Staatsolie Annual Report 2017

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Confidence in Our Own Abilities 56 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) Available-for-sale (AFS) financial investments Land and buildings are measured at historical cost, less accumulated depreciation on buildings, and impairment AFS financial losses investments are recognized include at equity the date and of debt revaluation. securities. Equity investments classified as availablefor-sale Exploration are and those evaluation neither classified assets as held-for-trading nor designated at fair value through profit or loss. Exploration After initial and measurement, evaluation activity AFS financial involves investments the search for are hydrocarbon subsequently resources, measured the at determination fair value with of technical unrealized feasibility gains or and losses the assessment recognized as of commercial OCI until the viability investment of an identified is derecognized, resource. at which time, the cumulative gain or loss is recognized in other operating income or expense, or the investment is Once the legal right to explore has been acquired, costs directly associated with an exploration well are determined to be impaired, at which time, the cumulative loss is reclassified to the consolidated statement capitalized as exploration and evaluation projects in progress until the drilling of the well is complete and of profit or loss in finance costs and removed from the OCI. The Group evaluates its AFS financial assets the results have been evaluated. to determine whether the ability and intention to sell them in the near term is still appropriate. These costs include directly attributable employee remuneration, materials and fuel used, rig costs and payments made to contractors. (ii) Financial liabilities Geological and geophysical costs are recognized in the statement of profit or loss, as incurred. Recognition and measurement If Financial no potentially liabilities commercial are classified, hydrocarbons at initial recognition, are discovered, as financial the exploration liabilities asset at fair is value written through off through profit the or statement loss, loans of and profit borrowings, or as a dry payables, hole. as appropriate. All financial liabilities are recognized initially at fair If value extractable and, in the hydrocarbons case of loans are and found borrowings and, subject and payables, to further net of appraisal directly attributable activity (e.g. transaction the drilling costs. of additional The Group’s wells), financial it is probable liabilities that include they trade can be and commercially other payables, developed, loans the and costs borrowings continue including to be carried bank as overdrafts. projects in progress while sufficient/continued progress is made in assessing the commerciality of the hydrocarbons. Costs Loans and directly borrowings associated with appraisal activity undertaken to determine the size, characteristics and commercial This is the potential category of most a reservoir relevant following to the Group. the initial After discovery initial recognition, of hydrocarbons, interest including bearing the loans costs and of appraisal borrowings wells are where subsequently hydrocarbons measured were at not amortized found, are cost initially using capitalized the EIR method. as projects Gains progress. and losses are recognized in the consolidated statement of profit or loss when the liabilities are derecognized as well as All such capitalized costs are subject to technical, commercial and management review, as well as review through the EIR amortization process. Amortized cost is calculated by taking into account any discount or for indicators of impairment at least once a year. This is to confirm the continued intent to develop or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is otherwise extract value from the discovery. When this is no longer the case, the costs are written off included in finance costs in the consolidated statement of profit or loss. This category generally applies to through the consolidated statement of profit or loss. interest-bearing loans and borrowings. When proved reserves of oil are identified and development is sanctioned by management, the relevant capitalized expenditure is first assessed for impairment and (if required) any impairment loss is m. Inventories recognized, then the remaining balance is transferred to oil properties. Petroleum products are valued at the lower of cost and net realizable value. Other than license costs, no amortization is charged during the exploration and evaluation phase. 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 56
Annual Report 2017 57 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 Oil properties selling price in the ordinary course of business, less estimated costs of completion and the estimated The costs of production development such as drilling, testing and completion of development wells are costs to sell. capitalized, notwithstanding if these wells are successful or not. Capitalized costs consist of the purchase price The cost of materials of crude and oil and services, refined including products the is Group’s the purchase internal cost, services. the cost Capitalized of refining, costs including for wells, the equipment appropriate and proportion production of facilities depreciation, are depreciated depletion using and amortization the units of production and overheads (UOP) based method. on normal operating capacity, determined on a weighted average basis. All costs for development wells, related plant and equipment, and related Asset Retirement Obligation (ARO) The net are realizable capitalized. value Capitalized of crude oil costs and relating refined to products investments is based in the on oil the field, estimated including selling productive price in land the properties, ordinary course are of depreciated business, less based the on estimated the UOP costs method, of completion generally and by the individual estimated field, costs as necessary the proved to developed make the sale. reserves are produced. The UOP factor is derived from the year oil production and the related proved developed oil reserves. Materials and supplies are valued using the weighted average cost method. Oil properties – assets under construction Pipeline fill Expenditure is transferred from ’Exploration and evaluation assets’ to ‘Assets under construction’ which is Crude oil, which is necessary to bring a pipeline into working order, is treated as a part of the related a subcategory of ‘Oil and gas properties’ once the work completed to date supports the future pipeline. This is on the basis that it is not held for sale or consumed in a production process, but is development of the asset and such development receives appropriate approvals. After transfer of the necessary to the operation of a facility during more than one operating cycle, and its cost cannot be exploration and evaluation assets, all subsequent expenditure on the construction, installation or recouped through sale (or is significantly impaired). This applies even if the part of inventory that is completion of infrastructure facilities such as pipelines and the drilling of development wells, including deemed to be an item of property, plant and equipment cannot be separated physically from the rest of unsuccessful development or delineation wells, is capitalized within ‘oil properties’. inventory. It is valued at cost and is depreciated over the useful life of the related asset. Development expenditure is net of proceeds from the sale of oil produced during the development phase to the extent that it is considered integral to the development of the asset. Any costs incurred in testing n. Impairment of non-financial assets the assets to determine whether they are functioning as intended, are capitalized, net of any proceeds The Group assesses at each reporting date whether there is an indication that an asset may be impaired. received from selling any product produced while testing. Where these proceeds exceed the cost of If any indication exists, or when annual impairment testing for an asset is required, the Group estimates testing, any excess is recognized in the consolidated statement of profit or loss. the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash When generating a development units (CGU) project fair value moves less into costs the of production disposal and stage, its value all assets in use. included It is determined ‘Assets for under an construction’ individual asset, are unless then transferred the asset does to ‘Producing not generate assets’ cash which inflows is also that a are sub-category largely independent of ‘Oil properties’. of those The from capitalization other assets of or certain groups construction/development of assets. Where the carrying costs ceases, amount and of an costs asset are or either CGU regarded exceeds as its part recoverable of the cost amount, of inventory the asset or is expensed, considered except impaired for costs and which is written qualify down for to capitalization its recoverable relating amount. to ‘Oil In and assessing gas properties’ value in use, asset the additions, estimated improvements future cash flows or new are developments. discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks Oil properties – producing assets and other property, plant and equipment specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken (i) Initial recognition into account. If no such transactions can be identified, an appropriate valuation model is used. ‘Oil and gas properties’ and ‘Other property, plant and equipment’ are stated at cost, less accumulated depreciation Impairment losses and accumulated of continuing impairment operations losses. are recognized in the consolidated statement of profit or loss in those expense categories consistent with the function of the impaired asset, except for a property previously revalued where the revaluation was taken to OCI. In this case, the impairment is also recognized in OCI up to the amount of any previous revaluation. Page 63 Page 57
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Staatsolie Annual Report 2017

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