Asset Retirement Obligations and Accrued Environmental Costs

12 Months Ended

Dec. 31, 2022

Asset Retirement Obligation Disclosure [Abstract]

Asset Retirement Obligations and Accrued Environmental Cost

Note 8—Asset Retirement Obligations and Accrued Environmental Costs

Asset retirement obligations and accrued environmental costs at December 31 were:


	Millions of Dollars
	2022		2021

Asset retirement obligations	$	6,380	5,926
Accrued environmental costs	182		187
Total asset retirement obligations and accrued environmental costs	6,562		6,113
Asset retirement obligations and accrued environmental costs due within one year*	(161)		(359)
Long-term asset retirement obligations and accrued environmental costs	$	6,401	5,754

*Classified as a current liability on the balance sheet under “Other accruals.”

Asset Retirement Obligations

We record the fair value of a liability for an ARO when it is incurred (typically when the asset is installed at the production location). When the liability is initially recorded, we capitalize the associated asset retirement cost by increasing the carrying amount of the related PP&E. Over time, the liability increases for the change in its present value, while the capitalized cost depreciates over the useful life of the related asset. If, in subsequent periods, our estimate of this liability changes, we will record an adjustment to both the liability and PP&E. Reductions to estimated liabilities for assets that are no longer producing are recorded as a credit to impairment.

We have numerous AROs we are required to perform under law or contract once an asset is permanently taken out of service. Most of these obligations are not expected to be paid until several years, or decades, in the future and will be funded from general company resources at the time of removal. Our largest individual obligations involve plugging and abandonment of wells and removal and disposal of offshore oil and gas platforms around the world, as well as oil and gas production facilities and pipelines in Alaska.

During 2022 and 2021, our overall ARO changed as follows:


	Millions of Dollars
	2022		2021

Balance at January 1	$	5,926	5,573
Accretion of discount	245		238
New obligations	144		555
Changes in estimates of existing obligations	681		(113)
Spending on existing obligations	(231)		(164)
Property dispositions	(203)		(108)
Foreign currency translation	(182)		(55)
Balance at December 31	$	6,380	5,926

Accrued Environmental Costs

Total accrued environmental costs at December 31, 2022 and 2021, were $182 million and $187 million, respectively.

We had accrued environmental costs of $107 million and $135 million at December 31, 2022 and 2021, respectively, related to remediation activities in the U.S. and Canada. We had also accrued in Corporate and Other $59 million and $36 million of environmental costs associated with sites no longer in operation at December 31, 2022 and 2021, respectively. In addition, both December 31, 2022 and 2021, included a $16 million accrual, where the company has been named a potentially responsible party under the Federal Comprehensive Environmental Response, Compensation and Liability Act, or similar state laws. Accrued environmental liabilities are expected to be paid over periods extending up to 30 years.

Expected expenditures for environmental obligations acquired in various business combinations are discounted using a weighted-average 5 percent discount factor, resulting in an accrued balance for acquired environmental liabilities of $111 million at December 31, 2022. The total expected future undiscounted payments related to the portion of the accrued environmental costs that have been discounted are $147 million.