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The industry’s outlook for 2016 remains challenging due to continued oil price uncertainty. In January 2016, oil
prices reached a 12-year low and since then have recovered by more than 75% and are currently hovering
around US$50 per barrel. Kuwait Energy has taken measures since 2015 to mitigate this; focusing on cost control
across all operational and administrative functions. We have significantly reduced capital expenditure by
delaying or cancelling certain discretionary activities, re-negotiating major contracts and continuing to work on
optimizing our portfolio. Our overhead costs were significantly reduced by decreasing benefits and expenses,
reducing headcount, freezing salaries and recruitment as well as releasing office space.
Having taken measures to manage our cash outflows, we focused our efforts on operational activities to
maximise cash inflow. During 1H 2016, we produced over 4.5 million barrels of oil with an average daily
production of 24.8 kboepd, a slight reduction from our YE 2015 position. This was achieved despite the continued
shut down of Block 5 in Yemen and the overall natural decline of our Egyptian assets.
As a Company, we have focused our efforts on accelerating production from Block 9 in Iraq by putting in place
an agreement to enable early production in 2015. Subsequently, an Export Oil Sales Agreement was signed with
the Iraqi State Oil Marketing Company (SOMO). These agreements have allowed us to commence production
from Block 9 with a mechanism in place providing payment through crude oil liftings. In October 2016, we expect
to receive our first Iraqi cargo covering our production from October 2015 to June 2016 for a quantity of 300
kbbls net; compensating our 60% share in the concession.
As of the end of June 2016, our average daily working interest production from Block 9 stood at 3.3 kbopd from
one well only: Faihaa-1. This is expected to double by Q4 2016 with the commencement of production from
Faihaa-2 in early October 2016. Furthermore, we commenced drilling in Faihaa-3 on 31 August 2016.
In Egypt, our successful discovery in Al Jahraa SE-1X in Abu Sennan was put on production within less than a
month following the attainment of the development lease from EGPC. In addition, we are currently carrying out
various work overs and side-tracking activities to increase productivity from our existing assets. Our receivables
in Egypt continue to be collected within around 60 days and we have received over US$51 million from EGPC
during the first half of 2016 with just over two months’ worth of receivables remaining outstanding; significantly
less than the industry norm for producers in Egypt. Mostly recently, we were allocated a cargo for around US$20
million to be received on 30 October 2016. In Yemen, we remain operationally-ready to resume activities when
the situation permits.
Kuwait Energy’s reserves have increased significantly following the independent YE 2015 reserves and resources
report produced by GCA. Our 2P WI reserves are 818 mmboe as at 31 December 2015, a net increase of 147
mmboe (22%) in comparison to our 2P WI reserves at YE 2014.
Financially, and despite the challenging external environment, we continue to generate positive operating cash
flows while maintaining a strong balance sheet and have no debt maturing in 2016.
Looking ahead, we remain optimistic about the future of this cyclical business. Our primary focus remains in line
with our mission statement; “
to develop and manage oil and gas assets in the interest of our stakeholders
”. We
are determined on creating a liquidity event for our shareholders and are currently exploring various options to
achieve this.
In parallel, we are focused on increasing production from Block 9, commencing first gas production in Siba in
Iraq during the first half of 2017 and continue to add production in Egypt; all of which should strengthen our
overall cash position and further demonstrate Kuwait Energy’s resilience to withstand and manage difficult
external environments and emerge stronger.
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