Ophir Energy plc Annual Report and Accounts 2011

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Ophir Energy plc Annual Report 2011
27 Financial risk management & financial instruments continued
(b) Credit risk continued
The fair values and carrying values of non-current receivables of the Company are as follows:
Carrying
amount
US$’000
2011 2010
Fair value
US$’000
Carrying
amount
US$’000
Fair value
US$’000
Security deposits 387 387 418 418
387 387 418 418
There are no non-current receivables in the Company.
The fair values are based on cash flows discounted at a rate reflecting current market rates adjusted for counter
party credit risk (refer Note 27(g)).
(c) Interest rate risk
As of 31 December 2011, the Group’s interest rate risk is limited to interest receivable on deposits and bank
balances as it has no borrowings.
The Group’s exposure to the risk of changes in market interest rate relates primarily to the Group’s cash assets
held primarily in short-term cash deposits. The Board monitors its cash balance on an ongoing basis and liaises
with its financiers regularly to mitigate the risk of a fluctuating interest rate. The benchmark rate used for
short-term deposits is US LIBOR.
Group
2011
US$’000
2010
US$’000
2011
US$’000
Company
2010
US$’000
Financial assets
Security deposits 670 700 387 418
Cash and cash equivalents 396,585 89,925 386,190 74,364
Net exposure 397,255 90,625 386,577 74,782
The following table demonstrates the sensitivity to a reasonable possible change in interest rates with all other
variables held constant, of the Group’s loss before tax for a 12 month period through the impact on floating rate
deposits and cash equivalent:
BUSINESS REVIEW GOVERNANCE FINANCIAL STATEMENTS
Increase/decrease in interest rate
Effect on loss
31 Dec 2011
Group
Effect on loss
31 Dec 2010
Effect on loss
31 Dec 2011
Company
Effect on loss
31 Dec 2010
+0.5% 1,986 583 1,935 524
-0.5% (1,986) (583) 1,935 (524)
The sensitivity in 2010 was maintained at 0.5% as interest rate volatilities remain similar to those in the
prior period.
(d) Foreign currency risk
The Group has currency exposures arising from assets and liabilities denominated in foreign currencies and
transactions executed in currencies other than the respective functional currencies.
The Company and all of its principal operating subsidiaries, with the exception of Ophir Services Pty Ltd, have
adopted US Dollars as their functional and reporting currencies as this represents the currency of their primary
economic environment as the majority of the Group’s funding and expenditure is US Dollars. Ophir Services Pty
Ltd has adopted the Australian Dollar as its functional currency.
The Group’s exposure to foreign currency risk is managed by holding the majority of its funds in US Dollars, as a
natural hedge, with remaining funds being held in Pounds Sterling and Australian Dollars to meet commitments in
those currencies.