Kuwait Energy Annual Report 2009

Laila Tower, 13th floor, Salem Mubarak St, Salmiya, KuwaitP.O Box 5614, Salmiya 22067 Tel.: (+ 965) 2575 5657 Fax: (+ 965) 2575 5679

Annual Report 2009

www.kec.com.kw

For queries, please contact:

Abbas Al-RasheedPublic Relations Advisor Kuwait Energy CompanyTel: (+965) 25755657 – 25755878 / Ext 314Fax: (+965) 25755679Mobile: (+965) 97298106Email: [email protected]

Kuwait Energy C

ompany

Energy in the Middle East

Annual Report 2009

On the cover:

Mahdy Kotb, Vice President Operations, Kuwait Energy

Egypt and Mohammad Al Timimy, Petroleum Engineer,

Kuwait Head Office in Burg El Arab Field, Egypt

operated by Kuwait Energy since October 2009


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Annual Report 2009

H. H. Sheikh Nawaf Al-Ahmad Al-Jaber Al-SabahCrown Prince of the State of Kuwait

H. H. Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah

Amir of the State of Kuwait

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Kuwait Energy K. S. C. C. was established in 2005 and is one of the fastest growing, independent, oil and gas exploration and production companies in the Middle East.

Kuwait Energy has a high quality and diverse portfolio of oil and gas assets, and is focused on production, development and exploration of oil and gas reserves in the MENA and Eurasia regions.

Headquartered in Kuwait, the Company’s regional offices includeCairo, Sana’a, Baghdad, Moscow and Kiev overseeing operations in seven countries namely Egypt, Yemen, Oman, Ukraine, Latvia, Russia and Pakistan. Our participation interests range from 15% to 100% across our exploration and producing assets, providing a balance of risk diversification with significant upside exploration potential.

Who We Are

Executive Management Strategy Meeting - 29 October 2009, Kuwait


Contents

Message from the Chairman & Managing Director 06

Board of Directors 08

Kuwait Energy Assets 10

Financial and Operating Highlights 12

Chief Executive’s Report 15

Financial Performance 15

Acquisitions 15

Operations 16

Development Activities 18

Reserves 19

Exploration Activities 20

Business Development 21

Other Corporate Activities 22

Corporate Governance Report 25

Internal Management Controls 25

Corporate Governance Review by IFC 25

Board Performance 25

Board Committees 26

Remuneration Report 30

Remuneration Disclosures – Executive and Non-Executive Directors 30

Employee Incentive Scheme 31

Kuwait Energy Five Year Summary 33

Consolidated Financial Statements and Independent Auditors’ Report for the year ended 31 December 2009 34

Glossary & Definitions 75

4

2009 Milestones


Oil Storage Tanks, Burg El Arab, Egypt

6

On behalf of my colleagues on the Board of the Kuwait Energy Company, I have great pleasure in presenting the Annual Report for the fiscal year ending31 December 2009, which was another profitable year with an increase in reserves and production.

Financial OverviewKuwait Energy was able to secure an innovative, Sharia-compliant, Islamic reserve based financing of US$50 million from the International Finance Corporation (IFC) despite the global markets’ continued state of turmoil and volatility. This was the first time that the IFC had offered this type of financing in the oil and gas industry, to support a local private oil and gas company in the Middle East and North Africa (MENA) that is expanding regionally and providing valuable jobs and revenues to governments.

The US$50 million is being utilized for the development and exploration of our assets in Egypt and Yemen. The primary focus in 2009 was to consolidate the eight assets acquired from Oil Search in 2008, with our existing assets in these countries, to build upon our operational and technical expertise and enhance our reputation as an operator.

Kuwait Energy reported a net profit of US$5.6 million for 2009 which follows on from the company successfully reporting yearly net profits since its inception in August 2005. The year-end exit working interest production achieved for 2009 was 15,927 barrels of oil equivalent per day (boepd), a 68% increase on 2008. Revenue remained stable at US$88.3 million, down 3%

from 2008 due to a lower realised oil price in 2009, despite higher production.

OperationsKuwait Energy’s first exploration drilling program began in 2008 and yielded three exploration successes out of four wells in Egypt. This high success rate continued into 2009 with four exploration discoveries in Egypt from ten wells, with two of these discoveries coming from Kuwait Energy operated blocks.

Our exploration focus is on the MENA region, which is a prolific hydrocarbon bearing region with lower risk. Our exploration results to date reflect this lower risk.

In 2009, Kuwait Energy continued to move reserves from undeveloped to developed by the drilling of 35 development wells with four wells drilling at year-end. The majority of these development wells were drilled in the MENA region. Kuwait Energy’s year end 2009 proved and probable reserves increased by 18% to 51.2 million barrels of oil equivalent (mmboe).

Kuwait Energy’s exploration portfolio increased with the successful bid for the prospective North Block in Latvia.

Acquisition activity continued in 2009 with Kuwait Energy successfully acquiring additional working interests and operatorship of the following assets:· 25.00% in Burg El Arab, Egypt· 12.00% in Abu Sennan, Egypt · 63.44% in Luzskoye and Chikshina, Russia (subject to completion).

Message from the Chairman& Managing Director


Corporate DevelopmentWith an impressive growth record to date and the desire to fund further significant growth, Kuwait Energy was granted approval by its shareholders at the 2009 AGM to explore a possible listing on the London and/or Kuwait Stock Exchanges. The company has appointed the following Advisors to assist the Company in executing this significant event:

• JP Morgan as Financial Advisor • Deloitte as Reporting Accountant• Lovells as Legal Counsel• Pelham Bell Pottinger as Financial Public Relations Advisor

Corporate GovernanceKuwait Energy sought the IFC’s input on corporate governance best practices. The IFC assessed Kuwait Energy’s current corporate governance framework and provided recommendations for improvement, based on IFC’s corporate governance methodology. Kuwait Energy has committed to pursuing these improvements to bring its corporate governance framework in line with international practices and standards.

Health, Safety, Environment and Social ResponsibilityKuwait Energy gives Health, Safety and Environment and Social Responsibility (HSESR) high importance in its operational activities. Our Egypt operations recorded zero Lost Time Incident during 2009; an achievement of which all of us at Kuwait Energy are immensely proud. Additionally, some of our Eurasia operations recently achieved ISO 9001 (Quality Management System) and ISO 14001 (Environmental Management System) certifications.

Kuwait Energy is a founder member and co-sponsor of the Kuwait Science Fair together with ExxonMobil Exploration and Production Kuwait Limited and the Kuwait Scientific Centre. This is an initiative to develop and nurture interest in science in the youth of Kuwait. An inter-school quiz competition is held once a year that is well represented and attended by over 50 high schools in Kuwait.

As part of IFC’s requirements for the US$50 million Reserve Based Funding granted to Kuwait Energy, we are required to demonstrate Corporate Social Responsibility by way of contributions to sustainable economic development by working with our employees, their families, the local communities and the society at large. Kuwait Energy is working with the IFC to develop a detailed environmental and social action plan to enhance the Company’s operations as well as to contribute to the development of the countries in which it operates.

Board CompositionWalter Brandhuber, formerly Managing Director of Millennium Private Equity Energy Fund headquartered in Dubai, United Arab Emirates joined the Board of Directors, bringing 28 years of experience in the international oil and gas industry.

EmployeesKuwait Energy enjoys a multinational, multicultural workforce with its employees coming from over 22 countries. Kuwait Energy had 292 employees at the end of 2009, a growth of 27% in employee

strength over 2008. On behalf of the Directors, I would like to thank everyone at Kuwait Energy for their valuable contribution, energy and commitment in 2009 to advancing the interests of our shareholders.

OutlookKuwait Energy’s vision, since commencement in 2005, is to achieve production of 50,000 barrels of oil equivalent per day and reserves of 300 million barrels of oil equivalent by the end of 2010. The company remains focused on achieving these ambitious targets and acknowledges that these targets would in all likelihood be met through inorganic growth. The Board remains focused on ensuring that any growth transaction meets strict financial targets, is complementary to our existing asset base and operations and provides value to our shareholders.

There are outstanding opportunities for developing oil and gas assets in the Middle East as the region opens up to international oil companies. Kuwait Energy is uniquely placed to access these assets given its local knowledge, technical understanding, commercial ability and international experience in a team built up over the last four to five years.

Your company is working hard on capturing a number of the large scale projects available in Yemen, Iraq and Kuwait. For us, 2010 promises to be an exciting year and we expect to deliver enormous growth to our shareholders through one or more of these exceptional projects.

Dr. Manssour AboukhamseenChairman & Managing Director

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Board of Directors

Dr. Manssour Aboukhamseen, Chairman & Managing Director

Dr. Manssour Aboukhamseen is a successful business entrepreneur and leader and the founder of several successful business enterprises.

He has over 23 years of experience in the oil and gas industry in Kuwait Oil Company (KOC), Zahra Group and Kuwait Energy.

He has a Ph.D. in Modern History from Berkeley University, California, USA

Board member and Chairman since June 2006.

Sara Akbar, Chief Executive Officer

Sara Akbar is a well known figure in the industry, both inKuwait and internationally.

She has over 28 years experience in the oil and gas industry having worked in several challenging senior positions in KOC and in Kuwait Foreign Petroleum Exploration Company (KUFPEC).

She has a B.Sc in Chemical Engineering from the Kuwait University.

Board member and Chief Executive Officer (CEO) sinceOctober 2005.

Dr. Manssour AboukhamseenSara Akbar

Jason SelchTareq Al Wazzan

Walter Brandhuber Mohammad Algharaballi

Ashour Habeeb


Jason Selch, Non-Executive Director

Jason Selch is the Managing Director of Equity Group Investments, a private investment firm based in Chicago,USA and since 2002 has been a member of the Board of Directors of MB Financial Bank, a Chicago based commercial bank with US$8 billion in assets.

He holds both a BA in Economics and MBA in Finance from the University of Chicago. He was awarded the Chartered Financial Analyst (CFA) designation in 1997.

Board member since January 2007.

Tareq Al Wazzan, Non-Executive Director

Tareq Al Wazzan is the CEO of Aref Energy Holding Company, a subsidiary of the Aref Investment Group, a leading investment group in Kuwait.

He has over 23 years experience in the oil & gas industry managing several strategic projects and has gathered an in depth understanding of the oil supply chain and international energy markets with Kuwait Petroleum Corporation (KPC).

He has a B.Sc in Business Administration from San Diego State University, USA.

Board member since March 2008.

Mohammad Algharaballi, Non-Executive Director

Mohammad Algharaballi heads the Business Development in Aref Energy Holding Company, a subsidiary of Aref Investment Group, a leading investment group in Kuwait.

Prior to joining Aref Energy Holding in 2007, Mohammad Algharaballi worked with KOC for over 14 years where he gained vast experience in the oil and gas production operations and corporate planning.

He has a B. Sc in Petroleum Engineering from Colorado School of Mines, USA.

Board member since March 2008.

Ashour Habeeb, Non-Executive Director Ashour Habeeb is Vice President – Corporate Affairs, Zahra Group Holding, Kuwait. He has over 35 years experience in the oil and gas industry where he has worked in various capacities in KPC and KOC as Manager of Sales & Administration, Manager of Bunker Sales and Manager of Crude Oil & LPG. He also worked for the Gulf Oil Corporation at Port Arthur Texas Refinery, USA for a year. He has a Diploma in Oil Handling, University of Pittsburgh, Pennsylvania, USA. Board member since October 2008.

Walter Brandhuber, Non-Executive Director

Walter Brandhuber is a founding Principal and CEO of Eastbridge Al Mal Investments Ltd. headquartered in Dubai, United Arab Emirates. Prior to joining Eastbridge, Walter was Managing Director of the Millennium Private Equity Energy Fund during which time the fund invested in Kuwait Energy among other transactions.

He holds a BA from Loyola University of Chicago, an MBA from the University of Notre Dame and a Doctor of Jurisprudence from the University of Oklahoma, USA.

Board member since May 2009.

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Kuwait Energy AssetsKuwait Energy Group Interests as at 31 March 2010

Country Ref Asset/Block/Field Revenue Interest Cost Interest Operator

% %

Egypt

1 Abu Sennan 72.0% 100.0% Kuwait Energy

2 Burg El Arab (BEA) 75.0% 75.0% Kuwait Energy

3 Area A 70.0% 70.0% Kuwait Energy

4 ERQ 49.5% 49.5% Sipetrol

5 Block 6 30.0% 30.0% Melrose Resources

Yemen

6 Block 15 41.6% 43.8% Kuwait Energy


8 Block 43 28.3% 33.3% DNO International



11 Block 82 21.3% 25.0% Medco Energi

12 Block 83 21.3% 25.0% Medco Energi

Oman 13 Karim Small Fields 15.0% 15.0% Medco LLC

Pakistan14 Jherruck 40.0% 40.0% NHEPL

15 Kunri 40.0% 40.0% NHEPL

Cambodia 16 Block E 20.6% 20.6% Medco Energi

Latvia17 License 1 45.0% 50.0% Kuwait Energy

18 North Block 45.0% 50.0% Kuwait Energy

Russia19 Luzskoye 100.0% 100.0% Kuwait Energy

20 Chikshina 100.0% 100.0% Kuwait Energy

Ukraine

21 Bilousivska (B) 100.0% 100.0% Kuwait Energy

22 Chornukhynska (C) 100.0% 100.0% Kuwait Energy

23 North Yablunivska (NY) 100.0% 100.0% Kuwait Energy

24 Dubrivska 100.0% 100.0% Kuwait Energy

25Bilske & Kulichihinske

(JAA 429)25.0% 25.0% Ukragas

26Rudivsko-

Chervonozavodske (RC)14.9% 16.6% Ukranafta

27 Bytkiv-Babchenske 45.0% 45.0% UkrCarpat Oil


Diverse Portfolio with MENA Focus

Producing Assets with Exploration Potential Awaiting Development with Exploration PotentialExploration Assets

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Sales Revenues US$ million 88.3 90.8

Cost of Sales US$ million 70.8 71.0

EBITDA US$ million 50.4 53.5

Net Income US$ million 5.6 29.9

Net Cash from Operating Activities US$ million 33.5 7.4

Property, Plant & Equipment US$ million 102.7 226.6

Exploration Evaluation Assets US$ million 72.0 154.4

Total Capital Expenditures US$ million 174.7 381.0

Total Assets US$ million 680.9 577.7

Net Debt (Non-Collateralised) US$ million 28.0 -

Shareholder Equity US$ million 580.1 525.7

Earnings Per Share US Cents 0.52 4.02

Exit WI Production BOEPD 15,927 9,478

Proven Plus Probable Reserves* MMBOE 51.2 43.4

Exploration Wells # 10 4

Development Wells # 39 44

Workovers # 44 46

Financial and Operating Highlights

2009 2008

* Excludes Oman where the Service Agreement does not allow external Reporting.

Energy in the Middle EastEnergy in the Middle East

Producing Well, Area A, Egypt

Drilling Operations at BC Fields, Ukraine


Chief Executive’s Report

On behalf of the management team of Kuwait Energy, I present this report on our activities in 2009:

Kuwait Energy continued on its growth path by increasing production, adding reserves, increasing the number of operated assets and building upon its employee strength. A financing facility of US$50million was obtained to enable future growth of our asset base and a net profit of US$5.6 million was achieved,despite the global financial crisis andlower oil prices. I am very proud to announce that Kuwait Energy has reported a profit every year since itsinception.

a. Financial Performance

Profits: Our financial performancebenefited from our increasedproduction, however lower realised oil prices resulted in a net profitdecrease from US$29.9 million in 2008 to US$5.6 million in 2009.

Cash Position: The Company generated an operating cash flow ofUS$33.5 million in 2009 compared to US$7.4 million in 2008. The cash position at the end of 2009 was US$29.6 million with US$30.0 million remaining to be withdrawn from the IFC financing facility. During the yearUS$23.6 million was raised from equity and we are currently in the process of raising further equity to support the Company’s growth.

Capital Expenditure: US$174.7 million was spent on: • Payment for the purchases of additional interests in Abu Sennan and Burg El Arab Egypt; • Acquiring Russian assets of Pechora Energy Company and VIK;• Exploration and developing the existing assets of the Company, especially in Egypt and Ukraine.

Credit Rating: Kuwait Energy was credit rated by Capital Intelligence, Cyprus in July 2009 and was accredited with a long term rating of BBB-. The drivers of this rating include a well capitalized balance sheet, an increasing barrels per day production, a coherent strategy aided by very good management and a significant increase in projectedreserves.

b. Acquisitions

Acquisition of Russian assets from Pechora Energy Company and VIK: On 31 December 2009, Kuwait

Energy agreed to acquire (for shares) Pechora Energy Company and VIK (two wholly owned subsidiaries of Concorde Oil & Gas Plc), the owners of two assets Luzskoye and Chikshina in Russia. The transaction is expected to complete by June 2010. Prior to completion, Kuwait Energy has a 36.56% interest in the two subsidiaries.

Luzskoye is producing oil and is in the early stages of development whereas the Chikshina development is scheduled to commence in 2010. The year-end proved and probable reserves for these Russian assets were 18.1 million barrels of oil equivalent. Kuwait Energy is now the operator of these assets and is actively reducing overheads by shutting down the London, Moscow and Pechora offices and opening anoffice in Ukhta from where theseassets will be operated.

Acquisition of additional interests in existing Egyptian assets: Burg El Arab

On 14 July 2009, Kuwait Energy signed an agreement with Gharib Oil Fields to acquire an additional 25% interest in the Burg El Arab field inthe Western Desert, Egypt and to take over its operatorship. The year-end proved and probable reserves for Burg El Arab were 10.5 million barrels of oil equivalent in which Kuwait Energy has a 75% interest.

Since becoming the operator on 4 August 2009, Kuwait Energy has experienced exploration success with

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its first well in BEA N-1X. The plan is to enhance further value by the acceleration of development and exploration drilling, both in the current producing horizons as well as in the deeper Jurassic formation. Four development wells and two exploration wells are scheduled for 2010.

Abu SennanIn 2009, Kuwait Energy completed the acquisition of an additional 3% interest from Tradewinds and 9% interest from Dover in Abu Sennan, which is located in the Western Desert, Egypt. Kuwait Energy is the operator of this asset which is scheduled to commence production in the second quarter of 2010. The year end proved and probable reserves for Abu Sennan are 1.0 million barrels of oil equivalent of which Kuwait Energy has a 72% interest. This block is viewed as one of Kuwait Energy’s most prospective blocks.

c. Operations

ProductionKuwait Energy’s production has continued to grow year on year with 2009 exit production of 15,927 boepd, a 68% increase in comparison to 2008. This increase was primarily due to the production from the development of exploration discoveries Shukheir North West in Area A and Al Zahraa in East Ras Qattara, the successful workover of Ch3a well in Ukraine and the increased interests in our Egyptian and Russian assets.

The ARD fields contract in Indonesia ended on 22 April 2009.

In the East Ras Qattara fields in Egypt, production operations were constrained in 2009 owing to transport facility limitations which are now resolved.

In 2009, Kuwait Energy became the operator of Burg El Arab asset in Egypt, Luzskoye and Chikshina assets in Russia and the North Block asset in Latvia increasing the number of assets operated to fourteen.


2009 Daily Average 2008 Daily Average % change

Country Asset BOEPD BOEPD

Egypt

BEA 193 212 -9%

Area A 4,008 1,729 132%

ERQ 2،092 798 162%

Total 6,293 2,738 130%

Ukraine

Rudis (BC & NY) 311 372 -16%

RC 284 284 0%

Bytkiv 40 37 8%

JAA 429 333 155 155%

Total 969 848 14%

Oman KSF 2,635 2,128 24%

Yemen Block 43 1,093 1,185 -8%

Russia Luzskoye 263 393 -33%

Indonesia ARD* 245 869 -72%

Kuwait Energy Total 11,499 8,160 41%

Production Summary

* ARD Fields Contract ended 22 April 2009

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Kuwait Energy has an extensive development portfolio including both operated and non operated producing assets in Egypt, Ukraine, Russia, Oman and Yemen. With large volumes of reserves yet to be developed (particularly in Egypt, Ukraine, Oman and Russia), the development activity in 2009 has been significant.

Thirty five development wells were drilled duringthe year with a further four wells drilling at year end. The program added 5,000 bopd to production and developed 3.5 million barrels of oil equivalent. Production facilities were installed at the Shukheir North West and Al Zahraa oil discoveries in Egypt, and work continued on the new oil treatment facility at the Luzskoye oil field in Russia.The Kuwait Energy operatedgas treatment plant in Ukraine was upgraded with further upgrades on going into 2010.

Field Operations BC Fields, Ukraine

Detailed geological and engineering studies commenced in a number of the Kuwait Energy operated assets in Egypt, Ukraine and Russia. These studies, incorporating 3D seismic and including 3D static and dynamic modelling will greatly improve our current understanding and allow optimal commercial development of these core assets.

Kuwait Energy continues its strong record of sound and safe petroleum development. New staff have been recruited adding many years of international experience and significant expertise in all aspects of petroleumdevelopment. The team is strong and will facilitate industry leading development projects into the future.

d. Development Activities

· 6 Development wells in Shukheir North West field, Area A, Egypt· Total 39 development wells drilled in 2009


e. Reserves

Kuwait Energy Reserves and Resources SummaryAs at 31 December 2009

2P RRR = 340%

Classification

Reserves

Contingent &ProspectiveResources

Kuwait Energy Working Interest Reserves and Resources mboe

Category

2P

Mid Case

YE08

43,445

921,146

ExplorationAdds

2,394

.............

Acq/Divest &

Revisions

8,592

800,854

YE09(GCA/NSAI)

51,197

1,722,000

Production

3,235

.............

Notes 1. Estimates above are Kuwait Energy Working Interest and are unrisked.2. Estimates above exclude Karim Small Fields (Oman) which is covered by a Service Agreement which does not allow external reporting of reserve volumes.3. YE09 reserves were audited by Gaffney Cline & Associates (GCA) with the exception of Russia which was audited by Netherland Sewell & Associates (NSAI).

Reserves and Resources DefinitionReserves and resources have been estimated in accordance with the 2007 Society of Petroleum Engineers (SPE), World Petroleum Council (WPC), American Association of Petroleum Geologists (AAPG), Society of Petroleum Evaluation Engineers (SPEE), Petroleum Resources Management System (PRMS) – commonly referred to as the SPE PRMS.

Proven plus Probable Reserves (Kuwait Energy Working Interest)

Reserves year-end 2008

Production

Exploration Discoveries

Acquisition/Divestments & Revisions

Reserves year-end 2009

85,350

1,894

0

-25,545

57,912

Sales Gas(mmcf)

25,041

2,892

2,394

14,070

38,614

Crude Oil

(mbbl)

4,470

28

0

-1,307

3,135

Condensate

(mbbl)

43,445

3,235

2,394

8,592

51,197

Total

(mboe)

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Exploration Drilling

Ten exploration wells were drilled in 2009 resulting in four discoveries, one appraisal success, four dry holes and one well in Block 43, Yemen is currently under evaluation. This yielded a 50% success rate and a three year average finding cost of US$6.84/boe for proved and probable reserves for Kuwait Energy. Exploration success in 2009 resulted in the addition of 2.4 million barrels of oil equivalent of proved and probable reserves and approximately 5,400 barrels of oil per day of additional production.

Kuwait Energy as an operator drilled three wells in 2009 based on high quality technical work in two concessions in Egypt, Area A and Burg El Arab (BEA) resulting in two discoveries, Shukheir NW in Area A and BEA North. The Shukheir NW well was Kuwait Energy’s first fully operated exploration well and was subsequently followed up with seven development wells and one sidetrack well. The three non-operated exploration discoveries were all in East Ras Qattara (Al Zahraa1and Diaa).

Geophysical and Geological Studies

During 2009, Kuwait Energy participated in acquiring, processing, reprocessing and the reinterpretation

of approximately 1,300 kilometres of seismic data in Yemen, Pakistan, Latvia and Ukraine. These efforts resulted in the identification of a number of prospects and leads.

Kuwait Energy entered into an agreement with Fugro Robertson Limited (FRL), United Kingdom to provide specialized geological and geophysical support related to the exploration function. During 2009, FRL became Kuwait Energy’s primary consultant to prepare geological studies and provide a detailed update for the Contingent and Prospective resource assessment in Kuwait Energy’s exploration portfolio. Kuwait Energy exploration staff worked as

f. Exploration Activities

• Five of the ten 2009 exploration wells were successful (50% success rate)• Four exploration discoveries; two of the discoveries were on Kuwait Energy operated blocks• Three year average finding cost of US$6.84/boe for proved and probable reserves• Technically defined 1.7 billion boe un-risked resource potential

part of the integrated team with FRL and closely managed the work for technical excellence. This study resulted in Kuwait Energy identifying and technically documenting 1.7 billion barrels of oil equivalent of un-risked resources and confirming the Company’s significant upside related to exploration potential.

New Exploration Asset

Kuwait Energy was successful in the bid round to acquire one prospective exploration North Block offshore Latvia (899 square kilometres) in shallow water. The block is adjacent to and borders Kuwait Energy’s existing Licence 1 and is covered by existing 2D seismic.


g. Business Development

Business development is a key focus for Kuwait Energy as it strives to meet its inception targets of 50,000 barrels of oil equivalent per day production and300 million barrels of oil equivalent reserves by the end of 2010. In addition to its Acquisition Department, a Projects Department was established in the fourth quarter of 2009 in order to develop business opportunities in the Gulf Region and surrounding countries, and to maintain the focus of Kuwait Energy on the Middle East region.

Kuwait Energy is positioning itself to capture future opportunities in Yemen, Iraq and Kuwait. Currently, Kuwait Energy has an office in Sana’a which overseesthe operations of our seven blocks in Yemen, where we are one of the largest holders of exploration acreage and enjoy good working relationships with the

Government and the Ministry. The Yemen gas sector has existing potential opportunities to supply power plants, industry and the domestic market which Kuwait Energy is investigating.

In September 2007, Kuwait Energy signed a Memorandum of Cooperation with the Ministry of Oil, Iraq and obtained available data and information on the Siba gas field inorder to propose a field development plan.A Siba fieldworkshop was held in early 2009 and was attended by representatives from the Ministry of Oil, Iraq and the South Oil Company, Iraq. Kuwait Energy continues to pursue opportunities in Iraq.

Kuwait Energy tendered a bid for Kuwait Oil Company’s new GC-16 Project in West Kuwait in mid 2009. The bid is being evaluated and the results are awaited.

Production Facilities, Burg El Arab, Egypt

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h. Other Corporate Activities

Human Resources

Kuwait Energy has had to grow significantly in its staffing function in order to keep up with its rapid expansion in assets and operations. In 2009, over 60 new employees joined the Company.

Kuwait Energy has provided access to its employees to internet based learning tools such as International Petroleum Industry Multimedia System(IPIMS). This system is an award winning, extensive online training system which operates accredited learning courses on all topics involving upstream oil and gas.

Information Technology

During 2009, Kuwait Energy’s Information Technology department aimed to provide services through state-of-the-art tools and systems with an average uptime of 99.73%.

Kuwait Energy is equipped with a company-wide cost effective yet secure network infrastructure that uses a single network topology. Additionally, the Kuwait Energy data centre is modern and robust and allows for an automated and reliable back-up system.

Sara AkbarChief Executive Officer

Legal

Kuwait Energy is a Sharia compliant company and has appointed a Sharia auditor to regulate Kuwait Energy’s compliance with the Sharia Law. All legal documents and contracts are subject to approval by the Sharia auditor for compliance.

Commercial

During 2009, the Commercial department started providing efficient and cost effective tendering and procurement services to all the departments and divisions in the Company. As a result of which Kuwait Energy has implemented procurement, contracting and warehousing best practices in all its offices. The Materials Management System facilitates tracking and record keeping of commitment documents such as purchase orders and effective inventory management.

Open Day 2009, Failaka Island, Kuwait

Staff at Kuwait Head Office receiving seasonal flu vaccine

Energy in the Middle EastEnergy in the Middle East

Mud System on Rig EDC – 63, Area A, Egypt

Workover Operations, Area A, Egypt


Kuwait Energy’s Board and management recognise the importance of adhering to the best international practices and standards of corporate governance.

This report illustrates the main aspects of the Company’s Corporate Governance.

a. Internal Management Controls

Delegation of Authority Document: The Delegation of Authority provides the structure within which all aspects of Kuwait Energy’s business is conducted. It is mandatory and sets out the key policies and procedures that are to be adhered to across all of Kuwait Energy’s operations. It is essential for the Company’s managers to understand the principles and procedures outlined in the Delegation of Authority document.

b. Corporate Governance Review by IFC

The IFC is a member of the World Bank and is widely perceived to be a leader amongst multilateral financialinstitutions in the area of corporate governance in emerging markets.

Kuwait Energy engaged the IFC to conduct a corporate governance review in 2009 to assess Kuwait Energy’s current corporate governance framework and to provide recommendations for improvement.

The IFC Team conducted interviews with numerous individuals, including Board members and various executives. In addition, the IFC Team collected and analysed key company documents.

The IFC provided recommendations to improve Board performance and internal management control which Kuwait Energy is currently implementing.

c. Board Performance

Kuwait Energy’s Board of Directors comprises seven members.

The Chairman of the Board also performs an executive role as the Managing Director of the Company. The CEO and the other five (non-executive) Directors allrepresent (or represented at the time of appointment) significantshareholders.

There is a clear distinction in the roles of the Chairman and the CEO. The Chairman devotes approximately 40% of his time to engaging with shareholders; 30% to managing all other types of relationships, including the governance process; and 30% on the operations of the Company.

The Board functions in a spirit of teamwork and cooperative support. Every Board member is required:

• to attend scheduled board meetings of the Company’s Board of Directors; • to represent the shareholders and

the interests of the Company as a fiduciary in accordance with the Kuwait General Company Law; and • to participate as a full voting member of the Company’s Board of Directors in setting overall objectives, approving plans and programs of operations, formulating general policies, offering advice and counsel, serving on board committees and reviewing management performance.

The Chairman has the overall responsibility of communicating with Shareholders and keeping the board appraised in this regard. Additionally, the Company issues quarterly activity reports to its shareholders for periodic updates on the operations and activities of the Company.

Corporate Governance Report

26

The following members served on the Board of Directors during 2009:

Manssour Aboukhamseen Chairman & Executive Director

Sara Akbar Chief Executive Officer

Jason Selch Non-Executive Director

Tareq Al Wazzan Non-Executive Director

Mohammad Algharaballi Non-Executive Director

Ashour Habeeb Non-Executive Director

Mohammad Al Howqal (1) Chief Operations Officer

Walter Brandhuber (2) Non-Executive Director

(1) Mohammad Al Howqal resigned from the Board in April 2009(2) Walter Brandhuber joined the Board in May 2009

d. Board Committees

To facilitate transparency in the management of the Company’s business and encourage participation by the Board members, the Board has formed three committees namely the Audit Committee, Compensation Committee and Corporate Governance Committee. The members and Chair of the Committees are recommended, appointed, removed by and serve at the discretion of the Board.

The Board met seven times in 2009 on the following dates:

Sl. No Meeting Ref No. Date Place

1 1/2009 07 January 2009 Kuwait

2 2/2009 26 March 2009 Kuwait

3 3/2009 02 April 2009 Kuwait

4 4/2009 05 May 2009 Kuwait

5 5/2009 28 July 2009 New York

6 6/2009 20 October 2009 Kuwait

7 7/2009 15 December 2009 Kuwait


Register of attendance of Board members and Committee members from 01 January 2009 to 31 December 2009:

Board(7 Meetings)

Audit Committee(5 Meetings)

Compensation Committee(3 Meetings)

Manssour Aboukhamseen 7/7 - -

Sara Akbar 7/7 - -

Jason Selch 7/7 5/5 3/3

Tareq Al Wazzan 3/7 3/5 -

Mohammad Algharaballi 6/7 - 3/3

Ashour Habeeb 7/7 5/5 3/3

Mohammad Al Howqal 2/3 - -

Walter Brandhuber 4/4 - -

The average Board members attendance at the Board meetings was 88%.

The Committees are made up of three members each, constituting of only the non-executive Directors on the Board.

Audit Committee Compensation CommitteeCorporate Governance

Committee

Chairman Chairman Chairman

Jason Selch Mohammad Algharaballi Walter Brandhuber

Members Members Members

Tareq Al Wazzan Jason Selch Tareq Al Wazzan

Ashour Habeeb Ashour Habeeb Ashour Habeeb

28

Audit Committee

The Board of Directors has established an Audit Committee, which is responsible for assisting the Board of Directors in fulfilling itsfiduciary responsibilities to provideoversight with respect to:

(a) the integrity of the Company's financial statements and otherfinancial information provided tostockholders and others;(b) the Company's system of internal controls;(c) the engagement and performance of the independent auditors;(d) the performance of the internal audit function; and(e) compliance with legal requirements and Company policies regarding ethical conduct.

In so doing, the Committee provides a focal point for free and open communications amongst the non-executive directors, the Company's management, the internal auditors and the independent auditors.

The Executive Directors do not attend the Audit Committee meetings.

The Audit Committee met five timesduring 2009. Some of the key items considered at these meetings were:

1. Review of 2009 Interim Accounts 2. Audit Plan for 2009 Accounts3. Mid-Year 2009 External Reserves Audit & Year-End 2009 Preliminary Reserves Forecast4. Proposed 2009 Reserves Process5. Economic Assumptions

6. Revisions to the Audit Committee Charter

In addition to the above the Board Audit Committee has been delegated with an internal control function, as follows:

a) Reviewing with the management and the independent auditors the adequacy of the Company's internal controls, including computerized information system controls and security. b) Reviewing with management the scope and results of management's evaluation of disclosure controls and assessment of internal controls over financial reporting, including therelated certifications to be includedin the Company's periodic reports. c) Reviewing with the independent auditors the scope and results of their review of management's assessment of internal controls over financial reporting.d) Review the Company’s overall Sharia compliance.e) Review and approve the Company’s financing/investmentproposals, as and when required.

Corporate Governance Committee

The Corporate Governance Committee was recently established to oversee and monitor matters of corporate governance. Some of the key responsibilities of the Corporate Governance Committee include: 1) Allocation of responsibilities among the Board and its various committees and the management;2) Review annually and make recommendations to the Board regarding Board & management performance, practices and procedures, and the Board’s meeting schedule in light of the operating requirements of the Company and existing social attitudes;3) Review the content of Board meetings and the adequacy of material provided to Directors and make recommendations to the Board related thereto;4) Formulate, recommend to the Board and oversee the implementation and administration of the Company's corporate governance structure and framework;5) Review annually and make recommendations for additional corporate governance matters as necessary or appropriate or as directed by the Company's Chairman or the Board;6) Review periodically, and approve changes to the Company's code of conduct and other policies with respect to legal compliance, conflictsof interest and ethical conduct;


7) Oversee the development and implementation of policies and management systems relating to environmental, social and governance issues in order to ensure compliance with applicable laws and best practices and monitor the Company’s performance against sustainability objectives set under those policies and systems.

8) Review annually and assess the adequacy of this Charter and the performance of the Committee, and recommending to the Board for approval any proposed changes to this Charter or the Committee.

In addition to the above responsibilities, the Committee will undertake such other duties as the Board delegates to it, and will report periodically to the Board regarding the Committee's examinations and recommendations.

3. Acting as administrator of the Company's compensation plans, including granting awards to executive officers and directors, reviewing aggregate awards for other eligible individuals and determining the terms and conditions of such awards. The Committee shall also make recommendations to the Board of Directors with respect to amendments to the plans and changes in the number of shares reserved for issuance under such plan;

4. Evaluating the performance of the Chairman and the Chief Executive Officer (and such other executive officers as the Committee deems appropriate) in light of the Company's current business environment and the Company's strategic objectives;

5. Reviewing with Company management and approving recommendations with regard to aggregate salary budget and guidelines for all Company employees;

6. Evaluating the need for, and provisions of, employment contracts or severance arrangements for the executive officers.

The Compensation Committee met three times during 2009. Some of the key items considered at these meetings were:

1. Performance Appraisal of Chairman, CEO and Vice Presidents ;2. Revisions to the Human Resources policy;3. Revisions to the Compensation Committee Charter.

The Executive Directors do not attend the Compensation Committee meetings.


Compensation Committee

The Board of Directors has established a Compensation Committee to review and approve, on behalf of the Board of Directors, management recommendations regarding all forms of compensation to be provided to the executive officers and directors of the Company and bonus and stock compensation guidelines to all employees.

Some of the key responsibilities of the Compensation Committee include:

1. Reviewing with Company management and approving the compensation policy for executive officers and directors of the Company, and such other managers of the Company as directed by the Board;

2. Reviewing with Company management and approving all forms of compensation to be provided to the executive officers of the Company;

30

This report discloses the remuneration paid to the Executive and Non-Executive Directors of the Board for the year 2009.

a. Remuneration Disclosures: Executive and Non-Executive Directors

The Kuwait Commercial Law and the Company’s Articles of Association stipulate that in any year in which no dividends are distributed to the shareholders, Board members’ remuneration shall be limited to a maximum of KD1,000 per annum.

In 2009, the Directors were paid the following remuneration for their services:

Manssour Aboukhamseen US$3,500

Sara Akbar US$3,500

Jason Selch US$3,500

Tareq Al Wazzan US$3,500

Mohammad Algharaballi US$3,500

Ashour Habeeb US$3,500

Walter Brandhuber US$3,500

Assuming 1KD = US$3.50

The Directors are entitled to receive reimbursement for reasonable expenses incurred by them and that are necessary for the performance of their duties to the Company. Expenses may be reimbursed by the Company on presentation of an invoice or voucher indicating the amount of the expense, the nature of the expense and the business purposes involved. The expenses anticipated include (i) transportation costs, including one round-trip business class airline ticket, between the Director’s home town and the location of any meeting of the board of directors, shareholders or committees that the Director is required to attend (ii) lodging at a five-star hotel. Any Board member who needs to travel internationally to attend a meeting is paid an honorarium of US$500 per meeting.

Executive Directors Annual Remuneration*

2009 in KD 2008 in KD % Change

Manssour Aboukhamseen 107,500 107,500 Nil

Sara Akbar 96,100 96,100 Nil

*includes fixed salary, housing, transport allowances and annual air tickets.Other benefits: Health Insurance for self

Remuneration Report


Executive Directors Service Contracts

Date of Contract Term Notice period

Manssour Aboukhamseen 7 June 20063 years;

Post 3 years annual rolling contract

90 days

Sara Akbar 7 June 20063 years;

Post 3 years annual rolling contract

90 days

b. Employee Incentive Scheme

The objectives of the Employee Incentive Scheme (EIS) are to reward Kuwait Energy’s employees for sustained good performance and to reward for both short and medium term business objectives by a combination of cash and share rewards.

While the focus of the scheme will be on annual performance, the scheme is designed in such a manner that the ‘benefits’ pass on to the participants only in a staggered manner during a three year period. This scheme is applicable to all employees at Kuwait Energy, employed at the beginning of financial year (01 January).Where the employee has joined before 01 October of a given year, he/she may be deemed eligible for a pro-rated amount of shares as per the scheme in effect that year, provided an approval of the Board has been obtained. Employees who have joined on or after 01 October will not be eligible for shares for that given sub-scheme.

The nature of the incentive is a combination of cash and share grants. The source of shares for the scheme is new shares.

32

Annual Incentive Entitlement

40% of the incentive entitlement will be paid out in cash as annual incentive and 60% will be converted into shares at the fair value (if the company is not listed) or market price (after listing).

The incentive shares will not be eligible for dividends or bonus shares until the shares have vested. The shares vest as follows -

• 30%, 30% and 40% shares after one, two and three years respectively.

Details of cash and shares bonuses granted to Executive Directors through EIS, as at 31 December 2009:

Year Cash (in USD) No. of shares granted

Manssour Aboukhamseen 2008 24,391 (paid in 2009) 53,200

Sara Akbar 2008 22,174 (paid in 2009) 48,400

Manssour Aboukhamseen 2007 34,852 (paid in 2008) 96,000

Sara Akbar 2007 31,221 (paid in 2008) 86,000

Mohammad Algharaballi, Chairman

Compensation Commitee


Kuwait Energy Five Year Summary

As at 31 December Units 2005 2006 2007 2008 2009

Financial perfomance

Sales revenue US$ million - 2.4 25.9 90.8 88.3

Cost of sales US$ million - 1.7 10.1 71.0 70.8

EBITDA US$ million - 1.4 24.4 53.5 50.4

Net profit US$ million - 1.0 20.6 29.9 5.6

Cash flow from operating activities US$ million - 0.2 8.7 7.4 33.5

Financial position

Total assets US$ million 3.5 87.2 239.6 577.7 680.9

Net debt (Non Collateralised) US$ million - - - - 28.0

Total equity US$ million 3.5 84.9 193.7 525.7 580.1

Reserves and production

Proven plus Probable reserves mmboe - 10.7 34.1 43.4 51.2

Production mmboe - 0.2 1.2 3 4

Development Wells # - - 26 44 39

Workovers # - - 30 46 44

Exploration Wells # - - - 4 10

Exploration Expenditure US$ million - - 4.8 13.8 31.0

Kuwait Energy was established in August 2005, signing its first contract in March 2006, a Service Contract for the Karimfields in Oman.

Consolidated financialstatements and independent auditors’ report for the year ended 31 December 2009

INDEX

Independent auditors’ report 35-36 Consolidated statement of income for the year ended 31 December 2009 37

Consolidated statement of comprehensive income for the year ended 31 December 2009 38

Consolidated statement of financial position as at 31 December 2009 39

Consolidated statement of changes in equity for the year ended 31 December 2009 40-41

Consolidated statement of cash flows for the year ended 31 December 2009 42

Notes to the consolidated financial statements 43-74

MOORE STEPHENSPUBLIC ACCOUNTANTS

AL NISF & PARTNERS

Al Jawhara Tower, 6th floorKhaled Ben Al-Waleed Street, SharqP.O.Box: 25578, Safat 13116, Kuwait

Tel: 965 2426 999Fax: 965 2401 666

INDEPENDENT AUDITORS’ REPORT

The ShareholdersKuwait Energy Company K.S.C. (Closed)Kuwait

Report on the consolidated financial statements

We have audited the accompanying consolidated financial statements of Kuwait Energy Company K.S.C. (Closed), (“the Parent Company”) and subsidiaries (together referred to as “the Group”), which comprise the consolidated statement of financial position as at 31 December 2009, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s responsibility for the consolidated financial statements

Management of the Parent Company is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the group preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the group internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Al-Fahad & Co. Salhia ComplexGate 2, 4th FloorP.O. Box 23049Safat 13091State of Kuwait

Tel: + (965) 22438060Tel: + (965) 22468934Fax: + (965) 22452080www.deloitte.com

P. O. Box 25578, Safat 13116, KuwaitAl Jawhara Tower, 6th FloorKhaled Ben Al-Waleed Street, Sharq, Kuwait

Tel +965 2426 999Fax +965 2401 666

KUWAIT ENERGY COMPANY K.S.C (CLOSED) AND SUBSIDIARIES36

Opinion

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, thefinancial position of the Group as at 31 December 2009, and of its financial performance and its cash flows forthe year then ended in accordance with International Financial Reporting Standards.

Report on Other Legal and Regulatory Requirements

Furthermore, in our opinion proper books of account have been kept by the Parent Company and the consolidated financial statements, together with the contents of the report of the board of directors relating to these consolidatedfinancial statements, are in accordance therewith. We further report that we obtained all the information andexplanations that we required for the purpose of our audit and that the consolidated financial statementsincorporate all information that is required by the Commercial Companies Law of 1960, as amended, and by the Parent Company’s articles of association, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Commercial Companies Law of 1960, as amended, nor of the articles of association have occurred during the year ended 31 December 2009 that might have had a material effect on the business of the Group or on its financial position.

Jassim Ahmad Al-Fahad Licence No. 53-A Al-Fahad & Co. Deloitte & Touche

Qais M. Al-Nisf License No. 38-A Moore Stephens Al Nisf & Partners Member of Moore Stephens International

23 March 2010

2009 2008

Notes USD 000’s USD 000’s

Revenue 5 88,312 90,796

Cost of sales 7 (70,761) (71,015)

Gross profit 17,551 19,781

Exploration expenditure written off 13 (4,602) -

Net impairment losses 14 (1,084) (10,634)

Impairment loss on non-current asset held for sale - (4,709)

General and administrative expenses 8 (20,226) (11,983)

Operating loss (8,361) (7,545)

Negative goodwill on acquisition of subsidiaries - 33,535

Other income 9 10,801 8,439

Foreign exchange loss (485) (1,597)

Finance costs 10 (691) (2,352)

Profit before tax, provisions for contribution to Kuwait Foundation for the Advancement of Sciences (“KFAS”), Zakat and Directors’ fees

1,264

30,480

Taxation relating to subsidiaries 16 4,425 -

Provision for contribution to KFAS (51) (274)

Provision for Zakat (58) (305)

Directors’ fees (27) (18)

Profit for the year 11 5,553 29,883

Earnings per share

- Basic (cents) 12 0.54 4.02

- Diluted (cents) 12 0.52 4.02

The accompanying notes set out on pages 43 to 74 form an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF INCOMEFor the year ended 31 December 2009


2009 2008

USD 000’s USD 000’s

Profit for the year 5,553 29,883

Other comprehensive income

Exchange differences on translation of foreign operations (628) (8,070)

Other comprehensive loss for the year (628) (8,070)

Total comprehensive income for the year 4,925 21,813

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 31 December 2009


CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 31 December 2009

2009 2008

Notes USD 000’s USD 000’s

ASSETS

Non-current assets

Intangible exploration and evaluation assets 13 229,176 161,732

Property, plant and equipment 14 276,404 217,615

Held to maturity investment 15 49,950 49,875

Deferred tax asset 16 5,546 -

561,076 429,222

Current assets

Inventories 17 16,043 8,118

Trade and other receivables 18 74,126 85,977

Liquid investments 19 3,483 -

Cash and bank balances 20 26,157 35,827

Non-current asset held for sale 21 - 18,532

119,809 148,454

Total assets 680,885 577,676

EQUITY AND LIABILITIES

Equity

Share capital 22 372,330 359,871

Share premium 22 134,059 122,247

Statutory reserve 23 5,210 4,641

Voluntary reserve 24 5,210 4,641

Share-based compensation reserve 25 431 177

Shares to be issued 30 25,000 -

Foreign currency translation reserve (8,698) (8,070)

Retained earnings 46,566 42,151

Total equity 580,108 525,658

Non-current liabilities

Long-term loans 26 20,000 27,161

Long-term provisions 27 1,699 230

21,699 27,391

Current liabilities

Trade and other payables 28 30,212 18,762

Current portion of long-term loans 26 48,866 5,865

79,078 24,627

Total liabilities 100,777 52,018

Total equity and liabilities 680,885 577,676




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1,264

30,480

Adjustments for:Exploration expenditure written off 4,602 -Depreciation, depletion and amortisation 42,802 38,851Net impairment losses 1,084 10,634Amortisation of discount on held to maturity investment (75) -Impairment loss on non-current asset held for sale - 4,709Negative goodwill on acquisition of subsidiaries - (33,535)Finance costs 691 2,352Interest income (3,722) (2,964)Share-based compensation expense 345 177Provision for retirement benefit obligation 129 118Operating cash flow before movement in working capital 47,120 50,822Increase in trade and other receivables (6,700) (26,165)Increase in inventories (6,866) (4,471)Increase in deferred tax asset (5,546) -Increase / (decrease) in trade and other payables 6,703 (12,552)Payment of KFAS (274) (168)Tax paid (946) -Directors’ fees paid (27) (18)Payment of retirement benefit obligation (4) -Net cash generated by operating activities 33,460 7,448INVESTING ACTIVITIESPurchase of other fixed assets (2,503) (1,715)Purchase of property, plant and equipment (48,044) (32,041)Purchase of intangible exploration and evaluation assets (40,576) (32,522)Acquisition of subsidiaries 30 1,055 (223,184)Refund of advance paid for oil and gas assets - 14,499Increase in liquid investments (3,483) -Interest received 2,800 2,457Net cash used in investing activities (90,751) (272,506)FINANCING ACTIVITIESProceeds from issue of share capital 23,545 309,979Increase / (decrease) in long-term loans 27,840 (3,599)Finance cost paid (3,136) (2,373)Net cash generated by financing activities 48,249 304,007Effect of foreign currency translation (628) (8,070)Net (decrease) / increase in cash and bank balances (9,670) 30,879Cash and bank balances at beginning of the year 35,827 4,948Cash and bank balances at end of the year 20 26,157 35,827NON-CASH TRANSACTIONFINANCING ACTIVITYIssue of shares under joining bonus scheme 635 -Issue of shares under employee incentive scheme 91 -

CONSOLIDATED STATEMENT OF CASH FLOWSFor the year ended 31 December 2009


1. INCORPORATION AND ACTIVITIES

Kuwait Energy Company K.S.C. (Closed) (“the Parent Company”) is a Closed Kuwaiti Shareholding Company incorporated on 1 August 2005 in accordance with the Commercial Companies Law in the State of Kuwait.The Parent Company and its subsidiaries (together referred to as “the Group”) have been established with the following objectives: • Conduct feasibility studies of oil and natural gas industries.• Exploration of crude oil and natural gas outside Kuwait after obtaining necessary licences from the Ministry of Energy.• Trade in petroleum and its derivatives through importing and exporting oil and its derivatives to and from Kuwait under the consent of Ministry of Energy and Kuwait Petroleum Corporation. The Group does not currently trade in petroleum or its derivatives.• Participate in the incorporation and ownership of companies involved in the oil and gas industry.• Sell and purchase shares in companies of similar objectives.• Utilize the financial surpluses of the Group by investing them in portfolios by specialised companies and entities.• Own movables and real estate required to conduct its operations within the limits permitted by law.The Parent Company’s address is Salem Al Mubarak Street, Layla Tower, Block 49, Building No. 35, 10th Floor, P.O. Box 5614, Salmiya-22067, Salmiya, Kuwait.

These consolidated financial statements were approved for issue by the Board of Directors of the Parent Company on 23 March 2010 and are subject to the approval of the Annual General Assembly of the shareholders.

2. ADOPTION OF NEW AND REVISED STANDARDS

In the current year, the Group has adopted the following Standards, Interpretations, revisions and amendments to IFRS issued by International Accounting Standards Board which are relevant to and effective for the Group’s consolidated financial statements beginning on or after 1 January 2009.

Standards affecting presentation and disclosureIAS 1 (revised 2007) Presentation of Financial StatementsThe revised Standard has introduced a number of terminology changes (including revised titles for the consolidated financial statements) and has resulted in a number of changes in presentation and disclosure. The revised standard requires all non-owner changes in equity (i.e. comprehensive income) to be presented separately in the consolidated statement of comprehensive income. However, the revised Standard has had no impact on the reported results or financial position of the Group.

IFRS 8 Operating Segments IFRS 8 is a disclosure Standard that has resulted in a redesignation of the Group’s reportable segments (See note 6), but has had no impact on the reported results or financial position of the Group. This new standard which replaced IAS 14 “Segment reporting” requires a management approach for segment reporting under which segment information is presented on the same basis as that used for internal reporting purposes. Reported segment results are now based on internal management reporting information that is regularly reviewed by the chief operating decision maker.

Improving Disclosures about Financial Instruments (Amendments to IFRS 7 Financial Instruments: Disclosures)The amendments to IFRS 7 expand the disclosures required in respect of fair value measurements and liquidity risk. These additional disclosures are disclosed in note 34.

Standards affecting the reported results and financial positionIAS 23 (Revised 2007) Borrowing costs The revised Standard has eliminated the previously available option to expense all borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset when incurred. Instead the Group will now have to capitalise borrowing costs incurred on qualifying assets. The impact of the adoption of the revised Standard, which has been applied on a prospective basis, has been to capitalise USD 2,489 thousand of borrowing costs on qualifying assets.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2009


Standards and Interpretations in issue not yet effectiveAt the date of authorisation of these consolidated financial statements, the following Standards and Interpretations were in issue but not yet effective:

• IAS 1(Revised) Presentation of Financial Statements

Effective for annual periods beginning on or after 1 January 2010

• IAS 7(Revised) Statement of Cash Flows Effective for annual periods beginning on or after 1 January 2010

• IAS 17 (Revised) Leases Effective for annual periods beginning on or after 1 January 2010

• IAS 24 (Revised) Related Party Disclosures Effective for annual periods beginning on or after 1 January 2011

• IAS 27 (Revised) Consolidated and Separate Financial Statements

Effective for annual periods beginning on or after 1 July 2009

• IAS 28 (Revised) Investment in Associates Effective for annual periods beginning on or after 1 July 2009

• IAS 31 (Revised) Interests in Joint Ventures Effective for annual periods beginning on or after 1 July 2009

• IAS 32 (Revised) Financial Instruments Presentation

Effective for annual periods beginning on or after 1 February 2010

• IAS 36 (Revised) Impairment of Assets Effective for annual periods beginning on or after 1 January 2010

• IAS 38 (Revised) Intangible Assets Effective for annual periods beginning on or after 1 July 2009

• IAS 39 (Revised) Financial Instruments: Recognition and Measurement


• IFRS 1 (Revised) First-time Adoption of International Financial Reporting Standards


• IFRS 2 (Revised) Share-based Payments Effective for annual periods beginning on or after 1 January 2010

• IFRS 3 (Revised) Business Combinations Effective for annual periods beginning on or after 1 July 2009

• IFRS 5 (Revised) Non-current Assets Held for Sale and Discontinued Operations


• IFRS 8 Operating Segments Effective for annual periods beginning on or after 1 January 2010

• IFRS 9 Financial Instrument: Classification and Measurement


• IFRIC 17 Distribution of non cash assets to owners Effective for annual periods beginning on or after 1 July 2009

• IFRIC 18 Transfers of Assets from Customers Effective for annual periods beginning on or after 1 July 2009

• IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments



Management anticipate that the adoption of these Standards and Interpretations where applicable and once become effective in future periods will not have a material financial impact on the consolidated financial statements of the Group in the period of initial application, except for treatment of acquisition of subsidiaries and associates when IFRS 3 (revised 2008), IAS 27 (revised 2008) and IAS 28 (revised 2008) come into effect for business combinations for which the acquisition date is on or after the beginning of the first annual period beginning on or after 1 July 2009.

3. SIGNIFICANT ACCOUNTING POLICIES

Statement of complianceThese consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

Basis of preparationThese consolidated financial statements have been prepared on the historical cost basis except for the measurement at fair value of share-based payments and certain financial instruments. The accounting policies have been applied consistently by the Group and are consistent with these used in the previous year except for the adoption of new and revised Standards (See note 2) and the adoption of IAS 19 “Employee benefits”. The impact of adoption of IAS 19 on the previous year was not material and no prior year adjustment was made.

These consolidated financial statements are presented in US Dollars (“USD”), which is the Parent Company’s functional and presentation currency, rounded off to the nearest thousand. The principal accounting policies are stated below.

Basis of consolidationThese consolidated financial statements incorporate the financial statements of the Parent Company and entities controlled by the Parent Company (its subsidiaries) as detailed in note 32. Control is achieved where the Parent Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Going concernThe directors have, at the time of approving these consolidated financial statements, a reasonable expectation that the Parent Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing these consolidated financial statements.

Business combinationsThe acquisition of subsidiaries and businesses is accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.

In accordance with normal oil exploration and production industry practice, identifiable assets and liabilities are ascribed fair values, and the balance of the fair value of the consideration given being allocated as the fair value attributable to the oil and gas properties and related hydrocarbon reserves and therefore, goodwill does not normally arise on acquisitions.



Interests in joint venturesA joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control that is when the strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control.

Where a Group entity undertakes its activities under joint venture arrangements directly, the Group’s share of jointly controlled assets and any liabilities incurred jointly with other venturers are recognised in the financial statements of the relevant entity and classified according to their nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an accrual basis. Income from the sale or use of the Group’s share of the output of jointly controlled assets, and its share of joint venture expenses, are recognised when it is probable that the economic benefits associated with the transactions will flow to/from the Group and their amount can be measured reliably.

Joint venture arrangements that involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using proportionate consolidation. The Group’s share of the assets, liabilities, income and expenses of jointly controlled entities are combined with the equivalent items in the consolidated financial statements on a line-by-line basis.

Where the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group’s interest in the joint venture.

Non-current assets held for saleNon-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a minority interest in its former subsidiary after the sale.

Financial assetsAll financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs.

Financial assets are classified as “cash and cash equivalents”, “trade and other receivables” and “held to maturity investment”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest methodThe effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Cash and cash equivalentsCash and cash equivalents in the consolidated statement of cash flows include cash, bank balances and short-term deposits with an original maturity of three months or less.


Trade and other receivablesTrade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Appropriate allowances for estimated irrecoverable amounts are recognised in the consolidated statement of income when there is objective evidence that the asset is impaired.

Held to maturity investmentsBonds with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold to maturity are classified as held to maturity investment. Held to maturity investments are measured at amortised cost using the effective interest method less any impairment, with revenue recognised on an effective yield basis.

Impairment of financial assetsFinancial assets are assessed for indicators of impairment at each consolidated statement of financial position date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the asset have been impacted.

For trade receivables, objective evidence of impairment could include: (i) significant financial difficulty of the issuer or counterparty; or (ii) default or delinquency in interest or principal payments; or (iii) it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the consolidated statement of income.

Derecognition of financial assetsThe Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.



Financial liabilities and equityDebt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instrumentsAn equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

Trade payablesTrade payables are recognised initially at fair value, net of transaction costs incurred. Trade payables are subsequently stated at amortised cost.

BorrowingsBorrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated statement of income over the period of the borrowings using the effective interest method.

Derecognition of financial liabilitiesThe Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.

Oil and gas assets

Oil and gas exploration, evaluation and development expenditureThe Group uses the full cost method of accounting for exploration, evaluation and development expenditure, whereby all expenditures incurred in connection with the acquisition, exploration, evaluation and development of oil and gas assets, including directly attributable overheads, interest payable and exchange differences directly related to financing development projects, are capitalised in separate geographical cost pools.

Cost pools are established on the basis of geographical area having regard to the operational and financial organisation of the Group. Intangible acquisition, exploration and evaluation costs incurred in a geographical area where the Group has no established cost pool are initially capitalised as intangible non-current assets except where they fall outside the scope of IFRS 6 “Exploration for and Evaluation of Mineral Resources” whereby they are expensed as incurred subject to other guidance under IFRS.

Tangible non-current assets used in acquisition, exploration and evaluation are classified with tangible non-current assets as property, plant and equipment. To the extent that such tangible assets are consumed in exploration and evaluation the amount reflecting that consumption is recorded as part of the cost of the intangible asset.

Upon successful conclusion of the appraisal programme and determination that commercial reserves exist, such costs are transferred to tangible non-current assets as property, plant and equipment. Exploration and evaluation costs carried forward are assessed for impairment as described below.

Proceeds from the disposal of oil and gas assets are credited against the relevant cost centre. Any overall surplus arising in a cost centre is credited to the consolidated statement of income.

Depreciation and depletionDepletion is provided on oil and gas assets in production on a field by field basis using the unit of production method, based on proven and probable reserves on a field by field basis, applied to the sum of the total capitalised exploration, evaluation and development costs on a field by field basis, together with estimated future development costs on a field by field basis at current prices. Oil and gas assets which have a similar economic life are aggregated for depreciation purposes. The effects of changes in estimates in the unit of production calculations are accounted for prospectively over the estimated remaining proven and probable reserves of each pool.


Impairment of valueWhere there has been a change in economic conditions or in the expected use of an asset that indicates a possible impairment in an asset, management tests the recoverability of the net book value of the asset by comparison with the estimated discounted future net cash flows based on management’s expectations of future oil prices and future costs. Any identified impairment is charged to the consolidated statement of income.

Intangible non-current assets are considered for impairment at least annually by reference to the indicators in IFRS 6. Where there is an indication of impairment of an exploration and evaluation asset which is within a geographic pool where the Group has tangible oil and gas assets with commercial reserves, the exploration asset is assessed for impairment together with all other cash generating units and related tangible and intangible assets in that geographic pool and any balance remaining after impairment is amortised over the proven and probable reserves of the pool. Where the exploration asset is in an area where the Group has no established pool, the exploration asset is tested for impairment separately and, where determined to be impaired, is written off.

Commercial reservesProved & probable oil and gas reserves are considered as commercial reserves. Proved reserves include reserves that are confirmed with a high degree of certainty through an analysis of the development history and a volume method analysis of the relevant geological and engineering data. Proved reserves are those that, based on the available evidence and taking into account technical and economic factors, have a better than 90% chance of being produced.

Probable reserves are those reserves in which hydrocarbons have been located within the geological structure with a lesser degree of certainty because fewer wells have been drilled and certain operational tests have not been conducted. Probable reserves are those reserves that, on the available evidence and taking into account technical and economic factors, have a better than 50% chance of being produced.

These reserves are being calculated under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided by contractual arrangements and management’s forecast of future prices.

These estimates, made by the Group’s engineers, are reviewed annually and revised, either upward or downward, as warranted by additional data. Revisions are necessary due to changes in, among other things, reservoir performance, prices, economic conditions and governmental restrictions.

Other fixed assetsOther fixed assets are stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes the purchase price and directly associated costs of bringing the asset to a working condition for its intended use. Depreciation is calculated based on the estimated useful lives of the applicable assets on a straight-line basis, on the following basis:

Office equipments 5 yearsMotor vehicles 5 years

The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.

Maintenance and repairs, replacements and improvements of minor importance are expensed as incurred. Significant improvements and replacement of assets are capitalised.

The gain or loss arising on the disposal or retirement of other fixed assets is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the consolidated statement of income.



Operating leasesOperating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Revenue recognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and revenue can be reliably measured.

Revenue represents the value of sales exclusive of related sales taxes of oil and gas arising from upstream operations when the oil has been lifted and the title has passed.

Interest income is recognised on an accrual basis in accordance with the substance of the relevant agreement.

RoyaltiesRoyalties are accounted for in the consolidated statement of income in the same period as the income to which they relate and are included within operating expenses. Royalty arrangements that are based on production, sales and other measures are recognised by reference to the underlying arrangement.

InventoriesCrude oil is valued at the lower of cost or net realisable value. Other inventories comprising mainly of spare parts, materials and supplies are valued at cost, determined principally on a weighted average cost basis, less allowance for any obsolete or slow moving items. Purchase cost includes the purchase price, import duties, transportation, handling and other direct costs.

Retirement benefit costThe Group accounts for retirement benefits under IAS 19 “Employee Benefits”, with amounts being payable to employees on completion of employment in accordance with the Kuwaiti Labour Law. These arrangements qualify as a defined benefit arrangement.

For defined benefit scheme, the cost of providing retirement benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each consolidated financial position date. Actuarial gains and losses that exceed 10 per cent of the present value of the Group’s defined benefit obligation at the end of the prior year are amortised over the expected average remaining working lives of the employees. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. The liability is not externally funded.

The retirement benefit obligation recognised in the consolidated statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service costs.

Foreign currenciesThe individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in USD, which is the functional and presentation currency of the Parent Company.

In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each consolidated statement of financial position date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the consolidated statement of financial position date.


Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in the consolidated statement of income in the period in which they arise except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which are recognised in the foreign currency translation reserve and recognised in consolidated statement of income on disposal of the net investment.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are expressed in USD using exchange rates prevailing at the consolidated statement of financial position date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group’s foreign currency translation reserve. Such exchange differences are recognised in the consolidated statement of income in the period in which the foreign operation is disposed of.

ContingenciesA contingent asset is not recognised in the consolidated financial statements but disclosed when an inflow of economic benefits is probable.

Contingent liabilities are not recognised in the consolidated financial statements unless the outflow of resources embodying economic benefits is probable and the amount of the obligation can be measured reliably. They are disclosed as contingent liabilities unless the possibility of an outflow of resources embodying economic benefits is remote.

Borrowing costsBorrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Other borrowing costs are calculated on the accrual basis and are recognised in the consolidated statement of income in the period in which they are incurred.

Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the consolidated statement of financial position date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

A decommissioning provision is calculated as 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 in the removal and decommissioning of the production, storage and transportation facilities currently in place. The cost of recognising the decommissioning provision is included as part of the cost of the relevant property, plant and equipment and is thus charged to the consolidated statement of income on a unit of production basis in accordance with the Group’s policy for depletion and depreciation of tangible non-current assets. Period charges for changes in the net present value of the decommissioning provision arising from discounting are included in finance costs



Share-based paymentsEquity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 25.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest.

Impairment of tangible assetsAt each consolidated statement of financial position date, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell or value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.

Taxation Certain of the Parent Company’s subsidiaries are subject to taxes on income in various foreign jurisdictions. Income tax expense represents the sum of the tax currently payable and deferred tax.

Current taxThe tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the consolidated statement of financial position date.

Deferred taxDeferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements of the relevant subsidiaries and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each consolidated statement financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the consolidated statement of financial position date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.


Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Kuwait Foundation for the Advancement of SciencesThe Group is legally required to contribute to the Kuwait Foundation for the Advancement of Sciences (“KFAS”). The Group’s contributions to KFAS is recognised as an expense in the period during which the Group’s contribution is legally required.

ZakatThe Group is legally required to contribute to the Zakat. The Group’s contribution to Zakat is recognised as an expense in the period during which the Group’s contribution is legally required.

4. JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in note 3, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Key sources of estimation uncertaintyThe following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the consolidated statement of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Recoverability of exploration and evaluation costsUnder the full cost method of accounting for exploration and evaluation (“E&E”) costs, such costs are capitalised as intangible assets by reference to appropriate cost pools, and are assessed for impairment when circumstances suggest that the carrying amount may exceed its recoverable value. This assessment involves judgement as to (i) the likely future commerciality of the asset and when such commerciality should be determined, and (ii) future revenues and costs pertaining to any wider cost pool with which the asset in question is associated, and the discount rate to be applied to such revenues and costs for the purpose of deriving a recoverable value. Note 13 disclose the carrying amounts of the Group’s E&E assets.

Impairment of oil and gas propertiesDetermining whether oil and gas properties are impaired requires management to estimate the future net revenue from oil and gas reserves attributable to the Group’s interest in that field. A net impairment loss of USD 1,084 thousand (2008: 10,634 thousand) was recognised during the year.

Depletion of oil and gas propertiesDepletion of the cost of oil and gas properties and information reported on estimated quantities of proved oil and gas reserves are based on estimated oil and gas reserves which have been determined by competent and qualified petroleum engineers. Management believes these reserves to be commercially productive and will provide revenues to the Group adequate to recover remaining net un-depreciated and un-depleted capitalized oil and gas properties as of 31 December 2009.

Impairment of other fixed assets and useful livesThe Group’s management tests annually whether tangible assets have suffered impairment in accordance with accounting policies stated in Note 3. The recoverable amount of an asset is determined based on value-in-use method. The method uses estimated cash flow projections over the estimated useful life of the asset discounted using market rates. The Group’s management determines the useful life of other fixed assets and the related depreciation charge. The depreciation charge for the year will change significantly if actual life is different from the estimated useful life of the asset.



DecommissioningThe provision for decommissioning obligations depends on the cost and timing of decommissioning works, legal requirements and the discount rate to be applied to such costs. Management have conducted an internal review of these factors, based on information currently available, in the calculation of this provision.

The carrying amount of the decommissioning provision at 31 December 2009 is shown in note 27 to these consolidated financial statements.

Business combinationIn a business combination, the acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. The Group’s management determines the fair values of the acquiree’s identifiable assets, liabilities, contingent liabilities and non-current assets classified as held for sale.

5. REVENUE2009 2008

USD 000’s USD 000’sOil sales 78,634 83,363Gas sales 9,678 7,433

88,312 90,796

6. SEGMENTAL INFORMATION IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. In contrast, the predecessor Standard (IAS 14 “Segment Reporting”) required an entity to identify two sets of segments (business and geographical), using a risks and rewards approach, with the entity’s ‘system of internal financial reporting to key management personnel’ serving only as the starting point for the identification of such segments. The information reported to the Group’s chief operating decision maker for the purposes of resource allocation and assignment of segment performance is specifically focussed on the geographical area (country). All of the segment revenue reported below is from external customers.

The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 3. Segment profit represents the profit earned by each segment. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.

For the purposes of monitoring segment performance and allocating resources between segments:• There are no assets used jointly by any reportable segment.• There are no liabilities for which any segment is jointly liable other than the murabaha facilities from International Finance Corporation (See note 26) amounting to USD 20,000 thousand (2008: Nil) which has been taken jointly by the Parent Company, Kuwait Energy Egypt Ltd and Kuwait Energy Yemen Ltd.


6. S

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8


Revenue from major products and services

The Group’s revenues from oil and gas are disclosed in note 5 to these consolidated financial statements.

Information about major customers Included in revenues arising from Egypt for the year is revenue of approximately USD 29,727 thousand (2008: USD 9,783 thousand) which arose from sales to the Group’s largest customer.

7. COST OF SALES2009 2008

USD 000’s USD 000’sOperating costs 26,603 30,294Depletion of oil and gas properties 42,261 38,547Royalties 1,897 2,174

70,761 71,015

8. GENERAL AND ADMINISTRATIVE EXPENSES2009 2008

USD 000’s USD 000’sStaff costs 8,002 6,758Depreciation of other assets 541 304Impairment losses recognized on trade receivables 3,356 -Professional fees 2,962 1,820Travel expenses 1,676 467Others 3,689 2,634

20,226 11,983

9. OTHER INCOME2009 2008

USD 000’s USD 000’sInterest income 3,722 2,964Others 7,079 5,475

10,801 8,439

10. FINANCE COSTS2009 2008

USD 000’s USD 000’sInterest on bank overdrafts and loans 3,180 2,352Less: amount included in cost of qualifying assets (2,489) -

691 2,352

11. PROFIT FOR THE YEARProfit for the year is stated after charging:

2009 2008USD 000’s USD 000’s

Staff costs 8,002 6,758Depreciation, depletion and amortisation 42,802 38,851Foreign exchange losses 485 1,597Impairment losses 1,084 10,634Impairment losses recognised on trade receivables 3,356 -Exploration expenditure written off 4,602 -



12. EARNINGS PER SHARE a) Basic earnings per share

The earnings and weighted average number of shares used in the calculation of basic earnings per share are as follows:

2009 2008USD 000’s USD 000’s

Profit for the year 5,553 29,883

Shares SharesWeighted average number of shares for the purposes of basic earnings per share (thousand)

1,034,168

743,331

Basic earnings per share (cents) 0.54 4.02

b) Diluted earnings per shareThe earnings used in the calculation of diluted earnings per share are as follows:

2009 2008USD 000’s USD 000’s

Earnings used in the calculation of diluted earnings per share 5,553 29,883

The weighted average number of ordinary shares for the purposes of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows:

Shares SharesWeighted average number of ordinary shares used in the calculation of basic earnings per share (thousand)

1,034,168

743,331

Shares deemed to be issued for no consideration in respect of:Employee options (thousand) 1,055 602Business combinations (thousand) (See note 30) 36,052 -

Weighted average number of ordinary shares used in the calculation of diluted earnings per share (thousand)

1,071,275

743,933

Diluted earnings per share (cents) 0.52 4.02

13. INTANGIBLE EXPLORATION AND EVALUATION ASSETSExploration

and evaluation assets

USD 000’sCostAs at 1 January 2008 7,325Additions 32,522Acquisition of subsidiaries 121,885As at 1 January 2009 161,732Additions 40,991Acquisition of subsidiaries (See note 30) 29,396Transfer from capital work in progress 1,659Exploration expenditure written off (4,602)As at 31 December 2009 229,176

As at 31 December 2009, exploration and evaluation cost of USD 229,176 thousand (2008: USD 161,732 thousand) were not amortised, pending further evaluation of whether or not the related oil and gas properties are commercially viable.The additions to intangible exploration and evaluation assets include USD 415 thousand (2008: Nil) of finance costs on qualifying assets capitalised during the year.Exploration expenditure written off amounting to USD 4,602 thousand includes USD 3,137 thousand of Cambodia assets and write-off of pre-license exploration cost amounting to USD 1,465 thousand.


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14. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)During the year, the Group incurred impairment losses on certain oil and gas properties of USD 1,904 thousand (2008: USD 10,634 thousand) and reversal of previously recognised impairment loss of USD 820 thousand (2008: Nil). The impairment loss realised was due to the decrease in oil and gas reserves in related fields. The impairment losses were calculated using the reserves report dated 31 December 2009 prepared by independent reserve auditors. The additions to oil and gas assets include USD 2,074 thousand (2008:Nil) of finance costs on qualifying assets capitalised during the year.

The property, plant and equipment of the subsidiaries Kuwait Energy Egypt Ltd, Kuwait Energy Yemen Ltd and OOO Pechora Energy Company are under registered mortgage to secure certain bank loans (See note 26).

15. HELD TO MATURITY INVESTMENT2009 2008


BNP Paribas Islamic bonds 49,950 49,875

These bonds are denominated in USD and have fixed coupons at 2%, 2% and 3% respectively at end of year 3, 4 and 5. Though these bonds are currently valued below cost by the Fund Manager, the Group continues to hold them at amortised cost at the consolidated statement of financial position date as these bonds are capital guaranteed on maturity in 2012 and the Group has the intention and ability to hold these bonds to maturity. The above investment is pledged as collateral against the revolving credit facility of USD 50 million (See note 26).

16. INCOME TAX EXPENSEThe charge for the year comprises:

2009 2008Foreign tax KD 000’s KD 000’sCurrent: - tax expense on profits (1,121) -Deferred: - deferred tax assets for the year 5,546 -

4,425 -

The deferred tax asset of USD 5,546 thousand as at 31 December 2009 (2008: nil) has been recognised due to accumulated tax losses incurred by Rudis Drilling Company L.L.C. and Kuwait Energy Egypt Ltd. These tax losses are expected to be deductible against taxable profits in the foreseeable future. 17. INVENTORIES

2009 2008USD 000’s USD 000’s

Crude oil 2,471 36Spare parts, materials and supplies 13,572 8,082

16,043 8,118

Spare parts, materials and supplies are used in operations and are not held for re-sale.

18. TRADE AND OTHER RECEIVABLES2009 2008

USD 000’s USD 000’sTrade receivables 44,555 32,337Due from related party - 17,018Prepayments, deposits and advances 16,194 25,103Other receivables 13,377 11,519

74,126 85,977


The average credit period on sales is 60 days. No interest is charged on the overdue trade receivables. As at 31 December 2009, trade receivables of USD 25,329 thousand (2008: USD 12,940 thousand) were fully performing. Included in the Group’s trade receivables balance are debtors with a carrying amount of USD 19,226 thousand (2008: USD 19,397 thousand) which are past due at the reporting date for which the Group has not provided against as there has not been a significant change in credit quality and the amounts are still considered recoverable.

Ageing of past due but not impaired2009 2008

USD 000’s USD 000’s61 – 90 days 9,878 2,99791 – 120 days 2,796 2,948121 – 180 days 5,394 8,367

> 180 days 1,158 5,085

Total 19,226 19,397

As at 31 December 2009, the Group has written off impaired trade receivables of USD 3,356 thousand(2008: Nil).

In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. Management believes that there is no credit provision required as all the trade receivables are fully collectible.

The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivable mentioned above. The directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.

19. LIQUID INVESTMENTS2009 2008

USD 000’s USD 000’sTime deposits with original maturity over three months 3,483 -

The effective interest rate on interest earning time deposits denominated in KD placed with a local bank is 1% - 3% (2008: Nil) per annum. The time deposit is restricted against issue of letter of guarantee.

20. CASH AND BANK BALANCES2009 2008

USD 000’s USD 000’sCash and bank balances 26,157 19,853Time deposits with original maturity less than three months - 15,974

Cash and cash equivalents 26,157 35,827

The effective interest rate on interest earning time deposits denominated in KD placed with a local bank is Nil (2008: 3% - 5%) per annum. Bank balances amounting to USD 11,813 thousand (2008: 8,330 thousand) are restricted against issue of letter of guarantee.



21. NON-CURRENT ASSET HELD FOR SALEOn 25 June 2007, the Group’s management decided to dispose of the investment in Concorde Oil and Gas PLC (“Concorde Energy”) for strategic reasons and expected to sell this investment within one year. Accordingly, this investment was classified as a non-current asset held for sale. The sale could not be completed by 25 June 2008. However management was still committed to the sale and the investment in Concorde Energy was being actively marketed for sale and hence the investment was still being classified as non-current asset held for sale. As at 31 December 2009, the Parent Company has disposed off Concorde Energy and subsequently acquired two of its wholly owned subsidiaries through Kuwait Netherlands Cooperative, a subsidiary of the Parent Company (See note 30).

22. SHARE CAPITALThe authorised share capital consists of 1,300,000 thousand shares of 100 fils each amounting to Kuwaiti Dinar (“KD”) 130,000 thousand (31 December 2008: 1,300,000 thousand shares of 100 fils each amounting to KD 130,000 thousand). The issued and paid up share capital consists of 1,035,264 thousand shares of 100 fils each (31 December 2008: 1,000,000 thousand shares of 100 fils each). During the year, the Parent Company increased its paid up share capital by issuing a) 33,333 thousand shares of a nominal value of 100 fils each and share premium of 101 fils each b) 181 thousand shares of a nominal value of 100 fils each and share premium of 39 fils each (See note 25.a) and c) 1,750 thousand shares of a nominal value of 100 fils each (See note 25.b).

23. STATUTORY RESERVEAs required by the Commercial Companies Law and the Parent Company’s Articles of Association, 10% of profit for the year before KFAS, Zakat and directors fees is to be transferred to the statutory reserve until the reserve reaches a minimum of 50% of the paid up share capital. This reserve is not available for distribution except for payment of a dividend of 5% of paid up share capital in years when retained earnings are not sufficient for the payment of such dividends.

24. VOLUNTARY RESERVEIn accordance with the Parent Company’s Articles of Association, 10% of profit for the year before KFAS, Zakat and directors fees is required to be transferred to the voluntary reserve until the shareholders decide in the annual general assembly meeting upon recommendation by the board of directors to discontinue the transfer. There are no restrictions on the distribution from this reserve.

25. SHARE-BASED PAYMENTS 25.a At an Extraordinary General Meeting held on 14 October 2008 the Parent Company’s shareholders approved the issue of shares to employees in accordance with the employee incentive scheme (“EIS”) approved by the Board of Directors (“BOD”). The EIS is available to specified employees employed at the beginning of the financial yearand pro-rated for specified employees who have joined before 1st October of the financial year. The entitlementof each employee is determined based on the maximum incentive entitlement decided by the BOD and the weighted average of corporate performance ratings (including branch weightage for employees of subsidiaries) and individual performance ratings. The share options are vested in a staggered manner of 30%, 30% and 40% after 1, 2 and 3 years respectively. Any unutilised share options cannot be carried forward. If the employee leaves the Group (other than due to exceptional circumstances beyond the employee’s control) during the vesting period, the unvested shares will be forfeited. If the employee leaves the Group due to exceptional circumstances beyond the employee’s control during the vesting period, the fair value of the unvested share options will be paid in cash. The unvested shares are not entitled to dividends or bonus shares.

The EIS is operational for 10 years (effective 1 January 2008). The source of the shares granted under the EIS will be through issues of new shares before the Parent Company gets listed and through treasury shares of the Parent Company once it gets listed. The total number of shares to be granted under the EIS is not to exceed 10 % of the paid-up share capital.

As at 31 December 2009 (31 December 2008: 602 thousand shares), the entitlement of employees under the EIS is as follows:


Vesting dates

Number of employees

Total share options granted

1 January 2010 63 360,9001 January 2011 63 410,4001 January 2012 63 283,200Total number of granted shares 1,054,500

Year ended 31 December 2009

Year ended 31 December 2008

Number Fair value Number Fair valueOutstanding at beginning of year 602,000 303,785 - -Granted during the year 708,000 495,616 602,000 303,785Forfeited during the year (74,900) (37,796) - -Exercised during the year (180,600) (91,135) - -Outstanding at the end of the year 1,054,500 670,470 602,000 303,785

The Group records an expense, based on its best estimate related to the fair value determined by reference to the fair value of the share options from independent market sources at the dates of the grant 1 January 2008 (139 fils/share) and 1 January 2009 (201 fils/share) on a straight-line basis over the vesting period. At 31 December 2009, management has estimated that all 63 employees will be entitled to the shares under the EIS and recognised an expense of USD 345 thousand (2008: USD 177 thousand) as the cost of EIS and credited the share-based compensation reserve in equity. The share-based compensation reserve will be reversed and share capital/share premium credited on issue of the vested shares. During the year the Parent Company issued 180,600 shares (2008: Nil) to employees who exercised their entitlements as at 1 January 2009 under the EIS.

25.b During the year, the Parent Company issued 1,750 thousand shares of nominal value of 100 fils each (2008:Nil) amounting to USD 635 thousand (2008:Nil) as joining bonus to new employees. These shares were issued against the provision for joining bonus amounting to USD 635 thousand accounted in 2008.

26. LONG-TERM LOANS

Current Non-current2009 2008 2009 2008

USD 000’s USD 000’s USD 000’s USD 000’sDue to foreign banks 48,866 5,865 20,000 27,161



The details of long-term loans are as follows:

Description2009 2008

USD 000’s USD 000’s(i) The Parent Company’s borrowings under a USD 50 million revolving loan credit facility from BNP Paribas that bears interest rate of LIBOR plus 0.3 % to 5.5% per annum. The above facility is secured against the held to maturity investment (See note 15). The loan matures on 31 March 2010 and is subject to renewal.

40,866

33,026

(ii) USD 35 million murabaha facility from International Finance Corporation (“IFC”) that bears profit rate of 3.81% per annum. (a)

5,000

-

(iii) USD 15 million murabaha facility financing from IFC that bears profit rate of 1.237% per annum.(b)

15,000

-

(iv) The Loan from European Bank for Reconstruction and Development (“EBRD”) bears interest rate of LIBOR plus 6.5% per annum. The repayment is in quarterly instalments commencing 27 January 2012 and ending 27 October 2013. (c)

8,000

-

68,866 33,026

(a) The facility is secured by pledges on the assets of the subsidiaries Kuwait Energy Egypt Ltd and Kuwait Energy Yemen Ltd (See note 14). The loan is to be repaid on 31 December 2012.

(b) The facility is secured by pledges on the assets of the subsidiaries Kuwait Energy Egypt Ltd and Kuwait Energy Yemen Ltd (See note 14). The facility is to be repaid in 2 annual instalments of USD 7,500 thousand each on 30 June 2014 and 30 June 2015.

(c) The debt is secured by pledges on the assets of the subsidiary of OOO Pechora Energy (See note 14). The loan agreement contains certain covenants. In case of non-compliance with any of these covenants, EBRD may demand immediate repayment of the loan. At 31 December 2009, OOO Pechora Energy Company failed to comply with the current ratio covenant. EBRD did not request accelerated repayment of the loan and the terms of the loan were not changed. However this loan is expected to be repaid in full in 2010.

As at 31 December 2009, the Group has undrawn loan facilities amounting to USD 30,001 thousand (2008: USD 7,842 thousand).

27. LONG-TERM PROVISIONS2009 2008

USD 000’s USD 000’sDecommissioning provision 575 -Retirement benefit obligation 355 230Deferred tax liability 769 -

1,699 230

a) Decommissioning provision 2009USD 000’s

As at 1 January 2009 -New provisions and changes in estimate 575As at 31 December 2009 575


The 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 and 2028) in the removal and decommissioning of the facilities currently in place. The provision has been estimated using existing technology, at current prices, and discounted at a rate of 10%.

b) Retirement benefit obligation 2009 2008USD 000’s USD 000’s

As at 1 January 230 111Current service cost 129 119Benefits paid (4) -As at 31 December 355 230

The most recent actuarial valuation of the present value of the defined benefit obligation was carried out at 31 December 2009. The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the Projected Unit Credit Method.

The principal assumptions used for the purposes of the actuarial valuations were as follows:

For the year ended 31 December 2009

Discount rate 6.5%

Expected rate of increase in

- Basic Salary & Variable allowances 5.5% p.a.

Long-term inflation 2.75% p.a.

Demographic assumptions

Retirement age

-Non-Kuwaiti employees Age 55

The total charge for the year is USD 129 thousand which has been included in the consolidated statement of income under general and administrative expenses.

28. TRADE AND OTHER PAYABLES2009 2008

USD 000’s USD 000’sTrade payables and accruals 29,067 17,683Salaries and bonus payable 1,036 500KFAS payables 51 274Zakat payable 58 305

30,212 18,762

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.



29. RELATED PARTY TRANSACTIONS

Related parties comprise shareholders, directors and executive officers of the Group, their families and companies of which they are the principal owners. All related party transactions are conducted on an arm’s length basis and are approved by the board of directors. Balances and transactions between the Parent Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

The related party transactions and balances included in the Group’s consolidated financial statements are as follows:

2009 2008USD 000’s USD 000’s

a) Transactions included in the consolidated statement of income

Interest income from Concorde Energy 2,488 1,014

b) Compensation of key management personnel:

Key management personnel include the Board of Directors and other members of the management team.The remuneration of key management personnel during the year was as follows:

2009 2008USD 000’s USD 000’s

Salaries and other short-term benefits 2,758 2,664Termination benefits 154 67Share-based payments 185 113 3,097 2,844

30. ACQUISITION OF SUBSIDIARIES On 31 December 2009, the Parent Company disposed its 36.56% interest in Concorde Energy (See note 21) to the other share holder of Concorde Energy and subsequently acquired two wholly owned subsidiaries of Concorde Energy as explained below. The carrying value of non-current asset held for sale, the loan to Concorde Energy and interest receivable on loan to Concorde Energy were set off against the purchase consideration to acquire these two subsidiaries.

(i) Subsidiaries acquired by Kuwait Netherlands Cooperative (a subsidiary of the Parent Company) Principal activity

Country of incorporation

Effective date of

acquisition

Proportion of voting shares

acquired

Cost of acquisition

USD000’s

2009

OOO Pechora Energy Company

Oil & Gas exploration and development

Russia

31 December

2009

100 %

56,322

OOO VIKOil & Gas exploration and development

Russia

31 December

2009

100 %

9,96666,288


Analysis of assets and liabilities acquired

OOO Pechora Energy Company OOO VIK

Net assets acquired

Book value

Fair value

adjustment

Fair value on

acquisition

Book value

Fair value

adjust-ment

Fair value on

acquisition

Total fair value on

acquisition

USD 000’s

USD 000’s

USD 000’s

USD 000’s

USD 000’s

USD 000’s

USD 000’s

Non-current assetsExploration and evaluation assets

13,235 6,287 19,522 271 9,603 9,874 29,396

Property, plant and equipment

35,105 15,907 51,012 126 - 126 51,138

Current assets

Inventories 1,054 - 1,054 5 - 5 1,059Trade and other receivables

2,497

-

2,497

36

-

36

2,533

Cash & bank balances

1,047

-

1,047

8

-

8

1,055

Non-current liabilities

Long-term loan (8,000) - (8,000) - - - (8,000)Deferred tax liability

(769)

-

(769)

-

-

-

(769)

Current liabilityTrade and other payables

(10,041)

-

(10,041)

(83)

-

(83)

(10,124)

Net assets 34,128 22,194 56,322 363 9,603 9,966 66,288Purchase consideration

66,288

USD 000’sTotal purchase consideration 66,288Satisfied by:Non-current asset held for sale (18,532)Loan to related party (19,518)Interest receivable from related party (2,488)Purchase consideration payable (25,750)Net cash inflow arising from acquisition 1,055

The purchase consideration payable will be settled through the issue of 36,051,626 equity shares of the Parent Company at 201 fils per share (equivalent to USD 25,000 thousand) and USD 750 thousand in cash.

Fair value of acquiree’s identifiable assets and liabilitiesThe initial accounting for the acquisition of the subsidiaries has only been provisionally determined at the end of the reporting period. At the date of finalisation of these consolidated financial statements, the necessary market valuations and other calculations had not been finalised and they have therefore only been provisionally determined based on the directors’ best estimate of the likely values.



Impact of the acquisition on the results of the GroupThere is no impact from the acquisition on the results of the Group since the acquisition took place on 31 December 2009.

31. JOINT VENTUREThe Parent Company has 20% equity interest in Medco L.L.C., a joint venture. The following amounts are included in the Group’s consolidated financial statements as a result of the proportionate consolidation of Medco L.L.C.

2009 2008 USD 000’s USD 000’s

Current assets 8,131 5,956

Non-current assets 9,399 8,674

Current liabilities 3,234 2,869

Year ended 31.12.09

Year ended 31.12.08

USD 000’s USD 000’sIncome 14,927 16,542Expenses (1,916) (2,578)

32. SUBSIDIARY COMPANIES

The subsidiaries of the Parent Company are as follows:

Company’s nameOwnership %

Country of incorporation

Country of operations

Type of activity

Kuwait Energy Egypt Ltd

100

British Virgin Islands

Egypt

Exploration / develop-ment/ production

Kuwait ARD Indonesia

100

Kuwait

Indonesia


Kuwait Bawean Indonesia

100

Kuwait

Indonesia


Kuwait Energy Cambodia Ltd

100


Cambodia

Exploration

Kuwait Energy Pakistan Ltd

100


Pakistan

Exploration

Kuwait Energy Yemen Ltd

100


Yemen

Exploration

Kuwait NetherlandsCooperative

100

Netherlands

Ukraine/ Latvia


Oil Search (Mena) Limited

100


Egypt / Yemen


Kuwait Energy Service Ltd

100


Dormant

Dormant

Kuwait Energy Finance Ltd

100


Dormant

Dormant

Kuwait Energy Iraq Ltd

100


Dormant

Dormant

Kuwait Energy Somalia Ltd

100


Dormant

Dormant

KEC Gulf Holding Ltd

100


Dormant

Dormant

Lobstarom Holdings Ltd

100

Cyprus

Dormant

Dormant

KIC Petrochemicals

100

Kuwait

Dormant

Dormant


33. OPERATING LEASE ARRANGEMETNS

2009 2008


Minimum lease payments under operating leases recognised in the consolidated statement of income

1,218

1,023

At the consolidated statement of financial position date, the Group had outstanding commitments for future minimum lease payments under operating leases, which fall due as follows;Within one year 1,417 1,218

In the second year 688 -

2,105 1,218

Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for an average term of one to two years and rentals are fixed for an average of two years with an option to extend for a further two years at the then prevailing market rate.

34. FINANCIAL INSTRUMENTS Significant accounting policiesDetails of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset and financial liability are disclosed in note 3 to these consolidated financial statements.Categories of financial instruments

2009 2008USD 000’s USD 000’s

Financial assetsHeld to maturity investment 49,950 49,875Trade and other receivables 58,406 70,867Liquid investments 3,483 -Cash and bank balances 26,157 35,827

Financial liabilitiesLong-term loans (including short-term element) 68,866 33,026Trade and other payables 30,212 18,762

Financial risk management objectivesThe Group’s management monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk (including commodity price risk, interest rate risk and foreign currency risk), credit risk and liquidity risk.

Market riskMarket risk is the risk that changes in market prices, such as commodity prices, interest rates and foreign exchange rates will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

The Group is exposed to international commodity-based markets. As a result, it can be affected by changes in crude oil, natural gas and petroleum product prices and interest rates and foreign exchange rates. The Group does not use derivative instruments either to manage risks or for speculative purposes.

Price risk managementVolatility in oil and gas prices is a pervasive element of the Group’s business environment. The Group is a seller of crude oil, which is typically sold under short-term arrangements priced in USD at current market prices.


The Group does not sell gas under any long-term agreements.


Foreign currency risk managementThe 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 Assets2009 2008 2009 2008

USD 000’s USD 000’s USD 000’s USD 000’sKuwait Dinar 355 230 3,545 16,308Ukraine Hryvnia 3,790 442 5,975 3,773Russian Rouble 27,527 - 724 -

Foreign currency sensitivity analysisThe Group’s main foreign currency exposure is to fluctuations in the Kuwait Dinar, Ukraine Hryvnia and Russian Rouble.

The following table details the Group’s sensitivity to a 10% increase and decrease in the USD against Kuwaiti Dinar, Ukraine Hryvnia and Russian Rouble. The sensitivity analysis includes only outstanding Kuwaiti Dinar, Ukraine Hryvnia and Russian Rouble 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 has been no change in the methods and the assumptions used in the preparation of the sensitivity analysis.

2009 2008USD 000’s USD 000’s

Impact on consolidated statement of incomeKuwait Dinar (319) (1,608)Ukraine Hryvnia (219) (333)Russian Rouble 2,680 -

Interest rate risk managementThe Group is exposed to interest rate risk as it has borrowed funds from banks and financial institutions and has placed funds in held to maturity investments and interest bearing time deposits with banks.

Interest rate sensitivity analysisThe Group’s exposures to interest rates on financial assets and liabilities are detailed in notes 15, 19, 20 and 26 to these consolidated financial statements.

The following table illustrates the sensitivity of the profit for the year to a reasonably possible change in interest rates of + 1% with effect from the beginning of the year. These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on the Group’s financial instruments held at each consolidated statement of financial position date. All other variables are held constant. There has been no change in the methods and the assumptions used in the preparation of the sensitivity analysis.

A positive number below indicates an increase in profit and negative number indicates decrease in profit. A 1% decrease in the interest rates would have the opposite effect.

2009 2008USD 000’s USD 000’s

Impact on consolidated statement of income 353 360


Credit risk managementCredit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Ongoing credit evaluation is performed on the financial condition of accounts receivable.

During the year, 50% of total revenue (2008: 33%) was derived from the sales to the Group’s largest counterparty-Egyptian General Petroleum Corporation (2008: Nexen). The Group defines counterparties as having similar characteristics if they are related entities.

Exposure to credit riskThe carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

Carrying amount2009 2008

USD 000’s USD 000’sHeld to maturity investment 49,950 49,875Trade and other receivables 58,406 70,867Liquid investments 3,483 -Bank balances 26,157 35,821

137,996 156,563

The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:

Carrying amount2009 2008

USD 000’s USD 000’sEgypt 36,959 23,892Yemen 1,524 2,429Ukraine 2,231 695Oman 1,322 1,252Russia 2,519 -Indonesia - 2,002Cambodia - 2,067

44,555 32,337

Liquidity risk managementLiquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

Ultimate responsibility for liquidity risk management rests with the management, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves and banking facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

The following tables detail the Group’s remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities.



At 31 December 2009 Financial liabilities

Less than 1 year

Between 1 and 3 years


More than

5 years

Total

Weighted average effective

interest rate USD 000’s USD 000’s USD 000’s USD 000’s USD 000’s %

Long-term loans 50,186 5,572 7,917 8,010 71,685 3.88Trade and other payables

30,212

-

-

-

30,212

-

80,398 5,572 7,917 8,010 101,897

At 31 December 2008 Financial liabilities

Less than 1 year


Total

Weighted average effective

interest rate

USD 000’s USD 000’s USD 000’s %

Long-term loans 6,249 31,042 37,291 6.54Trade and other payables 18,762 - 18,762 -

25,011 31,042 56,053

Fair value of financial instrumentsManagement believes that the fair value of all of the Group’s financial assets and financial liabilities is not significantly different from their respective carrying values.

Capital risk management The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to the shareholders through the optimisation of debt and equity balance. The Group’s overall strategy remains unchanged from 2008.

The capital structure of the Group consists of equity comprising issued share capital, statutory reserve and voluntary reserve as disclosed in notes 22, 23 and 24 respectively, other reserves and retained earnings.

Gearing ratioThe gearing ratio at year end was as follows:

2009 2008USD 000’s USD 000’s

Debt (i) 68,866 33,026Less: Cash and bank balances and liquid investments (29,640) (35,827)Net debt 39,226 (2,801)Equity 580,108 525,658Net debt to equity ratio 7% -(i) Debt is defined as long-term loans as detailed in note 26.


35. JOINT VENTURE INTERESTSOperator Country Block Interest Remarks

KEC Egypt Burg El Arab 75.00%KEC Egypt Abu Senan 72.00%

Melrose Egypt Block 6 30.00%SIPETROL Egypt Eas Ras Qatar 49.50%

KEC Egypt Area A 70.00%Medco Energi Yemen Block 82 21.25%

Medco Energi Yemen Block 83 21.25%KEC Yemen Block 15 41.56%KEC Yemen Block 35 32.50%KEC Yemen Block 74 34.00%

DNO Yemen Block 43 28.33%CCC Yemen Block 49 42.33%

Medco Energi Cambodia Block E 20.625%NHEPL Pakistan Kunri 40.00%NHEPL Pakistan Jherruck 40.00%

Medco L.L.C. Oman Karim Small Fields 15.00%Ukranafta Ukraine RC 14.90% See note (i)

UkrCarpat Oil Ukraine Bytkiv 45.00%

KEC

UkraineBilousivko-

Chornuskhynska

100.00%KEC Ukraine Dubrivka 100.00%KEC Ukraine North Yablunivska 100.00%KEC Ukraine Kulichihinske 50.00%KEC Ukraine Bilske 50.00%KEC Latvia Block E5 45.00%KEC Russia Luszkoye 100.00%KEC Russia Chikshina 100.00%

(i) Carpatsky Petroleum Corporation (a subsidiary of the Parent Company) (“CPC”) and the operator Ukranafta are currently involved in a legal dispute in this block (See note 37) which is currently under arbitration. Ukranafta has not sent any billing statements or revenue proceeds relating to this block to CPC since 30 June 2008. In the opinion of management, the unaccounted billing statements or revenue proceeds relating to this block are immaterial to the consolidated financial statements of the Group.

36. ANNUAL GENERAL ASSEMBLY

The Shareholders’ Annual General Assembly held on 30 April 2009 approved the annual audited consolidated financial statements of the Group for the year ended 31 December 2008.

37. CONTINGENT LIABILITIES AND CAPITAL COMMITMENTSa) Ukrnafta disputeJoint Activity Agreement # 410/95 and its subsequent amendments (“JAA 410”) govern the joint exploration and development of the Rudivsky-Chervonozavodsky gas condensate field in Ukraine (the “RC Field”) by Carpatsky Petroleum Corporation (“CPC”) and Ukrnafta. CPC’s interest in the RC Field is 14.91% and CPC claims that it is entitled to make additional investment under JAA 410 in order to restore its investment in the RC Field back to 50%. Ukrnafta disagrees with CPC’s claim to make additional investment.

As a result, CPC has commenced arbitration proceedings to claim for a termination of JAA 410 and seek damages to recover CPC’s actual share interest in JAA 410.



In response to the arbitration, Ukrnafta has issued court proceedings claiming: (i) termination of JAA 410 and damages from CPC; and (ii) injunctive relief against Parent Company and CPC to prevent CPC’s further involvement in JAA 410.

KEC and CPC anticipate that their position will be ultimately vindicated and are committed to vigorously pursuing these matters.

b) Ukrgasproduction dispute

Joint Activity Agreement # 429 and its subsequent amendments (“JAA 429”) govern the joint exploration and development of the Kulichykhon and Bilskie fields by Rudis Drilling Company Limited Liability Company (“Rudis”) and Ukrgasproduction (“UGP”).

UGP has filed various lawsuits against Rudis seeking the termination of JAA 429 on the basis of alleged breaches of JAA 429 by Rudis. Rudis is defending the legal action on grounds, inter alia that UGP has not specified any grounds on which Rudis has breached JAA 429 and that UGP has not suffered any loss or damage and accordingly the claims are misconceived.

c) Lekom Maras Pengabuan (“LMP’) arbitration

The Parent Company and LMP entered into a farm-out agreement (“FOA”) for the Parent Company’s acquisition of a 27.5 % participating interest (“PI”) in the Enhanced Oil Recovery Contract (“the Contract”). The 27.5 % PI was assigned from LMP’s PI in the contract. The consideration of USD 10 million included an amount of USD 5.5 million in respect of work program costs incurred under the terms of the Contract. Since the Contract expired before enough production enhancement costs were incurred, only an amount of USD 3,555,880 was incurred and LMP is claiming the balance USD 1,944,120 from the Parent Company. The Parent Company had denied LMP’s claim and also contends that some of the requirements in the FOA for a cash call have not been fulfilled. The matter is currently under arbitration. The Parent Company anticipates that its position will be ultimately vindicated and is committed to vigorously pursuing this matter.

2009 2008 USD 000’s USD 000’s

d) Other contingent liabilities - letters of guarantee 22,776 14,344

e) Capital commitments (other than covered by letters of guarantee)

80,724

81,650

38. COMPARATIVE FIGURES

Certain prior year amounts have been re-classified to conform to the current year’s presentation with no effect on the reported profits or equity as follows :

Consolidated statement of incomeRe-classification of sales and cost of sales of USD 85,113 thousand.

Consolidated statement of financial positionRe-classification of property, plant and equipment to intangible exploration and evaluation assets of USD 161,732 thousand.

39. SUBSEQUENT EVENTS Subsequent to the consolidated statement of financial position date, the Group has sold 25 % working interest in Bilskie field in which the Group previously held 50 % working interest.


Glossary & DefinitionsAGM: Annual General Meeting of Shareholders

AAPG: American Association of Petroleum Geologists

barrel: The standard barrel of crude oil or other petroleum product contains 42

US gallons, or 35 Imperial gallons or 159 Liters

bbl: Barrel

BOE/boe: Barrels of oil equivalent; A BOE conversion ratio of 6 Mcf: 1 bbl is based

on an energy equivalency conversion method primarily applicable at the

burner tip and does not represent a value equivalency at the wellhead

bcf : Billion cubic feet

bpd : Barrels per day

bopd: Barrels of oil per day

BOEPD/boepd: Barrels oil equivalent per day

B.Sc: Bachelor of Science

BA: Bachelor of Art

CEO: Chief Executive Officer

Company: Kuwait Energy Company KSCC

Development Well: A well drilled within the proved or probable reserves area of an oil or gas

reservoir to the depth of a stratigraphic horizon known to be productive

Dry hole: An unsuccessful well; a well not capable of producing commercial quantities

of oil or gas

EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization; An

approximate measure of a company’s operating cash flow

Exploration Expenditure: All costs associated with drilling of exploratory wells and other costs

incurred in evaluating commercial viability of a geological structure

Exploratory well: A hole drilled: a) to find and produce oil or gas in an area previously

considered unproductive area; b) to find a new reservoir in a known

field, i.e., one previously producing oil and gas from another reservoir, or

c) to extend the limit of a known oil or gas reservoir

EIS: Employee Incentive Scheme

Field: The geographical area encompassing a group of one or more underground

petroleum pools sharing the same or related infrastructure

GCA: Gaffney, Cline & Associates

HSESR: Health, Safety Environment and Social Responsibility

IFC: International Finance Corporation

IPIMS: International Petroleum Industry Multimedia System

kms: Kilometres 1 km = 0.621 miles

KD: Kuwaiti Dinar

KOC: Kuwait Oil Company

KUFPEC: Kuwait Foreign Petroleum Exploration Company

KPC: Kuwait Petroleum Corporation

LPG: Liquefied Petroleum Gas


m: Meters; 1m = 3.281 feet

MENA: Middle East & North Africa

Mbbl: Thousand barrels

mboe: Thousand barrels oil equivalent

MMBOE/mmboe: Million barrels oil equivalent

MBA: Master of Business Administration

NHEPL: New Horizon Exploration & Production Limited, Pakistan

NSAI: Netherland Sewell & Associates, Inc

Proven: Proven reserves are those quantities of petroleum which, by analysis of geological

and engineering data, can be estimated with reasonable certainty to be

commercially recoverable, from a given date forward, from known reservoirs

and under current economic conditions, operating methods, and

government regulations

Probable: Probable reserves are those reserves which analysis of geological and engineering

data suggests are more likely than not to be recoverable

Production: The quantity of petroleum produced in a given period

PRMS: Petroleum Resources Management System

Ph. D: Doctrate

Reserves: Reserves are those quantities of hydrocarbons which are anticipated to be

commercially recovered from known accumulations from a given date forward

RRR: Reserves Replacement Ratio; derived using total reserves additions in a period/

total production in same period

sq. kms : Square kilometers

scf: Standard cubic feet

SPE: Society of Petroleum Engineers

SPEE: Society of Petroleum Evaluation Engineers

USD/US$: United States Dollars

WI : Working Interest; A company’s equity interest in a project before reduction for

royalties or production share owed to others under the applicable fiscal terms

Workover: Operations on a producing well to restore or increase production

WPC: World Petroleum Council

YE08: Year-End 2008 (Kuwait Energy follows January to December as its financial/

reporting year)

YE09: Year-End 2009

2D: 2 dimensional

3D: 3 dimensional

3D seismic: Derived from a set of seismic lines. 3D seismic data provide detailed information

about fault and subsurface structures

#: Number

• General economic and business conditions in Kuwait and other countries;

• The Company’s ability to successfully implement its strategy, growth and expansion

plans, and technological changes;

• Changes in the value of the Kuwaiti Dinar and other currency changes;

• Changes in Kuwaiti or international interest rates;

• Changes in laws and regulations that apply to investment companies in Kuwait;

• Changes in political conditions in Kuwait and other countries; and

• Changes in the foreign exchange control regulations in Kuwait.

This Annual Report includes statements that contain words or phrases such as “will” “aim” “will likely result”, “ believe”, “ expect”, “will continue”, “anticipate” “estimate” “intend” “plan”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “project”, “should” “will pursue” and similar expressions or variations of such expressions which are “forward looking statements”. Such forward looking statements are by their nature speculative and based on various assumptions. Any such statements are hypothetical with respect to prospective events and should not be construed as being indicative of the actual events which will occur or a guarantee of future performance. All forward-looking statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those contemplated by the relevant forward looking statements.

Important factors that could cause results to differ materially from the Company’s expectations include, among others:

FORWARD LOOKING STATEMENT


Annual Report 2009

www.kec.com.kw



Kuwait Energy C

ompany


Annual Report 2009

Documents

Kuwait Energy Annual Report 2009