Accounting Policies

12 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

Accounting Policies

Note 1—Accounting Policies

Consolidation Principles and Investments

—Our consolidated financial statements include the accounts of

majority-owned, controlled subsidiaries and, if applicable, variable interest entities where we are the

primary beneficiary. The equity method is used to account for investments in affiliates in which we have

the ability to exert significant influence over the affiliates’ operating and financial policies. When we do

not have the ability to exert significant influence, the investment is measured at fair value except when

the investment does not have a readily determinable fair value. For those exceptions, it will be measured

at cost minus impairment, plus or minus observable price changes in orderly transactions for an identical

or similar investment of the same issuer. Undivided interests in oil and gas joint ventures, pipelines,

natural gas plants and terminals are consolidated on a proportionate basis. Other securities and

investments are generally carried at cost. We manage our operations through

six

 operating segments,

defined by geographic region: Alaska; Lower 48; Canada; Europe, Middle East and North Africa; Asia

Pacific; and Other International.

Foreign Currency Translation

—Adjustments resulting from the process of translating foreign functional

currency financial statements into U.S. dollars are included in accumulated other comprehensive loss in

common stockholders’ equity. Foreign currency transaction gains and losses are included in current

earnings. Some of our foreign operations use their local currency as the functional currency.

Use of Estimates

—The preparation of financial statements in conformity with U.S. GAAP requires

management to make estimates and assumptions that affect the reported amounts of assets, liabilities,

revenues and expenses and the disclosures of contingent assets and liabilities. Actual results could differ

from these estimates.

Revenue Recognition

—Revenues associated with the sales of crude oil, bitumen, natural gas, LNG, NGLs

and other items are recognized at the point in time when the customer obtains control of the asset. In

evaluating when a customer has control of the asset, we primarily consider whether the transfer of legal

title and physical delivery has occurred, whether the customer has significant risks and rewards of

ownership and whether the customer has accepted delivery and a right to payment exists. These

products are typically sold at prevailing market prices. We allocate variable market-based consideration

to deliveries (performance obligations) in the current period as that consideration relates specifically to

our efforts to transfer control of current period deliveries to the customer and represents the amount we

expect to be entitled to in exchange for the related products. 

Payment is typically due within 30 days or

less.

Revenues associated with transactions commonly called buy/sell contracts, in which the purchase and

sale of inventory with the same counterparty are entered into “in contemplation” of one another, are

combined and reported net (i.e., on the same income statement line).

Shipping and Handling Costs

—We typically incur shipping and handling costs prior to control transferring

to the customer and account for these activities as fulfillment costs. Accordingly, we include shipping and

handling costs in production and operating expenses for production activities. Transportation costs

related to marketing activities are recorded in purchased commodities. Freight costs billed to customers

are treated as a component of the transaction price and recorded as a component of revenue when the

customer obtains control.

Cash Equivalents

—Cash equivalents are highly liquid, short-term investments that are readily convertible

to known amounts of cash and have original maturities of 90 days or less from their date of purchase. 

They are carried at cost plus accrued interest, which approximates fair value.

Short-Term Investments

—Short-term investments include investments in bank time deposits and

marketable securities (commercial paper and government obligations) which are carried at cost plus

accrued interest and have original maturities of greater than 90 days but within one year or when the

remaining maturities are within one year. We also invest in financial instruments classified as available

for sale debt securities which are carried at fair value. Those instruments are included in short-term

investments when they have remaining maturities within one year as of the balance sheet date.

Long-Term Investments in Debt Securities

—Long-term investments in debt securities includes financial

instruments classified as available for sale debt securities with remaining maturities greater than one year

as of the balance sheet date. They are carried at fair value and presented within the “Investments and

long-term receivables” line of our consolidated balance sheet.

Inventories

—We have several valuation methods for our various types of inventories and consistently use

the following methods for each type of inventory. The majority of our commodity-related inventories are

recorded at cost using the LIFO basis. We measure these inventories at the lower-of-cost-or-market in

the aggregate. Any necessary lower-of-cost-or-market write-downs at year end are recorded as

permanent adjustments to the LIFO cost basis. LIFO is used to better match current inventory costs with

current revenues. Costs include both direct and indirect expenditures incurred in bringing an item or

product to its existing condition and location, but not unusual/nonrecurring costs or research and

development costs. Materials, supplies and other miscellaneous inventories, such as tubular goods and

well equipment, are valued using various methods, including the weighted-average -cost method and the

FIFO method, consistent with industry practice.

Fair Value Measurements

—Assets and liabilities measured at fair value and required to be categorized

within the fair value hierarchy are categorized into one of three different levels depending on the

observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active

markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices

included within Level 1 for the asset or liability, either directly or indirectly through market -corroborated

inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting significant modifications

to observable related market data or our assumptions about pricing by market participants.

Derivative Instruments

—Derivative instruments are recorded on the balance sheet at fair value. If the

right of offset exists and certain other criteria are met, derivative assets and liabilities with the same

counterparty are netted on the balance sheet and the collateral payable or receivable is netted against

derivative assets and derivative liabilities, respectively.

Recognition and classification of the gain or loss that results from recording and adjusting a derivative to

fair value depends on the purpose for issuing or holding the derivative. Gains and losses from derivatives

not accounted for as hedges are recognized immediately in earnings. We do not apply hedge accounting

to our derivative instruments.

Oil and Gas Exploration and Development

—Oil and gas exploration and development costs are

accounted for using the successful efforts method of accounting.

Property Acquisition Costs

—Oil and gas leasehold acquisition costs are capitalized and included in

the balance sheet caption PP&E. Leasehold impairment is recognized based on exploratory

experience and management’s judgment. Upon achievement of all conditions necessary for reserves

to be classified as proved, the associated leasehold costs are reclassified to proved properties.

Exploratory Costs

—Geological and geophysical costs and the costs of carrying and retaining

undeveloped properties are expensed as incurred. Exploratory well costs are capitalized, or

“suspended,” on the balance sheet pending further evaluation of whether economically recoverable

reserves have been found. If economically recoverable reserves are not found, exploratory well costs

are expensed as dry holes. If exploratory wells encounter potentially economic quantities of oil and

gas, the well costs remain capitalized on the balance sheet as long as sufficient progress assessing the

reserves and the economic and operating viability of the project is being made. For complex

exploratory discoveries, it is not unusual to have exploratory wells remain suspended on the balance

sheet for several years while we perform additional appraisal drilling and seismic work on the

potential oil and gas field or while we seek government or co-venturer approval of development

plans or seek environmental permitting. Once all required approvals and permits have been

obtained, the projects are moved into the development phase, and the oil and gas resources are

designated as proved reserves.

Management reviews suspended well balances quarterly, continuously monitors the results of the

additional appraisal drilling and seismic work, and expenses the suspended well costs as dry holes

when it judges the potential field does not warrant further investment in the near term.

Development Costs

—Costs incurred to drill and equip development wells, including unsuccessful

development wells, are capital ized.

Depletion and Amortization

—Leasehold costs of producing properties are depleted using the unit-of-

production method based on estimated proved oil and gas reserves. Amortization of development

costs is based on the unit-of-production method using estimated proved developed oil and gas

reserves.

Capitalized Interest

—Interest from external borrowings is capitalized on major projects with an expected

construction period of one year or longer. Capitalized interest is added to the cost of the underlying asset

and is amortized over the useful lives of the assets in the same manner as the underlying assets.

Depreciation and Amortization

—Depreciation and amortization of PP&E on producing hydrocarbon

properties and SAGD facilities and certain pipeline and LNG assets (those which are expected to have a

declining utilization pattern), are determined by the unit-of-production method. Depreciation and

amortization of all other PP&E are determined by either the individual-unit-straight-line method or the

group-straight-line method (for those individual units that are highly integrated with other units).

Impairment of Properties, Plants and Equipment

—Long-lived assets used in operations are assessed for

impairment whenever changes in facts and circumstances indicate a possible significant deterioration in

the future cash flows expected to be generated by an asset group. If there is an indication the carrying

amount of an asset may not be recovered, a recoverability test is performed using management’s

assumptions for prices, volumes and future development plans. If the sum of the undiscounted cash

flows before income-taxes is less than the carrying value of the asset group, the carrying value is written

down to estimated fair value and reported as an impairment in the period in which the determination is

made. Individual assets are grouped for impairment purposes at the lowest level for which there are

identifiable cash flows that are largely independent of the cash flows of other groups of assets—generally

on a field-by-field basis for E&P assets. Because there usually is a lack of quoted market prices for long-

lived assets, the fair value of impaired assets is typically determined based on the present values of

expected future cash flows using discount rates and prices believed to be consistent with those used by

principal market participants, or based on a multiple of operating cash flow validated with historical

market transactions of similar assets where possible.

The expected future cash flows used for impairment reviews and related fair value calculations are based

on estimated future production volumes, commodity prices, operating costs and capital decisions,

considering all available evidence at the date of review. The impairment review includes cash flows from

proved developed and undeveloped reserves, including any development expenditures necessary to

achieve that production. Additionally, when probable and possible reserves exist, an appropriate risk-

adjusted amount of these reserves may be included in the impairment calculation.

Long-lived assets committed by management for disposal within one year are accounted for at the lower

of amortized cost or fair value, less cost to sell, with fair value determined using a binding negotiated

price, if available, or present value of expected future cash flows as previously described.

Maintenance and Repairs

—Costs of maintenance and repairs, which are not significant improvements,

are expensed when incurred.

Property Dispositions

—When complete units of depreciable property are sold, the asset cost and related

accumulated depreciation are eliminated, with any gain or loss reflected in the “Gain on dispositions” line

of our consolidated income statement. When partial units of depreciable property are disposed of or

retired which do not significantly alter the DD&A rate, the difference between asset cost and salvage

value is charged or credited to accumulated depreciation.

Asset Retirement Obligations and Environmental Costs

—The

fair value of legal obligations to retire and

remove long-lived assets are recorded in the period in which the obligation is incurred (typically when the

asset is installed at the production location). Fair value is estimated using a present value approach,

incorporating assumptions about estimated amounts and timing of settlements and impacts of the use of

technologies.

Environmental expenditures are expensed or capitalized, depending upon their future economic benefit. 

Expenditures relating to an existing condition caused by past operations, and those having no future

economic benefit, are expensed. Liabilities for environmental expenditures are recorded on an

undiscounted basis (unless acquired through a business combination, which we record on a discounted

basis) when environmental assessments or cleanups are probable and the costs can be reasonably

estimated. Recoveries of environmental remediation costs from other parties are recorded as assets

when their receipt is probable and estimable.

Impairment of Investments in Nonconsolidated Entities

—Investments in nonconsolidated entities are

assessed for impairment whenever changes in the facts and circumstances indicate a loss in value has

occurred. When such a condition is judgmentally determined to be other than temporary, the carrying

value of the investment is written down to fair value. The fair value of the impaired investment is based

on quoted market prices, if available, or upon the present value of expected future cash flows using

discount rates and prices believed to be consistent with those used by principal market participants, plus

market analysis of comparable assets owned by the investee, if appropriate.

Guarantees

—The fair value of a guarantee is determined and recorded as a liability at the time the

guarantee is given. The initial liability is subsequently reduced as we are released from exposure under

the guarantee. We amortize the guarantee liability over the relevant time period, if one exists, based on

the facts and circumstances surrounding each type of guarantee. In cases where the guarantee term is

indefinite, we reverse the liability when we have information indicating the liability is essentially relieved

or amortize it over an appropriate time period as the fair value of our guarantee exposure declines over

time. We amortize the guarantee liability to the related income statement line item based on the nature

of the guarantee. When it becomes probable that we will have to perform on a guarantee, we accrue a

separate liability if it is reasonably estimable, based on the facts and circumstances at that time. We

reverse the fair value liability only when there is no further exposure under the guarantee.

Share-Based Compensation

—We recognize share -based compensation expense over the shorter of the

service period (i.e., the stated period of time required to earn the award) or the period beginning at the

start of the service period and ending when an employee first becomes eligible for retirement. We have

elected to recognize expense on a straight-line basis over the service period for the entire award, whether

the award was granted with ratable or cliff vesting.

Income Taxes

—Deferred income taxes are computed using the liability method and are provided on all

temporary differences between the financial reporting basis and the tax basis of our assets and liabilities,

except for deferred taxes on income and temporary differences related to the cumulative translation

adjustment considered to be permanently reinvested in certain foreign subsidiaries and foreign corporate

joint ventures. Allowable tax credits are applied currently as reductions of the provision for income taxes. 

Interest related to unrecognized tax benefits is reflected in interest and debt expense, and penalties

related to unrecognized tax benefits are reflected in production and operating expenses.

Taxes Collected from Customers and Remitted to Governmental Authorities

—Sales and value-added

taxes are recorded net.

Net Income (Loss) Per Share of Common Stock

—Basic net income (loss) per share of common stock is

calculated based upon the daily weighted-average number of common shares outstanding during the

year. Also, this

calculation includes fully vested stock and unit awards that have not yet been issued as

common stock, along with an adjustment to net income (loss) for dividend equivalents paid on unvested

unit awards that are considered participating securities. Diluted net income per share of common stock

includes unvested stock, unit or option awards granted under our compensation plans and vested but

unexercised stock options, but only to the extent these instruments dilute net income per share, primarily

under the treasury-stock method. Diluted net loss per share, which is calculated the same as basic net

loss per share, does not assume conversion or exercise of securities that would have an antidilutive effect. 

Treasury stock is excluded from the daily weighted -average number of common shares outstanding in

both calculations. The earnings per share impact of the participating securities is immaterial.