Decommissioning obligations. The Company's activities give rise to dismantling, decommissioning and site disturbance remediation activities. Provision is made for the estimated cost of site restoration and capitalized in the relevant asset category.
Decommissioning obligations are measured at the present value of management's expectation of the expenditures required to settle the present obligation at the reporting date. Subsequent to the initial measurement, the obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation, including changes in the discount rate used to calculate the obligation. The increase in the provision due to the passage of time is recognized as finance costs whereas increases/decreases due to changes in the estimated future cash flows are capitalized. Actual costs incurred upon settlement of the decommissioning obligations are charged against the provision to the extent the provision was established, with any difference being recognized in profit or loss under gain or loss on sale of property, plant and equipment.
(h) Revenue. Revenue from the sale of oil and natural gas is recorded when the significant risks and rewards of ownership of the product is transferred to the buyer, which is usually when legal title passes to the external party. Oil and gas sales are presented before royalty obligations, whereas revenue is presented net of royalties.
Royalty income is recognized as it accrues in accordance with the terms of the overriding royalty agreements.
Fees charged to other entities for the use of pipelines, compressors and facilities owned by the Company are recognized as operating expense recoveries for use of transportation and processing assets when the usage is incurred.
Fees charged to other entities to recover overhead costs pursuant to capital and operating agreements are recognized as a reduction of general and administrative expenses in accordance with the terms of the capital and operating agreements.
(i) Transportation expenses. Transportation expenses include third-party pipeline and trucking costs incurred to transport oil, natural gas and natural gas liquids from processing and treating facilities to the point of sale.
(j) Finance income and expenses. Finance expenses comprise interest expense on borrowings, accretion of the discount on decommissioning obligations and accretion on convertible debentures recognized as financial liabilities.
Interest income is recognized as it accrues in profit or loss, using the effective interest method.
(k) Income tax. Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
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