RE:RE:RE:RE:RE:i am in love with this company IMPAIRMENT
At each financial reporting date, the Company considers potential indicators of impairment for both its Light Oil and Thermal Oil
Divisions. This assessment includes an analysis of current market conditions and activities as well as a review of future development
plans and pending land expiries for each of the Company’s assets.
In the fourth quarter of 2015, Athabasca identified indicators of impairment over all its oil and gas assets primarily as a result of
continued weakness of commodity pricing, recent federal and provincial government initiatives surrounding climate change and
pipeline development which could impact the long-term development of Thermal Oil projects and the Murphy Transaction (Note 24).
In response, Athabasca performed an impairment test on each of its CGUs. The impairment tests resulted in an impairment loss of
the Company's Light Oil Development CGU (defined below) and the Dover West exploration CGU.
Athabasca combines E&E and PP&E assets that are in the same CGU together for the purposes of testing for impairment. The Company
uses fair value less costs of disposal to calculate the recoverable amount of its CGUs. The recoverable amounts of the CGUs are
estimated based on after-tax discounted cash flows from the Company’s Proved plus Probable Reserves (Level 3), Contingent Resources
(Level 3) and relevant sales transactions and trading multiples in the industry on assets and companies with similar geologic and
geographic characteristics. Future cash flows are estimated using a two percent inflation rate and a discount rate of 10% based on
the nature of the properties included in the CGU and the extent of future funding and development risk.
A significant change to discounted cash flow assumptions, including forecasted price assumptions, cost estimates, recovery rates and
discount rates, could have a material impact on these fair value estimates. Valuation metrics implied by future transactions could also
have a material impact on the Company’s estimate of recoverable amounts. The following table summarizes the price forecast used
in the Company's discounted cash flow estimates:
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Thereafter
WTI (US$/bbl) $ 44.00 $ 52.00 $ 58.00 $ 64.00 $ 70.00 $ 75.00 $ 80.00 $ 85.00 $ 87.88 $ 89.63 +2.0%/yr
WCS (C$/bbl) $ 42.26 $ 51.20 $ 55.39 $ 60.84 $ 66.18 $ 70.00 $ 75.88 $ 81.41 $ 84.90 $ 86.60 +2.0%/yr
Edmonton Par (C$/bbl) $ 55.86 $ 64.00 $ 68.39 $ 73.75 $ 78.79 $ 82.35 $ 88.24 $ 94.12 $ 96.48 $ 98.41 +2.0%/yr
AECO (C$/Mmcf) $ 2.76 $ 3.27 $ 3.45 $ 3.63 $ 3.81 $ 3.90 $ 4.10 $ 4.30 $ 4.50 $ 4.60 +2.0%/yr
FX (CAD:USD) 1.38 1.33 1.29 1.25 1.21 1.18 1.18 1.18 1.18 1.18 1.18
Light Oil Division
The Light Oil Division consists of the Greater Kaybob and Greater Placid areas (collectively the "Light Oil Development CGU") as well
as other exploration acreage located in northwest Alberta (collectively the “Light Oil Exploration areas”).
For the year ended December 31, 2015, Athabasca determined that the Light Oil Development CGU's carrying value of $1.23 billion
exceeded its estimated recoverable value of $770.0 million and the Company recognized an impairment loss of $456.7 million. The
recoverable value of the CGU was determined based on the fair value of the assets implied by the pending Murphy Transaction (Note
24) for which Athabasca entered into a purchase and sale agreement during the first quarter of 2016. The recoverable value of the
CGU includes estimates based on the anticipated timing and discount rates of cash flows associated with the capital carry receivable.
For the year ended December 31, 2014, Athabasca recognized an impairment loss of $74.4 million representing the full carrying value
of the CGU in its Light Oil Exploration areas. During 2014, Athabasca also recognized $27.8 million of land expires in the Light Oil
Exploration areas, bringing the total Light Oil expiration and impairment charges in 2014 to $102.2 million.
Thermal Oil Division
The Thermal Oil Division consists of the Hangingstone, Dover West, Birch and Grosmont CGUs located in the Athabasca region of
northern Alberta.
For the year ended December 31, 2015, Athabasca determined that the Dover West CGU's carrying value of $474.6 million exceeded
its estimated recoverable value of $294.6 million and the Company recognized an impairment loss of $180.0 million. The recoverable
value of the CGU was based on com