xi
• it does not reflect changes in, or cash requirements for, the Group’s working capital needs;
• it does not reflect the significant interest expense, or the cash requirements necessary, to service interest or principal
payments on the Group’s debt;
• it does not capture differences in income taxes, which may be significant even for companies operating in the same
sector or country; and
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often
need to be replaced in the future and the non-IFRS measures do not reflect any cash requirements that would be
required for such replacements.
Some of the limitations of NPV of 1P reserves are:
• The reserves and resources estimates as at 31 May 2014 were calculated using forecast prices for hydrocarbons in
effect as at that date. As a result, changes in the price of hydrocarbons, if below the projected prices used to estimate
the Group’s reserves and resources, may materially and adversely affect the estimates of the Group’s reserves and
resources, as well as estimates of the net present value of future cash flows.
• Evaluations of reserves and resources necessarily involve multiple uncertainties, and the accuracy of any reserves or
resources evaluation depends on the quality of available information and on petroleum engineering and geological
interpretation. Exploration and appraisal drilling, geophysical and geological interpretation and modelling,
interpretation and testing, and production after the date of the estimates may require substantial downward revisions
in the Group’s reserves or resources data, for example as a result of geological features in hydrocarbon reservoirs
which prove to be less favourable in terms of location, shape, size or in other respects than those which are
estimated and assumed in the Group’s model. Estimates of reserves and resources may also change because of
acquisitions and disposals, new discoveries and extensions of existing fields as well as the application of improved
recovery techniques. Poor data quality from certain fields, particularly when such data are old and in need of
updating, will increase the uncertainty of reserve and resource estimates for a given field.
• Different reservoir engineers may make different estimates of reserves, resources and cash flows based on the same
available data. Actual production, revenues and expenditures with respect to reserves and resources may vary from
estimates, and the differences may be material.
• The Group’s reserves and resources evaluations are based in part on the assumed success of exploration, appraisal
and development activities it intends to undertake in future years as part of the Group’s capital expenditure plans.
The reserves and resources and estimated cash flows to be derived therefrom contained in the Group’s estimates will
be reduced to the extent that the Group’s planned exploration, appraisal and development activities do not achieve
the level of success assumed in the evaluations.
• Certain categories of reserves (probable and possible reserves) are inherently less certain than other categories
(proved reserves). See “—
Reserves and Resources Reporting—Basis of Preparation
.” Results of drilling, testing and
production subsequent to the date of an estimate may result in revisions to the original estimates and, as a
consequence, could have the effect of altering the Group’s recoverable reserves, potentially leading to material
unfavourable classification changes from proved to probable or possible or from probable to possible, or from
possible to a contingent resource. The estimates underlying the categorisation of the Group’s reserves include a
number of assumptions related to factors such as initial production rates, production decline rates, the likelihood and
amount of the ultimate recovery of reserves, timing and amount of capital expenditure, marketability of production,
future prices of oil and gas and operating costs, among others. These assumptions were based on price forecasts in
use at 31 May 2014, the date the relevant evaluations were prepared, and many of these assumptions are subject to
change according to factors which are beyond the control of the Group. Actual production, capital expenditure and
cash flows derived therefrom will vary from these estimates and evaluations and such variations could be material.
• In estimating and/or auditing the Group’s reserves and resources, GCA has applied forecast discounts to the relevant
benchmark oil price, Brent Crude in most cases, to account for local market conditions, the terms of the Group’s
various sales and marketing agreements in various jurisdictions, and other factors. If actual production achieved and
sold in these jurisdictions is sold at a greater discount to the benchmark oil price than was used in these forecasts,
the Group’s reserves and resources could be subject to downward revision, which could be material.
• In estimating and/or auditing the Group’s reserves and resources, GCA has also applied an estimate of future
increases in the Group’s operating costs. If the Group’s operating costs increase at a substantially higher rate than
