NOTES TO THE FINANCIAL STATEMENTS 1. BASIS OF PREPARATION (CONTINUED) (d) Use of estimates and judgements (continued) (iv) Estimation of oil and gas reserves (continued) In general, changes in the technical maturity of hydrocarbon reserves resulting from new information becoming available from development and production activities have tended to be the most significant cause of annual revisions. In general, estimates of reserves for undeveloped or partially developed fields are subject to greater uncertainty over their future life than estimates of reserves for fields that are substantially developed and depleted. As a field goes into production, the amount of proved reserves will be subject to future revision once additional information becomes available through, for example, the drilling of additional wells or the observation of long-term reservoir performance under producing conditions. As those fields are further developed, new information may lead to revisions. Changes to the Group’s estimates of proved and probable reserves, particularly proved and probable developed reserves, also affect the amount of depreciation and amortisation recorded for oil and gas assets and rights and concessions related to revisions. A reduction in proved and probable developed reserves will increase depreciation and amortisation charges (assuming constant production) and reduce income. Although the possibility exists for changes in reserves to have a critical effect on depreciation and amortisation charges and, therefore, income, it is expected that in the normal course of business, the Group will continue to prioritise exploration and timely project delivery which ultimately results in maximisation of reserve recovery and will thus constrain the likelihood for changes to occur. (v) Impairment review of oil and gas assets The recoverable amount of the Group’s oil and gas assets is determined by post-tax cash flows expected to be generated by the assets over their lives considering those assumptions that market participants would take into account when assessing fair value. The Group assesses its tangible and intangible oil and gas assets for impairment indicators in accordance with MFRS 136 through use of a valuation model. Key assumptions in the valuation model relate to prices and costs that are based on long-term assumptions. The calculation of the valuation requires the use of estimates of key assumptions. In testing for impairment indicators, the Group uses the oil price forecast based on the oil price forward curve from independent parties initially, overlaid with management’s views, future cost inflation factor and discount rate to calculate post-tax cash flows. These assumptions and judgements are subject to change as new information becomes available. Changes in economic conditions can also affect the rate used to discount future cash flow estimates and the discount rate applied is reviewed on an annual basis. The Group has considered reasonable possible movements in key assumptions such as forecast oil prices, production profiles and discount rates. The carrying amounts of oil and gas assets as at the reporting date are disclosed in Notes 3 and 6 to the financial statements respectively. (vi) Asset retirement obligations The Group incurs retirement obligations for certain assets. The present values of these obligations are recorded as liabilities on a discounted basis, which is typically at the time the assets are installed. In the estimation of present value, the Group uses assumptions and judgements regarding such factors as the existence of a legal obligation for an asset retirement obligation, technical assessments of the assets, estimated amounts and timing of settlements, drilling rig rates, discount rates and inflation rates. Asset retirement obligations is disclosed in Note 23 to the financial statements. DNeX INTEGRATED REPORT 2025 146 ABOUT THIS REPORT LEADERSHIP VALUE CREATION @DNeX LEADERSHIP INSIGHTS OVERVIEW OF DAGANG NeXCHANGE BERHAD
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