Capitalized Exploratory Well Costs and Undeveloped Leasehold Costs

12 Months Ended

Dec. 31, 2018

Capitalized Exploratory Well Costs [Abstract]

Capitalized Exploratory Well Costs and Undeveloped Leasehold Costs

Note 7. Capitalized Exploratory Well Costs and Undeveloped Leasehold Costs

Capitalized Exploratory Well Costs We capitalize exploratory well costs until a determination is made that the well has found proved reserves or is deemed noncommercial. On a quarterly basis, we review the status of suspended exploratory well costs and assess the development of these projects. If a well is deemed to be noncommercial, the well costs are charged to exploration expense as dry hole cost.

Changes in capitalized exploratory well costs, excluding amounts that were capitalized and subsequently expensed in the same period, are as follows:



	Year Ended December 31,
(millions)	2018			2017			2016
Capitalized Exploratory Well Costs, Beginning of Period	$	520		$	768		$	1,353
Additions to Capitalized Exploratory Well Costs Pending Determination of Proved Reserves	7			20			84
Divestitures and Other ⁽¹⁾	(168		)	—			(143		)
Reclassified to Proved Oil and Gas Properties Based on Determination of Proved Reserves or to Assets Held for Sale ⁽²⁾	(1		)	(203		)	(1		)
Capitalized Exploratory Well Costs Charged to Expense ⁽³⁾	(4		)	(65		)	(525		)
Capitalized Exploratory Well Costs, End of Period	$	354		$	520		$	768

⁽¹⁾ The 2018 amount represents costs primarily related to Gulf of Mexico assets sold during second quarter and the 2016 amount relates to the farm-down of a 35% interest in Block 12 offshore Cyprus to a new partner.

⁽²⁾ The 2017 amount relates to the approval and sanction of the first phase of development of the Leviathan field.

⁽³⁾ Capitalized exploratory well costs charged to expense are included within exploration or impairment expense in our consolidated statements of operations. The 2017 amount relates primarily to the write-off of costs associated with the Troubadour natural gas discovery, Gulf of Mexico, for which we chose not to pursue development activities. The 2016 amount relates primarily to discoveries offshore West Africa. Following review of additional 3D seismic data, we determined these discoveries were impaired in the current forward outlook for crude oil prices. We also incurred expenses associated with the Silvergate exploratory well, Gulf of Mexico, which did not encounter commercial hydrocarbons and was subsequently plugged and abandoned.

The following table provides an aging of capitalized exploratory well costs based on the date that drilling commenced:



	December 31,
(millions)	2018		2017		2016
Exploratory Well Costs Capitalized for a Period of One Year or Less	$	6	$	10	$	69
Exploratory Well Costs Capitalized for a Period Greater Than One Year Since Commencement of Drilling	348		510		699
Balance at End of Period	$	354	$	520	$	768
Number of Projects with Exploratory Well Costs That Have Been Capitalized for a Period Greater Than One Year Since Commencement of Drilling	7		8		10

The following table provides a further aging of those exploratory well costs that have been capitalized for a period greater than one year since the commencement of drilling as of December 31, 2018:



			Suspended Since
Country/Project (millions)	Total		2016 - 2017			2014 - 2015		2013 & Prior		Progress
Offshore Equatorial Guinea
Felicita (Block O)	$	48	$	3		$	7	$	38	We are in process of evaluating regional development scenarios for this 2008 natural gas discovery. In early 2016, we began analyzing, interpreting and evaluating the acquired seismic data. In 2018, we progressed definitive agreements to sell natural gas through the Punta Europa plants, which will expand the options for additional natural gas sales.
Yolanda (Block I)	24		2			3		19		A data exchange agreement for the 2007 Yolanda condensate and natural gas discovery has been executed between the governments of Equatorial Guinea and Cameroon. Our development team is working with both governments to evaluate natural gas monetization options for both Yolanda and YoYo (Cameroon) discoveries. In 2018, we progressed the definitive agreements to sell natural gas through the Punta Europa plants, which will open the options for additional natural gas sales.
Offshore Cameroon
YoYo (YoYo Block)	52		(1		)	6		47		A data exchange agreement for the 2007 YoYo condensate and natural gas discovery has been executed between the governments of Equatorial Guinea and Cameroon. Our development team is working with both governments to evaluate natural gas monetization options for both Yolanda (Equatorial Guinea) and YoYo discoveries. In June 2017, we converted our mining concession license for the YoYo block into a PSC. In 2018, we progressed the definitive agreements to sell natural gas through the Punta Europa plants, which will open the options for additional natural gas sales.
Offshore Israel
Leviathan-1 Deep	94		6			8		80		The well did not reach the target interval in 2012. In 2018, we continued to reprocess and review seismic information for this prospect, incorporating information obtained from other recent discoveries in the region and developing future drilling plans to test this deep oil concept, which is held by the Leviathan Development and Production Leases.
Dalit	24		2			3		19		Our future development plan was approved by the Government of Israel to develop this 2009 natural gas discovery with a tie-in to existing infrastructure at Tamar. Currently, we are analyzing 3D seismic data to evaluate additional potential of the area.
Offshore Cyprus
Cyprus	100		11			12		77		We continue to work with the Government of Cyprus to obtain approval of our development plan and the issuance of an Exploitation License. During 2017, we submitted an updated development plan. During 2018, we continued to progress capital project cost improvement and regional natural gas marketing efforts.
Other
Projects less than $20 million	6		(7		)	10		3		Continuing to assess and evaluate wells.
Total	$	348	$	16		$	49	$	283

Undeveloped Leasehold Costs Undeveloped leasehold costs are derived from allocated fair values as a result of business combinations or other purchases of unproved properties and are subject to impairment testing. We reclassify undeveloped leasehold costs to proved property costs when, as a result of exploration and development activities, probable and possible resources are reclassified to proved reserves, including proved undeveloped reserves. On the other hand, if, based upon a

change in exploration plans, timing and extent of development activities, availability of capital and suitable rig and drilling equipment, resource potential, comparative economics, changing regulations and/or other factors, an impairment is indicated, we record impairment expense related to the respective leases or licenses.

Changes in undeveloped leasehold costs were as follows:



	December 31,
(millions)	2018			2017
Undeveloped Leasehold Costs, Beginning of Period	$	2,922		$	2,197
Additions to Undeveloped Leasehold Costs ⁽¹⁾	47			1,859
Transfers to Proved Properties ⁽²⁾	(453		)	(174		)
Assets Sold ⁽³⁾	(142		)	(884		)
Impairment ⁽⁴⁾	(1		)	(62		)
Other	—			(14		)
Undeveloped Leasehold Costs, Net of Impairment, End of Period	$	2,373		$	2,922


⁽¹⁾	2017 additions relate to the Clayton Williams Energy Acquisition and Delaware Basin asset acquisition.


⁽²⁾	2018 transfers relate primarily to Delaware Basin assets.


⁽³⁾	2017 sales relate primarily to the Marcellus Shale upstream divestiture.


⁽⁴⁾	2017 impairment expense was primarily attributable to Gulf of Mexico leases.

As of December 31, 2018, remaining undeveloped leasehold costs, to which proved reserves had not been attributed, totaled $2.4 billion, including $2.2 billion and $100 million attributable to Delaware Basin and Eagle Ford Shale, respectively.

The remaining balance of undeveloped leasehold costs as of December 31, 2018 included $53 million and $31 million related to international and domestic unproved properties, respectively. These costs pertain to acquired leases or licenses that are subject to expiration over the next several years unless production is established on units containing the acreage. These costs are evaluated as part of our periodic impairment review.