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KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 30 June 2016
21
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Oil and gas assets (continued)
Commercial reserves
Proven and probable oil and gas reserves as defined in the Society of Petroleum Engineers’ Petroleum Resources
Management System (“PRMS”) are considered as commercial reserves.
Proven reserves include reserves that are confirmed with a high degree of certainty through an analysis of the
development history and a volume method analysis of the relevant geological and engineering data. Proven reserves
are those that, based on the available evidence and taking into account technical and economic factors, have a better
than 90% chance of being produced.
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.
Inventories
Crude oil is valued at fair value less costs to sell. Any changes arising on the revaluation of inventories are recognised
in the consolidated statement of income. Other inventories comprising mainly of spare parts, materials and supplies
are valued at cost, determined on a weighted average cost basis, less allowance for any obsolete or slow-moving items.
Purchase cost includes the purchase price, import duties, transportation, handling and other direct costs.