Capitalized Exploratory Well Costs and Undeveloped Leasehold Costs

9 Months Ended

Sep. 30, 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)	Nine Months Ended September 30, 2018
Capitalized Exploratory Well Costs, Beginning of Period	$	520
Additions to Capitalized Exploratory Well Costs Pending Determination of Proved Reserves	7
Divestitures ⁽¹⁾	(168		)
Reclassified to Proved Oil and Gas Properties Based on Determination of Proved Reserves	(1		)
Capitalized Exploratory Well Costs Charged to Expense	—
Capitalized Exploratory Well Costs, End of Period	$	358


⁽¹⁾	Represents costs primarily 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)	September 30, 2018		December 31, 2017
Exploratory Well Costs Capitalized for a Period of One Year or Less	$	8	$	10
Exploratory Well Costs Capitalized for a Period Greater Than One Year Since Commencement of Drilling	350		510
Balance at End of Period	$	358	$	520
Number of Projects with Exploratory Well Costs That Have Been Capitalized for a Period Greater Than One Year Since Commencement of Drilling	7		8

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 September 30, 2018, we had remaining undeveloped leasehold costs, to which proved reserves had not been attributed, of $2.6 billion, including $2.4 billion and $129 million attributable to the Delaware Basin and Eagle Ford Shale, respectively. 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 September 30, 2018 primarily 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.

During the first nine months of 2018, we transferred $259 million and $20 million of undeveloped leasehold costs associated with Delaware Basin and Eagle Ford Shale assets, respectively, to proved properties. These transfers resulted from additions of proved reserves through development activities. In addition, $43 million of capitalized costs associated with Gulf of Mexico leases and licenses and $36 million of capitalized costs associated with other US onshore properties were removed from undeveloped leasehold costs due to divestiture of the associated assets in second quarter and third quarter 2018, respectively. See Note 3. Acquisitions and Divestitures.