Notes to the Consolidated Financial Statements Continued Note 3. Financial Risk Management continued (b) Commodity Price Risk continued Commodity Price Sensitivity Analysis continued The following table details the Group’s sensitivity to a 10% increase or decrease in its internal assessment of future oil prices on the contingent consideration payable to Petrobras. Consolidated 2021 2020 US$’000 US$’000 Change in profit (loss) before income tax – Increase of oil price by 10% (77,791) – – Decrease of oil price by 10% 54,696 – Change in financial liabilities – Increase of oil price by 10% 77,791 – – Decrease of oil price by 10% (54,696) – (c) Credit Risk The maximum exposure to credit risk at the end of the financial year is the carrying amount of the financial assets as disclosed in the consolidated statement of financial position and notes to the consolidated financial statements. Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises from cash and cash equivalents and security deposits held with banks, financial institutions and joint operators, as well as credit exposures to customers, including outstanding receivables and refundable tax credits. Credit risk is managed on a Group basis at the corporate level. To minimise credit risk, the Group has adopted a policy of only dealing with recognised and creditworthy third parties. Receivable balances are monitored on an ongoing basis with the result being the Group’s exposure to bad debts is minimised. The Group does not currently hold collateral, nor does it securitise its receivables. The Group has policies in place to ensure that services are made to customers with an appropriate credit history. Cash and cash equivalents and security deposit counterparties are limited to credit quality banks and financial institutions. For banks and financial institutions in Australia, only independently rated counterparties with a minimum rating of Aa3/A2 are accepted. For banks and financial institutions in Brazil and Peru, only independently rated counterparties with a minimum rating of Baa1 are accepted. For banks and financial institutions in Brazil and Peru with independently rated counterparty ratings below Baa1, exposure cannot exceed the short‑term country specific cash requirements unless they are associated banks of an International Bank with a higher credit rating. Cash and cash equivalents are held offshore by the Group’s Brazilian subsidiary out of London with an International Bank with a rating of Aa3. The Group’s credit exposure and external credit ratings of its counterparties are monitored on a periodic basis. Where commercially practical, the Group seeks to limit the amount of credit exposure to any one bank or financial institution. (i)Impairment of Financial Assets The Group has 2 types of financial assets that are subject to AASB 9’s ‘expected credit loss’ model: receivables and security deposits. The Group has applied the AASB 9 general model approach to measuring expected credit losses for all receivables and security deposits. While cash and cash equivalents are also subject to the impairment requirements of AASB 9, the identified impairment loss was considered not significant given the counterparties and/or the short maturity. Expected Credit Loss When required, the carrying amount of the relevant financial asset is reduced through the use of a loss allowance account and the amount of any loss is recognised in the statement of profit or loss and other comprehensive income. When measuring expected credit losses, balances are reviewed based on available external credit ratings, historical loss rates and the days past due. Karoon Energy Ltd 96 Annual Report 2021