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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.