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KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 30 June 2016
40
24.
PROVISIONS (CONTINUED)
a)
Decommissioning provisions (continued)
The provision for decommissioning relates to two of the Group’s fields and is based on the net present value of the
Group’s share of the expenditure which may be incurred at the end of the producing life of each field (currently
estimated as being 2018 and 2023 for the two fields respectively) in the removal and decommissioning of the facilities
currently in place. Assumptions, based on the current economic environment, have been made which management
believe are a reasonable basis upon which to base the provision. These estimates are reviewed regularly to take into
account any material changes to the assumptions. However, actual decommissioning costs will ultimately depend upon
future market prices for the necessary decommissioning works which will reflect market conditions at the relevant
time. Furthermore, the timing of decommissioning is likely to depend on when the fields cease to produce at
economically viable rates. This in turn will depend upon future oil and gas prices, which are inherently uncertain. The
Group uses a discount rate of 3-5% in arriving at the future value of decommissioning provisions.
b) Retirement benefit obligations
The Group has a post-employment defined benefit obligation towards its non-Kuwaiti employees which is an End-of-
Service (ESB) plan governed by Kuwait Labor Law. The entitlement to these benefits is conditional upon the tenure of
employee service, completion of a minimum service year, salary drawn etc. The Group also has a defined benefit
obligation in respect of the Block 5 in Yemen. These are unfunded plans where the group meets the benefit payment
obligation as it falls due.
The movement in these defined benefit obligations over the period is as follows:
30 June
31 December
2016
2015
Audited
Audited
US$ 000’s
US$ 000’s
At 1 January
3,061
3,264
Current service cost
283
1,486
Re-measurements:
Experience gains
-
(445)
Benefits paid
(43)
(1,244)
As at end of end of the period
3,301
3,061
The significant actuarial assumptions were as follows:
30 June
31 December
2016
2015
Audited
Audited
US$ 000’s
US$ 000’s
Discount rate
4%
4%
Inflation
4%
4%
Salary growth rate
5%
5%