Hess 2000 Annual Report Download - page 34

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1. Summary of Significant Accounting Policies
Nature of Business: Amerada Hess Corporation and sub-
sidiaries (the “Corporation”) engage in the exploration for
and the production, purchase, transportation and sale of
crude oil and natural gas. These activities are conducted
primarily in the United States, United Kingdom, Norway,
Denmark and Gabon. The Corporation also has oil and gas
activities in Algeria, Azerbaijan, Indonesia, Thailand,
Brazil and other countries. In addition, the Corporation
manufactures, purchases, transports, trades and markets
refined petroleum and other energy products. The Corpo-
ration owns 50% of HOVENSA L.L.C., a refinery joint
venture in the United States Virgin Islands. An additional
refining facility, terminals and retail gasoline stations are
located on the East Coast of the United States.
In preparing financial statements, management makes
estimates and assumptions that affect the reported
amounts of assets and liabilities in the balance sheet and
revenues and expenses in the income statement. Actual
results could differ from those estimates. Among the esti-
mates made by management are: oil and gas reserves,
asset valuations and depreciable lives, pension liabilities,
environmental obligations, dismantlement costs and
income taxes.
Principles of Consolidation: The consolidated financial
statements include the accounts of Amerada Hess Corpo-
ration and subsidiaries. The Corporation’s interests in
oil and gas exploration and production ventures are
proportionately consolidated.
Investments in affiliated companies, 20% to 50% owned,
including HOVENSA, the Corporation’s refining joint
venture, are stated at cost of acquisition plus the Corpora-
tion’s equity in undistributed net income since acquisi-
tion, except as stated below. The change in the equity
in net income of these companies is included in non-
operating income in the income statement. The Corpora-
tion consolidates a trading partnership in which it owns a
50% voting interest and over which it exercises control.
Intercompany transactions and accounts are eliminated
in consolidation.
Revenue Recognition: The Corporation recognizes revenues
from the sale of crude oil, natural gas, petroleum products
and other merchandise when title passes to the customer.
The Corporation recognizes revenues from the production
of natural gas properties in which it has an interest based
on sales to customers. Differences between natural gas
volumes sold and the Corporation’s share of natural gas
production are not material.
Cash and Cash Equivalents: Cash equivalents consist of
highly liquid investments, which are readily convertible
into cash and have maturities of three months or less.
Inventories: Crude oil and refined product inventories are
valued at the lower of cost or market, except for invento-
ries held for trading purposes which are marked to mar-
ket. For inventories valued at cost, the Corporation uses
principally the last-in, first-out inventory method.
Inventories of materials and supplies are valued at or
below cost.
Exploration and Development Costs: Oil and gas exploration
and production activities are accounted for using the suc-
cessful efforts method. Costs of acquiring undeveloped oil
and gas leasehold acreage, including lease bonuses, bro-
kers’ fees and other related costs, are capitalized.
Annual lease rentals and exploration expenses, including
geological and geophysical expenses and exploratory dry
hole costs, are charged against income as incurred.
Costs of drilling and equipping productive wells, includ-
ing development dry holes, and related production
facilities are capitalized.
The Corporation does not carry the capitalized costs of
exploratory wells as assets for more than one year, unless
oil and gas reserves are found and classified as proved,
or additional exploration is underway or planned. If
exploratory wells do not meet these conditions, the costs
are charged to expense.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amerada Hess Corporation and Consolidated Subsidiaries