NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011 Note 1. Summary of Significant Accounting Policies  (continued) (p) Employee Benefits  (continued) (q) Provisions Long Service Leave Restoration 44 Karoon Gas Australia Ltd  Annual Report 2011 Restoration costs incurred during exploration and evaluation activities are provided when the obligation to incur such costs arises,  a corresponding restoration asset (included in exploration and evaluation expenditure carried forward) of an amount equivalent to  the provision is also created. The amount recognised is the estimated cost of restoration, discounted to its present value, and is  reassessed at the end of each reporting period in accordance with local conditions and requirements. Expected future payments  are discounted using market yields at the end of each reporting period on Australian government bonds with terms to maturity  and currency that match, as closely as possible, the estimated future cash outflows. Changes in the estimates of restoration  costs are dealt with prospectively by recording an adjustment to the provision and a corresponding adjustment to the restoration  asset. The unwinding of the discount on the restoration provision is included within finance costs in the consolidated statement  of comprehensive income. A provision has been recognised for employee entitlements relating to long service leave measured at the present value of  estimated future cash outflows. In determining the provision, consideration is given to employee wage increases and the  probability that the employee may satisfy vesting requirements. The cash outflows are discounted using market yields on  Australian government bonds with terms of maturity that match the expected timing of cash outflows. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present  obligation at the end of the reporting period using a discounted cash flow methodology. If the effect of the time value of money  is material, provisions are discounted using a pre-tax rate that reflects the time value of money and the risks specific to the  obligation. The increase in the provision resulting from the passage of time is recognised as finance costs in the consolidated  statement of comprehensive income. When it is expected that some or all of a provision is to be reimbursed, for example under an insurance contract, the reimbursement  is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is  included in the consolidated statement of comprehensive income, net of any reimbursement. Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable  that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be  made of the amount of the obligation. Provisions are not recognised for future operating losses. The Group has elected to retain any amounts originally recognised in the share-based payments reserve, regardless of whether  the associated options are exercised or lapse unexercised. The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the  exercise price, the term of the option, the impact of dilution, the non-tradeable nature of the option, the share price at grant date  and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The fair value is measured at grant date. The total expense is recognised over the vesting period, which is the period over which  all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the Group revises its estimates of  the number of options that are expected to vest based on the non-market performance vesting conditions. It recognises the  impact of the revision to original estimates, if any, in the consolidated statement of comprehensive income, with a corresponding  adjustment to equity. For options that vest immediately, the value is expensed immediately. The fair value of options granted is recognised as a share-based payments expense in the consolidated statement of comprehensive  income with a corresponding increase in the share-based payments reserve in equity. The total amount to be expensed is  determined by reference to the fair value of the options granted, which includes any market performance conditions but excludes  the impact of any service and non-market performance vesting conditions and the impact of any non-vesting conditions. Non-market performance vesting conditions are included in assumptions about the number of options that are expected to vest.