Accounting for Suspended Exploratory Wells

9 Months Ended

Sep. 30, 2012

Accounting for Suspended Exploratory Wells [Abstract]

Accounting for Suspended Exploratory Wells

Accounting for Suspended Exploratory Wells

Accounting standards for the costs of exploratory wells (ASC 932) provide that exploratory well costs continue to be capitalized after the completion of drilling when (a) the well has found a sufficient quantity of reserves to justify its completion as a producing well and (b) the entity is making sufficient progress assessing the reserves and the economic and operating viability of the project. If either condition is not met or if an entity obtains information that raises substantial doubt about the economic or operational viability of the project, the exploratory well would be assumed to be impaired, and its costs, net of any salvage value, would be charged to expense. (Note that an entity is not required to complete the exploratory well as a producing well.) The company’s capitalized cost of suspended wells at September 30, 2012, was $2.6 billion, a net increase of $182 million from year-end 2011, primarily due to drilling activities in Australia and Canada. For the category of exploratory well costs at year-end 2011 that were suspended more than one year, a total of $46 million was expensed in the first nine months of 2012.