Annual Report 2005 (6 MB) - Lundin Petroleum

Classifi cation
Fixed assets, long-term liabilities and provisions consist for the
most part solely of amounts that are expected to be recovered
or paid more than twelve months after the balance sheet date.
Current assets and current liabilities consist solely of amounts that
are expected to be recovered or paid within twelve months after
the balance sheet date.
General
Assets and liabilities are included at their acquisition cost and
nominal amounts respectively unless stated otherwise. Trade
receivables are recognised initially at fair value and subsequently
measured at amortised cost less provision for impairment.
Oil and gas properties
Oil and gas operations are recorded at historic cost less depletion.
All costs for acquiring concessions, licences or interests in
production sharing contracts and for the survey, drilling and
development of such interests are capitalised on a fi eld area cost
centre basis.
Net capitalised costs to reporting date, together with anticipated
future capital costs for the development of the proved and
probable reserves determined at the balance sheet date price
levels, are depleted based on the year’s production in relation
to estimated total proved and probable reserves of oil and gas
in accordance with the unit of production method. Depletion of
a fi eld area is charged to the income statement once production
commences.
Proved reserves are those quantities of petroleum which, by
analysis of geological and engineering data, can be estimated with
reasonable certainty to be commercially recoverable, from a given
date forward, from known reservoirs and under current economic
conditions, operating methods and governmental regulations.
Proved reserves can be categorised as developed or undeveloped.
If deterministic methods are used, the term reasonable certainty is
intended to express a high degree of confi dence that the quantities
will be recovered. If probabilistic methods are used, there should
be at least a 90% probability that the quantities actually recovered
will equal or exceed the estimates.
Probable reserves are those unproved reserves which analysis of
geological and engineering data suggests are more likely than not
to be recoverable. In this context, when probabilistic methods are
used, there should be at least a 50% probability that the quantities
actually recovered will equal or exceed the sum of estimated
proved plus probable reserves.
Proceeds from the sale or farm-out of oil and gas concessions are
off set against the related capitalised costs of each cost centre in
the exploration stage with any excess of net proceeds over all
costs capitalised included in the income statement. A gain or loss
is recognised on the sale or farm-out of producing areas when the
depletion rate is changed by more than 20 percent.
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Impairment tests are carried out at least annually to determine
that the net book value of capitalised cost within each fi eld area
cost centre less any provision for site restoration costs, royalties
and deferred production or revenue related taxes is covered
by the anticipated future net revenue from oil and gas reserves
attributable to the Group’s interest in the related fi eld areas.
Capitalised costs can not be carried within a fi eld cost pool unless
those costs can be supported by future cash fl ows from that
fi eld. Provision is made for any impairment, where the net book
value, according to the above, exceeds the estimated future
discounted net cash fl ows using prices and cost levels used by
Group management in their internal forecasting or fair value less
costs to sell. If there is no decision to continue with a fi eld specifi c
exploration programme, the costs will be expensed at the time the
decision is made.
Other tangible fi xed assets
Other tangible fi xed assets are stated at cost less accumulated
depreciation. Depreciation is based on cost and is calculated on a
straight line basis over the estimated useful life.
The carrying amount is written down immediately to its
recoverable amount when the carrying amount is higher. The
recoverable amount is the higher of an asset’s fair value less cost to
sell and value in use.
Non-current assets held for sale
To classify as non-current asset held-for-sale the carrying amount
needs to be assumed to be recovered through a sale transaction
rather than through continuing use. It also must be available for
immediate sale in its present condition and sale must be highly
probable. If classifi ed as non-current held-for-sale the assets will
be valued at the lower of its carrying value and fair value less
estimated cost of sale.
Financial instruments
Lundin Petroleum recognises the following fi nancial instruments:
■ Loans and receivables are valued at the amounts they are
expected to realise. Translation diff erences are reported in the
income statement except for the translation diff erences on long
term intercompany loans, used for fi nancing exploration
activities, which are taken directly in shareholders’ equity.
■ Other shares and participations (available for sale fi nancial
assets) are valued at fair value and any change in fair value is
recorded directly in shareholders’ equity until realised. Where
the other shares and participations do not have a quoted
market price in an active market and whose fair value cannot be
measured reliably, they are accounted for at cost less impairment
if applicable.
■ Derivative instruments. Derivatives are initially recognised at
fair value on the date a derivative contract is entered into and
are subsequently remeasured at their fair value. The method
of recognising the resulting gain or loss depends on whether
the derivative is designated as a hedging instrument.