KUWAIT ENERGY plc GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2012
F-95
4.
.
JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in note 3, management is required to
make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or
in the period of the revision and future periods if the revision affects both current and future periods.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at
the consolidated statement of financial position date, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year.
Recoverability of exploration and evaluation costs
Under the modified full cost method of accounting for exploration and evaluation (“E&E”) costs, such costs are
capitalised as intangible assets by reference to appropriate cost pools, and are assessed for impairment when
circumstances suggest that the carrying amount may exceed its recoverable value. This assessment involves
judgement as to (i) the likely future commerciality of the asset and when such commerciality should be
determined, and (ii) future revenues and costs pertaining to any wider cost pool with which the asset in
question is associated, and the discount rate to be applied to such revenues and costs for the purpose of deriving
a recoverable value. Note 13 discloses the carrying amounts of the Group’s E&E assets.
Impairment of oil and gas properties
Determining whether oil and gas properties are impaired requires management to estimate the future net
revenue from oil and gas reserves attributable to the Group’s interest in that field. This requires estimates to be
made of, in particular, future oil and gas prices, production volumes, capital/operating expenditures and an
appropriate discount rate. A net impairment loss of USD 25,492 thousand (2011: USD 8,520 thousand) was
recognised during the year, as described further in note 9.
Commercial reserves
Both impairment and depletion of the cost of oil and gas properties requires estimates to be made of quantities
of commercial oil and gas reserves, which are based on estimates determined by qualified petroleum engineers.
Management believes these reserves to be commercially productive and will provide revenues to the Group
adequate to recover remaining net un-depreciated and un-depleted capitalised oil and gas properties as at
31 December 2012.
Decommissioning
The provision for decommissioning obligations depends on the cost and timing of decommissioning works,
legal requirements and the discount rate to be applied to such costs. Management have conducted an internal
review of these factors, based on information currently available, in the calculation of this provision.
The carrying amount of the decommissioning provision at 31 December 2012 is shown in note 22 to these
consolidated financial statements.
Business combination
In a business combination, the acquiree’s identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognition under IFRS 3
Business Combinations
are recognised at their fair values at the
acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in
accordance with IFRS 5
Non-current Assets Held for Sale and Discontinued Operations
, which are recognised
and measured at fair value less costs to sell. The Group’s management determines the fair values of the
acquiree’s identifiable assets, liabilities, contingent liabilities and non-current assets classified as held for sale.
