ANNUAL REPORT 2011 - Connacher Oil and Gas

AR 2011
PG 56
earnings (loss) at the end of each respective reporting period based on the changes in fair value of the contracts. The estimated fair value of all risk
management contracts is derived from third–party market indications and forecasts. Attributable transaction costs are recorded in net earnings (loss).
The company accounts for its forward physical delivery sales and purchase contracts that are entered into and continued to be held for the purpose
of receipt or delivery of non–financial items in accordance with its expected purchase, sale or usage requirements, as executory contracts. As such,
these contracts are not considered derivative financial instruments and thus have not been recorded on the consolidated balance sheet. Settlements
of these physical sales and purchase contracts are recognized in related revenues and expenses.
Derivatives embedded within contracts that are not already required to be recognized at fair value, and that are not closely related to the host contract
in terms of economic characteristics and risks, are separated from their host contract and recognized at fair value; associated gains and losses are
recognized in net earnings (loss). The company has no material embedded derivatives.
3.14 Revenue recognition
Revenue from sales of bitumen, crude oil, natural gas and refined products is recognized at the fair value of consideration received or receivable, after
deducting royalties, when title passes to the customer. For sales by upstream operations, this generally occurs when product is physically transferred
into a pipe, delivery trucks are accepted by the customer, or railcars have been transloaded. For sales by downstream operations, it is either at the
loading or delivery point, depending on contractual conditions.
3.15 Finance charges
Finance charges comprise interest expense on long–term debt, amortization of transaction costs and stand–by fees of the Facility, unwinding of the
discount on decommissioning liabilities, unrealized gain/loss on revaluation of convertible debentures and share purchase warrants, bank charges and
any impairment losses recognized on financial assets.
Finance charges directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a
substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially
ready for their intended use. All other finance costs are recognized in net earnings (loss) in the period in which they are incurred using the effective
interest method. Interest has been capitalized at the rate of interest applicable to the specific borrowings financing the asset, or where financed
through general borrowings, at a capitalization rate representing the average interest rate on such borrowings.
3.16 Earnings (loss) per share
The company presents basic and diluted earnings (loss) per share data for its common shares. Basic earnings (loss) per share is calculated by dividing
net earnings (loss) attributable to ordinary equity holders of the company by the weighted average number of common shares outstanding during
the period. Diluted earnings (loss) per share is determined by adjusting the earnings or loss attributable to common shareholders and the weighted
average number of common shares outstanding for the effects of dilutive instruments, which may include convertible debentures, stock options, share
incentive awards and share units.
3.17 Non–current assets classified as held for sale
Non–current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than
through continuing use, are classified as held for sale. Immediately before classification as held for sale, the assets, or components of a disposal
group, are remeasured in accordance with the company’s accounting policies. Thereafter, the assets, or disposal group, are measured at the lower
of their carrying amount and fair value less cost to sell. Impairment losses on initial classification as held for sale and subsequent gains or losses on
remeasurement are recognized in net earnings (loss). Property, plant and equipment classified as held for sale are not depleted or depreciated and
investment in associate classified as held for sale is not equity accounted.
3.18 Fair value measurements
Fair value measurements are estimates of the amounts for which assets or liabilities could be exchanged at the measurement date, based on
the assumption that such exchanges take place between knowledgeable, unrelated parties in unforced transactions. Where available, fair value
measurements are derived from prices quoted in active markets for identical assets or liabilities. In the absence of such information, other observable
inputs are used to estimate fair value. Where publicly available information is not available, fair value is determined using estimation techniques that take
into account market perspectives relevant to the asset or liability so as far as they can reasonably be ascertained, based on predominantly unobservable
inputs. For risk management contracts and for share–based compensation plans, fair value estimations are generally determined using models and
other valuation methods, the key inputs for which include future prices, volatility, price correlation, counterparty credit risk and market liquidity, as
appropriate; for other assets and liabilities, fair value estimations are generally based on the net present value of expected future cash flows.
3.19 Recent accounting pronouncements issued but not yet adopted
The company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective for the financial year
beginning January 1, 2011 and determined that the following may have an impact on the company: