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.
112 Within 3 months 3 months - 1 year Less than 1 year $000 $000 $000Group - 31 December 2011Maturity of financial liabilitiesTrade payables (note 11) 18,329 - -Other payables (note 11) 8,541 - -Borrowings - Pre-paid swap 10,000 30,500 -Group - 31 December 2010Maturity of financial liabilities Trade payables (note 11) 19,684 - -Other payables (note 11) 12,455 - -Deferred consideration (note 11) - 2,000 -Interest rate risk profile of financial assets and liabilities - GroupThe Group is exposed to interest rate risk principally in relation to the balance outstanding on the credit facility with Crédit Agricole CIB (France) where interest is calculated at prevailing Crédit Agricole CIB (France) bank rate plus a margin. The interest rate profile of the financial assets and liabilities of the Group as at 31 December is as follows (excluding short-term assets and liabilities, non-interest bearing):Group - Year ended 31 December 2011 Floating rate Within 1 Year Total $000 $000Short term deposits (note 10) 1,305 1,305 Other receivables (note 9) 4,745 4,745Other payables (note 11) (8,541) (8,541)Group - Year ended 31 December 2010 Floating rate Within 1 Year Total $000 $000Short term deposits (note 10) 57,051 57,051Other receivables (note 9) 5,156 5,156Other payables (note 11) (5,797) (5,797)Floating rate financial assets comprise cash deposits placed on money markets at call, seven day and monthly rates.Interest rate sensitivity - GroupThe sensitivity analysis below has been determined based on the exposure to interest rates on our short term deposits at the reporting date. There were no interest bearing loans at the reporting date.If interest rates had been 1 per cent higher/lower and all other variables were held constant, the Group's profit after tax and net assets for the year ended 31 December 2011 would increase/decrease by $11,000 (2010: profit after tax would decrease/increase by $4,000, other equity reserves would increase/decrease by the same). 1 per cent is the sensitivity rate used as it best represents management's assessment of the possible change in interest rates that could apply to the Group.Group financial statementsNotes to the financial statements continued