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, 2016:



	2016			2015			2014
Beginning balance at January 1	$	3,312		$	4,195		$	3,245
Additions to capitalized exploratory well costs pending the determination of proved reserves	465			869			1,591
Reclassifications to wells, facilities and equipment based on the determination of proved reserves	(119		)	(164		)	(298		)
Capitalized exploratory well costs charged to expense	(118		)	(1,397		)	(312		)
Other reductions^*	—			(191		)	(31		)
Ending balance at December 31	$	3,540		$	3,312		$	4,195

^*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
	2016		2015		2014
Exploratory well costs capitalized for a period of one year or less	$	445	$	489	$	1,522
Exploratory well costs capitalized for a period greater than one year	3,095		2,823		2,673
Balance at December 31	$	3,540	$	3,312	$	4,195
Number of projects with exploratory well costs that have been capitalized for a period greater than one year^*	35		39		51

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

Of the $3,095 of exploratory well costs capitalized for more than one year at December 31, 2016, $1,939 (15 projects) is related to projects that had drilling activities underway or firmly planned for the near future. The $1,156 balance is related to 20 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 $1,156 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) $107 (two projects) – development concept under review by government; (c) $816 (seven projects) – development alternatives under review; (d) $43 (nine projects) – miscellaneous activities for projects with smaller amounts suspended. While progress was being made on all 35 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 $3,095 of suspended well costs capitalized for a period greater than one year as of December 31, 2016, represents 160 exploratory wells in 35 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
1998-2005	$	311	29
2006-2010	684		40
2011-2015	2,100		91
Total	$	3,095	160

Aging based on drilling completion date of last suspended well in project:	Amount		Number of projects
2003-2008	$	212	4
2009-2012	437		8
2013-2016	2,446		23
Total	$	3,095	35