase obligation is approximately $175 million.
The Corporation is subject to loss contingencies with respect to various lawsuits, claims and other proceedings,
including environmental matters. A liability is recognized in the Corporation’s consolidated financial statements
when it is probable a loss has been incurred and the amount can be reasonably estimated. If the risk of loss is
probable, but the amount cannot be reasonably estimated or the risk of loss is only reasonably possible, a liability is
not accrued; however, the Corporation discloses the nature of those contingencies in accordance with FAS 5,
Accounting for Contingencies.
The Corporation, along with many other companies engaged in refining and marketing of gasoline, has been a
party to lawsuits and claims related to the use of methyl tertiary butyl ether (MTBE) in gasoline. A series of similar
lawsuits, many involving water utilities or governmental entities, were filed in jurisdictions across the United States
against producers of MTBE and petroleum refiners who produce gasoline containing MTBE, including the
Corporation. While the majority of the cases were settled in 2008, the Corporation remains a defendant in
approximately 20 cases. These cases have been consolidated for pre-trial purposes in the Southern District of New
York as part of a multi-district litigation proceeding, with the exception of an action brought in state court by the
State of New Hampshire. The principal allegation in all cases is that gasoline containing MTBE is a defective
product and that these parties are strictly liable in proportion to their share of the gasoline market for damage to
groundwater resources and are required to take remedial action to ameliorate the alleged effects on the environment
of releases of MTBE. The damages claimed in these actions are substantial and in almost all cases, punitive
damages are also sought. In the fourth quarter 2007, the Corporation recorded a pre-tax charge of $40 million
related to MTBE litigation, including amounts for the cases settled in 2008.
Over the last several years, many refiners have entered into consent agreements to resolve the United States
Environmental Protection Agency’s (EPA) assertions that refining facilities were modified or expanded without
complying with New Source Review regulations that require permits and new emission controls in certain
circumstances and other regulations that impose emissions control requirements. These consent agreements,
which arise out of an EPA enforcement initiative focusing on petroleum refiners and utilities, have typically
imposed substantial civil fines and penalties and required (i) significant capital expenditures to install emissions
control equipment over a three to eight year time period and (ii) changes to operations which resulted in increased
operating costs. The capital expenditures, penalties and supplemental environmental projects for individual
refineries covered by the settlements can vary significantly, depending on the size and configuration of the
refinery, the circumstances of the alleged modifications and whether the refinery has previously installed more
advanced pollution controls. EPA initially contacted the Corporation and HOVENSA regarding the Petroleum
Refinery Initiative in August 2003. Negotiations with EPA and the relevant states and the Virgin Islands are
continuing and substantial progress has been made toward resolving this matter for both the Corporation and
HOVENSA. While the effect on the Corporation of the Petroleum Refining Initiative cannot be estimated until a
final settlement is reached and entered by a court, additional future capital expenditures and operating expenses will
likely be incurred over a number of years. The amount of penalties, if any, is not expected to be material to the
Corporation.
The United States Deep Water Royalty Relief Act of 1995 (the act) implemented a royalty relief program that
relieves eligible leases issued between November 28, 1995 and November 28, 2000 from paying royalties on deep-
water production in Federal Outer Continental Shelf lands. Some of the Corporation’s leases in the Gulf of Mexico
qualify for royalty relief under the act. The act is silent on satisfying any price thresholds in order to qualify for the
royalty relief. The U.S. Minerals Management Service (MMS) created regulations that included pricing
requirements to qualify for the royalty relief provided in the act. The legality of the thresholds determined by
the MMS has been challenged in federal courts. On January 12, 2009, the U.S. 5th Circuit Court of Appeals ruled
against the MMS, which has until March 30, 2009 to seek a rehearing by the 5th Circuit Court and until April to seek
71
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)