KUWAIT ENERGY plc GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2011
F-135
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Oil and gas assets (Continued)
Commercial reserves
Proven & probable oil and gas reserves as defined in the Petroleum Resources Management System (“PRMS”)
are considered as commercial reserves.
Proven reserves include reserves that are confirmed with a high degree of certainty through an analysis of the
development history and a volume method analysis of the relevant geological and engineering data. Proven
reserves are those that, based on the available evidence and taking into account technical and economic factors,
have a better than 90% chance of being produced.
Probable reserves are those reserves in which hydrocarbons have been located within the geological structure
with a lesser degree of certainty because fewer wells have been drilled and certain operational tests have not
been conducted. Probable reserves are those reserves that, on the available evidence and taking into account
technical and economic factors, have a better than 50% chance of being produced.
These reserves are being calculated under existing economic and operating conditions, i.e., prices and costs as
at the date the estimate is made. Prices include consideration of changes in existing prices provided by
contractual arrangements and management’s forecast of future prices.
These estimates, made by the Group’s engineers and periodically evaluated by independent reservoir engineers,
are reviewed annually and revised, either upward or downward, as warranted by additional data. Revisions are
necessary due to changes in, among other things, reservoir performance, prices, economic conditions and
governmental restrictions.
Other fixed assets
Other fixed assets are stated at cost less accumulated depreciation and any accumulated impairment losses. Cost
includes the purchase price and directly associated costs of bringing the asset to a working condition for its
intended use. Depreciation is calculated based on the estimated useful lives of the applicable assets on a
straight-line basis, on the following basis:
Office equipments 5 years
Motor vehicles 5 years
Furnitures and fittings 10 years
The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the
effect of any changes in estimate accounted for on a prospective basis.
Maintenance and repairs, replacements and improvements of minor importance are expensed as incurred.
Significant improvements and replacement of assets are capitalised.
The gain or loss arising on the disposal or retirement of other fixed assets is determined as the difference
between the sales proceeds and the carrying amount of the asset and is recognised in the consolidated statement
of income.
Operating leases
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except
where another systematic basis is more representative of the time pattern in which economic benefits from the
leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the
period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a
liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line
basis, except where another systematic basis is more representative of the time pattern in which economic
benefits from the leased asset are consumed.
