
13. Property, plant and equipment and intangible assets
Note | Dec 31 2016 | Dec 31 2015 | |
---|---|---|---|
Non-current assets of the downstream segment | 13.1 | 8,431,723 | 8,019,780 |
Property, plant and equipment | 13.1.1 | 8,261,718 | 7,845,051 |
Intangible assets, including: | 170,005 | 174,729 | |
Goodwill | 13.1.2 | 45,562 | 45,562 |
Other intangible assets | 13.1.3 | 124,443 | 129,167 |
Non-current assets of the upstream segment | 13.2 | 2,871,791 | 3,213,061 |
Property, plant and equipment | 2,389,960 | 2,723,371 | |
Intangible assets, including: | 481,831 | 489,690 | |
Goodwill | 1,126 | 1,126 | |
Other intangible assets | 480,705 | 488,564 | |
Total property, plant and equipment and intangible assets | 11,303,514 | 11,232,841 | |
including: | |||
Property, plant and equipment | 10,651,678 | 10,568,422 | |
Intangible assets | 651,836 | 664,419 |
13.1 Non-current assets of the downstream segment
13.1.1 Property, plant and equipment of the downstream segment
Land | Buildings, structures | Plant and equipment | Vehicles, other | Property, plant and equipment under construction | Total | |
---|---|---|---|---|---|---|
Gross carrying amount Jan 1 2016 |
510,178 | 4,474,591 | 5,556,358 | 620,198 | 395,883 | 11,557,208 |
Purchase | - | - | - | 20,431 | 903,139 | 923,570 (1) |
Transfer from property, plant and equipment under construction | 12,771 | 93,045 | 53,376 | 49,485 | (208,677) | - |
Borrowing costs | - | - | - | - | 4,775 | 4,775 |
Reclassification to non-current assets (or disposal group) held for sale | - | - | - | (2,095) | - | (2,095) |
Disposal | (5,600) | (5,696) | (15,298) | (12,072) | (378) | (39,044) |
Other | - | 412 | (1,145) | (8,709) | (2,748) | (12,190) |
Gross carrying amount Dec 31 2016 |
517,349 | 4,562,352 | 5,593,291 | 667,238 | 1,091,994 | 12,432,224 |
Accumulated depreciation Jan 1 2016 |
14,796 | 1,436,898 | 1,926,322 | 266,690 | - | 3,644,706 |
Depreciation | 1,733 | 174,853 | 236,117 | 61,612 | - | 474,315 |
Reclassification to non-current assets (or disposal group) held for sale | - | - | - | (1,363) | - | (1,363) |
Disposal | (448) | (2,623) | (14,446) | (9,127) | - | (26,644) |
Other | - | 224 | 575 | 1,624 | - | 2,423 |
Accumulated depreciation Dec 31 2016 |
16,081 | 1,609,352 | 2,148,568 | 319,436 | - | 4,093,437 |
Impairment losses Jan 1 2016 |
1,158 | 44,411 | 5,731 | 2,576 | 13,575 | 67,451 |
Recognised | 349 | 11,307 | 919 | 1,965 | - | 14,540 |
Used/Reversed | (56) | (4,254) | (255) | (357) | - | (4,922) |
Impairment losses Dec 31 2016 |
1,451 | 51,464 | 6,395 | 4,184 | 13,575 | 77,069 |
Net carrying amount Dec 31 2016 |
499,817 | 2,901,536 | 3,438,328 | 343,618 | 1,078,419 | 8,261,718 |
(1) Capital expenditure included chiefly expenditure on the construction of a delayed coking unit with auxiliary infrastructure of the EFRA Project (PLN 672,291 thousand), expansion of the service station chain (PLN 105,503 thousand), and construction of the hydrogen recovery unit (PLN 55,632 thousand).
Land | Buildings, structures | Plant and equipment | Vehicles, other | Property, plant and equipment under construction | Total | |
---|---|---|---|---|---|---|
Gross carrying amount Jan 1 2015 |
482,078 | 4,390,585 | 5,527,810 | 526,882 | 171,339 | 11,098,694 |
Purchase | - | - | - | 4,752 | 432,422 | 437,174 (2) |
Transfer from property, plant and equipment under construction | 29,645 | 91,335 | 50,834 | 34,139 | (205,953) | - |
Borrowing costs | - | - | - | - | 1,331 | 1,331 |
Disposal | (1,910) | (9,191) | (21,306) | (36,832) (1) | (303) | (69,542) |
Finance lease | - | - | 24 | 97,344 | - | 97,368 |
Other | 365 | 1,862 | (1,004) | (6,087) | (2,953) | (7,817) |
Gross carrying amount Dec 31 2015 |
510,178 | 4,474,591 | 5,556,358 | 620,198 | 395,883 | 11,557,208 |
Accumulated depreciation Jan 1 2015 |
13,176 | 1,270,085 | 1,710,170 | 265,150 | - | 3,258,581 |
Depreciation | 1,620 | 172,515 | 235,272 | 44,142 | - | 453,549 |
Disposal | - | (6,709) | (19,668) | (36,293) (1) | - | (62,670) |
Finance lease | - | - | - | (7,344) | - | (7,344) |
Other | - | 1,007 | 548 | 1,035 | - | 2,590 |
Accumulated depreciation Dec 31 2015 |
14,796 | 1,436,898 | 1,926,322 | 266,690 | - | 3,644,706 |
Impairment losses Jan 1 2015 |
1,067 | 37,466 | 5,176 | 1,863 | 13,601 | 59,173 |
Recognised | - | 9,991 | 721 | 754 | 15 | 11,481 |
Used/Reversed | - | (3,951) | (166) | (41) | (41) | (4,199) |
Other | 91 | 905 | - | - | - | 996 |
Impairment losses Dec 31 2015 |
1,158 | 44,411 | 5,731 | 2,576 | 13,575 | 67,451 |
Net carrying amount Dec 31 2015 |
494,224 | 2,993,282 | 3,624,305 | 350,932 | 382,308 | 7,845,051 |
(1) Including retirement of worn-out spare parts in the amount of PLN 19,513 thousand
(2) Capital expenditure included chiefly expenditure on the construction of a delayed coking unit with auxiliary infrastructure of the EFRA Project (PLN 191,488 thousand), expansion of the service station chain (PLN 130,230 thousand), and construction of the hydrogen recovery unit (PLN 44,434 thousand).
Property, plant and equipment of the downstream segment include chiefly Group’s assets related to refining and marketing activities, such as the refinery infrastructure, service station network, rolling stock, storage depots, and property on which the production plants, production units, and office buildings are located.
Impairment losses on service stations
In 2016, LOTOS Paliwa Sp. z o.o. recognised an impairment loss on service station assets totalling PLN 13,122 thousand (2015: PLN 10,288 thousand); see Note 9.4. The recoverable amount of property, plant and equipment related to the service station network was determined based on the value in use of each station, calculated with the discounted cash flow method. Future cash flows were calculated based on five-year cash-flow projections, prepared using budget projections for 2017 (in 2015: for 2016) and the cash inflow and outflow plan for subsequent years, based on the development strategy until 2020. The residual value for the discounted cash flows was calculated using the growing perpetuity formula. LOTOS Paliwa Sp. z o.o.’s net weighted average cost of capital (WACC) was assumed at 8.22% (2015: 7.3%), based on the company’s financing structure.
Calculation of the value in use of cash-generating units is most sensitive to the following variables:
- gross margin, which depends on average values of unit margins in the period preceding the budget period (a 4.5% average year-on-year margin increase was assumed),
- discount rates, reflecting risks typical to the cash-generating unit (the median for five-year PLN-denominated notes quoted by Reuters in November 2015 was adopted),
- volumes based on fuel consumption growth rate (an 11% increase was assumed),
- market share in the budget period (a stable market share was assumed),
- growth rate used to extrapolate cash-flow projections beyond the budget period, based on a quantitative forecast of the fuel consumption growth rate in Poland in 2014−2020, prepared using POPiHN, GUS, NBP and JBC reports (for gasolines), and based on GDP market consensus. In the case of diesel oil, the data included also the market consensus on GDP and its constituent elements sourced from IBNGR, BZWBK, MILLENIUM, NBP, MG, EBOIR, WFM, OECD, KE, and ERSTE GROUP.
13.1.2 Goodwill of the downstream segment
Goodwill is allocated to cash-generating units, as presented in the table below:
Dec 31 2016 | Dec 31 2015 | |
---|---|---|
Goodwill arising on the acquisition of an organised part of business by LOTOS Paliwa Sp. z o.o.: | ||
- wholesale of LPG | 10,009 | 10,009 |
- service stations networks (ESSO, Slovnaft Polska) | 33,691 | 33,691 |
Total | 43,700 | 43,700 |
Goodwill arising on acquisition of other entities | 1,862 | 1,862 |
Total goodwill | 45,562 | 45,562 |
As at December 31st 2016 and December 31st 2015, impairment tests of individual cash-generating units to which goodwill was allocated did not reveal any impairment indicators.
The Group determines the recoverable amount of cash-generating units based on their respective values in use, calculated on the basis of a five-year cash flow projection. The residual value for the discounted cash flows was calculated using the growing perpetuity formula. The discount rate adopted for the calculation reflects net WACC of 8.22% (2015: 7.3%).
The most material factors affecting the estimated values in use of cash-generating units were: gross margin, discount rate, volumes forecast, projected market shares in the budget period and estimated growth rate beyond the forecast period.
The Group believes that no reasonably probable change in the key parameters identified above would result in goodwill impairment.
13.1.3 Other intangible assets of the downstream segment
Patents, trademarks and licences | Other | Intangible assets under development | Total | |
---|---|---|---|---|
Gross carrying amount Jan 1 2016 |
197,907 | 36,297 | 18,855 | 253,059 |
Purchase | - | 198 | 6,962 | 7,160 |
Transfer from intangible assets under development | 7,679 | 895 | (8,574) | - |
Borrowing costs | - | - | 65 | 65 |
Other | (240) | (306) | - | (546) |
Gross carrying amount Dec 31 2016 |
205,346 | 37,084 | 17,308 | 259,738 |
Accumulated amortisation Jan 1 2016 |
100,883 | 13,944 | - | 114,827 |
Amortisation | 10,428 | 1,172 | - | 11,600 |
Other | (56) | (141) | - | (197) |
Accumulated amortisation Dec 31 2016 |
111,255 | 14,975 | - | 126,230 |
Impairment losses Jan 1 2016 |
7 | 25 | 9,033 | 9,065 |
Recognised | - | - | - | - |
Used/Reversed | - | - | - | - |
Impairment losses Dec 31 2016 |
7 | 25 | 9,033 | 9,065 |
Net carrying amount Dec 31 2016 |
94,084 | 22,084 | 8,275 | 124,443 |
Gross carrying amount Jan 1 2015 |
192,477 | 43,953 | 12,804 | 249,234 |
Purchase | - | 84 | 12,145 | 12,229 |
Transfer from intangible assets under development | 5,721 | 393 | (6,114) | - |
Borrowing costs | - | - | 52 | 52 |
Disposal | (154) | (7,768) (1) | (30) | (7,952) |
Other | (137) | (365) | (2) | (504) |
Gross carrying amount Dec 31 2015 |
197,907 | 36,297 | 18,855 | 253,059 |
Accumulated amortisation Jan 1 2015 |
91,219 | 13,304 | - | 104,523 |
Amortisation | 9,816 | 1,237 | - | 11,053 |
Disposal | (152) | (606) | - | (758) |
Other | - | 9 | - | 9 |
Accumulated amortisation Dec 31 2015 |
100,883 | 13,944 | - | 114,827 |
Impairment losses Jan 1 2015 |
7 | 8 | 9,033 | 9,048 |
Recognised | - | 17 | - | 17 |
Used/Reversed | - | - | - | - |
Impairment losses Dec 31 2015 |
7 | 25 | 9,033 | 9,065 |
Net carrying amount Dec 31 2015 |
97,017 | 22,328 | 9,822 | 129,167 |
(1) Including retirement of CO2 emission allowances of PLN 7,163 thousand, used for own needs.
Intangible assets of the downstream segment include licences relating to technological processes, including licences for technologies used in the refinery, licences for fuel production, storage and trading, software licences, patents, trademarks and acquired CO2 emission allowances.
13.2 Non-current assets of the upstream segment
Note | Dec 31 2016 | Dec 31 2015 | |
---|---|---|---|
Exploration and evaluation assets | 13.2.1 | 396,670 | 462,126 |
Property, plant and equipment | 55,624 | 118,759 | |
Intangible assets | 341,046 | 343,367 | |
Development and production assets | 13.2.2 | 2,098,270 | 2,316,381 |
Property, plant and equipment | 1,966,931 | 2,182,903 | |
Intangible assets | 131,339 | 133,478 | |
Other non-current assets | 13.2.3 | 376,851 | 434,554 |
Property, plant and equipment | 367,405 | 421,709 | |
Intangible assets | 9,446 | 12,845 | |
Total non-current assets of the upstream segment | 2,871,791 | 3,213,061 | |
including: | |||
Property, plant and equipment | 2,389,960 | 2,723,371 | |
Intangible assets | 481,831 | 489,690 |
13.2.1 Exploration and evaluation assets
Note | Property, plant and equipment classified as exploration and evaluation assets | Intangible assets classified as exploration and evaluation assets | Total | |||
---|---|---|---|---|---|---|
Poland | Poland | Norway | Lithuania | |||
Gross carrying amount Jan 1 2016 |
167,756 | 9,878 | 467,240 | 10,211 | 655,085 | |
Purchase | 1,692 | 361 | 51,951 (2) | - | 54,004 | |
Exchange differences on translating foreign operations | - | - | 43,627 | 389 | 44,016 | |
Expenditure written off due to project discontinuation | 9.4 | (1,904) (1) | (940) (1) | (133,063) (3) | - | (135,907) |
Gross carrying amount Dec 31 2016 |
167,544 | 9,299 | 429,755 | 10,600 | 617,198 | |
Accumulated depreciation and amortisation Jan 1 2016 |
- | 8,046 | - | - | 8,046 | |
Depreciation and amortisation | - | 1,627 | - | - | 1,627 | |
Expenditure written off due to project discontinuation | 9.4 | - | (705) (1) | - | - | (705) |
Accumulated depreciation and amortisation Dec 31 2016 |
- | 8,968 | - | - | 8,968 | |
Impairment losses Jan 1 2016 |
48,997 | 235 | 125,470 | 10,211 | 184,913 | |
Recognised | 9.4 | 64,827 (1) | - | 73,364 (4) | - | 138,191 |
Exchange differences on translating foreign operations | - | - | 10,942 | 389 | 11,331 | |
Used/Reversed | 9.4 | (1,904) (1) | (235) (1) | (120,736) (3) | - | (122,875) |
Impairment losses Dec 31 2016 |
111,920 | - | 89,040 | 10,600 | 211,560 | |
Net carrying amount Dec 31 2016 |
55,624 | 331 | 340,715 | - | 396,670 |
(1) Expenditure on exploration and evaluation activities related to the Słupsk area (decision to abandon the project) and the Gaz Południe area (a PLN 64,785 thousand write-off of expenditure on seismic surveys).
(2) Including expenditure on Sleipner assets (PLN 18,731 thousand ) and Heimdal assets (PLN 31,206 thousand ).
(3) Capitalised expenditures related to PL643 and PL655 licences (effect on the Group’s profit/(loss): PLN 12,327 thousand).
(4) Including the Utgard (formerly Alfa Sentral) field assets of PLN 67,615 thousand and PL797 licence of PLN 5,749 thousand.
Note | Property, plant and equipment classified as exploration and evaluation assets | Intangible assets classified as exploration and evaluation assets | Total | |||
---|---|---|---|---|---|---|
Poland | Poland | Norway | Lithuania | |||
Gross carrying amount Jan 1 2015 |
91,930 | 13,012 | 314,806 | 10,213 | 429,961 | |
Purchase | 27,372 | 15 | 8,100 | - | 35,487 | |
Acquisition of Sleipner assets | - | - | 188,471 (4) | - | 188,471 | |
Exchange differences on translating foreign operations | - | - | (29,291) | (2) | (29,293) | |
Reclassification to exploration and evaluation assets | 60,577 (1) | - | - | - | 60,577 | |
Expenditure written off due to project discontinuation | 9.4 | (12,123) (2) | (3,149) (2) | (14,846) (5) | - | (30,118) |
Gross carrying amount Dec 31 2015 |
167,756 | 9,878 | 467,240 | 10,211 | 655,085 | |
Accumulated depreciation and amortisation Jan 1 2015 |
- | 7,277 | - | - | 7,277 | |
Depreciation and amortisation | - | 3,663 | - | - | 3,663 | |
Expenditure written off due to project discontinuation | 9.4 | - | (2,894) (2) | - | - | (2,894) |
Accumulated depreciation and amortisation Dec 31 2015 |
- | 8,046 | - | - | 8,046 | |
Impairment losses Jan 1 2015 |
47,161 | - | 134,078 | - | 181,239 | |
Recognised | 9.4 | 1,836 (3) | 235 (3) | - | 10,027 (6) | 12,098 |
Exchange differences on translating foreign operations | - | - | (8,608) | 184 | (8,424) | |
Used/Reversed | - | - | - | - | - | |
Impairment losses Dec 31 2015 |
48,997 | 235 | 125,470 | 10,211 | 184,913 | |
Net carrying amount Dec 31 2015 |
118,759 | 1,597 | 341,770 | - | 462,126 |
(1) Related to operations on the Gaz Południe, Gotlandia, Łeba and Rozewie licence areas, which will be continued in 2016 in line with the upstream segment management’s decision. Applications were filed to convert the Łeba and Rozewie licences into combined oil and gas exploration, appraisal and production licences.
(2) Expenditure on exploration and evaluation activities related to the Sambia E field (effect on the Group’s profit/(loss): PLN 12,378 thousand).
(3) Słupsk area assets (effect on the Group’s profit/(loss): PLN 2,071 thousand).
(4) Utgard (formerly Alfa Sentral) and PL046 licences forming part of the acquired Sleipner assets in Norway (for more information on the transaction, see Note 13.1.3. to the Consolidated financial statements for 2015 ).
(5) Expenditure related to Heimdal assets − Fulla (PL362 and PL035B) and PL503 licence.
(6) Expenditure on seismic surveys.
Property, plant and equipment are classified as exploration and evaluation assets until the technical feasibility and commercial viability of extracting the discovered resources are demonstrated.
Impairment of assets of the Sleipner gas field in Norway
As at December 31st 2016, the Group tested the Utgard (previously Alfa Sentral) field at a pre-development stage for impairment. The test was performed based on the following assumptions, equivalent to those adopted for development and production assets:
- the cash flow projection period was assumed to equal the asset’s planned life,
- the discount rate was assumed to equal the weighted average cost of capital, and was calculated at 7.63% after taxation with the 78% marginal tax rate (applicable in Norway),
- production and sales volumes, capital expenditure, operating expenses and field decommissioning costs were assumed as projected by the field operators.
The following price assumptions were adopted:
- for crude oil in USD/bbl (per barrel):
- 2017–2019 – prices in line with the price assumptions for the available market scenarios,
- 2020 and beyond − prices remaining stable in the long term on par with the 2019 level, adjusted for inflation,
- for natural gas in p/th (pence/thermal units):
- 2017–2019 − prices in line with the price assumptions for the available market scenarios, and in 2020 and beyond − prices remaining stable in the long term on par with the 2019 level, adjusted for inflation.
The USD/NOK exchange rate used for the purposes of the impairment test is a cross rate calculated based on forward curves for the EUR/USD and EUR/NOK currency pairs.
The measurement of the recoverable amount showed the necessity to recognise an impairment loss on those assets in the amount of PLN 67,615 thousand (NOK 143,100 thousand), see Note 9.4.
Due to significant market volatility, in particular with respect to oil and gas prices, the adopted assumptions may be subject to justifiable changes, and such changes may necessitate a revision of the carrying amounts of the Utgard field’s assets in the future. To determine the effect of key factors on the test results, the Group carried out an analysis of sensitivity to a -15%/+15% change in oil and gas price, -15%/+15% change in production volumes, and -15%/+15% change in the USD/NOK exchange rate. The table below presents the estimated changes in impairment losses following changes in the key assumptions:
Factor | Change | Impact on impairment losses PLN '000 | |
---|---|---|---|
Crude oil and gas prices | +/- 15% | 49,618 | - 47,498 |
Production volume | +/- 15% | 38,292 | - 38,291 |
USD/NOK exchange rate | +/- 15% | 41,242 | - 41,240 |
Discount rate | +/- 0,5 pp | - 4,914 | 5,052 |
13.2.2 Development and production assets
Note | Development assets | Production assets | Total | ||||||
---|---|---|---|---|---|---|---|---|---|
Poland | Norway | Total | Poland | Norway | Lithuania | Total | |||
Gross carrying amount Jan 1 2016 |
- | 1,452,412 | 1,452,412 | 1,384,677 | 1,497,203 | 636,138 | 3,518,018 | 4,970,430 | |
Purchase | - | 12,026 (1) | 12,026 | 213,183 (2) | 46,259 (5) | 78 | 259,520 | 271,546 | |
Exchange differences on translating foreign operations | - | 127,705 | 127,705 | - | 146,438 | 24,252 | 170,690 | 298,395 | |
Estimated costs of decommissioning of oil and gas extraction facilities | - | - | - | (2,921) | (87,911) | (389) | (91,221) | (91,221) | |
Reclassification to production assets | - | - | - | 58,549 (3) | - | - | 58,549 | 58,549 | |
Expenditure written off due to project discontinuation | - | - | - | (3,257) (4) | - | - | (3,257) | (3,257) | |
Other | - | - | - | 215 | 1,383 | (321) | 1,277 | 1,277 | |
Gross carrying amount Dec 31 2016 |
- | 1,592,143 | 1,592,143 | 1,650,446 | 1,603,372 | 659,758 | 3,913,576 | 5,505,719 | |
Accumulated depreciation and amortisation Jan 1 2016 |
- | - | - | 398,384 | 310,265 | 258,063 | 966,712 | 966,712 | |
Depreciation and amortisation | - | - | - | 38,806 | 471,819 | 25,061 | 535,686 | 535,686 | |
Exchange differences on translating foreign operations | - | - | - | - | 44,877 | 10,113 | 54,990 | 54,990 | |
Reclassification to production assets | - | - | - | 27,061 (3) | - | - | 27,061 | 27,061 | |
Expenditure written off due to project discontinuation | 9.4 | - | - | - | (3,257) (4) | - | - | (3,257) | (3,257) |
Other | - | - | - | (35) | - | (310) | (345) | (345) | |
Accumulated depreciation and amortisation Dec 31 2016 |
- | - | - | 460,959 | 826,961 | 292,927 | 1,580,847 | 1,580,847 | |
Impairment losses Jan 1 2016 |
- | 1,452,412 | 1,452,412 | - | 40,627 | 194,298 | 234,925 | 1,687,337 | |
Recognised | 9.4 | - | - | - | - | - | 12,437 (7) | 12,437 | 12,437 |
Exchange differences on translating foreign operations | - | 127,341 | 127,341 | - | 3,874 | 7,462 | 11,336 | 138,677 | |
Used/Reversed | 9.4 | - | - | - | - | (4,357) (6) | (7,492) (8) | (11,849) | (11,849) |
Impairment losses Dec 31 2016 |
- | 1,579,753 | 1,579,753 | - | 40,144 | 206,705 | 246,849 | 1,826,602 | |
Net carrying amount Dec 31 2016 |
- | 12,390 | 12,390 | 1,189,487 | 736,267 | 160,126 | 2,085,880 | 2,098,270 |
(1) Expenditure on the YME field.
(2) Expenditure on the development of the B-8 field (PLN 212,412 thousand) and the B-3 field (PLN 771 thousand).
(3) Offshore gas pipeline from the B-3 field.
(4) Expenditure associated to the Piła area (no effect on the LOTOS Group’s profit/(loss)).
(5) Expenditure on Sleipner assets (PLN 42,495 thousand ) and Heimdal assets (PLN 3,565 thousand ).
(6) Expenditure on Heimdal assets.
(7) Production infrastructure on the Auksoras, Vėžaičiai, Kretinga, Ablinga and Ližiai fields.
(8) Girkaliai field.
Note | Non-current development assets | Non-current production assets | Total | ||||||
---|---|---|---|---|---|---|---|---|---|
Poland | Norway | Total | Poland | Norway | Lithuania | Total | |||
Gross carrying amount Jan 1 2015 |
578,046 | 1,535,085 | 2,113,131 | 512,840 | 582,851 | 628,336 | 1,724,027 | 3,837,158 | |
Purchase | 304,332 (1) | - | 304,332 | 2,194 | 3,903 | 8,290 | 14,387 | 318,719 | |
Acquisition of Sleipner assets | - | - | - | - | 394,956 (5) | - | 394,956 | 394,956 | |
Exchange differences on translating foreign operations | - | (84,158) | (84,158) | - | (87,469) | 48 | (87,421) | (171,579) | |
Recognition of assets related to future costs of decommissioning of oil and gas extraction facilities | - | - | - | - | 605,423 (4) | - | 605,423 | 605,423 | |
Estimated costs of decommissioning of oil and gas extraction facilities | 10,054 | 1,485 | 11,539 | (304) | 5,480 | (250) | 4,926 | 16,465 | |
Reclassification to development assets | 30,857 (2) | - | 30,857 | - | - | - | - | 30,857 | |
Reclassification of development assets to production assets | (865,348) (3) | - | (865,348) | 865,348 (3) | - | - | 865,348 | - | |
Reclassification to non-current assets (or disposal groups) held for sale | (45,011) (4) | - | (45,011) | - | - | - | - | (45,011) | |
Reversal of assets related to decommissioning of oil and gas extraction facilities | 26.1 | (2,750) | - | (2,750) | - | - | - | - | (2,750) |
Other | (10,180) | - | (10,180) | 4,599 | (7,941) | (286) | (3,628) | (13,808) | |
Gross carrying amount Dec 31 2015 |
- | 1,452,412 | 1,452,412 | 1,384,677 | 1,497,203 | 636,138 | 3,518,018 | 4,970,430 | |
Accumulated depreciation and amortisation Jan 1 2015 |
55,696 | - | 55,696 | 317,301 | 199,741 | 220,384 | 737,426 | 793,122 | |
Depreciation and amortisation | 2,427 | - | 2,427 | 23,104 | 129,831 | 37,320 | 190,255 | 192,682 | |
Exchange differences on translating foreign operations | - | - | - | - | (19,307) | 645 | (18,662) | (18,662) | |
Reclassification of development assets to production assets | (58,123) (3) | - | (58,123) | 58,123 (3) | - | - | 58,123 | - | |
Other | - | - | - | (144) | - | (286) | (430) | (430) | |
Accumulated depreciation and amortisation Dec 31 2015 |
- | - | - | 398,384 | 310,265 | 258,063 | 966,712 | 966,712 | |
Impairment losses Jan 1 2015 |
- | 1,535,085 | 1,535,085 | - | 43,415 | 134,509 | 177,924 | 1,713,009 | |
Recognised | 9.4 | - | 1,485 | 1,485 | - | - | 58,733 (6) | 58,733 | 60,218 |
Exchange differences on translating foreign operations | - | (84,158) | (84,158) | - | (2,786) | 1,056 | (1,730) | (85,888) | |
Used/Reversed | - | - | - | - | (2) | - | (2) | (2) | |
Impairment losses Dec 31 2015 |
- | 1,452,412 | 1,452,412 | - | 40,627 | 194,298 | 234,925 | 1,687,337 | |
Net carrying amount Dec 31 2015 |
- | - | - | 986,293 | 1,146,311 | 183,777 | 2,316,381 | 2,316,381 |
(1) Expenditure on the B-8 field (platform conversion, modifications to the transmission infrastructure and water injection wells).
(2) Related to prepayments for capital expenditure on the development of the B-8 field.
(3) Reclassification of expenditure following production launch in the B-8 field.
(4) As a result of the change of the technical concept for the project to convert the Petrobaltic rig into a production centre in the B-8 field, the Group reclassified the field development assets related to the project to assets held for sale (see Note 17). The assets represented expenditure incurred by LOTOS Petrobaltic S.A. on elements of the tubular legs of the rig, for which an impairment loss of PLN 36,634 thousand was recognised (see Note 9.4) and which were recognised as non-current assets (or disposal groups) held for sale valued at PLN 8,377 thousand, the value being − in the Management Board’s opinion − the net realisable value of the tubular legs (based on an analysis of current steel prices in Poland and on foreign markets, made by LOTOS Petrobaltic S.A.).
(5) Acquisition of Sleipner assets in Norway (for more information on the transaction, see Note 13.1.3. to the Consolidated financial statements for 2015 ).
(6) Assets related to the Kretinga, Nausodis, Girkalai, Vezaiciai, Ližiai and Ablinnga fields.
Impairment testing of assets in the B-8 field in the Baltic Sea
As at December 31st 2016 and December 31st 2015, the Group performed impairment tests for production assets related to the B-8 field.
Key assumptions underlying computation of the recoverable amount of the tested assets:
- the cash flow projection period was assumed to equal the asset’s planned life,
- the discount rate was assumed to equal the weighted average cost of capital, and was calculated at 10.07% (2015: 9.70) after taxation with the 19% marginal tax rate,
- production volumes were assumed to be in line with a competent person report prepared by Miller & Lents based on available current geological information,
- sales volumes, capital expenditure, operating expenses and field decommissioning costs were assumed in line with current projections for the B-8 field.
The following price assumptions were adopted for the estimates as part of the impairment test as at December 31st 2016:
- for crude oil in USD/bbl (per barrel of oil equivalent):
- 2017–2022 – prices in line with the price assumptions for the available market scenarios,
- 2023 and beyond − prices remaining stable in the long term on par with the 2022 level, adjusted for inflation.
The following assumptions were adopted for the estimates as part of the impairment test as at December 31st 2015:
- for crude oil in USD/bbl (per barrel of oil equivalent):
- 2016–2019 – prices in line with the price assumptions for the available market scenarios,
- 2020 and beyond − prices remaining stable in the long term on par with the 2019 level, adjusted for inflation.
The impairment test of the B-8 field’s development assets indicated no need to recognise impairment losses on the assets.
Due to significant market volatility, in particular with respect to crude oil prices, the adopted assumptions may be subject to justifiable changes, and such changes may necessitate a revision of the carrying amounts of the field’s assets in the future. Therefore, the Group points to a number of uncertainties as to the recoverable amount of the assets:
- volatility of market prices of crude oil,
- estimates of investment expenditure related to contracts for which no contractor has yet been selected,
- amount of reclamation commitments,
- volatility of the PLN/USD exchange rate,
- discount rates.
To determine the effect of key factors on the test results, the Group carried out an analysis of sensitivity to a -15%/+15% change in oil and gas prices, -15%/+15% change in production volumes, -15%/+15% change in the USD/PLN exchange rate, and -0.5%/+0.5% change in the discount rate.
It was shown that the changes in the key assumptions had no effect on the impairment losses on the B-8 field’s assets.
Progress of the YME field development project in Norway
Due to significant delays in the implementation of the YME project, cost overruns, and defects of the MOPU (Mobile Offshore Production Unit) to be used in production operations in the field, in previous years the Group recognised impairment losses on the YME assets until they were fully written off in 2014.
On August 22nd 2016, the YME project partners completed activities to remove the defective MOPU from the field, financed with funds raised by the consortium members (the Group has a 20% interest in the project) under an agreement with the supplier of the MOPU (see Note 26.1). The amount of expected further costs related to the arrangement (most of which have been already contracted) was reflected in these financial statements by updating relevant provisions in accordance with the best current knowledge of the Management Board as at the date of these statements (see Note 26.1).
On December 12th 2016, the consortium partners approved a resolution to proceed with work on further development of the field and preparation of the Front-End Engineering Design with a view to drafting a revised field development plan. The revised development plan is to be approved by the Norwegian authorities by the end of 2017.
Given the nature of the Joint Operating Agreement between the YME project partners, and in connection with the guarantees issued by LOTOS Petrobaltic S.A. for the benefit of the Norwegian government with respect to LOTOS E&P Norge AS’s exploration and production activities on the Norwegian Continental Shelf, the Group takes into account that it may have to incur further capital expenditure on the YME field and to revalue the expected decommissioning costs, in particular once the revised field development plan is prepared, the YME field decommissioning concept is selected, and the Norwegian authorities approve the adopted plans. The initial assumption is that after production is launched on the basis of the revised field development plan in 2019, decommissioning of the YME project will take place in 2028−2032.
In the opinion of LOTOS E&P Norge AS, the amount of the provision for decommissioning of the YME field infrastructure (see Note 26.1) reflects the necessary commitment by the Group if the scenario of complete decommissioning materialises by 2032. This is a consequence of the phase (currently under way) of preparation of the revised field development plan and the YME field infrastructure decommissioning plan, which were adopted by the consortium with the votes of the majority of its members and reflected in the project budget, taking into account a reduction in the decommissioning cost estimate for 2028−2032. The cost estimate was reduced by an amount corresponding to a portion of the conditional budget in connection with a drop in the market cost of related services in Norway following the decline in market prices of hydrocarbons and no forecasts of a possible material change in their levels in the period covered by the analysis.
Considering the recognised impairment losses on the YME expenditure and the incurred tax losses that may be carried forward, the Group recognised a deferred tax asset in the consolidated statement of financial position as at December 31st 2016. The total amount of the tax assets related to the Group’s operations in Norway was PLN 523m as at December 31st 2016. Given that under the Norwegian tax legislation tax losses can be carried forward indefinitely, and that the Group is generating revenue from operations in the producing Sleipner gas field and the offshore gas and condensate production facility in the Heimdal field, the Management Board believes that the deferred tax assets recognised as at December 31st 2016 are fully realisable in the amount disclosed in these consolidated financial statements.
Impairment testing of the production assets of the offshore gas and condensate production facility in the Heimdal field and of the Sleipner gas field in Norway
As at December 31st 2016, the Group tested for impairment the production assets of each centre generating cash flows from producing Heimdal and Sleipner fields. As at December 31st 2015, the Group performed impairment tests for the Heimdal fields. Their results indicated no necessity to recognise impairment losses on those assets either.
As part of impairment testing of the Norwegian production assets, their recoverable amount was determined at their fair value estimated using the discounted future cash flows method.
Key assumptions underlying computation of the recoverable amount of the tested assets:
- the cash flow projection period was assumed to equal the asset’s planned life,
- the discount rate was assumed to equal the weighted average cost of capital, and was calculated at 7.63% (2015: 7.33%) after taxation with the 78% marginal tax rate (applicable in Norway),
- production and sales volumes, capital expenditure, operating expenses and field decommissioning costs were assumed as projected by the field operators.
The following price assumptions were adopted for the purposes of the impairment tests as at December 31st 2016:
- for crude oil in USD/bbl (per barrel):
- 2017–2019 – prices in line with the price assumptions for the available market scenarios,
- 2020 and beyond − prices remaining stable in the long term on par with the 2019 level, adjusted for inflation,
- for natural gas in p/th (pence/thermal units):
- 2017–2019 − prices in line with the price assumptions for the available market scenarios, and in 2020 and beyond − prices remaining stable in the long term on par with the 2019 level, adjusted for inflation.
The following assumptions were adopted for the estimates as part of the impairment tests as at December 31st 2015:
- for crude oil in USD/bbl (per barrel):
- 2016–2019 – prices in line with the price assumptions for the available market scenarios,
- 2020 and beyond − prices remaining stable in the long term on par with the 2019 level, adjusted for inflation,
- for natural gas in p/th (pence/thermal units):
- 2016–2019 − prices in line with the price assumptions for the available market scenarios, and in 2020 and beyond − prices remaining stable in the long term on par with the 2019 level, adjusted for inflation.
The USD/NOK exchange rate used for the purposes of the impairment tests is a cross rate calculated based on forward curves for the EUR/USD and EUR/NOK currency pairs.
Due to significant market volatility, in particular with respect to oil and gas prices, the adopted assumptions may be subject to justifiable changes, and such changes may necessitate a revision of the carrying amounts of the LOTOS E&P Norge’s assets in the future.
To determine the effect of key factors on the test results, the Group carried out an analysis of sensitivity to a -15%/+15% change in oil and gas prices, -15%/+15% change in production volumes, and -15%/+15% change in the USD/NOK exchange rate.
The table below presents the estimated changes in potential impairment losses on the tested Heimdal and Sleipner assets following changes in the key assumptions:
Factor | Change | Impact on impairment losses PLN '000 | |
---|---|---|---|
Crude oil and gas prices | +/- 15% | 22,626 | - 14,858 |
Production volume | +/- 15% | 22,009 | - 13,806 |
USD/NOK exchange rate | +/- 15% | 22,549 | - 14,729 |
Discount rate | +/- 0,5 pp | - | 12,895 |
Impairment testing of onshore oil and gas extraction facilities in Lithuania
As a result of impairment tests performed for the resources and production infrastructure in Lithuania, as at December 31st 2016 the Group recognised an impairment loss of PLN 119 thousand on production assets associated with the Kretinga field, and an impairment loss of PLN 12,318 thousand on property, plant and equipment comprising production infrastructure associated with the Auksoras, Vėžaičiai, Kretinga, Ablinga and Ližiai fields; see Note 9.4.
Following impairment tests as at December 31st 2015 an impairment loss totalling PLN 52,419 thousand was recognised on production assets associated with the Kretinga, Nausodis, Girkalai, Vėžaičiai and Ližiai fields; another impairment loss, of PLN 6,314 thousand, was recognised on the property, plant and equipment comprising production infrastructure of the Ablinga and Ližiai fields; see Note 9.4.
The Group determines the recoverable amount of the tested assets as their value in use measured using the discounted future cash flows method.
Key assumptions underlying computation of the recoverable amount of the tested assets in Lithuania:
- the cash flow projection period was assumed to equal the asset’s planned life,
- the discount rate was assumed to equal the weighted average cost, at 9.0% (2015: 10.1%),
- production volumes were assumed to be in line with a competent person report prepared by Miller & Lents based on available current geological information,
- capital expenditure was assumed to match the projected production volumes.
The following crude oil price assumptions (USD/bbl) were adopted for the purposes of the estimates made in 2016:
- 2017–2022 – prices in line with the price assumptions for the available market scenarios,
- 2023 and beyond − prices remaining stable in the long term on par with the 2022 level, adjusted for inflation.
Crude oil price assumptions (USD/bbl) adopted for the purposes of the estimates as at December 31st 2015:
- 2016–2019 – prices in line with the price assumptions for the available market scenarios,
- 2020 and beyond − prices remaining stable in the long term on par with the 2019 level, adjusted for inflation.
Due to significant market volatility, in particular with respect to crude oil prices, the adopted assumptions may be subject to justifiable changes, and such changes may necessitate a revision of the carrying amounts of the assets in the future.
To determine the effect of key factors on the test results, the Group carried out an analysis of sensitivity to a -15%/+15% change in oil prices, -15%/+15% change in production volumes, -15%/+15% change in the USD/EUR exchange rate, and -0.5%/+0.5% change in the discount rate.
The table below presents the estimated changes in impairment losses on the Lithuanian assets referred to above following changes in the key assumptions:
Factor | Change | Impact on impairment losses PLN '000 | |
---|---|---|---|
Crude oil and gas prices | +/- 15% | 28,796 | -41,861 |
Production volume | +/- 15% | 22,631 | -33,810 |
USD/EUR exchange rate | +/- 15% | 17,532 | -30,960 |
Discount rate | +/- 0,5 pp | -7 601 | - |
Assets related to future costs of decommissioning of oil and gas extraction facilities
As part of its development and production assets, the Group discloses assets related to future costs of decommissioning of oil and gas extraction facilities depreciated with the units-of-production method. These assets are recognised along with the recognition and remeasurement of provisions for decommissioning of oil and gas extraction facilities.
Development assets | Production assets | Total | ||||||
---|---|---|---|---|---|---|---|---|
Poland | Norway | Total | Poland | Norway | Lithuania | Total | ||
Gross carrying amount Jan 1 2016 |
- | 122,783 | 122,783 | 108,129 | 829,806 | 2,042 | 939,977 | 1,062,760 |
Estimated costs of decommissioning of oil and gas extraction facilities | - | - | - | (2,921) | (87,911) | (389) | (91,221) | (91,221) |
Exchange differences on translating foreign operations | - | 12,109 | 12,109 | - | 79,179 | 73 | 79,252 | 91,361 |
Reclassification to production assets | - | - | - | 2,223 (1) | - | - | 2,223 | 2,223 |
Gross carrying amount Dec 31 2016 |
- | 134,892 | 134,892 | 107,431 | 821,074 | 1,726 | 930,231 | 1,065,123 |
Accumulated depreciation and amortisation Jan 1 2016 |
- | - | - | 76,568 | 124,010 | 1,341 | 201,919 | 201,919 |
Depreciation and amortisation | - | - | - | 1,339 | 261,606 | 185 | 263,130 | 263,130 |
Exchange differences on translating foreign operations | - | - | - | - | 20,148 | 53 | 20,201 | 20,201 |
Reclassification to production assets | - | - | - | 2,223 (1) | - | - | 2,223 | 2,223 |
Accumulated depreciation and amortisation Dec 31 2016 |
- | - | - | 80,130 | 405,764 | 1,579 | 487,473 | 487,473 |
Impairment losses Jan 1 2016 |
- | 122,783 | 122,783 | - | 32,029 | - | 32,029 | 154,812 |
Recognised | - | - | - | - | - | - | - | - |
Exchange differences on translating foreign operations | - | 12,109 | 12,109 | - | 3,100 | - | 3,100 | 15,209 |
Used/Reversed | - | - | - | - | (1,950) | - | (1,950) | (1,950) |
Impairment losses Dec 31 2016 |
- | 134,892 | 134,892 | - | 33,179 | - | 33,179 | 168,071 |
Net carrying amount Dec 31 2016 |
- | - | - | 27,301 | 382,131 | 147 | 409,579 | 409,579 |
(1) Offshore gas pipeline from the B-3 field.
Development assets | Production assets | Total | ||||||
---|---|---|---|---|---|---|---|---|
Poland | Norway | Total | Poland | Norway | Lithuania | Total | ||
Gross carrying amount Jan 1 2015 |
28,571 | 129,699 | 158,270 | 72,558 | 266,534 | 2,298 | 341,390 | 499,660 |
Recognised | - | - | - | - | 605,423 (2) | - | 605,423 | 605,423 |
Estimated costs of decommissioning of oil and gas extraction facilities | 10,054 | 1,485 | 11,539 | (304) | 5,480 | (250) | 4,926 | 16,465 |
Exchange differences on translating foreign operations | - | (8,401) | (8,401) | - | (47,631) | (6) | (47,637) | (56,038) |
Reversal of assets related to decommissioning of oil and gas extraction facilities | (2,750) | - | (2,750) | - | - | - | - | (2,750) |
Reclassification of development assets to production assets | (35,875) (1) | - | (35,875) | 35,875 (1) | - | - | 35,875 | - |
Gross carrying amount Dec 31 2015 |
- | 122,783 | 122,783 | 108,129 | 829,806 | 2,042 | 939,977 | 1,062,760 |
Accumulated depreciation and amortisation Jan 1 2015 |
3,998 | - | 3,998 | 72,217 | 90,069 | 942 | 163,228 | 167,226 |
Depreciation and amortisation | 316 | - | 316 | 37 | 41,810 | 393 | 42,240 | 42,556 |
Exchange differences on translating foreign operations | - | - | - | - | (7,869) | 6 | (7,863) | (7,863) |
Reclassification of development assets to production assets | (4,314) (1) | - | (4,314) | 4,314 (1) | - | - | 4,314 | - |
Accumulated depreciation and amortisation Dec 31 2015 |
- | - | - | 76,568 | 124,010 | 1,341 | 201,919 | 201,919 |
Impairment losses Jan 1 2015 |
- | 129,699 | 129,699 | - | - | - | - | 129,699 |
Recognised | - | 1,485 | 1,485 | - | - | - | - | 1,485 |
Exchange differences on translating foreign operations | - | (8,401) | (8,401) | - | (1,684) | - | (1,684) | (10,085) |
Used/Reversed | - | - | - | - | 33,713 | - | 33,713 | 33,713 |
Impairment losses Dec 31 2015 |
- | 122,783 | 122,783 | - | 32,029 | - | 32,029 | 154,812 |
Net carrying amount Dec 31 2015 |
- | - | - | 31,561 | 673,767 | 701 | 706,029 | 706,029 |
(1) Reclassification of expenditure following production launch in the B-8 field.
(2) Acquisition of Sleipner assets in Norway (for more information on the transaction, see Note 13.1.3. to the Consolidated financial statements for 2015 ).
13.2.3 Other non-current assets of the upstream segment
Land | Buildings, structures | Plant and equipment | Vehicles, other | Property, plant and equipment under construction | Intangible assets | Total | |
---|---|---|---|---|---|---|---|
Gross carrying amount Jan 1 2016 |
11,417 | 96,386 | 84,614 | 539,132 | 15,072 | 29,495 | 776,116 |
Purchase | - | - | 255 | 11,644 | 12,295 | 187 | 24,381 |
Transfer from property, plant and equipment under construction | - | - | 136 | 10,604 | (10,740) | - | - |
Exchange differences on translating foreign operations | - | 66 | 775 | 12,806 | 29 | 1,721 | 15,397 |
Reclassification of refining and other assets to production assets | - | (42,408) (1) | (16,141) (1) | - | - | - | (58,549) |
Disposal | - | (13) | (461) | (13,772) | - | (269) | (14,515) |
Other | - | (885) | (33) | - | (1,381) | (2) | (2,301) |
Gross carrying amount Dec 31 2016 |
11,417 | 53,146 | 69,145 | 560,414 | 15,275 | 31,132 | 740,529 |
Accumulated depreciation and amortisation Jan 1 2016 |
3,863 | 34,391 | 45,535 | 235,098 | - | 16,650 | 335,537 |
Depreciation and amortisation | 277 | 2,291 | 4,012 | 33,698 | - | 4,421 | 44,699 |
Exchange differences on translating foreign operations | - | 16 | 555 | 11,209 | - | 886 | 12,666 |
Reclassification of refining and other assets to production assets | - | (16,464) (1) | (10,597) (1) | - | - | - | (27,061) |
Disposal | - | (12) | (356) | (7,235) | - | (269) | (7,872) |
Other | - | (152) | (3) | - | - | (2) | (157) |
Accumulated depreciation and amortisation Dec 31 2016 |
4,140 | 20,070 | 39,146 | 272,770 | - | 21,686 | 357,812 |
Impairment losses Jan 1 2016 |
- | - | 562 | 5,343 | 120 | - | 6,025 |
Recognised | 4 | 21 | 12 | 5,374 (2) | - | - | 5,411 |
Exchange differences on translating foreign operations | - | - | 19 | 277 | 9 | - | 305 |
Used/Reversed | - | - | - | (5,875) | - | - | (5,875) |
Impairment losses Dec 31 2016 |
4 | 21 | 593 | 5,119 | 129 | - | 5,866 |
Net carrying amount Dec 31 2016 |
7,273 | 33,055 | 29,406 | 282,525 | 15,146 | 9,446 | 376,851 |
(1) Offshore gas pipeline from the B-3 field.
(2) Including ships valued at PLN 5,333 thousand, see Note 9.4.
Land | Buildings, structures | Plant and equipment | Vehicles, other | Property, plant and equipment under construction | Intangible assets | Total | |
---|---|---|---|---|---|---|---|
Gross carrying amount Jan 1 2015 |
11,417 | 98,072 | 79,528 | 493,182 | 108,236 | 30,542 | 820,977 |
Purchase | - | - | 1,287 | 252 | 30,466 | 136 | 32,141 |
Transfer from property, plant and equipment under construction | - | 407 | 3,010 | 29,026 | (32,443) | - | - |
Exchange differences on translating foreign operations | - | 2 | 987 | 17,178 | 93 | (1,158) | 17,102 |
Estimated costs of decommissioning, land reclamation and clean-up | - | (2,095) | (142) | - | - | - | (2,237) |
Reclassification to development assets | - | - | - | - | (30,857) (1) | - | (30,857) |
Reclassification to exploration and evaluation assets | - | - | - | - | (60,577) (2) | - | (60,577) |
Disposal | - | - | (43) | (506) | - | (22) | (571) |
Other | - | - | (13) | - | 154 | (3) | 138 |
Gross carrying amount Dec 31 2015 |
11,417 | 96,386 | 84,614 | 539,132 | 15,072 | 29,495 | 776,116 |
Accumulated depreciation and amortisation Jan 1 2015 |
3,586 | 29,375 | 40,114 | 182,528 | - | 12,584 | 268,187 |
Depreciation and amortisation | 277 | 5,014 | 4,764 | 38,991 | - | 4,575 | 53,621 |
Exchange differences on translating foreign operations | - | 2 | 707 | 14,080 | - | (485) | 14,304 |
Disposal | - | - | (37) | (501) | - | (21) | (559) |
Other | - | - | (13) | - | - | (3) | (16) |
Accumulated depreciation and amortisation Dec 31 2015 |
3,863 | 34,391 | 45,535 | 235,098 | - | 16,650 | 335,537 |
Impairment losses Jan 1 2015 |
- | - | 300 | 1,098 | - | - | 1,398 |
Recognised | - | - | 255 (3) | 4,127 (3) | 117 (3) | - | 4,499 |
Exchange differences on translating foreign operations | - | - | 7 | 118 | 3 | - | 128 |
Used/Reversed | - | - | - | - | - | - | - |
Impairment losses Dec 31 2015 |
- | - | 562 | 5,343 | 120 | - | 6,025 |
Net carrying amount Dec 31 2015 |
7,554 | 61,995 | 38,517 | 298,691 | 14,952 | 12,845 | 434,554 |
(1) Related to prepayments for capital expenditure on the development of the B-8 field.
(2) Related to operations on the Gaz Południe, Gotlandia, Łeba and Rozewie licence areas, which will be continued in 2016 in line with the upstream segment management’s decision. Applications were filed to convert the Łeba and Rozewie licences into combined oil and gas exploration, appraisal and production licences.
(3) Ships.
Other property, plant and equipment and intangible assets of the upstream segment include ships and a multi-purpose mobile drilling rig.
13.3 Other information on property, plant and equipment and intangible assets
Property, plant and equipment used under finance lease | ||
---|---|---|
Dec 31 2016 | Dec 31 2015 | |
Gross carrying amount | 312,277 | 334,209 |
Accumulated depreciation and amortisation | 103,644 | 93,403 |
Impairment losses | 800 | - |
Net carrying amount | 207,833 | 240,806 |
The Group uses finance leases to finance primarily rolling stock assets (downstream segment); see also Note 23.4.
Allocation of depreciation and amortisation | 2016 | 2015 |
---|---|---|
Cost of sales | 936,303 | 611,832 |
Distribution costs | 87,474 | 68,769 |
Administrative expenses | 35,628 | 38,722 |
Change in products and adjustments to cost of sales | 8,489 | (4,755) |
Total | 1,067,894 | 714,568 |
In 2016, the Group capitalised finance costs of PLN 4,840 thousand as property, plant and equipment under construction and intangible assets under development (2015: PLN 1,383 thousand) (see Note 13.1.1 and 13.1.3). As at December 31st 2016, financing costs capitalised as property, plant and equipment under construction and intangible assets under development totalled PLN 13,084 thousand (December 31st 2015: PLN 5,164 thousand).
As at December 31st 2016, property, plant and equipment and intangible assets serving as collateral for the Group’s liabilities were PLN 6,232,650 thousand (December 31st 2015: PLN 6,538,480 thousand).
As at December 31st 2016, the Group’s future contractual commitments for expenditure on property, plant and equipment and intangible assets not disclosed in the statement of financial position amounted to PLN 1,366,651 thousand and were chiefly related to the construction of the delayed coking unit (DCU) (the EFRA Project), development of the B-8 field (B8 Project), construction of a hydrogen recovery unit (HRU) at the refinery, and expansion of the service station chain (December 31st 2015: PLN 1,773,814 thousand).