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, 2015:



	2015			2014			2013
Beginning balance at January 1	$	4,195		$	3,245		$	2,681
Additions to capitalized exploratory well costs pending the determination of proved reserves	869			1,591			885
Reclassifications to wells, facilities and equipment based on the determination of proved reserves	(164		)	(298		)	(290		)
Capitalized exploratory well costs charged to expense	(1,397		)	(312		)	(31		)
Other reductions^*	(191		)	(31		)	—
Ending balance at December 31	$	3,312		$	4,195		$	3,245

^*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
	2015		2014		2013
Exploratory well costs capitalized for a period of one year or less	$	489	$	1,522	$	641
Exploratory well costs capitalized for a period greater than one year	2,823		2,673		2,604
Balance at December 31	$	3,312	$	4,195	$	3,245
Number of projects with exploratory well costs that have been capitalized for a period greater than one year^*	39		51		51

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

Of the $2,823 of exploratory well costs capitalized for more than one year at December 31, 2015, $1,662 (20 projects) is related to projects that had drilling activities under way or firmly planned for the near future. The $1,161 balance is related to 19 projects in areas requiring a major capital expenditure before production could begin and for which additional drilling efforts were not under way 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 $1,161 referenced above had the following activities associated with assessing the reserves and the projects’ economic viability: (a) $190 (two projects) – undergoing front-end engineering and design with final investment decision expected within four years; (b) $99 (one project) – development concept under review by government; (c) $814 (seven projects) – development alternatives under review; (d) $58 (nine projects) – miscellaneous activities for projects with smaller amounts suspended. While progress was being made on all 39 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. Approximately half of these decisions are expected to occur in the next five years.

The $2,823 of suspended well costs capitalized for a period greater than one year as of December 31, 2015, represents 165 exploratory wells in 39 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
1998-2004	$	285	26
2005-2009	395		33
2010-2014	2,143		106
Total	$	2,823	165

Aging based on drilling completion date of last suspended well in project:	Amount		Number of projects
2003-2007	$	200	4
2008-2011	393		6
2012-2015	2,230		29
Total	$	2,823	39