25. Decommissioning and other provisions

Accounting policy

A provision is recorded for present obligations to third parties when it is probable that an obligation will occur, and the settlement amount can be estimated reliably. Provisions for individual obligations are based on the best estimate of the amount necessary to settle the obligation, discounted to the present value in the case of long-term obligations. The Group recognizes provisions for decommissioning and environmental obligations.

The Group’s core activities regularly lead to obligations related to dismantling and removal, asset retirement, and soil remediation activities. These decommissioning and restoration obligations are principally of material importance in the Energy segment (oil and gas wells, surface facilities) and in connection with filling stations on third-party property. At the time the obligation arises, it is provided for in full by recognizing the present value of future decommissioning and restoration expenses as a provision. An equivalent amount is capitalized as part of the carrying amount of long-lived assets. Any such obligation is calculated on the basis of best estimates. The unwinding of discounting leads to interest expenses and accordingly to increased obligations at each statement of financial position date until decommissioning or restoration. For other environmental risks and measures, provisions are recognized if such obligations are probable, and the amount of the obligation can be estimated reliably.

Provisions for onerous contracts are recognized for contracts in which the unavoidable costs of meeting a contractual obligation exceed the economic benefits expected to be received under the contract. These provisions are measured at the lower amount of the cost of fulfilling the contract and any potential penalties or compensation arising in the event of non-performance.

Significant estimates: decommissioning and onerous contract provisions

The most significant decommissioning obligations of the Group are related to the plugging of wells, the abandonment of facilities, and the removal and disposal of offshore installations. The majority of these activities are planned to occur many years in the future, while decommissioning technologies, costs, regulations, and public expectations are constantly changing. Estimates of future restoration costs are based on reports prepared by Group experts or partner companies and on past experience. Any significant downward changes in the expected future costs or postponement in the future affect both the provision and the related asset, to the extent that there is sufficient carrying amount. Otherwise, the provision is reversed in income. Significant upward revisions trigger the assessment of the recoverability of the underlying asset. Provisions for decommissioning and restoration costs require estimates of discount and inflation rates, which have material effects on the amounts of the provision.

Management believes that compliance with current laws and regulations and future, more stringent laws and regulations will not have a material negative impact on the Group’s results, financial position, or cash flows in the near future.

OMV concluded several long-term, non-cancellable contracts that became onerous due to the negative development of market conditions. This led to the recognition of onerous contract provisions in the Group’s financial statements for the unavoidable costs of meeting the contract obligations. The estimates used for calculating the positive contributions that partly cover the fixed costs were based on external sources and management expectations.