9. Depreciation, Amortization, Impairments and Write-Ups

Accounting Policy

Impairment of Assets

Intangible assets, property, plant, and equipment (including oil and gas assets), and investments in associated companies and joint ventures are tested for impairment whenever events or changes in circumstances indicate that an asset may be impaired. Impairment tests are performed at the level of the asset or the smallest group of assets that generates cash inflows that are largely independent of those from other assets or groups of assets, called cash-generating units (CGUs).

If assets are determined to be impaired, the carrying amounts are written down to their recoverable amount, which is the higher of fair value less costs of disposal or value in use.

In assessing value in use, the estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. The cash flows are generally derived from the recent budgets and planning calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated.

The fair value less costs of disposal is determined on the basis of recent market transactions, if available. If no such transactions can be identified, an appropriate valuation model is used.

If the reasons for impairment no longer apply in a subsequent period, a reversal is recognized in profit or loss. The increased carrying amount related to the reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization and depreciation) had no impairment loss been recognized in prior years.

Impairment losses are part of the income statement line “Depreciation, amortization, impairments and write-ups,” except for impairment losses related to exploration and appraisal assets, which are shown in “Exploration expenses.”

Significant Estimates: Recoverability of Assets

Evaluating whether assets or CGUs are impaired or whether past impairments should be reversed, requires the use of various estimates and assumptions, such as price and margin developments, production volumes, and discount rates.

Changes in the economic situation, expectations of climate-related risks, or other facts and circumstances might require a revision of these assumptions and could lead to impairments of assets or reversals of impairments within the next financial year. The management performs this analysis for each material CGU.

The price and margin assumptions used in impairment testing are reviewed annually by management and approved by the Supervisory Board as part of mid-term planning (MTP). They are based on management’s best estimates and consistent with external sources. Whereas prices in the near term are anchored in recent forward prices and market developments, long-term price assumptions are developed using a variety of long-term forecasts by reputable experts and consider long-term views of global supply and demand. OMV’s long-term assumptions take into consideration the impacts of climate change and the energy transition to lower-carbon energy sources (see more information in Note 3 – Effects of Climate Change and the Energy Transition).

The key valuation assumptions for the recoverable amounts of E&P assets are oil and gas prices, production volumes, and exchange and discount rates. The production profiles were estimated based on reserves estimates (see Note 17 – Property, Plant, and Equipment) and past experience and represent management’s best estimate of future production. The cash flow projections for the first three years are based on the mid-term plan and thereafter on “life of field” planning, and therefore cover the whole life span of the field.

For the calculation of the recoverable amounts of the refineries, the main assumptions are the relevant margins, volumes, discount rates, and inflation. The value in use calculation is based on cash flows of the three-year mid-term plan, cash flows of the strategic planning period until 2040, and a terminal value.

The price sets used for the value in use calculations are included in Note 3 – Effects of Climate Change and the Energy Transition.