Property, Plant and Equipment

9 Months Ended

Sep. 30, 2018

Oil and Gas Exploration and Production Industries Disclosures [Abstract]

Oil and Natural Gas Properties. As of September 30, 2018 and December 31, 2017, we had approximately $4.9 billion and $4.4 billion, respectively, of total property, plant, and equipment, net of accumulated depreciation, depletion and amortization on our consolidated balance sheets, substantially all of which relates to proved and unproved oil and natural gas properties.

Our capitalized costs related to proved and unproved oil and natural gas properties by area were as follows:



	September 30, 2018			December 31, 2017
	(in millions)
Proved
Eagle Ford	$	3,865		$	3,219
Permian	2,831			2,705
Northeastern Utah (formerly Altamont)	1,637			1,542
Total Proved	8,333			7,466
Unproved
Permian	59			66
Less accumulated depletion	(3,512		)	(3,137		)
Net capitalized costs for oil and natural gas properties	$	4,880		$	4,395

For both of the quarter and nine months ended September 30, 2018, we recorded less than $1 million of amortization of unproved leasehold costs in exploration expense in our consolidated income statement. For the quarter and nine months ended September 30, 2017, we recorded approximately $2 million and $4 million, respectively, of amortization of unproved leasehold costs in exploration expense in our consolidated income statement. Suspended well costs were not material as of September 30, 2018 or December 31, 2017.

We evaluate capitalized costs related to proved properties upon a triggering event (e.g., a significant continued decline in forward commodity prices) to determine if an impairment of such properties has occurred. Capitalized costs associated with unproved properties (e.g., leasehold acquisition costs associated with non-producing areas) are also assessed upon a triggering event for impairment based on estimated drilling plans and capital expenditures which may also change relative to forward commodity prices and/or potential lease expirations. Commodity price declines may cause changes to our capital spending levels, production rates, levels of proved reserves and development plans, which may result in an impairment of the carrying value of our proved and/or unproved properties in the future.

Generally, economic recovery of unproved reserves in non-producing or unproved areas is not yet supported by actual production or conclusive formation tests, but may be confirmed by continuing exploration and development activities. Our ability to retain our leases and thus recover our non-producing leasehold costs is dependent upon a number of factors including our levels of drilling activity, which may include drilling the acreage on our own behalf or jointly with partners, or our ability to modify or extend our leases. Should commodity prices not justify sufficient capital allocation to the continued development of properties where we have non-producing leasehold costs, we could incur impairment charges of our unproved property costs.

Asset Retirement Obligations. We have legal asset retirement obligations associated with the retirement of our oil and natural gas wells and related infrastructure. We settle these obligations when production on those wells is exhausted, when we no longer plan to use them or when we abandon them. We accrue these obligations when we can estimate the timing and amount of their settlement.

In estimating the liability associated with our asset retirement obligations, we utilize several assumptions, including a credit-adjusted risk-free rate between 7 percent and 9 percent on a significant portion of our obligations and a projected inflation rate of 2.5 percent. Changes in estimates in the table below represent changes to the expected amount and timing of payments to settle our asset retirement obligations. Typically, these changes primarily result from obtaining new information about the timing of our obligations to plug and abandon oil and natural gas wells and the costs to do so, or reassessing our assumptions in light of changing market conditions. The net asset retirement liability as of September 30, 2018 on our consolidated balance sheet in other current and non-current liabilities and the changes in the net liability from January 1 through September 30, 2018 were as follows:



	2018
	(in millions)
Net asset retirement liability at January 1	$	35
Liabilities incurred	1
Accretion expense	2
Changes in estimate	3
Net asset retirement liability at September 30	$	41

Capitalized Interest. Interest expense is reflected in our financial statements net of capitalized interest. We capitalize

interest primarily on the costs associated with drilling and completing wells until production begins using a weighted average interest rate on our outstanding borrowings. Capitalized interest for the quarter and nine months ended September 30, 2018 was approximately $2 million and $4 million, respectively. Capitalized interest for the quarter and nine months ended September 30, 2017 was approximately $1 million and $3 million, respectively.

EP Energy LLC 10-Q