Hess 2011 Annual Report Download - page 107

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
shut down its refinery, which was announced in January 2012, HOVENSA believes that it will not be required to
make material capital expenditures pursuant to this consent decree. The Corporation believes that it will also
enter into a consent decree with the EPA in the near future to resolve these matters as they relate to its Port
Reading refinery facility, which is not expected to have a material adverse impact on the financial condition,
results of operations or cash flows of the Corporation. In addition, many states and localities are adopting
requirements that mandate a low sulfur content of fuel oils and restrict the types of fuel sold within their
jurisdictions. These proposals could require capital expenditures by the Corporation for its Port Reading refining
facility to meet the required sulfur content standards or other changes in the marketing of fuel oils and affect the
profitability of that facility.
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
deepwater production in Federal Outer Continental Shelf lands. The Act does not impose any price thresholds in
order to qualify for the royalty relief. The U.S. Minerals Management Service (MMS, predecessor to the Bureau
of Ocean Energy Management, Regulation and Enforcement) created regulations that included pricing
requirements to qualify for the royalty relief provided in the Act. During the period from 2003 to 2009, the
Corporation accrued the royalties imposed by the MMS regulations. The legality of the thresholds imposed by
the MMS was challenged in the federal courts and, in October 2009, the U.S. Supreme Court decided not to
review the appellate court’s decision against the MMS. As a result, the Corporation recognized a pre-tax gain of
$143 million ($89 million after income taxes) in 2009 to reverse all previously recorded royalties. The pre-tax
gain is reported in Other, net in the Statement of Consolidated Income.
The Corporation is from time to time involved in other judicial and administrative proceedings, including
proceedings relating to other environmental matters. The Corporation cannot predict with certainty if, how or
when such proceedings will be resolved or what the eventual relief, if any, may be, particularly for proceedings
that are in their early stages of development or where plaintiffs seek indeterminate damages. Numerous issues
may need to be resolved, including through potentially lengthy discovery and determination of important factual
matters before a loss or range of loss can be reasonably estimated for any proceeding. Subject to the foregoing, in
management’s opinion, based upon currently known facts and circumstances, the outcome of such proceedings is
not expected to have a material adverse effect on the financial condition, results of operations or cash flows of
the Corporation.
19. Segment Information
The Corporation has two operating segments that comprise the structure used by senior management to
make key operating decisions and assess performance. These are (1) Exploration and Production and
(2) Marketing and Refining. The Exploration and Production segment explores for, develops, produces,
purchases, transports and sells crude oil and natural gas. The Marketing and Refining segment manufactures
refined petroleum products and purchases, markets and trades refined petroleum products, natural gas and
electricity.
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