Hess 2011 Annual Report Download - page 40

Item 1A. Risk Factors Related to Our Business and Operations
Our business activities and the value of our securities are subject to significant risk factors, including those
described below. The risk factors described below could negatively affect our operations, financial condition,
liquidity and results of operations, and as a result, holders and purchasers of our securities could lose part or all
of their investments. It is possible that additional risks relating to our securities may be described in a prospectus
supplement if we issue securities in the future.
Our business and operating results are highly dependent on the market prices of crude oil, natural
gas, refined petroleum products and electricity, which can be very volatile. Our estimated proved reserves,
revenue, operating cash flows, operating margins, future earnings and trading operations are highly dependent on
the prices of crude oil, natural gas, refined petroleum products and electricity, which are volatile and influenced
by numerous factors beyond our control. Changes in commodity prices can also have a material impact on
collateral and margin requirements under our derivative contracts. The major foreign oil producing countries,
including members of the Organization of Petroleum Exporting Countries (OPEC), exert considerable influence
over the supply and price of crude oil and refined petroleum products. Their ability or inability to agree on a
common policy on rates of production and other matters has a significant impact on the oil markets. The
commodities trading markets as well as other supply and demand factors may also influence the selling prices of
crude oil, natural gas, refined petroleum products and electricity. To the extent that we engage in hedging
activities to mitigate commodity price volatility, we may not realize the benefit of price increases above the
hedged price. In order to manage the potential volatility of cash flows and credit requirements, the Corporation
utilizes significant bank credit facilities. An inability to renew or replace such credit facilities or access other
sources of funding as they mature would negatively impact our liquidity.
If we fail to successfully increase our reserves, our future crude oil and natural gas production will be
adversely impacted. We own or have access to a finite amount of oil and gas reserves which will be depleted
over time. Replacement of oil and gas production and reserves, including proved undeveloped reserves, is subject
to successful exploration drilling, development activities, and enhanced recovery programs. Therefore, future oil
and gas production is dependent on technical success in finding and developing additional hydrocarbon reserves.
Exploration activity involves the interpretation of seismic and other geological and geophysical data, which does
not always successfully predict the presence of commercial quantities of hydrocarbons. Drilling risks include
unexpected adverse conditions, irregularities in pressure or formations, equipment failure, blowouts and weather
interruptions. Future developments may be affected by unforeseen reservoir conditions which negatively affect
recovery factors or flow rates. The costs of drilling and development activities have increased in recent years
which could negatively affect expected economic returns. Reserve replacement can also be achieved through
acquisition. Although due diligence is used in evaluating acquired oil and gas properties, similar risks may be
encountered in the production of oil and gas on properties acquired from others.
There are inherent uncertainties in estimating quantities of proved reserves and discounted future net
cash flow, and actual quantities may be lower than estimated. Numerous uncertainties exist in estimating
quantities of proved reserves and future net revenues from those reserves. Actual future production, oil and gas
prices, revenues, taxes, capital expenditures, operating expenses, and quantities of recoverable oil and gas
reserves may vary substantially from those assumed in the estimates and could materially affect the estimated
quantities of our proved reserves and the related future net revenues. In addition, reserve estimates may be
subject to downward or upward changes based on production performance, purchases or sales of properties,
results of future development, prevailing oil and gas prices, production sharing contracts, which may decrease
reserves as crude oil and natural gas prices increase, and other factors.
We are subject to changing laws and regulations and other governmental actions that can
significantly and adversely affect our business. Federal, state, local, territorial and foreign laws and
regulations relating to tax increases and retroactive tax claims, disallowance of tax credits and deductions,
expropriation or nationalization of property, mandatory government participation, cancellation or amendment of
contract rights, and changes in import and export regulations, limitations on access to exploration and
development opportunities, as well as other political developments may affect our operations. The Dodd-Frank
Wall Street Reform Act, enacted in 2010, delegated rulemaking responsibilities to carry out the Act to various
U.S. government agencies. Our business could potentially be adversely impacted by one or more of the final
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