BP 2013 Annual Report Download - page 166

15. Goodwill and impairment review of goodwill – continued
Intangible assets are deemed to have a recoverable amount equal to their carrying amount. Consistent with prior years, the 2013 review for impairment
was carried out during the fourth quarter.
The Brent oil price and Henry Hub natural gas price assumptions used in the impairment review of goodwill are shown in the table below.
2013
2014 2015 2016 2017 2018
2019 and
thereafter
Brent oil price ($/bbl) 108 102 97 93 90 90
Henry Hub natural gas price ($/mmBtu) 3.86 4.02 4.10 4.17 4.27 6.50
2012
2013 2014 2015 2016 2017
2018 and
thereafter
Brent oil price ($/bbl) 105 100 96 93 91 90
Henry Hub natural gas price ($/mmBtu) 3.96 4.25 4.42 4.61 4.82 6.50
Key assumptions for oil and gas prices for the first five years were derived from forward price curves in the fourth quarter. Prices in 2019 and beyond
were determined using long-term views of global supply and demand, building upon past experience of the industry and using information from
external sources. These prices were adjusted to arrive at appropriate consistent price assumptions for different qualities of oil and gas, or where
appropriate, contracted oil and gas prices were applied.
The key assumptions required for the value-in-use estimation are the oil and natural gas prices, production volumes and the discount rate. The
sensitivity of the headroom to changes in the key assumptions was estimated. Due to the non-linear relationship of different variables, the calculations
were performed using a number of simplifying assumptions, including assuming a change to the variable being tested only, therefore a detailed
calculation at any given price may produce a different result.
It is estimated that if the oil price assumption for all future years was approximately equal to the current assumption for 2019 and beyond, this would
cause the recoverable amount to be equal to the carrying amount of goodwill and related non-current assets of the segment. It is estimated that if the
price assumption for natural gas was around 24% lower than the current assumption for 2019 and beyond the headroom would be reduced to zero.
Estimated production volumes are based on detailed data for each field and take into account development plans agreed by management as part of the
long-term planning process. The average production for the purposes of goodwill impairment testing over the next 15 years is 597mmboe per year
(2012 576mmboe per year). It is estimated that if this production volume were to be reduced by around 2% for the whole period, this would cause the
recoverable amount to be equal to the carrying amount of goodwill and related non-current assets of the segment.
It is estimated that if the discount rate was approximately 14% for the entire portfolio this would cause the recoverable amount to be equal to the
carrying amount of goodwill and related non-current assets of the segment.
Downstream
$ million
2013 2012
Rhine FVC Lubricants Other Total Rhine FVC Lubricants Other Total
Goodwill 643 3,518 116 4,277 627 3,441 100 4,168
Excess of recoverable amount over carrying amount 2,759 n/a n/a n/a 2,411 n/a n/a n/a
Cash flows for each cash-generating unit are derived from the business segment plans, which cover a period of two to five years. To determine the
value in use for each of the cash-generating units, cash flows for a period of 10 years are discounted and aggregated with a terminal value.
Rhine FVC
The key assumptions to which the calculation of value in use for the Rhine FVC is most sensitive are refinery gross margins, throughput volumes and
discount rate. Gross margin assumptions used in the Rhine FVC plan are consistent with those used to develop the regional Refining Marker Margin
(RMM). The average values assigned to the regional RMM and refinery throughput volume over the plan period are $12.35 per barrel and
250mmbbl per year (2012 $12.30 per barrel and 246mmbbl per year). These values reflect past experience and are consistent with external sources.
Cash flows beyond the five-year plan period are extrapolated using a nominal 4% growth rate (2012 4%).
No reasonably possible change in the discount rate would cause the Rhine FVC unit’s carrying amount to exceed its recoverable amount. It is
estimated that if the refinery margin assumption was $1.9 per barrel lower than the current assumption, the recoverable amount would equal the
carrying amount. It is also estimated that if the refinery throughput volume assumption was 32mmbbl per year lower than the current assumption, the
recoverable amount would equal the carrying amount.
Lubricants
In certain circumstances IAS 36 allows the use of the most recent detailed calculations of the recoverable amount performed in an earlier period as the
basis for the current year’s goodwill impairment test. The most recent detailed calculation of the Lubricants unit’s recoverable amount was performed
in 2009 and this was used as the basis for the tests in 2010-2012 as the criteria of IAS 36 were met in each of those years. IAS 36 does not specify for
how many years such an approach is appropriate and management determined that a re-performance of the test was appropriate in 2013 given the
passage of time since 2009. There was no significant change in the outcome of this test compared to that in 2009.
The key assumptions to which the calculation of the value in use for the Lubricants unit is most sensitive are operating margins, sales volumes, and
discount rate. Operating margin and sales volumes assumptions used in the detailed impairment review of goodwill calculation are consistent with the
assumptions used in the Lubricant unit’s business plan and values assigned to these key assumptions reflect past experience. No reasonably possible
change in any of these key assumptions would cause the unit’s carrying amount to exceed its recoverable amount. Cash flows beyond the plan period
are extrapolated using a 3% growth rate (2009 3%).
162 BP Annual Report and Form 20-F 2013