VPC Venture Prod.

development is sanctioned, the relevant costs are transferred to development and 
producing assets. 
 
 
Expenditure on the construction, installation or completion of infrastructure 
facilities such as platforms, pipelines and the drilling of development wells, 
is capitalised within development and producing assets on a field by field 
basis. 
 
 
Upon commencement of production, these costs are amortised on a unit of 
production basis that is calculated on historical expenditure and budgeted 
capital expenditure and proven and probable reserves. 
 
 
Property, Plant and Equipment - Other 
 
 
Depreciation on other assets is calculated using the straight-line method to 
allocate their cost less their residual values over their estimated useful 
lives, as follows: 
 
 
+---------------------------+-----------+ 
| Plant and machinery       | 10-33%    | 
+---------------------------+-----------+ 
| Office equipment          | 25%       | 
+---------------------------+-----------+ 
| Motor vehicles            | 25%       | 
+---------------------------+-----------+ 
| Buildings                 | 5%        | 
+---------------------------+-----------+ 
 
 
The assets' residual values and useful lives are reviewed, and adjusted if 
appropriate, at each balance sheet date. An asset's carrying amount is written 
down immediately to its recoverable amount if the asset's carrying amount is 
greater than its estimated recoverable amount. 
 
 
Impairment of Non-Financial Assets 
 
 
Assets that have an indefinite useful life are not subject to amortisation and 
are tested annually for impairment. Assets that are subject to amortisation are 
reviewed for impairment whenever events or changes in circumstances indicate 
that the carrying amount may not be recoverable. An impairment loss is 
recognised for the amount by which the asset's carrying amount exceeds its 
recoverable amount. The recoverable amount is the higher of an asset's net 
realisable value less costs to sell and value in use. For the purposes of 
assessing impairment, assets are grouped at the lowest levels for which there 
are separately identifiable cash flows. These CGUs are aligned to the business 
unit and sub-business unit structure that the Group uses to manage its business. 
Cash flows are discounted in determining the value in use. 
 
 
Exploration/appraisal assets are reviewed regularly for indicators of impairment 
and costs are written off where circumstances indicate that the carrying value 
might not be recoverable. In such circumstances the exploration asset is 
allocated to development/producing assets within the same field and tested for 
impairment. Any such impairment arising is recognised in the income statement 
for the period. Where there are no development/producing assets within a 
business unit, the exploration/appraisal costs are charged immediately to the 
income statement. 
 
 
Impairment reviews on development/producing assets are carried out on each CGU 
identified in accordance with IAS 36 'Impairment of Assets'. Venture's CGUs are 
those assets which generate largely independent cash flows and are normally, but 
not always, single development areas. 
 
 
At each reporting date, where there are indicators of impairment, the net book 
value of the CGU is compared with the associated expected discounted future net 
cash flows. If the net book value is higher, then the difference is written off 
to the income statement as impairment. Discounted future net cash flows for IAS 
36 purposes are calculated using forward curve pricing for the first five years 
and management's view of the long term price thereafter. Cash flows are 
discounted to present value using an appropriate discount rate. Forecasted 
production profiles are determined on an asset by asset basis, using appropriate 
petroleum engineering techniques. 
 
 
Where there has been an impairment charge in an earlier period, that charge will 
be reversed in a later period where there has been a change in circumstances to 
the extent that the discounted future net cash flows are higher than the net 
book value at the time. In reversing impairment losses, the carrying amount of 
the asset will be increased to the lower of its original carrying value or the 
carrying value that would have been determined (net of depletion) had no 
impairment loss been recognised in prior periods. 
 
 
Deferred Consideration 
 
 
Deferred consideration relates to the future cash consideration payable in 
respect of acquisitions which is contingent on the outcome of future events. 
When an acquisition agreement provides for an adjustment to the consideration 
contingent on future events, provision is made for that amount if the adjustment 
is probable and can be measured reliably. The amount provided is included in the 
cost of the acquisition. When the final amount payable is determined, or when 
revised estimates are made, the acquisition cost and provision are adjusted 
accordingly. Deferred consideration is recorded at its fair value. 
 
 
Inventories 
 
 
Inventories are stated at the lower of cost and net realisable value and 
comprise oil in tanks and pipelines and materials. Cost values for stocks of oil 
are calculated using a weighted average cost for the year. 
 
 
Under/Overlift 
 
 
Lifting or offtake arrangements for oil and gas produced in certain of the 
Group's jointly owned operations are such that each participant may not receive 
and sell its precise share of the overall production in each period. The 
resulting imbalance between cumulative production entitlement and cumulative 
sales less stock is 'underlift' or 'overlift'. Underlift and overlift are valued 
at market value and included within debtors and creditors respectively. 
Movements during an accounting period are adjusted through cost of sales such 
that gross profit is recognised on an entitlement basis. The Group's share of 
any physical stock is accounted for at the lower of cost and net realisable 
value. 
 
 
Assets Held for Sale 
 
 
Assets held for sale are stated at fair value on the basis that they are 
available for immediate sale in their present condition, subject only to terms 
that are usual and customary for sales of such assets and that the sale is 
highly probable at the balance sheet date. 
 
 
Trade Receivables 
 
 
Trade receivables are recognised and carried at original invoice amount less any 
provision for impairment. A provision for impairment of trade receivables is 
established when there is objective evidence that the Group will not be able to 
collect all amounts due according to the original terms of the receivables. 
 
 
Cash and Cash Equivalents 
 
 
Cash and cash equivalents includes cash in hand, bank overdrafts, short term 
deposits held at call with banks with maturity dates of less than three months, 
and other short term liquid investments, which can be withdrawn at any time. 
 
 
Share Capital 
 
 
Ordinary shares are classified as equity. Incremental costs directly 
attributable to the issue of new shares or options are shown in equity as a 
deduction, net of tax, from the proceeds. Incremental costs directly 
attributable to the issue of new shares or options, for the acquisition of a 
business, are included in the cost of acquisition as part of the purchase 
consideration. 
Dividends on ordinary shares are not recognised as a liability or charged to 
equity until they have been declared. 
 
 
Where any Group company purchases the Company's equity share capital (treasury 
shares), the consideration paid, including any directly attributable incremental 
costs (net of income taxes), is deducted from equity attributable to the 
Company's equity holders until the shares are cancelled, reissued or disposed 
of. Where such shares are subsequently sold or reissued, any consideration 
received, net of any directly attributable incremental transaction costs and the 
related income tax effects, is included in equity attributable to the Company's 
equity holders. 
 
 
The Group is deemed to have control of the assets, liabilities, income and costs 
of its Employee Benefit Trust (EBT). They have therefore, been consolidated in 
the financial statements of the Group. Shares acquired by and disposed of by the 
EBT are recorded at cost. The cost of shares held by the EBT is deducted from 
shareholders' equity. 
 
 
Borrowings 
 
 
Borrowings are recognised initially at fair value, net of transaction costs 
incurred. Borrowings are subsequently stated at amortised cost; any difference 
between the proceeds (net of transaction costs) and the redemption value is 
recognised in the income statement over the period of the borrowings using the 
effective interest method. 
 
 
Borrowings are classified as current liabilities unless the Group has an 
unconditional right to defer settlement of the liability for at least 12 months 
after the balance sheet date. 
 
 
Convertible Bonds 
 
 
The fair value of the liability component of a convertible bond is determined 
using a market interest rate for an equivalent non-convertible bond. This amount 
is recorded as a liability on an amortised cost basis until extinguished on 
conversion or maturity. The remainder of the proceeds of the convertible bond 
represents the value of the equity conversion option and this component of the 
bond is recognised in shareholders' equity. 
 
 
Capitalised Interest 
 
 
Interest is capitalised gross of related tax relief during the period of 
construction, where it relates either to the financing of major projects with 
long periods of development, or to dedicated financing of other projects. All 
other interest is charged against income. 
 
 
Derivative Financial Instruments and Hedging 
 
 
Derivatives are initially recognised at fair value on the date a derivative 
contract is entered into, and are subsequently re-measured at their fair value. 
The method of recognising the resulting gain or loss depends on whether the 
derivative is designated as a hedging instrument and, if so, the nature of the 
item being hedged. The Group designates derivatives as hedges of highly probable 
forecast transactions (cash flow hedge). 
 
 

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