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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.
If receivables from EGPC remain past due for a prolonged period, if expected cargo payments arranged by EGPC are not
received as planned, or if payments on existing or new receivables are even further delayed or settled in a currency other
than the US dollar, the Group may be required to impair or discount certain of its existing past due receivables, resulting
in an impairment charge on the Group’s consolidated income statement which would reduce or eliminate the Group’s net
profits for the period in which the impairment was recognised.
The Group currently relies upon cash flows from its assets in Egypt to fund a significant portion of its working capital
and liquidity needs, both in Egypt and in other jurisdictions. Given the Group’s dependence on receipt of cash from
EGPC for a substantial portion of its operating cash flows, the execution of the Group’s exploration, appraisal and
development programmes, which are funded in part by these cash flows, may be adversely affected by the unpredictable
nature of the timing and amounts eventually paid by EGPC. If cash payments from EGPC remain past due for a
prolonged period, or if EGPC alters its current practice of making periodic payments in a manner disruptive to the
Group, the Group may be required to cancel or delay certain of its projects, and as a result, the Group may be unable to
successfully implement its exploration, appraisal and development programme. See “
Risks Relating to the Group—The
Group’s exploration, appraisal and development programmes are capital intensive and the Group will be unable to
implement these programmes and fulfil its licensing commitments without significant capital expenditure for which
funding may not be available
.”
There can be no assurance that EGPC will meet its existing or future payment obligations to the Group, that the political
or economic situation in Egypt will not deteriorate, or that the Egyptian government will be successful in improving
financial stability and maintaining domestic order. The Group may therefore be unable to collect some or all of its
outstanding receivables, or may accrue increased amounts of outstanding receivables, either of which would have a
material adverse effect on the Group’s business, prospects, financial condition and results of operations.
In July 2014, the Egyptian government announced a 10% withholding tax payable on dividends and other cash
distributions to shareholders. At present, the Group’s only Egyptian subsidiary, Kuwait Energy (Eastern Desert)
Petroleum Services SAE, which holds the Group’s interest in Area A in Egypt, distributes cash to the Issuer as
repayment of intercompany loan arrangements, which are not treated as dividends and therefore will not be subject to
10% withholding. Once the intercompany loan balances have been repaid, however, any further distributions from
Kuwait Energy (Eastern Desert) Petroleum Services SAE to the Issuer will be characterised as dividends and subject to
this 10% withholding tax. The Egyptian government also announced a temporary 5% income tax effective for the next
three years on any profits above one million Egyptian pounds, in addition to the already existing income tax regime,
applied at progressive rates up to 25%. Kuwait Energy (Eastern Desert) Petroleum Services SAE will be subject to this
additional 5% income tax. Either or both of these changes in Egyptian tax law could have an effect on our financial
results in Egypt, which could render our Area A operations unprofitable and otherwise have a material adverse effect on
our business, prospects, financial condition and results of operations.
The Group’s ability to operate depends on its ability to obtain, retain or renew required drilling rights, licences,
concessions, permits and other authorisations necessary for its operations, many of which are subject to change, and
certain formalities of which may not always be satisfied.
The Group conducts its exploration, appraisal and development operations pursuant to rights under production sharing
agreements, service contracts and licences, concessions, permits and other authorisations and approvals (together,
“licences”) from governmental and local authorities. The ability of the Group to operate its business depends on the
granting and continued validity of such licences, which are subject to the discretion of the relevant governmental
authorities and cannot be assured. The Group may face significant financial penalties and/or litigation or have its existing
and future licences suspended, terminated or revoked, or may fail to win approval for extensions or renewals or such
licences, if it fails to fulfil the specific terms of any of its existing or future licences or if it operates its business in a
manner that violates applicable laws or regulations, which could result in increased costs, reputational harm and failure
to achieve the Group’s strategy. Government authorities may also, upon renewal or extension of a licence, or at any other
time, impose unilateral changes to the key terms of any of the Group’s licences, including terms relating to price, volume
of production, cost recovery, and liability.
Furthermore, many of the Group’s production licences are due to expire before the end of what the Group estimates to be
the productive life of its licensed fields. The Group may be unsuccessful in its attempts to renew existing licences, and
may be unable to gain approval for any applications for additional licences, at all or on terms and within a timeframe
satisfactory to the Group. In Yemen, the Group’s Block 5 licence will expire 8 June 2015, but as a result of lost
production days due to the security situation in Yemen, the Group is seeking to extend the Block 5 commitment period
for 541 days (until 1 December 2016), according to the terms of the licence. Although discussions are ongoing with the
Yemeni government, the Group is still awaiting a final determination. If the Group is unable to obtain an extension of the
