Cue Energy Resources Limited Notes to the financial statements 30 June 2023 Note 11. Non-current assets - production properties (continued) 19 Accounting policy for production properties Production properties are carried at the reporting date at cost less accumulated amortisation and accumulated impairment losses. Production properties represent the accumulation of all exploration, evaluation, development and acquisition costs in relation to areas of interest in which production licences have been granted. Amortisation of costs is performed on the basis which best reflects the consumption of future economic benefits. In the Amadeus Basin properties, physical assets are amortised on the straight line basis whilst all other production properties are amortised on the unit-of-production basis, separate calculations being made for each resource. The unit-of-production basis results in an amortisation charge proportional to the depletion of economically recoverable reserves (comprising both proven and probable reserves) and is expensed through the statement of profit or loss and other comprehensive income. Amounts (including subsidies) received during the exploration, evaluation, development or construction phases which are in the nature of reimbursement or recoupment of previously incurred costs are offset against such capitalised costs. Accounting policy for impairment The carrying amounts of the Consolidated Entity’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds the recoverable amount. Impairment losses are recognised in profit or loss, unless an asset has previously been revalued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through profit or loss. Impairment losses and reversals are recognised in respect of cash-generating units are allocated to reduce the carrying amount of the assets in the unit (group of units) on a pro rata basis. Accounting policy for calculation of recoverable amount For oil and gas assets the estimated future cash flows are based on either the fair value less costs to sell or the value-in-use calculations, which use estimates of hydrocarbon reserves, future production profiles, commodity prices, operating costs and any future development costs necessary to produce the reserves. Estimates of future commodity prices are based on contracted prices where applicable or based on consensus estimates of forward market prices where available. The recoverable amount of cash generating units is the greater of their fair value less cost to sell and 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 based on assumptions that reflect current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. The Mahato PSC and subsequent Indonesian Government regulations contain terms which may require the dilution of the existing partners in the joint operations for no consideration, including the Consolidated Entity’s interests by up to 10% after production has commenced, for no consideration in exchange. The restoration provision is deducted from the carrying value of the asset as the cost of restoration is included in its cost base. This adjustment is required to allow a true reflection of its carrying value against its recoverable value. Where an asset does not generate cash flows that are largely independent from other assets or groups of assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. 65 Cue Energy Resources Limited Annual Report 2023
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