10.1.2.2 Oil and gas development and production assets

As a result of the indications identified in 2021 that the amount of the impairment loss recognised in previous reporting periods had decreased or the loss no longer existed, the Group estimated the recoverable amount of the B-8 field assets.

The recoverable amount was calculated using the value in use method due to the absence of an active market. As at December 31st, the amount was determined as PLN 1,531.5m.

Key assumptions underlying the calculation of the recoverable amount of the tested assets:

• the cash flow projection period assumed to equal the assets’ planned life;
• the discount rate assumed to equal the weighted average cost, at 11% (2020: 7.26%) after taxation at the 19% marginal tax rate;
• production volumes as reported by the reservoir auditor Miller and Lents;
• sales volumes, capital expenditure and operating expenses assumed in line with current projections for the B8

The following price assumptions were adopted for the estimates as part of the impairment test as at December 31st 2021 for crude oil in USD/bbl (per barrel oil equivalent):

• 2022–2026 – prices in line with price assumptions in available market scenarios;
• 2027 and beyond − prices remaining stable in the long term on par with the 2026 level, adjusted for

The following price assumptions were adopted for the estimates as part of the impairment test as at December 31st 2020 for crude oil in USD/bbl (per barrel of oil equivalent):

• 2021–2025 – prices in line with the price assumptions in available market scenarios, adjusted for inflation;
• 2026 and beyond − prices remaining stable in the long term on par with the 2025 level, adjusted for

The excess of recoverable amount over the carrying amount of the B-8 field assets became the basis for reversing the PLN 135.0 million impairment losses recognised in previous reporting periods (see Note 9.4). The key factor contributing to the improved test results was an uptrend in Brent crude prices continuing from late 2020 and early 2021, which was directly reflected in the macroeconomic assumptions prepared for the purposes of the calculation.

In 2020, the assets were tested for impairment and as a result PLN 135.0 million impairment losses on the B-8 field oil and gas production assets were recognised (see Note 9.5). The key reason for recognising the impairment losses was the macroeconomic environment created by the global Covid-19 pandemic, which caused a significant deterioration in key calculation parameters, such as Brent oil prices and US dollar exchange rates.

Due to significant market volatility, particularly seen in 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 several 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 site restoration commitments,
• volatility of the PLN/USD exchange rate,
• discount

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 -0.5pp/+0.5pp change in the discount rate.

Below is presented an estimate of the amount of impairment losses (-) on the assets of the B8 field with the key assumptions modified relative to those used in the test.

As at December 31st 2021:

As at December 31st 2020:

The above analyses assume that the positive impact of a change in key assumptions cannot lead to an increase in the value of the tested assets above their carrying amount.

Having identified indicators potentially justifying reversals of impairment losses on assets recognised in prior reporting periods, as at December 31st 2021 the Group calculated the recoverable amount of the assets associated with the B-3 field. As at the end of the reporting period, the recoverable amount, estimated using the value in use method, was PLN 194.3 million.

Key assumptions applied to calculate the recoverable amount of the tested assets:

• the cash flow projection period assumed to equal the assets’ planned life;
• the discount rate was assumed to equal the weighted average cost of capital after taxation at the marginal tax rate of 19% – at 10.11% (2020: 7.56%);
• production volumes as reported by the reservoir auditor Miller and Lents, for 2020 consistent with current projections, including current geological information,
• sales volumes, capital expenditure and operating expenses were assumed in line with current

The following price assumptions were adopted for the estimates as part of the impairment test as at December 31st 2021 for crude oil in USD/bbl (per barrel of oil equivalent):

• 2022–2026 – prices in line with price assumptions in available market scenarios;
• 2027 and beyond − prices remaining stable in the long term on par with the 2026 level, adjusted for

The following price assumptions were adopted for the estimates as part of the impairment test as at December 31st 2020 for crude oil in USD/bbl (per barrel of oil equivalent):

• 2021–2025 – prices in line with the price assumptions in available market scenarios, adjusted for inflation;
• 2026 and beyond − prices remaining stable in the long term on par with the 2025 level, adjusted for

As a result of the calculations, the excess of value in use relative over the carrying amount of assets became the basis for reversing the impairment losses of PLN 116.2 million recognised in 2020 (see Note 9.4). Several factors led to improved test results. One of them was an uptrend in Brent crude prices continuing from late 2020 and early 2021, which, coupled with the adopted assumptions regarding the development of USD/PLN exchange rates, influenced the macroeconomic assumptions prepared for the purposes of the tests. Also, the production profile changed following completion of the B3-13C side-track, leading to increased production volumes.

Ponadto dzięki realizacji odwiertu bocznego B3-13C zmianie uległ profil wydobycia, co wpłynęło na wzrost wolumenu produkcji.

Based on the tests carried out in 2020, PLN 118.3 million impairment losses were recognised on B3 oil and gas production assets (see Note 9.5). The key reason for recognising the impairment losses was the macroeconomic environment created by the global Covid-19 pandemic, which caused a significant deterioration in key calculation parameters, such as Brent oil prices and US dollar exchange rates.

Due to the significant market volatility and given the prevailing uncertainty as well as sensitivity of judgements and estimates (in particular with respect to crude oil prices), the adopted assumptions may be subject to reasonable changes, and such changes may necessitate a revision of the carrying amounts of the field assets in the future. The Group points to several 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,
• volatility of the PLN/USD exchange rate,
• discount

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 -0.5pp/+0.5pp change in the discount rate.

Below is presented an estimate of the amount of impairment losses (-) on the assets of the B3 field with the key assumptions modified relative to those used in the test:

As at December 31st 2021:

As at December 31st 2020:

The above analyses assume that the positive impact of a change in key assumptions cannot lead to an increase in the value of the tested assets above their carrying amount.

At the end of October 2021, production from the Yme field was launched. The field is currently in the hot commissioning phase. Injection of gas into production wells and gas turbines is scheduled to begin in early 2022. Other existing Gamma production wells are also gradually coming online.

A 24-hour production test is also planned on the Yme field in February 2022, and new Gamma and Beta production wells are to be drilled later during the year. Given that the project is progressing in line with the Operator’s assumptions, in 2021 the Group did not identify any operating factors that would justify the need to test the Yme field for impairment.

Verification of the recoverable amount as at December 31st 2020, carried out using the value in use method, revealed the need to recognise impairment losses on the YME field totalling PLN 460.6m (see Note 9.5).

Key assumptions underlying computation of the recoverable amount as at December 31st 2020:

• the cash flow projection period assumed to equal the assets’ planned life;
• The discount rate was assumed to equal the weighted average cost of capital, at 6.70% – after taxation at the marginal tax rate of 78% (applicable in Norway);
• production and sales volumes, capital expenditure, operating expenses and field decommissioning costs were assumed in line with

The assumptions for crude oil prices (USD/bbl) made for the purposes of the December 31st 2020 test estimates were as follows:

• 2021–2025 – prices in line with price assumptions in available market scenarios;
• 2026 and beyond − prices stable in the long term, on par with the 2025 level, adjusted for

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/NOK exchange rate, and -0.5pp/+ 0.5pp change in the discount rate.

The table below presents the estimated amounts of impairment losses for recognition (-) and reversal (+) in the three months to December 31st 2020 with the key assumptions modified in relation to those originally applied:

In 2021, the Group tested for impairment each cash-generating unit’s production assets for the producing Heimdal fields (Atla, Vale, Skirne, Heimdal) and the Sleipner and Utgard fields. The recoverable amount was estimated using the value in use method.

The key assumptions underlying computation of the recoverable amount of the tested assets:

• the cash flow projection period assumed to equal the assets’ planned life;
• the discount rate was assumed to equal the weighted average cost, at 55% (2020: 6.70%) 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.

For the purposes of the tests performed as at December 31st 2021, the following prices were assumed for crude oil (in USD/bbl) and for natural gas (in USD/boe):

• 2022–2026 – prices in line with price assumptions in available market scenarios;
• 2027 and beyond − prices stable in the long term, on par with the 2026 level, adjusted for inflation;

For the purposes of the tests performed as at December 31st 2020, the following prices were assumed for crude oil (in USD/bbl) and for natural gas (in USD/boe):

• 2021–2025 – prices in line with price assumptions in available market scenarios;
• 2026 and beyond − prices stable in the long term, on par with the 2025 level, adjusted for inflation;

In 2021, the recoverable amount of the Vale field was estimated at NOK 79.5m (PLN 36.6m), leading to reversal of impairment losses of PLN 35.1m (see Note 9.4), which resulted from the extension of the production horizon until July 2023 and improvement of the Vale field’s production efficiency.

As at December 31st 2021, the recoverable amount of the Utgard field was estimated at NOK 40.9m (PLN 18.8m), which resulted in recognition of impairment losses of PLN 39.2m (see Note 9.4). This reflected the declining output trend due to high water breakthrough in production wells and the need to cut off some of these wells. The excessive proportion of water in the oil produced causes technical limitations to the processing of oil on the Sleipner platform, to which the Utgard field is connected. In late December 2020 and early January 2021, repair operations were carried out on a production well at the Utgard field to eliminate the breakthrough. As a result, production from the field increased temporarily. As water breakthrough was observed again in May 2021, in August 2021, another intervention was carried out to repair the G-4 and G-1 wells, which, however, brought about only a short improvement, and therefore production was continued from the G-4 well only. At the beginning of December, the Utgard field operator resumed production from the G-1 well and then the G-4 well, and now both wells are producing hydrocarbons. According to the operator’s most recent forecasts, production from the Utgard field is expected to be discontinued by May 2022 at the latest. Future cyclical production intervals are possible.

W 2020 roku Grupa przeprowadziła testy na utratę wartości aktywów wydobywczych dla poszczególnych ośrodków generujących przepływy pieniężne ze złóż produkcyjnych obszaru Heimdal (Atla, Vale, Skirne, Heimdal) oraz obszaru Sleipner i Utgard. Przeprowadzone testy wykazały konieczność rozpoznania odpisów aktualizujących wartość złoża Utgard w łącznej wysokości 155,0 mln zł (patrz nota 9.5).

In 2020, the Group tested for impairment each cash-generating unit’s production assets for the producing Heimdal fields (Atla, Vale, Skirne, Heimdal) and the Sleipner and Utgard fields. The tests demonstrated the need to recognise impairment losses on the Utgard field of PLN 155.0m (see Note 9.5), As at December 31st 2020, a PLN 16.6m impairment loss on the Vale field was reversed (see Note 9.5) due to an extension of the production horizon.

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/NOK exchange rate, and -0.5pp/+ 0.5pp change in the discount rate.

The table below presents the estimated amounts of recognised (-) and reversed (+) impairment losses on the tested Heimdal, Sleipner and Utgard assets, with the key assumptions modified in relation to those originally applied:

As at December 31st 2021:

As at December 31st 2020:

As a result of the calculation of the recoverable amount of deposits and production infrastructure in Lithuania performed in 2021, a total impairment loss of PLN 6.6 million on license-related expenditures was reversed (see Note 9.4).

The recoverable amount was determined at EUR 8.6 million (PLN 39.6 million). As a result of impairment tests performed for the resources and production infrastructure in Lithuania, as at December 31st 2020 the Group recognised impairment losses of PLN 29.1m on the capital expenditure associated with the Lithuanian licences (see Note 9.5).

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 assumed to equal the assets’ planned life;
• the discount rate was assumed to equal the weighted average cost, at 63% (2020: 6.95%),
• production volumes were assumed to be in line with a competent person report prepared by Miller & Lents based on the most recent available geological information;
• capital expenditure was assumed to match the projected production

The following crude oil price assumptions (USD/bbl) were adopted for the purposes of the estimates made in 2021:

• 2022–2026 – prices in line with price assumptions in available market scenarios;
• 2027 and beyond − prices stable in the long term, on par with the 2026 level, adjusted for

Crude oil price assumptions (USD/bbl) adopted for the purposes of the estimates as at December 31st 2020:

• 2020–2025 – prices in line with the price assumptions of available market scenarios;
• 2026 and beyond − prices stable in the long term, on par with the 2025 level, adjusted for inflation.

Due to significant market volatility, in particular with respect to crude oil prices, the adopted assumptions may be subject to reasonable 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 result, the Group carried out an analysis of sensivity to a -15%/+15% change in oil pirces, -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.

Presented below is the estimated amount of recognition (-) and reversal (+) of impairment losses following changes in the key assumptions.

As at December 31st 2021:

As at December 31st 2020: