4. Significant values based on professional judgement and estimates

The preparation of consolidated financial statements in accordance with IFRSs requires that the Management Board makes expert estimates and assumptions that affect the applied methods and presented amounts of assets, liabilities and equity, revenues and expenses. The estimates and related assumptions are based on historical expertise and other factors regarded as reliable in given circumstances and their effects provide grounds for professional judgment of the carrying amount of assets and liabilities which is not based directly on any other factors.

In the matters of considerable weight, the Management Board might base its judgments, estimates or assumptions on opinions of independent experts. The judgments, estimates and related assumptions are verified on a regular basis.

4.1. Professional judgement

Expenditures for exploration and evaluation of mineral resources

Application of the Group’s accounting policy for expenditures for exploration and evaluation of mineral resources requires an assessment, whether future economic benefits resulting from extraction or sale are possible or if indications allowing to estimate the resources does not yet exist. When estimating the resources, the Group assesses future events and circumstances, including the assessment whether the extraction will be economically feasible. Additional information is presented in  note 12.4.

Financial instruments

The Management Board assesses the classification of financial instruments, nature and extent of risks related to financial instruments and application of the cash flow hedge accounting. The financial instruments are classified into different categories depending on the purpose of the purchase and nature of acquired asset. Additional information is presented in note ‎32.

Investments in subsidiaries and jointly controled entities

The Group, regardless of the nature of its involvement in the entity (the entity in which it investet) defines its status by assessment, whether it controls the entity in which the investment was made, and assess whether it has a joint control in a joint venture, after consideration of all the facts and circumstances.

Additional information is presented in notes 5 and 15.

4.2. Estimates

Exploration and evaluation of mineral resources

The Group estimates resources based on interpretation of available geological data and verifies then on a the current basis, based on further exploration and recognition wells, trial exploitation, actual extraction (production) and economic factors such as: hydrocarbons’ prices, contractual terms or investment plans.

At the end of each reporting period the Group analyzes cost of removal of wells and supporting infrastructure.

Estimated useful lives of property, plant and equipment and intangible assets

As described in note 3.4.11  and 3.4.14  the Group verifies useful lives of property, plant and equipment and intangible assets at least once at year end. Additional information is presented in note‎ 12 and 14.

Valuation of investment property

The fair value estimation reflects market conditions at the end of the reporting period. Additional information is presented in note 13‎.

Impairment of property, plant nad equipment and intangible assets

The Management Board assesses whether there is any indicator for impairment of an asset or cash generating unit. If there is an impairment, the estimation of recoverable amount of an asset is made. Additional information, including the sensitivity analysis of value in use and description of assumptions used, is presented in notes 12.2, 14.3, 18.

The impairment test of exploration and evaluation of mineral resources assets is performed, when variables such as: long-term forecasts of crude oil prices (taking into account historical prices, price trends and other market events), discount rates, operating costs, provisions or liquidation quantity of available mineral resources and planned extraction based on estimated resources should be estimated. Additional information is presented in note 18.

Impairment of inventories

If there is an impairment of inventory, estimation of the net realizable value of inventories is required.

Additional information is presented in note 19.1.

Impairment of trade and other receivables

The Management Board assesses whether there is any indicator for impairment of trade and other receivables taking into account the adopted internal procedures as individual assessed of each customer with regard to credit risk. Additional information is presented in notes 20.1 and 32.5.2.

Provisions

Recognition of provisions requires estimates of the probability of outflow of economic benefits and defining the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The most significant values apply to environmental provision regarding remediation of contaminated land-water environment in the area of production plants, petrol stations, fuel terminals and fuel warehouses, jubilee and post-employment benefits provision and CO2 emissions provision.