9. Accounting for Suspended Exploratory Well Costs

The Corporation continues capitalization of exploratory well costs beyond one year after the well is completed if (a) the well found a sufficient quantity of reserves to justify its completion as a producing well and (b) sufficient progress is being made in assessing the reserves and the economic and operating viability of the project.

The following two tables provide details of the changes in the balance of suspended exploratory well costs as well as an aging summary of those costs.

Change in capitalized suspended exploratory well costs:

 

		2011				2010				2009
		(millions of dollars)
Balance beginning at January 1		$	2,893			$	2,005			$	1,585
Additions pending the determination of proved reserves			310				1,103				624
Charged to expense			(213	)			(104	)			(51	)
Reclassifications to wells, facilities and equipment based on the determination of proved reserves			(149	)			(136	)			(200	)
Other			40				25				47
Ending balance		$	2,881			$	2,893			$	2,005
Ending balance attributed to equity companies included above		$	–			$	–			$	9

Period end capitalized suspended exploratory well costs:

 

		2011				2010				2009
		(millions of dollars)
Capitalized for a period of one year or less		$	310			$	1,103			$	624
Capitalized for a period of between one and five years			1,922				1,294				924
Capitalized for a period of between five and ten years			409				278				220
Capitalized for a period of greater than ten years			240				218				237
Capitalized for a period greater than one year – subtotal		$	2,571			$	1,790			$	1,381
Total		$	2,881			$	2,893			$	2,005

Exploration activity often involves drilling multiple wells, over a number of years, to fully evaluate a project. The table below provides a numerical breakdown of the number of projects with suspended exploratory well costs which had their first capitalized well drilled in the preceding 12 months and those that have had exploratory well costs capitalized for a period greater than 12 months.

 

		2011				2010				2009
Number of projects with first capitalized well drilled in the preceding 12 months			4				9				18
Number of projects that have exploratory well costs capitalized for a period of greater than 12 months			58				59				57
Total			62				68				75

 

 

Of the 58 projects that have exploratory well costs capitalized for a period greater than 12 months as of December 31, 2011, 26 projects have drilling in the preceding 12 months or exploratory activity planned in the next two years, while the remaining 32 projects are those with completed exploratory activity progressing toward development. The table below provides additional detail for those 32 projects, which total $1,133 million.

 

Country/Project		Dec. 31, 2011				Years Wells Drilled		Comment
(millions of dollars)
Angola
– Perpetua-Zina-Acacia		$	15			2008 - 2009		Oil field near Pazflor development, awaiting capacity in existing/planned infrastructure.
Australia
– East Pilchard			10			2001		Gas field near Kipper/Tuna development, awaiting capacity in existing/planned infrastructure.
– SE Longtom			15			2010		Gas field near Tuna development, awaiting capacity in existing/planned infrastructure.
Indonesia
– Natuna			118			1981 - 1983		Development activity under way, while continuing discussions with the government on contract terms pursuant to executed Heads of Agreement.
Kazakhstan
– Kairan			53			2004 - 2007		Declarations involving field commerciality filed with Kazakhstan government in 2008; progressing commercialization and field development studies.
Malaysia
– Besar			18			1992 - 2010		Gas field off the east coast of Malaysia; progressing development plan.
– Other (2 projects)			8			1979 - 1995		Projects primarily awaiting capacity in existing or planned infrastructure.
Nigeria
– Bolia			15			2002 - 2006		Evaluating development plan, while continuing discussions with the government regarding regional hub strategy.
– Bosi			79			2002 - 2006		Development activity under way, while continuing discussions with the government regarding development plan.
– Pegi			32			2009		Awaiting capacity in existing/planned infrastructure
– Other (4 projects)			13			2002		Pursuing development of several additional offshore satellite discoveries which will tie back to existing/planned production facilities.
Norway
– Gamma			20			2008 - 2009		Evaluating development plan for tieback to existing production facilities.
– H-North			15			2007		Discovery near existing facilities in Fram area; progressing development plans.
– Lavrans			22			1995 - 1999		Development awaiting capacity in existing Kristin production facility; evaluating development concepts for phased ullage scenarios.
– Nyk High			19			2008		Evaluating field development alternatives.
– Other (6 projects)			26			1992 - 2010		Evaluating development plans, including potential for tieback to existing production facilities.
Papua New Guinea
– Juha			28			2007		Working on development plans to tie into planned LNG facilities.
United Kingdom
– Fram			55			2009		Progressing development and commercialization plans.
– Other (2 projects)			14			2001 - 2004		Projects primarily awaiting capacity in existing or planned infrastructure.
United States
– Julia Unit			78			2007 - 2008		Reached agreement with the Department of Interior and Department of Justice providing for suspension of production; progressing development plans with partners.
– Point Thomson			449			1977 - 2010		Continuing discussions with government and partners on development plan.
– Tip Top			31			2009		Evaluating development concept and requisite facility upgrades.
Total 2011 (32 projects)		$	1,133