LOTOS 2015 Report | 30. Trade payables, other liabilities and provisions

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30. Trade payables, other liabilities and provisions

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contrast

PLN '000	Note	Dec 31 2015	Dec 31 2014
Financial liabilities
Non-current financial liabilities
Other financial liabilities:	31.1	8,906	5,549
Investment commitments		8,070	4,539
Other		836	1,010
Total		8,906	5,549
Current financial liabilities
Trade payables	31.1	1,232,510	1,692,839
Other financial liabilities:	31.1	172,825	191,295
Investment commitments		110,710	120,498
Liabilities to insurers		1,432	19,244
Settlements related to operation on Norwegian fields ⁽¹⁾		43,792	39,668
Other		16,891	11,885
Total		1,405,335	1,884,134
Total financial liabilities		1,414,241	1,889,683
Non-financial liabilities
Non-current non-financial liabilities
Provisions	30.1	1,269,053	638,209
Grants		11,157	12,263
Other		3,455	1,542
Total		1,283,665	652,014
Current non-financial liabilities
Provisions	30.1	143,291	140,219
Liabilities to the state budget other than corporate income tax ⁽²⁾		1,003,389	723,762
Grants		23,924	29,655
Prepaid deliveries		3,925	1,553
Liabilities under the NAVIGATOR loyalty programme		12,655	13,367
Other		43,736	37,459
Total		1,230,920	946,015
Total non-financial liabilities		2,514,585	1,598,029

Total		3,928,826	3,487,712
including:
non-current		1,292,571	657,563
current:		2,636,255	2,830,149
- trade payables		1,232,510	1,692,839
- other		1,403,745	1,137,310

⁽¹⁾ Liabilities of LOTOS Exploration and Production Norge AS (LOTOS Petrobaltic Group, the upstream segment) under mutual settlements between the operator and consortium members concerning specific Norwegian fields.

⁽²⁾ Including PLN 604,528 thousand in excise duty and fuel charge liabilities (December 31st 2014: PLN 586,199 thousand).

Trade payables do not bear interest and are, as a rule, paid in 7-60 days. Other liabilities do not bear interest, and their average payment period is one month. Amounts resulting from the difference between value added tax receivable and value added tax payable are paid to the relevant tax authorities on a monthly basis. Interest payable is usually settled on a monthly basis during a financial year.

For currency risk sensitivity analysis of trade payables and other liabilities, see Note 32.3.1.

For information on maturities of trade payables and other liabilities, see Note 32.5.

30.1 Provisions

PLN '000	Note	Provisions for decommissioning and reclamation costs					Other provisions	Total
		Provision for oil & gas extraction facilities			Provisions for retired refinery and other installation	Total
		Poland	Norway	Lithuania	Provisions for retired refinery and other installation	Total
Jan 1 2015		183,579	497,194	14,302	30,504	725,579	52,849	778,428
Recognised		-	610,121 ⁽¹⁾	361	512	610,994	150,353 ⁽³⁾	761,347
Remeasurement of decommissioning costs		5,574	17,253	(1,245)	(2,319)	19,263	4,794	24,057
Change in provisions for liabilities attributable to approaching maturity date (discount unwinding effect)	9.6	4,965	15,943	720	64	21,692	510	22,202
Interest on Oil and Gas Extraction Facility Decommissioning Fund		469	-	-	-	469	-	469
Exchange differences on translating foreign operations		-	(59,326)	(5)	-	(59,331)	(8,587)	(67,918)
Used		-	(94,746) ⁽²⁾	-	(480)	(95,226)	(2,008)	(97,234)
Reversed		(2,750)	-	-	(2,511)	(5,261)	(3,746)	(9,007)
Dec 31 2015		191,837	986,439	14,133	25,770	1,218,179	194,165	1,412,344
including:
non-current		191,837	882,753	14,133	24,142	1,112,865	156,188	1,269,053
current		-	103,686	-	1,628	105,314	37,977	143,291

Provisions for decommissioning and reclamation costs:

Provision for the Polish oil and gas extraction facilities – a provision for future costs of decommissioning of the oil and gas extraction facilities in the B-3 and B-8 licences areas and the Oil and Gas Extraction Facility Decommissioning Fund, set up to cover future costs of decommissioning of oil and gas facilities, in accordance with the Geological and Mining Law of February 4th 1994 and the Minister of Economy’s Regulation of June 24th 2002.

Provision for the Norwegian oil and gas extraction facilities − a provision for future costs of decommissioning of the oil extraction facilities in the YME field (including provision for future cost of MOPU removal), and the oil and gas extraction facilities in the Heimdal and Sleipner fields.

Provision for the Lithuanian oil and gas extraction facilities − a provision for future costs of decommissioning of the Lithuanian oil extraction facilities.

⁽²⁾ The amount mainly includes PLN 62,043 thousand of used provisions for future costs of removal of the MOPU and disassembly of plant and equipment at the YME field. The provision was recognised in connection with the agreement between Talisman (the YME field operator) and SBM (rig owner) reached in March 2013 (see also Note 35 and 13.1.2).

⁽³⁾ Including PLN 133,157 thousand (NOK 285,500 thousand) related to a provision for contingent payments under the Sleipner assets acquisition agreement (see Note 13.1.3).

PLN '000	Note	Provisions for decommissioning and reclamation costs					Other provisions	Total
		Provision for oil & gas extraction facilities			Provisions for retired refinery and other installation	Total
		Poland	Norway	Lithuania	Provisions for retired refinery and other installation	Total
Jan 1 2014 (restated)		216,666	562,268	13,026	36,128	828,088	27,534	855,622
Recognised		642	-	1,074	685	2,401	29,898 ⁽⁴⁾	32,299
Remeasurement of decommissioning costs		(36,396) ⁽¹⁾	61,198⁽²⁾	(844)	(762)	23,196	-	23,196
Change in provisions for liabilities attributable to approaching maturity date (discount unwinding effect)	9.6	2,008	17,043	669	274	19,994	432	20,426
Interest on Oil and Gas Extraction Facility Decommissioning Fund		659	-	-	-	659	-	659
Exchange differences on translating foreign operations		-	(22,482)	377	-	(22,105)	(1,396)	(23,501)
Used		-	(120,833) ⁽³⁾	-	(1,257)	(122,090)	(2,752)	(124,842)
Reversed		-	-	-	(4,564)	(4,564)	(867)	(5,431)
Dec 31 2014		183,579	497,194	14,302	30,504	725,579	52,849	778,428
including:
non-current		183,579	384,153	14,302	27,403	609,437	28,772	638,209
current		-	113,041	-	3,101	116,142	24,077	140,219

Provisions for decommissioning and reclamation costs:

Provision for the Polish oil and gas extraction facilities − a provision for future costs of decommissioning of the oil and gas extraction facilities in the B-3 and B-8 licence areas.

Provision for the Lithuanian oil and gas extraction facilities − a provision for future costs of decommissioning of the Lithuanian oil extraction facilities.

Provisions for retired refinery installations and other installations − a provision for land reclamation and the cost of disassembly and decommissioning of the retired installations at LOTOS Terminale S.A., a provision for estimated cost of disassembly of the subsea pipeline operated by a subsidiary Energobaltic Sp. z o.o. (of the LOTOS Petrobaltic Group), as well as for land reclamation and clean-up.

⁽¹⁾ As at December 31st 2014, the Group analysed the costs necessary to decommission the oil extraction facility in the Baltic Sea in the B-3 licence area following the extension of the B-3 production licence in 2014 from 2016 to 2026. According to the analysis, the costs necessary to decommission the offshore oil extraction facility in this area are lower than the previous year’s estimates by PLN 36,396 thousand.

⁽²⁾Including the effect of remeasurement of the provision for future costs of decommissioning of the offshore oil extraction facilities in the YME field, which resulted in an increase of decommissioning asset, charged to operating costs as a one-off expense of PLN 27,743 thousand in the consolidated statement of comprehensive income (see Note 13.1 and 13.1.4).

⁽³⁾ The amount mainly includes PLN 98,611 thousand of used provisions for future costs of removal of the MOPU and disassembly of plant and equipment at the YME field. The provision was recognised in connection with the agreement between Talisman (the YME field operator) and SBM (rig owner) reached in March 2013 (see also Note 35 and 13.1.2).

⁽⁴⁾ Including PLN 21,901 thousand from remeasurement of the provision for contingent payments under the Heimdal assets acquisition agreement.

Provision for oil & gas production facilities − Norway

Provision for decommissioning and reclamation of oil production facility in the YME field

As at December 31st 2015, the provision for decommissioning and reclamation of the oil extraction facility in the YME field, totalling PLN 141,407 thousand (NOK 319,132 thousand), was disclosed under Other liabilities and provisions and reflected the current estimate, made based on the Group’s best knowledge, of future costs of removal of the YME infrastructure and costs of land reclamation, assuming that the project is decommissioned in 2031. As at December 31st 2014, the provision was PLN 146,816 thousand (NOK 310,065 thousand).

In the opinion of the Company’s Management Board, the disclosed value of the provision for the costs of decommissioning of the infrastructure associated with the YME field and land reclamation following the facility’s decommissioning reflects the necessary commitment by LOTOS E&P Norge AS if the scenario of earlier complete decommissioning materialises. This is a consequence of the phase (currently under way) of preparation of the YME field infrastructure decommissioning plan, adopted by the Consortium with the votes of the majority of its members and reflected in the project budget to be approved for 2016, taking into account a reduction in the decommissioning cost estimate in connection with a drop in the market cost of such services.

Provision for removal of the defective MOPU from the YME field

As described in Note 35.1, in March 2013, the operator of the YME field, Talisman Energy Norge AS ("Talisman," "Operator"), and the supplier of the Mobile Offshore Production Unit (MOPU) to be operated on the YME field, Single Buoy Moorings Inc. (“SBM”), announced that an agreement had been reached to remove the defective MOPU (evacuated in mid-July 2012) from the YME field and to terminate all existing contracts and agreements between the parties in connection with the YME project. Following the agreement, the Group recognised provision for the future removal of the MOPU from the YME field, in the amount of PLN 281,859 thousand (NOK 526,151 thousand). The provision was gradually used in subsequent years. In 2015 the provision amount was increased as a result of an increase of PLN 10,287 thousand (NOK 22,057 thousand) in the estimated cost of the removal, see Note 9.4. As at December 31st 2015, the provision was PLN 39,087 thousand (NOK 88,213 thousand). In 2015, the Group used PLN 62,043 thousand (NOK 133,024 thousand) from the provision.

The amount of the provision for removal of the MOPU from the YME field disclosed in the statement of financial position as at December 31st 2015 was determined based on the following assumptions:

the MOPU will be removed from the YME field not later than in 2016;
the provision fully covers the unspent, as at December 31st 2015, budget for removing the MOPU, approved by the interest holders of the YME licence.

For information on the YME project and details of the provision for decommissioning of the remaining subsea infrastructure associated with the YME field, see also Note 13.1.2.

Provision for decommissioning and reclamation of gas extraction facilities in the Heimdal field

In connection with the acquisition in 2013 of new production assets on the Norwegian Continental Shelf (Heimdal), a provision for future costs of decommissioning of the acquired production assets was recognised at PLN 265,709 thousand (NOK 496,004 thousand). Decommissioning of the non-current assets of the offshore oil and gas extraction facility at the Heimdal field and reclamation work are scheduled for 2016–2035. As at December 31st 2015, the provision was disclosed in the Group’s statement of financial position under Other liabilities and provisions at PLN 230,767 thousand (NOK 520,802 thousand). As at December 31st 2014, the provision was PLN 256,066 thousand (NOK 540,794 thousand).

Provision for decommissioning and reclamation of gas extraction facilities in the Sleipner fields

In connection with the acquisition in 2015 of the Sleipner assets on the Norwegian Continental Shelf, a provision for future costs of decommissioning of the acquired production assets was recognised at PLN 605,423 thousand (NOK 1,298,076 thousand, see Note 13.1.3). Decommissioning of the newly acquired non-current assets of the offshore oil and gas extraction facility at the Sleipner field and reclamation work are scheduled for 2016–2033. As at December 31st 2015 the provision was disclosed in the Group’s statement of financial position under Other liabilities and provisions at PLN 575,178 thousand.

Other provisions

As at December 31st 2015, the Group recognised a provision for contingent payments under the Heimdal assets acquisition agreement, of PLN 29,379 thousand (NOK 66,303 thousand). As at December 31st 2015, the provision was PLN 26,010 thousand (NOK 54,932 thousand).

In 2015, the Group recognised a provision for contingent payments under the Sleipner assets acquisition agreement. As at December 31st 2015, the provision was PLN 126,506 thousand (NOK 285,500 thousand).

Furthermore, as at December 31st 2015 and December 31st 2014, the Group also disclosed a provision of PLN 15,318 thousand related to court proceedings instigated by WANDEKO, to which LOTOS Paliwa Sp. z o.o. is a party (see Note 35.1).

30.2 Grants

PLN '000	Note	Year ended Dec 31 2015	Year ended Dec 31 2014
At beginning of period		41,918	42,569
Grants received in period		516	1,238
Deferred grants	9.3	(7,353)	(1,889)
At end of period		35,081	41,918
including:
non-current		11,157	12,263
current		23,924	29,655

The grants are primarily related to licences received free of charge and grants from the Eco Fund for the use of waste gas from an offshore oil and gas extraction facility for heating purposes.

The Group receives also government assistance within the meaning of IAS 20 Accounting for Government Grants and Disclosure.

Until April 30th 2011, the Group benefited from tax credit available to producers of bio-components under Art. 19a of the Corporate Income Tax Act of February 15th 1992 (consolidated text: Dz.U. of 2011, No. 74, item 397). The state aid awarded in line with the laws referred to above was approved by virtue of the European Commission’s Decision No. 57/08 of September 18th 2009 concerning authorisation for the grant of state operating aid for biofuels. This relief has enabled biofuel producers to deduct from their income tax payable up to 19% of the surplus value of their produced biofuels over the value of their produced liquid fuels of the same calorific value, calculated at average prices. European Commission’s approval for the tax relief expired on April 30th 2011, and the unsettled amount of the relief was accounted for in current prepayments for corporate income tax.

The Group benefited from a tax credit available to entities introducing new technologies pursuant to Art. 18b of the Corporate Income Tax Act of February 15th 1992 (consolidated text: Dz.U. of 2011, No. 74, item 397). The tax credit enabled the Group to deduct from taxable income up to 50% of expenditure incurred on new technologies. It was settled at the end of 2014.

The Notes to the consolidated financial statements are an integral part of the statements.
(This is a translation of a document originally issued in Polish)

Integrated Annual Report of LOTOS Capital Group 2015

INTEGRATED ANNUAL REPORT 2015