Hess 2008 Annual Report Download - page 27

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 additional risks relating to our securities may be described in a prospectus
supplement if we issue securities in the future.
Commodity Price Risk: 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 and refined
petroleum products, which are influenced by numerous factors beyond our control. Historically these prices have
been very volatile and most recently have been adversely affected by falling demand caused by the global economic
downturn. 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 may also influence the selling prices
of crude oil, natural gas and refined petroleum products. If crude oil and natural gas prices remain at year-end 2008
levels, our revenues, profitability and cash flow will be lower in 2009 compared with 2008. In addition, if crude oil
and natural gas prices decline further from year-end 2008 levels, it could result in a reduction in the carrying value
of our oil and gas assets, proved oil and gas reserves, deferred tax assets and goodwill. 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. Changes in commodity prices can also have a material impact on margin requirements under our
derivative contracts.
Technical Risk: 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 reserves is subject to successful exploration drilling, development activities, and
enhanced recovery programs. Reserve replacement can also be achieved through acquisition. 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. Although due diligence is used in evaluating acquired oil and
gas properties, similar uncertainties may be encountered in the production of oil and gas on properties acquired
from others.
Oil and Gas Reserves and Discounted Future Net Cash Flow Risks: 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, geologic success and quantities of
recoverable oil and gas reserves may vary substantially from those assumed in the estimates and could materially
affect the estimated quantities and future net revenues of our proved reserves. In addition, reserve estimates may be
subject to downward or upward revisions 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.
Political Risk: Federal, state, local, territorial and foreign laws and regulations relating to tax increases and
retroactive tax claims, expropriation or nationalization of property, mandatory government participation,
cancellation or amendment of contract rights, and changes in import regulations, limitations on access to
exploration and development opportunities, as well as other political developments may affect our operations.
Some of the international areas in which we operate are politically less stable than our domestic operations. In
addition, the threat of terrorism around the world poses additional risks to the operations of the oil and gas industry.
In our M&R segment, we market motor fuels through lessee-dealers and wholesalers in certain states where
legislation prohibits producers or refiners of crude oil from directly engaging in retail marketing of motor fuels.
Similar legislation has been periodically proposed in the U.S. Congress and in various other states.
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