Staatsolie Annual Report 2017

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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. Page 63 Page 109
Confidence in Our Own Abilities 110 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 (continued) Notes to the Consolidated financial statements for the years ended December 31, 2017 and 2016 (continued) Available-for-sale (AFS) financial investments service. Segment-specific risk is incorporated by applying individual beta factors. The beta factors are AFS evaluated financial annually investments based on include publicly equity available and debt market securities. data. Equity investments classified as availablefor-sale Oil prices are those neither classified as held-for-trading nor designated at fair value through profit or loss. After Long term initial forecasted measurement, oil prices AFS are financial based on investments management’s are estimates subsequently and available measured market at fair data. value with unrealized gains or losses recognized as OCI until the investment is derecognized, at which time, the cumulative Market share gain assumptions or loss is recognized in other operating income or expense, or the investment is determined These assumptions to be impaired, are important at which because time, the as cumulative well as loss using is industry reclassified data to for the growth consolidated rates statement (as noted of below), profit management or loss in finance assesses costs how and removed the CGU’s from position, the OCI. relative The to Group its competitors, evaluates its might AFS change financial over assets the to forecast determine period. whether Management the ability expects and intention the Group’s to sell share them of in the oil near retail term products is still appropriate. market to be stable over the forecast period. (ii) Financial liabilities Recognition Growth rate and estimates measurement Financial Rates are liabilities based on are economic classified, growth at initial rates, recognition, growth domestic as financial product liabilities and relevant at fair published value through research. profit or loss, loans and borrowings, payables, as appropriate. All financial liabilities are recognized initially at fair value Sensitivity and, in to the changes case of in loans assumptions and borrowings and payables, net of directly attributable transaction costs. The With Group’s regard to financial the assessment liabilities include of VIU trade for the and GOw2 other CGU, payables, management loans and believes borrowings that including there are bank no overdrafts. reasonably possible changes in any of the above key assumptions that would cause the carrying value of the CGU to materially exceed its recoverable amount. Loans and borrowings 4.6 Impairment testing of other non-current assets This is the category most relevant to the Group. After initial recognition, interest bearing loans and borrowings Management are considered subsequently the overall measured decline at amortized in crude oil cost prices, using oil the construction EIR method. and development Gains and losses activities are recognized around the in world the consolidated in 2015 and statement 2016 as of potential profit or indicators loss when for the impairment, liabilities are therefore derecognized an impairment as well as through analysis the for EIR two amortization CGUs (three process. oil fields Amortized and the cost refinery) is calculated was performed. by taking As into a account result of any the discount analysis, or premium management on acquisition did not identify and an fees impairment or costs that for the are CGUs. an integral part of the EIR. The EIR amortization is included in finance costs in the consolidated statement of profit or loss. This category generally applies to interest-bearing loans and borrowings. m. Inventories Petroleum products are valued at the lower of cost and net realizable value. Raw materials: • Purchase cost is valued on weighted average method Finished goods and work in progress: • Cost of direct materials and labor and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs Page 62 Page 110
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Staatsolie Annual Report 2017

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