In 2022, the combined effect of net impairment losses recognised on the ORLEN Group's non-current assets was PLN (6,330) million, mainly related to ORLEN, ORLEN Lietuva, ORLEN Unipetrol, Exalo Drilling Group, PSG Group and LOTOS Upstream Group.
Net impairment losses on property, plant and equipment, intangible assets, goodwill and rights-of-use assets of the ORLEN Group in 2022, by company/group:
Net impairment losses on property, plant and equipment, intangible assets, goodwill and rights-of-use assets of the ORLEN Group in 2022, by segment:
In 2021, total net impairment losses on the ORLEN Group's non-current assets were PLN 811 million.
Net impairment losses on property, plant and equipment, intangible assets, goodwill and rights-of-use assets of the ORLEN Group in 2021, by company/group:
Net impairment losses on property, plant and equipment, intangible assets, goodwill and rights-of-use assets of the ORLEN Group in 2021, by company/group:
Reversal and recognition of impairment losses on property, plant and equipment, intangible assets, goodwill and rights-of-use assets were recognised in other income (note 13.10) and other expenses (note 13.11), respectively.
Assets of the Refining segment
In 2022, the combined effect of recognised net impairment losses on the ORLEN Group's non-current assets in the Refining segment was PLN (5,067) million.
As at 31 December 2022, the ORLEN Group tested the Refining segment’s assets for impairment based on the assumptions described above. The tests resulted in recognition of impairment losses in the Refining segment at ORLEN, ORLEN Lietuva and ORLEN Unipetrol.
Value in use of the Refining segment’s CGUs at the ORLEN Group as at 31 December 2022 and 31 December 2021 for which the value of assets was remeasured
In 2022, the combined effect of recognised net impairment losses on ORLEN’s non-current assets in the Refining segment was PLN (2,603) million.
The tests conducted in 2022 identified an impairment of ORLEN’s Refinery CGU assets of PLN (2,459) million. These assets include the Płock Refinery and 70% of the non-current assets of the Gdańsk Refinery which is recognised as a joint operation and acts as a processor.
The value in use of the assets of ORLEN’s Refinery CGU was PLN 25,811 million and was calculated for the refining assets at the discount rate dedicated to Poland Refining (note 14.4.1) and for the processing assets at the discount rate for Poland Processing (note 14.4.1).
The main causes of the asset impairment are primarily related to changes in the asset structure and the limited availability of the REBCO crude oil.
As at 31 December 2022, potential cost savings and other benefits associated with the merger with the LOTOS Group were not included in the model due to the incomplete process of identifying and evaluating synergies between the refining operations in Płock and Gdańsk.
Other impairment losses recognised in 2022 by ORLEN’s Refining segment were PLN (144) million and were attributed mainly to the abandonment of the project to construct an n-paraffin separation unit and the upgrade of the hydrocracking unit, with a combined value of PLN (111) million, and PLN (24) million impairment charge recognised for damage to a catalyst unit.
Sensitivity analysis of impairment of value in use of ORLEN’s Refining segment as part of the tests performed as at 31 December 2022
In 2022, the combined effect of recognised net impairment losses on ORLEN Lietuva’s non-current assets in the Refining segment was PLN (1,840) million.
The tests carried out in 2022 identified an impairment loss on the Refining assets of ORLEN Lietuva of PLN (1,839) million, equivalent to USD (417) million. The impairment included the impairment allowance of goodwill from the acquisition of UAB ORLEN Mockavos terminalas of PLN (193) million, equivalent to USD (44) million.
ORLEN Lietuva's value in use was PLN 3,595 million, equivalent USD 816 million, and was calculated at the discount rate dedicated to Lithuania Refining (note 14.4.1). The key factors adversely affecting the valuation of the refining assets in Lithuania were the macroeconomic environment, i.e. the assumed complete replacement of the REBCO crude with other types of oil, and the discount rate used in the calculation.
Sensitivity analysis of impairment of value in use of ORLEN Lietuva’s Refining segment as part of the tests performed as at 31 December 2022
In 2022, ORLEN Unipetrol's Refining segment recognised net impairment losses on non-current assets of PLN (628) million, most of which, i.e. PLN (612) million, or CZK (3,168) million, was attributed to results of impairment testing. ORLEN Unipetrol's value in use was PLN 4,813 million, equivalent to CZK 24,786 million, and was calculated at the discount rate dedicated to Czech Republic Refining (note 14.4.1).
The impairment of assets in ORLEN Unipetrol's Refining segment was mainly attributed to the impact of the windfall tax and changes in the macroeconomic environment.
Sensitivity analysis of impairment of value in use of ORLEN Unipetrol’s Refining segment as part of the tests performed as at 31 December 2022
In 2021, the combined effect of recognised net impairment losses on the ORLEN Group's non-current assets in the Refining segment was PLN (10) million.
As at 31 December 2021, the ORLEN Group carried out impairment tests, which resulted in reversal of impairment losses on assets of the ORLEN Południe Group of PLN 70 million and ORLEN Lietuva of PLN 6 million.
Impairment tests on the production assets of the ORLEN Południe’s Refining segment, using a discount rate of 8.09% for the Other CGU showed a PLN 51 million possible reversal of impairment allowance and determined the value in use at PLN 879 million; for the Bio CGU, the tests showed the possibility of reversing the write-offs in the amount of PLN 19 million and determined the value in use at PLN 960 million.
Impairment tests on the production assets of ORLEN Lietuva’s Refining segment, using a discount rate of 6.14%, showed an excess of the value in use over the carrying amount of the tested assets, including the allocated goodwill from the acquisition of UAB ORLEN Mockavos terminalas, of PLN 6 million, equivalent to USD 1.6 million. The value in use was determined at PLN 3,120 million.
As at 31 December 2021, the production assets of the ORLEN Unipetrol Group's Refining segment were also tested for impairment, at a discount rate of 7.41%. The analysis did not reveal any impairment of assets and determined the value in use at PLN 3,919 million, equivalent to CZK 21,182 million.
No impairment losses on ORLEN Oil's assets were required as a result of impairment tests conducted in 2021. As at 31 December 2021, the value in use of the relevant assets was determined at PLN 326 million, calculated at a discount rate of 8.09%, which corresponded to the rate of the Refining segment. This calculation took into account organisational changes resulting from the Company's strategy.
Additionally, in 2021, the Company recognised impairment losses on property, plant, and equipment of PLN (51) million for the Refining segment's four fuel terminals, determined using the fair value less costs to sell method.
In 2022, the combined effect of recognised net impairment losses on the ORLEN Group's non-current assets in the Petrochemicals segment was PLN (91) million.
The tests identified impairment of the ORLEN Unipetrol Petrochemicals segment's assets of PLN (51) million, corresponding to CZK (264) million. ORLEN Unipetrol's value in use was PLN 6,925 million, equivalent to CZK 35,659 million, and was calculated at the discount rate dedicated to Czech Republic Petrochemical (note 14.4.1).
The impairment of assets in ORLEN Unipetrol's Petrochemicals segment was mainly attributed to the impact of the windfall tax and changes in the macroeconomic environment.
Sensitivity analysis of impairment of value in use of ORLEN Unipetrol’s Petrochemicals segment as part of the tests performed as at 31 December 2022
Impairment tests conducted on Anwil S.A. CGU Tworzywa in 2022 revealed asset impairment losses of PLN (29) million. The value in use of Anwil S.A. CGU Tworzywa was PLN 1,097 million and was calculated at the discount rate dedicated to Poland Petrochemical (note 14.4.1).
Impairment testing also revealed a loss of value of PLN (11) million for abandoned investments in the expansion of PCW420's production capacity.
Sensitivity analysis of impairment of value in use of Anwil S.A. CGU Tworzywa as part of the tests performed as at 31 December 2022
In 2021, the combined effect of recognised net impairment losses on the ORLEN Group's non-current assets in the Petrochemical’s segment was PLN 30 million.
The ORLEN Group carried out impairment tests as at the end of 31 December 2021. The tests, with the discount rate of 7.65%, resulted in reversal of impairment losses on Anwil S.A. CGU Tworzywa of PLN 29 million. The value in use was determined at PLN 1,127 million.
In 2021, the production assets of the ORLEN Unipetrol Group's Petrochemicals segment were also tested for impairment, at a discount rate of 6.96%. The analysis did not reveal any impairment of assets and determined the value in use at PLN 6,917 million, equivalent to CZK 37,390 million.
Assets of the Energy segment
In 2022, the combined effect of recognised net impairment losses on the ORLEN Group's non-current assets in the Energy segment was PLN (48) million.
The impairment loss primarily pertained to the ENERGA Group’s ENERGA Kogeneracja, including the Żychlin CGU and the Kalisz CGU, where the amount of the charge was PLN (12) million at the discount rate dedicated to Poland ENERGA Heat (note 14.4.1), as well as abandonment of certain projects PLN (10) million. Additionally, ORLEN Unipetrol recognised an impairment loss of PLN (26) million, equivalent to CZK (126) million at the discount rate dedicated to Czech Republic Petrochemical (note 14.4.1) – ORLEN Unipetrol's Energy produces energy mainly for the Petrochemicals segment.
Value in use of the Energy segment’s CGUs at the ORLEN Group as at 31 December 2022 and 31 December 2021 for which the value of assets was remeasured
In 2021, the ORLEN Group in the Energy segment recognised a net impairment loss of PLN (77) million.
Of this amount, PLN (67) million were impairment allowances recognised as a result of impairment testing, with the balance of PLN (10) million representing abandoned projects.
The total amount of impairment losses recognised in 2021 was PLN (92) million. The results of the asset impairment tests indicated that an impairment allowance of PLN (55) million was necessary for the Ostrołęka B CGU at ENERGA Elektrownie Ostrołęka. The applied discount rates ranged from 5.61% to 7.73%. As a result, the value of the assets after the impairment losses for the Ostrołęka B CGU (excluding land and perpetual usufruct rights) was reduced to PLN 0. Following the asset impairment tests, it was found necessary to recognise an impairment allowance of PLN 14 million for the Żychlin CGU at ENERGA KOGENERACJA (recognised in the second quarter of 2021). The applied discount rate was 4.16%. In addition, as at 31 December 2021,the PLN (10) million impairment loss of Magazyn Energii CGU was recognised at ENERGA OZE, with the applied discount rate of 6.30% Other impairment losses, in the amount of PLN (13) million, were mainly related to discontinued projects, liquidation of property, plant and equipment and other titles.
The total amount of reversals of impairment losses in 2021 was PLN 15 million, at ENERGA KOGENERACJA (PLN 12 million revaluation the Żychlin CGU) and ENERGA Elektrownie Ostrołęka (PLN 3 million revaluation of the site restoration provision for the Ostrołęka B CGU). The value in use of the Żychlin CGU amounted to PLN 33 million and was calculated at a discount rate of 6.23%.
In 2021, the production assets of the ORLEN Unipetrol Group's Energy segment were also tested for impairment, at a discount rate of 6.96% (the ORLEN Unipetrol Group’s Energy segment conducts operations mainly for the Petrochemicals segment). The analysis did not reveal any impairment of assets and determined the value in use at PLN 936 million, equivalent to CZK 5,061 million.
Assets of the Retail segment
In 2022, the ORLEN Group recognised a total net impairment loss of PLN (14) million on its non-current assets in the Retail segment, primarily affecting the assets of ORLEN Deutschland Group PLN (9) million and ORLEN Unipetrol PLN (4) million.
In 2022, as a result of impairment tests carried out in the Retail segment, the ORLEN Group did not recognise any impairment of non-current assets.
In 2021, the combined effect of recognised net impairment losses on the ORLEN Group's non-current assets in the Retail segment was PLN (47) million.
Impairment losses were primarily related to the assets of ORLEN, of PLN (7) million, with discount rate 7.07% (note 14.4.1), ORLEN Unipetrol Group of PLN (28) million, with discount rate 6.36% (note 14.4.1), and ORLEN Deutschland Group of PLN (10) million, with discount rate 3.18% (note 14.4.1). Impairment losses on other assets of the segment were PLN (2) million.
Assets of the Upstream segment
In 2022, the combined effect of recognised net impairment losses on the ORLEN Group's non-current assets in the Upstream segment was PLN (1,056) million.
In 2022, the ORLEN Group tested the Upstream segment’s assets for impairment. The tests resulted in recognition of impairment losses in the Upstream segment at ORLEN, LOTOS Upstream Group, and Exalo Drilling Group, as well as in reversal of impairment losses at ORLEN Upstream Canada and ORLEN Upstream Polska.
Recoverable amounts of the Group's Upstream assets as at 31 December 2022 and 31 December 2021
The tests conducted in 2022 identified an impairment of the ORLEN Upstream segment's assets of PLN (585) million. The impairment was mainly related to production assets used for the extraction of natural gas and crude oil in Poland and Pakistan, as well as property, plant, and equipment under construction (specifically, wells under construction).
Impairment tests on the production assets in Poland resulted in an impairment loss of PLN (416) million. The value in use of the production assets in Poland was PLN 36,298 million and was calculated at the discount rate dedicated to Poland Upstream Production (note 14.4.1). The projected gas prices and foreign exchange rates are the main factors that negatively impact the valuation of production assets in the country. Additionally, the statutory obligation to make a gas levy payment to the Price Difference Payment Fund by companies extracting natural gas had a significant impact on the level of impairments in the country, as the levy is expensed.
Sensitivity analysis of impairment of value use in the Upstream segment for ORLEN's production assets located in Poland as part of the tests performed as at 31 December 2022
Impairment tests on the production assets in Pakistan resulted in an impairment loss of PLN (129) million. The value in use of the assets in Pakistan was PLN 424 million, calculated at the discount rate dedicated to Pakistan Upstream Development & Exploitation (note 14.4.1). The valuation of production assets in Pakistan was adversely affected by two main factors: the macroeconomic environment and the increase in the discount rate due to country risk.
Sensitivity analysis of impairment of value use in the Upstream segment for ORLEN's production assets located in Pakistan as part of the tests performed as at 31 December 2022
The amount of impairment losses recognised on property, plant and equipment under construction located in Poland was PLN (40) million. The value in use of property, plant and equipment under construction in Poland was PLN 4,559 million and was calculated at the discount rate dedicated to Poland Upstream Exploration (note 14.4.1). The main cause of the impairment loss was attributed to the abandonment of work on wells due to the failure to achieve commercial flow, as well as the macroeconomic assumptions used in the impairment test.
Sensitivity analysis of impairment of value use in the Upstream segment for ORLEN's property, plant and equipment under construction located in Poland as part of the tests performed as at 31 December 2022
Impairment tests conducted in the Upstream segment for ORLEN Upstream Canada showed a potential for the reversal of net impairment losses of PLN 79 million, equivalent to CAD 24 million, mainly related to the assets of Central Alberta Oil and Southern Alberta CGUs. The applied discount rates ranged from 13% to 17.6%. The fair value less costs to sell method was used to determine the recoverable amount for the Canadian upstream assets, which amounted to PLN 3,332 million, equivalent to CAD 1,026 million. Level 3 inputs of the valuation hierarchy were used in the valuation.
The main factor affecting asset valuations in Canada is the macroeconomic environment. The ORLEN Group’s strategy assumes continuation of upstream operations through cautious and balanced development of the portfolio of upstream assets, with a particular focus on gas fields. In 2022, the Group conducted investment works based on the ORLEN Group Strategy to 2030, which aimed to maximize the value of assets and production, prioritize selected exploration and appraisal projects, and launch production in areas under development. Taking advantage of the hydrocarbon price rebound and the favourable medium-term outlook for oil and gas, the company decided to accelerate and increase the scope of its drilling programme in 2022, which, despite a 3% decline in proven reserves in Canada, translates into a significant increase in the value of investments in ORLEN Upstream.
Sensitivity analysis of fair value less costs to sell of the Upstream segment’s assets in Canada as part of the tests performed as at 31 December 2022
Following the tests carried out as at 31 December 2022, ORLEN Upstream Polska recognised reversal of impairment losses on net assets of PLN 116 million, including PLN 11 million on development and production assets for the Płotki project and PLN 105 million on exploration and evaluation assets: PLN 80 million on the Płotki project, PLN 11 million on the Edge project on PLN 14 million for the Sieraków project.
The recoverable amount of PLN 787 million for the ORLEN Upstream Polska Group's assets was determined using the value in use method as there is not active market for the assets, and was calculated using the discount rate dedicated to Poland Upstream Production (note 14.4.1).
Additionally, in 2022, ORLEN Upstream Polska recognised impairment losses for exploration assets following the relinquishment of the Jarocin-Grabina concession, resulting in a net charge of PLN (41) million, as well as the relinquishment of the Skołyszyn concession, resulting in a net charge of PLN (31) million.
Sensitivity analysis of value in use of the Upstream segment’s assets in Poland as part of the tests performed as at 31 December 2022
Tests identified impairment of non-current assets at the Exalo Drilling Group of PLN (344) million. The value in use of the Exalo Drilling Group's assets was PLN 134 million and was calculated at the discount rate dedicated to Poland Upstream Drilling (note 14.4.1). The main factors affecting asset impairment are especially the change in the macroeconomic environment and the discount rate.
Sensitivity analysis of impairment of value in use of property, plant and equipment at the Exalo Drilling Group as part of the tests performed as at 31 December 2022
In the fourth quarter of 2022, the ORLEN Group recognised an impairment loss of PLN (245) million on production assets at the LOTOS Upstream Group, specifically at LOTOS E&P Norge (equivalent to NOK (546) million). Mainly related to the YME field, the impairment losses resulted from the delayed drilling of production and injection wells, a downward revision of the 2P reserves from 12.56 million barrels to 10.11 million barrels, and operating issues such as water break-through. The value in use of LOTOS E&P Norge's production assets was determined at PLN 2,638 million, which corresponds to NOK 5,915 million at a discount rate dedicated to Norway Upstream Production (note 14.4.1).
Sensitivity analysis of impairment of LOTOS E&P Norge's production assets related to the YME field as part of the tests carried out as at 31 December 2022
In 2021, total net impairment losses on the ORLEN Group's non-current assets in the Upstream segment was PLN 918 million.
The reversal of impairment charges is due to the updating of cash flows for the ORLEN Upstream Group's Upstream segment assets located in Poland and Canada based on Reserve Reports prepared by independent experts.
In 2021, the ORLEN Upstream Polska Group recognised a reversal of impairment losses on net assets located in Poland of PLN 164 million.
In 2021, the ORLEN Upstream Polska Group recognised impairment losses of PLN (120) million following impairment tests and withdrawal from certain exploration projects. The impairment allowance of development and production assets were PLN (81) million for the Miocen project, PLN (2) million for the Płotki project, while for exploration and evaluation assets, the impairment allowance was PLN (24) million for the Sieraków project and PLN (13) million for the Edge project. The same period also saw the reversal of impairment allowances of PLN 284 million related to development and production assets for the Płotki project of PLN 16 million, and the reversal of impairment allowances in the amount of PLN 268 million on exploration and evaluation assets for the Płotki project of PLN 126 million and for the Edge project of PLN 142 million. The discount rate of 8.19% was applied in the valuations. The value-in-use method was used to determine the recoverable amount for the Polish production assets due to the absence of an active market for these assets.
In 2021, following impairment tests, the ORLEN Upstream Canada Group recognized potential for the reversal of net impairment losses of PLN 754 million.
The total value of the reversals amounted to PLN 761 million, primarily related to the Kakwa and Ferrier CGUs. The total amount of recognised impairment losses was PLN (7) million and was attributable to the Peace River Oil CGU. The applied discount rates ranged from 11% to 16.4%. The fair value less costs to sell method was used to determine the recoverable amount for the Canadian upstream assets. Level 3 inputs of the valuation hierarchy were used in the valuation.
In Canada, supportive economic conditions helped maintain favourable natural gas prices. Increased local demand and a surge in gas exports to the US provided a favourable pricing environment for hydrocarbon producers in Canada. Benchmark AECO gas prices in Alberta reached as high as CAD 5.0/mcf in the second half of 2021, the highest level since 2014. The average AECO gas price in 2021 was CAD 3.61/mcf.
Assets of the Gas segment
As at 31 December 2022, the total impairment loss on assets in the Gas segment was PLN (45) million, and mainly affected property, plant and equipment under construction at Polska Spółka Gazownictwa Sp. z o.o.
Goodwill impairment tests
The goodwill resulting from business combinations below was allocated to the respective CGUs, except for Normbenz's goodwill which was assigned to the ORLEN Unipetrol Retail CGU (please refer to note 7.3 for further details).
Value in use served as the basis for measuring the recoverable amount of individual CGUs to which goodwill was assigned. The test was conducted based on discounted cash flow models for each CGU. The macroeconomic assumptions and discount rates used in the impairment tests were in line with the assumptions for each segment to which the tested CGUs were assigned, as described in notes 14.4.1 and 14.4.2.
The following additional key assumptions were made for the CGUs to which goodwill was assigned, in order to estimate their value in use.
RUCH Group
Cash flows for the valuation of the RUCH Group's goodwill take into account a new business approach to the Group's key segments of retail, press, and courier services, with account taken of optimisation of logistics cost, the development of the retail network to include with new sales point formats, and the simultaneous optimisation of the press business. RUCH's value in use, calculated at a discount rate dedicated to Poland Retail (note 14.4.1), is PLN 2,231 million.
As at 31 December 2021, the RUCH Group's value in use was calculated at a discount rate of 7.07% and amounted to PLN 471 million.
Livingstone and Nowotna Wind Farm
Cash flows for the valuation of goodwill of Livingstone and the Nowotna Wind Farm include the pricing terms taken under signed contracts for the sale of electricity from renewable sources (PPAs) and contracts for the sale of property rights arising from certificates of origin (CPA). The flows also include the current regulations on the reference price of electricity from renewable energy sources and the periods applicable to generators that won auctions in a given year. In addition, cash flows for the Nowotna Wind Farm include revenue from future contracts that the Company will conclude taking into account the ORLEN Group's pricing assumptions for the Energy segment. The values in use of Livingstone and the Nowotna Wind Farm calculated at the discount rate dedicated to Poland ENERGA_RES are PLN 167 million and PLN 924 million, respectively.
As at 31 December 2021, the values in use for Livingstone and the Nowotna Wind Farm were calculated at a discount rate of 6.3%, at PLN 141 million and PLN 985 million, respectively.
ORLEN Transport
The impairment test for ORLEN Transport takes into consideration the ORLEN Group's assumptions regarding the development of its transport fleet, as outlined in the ORLEN 2030 Strategy, which includes an increase in fixed cost efficiency within the target business structure. The calculated value in use of ORLEN Transport as at 31 December 2022, based on a discount rate specifically dedicated to Poland Transport, is PLN 217 million.
As at 31 December 2021, ORLEN Transport's value in use was calculated at a discount rate of 7.18% and amounted to PLN 175 million.
UAB ORLEN Mockavos terminalas
As at 30 June 2022, following the impairment testing of production assets owned by ORLEN Lietuva’s Refining segment, with the discount rate of 9.40%, an impairment charge was recognised. This included the complete impairment allowance of goodwill from the acquisition of UAB ORLEN Mockavos terminalas amounting to PLN (193) million, equivalent to USD (44) million, with PLN (26) million attributed to exchange differences from the translation of goodwill.
No impairment of goodwill was identified as at 31 December 2021.
Normbenz Magyarország Kft
As of the date of the business combination, the Group allocates goodwill to CGUs that are expected to benefit from the synergies gained from such a merger.
Recognized in 2022, the goodwill created on temporary settlement of acquisition of Normbenz Magyarország Kft was assigned to the Retail CGU of ORLEN Unipetrol (more note 7.3). The value in use of the Retail segment in ORLEN Unipetrol, involving the goodwill of Normbenz Magyarország Kft, amounted to PLN 3,696 million, equivalent to CZK 18,518 million, was calculated at the discount rate dedicated to Czech Republic Retail (note 14.4.1).
No impairment of goodwill was identified as at 31 December 2022.
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