Finanstilsynet - The Financial Supervisory Authority of Norway - has reviewed certain aspects of the 2012 consolidated financial statements of Statoil ASA ("Statoil"). The review focuses on key elements of Statoil's principles for impairment testing, as well as assets and activities presumed to be affected by the shale revolution in the USA.
Finanstilsynet has identified three errors in Statoil's financial statement for 2012. Statoil does not agree with Finanstilsynet's assessments of the three issues and views its practices to be within the applicable rules. Statoil has nonetheless stated that, for two of the items, it will change its accounting practices in line with Finanstilsynet's evaluation and assess correction of the errors. Finanstilsynet has ordered Statoil to correct the third error.
Listed issuers shall apply the international financial reporting standards (IFRS) in their consolidated financial statements. IFRS contains rules on impairment to ensure that assets are not reflected in the financial statements at values exceeding their recoverable amount. If indicators of impairment exist, e.g. a substantial fall in market prices, IFRS requires an impairment test of an asset to be performed. If it is not possible to determine an individual asset's recoverable amount, an issuer shall determine the recoverable amount of the cash generating unit ("CGU") to which the asset belongs. Incorrect identification of a CGU at a too high level may result in assets generating significant cash inflows erroneously being grouped with assets that are not. The composition of a CGU shall be redefined in certain circumstances and onerous contract provisions made. This is important to give a complete presentation of the total liabilities of an issuer.
The first error identified involves Statoil's practice related to impairment testing of non-financial assets when calculating the recoverable amount, and the application of a reliability interval (range) around the company's initial value in use estimate. The second error relates to Statoil's practice of CGU identification for unconventional onshore assets. Finanstilsynet's review has focused on the Marcellus Shale Play in USA, but the issue has general application for Statoil's unconventional assets. The third error relates to Statoil's operationalization of changes in the components included in the CGU identified. A provision for onerous take- or pay contracts for import capacity at the Cove Point terminal in Maryland, USA was made in Q1-2013. Finanstilsynet finds that a redefinition of the CGU should have been made, and a separate provision for the contracts recorded, by Statoil prior to Q1-2013. Finanstilsynet's decision in the matter relates to the third error.
In addition to the above, Finanstilsynet recommends Statoil to present DPNA (Development and Production North America) as a separate reporting segment in its disclosures going forward.