KUWAIT ENERGY plc GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2011
F-157
29.
FINANCIAL INSTRUMENTS (CONTINUED)
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. The Group
uses derivative financial instruments to manage risks but not for speculative purposes.
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
.
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
2011
2010
2011
2010
USD 000’s
USD 000’s
USD 000’s
USD 000’s
Kuwaiti Dinar
-
594
2,832
20,056
Ukraine Hryvnia
1,425
3,430
82
8,240
Russian Rouble
7,452
5,444
422
477
Foreign currency sensitivity analysis
The Group’s main foreign currency exposure is to fluctuations in the Kuwait Dinar, Ukraine Hryvnia and
Russian Rouble.
The following table details the Group’s sensitivity to a 10% increase and decrease in the USD against
Kuwaiti Dinar, Ukraine Hryvnia and Russian Rouble. The sensitivity analysis includes only outstanding
Kuwaiti Dinar, Ukraine Hryvnia and Russian Rouble denominated monetary assets and liabilities and adjusts
their translation at the year end for a 10% change in foreign currency rates. A positive number below
indicates an increase in profit and a negative number indicates decrease in profit. All other variables are held
constant. There have been no changes in the methods and the assumptions used in the preparation of the
sensitivity analysis.
2011
2010
USD 000’s
USD 000’s
Impact on consolidated statement of income
Kuwaiti Dinar
(283)
(1,946)
Ukraine Hryvnia
134
(481)
Russian Rouble
703
497
