Property, Plant And Equipment And Asset Retirement Obligations

12 Months Ended

Dec. 31, 2017

Property, Plant And Equipment And Asset Retirement Obligations [Abstract]

Property, Plant And Equipment And Asset Retirement Obligations

9. Property, Plant and Equipment and Asset Retirement Obligations

		December 31, 2017		December 31, 2016
Property, Plant and Equipment		Cost	Net	Cost	Net
		(millions of dollars)
Upstream		371,904	200,291	355,265	195,904
Downstream		50,343	21,732	47,915	20,588
Chemical		37,966	20,117	34,098	17,401
Other		16,972	10,490	16,637	10,331
	Total	477,185	252,630	453,915	244,224

The Corporation has a robust process to monitor for indicators of potential impairment across its asset groups throughout the year. This process is aligned with the requirements of ASC 360 and relies in part on the Corporation’s planning and budgeting cycle. As part of its 2017 annual planning and budgeting cycle, the Corporation identified emerging trends such as increasing estimates of available natural gas supplies and ongoing reductions in the industry’s costs of supply for natural gas that resulted in a reduction to the Corporation’s long-term natural gas price outlooks. Based in part on these trends, the Corporation concluded that events and circumstances indicated that the carrying value of certain long-lived assets, notably North America natural gas assets and certain other assets across the remainder of its Upstream operations, may not be recoverable. Accordingly, an impairment assessment was performed which indicated that the vast majority of asset groups assessed have future undiscounted cash flow estimates that exceed their carrying values. However, the carrying values for certain asset groups in the United States exceeded the estimated cash flows. As a result, the Corporation’s fourth quarter 2017 results include a before-tax charge of $0.8 billion to reduce the carrying value of those assets to fair value. The asset groups subject to this impairment charge are primarily dry gas operations with little additional development potential. In addition, the Corporation made a decision to cease development planning activities and further allocation of capital to certain non-producing assets outside the United States resulting in a before-tax charge of $0.9 billion to reduce the carrying value of those assets that are included in Property, Plant and Equipment. Other impairments during the year resulted in a before-tax charge of $0.3 billion.The impairment charges are recognized primarily in the line “Depreciation and depletion” on the Consolidated Statement of Income.

The assessment of fair values required the use of Level 3 inputs and assumptions that are based upon the views of a likely market participant. The principal parameters used to establish fair values included estimates of both proved and unproved reserves, future commodity prices which were consistent with the average of third-party industry experts and government agencies, drilling and development costs, discount rates ranging from 5.5 percent to 8 percent depending on the characteristics of the asset group, and comparable market transactions. Factors which could put further assets at risk of impairment in the future include reductions in the Corporation’s long-term price outlooks, changes in the allocation of capital, and operating cost increases which exceed the pace of efficiencies or the pace of oil and natural gas price increases. However, due to the inherent difficulty in predicting future commodity prices, and the relationship between industry prices and costs, it is not practicable to reasonably estimate the existence or range of any potential future impairment charges related to the Corporation’s long-lived assets.

Accumulated depreciation and depletion totaled $224,555 million at the end of 2017 and $209,691 million at the end of 2016. Interest capitalized in 2017, 2016 and 2015 was $749 million, $708 million and $482 million, respectively.

Asset Retirement Obligations

The Corporation incurs retirement obligations for certain assets. The fair values of these obligations are recorded as liabilities on a discounted basis, which is typically at the time the assets are installed. In the estimation of fair value, the Corporation uses assumptions and judgments regarding such factors as the existence of a legal obligation for an asset retirement obligation; technical assessments of the assets; estimated amounts and timing of settlements; discount rates; and inflation rates. Asset retirement obligations incurred in the current period were Level 3 fair value measurements. The costs associated with these liabilities are capitalized as part of the related assets and depreciated as the reserves are produced. Over time, the liabilities are accreted for the change in their present value.

Asset retirement obligations for downstream and chemical facilities generally become firm at the time the facilities are permanently shut down and dismantled. These obligations may include the costs of asset disposal and additional soil remediation. However, these sites have indeterminate lives based on plans for continued operations and as such, the fair value of the conditional legal obligations cannot be measured, since it is impossible to estimate the future settlement dates of such obligations.

The following table summarizes the activity in the liability for asset retirement obligations:

		2017	2016
		(millions of dollars)
Beginning balance		13,243	13,704
	Accretion expense and other provisions	780	740
	Reduction due to property sales	(906)	(134)
	Payments made	(730)	(549)
	Liabilities incurred	128	204
	Foreign currency translation	611	(513)
	Revisions	(421)	(209)
Ending balance		12,705	13,243

The long-term Asset Retirement Obligations were $11,928 million and $12,352 million at December 31, 2017, and 2016, respectively, and are included in Other long-term obligations.