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On 16 July 2014, KEC Kuwait signed a farm out agreement to assign to EGPC a 10% working interest share in the
Block 9 exploration, development and production service contract, with an effective date of 1 July 2013. This assignment
is subject to certain conditions precedent, including KEC Kuwait providing a written waiver or other evidence of non-
exercise of any preferential rights (including a right of first refusal to acquire the working interest subject to this
proposed farm out) by other parties to the service contract and written approval of the assignment by the Iraqi
government. Upon the completion of this farm out arrangement, the proportion of the Block 9 contingent resources in the
CPR that are attributable to the Group will be reduced accordingly. See “
Risk Factors—Risks relating to the Group—The
economic valuations contained in the CPR may not provide an accurate estimate of the value of the Group or its assets
.”
On 17 July 2014, the operator under the Mansuriya gas development and production service contract issued a notice of
force majeure on behalf of itself and the other JV partners (including the Group) to the Iraqi state-owned oil company
that is the JV’s counterparty under the contract, as a result of the recent security situation in the vicinity of the Mansuriya
contract area. The JV has ceased its operations in the Mansuriya contract area until the force majeure conditions abate.
See “
Risk Factors – Risks relating to the jurisdictions in which we operate – The Group expects a substantial amount of
its future activity to focus on Iraq, which presents a high-risk operational and security environment
.”
The Group is engaged in active negotiations in respect of the sale of its assets in Russia and expects to complete the sale
during the third quarter of 2014.
Competitive strengths
The Directors believe Kuwait Energy has the following key strengths:
A leading independent oil and gas exploration and development company focused on the core MENA region
The Group has a sizeable and diversified portfolio of oil and gas exploration, appraisal and development assets with a
significant focus on the core MENA region of Egypt, Iraq, Yemen and Oman. The Group’s asset portfolio currently
consists of 51 exploration and development licences in six countries, with the Group’s operations in the core MENA
region of Egypt, Iraq, Yemen and Oman accounting for 47 of these licences. The Group currently produces oil from 30
of its assets, located in Egypt, Oman and Yemen. According to the CPR as at 31 May 2014, the Group has 2P working
interest reserves of 165.7 mmboe, 2P net entitlement reserves of 37.0 mmboe, working interest 2C contingent resources
of 850.0 mmboe and working interest risked prospective resources of 26.4 mmboe. See “
Risk factors—Risks relating to
the jurisdictions in which the Group operates—The Group operates in jurisdictions that are subject to significant
political, economic, legal, regulatory and social uncertainties
.” Of these Group totals, assets in the core MENA region
of Egypt, Iraq, Yemen and Oman accounted for substantially all of the Group’s 2P net entitlement reserves, working
interest contingent resources and working interest risked prospective resources.
In order to focus management attention and Group financial resources on its exploration, appraisal and development
assets in the core MENA region, in 2013 the Group resolved to dispose of its operations in Russia and Ukraine,
classifying them as discontinued operations in the Group’s financial statements. In April 2014 the Group completed the
sale of its assets in Ukraine. The Group is engaged in active negotiations in respect of the sale of its assets in Russia and
expects to complete the sale during the third quarter of 2014. The Group has also ceased to pursue new projects in
Pakistan and Latvia, and plans to spend only the minimum capital expenditures required under its contracts in respect of
its asset in Mansuriya in Iraq. The Group is actively seeking to sell or monetise these assets or otherwise exit certain of
these jurisdictions altogether. The Directors believe that the geographic spread of the Group’s assets across various
countries within the core MENA region may assist in mitigating the impact on the Group of any single country-specific
political uncertainties which may arise.
Attractive and diversified reserves base with visible near term production growth potential
The Group has several assets at different stages of exploration and appraisal, which the Directors believe have strong
growth potential. In Iraq, the Group’s assets are close to existing infrastructure, and are governed by licences whose
remuneration rates are, the Group believes, the highest in Iraq. Siba and Mansuriya accounted for 59.7 mmboe and 72.9
mmboe, respectively, of the Group’s 2P working interest reserves as at 31 May 2014 and 9.6 mmboe and 15.7 mmboe,
respectively, of the Group’s 2P net entitlement reserves as at 31 May 2014. In addition, the Group was awarded an
exploration licence for Block 9 in Iraq, as part of the public auction of exploration licences conducted in May 2012 by
the Iraqi government. According to the CPR, the Group’s 2C contingent resources on a working interest basis as at 31
May 2014 in Block 9 are estimated to be 700.8 mmboe of recoverable oil resources and 609.5 Bscf (101.6 mmboe) of
recoverable gas resources. The Group commenced drilling the first exploration well in Block 9 in March 2014. The
Group is engaged in active negotiations to farm out a portion of its working interest share in the Block 9 licence and
expects to conclude an arrangement by the end of 2014. If such a farm out arrangement is entered into, the proportion of
the Block 9 contingent resources in the CPR that are attributable to the Group will be reduced accordingly. See “
Risk
