Hess 2014 Annual Report Download - page 29

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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
that additional risks relating to our securities may be described in a prospectus supplement if we issue securities in the future.
Our business and operating results are highly dependent on the market prices of crude oil, natural gas liquids and
natural gas, which can be very volatile. Our estimated proved reserves, revenue, operating cash flows, operating margins,
and future earnings are highly dependent on the prices of crude oil, natural gas liquids and natural gas, which are volatile and
influenced by numerous factors beyond our control. 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. In the fourth quarter of 2014, prices for Brent crude oil and West Texas
Intermediate crude oil declined by approximately 40% to end the year at $57 per barrel and $53 per barrel, respectively. If
crude oil prices remain at these levels for the remainder of 2015, there will be a significant decrease in 2015 revenues, and
earnings from 2014 levels. We cannot predict how long these lower price levels will continue to prevail. The commodities
trading markets as well as other supply and demand factors may also influence the selling prices of crude oil, natural gas
liquids and natural gas. 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 collateral and margin requirements under our derivative contracts. In order to manage the potential volatility of cash
flows and credit requirements, the Corporation maintains significant bank credit facilities. An inability to renew or replace
such credit facilities or access other sources of funding as they mature would negatively impact our liquidity. In addition, we
are exposed to risks related to changes in interest rates and foreign currency values, and may engage in hedging activities to
mitigate related volatility.
If we fail to successfully increase our reserves, our future crude oil and natural gas production will be adversely
impacted. 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 production and reserves, including proved undeveloped reserves, is subject to successful exploration drilling,
development activities, and enhanced recovery programs. 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. Reserve replacement can also be
achieved through acquisition. Similar risks, however, may be encountered in the production of oil and gas on properties
acquired from others. In addition to the technical risks to reserve replacement, replacing reserves and developing future
production is also influenced by the price of crude oil and natural gas. Persistent lower crude oil and natural gas prices, such
as those currently prevailing, may have the effect of reducing capital available for exploration and development activity and
may render certain development projects uneconomic or delay their completion and may result in negative revisions to
existing reserves.
There are inherent uncertainties in estimating quantities of proved reserves and discounted future net cash flows,
and actual quantities may be lower than estimated. 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, and quantities of recoverable oil and gas reserves may vary substantially from those
assumed in the estimates and could materially affect the estimated quantities of our proved reserves and the related future net
revenues. In addition, reserve estimates may be subject to downward or upward changes 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. Crude oil prices declined
significantly in the fourth quarter of 2014. See Crude Oil and Natural Gas Reserves in Critical Accounting Policies and
Estimates in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.
We do not always control decisions made under joint operating agreements and the partners under such
agreements may fail to meet their obligations. We conduct many of our exploration and production operations through
joint operating agreements with other parties under which we may not control decisions, either because we do not have a
controlling interest or are not operator under the agreement. There is risk that these parties may at any time have economic,