Financials - Santos

Notes to the Consolidated Financial Statements
for the year ended 31 December 2012
1. Significant Accounting Policies (continued)
The acquisition method is only applied
to a business combination when control
over the business is obtained.
Subsequent changes in interests in a
business where control already exists are
accounted for as transactions between
owners.
The cost of the business combination is
measured as the fair value of the assets
given, shares issued and liabilities
incurred or assumed at the date of
acquisition. The cost includes the fair
value of any contingent consideration.
Subsequent changes to the fair value of
the contingent consideration which is
deemed to be an asset or liability will
be recognised in either the income
statement or in other comprehensive
income. Where the contingent
consideration is classified as equity,
it shall not be remeasured.
Costs directly attributable to the
business combination are expensed
as incurred.
Where settlement of any part of cash
consideration is deferred, the amounts
payable in the future are discounted to
their present value as at the date of
exchange. The discount rate used is
the entity’s incremental borrowing rate,
being the rate at which a similar
borrowing could be obtained from an
independent financier under comparable
terms and conditions.
The excess of the consideration
transferred, the amount of any
non‐controlling interest in the acquiree
and the acquisition‐date fair value of
any previous equity interest in the
acquiree over the fair value of the
Group’s share of the net identifiable
assets acquired is recorded as goodwill.
If those amounts are less than the fair
value of the net identifiable assets of the
subsidiary acquired and the measurement
of all amounts has been reviewed, the
difference is recognised directly in the
income statement as a bargain purchase.
(h) Exploration and evaluation
expenditure
Exploration and evaluation expenditure
in respect of each area of interest is
accounted for using the successful
efforts method of accounting. The
successful efforts method requires all
exploration and evaluation expenditure
to be expensed in the period it is
incurred, except the costs of successful
wells and the costs of acquiring interests
in new exploration assets, which are
capitalised as intangible exploration
and evaluation. The costs of wells are
initially capitalised pending the results
of the well.
An area of interest refers to an individual
geological area where the presence of oil
or a natural gas field is considered
favourable or has been proved to exist,
and in most cases will comprise an
individual prospective oil or gas field.
Exploration and evaluation expenditure
is recognised in relation to an area of
interest when the rights to tenure of the
area of interest are current and either:
(i) such expenditure is expected to
be recovered through successful
development and commercial
exploitation of the area of interest
or, alternatively, by its sale; or
(ii) the exploration activities in the area
of interest have not yet reached a
stage which permits reasonable
assessment of the existence of
economically recoverable reserves
and active and significant operations
in, or in relation to, the area of
interest are continuing.
Where an ownership interest in an
exploration and evaluation asset is
exchanged for another, the transaction is
recognised by reference to the carrying
value of the original interest. Any cash
consideration paid, including transaction
costs, is accounted for as an acquisition
of exploration and evaluation assets.
Any cash consideration received,
net of transaction costs, is treated
as a recoupment of costs previously
capitalised with any excess accounted
for as a gain on disposal of non‐current
assets.
The carrying amounts of the Group’s
exploration and evaluation assets are
reviewed at each reporting date, in
conjunction with the impairment review
process referred to in note 1(P), to
determine whether any of the following
indicators of impairment exists:
(i) tenure over the licence area has
expired during the period or will
expire in the near future, and is not
expected to be renewed; or
(ii) substantive expenditure on further
exploration for and evaluation of
mineral resources in the specific area
is not budgeted or planned; or
(iii) exploration for and evaluation of
resources in the specific area has not
led to the discovery of commercially
viable quantities of resources, and
the Group has decided to discontinue
activities in the specific area; or
(iv) sufficient data exist to indicate that
although a development is likely to
proceed, the carrying amount of the
exploration and evaluation asset is
unlikely to be recovered in full from
successful development or from sale.
Where an indicator of impairment exists,
a formal estimate of the recoverable
amount is made and any resultant
impairment loss is recognised in the
income statement.
When a discovered oil or gas field enters
the development phase the accumulated
exploration and evaluation expenditure
is transferred to oil and gas assets –
assets in development.
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