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

1045

4110

'hllQ

l.ill

421

1498

305

TI2

684

4008

!l.OO8

25.Q

379

950

274

363

637

3761

:116l

15.4

363

754

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.

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:

At January I

Capitalexpenditure

Sales, retirements, currency translationdifferences and other movements

At December

million

2006

2005

4,386

4,307

4,649

1,252

-Sll)

173)

8963

4386