Annual Report 2011 - PGS

Notes to the consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Amortization of the MultiClient library is generally recorded in proportion to revenue recognized in a period as a percentage of
the total remaining expected revenue. On an annual basis the Company categorizes each MultiClient survey into one of four
amortization categories with amortization rates of 90%, 75%, 60% or 45% of sales. Classification of each project into a rate
category is based on the ratio of its remaining net book value to estimated remaining sales. Each category therefore is
comprised of surveys for which the remaining book value as a percentage of estimated remaining sales is less than or equal to
the amortization rate applicable to that category.
An integral component of amortization of the MultiClient library is the minimum amortization policy. Under this policy, the book
value of each survey or group of surveys of the MultiClient library is reduced to a specified percentage by year-end, based on
the age of the survey or group of surveys in relation to its year of completion. This requirement is applied each year-end
regardless of future sales estimates for the MultiClient library survey or groups of surveys. The specified percentage generates
the maximum permitted book value for each MultiClient library survey or group of surveys as the product of the percentage
multiplied by the original book value of the MultiClient library survey or group of surveys at the respective period end. Any
additional or “minimum” amortization charges required are then determined through a comparison of the remaining book value
to the maximum permitted book value allowed for each survey or group of surveys of the MultiClient library.
The specified percentages used to determine the maximum book value of its MultiClient library components are summarized as
follows:
Calendar year
after project completion
5-year
profile
3-year
profile
Year 0 (a) 100% 100%
Year 1 80% 66%
Year 2 60% 33%
Year 3 40% 0%
Year 4 20%
Year 5 0%
(a) Represents the year in which the survey is classified as completed.
All Marine MultiClient projects have a 5-year profile starting in the year after project completion. All derivative processed
products have a 3-year profile starting in the year after data delivery. Derivative products are mainly reprocessing that creates
data that can be sold as a separate project.
The Company classifies as amortization expense in its consolidated statements of operations any impairment of individual
MultiClient surveys that are based on changes in project specific expectations and that are not individually material. The
Company expects this additional, non-sales related, amortization expense to occur regularly because each individual project is
evaluated at least annually for impairment or when specific indicators exist. The Company classifies as impairment in its
consolidated statements of operations write-downs related to fundamental changes in estimates affecting a larger part of the
Company’s MultiClient library where the effects are material, see impairment of property, equipment and intangibles below.
Research and development costs
Research costs are expensed as incurred. An internally generated intangible asset arising from development (or from the
development phase of an internal project) is recognized if, and only if, all of the following have been demonstrated: the technical
feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible
asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate probable future
economic benefits; the availability of adequate technical, financial and other resources to complete the development and to use
or sell the intangible asset; and the ability to measure reliably the expenditure attributable to the intangible asset during its
development.
The amount initially recognized for internally generated intangible assets is the sum of the expenditure incurred from the date
when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be
recognized, development costs are expensed as incurred.
Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortization and
accumulated impairment losses, on the same basis as intangible assets acquired separately. Capitalized development costs are
amortized on a straight line basis over the estimated useful life.
Patents, licenses and technology
Patents, licenses and technology are stated at cost less accumulated amortization and any impairment charges. Amortization is
calculated on a straight-line basis over the estimated period of benefit, ranging from one to twenty years.
Exploration expenses
The Company obtains ownership of oil and gas properties in exchange for providing acquisition services and licenses. These
assets are capitalized as exploration expenses and are initially measured at the fair value of the received asset. The Company
uses the “successful efforts” method of accounting for exploration expenses. Expenditures to acquire mineral interests in oil and
gas properties are capitalized within intangible assets until the well is complete and the results have been evaluated. If,
following evaluation, the exploratory well has not found proved reserves the previously capitalized costs are evaluated for
derecognition or tested for impairment. Unproven oil and gas properties are assessed for impairment when fact and
circumstances suggest that the carrying amount of the asset may exceed the recoverable amount.
5 PGS ANNUAL REPORT 2011
76 PGS Annual Report 2011