Hess 2014 Annual Report Download - page 60

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45 45
Financial Risk Management Activities
Financial risk management activities include transactions designed to reduce risk in the selling prices of crude oil or natural gas
produced by the Corporation or to reduce exposure to foreign currency or interest rate movements. Generally, futures, swaps or
option strategies may be used to reduce risk in the selling price of a portion of the Corporation’s crude oil or natural gas
production. Forward contracts may also be used to purchase certain currencies in which the Corporation does business with the
intent of reducing exposure to foreign currency fluctuations. Interest rate swaps may also be used, generally to convert fixed-rate
interest payments to floating.
The Corporation has outstanding foreign exchange contracts used to reduce its exposure to fluctuating foreign exchange rates
for various currencies. The change in fair value of foreign exchange contracts from a 10% weakening of the U.S. Dollar
exchange rate is estimated to be a loss of approximately $120 million at December 31, 2014.
The Corporation’s outstanding long-term debt of $5,987 million, including current maturities, had a fair value of
$7,003 million at December 31, 2014. A 15% decrease in the rate of interest would increase the fair value of debt by
approximately $485 million at December 31, 2014. A 15% increase in the rate of interest would decrease the fair value of debt by
approximately $430 million at December 31, 2014.
Following is the value at risk for the Corporation’s financial risk management commodity derivatives activities associated with
continuing operations, excluding foreign exchange and interest rate derivatives described above:
2014 2013
(In millions)
At December 31 .................................................................................................................................... $
—
$ 13
Average ................................................................................................................................................ 827
High ..................................................................................................................................................... 15 44
Low ......................................................................................................................................................
—
13
Trading Activities
Trading activities were conducted through the energy trading joint venture HETCO, which generated earnings through various
strategies primarily using energy related commodities, securities and derivatives.
Following is the value at risk for the Corporation’s trading activities:
2014 2013
(In millions)
At December 31 .................................................................................................................................... $3
$4
Average ................................................................................................................................................ 54
High ...................................................................................................................................................... 65
Low ....................................................................................................................................................... 33
The information that follows represents 100% of the trading joint venture. Derivative trading transactions are
marked-to-market and unrealized gains or losses are recognized currently in earnings. Gains or losses from sales of physical
products are recorded at the time of sale. Net realized gains on trading activities amounted to $551 million in 2014 and
$191 million in 2013. The following table summarizes the related unrealized net gains and losses for financial instruments and
derivative commodity contracts, and includes an assessment of the factors affecting the changes in fair value of net assets
(liabilities):
2014 2013
(In millions)
Fair value of contracts outstanding at January 1 ................................................................................... $ (161) $ (96)
Change in fair value of contracts outstanding at the beginning of the year and
still outstanding at the end of the year .............................................................................................. (79) 10
Reversal of fair value for contracts closed during the year ................................................................... 130 10
Fair value of contracts entered into during the year and still outstanding ............................................. (312) (85)
Fair value of contracts outstanding at December 31 .........................................................................$ (422) $ (161)