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KUWAIT ENERGY plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 30 June 2014
52
25.
CONVERTIBLE LOANS (CONTINUED)
USD 2,585 thousand) has been capitalised to qualifying assets in the period, see note 17, resulting in a net charge to
the income statement of USD 6,712 thousand (30 June 2013: USD 5,799 thousand, 31 December 2013: USD 12,071
thousand, 31 December 2012: USD 4,528 thousand).
The convertible loans are classified as Level 3 in all the periods presented. Level 3 fair value measurements are those
derived from inputs that are not based on observable market data (unobservable inputs). The group uses a discounted
cash flow technique to determine the fair value of the loans. The significant inputs considered in the valuation are
likelihood and timing of an equity offering and the discount rate. The discount rate used was in the range of 15-17%.
26.
LONG-TERM PROVISIONS
As at 30 June
As at 31 December
2014
2013
2013
2012
2011
Audited
Unaudited
Audited
Audited
Audited
USD 000’s USD 000’s USD 000’s USD 000’s USD 000’s
Decommissioning provision
11,933
2,339
3,013
1,989
1,578
Retirement benefit obligation
3,540
1,831
3,243
1,482
1,116
15,473
4,170
6,256
3,471
2,694
a)
Decommissioning provision
The movement in the decommissioning provision over the period/year is as follows:
30.06.2014 30.06.2013 31.12.2013 31.12.2012 31.12.2011
Audited
Unaudited
Audited
Audited
Audited
USD 000’s USD 000’s USD 000’s USD 000’s USD 000’s
As at 1 January
3,013
1,989
1,989
1,578
1,087
Unwinding of discount
101
99
158
158
107
Changes in estimate
8,819
251
1,002
253
384
Reclassified as held for sale
-
-
(136)
-
-
As at end of the period/year
11,933
2,339
3,013
1,989
1,578
The provision for decommissioning relates to two of the Group’s fields and is based on the net present value of the
Group’s share of the expenditure which may be incurred at the end of the producing life of each field (currently
estimated as being 2016 and 2023 for the two fields respectively) in the removal and decommissioning of the facilities
currently in place. Assumptions, based on the current economic environment, have been made which management
believe are a reasonable basis upon which to base the provision. These estimates are reviewed regularly to take into
account any material changes to the assumptions. However, actual decommissioning costs will ultimately depend
upon future market prices for the necessary decommissioning works required which will reflect market conditions at
the relevant time. Furthermore, the timing of decommissioning is likely to depend on when the fields cease to produce
at economically viable rates. This in turn will depend upon future oil and gas prices, which are inherently uncertain.
The significant increase during the six months ended 30 June 2014 was primarily due to the receipt of an updated
third party estimate in respect of one of the fields. The Group used a discount rate of 5% in arriving at the future value
of decommissioning assets in Egypt.
b) Retirement benefit obligation
The group has a post-employment defined benefit obligation towards its non-Kuwaiti employees which is an End-of-
Service (ESB) plan governed by Kuwait Labor Law. The entitlement to these benefits is conditional upon the tenure
of employee service, completion of a minimum service period, salary drawn etc. The Group also has a defined benefit
obligation in respect of Block 5 in Yemen. These are unfunded plans where the group meets the benefit payment
obligation as it falls due.