Capitalized Exploratory Well Costs and Undeveloped Leasehold Costs

3 Months Ended

Mar. 31, 2018

Capitalized Exploratory Well Costs and Undeveloped Leasehold Costs

Note 7. Capitalized Exploratory Well Costs and Undeveloped Leasehold Costs

Capitalized Exploratory Well Costs We capitalize exploratory well costs until a determination is made that the well has found proved reserves or is deemed noncommercial. On a quarterly basis, we review the status of suspended exploratory well costs and assess the development of these projects. If a well is deemed to be noncommercial, the well costs are charged to exploration expense as dry hole cost.

Changes in capitalized exploratory well costs are as follows and exclude amounts that were capitalized and subsequently expensed in the same period:



(millions)	Three Months Ended March 31, 2018
Capitalized Exploratory Well Costs, Beginning of Period	$	520
Additions to Capitalized Exploratory Well Costs Pending Determination of Proved Reserves	3
Reclassified to Assets Held for Sale ⁽¹⁾	(159		)
Reclassified to Proved Oil and Gas Properties Based on Determination of Proved Reserves	(1		)
Capitalized Exploratory Well Costs, End of Period	$	363

⁽¹⁾ Represents costs related to Gulf of Mexico assets.

The following table provides an aging of capitalized exploratory well costs based on the date that drilling commenced:



(millions)	March 31, 2018		December 31, 2017
Exploratory Well Costs Capitalized for a Period of One Year or Less	$	3	$	10
Exploratory Well Costs Capitalized for a Period Greater Than One Year Since Commencement of Drilling	360		510
Balance at End of Period	$	363	$	520

Undeveloped Leasehold Costs We reclassify undeveloped leasehold costs to proved property costs when, as a result of exploration and development activities, probable and possible resources are reclassified to proved reserves, including proved undeveloped reserves. On the other hand, if, based upon a change in exploration plans, timing and extent of development activities, availability of capital and suitable rig and drilling equipment, resource potential, comparative economics, changing regulations and/or other factors, an impairment is indicated, we record impairment expense related to the respective leases or licenses.

As of March 31, 2018, we had remaining undeveloped leasehold costs, to which proved reserves had not been attributed, of $2.7 billion, including $1.6 billion related to Delaware Basin assets acquired in the Clayton Williams Energy Acquisition in 2017, and $1.0 billion and $129 million attributable to Delaware Basin and Eagle Ford Shale assets, respectively, acquired in the Rosetta Resources Inc. acquisition in 2015. Undeveloped leasehold costs were derived from allocated fair values as a result of business combinations or other purchases of unproved properties and are subject to impairment testing.

The remaining balance of undeveloped leasehold costs as of March 31, 2018 included $53 million related to international unproved properties. These costs pertain to acquired leases or licenses that are subject to expiration over the next several years unless production is established on units containing the acreage. These costs are evaluated as part of our periodic impairment review.

In first quarter 2018, we transferred $135 million and $20 million of undeveloped leasehold costs to proved properties associated with Delaware Basin and Eagle Ford Shale assets, respectively, acquired in the Rosetta Resources Inc. acquisition. This transfer resulted from additions of proved reserves through development activities. In addition, capitalized costs of $43 million associated with Gulf of Mexico leases and licenses were transferred to assets held for sale during the quarter. See Note 3. Acquisitions and Divestitures.