annual report reports/2017-2018 english.pdf · the year-long comprehensive process resulted in,...

Annual Report2017 - 2018

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His HighnessSheikh Sabah Al-Ahmad Al-Jaber Al-Sabah

Amir of Kuwait

His HighnessSheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah

The Crown Prince of Kuwait

Membersof the Board

Saud Al-ShammariSecretary to the Board

of Directors

Abdullah BarounDeputy Chairman of the Board

Khaled Al-QaoudBoard Member

Hatem Al-AwadhiBoard Member

Wafa Al-ZaabiBoard Member

Mutlaq Al-AzemiBoard Member

Mohammad Al-JazzafChairman of the Board

Jamal JaafarChief Executive Officer

Chief Executive Officer

Saud Faraj al-Shammarimanager (legal affairs)

ahmad aBdul latEEF al-Kharrazmanager (CEO Office Gr.)

talEB al-Kharqawi manager (internal audit)

OFFICE

jamal aBdul aziz jaaFar

mOhammad al-zOaBi

mENahi SaEEd al-ENEzi

ahmad aBdulazEEm al-hamad

BadEr al-muNaiFi

aBdulla al-Sumaiti

Emad mahmOud SultaN

aBdulwahaB al-mithiN

NaYEF al-aNEzi

deputy Chief Executive Officer(admin & Finance)

deputy Chief Executive Officer(west Kuwait)

deputy Chief Executive Officer(South & East Kuwait)

deputy Chief Executive Officer(drilling & technology)

deputy Chief Executive Officer(Planning & Commercial)

deputy Chief Executive Officer(Corporate Services)

deputy Chief Executive Officer(North Kuwait)

Khalid al-OtaiBi

deputy Chief Executive Officer(major Projects & technical Services)

deputy Chief Executive Officer(Exploration & Gas)

AREF AL-ABBASSI maNaGEr

(lONdON OFFiCE)

EMAd AL-AwAdH maNaGEr (mEdiCal)

MOHAMMEd ABdUL AZIZ JAAFAR

maNaGEr (CONtraCt maNPOwEr

KuwaitizatiON)

HASSAN ABdULLA AL-KANdARI

maNaGEr (humaN rESOurCES)

NOURI Y. AL-KHATRASH

maNaGEr (ahmadi SErviCES)

MOHAMMEd ABdUL JAwAd AL-BASRYmaNaGEr (Pr & i)

SAMI ALYAQOUT maNaGEr (hSE)

YOUSEF ABdULLAH ABdUL KARIM

maNaGEr (FiNaNCial SYStEmS aNd

CONtrOl)

MUSLEH AL-OTAIBI maNaGEr

(maNaGEmENt SuPPOrt)

AHMAd AL-ZAABI maNaGEr (ahmadi

PrOjECtS)

AdEL R. AL-AZMI maNaGEr (SECuritY)

ALIAL-FAILAKAwI

maNaGEr (FirE)

MANSOURAL-KHAREJI

maNaGEr (SOil rEmEdiatiON)

KHALEd SAAd AL-AJMI

maNaGEr (FiNaNCial aCCOuNtS aNd

SErviCES)

QUSAI NASER AL-AMER maNaGEr (traiNiNG & CarEEr

dEvElOPmENt)

FAROUQ AL-HINdAL maNaGEr SuPPOrt

SErviCES (wK)

FALAH MUTLAQ AL-AZMI maNaGEr OPEratiONS

(wESt Kuwait)

EISA AL-MARAGHI maNaGEr (FiEldS dEvElOPmENt)

ALI SAYEd HASHEM maNaGEr (ExPOrt

OPEratiONS)

BAdER MAHMOUd maNaGEr OPEratiONS SuPPOrt (S&E Kuwait)

MOHAMMEd AL-ABdUL JALIL

maNaGEr (CaPital PrOGram PlaNNiNG)

HAMAd AL-ZA’ABI maNaGEr

FiEldS dEvElOPmENt(NK)

BAdER AL-TELAIHI maNaGEr

OPEratiONS (SOuth Kuwait)

MEQdAd ABdULAZIZ AL-NAQI

maNaGErFiEldS

dEvElOPmENt (S&EK)

FARIdA ALI maNaGEr (rESErvOir

maNaGEmENt)

AdNAN AL-AdwANI maNaGEr

OPEratiONS SuPPOrt (NK)

OMAR ALI SAdEQ maNaGEr

OPEratiONS (EaSt Kuwait)

BAdER AL-ATTAR maNaGEr (PlaNNiNG)

IBRAHIM AL-SAMMAK maNaGEr FiEldS dEv (hEavY Oil)

AMEENA RAJAB maNaGEr SuPPOrt

SErviCES (S&EK)

IBRAHIM ALKHARJI maNaGEr (CONtraCtS)

maNaGEr (PurChaSiNG & matErial maNaGEmENt)

KHALEd AL-AdSANI maNaGEr (COmmErCial

SuPPOrt)

EALIAN AL-ANZI maNaGEr OPEratiONS

(hEavY Oil)

FUAd M. AL-SHAIKH maNaGEr OPEratiONS

(NK)

MOHAMMEd J. AL-OTAIBI

maNaGEr SuPPOrt SErviCES (NK)

YACOUB AHMAd AL-dASHTI

maNaGEr (majOr PrOjECtS iii)

SAUd JUMAHAL-FOUdARI

maNaGEr (dEEP drilliNG)

ABdULLA KHALId HAMAd AL-ZAMAMI maNaGEr (majOr

PrOjECtS i)

BAdER MUTLAQ AL-AZMI

maNaGEr (dEvElOPmENt

drilliNG i)

FAHAd AL-KHARQAwI maNaGEr (majOr

PrOjECtS - ii)

MOHSEN JASSER AL-SHAMMARI

maNaGEr (PrOjECt SuPPOrt SErviCES)

YOUSEF MUSAAdAL-HAMOUd

maNaGEr (PrOCESS SaFEtY maNaGEmENt)

ALI M. AL-SALEH maNaGEr

(dEvElOPmENt drilliNG ii)

ALI AL-NAKEEB maNaGEr (COrPOratE

iNFOrmatiON tEChNOlOGY)

BAdER AL-KHAYYAT maNaGEr (drilliNG

ENGiNEEriNG)

KHALEd SULAIMAN AL-FOZAN maNaGEr

iNduStrial SErviCES

JAMAL AL-HUMOUd

maNaGEr (rESEarCh &

tEChNOlOGY)

AHMAd KH. AL-JASMI maNaGEr

(rESEarCh & dEvElOPmENt)

MUBARAKAL-MUTAIRI

maNaGEr (wEll SurvEillaNCE)

BANdAR AL-MUTAIRI maNaGEr

(tEChNiCal SuPPOrt)

MOHAMMAd dAwwAS AL-AJMI

maNaGEr (ExPlOratiON)

ALI AL-KANdARI maNaGEr PrOduCtiON &

PrOjECtS (GaS)

HAMAd RASHIdAL-ZUwAYER

maNaGEr (GaS OPEratiONS)

BAdER AL-QAOUd maNaGEr OPEratiONS

SuPPOrt (GaS)

MOHAMMAd AL-QENAEI maNaGEr (GaS FiEldS

dEvElOPmENt)

SHAMLAN AL-ROOMI maNaGEr

(ExPOrt SuPPOrt SErviCES & mariNE)

SAMI AL-SAwAGH maNaGEr (mariNE

OPEratiONS)

• Chief Executive Officer’s Message1. Maximize the Strategic Value from Oil2. Realize the Potential of Gas3. Grow Reserves for a Sustainable Future4. Be an Employer of Choice5. Realize Value from Technology6. Strengthen Our Commitment to HSSE7. Strive For Excellence In Performance8. Contribute to Enterprise and State9. KOC’s Aspirations towards meeting its

Strategic Objectives for 2018/19

Table of Contents

12 Kuwait Oil CompanyAnnual Report 2017/2018

During 2017/2018, KOC achieved many accom-plishments and overcame the challenges through concerted efforts among all groups within the company. One of the company’s highlights during the year is the development of 2040 strategy in collaboration with other stakeholders. KOC had a principal role in the development of the Kuwait Oil Sector’s 2040 Strategic Plan, with particular reference to the Domestic Upstream segment. The year-long comprehensive process resulted in, among other things, ambitious crude and non-associated gas production capability targets of 4.250 Million BOPD and 2.0 Billion SCFD respec-tively. Critical elements of the exercise included updating the Strategic Plans, developing the Ini-tiatives to achieve Strategic Directions and the plans to execute eight Core Strategic Initiatives and 11 Enabling Initiatives. The 2040 Strategy affirmed the Company’s Mis-sion - “We optimize the value of Kuwait’s hydro-carbon resources through exploration, develop-ment and production to ensure sustainability” and Vision “To be an upstream leader recognized globally for excellence.” Additionally, a set of Strategic Objectives were articulated based on

KPC’s Strategic Directions, namely:• Strive for World-class Operational Excel-

lence• Optimize Portfolio Management• Achieve sustainable crude oil production ca-

pacity• Achieve sustainable non-associated gas

production capacity• Replace Reserves to sustain production• Facilitate Technology and Capability Trans-

fer • Actively manage stakeholders to satisfy Ku-

wait energy demand efficiently

In order to achieve the ambitious 2040 Strategy goals and objectives, KOC recognizes the es-sential need to progress towards a performance-oriented culture. To this end, the Company has embarked on initiatives and programs aimed at enhancing cost optimization, efficiency, produc-tivity, competitiveness and organizational effec-tiveness. Significantly, it is imperative to note that success of the 2040 Strategy must be built on a foundation of common understanding and shared ownership

Introduction

13Kuwait Oil CompanyAnnual Report 2017/2018

by all the groups within KOC. Consequently, a 2040 Strategy Communications campaign has been initiated to ensure that employees under-stand the challenges faced, plans and initiatives to address them, and our much needed individ-ual contributions. Working together, KOC’s 2040 Strategy goals serve a catalyst for collaborative achievement.

By year-end; the company achieved Crude Pro-duction Capacity of 3.151 Million BOPD, main-taining the level of production capacity. The number of drilling and workover rigs reached 129 rigs; accordingly, 672 new wells of Crude Oil and Non-Associated Gas Production were drilled across Kuwait fields. During March 2018, Non-Associated Gas Production reached its highest level ever about 264 MMSCFD. In addition, the company accomplished a number of discoveries and Heavy Oil production is one of company’s fo-cus where certain number of wells were released within heavy Oil project.

The company has been keen to employ technolo-gy in all aspects of its business in order to reduce

costs and improve the performance of its opera-tions. Also, it was fully focused on recruitment and training, especially Kuwaitis recruitment for both KOC and contractors; 840 employees were recruited of which 633 new Kuwaiti new gradu-ates, and around 3,156 Kuwaitis were accepted to work within KOC signed contracts. Talking about Health, Security, Safety and Environmental; KOC’s efforts and endeavors are focused to re-duce the Lost Time Injury Frequency Rate, which reached 0.016 accidents per 200,000 working hours at year end, and also to reduce volume of oil spilled that reached only 540 barrels.

Moreover, the company participated in numer-ous conferences and exhibitions in order to attain excellence in performance. Likewise, it organized different initiatives and campaigns as part of its “Corporate Social Responsibility”. Also, the com-pany opened the Ahmadi New Hospital to serve its employees and their families. In this report, we describe the company’s performance and achievements within the framework of the 2040 strategic objectives.

Chief Executive Officer’sMessage


As CEO of Kuwait Oil Company, it gives me enormous pride to present you with the KOC Annual Report for 2017/18. In the pages that follow, you will find an extensive review of the activities and achievements KOC has regis-tered over the past year. Before I begin, I would like to take this oppor-tunity to thank every KOC employee who has made the effort over the past year to push our company forward as we strive for operational excellence and safety in all our areas of op-eration. Our company is entirely reliant on our employees and partners, and this human capi-tal is by far our most important resource – and it is one which we continuously endeavor to strengthen.Our activities over the last fiscal year have been defined by close cooperation amongst all KOC Directorates, Groups, and Teams. This is especially true when viewed through the prism of Kuwait’s 2040 Strategic Plan for the Oil Sec-tor, which KOC played a major role in defining. In part, this new strategic vision calls for an in-crease in KOC’s production capabilities in the years ahead while maintaining our adherence to world-class standards as they relate to op-erational excellence, efficiency, and safety. From a technical perspective, KOC’s produc-tion capacity for the past fiscal year currently stands at 3.151 Million BOPD, which trans-lates to maintaining the production level from the previous fiscal year, which stood at 3.150 Million BOPD. However, our crude and non-associated gas production capability figures stand at 4.25 Million BOPD and 2 Billion SCFD respectively. Meanwhile, KOC continues to drill new wells, and over the course of the past year, 672 new wells were drilled across KOC’s areas of operation. Going forward, KOC’s focus in terms of new operations and investment is in the field of heavy oil, the operations of which are predomi-nantly centered in North Kuwait. This Annual Report covers in detail how KOC will continue its efforts to ensure those heavy oil resources will become a significant portion of our total output. In addition to heavy oil production in North Kuwait, KOC is actively planning how our offshore resources can be utilized in the future. In this regard, KOC recently completed an offshore 3D seismic survey of the entirety

of Kuwait Bay, which was one of the largest geophysical projects associated with shallow water in the world. While the exploration and production of Ku-wait’s hydrocarbon resources remains our pri-mary objective, KOC’s activities in fact extend far beyond the oilfield. For example, in the past year, KOC successfully inaugurated the New Ahmadi Hospital for employees working in Ku-wait’s oil sector. The new, state-of-the-art facil-ity will serve our community in the decades to come, and is another addition to KOC’s reper-toire of projects which are aimed at Corporate Social Responsibility efforts and giving back to the community in which we operate. Along-side the new hospital, the brand new Ahmad Al-Jaber Oil & Gas Exhibition was also inaugu-rated. This new facility, in addition to be being an architectural marvel, provides a history of Kuwait’s relationship with oil and will go a long way in inspiring Kuwait’s next generation of oil and gas leaders. Meanwhile, KOC continues to actively acquire and utilize the latest technologies in the world available to us for the benefit and development of our operations. We have also continued to spare no effort in strengthening our commit-ment to HSE-related matters, which play a crit-ical role in our future policies and plans. Issues related to HSE also play a very important role in improving the performance of our employees, who continue to receive prestigious awards and certifications from institutions around the world. This introduction merely provides a brief over-view of the many achievements made by KOC over the last fiscal year, and it is without ques-tion that these achievements would not have been possible without the efforts put forth by our diverse group of dedicated employees and partners. As we move forward and carry KOC into the future, we aim to remain steadfast in our dedication to operational excellence and safety while being a reliable supplier of energy to the world.

Sincerely,Jamal Abdul Aziz JaafarCEOKuwait Oil Company


Kuwait Oil CompanyAnnual Report

2017/2018


1st Strategic Objective:Maximize the Strategic Value from Oil


A- Crude Production Capacity Kuwait Oil Company strives to create the necessary plans and elements leading to increase and enhance Crude Oil Production Capacity. As a result, Crude Production Capacity reached 3.151 MMBOPD at year-end. Efforts are still ongoing to make progress on plans in order to reach targeted Crude Production Capacity for the next year.Two integrated drilling services tenders were successfully launched, the first for exploration of new oil reserves in Kuwait’s Regional waters, and the second for the development of new fields in west Kuwait. The company also signed two huge contracts in the second quarter of the financial year for the “KOC FEED Pipelines for New Refinery Project (NRP) for Al-Zour Refinery” and installation of “New 48 inch” Crude Transit Line from North Kuwait to Central Mixing Manifold (CMM)”.


Starting with KOC assets, specifically with North Kuwait operations area, the company achieved a Crude Production Capacity of approximately 763,000 BOPD. KOC successfully increased its production in from Bahrah field from 4,000 to 25,000 BOPD during 2017/18 which is a new record during the life of the field. In addition, fuel gas commenced flowing and flare ignited successfully for GC-29, GC-30 construction projects. Also, KOC achieved water injection above 900,000 BWPD in North Kuwait area only.Moving to South and East Kuwait asset, Crude Production Capacity reached 1.680 Million BOPD. As part of KOC efforts to enhance the Production Capacity in this operations area; mitigation plan started installing and operating additional nine injectors in Burgan (PAD), increasing the capacity of water injection by 70,000 BWPD which will lead to a forecasted increase in production rate. Regarding West Kuwait asset, Crude Production Capacity reached 530,000 BOPD. During April 2017, wet tanks were converted to dual service tanks at GC-27 and GC-28 without any shutdowns. KOC also accelerated the production of approximately 250,000 barrels of oil the flow line connection of 10 new wells during a period of four days for each well (versus 21 days contractual flow line connection time per well) equivalent to 40 days compared to 210 days.As for the production of Light Oil, the production capacity reached 160,000 BOPD. Although, two Jurassic Production Facilities (JPF-SA, JPF-WK) were successfully commissioned as part of the company’s plan to increase Light Oil production and Non-Associated Gas. The third Jurassic Production Plant (JPF-ER) will be commissioned in East Rawdhatain Field during the fiscal year 2018/2019.In With respect to Heavy Oil activities and the company›s efforts to enhance its production capacity, successfully completed 63% of the Heavy Oil production facility construction in South Ratqa field, which is expected to be totally completed during the next fiscal year where 930 wells were completed and prepared in South Ratqa for the operation of this facility. For the first time in the company›s history, successive steam pumping was initiated in the pilot project in the northern part of the field. In addition, six old wells have been

KOC Crude Production Capacity [MMBOPD]

2015/2016 2016/2017 2017/2018

3.017

3.150

2.950

3.000

3.050

3.100

3.150

3.200

3.151


restored and produced since 1980. In order to reduce the cost of heavy oil production, the company succeeded in establishing and expanding the gas pipeline instead of diesel in steam production required for pilot projects. The company also attempted to reduce the cost of processing and analyzing petrophysical data in the Lower Fars reservoir through the use of local resources within KOC. In addition to the above, KOC continues to inspect and analyze oil reservoirs and conduct geological studies and pilot projects, which contribute to increase the Heavy Oil reserves.As for heavy oil from the field of Um Niqa field, the production capacity has reached 18,000.


B- Drilling and Workovers (Excluding Light Oil)

The total number of wells that were drilled specifically for the production of oil (excluding light oil) reached 648 new wells, and 1,486 workovers were completed for the purpose of oil wells maintenance.

Number of wells drilled specifically for oil production in the KOC’s fields (excluding light oil)

600

700

Classification of Wells Number of WellsCretaceous Development Wells 352Jurassic Development Wells 9

Heavy Oil Development Wells 276Exploratory Wells 11

Total 648

2015/2016 2016/2017 2017/2018

558

100

200

300

400

500

648

398


2nd Strategic Objective:Realize the Potential from Gas


KOC is making every effort to achieve its strategic goal by 2040 to reach 2.0 Billion SCFD of Non-Associated Gas. In this regard, the total daily production of Associated Gas and Non-Associated Gas at the end of last year was 1.777 Billion SCFD, while production of Non-Associated Gas reached 215 MMSCFD. For the first time since the start of Non-Associated Gas production, highest production levels of 264 MMSCFD peaked in March 2018.

A- Production Capacity of Associated Gas and Non-Associated Gas


The percentage of Gas Flaring in KOC fields it reached 4.16%. One of the initiative taken by the company to reduce the rate of Gas Flaring is to provide the maximum possible gas feed to the Gas Sweetening Facility continuously and at 60 MMSCFD, in order to optimize the use of gas during AGRP shutdown. Workshops were also held with other K-Companies to enhance communication and resolve all operational problems related to the Kuwait National Petroleum Company (KNPC).Among The company achievements in this regard, is the construction of Gas Booster Station Project (BS-171) of West Kuwait operation area was completed in October 2017, in addition to the delivery of the 12-inch LNG line to Kuwait Oil Tanker Company to transport gas products from Mina Al Ahmadi to Umm Al-Aish gas plant safely to produce gas cylinders.

Number of Deep Wells in KOC’s Fields

B- Drilling and Workover of Jurassic Reservoirs (Non-Associated Gas)

24 deep wells were drilled to reach the amount of Non-Associated Gas targeted and to implement the exploration program of the company, and completed 40 workover to maintain Non-Associated Gas wells.

25

30

2015/2016 2016/2017 2017/2018

15

-

5

10

15

20

24

18

Classification of Wells Number of WellsDeep Developmental Wells (Jurassic) 14Deep Exploratory Wells (Jurassic) 10

Total 24


3rd Strategic Objective:Grow Reserves for a Sustainable Production


The company has a steady growth in the reserves and Non-Conventional Hydrocarbon resources in order to achieve its 2040 strategic goals and increase Production Capacity. A large quantity of new significant undocumented Hydrocarbon resources volumes were identified in the company; and transfer them to the relevant groups to start doing the necessary to increase the original stock and Hydrocarbon reserves of the company.On the other hand, the first phase of Sabriya chemical injection test (SAMA EOR pilot) was launched which is the first pilot in Carbonate formation in the Middle East for technical and commercial evaluation to maintain production and increase reserves. In addition, successfully completed Single Well Chemical Tracer Test showed a significant reduction in oil saturation remaining in the field of Rawdhatain Zubair by 6%, using the chemical trace of the well, which preserves the production and increase the recovery factor at the end of the life of production.A Corporate Assurance Tool was designed to manage and ensure the health of the petroleum reservoirs in terms of enabling the company to implement the best reservoir management practices and ensure maximum production sustainability. Also, the classification and definitions of Non-Conventional sources of KOC have been approved, helping to unlock the potential of additional resources to meet KOC’s 2040 strategic objectives.A plan for the development of the Umm Niqa - Lower Fars reservoir in polymer mode has been finalized to test whether the enhanced oil recovery will help the company achieve 50,000 BOPD from this reservoir for the growth of reserves for a sustainable future and assessing the effectiveness of the chemical injection technology.Regarding Reserve Replacement Ratio, KOC managed to replace more than 102% (three years rolling average of Reserves Replacement Ratio – Barrel Oil Equivalent (BOE)) through exploration and development, comparing with target of 100%.

A- Reservoir Assessment Studies


B- Seismic Survey Operations

The field operations of the 3D Seismic exploratory survey project in Kuwait Bay and surrounding areas have been successfully completed using advanced and diverse technology utilized in documenting the seismic survey data. KOC honored the supporting parties who made this project a success, which is one of the largest geophysical projects associated with shallow water in the world.


C- Exploratory Drilling Activities

During the fiscal year 2018/2017, a number of exploratory drilling operations have been completed, which will contribute to achieving the strategic objectives of the company in terms of adding reserves and production, including:

1. Cretaceous Layer• Discovery of Light oil in Ratawi Limestone reservoir in Mutriba (MU-17), where the first

oil test result was 503 barrels of oil per day with (38.5 API).• Discovery of Light oil in Ratawi Shale and Limestone reservoir in Mutriba (MU-22),

where the first oil test result was 2,627 barrels of oil per day with (27.5 API).• Discovery of Light oil in Ratawi Limestone reservoir in Sabriyah (SA-662), where the

first oil test result was 1,737 barrels of oil per day with (35 API).• Discovery of oil in Lower Fars reservoir in Sabriyah with Heavy Oil extraction.• Discovery in Burgan in Bahrah Field (BH-44), where the first oil test result was 3,342

barrels of oil per day with (34 API).

2. Jurassic Layer• Discovery of Light oil in Middle Marrat reservoir in Sukhaibriyat Prospect (SUK-02),

where the first oil test result was 1,909 barrels of oil per day with (50 API) in addition to 5.877 million SCFD of associated gas.

• Discovery of Light oil in Upper Marrat reservoir in Shaham Prospect (SM-002). Where the first oil test result was 617 barrels of oil per day (48 API) in addition to and 0.3 Million SCFD associated gas.

• Discovery of Light oil in Najmah-Sargelu reservoir in Umm Roos Prospect (UR-03), where the first oil test result was 103 barrels of oil per day (47 API) in addition to and 0.15 Million SCFD associated gas.


4th Strategic Objective:Be an Employer of Choice


Kuwait Oil Company is striving to enhance the skills and human energies, providing them attractive work environment, and working on reaching highest job satisfaction levels among them. It also seeks to attract Kuwaitis as encouragement to the national employment. Here, we mention the most important achievements in this regard during the fiscal year 2017/2018.KOC exerted enormous efforts to facilitate recruitment of 840 employees, 633 of whom are Kuwaitis graduates. Accordingly, the total number of Kuwait Oil Company’s employees at the end of the fiscal year reached 10,984 employees including the medical and nursing staff. Hence, the percentage of Kuwaitis including the medical and nursing staff reached 81.2% (including Medical and nursing stuff), while it reached 88.5% excluding the medical and nursing staff.In order to create job opportunities for Kuwaitis in the contracts and to encourage the private sector to attract national employment; around 3,156 Kuwaitis were accepted, hence, Kuwaitis in contracts reached approximately 26%.As part of its continuous efforts to provide the best learning opportunities for its employees,


in conjunction with the highest academic institutions, KOC is implementing the following programs:

• “Learning on Demand” program with Harvard School of Business. The program consists of 24 subjects relating to Management Development. To date, 222 fast track employees have participated in this program.

• The drilling worker program in cooperation with the General Authority for Applied Education and Training, which is one of the objectives of the Kuwaiti employment group in the contracts to settle the best practices in the field of drilling and operation of wells where the program continued for the second year in a row to provide about 50 Kuwaiti workers trained and qualified to work in this area Competency required.

The company also continued several initiatives to develop its employees, including 28 employees trained in the Republic of South Korea. In addition, 133 employees received training with International Oil Companies abroad, in order to enhance scientific, technical and research programs needed to improve the company’s production capacities.Also, KOC has organized 3,749 job-related training courses inside and outside the State of Kuwait covering various specializations. The number of training opportunities reached 32,867 in accordance with employees training plan set by the company for the employees’ career development, in addition to 6,602 training opportunities using other developmental tools. Moreover, the company organized training for 746 Kuwaitis in contracts who completed training in various courses in coordination with KPC Petroleum Training Center, to maintain skilled and competent manpower to operate the Company’s operations efficiently.As the company interested in youth and their talents enhancement, the company continued “Future Talents” program for oil sector staff, which aims to develop functional processes and improve youth talents. The program contained 14 innovative projects for number of young employees in KOC, KPC, and other oil companies.

Some of the challenges faced by Kuwait Oil Company during the fiscal year 2017/2018 related to recruitments and training:

• Increasing job awareness of the employees in the contracts and raise the functional efficiency. KOC handled this challenge by organizing enlightenment meetings for all contract workers, by department.

• Qualifying and training Kuwaiti workers covering the needs of the contractor and the technical teams in the company. The company is seeking to increase training programs organized in coordination with the General Authority for Applied Education.

The Kaizen Gallery Walk was also held where employees presented their projects that applied Kaizen Mechanism. This reflects the company’s support and attention of Senior Management to the efforts exerted by the employees and appreciation for their creativity and efforts. The performances demonstrated proved Kaizen’s success in achieving its objectives, particularly through what has been introduced from outputs that contributed to greater efficiency and the elimination of unnecessary spending and time.


5th Strategic Objective:Realize Value from Technology


The testing and pilots conducted on modern technologies mentioned here or previously provide new means to increase reserves and production. It is worth mentioning that the full-field deployment of this same technology is what will enhance and increase production capacity. Among these technologies, we mention:

KOC, has successfully deployed innovative technology where it consists of two systems, “LPC Pressure Corer” to retrieve large diameter cores and the “PCAL System” for analysis of retained reservoir fluids. Also, for the first time worldwide successful In-Situ Pressurized coring run was conducted on Rig “SP-186” using High Performance Water Based Mud technology has been completed, utilizing recycled Hydro-guard with high salinity to have low solids accumulation, Polymer lumps and well-bore instability. To maximize safety and improve drilling performance, specialized Casing Running Tool was utilized for the first time in Kuwait which it is contributing to speed up running casing which reduced costs by $ 40,000 and reduced the time required for this process. In addition, Surgi Squeeze Acid has been utilized for the first time for a multilateral well “MN-210” where it offers a quick, effective method to help boost production from open hole horizontal by creating multi fractures. In addition, the technology contributed to save the total cost of the well.


Because the company is a pioneer in the use of modern technologies, Rig “SD-16” used a new Bit Technology ‘’Terra Adapt’’ in the two layers of Mutriba and Burgan which was first applied in Kuwait. It contributed to reducing the vibrations resulting from drilling operations with increasing penetration rate of 44%. In addition, savings in drilling hours, which resulted in a reduction of the total cost of drilling operations.Crude oil was also loaded using “Gravity Filling Thereby” technology in oil pipelines from oil storage tanks to shipping vessels, which reduced the use of artificial pumps, especially at peak times, without causing delays for international oil export vessels.In the management and development of fields in KOC’s areas, Field Data Quality and Optimization System (FDQOS) has been developed to provide a solution to smart field operations for field production and optimization. These are some of the key features that are enabled the best decision making for the upper management:

• Modification of crude oil production targets.• Minimizing of gas flaring in certain areas or gathering centers.• Reduction of associated water production resulting from oil production.• Simulation of new or modified gathering center capacities.• Forecast of production gain through a new gathering center plant.


6th Strategic Objective:Strengthen Our Commitment to HSSE


A- HealthIn the area of health, the new Ahmadi Hospital was inaugurated in April 2017 under the patronage of His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah. KOC announced that Ahmadi Hospital has completed the transfer of patients from several suites in the specialized hospital to the new hospital building in less than three hours.

In spite of the intensive efforts in order to achieve the company’s strategy by 2040, the company strives to achieve maximum levels of Security, Safety, Environmental protection and Health insurance, which are part of its strategy and priorities. Thus, efforts continues in this area in parallel with its efforts to achieve 2040 strategy goals.


B- Safety

C- Security

Regarding Safety, KOC’s efforts and endeavors are focused to reduce the Lost Time Injury Frequency Rate (LTIFR), which reached 0.016 accidents per 200,000 working hours at year-end.In order to strengthen the safety and health rules in the drilling areas of the company, emergency stop safety feature for Auger System was installed to prevent and reduce risks of rig personnel who authorized for maintenance while drilling. On the other hand, seven locations in KOC’s fields were cleared from explosives and contaminated soil.KOC has achieved the Golden Medal Award for Health & Safety and the Golden Award for Fleet Safety for Export & Marine Fields for the year 2017/2018 of the Royal Society for the Prevention of Accidents in the export and marine category.The company regrets the record of two fatalities of contractors for this year 2017/2018 during the months of April and September 2017, one of which was in one of the drilling sites of the company and the other resulted from a road accident. KOC has conducted the necessary investigations to find out the causes and circumstances of accidents, and the necessary to prevent the occurrence of such in the future.

The company Completed an exercise to re-evaluate Ahmadi Township security requirements for the upcoming “Ahmadi Township Security Requirements – Phase II” project. In the framework of Cyber Security in K-Companies, KOC hosted the regular meeting of the Cyber Security Committee of the oil sector, which discussed several key issues related to information security and the committee’s various activities within the K-Companies, such as awareness campaigns and security workshops for oil sector employees.


D- Environment

The company continued its efforts towards reducing the quantities of volume of oil spilled within the operation areas; the volume spilled reached 540 barrels at year end. Through September 2017, KOC successfully combated two oil pollution spots, one near Al-Zour and the other near Mina Al-Zour. The General Authority for the Environment and the Kuwait Integrated Petroleum Industries Company praised Kuwait Oil Company’s efforts to contain the crisis.In the framework of the best practices, two emergency training exercises were conducted for the oil leaks in the sea, in the presence of representatives from the General Environment Authority, the Ministry of Electricity and Water, the National Petroleum Company and Saudi Chevron. Work model has been approved by KOC and National Petroleum Company to secure and transport carbon dioxide from national oil refineries to the Minagish field in West Kuwait where this will support the reduction of greenhouse gas emissions at the oil sector level.On the other hand, KOC has organized several environmental campaigns, including “Day of Biodiversity” and “Earth Day” 2017, in the presence of a group of government agencies and external environmental organizations to promote awareness and commitment to preserving the environment. During the campaign, the company planted 300 trees and distributed 350 trees. A panel discussion entitled “Waste Management and Soil Remediation Forum” was organized with the participation of different entities where experiences in the field of environmental technology were shared and discussed.Through the project of excavation and transportation of heavy contaminated soil in North Kuwait, high-pollution liquid oil lakes were cleaned up and contaminated soil was transported from different areas and locations in Umm Al-Aish. Total estimated areas of cleared wet oil lakes are approximately 730 thousand meter squared; in addition to treating nearly 590 thousand cubic meter of contaminated soil; which was severely impacting any development in Umm Al-Aish’s oil field. In the same context, five million square meters of heavy contaminated soil have been cleared with an estimated volume of two million cubic meters that was transported to the newly constructed landfills in North and South of Kuwait. In addition, short, long-term carbon capture, storage strategies and GHG emission reduction techniques have been developed to reduce emissions in Kuwait. Moreover, KOC received the Maritime Standard Award 2017 for Marine Colony under “Environment” category; which was held on October 2017 in Dubai.


7th Strategic Objective:Strive For Excellence in Performance


KOC is exerting its efforts and always strives for excellence and superiority performance, all these continuous efforts aimed to increase Crude Production Capacity targeting 4.250 Million BOPD by 2040. The most important achievements are:The Center of Excellence recently organized a discussion session on water isolation in oil wells. The session highlighted the latest technologies invented to tackle the issue of water at the bottom of wells. Specialists from Water Handling Teams from Exploration and Production companies along with a number of experts from the Center of Excellence participated in the session.In the same context, a specialized workshop which focused on the importance of the application of petroleum hydro geochemistry which helps understand the evolution of Kuwait’s sedimentary basin and the development of its petroleum systems. The importance of the application of chloride and bromide isotopes in formation waters was discussed as an identification mark in a recent exploratory well for the “Gotnia Formation”. In addition, detailed presentations were presented on the innovative technology and its applications and their use in Kuwait’s crude oil.On the other hand, KOC recently signed a Memorandum of Understanding (MoU) with the Ministry of Public Works, to supply 300,000 BBLs/day of triple-treated water from Kabd Station. The purpose in using the treated-water in the Company’s operations is to improve water quality where the addition of low salinity water to crude oil helps to reduce the concentration of high water salinity associated with oil, as well as accelerate the separation process, and that the agreement will serve the company’s strategy to reach the levels of production target.Moreover, the company participated in numerous conferences, forums and exhibitions in order to attain excellence in performance. Likewise, it organized different events, and presented several technical papers. Here are some of the conferences and exhibitions:

• Oil Flow Measurement Technology Conference at the South East Asia.• Global Corrosion Conference and Exhibition in the United Arab Emirates.• “PetroServ 2017” for petroleum and energy in Tunisia.• “GEO 2018” for Geoscience Conference and Exhibition in Bahrain.• Operational Excellence in Oil and Gas Conference at United Arab Emirates.• Conference of the European Society of Geophysics in France.• Kuwait Third Oil & Gas Exhibition & Conference.


8th Strategic Objective:Contribute to Enterprise and State

KOC has launched numerous campaigns and implemented initiatives as part of its corporate social responsibility efforts, some of which including the opening of the Fire Training Center in Burgan, which is the first of its kind in the world in terms of technology and simulation systems and control used in it. This center is a national project primarily because it will receive firefighters from the various sectors of the State and the oil companies associated with the aim of training them on all types of fires and in all circumstances and potential locations. The center is located in the Burgan area, covering an area of 60 thousand square meters. It includes 10 models of facilities similar to those in the company’s operations and includes 75 different training scenarios.


KOC’s Aspirations towards meeting its Strategic Objectives for 2018/2019

• Continue building production capacity of crude oil in accordance with the Strategic Directions. KOC also looks forward to continuing the implementation of projects to increase production such as the Gathering Center (GC-31) in the North Kuwait in order to contribute increasing the production capacity of North Kuwait area to 1 MMBOPD. KOC also looking forward to commence the construction work of the Gathering Center (GC-32) in the area of operations in South and East Kuwait to deal with the production of new oil from Burgan Marrat and sour crude oil from Burgan Minagish field.

• Focusing on water treatment, handling and injection operations for reservoirs to increase their production capacity.

• Continue the development of Jurassic Gas fields projects in North Kuwait, where the company aims to achieve a production capacity equivalent to 0.50 billion cubic feet per day by introducing the third Jurassic Production Facility (JPF-ER) in the East Raudhatain field in North Kuwait to produce Light Oil and Non-Associated Gas (40,000 barrels of light oil and 100 million cubic feet of gas per day). The company then aims to raise this production capacity to 1.0 billion cubic feet of Non-Associated Gas by establishing four new Jurassic Production Facilities.

• The development of Heavy Oil reservoirs in North Kuwait by acquiring the required technology, training the company cadres and achieve production capacity equivalent to 60 MBOPD from the field of “Lower Fars reservoir“ through commissioning the Heavy Oil Central Production Facility during 2018/2019. In addition, KOC will continue the development of the field of Umm Niqa “Lower Fars” to increase its production capacity to 25 MBOPD.

• Signing the contracts of the offshore drilling project as part of the onshore and offshore exploration operations to support the company’s production capacity.

• Improve and develop production methods using the best of modern and advanced technology:1. Work on the implementation of pilot and actual Water Flood projects to improve the

company’s expertise in this area.2. To develop the company’s capabilities in the use of EOR technology through the

implementation of pilot projects.• Advancing forward with crude oil segregation projects according to its types.• Continue reducing the Gas Flaring to 1% at the level of Kuwait Oil Company.• Continue modernizing Ahmadi Township.


Financial statements and independent auditor’s report

for the year ended 31 March 2018


Kuwait Oil Company K.S.C. State of Kuwait Contents Page

Independent auditor’s report 1 - 3 Statement of financial position 4 Statement of profit or loss and other comprehensive income 5 Statement of changes in equity 6 Statement of cash flows 7 Notes to the financial statements 8 - 31

1

Independent auditor’s report

The Shareholders Kuwait Oil Company K.S.C. State of Kuwait

Opinion

We have audited the financial statements of Kuwait Oil Company K.S.C. (“the Company”), which comprise the statement of financial position as at 31 March 2018, the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at 31 March 2018, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) and we have fulfilled our other ethical responsibilities in accordance with IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter

We draw attention to Note 27 to the financial statements, which describes that the Company is the defendant in a lawsuit filed in an international arbitration court, by a contractor claiming additional payments on a contract. The ultimate outcome of the matter cannot presently be determined and, accordingly, no provision for any effects on the Company that may result has been made in the financial statements. Our opinion is not modified in respect of this matter.

2

Other Information

Management is responsible for the other information. The other information obtained at the date of this auditor’s report is the Board of Directors report included in the Company’s annual report, but does not include the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we have obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: - Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design

and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

- Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.

- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related

disclosures made by management.

3

- Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

- Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether

the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Report on Other Legal and Regulatory Requirements

We further report that we have obtained the information and explanations that we required for the purpose of our audit and the financial statements include the information required by the Companies Law No. 1 of 2016, as amended, and its Executive Regulations and the Company’s Memorandum and Articles of Association, as amended. In our opinion, proper books of account have been kept by the Company, an inventory count was carried out in accordance with recognized procedures and the accounting information given in the Board of Directors’ report agrees with the books of accounts of the Company. We have not become aware of any violations of the provisions of the Companies Law No. 1 of 2016, as amended, and its Executive Regulations, or of the Company’s Memorandum and Articles of Association, as amended, during the year ended 31 March 2018 that might have had a material effect on the business of the Company or on its financial position.

Safi A. Al-Mutawa License No 138 “A” of KPMG Safi Al-Mutawa & Partners Member firm of KPMG International

2

Other Information

















3

- Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

- Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether

the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Report on Other Legal and Regulatory Requirements

We further report that we have obtained the information and explanations that we required for the purpose of our audit and the financial statements include the information required by the Companies Law No. 1 of 2016, as amended, and its Executive Regulations and the Company’s Memorandum and Articles of Association, as amended. In our opinion, proper books of account have been kept by the Company, an inventory count was carried out in accordance with recognized procedures and the accounting information given in the Board of Directors’ report agrees with the books of accounts of the Company. We have not become aware of any violations of the provisions of the Companies Law No. 1 of 2016, as amended, and its Executive Regulations, or of the Company’s Memorandum and Articles of Association, as amended, during the year ended 31 March 2018 that might have had a material effect on the business of the Company or on its financial position.

Safi A. Al-Mutawa License No 138 “A” of KPMG Safi Al-Mutawa & Partners Member firm of KPMG International

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Other Information

















Kuwait Oil Company K.S.C. State of Kuwait Statement of financial position as at 31 March 2018

4

2018 2017 Note KD’000 KD’000 Assets Property, plant and equipment: Crude oil and general purpose 5,366,550 4,356,718 Gas collection and transmission 774,543 534,323 Drilling and exploration 111,441 119,171 Export operations 97 124 Mobile plant 459 975 Capital work in progress 5,392,475 4,921,537 Total property, plant and equipment 5 11,645,565 9,932,848 Intangible assets 6 88,379 29,045 Construction inventories 7 156,586 197,969 Receivable from Parent Company 9 15,094 15,094 Non-current assets 11,905,624 10,174,956 Consumable inventories 7 104,892 111,897 Advances and other receivables 8 560,239 521,846 Amounts due from group companies 15 (b) 93,077 68,282 Cash and cash equivalents 10 7,565 10,713 Current assets 765,773 712,738 Total assets 12,671,397 10,887,694 Equity Share capital – authorized, issued and fully paid shares of KD 1 each 11

30,188

30,188

Shareholder’s current account 11 2,114,791 2,114,791 Statutory reserve 11 15,094 15,094 Total equity 2,160,073 2,160,073 Liabilities Due to Parent Company, net 9 8,713,827 7,129,749 Post employment benefits 12 447,450 347,799 Non-current liabilities 9,161,277 7,477,548 Accounts payable and other liabilities 13 942,563 920,452 Dividend payable 14 407,484 329,621 Current liabilities 1,350,047 1,250,073 Total liabilities 10,511,324 8,727,621 Total equity and liabilities 12,671,397 10,887,694

The accompanying notes form an integral part of these financial statements.

Mohammad Al Jazzaf Chairman

Jamal Abdul Aziz Ja’afar Chief Executive Officer

Kuwait Oil Company K.S.C. State of Kuwait Statement of profit or loss and other comprehensive income for the year ended 31 March 2018

5

2018 2017 Note KD’000 KD’000

Revenue: Revenue (net of royalty, levy and marketing fees) 16 3,142,706 2,666,466 Operating cost (cost of production): Contract services (701,307) (624,968) Employee cost (673,184) (560,760) Material cost (61,926) (72,827) Depreciation, amortization and write off 5&6 (352,244) (273,899) Total operating cost 17 (1,788,661) (1,532,454) Other operating income 18 52,480 27,564 Recoverable costs 19 137,025 113,675 Cost of production (1,599,156) (1,391,215) Deferred cost recognized (44,516) (46,694) Deferred cost 64,009 44,516 Total cost of sales (1,579,663) (1,393,393) Gross profit 1,563,043 1,273,073 General and administrative expenses 20 (108,055) (95,974) Net operating profit 1,454,988 1,177,099 Interest income 353 159 Directors’ remuneration 21 (42) (42) Net profit before contribution to shareholder 1,455,299 1,177,216 Contribution to the shareholder 22 (1,047,815) (847,595) Net profit and total comprehensive income for the year (transferable to Parent Company) 14

407,484

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Kuwait Oil Company K.S.C. State of Kuwait Statement of cash flows for the year ended 31 March 2018

7

2018 2017 Note KD’000 KD’000 Cash flows from operating activities Net profit 407,484 329,621 Adjustments for: Abortive drilling expenditure 17 8,530 - Provision for obsolete and slow moving inventories 1,012 40 Depreciation, amortization and write off 5&6 352,244 273,899 Contribution to the shareholder 9 1,047,815 847,595 Provision for post employment benefits 12 124,007 51,441 1,941,092 1,502,596 Changes in: - consumable inventories 5,993 (2,288) - advances and other receivables (38,393) (5,388) - receivable from the Parent Company 9 (3,142,706) (2,666,466) - other movements in the Parent Company balances 9 (879) (10,850) - accounts with group companies (24,795) (5,139) - accounts payable and other liabilities 22,111 136,544 Cash used in operations (1,237,577) (1,050,991) Post employment benefits paid 12 (24,356) (48,828) Net used in operating activities (1,261,933) (1,099,819) Cash flows from investing activities Acquisition of property, plant and equipment 5&6 (2,124,295) (1,949,334) Abortive drilling 17 (8,530) - Changes in construction inventories 41,383 (16,531) Net cash used in investing activities (2,091,442) (1,965,865) Cash flows from financing activities Funding from the Parent Company 9 3,350,227 3,066,327 Net cash generated from financing activities 3,350,227 3,066,327 Net change in cash and cash equivalents (3,148) 643 Cash and cash equivalents at beginning of the year 10,713 10,070 Cash and cash equivalents at end of the year 10 7,565 10,713


Kuwait Oil Company K.S.C. State of Kuwait Notes to the financial statements for the year ended 31 March 2018

8

1. Reporting entity

Kuwait Oil Company K.S.C. (“the Company”) is a wholly owned subsidiary of Kuwait Petroleum Corporation (“the Parent Company” or “KPC”). The Parent Company is wholly owned by the Government of the State of Kuwait. The Company is engaged in exploration, drilling, production and transportation of hydrocarbon resources within the State of Kuwait. The Company is also engaged in the storage of crude oil and its export. Hydrocarbon resources managed by the Company are the sovereign property of the State of Kuwait. Crude oil is extracted from reserves in Kuwait and, on the instructions of the Parent Company, is exported as blended crude or passed to Kuwait National Petroleum Company K.S.C. (“KNPC”) for further processing or to the Ministry of Electricity and Water for power generation. Gas produced is treated similarly. The sales and marketing of crude oil produced by the Company is undertaken by the Parent Company. The Company owns no oil and gas reserves nor any oil and gas inventory other than those required for operations. The Company also provides marine services to KNPC’s Mina Al-Ahmadi and Mina Abdulla refineries and the oil pier at Mina Al-Shuaiba. KNPC is charged for direct costs relating to these activities. The Company charges group companies for medical and other services provided to their employees. Effective 1 April 2007, the Parent Company changed the reporting structure of the Company to become a profit centre. Prior to 1 April 2007, the Company was reporting to the Parent Company as a cost centre with its costs fully reimbursed by the Parent Company. Under these revised arrangements, the Company’s revenue is determined as the revenue from the sale of crude oil net of certain charges by the Parent Company (see policy on revenue recognition). In addition, 72% of the net profit is payable to the Parent Company as a contribution (Note 22). The Company’s registered office is P.O. Box 9758, Ahmadi 61008, State of Kuwait. These financial statements were approved and authorized for issue by the Board of Directors on 22 April 2018 and are subject to approval of the Shareholder at the annual general assembly.

2. Basis of preparation

a) Statement of compliance The financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”), the requirements of the Companies Law No. 1 of 2016, and its Executive Regulations, and the Company’s Articles of Association and the Ministerial Order No. 18 of 1990.

b) Basis of measurement These financial statements are prepared under the historical cost or amortized cost basis. The financial statements are prepared on a going concern basis. All funding requirements of the Company are met by the Parent Company.

c) Functional and presentation currency

These financial statements are presented in Kuwaiti Dinars rounded to the nearest thousand (KD “000”), which is the Company’s functional and presentation currency.


9

d) Standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning on 1 April 2018 and earlier application is permitted. However, the Company has not early adopted any of these new or amended standards in preparing these financial statements. The significant standards the Company will apply from 1 April 2018 or later are as follows: IFRS 15: Revenue from contracts with customers

The standard, effective for annual periods beginning on or after January 1, 2018, establishes a single and comprehensive framework for determining whether, how much and when revenue is recognized. It replaces the following existing standards and interpretations upon its effective date:

IAS 18 – Revenue, IAS 11 – Construction Contracts, IFRIC 13 – Customer Loyalty Programs, IFRIC 15 – Agreements for the Construction of Real Estate, IFRIC 18 – Transfers of Assets from Customers, and, SIC 31 – Revenue-Barter Transactions Involving Advertising Services

This standard applies to all revenue arising from contracts with customers, unless the contracts are in the scope of other standards. Its requirements also provide a model for the recognition and measurement of gains and losses on disposal of certain non-financial assets, including property, plant, vessels and equipment. The standard will also specify a comprehensive set of disclosure requirements regarding the nature, extent and timing as well as any uncertainty of revenue and corresponding cash flows with customers. Under IFRS 15, an entity recognizes when (on as) a performance obligation is satisfied, i.e. when “control” of the goods as services underlying the particular performance obligation is transferred to customers. The Company is currently assessing the impact of above matter under IFRS 15.

The Company has anticipated that IFRS 15 will be adopted in the Company's financial statements when it becomes mandatory. Based on the current accounting treatment of the Company’s major sources of revenue (Note 3(g), the management does not anticipate that the application of IFRS 15 will have a significant impact on the financial position and/or financial performance of the Company, apart from providing more extensive disclosures on the Company’s revenue transactions. However, as the management is still in the process of assessing the full impact of the application of IFRS 15 on the Company’s financial statements as it is not practicable to provide a reasonable financial estimate of the effect until the management complete the detailed review.

IFRS 9: Financial Instruments

The IASB issued the final version of IFRS 9 Financial Instruments in July 2014, that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.


10

The Company will avail of the exemption allowing it not to restate comparative information for prior periods. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are required to be recognised in opening retained earnings and reserves as at 1 April 2018.

Company has not performed a detailed impact assessment of IFRS 9 as the Company expects no significant impact on its statement of financial position and equity resulting from transition to IFRS 9.

Classification and measurement

The Company does not expect a significant impact on its financial position or equity on applying the classification and measurement requirements of IFRS 9. It expects to continue measuring loans and receivables and other financial liabilities at amortised cost.

Impairment

IFRS 9 requires the Company to record expected credit losses on all its loans and receivables, either on a 12 month or lifetime basis. The Company will apply simplified approach and record lifetime expected losses on all its receivables.

Hedge Accounting

As at 31 March 2018, the Company does not have any hedge relationships. Hence, the hedging requirements of IFRS 9 will not have a significant impact on Company’s financial statements.

Disclosure

The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the Company’s disclosures about its financial instruments particularly in the year of the adoption of the new standard.

IFRS 16 – Leases

IFRS 16 introduces a single, on balance lease sheet accounting model for lessees. A lessee recognizes a right‑of‑use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short‑term leases and leases of low value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases. IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases—Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial application of IFRS 16. The management is still in the process of assessing the full impact of the application of IFRS 16 on the Company’s financial statements as it is not practicable to provide a reasonable financial estimate of the effect until the management complete the detailed review.


11

The annual improvement to IFRS 2014-2016 cycle The following amendments are effective for annual reporting periods beginning on or after 1 January 2018 with earlier application permitted.

IAS 28: Investments in Associates and Joint Ventures

This provides guidelines in relation to following interpretations; A venture capital organisation, or other qualifying entity, may elect to measure its

investments in an associate or joint venture at fair value through profit or loss. This election can be made on an investment-by-investment basis.

A non-investment entity investor may elect to retain the fair value accounting applied by an investment entity associate or investment entity joint venture to its subsidiaries. This election can be made separately for each investment entity associate or joint venture.

The annual improvement to IFRS 2015-2017 cycle

The following amendments are effective for annual reporting periods beginning on or after 1 January 2019 with earlier application permitted.

IFRS 3: Business Combinations and IFRS 11 Joint Arrangements

Clarify how a company accounts for increasing its interest in a joint operation that meets the definition of a business. If a party maintains (or obtains) joint control, then the previously held interest is not

remeasured. If a party obtains control, then the transaction is a business combination achieved in

stages and the acquiring party remeasures the previously held interest at fair value.

IAS 23 Borrowing Costs Clarify that the general borrowings pool used to calculate eligible borrowing costs excludes only borrowings that specifically finance qualifying assets that are still under development or construction. Borrowings that were intended to specifically finance qualifying assets that are now ready for their intended use or sale – or any non-qualifying assets – are included in that general pool. As the costs of retrospective application might outweigh the benefits, the changes are applied prospectively to borrowing costs incurred on or after the date an entity adopts the amendments.


12

3. Significant accounting policies

The Company has consistently applied the following accounting policies to all periods presented in these financial statements except the changes descried in note 3 (m).

a) Property, plant and equipment

Exploratory wells The tangible element of exploratory wells is included under drilling, exploration and other assets under construction pending determination of proved reserves. If an exploratory well finds proved reserves, these costs are transferred to wells and surveys under oil and gas properties. If the exploratory well does not find proved reserves the costs are written off as abortive. Costs are considered abortive when they relate to wells, which are permanently abandoned due to the absence of commercially exploitable reserves of crude oil or temporarily abandoned with no plans for re-entry in the foreseeable future. Costs directly associated with an exploration well are capitalized as exploration and evaluation assets under drilling, exploration and other assets under construction until the drilling of the well is complete and the results have been evaluated. These costs include employee remuneration, materials, drilling and contractors’ cost.

Development wells The cost of development wells is included under oil and gas properties as wells and surveys and is accounted for under the “successful efforts” method of accounting. Under this method expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells is capitalized within oil and gas properties. Others Oil and gas properties and other property plant and equipment are stated at cost, less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials, contractors’ costs and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. Drilling, exploration and other assets under construction Assets in the course of construction are carried at cost, less any recognized impairment loss. Cost includes all capital costs in accordance with the Company’s accounting policy. Assets under construction are transferred to the related assets under property, plant and equipment when the underlying project is substantially completed and the related asset is ready for use. Depreciation of these assets commences when the assets are ready for their intended use.


13

Subsequent costs The cost of major repairs, overhaul and replacement of a component of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. Gain or loss on disposal The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is recognised net within other income/other expenses in statement of profit or loss and other comprehensive income.

Depreciation Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.

Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Drilling, exploration and other assets under construction are not depreciated. The estimated useful lives for the current and comparative year, in accordance with the instructions of the Parent Company, as approved by the Supreme Petroleum Council, are as follows: Asset category Depreciation rate

Oil and gas properties: Plant and machinery 4% Tankage, pipelines and jetties 4% Wells and surveys 5% Service plant 25% Drilling plant 20%

Other property and equipment: Marine craft 8% Buildings and roads 4% Office furniture and equipment 10% Lorries and trailers 20% Motor cars 20% Computers 10%


14

b) Intangible assets Seismic survey costs and other related costs incurred on exploratory and development wells are identifiable non-monetary assets from which future economic benefits will flow and are accordingly recognized as an intangible asset. These costs are stated at cost less accumulated amortization and impairment losses and are amortized over 20 years on a straight line basis.

c) Inventories

Inventories are measured at cost after making allowance for any obsolete or slow moving items. Cost of inventories is based on weighted average cost principle. Cost includes expenditure incurred in acquiring inventories and bringing them to their existing location and condition.

d) Deferred cost

The cost of production related to crude oil in storage at the year end is deferred and valued based on the average total cost of production for the year.

e) Recoverable costs

Recoverable costs represent costs incurred by the Company in providing services to or on behalf of related group companies. Recoverable costs are deducted from the Company’s costs and shown separately in the statement of profit or loss and other comprehensive income. Recoverable costs are allocated to related group companies based on the actual cost basis and do not include any profit margin.

f) Provisions

A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a rate that reflects current market assessments of the time value of money and the risks specific to the liability.

g) Revenue recognition

Revenue from services related to the exploration and extraction of crude oil is recognised when the crude oil is delivered to the Parent Company’s customers and is determined as the price at which crude oil is sold by the Parent Company net of certain costs allocated by the Parent Company as follows:

- Royalty at 20% of gross revenues. - Fiscal levy at 74% of gross revenues net of royalty, scaled according to production

levels and crude oil price. - Marketing fee at 2% of gross revenues.


15

h) Leases

Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Other leases are operating leases and are not recognised in the Company’s statement of financial position.

i) Foreign currencies

Transactions in foreign currencies are translated into KD at rates of exchange prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated into KD at rates of exchange prevailing at reporting date. The resultant exchange differences are recorded in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of transaction.

j) Post employment benefits

The Company is liable for post employment benefits under the Oil Sector Law, Social Sector Law and the Labor Law.

Employees are entitled to an end of service indemnity payable under the Kuwait Labor Law and the Company's by-laws based on the employees' accumulated periods of service and latest entitlements of salaries and allowances. The expected costs of these benefits are accrued over the period of employment. Kuwaiti employees

Pensions and other social benefits for Kuwaiti employees are covered by The Public Institution for Social Security Scheme, to which employees and employers contribute monthly on a fixed-percentage-of-salaries basis. The Company’s share of contributions to this scheme, which is a defined contribution scheme, is charged to profit or loss in the year to which they relate. The difference between Oil Sector Law and Labor Law is also accrued for Kuwaiti employees.

k) Financial instruments

i) Non-derivative financial assets

All financial assets are recognized initially on the trade date, which is the date that the Company becomes a party to the contractual provisions of the instrument.

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability.


16

The Company classifies non-derivative financial assets as loans and receivables. Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective yield method, less any impairment losses. Loans and receivables comprise cash and cash equivalents, advances and other receivables, receivable from Parent Company and amounts due from group companies.

Cash and cash equivalents Cash and cash equivalents comprise cash in hand, cash at bank and call deposits with original maturities of three months or less.

ii) Non-derivative financial liabilities

All financial liabilities are recognised initially on the trade date, which is the date that the Company becomes a party to the contractual provisions. The Company derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

The Company classifies non-derivative financial liabilities as other financial liabilities. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective yield method. Other financial liabilities comprise accounts payable and other liabilities, amounts due to group companies, dividend payable and due to Parent Company, net.

Offsetting Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

l) Impairment

Non-financial assets The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amount.


17

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU.

Impairment losses are recognised in profit or loss. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. A reversal of an impairment loss is recognized immediately in profit or loss.

Non-derivative financial assets A financial asset is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. The Company considers evidence of impairment for loans and receivables at a specific asset level. All individually significant receivables are assessed for specific impairment. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. In assessing impairment the Company uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. All impairment losses are recognized in statement of profit or loss and other comprehensive income. When a subsequent event (e.g. repayment by a debtor) causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

m) Changes in accounting policies The Company has adopted the following amendments to the standards effective current year.

Amendments to IAS 12: Recognition of Deferred Tax Assets for unrealized losses The amendments clarify the accounting for deferred tax assets for unrealized losses on debt instruments measured at fair value.


18

Disclosure Initiative (Amendments to IAS 7)

The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. Annual Improvements to IFRSs 2014–2016 Cycle – various standards; The amendments are effective for annual reporting periods beginning on or after 1 January 2018 with earlier application permitted.

The implementation of the above amendments to standards had no significant financial impact on the financial statements.

4. Use of estimates and judgments

The preparation of the financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized 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. Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is described below:

Treatment of exploration costs as abortive Capitalized exploration drilling costs are considered abortive and expensed when commercially exploitable reserves of crude oil and gas are not found, if they are not subject to further appraisal activity or when temporarily abandoned with no plans for re-entry in the foreseeable future. In making judgments about whether to continue to capitalize exploration drilling costs, it is necessary to make judgments about the satisfaction of each of these conditions. If there is a change in one of these judgments in a subsequent period, then the related capitalized exploration drilling costs would be expensed in that period as abortive in the profit or loss. Impairment of non-financial assets At each reporting date, management assesses whether there is any indication that property, plant and equipment, intangible assets and inventories may be impaired. The determination of impairment requires considerable judgment and involves evaluating factors including industry conditions, technical innovation and market conditions.


19

Impairment and un-collectability of financial assets

A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognized in profit or loss.

5. Property, plant and equipment

By function, excluding capital work in progress

31 March 2018 Net book

value at 31 March 2017

Additions/ (disposals and transfers), net Depreciation

Net book value at 31

March 2018 KD’000 KD’000 KD’000 KD’000 Crude oil and general purpose 4,356,718

1,296,057

(286,225)

5,366,550

Gas collection and transmission 534,323

276,724

(36,504) 774,543

Drilling and exploration 119,171 -

(7,730) 111,441

Export operations 124 (18) (9) 97 Mobile plant 975 (104) (412) 459 Total 5,011,311 1,572,659 (330,880) 6,253,090

31 March 2017 Net book

value at 31 March 2016

Additions/ (disposals and transfers), net Depreciation

Net book value at 31

March 2017 KD’000 KD’000 KD’000 KD’000 Crude oil and general purpose 3,772,305

819,302

(234,889) 4,356,718 Gas collection and transmission 388,462

173,628

(27,767) 534,323 Drilling and exploration 130,796 (3,880) (7,745) 119,171 Export operations 134 - (10) 124

Mobile plant 1,225

16 (266) 975 Total 4,292,922 989,066 (270,677) 5,011,311

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22

6. Intangible assets

31 March 2018 Seismic surveys

Others

Total

KD’000 KD’000 KD’000 Cost At 1 April 2017 99,792 2,126 101,918 Additions 63,887 - 63,887 At 31 March 2018 163,679 2,126 165,805 Accumulated amortization and impairment losses At 1 April 2017 70,942 1,931 72,873 Amortised during the year 4,481 72 4,553 At 31 March 2018 75,423 2,003 77,426 Net book value At 31 March 2018 88,256 123 88,379

31 March 2017 Seismic

surveys

Others

Total KD’000 KD’000 KD’000 Cost At 1 April 2016 95,744 2,068 97,812 Additions 4,053 58 4,111 Written off (5) - (5) At 31 March 2017 99,792 2,126 101,918 Accumulated amortization and impairment losses At 1 April 2016 69,249 1,860 71,109 Amortised during the year 1,698 71 1,769 Written off (5) - (5) At 31 March 2017 70,942 1,931 72,873 Net book value At 31 March 2017 28,850 195 29,045

7. Inventories 2018 2017 KD’000 KD’000

Inventories at cost 267,991 315,367 Provision for obsolete and slow-moving items (6,513) (5,501) 261,478 309,866 Classified in statement of financial position as: Construction inventories 156,586 197,969 Consumable inventories 104,892 111,897 261,478 309,866


23

8. Advances and other receivables

2018 2017 KD’000 KD’000

Advances to contractors 444,639 442,486 Prepaid expenses 3,862 1,627 Staff advances 24,511 17,873 Deferred cost 64,009 44,516 Other receivables 23,218 15,344 560,239 521,846

9. Due to the Parent Company, net

Due to the Parent Company, net represents the net balance of amounts due from and (to) the Parent Company. Movements on this balance during the year were as follows:

2018 2017 KD’000 KD’000

At 1 April (7,129,749) (5,587,074) Net revenue receivables (note 16) 3,142,706 2,666,466 Net funds transfer (3,350,227) (3,066,327) Dividend distributed (note 14) (329,621) (306,069) Contribution to shareholder (note 22) (1,047,815) (847,595) Other movements 879 10,850 At 31 March (8,713,827) (7,129,749) Non-current receivables Receivable from Parent Company (relating to transfer of statutory reserve)

15,094

15,094

(8,698,733) (7,114,655) In accordance with the Company’s Article of Association, an amount equal to statutory reserve is transferred to the Parent Company. The amount due to the Parent Company is unsecured and non-interest bearing, with no fixed terms of payment. This has been classified as non-current as Parent Company does not intend to request repayment in the short-term.

10. Cash and cash equivalents

2018 2017 KD’000 KD’000

Cash in hand 16 20 Cash at bank 7,549 10,693 7,565 10,713


24

11. Equity Share capital The authorized, issued and fully paid up share capital of the Company comprises of 30,188,291 (31 March 2017: 30,188,291) shares of KD 1 each. The share capital is paid in cash. Shareholder’s current account This account represents interest free contributions from the Parent Company and is classified as owner’s equity as the Parent Company has given the Company the discretion to determine the timing and amounts of repayment. Statutory reserve In accordance with the Companies Law No. 1 of 2016, as amended, and its Executive Regulations and the Company’s Articles of Association, 10% of profit for the year is transferred to statutory reserve until the reserve reaches a minimum of 50% of the paid up share capital. As permitted by the Companies Law No. 1 of 2016, and its Executive Regulations, the Board of Directors resolved to limit this reserve to 50% of the share capital and accordingly only KD 15,094 thousands has been appropriated to the statutory reserve. This has been approved by the shareholder.

12. Post employment benefits

2018 2017 KD’000 KD’000

Balance at beginning of the year 347,799 345,186 Charge for post employment benefits 124,007 51,441 Payments made during the year (24,356) (48,828) Balance at end of the year 447,450 347,799

Charge for post employment benefits includes the retrospective financial effect of Law No. 85 of 2017 for amendment to Law No. 6 of 2010.

13. Accounts payable and other liabilities

2018 2017 KD’000 KD’000

Accounts payable 459,476 499,505 Contractor and suppliers retentions 190,225 175,784 Liquidated damages 155,961 128,357 Staff payables 54,695 45,840 Accrued expenses 49,139 31,949 Others 33,067 39,017 942,563 920,452


25

14. Dividend payable The Company’s Articles of Association stipulate that the net profit for the year after transfer to statutory reserve is payable as dividend. Upon the approval of these financial statements, dividend payable will be transferred to the Parent Company (note 9).

15. Related party transactions Related parties include the shareholder and executive officers of the Company, close members of their families and companies of which they are the principal owners or over which they are able to exercise significant influence. Related party balances reflected in the statement of financial position are unsecured and neither bear any interest nor there are any agreed repayment terms. Accordingly, these balances are treated as recoverable/ payable on demand. The aggregate value of significant related party transactions and outstanding balances other than those disclosed elsewhere in the financial statements are as follows: a) Transactions with related parties:

The Company has entered into transactions with related parties on terms approved by the management. i. Costs recoverable from group companies for services provided by the Company are

disclosed in note 19.

ii. All of the Company’s net revenue for the year amounted to KD 3,142,706 thousands (31 March 2017: KD 2,666,466 thousands) represent net sales by the Parent Company (note 16).

iii. Training costs charged by the Parent Company amounted to KD 7,256 thousands

(31 March 2017: KD 3,475 thousands) (note 20).

iv. The Company extracted and transferred gas to Kuwait National Petroleum Company K.S.C., for which no revenue was recognized in the profit or loss. Key management compensation 2018 2017 KD’000 KD’000

Salaries and other employee benefits 1,064 993 1,064 993


26

b) Balances with related parties under the common control of the Parent Company:

2018 2017 KD’000 KD’000

Due from group companies: Kuwait National Petroleum Company K.S.C. 75,890 54,994 Kuwait Oil Tanker Company S.A.K. 6,018 5,129 Kuwait Foreign Petroleum Exploration Company K.S.C. 622 192 Kuwait Aviation Fueling Company K.S.C. 493 850 Petrochemical Industries Company K.S.C. 4,360 2,444 Kuwait Petroleum International Limited 358 404 Kuwait Gulf Oil Company K.S.C. (Closed) 3,565 4,192 Oil Sector Services Company K.S.C. (Closed) 164 77 Kuwait Integrated Petroleum Industries Company 1,607 - 93,077 68,282

16. Revenue

The Company earns revenue from the exploration and extraction of crude oil which belongs to the State of Kuwait. Revenue from these services is computed based on the sale value of crude oil by the Parent Company less allocated costs as follows: 2018 2017 KD’000 KD’000

Gross revenue 16,716,519 14,183,331 Less: allocated costs Royalty (3,343,304) (2,836,666) Fiscal levy (9,896,179) (8,396,532) Marketing fee (334,330) (283,667) Net revenue (note 9) 3,142,706 2,666,466 Applicable percentages on allocated costs are disclosed under revenue recognition policy (see note 3(g)).

17. Total cost Total cost consists of the following: Note 2018 2017 KD’000 KD’000

Total operating cost 1,788,661 1,532,454 Add: General and administration expenses 20 108,055 95,974 Less: Other operating income 18 (52,480) (27,564) Total cost 1,844,236 1,600,864


27

The allocation of total cost by function including general and administrative expenses and other operating income are as follows:

2018 2017 KD’000 KD’000

Crude oil production 1,113,060 1,060,373 Gas production 293,679 190,815 Export operations 76,723 75,777 Abortive drilling expenditure 8,530 - Depreciation, amortization and write off 352,244 273,899 Total cost 1,844,236 1,600,864

18. Other operating income

2018 2017 KD’000 KD’000

Port fees 19,150 18,839 Other income 33,330 8,725 52,480 27,564

19. Recoverable costs

2018 2017 KD’000 KD’000

Kuwait National Petroleum Company K.S.C. 30,582 28,688 Kuwait Gulf Oil Company K.S.C. 154 193 Kuwait Petroleum Corporation 673 340 Kuwait Integrated Petroleum Industries Company K.S.C.C. 699 - Kuwait Foreign Petroleum Exploration Company K.S.C. (1) (128) Kuwait Oil Tanker Company S.A.K. 20 11 Group companies for medical services 104,898 84,571 137,025 113,675

Costs reimbursable by Kuwait National Petroleum Company K.S.C. mainly represent marine services provided for export operations.

20. General and administrative expenses 2018 2017 KD’000 KD’000

Utilities 45,043 35,513 Training costs (note 15) 7,256 3,475 Insurance 8,382 8,538 Medical costs 34,622 37,602 Others 12,752 10,846 108,055 95,974

Training costs represent the Company’s share of these costs charged by the Parent Company.


28

Staff costs are included in cost of production as employee cost and are disclosed separately in the statement of profit or loss and other comprehensive income.

21. Directors’ remuneration Board of Directors’ remuneration of KD 42 thousand (31 March 2017: KD 42 thousand) is subject to the approval of the shareholder at the general assembly meeting.

22. Contribution to the shareholder In accordance with the reporting structure of the Company as a profit center (see note 1 and 9), 72% of the net profit for the year is payable to the Parent Company.

23. Operating leases

Annual commitments under non-cancellable operating leases are as follows: 2018 2017 KD’000 KD’000

Within 1 year 1,482 2,760 Between 1 and 5 years 17,901 13,131 19,383 15,891

24. Financial instruments

Financial risk management Overview The Company has exposure to the following risks from its use of financial instruments: credit risk market risk liquidity risk

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk and the Company’s management of capital. Further quantitative disclosures are included throughout these financial statements. The Company continuously reviews its financial risk exposures and takes measures to limit these to acceptable levels. Financial risk management is carried out by the Company’s Financial Services Group, under policies approved by the Board of Directors. The Financial Services Group identifies and evaluates financial risks in close co-operation with the operating units of the Company. The Board provides written principles for overall financial risk management, as well as written policies covering specific areas, such as credit risk, market risk and liquidity risk which are discussed below:


29

a. Credit risk Credit risk is the risk of financial loss to the Company if counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from bank balances, advances and other receivables and amounts due from group companies. The Company’s total sales are to the Parent Company inside Kuwait and, therefore, there is no credit risk. The maximum exposure to credit risk for financial assets at the reporting date was:

2018 2017 KD’000 KD’000 Receivable from the Parent Company 15,094 15,094 Advances and other receivables 492,368 475,703 Amounts due from group companies 93,077 68,282 Cash and cash equivalents 7,549 10,693 608,088 569,772 The Company under instructions from the Parent Company deposits surplus cash with various local financial institutions of high credit rating. There are no past due or impaired receivables and the Company does not hold any collateral against these receivables.

b. Market risk Market risk is the risk that changes in the market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’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 optimizing the return. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company has no significant interest bearing assets or liabilities and therefore the Company’s future performance and cash flows are independent of changes in market interest rates. Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in foreign exchange rates. The Company is exposed to foreign currency risk on transactions that are denominated in a currency other than the Kuwaiti Dinar primarily US Dollar and Euro. The Financial Services Group monitors and measures currency exposures on recognized assets and liabilities on a regular basis.


30

The Company manages foreign currency risk by matching assets and liabilities of similar currency exposures and by obtaining advances in foreign currencies from the Parent Company to pay of its foreign currency third party liabilities. Therefore the fair value of future cash flows of the Company’s financial instruments are not significantly affected due to changes in foreign currency rates. Equity price risk Equity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in equity market prices, whether caused by factors specific to an individual investment, issuer or all factors affecting all instruments traded in the market. The Company is not exposed to equity price risk as there are no investments in equity securities.

c. Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’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 Company’s reputation. The Company’s financial liabilities essentially mature within one year except for due to Parent Company, net. However its activities are solely funded by the Parent Company which significantly minimizes liquidity risk.

Fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Underlying the definition of fair value is the presumption that the Company is a going concern without any intention, or need, to liquidate, curtail materially the scale of its operations or undertake a transaction on adverse terms. In the opinion of the management, the estimated fair value of financial assets and liabilities, except for receivable from / due to Parent Company, that are not carried at fair value at the reporting date is not materially different from their carrying value.

25. Capital risk management

The Company’s capital management objectives are to safeguard the Company’s ability to continue as a going concern in order to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the costs of capital. The Company’s exposure to capital risk is limited as there are no external financing as at the reporting date. Further, the Company is not subject to externally imposed capital requirements, except the minimum capital requirements of the Companies Law No. 1 of 2016, as amended, and its Executive Regulations.


31

26. Commitments and contingencies Commitments for future capital expenditure in relation to lump sum contracts and purchase orders amounted to KD 3,496 million (31 March 2017: KD 2,110 million).

27. Claims and litigations

In 2010, the Company signed a contract with a contractor with a value of KD 405 million for construction of a capital project. In 2015, the contractor completed the project. Subsequently, the contractor submitted a claim to the Company amounting to KD 750 million allegedly claiming price differences in certain materials used in the project. The Company’s management had initiated necessary steps to resolve the dispute with contractor through the Company’s Dispute Resolution Committee (“DRC”), however, the contractor did not accept the proposed solutions by DRC. Consequently, the contractor commenced an arbitration proceeding in London Court of International Arbitration (“the LCIA”) seeking payment of claimed amount. Currently, the case is pending before LCIA for hearings and discovery proceedings. In the opinion of the Company’s lawyer, the ultimate outcome of the matter cannot presently be determined and the claim is extremely weak, accordingly, no provision for any adverse financial effects on the Company, that may result, has been made in the financial statements.

The Company is also involved in various legal proceedings and claims arising in the ordinary course of business. While the outcome of these matters cannot be predicted with certainty, management does not believe that these matters will have a material adverse effect on the Company’s financial statements if disposed unfavorably.

28. Contingent assets / liabilities

KOC’s total estimated losses which resulted from the Iraqi invasion and occupation of Kuwait have been included in four separate claims, based on the type of loss, filed with the United Nations Compensation Commission through the Public Authority for Assessment of Compensation in Kuwait. The aggregate amount of these claims is approximately equal to US$ 3,137 million (approximately equal to KD 884 million) out of which US$ 2,838 million (approximately equal to KD 800 million) was approved. The financial statements do not include amounts related to these claims. The full amount has been received by the Company which was remitted to the Parent Company directly.

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