80
81
KUWAIT ENERGY plc AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2011
33
21.
LONG-TERM PROVISIONS
2011
2010
USD
000’s
USD 000’s
Decommissioning provision
1,578
1,087
Retirement benefit obligation
1,116
703
2,694
1,790
a)
Decommissioning provision
2011
2010
USD
000’s
USD 000’s
As at 1 January
1,087
575
Unwinding of discount
107
58
Changes in estimate
384
454
As at 31 December
1,578
1,087
T
he provision for decommissioning 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 in 2017, 2026 and
2028) in the removal and decommissioning of the facilities currently in place. The provision has been
estimated using existing technology and current prices.
b) Retirement benefit obligation
This balance represents immaterial defined benefit retirement obligations relating to certain of the Group
’
s
employees based in Kuwait.
22.
TRADE AND OTHER PAYABLES
2011
2010
USD
000’s
USD 000’s
Trade payables
29,504
29,783
Joint venture payables and accruals
18,960
13,374
Advances received
-
3,500
Salaries and bonus payables
4,500
3,250
52,964
49,907
Current tax payable
8,991
532
61,955
50,439
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.
The average credit period taken for trade purchases is 30 days. No interest is charged on the overdue trade
payables. The Group has financial risk management policies in place to ensure that all payables are paid within
the pre-agreed credit terms.
The directors consider that the carrying amount of trade payables approximates their fair value
.
KUWAIT ENERGY plc AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2011
34
23.
DERIVATIVE FINANCIAL INSTRUMENTS
2011
2010
USD
000’s
USD
000’s
Financial liabilities carried at fair value through
profit or loss
Held for trading derivatives not designated in hedge accounting
relationships (See a below)
750
675
Derivatives that are designated and effective as hedging instruments
carried at fair value
Oil put options (See b below)
-
3,662
-
4,337
The G
roup’s derivative financial instruments are all classified as Level 2 in both years. Level 2 fair
value
measurements are those derived from inputs other than quoted prices that are observable for the asset or liability
either directly (ie. as prices) or indirectly (ie. derived from prices).
a) Held for trading derivatives
Derivatives used for hedging purposes but which do not meet the qualifying criteria for hedge accounting are
classified as ‘
Held for trading derivatives
’.
Interest rate cap is an agreement to cap the interest rate on IFC facilities at 2 % when the LIBOR is more than
2 % and equal to or less than 5 %. The interest rate cap matures on 30 June 2014.
The notional amounts of interest rate cap together with the fair value as at 31 December is summarised as
follows:
Held for trading Derivatives
Notional principal value
Fair value
(Negative) /Positive
2011
2010
2011
2010
USD
000’s
USD
000’s
USD
000’s
USD
000’s
- Interest rate cap
50,000
50,000
(750)
(675)
b) Cash flow hedges
This instrument enables the Group to mitigate the risk of fluctuations in oil prices for 60,000 barrels of oil per
month by locking the price at USD 81.85 up to the strike price of USD 95. The fair value of oil put option at
the end of the reporting period is determined by discounting the future cash flows using the curves at the end
of the reporting period and the credit risk inherent in the contract, and is disclosed below.
The following table details the notional principal amount and the fair value of the oil put option outstanding
at the end of the reporting period.
Cash flow hedge
Notional principal value
Fair value
(Negative) /Positive
2011
2010
2011
2010
USD
000’s
USD
000’s
- Oil put option
60,000 barrels
of oil per
month up to 1
October 2011
60,000 barrels
of oil per
month up to 1
October 2011
-
(3,662)
The oil put option settles on a monthly basis and no amounts were open at 31 December 2011.
The oil put option is designated as a cash flow hedge
in order to reduce the Group’s exposure
to fluctuations
in oil prices and is deemed to be highly effective.
Kuwait Energy Plc And Subsidiaries
Notes To The Consolidated Financial Statements
For The Year Ended 31 December 2011
Kuwait Energy Plc And Subsidiaries
Notes To The Consolidated Financial Statements
For The Year Ended 31 December 2011
