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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.
14
13. Debt
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.
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