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KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2015
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3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Oil and gas assets (continued)
Commercial reserves (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
annually 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 commences when the other fixed assets are ready for their intended use and 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
Building
10 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.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets.
However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are
depreciated over the shorter of the lease term and their useful lives.
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.
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and revenue can
be reliably measured.
Revenue represents the value of sales exclusive of related sales taxes of oil and gas arising from upstream operations
when the oil has been lifted and the title has passed.
Interest income is recognised on an accrual basis in accordance with the substance of the relevant agreement.
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