How to Keep a Suspended Exploratory Well Capitalized While Commerciality Is Being Assessed
Maintaining capitalized E&E costs for a suspended exploratory well while the company actively assesses whether reserves are commercial.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| E&E Assets — Suspended Well (Capitalized) | Asset (+) | - | - |
| Suspended Well Disclosure (Memo) | Asset (Memo) | 18,000,000.00 | - |
💡 Accountant's Note
Under IFRS 6, exploratory well costs can remain capitalized beyond one year if (a) reserves have been found and (b) management is actively assessing commerciality. A suspended well over 12 months triggers enhanced disclosure requirements.
Practitioner & Systems Framework
💻 ERP Architecture
A suspended well must have two conditions met to remain capitalized beyond 12 months: (1) sufficient resources have been found to justify completion as a producing well if appropriate facilities are installed, and (2) management is actively making progress on required facilities or commercial arrangements. Document management deliberations quarterly. The ERP should flag any E&E well cost that has been capitalized for more than 12 months for review. Enhanced note disclosure is required: number of wells, amounts capitalized, and explanation of why commerciality has not yet been determined.
⚠️ Audit Flags
Suspended wells over 12 months are a key audit focus area because management has incentives to delay write-offs. Auditors will assess: (a) the quality of the geological evidence for sufficient reserves, (b) whether management is genuinely making progress (active permitting, FEED studies, partner negotiations) rather than simply deferring the write-off decision, and (c) whether the disclosure in the financial statement notes meets IFRS 6 requirements. A well suspended for more than 2 years without clear progress is very likely to face an impairment challenge.
📄 Required Documentation
Well completion report and reserve assessment supporting 'sufficient resources', active development progress evidence (FEED study, partner approval meetings, government permitting correspondence, procurement activities), board papers discussing the suspended well status, IFRS 6 disclosure note with well amounts and management's explanation, and current year's commerciality assessment memo.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
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