83 / 92
KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2015
36
29.
FINANCIAL INSTRUMENTS (CONTINUED)
Market risk (continued)
Commodity price risk management
Volatility in oil and gas prices is a pervasive element of the Group’s business environment.
As a producer, the Group
always has a ‘long’ position on the product. No hedges are currently in place. Additionally, in Iraq concession contr
acts
are service fee-based, thus mitigating the impact of oil price movement.
The Group is a seller of crude oil and natural gas, which is typically sold under short-term arrangements priced in USD
at current market prices.
The following table illustrates the sensitivity of the revenue 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.
Year ended
2015
Year ended
2014
USD 000’s
USD 000’s
Impact on consolidated statement of income
15,564
27,076
For sensitivity of the impairment of oil and gas assets due to possible change in
oil and gas prices please see note 14.
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
2015
2014
2015
2014
USD 000’s
USD 000’s
USD 000’s
USD 000’s
Egyptian Pound
3,294
-
3,312
22,935
Kuwaiti Dinar
65
33
693
3,441
Foreign currency sensitivity analysis
The Group’s main foreign currency exposure is to fluctuations in the Kuwait Dinar and Egyptian Pound.
The following table details the
Group’s sensitivity to a 10% increase and decrease in the USD against Kuwaiti Dinar
and Egyptian Pound. The sensitivity analysis includes only outstanding Kuwaiti Dinar and Egyptian Pound
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.
Year ended
2015
Year ended
2014
Impact on consolidated statement of income
USD 000’s
USD 000’s
Egyptian Pound
2
2,294
Kuwaiti Dinar
63
341
Interest rate risk management
The Group is exposed to interest rate risk as it has placed funds in interest bearing time deposits with banks during the
year, but the Group’s exposure to
interest rate risk is not significant since the entities within the Group have not
borrowed funds at floating interest rates that could have an
impact on the Group’s consolidated income statement.
The Group’s exposure to interest rates on financial assets and liabilities are detailed in the liquidity risk management
section of this note.
83