KUWAIT ENERGY PLC
INDEPENDENT AUDITOR’S REPORT
6
Key
observations
The assumptions made by management when determining the PP&E assets’ recoverable amount fall
within a reasonable range, although we note that the discount rates applied are towards the lower
end of this range.
Overall, we are satisfied that the recoverability of the assets has been assessed in accordance with the
requirements of IAS 36 Impairment of Assets.
Adoption of the going concern basis of accounting
Key
audit
matter
description
The group is dependent upon its ability to generate sufficient cash-flows to meet convertible loan
repayments and to fund its capex programme for its development and production assets. Delays in
achieving commercial production from the Siba field in Iraq, a long cash collection period in Egypt and
commodity price volatility in the oil and gas sector continues to place pressure on these cash-flows.
The adoption of the going concern basis of accounting is also dependent upon group specific
considerations, such as the performance of the Group’s operating assets, the achievement of
commercial production from the Siba field, the receipt of cash from the farm-down of Block 9 in Iraq
and the available debt facilities.
After performing a detailed forecast of liquidity and covenant compliance for a period of 12 months
from the date of approval of the 2017 Consolidated Financial Statements, management have
concluded that the going concern basis of accounting remains appropriate and that there are no
material uncertainties. Please refer to note 3 for further details.
How
the
scope of our
audit
responded to
the key audit
matter
Management’s going concern forecasts include a number of assumptions related to future cash-flows
and associated risks. Our audit work has focused on evaluating and challenging the reasonableness of
these assumptions and their impact on the forecast period.
Specifically, we obtained, challenged and assessed management’s going concern forecasts, and
performed procedures, including:
•
Verifying the consistency of key inputs relating to future costs and production to other
financial and operational information obtained during our audit;
•
Challenging management as to the reasonableness of pricing assumptions applied, based
on benchmarking to market data;
•
Performing sensitivity analysis on management’s “base case”, including applying
downside scenarios such as lower oil prices, repayment rather than conversion of one of
the convertible loans, delays in the start-up of Siba and receipt of the Block 9 farm down
proceeds, and considering the mitigating actions highlighted by management in the
event that they are required
;
and
•
Review of the going concern disclosure in the Consolidated Financial Statements.
Key
observations
We are satisfied that the going concern assumption remains appropriate given the headroom available
in management’s base case, together with the mitigating actions available to management should a
liquidity shortfall arise in reasonable downside scenarios as discussed in note 3. We concur with
management’s judgement that there are no material uncertainties that may cast significant doubt over
the group’s ability to continue as a going concern.