IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Wiley IFRS: Practical Implementation Guide and Workbook

discovery. When this is no longer the case, the costs are written off. When proved reserves of oil and natural gas are determined and development is sanctioned, the relevant expenditure is transferred to property, plant and equipment. Development expenditure Expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines, and the drilling of development wells , including unsuccessful development or

delineation wells, is capitalized within property, plants and equipment. 19. Exploration for and evaluation of oil and natural gas resources

The following financial information represents the amounts included within the group totals relating to activity associated with the exploration for and evaluation of oil and natural gas resources. All such activity is recorded within the Exploration and Production segment. $ million 2006 2005 2004

Exploration and evaluationcosts Exploration expenditurewrittenoff Other exploration costs Exploration expensefor the year Intangibleassets Net assets Capital expenditure Net cash used in operatingactivities Net cash used in investingactivities

624 421

305 TI2 684

274 363 637

1045 4110 'hllQ l.ill 421 1498

3761 :116l

4008 !l.OO8

15.4 363 754

25.Q 379 950

8.2 ROYAL DUTCH SHELL pic, Annual Report 2. Accounting Policies Exploration Costs

Shell Group companies follow the successful efforts method of accounting for oil and natural gas exploration costs. Exploration costs are charged to income when incurred, except that exploratory drill– ing costs are included in property, plant, and equipment, pending determination of proved reserves. Ex– ploration wells that are more than 12 months old are expensed unless (a) proved reserves are booked, or (b) (i) they have found commercially producible quantities of reserves, and (ii) they are subject to further exploration or appraisal activity in that either drilling of additional exploratory wells is under way or firmly planned for the near future or other activities are being undertaken to sufficiently progress the as– sessing of reserves and the economic and operating viability of the project. 3. Key Accounting Estimates and Judgments Exploration Costs Capitalised exploration drilling costs more than 12 months old are expensed unless (a) proved re– serves are booked, or (b) (i) they have found commercially producible quantities of reserves and (ii) they are subject to further exploration or appraisal activity in that either drilling of additional exploratory wells is under way or firmly planned for the near future or other activities are being undertaken to suffi– ciently progress the assessing of reserves and the economic and operating viability of the project. In making decisions about whether to continue to capitalise exploration drilling costs for a period longer than 12 months, it is necessary to make judgments about the satisfaction of each of these conditions. If there is a change in one of these judgments in a subsequent period, then the related capitalised explora– tion drilling costs would be expensed in that period, resulting in a charge to income. Information on such costs is given in Note 12. 12. Property, Plant, and Equipment Exploration and evaluation assets , which mainly comprise unproved properties (rights and conces– sions) and capitalised exploration drilling costs , included within the amounts shown above for oil and gas properties are as follows:

$ million

2006

2005

At January I Capitalexpenditure Sales, retirements, currency translationdifferences and other movements At December 31

4,386 4,649 -Sll) 8963

4,307 1,252 (I 173)

4386