Cue Energy Resources Limited Notes to the financial statements 30 June 2024 Note 3. Critical accounting estimates and judgements (continued) 37 (i) Recovery of deferred tax assets Management recognise deferred tax assets on unutilised carry forward tax losses if management considers it is probable that future tax profits will be available to utilise the unused tax losses (refer to note 8). Management are required to make assumptions on and consider inherent uncertainties in respect of the various inputs used in the estimation of future taxable income against which unutilised losses may be applied. These assumptions include but are not limited to the nature, timing and extent of project development and reserves, production and sales performance, energy prices where not contractually fixed and which are subject to global macroeconomic factors and inflation and its impact on future tax deductions. The inherent estimation uncertainty when forecasting future operational and financial performance also directly the actual generation of future taxable income, which may differ to the estimated taxable income and associated deferred tax asset. (ii) Impairment of production properties Production properties impairment testing requires an estimation of recoverable amount, which management have determined using either fair value less costs to sell or a value-in-use model for the respective cash generating units (CGUs). Management is required to apply its judgement in concluding on the definition of CGUs to which an asset or group of assets relates. Furthermore, in defining the discount rate appropriate to calculate the present value of future outflows when determining the fair value less costs to sell or value-in-use, management is requirement to apply judgement in determining the relevant risks and basis of calculating the risks associated with compiling an appropriate discount rate. The calculation of a CGU's recoverable amount through either the fair value less costs to sell or its value-in-use requires the entity to make certain assumptions on reserves, future production volumes, pricing of its energy products and cost estimates, exchange rates and how they impact on future cashflows, where appropriate the costs to sell and in respect of the inputs utilised in defining an appropriate discount rate. These assumptions are inherently uncertain inputs and assumptions and accordingly management review their accuracy and appropriateness periodically. Management have considered and made assumptions in respect of the impact of climate change and the development of commercially viable alternative energy sources on future cashflows and the respective CGUs' value in use and fair value less costs to sell. The assumptions are based on current information, historical trends and future expectations which may differ to the assumptions made by management when concluding on the impact of climate change and the development of commercially viable alternative energy sources. (iii) Useful life of production properties and their amortisation Estimates of reserve quantities and future production volumes are based on certain assumptions and subject to inherent estimation uncertainties. These factors are critical elements of the calculation of the amortisation of production property assets. (iv) Estimates of reserve quantities The estimated quantities of Consolidated Entity's reported Proven and Probable hydrocarbon reserves are integral to the calculation of the amortisation expense relating to Production Property Assets and to the assessment of possible impairment of these assets. Estimated reserve quantities are based upon certain interpretations of geological and geophysical models and assessments of the technical feasibility and commercial viability of producing the reserves. These assessments require assumptions to be made regarding future development and production costs, commodity prices, exchange rates and fiscal regimes. The estimates of reserves may change from period to period as the economic assumptions used to estimate the reserves change from period to period, and as additional geological data is generated during the course of operations. Reserves estimates are prepared in accordance with the Consolidated Entity’s policies and procedures for reserves estimation, which conform to guidelines prepared by the Society of Petroleum Engineers. (v) Restoration (rehabilitation or rehab) provisions Provisions for future environmental restoration are recognised where there is a present obligation as a result of exploration, development, production, transportation or storage activities having been undertaken, and it is probable that an outflow of economic benefits will be required to settle the obligation. The estimated future obligations include the costs of removing facilities, abandoning wells and restoring the affected areas in accordance with the terms of the respective permits and relevant legislation in the various jurisdictions in which the Consolidated Entity operates. There is inherent uncertainty in the definition of the works undertaken, technology used to complete the works, the estimation of the relevant costs associated with the defined works and the timing of settlement of restoration obligations. Details of restoration provisions are disclosed in note 11. 51 Cue Energy Resources Limited Annual Report 2024
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