6.1.1. Property, plant and equipment and related provisions
Accounting policies
Property, plant and equipment
The most material items of property, plant and equipment are buildings and structures, and plant and equipment, mostly associated with exploration for and production of natural gas and crude oil, as well as with gas trading, storage and distribution. The Group also holds vehicles and land. Tangible assets under construction include mostly capitalised expenditure on exploration for and evaluation of oil and gas deposits incurred until production commences or the assets are written off (for detailed accounting policies, see ‘Exploration and evaluation assets’).
Material spare parts and maintenance equipment are disclosed as property, plant and equipment if the Group expects to use such spare parts or equipment for a period longer than one year and they may be assigned to specific items of property, plant and equipment.
Property, plant and equipment are carried at cost less accumulated depreciation and impairment (for information on policies governing the recognition of impairment, see Note 6.1.3.).
The initially recognised cost of gas pipelines and gas storage facilities (classified in buildings and structures) includes the value of gas used to fill the pipelines or facilities for the first time. The amount of gas required to fill a pipeline or a storage chamber for the first time equals the amount required to obtain the minimum operating pressure in the pipeline or chamber.
The cost of property, plant and equipment includes also borrowing costs.
Costs of day-to-day maintenance and repairs of property, plant and equipment are expensed as incurred. In the event of a leak, the costs of pipeline refilling or replacing lost fuel are charged to profit or loss in the period when they were incurred.
The Group uses the following depreciation methods and periods:
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| Category | Depreciation method | Useful life | Average remaining useful life as at the reporting date |
|---|---|---|---|
| Buildings and structures | Straight-line method | 1 – 50 years | 29 |
| Plant and equipment | Straight-line method | 1 – 41 years | 15 |
| Vehicles | Straight-line method | 1 – 35 years | 13 |
| Other property, plant and equipment | Straight-line method | 1 – 35 years | 13 |
| Reserves in the Norwegian Continental Shelf | Units of production method* | more than 10 years | more than 10 years |
| Land | Not depreciated | ||
| Tangible assets under construction | Not depreciated | ||
*The amounts of production and products sold are strongly correlated, and contracts on sale of hydrocarbons from the Norwegian Continental Shelf preclude major discrepancies between the production volumes and sales volumes, which justifies the applied amortisation method.
Exploration and evaluation assets
Natural gas and crude oil exploration and evaluation expenditure covers geological work performed to discover and document deposits and is accounted for with the successful efforts method.
Natural gas and/or crude oil (mineral) deposits can be evaluated once the Group obtains:
- A licence for appraisal of mineral deposits,
- A licence for exploration for and appraisal of mineral deposits,
- A signed agreement establishing mining rights.
The cost of a licence for appraisal of natural gas and/or crude oil deposits and the cost of its extension is equal to the fees charged for conducting the licensed operations. The Group recognises the costs of such appraisal licences as intangible assets.
Expenditure on seismic surveys is capitalised in exploration and evaluation assets.
Expenditure incurred on individual wells is initially capitalised in tangible exploration and evaluation assets under construction. If exploration activities are successful and lead to a discovery of recoverable reserves, the Group analyses the areas and prospects to determine whether production would be economically viable. If following the appraisal process a decision is made to launch commercial production of hydrocarbons, the Group reclassifies the tangible exploration and evaluation assets under construction to property, plant and equipment after the production launch. If exploration is unsuccessful or the Group entity does not file for a licence for appraisal of natural gas and/or crude oil reserves following an analysis of the areas and prospects in terms of economic viability of commercial production, the full amount of capitalised expenditure incurred on the wells drilled in the exploration phase is expensed to profit or loss in the period in which the decision to discontinue exploration was made. Capitalised seismic survey expenses related to a given prospect are also recognised in profit or loss.
The Group recognises provisions for costs of decommissioning of exploration, production and storage wells (for details, see Note 6.1.1.1.). Discounted amounts of such provisions are added to the initial cost of wells recognised in exploration and evaluation assets or in property, plant and equipment, and in the latter case are depreciated over the useful lives of the items to which they relate.
Material estimates
Useful lives of property, plant and equipment
The useful lives of the property, plant and equipment were determined on the basis of assessments made by the engineering personnel responsible for their operation. Any such assessment is connected with uncertainty as to the future business environment, technology changes and market competition, which could lead to a different assessment of the economic usefulness of the assets and their remaining useful lives, and ultimately have a material effect on the value of the property, plant and equipment and the future depreciation charges.
The Group reviews the useful lives of property, plant and equipment on an annual basis. As a result of the most recent review, made as at December 31st 2016, depreciation was reduced by about PLN 118m.
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| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| Gross carrying amount | Accumulated depreciation and impairment | Net carrying amount | Gross carrying amount | Accumulated depreciation and impairment | Net carrying amount | |
| Land | 93 | (13) | 80 | 78 | (11) | 67 |
| Buildings and structures | 32,351 | (14,217) | 18,134 | 30,570 | (12,515) | 18,055 |
| Plant and equipment | 16,188 | (7,587) | 8,601 | 14,552 | (6,034) | 8,518 |
| Vehicles and other | 2,817 | (1,678) | 1,139 | 2,704 | (1,523) | 1,181 |
| Total tangible assets | 51,449 | (23,495) | 27,954 | 47,904 | (20,083) | 27,821 |
| Tangible exploration and evaluation assets under construction | 3,761 | (1,609) | 2,152 | 3,637 | (1,400) | 2,237 |
| Other tangible assets under construction | 3,099 | (56) | 3,043 | 2,961 | (52) | 2,909 |
| Total property, plant and equipment | 58,309 | (25,160) | 33,149 | 54,502 | (21,535) | 32,967 |
The Group has off-balance-sheet liabilities under executed agreements on acquisition of property, plant and equipment which have not yet been disclosed in the statement of financial position.
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| 2016 | 2015 | |
|---|---|---|
| Obligations assumed under agreements on acquisition of property, plant and equipment | 6,683 | 6,532 |
| Portion discharged as at the reporting date | (2,289) | (2,767) |
| Contractual obligations to be met after the reporting date | 4,394 | 3,765 |
For information on property, plant and equipment serving as collateral for the repayment of financing liabilities, see Note 5.2.
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| Land | Buildings and structures |
Plant and equipment | Vehicles and other | Total tangible assets | Tangible assets under construction | Total property, plant and equipment | |||
|---|---|---|---|---|---|---|---|---|---|
| Tangible exploration and evaluation assets | Other | ||||||||
| Gross carrying amount as at Jan 1 2015 |
78 | 28,536 | 13,467 | 2,583 | 44,664 | 3,183 | 4,405 | 52,252 | |
| Accumulated depreciation | – | (10,334) | (4,632) | (1,352) | (16,318) | – | – | (16,318) | |
| Impairment losses | (7) | (1,030) | (233) | (20) | (1,290) | (1,035) | (81) | (2,406) | |
| Net carrying amount as at Jan 1 2015 |
71 | 17,172 | 8,602 | 1,211 | 27,056 | 2,148 | 4,324 | 33,528 | |
| Exchange differences on translating foreign operations | – | 6 | (199) | – | (193) | 38 | (38) | (193) | |
| Purchase | – | – | – | – | – | 769 | 2,385 | 3,154 | |
| Disposal | (1) | (14) | (2) | (3) | (20) | – | – | (20) | |
| Provision for well decommissioning costs | – | 36 | – | – | 36 | 24 | 72 | 132 | Nota 6.1.1.1. |
| Transfers from tangible assets under construction | 1 | 2,200 | 1 425 | 192 | 3,818 | (300) | (3,682) | (164) | |
| Transfers between asset groups and between items of the statement of financial position | – | (48) | 20 | – | (28) | 186 | (186) | (28) | |
| Depreciation | – | (1,111) | (1,268) | (214) | (2,593) | – | – | (2,593) | |
| Impairment losses | (4) | (148) | (44) | (4) | (200) | (365) | 29 | (536) | |
| Capitalised interest | – | – | – | – | – | 16 | 46 | 62 | |
| Retirement | – | (36) | (12) | (1) | (49) | – | – | (49) | |
| Tangible assets under construction written off without bringing economic effects | – | – | – | – | – | (283) | (2) | (285) | |
| Other changes | – | (2) | (4) | – | (6) | 4 | (39) | (41) | |
| Gross carrying amount as at Dec 31 2015 |
78 | 30,570 | 14,552 | 2,704 | 47,904 | 3,637 | 2,961 | 54,502 | |
| Accumulated depreciation | – | (11,337) | (5,757) | (1,499) | (18,593) | – | – | (18,593) | |
| Impairment losses | (11) | (1,178) | (277) | (24) | (1,490) | (1,400) | (52) | (2,942) | |
| Net carrying amount as at Dec 31 2015 |
67 | 18,055 | 8,518 | 1,181 | 27,821 | 2,237 | 2,909 | 32,967 | |
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| Land | Buildings and structures |
Plant and equipment | Vehicles and other | Total tangible assets | Tangible assets under construction | Total property, plant and equipment | |||
|---|---|---|---|---|---|---|---|---|---|
| Tangible exploration and evaluation assets | Other | ||||||||
| Gross carrying amount as at Dec 31 2015 |
78 | 30,570 | 14,552 | 2,704 | 47,904 | 3,637 | 2,961 | 54,502 | |
| Accumulated depreciation | – | (11,337) | (5,757) | (1,499) | (18,593) | – | – | (18,593) | |
| Impairment losses | (11) | (1,178) | (277) | (24) | (1,490) | (1,400) | (52) | (2,942) | |
| Net carrying amount as at Dec 31 2015 |
67 | 18,055 | 8,518 | 1,181 | 27,821 | 2,237 | 2,909 | 32,967 | |
| Exchange differences on translating foreign operations | – | (1) | 269 | – | 268 | 36 | 80 | 384 | |
| Purchase | – | – | – | – | – | 675 | 2,243 | 2,918 | |
| Disposal | – | (2) | – | (2) | (4) | – | – | (4) | |
| Provision for well decommissioning costs | – | (19) | – | – | (19) | 14 | 67 | 62 | Nota 6.1.1.1. |
| Transfers from tangible assets under construction | 2 | 1,617 | 904 | 198 | 2,721 | (286) | (2,490) | (55) | |
| Transfers between asset groups and between items of the statement of financial position | – | (55) | 14 | 1 | (40) | (11) | 11 | (40) | |
| Depreciation | – | (1,116) | (1,080) | (212) | (2,408) | – | – | (2,408) | |
| Impairment losses | (2) | (458) | (124) | (19) | (603) | (209) | (4) | (816) | |
| Changes in the Group | 14 | 154 | 148 | 4 | 320 | – | 192 | 512 | |
| Capitalised interest | – | – | – | – | – | 16 | 45 | 61 | |
| Retirement | – | (36) | (30) | (7) | (73) | – | – | (73) | |
| Tangible assets under construction written off without bringing economic effects | – | – | – | – | – | (318) | (3) | (321) | |
| Other changes | (1) | (5) | (18) | (5) | (29) | (2) | (7) | (38) | |
| Gross carrying amount as at Dec 31 2016 |
93 | 32,351 | 16,188 | 2,817 | 51,449 | 3,761 | 3,099 | 58,309 | |
| Accumulated depreciation | – | (12,581) | (7,186) | (1,635) | (21,402) | – | – | (21,402) | |
| Impairment losses | (13) | (1,636) | (401) | (43) | (2,093) | (1,609) | (56) | (3,758) | |
| Net carrying amount as at Dec 31 2016 |
80 | 18,134 | 8,601 | 1,139 | 27,954 | 2,152 | 3,043 | 33,149 | |
