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International Petroleum Investment Company PJSC and Its Subsidiaries International Petroleum Investment Company PJSC and its subsidiaries BOARD OF DIRECTORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2015 International Petroleum Investment Company PJSC and its subsidiaries BOARD OF DIRECTORS’ REPORT 31 DECEMBER 2015 International Petroleum Investment Company PJSC and its subsidiaries BOARD OF DIRECTORS’ REPORT For the year ended 31 December 2015 The Board of Directors presents the consolidated financial statements of International Petroleum Investment Company PJSC (IPIC or the Company) and its subsidiaries (the Group) for the year ended 31 December 2015. Activities IPIC is a public joint stock company established on 29 May 1984 in Abu Dhabi, United Arab Emirates (“UAE”) by Emiri Decree No 3/1984 (subsequently replaced by Emiri Decree No 2/1986) and is wholly owned by the Government of the Emirate of Abu Dhabi. The Company’s registered head office is P.O. Box 7528, Abu Dhabi, UAE. The principal activity of the Company is to invest, on a long-term basis, in overseas energy and energy-related assets and to undertake infrastructure projects. At year-end, the Company has direct and indirect equity interests in various subsidiaries across the world: 64% interest in Borealis AG (“Borealis”) based in Austria, 100% interest in Nova Chemicals Corporation (“Nova”) based in Canada, 100% interest in Compañía Española de Petróleos SA (“CEPSA”) based in Spain and 98.46% interest in Aabar Investments PJS (“Aabar”) based in UAE. Aabar is a diversified investment company with investments across a broad range of sectors including aerospace, construction, commodities, financial services and real estate. Further, Aabar has direct and indirect equity interests in various subsidiaries across the world: 100% interest in Falcon Private Bank (“Falcon Bank”) based in Switzerland, 70% in Palm Assets based in Morocco and 36.11% interest in Arabtec Holding PJSC (“Arabtec”) based in UAE. During the year, the Group determined that it obtained de facto control of Arabtec and as such the consolidated financial statements reflect the results of Arabtec from 1 May 2015 to 31 December 2015. Financial Results Revenue for 2015 fell by 30% compared to 2014 to reach US $ 35.8 billion. This significant drop year-on-year in revenue was reported in the Group’s upstream and downstream operations as a result of the prevailing commodity market conditions in 2015. Global demand for oil remained at low level, lagging behind expectations as it grew slightly by only 1.69% in 2015 coupled with a significantly lower crude oil price than in 2014; the price of Brent crude, Europe's benchmark, averaged US $ 52.4 per barrel in 2015, as compared to US $ 99.0 per barrel in 2014. Due to the declining crude oil price, asset valuation in the exploration and production segments were negatively impacted, which led the Group to record significant pre-tax impairment losses amounting to US $ 5.2 billion on its oil & gas assets. Tax impact of these impairments was a credit of US $ 2.2 billion. Additionally other companies within the downstream, projects and diversified segments were indirectly affected by weak overall market sentiment and accordingly the Group recorded further impairment losses of US $ 2.9 billion on those assets. As a result, the net loss for the year was US $ 2.6 billion compared to a profit of US $ 1.5 billion in 2014. The Company formalised the transfer agreement for the Abu Dhabi Crude Oil Pipeline (“ADCOP”) project to the Abu Dhabi National Oil Company (“ADNOC”) and, in accordance with the international accounting standards, recorded a profit of US $ 1.4 billion on derecognition of this asset. The Company received to date a total of US $ 5.2 billion with an additional US $ 0.4 billion due on issuance of the final acceptance certificate. Profit after-tax before impairment losses was US $ 3.3 billion in 2015 compared to US $ 2.3 billion in 2014. Despite its significant drop in revenue and large impairment losses which resulted in a net loss during 2015, the Group continues to generate strong positive cash flows from operations amounting to US $ 3.9 billion with a slight increase from 2014. The Group’s cash position at year-end was US $ 5.4 billion compared to US $ 5.3 billion in 2014, and its net debt position was US $ 22.2 billion at 31 December 2015 compared to US $ 24.6 billion at end of previous year. The Group repaid US $ 3.2 billion of its debt from its own funds, re-financed US $ 3.1 billion and raised new borrowings of US $ 2.1 billion in 2015. International Petroleum Investment Company PJSC and its subsidiaries BOARD OF DIRECTORS’ REPORT continued For the year ended 31 December 2015 Financial Results continued During 2015, the Company entered in a Binding Term Sheet (“BTS”) with 1Malaysia Development Berhad (“1MDB”), a company wholly-owned by the Government of Malaysia and Malaysia’s Ministry of Finance Inc (“MOF”). During 2015 under the terms of the BTS, the Company advanced US $ 1 billion to certain 1MDB subsidiaries, and made two interest payments totalling US $ 103 million on its behalf to discharge the interest payment obligations under certain debt instruments issued by certain 1MDB subsidiaries, being the 1MDB Energy (Langat) Notes and the 1MDB Energy Notes referred to at Note 42.1 of these consolidated financial statements. The total amount of US $ 1.1 billion (plus interest) was due to be matched by a transfer by 1MDB of assets to the Company by 31 December 2015, which both 1MDB and MOF failed to effect. Under the BTS, 1MDB then became subject to an obligation to pay US $ 1.1 billion (plus interest) to the Company. MOF has agreed in the BTS to indemnify the Company in respect of all of the obligations of 1MDB under the BTS and in respect of any payment made in connection with the Company’s obligations to guarantee the 1MDB Energy (Langat) Notes and the 1MDB Energy Notes. Previously in 2012, the Company had guaranteed two debt issuances (principal and interest) of certain 1MDB subsidiaries for a period of 10 years (being the 1MDB Energy (Langat) Notes and the 1MDB Energy Notes referred to at Note 42.1 of the consolidated financial statements). In the first-half of 2016, 1MDB defaulted on two interest payments on these debts and accordingly the Company’s guarantees were called and as a result the Company made two interests payment totalling US $ 103 million. All of these 1MDB related payments have been reflected in these consolidated financial statements by recording a corresponding receivable balance as the Company is confident that it will be able to claim its payments from 1MDB and MOF under the BTS. Further, in accordance with the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the Company also made a provision for payments that may be called under its guarantees of the 1MDB Energy (Langat) Notes and the 1MDB Energy Notes. Any such payments made will also be claimed from 1MDB and MOF. In June 2016, the Company and Aabar submitted a Request for Arbitration (“RFA”) to the London Court of International Arbitration. The RFA concerns the failure by 1MDB and MOF to perform their contractual obligations under the BTS. The failure of 1MDB and MOF to perform their obligations, cure their defaults or put forward acceptable proposals has left the Company in the position where it must pursue its claims in arbitration. The total amount claimed by the Company and Aabar is approximately US $ 6.5 billion. The claim will be determined by an arbitral tribunal that will comprise of three arbitrators in accordance with the BTS and the LCIA Rules. For and on behalf of the Board of Directors _________________________________ Mansour bin Zayed Al Nahyan Chairman of the Board of Directors Abu Dhabi, June 2016 International Petroleum Investment Company PJSC and its subsidiaries CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2015 INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDER OF INTERNATIONAL PETROLEUM INVESTMENT COMPANY PJSC Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of International Petroleum Investment Company PJSC (the “Company”) and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at 31 December 2015 and the consolidated statement of profit or loss, consolidated statement of other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and in compliance with the applicable provisions of the UAE Federal Law No. (2) of 2015, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
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