Hess 2008 Annual Report Download - page 68

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required conditional asset retirement obligations is recorded if the liability can be reasonably estimated. The
Corporation capitalizes the associated asset retirement costs as part of the carrying amount of the long-lived assets.
Impairment of Long-Lived Assets: The Corporation reviews long-lived assets 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 generally determined by
discounting anticipated future net cash flows. In the case of oil and gas fields, the net present value of future cash
flows is based on management’s best estimate of future prices, which is determined with reference to recent
historical prices and published forward prices, applied to projected production volumes and discounted at a risk-
adjusted rate. The projected production volumes represent reserves, including probable reserves, expected to be
produced based on a stipulated amount of capital expenditures. The production volumes, prices and timing of
production are consistent with internal projections and other externally reported information. Oil and gas prices
used for determining asset impairments will generally differ from the year-end prices used in the standardized
measure of discounted future net cash flows.
Impairment of Equity Investees: The Corporation reviews equity method investments for impairment
whenever events or changes in circumstances indicate that an other than temporary decline in value has occurred.
The amount of the impairment is based on quoted market prices, where available, or other valuation techniques.
Impairment of Goodwill: In accordance with FAS 142, Goodwill and Other Intangible Assets, goodwill is
not amortized; however, it is tested for impairment annually in the fourth quarter or when events or changes in
circumstances indicate that the carrying amount of the goodwill may not be recoverable. This impairment test is
calculated at the reporting unit level, which for the Corporation’s goodwill is the Exploration and Production
operating segment. The Corporation identifies potential impairments by comparing the fair value of the reporting
unit to its book value, including goodwill. If the fair value of the reporting unit exceeds the carrying amount,
goodwill is not impaired. If the carrying value exceeds the fair value, the Corporation calculates the possible
impairment loss by comparing the implied fair value of goodwill with the carrying amount. If the implied fair value
of goodwill is less than the carrying amount, an impairment would be recorded.
Maintenance and Repairs: Maintenance and repairs are expensed as incurred, including costs of refinery
turnarounds. Capital improvements are recorded as additions in property, plant and equipment.
Effective January 1, 2007, the Corporation adopted Financial Accounting Standards Board (FASB) Staff
Position (FSP) AUG AIR-1, Accounting for Planned Major Maintenance Activities. This FSP eliminated the
previously acceptable accrue-in-advance method of accounting for planned major maintenance. As required, the
Corporation retrospectively applied the provisions of this FSP which resulted in a change of its method of
accounting to recognize expenses associated with refinery turnarounds when such costs are incurred. The impact of
adopting this FSP increased previously reported 2006 earnings by $4 million ($.01 per diluted share). All prior
period amounts in the consolidated financial statements and accompanying notes reflect this retrospective
accounting change.
Environmental Expenditures: The Corporation accrues and expenses environmental costs to remediate
existing conditions related to past operations when the future costs are probable and reasonably estimable. The
Corporation capitalizes environmental expenditures that increase the life or efficiency of property or that reduce or
prevent future adverse impacts to the environment.
Share-Based Compensation: The fair value of all share-based compensation is expensed and recognized on
a straight-line basis over the vesting period of the awards in accordance with FAS 123R, Share-Based Payment,
which was adopted on January 1, 2006.
Income Taxes: Deferred income taxes are determined using the liability method. The Corporation regularly
assesses the realizability of deferred tax assets, based on estimates of future taxable income, the availability of tax
52
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)