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to the Group from EGPC was $135.0 million, of which $90.4 million were considered past due, but not impaired as at
that date. The level of receivables due to the Group from EGPC will increase in proportion to the Group’s increased
production from its assets in Egypt, and according to the ability of EGPC to make cash payments to the Group in light of
prevailing political and economic climate in Egypt, and trends in oil prices. See “
Risk factors—Risks relating to the
Group—The Group has been dependent on its operations in Egypt for a significant portion of its revenues, and
receivables due from the Group’s operations in Egypt under the Group’s licence agreements are paid irregularly and
after significant delay
” and “
Risk factors—Risks relating to the Group
—
The Group’s operations in Egypt may be
disrupted by political and economic developments.
” The Group manages its credit risk relating to EGPC by engaging in
regular dialogue with EGPC and seeking to have as many deliveries as possible covered by cargo payments, whereby
EGPC sells certain amounts of oil produced and has buyers pay directly rather than requiring cash proceeds from these
volumes be directed to EGPC.
In addition, the fiscal regimes which govern the Group’s exploration, appraisal and development activities are frequently
structured as unincorporated joint-ventures, and as a result, the Group generally relies upon its JV partners to fund their
agreed portions of exploration, development and operating costs. In the event one of the Group’s JV partners fails to
fund its commitments to assets operated by the Group, the Group may be required to incur additional costs on behalf of
those co-venturers, which is may not be able to recover.
See note 29 to the 2013 consolidated financial statements included in this Offering Memorandum.
Exchange rate risk
The Group’s revenues from sales of oil, natural gas and condensate are received wholly in US dollars, and its borrowings
are denominated in US dollars. A portion of the Group’s exploration, development and operating costs are denominated
in dollars, and a portion are denominated in other currencies, including most significantly Egyptian Pounds and Kuwaiti
Dinar (and, historically, also in Russian Roubles and Ukrainian Hryvnia regarding now discontinued operations of the
Group). Although the Group’s exposure to fluctuations in the US dollar is mitigated by the proportion of its costs that are
denominated in US dollars, the Group faces exchange risk in respect of the proportion of its costs which are not
denominated in US dollars.
Going forward, to the extent EGPC continues to remit substantial proceeds from sale of the Group’s production in Egypt
in Egyptian Pounds rather than US dollars, and to the extent these amounts exceed the Group’s operating expenses which
are paid in Egyptian Pounds, the Group will also be subject to significant exchange rate risk resulting from fluctuations
in the value of Egyptian Pounds as compared to other currencies, particularly the US dollar. Due to an increasingly
constrained global foreign exchange market for Egyptian Pounds, the Group may be unable to convert certain quantities
of its Egyptian Pounds to US dollars going forward, which could limit the Group’s ability to distribute cash to other
jurisdictions within the Group.
To date, the Group has elected not to hedge its exposure to the risk of changes in foreign currency exchange rates.
See note 29 to the 2013 consolidated financial statements included in this Offering Memorandum for a sensitivity
analysis regarding the Group’s exposure to the risk of changes in foreign currency exchange rates.
Interest rate risk
The Group’s interest rate risk principally relates to interest paid on its borrowings and interest received on its cash and
bank balances.
As at 31 March 2014, 61% of the Group’s borrowings by drawn principal amount bear interest at floating interest rates
after taking into account the effect of hedging. The Group entered into an interest rate hedge with Citibank to limit its
exposure to floating interest rates. The contract period is from 28 January 2010 to 30 June 2014 and the amount of
principal borrowing hedged is $50 million. Interest rates are determined by multiple factors which are beyond the
Group’s ability to predict or control, including the policies of central banks, economic conditions and political factors.
Assuming the amount of the Group’s borrowings as at 31 March 2014 had been outstanding for the three months ending
31 March 2014, if the Group’s interest rates had been 1% higher or lower, and assuming all other variables were held
constant, the Group’s profit for the period for the three months ending 31 March 2014 would have increased or
decreased, respectively, by $0.4 million.
See note 29 to the 2013 Financial Statements in this document for a sensitivity analysis in relation to the year ended 31
December 2013.
