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KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2017
18
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Going concern
These consolidated financial statements have been prepared on the basis that the Group will continue as a going
concern and, as such, has sufficient assets and working capital to satisfy its financial obligations as they fall due. In
making this determination, management has made estimates of future revenues, and costs (both quantum and timing
of payments), and made assumptions on reserve status, the likelihood and timing for accessing reserves and continued
availability of financing. This process involves making various assumptions and judgements about each of the factors
affecting the determination of cash flows, production rates and fair values. Changes in any of these assumptions or
judgments could result in a significant difference from those used by management.
The Group was funded principally by a combination of its cash balances (see note 18), equity (see notes 20, 21 and the
consolidated statement of changes in equity), borrowings (see note 22), convertible loans (see note 23) and cash
generated from operating activities. At 31 December 2017, the Group had a cash balance of US$ 65.6 million and US$20
million remaining availability, subject to certain conditions, to draw down additional amounts from a secured crude oil
prepayment facility.
The Group has significant levels of planned capital expenditure during the next 12 months including field development
expenditures in Iraq. The Group entered into a farm-out agreement with Dragon Oil (a wholly owned subsidiary of
Emirates National Oil Company Limited, the national company of Dubai), a partner in the Iraq Block 9 field, to assign a
15% participating interest in the Iraq Block 9 field for a cash consideration of US$100 million (see note 34). Further, the
Group has received an irrevocable notice of conversion from Qatar First Bank holding 50% of the convertible loan
principal, to convert the principal and part of the premium amounts outstanding into ordinary shares of the Company.
This Block 9 farm-out, which is subject to the Iraqi government and partner approval, and conversion of convertible
loan into ordinary shares of the Company will materially improve the Group’s liquidity position.
Management has performed detailed cash flow scenario analysis including a number of downside scenario sensitivities.
These included a reduction in the assumed oil prices to a reasonable worst case, repayment rather than conversion of
one of the outstanding convertible loans, delays in the start-up of Siba and delays in the receipt of the Block 9 farm
down proceeds. Management’s analysis concluded that in the event of one or more of these reasonable worst case
scenarios occurring there are available mitigating actions within the control of the Directors that would allow the
Company to meet its commitments and liabilities as they fall due within the going concern assessment period. Although
it falls outside the going concern assessment period, management have also considered the maturity of the $250
million senior secures notes in 2019 and made an assessment of the refinancing options available.
Therefore, after performing the various cash flow scenario analyses described above and considering the mitigating
actions available in reasonable worst case downside scenarios, the Directors have a reasonable expectation that the
Group will have adequate resources to continue in operational existence for the foreseeable future, being at least the
next 12 months from the date of approval of these consolidated financial statements. Accordingly, the Directors
continue to adopt the going concern basis of accounting in preparing these consolidated financial statements.
Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The cost of the acquisition
is measured at the aggregate of the consideration transferred, measured at acquisition date fair value and the amount
of any non-controlling interest in the acquiree. For each business combination the acquirer measures the non-
controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net
assets. Acquisition-related costs are recognised in the consolidated income statement as incurred.
Where appropriate, the cost of acquisition includes any asset or liability resulting from a contingent consideration
arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against
the cost of acquisition where they qualify as measurement year adjustments. All other subsequent changes in the fair
value of contingent consideration classified as an asset or liability are accounted for in earnings. Changes in the fair
value of contingent consideration classified as equity are not recognised.