Asset Retirement Obligations and Accrued Environmental Costs

12 Months Ended

Dec. 31, 2021

Asset Retirement Obligations and Accrued Environmental Costs [Abstract]

Asset Retirement Obligations and Accrued Environmental Cost

Note 8—Asset Retirement Obligations and Accrued Environmental Costs

Asset retirement obligations and accrued environmental costs at December 31 were:

Millions of Dollars

2021

2020

Asset retirement obligations

$

5,926

5,573

Accrued environmental costs

187

180

Total asset retirement obligations and accrued environmental costs

6,113

5,753

Asset retirement obligations and accrued environmental costs due within one year*

(359)

(323)

Long-term asset retirement obligations and accrued environmental costs

$

5,754

5,430

*Classified as a current liability on the balance sheet under “Other accruals.”

Asset Retirement Obligations

We record the fair value of a liability for an ARO when it is incurred (typically when the asset is installed at the

production location). When the liability is initially recorded, we capitalize the associated asset retirement cost by

increasing the carrying amount of the related PP&E. If, in subsequent periods, our estimate of this liability

changes, we will record an adjustment to both the liability and PP&E. Over time, the liability increases for the

change in its present value, while the capitalized cost depreciates over the useful life of the related asset. 

Reductions to estimated liabilities for assets that are no longer producing are recorded as a credit to impairment, if

the asset had been previously impaired, or as a credit to DD&A, if the asset had not been previously impaired .

We have numerous AROs we are required to perform under law or contract once an asset is permanently taken

out of service. Most of these obligations are not expected to be paid until several years, or decades, in the future

and will be funded from general company resources at the time of removal. Our largest individual obligations

involve plugging and abandonment of wells and removal and disposal of offshore oil and gas platforms around the

world, as well as oil and gas production facilities and pipelines in Alaska.

During 2021 and 2020, our overall ARO changed as follows:

Millions of Dollars

2021

2020

Balance at January 1

$

5,573

6,206

Accretion of discount

238

248

New obligations

555

262

Changes in estimates of existing obligations

(113)

(307)

Spending on existing obligations

(164)

(116)

Property dispositions

(108)

(771)

Foreign currency translation

(55)

51

Balance at December 31

$

5,926

5,573

Accrued Environmental Costs

Total accrued environmental costs at December 31, 2021 and 2020, were $

187

 million and $

180

 million,

respectively. 

We had accrued environmental costs of $

135

 million and $

116

 million at December 31, 2021 and 2020,

respectively, related to remediation activities in the U.S. and Canada. We had also accrued in Corporate and Other

$

36

 million and $

48

 million of environmental costs associated with sites no longer in operation at December 31,

2021 and 2020, respectively. In addition, both December 31, 2021 and 2020, included a $

16

 million accrual, where

the company has been named a potentially responsible party under the Federal Comprehensive Environmental

Response, Compensation and Liability Act, or similar state laws. Accrued environmental liabilities are expected to

be paid over periods extending up to

30

 years.

Expected expenditures for environmental obligations acquired in various business combinations are discounted

using a weighted-average

5

 percent discount factor, resulting in an accrued balance for acquired environmental

liabilities of $

109

 million at December 31, 2021. The total expected future undiscounted payments related to the

portion of the accrued environmental costs that have been discounted are $

153

 million.