Capitalized exploration drilling: Suspended well costs
Exploratory drilling costs are capitalized until the drilling of the well is complete. If hydrocarbon resources are found whose commercial development is likely, the costs continue to be capitalized as construction in progress, subject to further appraisal activity that may include the drilling of further wells. Management evaluates all such capitalized costs at least once a year from both a technical and economic perspective to confirm the continued intent to develop or otherwise extract value from the discovery. If this is no longer the case, the relevant costs are written off. If proven reserves of oil or natural gas are determined and development is sanctioned, however, the relevant expenses are transferred within property, plant and equipment to machinery and technical equipment. Impairments for unsuccessful exploration wells are recognized in exploration expenses.
The following table indicates the changes to the capitalized costs of exploration drilling. The determination of the amounts as well as the activities included were adjusted to the BASF Group Consolidated Financial Statements in 2016. The amounts for 2015 were accordingly restated.
The last row shows the year-end value for equity-accounted companies.
Capitalized exploration drilling (million €) |
|||
Fully consolidated companies |
|
2016 |
2015 |
---|---|---|---|
As of January 1 |
|
423 |
479 |
Additions to exploration drilling of the year |
|
103 |
310 |
Capitalized exploration drilling charged to expense |
|
(49) |
(136) |
Reclassification of successful exploration drilling |
|
(75) |
(105) |
Changes in scope of consolidation |
|
– |
(150) |
Translation effect |
|
9 |
25 |
As of December 31 |
|
411 |
423 |
Equity-accounted companies as of December 31 |
|
212 |
181 |
The following table provides an overview of the capitalization period, amounts capitalized for exploration drilling, and the number of suspended exploration wells.
Capitalized exploration drilling (million €) |
|||
Fully consolidated companies |
|
2016 |
2015 |
---|---|---|---|
Wells for which drilling is not complete |
|
37 |
20 |
Wells capitalized less than one year |
|
71 |
152 |
Wells capitalized more than one year |
|
303 |
251 |
Total |
|
411 |
423 |
Number of exploration wells in construction in progress |
|
36 |
45 |
Number of exploration wells in construction in progress at equity-accounted companies as of December 31 |
|
27 |
29 |