Hess 2014 Annual Report Download - page 95

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HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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Gains or losses on foreign exchange contracts that are not designated as hedges are recognized immediately in Other, net in
Revenues and non-operating income in the Statement of Consolidated Income.
Net realized and unrealized pre-tax gains (losses) on derivative contracts used in Corporate Risk Management activities and not
designated as hedges amounted to the following:
2014 2013 2012
(In millions)
Commodity .................................................................................................................................. $— $ — $ 1
Foreign exchange ......................................................................................................................... 117 (39) 43
Total ........................................................................................................................................ $ 117 $ (39) $ 44
Trading Activities: The energy trading joint venture generated earnings through various strategies primarily using energy-related
commodities, securities and derivatives. The information that follows represents 100% of the energy trading joint venture as well as
the Corporation’s proprietary trading activities, which ceased in 2013.
The gross volumes of derivative contracts outstanding related to trading activities at December 31, were as follows:
2014 2013
Commodity
Crude oil and refined petroleum products (millions of barrels) .................................................................. 1,396 1,815
Natural gas (millions of mcf) ...................................................................................................................... 2,224 2,735
Electricity (millions of megawatt hours) ..................................................................................................... 1 1
Foreign exchange (millions of USD) ...............................................................................................................
$ 77 $ 52
Interest rate (millions of USD) ................................................................................................................... $ 29 $ —
Equity securities (millions of shares) .......................................................................................................... 5 11
Pre-tax unrealized and realized gains (losses) recorded in the Statement of Consolidated Income from trading activities amounted
to the following:
2014 2013 2012
(In millions)
Commodity .................................................................................................................................. $ 168 $ 78 $ 104
Foreign exchange ......................................................................................................................... 2 — 3
Other ............................................................................................................................................ 32 1 10
Total * ..................................................................................................................................... $ 202 $ 79 $ 117
* The unrealized pre-tax gains and losses included in earnings were reflected in Income from discontinued operations in the Statement of Consolidated Income.
Fair Value Measurements: The Corporation generally enters into master netting arrangements to mitigate legal and counterparty
credit risk. Master netting arrangements are generally accepted overarching master contracts that govern all individual transactions
with the same counterparty entity as a single legally enforceable agreement. The U.S. Bankruptcy Code provides for the enforcement
of certain termination and netting rights under certain types of contracts upon the bankruptcy filing of a counterparty, commonly
known as the “safe harbor” provisions. If a master netting arrangement provides for termination and netting upon the counterparty’s
bankruptcy, these rights are generally enforceable with respect to “safe harbor” transactions. If these arrangements provide the right
of offset and the Corporation’s intent and practice is to offset amounts in the case of such a termination, the Corporation’s policy is to
record the fair value of derivative assets and liabilities on a net basis.
In the normal course of business the Corporation relies on legal and credit risk mitigation clauses providing for adequate credit
assurance as well as close-out netting, including two-party netting and single counterparty multilateral netting. As applied to the
Corporation, “two-party netting” is the right to net amounts owing under safe harbor transactions between a single defaulting
counterparty entity and a single Hess entity, and “single counterparty multilateral netting” is the right to net amounts owing under safe
harbor transactions among a single defaulting counterparty entity and multiple Hess entities. The Corporation is reasonably assured
that these netting rights would be upheld in a bankruptcy proceeding in the U.S. in which the defaulting counterparty is a debtor under
the U.S. Bankruptcy Code.