OJSC Oil Company Rosneft Consolidated Financial Statements

OJSC Oil Company Rosneft
Notes to Consolidated Financial Statements (continued)
13. Goodwill and Intangible Assets (continued)
Goodwill acquired through business combinations (see Note 3) has been allocated to the reporting
units being its operating segments - E&P and R&M segments. In assessing whether goodwill has been
impaired, the carrying amount of the reporting unit (including goodwill) was compared with the
estimated fair value of the reporting unit.
The Company estimated fair value of the reporting units using a discounted cash flow model. The
future cash flows were adjusted for risks specific to the asset and discounted using a discount rate,
which represented the Company’s post-tax weighted average cost of capital.
The five year business plan as well as the long-term business strategy, approved by the Company’s
Board of Directors, are the primary sources of information for the determination of the reporting units’
fair values. They contain implicit forecasts for oil and natural gas production, refinery throughputs,
sales volumes for various types of refined products, revenues, operating and capital expenditures. As
an initial step in the preparation of these plans, various assumptions, such as oil prices, natural gas
prices, refining margins, refined product margins and cost inflation rates, are set in the business plan.
These assumptions take account of existing prices, US dollar and Russian ruble inflation rates, other
macroeconomic factors and historical trends and variability.
In determining the fair value for each of the reporting units, cash flows for a period of 12 years have
been discounted and aggregated with the reporting unit’s terminal value.
For the purposes of impairment testing, the Company’s Urals oil price assumptions were based on the
forecasted quoted market prices.
Intangible assets primarily include rights to leasehold land purchased with the assets of the companies
acquired during 2007 (see Notes 3 and 4). Land rights are amortized based on an average useful life of
20 years.
December 31,
2008
Cost Accumulated amortization Net carrying amount
December 31, December 31, December 31, December 31,
2007 2008 2007 2008
December 31,
2007
Land leasehold rights 718 274 (53) – 665 274
Other 19 12 (5) (1) 14 11
Total intangible
assets 737 286 (58) (1) 679 285
The charge to income resulting from amortization of intangible assets is included with Depreciation,
depletion and amortization expense in consolidated statements of income and comprehensive income
for the 2008, 2007 and 2006 in the amount of US$ 59 million, US$ 4 million and US$ 3 million,
respectively.
Following represents the estimated aggregate amortization expense for each of the five succeeding
fiscal years for intangible assets subject to amortization:
2009 39
2010 39
2011 39
2012 36
2013 36
Total amortization expense for the five succeeding years 189
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