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KUWAIT ENERGY PLC
INDEPENDENT AUDITOR’S REPORT
5
Conclusions relating to going concern
We are required by ISAs (UK) to report in respect of the following matters where:
•
the directors’ use of the going concern basis of accounting in preparation of the
financial statements is not appropriate; or
•
the directors have not disclosed in the financial statements any identified material
uncertainties that may cast significant doubt about the group’s ability to continue to
adopt the going concern basis of accounting for a period of at least twelve months
from the date when the financial statements are authorised for issue.
We have nothing to
report in respect of
these matters.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
Carrying value of oil and gas property, plant and equipment
Key
audit
matter
description
The group’s principal activity is the development, commercialisation and production of crude oil and
natural gas and as at 31 December 2017, the group held US$ 499 million of oil and gas production and
development assets within property, plant and equipment (“PP&E”).
In 2017 Kuwait Energy recognised a net impairment charge of US$ 69.1 million against the value of its
oil and gas PP&E assets, of which US$50.8 million relates to Block 5 in Yemen, US$ 33.9 million relates
to Mansuriya in Iraq and an impairment reversal of US$15.6 million relating to the BEA fields in Egypt.
Please refer to note 13 for further details.
As described in notes 3 and 4 of the Consolidated Financial Statements, the assessment of the carrying
value of PP&E assets requires management to compare it against the recoverable amount of the asset.
The calculation of the recoverable amount requires judgement in estimating future oil and gas prices,
the applicable asset discount rate and the cost and production profiles of reserves estimates.
Given the judgemental nature of the determination of the recoverable amounts of the oil and gas
PP&E, we also considered there to be a fraud risk that the assumptions applied to the valuation are
inappropriate.
How
the
scope of our
audit
responded to
the key audit
matter
We examined management’s assessment of impairment indicators, which concluded that continued
volatility in the oil price and in some of the locations in which the Group operates represented an
indicator of impairment for the Group’s oil and gas assets. Our work to assess management’s key
assumptions included, but was not limited to, the following procedures:
• benchmarking and analysis of oil price assumptions against forward curves and other
market data;
• agreement of hydrocarbon production profiles and proven and probable reserves to third-party
reserve reports;
• verification of estimated future costs by agreement to approved budgets and assessment of
their appropriateness with reference to field production profiles;
• recalculation and benchmarking of discount rates applied, with involvement from Deloitte
industry valuation specialists; and
• consideration of evidence that could indicate management bias in the assumptions selected and
the application of professional scepticism to address the risk of fraud.