5
Key audit matters
How our audit addressed the key audit
matters
The impact of oil and gas reserves on net property, plant and
equipment (PP&E) for the Canada, Malaysia, and France
segments
Refer to note 1 - Corporate information, note 2 - Critical
accounting estimates and judgements, and note 8 – Oil and Gas
Properties to the consolidated financial statements.
The Corporation has USD 953.5 million of net PP&E assets as at
December 31, 2021. Depletion charges were USD 119.0 million
for the year then ended. PP&E is depleted based on the year’s
production in relation to the estimated total proved and probable
reserves in accordance with the unit of production method.
At each balance sheet date or when there are facts and
circumstances that suggest that the net book value of capitalized
costs within each field area cost centre is higher than anticipated
future net cash flow from oil and gas reserves attributable to the
Corporation’s interest in the related field areas, the Corporation
performs an assessment as to whether there is an indication that
an asset may be impaired. Management determined the
recoverable amounts of PP&E based on the higher of fair value
less costs of disposal and value in use using estimated future
discounted net cash flows of proved and probable oil and gas
reserves. The Corporation’s estimates of proved and probable oil
and gas reserves used in the calculations for impairment tests and
accounting for depletion have been reviewed by Management’s
experts, specifically independent qualified reserves auditor.
Significant assumptions developed by management used to
determine the recoverable amount include the proved and
probable oil and gas reserves, expected production volumes,
future oil and gas prices, future development costs, future
production costs and the discount rate.
We determined that this is a key audit matter due to (i) the
significant judgment made by management, including the use of
management’s experts, when developing the expected future cash
flows to determine the recoverable amount and the proved and
probable oil and gas reserves; and (ii) a high degree of auditor
judgment, subjectivity and effort in performing procedures
and evaluating audit evidence relating to management’s
estimates.
Our approach to addressing the matter included the
following procedures, among others:
භ The work of management’s experts was used in
performing the procedures to evaluate the
reasonableness of the proved and probable oil and
gas reserves used to determine depletion charges
and the recoverable amount of PP&E for the
Canada, France and Malaysia segments. As a
basis for using this work, management’s experts’
competence, capability and objectivity were
evaluated, their work performed was understood
and the appropriateness of their work as audit
evidence was evaluated by considering the
relevance and reasonableness of the
assumptions, methods and findings.
භ Tested how management determined the
recoverable amount and depletion charges for the
Canada, France and Malaysia segments, which
included the following:
o Evaluated the appropriateness of the methods
used by management in making these
estimates.
o Tested the data used in determining these
estimates.
o Evaluated the reasonableness of significant
assumptions used in developing the
underlying estimates:
ඵ Expected production volumes, future
development costs and future production
costs by considering the past
performance of each segment, and
whether these assumptions were
consistent with evidence obtained in
other areas of the audit.
ඵ Future oil and gas prices by comparing
those prices with other reputable third-
party industry forecasts.
ඵ The discount rate, by performing an
independent sensitivity analysis.
o Recalculated the unit of production rates used
to calculate depletion charges for the Canada,
France and Malaysia segments.