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Property, Plant and Equipment
 12 Months Ended
Dec. 31, 2011
Property, Plant and Equipment

Note E – Property, Plant and Equipment

 

      December 31, 2011     December 31, 2010  

(Thousands of dollars)

    Cost      Net     Cost      Net  

Exploration and production1

    $ 14,766,637         8,730,124 2      12,506,579         7,898,417 2 

Refining and marketing

      2,456,822         1,688,709        3,794,223         2,409,410   

Corporate and other

      113,184         56,316        108,041         60,020   
  

 

 

     

 

 

    

 

 

     

 

 

  
   $ 17,336,643         10,475,149        16,408,843         10,367,847   
  

 

 

     

 

 

    

 

 

     

 

 

  

1         Includes mineral rights as follows:

    $ 1,078,770         619,950        779,036         432,051   
  2 

Includes $21,154 in 2011 and $17,067 in 2010 related to administrative assets and support equipment.

Under FASB guidance exploratory well costs should continue to be capitalized when the well has found a sufficient quantity of reserves to justify its completion as a producing well and the company is making sufficient progress assessing the reserves and the economic and operating viability of the project.

At December 31, 2011, 2010 and 2009, the Company had total capitalized drilling costs pending the determination of proved reserves of $556,412,000, $497,765,000 and $369,862,000, respectively. The following table reflects the net changes in capitalized exploratory well costs during the three-year period ended December 31, 2011.

 

(Thousands of dollars)

    2011     2010     2009  

Beginning balance at January 1

    $ 497,765        369,862        310,118   

Additions to capitalized exploratory well costs pending the determination of proved reserves

      86,035        137,403        119,995   

Reclassifications to proved properties based on the determination of proved reserves

      0        0        (60,251 ) 

Capitalized exploratory well costs charged to expense or sold

      (27,388 )      (9,500 )      0   
  

 

 

    

 

 

    

 

 

  

Ending balance at December 31

    $ 556,412        497,765        369,862   
  

 

 

    

 

 

    

 

 

  

The following table provides an aging of capitalized exploratory well costs based on the date the drilling was completed and the number of projects for which exploratory well costs has been capitalized since the completion of drilling.

 

     2011     2010     2009  

(Thousands of dollars)

   Amount     No. of
Wells		     No. of
Projects		     Amount     No. of
Wells		     No. of
Projects		     Amount     No. of
Wells		     No. of
Projects		  

Aging of capitalized well costs:

                  

Zero to one year

   $ 69,757        11        5        135,494        15        4      $ 117,618        10        6   

One to two years

     143,611        15        3        115,418        10        4        49,628        4        4   

Two to three years

     101,696        9        2        42,571        3        3        8,870        5        0   

Three years or more

     241,348        33        6        204,282        31        4        193,746        27        4   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 556,412        68        16        497,765        59        15      $ 369,862        46        14   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Of the $486,655,000 of exploratory well costs capitalized more than one year at December 31, 2011, $306,475,000 is in Malaysia, $138,634,000 is in the U.S., $29,188,000 is in Republic of the Congo and $12,358,000 is in Canada. In Malaysia either further appraisal or development drilling is planned and/or development studies/plans are in various stages of completion. In the U.S. further drilling is anticipated and development plans are being formulated. In Republic of the Congo further appraised drilling is planned. In Canada a continuing drilling and development program is underway. The capitalized well costs charged to expense in 2011 related to exploration costs offshore Republic of the Congo and Brunei. The costs in Republic of the Congo were written off following an impairment charge at the nearby Azurite field, and the Brunei costs were written off based on unsuccessful wells drilled in the area in late 2011.

At year-end 2011, the Company determined that a downward revision of proved oil reserves for the Azurite field, offshore Republic of the Congo, was necessary. The determination was made after an extensive study of the declining well production at the field. It was determined that the remaining reserves, including risked estimated probable and possible reserves, would not allow for recovery of the Company’s net investment in the Azurite field. Therefore, an impairment charge of $368,600,000 was recorded in 2011 to reduce the carrying value of the field to fair value. Fair value was determined using a discounted cash flow model based on certain key assumptions, including future estimated net production levels, future estimated oil prices for the field based on year-end futures prices, and future estimated operating and capital expenditures. The carrying value of the net property, plant and equipment for the Azurite field was reduced at December 31, 2011 to the present value of the net cash inflows for the field based on the results of the discounted cash flow calculation.

In 2010, the Company announced that its Board of Directors had approved plans to exit the U.K. refining and marketing business. These operations are presented as the U.K. refining and marketing segment in Note U. The sale process for the U.K. downstream assets continues. Based on current market conditions, it is possible that the Company could incur a loss if the U.K. downstream assets are sold in a future period. If the sale of the U.K. downstream assets continues to progress, the results of these operations will be presented as discontinued operations in future periods when the criteria for held for sale under U.S. generally accepted accounting principles have been met.