29
commitment period from the Yemeni government, the Group will lose a year or more of anticipated production from
Block 5, and may also be required to surrender its license in respect of Block 5 and recognise an impairment charge on
the value of its JHOC acquisition.
In addition, the nature of the jurisdictions in which the Group operates is such that certain formalities with regard to the
execution of agreements may not, in a small number of cases, be satisfied, and government consents may not in all cases
be formally received. Non-compliance with certain technical obligations under the Group’s licences may give rise to
enforcement action by the relevant authorities, and the Group may not be successful in enforcing any or all rights under
its agreements or defending against claims of licence invalidity, particularly against governmental authorities. Although
governmental authorities may agree to waivers and extensions, such authorities are also generally entitled to revoke the
Group’s licences in such circumstances or refuse applications for further licences, extensions, permits or other approvals
because of non-compliance. Moreover, the Group may, for commercial, legal, or other reasons, be unable to comply with
certain specific terms or requirements of the licences it holds, including the meeting of specified deadlines for prescribed
tasks and other obligations set out in the work programmes attached to its licences in circumstances that may entitle the
relevant authority to suspend or withdraw the terms of such licence. See “—
Risks relating to the jurisdictions in which
the Group operates—The security situation in Yemen has in the past caused, and may again cause the Group to cease
exploration, appraisal and development operations in the country, and may affect the validity of the Group’s licences if
it is unable to obtain and maintain effective security arrangements for Group personnel and assets in the country.
”
Even where the Group is in compliance with the terms of its licences and all applicable laws and regulations, any of its
licences could be revoked, materially altered, or successfully challenged by the Group’s licence counterparties or by
third parties. In addition, administration and interpretation of the laws and regulations governing the Group’s licences by
government authorities vary considerably and may be underdeveloped, untested and subject to change, challenge or
invalidation. The Group therefore has limited control over whether or not such licences and other regulatory
requirements (or renewals or extensions thereof) are granted, when such licences or renewals may be granted, the terms
on which they are granted or renewed, any fees, levies, taxes, duties or other costs payable in connection therewith and
the general tax regimes to which the Group’s assets in the relevant jurisdiction will be subject.
Finally, although a substantial proportion of the Group’s service contracts and Production Sharing Contracts (“
PSCs
”)
permit some form of cost recovery by the Group for its incurred exploration, appraisal and development costs, there may
be disputes with governmental authorities with regard to whether a given cost was properly incurred and should be
subject to the cost recovery mechanism. As a result, the Group may in some cases fail to recover substantial costs for its
exploration, appraisal and development activities.
As a result of third party administration and interpretation of its licences, even for those assets in which the Group is
acting as operator, the nature and timing of the Group’s exploration, appraisal, development, production and other
activities, or its ability to execute its strategy according to plan or at all may be materially and adversely affected,
including by substantial delays or material increases in costs. Any inability of the Group to comply with the terms of its
licences, successfully defend against claims, or obtain, retain or renew its licences on terms satisfactory to it could have a
material adverse effect on the Group’s business, prospects, financial condition and results of operations.
Certain government approvals to transfer title to significant assets to the Group may not be received.
As part of the Group’s 2011 restructuring, KEC Kuwait transferred 90.0% of the ordinary shares of the Issuer (which had
been a wholly-owned subsidiary of KEC Kuwait immediately prior to the restructuring) then held by KEC Kuwait to its
existing shareholders, such that the Issuer became the holding company of the Group (the “
2011 Restructuring
”). As a
result of the 2011 Restructuring, the Group’s licences for Block 82 in Yemen and Abu Sennan and Area A in Egypt may
require the consent of the Yemeni and Egyptian governments, respectively. These consents may fail to be provided by
such governments, as a result of which the relevant licences could become subject to challenge, suspension or
cancellation.
The Group’s estimates of reserves and resources are inherently subjective and uncertain and may be subject to
downward revision.
As part of its business, the Group must estimate the quantity of oil and gas reserves and resources from underground
reservoirs which cannot be precisely measured, and the Group must also estimate the future cash flows likely to be
derived from them. Estimates of the quantity of commercially recoverable oil and gas reserves, rates of production, net
present value of future cash flows and the timing of development expenditures depend upon several variables and
assumptions, including the following: (i) historical production from the area; (ii) interpretation of geological and
geophysical data; (iii) effects of regulations adopted by governmental agencies; (iv) future percentages of domestic and
international sales; (v) future oil and gas prices; (vi) capital expenditure; and (vii) future operating costs, taxes on the
extraction of commercial minerals and workover and remedial costs. This process is complex and subjective and
involves numerous uncertainties. Moreover, reserves and resources estimates are inherently speculative and may require
