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KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 30 June 2016
16
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 come 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 judgement 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 period, the Group was funded principally by a combination of its cash balances (see note 18), equity (see
note 19), borrowings (see note 21), convertible loans (see note 22) and cash generated from operating activities. As at
30 June 2016, the Group had a cash balance of US$ 54.5 million.
The Group has significant levels of planned capital expenditure during the next 12 months including field development
expenditures in Iraq. The Group has received a letter from EGPC informing the Group that the EGPC board has approved
the EGPC executive committee recommendation for EGPC’s acquisition of a 20% paying (15% revenue) interest in one
of the Group’s key oil & gas fields, and requesting finalisation of the related farm-out agreement (with EGPC) and taking
the necessary action to complete the transaction. Under the terms of the proposed 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 cost recovery allocation received when the production commences from this field.
This agreement, which is also subject to a pre-emption process once finalised, will materially reduce the Group’s
contractual payment commitments during 2016 and 2017. We are working to finalise the farm-out agreement and
complete the transaction as soon as practicable.
Additionally, the Group’s business plan currently envisages the development of certain assets ahead of the
contractually obligated time frame in order to bring additional production online. In order to meet this desirable
timetable, external financing will be required and the Group is actively engaged in negotiations with multiple
organisations to arrange financing facilities. In the unlikely event that such additional funding is unavailable, it is within
the Group’s control to modify the plan for the development of these assets and maintain sufficient liquidity to continue
as a going concern whist meeting its contractual obligations as they fall due.
Therefore, after making enquiries and on the assumption that the farm-out and financing 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
half-year 2016 financial statements. Accordingly, the Directors continue to adopt the going concern basis of accounting
in preparing these consolidated financial statements.