40
41
Wanted
Risk Management Report
During 2011, Kuwait Energy’s Risk Management system was fully embedded into all aspects of Company planning,
decision making, project development and execution. The identification and management of key risks will underpin the
successful delivery of the business’ strategic objectives whilst enhancing and protecting shareholder value.
Principal Risks and Uncertainties
Strategic Risks
Risks potentially impacting the Company’s ability to create shareholder value and meet shareholder expectations are:
RISK
MITIGATION
Capital allocation
Targeting a capital allocation ratio of 80:20, with 80% allocated to producing and
developing assets and 20% allocated to exploration activities.
Appropriate portfolio mix
The Company continues to maintain a diverse portfolio of assets which are spread
across the Middle East, North Africa and Eurasia. The Company has a process to review
acquisitions according to Company goals and risk appetite.
Identification and mitigation
of risk
The Company’s risk profile and its risk management approach are frequently reviewed by
senior management. Processes and procedures continue to be improved to optimize risk
awareness for all projects and to enhance mitigation strategies.
Macroeconomic issues
Consistent monitoring of regional economic, political, and energy markets through market
analysis by reputed third party experts when needed.
Financial Risks
Risks that impact access to funding to meet financial obligations are:
RISK
MITIGATION
Oil price volatility
Whilst not under the control of the Company, this risk can be mitigated through hedging
if deemed appropriate by the Kuwait Energy Board.
Currency rate fluctuations
The Company’s policy is to conduct and manage its business in US dollars which is its
reporting currency. Company subsidiaries use US dollars with only small amounts held in
other currencies in order to comply with local regulations and meet immediate operating
or administrative expenses.
Access to capital
Kuwait Energy’s future depends on additional financing which cannot always be
guaranteed. Therefore, the company has maintained strong banking and equity
relationships. The Company does not anticipate major financing challenges beyond the
inherent risks experienced by sector peers.
Interest Rate Fluctuation
The group’s loans are linked to LIBOR and therefore its results are impacted by changes in
interest rate. Hedges can be taken out to mitigate this risk, if deemed appropriate by the
Board.
Credit Risk
The Group sells a majority of its oil and gas to a small number of counterparties in Egypt
and therefore can be at risk of counterparty default. The Group has adopted a policy of
only dealing with creditworthy counterparties and although the Arab Spring unrest has
caused significant delay to realizing its Egyptian receivables, the Group is taking protective
steps to manage this risk.
