KUWAIT ENERGY plc GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2012
F-113
30.
FINANCIAL INSTRUMENTS (CONTINUED)
Financial risk management objectives
The Group’s management monitors and manages the financial risks relating to the operations of the Group
through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include
market risk (including commodity price risk, interest rate risk and foreign currency risk), credit risk and
liquidity risk. The group seeks to manage this risk by using derivatives to hedge interest rate risk.
Market risk
Market risk is the risk that changes in market prices, such as commodity prices, interest rates and foreign
exchange rates will affect the Group’s income or the value of its holdings of financial instruments. The
objective of market risk management is to manage and control market risk exposures within acceptable
parameters, while optimising the return.
The Group is exposed to international commodity-based markets. As a result, it can be affected by changes
in crude oil, natural gas and petroleum product prices and interest rates and foreign exchange rates.
Price risk management
Volatility in oil and gas prices is a pervasive element of the Group’s business environment.
The Group is a seller of crude oil, which is typically sold under short-term arrangements priced in USD at
current market prices. In the previous year the Group used oil put options to manage the risks of volatility in
crude oil prices. At the end of the current year the Group has not hedged its exposure to oil price risk.
The Group does not sell gas under any long-term agreements
.
The following table illustrates the sensitivity of the profit for the year to a reasonably possible change in oil
and gas prices by +10%. A positive number below indicates an increase in profit and decrease in price will
have the opposite effect.
2012
2011
USD 000’s
USD 000’s
Impact on consolidated statement of income
22,527
17,892
Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange
rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters.
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities
at the reporting date are as follows:
Liabilities
Assets
2012
2011
2012
2011
USD 000’s
USD 000’s
USD 000’s
USD 000’s
Kuwaiti Dinar
-
-
2,439
2,832
Ukraine Hryvnia
2,209
1,425
364
82
Russian Rouble
3,145
7,452
1,389
422
