This excerpt taken from the MRO 10-Q filed May 8, 2009.
Concentration of Credit Risk
All of our derivative instruments involve elements of credit and market risk. The most significant portion of our credit risk relates to counterparty performance. We are exposed to potential losses in the event of non-performance by counterparties. The counterparties to our derivative instruments consist primarily of major financial institutions and companies within the energy industry. To manage counterparty risk associated with these derivatives instruments, we select and monitor counterparties based on credit ratings and our assessment of their financial strength. Additionally, we limit the level of exposure with any single counterparty.
At March 31, 2009, we had no borrowings against our revolving credit facility and no commercial paper outstanding under our U.S. commercial paper program that is backed by the revolving credit facility.
On February 17, 2009, we issued $700 million aggregate principal amount of senior notes bearing interest at 6.5 percent with a maturity date of February 15, 2014 and $800 million aggregate principal amount of senior notes bearing interest at 7.5 percent with a maturity date of February 15, 2019. Interest on both issues is payable semi-annually beginning August 15, 2009.
14. Commitments and Contingencies
We are the subject of, or party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment. The ultimate resolution of these contingencies could, individually or in the aggregate, be material to our consolidated financial statements. However, management believes that we will remain a viable and competitive enterprise even though it is possible that these contingencies could be resolved unfavorably. Certain of our commitments and contingencies are discussed below.
We settled a number of lawsuits pertaining to methyl tertiary-butyl ether (“MTBE”) in 2008. Presently, we are a defendant, along with other refining companies, in 13 cases arising in three states alleging damages for MTBE contamination. We have also received 4 Toxic Substances Control Act notice letters involving potential claims in two states. Such notice letters are often followed by litigation. Like the cases that were settled in 2008, the remaining MTBE cases are consolidated in a multi-district litigation (“MDL”) in the Southern District of New York for pretrial proceedings. Twelve of the remaining cases allege damages to water supply wells, similar to the damages claimed in the settled cases. In the other remaining case, the State of New Jersey is seeking natural resources damages allegedly resulting from contamination of groundwater by MTBE. This is the only MTBE contamination case in which we are a defendant and natural resources damages are sought. Eight cases were dismissed from the MDL and 7 of those 8 cases, along with 3 new cases, have been re-filed in state courts (Nassau and Suffolk Counties, New York), however, we have not been served. We are vigorously defending these cases. We, along with a number of other defendants, have engaged in settlement discussions related to the majority of the cases in which we are a defendant. We do not expect our share of liability, if any, for the remaining cases to significantly impact our consolidated results of operations, financial position or cash flows. We voluntarily discontinued producing MTBE in 2002.
We are currently a party in two qui tam cases, which allege that federal and Indian leases violated the False Claims Act with respect to the reporting and payment of royalties on natural gas and natural gas liquids. A qui tam action is an action in which the relator files suit on behalf of himself as well as the federal government. One case is U.S. ex rel Harrold E. Wright v. Agip Petroleum Co. et al which is primarily a gas valuation case. A settlement agreement has been reached, but not yet finalized. Such settlement is not expected to significantly impact our consolidated results of operations, financial position or cash flows. The other case is U.S. ex rel Jack Grynberg v. Alaska Pipeline, et al. involving allegations of natural gas measurement. This case was dismissed by the trial court and the dismissal has been affirmed by the 10th Circuit Court of Appeals. The relator is expected to file an appeal to the U.S. Supreme Court. The outcome of this case is not expected to significantly impact our consolidated results of operations, financial position or cash flows.
A lawsuit filed in the U.S. District Court for the Southern District of West Virginia alleges that our Catlettsburg, Kentucky, refinery distributed contaminated gasoline to wholesalers and retailers for a period prior to August, 2003, causing permanent damage to storage tanks, dispensers and related equipment, resulting in lost profits, business disruption and personal and real property damages. Following the incident, we conducted remediation operations at affected facilities. Class action certification was granted in August 2007. We have entered into a settlement of this case. The proposed settlement will not significantly impact our consolidated results of operations, financial position or cash flows.