143
Year ended 31 December
Three months ended 31
March
2011
2012
2013
2013
2014
Asset
(boepd)
Karim Small Fields ...................
2,825
3,064
2,628
2,829
2,566
Production asset
Twelve of the 18 fields in the Karim Small Fields are currently producing oil from 201 active wells. The most significant
producing fields are Simsim, Irad, Basma, Warad, Zahra and Jadeer which together count for over 80% of the area’s
gross oil production. The Karim Small Fields comprises three principal reservoirs, and two further reservoirs.
Sales
Oil produced from the Karim Small Fields is generally exported to Nimr. It is transported by an approximately 15-
kilometer pipeline to the Nimr Central Separation Facility. The central processing facility converts reservoir fluid into
sales quality oil. Export deliveries are then pumped approximately 1,000 km via a 24-inch PDO-operated pipeline to the
North of Oman, Mina Al Fahal. The central processing facility has the capacity to process approximately 200,000 bopd,
recently processing between 120,000-140,000 barrels of oil per day. Custody of the product is transferred upon loading
at Mina Al Fahal and transport costs are then assumed by the buyer.
Fiscal regimes
The Group’s operations in Oman are governed by a service contract entered into by Medco LLC under which Medco
LLC, together with its partner, provide technical services at the Karim Small Fields on behalf of Petroleum Development
Oman, the licence holder. Medco LLC holds a 75% interest in, and is the operator of, the service contract. KEC Kuwait
holds a 20% interest in Medco LLC, and pursuant to an economic benefit arrangement, all of the economic benefits of
KEC Kuwait’s 20% interest in Medco LLC have been transferred to KEC Gulf Holdings Limited, with effect from 1 July
2011.
The fiscal regime under the service contract operates on a cost revenue/profit revenue basis. The operator’s cost recovery
entitlement is limited to 30% of revenue in each year. Unrecovered costs in any year can be carried forward to the next
year until complete recovery is achieved (or, if sooner, until the contract terminates or finally expires, at which point
unrecovered costs are lost). Following deductions for recoverable costs, revenue from Karim Small Fields is shared with
the Sultanate of Oman in the following ratio: JV partners, 3.98%: PDO, 96.02%.
A 12.22% corporate tax is applied to each contractor’s taxable profit oil, which is paid by an Oman government entity on
behalf of the JV partners. The volume equivalent to this tax revenue is included in net entitlement reserves but is also
offset as a reduction in future net revenue. A signature bonus of $30,000,000 was paid by the JV partners (in proportion
to their cost interest percentages) to PDO over the first three years of the life of the service contract.
Latvia
Summary
In Latvia, the Group has a working interest in two offshore licences: Licence 1/2009 and Licence 1/2004, which are each
governed by a tax and royalty regime. A Group company is the operator of each of the licences. After initial exploration
efforts were unsuccessful, the Group and its JV partner, PKN Orlen, has decided to relinquish its licence and is currently
seeking to either sell its interests in the licences or into discussions with the Latvian Ministry of Economy regarding the
terms of exit.
The Group manages its activities in Latvia from its office in Kuwait. The working interests of the Group and its JV
partners in the assets it held in Latvia as at 31 March 2014 are as follows:
Asset
Fiscal
JV partners
Revenue
Cost
