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Exploration and appraisal costs
Once a licence has been obtained for a given field, exploration and appraisal costs are initially capitalised as either
intangible exploration and evaluation assets or as property, plant and equipment.
Exploration and appraisal costs capitalised as intangible exploration and evaluation assets include any payments made to
acquire the legal right to explore the field, costs of technical services and studies, seismic acquisition costs and
exploratory drilling and testing costs. Tangible assets used in exploration and appraisal activities (such as the Group’s
vehicles, drilling rigs, seismic equipment and other property, plant and equipment) are classified as property, plant and
equipment. To the extent that such a tangible asset is consumed in developing an intangible exploration and evaluation
asset, the amount reflecting that consumption is recorded as part of the cost of the relevant intangible exploration and
evaluation asset. These recorded costs also include any overhead directly attributable to the relevant intangible
exploration and evaluation asset (such as the depreciation of property, plant and equipment utilised in exploration and
appraisal activities related to that intangible exploration and evaluation asset) as well as the cost of other materials
consumed during the exploration and appraisal phases of a given field.
Treatment of exploration and evaluation assets at conclusion of appraisal activities
Intangible exploration and evaluation assets related to each licence are carried forward as intangible exploration and
evaluation assets on the Group’s consolidated balance sheet, until the existence (or otherwise) of commercial reserves
has been determined for the given field cost pool. If commercial reserves have been discovered in that field, the field’s
intangible exploration and evaluation assets are assessed for impairment, as set out below, and any difference between
the balance sheet carrying value of that intangible exploration and evaluation asset and the appraised value at that point
in time will be considered an impairment loss against that intangible exploration and evaluation asset. Any such
impairment loss will be recognised in the Group’s consolidated income statement as exploration expenditure written off.
The adjusted carrying value, after any impairment loss, of the relevant intangible exploration and evaluation asset will
then be reclassified as property, plant and equipment.
Intangible exploration and evaluation assets that relate to exploration and appraisal activities that are determined not to
have resulted in the discovery of commercial reserves for a given field remain capitalised as intangible exploration and
evaluation assets on the Group’s consolidated balance sheet, carried at cost less accumulated impairment subject to
meeting a cost pool-wide impairment test in accordance with the accounting policy for impairment of intangible
exploration and evaluation assets set out below.
Impairment of intangible exploration and evaluation assets
Intangible exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the
balance sheet carrying amount of the asset may exceed its recoverable amount. Such indicators include, but are not
limited to, whether or not commercial reserves exist for a given cost pool, or are likely to be discovered in the future.
Such a determination involves the Directors’ estimates on highly uncertain matters such as geological and geophysical
factors, future costs and commodity prices, an appropriate discount rate, the duration of the licence and its terms and the
availability of the financial and other resources needed to progress exploration, appraisal and development activities.
Where there are indications of impairment, the intangible exploration and evaluation assets concerned are tested for
impairment. Where the intangible exploration and evaluation assets concerned fall within the scope of an established cost
pool, the intangible exploration and evaluation assets are tested for impairment together with all property, plant and
equipment assets associated with that cost pool, as a single cash generating unit. The aggregate carrying value of all
assets in a given cost pool is compared against the expected recoverable amount of those assets, generally by reference to
the present value of the future net cash flows expected to be derived from production of commercial reserves in that cost
pool. Where the intangible exploration and evaluation assets to be tested fall outside the scope of any established cost
pool, there will generally be no commercial reserves and the intangible exploration and evaluation assets concerned will,
upon determination of any impairment, generally be written off in full.
Any impairment loss to intangible exploration and evaluation assets is recognised in the Group’s consolidated income
statement, and separately disclosed. Any such impairment loss is initially recorded against the carrying value of the
related intangible exploration and evaluation asset, and to the extent the impairment exceeds the carrying value of the
intangible exploration and evaluation asset for a given cost pool, a separate impairment test is conducted on the related
property, plant and equipment assets within the relevant field cost pool.
Depletion costs
In order to estimate total future development costs and remaining field life for purposes of calculating depletion
