15. Other intangible assets

A A A
PLN ’000 Dec 31 2013 Dec 31 2012
(restated)
Licences, patents and trademarks 93,607 91,286
Exploration and production licences (1) 357,559 431,073
Intangible exploration and evaluation assets (2) 198,439 15,356
Other 36,617 (3) 10,944
Total 686,222 548,659

(1) AB LOTOS Geonafta Group’s exploration and production licences related to oil fields in Lithuania.

(2) Including PLN 180,401 thousand under LOTOS E&P Norge AS North Sea exploration licences (December 31st 2012: PLN 13,896 thousand).

(3) Including Grupa LOTOS's purchased carbon dioxide (CO2) emission allowances of PLN 23,911 thousand.

Exploration and evaluation assets

The Group incurs expenditures on intangible assets in connection with exploration for and evaluation of mineral resources. In 2013, the incurred expenditure of PLN 204,518 thousand mainly related to the acquisition of assets connected with the YME field and Heimdal fields (for more information on the transaction, see Note 13). In 2013, the value of cash flows related to expenditure on intangible exploration and evaluation assets was PLN 181,632 thousand (2012: PLN 73,714 thousand). As at December 31st 2013, the value of investment commitments connected with the expenditure was PLN 21,233 thousand.

Exploration and evaluation assets are carried until the technical feasibility and commercial viability of extracting the mineral resources is demonstrated. As at December 31st 2013, the intangible assets related to mineral resources with demonstrable technical feasibility and commercial viability of extraction stood at PLN 362,438 thousand (December 31st 2012: PLN 434,949 thousand), and their 2013 amortisation amounted to PLN 55,126 thousand (2012: PLN 49,744 thousand). These assets are recognised under: Exploration and production licences and Other intangible assets.

Impairment losses on intangible assets
Upstream segment

In 2013, the Group recognised impairment losses on intangible assets of PLN 31,164 thousand (2012: PLN 88,986 thousand). The impairment losses were related to exploration licences in Norway and exploration and production licences in Lithuania, as described in more detail below.

In 2013, as the drillings performed within the PL 498 and PL 497 licence areas yielded no positive results, the Group recognised an impairment loss on related capitalised exploration expenses of PLN 4,744 thousand (NOK 8,856 thousand). The respective impairment loss recognised in 2012 was PLN 74,481 thousand (NOK 133,145 thousand).

As at December 31st 2013 Latvian production licences held by companies of the AB LOTOS Geonafta Group (AB LOTOS Geonafta (Girkaliai, Kretinga and Nausodis fields), UAB Genciu Nafta (Genciu field)) were tested for impairment. The Group determined the recoverable amount of the tested assets at their value in use measured using the discounted future cash flows method.

The assets of UAB Manifoldas (Klaipėda, Troba fields) were not tested for impairment, as the key assumptions relating to the allocation of cost for AB LOTOS Geonafta's acquisition of controlling interest in UAB Manifoldas were not materially different from the estimates made in connection with the final accounting for the transaction (see Note 6).

Key assumptions underlying computation of the recoverable amount of the tested intangible assets in Lithuania as at December 31st 2013:

  • the cash flow projection period was assumed to equal the asset's planned life,
  • the discount rate was assumed to equal the weighted average cost, at 11%,
  • production volumes were assumed to be in line with a competent person report prepared by Miller & Lents based on available current geological information,
  • capital expenditure was assumed to match the projected production volumes.

The following crude oil price assumptions in USD/bbl were adopted for the purposes of the estimates:

  • The following crude oil price assumptions in USD/bbl were adopted for the purposes of the estimates:
  • 2017 and beyond – crude prices reflect the assumptions made for the purposes of acquisition of an interest in Heimdal assets by LOTOS E&P Norge AS (for more information on the acquisition of Heimdal assets see Note 13).

Due to significant market volatility, in particular with respect to crude oil prices, the adopted assumptions might be subject to justifiable changes, and such changes may in the future cause a change on the carrying amounts of assets held by the AB LOTOS Geonafta Group. To determine the effect of key factors on the test results, the Group carried out an analysis of sensitivity to a -15%/+15% change of crude oil price, -15%/+15% change in production volumes, and a -15%/+15% change in the USD/LTL exchange rate. As at December 31st 2013, as a result of impairment tests a PLN 26,420 thousand (LTL 21,663 thousand) impairment loss on assets was recognised, including PLN 7,943 thousand (LTL 6,513 thousand) on assets associated with the Girkaliai field and PLN 18,477 thousand (LTL 15,150 thousand) on assets associated with the UAB Minijos Nafta's fields.

As at December 31st 2012, remeasurement of the intangible assets related to the Lithuanian licences was necessitated mainly by the determination of new geological information which revised the reserve estimates down. Following impairment tests performed separately for each individual asset generating cash flows, i.e. for the Girkaliai, Kretinga and Nausodis fields, an impairment loss of PLN 14,504 thousand (LTL 12,000 thousand) was recognised on assets related to the Kretinga field

In connection with the tests carried out as at December 31st 2012, production profiles based on the current field reports prepared by an independent expert were used to calculate future cash flows (the assets tested for impairment generate cash flows from production of crude oil; production profiles determine the period of detailed cash flow projections for each field). The analysed cash flows in the production periods included revenue from sale of crude oil, operating expenses and capital expenditure necessary to conduct production activities, and the calculated cash flows were discounted to arrive at the present value of future payments. The applied discount rate was based on the weighted average cost of capital after tax, estimated at 11%. With financial effects of production from a given oil field showing high sensitivity to changes in the prices of crude oil, and the prices being highly volatile, the Group applied a range approach to testing the value of its fields, in order to avoid remeasurement of assets after any price movements, by allowing for the following volatilities: crude oil price: +/- 15%, production volumes: +/- 15%, USD/LTL exchange rate: +/- 15%. The tests revealed that, as at December 31st 2012, the carrying amounts of the Girkaliai and Nausodis fields fell within the ranges determined by the range test. In the case of the Kretinga field, the carrying amount of the tested assets was higher than the field’s range measurement values, which resulted in recognition of the impairment loss on the assets.

The table below presents items under which amortisation of other intangible assets was recognised:

PLN ’000 Year ended
Dec 31 2013
Year ended
Dec 31 2012
(restated)
Cost of sales 56,679 51,267
Distribution costs 472 1,380
Administrative expenses 11,197 9,590
Change in products and adjustments to cost of sales 108 108
Total 68,456 62,345

As at December 31st 2013, other intangible assets serving as collateral for the Group's liabilities was PLN 150,364 thousand. The collateral was created over the acquired Heimdal assets; for more information see Note 13. As at December 31st 2012, no intangible assets served as collateral.


As at December 31st 2013, the Group’s future contractual liabilities related to expenditure on intangible assets undisclosed in the statement of financial position were PLN 9,263 thousand (December 31st 2012: PLN 8,039 thousand).

Changes in other intangible assets
PLN ’000 Note Licences,
patents and
trademarks
Exploration
and production
licences
Intangible
exploration
and evaluation
assets
Other Total
Gross carrying
amount
Jan 1 2013
(restated)
  163,626 527,054 159,305 32,978 882,963
Purchase   - - 41,890 25,573 (1) 67,463
Acquisition of
Heimdal assets
13 - - 162,628 - 162,628
Transfer from property,
plant and equipment
under construction
  12,562 - - 2,912 15,474
Exchange differences
on translating foreign
operations
  - 7,612 (30,788) (473) (23,649)
Contribution of assets
for development
of B-4 and B-6 fields
to Baltic Gas Sp. z o.o
i wspónicy sp. k. (2)
  - - (1,430) (327) (1,757)
Liquidation   (179) - - (14) (193)
Other   (265) - - 308 43
Gross carrying
amount
Dec 31 2013
  175,744 534,666 331,605 60,957 1,102,972
Accumulated
amortisation
Jan 1 2013
(restated)
  72,337 81,773 7,121 22,008 183,239
Amortisation   10,249 54,548 1,411 2,248 68,456
Exchange differences
on translating foreign
operations
  - 354 - (293) 61
Contribution of assets
for development
of B-4 and B-6 fields
to Baltic Gas Sp. z o.o
i wspónicy sp. k. (2)
  - - (1,317) (87) (1,404)
Liquidation   (172) - - (10) (182)
Other   (252) - - 420 168
Accumulated
amortisation
Dec 31 2013
  82,162 136,675 7,215 24,286 250,338
Impairment
losses
Jan 1 2013
  3 14,208 136,828 26 151,065
Recognised   - 26,420 4,744 - 31,164
Exchange differences
on translating foreign operations
  - (196) (15,079) - (15,275)
Used / Reversed   - - (542) - (542)
Other   (28) - - 28 -
Impairment
losses
Dec 31 2013
  (25) 40,432 125,951 54 166,412
Net carrying
amount
Dec 31 2013
  93,607 357,559 198,439 36,617 686,222

(1) Including Grupa LOTOS S.A.'s purchased carbon dioxide (CO2) emission allowances of PLN 23,430 thousand.

(2) For more information see Note 2.

PLN ’000 Licences,
patents and
trademarks
Exploration
and production
licences
Intangible
exploration
assets plant
and equipment
Other Total
Gross carrying
amount
Jan 1 2012
150,007 403,716 87,880 29,834 671,437
Purchase 180 - 73,714 805 74,699
Transfer from property, plant and equipment under construction 15,518 - - 2,419 17,937
Exchange differences on translating foreign operations - (33,245) (2,289) (80) (35,614)
Acquisition of control (AB LOTOS Geonafta Group) (1) - 184,625 - - 184,625
Liquidation (584) - - (270) (854)
Deconsolidation (AB LOTOS Geonafta Group) (1) - (28,042) - - (28,042)
Other (1,495) - - 270 (1,225)
Gross carrying
amount
Dec 31 2012
(restated)
163,626 527,054 159,305 32,978 882,963
Accumulated
amortisation
Jan 1 2012
63,340 41,741 6,156 20,280 131,517
Amortisation 10,309 49,017 965 2,054 62,345
Exchange differences on translating foreign operations - (4,007) - (56) (4,063)
Liquidation (584) - - (270) (854)
Deconsolidation (AB LOTOS Geonafta Group) (1) - (4,978) - - (4,978)
Other (728) - - - (728)
Accumulated
amortisation
Dec 31 2012
(restated)
72,337 81,773 7,121 22,008 183,239

Impairment
losses
Jan 1 2012

3 - 64,311 26 64,340
Recognised - 14,504 74,481 - 88,985
Exchange differences on translating foreign operations - (296) (1,964) - (2,260)
Impairment
losses
Dec 31 2012
3 14,208 136,828 26 151,065
Net carrying
amount
Dec 31 2012
(restated)
91,286 431,073 15,356 10,944 548,659

(1) Effect of the acquisition of control over UAB Manifoldas by AB LOTOS Geonafta. For more information on the transaction, see Note 2 to the consolidated financial statements for 2012.