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KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2016
12
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Going concern
These consolidated financial statements have been prepared on the basis that the Group will continue as a going
concern and, as such, has sufficient assets and working capital to satisfy its financial obligations as they fall due. In
making this determination, management has made estimates of future revenues, and costs (both quantum and timing
of payments), and made assumptions on reserve status, the likelihood and timing for accessing reserves and continued
availability of financing. This process involves making various assumptions and judgements about each of the factors
affecting the determination of cash flows, production rates and fair values. Changes in any of these assumptions or
judgments could result in a significant difference from those used by management.
During the year, the Group was funded principally by a combination of its cash balances (see note 18), equity (see notes
20, 21 and the consolidated statement of changes in equity), borrowings (see note 22), convertible loans (see note 23)
and cash generated from operating activities. As at 31 December 2016, the Group had a cash balance of US$ 58.3
million.
In December 2016 the Group signed an agreement for a secured crude oil prepayment facility of up to US$ 100 million.
The drawdowns on the facility will be repayable by the delivery of the Group’s crude oil entitlement in Iraq. The first
drawdown of US$ 40 million was received in December 2016 (see note 27). The proceeds from the facility will primarily
be used for accelerating the development of certain assets for additional production.
The Group has significant levels of planned capital expenditure during the next 12 months including field development
expenditures in Iraq. The Group has signed a farm-out agreement to assign to Egyptian General Petroleum Corporation
(EGPC) a 20% paying (15% revenue) interest in one of the Group’s key oil & gas fields. Under the terms of the farm-out
agreement, EGPC will settle the consideration owed for the farm-out by paying the Group’s share of costs of a major
related contract with any balance being payable from allocation of cost recovery receivable when production
commences from this field. This farm-out, which is subject to certain conditions precedent, including written approval
of the assignment by the Iraqi government, will materially reduce the Group’s contractual payment commitments in
2017.
Therefore, after making enquiries and on the assumption that the farm-out outlined above proceeds to completion,
the Directors have a reasonable expectation that the Group will have adequate resources to continue in operational
existence for the foreseeable future, being at least the next 12 months from the date of approval of the 2016
consolidated financial statements. Accordingly, the Directors continue to adopt the going concern basis of accounting
in preparing these consolidated financial statements.