What potential changes in the economic environment could necessitate revisions to assumptions and materially change the carrying values of Petro Stopping Center's assets within the next financial year?
Petro_Stopping_Center Franchise · 2025 FDDAnswer from 2025 FDD Document
impairment tests are reassessed each year and, in 2024, the post-tax discount rate was 8% (2023 8%) other than for renewable power assets. Where the CGU is located in a country that was judged to be higher risk, an additional premium of 1% to 3% was reflected in the post-tax discount rate (2023 1% to 4%). The judgement of classifying a country as higher risk and the applicable premium takes into account various economic and geopolitical factors. The pre-tax discount rate, other than for renewable power assets, typically ranged from 9% to 20% (2023 9% to 20%) depending on the risk premium and applicable tax rate in the geographic location of the CGU. For renewable power assets, which were tested primarily on a fair-value basis in 2024 (including those in equity accounted entities) tests were performed using a post-tax cost of equity-based discount rate range of 8.75% to 9.5%. In 2023, tests were performed on a value-in-use basis using a post-tax WACC-based discount rate of 6.5%.
Oil and natural gas properties
For oil and natural gas properties in the oil production & operations and gas & low carbon energy businesses, expected future cash flows are estimated using management's best estimate of future oil and natural gas prices, production and reserves and certain resources volumes. Forecast cash flows include the impact of all approved emission reduction projects. The estimated future level of production in all impairment tests is based on assumptions about future commodity prices, production and development costs, field decline rates, current fiscal regimes and other factors. In 2024, the Company identified oil and gas properties in these businesses with carrying amounts totalling $5,966 million (2023 $5,938 million) where the headroom, based on the most recent impairment test performed in the year on those assets, was less than or equal to 20% of the carrying value. A change in the discount rate, reserves, resources or the oil and gas price assumptions in the next financial year may result in a recoverable amount of one or more of these assets above or below the current carrying amount and therefore there is a risk of impairment reversals or charges in that period.
Source: Item 23 — RECEIPTS **RECEIPTS (FDD pages 87–131)
What This Means (2025 FDD)
According to Petro Stopping Center's 2025 Franchise Disclosure Document, several factors could prompt revisions to assumptions and significantly alter the carrying values of its assets within the upcoming financial year. These include changes in the discount rate, reserves, resources, and oil and gas price assumptions. The document indicates that management believes reasonably possible changes in the discount rate or forecast revenue, stemming from fluctuations in oil and natural gas prices and/or production, could lead to a material change in the carrying amounts of assets. For instance, properties with carrying amounts totaling $5,966 million in 2024 (compared to $5,938 million in 2023) had a headroom of 20% or less, making them particularly susceptible to changes in these assumptions. These factors are critical for franchisees to monitor as they directly impact the valuation of Petro Stopping Center's assets.
Furthermore, the energy transition and potential shifts in demand for refined products could also impact the forecast cash inflows, affecting the value-in-use estimates for refinery cash-generating units (CGUs). A sensitivity analysis revealed that a $1/barrel decrease in each refinery's future margin assumption could lead to a reduction in the carrying amount of refining property, plant, and equipment in the range of $500 million to $1.5 billion. This highlights the sensitivity of refinery assets to changes in market conditions and the broader energy landscape. Franchisees should be aware of these potential impacts, especially those operating locations with refining assets.
Changes to decommissioning costs and timing could also materially impact asset values. An increase of 1% in the inflation rate applied to upstream decommissioning costs could increase the decommissioning provision by approximately $1,090 million (compared to $1,226 million in 2023), resulting in a pre-tax charge of approximately $305 million (compared to $350 million in 2023). While management does not expect a change of greater than two years in the timing of decommissioning expenditures to be reasonably possible, the energy transition may accelerate the decommissioning of oil and gas assets, increasing the present value of associated decommissioning provisions. These factors underscore the importance of monitoring regulatory and environmental changes that could affect decommissioning costs and timing.