Registration document 2007 - 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
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• 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
• Satisfactory progress toward ultimate development of the
reserves is being achieved, with the Company making
sufficient progress assessing the reserves and 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 is 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, 2006, the Company had capitalized 342 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, 2006,
exploratory drilling costs capitalized on this basis amounted to
77 M€ and mainly related to three projects, as further
described below.
The following table sets forth the net changes in capitalized exploratory costs for fiscal 2006, 2005 and 2004:
(in M€) 2006 2005 2004
Beginning balance 590 430 422
Additions pending determination of proved reserves 569 192 269
Amounts previously capitalized and expensed during the year (67) (65) (40)
Amounts transferred to Development (127) (22) (196)
Foreign exchange variations (73) 55 (25)
Ending balance 892 590 430
TOTAL – Registration Document 2006 247