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KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2017
22
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Offsetting
Financial assets and financial liabilities are offset and the net amount reported in the consolidated balance sheet if,
and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to
settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of whether that price is directly observable or
estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into
account the characteristic of the asset or liability if market participants would take those characteristics into account
when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in
these consolidated financial statements is determined on such a basis, except for leasing transactions that are within
the scope of International Accounting Standard (“IAS”) 17 Leases, and measurements that have some similarities to
fair value but are not fair value, such as net realisable value in IAS 2 Inventories or value in use in IAS 36 Impairment of
Non-Financial Assets.
In addition, for financial reporting purposes, fair value measurement are categorised into Level 1, 2 or 3 based on the
degree to which the inputs to the fair value measurement are observable and the significance of the inputs to the fair
value measurement in its entirety, which are described as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can
access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for asset or liability,
either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.
Oil and gas assets
The Group adopts the successful efforts method of accounting for exploration and evaluation expenditure. Pre-licence
costs are expensed in the period in which they are incurred. All licence acquisition, exploration and evaluation costs
and directly attributable administration costs are initially capitalised as intangible exploration and evaluation assets in
cost centres by well, field or exploration area, as appropriate. Borrowing costs are capitalised insofar as they relate to
qualifying assets.
These costs are then written off as exploration costs in the income statement unless commercial reserves have been
established (see below) or the determination process has not been completed and there are no indications of
impairment.
Tangible non-current assets used in acquisition, exploration and evaluation are classified with tangible non-current
assets as property, plant and equipment. To the extent that such tangible assets are consumed in exploration and
evaluation the amount reflecting that consumption is recorded as part of the cost of the intangible asset.
Upon successful conclusion of the appraisal programme and determination that commercial reserves exist, associated
costs are transferred to tangible non-current assets as property, plant and equipment. Exploration and evaluation costs
carried forward are assessed for impairment as described below.
All field development costs are capitalised as property, plant and equipment. Property, plant and equipment related
to production activities is amortised in accordance with the Group’s depletion and amortisation accounting policy.
Proceeds from the farm-out of exploration and evaluation assets are credited against the relevant cost centre.