Staatsolie Annual Report 2017

Annual Report 2017 109
Staatsolie Maatschappij Suriname N.V.
Staatsolie Maatschappij Suriname N.V.
Notes to the Consolidated financial statements for the years ended December 31, 2017 and 2016
Notes (continued) to the Consolidated financial statements for the years ended December 31, 2017 and 2016
(continued)
Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated
The recoverable amount of the GOw2 CGU of US$ 44,415 as at January 1, 2016, US$ 61,637 as at
selling price in the ordinary course of business, less estimated costs of completion and the estimated
December 31, 2016 and US$ 69,570 as at December 31, 2017 has been determined based on a valuein-use
(VIU) calculation using cash flow projections from financial budgets approved by senior
costs to sell.
The management cost of crude covering oil and a five-year refined period. products The is projected the purchase cash cost, flows the have cost been of updated refining, to including reflect the
appropriate decreased demand proportion for of finished depreciation, oil products. depletion The and post-tax amortization weighted and average overheads cost of based capital on (WACC) normal
operating discount rate capacity, applied determined to the cash on flow a weighted projections average is 12.27% basis. (2016: 12.40%), and cash flows beyond the
The five-year net realizable period are value extrapolated of crude using oil and a 2% refined growth products rate that is based is the on same the as estimated the long-term selling average price in fuel the
ordinary consumption course growth of business, rate for less the petroleum the estimated products costs sector. of completion As a result and of the the estimated analysis, costs management necessary did to
make not identify the sale. an impairment for this CGU. The GOw2 CGU forms part of the downstream reportable
segment. Applying a pre-tax WACC discount rate 20.04% (2016: 19.39%) to the cash flow projections
Materials and supplies are valued using the weighted average cost method.
provides the same VIU for the CGU.
Pipeline fill
Key assumptions used in value-in-use calculations
Crude oil, which is necessary to bring a pipeline into working order, is treated as a part of the related
The calculation of VIU for the GOw2 CGU is most sensitive to the following key assumptions:
pipeline. This is on the basis that it is not held for sale or consumed in a production process, but is
- Gross margin
necessary to the operation of a facility during more than one operating cycle, and its cost cannot be
- Discount rates
recouped through sale (or is significantly impaired). This applies even if the part of inventory that is
- Oil prices
deemed to be an item of property, plant and equipment cannot be separated physically from the rest of
- Market share during the budget period
inventory. It is valued at cost and is depreciated over the useful life of the related asset.
- Growth rate used to extrapolate cash flows beyond the budget period
n. Impairment of non-financial assets
Gross margins
The Group assesses at each reporting date whether there is an indication that an asset may be impaired.
Gross margins are based on average values achieved in the three years preceding the start of the budget
If any indication exists, or when annual impairment testing for an asset is required, the Group estimates
period. These are increased over the budget period for anticipated improvements in the efficiency of
the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash
operations. An increase of 2% per annum was applied based on economic growth (quantities) of the
generating units (CGU) fair value less costs of disposal and its value in use. It is determined for an
CGU.
individual asset, unless the asset does not generate cash inflows that are largely independent of those
from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its
Discount rates
recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In
Discount rates represent the current market assessment of the risks specific to each CGU, taking into
assessing value in use, the estimated future cash flows are discounted to their present value using a pretax
discount rate that reflects current market assessments of the time value of money and the risks
consideration the time value of money and individual risks of the underlying assets that have not been
incorporated in the cash flow estimates. The discount rate calculation is based on the specific
specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken
circumstances of the Group and its operating segments and is derived from its WACC, with appropriate
into account. If no such transactions can be identified, an appropriate valuation model is used.
adjustments made to reflect the risks specific to the CGU. The WACC takes into account both debt and
equity, Impairment weighted losses 47.21% of continuing (2016: operations 46.83%) debt are versus recognized 52.79% in the (2016: consolidated 53.17%)equity, statement due of to profit the debt or loss to
equity in those structure expense of the categories Group. The consistent cost of with equity the is function derived from of the the impaired expected asset, return except on investment for a property by the
Group’s previously investors. revalued The where cost the of debt revaluation is based was on the taken interest-bearing to OCI. In this borrowings case, the the Group impairment is obliged is also to
recognized in OCI up to the amount of any previous revaluation.
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