Property, Plant And Equipment And Asset Retirement Obligations

12 Months Ended

Dec. 31, 2018

Property, Plant And Equipment And Asset Retirement Obligations [Abstract]

Property, Plant And Equipment And Asset Retirement Obligations

9. Property, Plant and Equipment and Asset Retirement Obligations

		December 31, 2018		December 31, 2017
Property, Plant and Equipment		Cost	Net	Cost	Net
		(millions of dollars)
Upstream		372,791	194,662	371,904	200,291
Downstream		48,241	21,448	50,343	21,732
Chemical		39,008	20,551	37,966	20,117
Other		17,150	10,440	16,972	10,490
	Total	477,190	247,101	477,185	252,630

The Corporation has a robust process to monitor for indicators of potential impairment across its asset groups throughout the year. This process is aligned with the requirements of ASC 360 and relies in part on the Corporation’s planning and budgeting cycle. In 2018, the Corporation identified a number of situations where events or changes in circumstances indicated that the carrying value of certain long-lived assets, mainly in North America, may not be recoverable. Accordingly, impairment assessmentswere performed which indicated that certain asset groups assessed have future undiscounted cash flow estimates that do not recover their carrying values. The Corporation’s 2018 results include before-tax charges of $0.7 billion to reduce the carrying value of those assets to fair value. In 2017 and 2016, the Corporation recognized before-tax impairment charges of $2.0 billion and $3.6 billion, respectively.

The assessment of fair values required the use of Level 3 inputs and assumptions that are based upon the views of a likely market participant. The principal parameters used to establish fair values included estimates of both proved and unproved reserves, future commodity prices which were consistent with the average of third-party industry experts and government agencies, drilling and development costs, a range of discount rates depending on the characteristics of the asset group, and comparable market transactions. Factors which could put further assets at risk of impairment in the future include reductions in the Corporation’s long-term price outlooks, changes in the allocation of capital, and operating cost increases which exceed the pace of efficiencies or the pace of oil and natural gas price increases. However, due to the inherent difficulty in predicting future commodity prices, and the relationship between industry prices and costs, it is not practicable to reasonably estimate the existence or range of any potential future impairment charges related to the Corporation’s long-lived assets.

Accumulated depreciation and depletion totaled $230,089 million at the end of 2018 and $224,555 million at the end of 2017. Interest capitalized in 2018, 2017 and 2016 was $652 million, $749 million and $708 million, respectively.

Asset Retirement Obligations

The Corporation incurs retirement obligations for certain assets. The fair values of these obligations are recorded as liabilities on a discounted basis, which is typically at the time the assets are installed. In the estimation of fair value, the Corporation uses assumptions and judgments regarding such factors as the existence of a legal obligation for an asset retirement obligation; technical assessments of the assets; estimated amounts and timing of settlements; discount rates; and inflation rates. Asset retirement obligations incurred in the current period were Level 3 fair value measurements. The costs associated with these liabilities are capitalized as part of the related assets and depreciated as the reserves are produced. Over time, the liabilities are accreted for the change in their present value.

Asset retirement obligations for downstream and chemical facilities generally become firm at the time the facilities are permanently shut down and dismantled. These obligations may include the costs of asset disposal and additional soil remediation. However, these sites have indeterminate lives based on plans for continued operations and as such, the fair value of the conditional legal obligations cannot be measured, since it is impossible to estimate the future settlement dates of such obligations.

The following table summarizes the activity in the liability for asset retirement obligations:

		2018	2017
		(millions of dollars)
Beginning balance		12,705	13,243
	Accretion expense and other provisions	681	780
	Reduction due to property sales	(333)	(906)
	Payments made	(600)	(730)
	Liabilities incurred	46	128
	Foreign currency translation	(481)	611
	Revisions	85	(421)
Ending balance		12,103	12,705

The long-term Asset Retirement Obligations were $11,185 million and $11,928 million at December 31, 2018, and 2017, respectively, and are included in Other long-term obligations.