Accounting for Suspended Exploratory Wells

12 Months Ended

Dec. 31, 2019

Accounting for Suspended Exploratory Wells [Abstract]

Accounting for Suspended Exploratory Wells

The company continues to capitalize exploratory well costs after the completion of drilling when the well has found a sufficient quantity of reserves to justify completion as a producing well, and the business unit is making sufficient progress assessing the reserves and the economic and operating viability of the project. If either condition is not met or if the company 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.

The following table indicates the changes to the company’s suspended exploratory well costs for the three years ended December 31, 2019:



	2019			2018			2017
Beginning balance at January 1	$	3,563		$	3,702		$	3,540
Additions to capitalized exploratory well costs pending the determination of proved reserves	244			207			323
Reclassifications to wells, facilities and equipment based on the determination of proved reserves	(500		)	(13		)	(113		)
Capitalized exploratory well costs charged to expense	(125		)	(333		)	(39		)
Other reductions^*	(141		)	—			(9		)
Ending balance at December 31	$	3,041		$	3,563		$	3,702

^*Represents property sales.

The following table provides an aging of capitalized well costs and the number of projects for which exploratory well costs have been capitalized for a period greater than one year since the completion of drilling.



	At December 31
	2019		2018		2017
Exploratory well costs capitalized for a period of one year or less	$	214	$	202	$	307
Exploratory well costs capitalized for a period greater than one year	2,827		3,361		3,395
Balance at December 31	$	3,041	$	3,563	$	3,702
Number of projects with exploratory well costs that have been capitalized for a period greater than one year^*	22		30		32

^*Certain projects have multiple wells or fields or both.

Of the $2,827 of exploratory well costs capitalized for more than one year at December 31, 2019, $1,867 is related to 12 projects that had drilling activities underway or firmly planned for the near future. The $960 balance is related to 10 projects in areas requiring a major capital expenditure before production could begin and for which additional drilling efforts were not underway or firmly planned for the near future. Additional drilling was not deemed necessary because the presence of hydrocarbons had already been established, and other activities were in process to enable a future decision on project development.

The projects for the $960 referenced above had the following activities associated with assessing the reserves and the projects’ economic viability: (a) $256 (four projects) – undergoing front-end engineering and design with final investment decision expected within four years; (b) $704 (six projects) – development alternatives under review. While progress was being made on all 22 projects, the decision on the recognition of proved reserves under SEC rules in some cases may not occur for several years because of the complexity, scale and negotiations associated with the projects. More than half of these decisions are expected to occur in the next five years.

The $2,827 of suspended well costs capitalized for a period greater than one year as of December 31, 2019, represents 123 exploratory wells in 22 projects. The tables below contain the aging of these costs on a well and project basis:



Aging based on drilling completion date of individual wells:	Amount		Number of wells
1998-2008	$	244	27
2009-2013	1,166		56
2014-2018	1,417		40
Total	$	2,827	123

Aging based on drilling completion date of last suspended well in project:	Amount		Number of projects
2003-2011	$	318	4
2012-2015	1,653		11
2016-2019	856		7
Total	$	2,827	22