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Financial information
The past year ushered in a series of challenges for the companies in the fuel sector. The decisions made by us have demonstrated that we are able to take rapid steps to adapt to a demanding environment and ensure the desired profitability for our projects.
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Segment performance
The segmental management model we have implemented enhances management efficiency, delivering cost and revenue synergies across the organization.
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Letter from the Vice-President of the Board
2014 ushered in a series of challenges for the companies in the fuel sector. The decisions made by the LOTOS Group have demonstrated that we are able to take rapid steps to adapt to a demanding environment and ensure the desired profitability for our projects.
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Business environment
The key factor that had a strong impact on both the global and Polish petroleum markets in 2014, with significant consequences for the LOTOS Group’s performance, was the price of crude oil, which also determined the price of petroleum products.
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Strategic objectives
The LOTOS Group’s Strategy is designed to strengthen our position as a strong, innovative and efficient business which plays a major role in ensuring national energy security.
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Business model
Our operations consist in crude oil production and processing, as well as wholesale and retail sale of petroleum products, among which are: fuels (unleaded gasoline, diesel oil and light fuel oil), heavy fuel oil, bitumens, aviation fuel, naphtha, propane-butane LPG and base oils.
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Risk and opportunities
At the LOTOS Group, we identify a range of diverse risks, which may affect all areas of our business. The key risks in terms of their impact on our operations are the financial risks as well as risks affecting the exploration and production area. In the analysis of the risks, we also factor in issues related to sustainable development.
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Key data 2014
With revenue of ca. PLN 28.5bn in 2014, we rank fourth in the group of 500 largest businesses in Poland.
← Statement Notes index
30. Trade payables, other liabilities and provisions
PLN '000 | Note | Dec 31 2014 |
Dec 31 2013 (restated) |
Jan 1 2013 (restated) |
---|---|---|---|---|
Financial liabilities | ||||
Non-current financial liabilities | ||||
Other financial liabilities: | 31.1 | 5,549 | 235 | 1,204 |
Investment commitments | 4,539 | 235 | - | |
Other | 1,010 | - | 1,204 | |
Total | 5,549 | 235 | 1,204 | |
Current financial liabilities | ||||
Trade payables | 31.1 | 1,692,839 | 2,395,237 | 2,169,408 |
Other financial liabilities: | 31.1 | 191,295 | 189,494 | 247,231 |
Investment commitments | 120,498 | 158,385 | 178,074 | |
Liabilities to insurers (1) | 19,244 | 3,764 | 3,077 | |
Settlements under joint ventures (Norwegian fields) (2) | 39,668 | 15,926 | 58,077 | |
Other | 11,885 | 11,419 | 8,003 | |
Total | 1,884,134 | 2,584,731 | 2,416,639 | |
Total financial liabilities | 1,889,683 | 2,584,966 | 2,417,843 | |
Non-financial liabilities | ||||
Non-current non-financial liabilities | ||||
Provisions | 30.1 | 638,209 | 692,684 | 391,394 |
Grants | 12,263 | 11,987 | 13,089 | |
Other | 1,542 | 782 | - | |
Total | 652,014 | 705,453 | 404,483 | |
Current non-financial liabilities | ||||
Provisions | 30.1 | 140,219 | 162,938 | 21,256 |
Liabilities to the state budget other than corporate income tax (3) | 723,762 | 719,204 | 685,772 | |
Grants | 29,655 | 30,582 | 26,359 | |
Settlements under joint ventures (Norwegian fields) (2) | - | 721 | 55,092 | |
Prepaid deliveries | 1,553 | 31,711 | 4,427 | |
Liabilities under the NAVIGATOR loyalty programme | 13,367 | 10,961 | 6,006 | |
Other | 37,459 | 23,039 | 22,020 | |
Total | 946,015 | 979,156 | 820,932 | |
Total non-financial liabilities | 1,598,029 | 1,684,609 | 1,225,415 | |
Total | 3,487,712 | 4,269,575 | 3,643,258 | |
including: | ||||
non-current | 657,563 | 705,688 | 405,687 | |
current: | 2,830,149 | 3,563,887 | 3,237,571 | |
- trade payables | 1,692,839 | 2,395,237 | 2,169,408 | |
- other | 1,137,310 | 1,168,650 | 1,068,163 |
(1) Liabilities towards insurers increased mainly due to the execution by LOTOS Petrobaltic S.A. of an insurance agreement covering works related to the development of the B-8 field in 2014-2016.
(2) 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. Information on the Group's interests and status in joint operations in Norway is presented in Note 13 to the consolidated financial statements for 2013 (see ‘Acquisition of interests in Norwegian production and exploration licences − Heimdal’).
(3) Including PLN 586,199 thousand in excise duty and fuel charge liabilities (December 31st 2013: PLN 541,957 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 installations | Total | ||||||
Poland (1) | Norway | Lithuania | ||||||
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 (5) | 32,299 | |
Remeasurement of decommissioning costs | (36,396) (2) | 61,198 (3) | (844) | (762) | 23,196 | - | 23,196 | |
Change in provisions for liabilities attributable to approaching maturity date (discount reversal effect) | 9.6 | 2,008 | 17,043 | 669 | 274 | 19,994 | 432 | 20,426 |
Interest on Oil and Gas Facility Decommissioning Fund | 659 | - | - | - | 659 | - | 659 | |
Exchange differences on translating foreign operations | - | (22,482) | 377 | - | (22,105) | (1,396) | (23,501) | |
Used | - | (120,833) (4) | - | (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 licences areas.
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, and the oil and gas extraction facilities in the Heimdal fields.
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) Including the Oil and Gas 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.
(2) As at December 31st 2014, in connection with the extension of the production license B-3 from 2016 to 2026, received in 2014, the Group analysed the costs necessary to decommission the oil production facility in the Baltic Sea in the B-3 licence area . 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.
(3) 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).
(4) 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).
(5) Including PLN 21,901 from remeasurement of the provision for contingent payments under the Heimdal assets acquisition agreement (for more information on the transaction, see Note 13 to the consolidated financial statements for 2013).
PLN ’000 | Note | Provisions for decommissioning and reclamation costs | Other provisions | Total | ||||
---|---|---|---|---|---|---|---|---|
Provision for oil & gas extraction facilities | Provisions for retired refinery and other installations | Total | ||||||
Poland (1) | Norway | Lithuania | ||||||
Jan 1 2013 (restated) | 208,298 | 117,132 | 11,695 | 41,770 | 378,895 | 33,755 | 412,650 | |
Recognised | - | 265,709 (2) | - | - | 265,709 | 8,373 | 274,082 | |
Remeasurement of decommissioning costs | (1,404) | 11,995 | 717 | - | 11,308 | - | 11,308 | |
Change in provisions for liabilities attributable to approaching maturity date (discount unwinding effect) | 9.6 | 9,041 | 5,085 | 634 | 263 | 15,023 | - | 15,023 |
Interest on Oil and Gas Facility Decommissioning Fund | 731 | - | - | - | 731 | - | 731 | |
Exchange differences on translating foreign operations | - | (49,975) | 157 | - | (49,818) | (990) | (50,808) | |
Estimated costs of removal of the MOPU from the YME field | - | 281,859 | - | - | 281,859 | - | 281,859 | |
Used | - | (69,537) | - | (828) | (70,365) | (8,067) | (78,432) | |
Reversed | - | - | (177) | (5,077) | (5,254) | (5,537) | (10,791) | |
Dec 31 2013 (restated) | 216,666 | 562,268 | 13,026 | 36,128 | 828,088 | 27,534 | 855,622 | |
including: | ||||||||
non-current | 216,666 | 419,085 | 13,026 | 35,854 | 684,631 | 8,053 | 692,684 | |
current | - | 143,183 | - | 274 | 143,457 | 19,481 | 162,938 |
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.
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, and the oil and gas extraction facilities in the Heimdal fields.
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) Including the Oil and Gas 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.
(2) Recognition of a decommissioning provision related to the acquisition of Heimdal assets − see Note 13 to the consolidated financial statements for 2013 (‘Acquisition of interests in Norwegian production and exploration licences − Heimdal’).
Provision for oil & gas production facilities − Norway
Provision for decommissioning and reclamation of oil production facility in the YME field
As at December 31st 2014, the provision for decommissioning and reclamation of the oil production facility in the YME field, totalling PLN 146,816 thousand (NOK 310,065 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 2013, the provision was PLN 120,278 thousand (NOK 242,839 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 2015, taking into account a reduction in the decommissioning cost estimate in connection with a drop in the market cost of such services. At the same time, LOTOS E&P Norge AS has been involved in a number of steps to abandon the early decommissioning scenario and redevelop the field using a production platform operating in a different field.
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 Operating and 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 a provision for future removal of the MOPU from the YME field, in the amount of PLN 281,859 thousand (NOK 526,151 thousand ). In 2013−2014, the provision was partially used. In 2013 and 2014, PLN 69,527 thousand (NOK 129,787 thousand) and PLN 98,611 thousand (NOK 197,183 thousand), respectively, were used under the provision. As at December 31st 2014, the provision was PLN 94,312 thousand (NOK 199,181 thousand). As at December 31st 2013, the provision was PLN 196,319 thousand (NOK 396,364 thousand).
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 2014 was determined based on the following assumptions:
- the MOPU will be removed from the YME field not later than in 2015;
- the provision fully covers the unspent, as at December 31st 2014, 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 production facilities in the YME field
In connection with the acquisition in 2013 of new production assets on the Norwegian Continental Shelf, a provision for future costs of decommissioning of the acquired production assets was recognised at PLN 265,709 thousand (NOK 496,004 thousand) (see Note 13 to the consolidated financial statements for 2013 − ‘Acquisition of interests in Norwegian production and exploration licences − Heimdal’). Decommissioning of the newly acquired non-current assets of the offshore oil and gas extraction facility at the Heimdal field and reclamation work are scheduled for 2014–2035. As at December 31st 2014, the provision was disclosed in the Group’s statement of financial position under Other liabilities and provisions at PLN 256,066 thousand (NOK 540,794 thousand). As at December 31st 2013, the provision was PLN 245,671 thousand (NOK 496,004 thousand).
Other provisions
As at December 31st 2014, the Group recognised a provision for contingent payments under the Heimdal assets acquisition agreement, of PLN 26,010 thousand (NOK 54,932 thousand). As at December 31st 2013, the provision was PLN 5,089 thousand (NOK 10,275 thousand).
The Group recognised a provision for the unavoidable costs under an agreement it made earlier for collection and transport of the crude oil produced from the YME field. This provision was recognised in 2012, in the amount of PLN 12,492 thousand (NOK 22,500 thousand), and was then partly released as a result of negotiations and the shortening of the contract term. In 2013, the provision amount used was PLN 5,353 thousand (NOK 9,992 thousand) and the amount released was 4,912 thousand (NOK 9,170 thousand). As at December 31st 2013, the provision was PLN 1,653 thousand (NOK 3,338 thousand). The provision was fully used in 2014.
Furthermore, as at December 31st 2014 and December 31st 2013, 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 2014 |
Year ended Dec 31 2013 |
---|---|---|---|
At beginning the period | 42,569 | 39,448 | |
Received during the year | 1,238 | 5,196 | |
Recognised in consolidated profit or loss | 9.3 | (1,889) | (2,075) |
At end of the period | 41,918 | 42,569 | |
including: | |||
non-current | 12,263 | 11,987 | |
current | 29,655 | 30,582 |
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 is accounted for in current prepayments for corporate income tax. The deferred tax associated with the biocomponent tax credit is presented in Note 10.3.
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 and its effect on these financial statements of the Group was immaterial.
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)