1	Includes US$39 million (2021: US$45 million) related to Discontinued operations.

2	Relates to the divestment of BMC and merger of Petroleum with Woodside. Refer to notes 3 ‘Exceptional items’ and 27 ‘Discontinued operations’ for more information.

A significant proportion by value of the Group’s lease contracts relate to plant facilities, office buildings and vessels. Lease terms for plant facilities and office buildings typically run for over 10 years and vessels for four to 10 years. Other leases include port facilities, various equipment and vehicles. The lease contracts contain a wide range of different terms and conditions including extension and termination options and variable lease payments.

The Group’s lease obligations are included in the Group’s Interest bearing liabilities and, with the exception of vessel lease contracts that are priced with reference to a freight index, form part of the Group’s net debt.

The maturity profile of lease liabilities based on the undiscounted contractual amounts is as follows:


Lease liability	2022		2021
	US$M		US$M
Due for payment:
In one year or less or on demand		579		980
In more than one year but not more than two years		443		680
In more than two years but not more than five years		936		1,397
In more than five years 1		1,470		1,842

Total		3,428		4,899

Carrying amount		2,576		3,896

1	Includes US$707 million (2021: US$878 million) due for payment in more than ten years.

At 30 June 2022, commitments for leases not yet commenced based on undiscounted contractual amounts were US$928 million (2021: US$457 million).

Movements in the Group’s

right-of-use

assets during the year are as follows:


	2022									2021
	Land and buildings			Plant and equipment			Total			Land and buildings			Plant and equipment			Total
	US$M			US$M			US$M			US$M			US$M			US$M
Net book value
At the beginning of the financial year		638			2,712			3,350			689			2,358			3,047
Additions		41			825			866			25			1,227			1,252
Remeasurements of index-linked freight contracts		–			(369	)		(369	)		–			(59	)		(59	)
Depreciation expensed during the period		(103	)		(872	)		(975	)		(111	)		(670	)		(781	)
Depreciation classified as exploration		–			(3	)		(3	)		–			(19	)		(19	)
Impairments for the year		(7	)		–			(7	)		(30	)		(2	)		(32	)
Divestment and demerger of subsidiaries and operations 1		(116	)		(313	)		(429	)		–			–			–
Transfers and other movements		(1	)		(71	)		(72	)		65			(123	)		(58	)

At the end of the financial year		452			1,909			2,361			638			2,712			3,350

– Cost		745			4,307			5,052			897			4,393			5,290
– Accumulated depreciation and impairments		(293	)		(2,398	)		(2,691	)		(259	)		(1,681	)		(1,940	)

1	Relates to the divestment of BMC and merger of Petroleum with Woodside. Refer to notes 3 ‘Exceptional items’ and 27 ‘Discontinued operations’ for more information.

Right-of-use

assets are included within the underlying asset classes in Property, plant and equipment. Refer to note 11 ‘Property, plant and equipment’.

Amounts recorded in the income statement and the cash flow statement for the year were:


	2022		2021		2020
	US$M		US$M Restated		US$M Restated		Included within

Income statement
Depreciation of right-of-use assets		964		753		623	Profit from operations
Short-term, low-value and variable lease costs 1		847		834		637	Profit from operations
Interest on lease liabilities		119		102		82	Financial expenses
Cash flow statement
Principal lease payments		1,130		732		632	Cash flows from financing activities
Lease interest payments		119		102		82	Cash flows from operating activities

Relates to US$585 million of variable lease costs (2021: US$510 million; 2020: US$415 million), US$222 million of short-term lease costs (2021: US$294 million; 2020: US$201 million) and US$40 million of

low-value

lease costs (2021: US$30 million; 2020: US$21 million). Variable lease costs include contracts for hire of mining service equipment, drill rigs and transportation services. These contracts contain variable lease payments based on usage and asset performance.

Recognition and measurement

All leases with the exception of short-term (under 12 months) and

low-value

leases are recognised on the balance sheet, as a

right-of-use

asset and a corresponding interest bearing liability. Lease liabilities are initially measured at the present value of the future lease payments from the lease commencement date and are subsequently adjusted to reflect the interest on lease liabilities, lease payments and any remeasurements due to, for example, lease modifications or a change to future lease payments linked to an index or rate. Lease payments are discounted using the interest rate implicit in the lease, where this is readily determinable. Where the implicit interest rate is not readily determinable, the interest payments are discounted at the Group’s incremental borrowing rate, adjusted to reflect factors specific to the lease, including where relevant the currency, tenor and location of the lease.

In addition to containing a lease, the Group’s contractual arrangements may include

non-lease

components. For example, certain mining services arrangements involve the provision of additional services, including maintenance, drilling activities and the supply of personnel. The Group has elected to separate these

non-lease

components from the lease components in measuring lease liabilities.

Non-lease

components are accounted for in accordance with the accounting policies applied to each underlying good or service received.

Low-value

and short-term leases continue to be expensed to the income statement. Variable lease payments not dependent on an index or rate are excluded from lease liabilities, and expensed to the income statement.

Right-of-use

assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost will initially correspond to the lease liability, adjusted for initial direct costs, lease payments made prior to lease commencement, capitalised provisions for closure and rehabilitation and any lease incentives received.

The lease asset and liability associated with all index-linked freight contracts, including continuous voyage charters (CVCs), are measured at each reporting date based on the prevailing freight index (generally the Baltic C5 index).

Lease costs are recognised in the income statement over the lease term in the form of depreciation on the

right-of-use

asset and the unwinding of finance charges on the lease liability.

Where the Group is the operator of an unincorporated joint operation and all investors are parties to a lease, the Group recognises its proportionate share of the lease liability and associated

right-of-use

asset. In the event the Group is the sole signatory to a lease, and therefore has the sole legal obligation to make lease payments, the lease liability is recognised in full. Where the associated

right-of-use

asset is

sub-leased

(under a finance

sub-lease)

to a joint operation, for instance where it is dedicated to a single operation and the joint operation has the right to direct the use of the asset, the Group (as lessor) recognises its proportionate share of the

right-of-use

asset and a net investment in the lease, representing amounts to be recovered from the other parties to the joint operation. If the Group is not party to the head lease contract but

sub-leases

the associated

right-of-use

asset (as lessee), it recognises its proportionate share of the

right-of-use

asset and a lease liability which is payable to the operator.

Key judgements and estimates

Judgements:

Certain contractual arrangements not in the form of a lease require the Group to apply significant judgement in evaluating whether the Group controls the right to direct the use of assets and therefore whether the contract contains a lease. Management considers all facts and circumstances in determining whether the Group or the supplier has the rights to direct how, and for what purpose, the underlying assets are used in certain mining contracts and other arrangements, including outsourcing and shipping arrangements. Judgement is used to assess which decision-making rights mostly affect the benefits of use of the assets for each arrangement.

Where a contract includes the provision of

non-lease

services, judgement is required to identify the lease and

non-lease

components.

Estimates:

Where the Group cannot readily determine the interest rate implicit in the lease, estimation is involved in the determination of the weighted average incremental borrowing rate to measure lease liabilities. The incremental borrowing rate reflects the rates of interest a lessee would have to pay to borrow over a similar term, with similar security, the funds necessary to obtain an asset of similar value to the

right-of-use

asset in a similar economic environment. Under the Group’s portfolio approach to debt management, the Group does not specifically borrow for asset purchases. Therefore, the incremental borrowing rate is estimated referencing the Group’s corporate borrowing portfolio and other similar rated entities, adjusted to reflect the terms and conditions of the lease (including the impact of currency, credit rating of subsidiary entering into the lease and the term of the lease), at the inception of the lease arrangement or the time of lease modification.

The Group estimates stand-alone prices, where such prices are not readily observable, in order to allocate the contractual payments between lease and

non-lease

components.