100-101 / 116
101
100
KUWAIT ENERGY plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2014
41
25.
LONG-TERM PROVISIONS
2014
2013
USD 000’s
USD 000’s
Decommissioning provision
12,433
3,013
Retirement benefit obligation
3,264
3,243
15,697
6,256
a)
Decommissioning provision
The movement in the decommissioning provision over the year is as follows:
2014
2013
USD 000’s
USD 000’s
As at 1 January
3,013
1,989
Unwinding of discount
104
158
New provisions and changes in estimate
9,316
1,002
Reclassified as held for sale
-
(136)
As at end of the year
12,433
3,013
The provision for decommissioning
relates to two of the Group’s fields and
is based on the net present value of the
Group’s share of the expenditure which may be incurred at the end of the producing life of each field (currently
estimated as being 2016 and 2023 for the two fields respectively) in the removal and decommissioning of the facilities
currently in place. Assumptions, based on the current economic environment, have been made which management
believe are a reasonable basis upon which to base the provision. These estimates are reviewed regularly to take into
account any material changes to the assumptions. However, actual decommissioning costs will ultimately depend
upon future market prices for the necessary decommissioning works required which will reflect market conditions at
the relevant time. Furthermore, the timing of decommissioning is likely to depend on when the fields cease to produce
at economically viable rates. This in turn will depend upon future oil and gas prices, which are inherently uncertain.
The significant increase during 2014 was primarily due to the receipt of an updated third party estimate in respect of
one of the fields. The Group uses a discount rate of 5% in arriving at the future value of decommissioning provisions.
b) Retirement benefit obligation
The group has a post-employment defined benefit obligation towards its non-Kuwaiti employees which is an End-of-
Service (ESB) plan governed by Kuwait Labor Law. The entitlement to these benefits is conditional upon the tenure
of employee service, completion of a minimum service year, salary drawn etc. The Group also has a defined benefit
obligation in respect of the Block 5 in Yemen. These are unfunded plans where the group meets the benefit payment
obligation as it falls due.
The movement in these defined benefit obligations over the year is as follows:
2014
2013
USD 000’s
USD 000’s
As at 1 January
3,243
1,482
Current service cost
1,066
2,150
Interest expense
-
113
Re-measurements:
Experience gains
(812)
(137)
Benefits paid
(233)
(365)
As at end of the year
3,264
3,243
The significant actuarial assumptions were as follows:
2014
2013
Discount rate
5%
5%
Inflation
4%
4%
Salary growth rate
6%
6%
KUWAIT ENERGY plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2014
42
26.
TRADE AND OTHER PAYABLES
(Restated)
2014
2013
USD 000’s
USD 000’s
Trade Payables
86,911
70,729
Accruals and joint venture partners payables
31,150
14,516
Accrued interest payable
10,388
3,756
Salaries and bonus payables
5,204
3,000
133,653
92,001
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and on-going costs. The
average credit year taken for trade purchases is 30 days. No interest is charged on the overdue trade payables. The
Group has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit
terms.
The directors consider that the carrying amount of trade payables approximates their fair value
.
27.
DERIVATIVE FINANCIAL INSTRUMENTS
2014
2013
USD 000’s
USD 000’s
Financial liabilities carried at fair value through profit or loss
Held for trading derivatives not designated in hedge accounting
relationships (interest rate cap - see below)
-
162
The Group’s deriv
ative financial instruments are all classified as Level 2 in all years. Level 2 fair value measurements
are those derived from inputs other than quoted prices that are observable for the asset or liability either directly (i.e.
as prices) or indirectly (i.e. derived from prices). The reduction in the fair value amounting to USD nil for the year
ended 31 December 2014 (2013: USD 322 thousand) was recognised in the consolidated income statement.
Derivatives used for hedging purposes but which do not meet the qualifying criteria for hedge accounting are
classified as ‘Held for trading derivatives’.
Interest rate cap is an agreement to cap the interest rate on facilities at 2% when the LIBOR is more than 2% and
equal to or less than 5%. This agreement matured on 30 June 2014.
The notional amounts of interest rate cap together with the fair value is summarised as follows:
Held for trading Derivatives
Notional principal value
Fair value (Negative)/ Positive
2014
2013
2014
2013
USD 000’s
USD 000’s
U
SD 000’s
USD 000’s
-Interest rate cap
-
50,000
-
(162)
28.
CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS
2014
2013
USD 000’s
USD 000’s
a)
Contingent liabilities - letters of guarantee
500
1,628
b)
Capital commitments (other than covered by letters of guarantee)
58,531
116,400
Capital commitment includes committed exploration drilling and seismic expenditures as specified in the licence.