6.1.3. Impairment of non-financial assets
Material estimates
Impairment of non-financial assets
Property, plant and equipment and intangible assets are tested for impairment when there are indications of impairment. Impairment tests are based on the comparison of the carrying amount of an asset (or cash-generating unit if the asset does not independently generate separate cash inflows) with its recoverable amount, equal to the higher of its fair value less cost to sell and value in use.
If the recoverable amount is lower than the carrying amount of an asset (or cash-generating unit), the carrying amount is decreased to the recoverable amount of the asset (or cash-generating unit). An impairment loss is recognised as cost of the period in which the impairment loss arose.
Impairment losses recognised in respect of property, plant and equipment as at the end of 2016 are presented in the table below:
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| 2016 | 2015 | |||
|---|---|---|---|---|
| Extraction business |
Other | Extraction business |
Other | |
| Land | (4) | (9) | (3) | (8) |
| Buildings and structures | (1,429) | (207) | (1,011) | (166) |
| Plant and equipment | (324) | (77) | (229) | (49) |
| Vehicles and other | (39) | (4) | (20) | (4) |
| Tangible assets under construction: | ||||
| Tangible exploration and evaluation assets under construction |
(1,609) | – | (1,400) | – |
| Other | (1) | (55) | – | (52) |
| Total | (3,406) | (352) | (2,663) | (279) |
In the reporting year, an impairment test was performed for the Group’s main operating assets, including oil and gas production assets and tangible assets under construction (wells). Below is presented basic information on the performed tests, relating to those areas where the largest amounts of impairment losses were recognised.
| Description of cash generating unit: | In the case of assets classified as assets of oil and gas production units, impairment tests were performed for the individual CGUs, represented by specific production units in Poland and in Pakistan |
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| 2016 | 2015 | |||
| impairment loss reversal | impairment loss recognition | impairment loss reversal | impairment loss recognition | |
| Description of cash generating unit: | CGU – 158 production units | CGU – 152 production units | ||
| Reasons for impairment / value increase | * Change in macroeconomic assumptions – higher forecast exchange rates in 2016 and increase in hydrocarbon prices as at December 31st 2016.
*Update of production forecast to account for new wells coming on stream. |
*Change of forecast prices – a drop in hydrocarbon prices as at June 30th 2016.
*Update of production forecast to account for deterioration of reservoir conditions experienced by certain production units. *Change of the discount rate in 2016. |
*Update of production forecast to account for increased volumes at specific production units following well workovers and other investments.
*Change of the discount rate as at December 31st 2015. |
*Change of forecast prices – a drop in hydrocarbon prices in 2015.
*Update of production forecast to account for deterioration of reservoir conditions experienced by certain production units. |
| Value in use | 18 849 | 25 103 | ||
| Nominal pre-tax discount rate | Poland: 12.12% – 12.28% | Poland: 11.55% – 12.22% | ||
| Pakistan: 22.09% -24.18% | Pakistan: no test was performed | |||
| Amount of recognised impairment loss | 128 | 684 | 104 | 400 |
| Description of cash generating unit: | Impairment tests were performed for individual CGUs, represented by specific wells in Poland |
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| 2016 | 2015 | |||
| impairment loss reversal | impairment loss recognition | impairment loss reversal | impairment loss recognition | |
| Description of cash generating unit: | CGU – 121 wells | CGU- 105 wells | ||
| Reasons for impairment / value increase | * Change in macroeconomic assumptions – higher forecast exchange rates in 2016 and increase in hydrocarbon prices as at December 31st 2016.
*Update of production forecast and reduction of planned capex. |
*Change in forecast prices – a drop in hydrocarbon prices as at June 30th 2016.
*Decision not to proceed to drilling wells following unsatisfactory results of geological work. *Change of discount rate in 2016. |
*High forecast production volumes in a long-term horizon.
*Change of discount rate as at December 31st 2015. |
*Change in forecast prices – a drop in hydrocarbon prices in 2015.
*Decision not to proceed to drilling wells following unsatisfactory results of geological work. |
| Value in use | 3 004 | 3 111 | ||
| Nominal pre-tax discount rate | Poland: 13.17% – 13.33% | Poland: 12.60% – 13.16% | ||
| Amount of recognised impairment loss | 24 | 350 | 19 | 461 |
