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KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2017
43
25.
PROVISIONS AND OTHER NON-CURRENT LIABILITIES
2017
2016
US$ 000’s
US$ 000’s
Decommissioning provisions
11,685
11,876
Retirement benefit obligations
5,238
3,673
16,923
15,549
a)
Decommissioning provisions
The movements in the decommissioning provision over the year is as follows:
2017
2016
US$ 000’s
US$ 000’s
As at 1 January
11,876
12,397
Unwinding of discount
264
286
New provision and changes in estimate
(455)
(807)
As at 31 December
11,685
11,876
The provision for decommissioning relates to two of the Group’s fields and is based on the net present value of the
Group’s share of the expenditure which may be incurred at the end of the producing life of each field in the removal
and decommissioning of the facilities currently in place. Assumptions, based on the current economic environment,
have been made which management believe are a reasonable basis upon which to base the provision. These estimates
are reviewed regularly to take into account any material changes to the assumptions. However, actual
decommissioning costs will ultimately depend upon future market prices for the necessary decommissioning works
which will reflect market conditions at the relevant time. Furthermore, the timing of decommissioning is likely to
depend on when the fields cease to produce at economically viable rates. This in turn will depend upon future oil and
gas prices, which are inherently uncertain. The Group uses a discount rate of 3-5% in arriving at the future value of
decommissioning provisions.
b) Retirement benefit obligations
The Group has a post-employment defined benefit obligation towards its qualifying employees in Kuwait which is an
End-of-Service (ESB) plan governed by Kuwait Labour Law. The entitlement to these benefits is conditional upon the
tenure of employee service, completion of a minimum service year, salary drawn etc. The Group also has a defined
benefit obligation in respect of the Block 5 in Yemen. These are unfunded plans where the group meets the benefit
payment obligation as it falls due.
The movement in these defined benefit obligations over the year is as follows:
2017
2016
US$ 000’s
US$ 000’s
As at 1 January
3,673
3,061
Current service cost
3,102
627
Re-measurements:
Experience (gains)/loss
(254)
30
Benefits paid
(1,283)
(45)
As at 31 December
5,238
3,673
The significant actuarial assumptions were as follows:
2017
2016
US$ 000’s
US$ 000’s
Discount rate
4%
4%
Salary growth rate
6%
5%