11012. Borrowings 2011 2010 $000 $000Current Pre-paid swap 35,930 -Term-loans repayable within one year 35,930-Pre-paid SwapThe Group's borrowings relate to a term loan (pre-paid swap) which the Group entered into on 14 June 2011 with Credit Suisse International. The transaction which secured $50m for capital expenditure and other purposes is repayable over an 18 month schedule commencing in September 2011, concluding with a final payment in November 2012. There is a zero coupon rate on the outstanding balance however under the transaction JKX has hedged forward sales of oil (see note 13).The pre-paid swap is secured over the shares of all those Group subsidiaries which own, control or have an interest in the Group's oil and gas licences.Credit FacilityOn 31 March 2011, Poltava Petroleum Company (PPC), our subsidiary in Ukraine, entered into a reducing credit facility agreement with Crédit Agricole CIB (France) secured by indemnity provided by the parent company, JKX Oil & Gas plc. The credit facility is for a maximum of Ukrainian Hryvnia equivalent of $15.0m but requires a cash deposit to match any facility used over $10.0m and will be available until 30 June 2012. All provisions contained in the credit facility documentation have been negotiated on normal commercial and customary terms for such finance arrangements. The interest is calculated at prevailing Crédit Agricole CIB (France) bank rate plus a margin.13. Derivative liability 2011 2010 $000 $000Current Derivative financial instruments 3,169 -Total 3,169-Pre-paid SwapThe pre-paid swap transaction with Credit Suisse International has been structured to enable its repayment by JKX from future sales of oil. Under this structure, JKX has sold forward 36,000 bbl/month of crude at $94.00 Urals Med per barrel while retaining value if prices rise above $130 per bbl.The Urals Med index is the closest international benchmark for the range of oil and gas produced by JKX and delivered in local markets. The volume allocated represented approximately 10% of the Group's current daily production on a barrel of oil equivalent basis.As the amount of consideration payable to Credit Suisse International will change in response to the change in the Urals Med index and will be settled in the future, the payable is treated as a derivative liability. For the purpose of hedge accounting the oil price hedge (forward sale) entered into during the period has been classified as cash flow hedge. The gains and losses taken to equity that were transferred to the consolidated income statement during the period were $1.1m (2010: nil). Group financial statementsNotes to the financial statements continued
JKX Oil & Gas plc Annual Report 2011111At a glance01-17Board statements18-23Operational review24-36Financial review37-47CSR review48-61Directors' reports62-83Financial statements84-13614. Financial instrumentsFair values of financial assets and financial liabilities - GroupSet out below is a comparison by category of carrying amounts and fair values of the Group's financial instruments. Fair value is the amount at which a financial instrument could be exchanged in an arm's length transaction. Where available, market values have been used (this excludes short term assets and liabilities). Book and Fair Value 2011 2010 $000 $000Financial assets Cash and cash equivalents (note 10) 62,018Trade receivables (note 9) - classified as loans and receivables 6,714 8,024Other receivables (note 9) - classified as loans and receivables 4,745 8,035Financial liabilitiesTrade payables (note 11) - carried at amortised cost 18,329 19,684Other payables (note 11) - carried at amortised cost 8,541 12,455Deferred consideration (note 11) - 2,000Borrowings - Pre-paid swap (note 12) 35,930 -Loans and receivables comprise trade and other receivables of $11.5m (2010: $16.1m). Financial liabilities measured at amortised cost are carried at $62.8m (2010: $34.1m).There are no differences between the book value and fair value of any of the financial assets or financial liabilities.The Group's borrowings relate to a term loan (pre-paid swap).The Group's derivative financial instrument being the forward sale of 36,000 bbl/month of crude (see note 13) is recorded in the statement of financial position at 31 December 2011 at its fair value and is settled on a monthly basis through to November 2012. The value of the derivative is calculated by reference to forward market prices at the reporting date compared with the contract price. As it is derived from inputs other than quoted prices in active markets that are observable, either directly (i.e. as prices) or indirectly (i.e. derived from prices) it has been grouped into Level 2 within the fair value measurement hierarchy. Categorisation within the fair value measurement hierarchy has been determined on the basis of the lowest level input that is significant to its fair value measurement.Credit risk - GroupThe Group has policies in place to ensure that sales of products are made to customers with appropriate credit worthiness. Where appropriate, the use of prepayment for product sales limits the exposure to credit risk. There is no difference between the carrying amount of trade and other receivables and the maximum credit risk exposure.Liquidity risk - GroupThe treasury function is responsible for liquidity, funding and settlement management under policies approved by the Board of Directors. Liquidity needs are monitored using regular forecasting of operational cash flows and financing commitments. The Group maintains a mixture of cash and cash equivalents, long-term debt and committed facilities in order to ensure sufficient funding for business requirements.The following tables set out details of the expected contractual maturity of non-derivative financial liabilities. The tables include both interest and principal cash flows on an undiscounted basis. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curves at the reporting date.