INTEGRATED ESG
REPORT 2020

- A +
PL

6.1.3 Impairment of non-financial assets

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.

Balances of impairment losses in respect of property, plant and equipment are presented in the table below:

XLS

2020 2019
Upstream operations Trade and storage Other Upstream operations Trade and storage Other
Land (30) – (59) (21) – (59)
Buildings and structures (2,459) (53) (234) (1,822) (50) (171)
Plant and equipment (771) (319) (91) (379) (318) (79)
Vehicles and other (59) (1) (4) (35) (1) (4)
Tangible assets under construction:
Exploration and evaluation assets under construction (1,511) – – (1,164) – –
Other assets under construction (68) – (45) – – (41)
Total (4,898) (373) (433) (3,421) (369) (354)
Total at end of the period (5,704) (4,144)

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.

 

Impact of COVID-19 on impairment of non-financial assets

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 COVID-19 epidemic is one of the factors that have significantly contributed to a sharp decline in hydrocarbon prices, which is also reflected in long-term forecasts of gas and oil prices. The strongest impact of COVID-19 was recorded in the first half of 2020, when the Group recognised its first impairment losses to account for the impact of COVID-19 on hydrocarbon prices. As at the end of 2020, impairment losses of PLN 685m were recognised on domestic non-current hydrocarbon assets (PGNiG S.A. assets), and impairment losses of PLN 441m on non-current hydrocarbon assets located outside of Poland (mainly PGNiG Upstream Norway assets).

Below is presented basic information on the performed tests, relating to those areas where the largest amounts of impairment losses were recognised.

XLS

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.
2020 2019
impairment loss reversal impairment loss recognition impairment loss reversal impairment loss recognition
Description of cash generating unit: CGU – 161 production units CGU – 162 production units
Reasons for impairment / value increase * Update of production forecast to account for new wells brought on stream

* Change in price forecasts – decline in oil prices.
* Update of production forecast to account for deterioration of reservoir conditions experienced by certain production units.
* Update of the provision for well decommissioning.

* Decrease in the WACC discount rate in 2019.
* Update of production forecast based on well tests and taking into account new wells brought on stream.

* Change in price forecasts – decline in oil prices.
* Update of production forecast to account for deterioration of reservoir conditions experienced by certain production units.
Value in use 17,300 21,476
Nominal pre-tax discount rate Poland 10.81% -11.98% Poland 10.32% -12.08%
Pakistan 25.92% – 29.68% Pakistan 19.30% – 21.42%
Amount of recognised impairment loss 210 998 185 576
XLS

Description of cash generating unit: Impairment tests were performed for individual CGUs, represented by specific wells.
2020 2019
impairment loss reversal impairment loss recognition impairment loss reversal impairment loss recognition
Description of cash generating unit: CGU-78 wells CGU-79 wells
Reasons for impairment / value increase * 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.
* Change in price forecasts – decline in oil and gas prices during production periods.		 * Decrease in the WACC discount rate in 2019.
* Update of production forecast and reduction of planned expenditures. * Drilling of production wells		 * Decision to abandon drilling plans following unsatisfactory results of geological work.
* Update of production forecast following well tests.
* Change in price forecasts – decline in oil and gas prices during production periods.
Value in use 2,378 2,741
Nominal pre-tax discount rate Poland 11.73% – 12.95% Poland 11.29% – 13.02%
Amount of recognised impairment loss 13 463 152 281
* The note does not include reversal of impairment loss on property, plant and equipment under construction which have been expenses (negative wells) and recognition of impairment loss on seismic surveys.
XLS

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.
2020 2019
impairment loss reversal impairment loss recognition impairment loss reversal impairment loss recognition
Description of cash generating unit: CGU – 9 production units CGU – 8 production units
Reasons for impairment / value increase 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.		 no impairment loss reversal no impairment loss recognition
Value in use (PLN) 4,120 3,703
Nominal pre-tax discount rate 7.22% 6.22%
Amount of recognised impairment loss (PLN) 14 380 0 0
XLS

Description of cash generating unit: Assets used under operating lease contracts
2020 2019
impairment loss reversal impairment loss recognition impairment loss reversal impairment loss recognition
Description of cash generating unit CGU – 169 units CGU – 170 units
Reasons for impairment / value increase * 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.		 * Higher rental income from certain properties.
* Lower cost of planned repairs and property maintenance costs.		 * Increase in the carrying amount of assets by the amount of items pertaining to the right of land usufruct (in accordance with IFRS 16).
* Increase in the carrying amount of assets (completed investment) which do not generate additional income
Value in use (PLN) 203 144
Nominal pre-tax discount rate 3.32% – 6.92% 3.97% – 8.52%
Amount of recognised impairment loss (PLN) 4 90 2 25
XLS

Summary table (all cash-generating units in total)
2020 2019
impairment loss reversal impairment loss recognition impairment loss reversal impairment loss recognition
Value in use of assets tested for impairment 19,881 24,362
Amount of recognised impairment loss (PLN) 241 1,931 339 882
Previous page
6.1.2 Intangible assets
Next page
6.2.1 Inventories

Search results