IFRS 11 defines a joint arrangement as a contractual arrangement under which the business of two or more parties is subject to joint control. Joint control exists only when decisions about the relevant activities under the arrangement require the unanimous consent of all the parties.
Joint arrangements are classified into two types – joint operations and joint ventures. The distinction between the two is based on different rights and obligations of the parties under the joint arrangement.
If under the joint arrangement the parties with joint control of the arrangement have rights to the net assets of the arrangement, then it is a joint venture, which in principle requires the establishment of a separate vehicle. The Group’s joint ventures include LOTOS-Air BP Polska Sp. z o.o., a jointly- controlled entity operating in the Refining & Marketing segment, and the following entities operating in the Exploration & Production segment: Baltic Gas Sp. z o.o., Baltic Gas spółka z ograniczoną odpowiedzialnością i wspólnicy sp.k., and UAB Minijos Nafta.
Investments in joint ventures measured in accordance with IFRS 11 Joint Arrangements are accounted for with the equity method and recognised in the statement of financial position at cost, adjusted for subsequent changes in the Group’s share of the net assets of such entities, less impairment losses, if any. The statement of comprehensive income reflects the share in the results of operations of such entities, and if a change is recognised directly in their equity, the Group recognises its share in each change and, if applicable, discloses it in the statement of changes in equity and in the statement of comprehensive income under other comprehensive income, net.
Joint arrangements under which the parties with joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement, are defined as joint operations.
The Group holds interests in joint operations in the Exploration & Production segment through a Norwegian company, LOTOS Exploration and Production Norge AS, a subsidiary of LOTOS Petrobaltic S.A. In accordance with IFRS 11, the Group recognises its interest in assets, liabilities, costs and expenses related to its joint operations in the Heimdal field in Norway.
Considering the IFRS 11 criteria, not all operations involving a number of participants are joint operations or joint ventures as defined in the standard. In some situations, the Group is a party to an arrangement whose nature is that of joint operations, but has no joint control of the arrangement. This happens when there is more than one combination of the parties that can agree to make significant decisions about the operations. For the purposes of correct recognition of revenues, costs, assets and liabilities, the Group does not apply IFRS 11 in such situations, but other relevant IFRSs, taking into account its interest in the arrangement underlying the operations.
The Group is a party to arrangements involving joint operations in the Sleipner fields in Norway which are not subject to IFRS 11. The Group recognises the operations proportionately, i.e. according to its share in revenue, costs, receivables and liabilities relating to joint exploration and production of crude oil and natural gas in the Sleipner field. Therefore, there is no practical difference in recognising transactions relating to operations under the Sleipner licences with respect to the requirement to recognise joint operations under the Heimdal licence, which meet the definition of joint operations in accordance with IFRS 11.
Joint control of an investee
The Group and all other investors collectively control an investee when they must act together to direct the relevant activities. In such cases, because no investor can direct the activities without the cooperation of other investors, no investor individually controls the investee. The Group assesses whether it shares control of an arrangement, which – in accordance with IFRS 11 Joint Arrangements – may be defined either as a joint venture or a joint operation, taking into consideration whether all parties to the arrangement have control of it, whether they share exposure, or rights, to variable returns from their involvement with the investee, and whether they have the ability to jointly use their power over the investee to affect the amount of their returns.