Hess 2000 Annual Report Download - page 27

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The Corporation uses foreign exchange contracts to
reduce its exposure to fluctuating foreign exchange rates,
principally the pound sterling. At December 31, 2000, the
Corporation has $438 million of notional value foreign
exchange contracts ($865 million at December 31, 1999).
Generally, the Corporation uses these foreign exchange
contracts to fix the exchange rate on net monetary liabili-
ties of its North Sea operations. The change in fair value of
the foreign exchange contracts from a 10% change in the
exchange rate is estimated to be $40 million at December
31, 2000 ($90 million at December 31, 1999). During the
fourth quarter of 2000, the Corporation purchased signifi-
cant amounts of sterling foreign exchange contracts in
anticipation of the proposed acquisition of another oil
company. As discussed earlier, these contracts were sold
before the end of the year, resulting in a special, after-tax
gain of $53 million.
Environment and Safety
Improvement in environmental and safety performance
continues to be a goal of the Corporation. The Corporation’s
awareness of its environmental responsibilities and envi-
ronmental regulations at the federal, state and local levels
have led to programs on energy conservation, pollution
control and waste minimization and treatment. To ensure
that the Corporation meets its goals and the requirements
of regulatory authorities, the Corporation also has pro-
grams for compliance evaluation, facility auditing and
employee training to monitor operational activities. The
trend toward environmental performance improvement
raises the Corporation’s operating costs and requires
increased capital investments.
The Port Reading refining facility and the HOVENSA
refinery presently produce gasolines that meet or exceed
the current United States requirements for conventional
and reformulated gasolines, including the requirements for
reformulated gasolines that took effect in 2000 which fur-
ther mandated decreases in emissions of volatile and toxic
organic compounds. In addition, the HOVENSA refinery
has desulfurization capabilities enabling it to produce low-
sulfur diesel fuel. However, regulatory changes already
made or anticipated in the United States will alter the com-
position and emissions characteristics of motor fuels.
The regulation of motor fuels in the United States and else-
where continues to be an area of considerable change and
will require large capital expenditures in future years. In
December 1999, the United States Environmental Protection
Agency (“EPA”) adopted rules that phase in limitations on
the sulfur content of gasoline beginning in 2004. In Decem-
ber 2000, EPA adopted regulations to substantially reduce
the allowable sulfur content of diesel fuel by 2006. EPA is
also considering restrictions or a prohibition on the use of
MTBE, a gasoline additive that is produced by Port Reading
and HOVENSA and is used primarily to meet United States
regulations requiring oxygenation of reformulated gaso-
lines. California and several other states have already
adopted a ban on MTBE use beginning in 2003.
The Corporation and HOVENSA are reviewing options to
determine the most cost effective compliance strategies
for these fuel regulations. The costs to comply will
depend on a variety of factors, including the availability
of suitable technology and contractors, the outcome of
anticipated litigation regarding the diesel sulfur rule and
whether the minimum oxygen content requirement for
reformulated gasoline remains in place if MTBE is
banned. Other fuel regulations are also under considera-
tion which could result in additional capital expendi-
tures. Future capital expenditures necessary to comply
with these regulations may be substantial.
Corporate programs and improved equipment and tech-
nologies have reduced the number and size of spills
requiring remediation. However, the Corporation expects
continuing expenditures for environmental assessment
and remediation related primarily to existing conditions.
Sites where corrective action may be necessary include
gasoline stations, terminals, onshore exploration and pro-
duction facilities, refineries (including solid waste man-
agement units under permits issued pursuant to the
Resource Conservation and Recovery Act) and, although
not significant, “Superfund” sites where the Corporation
has been named a potentially responsible party. The Cor-
poration expects that existing reserves for environmental
liabilities will adequately cover costs to assess and reme-
diate known sites.
The Corporation expended $7 million in 2000, $8 million
in 1999 and $9 million in 1998 for remediation. In addi-
tion, capital expenditures for facilities, primarily to com-
ply with federal, state and local environmental standards,
were $5 million in 2000, $2 million in 1999 and $4 million
in 1998.