Kuwait Energy PLC Annual Report 2011 by Kuwait Energy Company (KEC)

A N N U A L R E P O R T 2 0 11

Who We Are Kuwait Energy Milestones Executive Chairman’s Statement Board of Directors Kuwait Energy assets Financial and Operational Highlights Chief Executive Officer’s Report Production Summary Kuwait Energy Year End 2011 Reserves & Resources Reserves and Resources Definition EGYPT ASSETS Health, Safety, Sustainability and Environment (“HSSE”) Corporate Governance Report Board Committees Audit Committee Nomination Committee Compensation Committee Responsibility Statement of the Directors Remuneration Disclosures Risk Management Report Corporate Social Responsibility Report Kuwait Energy Five Year Summary Financial Statment Independent auditor's report Consolidated income statement for the year ended 31st December 2011 Consolidated statement of comprehensive income for the year ended 31st December 2011 Consolidated Balance sheet as at 31st December 2011 Consolidated statement of changes in equity for the year ended 31st December 2011 Consolidated statement of cash flows for the year ended 31st December 2011 Notes to the consolidated financial statements Glossary & Definitions

Who We Are Kuwait Energy Milestones Executive Chairman’s Statement Board of Directors Kuwait Energy assets Financial and Operational Highlights Chief Executive Officer’s Report Production Summary Egypt Assets Health, Safety, Sustainability and Environment (“HSSE”) Corporate Governance Report Board Committees Audit Committee Nomination Committee Compensation Committee Responsibility Statement of the Directors Remuneration Disclosures Risk Management Report Corporate Social Responsibility Report Kuwait Energy Five Year Summary Financial Statements Glossary & Definitions Forward Looking Statement

1 2 5 8 12 14 16 18 21 24 26 30 31 31 33 34 35 41 44 48 50 91 93

H.H. Sheikh Subah Al-Ahmad Al-Jaber Al-Sabah The Prince Of The State Of Kuwait

H.H. Sheikh Nawwaf Al-Ahmad Al-Jaber Al-Sabah The Crown Prince Of The State Of Kuwait

Who We Are Kuwait Energy, an independent MENA Oil & Gas exploration and production company, has its registered office in Jersey and has regional offices in Kuwait, Cairo, Baghdad, Basra, Sana’a, Kiev and Ukhta. These offices oversee operations in eight countries, namely: Egypt, Iraq, Yemen, Oman, Ukraine, Latvia, Russia and Pakistan. The Company’s participation interests range from 15% to 100% across its 56 exploration, development and producing leases, providing a balance of risk diversification with significant upside exploration potential. Kuwait Energy currently operates 17 of these 56 leases. Led by its founders, Dr. Manssour Aboukhamseen, a Kuwaiti entrepreneur and Sara Akbar, one of the Middle East’s most recognized and experienced oil industry CEOs, Kuwait Energy has since 2005, successfully: • Demonstrated its ability to grow production year-on-year • Been profitable every year • Increased its operatorship of assets and demonstrated an operator capability • Established a qualified and experienced management team • Increased its team of industry professionals recognized for their expertise • Developed an extensive contact network within regional governments and industry

Life 6

Kuwait Energy Milestones

235.3

250

Net Profit (US$ MM)

Daily Average WI Production (boepd)

Proven + Probable WI* Reserves (mmboe) 16,000

13,258

12,000

13,624

11,499

10,000

150

8,160

50 34.1

43.4

48.8

4000

2007

2008

2009

2010

2011

Exploration & Production (E&P) Leases 60 52

50 40

3,215

2007

2009

2010

2011

25 18

20 34

30 10

10 0

2008

2009

2010

2011

2008

2009

2010

2007

2008

2009

2010

2011

2008

2009

17.9

2007

2011

48 4 44

49 10 39

2010

2011

Number of Employees

600 464

500 400

11 33

200

100

499

292

300

227

2007

51.1

2007

5.6

60 17

50.8

Number of Wells Drilled 19

85.6

Operatorship (E&P Leases) 56

20.6

2008

111.9

21.9

2000

120 100

6000 51.2

29.9

30 25

8000 100

34.8

14,000 200

Operating Cash Flow (US$ MM)**

2007

2008

Development Wells

2009

2010

2011

2007

2008

2009

2010

2011

Exploration Wells

* WI means revenue working interest ** The above cashflows are before changes in working capital

Executive Chairman’s Statement Willing of Life Watercolor on paper; endless is the strength of people when they decide to stand up for their rights. The variation of colors in this painting implies the individual diversity that makes society richer when people are treated equally. It is a denunciation for all the attempts to reduce individuals into a copy of each other upon the dictator's will. The work celebrates the diversity, acceptance and tolerance within the Arab society. Ziyad Ben Salama

On behalf of my colleagues on the Board, I am delighted to report that 2011 was another year of significant progress for Kuwait Energy. This report presents the 2011 financial statements of Kuwait Energy plc (“Kuwait Energy”), our new Jersey – incorporated group holding company. In the second half of 2011, the Kuwait Energy group restructured to Jersey for the purposes of a future listing on the London Stock Exchange. We achieved this ground-breaking reorganisation by first making Kuwait Energy a wholly-owned subsidiary of Kuwait Energy Company K.S.C.C., the predecessor parent company (“KEC”), and transferring all of our subsidiaries and assets to Kuwait Energy. We then actioned the capital reduction of KEC which had been approved by our shareholders at the August 2011 General Assembly Meeting, as a result of which 90% of the shares in Kuwait Energy were distributed to our shareholders. KEC continues to hold the remaining 10% of the shares in Kuwait Energy. On behalf of the Board, I would like to thank you for your support on this ‘life-changing’ transaction. In terms of reserves and production, we reported year end 2011 proven and probable working interest reserves of 235.3 million barrels of oil equivalent (mmboe), a significant rise of almost 400% on the prior year (2010: 48.8 mmboe). This increase came from signing two 20 year gas development and production service contracts in Iraq, reserve revisions in Russia due to seismic interpretations, and Egypt exploration additions. We also achieved an average daily working interest production of 13,624 barrels of oil equivalent per day (boepd) and a record year end exit production of 17,773 boepd. 2012 is set to be another exciting year for Kuwait Energy. Activity and organic growth will concentrate on the MENA region with further exploration and production anticipated in Egypt. In Iraq, development activity for the Siba Gas field will continue as will technical evaluations of the 12 blocks to be offered by the Iraqi Ministry of Oil, due in May 2012. We will also maintain our strategy of constantly evaluating M&A opportunities which have the potential to generate value for shareholders and complement our organic growth.

Financial Overview Kuwait Energy increased revenue by 26.2% to US$178.9 million (2010: US$141.8 million), generating net profits of US$34.8 million for 2011, an increase of 58.7% on 2010. This continues the Company’s outstanding track record of reporting net profits each year since inception in August 2005. The operating cash flow before working capital in 2011 was US$111.9 million up 30.7% on 2010, primarily due to increased levels of production at higher realized product prices. Capital expenditure during the year was US$144.7 million, an increase of 31.5% on 2010.

Operations

Corporate Social Responsibility

Operationally, Kuwait Energy continued to be extremely active in 2011. Exploration and development drilling continued apace with 8 exploration wells and 49 development wells being completed at a cost of US$36.3 million and US$108.4million respectively. In 2011 development wells drilled added an initial working interest production of 5,575 boepd.The majority of these wells being in Oman with the resulting production rate exceeding budget expectations. Our exploration success rate of 62% continued to be well above the industry average of 24%, an outstanding achievement.

Kuwait Energy observes high standards of Corporate Social Responsibility (“CSR”).

Average daily working interest production increased over the year by 2.8% to 13,624 boepd, with record 2011 exit production volume achieved of over 17,700 on 31st December, 23% higher than 2010. This was primarily due to the successful dilineation / appraisal drilling results of the Shahd field in ERQ, Egypt. Drilling of the Shahd-2 sidetrack proved a major extension in the Lower Bahriya reservoir with massive productive sand. Initial production from Shahd-2 sidetrack exceeded 4,000 boepd. This was followed by drilling Shahd SE-5 which proved better reservoir development and produced at a rate exceeding 5,000 boepd. These naturally flowing wells are considered one of the highest producers in the Western Desert of Egypt. In Egypt, the Company recorded five new hydrocarbon discoveries from eight wells spud during the year. These successes brought the number of discoveries for the Company in Egypt, since 2008, from 11 to 16, an excellent achievement. In October, two discoveries in Abu Sennan produced very encouraging flow rates which augur well for commercialization, and the onset of production during 2012. In June, our entry into Iraq was formalized with the signing of two, 20 year gas development and production service contracts with the Iraqi ministry of oil. Kuwait Energy maintained its programme of active portfolio management during 2011 by completing the divestments of a 22% stake in the Abu Sennan concession and 15% in the Mesaha concession, both in Egypt to Beach Energy Limited. We also completed a full year of operatorship in Russia. In Yemen, a feasibility plan was submitted to the country’s Petroleum Exploration and Production Authority following an assessment of Yemen’s gas resources, and discussions on the way forward are progressing. Despite the recent events in Yemen, the Company’s existing production activity continued unaffected during 2011.

Corporate Development

Implementing international best practices, Kuwait Energy maintains high safety standards, respects the environment and works very closely with its communities to address important aspects of local needs and ensure Kuwait Energy contributes to the areas where it operates. The Company also completed its annual, two-month internship programme for a group of Kuwaiti and international students offering first-hand experience of the oil and gas industry. It also completed its fourth consecutive year of involvement in the Kuwait Science Fair, which generates student interest in math and science from an early age. The Company seeks to enhance its CSR reputation, year-on-year and is particularly proud of the initiatives it implements.

Employees Kuwait Energy enjoys a multinational, multicultural workforce and at year end 2011 had almost 500 employees from over 25 countries.

Outlook The Middle East remains the main focus of Kuwait Energy’s operations and the Company looks forward to consolidating the significant progress made in 2011, through 2012, especially in Egypt and Iraq. In Egypt, we plan to drill 7 exploration wells and 12 development wells during 2012, whilst in Iraq, 2012 will be a critical year in our development of the Siba gas field and the Company will also be evaluating opportunities available in the country’s fourth bidding round. Discussions are also progressing in Yemen on how to develop the country’s gas resources. The Company intends to complement this organic growth strategy by the exploitation of attractive M&A opportunities as they arise. As such, 2012 is looking to be another year of significant progress for Kuwait Energy. On behalf of the Board, I would like to offer my sincere thanks and appreciation to everyone at Kuwait Energy for their continued dedication and professionalism without which the Company’s sustained growth would not be possible.

Kuwait Energy retains its ambition to seek a listing on the London Stock Exchange and continues to work closely with its external advisors to prepare for this event. The timing of the listing will be subject to market conditions.

Corporate Governance and Board Changes High standards of corporate governance remain at the core of the Company’s operations and Kuwait Energy continues to implement international best practices and the requirements of the UK Combined Code. The Board comprises three independent directors.

Dr. Manssour Aboukhamseen Executive Chairman

Board of Directors Dr. Manssour Aboukhamseen is a successful business entrepreneur, leader and founder of several successful business enterprises in Kuwait. He has over 25 years of experience in the oil and gas industry in Kuwait Oil Company (KOC), Zahra Group Holding and Kuwait Energy.

Ms. Rachel English has over 25 years experience working for international, blue-chip energy companies, including BG Group and Shell, with responsibilities including: finance, strategy, planning, business development and M&A. She is currently a Non-Executive Director of Petropavlovsk plc, Global Carbon Capture and Storage Institute Ltd the Audit Committee of the Department for International Development and NHS London. She is also the founder of Helios Social Enterprise, developing energy access projects in rural sub-Saharan Africa. She began her career at Coopers & Lybrand (now PwC).

He has a Ph.D in Modern History from Berkeley University, California, USA. Dr. Aboukhamseen is the Executive Chairman of the Board, and is also a member of the Nomination Committee.

Dr. Manssour Aboukhamseen Executive Chairman

Ms. Rachel English Independent Director Sara Akbar is a renowned professional and personality in the oil and gas industry, both in Kuwait and internationally. She has over 30 years experience in the oil and gas industry having worked in several challenging positions in KOC and Kuwait Foreign Petroleum Exploration Company (KUFPEC).

Ms. English has an MA from the University of Oxford and is a Fellow of the Institute of Chartered Accountants in England and Wales. Ms. English is an independent director on the Board, and is also the Chairman of the Compensation Committee and a member of the Audit Committee.

Mohamed Yusof Rafie has previously worked for Saudi Aramco, where he held a number of positions including: Senior Vice President - Gas Operations and Vice President – Petroleum Engineering. He is the Chairman of the Board for Industrialization & Energy Services Company (TAQA) and was previously a Board member of the National Committee for World Petroleum Congress and Chairman of the Board of Aramco Gulf Operations Company.

She has a B.Sc in Chemical Engineering from the Kuwait University. Sara Akbar is the Chief Executive Officer and a member of the Board.

He has a B.Sc in Petroleum Engineering from Cairo University, Egypt. Mr. Rafie is an independent director on the Board, and is also the Chairman of the Nomination Committee and member of the Compensation Committee.

Mohamed Yusof Rafie Independent Director

Sara Akbar Chief Executive Officer Dr. Yousef Al Awadi is Chief Executive of YAA Consultancy, Kuwait. He has previously held, and currently holds, Board directorships on several government and private sector entities in the financial, industrial and real estate sectors both in Kuwait and internationally. He was formerly the President and Chief Executive Officer of Kuwait Investment Office. He was also the Chief General Manager and CEO of Gulf Bank, Kuwait.

Roger Phillips has over 30 years experience in the oil and gas industry primarily in international, upstream finance roles. He obtained a first degree in Civil Engineering and worked as an Engineer in the North Sea. He subsequently joined Price Waterhouse and qualified as a Chartered Accountant before pursuing oil industry finance roles with companies such as ExxonMobil and Amerada Hess.

Dr. Al Awadi has a BA from the American University of Beirut and a MA and a Ph.D in Economics from the University of Colorado, USA.

Mr. Phillips was with Amerada Hess for nearly twenty years where he served as Vice President and Director in London and New York. He had a variety of finance and commercial roles covering Europe, Asia and the United States.

In 2004, he was awarded the Honorary Knight Commander of the Most Excellent Order of the British Empire, KBE.

Dr. Yousef Al Awadi Independent Director

Dr. Al Awadi is an independent director on the Board, and is also the Chairman of the Audit Committee and a member of the Nomination Committee.

Roger Phillips Chief Financial Officer

Mr. Phillips was also involved in various acquisitions and disposals during this time. He later became controller for the corporation in the United States. Before joining Kuwait Energy, Mr. Phillips was Finance Director at Regal Petroleum Plc between 2004 and 2007. Mr. Phillips is the Chief Financial Officer and a member of the Board.

Proud to be Arab As with many works by Fatin Al-Shawaibi, this work belongs to abstract painting. This time it is a depiction of an Arabic city during the Arab spring; the new spirit that cities like Tunis, Cairo, Sana'a and Tripoli share after the success of their revolution. The green color with all of its interpretations and significance in Arabic visual culture extends in between the narrow streets, intimate old houses, and beneath the pointed arches of the city as if life were coming back after long absence.

Fatin Shawaibi

11 16

Kuwait Energy assets as at 31st March 2012 Region

Licence

Revenue Interest Cost Interest

Operator

Status

Egypt

Area A )5 development lease Blocks(

70.00%

Kuwait Energy

PAEP

Mesaha (Block 6)

15.00%

Melrose Resources

Abu Sennan

50.00%

78.00%

Kuwait Energy

ADEP

BEA

75.00%

Kuwait Energy

PAEP

ERQ (7 development lease Blocks)

49.50%

ENAP Sipetrol

PAEP

Siba

45.00%

60.00%

Kuwait Energy

ADEP

Mansuriya

22.50%

30.00%

TPAO

ADEP

Block 15

41.60%

Kuwait Energy

Block 35

88.24%

Kuwait Energy

Block 43

28.33%

33.33%

DNO

PAEP

Block 49

64.00%

75.29%

Kuwait Energy

Block 74

34.00%

40.00%

Kuwait Energy

Iraq Yemen

Block 82

21.25%

25.00%

Medco Energi

Block 83

21.25%

25.00%

Medco Energi

Oman

KSF (18 Fields)

15.00%

20.00%

Medco LLC

PAEP

Pakistan

Jherruck

40.00%

NHEPL

Kunri

40.00%

NHEPL

Ukraine

Bilousivska Chornukhynska (BC)

100.00%

Kuwait Energy

PAEP

North Yablunivska (NY)

100.00%

Kuwait Energy

ADEP

Russia

Chikshina

100.00%

Kuwait Energy

Luzskoye

100.00%

Kuwait Energy

PAEP

Licence 1 – 2004

45.00%

50.00%

Kuwait Energy

Licence 1 – 2009

45.00%

50.00%

Kuwait Energy

Latvia

Latvia: Exploration * License 1, 45%* * North Block, 45%*

Russia: Producing * Luskoye, 100%* * Chikshina, 100%*

Ukraine: Producing * BC,100%*

Oman: Producing * Karim Small Fields, 15%

Non-Producing * NY, 100%* Iraq: Development * Mansuriya, 22.5% * Siba, 45%* Egypt: Producing * Burg EI Arab, 75%* * Area A, 70%* * East Ras Qattara, 49.5% Non-Producing * Abu Sennan, 50% Exploration * Block (mesaha), 15%

Pakistan: Exploration * Kunri 40% * Jherruck 40%

Yemen: Producing * Block 43, 28.33% Exploration * Block 15, 41.56%* * Block 35, 83.82%* * Block 49, 64%* * Block 74, 32%* * Block 82 & 83, 21.25%*

Notes • EA = Exploration Asset. • PAEP = Producing Assets with Exploration Potential. • ADEP = Awaiting Development with Exploration Potential. • Revenue Working Interest =The percentage interest of the company in the contract for an asset with the host government. • Cost Working Interest = The percentage interest of the company in the contract for an asset as agreed between the joint venture partners and the host government.

Financial and Operational Highlights 2011

2010

Sales Revenue

US$ million

178.9

141.8

Cost of Sales

US$ million

96.8

102.9

Operating cash flow before working capital

US$ million

111.9

85.6

Net Income

US$ million

34.8

21.9

Property, Plant & Equipment

US$ million

108.4

68.4

Exploration & Evaluation Assets

US$ million

36.3

41.6

Total Capital Expenditures

US$ million

144.7

110.0

Total Assets

US$ million

884.1

771.5

Debt

US$ million

53.0

Shareholder Equity

US$ million

734.3

631.3

Earnings per Share

US cents

8.5

Average daily WI Production

BOEPD

13,624

13,258

Proven plus Probable WI Reserves

MMBOE

235.3

48.8

Exploration

Development

Workovers

Capital Expenditures

Total Wells Drilled / Workovers

People 14

Chief Executive Officer’s Report I am delighted to report on 2011, a year of increased profits, increased reserves, increased production and other significant operational milestones for Kuwait Energy. Yet again the Company has reported profits for the year, as it has done every year since inception. We have also been very active operationally, making several successful hydrocarbons discoveries with a success rate of 62%, formalized our entry into Iraq, increased production to record levels with exit production of 17,733 boepd and obtained the internationally recognized quality management system ISO 9001.

Financial Performance Cash The Company generated an operating cash flow before working capital movements of US$111.9 million in 2011, up 30.7% compared to US$85.6 million in 2010. Cash and bank balances as at 31st December 2011, were US$40.5 million. The Company completed the rights issue during the year through which it raised US$ 107 million to fund future expansion.

Capital US$144.7 million was spent during the year on drilling: • 49 development wells; and • 8 exploration wells

Profit Net profit of US$ 34.8 million was generated during the year, a 58.9% increase compared to US$ 21.9 million in 2010. This was driven by 37% increase in the average realized oil price, partially offset by a noncash impairment charge of US$ 8.5 million and hedging losses of US$ 7.1 million.

Operations Production Kuwait Energy experienced modest production growth in 2011 with an average daily working interest production of 13,624 boepd, a 2.8% increase on 2010. However, the average working interest production during the fourth quarter was 15,018 boepd an increase of 12.3% over Q4 2010. This increase can be attributed to exploration success and development wells in Egypt being put on production. Specifically, in ERQ Egypt the Shahd-SE5 and Shahd-2 wells were put on production during the latter part of 2011 at 5,500 bopd and 4,400 bopd gross respectively; in Area A, Egypt the Ahmed-1X and Shukheir NW-X9 wells were put on production at 890 boepd and 580 boepd gross respectively. In BEA, Egypt wells BEA-9, BEA-10 and BEA-11 put on production at 686 boepd, 96 boepd and 1,008 boepd gross respectively.

Development Activities • Significant progress in Iraq and a substantial increase in Russian reserves • 49 development wells drilled in 2011 • Initial WI production of 5,575 boepd added, mainly from Egypt In Iraq, the Company’s interim work programme has been approved by the South Oil Company, and a preliminary development plan for the Siba gas field has been submitted. The approved programme front loaded levels of activity where possible, which ensured that all planned activities for 2012 can be completed irrespective of when approval for the fuller preliminary development plan is formally received. This means Kuwait Energy can make tangible progress in 2012 and has allowed the Company to commence the tendering process for the sub-contracting of technical services. In Russia, the acquisition of a further 28 km2 of seismic data, in addition to the 20 km2 already held, on the Luzskoye asset has revealed more evidence of oil in place. At the same time, the Company has updated and optimized its field development strategy, which will lead to enhanced oil recovery rates. This new seismic data and updated drilling strategy has led to a significant upgrade in proven and probable reserves in Russia. In terms of the Company’s own capital expenditure, activity was focused on Egypt, where 12 development wells were drilled. Particular success was achieved on the BEA and ERQ Blocks with increases in daily average WI production. Detailed geological and engineering studies also commenced in a number of Kuwait Energy operated assets in Egypt (Area A) and Ukraine (Blocks NY). These studies, incorporating 3D seismic modeling, enabled improved understanding of the optimal development strategy for these assets. Work continued on the new treatment facility at the Luzskoye oil field in Russia and Kuwait Energy operated gas treatment plant in Ukraine was upgraded.

Production Summary Country

Asset

2011 Daily WI Average (boepd)

2010 Daily WI Average (boepd)

% Change

Egypt

BEA

423

347

21.6%

Area A

4,210

4,386

(4.0%)

ERQ

3,896

3,421

13.9%

8,529

8,154

4.6%

378

570

(33.7%)

JAA 429

714

414

72.5%

1,091

984

10.9%

Total Ukraine Total Oman

KSF

2,825

2,757

2.5%

Yemen

Block 43

636

775

(17.9%)

Russia

Luzskoye

543

587

(7.5%)

13,624*

13,258

2.8%

Kuwait Energy Total

Another Perception The artist chose reform and reconstructs the human figure in order to urge a new perception for many thoughts that were taken for granted. Therefore, a new eye is needed to perceive the world while another eye is needed to focus in our inner world, to re-evaluate our thoughts and ethics. This is exactly the status of all innovators who can change life around them at the moment of creativity.

* 31st December, exit production 17,733 boepd

Kuwait Energy Year End 2011 Reserves & Resources as at 31st December 2011 Kuwait Energy Reserves and Resources in mmboe Classification

Working Interest

Category YE10 1P

8.1

48.8

129.8

Contingent Resources

32.0

Prospective Resources

Best

Reserves

Production

(3.8)

Exploration Adds

Revisions

Acq/Divest

YE11

YE11-Net Entitlement

5.7

1.8

79.4

91.4

22.3

9.3

41.4

139.7

235.3

94.6

15.5

105.8

157.2

404.5

228.7

0.0

11.0

0.0

43.0

0.0

53.6

0.0

265.7

Ziyad Ben Salama

Â 212.1

Proven Organic Reserves Replacement Ratio (RRR) = 202% Proven plus Probable Organic Reserves Replacement Ratio (RRR) = 1,349%

Crude Oil

Sales Gas

Condensate

Total

(mmbbl)

(bcf)

(mmbbl)

(mmboe)

Reserves year end 2010

37.3

53.8

2.7

48.8

Production

(3.4)

(1.3)

(0.1)

(3.8)

Exploration Discoveries

9.3

0.0

9.3

Revisions

42.4

(6.3)

(0.2)

41.4

Acquisition/Divestments

0.0

665.6

28.7

139.7

Reserves year end 2011

85.6

711.9

31.1

235.3

2P WI Reserves

Notes 1. Reserve and resource estimates are Kuwait Energy working interest. 2. YE11 reserves and contingent resources were audited by Gaffney Cline & Associates (GCA). Prospective Resources were estimated by Fugro Robertson. 3. Prospective Resources estimates are risked. 4. Estimates above exclude Karim Small Fields (Oman) which is covered by a Service Agreement and does not allow external reporting of reserve volumes. 5. For Year-End 2011 gas and condensate volumes were converted to oil equivalent volumes using conversion factors of 6.0 Mscf/boe and 1.0 BBl/boe respectively. 6. Totals may not exactly equal the sum of the individual entries due to rounding. 7. Organic RRR does not take into account acquisition or divestment activities.

EGYPT ASSETS

Marina

East Ras Qattara

Burg El Arab

Abu Sennan Area “A”

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

Mesaha

Exploration Activities • Five out of the eight wells spud were successful resulting in 62% success rate • Success rate exceeds industry average and increased from 2010 (55%) • 2011 exploration activity added 9.3 mmboe to proven plus probable reserves at an average finding cost of US$3.90/boe

Exploration drilling Eight exploration wells were drilled in 2011 resulting in five discoveries. Discoveries were all in Egypt on the Abu Sennan, Area A and ERQ assets. The success added 9.3 mmboe to proven and probable reserves and 3.5 mmboe to 2C reserves. More than half the discoveries were in wells where Kuwait Energy acts as operator. In Abu Sennan, gas and condensate was discovered in the Al Ahmadi-1X well whilst oil was discovered in the Al-Salmiya-1X and Al Jahraa-1X wells. Initial test flow rates were 2,900 boepd, 5,600 boepd and 835 boepd respectively.

Revolution Individuality and freedom of art creativity are the substance of this work. The confrontation with reality rather than describing it has always been the mission of abstract painting, and this work is not an exception. A gradual transition from dark to light colors accompanied with free brush strokes with hot and lively colors; are the means of conveying this idea. The overall result is a strong contrast between light and the darkness out of which it comes. Fatin Shawaibi

In Area A, oil was discovered in the Ahmad-1X well whilst the other oil discovery occurred in the Shebl East-1 well in Block ERQ. Initial test flow rates were 890 boepd and 1,500 boepd respectively. During 2011, the Company’s finding cost has averaged US$3.90 per barrel of oil equivalent, which is an outstanding achievement and is further evidence of the Company’s financial and operational expertise.

Geophysical and Geological Studies. During 2011, Kuwait Energy’s geophysical and geological studies led to a substantial rise in proven and probable reserves in Russia and a very large increase to prospective resources in Block 6 – Mesaha, Egypt; both of these events are exciting opportunities which could pave the way for high-impact, frontier exploration drilling in the near future. In Block 6 – Mesaha, Egypt, a frontier exploration block with acreage more than two times the size of Kuwait, the processing of seismic data contributed to the increase in prospective resource for Kuwait Energy. Overall 800km of new 2D and 82km2 of new 3D, seismic data was acquired. Previously acquired 3D data covering Latvia, Ukraine and Russia was also processed. This has generated a number of new prospects and leads, including a near term drilling location in Latvia being identified.

Business Development Kuwait Energy’s excellent growth to date, and status as one of the MENA region’s fastest growing exploration and production companies, has always been underpinned by having ambitious targets. The Company’s expansion strategy over the medium term draws on this principle with a 2015 target of achieving 75,000 boepd, proven and probable reserves of 400 mmboe, to be achieved by a mix of both organic and acquisition growth. Kuwait Energy aims to achieve this by fulfilling the potential of existing exploration and production assets and complementing this with selective, attractive M&A opportunities which could involve further geographical diversity within the MENA region. Whilst the current turbulence in the MENA region, has inevitably presented operational challenges, most of all it represents a significant opportunity for the Company. There is potential to acquire assets and build business development relationships in existing countries such as Iraq, Egypt and Yemen, capitalizing on the Company’s local knowledge and network of contacts. There is also scope to expand the business in the MENA region beyond existing areas of operation. Business development highlights during 2011 included; the signing of two 20 year gas development & production service contracts with the Iraqi Ministry of Oil for the Siba and Mansuriya fields; receipt from the Yemen Government of approval to proceed with plans for a small scale LNG project to utilize flared gas; and the signing of an MOU in July 2011 with the Egyptian General Petroleum Corporation, developing a strategic alliance between the companies to develop future projects.

Health, Safety, Sustainability and Environment (“HSSE”) HSSE remains a key priority at Kuwait Energy and by the end of 2011, the Company had recorded over three years of operations in Egypt, two years of operations in Russia, and two years of operations in Ukraine with zero Lost Time Incidents. During the year, the Company also passed stage one of the ISO 9001 Quality Management System Certification, illustrating Kuwait Energy’s desire to adopt international best practices in respect to its internal systems and controls.

Technology The Company’s partnership with Schlumberger, signed in December 2010, is also yielding continuous benefits via Schlumberger’s input into software modules, training programmes and seismic data services. This input has been especially useful in Iraq and the submission of a preliminary field development plan. Kuwait Energy continues to benefit from its relationships with software technology providers, which helps to reduce exploration and development risk, and maximize the potential from the Company’s assets.

Human Resources The Company’s employees are a key asset and Kuwait Energy’s growth and progress to date is due to their talent, dedication and motivation. As such, the importance of attracting and retaining our staff through creative and innovative initiatives is paramount to us. To this end, the Human Resources department has embarked on several initiatives throughout the year including: succession planning, mentoring projects and supporting youth development opportunities such as the “Future Energy” initiative, where individuals complete an internship and training programme across the Company’s global offices. 43 individuals completed the programme during 2011, almost double the number of 2010.

Hope This work is a reflection of hope and optimism. Surrounded by light hues of hot and cold colors, the stylized figures express the joyful spirit of the Arab spring. The tolerance between members of society despite of the high number of victims during the revolution is also present in the painting by lines extending from one figure to another to tell about the deep bonds between people.

Ziyad Ben Salama

Sara Akbar Chief Executive Officer

Corporate Governance Report The IFC is the private sector investment arm of the World Bank and is widely perceived to be a leader amongst multilateral financial institutions in the area of corporate governance in emerging markets.

Board Meetings The Board of KEC met five times in 2011 on the following dates: Sl. No

Meeting Ref No.

Date

Place

Further to the corporate governance review carried out in 2009 with assistance from the IFC, Kuwait Energy has been continuously improving and upgrading its corporate governance practices to strive to meet international best practices and the requirements of the UK Corporate Governance Code. We have now implemented most of the recommendations made by the IFC as part of the 2009 review.

1/2011

12 January 2011

Kuwait

2/2011

21 April 2011

Kuwait

3/2011

27 June 2011

Kuwait

4/2011

31 July 2011

Kuwait

Board – Kuwait Energy

5/2011

2 November 2011

Kuwait

As a consequence of our group restructuring to Kuwait Energy in late December 2011, a new Board has been appointed in preparation for the Company’s future listing on the London Stock Exchange, as follows. Manssour Aboukhamseen Executive Chairman Sara Akbar Chief Executive Officer Roger Phillips Chief Financial Officer Yousef Al Awadi Independent Director Mohamed Yusof Rafie Independent Director Rachel English Independent Director

Register of attendance of Board and Committee members from 01 January 2011 to 31st December 2011: Board Meeting (5 Meetings)

Audit Committee (5 Meetings)

Compensation Committee (1 Meeting)

Nomination Committee (1 meeting)

Manssour Aboukhamseen

5/5

Sara Akbar

4/5

Jason Selch

2/2

3/3

1/1

Board – Kuwait Energy Company K.S.C.C.

Tareq Al Wazzan

4/5

5/5

1/1

Prior to the group restructuring, the corporate governance regime and operations of the board of KEC during 2011 were as follows.

Mohammad Algharaballi*

2/2

1/1

Ashour Habeeb*

2/2

3/3

1/1

Rabih Soukarieh*

2/2

1/1

Yousef Al Awadi

3/3

2/2

Abdul Mohsin Al Medej

3/3

William Monteleone

2/3

2/2

Mohamed Yusof Rafie

3/3

The following members served on the Board of Directors from 1 January 2011 till 27 June 2011: Manssour Aboukhamseen Executive Chairman Sara Akbar Chief Executive Officer Jason Selch Non-Executive Director Tareq Al Wazzan Non-Executive Director Mohammad Algharaballi Non-Executive Director Ashour Habeeb Non-Executive Director Rabih Soukarieh Non-Executive Director

Board Members

* KEC Board Members until 27 June 2011. The board of Kuwait Energy did not hold any meetings during 2011.

The Annual General Meeting of KEC held on 27 June 2011 approved the election of the following members of a new Board of Directors: Manssour Aboukhamseen Executive Chairman Sara Akbar Chief Executive Officer Tareq Al Wazzan Non-Executive Director Abdul Mohsin Al Medeej Non-Executive Director Yousef Al Awadi Non-Executive Director Mohamed Yusof Rafie Non-Executive Director William Monteleone Non-Executive Director 26

Ascension Abstract painting is used along with figurative painting, to represent the transition from past when everything was chaotic and the future, which was a source of anxiety; to a new era of hope. Here, the clear blue sky and the blossoming flowers are all direct representation of this new spirit. Colors in this work are used as symbols; blue for hope and green for fertility. Fatin Shawaibi

29 16

Board Committees

Audit Committee

The Committees of KEC were made up of three members each, all of whom were non-executive directors. Prior to the Annual General Meeting of KEC held on 27 June 2011, the Committees were constituted as follows.

The role of the Audit Committee is to assist the Board of Directors in fulfilling its fiduciary responsibilities to provide oversight with respect to:

Audit Committee

Compensation Committee

Nomination Committee

Chairman

Jason Selch

Mohammad Algharaballi

Ashour Habeeb

Members

Tareq Al Wazzan

Jason Selch

Tareq Al Wazzan

Ashour Habeeb

Rabih Soukarieh

Following the appointment of a new Board of Directors of KEC at the Annual General Meeting of Shareholders’ held on 27 June 2011, the new Board members appointed the following Board Committees members. Audit Committee

Compensation Committee

Nomination Committee

Chairman

Yousef Al Awadi

Mohamed Yusof Rafie

Abdul Mohsin Al Medej

Members

Tareq Al Wazzan

Yousef Al Awadi

Tareq Al Wazzan

William Monteleone

Mohamed Yusof Rafie

Subsequent to the year end, equivalent committees have been set up for Kuwait Energy, as follows:

Audit Committee

Compensation Committee

Nomination Committee

Chairman

Yousef Al Awadi

Rachel English

Mohamed Yusof Rafie

Members

Rachel English

Mohamed Yusof Rafie

Dr Manssour Aboukhamseen Yousef Al Awadi

• The integrity of the Company's financial statements and other financial information provided to stockholders and others; • The Company's system of internal controls; • The engagement and performance of the independent auditors; • The performance of the internal audit function; and • Compliance with legal requirements and Company policies regarding ethical conduct. The Audit Committee provides a focal point for free and open communications amongst the Non-Executive Directors, the Company's management, the internal auditors and the independent auditors. The Audit Committee of KEC met five times during 2011. Some of the key items considered at these meetings were: • 2011/12 Economic Assumptions • YE10 Reserves and Financial Reports • Reviewed Internal Audit Activities • Reviewed 2011 Mid-year Financials • Audit Plan for 2011 Financials

Nomination Committee Key authorities and responsibilities of the Nomination Committee include: • Preparing the criteria and procedure for selecting Board members and by which the Board makes nominations for members. • Assessing, at least once a year, the size and composition of the Board, the performance of individual Board members and reporting their findings to the Board. • Making proposals for the reelection or termination of Board members and, if required, the appointment of replacement members; • Reporting to the Board on the advisability of permitting a member of the Board to become a member of another company’s Board, and develop a policy on whether and how to cap the number of Directorships a Director may hold; • Reporting to the Board on any conflicts of interest that may arise if a member of the Board accepts a position on another company’s Board. • Developing for the Board’s approval and annually reviewing the chart of authorities and delegation of authorities to management. • Reviewing any change in status (including fulfillment of independence requirements) and professional affiliation of current Directors.

• Overseeing the development and implementation of a Board induction process for new Directors and a programme of continuing Director development as needed; • Developing a process for evaluating board effectiveness and co-ordinate the annual board effectiveness evaluation; • Reviewing corporate governance policies and practices throughout the company and make relevant proposals to the board to improve their effectiveness; and • Monitoring trends and best practices in corporate governance and nomination practices in order to properly discharge its duties. In addition to the above responsibilities, the Committee will undertake such other duties as the Board delegates to it, and will report periodically to the Board regarding the Committee's examinations and recommendations. Prior to the group restructuring, the Nomination Committee met on 29 March 2011 at which it took the initiative of establishing criteria for the evaluation of the Board member performance in 2011.

Compensation Committee Some of the key responsibilities of the Compensation Committee include: • Reviewing with Company management and approving the compensation policy for executive officers and directors of the Company, and such other managers of the Company as directed by the Board; • Reviewing with Company management and approving all forms of compensation to be provided to the Executive Officers of the Company; • Acting as administrator of the Company's compensation plans, including granting awards to Executive Officers and Directors, reviewing aggregate awards for other eligible individuals and determining the terms and conditions of such awards. The Committee shall also make recommendations to the Board of Directors with respect to amendments to the plans and changes in the number of shares reserved for issuance under such plan;

Optimism Daily life is such a great source of inspiration for art; applying directly to this work. This painting is a depiction of a very common scene during the Arab spring, when people from all groups and all sectors of society are standing hand in hand for their rights. Colors, races, class and ideology differences never shake their faith in their unity against all challenges of the future.

Ziyad Ben Salamah

• Evaluating the performance of the Chairman and the Chief Executive Officer (and such other Executive Officers as the Committee deems appropriate) in light of the Company's current business environment and the Company's strategic objectives; • Reviewing with Company management and approving recommendations with regard to aggregate salary budget and guidelines for all Company employees; • Evaluating the need for, and provisions of, employment contracts or severance arrangements for the Executive Officers. Prior to the group restructuring, the Compensation Committee met once during 2011. Some of the key items considered at this meeting were: - 2010 Bonus payout - Review 2011 Corporate Scorecard

Responsibility Statement of the Directors The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (‘IFRSs’) as issued by the International Accounting Standards Board. The financial statements are required by law to be properly prepared in accordance with the Companies (Jersey) Law 1991. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. In preparing these financial statements, International Accounting Standard 1 requires that directors: • properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and • make an assessment of the Group's ability to continue as a going concern. The directors are responsible for keeping proper accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991. They are also responsible for the system of internal control, for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. For and on behalf of the Board of Directors

Remuneration Disclosures – Board and Executive Management Board Directors’ Remuneration: In 2011, the KEC Directors were paid the following remuneration for their services: Manssour Aboukhamseen

US$3,600

Sara Akbar

US$3,600

Jason Selch

US$3,600

Tareq Al Wazzan

US$3,600

Mohammad Algharaballi

US$3,600

Ashour Habeeb

US$3,600

Walter Brandhuber

US$3,600

Rabih Soukarieh

US$3,600

Assuming 1KD = US$3.60

The KEC Directors were entitled to receive reimbursement for reasonable expenses that were incurred by them and that were necessary for the performance of their duties. Expenses may be reimbursed on presentation of an invoice or voucher indicating the amount of the expense, the nature of the expense and the business purposes involved. The expenses anticipated include (i) transportation costs, including one round-trip business class airline ticket, between the Director’s home town and the location of any meeting of the board of directors, shareholders or committee that the Director is required to attend, (ii) lodging at a five-star hotel. Each director who attends Board meetings is paid a meeting fee of US$1,500 per meeting.

Executive Directors Annual Remuneration *

Manssour Aboukhamseen Executive Chairman

Yousef Al Awadi Director and Chairman – Audit Committee

2011 in USD

2010 in USD

% Change

Manssour Aboukhamseen

376,250

Nil

Sara Akbar

336,350

Nil

* includes fixed salary, housing and transport allowances Other benefits: Health Insurance for self, annual air tickets allowance of USD (6,848)

Executive Directors' Service Contracts Date of Contract

Term

Notice period by Company

Manssour Aboukhamseen

7 June 2006

Three years, Post 3 years, Annual Rolling Contract

90 days

Sara Akbar

7 June 2006

Three years, Post 3 years, Annual Rolling Contract

90 days

Employee Incentive Scheme The objectives of the Employee Incentive Scheme (EIS) are to reward Kuwait Energy’s employees for sustained good performance and to reward for both short and medium term business objectives by a combination of cash and share rewards. While the focus of the scheme will be on annual performance, the scheme is designed in such a manner that the ‘Share benefits’ pass on to the participants only in a staggered manner during a three year period.

Eligibility This scheme is applicable to all employees of the Kuwait Energy group. Where the employee has joined before 1st October of a given year, he/she may be deemed eligible for a pro-rated amount of shares as per the scheme in effect that year. Employees who have joined on or after 1st October will not be eligible for shares for that given sub-scheme.

Annual Incentive Entitlement 40% of the incentive entitlement will be paid out in cash as annual incentive and 60% will be converted into shares at the fair value (if the Company is not listed) or market price (after listing). The EIS shares will not be eligible for dividends or bonus shares until the shares have vested. The allocated EIS shares will vest in a staggered manner as follows 30%, 30%, and 40% shares after 1,2, and 3 years respectively

Beginning of dawn 36

Executive Directors and Executive Management EIS Details of cash and shares bonuses granted to Executive Directors through EIS:

Executive Directors Year

Cash (in USD)

No. of shares granted (subject to vesting)

Manssour Aboukhamseen

2010 (Paid in 2011)

56,821

71,789

Sara Akbar

2010 (Paid in 2011)

56,821

71,789

Executive Management Year

Cash (in USD)

No. of shares granted (subject to vesting)

Roger Phillips, CFO

2010

56,821

71,789

Mohammad Al Howqal, COO

2010

56,821

71,789

Mohammed Aboush, Senior Vice President - Iraq

2010

44,194

55,835

Anthony Harrison , Senior Vice President - Technology

2010

43,000

Freedom courtyard Abstract Expressionism was preferred by the artist in painting this work for its potential in focusing on impressions and feelings rather than forms or conventions. The main theme of the work stresses on the need for organizing, reconstructing and developing society. This idea is translated into geometrical shapes and compositions, painted with solid and contrasted colors to make the composition more dynamic and lively. Fatin Shawaibi

Risk Management Report During 2011, Kuwait Energy’s Risk Management system was fully embedded into all aspects of Company planning, decision making, project development and execution. The identification and management of key risks will underpin the successful delivery of the business’ strategic objectives whilst enhancing and protecting shareholder value.

Principal Risks and Uncertainties Strategic Risks Risks potentially impacting the Company’s ability to create shareholder value and meet shareholder expectations are: RISK

MITIGATION

Capital allocation

Targeting a capital allocation ratio of 80:20, with 80% allocated to producing and developing assets and 20% allocated to exploration activities.

Appropriate portfolio mix

The Company continues to maintain a diverse portfolio of assets which are spread across the Middle East, North Africa and Eurasia. The Company has a process to review acquisitions according to Company goals and risk appetite.

Identification and mitigation of risk

The Company’s risk profile and its risk management approach are frequently reviewed by senior management. Processes and procedures continue to be improved to optimize risk awareness for all projects and to enhance mitigation strategies.

Macroeconomic issues

Consistent monitoring of regional economic, political, and energy markets through market analysis by reputed third party experts when needed.

Financial Risks Risks that impact access to funding to meet financial obligations are:

Wanted 40

RISK

MITIGATION

Oil price volatility

Whilst not under the control of the Company, this risk can be mitigated through hedging if deemed appropriate by the Kuwait Energy Board.

Currency rate fluctuations

The Company’s policy is to conduct and manage its business in US dollars which is its reporting currency. Company subsidiaries use US dollars with only small amounts held in other currencies in order to comply with local regulations and meet immediate operating or administrative expenses.

Access to capital

Kuwait Energy’s future depends on additional financing which cannot always be guaranteed. Therefore, the company has maintained strong banking and equity relationships. The Company does not anticipate major financing challenges beyond the inherent risks experienced by sector peers.

Interest Rate Fluctuation

The group’s loans are linked to LIBOR and therefore its results are impacted by changes in interest rate. Hedges can be taken out to mitigate this risk, if deemed appropriate by the Board.

Credit Risk

The Group sells a majority of its oil and gas to a small number of counterparties in Egypt and therefore can be at risk of counterparty default. The Group has adopted a policy of only dealing with creditworthy counterparties and although the Arab Spring unrest has caused significant delay to realizing its Egyptian receivables, the Group is taking protective steps to manage this risk.

Operational Risks Risks that potentially impact on exploration, development and production of hydrocarbons and involve staff, contractors, communities, suppliers or events that could impact on reputation, cause cost overruns or revenue losses, are: RISK

MITIGATION

Hydrocarbon reserve and resource estimates

To ensure fair and reasonable estimates of hydrocarbon reserves and resources the Company has its year-end estimates fully externally audited. However calculations contain uncertainties which are inherent in reservoir geology, and depend on the seismic and well data available.

Government regulations

Changes in laws and regulations could potentially increase or decrease the value of development or exploration projects. Strong relationships with government officials in the Companyâ&#x20AC;&#x2122;s countries of operation, enables the anticipation of, and negotiation on, potentially changed contractual terms.

Political instability

Political stability in countries of operations is of paramount concern for Kuwait Energy. The Company justifies its exposure in some countries through spreading this exposure across other diverse assets and through JV arrangements.

HSSE

The companyâ&#x20AC;&#x2122;s Risk Management and HSSE functions collaborate to evaluate safety and security risks through a rigorous assessment process. This helps to determine mitigation strategies for the Company, as well as its contractors.

Relations with local stakeholders

The Company strives continuously for improved relationships with its local stakeholders through a number of initiatives.

Human Resources

Kuwait Energy considers human resources as an essential component of its project delivery capabilities and path to successful operations. The lack of specialized or skilled labour or an inability to attract qualified human resources would inevitably impact the Companyâ&#x20AC;&#x2122;s operational performance and target delivery. The Company has processes in place to identify and address the optimal human resources needs for the business and to boost workforce productivity through improved attraction and retention.

Passage Here is the moment of passage from submission to revolution depicted by two figures with a flaming barrier in between. Hot colors are used to stress the sacrifices paid as a price for such passage from dictatorship to freedom. The figures are also stylized to reflect the inner conflict with fear and worries of the future that precedes any act of change.

Ziyad Ben Salama

Corporate Social Responsibility Report Overview Kuwait Energy observes high standards of Corporate Social Responsibility (“CSR”) and is committed to operating an environmentally aware and socially responsible business. Implementing international best practices, Kuwait Energy respects the environment and works very closely with its communities to address important aspects of local needs and ensure Kuwait Energy contributes to the areas where it operates. The Company has continued to do this throughout the year on a wide variety of initiatives, heavily concentrated in Egypt given the scale of the Company’s operations there but also substantial amounts in Ukraine, Latvia and Russia. Kuwait Energy employs and trains a large number of local people and at year-end 2011, 82% of our employees were local to the country of operation.

Activities Activities during the year have included: extensive Environmental Impact Assessments in the area of assets/potential projects, financially supporting infrastructure projects, as well as charity and special aid projects. In Egypt, Kuwait Energy completed a wide variety of notable activities including: the raising of hygienic standards, due to deteriorating conditions, in schools in Ras Gharib, Egypt. Kuwait Energy pledged to renovate the hygienic infrastructure of these schools, replacing substandard water tanks with bottled water and cleaner water tanks to guarantee students receive a clean supply. The Company also rebuilt the school’s bathrooms. Ras Gharib schools were also provided with fire extinguisher equipment and special training. Other initiatives in Egypt invoved the sponsorship of student magazines for the Society of Petroleum Engineers and the Society of Exploration Geophysicists (SEG) and arranging a site visit for SEG students to learn about health and safety procedures. The Company also paved roads in front of its offices in Cairo’s Maadi district.

The Company was also extremely active in Russia, Ukraine and Latvia. In Russia, the Company sponsored aid programmes for children’s educational facilities and elderly members of the Kadherom community, where the Company operates. An aid programme to provide oil and gas industry veterans with gymnasium access was put in place as well as financial assistance being provided to the local hospital to purchase medical equipment. In Ukraine, Kuwait Energy made a very wide array of financial donations supporting local causes. These donations were made to the locals and authorities in the Ukranian districts of Lokhvitsa, Chernukhy, Shakhvorostivka, Kybynska and Varva. Donations contributed towards sewage system repairs, the construction of heat generators, repairs to schools and the improvement of local infrastructure. In Latvia, Kuwait Energy’s social responsibility ensured that no concerns were raised about the Company’s planned offshore drilling activity when considered at a public hearing. The Company also completed its annual, two-month internship programme for a group of Kuwaiti and international students offering first-hand experience of the oil and gas industry. Additionally, Kuwait Energy hosted five Latvian graduate students in a three month internship programme providing full-time field and office experience in Egypt and Kuwait. It also completed its fourth consecutive year of involvement in the Kuwait Science Fair, which generates student interest in maths and science from an early age. It also made a voluntary donation to Somalia’s embassy in Kuwait, lending financial assistance to Somalia’s famine victims. The Company seeks to enhance its CSR reputation, year-on-year and is particularly proud of the breadth of initiatives it implements.

Also in Ras Gharib, the Company helped indigenous people to start their own micro-projects, which involved the provision of equipment and merchandise to enable the start of small businesses and the development of entrepreneurship skills. During the holy month of Ramadan, for the second consecutive year, Kuwait Energy distributed 350 food bags, containing essential food products, to underprivileged members of the Ras Gharib community. The Company also participated in a blood donation campaign organized by Egypt’s National Blood Transfusion Center, aimed at helping wounded victims of the January 2011 revolution.

Rippling Planets This work is based on experiential expressionism. Free use of shapes, lines and colors with different tones and hues enabled the artist to express the inner hope and belief in the future. Light and transparent hot colors are set against different tones of blue to enhance the contrast of either color group. The focus is on the mood and the sensation to convey the abstract concept of hope and optimism, hence the dominance of white color on the scene as a symbol of peace and to harmonize the color mix. Fatin Shawaibi

Kuwait Energy Five Year Summary As at 31st December

Units

2007

2008

2009

2010

2011

Product sales revenue

US$ million

25.9

90.8

88.3

141.8

178.9

Cost of sales

US$ million

10.1

71.0

70.8

102.9

96.8

Operating cash flow

US$ million

17.9

50.8

51.1

85.6

111.9

Net profit

US$ million

20.6

29.9

5.6

21.9

34.8

Total assets

US$ million

239.6

577.7

680.9

771.5

884.1

Debt

US$ million

28.0

53.0

Total equity

US$ million

193.7

525.7

580.1

631.3

734.3

Proven plus probable WI reserves

mmboe

34.1

43.4

51.2

48.8

235.3

Annual WI Production

mmboe

1.2

3.0

4.2

4.8

5.0

Development wells

Workovers

Exploration Wells

Exploration Expenditure

US$ million

4.8

13.8

31.0

41.6

36.3

Financial performance

Financial position

KUWAIT ENERGY plc GROUP CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORâ&#x20AC;&#x2122;S REPORT FOR THE YEAR ENDED 31st December 2011

Reserves and production

KUWAIT ENERGY plc GROUP

KUWAIIT ENERGY Y plc GROU UP

INDEPENDENT AUDITOR’S Kuwait Energy Plc Group REPORT

Kuwait Energy Plc Group

Independent Auditor’s Report For the year ended 31 December 2011

For The Year Ended 31 December 2011

Independent Auditor’s AU Report INDEPE ENDENT UDITOR’S REPORT R

For The Year Ended 31 December 2011

For the yeear ended 31 December D 201 11

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF KUWAIT ENERGY plc We have audited the group financial statements (the “financial statements”) of Kuwait Energy plc for the year ended 31 December 2010 and 31 December 2011 which comprise the Consolidated Income Statements, Consolidated Statements of Comprehensive Income, Consolidated Balance Sheets, Consolidated Cash Flow Statements, Consolidated Statements of Changes in Equity and the related notes 1 to 32. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board.

Matters on o which we are required d to report by y exception We have nothing to rep port in respectt of the follow wing matters where w the Com mpanies (Jerseey) Law 1991 requires us to o report to yyou if, in our opinion: x

pproper accounnting records have h not been n kept by the parent p compan ny, or proper returns r adequaate for our aaudit have nott been receiveed from branch hes not visited d by us; or

tthe financial statements s aree not in agreem ment with the accounting reecords and retu urns; or

w we have not reeceived all thee information and explanatiions we requirre for our audit.

This report is made solely to the company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

David Paterson (JFSC)) for and onn behalf of Deeloitte LLP Chartered d Accountantss London, U UK 012 4 April 20

Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements:   

give a true and fair view of the state of the group’s affairs as at 31 December 2010 and 31 December 2011 and of the group’s profit for the years then ended; have been properly prepared in accordance with IFRSs as issued by the International Accounting Standards Board; and have been properly prepared in accordance with the Companies (Jersey) Law 1991.

Kuwait Energy Plc Group

Kuwait Energy Plc Group KUWAIT ENERGY plc GROUP

KUWAIT ENERGY plc GROUP Consolidated Income Statement For The Year Ended 31 December 2011 CONSOLIDATED INCOME STATEMENT

Consolidated Statement Of Comprehensive Income For TheCONSOLIDATED Year Ended 31 December 2011 STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2011

For the year ended 31 December 2011

Continuing Operations Revenue Cost of sales

Gross profit Impairment losses

General and administrative expenses Operating profit Loss on held for trading derivative Other income

Foreign exchange gain /(loss) Finance costs (net)

Notes 6 7 8

23 9

2011

2010

USD 000’s

178,921

(96,771) 82,150

(8,520)

(22,628) 51,002

(75)

800 654

(7,749)

141,772

38,912

(19,977) 18,935

(675)

Other comprehensive income /(loss) for the year

(463)

Total comprehensive income for the year

(1,818)

34,763

21,902

Earnings per share - Basic (cents)

11.1

8.5

- Diluted (cents)

11.1

8.5

(9,869)

Cash flow hedge - Net change in fair value

4,222

Other comprehensive income Exchange differences on translation of foreign operations

20,201

Profit for the year

(102,860)

44,632

Profit before tax Taxation (charge) / credit

Note

2010

USD 000’s

34,763

21,902

(142) 23

3,662

(3,662)

3,520

(3,596)

38,283

18,306

1,701

2011

KUWAIT ENERGY plc GROUP

Kuwait Energy Plc Group

For The Year Ended 31 December 2011

For The 31 December 2011 2011 ForYear the Ended year ended 31 December

CONSOLIDATED STATEMENT OFEquity CHANGES IN EQUITY Consolidated Statement Of Changes In

KUWAI IT ENERGY Y plc GROU UP Consolidated Balance Sheet CONSOLIDATED BALANCE B S SHEET As at 31 D December 2011

ASSETS Non-currrent assets Intangiblee exploration and a evaluationn assets Property, plant and equuipment Deferred ttax asset Current aassets

Inventoriees Trade andd other receivaables Cash and bank balances

Notess

Retained eearnings

13 14 11

15 16 17

Current lliabilities Trade andd other payablles Current taax payable

Derivativee financial insstruments Current poortion of longg-term loans bilities Total liab

Total equ uity and liabilities

149,20 01 493,12 27 8,97 70 651,29 98 16,24 40 176,05 55 40,47 77 232,77 72 884,07 70

243,964 307,249 9,146

18 18 18 19

492,37 73

181,73 37 (36,14 40) 5,757 65 90,56 734,29 92

20 21 11

22 22 23 20

45,00 00

2,69 94 31,37 79 79,07 73 52,96 64 8,99 91 750 8,00 00

70,70 05

149,77 78 884,07 70

Merger

Other reserves

Retained

capital

premium

reserve

(Note 19)

earnings

Total

USD 000’s

438,648

157,163

(32,196)

(11,201)

78,888

631,302

34,763

3,520

34,763

38,283

Profit for the year Other comprehensive income for the year

560,359

Total comprehensive income

17,862 135,199 58,092

Issue of share capital (See note 18)

771,512

Issue of shares under employee

for the year

53,330

27,178

(3,915)

76,593

(2,897)

1,229

356

293

(26)

(623)

(3)

(23,086)

Share issue costs Recognition of share-based payments (See note 24)

211,153

incentive scheme (See note 24) Issue of shares – Joining bonus

Total equ uity

Non-currrent liabilitiess Long-term m loans Long-term m provisions Deferred ttax liability

2010 USD 000’s U Balance at 1 January 2011

Total assets Y AND LIABIILITIES EQUITY Equity Share cappital Share prem mium Merger reeserve Other reseerves

2011 USD 000’s

Dividends ( See note 32)

438,648

Shares to be issued for business

157,163 (32,196) (11,201) 78,888

combination (See note 19) Balance at 31 December 2011

12,832

492,373

181,737

(36,140)

5,757

90,565

734,292

631,302 53,000

1,790 30,644

Balance at 1 January 2010

85,434

Profit for the year

Merger

Other reserves

Retained

capital

premium

reserve

(Note 19)

earnings

Total

USD 000’s

401,823

134,059

(29,493)

16,733

56,986

580,108

21,902

(3,596)

Other comprehensive loss

49,907 532 4,337

for the year Total comprehensive income for the year

Issue of share capital (See note 18)

54,776

Share issue costs

140,210

(3,596)

21,902

18,306

23,264

11,856

(1,708)

33,412

(1,410)

886

138

(10)

(224)

13,423

12,562

(985)

(25,000)

438,648

157,163

(32,196)

(11,201)

78,888

631,302

Recognition of share-based

771,512

payments (See note 24) Issue of shares under employee

The Finanncial Statemennts were approoved the boarrd of directors and authoriseed for issue on n 4 April 2012 2. They were signed onn its behalf by:

incentive scheme (See note 24) Issue of shares in a business combination (See note 19) Balance at 31 December 2010

Mansssour Aboukhaamseen Chairmann & Managing g Director 7

Kuwait Energy Plc Group

For The Year Ended 31 December 2011

Notes To The Consolidated Financial Statements KUWAIT GROUP For The Year EndedENERGY 31 Decemberplc 2011

Consolidated Statement Cash Flows KUWAIT ENERGYOfplc GROUP CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2011

OPERATING ACTIVITIES Profit before tax Adjustments for: Depreciation, depletion and amortisation Impairment losses Impairment losses recognised on trade receivables Gain on farm out of working interests Loss on held for trading derivative Loss on sale of other assets Loss on disposal of oil & gas assets Finance costs Interest income Share-based compensation expense Provision for retirement benefit obligation Operating cash flow before movement in working capital Increase in trade and other receivables Increase in trade and other payables (Decrease)/Increase in derivative financial instruments Tax paid Net cash generated by operating activities INVESTING ACTIVITIES Purchase of intangible exploration and evaluation assets Purchase of property, plant and equipment Increase/(decrease) in producing inventory stores Purchase of other fixed assets Proceeds from sale of held to maturity investment Proceeds from farm out of working interests Proceeds from disposal of other assets Decrease / (increase) in liquid investments Interest received Net cash used in investing activities FINANCING ACTIVITIES Proceeds from issue of share capital Increase in long term loans Dividend paid Finance costs paid Net cash generated by financing activities Effect of foreign currency translation Net increase / (decrease) in cash and bank balances Cash and bank balances at beginning of the year Cash and bank balances at end of the year

For the year ended 31 December 2011

Notes

2011

2010

USD 000’s

44,632

20,201

49,452 8,520 75 1 55 7,749 (197) 1,229 413 111,929 (87,303) 2,224 (499) 26,351

60,417 1,329 (156) 675 132 1,818 (80) 886 348 85,570 (38,783) 14,513 4,337 (1,061) 62,717

(31,677) (68,474) 1,435 (2,893) 19,464 9 197 (81,939)

(41,614) (64,413) (1,834) (3,612) 13,256 8,683 7 3,483 2,256 (81,954)

73,696 (22,799) (12,782) 38,115 (142) (17,615) 58,092 40,477

32,002 20,828 (1,724) 51,106 66 31,935 26,157 58,092

INCORPORATION AND ACTIVITIES Kuwait Energy plc (“Company”) is a company incorporated on 12 September 2011 in accordance with the Commercial Companies Law in the Bailiwick of Jersey. The Company and its subsidiaries (together referred to as “the Group”) have been established with the objective of exploration for production and commercialisation of crude oil and natural gas. The Company’s registered address is Queensway House, Hilgrove Street, St Helier, Jersey, JE1 1ES.

GENERAL INFORMATION AND RESTRUCTURING The Company is incorporated in Jersey, and is the new ultimate parent company of the Kuwait Energy Group (“Kuwait Energy”) and owner of all the assets and liabilities previously held directly by Kuwait Energy KSSC, following a restructuring of the ownership interests in Kuwait Energy KSSC in December 2011 (the “Restructuring”). During 2011, Kuwait Energy plc acquired all of Kuwait Energy KSSC’s material assets and subsidiaries in consideration for the issue to Kuwait Energy KSSC of 317,500,000 new shares of Kuwait Energy plc. The share capital of Kuwait Energy KSSC was subsequently reduced to 2.5% of the existing share capital and 90% of the shares in Kuwait Energy plc were transferred to Kuwait Energy KSSC’s shareholders on a prorata basis, with the remaining 10% being held by Kuwait Energy KSSC. Immediately prior to the capital reduction, Kuwait Energy KSSC transferred 285,750,000 ordinary shares of £1 in Kuwait Energy plc to Kuwait Energy KSSC shareholders, pro-rata to their shareholding in Kuwait Energy KSSC. After the Restructuring, each Kuwait Energy KSSC shareholder held 25 Kuwait Energy KSSC and 225 Kuwait Energy plc shares for every 1000 Kuwait Energy KSSC shares held immediately prior to the Restructuring.

Although this consolidated financial information has been released in the name of the parent, Kuwait Energy plc, it represents in-substance, continuation of the existing Group, headed by Kuwait Energy plc. For accounting purposes it represents a reorganisation of entities under common control. As such, this business combination was outside the scope of IFRS 3 “Business Combinations” and for the period prior to the Restructuring the results have therefore been prepared using the principles of merger accounting. Under this method: • the consolidated assets and liabilities of the previous ultimate parent, Kuwait Energy KSSC, were recognised and measured at the pre-restructuring carrying amounts, without restatement to fair value;

• the results for the year ended 31 December 2010 and the period from 1 January 2011 to the date of the Restructuring are those of Kuwait Energy KSSC; • comparative numbers presented in the consolidated financial statements are those reported in the consolidated financial statements of Kuwait Energy KSSC, for the year ended 31 December 2010, except for the presentation of the share capital and other reserves, which have been restated to reflect the change in the nominal value of the ordinary shares resulting from the Restructuring as if Kuwait Energy plc had been the parent company during such periods; and • the difference between the historical carrying amounts of net assets transferred and consideration received has been recognised as a merger reserve.

These consolidated financial statements were approved for issue by the Board of Directors of the Parent Company on 4 April 2012 and are subject to the approval of the Annual General Meeting of the shareholders. 2.

ADOPTION OF REVISED STANDARDS In the current year, the following new and revised Standards and Interpretations have been adopted and have affected the amounts reported in these financial statements. Standards not affecting the reported results or the financial position

The following new and revised Standards and Interpretations have been adopted in the current year. Their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements.

56 9

Kuwait Energy Plc Group

Notes To The Consolidated Financial Statements For The Year Ended 31ENERGY December 2011 KUWAIT plc GROUP

Notes To The Consolidated Financial Statements IT 31 ENERGY Y plc UP For TheKUWAI Year Ended December 2011GROU NOTES TO THE CO ONSOLIDAT TED FINAN NCIAL STAT TEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the yeear ended 31 December D 20111

For the year ended 31 December 2011 2. ADOPTION OF REVISED STANDARDS (CONTINUED)

IAS 24 Related Party Disclosures (Revised)

The revision to IAS 24 has clarified the definition of a related party, particularly in relation to significant influence and joint control. It also provides partial exemption for government related entities from the disclosure requirements of IAS 24. IAS 32 Financial Instruments: Presentation – Classification of Rights Issues (Amendment)

IAS 32 has been amended to classify a rights issue as an equity instrument if the rights are given pro rata to all existing owners of the equity instrument and the rights are to acquire a fixed number of equity instruments at a fixed price. IFRIC 14 Prepayments of a Minimum Funding Requirement (Amendment)

IFRIC 14 has been amended to provide further guidance on the assessment of the recoverable amount of a net pension asset, whereby the prepayment of a minimum funding requirement will now be treated as an asset. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

IFRIC 19 requires that equity instruments issued in order to extinguish a financial liability are consideration paid. The equity instruments are measured at their fair value or the fair value of the liability extinguished if the fair value of the equity instrument cannot be measured reliably. At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

SIGNIFICA ANT ACCOUN NTING POL LICIES

Statement of o compliancee T These consoliidated financiial statements have been prrepared in accordance with h Internationaal Financial R Reporting Staandards (“IFRS”) as adoptedd by the Internnational Accoounting Standaards Board. B Basis of prep paration These consollidated financcial statementss have been prepared p on th he historical cost c basis exccept for the m measurement at fair value of share-based payments and certain financial f instrruments. The accounting ppolicies have been applied consistently by b the Group. T These consoliidated financiial statements are presentedd in US Dollaars (“USD”), which w is the Company’s C ffunctional and presentation n currency, rounded r off to t the nearestt thousand. The T principal accounting ppolicies are sttated below. Basis of conssolidation These consolidated financiial statements incorporate thhe financial sttatements of th he Company and a entities ccontrolled by y the Companny (its subsid diaries) as dettailed in notee 27. Controll is achieved where the C Company hass the power to t govern thee financial annd operating policies p of an n entity so ass to obtain bbenefits from its activities.

T The results of o subsidiariess acquired orr disposed of during the year y are inclu uded in the co onsolidated sstatement of income from the effectivee date of acquuisition or upp to the effecttive date of disposal, d as aappropriate. W Where necessary, adjustm ments are maade to the finnancial statem ments of sub bsidiaries to bring b their aaccounting po olicies into lin ne with those used u by other members of thhe Group.

IFRS 7 (amended)

Financial Instruments: Disclosure

IFRS 9

Financial Instruments

IFRS 10

Consolidated Financial Statements

A All intra-grou up transactionss, balances, inncome and exppenses are elim minated in full on consolidaation.

IFRS 11

Joint Arrangements

IFRS 12

Disclosure of Interests in Other Entities

IFRS 13

Fair Value Measurement

IAS 1 (amended)

Presentation of Items of Other Comprehensive Income

IAS 12 (amended)

Income Taxes

IAS 19 (revised)

Employee Benefits

IAS 28 (revised)

Investments in Associates and Joint Ventures

G Going concerrn The directorss have, at th he time of ap pproving these consolidateed financial statements, s a reasonable eexpectation th hat the Com mpany and thee Group havve adequate resources r to continue in operational eexistence for the foreseeabble future, beiing twelve moonths from thhe date of app proval of thesse financial sstatements. Thus T they conntinue to ado opt the goingg concern bassis of accoun nting in prepaaring these cconsolidated financial f stateements. M Most of the Group’s G planned capital exppenditure duriing the next tw welve monthss is discretionaary and the G Group’s projeections, takingg into accountt reasonably possible p chang ges in trading conditions, in ndicate that iit should hav ve enough caash flow to meet m minimum m commitmeents, including g loan repaym ments, and ccontinue its operations o as a going conceern. In order to provide ad dditional flexibility, the Co ompany has rrecently signeed an agreem ment providinng additional financing of USD 150 million m in the form of a cconvertible lo oan, as describ bed further in note n 31.

IAS 32 (amended)

Offsetting Financial Assets and Financial Liabilities

The adoption of IFRS 9 which the Group plans to adopt for the year beginning on 1 January 2015 will impact both the measurement and disclosures of financial instruments and adoption of IFRS 11, required for the year beginning 1 January 2013, may require the Group to make changes to the way in which it presents the results of its various joint venture arrangements. Other than IFRS 9 and IFRS 11, the Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group in future periods.

58 11

Business com mbinations Acquisitions of subsidiariees and businessses are accouunted for usinng the acquisittion method. The T cost of tthe acquisition n is measured d at the aggreggate of the connsideration traansferred, meaasured at acqu uisition date ffair value and d the amount of o any non-coontrolling interrest in the acq quiree. For each business coombination tthe acquirer measures thee non-controlling interest in the acquuiree either at a fair value or at the pproportionate share of the acquiree’s ideentifiable net assets. Acquisition related d costs are reccognised in tthe consolidatted statement of income as incurred. W Where approp priate, the co ost of acquisittion includes any asset or liability resu ulting from a contingent cconsideration arrangement,, measured at its acquisitioon-date fair vaalue. Subsequ uent changes in i such fair vvalues are adjusted a again nst the cost of acquisition where th hey qualify as a measurem ment period aadjustments. All A other subssequent changges in the fairr value of conntingent consiideration classsified as an aasset or liability are accouunted for in accordance w with relevant IFRSs. Chang ges in the faair value of ccontingent con nsideration classified as equ uity are not reecognised. 12 2

Kuwait Energy Plc Group

Notes To The Consolidated Financial Statements IT 31 ENERGY Y plc UP For TheKUWAI Year Ended December 2011GROU

Notes To The Consolidated Financial Statements For The Year Ended 31 December KUWAIT ENERGY plc2011 GROUP

NOTES TO THE CO ONSOLIDAT TED FINAN NCIAL STAT TEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the yeear ended 31 December D 201 11 3.

For the year ended 31 December 2011

SIGNIFICA ANT ACCOUN NTING POL LICIES (CON NTINUED)

B Business com mbinations (coontinued) T The acquiree’s identifiable assets, liab bilities and contingent liab bilities that meet m the con nditions for rrecognition un nder IFRS 3 (revised ( 2008)) are recognissed at their faiir value at thee acquisition date, d except ffor non-curren nt assets (or disposal d group ps) that are claassified as held d for sale in accordance a with “IFRS 5 N Non-current Assets A Held foor Sale and Discontinued D O Operations”, which are meeasured at fairr value less ccosts to sell. IIf the initial accounting a forr a business combination c is incomplete by the end of the reporting period in w which the co ombination occcurs, the Grroup reports provisional p am mounts for th he items for which the aaccounting is incomplete. Those T provisiional amountss are adjusted d during the measurement m p period (see bbelow), or additional assetss or liabilitiess are recogniseed, to reflect new informattion obtained about facts aand circumstaances that exissted as at the acquisition a daate that, if kno own, would haave affected th he amounts rrecognised as at that date. T The measurem ment period is the period d from the daate of acquisiition to the date d the Grouup receives ccomplete info ormation abou ut facts and cirrcumstances that t existed ass at the acquissition date and d is subject tto a maximum m of one year. W Where a bussiness combin nation is achieved in stagges, the Grou up’s previoussly-held intereests in the aacquired entitty are remeasu ured to fair value at the acqu uisition date (i.e. ( the date th he Group attaiins control) aand the resultting gain or loss, if any, iss recognised in i the consoliidated statemeent of incomee. Amounts aarising from interests in thee acquiree prio or to the acqu uisition date th hat have previo ously been reccognised in eequity are reeclassified to the consolid dated statemeent of incom me, where such treatment would be aappropriate iff that interest is i disposed of.. IIn accordancee with normaal oil exploraation and pro oduction indu ustry practice,, identifiable assets and lliabilities are ascribed fair values, v and th he balance of the t fair value of the consideeration given is typically aallocated as th he fair value attributable a to o the oil and gas g properties and related hydrocarbon h reeserves and ttherefore, goo odwill does no ot normally ariise on acquisitions.

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

Financial assets are classified as “cash and cash equivalents”, “trade and other receivables” and “held to maturity investment”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Effective interest method The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition. Cash and cash equivalents

Cash and cash equivalents in the consolidated statement of cash flows include cash, bank balances and shortterm deposits with an original maturity of three months or less. Trade and other receivables

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

IInterests in jooint venturess A joint ventu ure is a conttractual arran ngement wherreby the Gro oup and otherr parties und dertake an eeconomic actiivity that is su ubject to joint control, that is when the strrategic financiial and operatting policy ddecisions relaating to the activities a of th he joint ventuure require th he unanimous consent of the t parties ssharing contro ol. W Where a Grou up entity und dertakes its activities underr joint venturee arrangementts directly, thee Group’s sshare of jointlly controlled aassets and any y liabilities in ncurred jointly y with other venturers v are recognised r iin the financiaal statements of the relevan nt entity and classified c acco ording to theirr nature. Liab bilities and eexpenses incu urred directly in respect off interests in jointly j contro olled assets arre accounted for on an aaccrual basis. Income from m the sale or usse of the Grou up’s share of th he output of jo ointly controllled assets, aand its share of joint ventu ure expenses, are recogniseed when it is probable thatt the economiic benefits aassociated witth the transacttions will flow w to/from the Group G and theeir amount can n be measured d reliably. JJoint venture arrangementss that involvee the establish hment of a sep parate entity in i which each h venturer hhas an interesst are referred d to as jointly y controlled entities. e The Group G reportss its interests in jointly ccontrolled enttities using pro oportionate co onsolidation. T The Group’s share s of the asssets, liabilitiees, income aand expenses of jointly con ntrolled entitiies are combin ned with the equivalent iteems in the con nsolidated ffinancial stateements on a lin ne-by-line bassis. W Where the Group G transaccts with its jointly j contro olled entities,, unrealised profits p and losses l are eeliminated to the extent of the t Group’s in nterest in the jjoint venture.

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Held to maturity investments

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

Financial assets are assessed for indicators of impairment at each consolidated balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the asset have been impacted. For trade receivables, objective evidence of impairment could include: (i) significant financial difficulty of the issuer or counterparty; or (ii) default or delinquency in interest or principal payments; or (iii) it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

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

13 3

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

61 14

Kuwait Energy Plc Group

Notes To The Consolidated Financial Statements For The Year Ended ENERGY 31 Decemberplc 2011 KUWAIT GROUP

Notes To The Consolidated Financial Statements For The Year Ended ENERGY 31 Decemberplc 2011 KUWAIT GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2011

For the year ended 31 December 2011 3.

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Financial assets (Continued) Impairment of financial assets (Continued)

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

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. Financial liabilities and equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. Equity instruments

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

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Oil and gas assets

Oil and gas exploration, evaluation and development expenditure The Group uses the modified full cost method of accounting for exploration, evaluation (together “E&E”)and development expenditure, whereby all expenditures incurred in connection with the acquisition, exploration, evaluation and development of oil and gas assets, including directly attributable overheads, interest payable and exchange differences directly related to financing development projects, are capitalised in separate geographical cost pools. Cost pools are established on the basis of geographical area having regard to the operational and financial organisation of the Group. Intangible acquisition, exploration and evaluation costs incurred in a geographical area where the Group has no established cost pool are initially capitalised as intangible non-current assets except where they fall outside the scope of IFRS 6 “Exploration for and Evaluation of Mineral Resources” whereby they are expensed as incurred subject to other guidance under IFRS. Tangible non-current assets used in acquisition, exploration and evaluation are classified with tangible noncurrent assets as property, plant and equipment. To the extent that such tangible assets are consumed in exploration and evaluation the amount reflecting that consumption is recorded as part of the cost of the intangible asset. Upon successful conclusion of the appraisal programme and determination that commercial reserves exist, such costs are transferred to tangible non-current assets as property, plant and equipment. Exploration and evaluation costs carried forward are assessed for impairment as described below.

Proceeds from the farm out of exploration and evaluation assets are credited against the relevant cost centre. Any overall surplus arising in a cost centre is credited to the consolidated statement of income. Depreciation and depletion

Trade payables

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

Borrowings

Impairment of value

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

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

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

Where there has been a change in economic conditions or in the expected use of an asset that indicates a possible impairment in an asset, management tests the recoverability of the net book value of the asset by comparison with the estimated discounted future net cash flows based on management’s expectations of future oil prices and future costs. Any identified impairment is charged to the consolidated statement of income. Intangible non-current assets are considered for impairment at least annually by reference to the indicators in IFRS 6. Where there is an indication of impairment of an exploration and evaluation asset which is within a geographic pool where the Group either has tangible oil and gas assets with commercial reserves or other intangible E&E assets pending determination, the exploration asset is assessed for impairment together with all other cash generating units and related tangible and intangible assets in that geographic pool. Where the exploration asset is in an area where the Group has no established pool and no other E&E assets pending determination, the exploration asset is tested for impairment separately and, where determined to be impaired, is written off.

63 15

Kuwait Energy Plc And Subsidiaries

For The Year Ended 31 December 2011

ENERGY plc AND SUBSIDIARIES NotesKUWAIT To The Consolidated Financial Statements

KUWAIT ENERGY plc AND SUBSIDIARIES Notes To The Consolidated Financial Statements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2011

For the year ended 31 December 2011

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Oil and gas assets (Continued)

Derivative financial instruments

Commercial reserves

Proven & probable oil and gas reserves as defined in the Petroleum Resources Management System (“PRMS”) are considered as commercial reserves.

Proven reserves include reserves that are confirmed with a high degree of certainty through an analysis of the development history and a volume method analysis of the relevant geological and engineering data. Proven reserves are those that, based on the available evidence and taking into account technical and economic factors, have a better than 90% chance of being produced. Probable reserves are those reserves in which hydrocarbons have been located within the geological structure with a lesser degree of certainty because fewer wells have been drilled and certain operational tests have not been conducted. Probable reserves are those reserves that, on the available evidence and taking into account technical and economic factors, have a better than 50% chance of being produced.

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

These estimates, made by the Group’s engineers and periodically evaluated by independent reservoir engineers, are reviewed annually and revised, either upward or downward, as warranted by additional data. Revisions are necessary due to changes in, among other things, reservoir performance, prices, economic conditions and governmental restrictions. Other fixed assets Other fixed assets are stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes the purchase price and directly associated costs of bringing the asset to a working condition for its intended use. Depreciation is calculated based on the estimated useful lives of the applicable assets on a straight-line basis, on the following basis: Office equipments 5 years Motor vehicles 5 years Furnitures and fittings 10 years The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. Maintenance and repairs, replacements and improvements of minor importance are expensed as incurred. Significant improvements and replacement of assets are capitalised.

The gain or loss arising on the disposal or retirement of other fixed assets is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the consolidated statement of income. Operating leases Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and oil price fluctuations, including interest rate caps and oil put options.

Derivatives are initially recognised at fair value at the date the derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in the consolidated statement of income immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the consolidated statement of income depends on the nature of the hedge relationship (see below). A derivative with a positive fair value is recognised as a financial asset while a derivative with a negative fair value is recognised as a financial liability. Hedge accounting The Group designates certain hedging instruments which include oil put options as cash flow hedges in order to mitigate the risk arising from fluctuations in oil prices.

At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk. Note 23 sets out details of the fair values of the derivative instrument used for hedging purposes. Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the consolidated statement of income. Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to finance income or costs in the consolidated statement of income in the periods when the hedged item is recognised in the consolidated statement of income. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognised in other comprehensive income and accumulated in equity are transferred from equity and included in the initial cost of the non-financial asset or non-financial liability. Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. When a forecast transaction is expected to occur, any gain or loss accumulated in equity at that time remains separately in equity and is recognised in the consolidated statement of income when the forecast transaction is ultimately recognised in the consolidated statement of income. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in the consolidated statement of income. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and revenue can be reliably measured.

Revenue represents the value of sales exclusive of related sales taxes of oil and gas arising from upstream operations when the oil has been lifted and the title has passed. Interest income is recognised on an accrual basis in accordance with the substance of the relevant agreement.

Kuwait Energy Plc And Subsidiaries

For The Year Ended 31 December 2011

ENERGY plc AND SUBSIDIARIES NotesKUWAIT To The Consolidated Financial Statements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2011 3.

For the year ended 31 December 2011

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Royalties Royalties are accounted for in the consolidated statement of income in the same period as the income to which they relate and are included within operating expenses. Royalty arrangements that are based on production, sales and other measures are recognised by reference to the underlying arrangement. Inventories Crude oil is valued at fair value less costs to sell. Any changes arising on the revaluation of inventories are recognised in the consolidated statement of income. Other inventories comprising mainly of spare parts, materials and supplies are valued at cost, determined on a weighted average cost basis, less allowance for any obsolete or slow moving items. Purchase cost includes the purchase price, import duties, transportation, handling and other direct costs. Foreign currencies The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in USD, which is the functional and presentation currency of the Company. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each consolidated statement of financial position date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the consolidated statement of financial position date. Nonmonetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in the consolidated statement of income in the period in which they arise except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which are recognised in the foreign currency translation reserve and recognised in consolidated statement of income on disposal of the net investment. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are expressed in USD using exchange rates prevailing at the consolidated statement of financial position date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group’s foreign currency translation reserve. Such exchange differences are recognised in the consolidated statement of income in the period in which the foreign operation is disposed of.

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Contingencies A contingent asset is not recognised in the consolidated financial statements but disclosed when an inflow of economic benefits is probable. Contingent liabilities are not recognised in the consolidated financial statements unless the outflow of resources embodying economic benefits is probable and the amount of the obligation can be measured reliably. They are disclosed as contingent liabilities unless the possibility of an outflow of resources embodying economic benefits is remote. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Other borrowing costs are calculated on the accrual basis and are recognised in the consolidated statement of income in the period in which they are incurred. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the consolidated statement of financial position date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

A decommissioning provision is calculated as the net present value of the Group’s share of the expenditure which may be incurred at the end of the producing life of each field in the removal and decommissioning of the production, storage and transportation facilities currently in place. The cost of recognising the decommissioning provision is included as part of the cost of the relevant property, plant and equipment and is thus charged to the consolidated statement of income on a unit of production basis in accordance with the Group’s policy for depletion and depreciation of tangible non-current assets. Period charges for changes in the net present value of the decommissioning provision arising from discounting are included in finance costs. Share-based payments Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 24.

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

66 19

Kuwait Energy Plc And Subsidiaries

For The Year Ended 31 December 2011

NotesKUWAIT To The Consolidated Financial Statements ENERGY plc AND SUBSIDIARIES

Notes To The Consolidated Financial Statements KUWAIT ENERGY plc AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2011

For the year ended 31 December 2011 3.

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impairment of tangible assets At each consolidated statement of financial position date, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell or value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately. Taxation Certain of the Company’s subsidiaries are subject to taxes on income in various foreign jurisdictions. Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax

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

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements of the relevant subsidiaries and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each consolidated statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

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

.JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group’s accounting policies, which are described in note 3, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the consolidated statement of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Recoverability of exploration and evaluation costs Under the modified full cost method of accounting for exploration and evaluation (“E&E”) costs, such costs are capitalised as intangible assets by reference to appropriate cost pools, and are assessed for impairment when circumstances suggest that the carrying amount may exceed its recoverable value. This assessment involves judgement as to (i) the likely future commerciality of the asset and when such commerciality should be determined, and (ii) future revenues and costs pertaining to any wider cost pool with which the asset in question is associated, and the discount rate to be applied to such revenues and costs for the purpose of deriving a recoverable value. Note 13 discloses the carrying amounts of the Group’s E&E assets. Impairment of oil and gas properties Determining whether oil and gas properties are impaired requires management to estimate the future net revenue from oil and gas reserves attributable to the Group’s interest in that field. This requires estimates to be made of, in particular, future oil and gas prices, production volumes, capital/operating expenditures and an appropriate discount rate. A net impairment loss of USD 8,520 (2010: USD Nil) was recognised during the year, as described further in note 8. Commercial reserves Both impairment and depletion of the cost of oil and gas properties requires estimates to be made of quantities of commercial oil and gas reserves, which are based on estimates determined by qualified petroleum engineers. Management believes these reserves to be commercially productive and will provide revenues to the Group adequate to recover remaining net un-depreciated and un-depleted capitalised oil and gas properties as at 31 December 2011. Decommissioning The provision for decommissioning obligations depends on the cost and timing of decommissioning works, legal requirements and the discount rate to be applied to such costs. Management have conducted an internal review of these factors, based on information currently available, in the calculation of this provision. The carrying amount of the decommissioning provision at 31 December 2011 is shown in note 21 to these consolidated financial statements. Business combination In a business combination, the acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. The Group’s management determines the fair values of the acquiree’s identifiable assets, liabilities, contingent liabilities and non-current assets classified as held for sale.

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

Kuwait Energy Plc plc And Subsidiaries KUWAIT ENERGY AND SUBSIDIARIES

Kuwait Energy Plc And Subsidiaries

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2011 KUWAIT ENERGY plc AND SUBSIDIARIES

For the year ended 31 December 2011 4.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2011

JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)

Key sources of estimation uncertainty (Continued)

SEGMENTAL INFORMATION (CONTINUED)

Debtor recoverability

The Group has significant trade receivables which are past due but not impaired, as described in note 16. The majority of this balance is due from Egyptian General Petroleum Corporation (“EGPC”). During the course of 2011, the Egyptian political situation remained unstable due to the “Arab Spring” revolutions, which caused a significant delay in the receipt of amounts owed to the Group. However, management believes that all amounts owed at 31 December 2011 will be collected during the course of the coming year. In making this judgement, factors considered include EGPC’s strong track record of ultimate settlement, the receipt of significant (USD 46.4 million) funds during 2011 and an agreement reached subsequent to year-end under which funds will be received on a regular monthly basis.

SEGMENTAL INFORMATION IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. The information reported to the Group’s chief operating decision maker for the purposes of resource allocation and assignment of segment performance is specifically focused on the geographical area (country). All of the segment revenue reported below is from external customers. The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 3. Segment profit represents the operating profit earned by each segment. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. For the purposes of monitoring segment performance and allocating resources between segments:

 there are no liabilities for which any segment is jointly liable other than the murabaha facilities from International Finance Corporation (See note 20) amounting to USD 45 Million (2010: USD 45 Million) which has been utilised jointly by the Company, Kuwait Energy Egypt Ltd and Kuwait Energy Yemen Ltd. No revenue or assets arose in or relate to Jersey, the Company’s country of domicile, in either year.

Yemen

Iraq

Oman

Ukraine

Russia

Others

Total

USD 000’s

120,245

18,273

8,102

178,921

73,263

5,269

(6,543)

(11,673)

51,002

31 December 2011 Segment revenues Segment results

(1,008)

20,029

12,272

1,329

(9,635)

Loss on held for

(75)

trading derivative Other income

800

Foreign exchange

654

gain Finance costs

(7,749)

Profit before tax

44,632

Taxation

(9,869)

Profit for the year

34,763

Segment assets

464,138

43,154

4,646

14,942

76,416

35,524

221,274

3,585

4,484

7,125

32,780

6,129

1,115

Additions to E&E

24,795

7,627

Additions to PP&E

46,319

3,025

3,801

14,346

E&E assets PP&E

 there are no assets used jointly by any reportable segment; and

Egypt USD 000’s

Segment liabilities

178,384

134,383

44,423

884,070

10,655

19,106

149,201

139,651

112,841

4,167

493,127

3,940

21,537

27,928

56,349

149,778

8,520

558

3,293

36,273

5,948

32,001

2,984

108,424

7,500

Other information Impairment loss

Revenue from major products and services

The Group’s revenues from oil and gas are disclosed in note 6 to these consolidated financial statements.

Information about major customers

Included in revenues arising from Egypt for the year is revenue of approximately USD 120,019 thousand (2010: USD 84,582 thousand) which arose from sales to the Group’s largest customer.

Kuwait Energy Plc KUWAIT T ENERGY Y plcAnd AND SSubsidiaries UBSIDIAR RIES

Kuwait Energy Plc And Subsidiaries

KUWAIT ENERGY plc AND SUBSIDIARIES Notes To The Consolidated Financial Statements For The Year Ended 31 December 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes To The Consolidated Financial Statements

For The Year Ended 31 December 2011 TED FINANC NOTES T TO THE CON NSOLIDAT CIAL STAT TEMENTS

For the yeaar ended 31 December D 2011

For the year ended 31 December 2011

5. SEGM MENTAL INF FORMATION (CONTINU UED)

ypt Egy

Yem men

Iraq I

O Oman

U Ukraine

R Russia

Others

Total

USD 000’s 0

USD 000’s

USD D 000’s

USD 000’s

US SD 000’s

USD U 000’s

Oil sales

Gas sales

31 Decembber 2010 Segment reevenues

84 4,582

155,929

18,058

15,013

8,190

141,772

Segment reesults

31,283

6 6,124

(1,393)

1,882

(7,345)

(11,616)

18,935

Loss on heeld for

(675)

trading derrivative Other incoome

REVENUE

COST OF SALES

4,222

Foreign exxchange

Operating costs

(463)

loss Finance co osts

(1,818)

Profit befoore tax

20,201

Taxation

Depletion of oil and gas assets and decommissioning assets Royalties

1,701

Profit for tthe year

21,902

Segment assets

2,658 352

377,625

683

15,510

1 173,704

101,143

90,189

771,512

E&E assets

154 4,132

277,897

16,504

29,619

15,812

243,964

PP&E

98,257

3 3,083

683

8,228

1 131,266

63,014

2,718

307,249

Segment liiabilities

13 3,466

7 7,215

4,154

26,436

24,474

64,465

140,210

20 0,796

144,146

224

6,448

41,614

5,489 25

2 2,429

683

15,660

17,394

5,259

1,505

68,419

IMPAIRMENT LOSS

Impairment of oil and gas assets Impairment of net current assets

Other inforrmation Additions to E&E

166,649

12,272

2010

USD 000’s 126,760

15,012

178,921

141,772

2011

2010

USD 000’s 40,421 48,145

8,205

96,771 2011

USD 000’s 4,066

USD 000’s 35,680 59,511

7,669

102,860 2010

USD 000’s -

4,454

8,520

During the year the Company lost its licence on the JAA fields in Ukraine and wrote off in full all directly associated assets and liabilities which resulted in a net impairment loss of USD 8,520 thousand.

Additions tto PP&E

2011

USD 000’s

OTHER INCOME

Interest income Others

10.

FINANCE COSTS

Realised hedge loss (see note 23)

Unwinding of decommissioning provision

Borrowing costs on bank overdrafts and loans

Less: amount capitalised in cost of qualifying assets

2011

USD 000’s 197 603 800

2011

USD 000’s 7,101

107

5,681

(5,140) 7,749

2010

USD 000’s 80

4,142 4,222

2010

USD 000’s 949

5,128

(4,317) 1,818

2 26

Kuwait Energy Plc And Subsidiaries

Notes To The Consolidated Financial Statements ENERGY plc2011 AND SUBSIDIARIES For KUWAIT The Year Ended 31 December

Notes To The Consolidated Financial Statements KUWAIT AND SUBSIDIARIES For The Year EndedENERGY 31 Decemberplc 2011

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2011

11.

TAXATION

INCOME TAX EXPENSE Tax on profit on ordinary activities Current tax: Corporation tax Total current tax

Deferred tax: Origination and reversal of timing differences Total deferred tax

Tax on profit on ordinary activities

12. 2011 USD 000’s

2010 USD 000’s

8,957

(476)

912

(1,225)

8,957

912 9,869

Staff costs Depreciation, depletion and amortisation Foreign exchange (gain)/ losses Impairment losses recognised on trade receivables Cost/(recovery) of inventories recognised as expense/(gain)

(476)

13.

(1,225)

44,632 -

USD 000’s Cost

Income not taxable or expenses not deductible Deferred tax on group restructuring

Total tax charge / (credit) for the year Deferred taxation Deferred taxation is comprised as follows: Deferred tax asset arising on the recognition of tax losses

Deferred tax liability on fixed asset temporary differences

(6,481)

(1,225)

736

9,869

(22,409)

(21,498)

(31,379)

(2,374)

36,273

(131,036) 149,201

The additions to intangible exploration and evaluation assets include USD 143 thousand (2010: USD 272 thousand) of finance costs on qualifying assets capitalised during the year.

(30,644)

The deferred tax asset shown above primarily arises in Russia, where losses have been incurred in both 2010 and 2011. Management believes it is appropriate to recognize a deferred tax asset, as based on an independent assessment of its commercial reserves, it expects to generate significant taxable profits in future years in Russia. There are no material unrecognized deferred tax assets at either year end, nor any material unprovided deferred tax arising on the unremitted earnings of subsidiaries.

As at 31 December 2010 Additions

243,964

41,614

As at 31 December 2011, exploration cost of USD 149,201 thousand (2010: USD 243,964 thousand) were not amortised, pending further evaluation of whether or not the related oil and gas properties are commercially viable. The transfer during the year to Property plant and equipment reflects assets for which commercial reserves have been discovered during the year.

(1,701)

2010 USD 000’s 9,146

(25,830)

As at 31 December 2011

2011 USD 000’s 8,970

Farm out of working interests (See note below)

Transfer to Property, plant and equipment

(476)

230,554

Transfer to other receivables (See note 30 (a))

20,201

15,614

As at 1 January 2010 Additions

Effects of:

Effect of different tax rates of subsidiaries operating in other jurisdictions

2010 USD 000’s 9,530 60,417 463 1,329 (1,128)

INTANGIBLE EXPLORATION AND EVALUATION ASSETS

(1,701)

Factors affecting the tax charge for the period The difference between the amount of total tax shown above and the amount calculated by applying the standard rate of Jersey corporation tax to the profit before tax is as follows: 2011 2010 USD 000’s USD 000’s Profit on ordinary activities before tax

2011 USD 000’s 8,190 49,452 (654) 1,148

Exploration and evaluation assets

Corporation tax in the Company’s country of domicile is calculated at 0% (2010: 0%) on assessable profits, this rate being the applicable statutory tax rate for international businesses that are tax resident in Jersey. Taxation for other jurisdictions are calculated at the rates prevailing in the respective jurisdictions.

Tax on Company profit on ordinary activities at corporation tax rate of 0%

PROFIT FOR THE YEAR Profit for the year is stated after charging:

During the previous year, the Group farmed out of certain of its working interests for total proceeds of USD 28,159 thousand. a. The Group has farmed out 25 % of the working interest in JAA 429 for a consideration of USD 3,829 thousand. The terms of the transaction resulted in farm out of exploration and evaluation assets of USD 1,500 thousand, property, plant and equipment of USD 1,569 thousand (See note 15) and other working capital items of USD 579 thousand and gain on farm out of USD 181 thousand. b. The Group has farmed out 22 % of the working interest in Abu Sennan for a consideration of USD 20,100 thousand which has been netted off against exploration and evaluation assets. The terms of the transaction resulted in farm out of intangible exploration and evaluation assets of USD 9,305 thousand. c. The Group has farmed out 15 % of the working interest in Mesaha for a consideration of USD 4,230 thousand which has been netted off against exploration and evaluation assets. The terms of the transaction resulted in farm out of intangible exploration and evaluation assets of USD 721 thousand.

The net cash inflow arising from the above in 2010 was USD 8,683 thousand , with consideration of USD 19, 464 thousand, received in 2011. 28

Kuwait Energy Plc And Subsidiaries

Kuwait Energy Plc plc And Subsidiaries KUWAIT ENERGY AND SUBSIDIARIES

KUWAIT ENERGY plc AND SUBSIDIARIES Notes To The Consolidated Financial Statements For The Year Ended 31 December 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes To The Consolidated Financial Statements For The Year Ended December 2011 NOTES TO 31 THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2011

For the year ended 31 December 2011 14.

PROPERTY PLANT AND EQUIPMENT

Cost As at 1 January 2010 Additions Transfer to other receivables (See note 30 (a)) Farm out of working interests (See note 13) Disposal of other assets Currency translation effect As at 1 January 2011 Additions Transfer from intangible exploration and evaluation assets Impairment Disposal Currency translation effect As at 31 December 2011 Depreciation, depletion, amortisation and impairment losses As at 1 January 2010 Charge for the year Farm out of working interests (See note 13) Disposal of other assets Currency translation effect As at 1 January 2011 Charge for the year Impairment reversal Disposal Currency translation effect As at 31 December 2011 Carrying amount As at 31 December 2011 As at 31 December 2010

Oil and gas assets

USD 000’s

Other fixed assets

USD 000’s

15.

INVENTORIES

Total

USD 000’s

404,278 64,808 (4,775) (2,000) 62 462,373 105,530

4,903 3,611 (192) 1 8,323 2,894

409,181 68,419 (4,775) (2,000) (192) 63 470,696 108,424

131,036 (5,374) (401) 693,164

(21) (1) 11,195

131,036 (5,374) (422) (1) 704,359

102,562 59,511 (431) 3 161,645 48,145 (1,308) (348) 208,134

949 906 (53) 1,802 1,307 (11) 3,098

103,511 60,417 (431) (53) 3 163,447 49,452 (1,308) (359) 211,232

485,030 300,728

8,097 6,521

493,127 307,249

During the year, the Group incurred impairment losses on certain oil and gas properties of USD 4,066 thousand (2010: USD Nil) (Note 8). As the related licence has been lost the impairment has been shown as a deduction from the original cost of the assets and related provisions recorded in previous years have been reversed. The additions to oil and gas assets include USD 4,997 thousand (2010: USD 4,045 thousand) of finance costs on qualifying assets capitalised during the year using a weighted average interest rate of 10.1% (2010: 10.1%). The property, plant and equipment of the subsidiaries Kuwait Energy Egypt Ltd, Kuwait Energy Yemen Ltd and Pechora Energy Company Limited, with a net book value at 31 December 2011 of USD 445,835 thousand are under registered mortgage to secure certain bank loans (See note 20).

Crude oil

Spare parts, materials and supplies

2011

2010

USD 000’s

2,688

3,162

13,552

14,700

16,240

17,862

Spare parts, materials and supplies are used in operations and are not held for re-sale. 16.

TRADE AND OTHER RECEIVABLES

Trade receivables

Prepayments, deposits and advances

Receivable on farm out of working interests (See note 13) Other receivables

2011

2010

USD 000’s

133,256

6,141

36,658

176,055

65,201 18,379 19,464 32,155

135,199

Other receivables include amounts to be received in connection with the arbitration claim (See note 30(a)), amounts owed by joint venture partners and VAT. The average credit period on sales is 60 days. No interest is charged on the overdue trade receivables.

Included in the Group’s trade receivables balance are debtors with a carrying amount of USD 97,664 thousand (2010: USD 39,577 thousand) which are past due at the reporting date for which the Group has not provided against as there has not been a significant change in credit quality and the amounts are still considered recoverable (See “Debtor recoverability” in note 4 for further details). Ageing of past due but not impaired

61 – 90 days

2011

2010

USD 000’s

9,225

91 – 120 days

20,236

> 180 days

43,791

121 – 180 days Total

14,403

5,504

24,412

14,016

97,664

39,577

5,654

During the year, the Group has written off impaired trade receivables of USD Nil (2010: USD 1,329 thousand). In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. Management believes that there is no credit provision required as all the trade receivables are fully collectible. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivable mentioned above. The directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.

Kuwait Energy Plc And Subsidiaries

Kuwait Energy Plc plc And Subsidiaries KUWAIT ENERGY AND SUBSIDIARIES

NotesKUWAIT To The Consolidated Financial Statements ENERGY plc AND SUBSIDIARIES

Notes To The Consolidated Financial Statements For The Year Ended December 2011 NOTES TO31 THE CONSOLIDATED FINANCIAL STATEMENTS

For The Year Ended 31 December 2011

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2011

For the year ended 31 December 2011 17.

CASH AND BANK BALANCES

Cash and bank balances

2011 USD 000’s 40,477

20.

2010 USD 000’s

SHARE CAPITAL The authorised share capital of the Company consists of 325 million shares of one Pound Sterling (“Pound Sterling”) each, amounting to Pound Sterling 325 million. The issued and paid up share capital consists of 317.5 million shares. The issued share capital of Kuwait Energy K.S.S.C. (see note 1) was 1,270,000 thousand shares of 100 fils each amounting to KD 127,000 thousand. As part of the group restructuring described in note 1 the share capital has been reduced in Kuwait Energy K.S.S.C. and new shares were issued by the new parent company, Kuwait Energy plc. The resulting difference in the USD value of the new share capital issue has been recorded as merger reserve. In order to provide meaningful financial statements under the merger accounting principles described in note 1, the share capital of the parent company prior to the restructuring has been restated to reflect the relative value of the Kuwait Energy plc shares at 31 December 2011. During 2010 and 2011, Kuwait Energy K.S.S.C. issued additional shares for total consideration, before expenses, of USD 33,412 thousand and USD 76,593 thousand respectively.

19.

OTHER RESERVES

Shares to be issued

Share based compensation reserve (See note 24) Foreign currency translation reserve Cash flow hedging reserve

2011 USD 000’s 12,832

1,699

(11,201)

2010

USD 000’s

45,000

53,000

The details of long-term loans are as follows: Description (i)

USD 35 million facility from International Finance Corporation (“IFC”) that bears an interest rate of LIBOR plus 3.64% to 4.01% per annum. (a) (ii) USD 15 million facility financing from IFC that bears an interest rate of 1.176% per annum plus 5% earnings before interest, depreciation and amortisation arising on the secured assets. (b)

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

2011

USD 000’s

2010

USD 000’s

30,000

15,000

8,000

53,000

As at 31 December 2011, the Group has undrawn loan facilities amounting to USD 5,000 thousand (2010: USD 5,000 thousand).

(3,662)

The shares to be issued reserve represents additional consideration now due on the acquisition of Pechora Energy Company in Russia in 2009, with a corresponding increase recorded in property, plant and equipment. This contingent consideration was based on the volume of certified commercial reserves, the threshold for which was met during 2011. At 31 December 2009 the balance in this reserve was USD 25 million, relating to the acquisition of Russian subsidiaries Pechora Energy Company LLC and OJSC VIK in 2008. The related shares were issued in full during 2010.

8,000

2011

1,093

5,759

Due to foreign banks

2010

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

(8,632)

USD 000’s

Non-current

(a) The facility is secured by pledges on the assets of the subsidiaries Kuwait Energy Egypt Ltd and Kuwait Energy Yemen Ltd (See note 14). The loan is to be repaid on 15 June 2014.

2010 USD 000’s

(8,774)

Current 2011

58,092

Bank balances amounting to USD 16,466 thousand (2010: USD 18,738 thousand) are restricted against issue of letters of guarantee. 18.

LONG-TERM LOANS

The facilities shown above include certain financial covenants. One of these covenants on the EBRD facility was in breach as at 31 December 2011 and accordingly the full amount has been disclosed as falling due within one year.

Kuwait Energy Plc And Subsidiaries KUWAIT ENERGY plc AND SUBSIDIARIES

Kuwait Energy Plc And Subsidiaries

Notes To The Consolidated Financial Statements ForNOTES The Year Ended 31 December 2011 TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes To The Consolidated Statements KUWAIT ENERGY plcFinancial AND SUBSIDIARIES For The Year Ended 31 December 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2011 21.

LONG-TERM PROVISIONS

Decommissioning provision

Retirement benefit obligation

Decommissioning provision As at 1 January

Unwinding of discount Changes in estimate As at 31 December

For the year ended 31 December 2011 2011

USD 000’s 1,578 1,116

23.

2010 USD 000’s

1,790

2011

USD 000’s 1,087

107

Derivatives that are designated and effective as hedging instruments carried at fair value Oil put options (See b below)

2010 USD 000’s 575

384

454

1,578

Retirement benefit obligation

TRADE AND OTHER PAYABLES

Trade payables

Joint venture payables and accruals Advances received

Salaries and bonus payables Current tax payable

2011

USD 000’s

18,960

13,374

29,504

4,500

50,439

3,662

4,337

USD 000’s 50,000

2010

USD 000’s 50,000

2011

USD 000’s (750)

2010

USD 000’s (675)

Cash flow hedges This instrument enables the Group to mitigate the risk of fluctuations in oil prices for 60,000 barrels of oil per month by locking the price at USD 81.85 up to the strike price of USD 95. The fair value of oil put option at the end of the reporting period is determined by discounting the future cash flows using the curves at the end of the reporting period and the credit risk inherent in the contract, and is disclosed below.

3,250

61,955

8,991

- Interest rate cap

3,500

49,907

675

The notional amounts of interest rate cap together with the fair value as at 31 December is summarised as follows: Fair value Held for trading Derivatives Notional principal value (Negative) /Positive 2011

29,783

52,964

750

Held for trading derivatives Derivatives used for hedging purposes but which do not meet the qualifying criteria for hedge accounting are classified as ‘Held for trading derivatives’.

2010

USD 000’s

Interest rate cap is an agreement to cap the interest rate on IFC facilities at 2 % when the LIBOR is more than 2 % and equal to or less than 5 %. The interest rate cap matures on 30 June 2014.

This balance represents immaterial defined benefit retirement obligations relating to certain of the Group’s employees based in Kuwait. 22.

2010

USD 000’s

The Group’s derivative financial instruments are all classified as Level 2 in both years. Level 2 fair value measurements are those derived from inputs other than quoted prices that are observable for the asset or liability either directly (ie. as prices) or indirectly (ie. derived from prices).

1,087

The provision for decommissioning is based on the net present value of the Group’s share of the expenditure which may be incurred at the end of the producing life of each field (currently estimated in 2017, 2026 and 2028) in the removal and decommissioning of the facilities currently in place. The provision has been estimated using existing technology and current prices. b)

2011

Financial liabilities carried at fair value through profit or loss Held for trading derivatives not designated in hedge accounting relationships (See a below)

1,087

703

2,694

DERIVATIVE FINANCIAL INSTRUMENTS

532

The following table details the notional principal amount and the fair value of the oil put option outstanding at the end of the reporting period. Fair value Cash flow hedge Notional principal value (Negative) /Positive

Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 30 days. No interest is charged on the overdue trade payables. The Group has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms. The directors consider that the carrying amount of trade payables approximates their fair value.

- Oil put option

2011

2010

60,000 barrels of oil per month up to 1 October 2011

2011

USD 000’s

2010

USD 000’s

(3,662)

The oil put option settles on a monthly basis and no amounts were open at 31 December 2011.

The oil put option is designated as a cash flow hedge in order to reduce the Group’s exposure to fluctuations in oil prices and is deemed to be highly effective. 34

Kuwait Energy Plc And Subsidiaries

KUWAIT ENERGY plc AND SUBSIDIARIES Notes To The Consolidated Financial Statements For The Year Ended December 2011 NOTES TO 31 THE CONSOLIDATED FINANCIAL STATEMENTS

Notes To The Consolidated Financial Statements KUWAIT ENERGY plc2011 AND SUBSIDIARIES For The Year Ended 31 December NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2011

For the year ended 31 December 2011 24.

25. a)

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

Profit for the year Weighted average number of shares for the purposes of basic earnings per share (thousand)

The Group records an expense, based on its best estimate related to the fair value determined by reference to the fair value of the share awards from independent market sources at the dates of the grant 1 January 2008 (139 fils/share), 1 January 2009 (201 fils/share), 1 January 2010 (201 fils/share) and 1 January 2011 (201 fils/share) on a straight-line basis over the vesting period. At 31 December 2011, management has estimated that all 183 employees will be entitled to the shares under the EIS and recognised an expense of USD 1,229 thousand (2010: USD 886 thousand) including reversal of previously recognised expenses relating to forfeited shares as the cost of EIS and credited the share-based compensation reserve in equity. The share-based compensation reserve will be reversed and share capital/share premium credited on issue of the vested shares. Prior to the restructuring described in note 1, Kuwait Energy K.S.S.C issued 916 thousand shares (2010: 361 thousand shares) to employees who exercised their entitlements as at 1 January 2010 under the EIS.

1 January 2014

183

1 January 2013

Weighted average number of ordinary shares used in the calculation of basic earnings per share (thousand) Shares deemed to be issued for no consideration in respect of: Employee awards (thousand)

Business combinations (thousand)

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

Total share awards granted (thousands) 334

183

Total number of granted shares

Number

Outstanding at beginning of the year Granted during the year

Forfeited during the year Vesting during the year

Outstanding at the end of the year

000’s 618 514

(42)

(232) 858

Diluted earnings per share (cents) 26.

318 206 858

Year ended 31 December 2011 Fair value

USD 000’s 1,696 1,485

(118) (614)

2,449

000’s 264 460

(16) (90)

618

21,902

312,340

263,923

11.1

8.5

2011

2010

USD 000’s 34,763

USD 000’s 21,902

312,340

263,923

858

618

313,198

264,788

11.1

8.5

247

RELATED PARTY TRANSACTIONS Related parties comprise major shareholders, directors and executive officers of the Group, their families and companies of which they are the principal owners. All related party transactions are conducted on an arm’s length basis and are approved by the board of directors. Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Note 1 contains information on the restructuring of the Group and the basis of preparation of the financial statements. No transactions between the Company and Kuwait Energy K.S.S.C. prior to the completion of the restructuring are disclosed in this note due to the merger accounting approach followed.

Year ended 31 December 2010 Number

USD 000’s

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

As at 31 December 2011, the entitlement of employees under the EIS was as follows:

1 January 2012

34,763

Diluted earnings per share The earnings used in the calculation of diluted earnings per share are as follows:

Earnings used in the calculation of diluted earnings per share

Following the restructuring described in note 1, the EIS obligations have been transferred from Kuwait Energy K.S.S.C. to Kuwait Energy plc. The fair values of awards made up to and including 2010 are unchanged following the restructuring, however the disclosures below have been restated to reflect the relevant number of Kuwait Energy plc shares.

Vesting dates

USD 000’s

Basic earnings per share (cents)

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

Number of employees 183

EARNINGS PER SHARE Basic earnings per share The earnings and weighted average number of shares used in the calculation of basic earnings per share are as follows: 2011 2010

Kuwait Energy KSSC, the parent company prior to the restructuring has continued to provide staff to the Group at cost plus a mark-up, representing an arm’s length transaction, whilst the contracts for those staff are transferred to subsidiaries of the group. The charge to the Group after completion of the restructuring in this regard was USD 569 thousand and USD 569 thousand was owed to Kuwait Energy KSSC in this regard at 31 December 2011 (2010: USD nil)

Fair value

USD 000’s 670

1,291

(41)

(224)

1,696

Kuwait Subsidiaries KUWAITEnergy ENERGYPlc plc And AND SUBSIDIARIES

Kuwait Energy Plc And Subsidiaries Notes To The Consolidated Statements KUWAIT ENERGY plcFinancial AND SUBSIDIARIES

Notes To The Consolidated Financial Statements For The YearTO Ended 31 December 2011 NOTES THE CONSOLIDATED FINANCIAL STATEMENTS

For The Year Ended 31 December 2011

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2011

For the year ended 31 December 2011 28.

26. RELATED PARTY TRANACTIONS (CONTINUED) The other related party transactions and balances included in the Group’s consolidated financial statements are as follows:

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

a) Compensation of key management personnel:

Key management personnel are considered to be the Board of Directors of the Company and, prior to the restructuring described in note 1, Kuwait Energy K.S.S.C. and other members of the management team The remuneration of key management personnel during the year was as follows:

Salaries and other short-term benefits

2010

USD 000’s

1,938

Termination benefits

102

Share-based payments 27.

2011

240

2,280

KEC (Egypt) Ltd Kuwait Energy Egypt Ltd KEC (Eastern Desert) Petroleum Services SAE

Kuwait Energy Yemen Ltd Kuwait Energy Iraq Limited

2011

2010

Country of operations

2,476

Type of activity

Exploration / development/ production Exploration / development/ production

100

British Virgin Islands

100

British Virgin Islands

Egypt

Exploration / development/ production

Yemen

Exploration / development/ production

100 100

100

100 100

100

British Virgin Islands British Virgin Islands

Kuwait Netherlands Cooperative

100

Netherlands

Rudis Drilling Company

100

Ukraine

Pechora Energy Company

100

Russia

Kuwait Energy Pakistan Ltd

100

British Virgin Islands

Egypt

Iraq Ukraine/ Latvia/ Russia

Exploration / development/ production Holding Company

Ukraine

Exploration/ Production

Russia

Exploration/ Production

Pakistan

Exploration

1,781

1,548

2,053

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

249

29. Country of incorporation

2010 USD 000’s

2,001

2,187

SUBSIDIARY COMPANIES

Company’s name

2011 USD 000’s

At the consolidated statement of financial position date, the Group had outstanding commitments for future minimum lease payments under operating leases, which fall due as follows; Within one year 1,410 1,135 Between two years and five years 591 918

The principal subsidiaries of the Company are as follows: Ownership %

OPERATING LEASE ARRANGEMENTS

FINANCIAL INSTRUMENTS

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

Financial assets

Trade and other receivables Cash and bank balances Financial liabilities Long-term loans

Trade and other payables

Derivative financial instruments

Current portion of long term loans

2011

USD 000’s

2010

USD 000’s

176,055

135,199

45,000

53,000

750

4,337

40,477

52,964

8,000

58,092

49,907

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

Kuwait Energy Plc And Subsidiaries

Notes To The Consolidated Statements KUWAIT ENERGY plcFinancial AND SUBSIDIARIES For The Year Ended 31 December 2011

Notes To The Consolidated Financial Statements KUWAIT ENERGY plc AND SUBSIDIARIES For The Year Ended 31 December 2011

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2011

29.

FINANCIAL INSTRUMENTS (CONTINUED) Market risk Market risk is the risk that changes in market prices, such as commodity prices, interest rates and foreign exchange rates will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The Group is exposed to international commodity-based markets. As a result, it can be affected by changes in crude oil, natural gas and petroleum product prices and interest rates and foreign exchange rates. The Group uses derivative financial instruments to manage risks but not for speculative purposes. Price risk management

Volatility in oil and gas prices is a pervasive element of the Group’s business environment.

The Group is a seller of crude oil, which is typically sold under short-term arrangements priced in USD at current market prices. In the previous year the Group used oil put options to manage the risks of volatility in crude oil prices. At the end of the current year the Group has not hedged its exposure to oil price risk.

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

FINANCIAL INSTRUMENTS (CONTINUED) Market risk (Continued) Interest rate risk management

The Group is exposed to interest rate risk as it has borrowed funds from banks and financial institutions and has placed funds in interest bearing time deposits with banks during the year. Interest rate sensitivity analysis

The Group’s exposures to interest rates on liabilities are detailed in note 20 to these consolidated financial statements. The Group uses interest rate cap (See note 23) to manage interest rate risk on the murabaha facility. The following table illustrates the sensitivity of the profit for the year to a reasonably possible change in interest rates of + 1% with effect from the beginning of the year. These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on the Group’s financial instruments held at each consolidated statement of financial position date. All other variables are held constant. There has been no change in the methods and the assumptions used in the preparation of the sensitivity analysis.

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

Foreign currency risk management

The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters.

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: 2011

Kuwaiti Dinar

Ukraine Hryvnia Russian Rouble

Liabilities

2010

USD 000’s

1,425

3,430

7,452

594

Assets

2011

USD 000’s

2,832

5,444

422

2010

USD 000’s 20,056

8,240

477

Foreign currency sensitivity analysis The Group’s main foreign currency exposure is to fluctuations in the Kuwait Dinar, Ukraine Hryvnia and Russian Rouble. The following table details the Group’s sensitivity to a 10% increase and decrease in the USD against Kuwaiti Dinar, Ukraine Hryvnia and Russian Rouble. The sensitivity analysis includes only outstanding Kuwaiti Dinar, Ukraine Hryvnia and Russian Rouble denominated monetary assets and liabilities and adjusts their translation at the year end for a 10% change in foreign currency rates. A positive number below indicates an increase in profit and a negative number indicates decrease in profit. All other variables are held constant. There have been no changes in the methods and the assumptions used in the preparation of the sensitivity analysis. 2011

Impact on consolidated statement of income Kuwaiti Dinar

(283)

Russian Rouble

703

Ukraine Hryvnia

USD 000’s

134

2011

Impact on consolidated statement of income

(1,946)

(481)

(530)

2010

USD 000’s

(267)

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

During the year, 67% of total revenue (2010: 60%) was derived from the sales to the Group’s largest counterparty, the Egyptian General Petroleum Corporation (2010: Egyptian General Petroleum Corporation). Further details of the Group’s receivables with EGPC are provided in note 4 (“Debtor recoverability”). The Group defines counterparties as having similar characteristics if they are related entities. Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: 2011

2010

USD 000’s

Trade and other receivables Bank balances

2010

USD 000’s

40,477

58,092

176,055 216,532

135,199 193,291

497

Kuwait Energy Plc And Subsidiaries

Notes To The Consolidated Financial Statements ForKUWAIT The Year Ended 31 December ENERGY plc 2011 AND SUBSIDIARIES

For The Year Ended 31 December 2011

Notes To The Consolidated Statements KUWAIT ENERGY plcFinancial AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2011

For the year ended 31 December 2011 29.

29.

FINANCIAL INSTRUMENTS (CONTINUED)

At 31 December 2010

Credit risk management (Continued) The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: 2011

Egypt

Ukraine

USD 000’s

1,134

1,381

Oman

977

Russia

2010

USD 000’s 131,039

Yemen

133,256

57,376

4,500 1,503

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

Financial liabilities

Long-term loans Trade and other payables

Less than 1 year USD 000’s

8,000

52,964 56,964

USD 000’s

40,667 -

44,667

Between 3 and 5 years USD 000’s

7,721 -

7,721

More than 5 years USD 000’s

Total

USD 000’s

56,388

52,964

Long-term loans Trade and other payables

Less than 1 year

Between 1 and 3 years

Between 3 and 5 years

9,090

50,208

USD 000’s

46,407 46,407

USD 000’s

9,090

USD 000’s

50,208

More than 5 years USD 000’s

Total

Weighted average effective interest rate

59,298

5.3

USD 000’s

46,407

105,705

65,201

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

Between 1 and 3 years

Financial liabilities

441

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

At 31 December 2011

FINANCIAL INSTRUMENTS (CONTINUED)

Weighted average effective interest rate %

10.11%

Fair value of financial instruments Management believes that the fair value of all of the Group’s financial assets and financial liabilities is not significantly different from their respective carrying values. Capital risk management The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to the shareholders through the optimisation of debt and equity balance. The Group’s overall strategy remains unchanged from 2010.

The capital structure of the Group consists of equity comprising issued share capital, share premium and merger reserve (see note 18), other reserves (see note 19) and retained earnings. Gearing ratio

The gearing ratio at year end was as follows:

Debt (i)

2011

USD 000’s

53,000

2010

USD 000’s

53,000

Less: Cash and bank balances and liquid investments

(40,477)

(58,092)

Equity

734,292

631,302

Net debt

Net debt to equity ratio (%)

12,523

1.7

(5,092) -

(i) Debt is defined as long-term loans as detailed in note 20.

109,352

Kuwait Energy Plc plc And Subsidiaries KUWAIT ENERGY AND SUBSIDIARIES

Notes To The Consolidated Financial Statements NOTES TO 31 THE CONSOLIDATED FINANCIAL STATEMENTS For The Year Ended December 2011

Glossary & Definitions

For the year ended 31 December 2011 30.

CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS

AGM: AAPG: barrel:

a) Ukrnafta dispute The Joint Activity Agreement # 410/95 as amended (JAA) governed the joint exploration and development of the Rudivsky-Chervonozavodsky gas condensate field in Ukraine (the RC Field) by Carpatsky Petroleum Corporation (CPC), a subsidiary undertaking of Kuwait Energy, and Ukrnafta OJSC (Ukrnafta). In September 2007, CPC commenced arbitration proceedings against Ukrnafta for various breaches of the JAA including Ukrnafta’s refusal to permit CPC to make additional investments in the JAA in violation of the provisions of the JAA permitting CPC to make such investments, in order to restore its investment in the RC Field from approximately 14.91% back to the 50% level envisaged by the JAA. The arbitration tribunal issued its decision on 24 September 2010 awarding CPC damages in the amount of USD145.7 million plus post-award interest plus costs of approximately USD1.2 million, and declared the JAA terminated by reason of Ukrnafta’s breach. This decision was confirmed by an arbitration tribunal on 16 November 2010. CPC is diligently pursuing collection of the award but has not yet recognized it in the financial statements as recovery proceedings are ongoing. Since CPC’s interest in the RC field has been terminated by the tribunal, the Group has re-classified all the related historical assets and liabilities into ‘other receivables (See note 16). The receivables from Ukrnafta will be set off against the arbitration award upon receipt.

2011

b) Other contingent liabilities - letters of guarantee c) Capital commitments (other than covered by letters of guarantee) 31.

32.

USD 000’s

16,466 84,952

2010

USD 000’s 21,238 87,762

SUBSEQUENT EVENTS The Company has entered into a facility agreement with a financing vehicle of Abraaj Capital Limited (from the United Arab Emirates) under which Abraaj will make available a convertible loan of up to USD150 Million. If not converted, the outstanding loan will become repayable in three equal tranches over one year after the expiry of 5.5 years from signature The facility is subject to a number of conditions precedent, including shareholder approval at the forthcoming Annual General Meeting. PROPOSED DIVIDENDS The Board of Directors proposed to distribute cash dividends of Pounds Sterling 0.045 per share for 2011 (2010: 5 fils). This proposal is subject to the approval of the Annual General Meeting. During the year 2010 the dividend declared by the Group amounted to USD 23,086 thousand and was paid during the year 2011.

bbl: BOE/boe:

bcf: Board: bpd: bopd: BOEPD/boepd: B.Sc: BA: CEO: Company: Cost Working Interest: Development Well: Dry hole: EBITDA: Exploration Expenditure: Exploratory well:

EIS: Field: GCA: HSESR: IFC: IPIMS: kms: KD: KOC: KUFPEC:

Annual General Meeting of Shareholders American Association of Petroleum Geologists The standard barrel of crude oil or other petroleum product contains 42 US gallons, or 35 Imperial gallons or 159 Liters Barrel Barrels of oil equivalent; A BOE conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead Billion cubic feet Board of Directors of the Company Barrels per day Barrels of oil per day Barrels oil equivalent per day Bachelor of Science Bachelor of Art Chief Executive Officer Kuwait Energy Company KSCC or Kuwait Energy The percentage interest of the company in the contract for an asset as agreed between the Joint venture partners and the host government A well drilled within the proved or probable reserves area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive An unsuccessful well; a well not capable of producing commercial quantities of oil or gas Earnings Before Interest, Taxes, Depreciation and Amortization; An approximate measure of a Company’s operating cash flow All costs associated with drilling of exploratory wells and other costs incurred in evaluating commercial viability of a geological structure A hole drilled: a) to find and produce oil or gas in an area previously considered unproductive area; b) to find a new reservoir in a known field, i.e., one previously producing oil and gas from another reservoir, or c) to extend the limit of a known oil or gas reservoir Employee Incentive Scheme The geographical area encompassing a group of one or more underground petroleum pools sharing the same or related infrastructure Gaffney, Cline & Associates Health, Safety, Environment and Social Responsibility International Finance Corporation International Petroleum Industry Multimedia System Kilometres 1 km = 0.621 miles Kuwaiti Dinar Kuwait Oil Company Kuwait Foreign Petroleum Exploration Company

KPC: LPG: m: M&A: MENA: Mbbl: mboe: MM: MMBOE/mmboe: MBA: NHEPL: N / A: NSAI: Proven:

Probable: Production: PRMS: Ph. D: Reserves: Revenue Working Interest: RRR: sq. kms: scf: SPE: SPEE: US$/US$: WI: Workover: WPC: YE09: YE10: YE11: 2C: 2D: 1P: 2P: 3P: 3D: 3D seismic: #: 92

Kuwait Petroleum Corporation Liquefied Petroleum Gas Meters; 1m = 3.281 feet Mergers and Acquisitions Middle East & North Africa Thousand barrels Thousand barrels oil equivalent Million Million barrels oil equivalent Master of Business Administration New Horizon Exploration & Production Limited, Pakistan Not Applicable Netherland Sewell & Associates, Inc Proven reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations Probable reserves are those reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable The quantity of petroleum produced in a given period Petroleum Resources Management System Doctrate Reserves are those quantities of hydrocarbons which are anticipated to be commercially recovered from known accumulations from a given date forward The percentage interest of the company in the contract for an asset with the host government Reserves Replacement Ratio; derived using total reserves additions in a period/ total production in same period Square kilometers Standard cubic feet Society of Petroleum Engineers Society of Petroleum Evaluation Engineers United States Dollars Working Interest; A Company’s equity interest in a project before reduction for royalties or production share owed to others under the applicable fiscal terms Operations on a producing well to restore or increase production World Petroleum Council Year-End 2009 Year-End 2010 Year-End 2011 (Kuwait Energy follows January to December as its financial/ reporting year) Contingent Resources Mid - case Recoverable Volume 2 dimensional Proven Reserves Proven plus Probable Reserves Proven, Probable and Possible reserves 3 dimensional Derived from a set of seismic lines. 3D seismic data provide detailed information about fault and subsurface structures Number

FORWARD LOOKING STATEMENT This Annual Report includes statements that contain words or phrases such as “will”, “aim”, “will likely result”, “ believe”, “ expect”, “will continue”, “anticipate” “estimate” “intend” “plan”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “project”, “should” “will pursue” and similar expressions or variations of such expressions which are “forward looking statements”. Such forward looking statements are by their nature speculative and based on various assumptions. Any such statements are hypothetical with respect to prospective events and should not be construed as being indicative of the actual events which will occur or a guarantee of future performance. All forward-looking statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those contemplated by the relevant forward looking statements. Important factors that could cause results to differ materially from the Company’s expectations include, among others: • General economic and business conditions in Kuwait and other countries; • The Company’s ability to successfully implement its strategy, growth and expansion plans, and technological changes; • Changes in the value of the Kuwaiti Dinar and other currency changes; • Changes in Kuwaiti or international interest rates; • Changes in laws and regulations that apply to investment companies in Kuwait; • Changes in political conditions in Kuwait and other countries; and • Changes in the foreign exchange control regulations in Kuwait.

Acknowledgements Ziyad Ben Salamah is one of the most active artists in Tunis since he was a student. He introduced many artistic and cultural activities in Tunis, in addition to many art exhibitions in Tunis and abroad. His style is based on a mixture of conventional techniques. It consists mainly of water color and charcoal. Depending on the transparency of watercolors and sharp bold lines of charcoal, Ziyad depict all of his profound thoughts about life and society in a spontaneous way. He is also a talented graphic designer and very interested in music.

Ziyad Ben Salameh

Fatin Al-Shawaibi's works are very symbolic and expressive; particularly those made with her own technique of gravure. She moves freely between Expressionism and Abstract painting and utilizes all the possibilities art provides to convey her views and thoughts. Along with her participation in various collective art exhibitions, she presented many activities for children and elderly people particularly in painting and pottery. Her talents are not limited to painting; she has a deep interest in theater as a scenographer, custom designer and puppet maker. She is also a graphic designer.

The registered address of Kuwait Energy plc is: Queensway House Hilgrove Street St Helier Jersey JE1 1ES Channel Islands

Fatin Al-Shawaibi

Ayman Hassan, Arabic calligraphy is a combination of spirit, music and architecture. It's a pure art where the rhythm, tones, lines and shades are all combined together with the proper relation to formulate an aesthetic trance. After being trained due to the classical ottoman tradition of teaching calligraphy in Istanbul, his interest became to rediscover the wealthy heritage of this art both theoretically and practically, in order to developed it in a creative way. Beside winning many international awards of this art, he participated in many collective domestic and international exhibitions. He gave lectures and workshops about Arabic Calligraphy in many cultural centers and universities.

For queries, please contact: Yousef Alebrahim Corporate Affairs - Manager Tel: +96525755657 Ext: 343 Fax: +96525755679 Yousef.Alebrahim@kec.com.kw

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Ayman Hassan 95 Designed by P&A Group

“Once people want life, destiny will definitely respond… Night will definitely vanish, and manacles will definitely be broken” The above verse from the prominent late Arab poet Aboul-Qacem Echebbi (24 February 1909 - 9 October 1934,) was made famous during the Arab Spring Revolution. Here we have used the underlined key words separately, written in modern Arabic calligraphy and using the thematic symbols of the Annual Report to accentuate the words.