6.1.3 Impairment of non-financial assets
Table of contents
Significant 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 in respect of property, plant and equipment are presented in the table below.
| 2021 | 2020 | |||||
| Upstream operations | Trade and storage | Other | Upstream operations | Trade and storage | Other | |
| Land | (23) | – | (86) | (30) | – | (59) |
| Buildings and structures | (1,770) | (48) | (211) | (2,459) | (53) | (234) |
| Plant and equipment | (677) | (321) | (87) | (771) | (319) | (91) |
| Vehicles and other | (46) | (1) | (4) | (59) | (1) | (4) |
| Tangible assets under construction | ||||||
| tangible exploration and evaluation assets under construction | (1,350) | – | – | (1,511) | – | – |
| Other | 47 | – | (48) | (68) | – | (45) |
| Total | (3,819) | (370) | (436) | (4,898) | (373) | (433) |
| Total at end of the period | (4,625) | (5,704) | ||||
Impairment losses on non-current assets are the result of an assessment of the recoverable amount of assets based on an analysis of future cash flows, in particular based on current and projected paths of hydrocarbon prices on international markets. The year 2021 was a period of strong price increases across the fuel market. The price spikes observed in the crude oil market are strongly linked to the global supply and demand landscape, which could have been driven by the expectation of a rapid global economic recovery following the severe downturn in 2020 in the wake of the COVID-19 pandemic. The prices of natural gas and electricity were strongly affected by growing prices of CO2 emission allowances and other energy products. Gas prices were additionally driven by low gas volumes in storage facilities in Europe, changes in expectations concerning transmission capacity reservations, as well as scheduled and unscheduled unit shutdowns.
Various market and deposit-related factors led to reversal of impairment losses on non-financial assets in 2021. The Group points out that given the number and nature of factors with bearing on the price levels in 2021 it is impossible to classify the change in its entirety as being an effect of COVID-19 or to separate the effect of COVID-19 from the valuation of the Company’s assets.
As at the reporting date, the Group’s main operating assets, i.e. oil and gas production assets, gas fuel storage facilities, power generating unit, leased assets (including CNG stations, transmission assets, other property), LNG regasification units, and tangible assets under construction (wells under construction) were tested for impairment.
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 cash-generating units (“CGUs”), represented by specific production units. | |||
| 2021 | 2020 | |||
| impairment loss reversal | impairment loss recognition | impairment loss reversal | impairment loss recognition | |
| Description of cash generating unit: | CGU – 157 production units | CGU – 161 production units | ||
| Reasons for impairment / value increase | * Update of price forecasts – increase in oil and gas prices during production periods. |
* Increase in WACC discount rate in 2021 relative to December 2020.
* Update of production forecast to account for deterioration of reservoir conditions experienced by certain production units. |
* Update of production forecast to account for new wells brought on stream |
* Update of price forecasts – decline in oil and gas prices.
* Update of production forecast to account for deterioration of reservoir conditions experienced by certain production units. * Update of the provision for well decommissioning. |
| Value in use | 29,365 | 17,300 | ||
| Nominal pre-tax discount rate | Poland: 11.35% -12.83% | Poland: 10.81% -11.98% | ||
| Pakistan: 20.53% – 22.33% | Pakistan: 25.92% – 29.68% | |||
| Amount of recognised impairment loss | 827 | 356 | 210 | 998 |
| Description of cash generating unit: | Impairment tests were performed for individual CGUs, represented by specific wells. | |||
| 2021 | 2020 | |||
| impairment loss reversal | impairment loss recognition | impairment loss reversal | impairment loss recognition | |
| Description of cash generating unit: | CGU-67 wells | CGU-78 wells | ||
| Reasons for impairment / value increase |
* Update of production forecast and reduction of planned expenditures.
* Update of price forecasts – increase in oil and gas prices during production periods. |
* Decision to abandon drilling plans following unsatisfactory results of geological work.
* Increase in WACC discount rate in 2021 relative to December 2020. * Update of production forecast based on well tests. |
* Update of production forecast and reduction of planned expenditures. |
* Decision to abandon drilling plans following unsatisfactory results of geological work.
* Increase in WACC discount rate in 2020 relative to December 2019. * Update of production forecast following well tests. |
| Value in use | 3,017 | 2,378 | ||
| Nominal pre-tax discount rate | Poland: 12.05% – 13.73% | Poland: 11.73% – 12.95% | ||
| Amount of recognised impairment loss | 51 | 176 | 13 | 463 |
| 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 cash-generating units (“CGUs”), represented by specific production units. | |||
| 2021 | 2020 | |||
| impairment loss reversal | impairment loss recognition | impairment loss reversal | impairment loss recognition | |
| Description of cash generating unit: | CGU – 9 production units on the Norwegian Continental Shelf | CGU – 9 production units on the Norwegian Continental Shelf | ||
| Reasons for impairment / value increase |
* Significant improvement in macroeconomic conditions (mainly gas and oil prices)
* Temporary suspension of gas injection into the Gina Krog field to sell the gas at high market prices * Extension of the production profile for the Vale field |
Increase in proven reserves |
* Deteriorated macroeconomic conditions (discount rate, hydrocarbon prices).
* Changes in the tax regime accelerated consumption of the tax credit (the value had a positive effect on the 2020 result at the expense of future cash flows). * Downward revision of production forecasts for selected fields. |
|
| Value in use (PLN) | 9,565 | 4,120 | ||
| Nominal pre-tax discount rate | 8.49% | 7.22% | ||
| Amount of recognised impairment loss (PLN) | 158 | 0 | 14 | 380 |
| Description of cash generating unit: | Leased assets (transmission assets, non-contributed assets, LNG stations and other assets) | |||
| 2021 | 2020 | |||
| impairment loss reversal | impairment loss recognition | impairment loss reversal | impairment loss recognition | |
| Description of cash generating unit | CGU – 169 | CGU – 169 units | ||
| Reasons for impairment / value increase |
* Decrease in asset value due to change in the valuation of provision for site restoration
* Higher rental income from certain properties. |
* Higher cost of most of the planned repairs and of property maintenance costs * On perpetual usufruct rights to land contaminated with nitrogen tar, the discount algorithm for estimated restoration costs was changed (from simple discounting to compound discounting) and the discount rate was reduced (the same rate as the rate of provisioning for well decommissioning was assumed).* Change in the intended use of the facility |
* Higher rental income from certain properties.
* Lower cost of planned repairs and property maintenance costs. |
* Higher costs of property maintenance.
*The sum of discounted cash flows and residual value is lower than the net value of property, plant and equipment. |
| Value in use (PLN) | 137 | 203 | ||
| Nominal pre-tax discount rate | 4.01% – 8.75% | 3.32% – 6.92% | ||
| Amount of recognised impairment loss (PLN) | 3 | 11 | 4 | 90 |
| Summary table (all cash-generating units in total) | ||||
| 2021 | 2020 | |||
| impairment loss reversal | impairment loss recognition | impairment loss reversal | impairment loss recognition | |
| Value in use of assets tested for impairment | 42,084 | 24,001 | ||
| Amount of recognised impairment loss (PLN) | 1,040 | 543 | 241 | 1,931 |