Production sharing contracts that the Company has entered into indicate an obligation for abandonment of wells and facilities including removal of all equipment and installations and site restoration, collectively termed decommissioning obligations. Provision is made for the estimated cost of decommissioning obligations for a well that has been drilled and for equipment or installations upon completion. The provision is capitalized in the relevant asset category and a corresponding liability is recognized.
The provision for decommissioning obligations is calculated as the present value of the expenditures expected to be required to settle the obligation in the future. The present value is based on the best estimate of future costs and the economic lives of the wells, facilities and pipelines. There is uncertainty regarding both the amount and timing of incurring these costs and a change in either could result in an adjustment to the relevant capital asset and the decommissioning obligation.
The Company estimates current and future income taxes based on its interpretation of tax laws in the various jurisdictions in which it operates and pays income taxes. The Company recorded its income tax expense including provisions that provide for a tax holiday deduction for various undertakings related to the Hazira and Surat properties for the taxation years 1998 to 2008. Should the tax authorities determine that the tax holiday deduction does not apply to natural gas, the Company would pay additional cash taxes, write-off the net income tax receivable on the statement of financial position and recognize additional income tax expense as a charge to net income. This may also impact the oil and natural gas reserves and asset impairment related to these properties. See note 31 to the consolidated financial statements for further discussion.
Compensation expense associated with the Company's share-based compensation plan is calculated and, recognized in net income or capitalized, over the vesting period of the stock option with a corresponding increase in contributed surplus. A forfeiture rate used in the calculation of compensation expense is estimated on the grant date and is adjusted to reflect the actual number of options that vest.
ACCOUNTING STANDARDS ISSUED BUT NOT YET APPLIED
As of January 1, 2013, Niko will be required to adopt amendments to IAS 1 "Presentation of Financial Statements" which will require companies to group together items within other comprehensive income that may be reclassified to the net earnings section of the comprehensive income statement. Niko does not expect a material impact as a result of the amendments. Each of the additional new standards outlined below is effective for annual periods beginning on or after January 1, 2013 with early adoption permitted, except for IFRS 9 "Financial Instruments" which is effective for annual periods beginning on or after January 1, 2015. The Company has not yet assessed the impact, if any, that the new amended standards will have on its financial statements or whether to early adopt any of the new requirements.
IFRS 9 - Financial Instruments
The result of the first phase of the IASB's project to replace IAS 39, "Financial Instruments: Recognition and Measurement". The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value.
Most Popular Stories
- SpaceX's Satellite Launch Is 'Game-Changer'
- Reid Confident Congress to Pass Immigration Bill
- Maui Visitor Killed in Shark Attack
- Donors Abandon GOP Over Gun Stance
- Mexico: 'Extremely Dangerous' Radioactive Material Stolen
- CEOs More Optimistic About Economy, Hiring
- Climate Change Early Warning System Urged
- Private Sector Employment Surges by 215,000 Jobs
- Newtown 911 Tapes Being Released Today
- Calif. Likes Christie, Says Tea Party's a Drag