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- 17. Property, plant and equipment and tangible assets under construction
- LOTOS Annual Report 2011 /
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- Financial data /
- Consolidated financial statements 2011 /
- Notes to the financial statements /
- 17. Property, plant and equipment and tangible assets under construction
17. Property, plant and equipment and tangible assets under construction
PLN '000 | Dec 31 2011 | Dec 31 2010 |
---|---|---|
Land | 401,744 | 398,030 |
Buildings and structures | 3,583,780 | 2,851,534 |
Plant and equipment | 4,441,854 | 2,535,512 |
Vehicles and other | 538,102 | 388,722 |
Total property, plant and equipment | 8,965,480 | 6,173,798 |
Tangible assets under construction | 1,513,492 | 4,197,422 |
Prepayments for tangible assets under construction | 44,578 | 16,262 |
Total tangible assets under construction | 1,558,070 | 4,213,684 |
Total | 10,523,550 | 10,387,482 |
As at December 31st 2011, financing costs capitalised in tangible assets under construction and prepayments for tangible assets under construction amounted to PLN 35,078 thousand (December 31st 2010: PLN 155,474 thousand).
Changes to property, plant and equipment and prepayments for tangible assets under construction
PLN '000 | Land | Buildings and structures | Plant and equipment | Vehicles and other | Tangible assets under construction, including: | Prepayments for tangible assets under construction | Total | ||
- exploration and appraisal assets (1) | |||||||||
Gross carrying amount as at Jan 1 2010 (restated) |
406,693 | 2,519,765 | 1,548,136 | 661,866 | 6,160,361 | 70,839 | 153,536 | 11,450,357 | |
Increase | 4,271 | 1,070,713 | 1,908,398 | 146,625 | (1,822,732) | 31,860 | (137,194) | 1,170,081 | |
- purchase | - | - | 6,094 | 31,422 | 929,016 | 31,860 | 57,075 | 1,023,607 | |
- transfer from investments | 4,246 | 1,061,710 | 1,901,476 | 111,402 | (3,091,898) | - | - | (13,064) | |
- transfer | - | - | (291) | 239 | - | - | - | (52) | |
- reclassification from investments - real property | 25 | 88 | - | - | - | - | - | 113 | |
- currency translation differences on foreign operations | - | - | 116 | 2,943 | 23,603 | - | - | 26,662 | |
- settled prepayments | - | - | - | - | 194,269 | - | (189,901) | 4,368 | |
- borrowing costs | - | - | - | - | 116,210 | - | (4,368) | 111,842 | |
- assets related to decommissioning of the Offshore Oil and Gas Facility | - | 8,906 | - | - | 6,066 | - | - | 14,972 | |
- other | - | 9 | 1,003 | 619 | 2 | - | - | 1,633 | |
Decrease | (1,144) | (16,292) | (28,573) | (14,769) | (3,592) | (188) | (80) | (64,450) | |
- sale | (628) | (2,814) | (6,006) | (10,078) | (708) | - | - | (20,234) | |
- liquidation | (28) | (2,875) | (10,882) | (4,162) | (614) | - | - | (18,561) | |
- reclassification into investments - real property | (41) | (1,578) | (515) | - | - | - | - | (2,134) | |
- reclassification into non-current assets held for sale | (443) | (8,987) | (11,164) | (529) | - | - | - | (21,123) | |
- other | (4) | (38) | (6) | - | (2,270) | (188) | (80) | (2,398) | |
Gross carrying amount as at Dec 31 2010 |
409,820 | 3,574,186 | 3,427,961 | 793,722 | 4,334,037 | 102,511 | 16,262 | 12,555,988 | |
Gross carrying amount as at Jan 1 2011 |
409,820 | 3,574,186 | 3,427,961 | 793,722 | 4,334,037 | 102,511 | 16,262 | 12,555,988 | |
Increase | 6,539 | 949,542 | 2,172,328 | 279,796 | (2,392,946) | 35,743 | 28,336 | 1,043,595 | |
- purchase | - | - | 11,817 | 52,829 | 642,707 | 33,085 | 48,583 | 755,936 | |
- transfer from investments | 6,134 | 941,408 | 2,065,393 | 210,385 | (3,271,129) | - | - | (47,809) | |
- acquisition of control over the AB LOTOS Geonafta Group | 2 | 1,818 | 84,858 | 591 | 10,607 | 2,492 | - | 97,876 | |
- transfer | (14) | (213) | (249) | 290 | 147 | - | - | (39) | |
- reclassification from investments - real property | 417 | 3,116 | 615 | 35 | - | - | - | 4,183 | |
- reclassification from non-current assets held for sale | - | 293 | - | - | - | - | - | 293 | |
- currency translation differences on foreign operations | - | 121 | 7,361 | 15,666 | 146,728 | 166 | 2,516 | 172,392 | |
- settled prepayments | - | - | - | - | 24,115 | - | (24,115) | - | |
- borrowing costs | - | - | - | - | 34,839 | - | 1,352 | 36,191 | |
- assets related to decommissioning of the Offshore Oil and Gas Facility | - | 2,967 | 2,500 | - | 19,040 | - | - | 24,507 | |
- other | - | 32 | 33 | - | - | - | - | 65 | |
Decrease | (1,751) | (20,947) | (39,558) | (41,076) | (79,293) | - | (20) | (182,645) | |
- sale | (346) | (187) | (5,368) | (3,641) | (528) | - | - | (10,070) | |
- liquidation | (452) | (615) | (9,010) | (4,465) | (469) | - | - | (15,011) | |
- reclassification into non-current assets held for sale | (953) | (20,145) | (19,219) | (2,081) | (191) | - | - | (42,589) | |
- other | - | - | (5,961) | (30,889) | (78,105) (2) | - | (20) | (114,975) | |
Gross carrying amount as at Dec 31 2011 |
414,608 | 4,502,781 | 5,560,731 | 1,032,442 | 1,861,798 | 138,254 | 44,578 | 13,416,938 | |
Accumulated depreciation as at Jan 1 2010 (restated) |
10,309 | 581,690 | 771,428 | 321,612 | - | - | - | 1,685,039 | |
Increase | 1,339 | 144,351 | 141,111 | 94,701 | - | - | - | 381,502 | |
- amortisation | 1,339 | 144,286 | 140,409 | 91,934 | - | - | - | 377,968 | |
- transfer | - | - | (259) | 207 | - | - | - | (52) | |
- reclassification from investments - real property | - | 57 | - | - | - | - | - | 57 | |
- currency translation differences on foreign operations | - | - | 78 | 1,578 | - | - | - | 1,656 | |
- other | - | 8 | 883 | 982 | - | - | - | 1,873 | |
Decrease | (266) | (7,406) | (20,453) | (11,335) | - | - | - | (39,460) | |
- sale | (6) | (327) | (3,212) | (8,237) | - | - | - | (11,782) | |
- liquidation | - | (908) | (10,349) | (2,572) | - | - | - | (13,829) | |
- reclassification into investments - real property | - | (894) | (505) | - | - | - | - | (1,399) | |
- reclassification into non-current assets held for sale | - | (5,266) | (6,385) | (526) | - | - | - | (12,177) | |
- other | (260) | (11) | (2) | - | - | - | - | (273) | |
Accumulated depreciation as at Dec 31 2010 |
11,382 | 718,635 | 892,086 | 404,978 | - | - | - | 2,027,081 | |
Accumulated depreciation as at Jan 1 2011 |
11,382 | 718,635 | 892,086 | 404,978 | - | - | - | 2,027,081 | |
Increase | 1,398 | 189,213 | 252,023 | 128,041 | - | - | - | 570,675 | |
- amortisation | 1,398 | 187,300 | 250,040 | 117,003 | - | - | - | 555,741 | |
- transfer | - | (53) | (192) | 198 | - | - | - | (47) | |
- reclassification from investments - real property | - | 1,698 | 606 | 28 | - | - | - | 2,332 | |
- reclassification from non-current assets held for sale | - | 264 | - | - | - | - | - | 264 | |
- currency translation differences on foreign operations | - | 4 | 1,538 | 10,338 | - | - | - | 11,880 | |
- other | - | - | 31 | 474 | - | - | - | 505 | |
Decrease | (324) | (5,232) | (31,586) | (39,716) | - | - | - | (76,858) | |
- sale | (22) | (49) | (5,034) | (3,264) | - | - | - | (8,369) | |
- liquidation | - | (204) | (7,972) | (4,485) | - | - | - | (12,661) | |
- reclassification into non-current assets held for sale | (302) | (4,979) | (12,619) | (1,592) | - | - | - | (19,492) | |
- other | - | - | (5,961) | (30,375) | - | - | - | (36,336) | |
Accumulated depreciation as at Dec 31 2011 |
12,456 | 902,616 | 1,112,523 | 493,303 | - | - | - | 2,520,898 | |
Impairment losses as at Jan 1 2010 (restated) |
515 | 6,885 | 4,980 | 412 | 73,581 | 15,454 | - | 86,373 | |
Increase | - | 3,254 | 299 | 142 | 63,047 | 47,692 | - | 66,742 | |
Reclassification into non-current assets held for sale | - | (1,687) | (4,414) | (3) | - | - | - | (6,104) | |
Decrease | (107) | (4,435) | (502) | (529) | (13) | - | - | (5,586) | |
Impairment losses Dec 31 2010 |
408 | 4,017 | 363 | 22 | 136,615 | 63,146 | - | 141,425 | |
Impairment losses as at Jan 1 2011 | 408 | 4,017 | 363 | 22 | 136,615 | 63,146 | - | 141,425 | |
Increase | - | 13,691 | 2,582 | 1,163 | 262,608 | 2,805 | - | 280,044 | |
- acquisition of control over the AB LOTOS Geonafta Group | - | - | 3,731 | - | 1,913 | - | - | 5,644 | |
Exchange differences on translating foreign operations | - | - | 249 | - | 16,619 | 135 | - | 16,868 | |
Decrease | - | (1,323) | (571) | (148) | (69,449) (2) | - | - | (71,491) | |
Impairment losses Dec 31 2011 |
408 | 16,385 | 6,354 | 1,037 | 348,306 | 66,086 | - | 372,490 | |
Net carrying amount Jan 1 2010 (restated) |
395,869 | 1,931,190 | 771,728 | 339,842 | 6,086,780 | 55,385 | 153,536 | 9,678,945 | |
Net carrying amount Dec 31 2010 | 398,030 | 2,851,534 | 2,535,512 | 388,722 | 4,197,422 | 39,365 | 16,262 | 10,387,482 | |
Net carrying amount Dec 31 2011 | 401,744 | 3,583,780 | 4,441,854 | 538,102 | 1,513,492 | 72,168 | 44,578 | 10,523,550 |
(1) The value of exploration and appraisal assets comprises the value of expenses capitalised until technical feasibility and commercial viability of extracting a mineral resource are demonstrable.
(2) Including PLN 69,243 thousand relating to discontinued investments (design documentation) in the Company with the use of impairment loss of PLN 69,239 thousand.
As at December 31st 2011, the net value of the items of property, plant and equipment serving as collateral for the Group’s liabilities was PLN 7,860,999 thousand (December 31st 2010: PLN 5,970,414 thousand).
The cost of servicing the liabilities incurred to finance tangible assets under construction and prepayments for tangible assets under construction in the year ended December 31st 2011 amounted to PLN 36,191 thousand (December 31st 2010: PLN 111,842 thousand).
As at December 31st 2011, the net value of the oil and gas facilities decommissioning asset referred to in Note 36.1 amounted to PLN 133,094 thousand (December 31st 2010: PLN 112,929 thousand).
In the year ended December 31st 2011, the cost of depreciation of property, plant and equipment in respect of which technical feasibility and commercial viability of extracting a mineral resource have been demonstrated amounted to PLN 5,436 thousand (December 31st 2010: PLN 6,146 thousand).
Costs of direct purchases of materials and investment services related to exploration and appraisal assets for the year ended December 31st 2011 amounted to PLN 12,765 thousand (2010: PLN 15,098 thousand), including direct cash flows from investing activities related to exploration and appraisal assets of PLN 10,843 thousand (2010: PLN 14,965 thousand). As at December 31st 2011, investment liabilities amounted to PLN 1,922 thousand (December 31st 2010: PLN 133 thousand).
In the year ended December 31st 2011, impairment losses on exploration and appraisal assets amounted to PLN 2,805 thousand (December 31st 2010: PLN 47,692 thousand). Furthermore, in 2010 the Group charged depreciation on exploration and appraisal assets of PLN 36 thousand.
In the year ended December 31st 2011, the Group recognised an impairment loss related to the IGCC project of PLN 19,352 thousand (December 31st 2010: PLN 14,230 thousand), including licences with a value of PLN 6,468 thousand received free of charge.
Prospects for development of the B-4 and B-6 gas fields
The item “Tangible assets under construction” includes expenditure of PLN 48,901 thousand incurred by LOTOS Petrobaltic S.A. on gas exploration at the B-4 and B-6 fields (of which PLN 48,308 was attributable to exploration and evaluation). In 2010, an impairment loss on these assets was recognised and charged to other operating expenses. According to the findings of the analyses which have been carried out, significant capital expenditure is required to obtain profitable commercial production of hydrocarbons. In the short term, LOTOS Petrobaltic S.A. does not plan to incur any material expenditure on development of the B-4 and B-6 gas fields, until a joint venture partner is found and the terms of cooperation are determined.
Information on interests in Norwegian production and exploration licences
The item “Tangible assets under construction” includes expenditure incurred by LOTOS Exploration and Production Norge AS on the purchase of interests in the Norwegian production licences (PL 316 and PL 316B) and on development of the YME field in the amount of NOK 2,596,958 (i.e. PLN 1,474,033 thousand, translated at the mid-exchange rate for NOK quoted by the National Bank of Poland for December 31st 2011), additionally adjusted by the tax effect of the YME field purchase transaction, of NOK 75,966 thousand, (i.e. PLN 43,118 thousand, translated at the mid-exchange rate for NOK quoted by the National Bank of Poland for December 31st 2011).
The Group tested these assets for impairment based on a discounted cash flow analysis of LOTOS Exploration and Production Norge AS’s interests in the hydrocarbon reserves held under the acquired production licences covering the YME field development project. As at December 31st 2011, the carrying value of these interests amounted to NOK 2,146 million (i.e. PLN 1,218 million, translated at the mid-exchange rate for NOK quoted by the National Bank of Poland for December 31st 2011), taking into account the tax effect of the YME field purchase transaction.
The YME field impairment test as at December 31st 2011 was carried out assuming a change in crude oil prices by +/-15%/bbl relative to Brent crude spot and forward prices as at December 31st 2011, a +/-15% change on the USD/NOK forward rate as at December 31st 2011, and a +/-15% change in the YME field reserves, analysing a weighted average cost of capital of 9.7 subject to a 78% marginal tax rate (applicable in Norway).
For the purposes of the test it has been assumed that production from the field will start in January 2013.
The Group determines the recoverable amount of the YME field based on the values in use, using the discounted cash flow method. Future cash flows were calculated by LOTOS Exploration and Production Norge AS based on 10-year production volume and cost forecasts prepared by Talisman Energy AS (the field operator).
Based on such assumptions, it was found that as at December 31st 2011 the carrying amount of the assets related to the YME field exceeded the upper limit of the recoverable amount ranges determined, hence an impairment loss was recognised on the tested asset, of NOK 451m (i.e. PLN 256m, translated at the mid-exchange rate for NOK quoted by the National Bank of Poland for December 31st 2011). The effect of the impairment loss recognised on the tested asset on the net profit from continuing operations, taking into account the deferred income tax, was NOK 159m (i.e. PLN 90m, translated at the mid-exchange rate for NOK quoted by the National Bank of Poland for December 31st 2011).
Sensitivity to changes in the adopted assumptions
Calculation of the YME field's recoverable amount is most sensitive to the following variables:
- Volatility in crude oil prices;
- Volume of recoverable crude oil reserves in the YME field;
- Date of commencement of production from the YME field;
- NOK/USD exchange rate fluctuations;
- Discount rates.
Due to high market volatility, in particular with respect to crude oil prices, the adopted assumptions might be subject to reasonable changes, as a result of which it may be necessary to further reduce the carrying amount of the YME field due to the fact that it will exceed its recoverable amount. Therefore, it is uncertain whether the assets recognised in connection with the YME field will be realised, as the projected cash flows depend on a number of future developments, in particular regarding crude price fluctuations.
Volume of the Crude Oil and Natural Gas Reserves Held by the LOTOS Group
The volume of crude oil and natural gas reserves held by the LOTOS Group is as follows:
Dec 31 2011 | Dec 31 2010 | |
---|---|---|
Crude oil (2P*) | 6.9 million tonnes (1) | 6.2 million tonnes |
Crude oil (2C**) | 1.4 million tonnes (1) | 1.3 million tonnes |
Natural gas (2P*) | 0.5 billion cubic metres | 0.5 billion cubic metres |
Natural gas (2C**) | 6.5 billion cubic metres | 6.5 billion cubic metres |
(1) reserves cover AB LOTOS Geonafta Group’s area of operations in Lithuania. In 2011, LOTOS Petrobaltic S.A. executed a transaction to acquire control over Lithuanian assets. The interest of LOTOS Petrobaltic S.A. in AB LOTOS Geonafta increased from 40.59% to 100% (see Note 2).
*2P – proved and probable reserves
**2C – conditional reserves.
The 10+ Programme (Comprehensive Technical Upgrade Programme)
Implementation of the 10+ Programme was an element of the LOTOS Group’s development strategy for the period 2006–2011. The Programme was designed to increase the throughput capacity of the Gdańsk Refinery by approximately 75%, that is to 10.5m tonnes of crude oil per annum, with deeper conversion of hydrocarbon feedstock.
As at December 31st 2010, the 10+ Programme reached a 100% completion status, meaning all the work connected with its engineering design, procurement and construction of all basic and auxiliary installations was completed as scheduled.
In June 2011, the Company carried out a week-long test to evaluate the +10 Programme in terms of achieving the Programme's objectives related to the refining productivity and the volume and range of products. The Company was required to run the test pursuant to the agreement with banks providing debt financing for the Programme. The aim of the test was to prove that the upgraded refinery meets the requirements specified in the credit facility agreement.
Bank Credit Agricole, acting as a representative of the bank syndicate, confirmed the positive outcome of the refinery’s trial operation, and set July 25th 2011 as the date of successful completion of the +10 Programme. Following the completion of the 10+ Programme and fulfilment of the terms of the credit facility agreement, the bank margin on the facility was reduced pursuant to the provisions of the agreement.
This is a translation of a document originally issued in Polish.