Grupa LOTOS S.A. - Annual Report 2010

⁽¹⁾ including PLN 34,599  thousand comprising the value of the provision for land reclamation and the cost of dismantlement and decommissioning of retired installations at LOTOS Czechowice S.A. An assessment of the land and water environment, geological structure of the area and an analysis of the potential costs of land reclamation methods used at LOTOS Czechowice S.A., carried out by an independent entity as at December 31st 2010, enabled the Group to determine a revalued amount of the provision at PLN 18,900 thousand, which in the Group's opinion, is a reliable estimate. The cost of dismantlement and decommissioning of retired installations was estimated at by a qualified property appraiser also at LOTOS Czechowice S.A. The revalued provision for the indispensable costs of dismantlement and decommissioning of permanently retired installations amounted to PLN 15,699 thousand.

⁽¹⁾ In connection with the sale of the perpetual usufruct right to land by the LOTOS Czechowice Group to an unrelated third party, and considering that the LOTOS Czechowice Group was freed from all obligations under any administrative decisions relating directly to the said land, a portion of the provision for land reclamation was released (PLN 3,068 thousand) and a portion of the provision was used to pay the purchaser of the land a fee of PLN 14,115 thousand to cover the cost of performance of the obligations assumed by the purchaser.

⁽²⁾ As at December 31st 2010, the Management Board of LOTOS Petrobaltic S.A. analysed the costs needed to be incurred to decommission the Offshore Oil and Gas Facilities in the B-3 and B-8 mining areas, which were also worked in the previous years. The analysis found that the costs necessary to be incurred in future on decommissioning of the Offshore Oil and Gas Facilities in the mining areas increased in 2010 due to changes in the expected expenses due to price changes - by PLN 8,906 thousand (2009: PLN 15,853 thousand), and due to the passage of time and the related change in the time value of money - by PLN 8,038 thousand, charged to finance expenses in 2010 (2009: PLN 7,048 thousand). 

As at the balance-sheet date, i.e. December 31st 2010, LOTOS Exploration and Production Norge AS recognised a provision for future costs related to the decommissioning of the Offshore Oil and Gas Facilities at the YME field in the amount of NOK 64,400 thousand (or PLN 32,657 thousand, translated at the mid-exchange rate for NOK quoted by the National Bank of Poland for December 31st 2010). The liquidation of non-current assets of the Offshore Oil and Gas facilities at the YME field and land reclamation are scheduled for 2021. Compared with the provision of NOK 48,202 thousand (or PLN 23,841, translated at the mid-exchange rate for NOK quoted by the National Bank of Poland for December 31st 2009) assessed as at December 31st 2009, the provision was increased by an upward adjustment in the estimated future costs amounting to NOK 12,129 thousand (PLN 6,151 thousand, translated at the mid-exchange rate for NOK quoted by the National Bank of Poland for December 31st 2010) and by a discount representing the estimated changes in the time value of money amounting to NOK 4,097 thousand (PLN 2,078 thousand, translated at the mid-exchange rate for NOK quoted by the National Bank of Poland for December 31st 2010). The amount of the provision was reduced due to the use of NOK 27,000 (PLN 14,000, translated at the mid-exchange rate for NOK quoted by the National Bank of Poland for December 31st 2010).

Another change in the provision resulted from the fact that the amount corresponding to the contributions calculated and transferred to the bank account of the Mining Facilities Decommissioning Fund (pursuant to the Geological and Mining Law of February 4th 1994 and the Minister of Economy’s Regulation of June 24th 2002) was released from the provision. For 2010, this amount totalled PLN 1,836 thousand (2009: PLN 1,485 thousand) jointly in respect of the B-3 and B-8 fields. As at December 31st 2010 the provision for decommissioning of the B-3 and B-8 Offshore Oil and Gas Facilities totalled PLN 153,963 thousand (December 31st 2009: PLN 138,585 thousand), and the value of the related asset was PLN 82,901 thousand as at December 31st 2010 (as at December 31st 2009: PLN 83,311 thousand).

⁽³⁾ The item “Other provisions” includes the following:

 ⁽⁴⁾ Grupa LOTOS S.A. and Rafineria Nafty GLIMAR S.A. signed loan agreements for the aggregate amount of PLN 90m, providing for the financing of Rafineria Nafty GLIMAR S.A.’s operating and investing activities, including in particular, the Glimar Hydrocomplex investment project. By December 31st 2004, Grupa LOTOS S.A. had advanced PLN 48m to Rafineria Nafty GLIMAR S.A. under these agreements. On January 19th 2005, the District Court of Nowy Sącz declared Rafineria Nafty Glimar S.A. of Gorlice bankrupt. As at December 31st 2010 and December 31st 2009, impairment losses had been recognised on the full amounts of the assets under the advanced loans. Grupa LOTOS S.A. had also carried a provision for other liabilities under these agreements, in the amount of PLN 15,853 thousand, which was released in the year ended on December 31st 2009. wiązana.

⁽⁵⁾ In connection with the business combination described in Note 20, LOTOS Petrobaltic S.A. released a provision for business risk. The release of the provision, which covered debt claims under an agreement for a loan extended by Stablewood Power Ventures (Wladyslawowo) Ltd. to Energobaltic Sp. z o.o. and the par value of shares in Energobaltic Sp. z o.o. held by Stablewood Power Ventures (Wladyslawowo) Ltd., was recognised as finance income.

⁽⁶⁾ On June 28th 2010, the General Shareholders Meeting of Grupa LOTOS S.A. adopted a resolution on distribution of the 2009 net profit. Under the resolution, a portion of the Company’s net profit, in the amount of PLN 1,000 thousand, was transferred to the Company's special account dedicated to financing corporate social responsibility (CSR) projects. Amounts contributed to the special account provision are charged against other operating expenses. In the year ended December 31st 2010, the Company used funds from the special account in the amount of PLN 1,966 thousand (in 2009: PLN 671 thousand).