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KUWAIT ENERGY plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 30 June 2014
27
4.
JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)
Recoverability of exploration and evaluation costs(continued)
recoverable value. Note 16 disclose the carrying amounts of the Group’s E&E assets as well as details of impairment
charges arising during the year.
Impairment of oil and gas properties
Determining whether oil and gas properties are impaired requires management to estimate the future net revenue
from oil and gas reserves attributable to the Group’s interest in that field. This requires estimates to be made of, in
particular, future oil and gas prices, production volumes, capital/operating expenditures and an asset specific
discount rate. The Group also operates in certain countries with heightened geopolitical exposure and risk of
challenge in respect of licence terms. In particular: (a) an impairment charge of between USD 60 million and USD
70 million would arise in Yemen if the Block 5 license is not extended beyond June 2015; and (b) the Group has
capitalised costs of USD 24.5 million on the Mansuriya field which is located in North East Iraq where the political
and security situation is currently unstable. Further details are provided in note 17.
Commercial reserves
Both impairment and depletion of the cost of oil and gas properties requires estimates to be made of quantities of
commercial oil and gas reserves, which are based on estimates determined by Kuwait Energy’s qualified petroleum
engineers and are subject to third party verification. Management believes these reserves to be commercially
productive and will provide revenues to the Group adequate to recover remaining net un-depreciated and un-depleted
capitalised oil and gas properties as at 30 June 2014.
Business combinations
In a business combination, the acquiree’s identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognition under IFRS 3
Business Combinations
are recognised at their fair values at the acquisition
date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5
Non-current Assets Held for Sale and Discontinued Operations
, which are recognised and measured at fair value less
costs to sell. The Group’s management determines the fair values of the acquiree’s identifiable assets, liabilities,
contingent liabilities and non-current assets classified as held for sale. Further details in respect of acquisitions by the
Group are provided in note 15.
Debtor recoverability
The Group has significant trade receivables which are past due but not impaired, as described in note 20. The
majority of this balance is due from EGPC. During the course of 2013 and 2014 to date, the Egyptian political
situation remained difficult although improving, which caused a significant delay in the receipt of amounts owed to
the Group. However, management believes that all amounts owed at 30 June 2014 will be collected during the
course of the coming year. In making this judgement, factors considered include EGPC’s strong track record of
ultimate settlement, the receipt of USD 66,677 thousand for directly allocated cargoes in January and April 2014,
and cargo receipts of USD 26,388 thousand and USD 43,000 thousand in July and September 2014.
Convertible loans fair value
As outlined in note 25, the total finance charge associated with the Group’s convertible loans, which are held at fair
value, depends on the exercise of certain conversion or prepayment options by the lenders and the Company. The
Group has assessed the loans’ fair values based on their best estimate, at the balance sheet date, of the relative
likelihood of the occurrence of each conversion or prepayment option.