How does Petro Stopping Center depreciate the decommissioning portion of the property, plant, and equipment?

According to Petro Stopping Center's 2025 Franchise Disclosure Document, when the company recognizes a decommissioning provision as part of property, plant, and equipment, the decommissioning portion is depreciated at the same rate as the rest of the asset. This means that the expense of decommissioning is spread out over the asset's useful life, rather than being recognized all at once. This accounting treatment applies to obligations such as plugging and abandoning a well, dismantling facilities, or restoring a site. The amount recognized is the present value of the estimated future expenditure, considering local conditions and requirements, and discounted using a nominal discount rate. This decommissioning provision is estimated using existing technology and future prices, depending on the expected timing of the activity.

For a Petro Stopping Center franchisee, this depreciation method means that the cost of eventual decommissioning is factored into the asset's value from the beginning. Instead of a large expense at the end of the asset's life, it's an ongoing, smaller expense. This can help in financial planning and budgeting, as it provides a more consistent expense stream. The company reviews the expected useful lives and depreciation method of property, plant, and equipment annually, and changes are accounted for prospectively. This ensures that the depreciation reflects the current expectations for the asset's life and decommissioning costs.

Changes in the present value of the estimated expenditure, other than the unwinding of discount or utilization of the provision, are adjusted to both the provision and the corresponding asset, especially if the asset is generating or expected to generate future economic benefits. This ensures that the balance sheet reflects the most current estimates of decommissioning costs. The timing and amount of future expenditures related to decommissioning and environmental liabilities are reviewed annually, and the interest rate used for discounting cash flows is reviewed quarterly. For instance, at the end of 2024, the nominal interest rate used was 4.5%, based on long-dated US government bonds, reflecting the expected weighted average time to decommissioning.