Registration Document 2005 - Total.com

Other information
Accounting for exploratory drilling costs
In April 2005, the FASB issued a FASB Staff Position FSP FAS 19-1,
“Accounting for suspended well costs” to amend FAS No. 19
“Financial Accounting and Reporting by Oil and Gas Producing
Companies”. The FSP is compatible with the IFRS accounting
principles applied by TOTAL. The FSP provides for continued
capitalization of exploratory drilling costs past one year if a company
is making sufficient progress on assessing the reserves and the
economic and operating viability of the project. The FSP also provides
certain disclosure requirements with respect to capitalized exploratory
drilling costs.
As of January 1, 2005, TOTAL adopted FASB Staff Position
FAS 19-1, “Accounting for Suspended Well Costs”. There were no
capitalized exploratory well costs charged to expense upon the
adoption of FSP 19-1.
When a discovery is made, exploratory drilling costs continue to be
capitalized pending determination of whether potentially economic
oil and gas reserves have been discovered by the drilling effort.
The length of time necessary for this determination depends on
the specific technical or economic difficulties in assessing the
recoverability of the reserves. If a determination is made that the well
did not encounter oil and gas in economically viable quantities, the
well costs are expensed and are reported in exploration expense.
Exploratory drilling costs are temporarily capitalized pending
determination of whether the well has found proved reserves if both
of the following conditions are met:
Capitalized exploratory costs
Appendix 2 - Supplemental oil and gas information (unaudited)
Other information
The following table sets forth the net changes in capitalized exploratory costs for 2005, 2004 and 2003:
Amounts (in millions of euros) 2005 2004 2003
Beginning Balance 430 422 579
Additions pending determination of proved reserves 192 269 263
Amounts previously capitalized and expensed during the year (65) (40) (16)
Amounts transferred to development (22) (196) (333)
Foreign exchange changes 55 (25) (71)
Ending balance 590 430 422
•
•
the well has found a sufficient quantity of reserves to justify,
if appropriate, its completion as a producing well, assuming
that the required capital expenditure is made; and
TOTAL - Registration Document 2005
10
satisfactory progress toward ultimate development of the reserves
is being achieved, with the Company making sufficient progress
assessing the reserves as well as the economic and operating
viability of the project.
The Company evaluates the progress made on the basis of regular
project reviews which take into account the following factors:
•
First, if additional exploratory drilling or other exploratory activities
(such as seismic work or other significant studies) are either
underway or firmly planned, the Company deems there to be
satisfactory progress. For these purposes, exploratory activities
are considered firmly planned only if they are included in the
Company’s three-year exploration plan/budget. At December 31,
2005, the Company had capitalized 219 M€ of exploratory drilling
costs on this basis, as further set forth below.
•
In cases where exploratory activity has been completed, the
evaluation of satisfactory progress takes into account indicators
such as the fact that costs for development studies are incurred
in the current period, or that governmental or other third-party
authorizations are pending or that the availability of capacity on
an existing transport or processing facility awaits confirmation. At
December 31, 2005, exploratory drilling costs capitalized on this
basis amounted to 108 M€ and mainly related to four projects, as
further described below.
241