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were to decline in response to a renewed economic downturn, and if such economic conditions were to persist over the
longer term, certain of the Group’s oil and gas exploration, appraisal and development programmes may not be
economically viable, and the present value of the Group’s reserves and resources may decline.
Historically, oil and gas prices have been volatile and subject to wide fluctuations, which may materially and
adversely affect the Group’s business, prospects, financial condition and results of operations.
Oil and gas are globally and regionally traded commodities and, as a result, the Group is unable to control the prices it
receives for its oil and gas, which is generally sold with reference to market prices. In addition, because oil and gas sales
are the Group’s primary source of revenue, and given that the Group does not currently hedge its exposure to oil and gas
prices, its financial results will be exposed to any adverse oil and gas price changes, including changes in current
expectations regarding future supply and demand which have an impact on futures prices for oil and gas. As a result, the
net present value of the Group’s reserves will fluctuate according to changes in hydrocarbon futures prices for many
reasons, including but not limited to:
global and regional supply (including in particular new supply from unconventional sources such as shale) and
demand, and market expectations and speculation regarding future supply and demand for oil and gas;
geopolitical uncertainty and terrorism or the threat thereof, particularly in the core MENA region;
political, economic and military developments in oil and gas producing regions, particularly in the core MENA
region;
availability and cost of infrastructure including pipelines, tanker ships and other transport, as well as drilling
rigs and other extraction and processing equipment;
global aggregate petroleum refining capacity;
price, availability and market acceptance of alternative energy sources and new technologies;
exchange rate fluctuations;
the ability of the members of the Organisation of the Petroleum Exporting Countries and other oil-producing
nations to set and maintain specified levels of oil and gas production and thereby influence market prices;
governmental regulations and actions, including export restrictions, taxes, repatriations and nationalisations; and
weather conditions and natural disasters.
As a result of these and other factors, it is impossible to predict future oil and gas price movements accurately. Any
material decline in oil and gas prices could result in a reduction of the Group’s revenue and lower the net present value
of its reserves, or could cause the Group to cease production from those wells which have higher operating costs.
For example, the price of Brent crude, which is the benchmark price for the majority of the Group’s oil sales, has
fluctuated from an average of $110.9 per barrel in 2011, $111.7 per barrel in 2012, $108.7 per barrel in 2013 and $112.6
per barrel in the three months ended 31 March 2014. As a result of the continuing volatility in oil and gas prices, the
Group may have difficulty implementing its strategy and its exploration, appraisal and development programmes. If the
Group incurs fixed operating costs in excess of its average marginal cost of production, and the Group is unable to
change production levels or lower its operating costs in response to then-current oil and gas price levels, the Group’s
results of operations and financial condition could be materially and adversely affected. Should oil and/or gas prices
significantly decline, revenues from production would also decline and the Group may be unable to reduce its
exploration, appraisal and production costs in line with the lower production revenues, which could have a material
adverse effect on the Group’s business, prospects, financial condition and results of operations.
As at the date of this Offering Memorandum, neither the Group nor any of its subsidiaries has entered into any derivative
financial instruments to hedge against declines in oil and gas prices. Contributing further to the volatility of its financial
results, the Group may not be able to engage in meaningful hedging against declines in oil and gas prices in the future,
and there can be no guarantee that any hedging strategies the Group decides to implement in the future will be
successful. Any inability to engage in meaningful hedging, or the use of unsuccessful hedging strategies, will expose the
Group to declines in the price of oil and gas, and may materially adversely affect the Group’s financial results.
