Annual Report 2011 - PGS

Notes to the consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Property and equipment
Property and equipment are stated at cost, excluding the costs of the day-to-day servicing, less accumulated depreciation and
impairment losses. Depreciation is calculated on a straight-line basis over the useful life of the assets based on cost less
estimated residual values. The estimated useful lives for property and equipment are as follows:
Years
Seismic vessels 25 - 30
Seismic and operations computer equipment 3 - 15
Buildings and related leasehold improvements 1 - 17
Fixture, furniture, fittings and office computers 3 - 5
Major overhaul 3 - 5
Subsequent expenditures and major inspections/overhaul are included in the asset’s carrying amount or recognized as a
separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the
Company and the cost of the item can be measured reliably. The carrying amount of any replaced part is derecognised. All
other repairs and maintenance are charged to the consolidated statements of operations during the financial period in which
they are incurred.
The assets’ residual values, useful lives and method of depreciation are reviewed, and adjusted if appropriate, at least at each
financial year-end.
Assets under construction are carried at cost, less any impairment loss. Cost includes borrowing costs capitalized in accordance
with the Company’s accounting policy as stated below. Depreciation of these assets commences when the assets are ready for
their intended use.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its
use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in the consolidated statements of operations in the year the asset is
derecognized.
Significant spare parts are capitalized with the asset to which they pertain, while other spare parts, consumables and bunkers
are classified as other current assets and stated at cost less any impairment charges.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary
investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible
for capitalization. All other borrowing costs are expensed as incurred.
Steaming costs
Steaming costs relate to relocating or “steaming” a vessel or crew from one location to another. The Company includes such
costs in the cost of the MultiClient survey or exclusive contract with which the costs are associated. The steaming costs related
to MultiClient survey are capitalized as a part of the MultiClient library (see above). Steaming costs on exclusive surveys are
deferred and charged to expense based upon the percentage of completion of the project.
Both for MultiClient and exclusive surveys the estimated probable future economic inflows which are documented at inception
must cover the costs capitalized or deferred. If the projects are not able to cover all of the costs which could be capitalized or
deferred then only those costs that are recoverable (discounted cash inflow of the project or activity undertaken exceeds the
discounted cash outflow) are capitalized/deferred.
Impairment of property, equipment and intangibles
The Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication
that those assets have been impaired. If any such indication exists, or when annual impairment testing for an asset is required,
the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). An asset’s
recoverable amount is the higher of an asset’s or cash generating unit’s fair value less cost to sell and its value in use and is
determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from
other assets or groups of assets. In assessing value in use, the estimated future cash flows are discounted to their present
value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cashgenerating
unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is
reduced to its recoverable amount. An impairment loss is recognized immediately and presented separately in the consolidated
statements of operations.
Goodwill does not generate cash flows independently of other assets or groups of assets and is allocated to the cashgenerating
units expected to benefit from the synergies of the combination that gave rise to the goodwill. Upon internal
reorganization goodwill is allocated to the new cash-generating units based on the relative fair value.
Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cashgenerating
units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and
consistent allocation basis can be identified.
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