Results of Operations for Oil and Gas Producing Activities

The following tables present the results of our oil and gas producing activities for the years ending December 31:



	Continuing Operations					Discontinued Operations
	Domestic			China		Malaysia		Total
	(In millions)
2014:
Revenues	$	2,240		$	39	$	90	$	2,369
Production costs	299			12		11		322
Production taxes and other operating expenses	279			6		25		310
Depreciation, depletion and amortization	857			13		33		903
Income taxes	282			2		8		292
Results of operations for oil and gas producing activities	$	523		$	6	$	13	$	542

2013:
Revenues	$	1,777		$	69	$	822	$	2,668
Production costs	265			8		117		390
Production taxes and other operating expenses	204			12		272		488
Depreciation, depletion and amortization	668			18		244		930
Income taxes	224			8		72		304
Results of operations for oil and gas producing activities	$	416		$	23	$	117	$	556

2012:
Revenues	$	1,469		$	86	$	1,005	$	2,560
Production costs	292			7		101		400
Production taxes and other operating expenses	174			18		259		451
Depreciation, depletion and amortization	683			21		251		955
Impairment of oil and gas properties	1,488			—		—		1,488
Income taxes	(410		)	10		150		(250		)
Results of operations for oil and gas producing activities	$	(758	)	$	30	$	244	$	(484	)

Costs Incurred

The following tables present costs incurred for oil and gas property acquisitions, exploration and development for the respective years:



	Continuing Operations				Discontinued Operations
	Domestic		China		Malaysia		Total
	(In millions)
2014:
Property acquisitions:
Unproved	$	146	$	—	$	—	$	146
Proved	6		—		—		6
Exploration	1,089		—		—		1,089
Development⁽¹⁾	772		156		14		942
Total costs incurred⁽²⁾	$	2,013	$	156	$	14	$	2,183

2013:
Property acquisitions:
Unproved	$	154	$	—	$	—	$	154
Proved	8		1		—		9
Exploration	966		33		101		1,100
Development⁽¹⁾	691		140		211		1,042
Total costs incurred⁽²⁾	$	1,819	$	174	$	312	$	2,305

2012:
Property acquisitions:
Unproved	$	64	$	—	$	—	$	64
Proved	3		—		—		3
Exploration	929		1		63		993
Development⁽¹⁾	659		86		108		853
Total costs incurred⁽²⁾	$	1,655	$	87	$	171	$	1,913

_________________


(1)	Includes $56 million, $121 million and $9 million for 2014, 2013 and 2012, respectively, of asset retirement costs.


(2)	Other items impacting the capitalized costs of our oil and gas properties which are not included in total costs incurred are as follows:



	2014		2013		2012
	(In millions)
Property sales — Domestic	$	635	$	23	$	606
Property sales — International	1,571		—		—
Ceiling test writedown — Domestic	—		—		1,488
	$	2,206	$	23	$	2,094

Capitalized Costs

Capitalized costs for our oil and gas producing activities consisted of the following at the end of each of the years in the two-year period ended December 31, 2014:



	Continuing Operations						Discontinued Operations
	Domestic			China			Malaysia			Total
	(In millions)
December 31, 2014:
Proved properties	$	14,998		$	709		$	—		$	15,707
Unproved properties	677			—			—			677
	15,675			709			—			16,384
Accumulated depreciation, depletion and amortization	(8,022		)	(130		)	—			(8,152		)
Net capitalized costs	$	7,653		$	579		$	—		$	8,232

December 31, 2013:
Proved properties	$	13,185		$	550		$	1,441		$	15,176
Unproved properties	1,116			—			115			1,231
	14,301			550			1,556			16,407
Accumulated depreciation, depletion and amortization	(7,185		)	(112		)	(1,009		)	(8,306		)
Net capitalized costs	$	7,116		$	438		$	547		$	8,101

Reserves

Users of this information should be aware that the process of estimating quantities of proved and proved developed oil and gas reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir also may change substantially over time as a result of numerous factors, including additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Consequently, material revisions to existing reserve estimates may occur from time to time.

Reserves Estimates. All reserve information in this report is based on estimates prepared by our petroleum engineering staff and is the responsibility of management. The preparation of our oil and gas reserves estimates is completed in accordance with our prescribed internal control procedures, which include verification of data input into our reserves forecasting and economics evaluation software, as well as multi-discipline management reviews. The technical employee responsible for overseeing the preparation of the reserves estimates has a Bachelor of Science in Petroleum Engineering, with more than 30 years of experience (including over 20 years of experience in reserve estimation).

Our reserves estimates are made using available geological and reservoir data as well as production performance data. These estimates, made by our petroleum engineering staff, are reviewed annually with management and revised, either upward or downward, as warranted by additional data. The data reviewed includes, among other things, seismic data, well logs, production tests, reservoir pressures, and individual well and field performance data. The data incorporated into our interpretations includes structure and isopach maps, individual well and field performance and other engineering and geological work products such as material balance calculations and reservoir simulation to arrive at conclusions about individual well and field projections. Additionally, offset performance data, operating expenses, capital costs and product prices factor into estimating quantities of reserves. Revisions are necessary due to changes in, among other things, reservoir performance, prices, economic conditions and governmental regulations, as well as changes in the expected recovery rates associated with development drilling. Sustained decreases in prices, for example, may cause a reduction in some reserves due to reaching economic limits sooner.

Reserves Activity Overview. The following is a discussion of our proved reserves and reserve additions and revisions.



	Year Ended December 31,
	2014		2013		2012
	(MMBOE)
Proved Reserves:
Beginning of year	612		566		652
Reserve additions	81		82		86
Reserve revisions	51		14		(91	)
Sales	(49	)	(1	)	(30	)
Production	(50	)	(49	)	(51	)
End of year	645		612		566

Our proved crude oil and condensate reserves at year-end 2014 were 301 million barrels compared to 270 million barrels and 237 million barrels at year-end 2013 and 2012, respectively. Our proved NGL reserves at year-end 2014 were 76 million barrels compared to 68 million barrels and 37 million barrels at year-end 2013 and 2012, respectively. Our proved natural gas reserves at year-end 2014 were 1.6 Tcf compared to 1.6 Tcf and 1.8 Tcf year-end 2013 and 2012, respectively. Liquids comprised about 58%, 55% and 48% of our proved reserves at year-end 2014, 2013 and 2012, respectively.

Reserve Additions and Revisions. During 2014, our proved reserves increased 132 MMBOE as a result of additions (extensions, discoveries, improved recovery and purchases of reserves in place) and revisions of previous estimates. We expect the majority of future reserve growth to be associated with infill drilling, extensions of current fields and new discoveries, as well as improved recovery operations and purchases of proved properties. The success of these operations will directly impact reserve additions or revisions in the future.

Additions. We added 72 MMBOE of proved reserves through discoveries, extensions and other additions, and 9 MMBOE through purchases. Drilling additions related to our domestic resource plays constituted 99% of our additions. Of the drilling additions, 52 MMBOE were proved undeveloped additions and 54 million barrels were liquids reserves.

Revisions. Total proved reserve revisions in 2014 were a positive 51 MMBOE or 8% of the beginning of year proved reserves. They included a positive 3 MMBOE price revision which was primarily related to our onshore natural gas plays. In mature plays, dominated by infill drilling and where reserve growth cannot be classified as an extension or discovery, the change in reserves is captured as a revision. In 2014, our revisions associated with the development of existing fields were a positive 77 MMBOE. The remaining 29 MMBOE negative revisions are associated with development plan changes and well performance.

Sales. In 2014, 2013 and 2012, we sold proved reserves associated with non-strategic assets and acreage trades.

Estimated Net Quantities of Proved Oil and Gas Reserves

The following table sets forth our total net proved reserves and our total net proved developed and undeveloped reserves as of December 31, 2011, 2012, 2013 and 2014 and the changes in our total net proved reserves during the three-year period ended December 31, 2014:



	Crude Oil and Condensate (MMBbls)								Natural Gas (Bcf)
	Continuing Operations				Discontinued Operations				Continuing Operations			Discontinued Operations
	Domestic		China⁽¹⁾		Malaysia⁽¹⁾		Total		Domestic		China⁽¹⁾	Malaysia⁽¹⁾		Total
Proved developed and undeveloped reserves as of:
December 31, 2011	204		20		23		247		2,329		—	4		2,333
Revisions of previous estimates	(13	)	—		2		(11	)	(525	)	—	(2	)	(527	)
Extensions, discoveries and other additions	38		—		—		38		181		—	—		181
Purchases of properties	—		—		—		—		1		—	—		1
Sales of properties	(15	)	—		—		(15	)	(80	)	—	—		(80	)
Production	(11	)	(1	)	(10	)	(22	)	(151	)	—	(2	)	(153	)
December 31, 2012	203		19		15		237		1,755		—	—		1,755
Revisions of previous estimates	19		7		2		28		(166	)	—	—		(166	)
Extensions, discoveries and other additions	25		—		2		27		187		—	—		187
Purchases of properties	1		—		—		1		1		—	—		1
Sales of properties	—		—		—		—		(5	)	—	—		(5	)
Production	(14	)	(1	)	(8	)	(23	)	(124	)	—	—		(124	)
December 31, 2013	234		25		11		270		1,648		—	—		1,648
Revisions of previous estimates	18		(2	)	—		16		129		—	—		129
Extensions, discoveries and other additions	41		1		—		42		112		—	—		112
Purchases of properties	6		—		—		6		9		—	—		9
Sales of properties	(3	)	—		(10	)	(13	)	(164	)	—	—		(164	)
Production	(18	)	(1	)	(1	)	(20	)	(127	)	—	—		(127	)
December 31, 2014	278		23		—		301		1,607		—	—		1,607
Proved developed reserves as of:
December 31, 2011	88		5		17		110		1,405		—	4		1,409
December 31, 2012	92		4		14		110		1,042		—	—		1,042
December 31, 2013	112		4		11		127		1,055		—	—		1,055
December 31, 2014	135		9		—		144		938		—	—		938
Proved undeveloped reserves as of:
December 31, 2011	116		15		6		137		924		—	—		924
December 31, 2012	111		15		1		127		713		—	—		713
December 31, 2013	122		21		—		143		593		—	—		593
December 31, 2014	143		14		—		157		669		—	—		669

_________________


(1)	All of our reserves in China are associated with production sharing contracts and are calculated using the economic interest method. We used the economic interest method in Malaysia until we sold our Malaysia business in 2014.

Estimated Net Quantities of Proved Oil and Gas Reserves — (Continued)



	NGLs (MMBbls)						Total Oil Equivalents (MMBOE)
	Continuing Operations			Discontinued Operations			Continuing Operations				Discontinued Operations
	Domestic		China⁽¹⁾	Malaysia⁽¹⁾	Total		Domestic		China⁽¹⁾		Malaysia⁽¹⁾		Total
Proved developed and undeveloped reserves as of:
December 31, 2011	16		—	—	16		608		20		24		652
Revisions of previous estimates	9		—	—	9		(92	)	—		1		(91	)
Extensions, discoveries and other additions	17		—	—	17		86		—		—		86
Purchases of properties	—		—	—	—		—		—		—		—
Sales of properties	(2	)	—	—	(2	)	(30	)	—		—		(30	)
Production	(3	)	—	—	(3	)	(40	)	(1	)	(10	)	(51	)
December 31, 2012	37		—	—	37		532		19		15		566
Revisions of previous estimates	14		—	—	14		5		7		2		14
Extensions, discoveries and other additions	22		—	—	22		78		—		2		80
Purchases of properties	—		—	—	—		2		—		—		2
Sales of properties	—		—	—	—		(1	)	—		—		(1	)
Production	(5	)	—	—	(5	)	(40	)	(1	)	(8	)	(49	)
December 31, 2013	68		—	—	68		576		25		11		612
Revisions of previous estimates	13		—	—	13		53		(2	)	—		51
Extensions, discoveries and other additions	12		—	—	12		71		1		—		72
Purchases of properties	1		—	—	1		9		—		—		9
Sales of properties	(9	)	—	—	(9	)	(39	)	—		(10	)	(49	)
Production	(9	)	—	—	(9	)	(48	)	(1	)	(1	)	(50	)
December 31, 2014	76		—	—	76		622		23		—		645
Proved developed reserves as of:
December 31, 2011	10		—	—	10		332		5		18		355
December 31, 2012	15		—	—	15		280		4		14		298
December 31, 2013	35		—	—	35		322		4		11		337
December 31, 2014	38		—	—	38		329		9		—		338
Proved undeveloped reserves as of:
December 31, 2011	6		—	—	6		276		15		6		297
December 31, 2012	22		—	—	22		252		15		1		268
December 31, 2013	33		—	—	33		254		21		—		275
December 31, 2014	38		—	—	38		293		14		—		307

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(1)	All of our reserves in China are associated with production sharing contracts and are calculated using the economic interest method. We used the economic interest method in Malaysia until we sold our Malaysia business in 2014.

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves

The standardized measure of discounted future net cash flows from our estimated proved oil and gas reserves is as follows:



	Continuing Operations						Discontinued Operations
	Domestic			China			Malaysia			Total
	(In millions)
2014:
Future cash inflows	$	31,758		$	2,183		$	—		$	33,941
Less related future:
Production costs	(11,508		)	(784		)	—			(12,292		)
Development and abandonment costs	(4,611		)	(73		)	—			(4,684		)
Future net cash flows before income taxes	15,639			1,326			—			16,965
Future income tax expense	(4,449		)	(221		)	—			(4,670		)
Future net cash flows before 10% discount	11,190			1,105			—			12,295
10% annual discount for estimating timing of cash flows	(5,860		)	(223		)	—			(6,083		)
Standardized measure of discounted future net cash flows	$	5,330		$	882		$	—		$	6,212

2013:
Future cash inflows	$	26,600		$	2,640		$	1,245		$	30,485
Less related future:
Production costs	(8,302		)	(959		)	(771		)	(10,032		)
Development and abandonment costs	(4,166		)	(143		)	(148		)	(4,457		)
Future net cash flows before income taxes	14,132			1,538			326			15,996
Future income tax expense	(4,278		)	(316		)	—			(4,594		)
Future net cash flows before 10% discount	9,854			1,222			326			11,402
10% annual discount for estimating timing of cash flows	(5,226		)	(320		)	(23		)	(5,569		)
Standardized measure of discounted future net cash flows	$	4,628		$	902		$	303		$	5,833

2012:
Future cash inflows	$	21,724		$	2,186		$	1,754		$	25,664
Less related future:
Production costs	(7,042		)	(888		)	(1,135		)	(9,065		)
Development and abandonment costs	(3,949		)	(202		)	(82		)	(4,233		)
Future net cash flows before income taxes	10,733			1,096			537			12,366
Future income tax expense	(2,786		)	(239		)	(66		)	(3,091		)
Future net cash flows before 10% discount	7,947			857			471			9,275
10% annual discount for estimating timing of cash flows	(4,539		)	(245		)	(55		)	(4,839		)
Standardized measure of discounted future net cash flows	$	3,408		$	612		$	416		$	4,436

Set forth in the table below is a summary of the changes in the standardized measure of discounted future net cash flows for our proved oil and gas reserves during each of the years in the three-year period ended December 31, 2014:



	Continuing Operations						Discontinued Operations
	Domestic			China			Malaysia			Total
	(In millions)
2014:
Beginning of the period	$	4,628		$	902		$	303		$	5,833
Revisions of previous estimates:
Changes in prices and costs	(492		)	(119		)	(132		)	(743		)
Changes in quantities	784			(104		)	—			680
Changes in future development costs	253			(72		)	129			310
Previously estimated development costs incurred during the period	698			147			12			857
Additions to proved reserves resulting from extensions, discoveries and improved recovery, less related costs	860			—			—			860
Purchases and sales of reserves in place, net	(171		)	—			(279		)	(450		)
Accretion of discount	655			114			19			788
Sales of oil and gas, net of production costs	(1,662		)	(21		)	(54		)	(1,737		)
Net change in income taxes	(383		)	51			—			(332		)
Production timing and other	160			(16		)	2			146
Net increase (decrease)	702			(20		)	(303		)	379
End of period	$	5,330		$	882		$	—		$	6,212
2013:
Beginning of the period	$	3,408		$	612		$	416		$	4,436
Revisions of previous estimates:
Changes in prices and costs	944			2			33			979
Changes in quantities	81			302			76			459
Changes in future development costs	(83		)	(50		)	(126		)	(259		)
Previously estimated development costs incurred during the period	549			130			79			758
Additions to proved reserves resulting from extensions, discoveries and improved recovery, less related costs	1,012			—			49			1,061
Purchases and sales of reserves in place, net	13			—			—			13
Accretion of discount	470			82			33			585
Sales of oil and gas, net of production costs	(973		)	(46		)	(330		)	(1,349		)
Net change in income taxes	(815		)	(63		)	59			(819		)
Production timing and other	22			(67		)	14			(31		)
Net increase (decrease)	1,220			290			(113		)	1,397
End of period	$	4,628		$	902		$	303		$	5,833
2012:
Beginning of the period	$	4,724		$	565		$	692		$	5,981
Revisions of previous estimates:
Changes in prices and costs	(1,490		)	(24		)	(14		)	(1,528		)
Changes in quantities	(427		)	—			23			(404		)
Changes in future development costs	294			(2		)	(19		)	273
Previously estimated development costs incurred during the period	434			67			93			594
Additions to proved reserves resulting from extensions, discoveries and improved recovery, less related costs	791			24			—			815
Purchases and sales of reserves in place, net	(758		)	—			—			(758		)
Accretion of discount	542			77			64			683
Sales of oil and gas, net of production costs	(1,129		)	(63		)	(439		)	(1,631		)
Net change in income taxes	650			4			119			773
Production timing and other	(223		)	(36		)	(103		)	(362		)
Net increase (decrease)	(1,316		)	47			(276		)	(1,545		)
End of period	$	3,408		$	612		$	416		$	4,436