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KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2015
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14.
PROPERTY PLANT AND EQUIPMENT (CONTINUED)
Impairment
Primarily due to the fall in prevailing oil prices, the Group carried out a review of the recoverable amount of its assets in
accordance with IAS 36
Impairment of assets
. The review led to the recognition of an impairment loss of USD 8.5 million
(2014: USD 19.2 million) on the Block 5 field in Yemen, USD 10.6 million on the BEA and USD 25.2 million on the Abu
Sennan fields in Egypt, USD 16.8 million on the Siba and USD 7.8 million on Mansuriya fields in Iraq, which has been
recognised in the consolidated income statement. The recoverable amount of the assets that have been impaired in the year,
based on a value in use basis calculation are: Block 5 USD 45.8 million, BEA USD 61.4 million, Abu Sennan USD 68.3
million, Siba USD 258.8 million and Mansuriya USD 21.8 million.
The key assumptions and judgements used in the impairment test included a post-tax discount rate of 14% for the assets in
Yemen and the Mansuriya field in Iraq, 11% for the assets in Egypt and 12% for the assets in Iraq other than the Mansuriya
field, license extension of the Block 5 field (see below) and a Brent oil price of USD 45/bbl in 2016, USD 60/bbl in 2017,
USD 70/bbl in 2018, USD 80/bbl in 2019, inflated at 1.5% per annum thereafter (2014: USD 68/bbl in 2015, USD 83/bbl
in 2016, USD 93/bbl in 2017, inflated at 2% per annum thereafter).
The oil price assumptions are the Group’s best estimate
based on conditions prevailing at the balance sheet date and take into consideration the views of a reputed third party
broker. For every USD 1/bbl fall in oil price assumptions, impairment charge will increase by approximately USD 6-7
million. If the discount rate had been increased by 1% for all assets, it would have increased the impairment charge by
approximately USD 20.4 million.
In previous years, the Group had used a post-tax discount rate of 10% for all assets. During 2015, the Group has revised
its best estimate of the appropriate discount rate to use on an asset by asset basis which has increased the 2015 impairment
charge by approximately USD 33 million.
In Yemen, the Block 5 license expired on 8 June 2015. However, production was interrupted on several occasions due to
sabotage of the main oil export pipeline and no production has been possible since 7 April 2015 due to closure of the port
at Ras Isa. For lost production days, the Group has filed a number of notices of force majeure to the Yemeni Government,
represented by YICOM. YICOM has agreed to extend the Block 5 license expiry date to settle force majeure claims up to
and including 7 March 2016. Agreed force majeure claims settlement with YICOM specifically excludes any new force
majeure claims that may accrue after 7 March 2016. However, based on the force majeure mechanism of the contract and
the agreed license extension by YICOM to settle previous force majeure claims, the Group has calculated the impairment
charge for Block 5 on the assumption that the license expiry date will be further extended to compensate for new force
majeure claims accruing after 7 March 2016 until the date of resuming production.
The Group along with other partners of Block 5 has a firm intention to maintain the facilities at the field in operational
condition until such time as it becomes possible to resume production, even if there is further delay. Non-Yemeni
employees have been withdrawn for their safety and security and the Sana’a office is currently closed, however the Block
5 field facility remains available for the use of the Group and essential Yemeni employees remain on site.
In Iraq, as at 31 December 2015 the Group held oil and gas assets with a carrying value of USD 21.8 million (2014: USD
26.7 million) in relation to the Mansuriya field located in North East Iraq where in 2014, the political and security situation
became unstable. On-site operations at the Mansuriya field have been put on hold, however, management believes that in
the longer term the situation will be resolved and that no additional impairment is required, on account of security concerns.
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