exploration drilling is underway or firmly planned. The Corpo- ration does not capitalize the cost of other exploratory wells for more than one year unless proved reserves are found. Depreciation, Depletion and Amortization: The Corpora- tion calculates depletion expense for acquisition costs of proved properties using the units of production method over proved oil and gas reserves. Depreciation and deple- tion expense for oil and gas production equipment and wells is calculated using the units of production method over proved developed oil and gas reserves. Depreciation of all other plant and equipment is determined on the straight- line method based on estimated useful lives. Provisions for impairment of undeveloped oil and gas leases are based on periodic evaluations and other factors. Asset Retirement Obligations: The Corporation recognizes a liability for the fair value of legally required asset retirement obligations associated with long-lived assets in the period in which the retirement obligations are incurred. The Corpora- tion capitalizes the associated asset retirement costs as part of the carrying amount of the long-lived assets. Retirement of Property, Plant and Equipment: Costs of property, plant and equipment retired or otherwise disposed of, less accumulated reserves, are reflected in non-operat- ing income. Impairment of Long-Lived Assets: The Corporation reviews long-lived assets, including oil and gas properties at a field level, for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recovered. If the carrying amounts are not expected to be recovered by undiscounted future cash flows, the assets are impaired and an impairment loss is recorded. The amount of impairment is based on the estimated fair value of the assets determined by discounting anticipated future net cash flows. In the case of oil and gas fields, the net present value of future cash flows is based on manage- ment’s best estimate of future prices, which is determined with reference to recent historical prices and published for- ward prices, applied to projected production volumes of individual fields and discounted at a rate commensurate with the risks involved. The projected production volumes represent reserves, including probable reserves, expected to be produced based on a stipulated amount of capital expenditures. The production volumes, prices and timing of production are consistent with internal projections and other externally reported information. Oil and gas prices used for determining asset impairments will generally differ from those used at year-end in the standardized measure of discounted future net cash flows. Impairment of Equity Investees: The Corporation reviews equity method investments for impairment whenever events or changes in circumstances indicate that an other than temporary decline in value has occurred. The amount of the impairment is based on quoted market prices, where avail- able, or other valuation techniques, including discounted cash flows. Impairment of Goodwill: In accordance with FAS No. 142, Goodwill and Other Intangible Assets , goodwill cannot be amortized; however, it must be tested annually for impair- ment. This impairment test is calculated at the reporting unit level, which is the exploration and production segment for the Corporation’s goodwill. The Corporation identifies potential impairments by comparing the fair value of the reporting unit to its book value, including goodwill. If the fair value of the reporting unit exceeds the carrying amount, goodwill is not impaired. If the carrying value exceeds the fair value, the Corporation calculates the possible impair- ment loss by comparing the implied fair value of goodwill with the carrying amount. If the implied fair value of goodwill is less than the carrying amount, an impairment would be recorded. Maintenance and Repairs: The estimated costs of major maintenance, including turnarounds at the Port Reading refining facility, are accrued. Other expenditures for mainte- nance and repairs are charged against income as incurred. Renewals and improvements are treated as additions to property, plant and equipment, and items replaced are treated as retirements. Environmental Expenditures: The Corporation capitalizes environmental expenditures that increase the life or effi- ciency of property or that reduce or prevent environmental contamination. The Corporation accrues for environmental expenses resulting from existing conditions related to past operations when the future costs are probable and reason- ably estimable. 41