Hess 2000 Annual Report Download - page 35

33
Depreciation, Depletion and Amortization: Depreciation,
depletion and amortization of oil and gas production
equipment, properties and wells are determined on the
unit-of-production method based on estimated recover-
able oil and gas reserves. Depreciation of all other plant
and equipment is determined on the straight-line method
based on estimated useful lives.
The estimated costs of dismantlement, restoration and
abandonment, less estimated salvage values, of offshore
oil and gas production platforms and certain other facili-
ties are taken into account in determining depreciation.
Retirement of Property, Plant and Equipment: Costs of prop-
erty, plant and equipment retired or otherwise disposed
of, less accumulated reserves, are reflected in net income.
Impairment of Long-Lived Assets: The Corporation reviews
long-lived assets, including oil and gas properties, for
impairment whenever events or changes in circumstances
indicate that the carrying amounts may not be recovered.
If the carrying amounts are not expected to be recovered
by undiscounted future cash flows, the assets are impaired
and an impairment loss is recorded. The amount of
impairment is based on the estimated fair value of the
assets determined by discounting anticipated future net
cash flows. The net present value of future cash flows is
based on the Corporation’s estimates, including future oil
and gas prices applied to projected production profiles,
discounted at a rate commensurate with the risks
involved. Oil and gas prices used for determining asset
impairments may differ from those used at year-end in the
standardized measure of discounted future net cash flows.
Provisions for impairment of undeveloped oil and gas
leases are based on periodic evaluations and other factors.
Maintenance and Repairs: The estimated costs of major
maintenance, including turnarounds at the Port Reading
refining facility, are accrued. Other expenditures for
maintenance and repairs are charged against income
as incurred. Renewals and improvements are treated as
additions to property, plant and equipment, and items
replaced are treated as retirements.
Environmental Expenditures: The Corporation capitalizes
environmental expenditures that increase the life or
efficiency of property or that reduce or prevent environ-
mental contamination. The Corporation accrues for
environmental expenses resulting from existing condi-
tions related to past operations when the future costs are
probable and reasonably estimable.
Employee Stock Options and Nonvested Common Stock Awards:
The Corporation uses the intrinsic value method
to account for employee stock options. Because the exer-
cise prices of employee stock options equal or exceed the
market price of the stock on the date of grant, the Corpora-
tion does not recognize compensation expense. The Cor-
poration records compensation expense for nonvested
common stock awards ratably over the vesting period.
Foreign Currency Translation: The U.S. dollar is the functional
currency (primary currency in which business is con-
ducted) for most foreign operations. For these operations,
adjustments resulting from translating foreign currency
assets and liabilities into U.S. dollars are recorded in
income. For operations that use the local currency as the
functional currency, adjustments resulting from translat-
ing foreign functional currency assets and liabilities into
U.S. dollars are recorded in a separate component of
stockholders’ equity entitled “Accumulated other compre-
hensive income.” Gains or losses resulting from transac-
tions in other than the functional currency are reflected in
net income.
Hedging: The Corporation uses futures, forwards, options
and swaps to hedge the effects of fluctuations in the prices
of crude oil, natural gas and refined products and changes
in interest rates and foreign currency values. These trans-
actions meet the requirements for hedge accounting,
including designation and correlation. The resulting gains
or losses, measured by quoted market prices, termination
values or other methods, are accounted for as part of the
transactions being hedged, except that losses not expected
to be recovered upon the completion of hedged transac-
tions are expensed. On the balance sheet, deferred gains
and losses are included in current assets and liabilities.
Trading: Energy trading activities are marked to market,
with gains and losses recorded in operating revenue.