Annual Report English

KUWAIT ENERGY plc

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June 2014

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Oil and gas assets (continued)

Probable reserves are those reserves in which hydrocarbons have been located within the geological structure with a

lesser degree of certainty because fewer wells have been drilled and certain operational tests have not been

conducted. Probable reserves are those reserves that, on the available evidence and taking into account technical and

economic factors, have a better than 50% chance of being produced.

These reserves are being calculated under existing economic and operating conditions, i.e., prices and costs as at the

date the estimate is made. Prices include consideration of changes in existing prices provided by contractual

arrangements and management’s forecast of future prices.

These estimates, made by the Group’s engineers and periodically evaluated by independent reservoir engineers, are

reviewed annually and revised, either upward or downward, as warranted by additional data. Revisions are necessary

due to changes in, among other things, reservoir performance, prices, economic conditions and governmental

restrictions.

Other fixed assets

Other fixed assets are stated at cost less accumulated depreciation and any accumulated impairment losses. Cost

includes the purchase price and directly associated costs of bringing the asset to a working condition for its intended

use. Depreciation is calculated based on the estimated useful lives of the applicable assets on a straight-line basis, on

the following basis:

Office equipment 5 years

Motor vehicles 5 years

Fixtures and fittings 10 years

The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of

any changes in estimate accounted for on a prospective basis.

Maintenance and repairs, replacements and improvements of minor importance are expensed as incurred. Significant

improvements and replacement of assets are capitalised.

The gain or loss arising on the disposal or retirement of other fixed assets is determined as the difference between the

sales proceeds and the carrying amount of the asset and is recognised in the consolidated statement of income.

Impairment of tangible assets

At each balance sheet date, the Group reviews the carrying amounts of its tangible assets to determine whether there

is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable

amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does

not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the

cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell or value in use. In assessing value in use, the

estimated future cash flows are discounted to their present value using a discount rate that reflects current market

assessments of the time value of money and the risks specific to the asset for which the estimates of future cash

flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the

carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is

recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased

to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the

carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-

generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.

Assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered

principally through a sales transaction rather than through continuing use. This condition is regarded as met only

when the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that

are usual and customary for sales of such an asset (or disposal group) and its sale is highly probable. Management