Page 148 - Pakistan Oilfield Limited - Annual Report 2022

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PAKISTAN OILFIELDS LIMITED
Notes to and Forming Part of the

Financial Statements

For the year ended June 30, 2022

4.6 Provisions
Provisions are recognized when the Company has a legal or constructive obligation as a result
of past events and when it is probable that an outflow of resources will be required to settle the
obligation and a reliable estimate of the amount can be made.
4.7 Provision for decommissioning costs
Provision for decommissioning costs is recognized in full for development wells and production
facilities. The amount recognized is the present value of the estimated cost to abandon a well
and remove production facilities. A corresponding intangible asset of an amount equivalent to
the provision is also created and is amortized on unit of production basis over the total proved
developed reserves of the field or @ 5% where the life of a field is more than 20 years.

Most of these abandonment and removal events are many years in the future and the precise
requirements that will have to be met when the abandonment and removal event actually occurs
are uncertain. Abandonment and asset removal technologies and costs are constantly changing, as
are political, environmental, safety and public expectations. Consequently, the timing and amount
of future cash flows are subject to significant uncertainty.
The timing and amount of future expenditures are reviewed annually, together with the interest rate
to be used in discounting the cash flows. Any difference between the liability recognized and actual
costs incurred are charged/credited to statement of profit or loss in the year of decommissioning.

The effect of changes resulting from revisions to the estimate of the liability are incorporated on a
prospective basis.
The decommissioning cost has been discounted at a real discount rate of 1.00% (2021: 1.30%) per
annum.
4.8 Employee compensated absences

The Company provides for compensated absences for all eligible employees in accordance with
the rules of the Company.

4.9 Staff retirement benefits
The Company operates the following staff retirement benefits plans:

(i) A pension plan for its management staff and a gratuity plan for its management and non-
management staff. The pension and gratuity plans are invested through approved trust funds.
Both are defined benefit final salary plans. The pension and gratuity plans are complementary
plans for management staff. Pension payable to management staff is reduced by an amount
determined by the actuary equivalent to amount paid by the gratuity fund. Management
staff hired after January 1, 2012 are only entitled to benefits under gratuity fund. Actuarial
valuations are conducted annually using the "Projected Unit Credit Method" and the latest
valuation was conducted as at June 30, 2022.

Actuarial gain and losses arising from experience adjustments and change in actuarial
assumptions are charged or credited to equity in other comprehensive income in the period
in which they arise.
Past service costs are recognized immediately in statement of profit or loss.

Since both are complementary plans, combined details and valuation for pension plan and
gratuity plan are given in note 35.