Accounting for Suspended Exploratory Wells

The company continues to capitalize exploratory well costs after the completion of drilling when (a) the well has found a sufficient quantity of reserves to justify completion as a producing well, and (b) 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, 2018:



	2018			2017			2016
Beginning balance at January 1	$	3,702		$	3,540		$	3,312
Additions to capitalized exploratory well costs pending the determination of proved reserves	207			323			465
Reclassifications to wells, facilities and equipment based on the determination of proved reserves	(13		)	(113		)	(119		)
Capitalized exploratory well costs charged to expense	(333		)	(39		)	(118		)
Other reductions^*	—			(9		)	—
Ending balance at December 31	$	3,563		$	3,702		$	3,540

^*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
	2018		2017		2016
Exploratory well costs capitalized for a period of one year or less	$	202	$	307	$	445
Exploratory well costs capitalized for a period greater than one year	3,361		3,395		3,095
Balance at December 31	$	3,563	$	3,702	$	3,540
Number of projects with exploratory well costs that have been capitalized for a period greater than one year^*	30		32		35

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

Of the $3,361 of exploratory well costs capitalized for more than one year at December 31, 2018, $1,585 (14 projects) is related to projects that had drilling activities underway or firmly planned for the near future. The $1,776 balance is related to 16 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 $1,776 referenced above had the following activities associated with assessing the reserves and the projects’ economic viability: (a) $672 (three projects) – undergoing front-end engineering and design with final investment decision expected within four years; (b) $93 (one project) – development concept under review by government; (c) $963 (eight projects) – development alternatives under review; (d) $48 (four projects) – miscellaneous activities for projects with smaller amounts suspended. While progress was being made on all 30 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 $3,361 of suspended well costs capitalized for a period greater than one year as of December 31, 2018, represents 153 exploratory wells in 30 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
1998-2007	$	410	31
2008-2012	1,076		61
2013-2017	1,875		61
Total	$	3,361	153

Aging based on drilling completion date of last suspended well in project:	Amount		Number of projects
2003-2010	$	338	5
2011-2014	894		10
2015-2018	2,129		15
Total	$	3,361	30