The Group incurs expenditure on intangible exploration and appraisal assets. In 2012, cash flows related to expenditure on intangible exploration and appraisal assets amounted to PLN 73,714 thousand (2011: PLN 12,114 thousand).

The Group recognises intangible exploration and appraisal assets until the technical feasibility and commercial viability of extracting a mineral resource is demonstrable. As at December 31st 2012, intangible assets in respect of which the technical feasibility and commercial viability of extracting a mineral resource have been demonstrated amounted to PLN 430,755 thousand (December 31st 2011: PLN 365,895 thousand); the cost of their amortisation was PLN 49,869 thousand (2011: PLN 39,981 thousand).

In 2012, the Group recognised impairment losses on intangible assets in the amount of PLN 88,985  thousand (2011: PLN 30,646 thousand), which related to Latvian exploration and production licences and Norwegian exploration licences, as discussed in more detail below. The impairment losses on the intangible assets were charged to the upstream segment and recognised under "Operating profit/(loss) (EBIT)" in Note 8.

As drillings under the PL 498 and PL 497 licences produced no positive results,  impairment losses on capitalised costs of exploration work related to the licences were recognized in amount PLN 74,481 thousand (NOK 133,145 thousand, translated at the average NOK/PLN mid-exchange rate quoted by the National Bank of Poland for the reporting period ended December 31st 2012). In 2011, the impairment losses amounted to PLN 30,646 thousand and related to licence PL 455 (NOK 57,660 thousand, translated at the average NOK/PLN mid-exchange rate quoted by the National Bank of Poland for the reporting period ended December 31st 2011).

The remeasurement of the intangible assets related to the Lithuanian licences followed mainly from the disclosure of new geological information which reduced the reserve estimates.  Following impairment tests performed separately for each asset generating independent cash flows, i.e. for the Girkaliai, Kretinga and Nausodis fields, impairment losses of PLN 14,504 thousand (LTL 12,000  thousand, translated at the average LTL/PLN mid-exchange rate quoted by the National Bank of Poland for the reporting period ended December 31st 2012) were recognised on assets related to the Kretinga field.

Production profiles based on the current field reports prepared by an independent industry adviser were used in the calculations of future cash flows (the assets tested for impairment generate cash flows from production of crude oil; production profiles determine the period of detailed cash flow projections for each field). The analysed cash flows in the production periods included revenue from sale of crude oil, operating expenses and capital expenditure necessary to conduct production activities, and the calculated cash flows were discounted in order to show the present value of future payments. The applied discount rate was based on the weighted average cost of capital after tax, estimated at 11%. As the financial effects of production from a given oil field show high sensitivity to changes in the prices of crude oil, and the prices are highly volatile, the Group applied a range approach to testing the value of its fields, allowing for the volatility of the following parameters: crude oil price: +/- 15%, output volumes: +/- 15%, USD/LTL exchange rate: +/- 15%, in order to avoid remeasurement of assets after every change in the prices. The tests which were carried out revealed that, as at December 31st 2012, the carrying amount of the Girkaliai and Nausodis fields fell within the ranges determined by the range test. In the case of the Kretinga field, the carrying amount of the tested assets was higher than the field’s range measurement values, which led to the recognition of impairment losses on the assets.

Changes in other intangible assets

The table below presents items under which amortisation of other intangible assets was recognised: