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Renewed
Resilient
Responsible
CAPRICORN ENERGY PLC
Annual Report and Accounts 2021
Capricorn Energy PLC is one
of Europe’s leading independent
upstream energy companies,
headquartered in Edinburgh, UK.
Historically we have discovered, developed and produced oil
and gas in multiple settings throughout the world.
Today our focus is on growing our current gas and liquids
production base through development and exploration,
with an ambition to use our strong balance sheet to expand
that production base into other attractive markets and to
commercialise exploration resources.
We adhere to high sustainability standards, we invest to ensure
our portfolio remains competitive through stringent energy
transition scenarios and we are committed to net zero carbon
emissions by 2040.
Capricorn Energy PLC became the new name for Cairn Energy PLC
in December 2021. It’s a change that represents evolution and
continuity as we renew our production and exploration portfolio.
For more information, please read the case study on page 11.
Renewed
Active portfolio management, a diversified
and extended production base and
positioned for further growth.
P32
Resilient
Fiscal discipline, balance sheet strength
and energy transition relevance. Our
strategy has positioned the business for
long-term value creation, whilst building
on a track record of shareholder returns.
P10
Responsible
We continue to develop our responsible approach,
announcing an accelerated commitment to delivering
net zero operations by 2040 or earlier. During the year,
we have maintained our enduring focus on meeting our
commitments to the stakeholders and communities
where we operate.
P40
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
2021 Highlights
Net working interest oil and gas production averaged (boepd)1
~36,500
1 Egypt production from completion of acquisition to 31 December 2021.
Year end Group cash
US$314m
2021
2020
US$314m
US$570m
Egypt oil and gas sales revenue
US$56m
Returned or committed to return to shareholders
Up to US$957m
Commitment to return up to a further
US$700m announced in September 2021
Tax refund from Government of India
US$1.06bn
received in Q1 2022
Acquisition of Egypt Western Desert assets
US$323m
net to Capricorn
Accelerated net zero target
2040
or earlier in scope 1 & 2 equity emissions
Contents
Strategic Report
At a Glance
Chair’s Statement
Our Story in 2021 – Focused on Growth,
Returns and Fiscal Discipline
Our Strategy
Our Business Model
Industry Review 2021
TCFD Reporting
Materiality Matrix
Stakeholders and S172 Statement
Our Story in 2021 – Value-focused Growth,
Supported by Balance Sheet Strength
Measuring Our Progress
Responsible and Sustainable Production Growth
Our Story in 2021 – Focused on Discovering and
Commercialising New Resources with Pace
Risk Management
Viability Statement
Behaving Responsibly to the Environment
Behaving Responsibly to People
Behaving Responsibly to Society
Operational Review
Financial Review
Leadership and Governance
Board of Directors
Responsible Governance
Corporate Governance Statement
Audit Committee Report
Nomination Committee Report
Directors’ Remuneration Report
Directors’ Report
Financial Statements
Independent Auditors’ Report
Group Income Statement
Group Statement of Comprehensive Income
Group Balance Sheet
Group Statement of Cash Flows
Group Statement of Changes in Equity
Section 1 – Basis of Preparation and
Exceptional Income
Section 2 – Oil and Gas Assets and Operations
Section 3 – Working Capital, Financial
Instruments and Long-term Liabilities
Section 4 – Income Statement Analysis
Section 5 – Taxation
Section 6 – Discontinued Operations and
Assets and Liabilities Held-For-Sale
Section 7 – Capital Structure and
Other Disclosures
Capricorn Energy PLC – Company Stand-Alone
Primary statements
Section 8 – Notes to the Company
Financial Statements
Additional Information
Licence List
Group Reserves and Resources
Glossary
Appendix: Capricorn Energy
Emissions Methodology
Company Information
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Capricorn Energy PLC Annual Report and Accounts 2021
1
At a Glance
Chair’s Statement
Our Story in 2021 – Focused
on Growth, Returns and
Fiscal Discipline
Our Strategy
Our Business Model
Industry Review 2021
TCFD Reporting
Materiality Matrix
Stakeholders and
S172 Statement
Our Story in 2021 – Value-
focused Growth, Supported
by Balance Sheet Strength
Measuring Our Progress
Responsible and Sustainable
Production growth
4
6
10
12
14
16
18
24
26
32
34
40
Our Story in 2021 – Focused on
Discovering and Commercialising
44
New Resources with Pace
Risk Management
Viability Statement
Behaving Responsibly
to the Environment
Behaving Responsibly
to People
Behaving Responsibly
to Society
Operational Review
Financial Review
46
47
56
60
64
68
72
2
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Capricorn Energy PLC Annual Report and Accounts 2021
3
At a Glance
Capricorn holds a balanced portfolio of development, production
and exploration assets, with interests in the following countries: the
UK, Egypt, Israel, Mauritania, Mexico and Suriname. We are active
portfolio managers looking at transforming the asset portfolio to
ensure that we have line of sight on long-term cash flow generation
and growth potential. Portfolio details as at 31 December 2021.
Key
Onshore Offshore
Exploration
Development
Production
Mexico
4 licences
2,183 km2
acreage
Suriname
1 licence
13,080 km2
acreage
4
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Mauritania
1 licence
7,300 km2 acreage
Egypt
3 licences and
11 development leases
16,211 km2 acreage
UK
9 licences
4,941 km2 acreage
Israel
8 licences
2,700 km2 acreage
Capricorn Energy PLC Annual Report and Accounts 2021
5
Chair’s Statement
A Transformational
Year
Some 18 months ago, the Board supported management’s strategic
ambition to focus on short capital cycle, infrastructure-led exploration and
selective frontier opportunities. For 2021, we tasked the Management Team
with executing that strategy and establishing those building blocks.
Nicoletta Giadrossi
Chair
6
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
“Despite the pandemic and associated lockdowns, our people
have demonstrated steadfast commitment and have carried
out a huge amount of complex work remotely that would
normally have been done face to face.”
The tax refund from the Government of
India of more than one billion dollars was a
very positive outcome for our shareholders.
India has a special place in our Company’s
history and we can be very proud of the
wonderful legacy asset which we created
in India, which will continue to provide
a significant economic and social
contribution to the country for decades
to come. Successful resolution of this
matter allows the Company to continue its
strategy of returning value to shareholders;
and with significant retained balance sheet
strength, Capricorn is well positioned to
further expand the business and build a
low cost, sustainable production base.
The acquisition from Shell of the
Western Desert portfolio in Egypt was
the first step in building out a longer-life
production portfolio with attractive growth
opportunities, that can deliver diversified
and consistent cash flow streams. The shift
in our philosophy from frontier-focused
to infrastructure-led exploration, offers
a lower risk profile with the potential for
fast-track monetisation, leveraging many
of Capricorn’s key competencies and
continuing to add reserves and resources.
The other key feature of our refocused
strategy is to place an even greater
emphasis on our sustainability criteria. This
has always been present in Capricorn’s
approach, but it is now even more at the
forefront of our decision-making, both
in terms of how we shape our portfolio
and in the way that we operate. We have
significantly strengthened the team with
key appointments in this area and ensured
that we have sufficient expertise to
support our strategic framework.
The Board has made these issues a priority
over the past year. Our decarbonisation
strategy, the progress that we are making
against our roadmap, and how this might
be accelerated are on the agenda at each
Board meeting. I see our job as creating
the space for the Management Team to
deliver our sustainability roadmap – this
is a key component and decision criterion
in our growth strategy. We are aware
that this is not a process with a short
time frame, but one that will continue to
develop over the coming years, and it is
one that the Board has made an absolute
priority to address.
Few other E&P companies have been able
to weather the cyclicality of our markets
with such resilience or have been able to
continue to make investments that have
generated rewards for shareholders in the
same way as Capricorn. I believe we have
also been able to create strong partnerships
in the communities where we have been
present, whether in India, Senegal, or now
in Egypt and elsewhere, to create value not
just for shareholders but for society. This is
a core part of Capricorn’s model.
We engaged widely and transparently with
our investors last year on this and other
topics, with a focus on making sure they
understood and supported our position
and strategy. We have been grateful for
a stable shareholder base over recent
years which has supported our model of
creating, monetising and returning value
to investors, as well as to the communities
we operate in.
We have also ensured that we have
looked after our people. Despite the
pandemic and associated lockdowns,
our people have demonstrated steadfast
commitment and have carried out a huge
amount of complex work remotely that
would normally have been done face to
face. I would like to thank them for their
efforts, which have demonstrated the
resilient culture and adaptability of the
Company. One of our areas of priority for
the coming year will be a focus on diversity
and inclusion. We operate in a global
industry and in many different countries,
and it is important to ensure that we
benefit from the diverse perspectives
that people bring.
As we look to the future, we will seek
to continue to scale up production and
invest where we believe we can make a
difference, at the same time effectively
deploying our decarbonisation strategy
and exploring opportunities to support
the development of technologies in areas
aligned with our core skillsets.
We will continue to deliver the strategy
that we have set out: building and scaling
production to create a business with stable
cash flows, a sustainable profile, and the
opportunity and means to continue to
create value for our stakeholders.
Nicoletta Giadrossi
Chair
Capricorn Energy PLC Annual Report and Accounts 2021
7
Our Story in 2021
Positioned for
growth and
expansion
We are positioning ourselves for growth
and expansion, but doing so in a way that
is disciplined, sustainable and reflects the
changing energy mix requirements globally.
8
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
CEO’s Review
In 2021, Capricorn
actively managed
its asset portfolio
to refocus on
cashflow generation
from sustainable
production with
shorter capital cycles
and resilience to volatile hydrocarbon
prices supported by infrastructure-led
exploration. We retain the balance sheet
strength to further build out this strategy
in 2022.
In Q1 2021, we announced the
acquisition of Shell’s Western Desert
assets in Egypt, which completed in
Q3 2021. These assets provide low-
cost production, owned infrastructure,
near-term production growth, exploration
potential and an attractive combination
of fixed price gas into growth markets
with oil price exposure. In a country
with strong and growing domestic
demand and a supportive regulatory
and fiscal environment, production
performance since completion has
been very encouraging.
Also in Q1 2021, we announced the
disposal of our UK North Sea producing
interests as they began to enter long
term decline. The terms of the sale to
Waldorf Production provide Capricorn
with continued exposure to oil price
and production performance through
contingent payments due to the Group
over the next four years.
We continued the high-grading of
our exploration portfolio during the
year, reinforcing our focus on shorter
capital cycle, lower-cost infrastructure-
led opportunities, whilst limiting our
capital allocation to the remaining
more frontier positions.
Capricorn continued its track record
of returning value to shareholders,
with commitments made during 2021
to return nearly US$1bn of cash to
shareholders. In Q1 2021 we paid a
special dividend of US$257m following
completion of the sale of our Senegal
interests to Woodside. Following
resolution of the Indian tax dispute we
committed to return US$500m by way
of a tender offer to close in April 2022,
and up to a further US$200m by way of
an ongoing share buyback programme.
In total the Company will have returned to
shareholders more than US$5.5bn in the
last 15 years.
To ensure portfolio resilience and
relevance through a changing energy
mix, in Q3 2021 we accelerated our net
zero target for Scope 1 and 2 equity
emissions to 2040, at the latest. Capricorn
has invested in its internal capability
to progress its transition strategy,
making key senior appointments, and
the business has concluded agreements
for an initial investment in high-quality,
verified carbon credits as part of our
offsetting strategy. Capricorn has tested
the resilience of its producing assets
against the IEA’s STEPS, SDS and NZE
scenarios. Based on the economic
assumptions we apply, these tests show
that our production portfolio is capable
of generating value in a climate scenario
aligned with 1.5 degree warming. We
apply a conservative set of assumptions
to screen new opportunities, including a
range of internal carbon prices, to support
the ongoing relevance of our portfolio as
we build our future platform for
sustainable cashflow and growth.
India Tax Refund and Return of Capital
Following the resolution in 2021 of the
India tax dispute, Capricorn received
a tax refund of US$1.06 billion from
the Government of India in Q1 2022.
A circular issued in early March details
the shareholder resolutions required in
connection with the proposed shareholder
return of up to US$700 million, comprising
a US$500m tender offer and US$200m
ongoing share repurchase programme.
Outlook
As we look to further build out our
resilient platform for sustainable cashflow
and growth, Capricorn will use its balance
sheet strength to pursue value accretive
acquisition opportunities where these
meet our strict criteria for capital
allocation, value and energy transition
relevance. Following strong initial
performance in Egypt, our focus there
during 2022 will be on delivering
continued production growth and
prioritising near term liquids rich
opportunities to maximise value from
these assets. Exploration drilling this
year will take place in the UK, Mexico
and Egypt and focus primarily on
shorter capital cycle, infrastructure-led
opportunities, with limited capital
allocation to more frontier locations.
Capricorn will continue to make progress
on the decarbonisation of its assets in
support of our net zero by 2040 target.
Board Changes
Capricorn announced in Q1 2022
the appointment of Luis Araujo as an
independent non-executive director
with effect from 11 May 2022.
Simon Thomson
Chief Executive Officer
“2021 was a transformational year for Capricorn; we continued to successfully
reshape our portfolio and achieved a positive resolution of our Indian tax dispute.
From the proceeds of asset sales and the Indian tax refund we have committed
to nearly US$1 billion of capital returns to shareholders in 2021 and 2022. We
acquired an attractive portfolio of low breakeven oil and gas production in Egypt,
where we are already delivering production growth and emission reductions, and
which has significant further opportunities for value creation. We also retain the
balance sheet capacity to further expand the production base through value-
accretive acquisitions. We look forward to continuing to deliver our strategic aims
in 2022 with a strong commitment to safety, social responsibility and our pathway
to net zero carbon emissions by 2040.”
Capricorn Energy PLC Annual Report and Accounts 2021
9
Our Story in 2021 continued
Focused on growth,
returns and fiscal
discipline
In a year of significant change, we have ensured
we remain positioned for success. Whilst we
may have changed our name to Capricorn, our
purpose is unchanged. We will continue to pursue
a differentiated business model of creating, adding,
and realising value for shareholders, against a
backdrop of sustainable cash flow generation and
growth. Our unerring focus remains on returns,
growth and ongoing fiscal discipline.
We will also continue to actively manage
our portfolio to ensure that we have the
right balance of assets for continued
value creation, across the energy life cycle:
from exploration and development
to production.
Portfolio Renewal
The past year witnessed a fundamental
portfolio renewal. We swapped risked
development in Senegal and declining
production assets in the UK North Sea
for current production and future growth
opportunities in Egypt and in the UK.
Crucially, we also retained a strong
balance sheet and the financial flexibility
that we have always prioritised in our
strategic delivery.
I am particularly excited by the prospects
for our assets in Egypt, which offer
attractive growth opportunities for
Capricorn and its shareholders – but that
is just the start as we aim to build the asset
base in the coming months and years.
The assets we have acquired provide a
material production base from a gas-
weighted portfolio that also benefits from
attractive liquids production. They offer
near-term, low-cost production, owned
infrastructure, numerous emissions
reduction opportunities, and significant
medium and longer-term exploration, all
in a region with a stable fiscal environment
and strong demand growth.
Positioned for Growth
Overall, the Egyptian portfolio provides a
platform for long-term sustainable cash
flow generation and growth that we plan
to build on over the coming months and
years. Our flexibility and agility leave us
well positioned to take advantage of
further opportunities to acquire assets
with similar potential. This is a core part
of the strategy to sustainably scale our
production operations to provide cash
for reinvestment, fund further returns
to shareholders, and support ongoing
selective exploration activity.
Our approach to exploration is another
key driver of success. Over the past year,
we have refined and high-graded the
portfolio. Our initial focus will primarily
be on Egypt, which, alongside the UK,
offers the potential for infrastructure-led
opportunities where discoveries can
be quickly developed and monetised.
Elsewhere, we look forward to building on
our exploration success offshore Mexico.
Whilst we retain exposure to potentially
transformational exploration, principally
in Suriname and Mauritania, we do not
have the burden of material capital or
well commitments. We have the agility
to refine and adapt our programme in
accordance with our strategy of focusing
on the most valuable resources.
Simon Thomson
Chief Executive Officer
10
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
“I’m particularly excited by the prospects for our assets in Egypt,
which offer attractive growth opportunities for Capricorn and
its shareholders.”
Sustainability Commitment
In considering how we build our portfolio,
we focus increasingly on energy transition
considerations. Capricorn’s business must
remain relevant and resilient, and in the
past year we have taken significant steps
to ensure this is achieved. First of all, we
have accelerated our commitment to net
zero to 2040 or earlier, setting a target for
our ambitions and actions. Secondly, we
have developed greater internal capability
to drive our energy transition agenda with
key senior appointments alongside the
robust processes we are developing to
ensure we monitor and deliver against our
commitments. We are determined to
continue our progress on decarbonisation.
Our TCFD reporting this year sets out
in more detail our plans and assesses
the resilience of the business against
transition scenarios.
Regardless of whether we are exploring
or producing, wherever we operate
we do so with the highest standards
of responsibility and transparency.
We continue to prioritise the health, safety,
security, and well-being of our people
and remain committed to protecting
the environment and supporting
communities in the areas where we
operate, in alignment with the UN
Sustainable Development Goals. We
always aim to ensure that our host
communities and countries experience a
positive impact as a result of our presence.
A Clear Focus
We are pleased that we have now
successfully resolved the tax issue with
the Government of India. We are proud
of everything that we achieved during
our time in the country. We invested
significantly in India and built a business
that has generated billions of dollars of
revenue for stakeholders in India, as well
as thousands of jobs and significant social
benefits, while also creating significant
material value for our own shareholders.
The conclusion to our India story, as well
as allowing us to continue with our
differentiated strategy of returning value
to shareholders, provided the right time
for us to look to the future with a new
name. Whilst our name has changed to
Capricorn, our mission and focus remain
the same. We are in a strong position
to build on our successful track record.
We remain focused on delivering value
responsibly across all our operations.
Capricorn is exceptionally well placed to
move forward with a renewed portfolio,
a strong financial position, and with the
potential to create and return more value
for all our stakeholders.
A NEW NAME,
A NEW PLACE
On 13 December 2021, the Company
changed its name to Capricorn.
The change follows an agreement at the time of the Cairn
India IPO to ultimately change the name, and with the
Company’s participation in the India tax refund process,
the time was right to put in place the change as we scale
our resilient business for the future.
With many of our subsidiary and operating companies having
used the Capricorn name for some time, it is an established
and respected name across our global operations. This
maintains stakeholder confidence in our long-standing
reputation for respect, relationships and responsibility.
In the next year, Capricorn will also prepare to move
our headquarters to a new location in Edinburgh. From
early 2023, we will be based in 1 Haymarket Square,
an outstanding new place for colleagues to work, and
boasting world class transport links, energy efficiency
and environmental credentials, including: holding an
Energy Performance Certificate ‘A’ rating; roof-mounted
photovoltaic panels which generate a proportion of the
electrical demand; and high-performance air-handling,
lighting and reduced water consumption systems.
Capricorn Energy PLC Annual Report and Accounts 2021
11
Our Strategy
Our strategy as a responsible energy producer is to ensure maximum
financial flexibility through active management of our portfolio. By maintaining
a balance sheet that is resilient to periods of volatility, we are able to target
high quality resources and continually renew the portfolio to ensure relevance
through the energy transition, and meet our commitment to net zero by
2040 or earlier. Ultimately, this strategic focus has enabled us to differentiate
our business by enabling significant capital returns to shareholders.
Selective
Exploration
Core area exploration
to sustain production
Select transformational exploration
Balance Sheet
Flexibility
Capital structure resilient
to price shocks
Controllable and flexible
capital programme
Shareholder
Returns
Key differentiator
Competition for
capital between
reinvestment
and returns
All investment
decisions assessed
against multiple externally
assured energy transition
scenarios
Sustainable
Cash flow Base
Diversify and extend
production base
Ensure low full-cycle
break-even economics
Our emphasis on proactive portfolio
management means we maintain control
of our own destiny by optimising capital
allocation and ensuring the right asset
balance at any point in time. This enables
us to return cash to shareholders. In 2021,
we returned or committed to return
nearly US$1bn. We weigh reinvestment
in the business against returning cash
to shareholders when considering
capital allocation.
Proactive portfolio management
also enables us to invest in growing,
diversifying and sustaining the cash
flow-generating asset base. We target
long-life, full-cycle portfolios with low
break-even costs to best position us
to support future shareholder returns.
Renewing and building the portfolio is
delivered in a way that maintains balance
sheet flexibility. A resilient capital structure
provides protection against volatility and
discipline in portfolio choices ensures
control over our capital programme.
Exploration remains core to our future
strategy. New discoveries support future
cash flows through organic reserves
replacement, with the potential for
transformational events to create further
12
Capricorn Energy PLC Annual Report and Accounts 2021
Portfolio
Management
Monetise for returns
and reinvestment
Flexible and balanced
capital allocation
shareholder value. Our exploration focus is
on advantaged resources that can remain
competitive through stringent energy
transition scenarios and will move quickly
to commercialisation.
Against the backdrop of a global energy
system in transition, we are positioning
ourselves for sustainable growth, in line
with a commitment to net zero by 2040,
and with financial and operational
discipline.
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Executing our Strategy Responsibly
Working responsibly means
delivering value in a safe, secure and
environmentally responsible manner for
all our stakeholders. Our sustainability
strategy underpins efforts to: protect
the environment and transition to more
sustainable energy sources; support
society by creating value for
employees, suppliers, shareholders
and communities; and use sound
governance structures to ensure we
conduct our business ethically and
manage risks effectively.
Our long-established Business
Principles are integrated into our
systems and processes. They determine
how we work, helping us to behave
responsibly to people, to the
environment and to society.
Responsible Governance
BUSINESS PRINCIPLES
RELEVANT MATERIAL ISSUES
CONTRIBUTION TO SDGS
– We manage risk and seek
to continually improve.
– We behave honestly,
fairly and with integrity.
5
10 11 15 18
(cid:2) Read more about our material corporate
responsibility issues on pages 24 and 25
(cid:2) Read more on pages 80-83
We seek to identify and effectively manage the risks that are most significant to our business. These are recorded in a risk
register which, along with stakeholder engagement, help us to prioritise issues.
(cid:2) Read more on pages 49-55
Risks
Behaving Responsibly
to the Environment
Behaving Responsibly
to People
Behaving Responsibly
to Society
BUSINESS PRINCIPLES
BUSINESS PRINCIPLES
BUSINESS PRINCIPLES
– We take a precautionary approach
to our effect on the environment.
– We develop the potential of
our people.
– We strive to prevent and minimise
our impact on the environment.
(cid:2) Read more on page 56
– We foster a workplace that respects
personal dignity and rights, is
non-discriminatory and provides
fair rewards.
– We provide a healthy, safe and
secure work environment.
(cid:2) Read more on page 60
– We seek to make a positive social
impact in every area where we
work.
– We respect the rights and
acknowledge the aspirations
and concerns of the communities
in which we work.
(cid:2) Read more on page 64
RELEVANT MATERIAL ISSUES
RELEVANT MATERIAL ISSUES
RELEVANT MATERIAL ISSUES
23 25 26 28 29
37
51 53
RELEVANT
RELEVANT
RELEVANT
External Frameworks
Capricorn Energy PLC Annual Report and Accounts 2021
13
Our Business Model
Our business model is to invest in assets across the oil and gas life cycle
in order to create, add and deliver value for stakeholders.
OUR STRENGTHS AND CAPABILITIES
#1 Agile portfolio management
Capricorn has consistently managed its portfolio to enter or remain in assets with
exploration and production growth and exit assets at an opportune time and at attractive
prices or where allocated capital is no longer justified to provide the targeted returns.
We have executed our strategic choices both in the exploration arena and also the
production arena. During 2021, we returned capital following the sale of our interest in
the Sangomar project in Senegal, whilst also exiting the Kraken and Catcher assets, where
production decline had occurred. We retain exposure to both reservoir out-performance
and oil price through an uncapped earn-out provision in these North Sea producing assets.
#2 Collaborative partnerships
We work in joint ventures across the E&P spectrum, partnering with companies that
share our values and vision. In 2021, we entered Egypt in partnership with Cheiron,
a private Egyptian company, and together acquired the BADR Petroleum Company
(Bapetco) Western Desert assets from Shell. This provides Capricorn with owned
infrastructure including export pipelines and substantial reserves, existing production and
exploration potential. We aim to invest to grow production, reserves and new resources,
working closely with host governments and state oil companies, which are also key partners.
We have deep experience of working in collaborative partnerships, both as operator and as
non-operator and are looking to add partners to our joint ventures in Mauritania and Suriname.
#3 Exploration and production expertise and experience
Capricorn has the skills and capabilities within the organisation to deploy across the full
E&P asset life cycle. The exploration portfolio is continuously high-graded to ensure we are
focused on our ‘advantaged resources’ exploration criteria: rapid pace from discovery to
production, a clear alignment to ESG priorities, flexible commitments which can allow us to
react to market dynamics, and resources that can be discovered, developed and produced
competitively in a lower oil demand future. The same applies in the production arena,
where we focus on delivering cash-generative production growth with low operating
costs and lower emissions, and adding reserves cost effectively through developments,
improved reservoir management and new well drilling and completion.
Our people provide the necessary expertise and resources to deliver the work programmes
agreed within our joint ventures, and to operate successfully across the oil and gas life cycle.
Over the last decade, the Company has operated multiple 2D & 3D seismic and geotechnical
surveys, drilled over 20 exploration and appraisal wells onshore and in mid- and deepwater
settings and has successfully participated in development planning to take five major
projects to development phase, converting over three quarters of a billion barrels to reserves
(gross, 100% basis). Through these projects, our subsurface, engineering, HSSE, commercial
& legal and financial teams have worked together and further developed their skillsets and
capabilities for future application. Since 2017, we have delivered production within market
guidance for four consecutive years.
#4 Responsible culture
Our established, highly experienced and respected leadership team is committed to
working responsibly to deliver the Company’s strategy. We never compromise our
Operating Standards. Our focus on delivering value in a safe, secure and environmentally
and socially responsible manner is a key strategic objective, measured through our key
performance indicators. Contractors and suppliers are required to work to the same high
standards as our employees, adhering to our Core Values of Building Respect, Acting
Responsibly and Nurturing Relationships.
WHY CAPRICORN
ENERGY?
Our expertise
and agility
We have the ability
to move quickly
and responsibly to
pursue opportunities,
underpinned at all times
by our financial flexibility.
We see and realise value
where others may not.
Our experience
With more than 30 years’
experience as an operator
and partner at all stages
of the upstream oil and
gas life cycle, we have
successfully discovered
and developed oil and
gas reserves in a number
of international locations
in partnership with host
governments.
Our responsible
approach
We commit to working
responsibly across all
our activities. This means
working in a safe, secure,
environmentally and
socially responsible
manner.
14
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Leadership and Governance
Financial Statements
Additional Information
The cash flow from production assets
funds further growth in exploration and
development activity alongside overall
strategic delivery. Assets can be monetised
at different stages of exploration,
development and production in order
to optimise the portfolio and create the
opportunity for further cash returns to
shareholders, as we have demonstrated
historically in India and Senegal. We focus
on reducing carbon emissions in our
operations and targeting resources that can
be relevant through the global changing
energy mix.
CREATING VALUE RESPONSIBLY FOR STAKEHOLDERS
We are committed to making a positive contribution, wherever we operate, by
delivering tangible benefits to our stakeholders. This includes the value distributed
through salaries, taxes, payments to authorities, contractors and suppliers, capital
spending and social investment.
Our established track record of
creating significant growth and
value was demonstrated most
recently through our basin opening
discoveries offshore Senegal. We
continue to pursue transformational
value opportunities today, through
exploration activities in Suriname
and Mauritania.
Investors
Employees
We have a track record of safe and
effective operations and extensive
experience operating both onshore
and offshore, in shallow and deep
water locations, in remote and frontier
locations and in benign and harsh
weather environments. Our industry
experience has included opening
new oil basins, creating value through
exploration success, and taking assets
to production and development.
Egypt is the latest new country entry
for the Company, as we seek to ramp
up production and enhance organic
reserves replacement through a
significant exploration programme.
Business partners
and suppliers
Governments and
regulators
Oil and gas sales revenue
US$56.2m
Employee salaries and benefits
US$49.4m
Payments for capital expenditure
US$89.4m
Payments to governments
US$24.6m
Local community/
interest groups
Social investment
US$0.6m
(cid:3) For more information please see our Sustainability Report:
www.capricornenergy.com/working-responsibly
Our approach to working responsibly
is embedded throughout our business
in our management systems and
enshrined in our policies and
principles. We operate to industry-
leading, international standards in
health, safety and environmental
management. We never compromise
our standards and we look for partners
who share our commitment to
international good practice, ensuring
projects are managed in a responsible
and respectful manner. During 2021,
we announced our commitment to net
zero Scope 1 and 2 equity emissions
by 2040 or earlier.
Capricorn Energy PLC Annual Report and Accounts 2021
15
Industry Review 2021
2021 saw a major international focus on climate change, carbon emissions and energy
transition at COP26 in Glasgow in November. Whilst international commitments still fall
short of those deemed by scientific consensus to be required to limit global warming to 1.5
degrees compared to pre-industrial levels, the conference delivered several important policy
developments. Ben Conley, Capricorn’s Strategy and Business Development Director,
examines how these are likely to have significant implications for the energy industry and
how Capricorn is working on the twin challenges of energy transition and energy security.
Methane pledges, ramp-ups in national
defined contributions and a further push
to remove fossil fuel subsidies will all have
a strong impact on oil and gas companies’
strategies. Furthermore, investor
momentum for energy transition will be
bolstered by the Glasgow Financial Alliance
for Net Zero (GFANZ) commitment to
invest over US$130 trillion of private capital
to support the transformation of the global
economy for net zero.
Capricorn’s commitments to deliver net
zero by 2040 at the latest and to eliminate
flaring by 2030 are well aligned with the
targets and ambitions embedded in the
COP26 pledges. Our portfolio is resilient
and will continue to generate shareholder
value even in the IEA’s net zero 1.5 degree
scenario. We test that our investments
will generate returns exceeding a 10%
IRR using commodity and carbon price
assumptions as onerous as those
associated with IEA’s net zero scenario,
as described in our TCFD reporting.
The path to a reliable and affordable
decarbonised energy system is likely
to be far more complex than many
simple current analyses imply, with
significant geopolitical and socioeconomic
implications. Capricorn makes its
investment decisions mindful of the
long-term mega-trends, but also
conscious that for many nations, energy
security is of paramount concern and that
reliable energy provision is a prerequisite
to the economic development necessary
for decarbonisation.
The thesis that recent upstream capacity
underinvestment will limit supply that we
described in our 2020 overview has proved
valid and has dominated hydrocarbon
commodity prices throughout 2021.
to meet recovering demand levels. Pricing
behaviour should elicit an oil and gas
supply side response. However, thus far
there is little evidence for this. Some
forecasters are aligning around a view
that the market clearing oil price to
provide meaningful new non-OPEC
supply will be closer to US$80/bbl than to
US$60/bbl and that the underinvestment
thesis is now set to dominate the mid part
of the decade.123 Certain forecasters also
question OPEC’s ability to respond, citing
several members’ failure to meet current
quotas, as evidence for mid-term oil prices
rising above US$100/bbl.4 These price
forecasts, coupled with record coal pricing
seen in 2021 demonstrate the scale of the
challenge to decarbonise and the time
required to develop viable alternatives.
The combination of industry players
making amends for earlier procyclical
misallocation of capital and the reduction
of equity capital supply to the upstream
industry has seen non-OPEC supply failing
As well as the requirement to scale up
capture of renewable energy sources, we
believe that the debate is maturing around
the role of the responsible production of
hydrocarbons. Investors and stakeholders
increasingly recognise that the transition
will require hydrocarbon-derived energy
and thus recognise the critical role of
responsible operators in ensuring that
these resources are produced as efficiently
as possible. Rystad recently claimed that
10MMbpd production by 2030 will be
required from new field sanctions within
a net zero 2050 scenario.5 The Oxford
Energy Institute’s favoured 1.5 degree
scenario sees a huge ramp-up in
renewable capacity, but also a significant
expansion in global gas supply particularly
in markets like Asia’s which currently rely
on coal for 50% of power provision.6
As outlined elsewhere in this report,
Capricorn is taking steps to increase
energy production from our upstream
operations in Egypt but at the same time
reduce the associated emissions both on
an absolute and an emissions intensity
basis. Investigations are also ongoing to
use renewable power sources both for
16
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Financial Statements
Additional Information
“The industry context for Capricorn has rarely been so exciting.
We are faced with an array of attractive investment opportunities
in responsible upstream energy and in emerging new energies.”
upstream operations and for provision
of energy to local markets. We see
numerous other opportunities to acquire
high-quality upstream assets from legacy
operators, where there are opportunities
to create material stakeholder value,
while preferentially producing lower
emissions resources, electrifying
upstream operations, and capturing
and sequestering emissions.
Delivering safe and reliable operations in
non-OECD jurisdictions will be a critical
enabler to the development of future
renewable energy sources. At present,
the cost of capital for energy investments
in many emerging economies limits the
large-scale development of renewable
resources. Indeed, excluding China, the
majority of 2020 global renewable energy
investment was targeted at OECD
economies7, yet to achieve a decarbonised
energy system in line with a 1.5 degree
global warming scenario, rapid growth in
renewable capacity in emerging economies
will be critical. Responsible operators that
can deliver reliable returns from non-
OECD upstream energy investments will
be key enablers to reducing the effective
cost of capital for non-OECD renewable
investments. Working with lenders,
initiatives such as GFANZ, or leveraging
OECD sovereign balance sheets to
underpin non-OECD PPAs, companies
with the licence to operate responsibly
will be a critical component of delivering
climate ambitions.
The industry context for Capricorn has
rarely been so exciting. We are faced
with an array of attractive investment
opportunities in responsible upstream
energy and in emerging new energies.
At the same time, we see large numbers
of asset divestments and relatively few
companies able and willing to deliver
the challenges of energy security and
decarbonisation.
1 Bernstein Energy: When will we see a supply
response? An outlook for medium term oil prices;
2/12/21.
2 Bloomberg; consensus price forecasts.
3 Woodmac; Macro Oils long-term 2021 to 2050.
4 JP Morgan, The J.P. Morgan Global Energy
Outlook; 9/12/21.
5 Energy; Net Zero by 2050, what will it take.
6 Oxford Energy Institute: https://www.
oxfordenergy.org/wpcms/wp-content/
uploads/2021/07/Energy-Transition-Modelling-
the-Impact-on-Natural-Gas-NG-169.pdf
7 Bloomberg New Energy Finance; Climatescope;
14/12/21.
CASE STUDY
TRADEWATER PARTNERSHIP
We have invested in the development of greenhouse
gas emissions avoidance projects in partnership
with Tradewater – a US-based company focused on
finding, collecting, and destroying the most potent
greenhouse gases, such as chlorofluorocarbon (CFC)
and hydrochlorofluorocarbon (HCFC) refrigerants.
Our investment will help develop identification and collection networks for these
gases in developing countries around the world and will yield 250,000 tonnes of
high-quality carbon offset credits over the next five years from the destruction of
old refrigerants.
Our carbon offset strategy is aligned with the International Carbon Reduction
and Offset Alliance (ICROA) and Carbon Offsetting and Reduction Scheme for
International Aviation (CORSIA) principles and is focused on the acquisition of
high-quality carbon credits, verified by Verra or Gold Standard. Carbon credits
are not older than 2016 and can be either portfolio or project-based. We will aim
to retire the oldest carbon credits first. It is important that carbon offset projects
demonstrate strong co-benefits, supporting socioeconomic development,
health, protecting water quality or biodiversity. We aim to align our carbon
offset strategy with the UNSDG goals and Capricorn’s Code of Ethics.
In addition to our investment with Tradewater, we have also acquired portfolio-
based carbon offsets, which include REDD+ (Reduction of Deforestation and
Forest Degradation) projects in Guatemala and Cambodia, as well as landfill
gas extraction projects in Brazil and Turkey.
Capricorn Energy PLC Annual Report and Accounts 2021
17
TCFD Reporting
Task force on
Climate-related Financial
Disclosures (TCFD) Report
Capricorn Energy’s climate-related financial disclosures made in the 2021
Annual Report are consistent with the TCFD’s recommendations and
recommended disclosures, in line with the Financial Conduct Authority’s
LR9.8.6 requirement. We have analysed the impact of transition risks of
climate change on our portfolio using scenario analysis, and we are working
to fully assess the potential impact of the physical risks of climate change
on our assets.
We are continuing to develop good
practices and standards for transparency
in line with TCFD recommendations.
Our latest reporting includes 11 TCFD-
recommended disclosures across
four areas.
Valentina Kretzschmar
Energy Transition Director
appointed August 2021
Governance
Disclose the organisation’s
governance around climate-related
risks and opportunities
Capricorn attaches high importance to
climate change considerations at Board
level and throughout the organisation,
together with our broader environmental,
societal and governance responsibilities.
These matters are standing agenda items
at each Board meeting, and also comprise
an important KPI in the determination
of Management Variable Remuneration.
Climate-related risks and opportunities
are presented at the Executive
Committee, the Group Risk Management
Committee and the Management Team
meeting for discussion and challenge.
During the year, the Board and Executive
Committee’s discussions included:
– reviewing and approving investment
for the reduction of diesel power
generation and gas flaring in Egypt;
– reviewing and supporting longer
term plans for electrification of Egypt
operations and carbon capture and
sequestration;
– assessing the carbon abatement
potential of all business development
opportunities reviewed for investment
and ensuring compatibility with the
Group’s net zero target;
– assessing the “advantaged resources”
criteria for all exploration new venture
opportunities to ensure that investment
targets resources that will be
competitive in a future with lower oil
demand and higher carbon prices;
– receiving regular updates from the
Energy Transition Director on
stakeholder objectives and regulatory
developments in the area of climate
change and energy transition policies;
– approving the acceleration of the
Group’s net zero carbon emissions
target date from 2050 to 2040; and
– approving the acquisition of 490,000
tonnes of high quality carbon offsets,
including nature-based, landfill gas and
sequestration of refrigerant gases.
a) Describe the Board’s oversight of
climate-related risks and opportunities
Climate-related risks are recognised as
a major concern for the planet, as well
as the future of the oil and gas industry.
Addressing these risks is one of the
highest priorities for our business. The
Board takes full responsibility for the
governance of climate-related risks
and opportunities.
With effect from 3 March 2022, a new
committee, the Sustainability Committee,
has been established with all Board
Directors as members. These areas are
considered within every Board decision
and, therefore, are a key element of
each Board meeting, but establishing a
committee dedicated to these matters will
further embed the importance within the
Board and wider organisation. The energy
transition and Capricorn’s role in it is of
particular importance to the Board and
the formation of this new committee will
allow it further dedicated time.
Overall responsibility for the system
of risk management and internal control
and reviewing the effectiveness of such
systems rests with the Board. Principal
climate-related risks and opportunities
are reviewed at each Board meeting,
so at least five times per year.
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Additional Information
Capricorn uses risk registers, described
in the Risk Management section below,
to report climate-related risks and
opportunities and associated mitigation
measures. Reporting of these risks within
the organisation is structured so that risks
are escalated through various internal
management groups, to relevant Board
committees and to the Board itself.
Climate-related risks and opportunities are
discussed, as noted, during risk discussions
but also when considering annual work
programmes and budgets, acquisitions
and divestments and when considering
annual performance objectives.
b) Describe management’s role in
assessing and managing climate-related
risks and opportunities
Capricorn’s CEO, who is also part of the
Executive Committee, takes ultimate
responsibility and accountability for the
Company’s ESG policy, including climate-
related strategy and targets. The Chair
of Capricorn’s Board is the Director
responsible at the Board level.
Capricorn’s Executive Committee reviews
climate and energy transition issues,
concerning both Capricorn’s own position
and risk management, and international
policy and stakeholder drivers. The
Management Team also performs a
quarterly review of the Group risk register
and associated controls and actions. This
offers management an opportunity to
agree on and challenge the principal
climate-related risks and opportunities.
In August 2021, Capricorn appointed
an Energy Transition Director, who took
responsibility for the development of the
Company’s climate change and energy
transition strategy and reporting. The
Energy Transition Director reports to the
CFO and provides regular updates to the
Executive Committee, as well as the Board.
The Energy Transition Director is
responsible for monitoring the fast-
changing external environment, including
the regulatory and technological spheres.
Climate-related risks and opportunities
are discussed on a regular basis with the
Company’s senior leadership.
The Energy Transition Director is
responsible for ensuring the Company
remains on track to fulfil its net zero
target by 2040. This includes overseeing
Capricorn’s carbon emissions from existing
assets and ensuring that screening of new
opportunities is in line with the Company’s
net zero commitments.
The Energy Transition Director is also
responsible for TCFD reporting, including
scenario modelling to assess the impact
of transition risks of climate change on
Capricorn’s portfolio.
The Energy Transition Director works
closely with other functions in the
Company – such as Business Development,
Exploration, Legal and HSE – to identify
and assess any climate-related risks and
opportunities. An Energy Transition Advisor,
working as part of the Strategy and
Business Development team was also
appointed in July 2021 to help develop
commercially viable decarbonisation
projects at the asset level.
Energy transition is being embedded
into Capricorn’s culture, as climate impact
becomes a key strategic consideration
across different business functions. For
example, screening of new opportunities
is underpinned by resilience testing
against transition risks of climate
change, including the application
of internal carbon pricing across all
potential investments.
We also include energy efficiency and
carbon emissions as a differentiating
factor in selecting contractors for drilling,
marine and aviation services. The most
polluting products and services are
eliminated from the tender process.
Internally, we established our Eco-Team
in 2019 with a dual focus: to identify
opportunities to reduce our carbon
footprint within our office environment,
for example paper consumption and
recycling; and also to educate and
encourage colleagues to reduce their
personal impact on the climate. In 2021,
the Eco-Team partnered with a local
provider, Pawprint, to allow colleagues to
use their carbon footprint mapping app.
In addition, in April 2022 to support staff
in reducing their personal impact on the
climate, we are introducing salary exchange
for the purchase of electric vehicles.
We recently signed a lease to move our
Edinburgh headquarters into the city’s
Haymarket 1 development. The new
building has been considered through
the lens of sustainability – both regarding
the construction and operational carbon
footprint of the building and the impact on
employees’ commuting and other activities.
Management
Executive Committee plus
Senior Leadership (including
the Energy Transition Director):
meets tri-weekly and regularly
updates on any new climate-
related developments.
Executive Committee: meets every
two months, with strategic updates
from the Energy Transition Director.
Board
Meets every two months
Regular updates provided by the
Management Team, including the
Energy Transition Director’s briefing.
Risk Management
Disclose how the organisation
identifies, assesses, and manages
climate-related risks
a) Describe the organisation’s processes
for identifying and assessing climate-
related risks
The Group’s framework for risk
management promotes a bottom-up
approach to risk management with
top-down support and challenge. Climate-
related risks and opportunities and the
associated mitigation measures and action
plans are maintained in a series of risk
registers at Group, asset, function and
project level. The Group uses a number
of tools to identify climate-related risks
including, but not limited to, HAZIDs, social
impact assessments and environmental
hazard identification (ENVIDs). Risks
identification sessions are typically
completed with project teams and risks
are uploaded to the Group’s risk software
tools which assign ownership for the risks.
Climate-related risks are classified in
alignment with TCFD’s description of
physical and transition risks:
Transition risks – risks related to the
transition to a lower carbon economy
including policy and legal, technology,
markets and reputational risks.
Physical risks – risks related to the
physical impacts of climate change
including event-driven risks such as
changes in the severity and/or frequency
of extreme weather events.
Capricorn Energy PLC Annual Report and Accounts 2021
19
TCFD Reporting continued
The Group has established impact criteria
which assigns a score of one to five for
impact and probability of occurrence. This
drives the overall assessment of the risk
and will determine if the risk is within the
appetite limits. Further information is
included in the risk disclosure page and
the Materiality Matrix on page 25.
b) Describe the organisation’s processes
for managing climate-related risks
The Group applies one of the 4Ts to each
risk: Tolerate, Treat, Transfer or Terminate.
All risks categorised as ‘Treat’ are required
to have actions assigned to them to
reduce the impact or likelihood of the risk
occurring. Reporting of these risks within
the organisation is structured so that risks
are escalated through various internal
management, Board committees and
to the Board itself for challenge and
oversight. Future challenges and costs
to achieving pathway to Net Zero 2040
risk has been identified as a principal risk.
Further information on the risk, appetite
level, impacts and mitigations can be
found on pages 51 to 52.
c) Describe how processes for
identifying, assessing, and managing
climate-related risks are integrated
into the organisation’s overall risk
management
Climate-related risks are captured at various
levels within the Group and in line with
the Group process for risk management.
All projects, be it a drilling project, an
acquisition opportunity or a new country
entry, are required to maintain a risk
register. Project teams are multi-disciplined
which ensures that all categories of risk,
including climate-related risks, are
identified, assessed and managed.
There is also a dedicated Energy
Transition risk register which identifies
the strategic climate-related risks as well
as the aggregated climate-related project
risks. This risk register is maintained by
the Energy Transition Director and the
Strategy and Energy Transition Advisor
and is reviewed quarterly. This ensures all
climate-related risks are integrated into the
Group’s overall risk management processes
and will be presented and challenged at
various forums within the Group.
Strategy
Disclose the actual and potential
impacts of climate-related risks and
opportunities on the organisation’s
businesses, strategy and financial
planning where such information
is material
a) Describe the climate-related risks
and opportunities the organisation
has identified over the short, medium
and long term
In developing our strategy, Capricorn’s
Board and leadership team consider a
wide range of opportunities and risks
across three discrete time horizons:
Short term (to 2025): the next three years
are defined by detailed business and
financial plans, which are performance-
managed in delivery of our 2025 targets.
Medium term (to 2030): looking out to
the end of the decade and the duration of
the Paris Agreement enables us to consider
our progress towards the long-term targets
and adjust the course of action if required.
Long term (post-2030): we use a
scenario planning approach – IEA’s Stated
Policies Scenario (STEPS), Sustainable
Development Scenario (SDS) and Net Zero
Emissions (NZE) scenarios – to account
for a wide range of uncertainties in the
post-2030 period. Our aim is to ensure we
have a resilient portfolio, which will deliver
value to key stakeholders in the most
ambitious climate scenario of limiting the
global temperature increase to 1.5 degrees
compared to pre-industrial levels.
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Financial Statements
Additional Information
Capricorn considers the following risks to be key climate-related risks in the short, medium and long term.
Type Climate-related Risk
Capricorn’s Response
Policy and legal (medium to long term)
– Implementation of carbon pricing mechanisms in
both compliance and non-compliance markets.
– Changes in legislation and country policy.
– In line with IEA and other energy companies, in the EU and UK
compliance markets we use carbon prices of US$100/tCO2e
and US$110/tCO2e in 2030, respectively. For other regions,
where carbon price is not currently applicable, we use our
internal carbon pricing assumptions starting at US$28/tCO2e
in 2022, rising to US$51/tCO2e in 2030.
– Use of long-term oil price assumptions that consider the
demand effects of global carbon taxation.
– Ongoing efforts to decarbonise operations.
– Ongoing monitoring of policy and legislation development
in countries of interest.
Technology (medium to long term)
– Increasing costs of transition to lower-emission
– Implementation of decarbonisation technologies at the field
technology.
level in Egypt.
– Substitution of existing products and services
with lower emissions options.
– Increase in gas production within the portfolio, with
decarbonisation options including carbon-capture,
utilisation and storage (CCUS) and solar for in-field use.
– Funding of Heriot-Watt University research scholarships.
– Application of inherently lower emission equipment and
contractor services.
Market (medium to long term)
– Decline in oil demand and oil price.
– Faster than expected shift away from gas, leading
– Low-cost portfolio to generate value in a 1.5 degree scenario.
– Embed low oil and gas prices, as well as carbon prices when
to lower gas prices.
screening for new investments.
– Changing market sentiment as consumers switch
– Consider diversification into clean technologies, such as solar
away from fossil fuels.
– Access to capital.
Reputation (short term)
and geothermal.
– Ensure strong balance sheet, low leverage, strong free cash
flow generation.
– Public perception of the oil and gas industry is
changing.
– Lack of trust in the oil and gas industry’s net zero
– Maintain transparency relating to all ESG issues.
– Comply with the highest reporting standards.
– Ensure continued engagement with external stakeholders.
ambitions.
Chronic (long term)
– Rising mean temperatures.
– Rising sea levels.
– Increased extreme weather events.
– Rising water stress including conflicting uses
and availability.
– Water resource and resilience studies in Egypt, including a
planned in-house water challenge. Given the recent acquisition
of assets in Egypt, we are currently assessing the impact of
physical risks of climate change by working through the
findings of Regional Climate Models (RCMs).
– We help our communities adapt to physical risks, for example,
through our investment in a mangrove rehabilitation project in
Suriname to prevent coastal erosion and improve biodiversity.
Capricorn Energy PLC Annual Report and Accounts 2021
21
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TCFD Reporting continued
Capricorn has recognised and is currently working on scoping and implementing a number of climate-related opportunities.
Type
Climate-related Opportunities
Capricorn’s Response
) – Use of lower-emission sources of energy.
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– Shift toward decentralised energy generation.
– Use of supportive policy incentives.
– Use of new technologies.
– Participation in carbon market.
– In Egypt, we plan to replace diesel generators with cleaner-
burning gas generators, electrify well sites and downhole
pumps using centralised power generation, and integrate
solar power to reduce our reliance on diesel and gas.
– We are actively pursuing opportunities in carbon capture,
utilisation and storage (CCUS) in Egypt and other jurisdictions,
and we have invested in the NECCUS project, which is
examining industrial carbon capture projects in Scotland.
– We are actively engaged in voluntary carbon markets. We have
acquired a portfolio of high quality carbon offsets, including
nature-based, landfill gas and refrigerant gases sequestration.
– Resource substitutes/diversification.
– We are evaluating clean energy diversification opportunities,
including solar, geothermal and CCUS.
– Development and/or expansion of low emission
– To minimise energy use in drilling operations and associated
goods and services (short term).
activities without compromising safety or cost, we assess the fuel
consumption of rigs, vessels and helicopters as part of the tender
process. Lower energy consumption – and therefore emissions –
could provide a point of differentiation if other technical and
commercial considerations are comparable. We have already
trialled this approach when tendering vessels for geophysical
and geotechnical survey work in the UK and Mauritania. We will
strive to align our supply chain products and services with our
own emission reduction target of net zero by 2040
– Use of more efficient production and
– We seek to continuously improve the performance of our
distribution processes (short to medium term).
– Use of recycling (short term).
– Move to more efficient buildings (short term).
operating assets, reducing their carbon intensity, including
elimination of flaring from our operations in Egypt. We are
also promoting efficient operations with our contractors and
planning improved management of vessels and other assets
during our drilling operations to further improve the energy
efficiency or our products.
– Working internally to identify opportunities to reduce our
carbon footprint within our office environment, for example
paper consumption and recycling.
– Our new office building has been considered through the
lens of sustainability – both regarding the construction and
operational carbon footprint of the building and the impact
on employees’ commuting and other activities.
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b) Describe the impact of climate-
related risks and opportunities on the
organisation’s businesses, strategy and
financial planning
Capricorn is fully incorporating climate
change-related risks into its investment
decision making. Our capital allocation
decisions are made using rigorous
planning assumptions, informed by
climate change and energy transition
scenario analysis. We carefully consider
the environmental performance of assets
and opportunities as part of our screening
process, underpinned by our net zero
commitment. This commitment also
drives our decarbonisation strategy in
Egypt, as described in the table above.
All new oil and gas opportunities are
screened at US$50/bbl flat Brent oil price
and US$6/mcf global gas price (adjusted for
certain regional markets). We also consider
a range of other scenarios as part of our
opportunity screening process. We apply
carbon prices across all our scenarios. For
countries that already have an established
carbon pricing mechanism – such as the EU
and the UK – we use carbon prices of
US$100/tCO2e and US$110/tCO2e by
2030, respectively. For other regions, where
regulatory carbon pricing mechanisms are
not currently applicable, we use our internal
carbon pricing assumptions starting at
US$28/tCO2e in 2022, rising to US$51/
tCO2e in 2030.
c) Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-related
scenarios, including a 2°C or lower
scenario
The findings of the recently conducted
scenario analysis exercise, which tested the
resilience of Capricorn’s Egypt portfolio
against IEA’s STEPS, SDS and NZE
scenarios, showed that our assets will
generate value in the most ambitious
climate scenario, aligned with a 1.5 degree
warming. This gives us confidence that our
valuation and planning assumptions are
robust and that we will continue to create
value for all key stakeholders – even in the
most aggressive carbon reduction scenario.
Capricorn’s assumptions, used for our
financial planning and balance sheet
impairment testing include US$55/bbl
(flat) oil price, US$6/mcf gas price
(long term, inflated at 2% from 2025)
and carbon prices of US$28/tCO2e in
2022, increasing to US$51/tCO2e in 2030.
Carbon prices were applied to Scope 1
and 2 emissions from Capricorn’s Egypt
operations.
The scenario analysis shows that our
Egypt portfolio, when modelled using
IEA’s NZE assumptions delivers 95% of
the value we derive for our financial
planning purposes net of carbon costs.
Our portfolio outperforms our planning
scenario by 20% in the SDS scenario.
At COP26 in Glasgow, many countries
committed to more stringent nationally-
determined contributions (NDCs), but
if adhered to collectively, these are still
forecast to fall short of the required actions
to meet the 1.5 degree goal, and based on
analysis by the IEA and Wood Mackenzie
are aligned with a 2 degree pathway.
22
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Egypt: Asset Value relative to Capricorn Planning Case NAV including Carbon costs
Net asset value
Carbon costs
%
9
3
1
%
0
2
1
%
0
0
1
%
5
9
100
0
Capricorn
Planning
(=impairment)
IEA STEPS
IEA SDS
IEA NZE
IEA scenarios: STEPS assumes policies and targets announced by governments are enacted and estimates an average temperature rise of 2.7°C (up to 3.3°C).
SDS sees an accelerated transition to a low-carbon world and projects a 66% chance to limit temperature rise to 1.8°C and a 50% chance to limit it to 1.65°C.
NZE scenario is aligned with the Science Based Targets Initiative (SBTI), limiting the global warming to 1.5°C by 2100 compared to pre-industrial levels.
Metrics and Targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such
information is material
Capricorn’s principal metrics and targets used to assess and manage climate-related risks and opportunities are presented in the table
below.
TCFD recommended disclosures
Risks and opportunities identified
Metrics and targets, where
a) Disclose the metrics used by
the organisation to assess climate-
related risks and opportunities
in line with its strategy and risk
management process.
b) Disclose Scope 1, Scope 2 and, if
appropriate, Scope 3 greenhouse gas
(GHG) emissions, and the related risks.
c) Describe the targets used by the
organisation to manage climate-
related risks and opportunities
and performance against targets.
Transition and physical risks,
including policy, market and
long-term chronic effect of
global warming.
Opportunity to invest in clean
projects, with carbon pricing risk-
adjusted returns fully recognised.
Participation in carbon market.
Improved resilience of the
existing portfolio.
Rising water stress including
conflicting uses and availability.
Measurement and disclosure of
GHG emissions from Scope 1, 2
and 3 help emissions management
and creation of a clear pathway to
net zero.
Risks include exposure to carbon
price due to changes in policy,
as well as significant reputation
risks if emissions are not managed.
Summary of targets aimed at
helping achieve our net zero
strategic goal. Given the dynamic
nature of Capricorn’s portfolio, we
will use 2022 as a baseline year on
the journey to carbon neutrality.
– Net zero, with 2030 and 2040 targets set for
Scope 1 and 2 emissions on an equity basis,
pages 34 and 56.
– Remuneration policy with embedded climate
related targets, pages 114-117.
– Pro-active engagement with our employees to
increase awareness and help deliver net zero,
page 19.
– Key assumptions: commodity prices for
opportunity screening and financial planning,
page 22.
– Carbon price, page 22.
– Capricorn’s environmental impact, pages 56-59.
– Scope 1 and 2 on an operational and equity basis,
page 57.
– Scope 3 (categories 6 and 11), page 57.
– TCFD climate-related risk and management,
page 19.
– 2030 and 2040 targets and planned progress,
pages 56-57.
– Scope 1 and 2 and planned progress,
pages 56-57.
– Scope 3 and planned progress, pages 56-57.
– Flaring and planned progress, page 59.
Capricorn Energy PLC Annual Report and Accounts 2021
23
Materiality Matrix
Identifying Material
Corporate Responsibility
Issues
To manage risk effectively and to operate
with the support of our stakeholders, we
need to understand the corporate
responsibility issues that matter to them
and are most significant to our business.
We do this by conducting an annual
assessment which considers and classifies
relevant issues, determined from
international reporting frameworks
including IPIECA8, GRI9 and SASB10. Issues
are classified to indicate their importance
to Capricorn based on risk and their
importance to stakeholders based on
stakeholder and investor engagement.
The results of this materiality assessment
are presented to the Board on an annual
basis and reviewed in detail by Executive
Board members.
The issues identified as material to both
stakeholders and Capricorn are shown in
the matrix on page 25. We address the
issues deemed to be of ‘high’, ‘significant’
and ‘medium’ importance in our
Sustainability Report at www.
capricornenergy.com/working-responsibly.
8
IPIECA Oil and Gas Industry Voluntary
Guidance on Sustainability Reporting,
3rd edition, 2016.
9 Global Reporting Initiative.
10 Sustainability Accounting Standards Board.
24
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
WWhaat’’s Impoortaant tto ouurr Sttakeehoolddeers
The 60 issues identified as material to
both stakeholders and Capricorn are
shown in the matrix below. This represents
their relative positions after any
adjustments were made to our
assessment of the ‘importance to
stakeholders’, in line with expert review.
)
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People
30 Anti-Discrimination
31 Assets Security
32 Contractor Selection,
Capacity and
Leadership
33 Cyber Security
34 Equal Pay, Equal
Opportunity
35 Human Capital
Development
36 Infectious Diseases
37 Major Accident
Prevention
38 Office Security
39 Personnel Security
and Travel
40 Talent Management
41 Workplace Health
and Well-Being
42 Workplace Safety
Society
43 Anti-Discrimination
(Beyond Employees)
44 Community Health
45 Cultural Heritage
46 Demonstrating
Value Created
47 Economic or Physical
Displacement
48 Freedom of
Association
49 Grievances and
Grievance
Mechanisms
50 Human Rights
Management
51 Indigenous Peoples’
Rights
52 Local Community
Stakeholders
53 Local Content and
Local Procurement
23
10
25
38
3
13
17
24
11
15
18
26
28
5
31
47
29
37
51
53
2
32
48
54
55
64
7
9
14
16
20
21
22
30
33
35
36
39
40
41
42
44
45
46
50
52
56
57
58
59
60
1
12
27
49
8
19
34
43
Insignificant
Low
Medium
Significant
High
Importance to Stakeholders
54 Local Energy Access
Theme
Governance
Environment
People
Society
55 Local Hiring Practices
Materiality
High
Medium
Low
56 Local Workforce
Development
57 Modern Slavery
58 Security and
Human Rights
59 Social Investment
60 Working Conditions/
Ts and Cs
Governance
1 Advocacy and
Lobbying
2 Anti-Competitive
Behaviour
3 Business Partners
Alignment on
Sustainability Issues
4 Capricorn ABC
Practices
5 Climate Change
Policy and Planning
(including Global
Energy Transition)
6 Contractors’ and
Suppliers’ ABC
Practices
7 Data Protection
8 Decommissioning
9 Fines and
Prosecutions
10 Funding
11 Government
ABC Practices
12 Ineffective
Whistleblowing
13 Investment (Home
and Overseas)
14 JV Partners and
Funding
15 Management of
Material Issues
16 Operations in
Sensitive and
Complex Locations
17 Remuneration
18 Reserves Valuations
and Capital
Expenditure
19 Sustainability
Governance
20 Tax and Payments
to Governments
Environment
21 Biodiversity and
Sensitive Areas
22 Discharges to Air,
Sea, Land and Sound
23 Energy Use and
Alternative Sources
24 Freshwater Use
25 GHG Emissions
(Including Venting
and Flaring)
26 Materials Use
27 Product Stewardship
28 Reuse, Recycle and
Waste Management
29 Use of Local Resources
Capricorn Energy PLC Annual Report and Accounts 2021
25
Stakeholders and S172 Statement
Understanding what matters to our stakeholders is fundamental to enabling
us to operate. The Board is committed to engaging closely with the Company’s
diverse range of stakeholders and taking their views into account.
Supporting S172
The Directors of Capricorn Energy PLC,
and those of all UK companies, must
act in accordance with a set of general
duties. The Companies (Miscellaneous
Reporting) Regulations 2018 require
directors to explain how they
considered the interests of key
stakeholders and the broader matters
set out in Section 172 of the
Companies Act 2006. This includes
considering the interests of other
stakeholders which may affect the
long-term success of the Company.
The Board fully recognises the need to
balance the contrasting and, at times,
conflicting interests of various
stakeholder groups, whilst focusing
on the Company’s purpose, values and
strategic priorities in key decision-
making. In 2020 and 2021, we have
had to operate in the unprecedented
context created by the COVID-19
pandemic; however, understanding
STAKEHOLDER
WHY IT IS IMPORTANT
TO ENGAGE?
HOW MANAGEMENT AND/OR DIRECTORS ENGAGED
Investors
– Their views influence our
strategic and operational
decision-making
– We are dependent on
shareholders for access
to funding
– We are accountable
to our shareholders
– Undertaking a full investor programme including:
• Holding 59 investor meetings including one to ones
and attending roadshows/conferences
• Conducting regular financial reporting
• Responding in a timely manner to investor and
analyst enquiries
• As the AGM in 2021 was a closed meeting in accordance with
UK and Scottish Government guidance regarding COVID-19,
offering shareholders the opportunity to submit any questions
by email in advance of the meeting
• Post-AGM correspondence to discuss vote outcomes
Governments
– We are responsible to
– Meetings with Heads of State, UK and Country Ambassadors,
Ministers and Civil Servants
them for compliance with
local and/or international
laws
– Their permissions are
required for us to access
acreage and operate
Business
partners,
peers and
contractors
– We are reliant on viable
– Due to the COVID-19 pandemic, large portions of the
partners in joint ventures
– We are commercially
responsible to contractors,
suppliers and partners
– Their performance directly
impacts our financial,
operational and
responsible performance
engagement throughout 2021 were carried out using
virtual technologies and included meetings with partners,
peers and contractors with Board members and senior
executives in addition to regular joint venture and operations
planning meetings
– Maintaining membership of industry bodies
– Active management of key projects and assets
(including alignment of project deliverables)
26
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
the aims and concerns of stakeholders
has helped us identify and prioritise
issues most material to the business.
The Directors of Capricorn Energy
PLC consider, both individually and
together, that they have acted in
accordance with their duties codified in
law, which include their duty to act in
the way in which they consider, in good
faith, would be most likely to promote
the success of the Company for the
benefit of its members as a whole,
having regard to the stakeholders and
matters set out in Section 172(1) of the
Companies Act 2006.
We outline below how the Directors
have had regard to the matters set out
in S172(1) (a)-(f) of the Companies Act
2006 when discharging their duties,
and the effect of that on certain
decisions that have been taken.
WHAT WERE THE KEY
TOPICS OF ENGAGEMENT
EXAMPLES OF THE IMPACT OF SUCH
ENGAGEMENT AND RESPONSES TAKEN
COVID-19 CONSIDERATIONS
– ESG matters including
energy transition
– Board composition
including committee
set-up
– Strategy and performance
– Corporate governance
– Regular reviews of corporate objectives
– Board committee structure changes
(as discussed on page 91)
– Launch of the Diversity and Inclusion strategy
– Improved transparency regarding bonus
scheme disclosures
– Legal Compliance
– ESG matters
– Major accident prevention
– Investment and economic
– Continued monitoring of responsible
performance at Board meetings and annual
review of CRMS and objective KPI setting
– Implementation of enhanced incident
growth
reporting system
– Reviewing feedback and commentary from
government and regulatory bodies regarding
performance expectation (see our responsible
approach in respect of Mauritania discussed
on page 65)
– KPIs include performance against leading
and lagging indicators for health, safety and
environmental protection and are reviewed
at all Board meetings
– Investor meetings were held either
through virtual communications
platforms or in person when safe
to do so due to the restrictions in
place in response to the COVID-19
pandemic
– The Board is committed to
communicating in an open and
transparent manner with all investors,
and places a clear importance on
shareholder engagement.
Communication and transparency
around Capricorn’s COVID-19
strategic response and business
continuity has been paramount
– We continue to monitor controls and
advice set out by host governments
in our operating locations and
multi-national organisations such
as the WHO, which assisted in
shaping and implementing our
nine-step plan to ensure all critical
activities of the business were
unaffected by the pandemic
– Policies and standards
– Industry reputation
– Investment opportunities
for growth
– Long-term relationships
– ESG matters
– Careful selection of contractors (discussed
– Where required and with the help of
on page 63)
– Continued membership of IOGP Security
Committee (performance against IOGP
benchmarks discussed on page 62)
– Actively engage with all JV partners early
to establish good working relationships
(discussed on page 82 in the context
of Egypt)
local partners and contractors, survey
work and vessel inspections have
been managed remotely. To ensure
that best practice is followed, we also
monitor how non-operating partners
have conducted drilling campaigns
during the pandemic
Capricorn Energy PLC Annual Report and Accounts 2021
27
Stakeholders and S172 Statement continued
STAKEHOLDER
WHY IT IS IMPORTANT
TO ENGAGE?
HOW MANAGEMENT AND/OR DIRECTORS ENGAGED
Local
communities
and interest
groups
– We have an ethical
responsibility to maximise
social and economic
benefit and to minimise
impact on livelihoods and
the environments in which
we operate
– Community meetings
– Reviews of social investment strategies aligned with UNSDGs
– Senior management visits
– Media monitoring
– Promoting use of stakeholder engagement registers
Employees
– We are dependent on
employees’ performance
and that of the wider
workforce
– We have a legal and
ethical responsibility
for their well-being
– They bring a diverse
perspective to the
identification of
opportunities and
ways of working
– Regular staff meetings
– Monthly ‘pulse’ surveys
– Biannual Employee Voice Forum (EVF) meetings
(discussed on page 85)
– Working practice focus groups
– General Meetings
– Exit interviews
28
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
WHAT WERE THE KEY
TOPICS OF ENGAGEMENT
EXAMPLES OF THE IMPACT OF SUCH
ENGAGEMENT AND RESPONSES TAKEN
COVID-19 CONSIDERATIONS
– Protection of resources
– Community investment focus to include
and livelihoods
adaption to climate change
– Community development
and social investment
– Access to employment
and business
opportunities
– Transparency of payments
to government
– Biodiversity
– Continued membership of the Extractive
Industries Transparency Initiative (EITI)
– Continued dialogue with Invest in Africa
to build skills and capacity among SMEs
– Implementation of targeted stakeholder
engagement plans to support activity in
Mauritania
– Social investment in Mexico and Suriname
to support community biodiversity efforts
(discussed on page 41)
– As part of our efforts to support the
communities where we operate, we
continue to monitor the COVID-19
situation in these countries
– Additionally, in 2021 we made a
US$50,000 donation to Fundación
para la Salud (Funsalud), a healthcare
not-for-profit organisation in Mexico,
to support its comprehensive
COVID-19 relief efforts
– Strategy
– Ways of working
– Lessons learned from
projects
– Internal communication
– Remuneration and
benefits
– Enhanced structure for internal
– Throughout the various rule changes,
communications
– Gained direct insight into the views of staff
on COVID-19 impacts which facilitated the
adoption of hybrid working arrangement on
a trial basis
– Continuing the development and delivery
of health and well-being initiatives including
the appointment of a new well-being
programme provider
our dedicated Return to Office
Steering Committee continued to
provide guidance to staff members,
undertaking risk assessments and
implementing required protocols to
ensure a safe return for office-based
employees at the appropriate time
– Following a thorough staff
consultation process, the Group is
trialling a hybrid working model, and
new health and well-being initiatives
help our staff to feel motivated and
supported both in their work and
home lives
Capricorn Energy PLC Annual Report and Accounts 2021
29
Our Story in 2021 continued
A differentiated
strategy
We will continue our differentiated strategy of
creating, adding and ultimately returning value
to shareholders. During 2021 we committed to
a returns programme of nearly US$1bn, and we
retain the balance sheet capacity to expand the
portfolio to deliver further value growth.
30
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
>US$5.5bn
Returned to shareholders in the past 15 years
Commitment to shareholders
We continue to see a commitment to shareholder
returns as being a strong differentiator in our E&P
investor offering. Since 2007, we have returned,
or have committed to return more than US$5.5bn
from monetisation of exploration and production
successes through a combination of special dividends,
tender offers and share repurchase programmes.
Capricorn Energy PLC Annual Report and Accounts 2021
31
Our Story in 2021 continued
Value-focused growth,
supported by balance
sheet strength
2021 was a hugely transformational
year during which we successfully
realised significant value from previous
investments and sought to return that
value to shareholders as well as rebuild
the business for the future.
James Smith
Chief Financial Officer
32
Capricorn Energy PLC Annual Report and Accounts 2021
The last couple of years have been
a period of very active portfolio
management. The starting point was to
sell out of the development-heavy side of
the asset base in Norway and Senegal in
2020, and we followed that with the sale
of our UK assets, which again were big
offshore developments with a relatively
short plateau that were moving into the
decline phase.
Those sales released significant capital
and over the course of the year we took
steps to refocus the business, bearing in
mind the shape we want the Company
to take over a long-term horizon. That
means concentrating on assets generating
significant cash flows with much shorter
capital cycles than perhaps we have
invested in previously, as the speed with
which companies bring hydrocarbons
to market is becoming increasingly
important.
Agile Portfolio Management
Unlike the situation in Senegal, where
we were facing several years of significant
capital expenditure before generating
positive cash flow, in Egypt we have
immediate line of sight on sustainable
cash flows as well as reinvestment
opportunities to grow and sustain the
production base while ensuring that
as a company we remain flexible and
resilient. We are pleased to be in a
position to manage the portfolio rapidly
whilst remaining flexible and resilient
as a company, and thereby to create and
realise value with an agility that others
may not have.
Key to preserving this agility is a prudent
approach to managing the balance sheet,
which has always been part of Capricorn’s
DNA. We have always worked hard to
ensure never to be overleveraged or to
place ourselves in a position where we
have too many committed calls on our
capital, either of which can be hugely
damaging to equity value when there
are commodity price shocks. We approve
all our investment decisions and develop
our business plan using economic criteria
that can be robust through the industry
price cycles.
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
“In Egypt we have immediate line of sight on sustainable cash flows
as well as reinvestment opportunities to grow and sustain the
production base while ensuring that as a company we remain
flexible and resilient.”
A Focus on Value
This resilient economic decision-making
drives the entire way in which we run
our business. We have always focused on
economic and value targets as opposed
to operational ones. It is not helpful to
concentrate solely on growing production
or reserves, if that production is not
generating any value for the business
or its shareholders. That is why we are
focused on actively managing the
portfolio rather than chasing headline
production growth at any cost.
Keeping value at the core of strategic
delivery is particularly important in a
world where the implications of the
energy transition are becoming ever
more important. We know that the path
to decarbonisation is not going to be a
smooth one, so we have to be prepared
for future volatility, to manage risks and
opportunities and ensure that we are
focused on low breakeven projects
that can ensure our portfolio remains
competitive and sustainable within a
changing global energy mix.
Emissions reduction
We also manage our carbon profile and
recognise the cost that arises from that.
Whether it is a direct regulatory cost or
a reputational one, it is a factor that is
central to how to allocate our capital
across our business, and it is the reason
why we are now investing considerably
in reducing our carbon emissions in the
future. This year, we tested the resilience
of Capricorn’s Egypt portfolio against the
IEA’s1 STEPS2, SDS3 and NZE4 scenarios.
Based on the economic assumptions we
apply to our portfolio, these tests show
that our production assets are capable of
generating value in a climate scenario
aligned with 1.5 degree warming.
As we look to that future, Capricorn is in
a strong financial position with significant
firepower to increase our scale further if
we see opportunities to create value, and
a firm commitment to continue our focus
on creating returns for shareholders.
CASE STUDY
RESOLUTION OF INDIA DISPUTE
SUPPORTS SHAREHOLDER RETURNS
In March 2022, Capricorn sought shareholder approval
for a US$500m tender offer and a share repurchase
programme of up to US$200m.
The planned return of up to US$700m follows the tax refund of US$1.06bn
by the Government of India. The refund represents the value of the assets
seized in 2014.
The tax dispute was resolved following the introduction of new legislation
by the Government of India which was approved by India’s parliament in
August 2021. The Company agreed to comply with the rules of the new
legislation, accept the refund and withdraw all litigation actions.
Capricorn is proud of its legacy in India, having discovered and developed
world-class oil and gas assets, and invested in supporting the successful
development of the communities and economies where the Company
operated. We are very pleased that this issue has now been concluded.
India has a special place in our Company’s history, and we are grateful for
the constructive engagement with the Government of India on this matter.
1 International Energy Agency.
2 Stated Policies Scenario.
3 Sustainable Development Scenario.
4 Net Zero Emissions by 2050.
Capricorn Energy PLC Annual Report and Accounts 2021
33
Measuring Our Progress
Strategic objectives are set annually to monitor delivery of our strategy. These are measured
by Key Performance Indicators (KPIs) set by the Board. Our risk management process
identifies the principal risks to the delivery of our strategic objectives.
Strategic objective: ESG and HSSE
2021 KPIs
2021 PROGRESS
– Achieve lagging HSSE indicators
measured against IOGP targets.
– Achieve a number of specified leading
indicators that support Company
policies and standards in relation to
HSSE and corporate responsibility;
focusing on matters identified in
our materiality matrix, governance
and people.
– Develop our understanding of
CCUS application and opportunity
identification, including required
carbon pricing.
– Recording, tracking and reporting
our Scope 1 and 2 emissions.
– Agree, establish and track social
investment across the group that
help deliver a positive impact on the
communities with which we work.
– Communicate our climate change
performance and our processes for
governance, risk management and
target-setting to stakeholders in a
transparent and consistent manner.
Key Risks
– Future challenges and costs to
achieving pathway to Net Zero 2040.
– Lack of adherence to health, safety,
environment and security policies.
– Misalignments with JV operators.
– Fraud, bribery and corruption.
Operated activities, including surveys, have resulted in zero incidents and spills.
Multiple road transport trips in higher risk countries have been managed with zero
injuries and high potential incidents through a full understanding of road risks.
The stretch goal was, therefore, met.
Project 1: The requirements of the Corporate Major Accident Prevention Policy were
re-emphasised to required persons and is included in HSSE inductions for new start
employees and appropriate contractors. For a full score to have been achieved, further
roll-out of major accident hazard leadership awareness would have been completed;
Project 2: Significant improvements were made in the application of the Capricorn
Project Delivery Process (CPDP) to exploration projects; a register was developed
detailing all ongoing capital and other projects, and for contracted services,
inspections were made by Capricorn or specialised companies of all vessels,
rigs and helicopters contracted to ensure they meet the required standards.
A full score would have required documentation of QA/QC processes for all
other operations. This is due to be completed in 2022;
Project 3: A D&I strategy was created and discussed within the organisation prior
to formal presentation to staff during the year and launched prior to year end; and
Project 4: A biodiversity screening tool was applied to multiple NV projects as well as
Egypt exploration; East Orkney and Diadem surveys, conducted in UK waters, were
accompanied by assessments of the environment through standard UK studies and
forms, with permits granted on time; detailed environmental studies were conducted
in Mauritania to inform an early baseline survey that mobilised in January 2022 to
inform the project on seabed/canyon bed locations. For a full score, further progress
in the ‘Assess’ stage was required.
CCUS screening and application was matured during 2021 with a presentation given
to the Board in December outlining possible options for participation in Egypt and
the UKCS. The ‘Identify’ stage was therefore successfully completed and these projects
are now in the ‘Assess’ stage. Scope 1 and 2 equity emissions were included in our
Sustainability Report.
Energy efficiency and emissions clauses have been incorporated into all contract
awards (including for operations at Diadem drilling in the UKCS). However, in 2021,
it proved difficult to demonstrate emissions improvement in our operated projects as:
(i) activity levels were very low; (ii) there was only one technically acceptable, available
vessel for the East Orkney GeoTech survey; and (iii) there was only one commercially
viable vessel in the required window for the Diadem site survey.
Investments were made in Mexico, Suriname and the UK that have resulted in
environmental, medical and educational benefits to the communities and areas where
we work. This has included a US$50,000 donation in each of Mexico and Suriname
to help alleviate the challenges of the COVID-19 pandemic through the purchase
of medical and test equipment for local hospitals, benefitting over 1,000 people.
In our mangrove rehabilitation project, six sediment trapping units have been built
and remote monitoring has been established using satellite images of mangrove
sites. In Mexico, since 2020, the turtle conservation project has patrolled 6,000km
of beaches and resulted in 80,896 hatchings in 2021. In the UK, we continue to
support three PhD students as part of the Clean Energy scholarship and contribute
to 27 research projects.
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Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Strategic objective: ESG and HSSE continued
2022 KPIs
2021 PROGRESS
– Achieve a number of specified leading
indicators that support Company
policies and standards in relation to
governance, people and society.
– Achieve lagging HSSE indicators
derived from IOGP targets.
– Environmental – Outline a roadmap
and deliver opportunities to achieve
Scope 1 and Scope 2 emissions
reductions versus our short, medium
and long-term net zero targets. This
will include asset improvement
initiatives, energy efficiency measures,
and engineered and natural carbon
offset programmes.
– Social – Agree, establish and track
social investment across the Group
that helps deliver a positive impact on
the communities with which we work.
– Governance – Communicate our
climate change strategy, performance
and carbon pricing and our processes
for governance, risk management,
and target setting.
– Governance – Improve our approach
to Diversity & Inclusion.
Our climate change score through the Carbon Disclosure Project (CDP) remained
static at B- and discussions are planned to understand what further is required to
improve the rating. We continue to work closely with partners on emission reduction
projects as well as progressing clean energy projects and the purchase of the highest
quality carbon offsets.
Water: for the first time, we participated in the CDP Water Security questionnaire. We
continue to work with our partners and on our operated activities on water extraction
and disposal, notably in Egypt where we are working on both exploration and production
assets with our partners. We are aware of the criticality of water resources in water
scarce regions and factor this into our exploration and operational plans.
TCFD: an EY internal audit showed that “Capricorn achieved an average coverage
rating of 100% across the 11 recommended disclosures, with an average quality
score of 56%. This compares to an average coverage score of 79% and average
quality score of 49% across UK energy companies included in the tool.”
SASB: to improve the quality and transparency of our reporting, we have assessed
and aligned our reporting against the Sustainability Accounting Standards Board
(SASB) Oil & Gas – Exploration & Production Sustainable Accounting Standard.
Past performance in KPI category
Remuneration
2021
2020
2019
90%
90%
86%
Weighting
(as % of allocated
proportion of maximum
opportunity)
Bonus awarded
15.75%
17.5%
(cid:2) Pages 114-117 – Read more: Remuneration Report
Capricorn Energy PLC Annual Report and Accounts 2021
35
Measuring Our Progress continued
Strategic objective: Financial Performance
2021 KPIs
2021 PROGRESS
– Demonstrate balance sheet strength
reflected in achievement of a pre-
identified funding plan.
– India recovery of proceeds.
Key risks
– Volatile oil and gas prices.
– Inability to repatriate full amount of
refund due under India legislation.
– Political and fiscal uncertainties.
– Diminished access to debt markets.
2022 KPIs
– Maintain financial strength
and flexibility.
– Debt liquidity covenants or applicable
facility tests will not be breached.
– An executable funding plan will be
presented and approved by the Board
as part of the annual strategy review
(June 2022) or shortly thereafter or
associated with any approved
acquisition.
All financial tests set out as part of the funding plan were met and all liquidity and
covenant tests were satisfied.
The Group initiated a number of enforcement proceedings in several jurisdictions
during H1 2021 to expedite the recovery of the sums due under the December 2020
UK-India Bilateral Investment Treaty arbitration award made in the Group’s favour
on the tax issue. Subsequently, in H2 2021, the Government of India introduced the
Taxation Laws (Amendment) Bill 2021, which allowed the refund to Capricorn of taxes
previously collected in India. The Group’s participation in the scheme introduced in this
legislation resulted in resolution of the issue and the expected Indian tax refund of
INR79 billion was paid and net proceeds of US$1.06 billion received by the Group in
February 2022.
Past performance in KPI category
Remuneration
2021
2020
2019
80%
86%
54%
Weighting
(as % of allocated
proportion of maximum
opportunity)
Bonus awarded
20%
25%
(cid:2) Page 118-119 – Read more: Remuneration Report
Strategic objective: Exploration and new ventures
2021 KPIs
2021 PROGRESS
– Mature ‘Advantaged’ prospects
achieving commercial thresholds
that can be considered for future
exploration drilling.
– Conduct our operated and non-
operated exploration and appraisal
activities successfully, on time and
on budget.
– Add new commercial resources to
replace reserves and grow value.
Key risks
– Lack of exploration success.
2022 KPIs
– Mature our key exploration projects
for planned drilling in 2022/23 in
Egypt, UK and Mauritania.
– Conduct our operated and non-
operated exploration and appraisal
activities (surveys and drilling)
successfully, on time and on budget.
– Add new commercial resources
through E&A drilling, coupled with
conceptual development studies.
Several prospects in South Abu Sennan, onshore Egypt, were matured in 2021 and
classified as ‘drill-ready’. They are anticipated to be drilled in H2 2022. Dauphin in
Mauritania C7, was re-captured as Operator, and is of significant scale. The prospect
would offer significant net potential resources well in excess of the target goal
of 40 mmbbls.
All projects executed in 2021 met their original basis of design objectives. The
Diadem site survey, East of Orkney GeoTech survey and UK MNSH 3D seismic survey
(all operated) were delivered on time and budget. The Mexico Block 10 wells, Saasken
and Sayulita (non-operated), were delivered on time and under budget. The Egypt
onshore wells, TAMR-1 and NUMB-5 were delivered but over budget and, therefore,
did not score.
No additional resources have been booked versus the 2021 opening position.
Past performance in KPI category
Remuneration
2021
2020
2019
38%
36%
45%
Weighting
(as % of allocated
proportion of maximum
opportunity)
Bonus awarded
7.5%
20%
(cid:2) Page 116-117 – Read more: Remuneration Report
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Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Strategic objective: Production performance
2021 KPIs
2021 PROGRESS
– Deliver net production within
guidance targets.
– Deliver operating costs within
guidance targets.
– Convert resources to reserves.
Key risk
Out-turn production for 2021 from these fields was approximately 18,300 bopd,
significantly above the target of 17,500 bopd. Additionally, the out-turn production
performance for the acquired Egyptian assets (36.5 kboepd WI in 2021) was within
guidance issued to the market on announcement of the transaction (33-38 kboepd).
As our interests in Kraken and Catcher were sold in Q4, the operating costs were
calculated on a 10+2 forecast basis and broadly resulted in the target scoring
(US$22.8/bbl).
– Volatile oil and gas price.
– Reserves downgrade or impairment.
– Misalignments with JV operators.
Reserves additions during 2021 were relatively modest, associated with infill wells
planned at Catcher prior to sale and onshore Egypt. Scoring was above threshold
(+1.3 mmbbls) but below target.
2022 KPIs
– Sanction incremental development
investment to convert WI 2C Resources
and 2P Undeveloped Reserves into
WI 2P Producing Reserves.
– Deliver Net production (10%) and
operating cost/boe (5%) targets within
public market guidance in relation
to Egypt.
– Deliver operating cost/boe targets
within public market guidance in
January 2022 in relation to Egypt.
Past performance in KPI category
Remuneration
2021
2020
2019
59%
60%
Weighting
(as % of allocated
proportion of maximum
opportunity)
Bonus awarded
11.75%
20%
100%
(cid:2) Page 118-119 – Read more: Remuneration Report
Strategic objective: Corporate projects
2021 KPIs Key risks
2021 PROGRESS
– Develop and execute corporate
projects to enhance the portfolio,
consistent with the Group Risk
Appetite Statement.
Key Risks
– Failure to secure business
development opportunities.
2022 KPIs
– Projects identified (including
acquisitions & divestments) and
agreed with the Board of strategic
significance during the calendar year.
No corporate projects were concluded as originally targeted and no score was achieved
in this element of the corporate projects KPI.
Sale of the UK Kraken and Catcher assets was announced in March 2021 and
concluded in Q4 with firm and uncapped contingent elements of consideration
agreed, achieving a full score for this element of the corporate projects KPI.
Past performance in KPI category
Remuneration
2021
31%
2020
2019
Weighting
(as % of allocated
proportion of maximum
opportunity)
Bonus awarded
5.5%
70%
88%
17.5%
(cid:2) Page 118-119 – Read more: Remuneration Report
Further information on the 2022 KPI weightings and scoring metrics can be found in the Directors Remuneration Report pages 128-129.
Capricorn Energy PLC Annual Report and Accounts 2021
37
Our Story in 2021 continued
Delivering
value through
responsible
operations
The first step in Capricorn’s strategy to scale and
grow the cash-generative production base was
the acquisition of Shell’s Western Desert assets
in September 2021. In doing so, the business will
ensure its operations are delivered responsibly,
meeting accelerated decarbonisation targets.
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Capricorn Energy PLC Annual Report and Accounts 2021
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Additional Information
Capricorn Energy PLC Annual Report and Accounts 2021
39
Our Story in 2021 continued
Responsible and sustainable
production growth
We have been reshaping Capricorn’s portfolio with
a focus on delivering cash-generative production
growth. At Capricorn we don’t focus on increasing
production at all costs; we will only pursue
investments if we can be clear about the capital
required, the cash flow and associated value that
we can create.
We are excited about the potential for
Egypt, which is attractive on a number
of fronts. The acquisition of the Western
Desert assets brings us low-cost
production, owned infrastructure, and
development, near field and exploration
opportunities in a proven petroleum
province. The assets we have acquired
have been managed well from a safety
and integrity perspective but there has
been a lack of investment in sustaining
and growing the production. We see
significant potential to grow reserves,
production and cash flow, and add value
by new well drilling and completion,
production optimisation and improved
reservoir management. These should be
impactful in the short to medium term
with success on the new exploration
concessions, underpinned by new 3D
seismic, providing the possibility of
further growth in the longer term.
We completed our planned sale of the
North Sea assets in Q4 2021 whilst
retaining upside exposure to reservoir
performance and oil price in future years.
Net production for the Catcher and
Kraken assets in 2021 was again within
market guidance, resulting in a deferred
consideration due payable in 2022 to
Capricorn from Waldorf Production, the
new acquirer. This is the fourth consecutive
year from these North Sea assets that
Capricorn has delivered production within
market guidance and we will look to
continue this excellent trend with the Egypt
assets and any future assets acquired
through business development initiatives.
Decarbonising Operations
Egypt is the first step in rebuilding the
portfolio. We are looking at additional
business development opportunities
that will drive scale and broaden the
Paul Mayland
Chief Operating Officer
40
Capricorn Energy PLC Annual Report and Accounts 2021
production base further, with a focus on
those that are compelling from a reserves
and production growth perspective, and
have appropriate fiscal terms, balanced
with manageable, above ground risks.
Part of our consideration is to look at
opportunities where there is the potential
to make a meaningful impact by bringing
down carbon emissions. This is our plan
in Egypt, where the approach this year
will be to ensure we can establish a clear
baseline that will allow us to see where
improvements are possible by developing
a carbon abatement cost curve, and what
positive differences we can make over the
next three years.
As a key part of our decision-making,
we consider where we can reduce
emissions within our operations, for
instance by moving away from diesel
generation towards gas turbines and
potentially renewables, for power
generation. These may require upfront
capital expenditure but will lead to future
operating cost reductions as well as a
reduction in carbon emissions.
Net Zero Goal
Egypt has a growing population and an
expanding economy. Like many other
countries it has a determination to play
its role in achieving the Paris climate goals
which means it will go through its own
decarbonisation journey, and of course,
Egypt is host to COP27 in 2022.
We were the first UK independent to
commit to the World Bank Zero Routine
Flaring target and we are encouraged that
both the UK and Egyptian governments
are co-signatories to this global initiative.
We intend to devote significant efforts to
this in Egypt. Furthermore, as part of our
longer-term decarbonisation plans, we
have also appointed an Energy Transition
Director to progress our overall net zero
plans, to assess how we can best achieve
our net zero goal by 2040 or earlier.
Safety
The environment is only one factor in
responsible operations. Safety of our
people is of course, our number one
priority. Operated activity has been lower
during the pandemic but a number of site
and seismic surveys have been successfully
and safely conducted and this follows on
the back of an excellent pre-pandemic
operated drilling programme in three
countries, which completed in early 2020
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
STRATEGY IN ACTION
In 2021, Capricorn entered Egypt for the first time, as part of its strategy to diversify
and grow the sustainable cash-generative production base, and replace reserves
through successful infrastructure-led exploration. Eleanor Rowley, Managing Director,
Egypt outlines the benefits of operating in Egypt and the strategic priorities for the
Egyptian business.
Egypt has a voracious appetite for
energy, with a population (with a
median age of 25) of over 100 million
people. The oil and gas industry here
has undoubtedly helped supply
affordable energy for decades, whilst
also providing much-needed foreign
investment. These fundamentals
underpin the Egyptian Government’s
pragmatism towards supporting the
industry, whilst they seek to build
out strongly in both wind and solar,
renewable energy sources that Egypt
is blessed with. The largely business-
friendly approach of the regulatory
authorities has encouraged continual
reinvestment in Egypt by majors such
as Eni, Shell and BP, and has also
encouraged many smaller players
to enter Egypt through a mix of bid
round, farm-in and acquisitions, such
that deal flow has typically remained
high relative to many other countries.
Looking at Capricorn’s objectives in
Egypt, there are three key pillars to
ensure our success over the next year:
– Continue and enhance the good
safety record of Bapetco, the
operating company jointly owned
by the Egyptian General Petroleum
Corporation (EGPC), Cheiron
and Capricorn, and build out a
programme of GHG reduction and
other environmental improvements
– Increase production
– Conduct a successful exploration
campaign
Whilst the first two of these objectives
are led by our well-respected Egyptian
partner Cheiron, as Operator,
exploration is ours to shape in our
three operated blocks, with nine
commitment wells to drill over the next
few years. In initial discussions with the
authorities, they have all referred to
our strong exploration history and are
looking forward to new successes in the
Western Desert. The Exploration team
are working hard to put us in the best
position to have exploration success
during this first campaign.
As a country and culture in which to
operate, one word you could use to
describe Egypt, and Cairo in particular,
is vibrant. You feel the energy as soon as
you get off the plane. The combination of
population density and culture makes this
a city that never sleeps. The climate and
people are warm, full of generosity, and
something very special about Egyptians
is their great sense of humour.
The needs of the individual are rarely
paramount here, you are part of
something bigger. Coming from the West
where there is a culture of individualism
you feel this difference strongly from
conversations with colleagues about their
priorities and choices, to random acts of
kindness and community on the street.
Egypt has an ancient and rich history and
Egyptians are renewing their connection
to it with the inauguration of the Grand
Egyptian Museum, due next year and
several new or revamped museums
opening in Cairo including the National
Museum of Egyptian Civilisation.
Alongside this recognition of their history,
there is a sense of looking forward and
there is a proliferation of infrastructure
projects – from road building to new cities
that is on a scale not witnessed in the last
20 years. For example, the New Cairo part
of the city, out to the east, has probably
doubled or tripled in size since 2016. All of
this activity and preparation for the future
is bringing a certain sense of optimism,
alongside the reality of the challenges
associated with taking care of a
population growing by 1 million
people every few months.
Relationships are the foundation of
everything in Egypt and Capricorn,
with our emphasis on the 3Rs, one
of these of course being relationships,
is well placed to thrive here. It is
important to place relationships close
to the top of our list of priorities on
a daily basis as we build and grow
our business.
without incident. It is a credit to the teams
that have delivered these outcomes with
the appropriate vigilance and focus on
safety, with a total recordable injury rate
(TRIR) of 0 per million hours worked.
Delivering for Communities
We are also very mindful of the impact
that we have on the societies where we
operate. We always look to ensure that our
supply chain has a high level of national
content. In Mexico around 90% of the
goods and services that we have used
were sourced in the country, which is
beneficial for local communities as well
as for the environment.
We also look at where Capricorn can
make an impact with social investment
programmes that can make a difference
and are aligned with our values. For
instance in Senegal, we supported The
Hunger Project, an initiative to build
strong local communities, which was very
successful. And in Mexico and Suriname,
recognising the importance of the coastal
waters where we operate, we are involved
in a number of initiatives to protect
marine life, and the coastal environment.
In addition to being aligned with our
values of respect, responsibility and
relationships (3Rs), these projects are
always well received and appreciated
locally and help to enhance our reputation.
Capricorn Energy PLC Annual Report and Accounts 2021
41
Our Story in 2021 continued
High quality,
infrastructure-led
exploration
We have high-graded our portfolio for the
future and are focused on quality investments
in infrastructure-led exploration alongside
select emerging and frontier opportunities.
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Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Capricorn Energy PLC Annual Report and Accounts 2021
43
Our Story in 2021 continued
Focused on discovering
and commercialising
new resources with pace
We have a two-fold approach to exploration.
The first is infrastructure-led exploration,
where value is derived from a clear path
to commerciality and short cycle time,
and the second is aimed at select frontier
opportunities where scale drives what could
be potentially transformative value creation.
Eric Hathon
Exploration Director
44
Capricorn Energy PLC Annual Report and Accounts 2021
Infrastructure-led exploration offsets
nearby infrastructure, so that we have a
clear and rapid pathway to commerciality
with success. It is critical to have a clear
view to monetisation before we even
begin exploring. Using existing
infrastructure enables us to optimise the
development and ensure there is as short
a time as possible between exploration
and first production. As we go through
the energy transition this is particularly
important as discovered resources that
can be brought to market sooner have
a greater value and will generate greater
returns. Utilising infrastructure which is
already in place, whilst applying the latest
production technologies, further limits the
environmental footprint.
This infrastructure-led approach is one
of the reasons that the Western Desert
assets in Egypt are particularly attractive.
It is a mature basin where the opportunity
to make value-adding discoveries, even
with modest volumes, is high and the
path to commercialisation is relatively
rapid. All the operating elements are
in place, which is very positive from
an advantaged resources standpoint.
The opportunities in our exploration
portfolio are close to existing fields
and infrastructure, giving us the ability
to move quickly with success.
The same approach is true of our drilling
plans for the North Sea. We are targeting
areas that are close to existing facilities so
that smaller discoveries can be quickly tied
back in a way that is commercially
advantageous.
Exciting Positions
We are at a slightly earlier stage in Mexico,
but we apply the same principles. We have
enjoyed two discoveries with the operator
Eni and we can see a number of further
opportunities where the geology looks
very similar. This means that while the risk
is not eliminated, it is reduced significantly.
It also means that we can look at developing
the critical mass that will allow for a hub
development and the tieback of individual
discoveries to create an economically
attractive development.
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
“Using existing infrastructure enables us to optimise the
development and ensure there is as short a time as possible
between exploration and first production.”
Capricorn has historically been known for
frontier exploration and while our exposure
is lower than it has been previously, we
retain exciting positions in Suriname and
Mauritania, where we have considerable
flexibility in terms of our commitments and
the potential for world-class accumulations.
Minimising Resource Carbon Footprint
In exploration, we are acutely attuned to
the energy transition, and it is a key factor
in our decision-making. As the world seeks
to decarbonise, we are keenly focused
on the type of hydrocarbon we are
targeting in addition to the economics.
We closely evaluate the CO2 footprint of
every potential venture through the cycle.
It is also a big driver in how we select
the vendors and suppliers we work with,
because the lowest cost solution is not
always the one that makes the most
commercial sense. We now require our
partners to show us how they are limiting
their own carbon footprint, for instance
in the vessels that they use.
This means that before we even start an
exploration venture we are thinking about
the environmental impacts. We know
that the need for oil and gas is finite. We
also know it remains critical to providing
energy for people globally. Our job is to
find and produce new accumulations in a
way which minimises the carbon footprint
and environmental impact.
The Right Portfolio for Value Creation
As we enter 2022, we have high-graded our
portfolio in line with current conditions and
are focused on high-quality investments
in infrastructure-led exploration in the UK
and Egypt where we focus on near-term
value creation, and on select emerging
and frontier opportunities. We have the
potential to create significant value against
the backdrop of our advantaged resources
exploration criteria, and with a clear focus
on alignment with our stringent ESG
priorities. We firmly believe that we have
the right portfolio with the right potential
for material reserve addition and value
creation for shareholders.
STRATEGY IN ACTION
Capricorn’s exploration activity is based on rigorous
technical and commercial assessment, with any evaluation
of resources and prospectivity always taking into account
energy transition relevance. Laura Bornatici, Chief
Geophysicist, explains how strategy works in practice.
Our exploration strategy is implemented through robust processes executed by
a skilled geoscience community and fuelled by optimal data. Rigorous assurance
procedures support our decision analysis allowing us to compare opportunities
and to execute projects efficiently, with controlled cost exposure.
Our recent entry into the UK Mid North Sea High area with our partner Deltic
Energy, is a good example of our exploration strategy in action. It is very much
an infrastructure-led opportunity, which meets our advantaged resources criteria.
If successful, exploration here can open an under-explored segment of a proven
petroleum system. The project has a clear path to commerciality, with an initial
commitment to acquire 3D seismic, which will de-risk prospectivity and inform
a drilling decision, for limited capital exposure. The opportunity will be evaluated
at each critical step through our rigorous procedures to assist the decision
process. Exploration is by nature high risk, but we aim to mitigate risk via the
acquisition of the optimal datasets, without eroding value.
Additionally, this project has the potential to bring material gas resources
which can help extend the life of existing infrastructure. This could support UK
domestic production of a key energy source for power generation through the
energy transition, as well as potentially providing feedstock for the nascent
hydrogen economy.
Costs to prove commerciality will be managed via a phased exploration
programme that allows us to assess critical risks with an exit strategy in the event
risk exceeds future value. A critical element of advantaged resources is minimising
the carbon emissions associated with the development of every opportunity.
Our approach is rigorous, yet agile
and flexible. This is enabled by an
expert geoscience community. Our
diverse team leverages the strong
technical competence that we nurture
via our development programme.
Our wide range of experiences and
skillsets allow us to quickly evaluate
opportunities. We know subsurface
competences will play an essential
role in the energy transition, and we
are widening our area of expertise
in this area. This will allow us to
be adaptable and responsive to
different opportunities and scenarios
while continuing to support the
energy transition.
Capricorn Energy PLC Annual Report and Accounts 2021
45
Risk Management
Successful and sustainable implementation of our strategy requires strong corporate
governance and effective risk management. We deliver this through a comprehensive
framework of business policies, systems and procedures that enable us to assess and
manage risk effectively.
Managing business risks
Managing risks and opportunities is
essential to Capricorn’s long-term
success and sustainability. All investment
opportunities expose the Group to
political, commercial and technical risk
and Capricorn maintains exposure to
these risks at an acceptable level in
accordance with its appetite for risk.
Capricorn’s risk management framework
provides a systematic process for the
identification and management of the key
risks and opportunities which may impact
the delivery of the Group’s strategic
objectives. KPIs are set annually and
determining the level of risk the Group is
willing to accept in the pursuit of these
objectives is a fundamental component of
Capricorn’s risk management framework.
As outlined below, this integrated
approach to the management of risk
and opportunity plays a key role in the
successful delivery of the Group’s strategy.
Capricorn’s system for identifying and
managing risks is embedded from the
top down in its organisational structure,
operations and management systems
and accords with the risk management
guidelines and principles set out in
ISO 31000, the International Standard
for Risk Management. The Group’s risk
management structure is set out below.
This framework for risk assessment applies
to all risk types including operational,
health and safety, environmental, climate
change, financial and reputational.
Risk Governance
Overall responsibility for the system of risk
management and internal control and
reviewing the effectiveness of such
systems rests with the Board. Principal
risks, as well as progress against key
projects, are reviewed at each Board
meeting and at least once a year the
Board undertakes a risk workshop to
review the Group’s principal risks.
The Group’s framework for risk
management promotes a bottom-up
approach to risk management with
top-down support and challenge. The
risks associated with the delivery of the
strategy and work programmes and the
associated mitigation measures and
action plans are maintained in a series
of risk registers at Group, asset, function
and project level. Reporting of these risks
within the organisation is structured so
that risks are escalated through various
internal management and Board
committees, and to the Board itself.
Group’s risk management framework
Outline the
strategy
Define strategic
objectives
Define risk
appetite
Set a sustainable
strategy to achieve
Capricorn’s near-and
longer-term goals.
Set clear strategic
objectives in the
form of KPIs.
Determine the level of
risk the Group is willing
to accept in the pursuit
of its strategic objectives
and document this
in the Group Risk
Appetite Statement.
Identify key risks
Identify key risks to
the achievement of
strategic objectives and
associated opportunities,
through discussions at
Board, Risk Management
Committee,
Management Team,
Regional and
functional levels.
Apply risk
assessment
process
Apply the Group risk
assessment process to
ensure the ongoing
management of key
risks to our objectives.
Deliver strategic
objectives
Delivery of strategic
objectives through
informed risk-based
decision making.
Risk governance framework
Top-down: Oversight, accountability, monitoring and assurance
Holds overall responsibility for
the Group’s risk management and
internal control systems
Risk Management
Committee (RMC)
Executive Committee chaired
by CEO in 2021
Responsibility for setting the direction
for risk management
Facilitates continual improvement
of the risk management system
Risk identification, assessment
and mitigation completed at asset,
project and functional level
The Board
Sets strategic objectives and
defines risk appetite
Sets the tone and influences the
culture of risk management
Completes robust assessment
of principal risks
Audit Committee
Management Team
Chaired by Non-Executive Director in 2021
Chaired by COO in 2021
Monitors and reviews the scope and
effectiveness of the Company’s systems
of risk and internal control
Reviews principal risks and output
from the RMC meetings
Performs a quarterly deep-dive
review of the Group risk register
and assesses risk actions, control
effectiveness and risk ownership
Asset/Project/Function level
Risk management system embedded
and integrated throughout the Group
Risk culture influencing
all business activities
Bottom-up: identification of risks and mitigating actions for assets, projects and functions
46
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Viability Statement
Strategy, Business Model and Context
The Group’s strategy and business model
are described on pages 12-15 of this report.
2021 saw a steady rise in commodity
prices throughout the year primarily as
a result of a global supply shortage and
an increase in demand recovery from the
COVID-19 pandemic.
In December 2020, Capricorn was
awarded damages of US$1.2billion plus
interest and costs in respect of its claim
against the Government of India under
the UK-India Bilateral Investment Treaty
in connection with the Government of
India’s application to Capricorn of the
retrospective tax amendment introduced
by the Finance Act 2012.
Following the sale of the Sangomar
development in Senegal at the end of
2020, the Group was able to return a
significant amount of these proceeds
to shareholders via a special dividend
at the beginning of the year.
In March the Group announced the
disposal of its producing assets in the
North Sea, and the acquisition of a
portfolio of assets in the Western Desert,
onshore Egypt.
The North Sea assets were approaching
their natural decline phase and the
disposal avoided exposure to future
decommissioning costs, increased
short-to-medium-term liquidity and
strengthened our ability to pursue
strategic goals. Additional uncapped
contingent consideration receivable over
the next five years further strengthens our
balance sheet and provides cash flow for
future opportunities.
The Egypt acquisition diversified our
asset base and brings with it low-cost
production, near-term development
opportunities and exploration upside
potential. The Egypt portfolio is also
gas-weighted, adjusting Capricorn’s
hydrocarbon split towards gas in a region
with strong demand growth, creating a
more balanced energy mix.
The acquisition was funded by a new
reserve-based lending facility and
junior debt facility together with existing
cash balances. After an initial period of
increased investment, the Egyptian
portfolio should generate free cash flow
that the Group will reinvest into its wider
portfolio of opportunities. The reserve-
based lending facility associated with the
North Sea producing assets was cancelled.
In assessing its capital programme over
the viability period the Group will also
consider opportunities for portfolio
management to ensure that the allocation
of capital is optimised over that period.
During 2021, a scheme was introduced
in Indian legislation to amend the
retrospective tax amendment allowing the
refund of taxes previously collected from
Capricorn in India. Having considered the
risks associated with ongoing litigation,
Capricorn entered into undertakings to
participate in the scheme in November,
agreeing to forgo its rights under the
arbitration award, and received the
refund of US$1.06bn on February 24
2022. This receipt enables the Group to
return significant capital to shareholders
via a US$500m tender offer and the
commencement of a share repurchase
programme of up to US$200m in early
2022, with the remainder retained to
further enhance the producing asset base.
Assessment Process
and Key Assumptions
The Group’s financial outlook is assessed
primarily through its annual business
planning process. This process includes
a Board strategy session, led by the
Executive Committee, at which the
performance of and outlook for the
business are assessed and capital
allocation decisions are made. The outputs
from the business planning process
include a set of key performance
objectives, the Group Risk Matrix, the
anticipated future work programme and
a set of financial forecasts that consider
the sources of funding available to the
Group against the capital requirements
of the anticipated future work programme
(the base plan).
Key assumptions which underpin the
annual business planning process include
forecast oil and gas prices, forecast cost
levels for oil and gas services and capital
projects, production profiles, operating
costs of the producing assets, the
availability of debt under the Group’s
lending facilities and the Group’s ability
to access further capital to support
other projects.
The Board recognises that the long-term
work programme is dependent on the
results of future exploration or appraisal
activity and that it is the Group’s strategy
to actively manage its licence portfolio
to optimise its planned capital allocation.
Consequently, reflecting this inherent
variability in the longer-term work
programme the Board has determined
that three years is the appropriate period
over which to assess the Group’s prospects.
Viability
The principal risks and uncertainties that
affect the Board’s assessment of the
Group’s viability in this period are:
– operational performance of its
producing assets;
– delays to and/or cost overruns in
planned capital activities;
– the effect of volatile oil and gas prices
on the business and our partners’ and
other stakeholders’ financial position;
– a lack of availability and/or increased
cost of debt facilities to fund our capital
programme and execute our strategy,
resulting from providers of capital
limiting their exposure to oil and gas
projects; and
– the results of any exploration or
appraisal activities.
The base plan incorporates assumptions
that reflect these principal risks as follows:
– projected operating cash flows are
calculated using a range of production
profiles and oil and gas prices, including
stringent downside scenario testings;
– material budget contingencies and
allowances are included in cost
estimates for any drilling and
development projects;
– lack of exploration or appraisal success
would impede the delivery of
Capricorn’s strategy but is not expected
to affect the Group’s ability to fund its
committed work programme.
The Board also considers further scenarios
around the base plan. These primarily
reflect a more severe impact of the
principal risks, both individually and in
aggregate, as well as the additional capital
requirements that would result from
future exploration or appraisal success
or the acquisition of new assets.
The Directors consider the impact that
these principal risks could, in certain
circumstances, have on the Company’s
prospects within the assessment period,
and accordingly assess the opportunities
to actively manage its licence portfolio
and planned capital allocation as well
as to bring in additional sources of funding
at key milestones in asset development.
Ultimately, if this culminated in a failure to
fund the Group’s share of costs associated
with an ongoing project, this may result in
the forfeiture of its interest in that licence.
Based on the actions available to
them, the Directors have a reasonable
expectation that the Group will be able
to continue in operation and meet its
liabilities as they fall due over the three-
year period of their assessment.
Capricorn Energy PLC Annual Report and Accounts 2021
47
Risk Management continued
Responding to the Changing Risk
Environment in 2021
As part of our goal to seek continual
improvement of the risk management
process, the following tasks were
completed in 2021:
– the Board completed a risk workshop
which focused on the Group Risk
Appetite Statement and its alignment
with the delivery of the Group’s
strategic objectives. The objective of
the workshop was to confirm the Group
continued to deliver the strategy in
alignment with the tolerance levels set
within the Group Risk Appetite
Statement;
– the rollout of the new risk management
and incident management software
solution continued throughout 2021.
The new solution is now fully
embedded throughout the
organisation and is being used to
manage risks for all corporate,
operational and project risks. The
solution has facilitated improved
reporting on all risks to the Group and
has provided a more systematic process
for the management of risks, controls
and actions across the business;
– the Management Team conducted a
quarterly review of the risks, mitigations
and actions identified on the Group risk
register to ensure ownership for the
risks, mitigations and actions were
clearly assigned and implementation
dates for actions were tracked;
– the Group Code of Ethics was reviewed
and updated. Arabic and French
versions were developed for our
operations in Egypt and Mauritania.
Compliance certificates were also
completed by key staff members and
contractors confirming compliance
with the Group’s Code of Ethics;
– several activities were completed to
enhance our bribery and corruption
controls across the business including
the completion of country specific risk
assessments for Egypt and Mauritania
which supplemented the overarching
Group risk assessment already in place;
– a compliance dashboard was
maintained to assess compliance with
several key regulations impacting the
Group including the UK Bribery Act, the
General Data Protection Regulation
(GDPR), the corporate criminal offence
for the failure to prevent the facilitation
of tax evasion (CCO), the Group’s
corporate major accident prevention
policy (CMAPP) and modern slavery.
The dashboard was presented at each
Risk Management Committee meeting
and annually to the Audit Committee as
part of the year end control assessment.
There were no material weaknesses
identified;
– the IT department continued
safeguarding its end user estate
through the roll out of critical system
and security patches to ensure any
outside threats were made known
and home workers were protected.
Additional security controls were also
implemented to protect against any
malicious COVID-19 spam and phishing
attempts;
– EY, the Group’s internal auditor,
delivered the annual internal audit
plan which considered several risk
areas identified from the risk register.
Topics covered in 2021 included cyber
security, the risk and assurance process,
ESG and sustainability reporting and
the mergers and acquisitions process.
The Group has been working
throughout the year to implement
the identified improvements; and
– to ensure awareness, understanding
and compliance on important
governance, regulatory and security
topics, mandatory e-learning was also
implemented across the Group, which
included comprehensive modules on
bribery and corruption, CMAPP, CRMS,
human rights, modern slavery, cyber
security, cyber fraud and tax evasion.
48
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Principal Risks to the Group in 2021-2022
The following pages provide a summary overview of the principal risks to the Group
at the end of 2021, the potential impacts, the mitigation measures, the risk appetite
and the KPIs or strategic objectives the risks may impact.
Risk
Viability
t
c
a
p
m
I
h
g
H
i
t
n
a
c
i
f
i
n
g
S
i
i
m
u
d
e
M
w
o
L
t
n
a
c
i
f
i
n
g
i
s
n
I
5
4
11
5
9
4
3
8
8
10
6
7
1 Volatile oil and gas prices
2
3
Inability to repatriate full amount of
refund due under India legislation
Future challenges and costs to achieving
pathway to net zero 2040
4 Reserves downgrade or impairment
5
6
Lack of adherence to health, safety,
environment and security policies
Lack of exploration success
7 Political and fiscal uncertainties
8
Failure to secure business development
opportunities
9 Misalignments with JV operators
10 Diminished access to debt markets
Low
Medium
High
Likelihood
11 Fraud, bribery and corruption
(cid:365)
(cid:365)
(cid:365)
(cid:365)
(cid:365)
Emerging Risks
Within the Group’s risk assessment
framework, emerging risks are considered
as part of the identification phase. These
are risks that cannot yet be fully assessed,
risks that are known but are not likely
to have an impact for several years,
or risks which are unknown but could
have implications for the business
moving forward.
The ESG agenda is an increasing area of
focus globally and the Group completed
a risk assessment workshop to identify
emerging risks in this space. As oil
majors gradually reduce investment
in exploration activities, the Group
identified the emerging risk of not being
able to partner with companies that have
the same values and ESG priorities as
Capricorn. The Group also recognised
that sourcing funding from traditional
providers of capital may be more
challenging because of ESG pressures.
In addition, as the Group moved to
remote working in response to the
pandemic, new and evolving cyber threats
were identified as an emerging risk to
the Group. The Group is trialling a hybrid
working model which presents both risks
and opportunities.
Capricorn Energy PLC Annual Report and Accounts 2021
49
Risk Management continued
Strategic objective: Deliver exploration success
Principal risk: Lack of exploration success
Owner: Director of Exploration
Risk appetite
High – Exposure to exploration and appraisal failure is inherent in accessing the significant upside
potential of exploration projects and this has been, and remains, a core value driver for Capricorn.
The Group invests in data and exploits the strong experience of Capricorn’s technical teams to
mitigate this risk.
Impact
Mitigation
2021 movement
– Limited or no
value creation
– Failure of the
balanced portfolio
business model
– Negative market
reaction
Active programme for high-grading
new areas through licence rounds,
farm-ins and other transactions.
Portfolio of prospects and leads that
offer opportunities with a balance of
geological and technical risks.
Highly competent team applying a
thorough review process to prospects
and development opportunities,
and a team of geoscientists with
a track record of delivering
exploration success.
Exploration Leadership Team in
place to undertake peer reviews
and assurance.
This risk remained static in 2021.
In Block 10 in the Sureste basin, an oil
find was confirmed on the Eni-operated
Saasken-1 exploration well (15% non-
operated WI) during Q1 2020, with
Operator preliminary estimates of 200
to 300 million barrels of oil in place.
In Q3 2021, an oil find was confirmed on
the non-operated Sayulita exploration well
(15% WI) in Block 10. Preliminary estimates
by Operator, Eni, indicate the discovery
may contain 150 to 200 million barrels of
oil in place.
The exploration wells in the North Matruh
concession and the North Um Baraka
concession in Egypt were unsuccessful.
The completion of the Saasken-2 appraisal
well on Block 10 Mexico confirmed that the
original Saasken discovery reservoir did not
extend into neighbouring Block 9 and this
resulted in an impairment of remaining
exploration/appraisal costs capitalised
in Block 9.
2022 KPI objectives
Mature our key
exploration
projects for
planned drilling
in 2022/23 in
Egypt, UK and
Mauritania.
Add new
commercial
resources
through E&A
drilling, coupled
with conceptual
development
studies.
Strategic objective: Corporate projects
Principal risk: Failure to secure business development opportunities
Owner: Chief Financial Officer
Risk appetite
Medium – Building and maintaining a balanced portfolio of current and future exploration,
development and production assets is core to the Group’s strategy. New opportunities must first
meet the Group’s strict investment criteria and successfully securing them will be dependent
on the prevailing competitive environment.
Impact
Mitigation
2021 movement
– Failure to replenish
the portfolio
– Inability to replace
reserves and sustain
production levels
Geoscience, business development,
and commercial teams work closely
to review and identify new portfolio
opportunities.
Experience and knowledge
throughout the organisation
in recognising prospective
opportunities.
Risk assessments and due diligence
process undertaken on all potential
new country entries.
Development of discretionary
capital allocation and opportunity
ranking system.
Portfolio is continually reviewed and
high-graded to enhance quality.
This risk increased in 2021.
The Group has been reshaping the
portfolio with a focus on delivering
cash-generative production growth.
The sale of the asset base in Norway
and Senegal in 2020 followed by the
sale of the UK assets in 2021 released
significant capital, enabling investment
in the sustainability of our cash flow-
generating asset base.
The Group assessed several opportunities
in 2021 but were not successful in adding
to the production base. The business
development team continue to assess
opportunities which expand and diversify
the Group’s production base.
2022 KPI objectives
Develop
and execute
corporate
projects to
enhance the
portfolio,
consistent with
the Group Risk
Appetite
Statement.
50
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Strategic objective: ESG and HSSE
Principal risk: Lack of adherence to health, safety, environment and security policies
Owner: Chief Executive
Risk appetite
Low – The Group continuously strives to reduce risks that could lead to an HSSE incident to as low
as reasonably practicable.
Impact
Mitigation
2021 movement
2022 KPI objectives
This risk decreased in 2021.
The Group’s lost time injury frequency
(LTIF) for operated activity in 2021 was
0 per million hours worked. Our total
recordable injury rate (TRIR) for 2021 was
0 per million hours worked. There were
no recordable spills above the IOGP level
to the environment.
With ongoing operations in several
countries in 2022, the Group will continue
to work responsibly as part of our strategy
to deliver value for all stakeholders.
Achieve a
number of
specified leading
indicators that
support
Company
policies and
standards in
relation to
governance,
people and
society.
Achieve lagging
HSSE indicators
derived from
IOGP targets.
– Serious injury
or death
– Environmental
impacts
– Reputational
damage
– Regulatory penalties
and clean-up costs
– Physical impacts
of climate change
Effectively managing health, safety,
security and environmental risk
exposure is the priority for the
Board, Executive Committee and
Management Team.
HSE training is included as part of
all staff and contractor inductions.
Detailed training on the Group’s
Corporate Responsibility
Management System (CRMS) has
been provided to key stakeholders
to ensure processes and procedures
are embedded throughout the
organisation and all operations.
Process in place for assessing an
operator’s overall operating and HSE
capabilities, including undertaking
audits to determine the level of
oversight required.
Effective application of CRMS in
projects.
Crisis and emergency response
procedures and equipment are
maintained and regularly tested
to ensure the Group can respond
to an emergency quickly, safely
and effectively.
Third-party specialists in place to
assist with security arrangements
and travel risk assessments.
Leading and lagging indicators
and targets developed in line with
industry guidelines and benchmarks.
Findings from ‘Lessons learned’
reviews are implemented from
other projects.
Principal risk: Fraud, bribery and corruption
Owner: Chief Executive
Risk appetite
Impact
– Fines
– Criminal
prosecution
– Reputational
damage
Low – Capricorn is committed to maintaining integrity and high ethical standards in all the Group’s
business dealings. The Group has no tolerance for conduct which may compromise its reputation
for integrity.
Mitigation
2021 movement
2022 KPI objectives
Business Code of Ethics and
bribery and corruption policies
and procedures.
Due diligence process and
questionnaire developed for
assessing potential third parties.
Annual training programme for
all employees, contractors and
selected service providers.
Financial procedures in place
to mitigate fraud.
This risk remained static in 2021.
There were no reportable instances
of fraud, bribery or corruption.
The Group operates in countries deemed
high risk for bribery and corruption.
A compliance programme will be
implemented for each area of operation.
Achieve a
number of
specified leading
indicators
that support
Company
policies and
standards in
relation to
governance,
people and
society.
Capricorn Energy PLC Annual Report and Accounts 2021
51
Risk Management continued
Strategic objective: ESG and HSSE continued
Principal risk: Future challenges and costs to achieving pathway to Net Zero 2040
Owner: Chief Executive
Risk appetite
Medium – The Group recognises global commitments to achieve a transition to lower carbon
sources of energy. In the near term, global demand for hydrocarbons continues to grow with
hydrocarbons expected to remain the principal source of energy over the short to medium
term. In the longer term, Capricorn will take investment decisions that ensure its assets remain
competitive in an environment where demand for oil may be lower than today.
Capricorn’s strategy is to play a responsible and competitive role in the production of oil and gas
within this transition. Capricorn acknowledges the contribution its activities have on carbon
emissions, and the Group continues to develop short, medium and long-term actions to minimise
and mitigate this contribution and address global climate change policies and regulations.
Impact
Mitigation
2021 movement
2022 KPI objectives
– Providers of capital
limit exposure to
fossil fuel projects
– Increasing costs
– Climate-related
policy changes
– Reduced demand
for oil
– Stranded assets
– Reputational
damage
– Retaining and
attracting talent
Measuring and reporting our GHG
emissions in line with the Task Force
on Climate-related Financial
Disclosures (TCFD) and Streamlined
Energy and Carbon Reporting (SECR).
Promotion of efficient energy use in
activities with business partners and
service providers.
Consideration of climate change in
investment decisions.
Portfolio resilience modelling based
on the International Energy Agency
Sustainable Development Scenarios.
Endorsement of Global Gas Flare
Reduction Partnership.
Alignment with UN Sustainable
Development Goals.
Active participation in industry
initiatives.
Implementation of mangrove
rehabilitation in Suriname for
coastline and community protection.
This risk remained static in 2021.
There was continued and increased
attention to climate change from a range
of stakeholders in 2021. This attention has
led, and we expect it to continue to lead,
to additional regulations designed to
reduce greenhouse gas (GHG) emissions.
The Company is focused on reduction of
Scope 1 and 2 greenhouse gas emissions
and has accelerated its net zero target to
2040 or earlier, from 2050
Capricorn targets energy projects
that can be developed and produced
cost effectively, responsibly and in
support of multiple UN Sustainable
Development Goals.
In Egypt, the Group plans to replace
diesel generators with cleaner-burning
gas generators, electrify well sites and
downhole pumps using centralised power
generation and integrate solar power
to reduce our reliance on diesel and gas.
The Group is actively pursuing opportunities
in carbon capture, utilisation and storage
(CCUS) in Egypt and other jurisdictions,
and we have invested in the NECCUS
project, which is examining industrial
carbon capture projects in Scotland.
Capricorn is actively engaged in voluntary
carbon markets and has acquired a
portfolio of high-quality carbon offsets,
including nature-based, landfill gas and
refrigerant gases sequestration.
Environmental
– Outline a
roadmap and
deliver
opportunities to
achieve Scope 1
and Scope 2
emissions
reductions
versus our short,
medium and
long term net
zero targets. This
will include asset
improvement
initiatives,
energy
efficiency
measures, and
engineered
and natural
carbon offset
programmes.
Governance-
Communicate
our climate
change strategy,
performance
and carbon
pricing and our
processes for
governance, risk
management,
and target
setting.
52
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Strategic objective: Production performance
Principal risk: Reserves downgrade or impairment
Owner: Chief Operating Officer
Risk appetite
Low – Delivering operational excellence in all the Group’s activities is a strategic objective for the
Group and the Group works closely with all JV partners to mitigate the risk and impact of any
operational delay or underperformance. Therefore, the Group has a low appetite for risks which may
impact on operating cash flow.
Impact
Mitigation
2021 movement
2022 KPI objectives
– Delay or reduction
in cash flow
– Increased
operational costs
– HSE incident
– Reputational
damage
Work closely with operators to
deliver risk mitigation plans and
project solutions during ongoing
commissioning.
Positive and regular engagement
with operators and partners to share
knowledge, offer support and exert
influence.
This risk remained static in 2021.
Capricorn announced completion of
the sale of its UK North Sea production
interests to Waldorf Production in
November 2021. Estimated 2021 annual
production from these interests was
approximately 18,300 bopd, towards the
upper end of original guidance of 16,000–
19,000 bopd. Under earn-out provisions,
based on 2021 production levels and
average oil prices, a payment of ~US$76m
is due to be made by Waldorf to Capricorn
in Q2 2022. In Egypt, working interest
production across the four main
concession areas of Obaiyed (Capricorn
50% WI), Badr El Din (Capricorn 50% WI),
North East Abu Gharadig (Capricorn 26%
WI) and Alam El Shawish West (Capricorn
20% WI) averaged ~36,500 boepd during
the period from acquisition completion on
23 September to year end 2021, with ~38%
of the production mix comprising oil and
condensate. This was within the guidance
range for WI production of 33,000–38,000
boepd announced in March 2021.
Sanction
incremental
development
investment to
convert WI 2C
Resources and
2P Undeveloped
Reserves into WI
2P Producing
Reserves’
Deliver Net
production
(10%) and
operating cost/
boe (5%) targets
within public
market
guidance in
relation to Egypt.
Strategic objective: Production performance and exploration
and new ventures
Principal risk: Misalignments with JV operators
Owner: Chief Operating Officer
Risk appetite
Medium – The Group seeks to operate assets which align with the Group’s core areas of expertise
but recognises that a balanced portfolio will also include non-operated ventures. The Group accepts
that there are risks associated with a non-operator role and will seek to mitigate these risks by
working with partners of high integrity and experience and maintaining close working relationships
with all JV partners.
Impact
Mitigation
2021 movement
2022 KPI objectives
– Cost/schedule
overruns
– Poor performance
of assets
– HSE performance
– Negative impact
on asset value
– Ability to effect
change towards
lowering carbon
footprint
– Misalignments on
selection or priority
of ESG goals
Actively engage with all partners
early to establish good working
relationships.
Actively participate in
operational and technical
meetings to challenge, apply
influence and/or support
partners to establish a cohesive
JV view.
Application of the Group risk
management processes and
non-operated ventures
procedure.
Active engagement with supply
chain providers to monitor
performance and delivery.
This risk remained static in 2021.
The divestment of Capricorn’s
interests in the Kraken and
Catcher fields in the UK North Sea
completed in Q4 2021. This sale has
reduced the Group’s non-operated
exposure.
The Egypt acquisition offers both
non-operated (production) and
operated (exploration) activity.
The Group continues to work closely
with a number of other partners
in the UK, West Africa and Latin
America regions.
Sanction incremental
development investment
to convert WI 2C Resources
and 2P Undeveloped
Reserves into WI 2P
Producing Reserves.
Deliver Net production
(10%) and operating cost/
boe (5%) targets within
public market guidance
in relation to Egypt.
Conduct our operated and
non-operated exploration
and appraisal activities
(surveys and drilling)
successfully, on time
and on budget.
Capricorn Energy PLC Annual Report and Accounts 2021
53
Risk Management continued
Strategic objective: Financial performance
Principal risk: Diminished access to debt markets
Owner: Chief Financial Officer
Risk appetite
Low – The Group seeks to develop and implement a funding strategy that allows a value generative
plan to be executed and ensures a minimum headroom cushion from existing sources of funding is
maintained.
Impact
Mitigation
2021 movement
2022 KPI objectives
– Work programme
restricted by
reduced capital
availability
– Loss of value
Disciplined allocation of capital
across portfolio.
Continue to assess other forms
of financing and pursue claim
for restoration of value for
Indian investment.
This risk decreased in 2021.
The divestment of Capricorn’s interests
in the Kraken and Catcher fields in the
UK North Sea completed in Q4 2021.
The sale provides flexibility to enhance
the producing asset base while retaining
exposure to oil price growth through the
terms of the sale. The near term committed
capital programme is significantly reduced.
In February 2022, the tax case against the
Government of India was resolved. The
expected Indian tax refund of INR79 billion
was paid and net proceeds of US$1.06
billion were received by the Group.
Several financial institutions and investors
have recently made policy decisions to exit
oil and gas sector investment. To date, this
has not affected Capricorn but if this trend
accelerates there could be a future impact.
Maintaining
a US$50m
‘headroom’
from existing
sources of funds
in all financial
projections
covering all
currently
committed
and planned
expenditure
including
capital funds
for exploration,
appraisal,
incremental
development
and production
opex.
Debt liquidity
covenants or
applicable
facility tests will
not be breached.
Principal risk: Political and fiscal uncertainties
Owner: Chief Financial Officer
Risk appetite
Medium – The Group faces an uncertain economic and regulatory environment in some countries
of operation. The Group is willing to invest in countries where political and/or fiscal risks may occur
provided such risks can be adequately managed to minimise the impact where possible.
Impact
Mitigation
2021 movement
2022 KPI objectives
This risk remained static in 2021.
Capricorn continues to source new
opportunities globally and this can
be in jurisdictions deemed at higher
risk of political or fiscal uncertainty.
– Loss of value
– Uncertain financial
outcomes
Operate to the highest industry
standards with regulators and
monitor compliance with the
Group’s licence, Production Sharing
Contract and taxation requirements.
External specialist advice sought
on legal and tax issues as required.
Maintain positive relationships with
governments and key stakeholders.
Ongoing monitoring of the political
and regulatory environments in
which we operate.
Working responsibly is an important
factor in maintaining our access to
funding.
Maintaining
a US$50m
‘headroom’ from
existing sources
of funds in all
financial
projections
covering all
currently
committed and
planned
expenditure
including capital
funds for
exploration,
appraisal,
incremental
development
and production
opex.
54
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Strategic objective: Financial performance continued
Principal risk: Volatile oil and gas prices
Owner: Chief Financial Officer
Risk appetite
Medium – Exposure to commodity prices is fundamental to the Group’s activities; however, the
Group manages its investment programme to ensure that a threshold economic return is delivered
and the business model is funded even in sustained downside price scenarios.
Impact
Mitigation
2021 movement
2022 KPI objectives
– Reduction in future
cash flow
– Value impairment of
development
projects
– JV partner capital
constraints
Sensitivity analysis conducted to
assess robustness of Group financial
forecasts for funding plan.
Operators’ cost initiatives delivering
material cost reductions on
development projects.
Exploration projects are ranked
based on the probability of
commercial hydrocarbons and
success case break-even oil price.
This risk decreased in 2021.
The oil price has been relatively stable in
2021. However, volatility is expected to
continue as the COVID-19 pandemic
continues to evolve.
Maintaining
a US$50m
‘headroom’
from existing
sources of funds
in all financial
projections
covering all
currently
committed
and planned
expenditure
including capital
funds for
exploration,
appraisal,
incremental
development
and production
opex.
Principal risk: Inability to repatriate full amount of refund due under India legislation
Owner: Owner: Chief Financial Officer
Risk appetite
Medium – The Group faces an uncertain macroeconomic and regulatory environment in some
countries of operation. The Group is willing to invest in countries where political and/or fiscal risks
may occur provided such risks can be adequately managed to minimise the impact where possible.
Impact
Mitigation
2021 movement
2022 KPI objectives
– Loss of value
Arbitration proceedings under the
UK-India Bilateral Investment Treaty
were largely concluded in 2018.
The tribunal ruled unanimously in
Capricorn’s favour on 22 December
2020.
Participation in the scheme
introduced by recent India legislation,
the Taxation Laws (Amendment) Bill
2021, allowing the refund of taxes
previously collected from Capricorn
in India.
This risk decreased in 2021.
No 2022 KPI
In August 2021, the Government of India
cancelled the retrospective tax provision
and introduced the Taxation Laws
(Amendment) Bill 2021, which proposed
certain amendments to the retrospective
taxation measures that were introduced
by the Finance Act 2012.
In November 2021, Capricorn entered
into undertakings with the Government of
India in order to participate in the scheme
introduced by recent Indian legislation,
the Taxation Laws (Amendment) Bill 2021,
allowing the refund of taxes previously
collected from Capricorn in India.
In February 2022, the tax case against the
Government of India was concluded. The
expected Indian tax refund of INR79 billion
was paid and net proceeds of US$1.06
billion were received by the Group.
Capricorn Energy PLC Annual Report and Accounts 2021
55
Behaving Responsibly to the Environment
Behhaavvingg Reespponssibblyy
tto tthhe Envvviroonmmmenntt
Environmental protection is fundamental to how Capricorn
operates. Recognising the global challenges of climate change,
biodiversity loss and the need to protect water resources, we are
deepening our commitment and action, refocusing our efforts
on net zero emissions by 2040 or earlier, and strengthening
our approach to biodiversity and water management. We take
a precautionary approach, with rigorous risk assessments
and robust working methods that help us to minimise our
environmental impacts without affecting our commitment to
safety. At the same time, we are finding ways to decarbonise our
operations and play our role in the transition to clean energy.
BUSINESS PRINCIPLES
– We take a precautionary approach
to our effect on the environment.
– We strive to prevent and minimise
our impact on the environment,
including no net loss of biodiversity.
– We will implement our pathway to
net zero carbon emissions and report
on our progress.
This year, the following environmental
issues were identified as being of high
materiality:
23
25
26
28
29
Energy Use and Alternative Sources
GHG Emissions (including Venting and Flaring)
Materials Use
Reuse, Recycle and Waste Management
Use of Local Resources
(cid:2) See our Materiality Matrix on page 25
2021 PERFORMANCE AGAINST SUSTAINABILITY OBJECTIVES
– Revised our Climate and Energy
Transition strategy.
– Began preparatory work for 2022
and 2023 drilling programmes.
– Developed short-, medium- and
long-term sustainability objectives
and targets.
– Improved biodiversity assessment
tools and disclosure of biodiversity
issues.
– Integrated carbon pricing
– Began identifying and managing
mechanisms and re-evaluated
the resilience of our portfolio.
biodiversity and ecosystem services
risks in Mauritania.
– Developed our understanding of
– Improved our standard water data
carbon capture utilisation and storage
applications and opportunities.
– Improved our reporting against
TCFD and SASB requirements.
– Began disclosing Scope 3 emissions
from the use of our products.
collection and assessments.
– Improved water resilience and stress
ranking and reporting.
(cid:2) See our Sustainability Report for more information about our SDG performance
56
Capricorn Energy PLC Annual Report and Accounts 2021
Emissions and Energy Use
We commit to promoting the efficient
use of energy, with the aim of conserving
natural resources, reducing atmospheric
emissions and mitigating the impacts of
our operations.
In September 2021, we released our
Climate and Energy Transition roadmap.
This sets out our medium-term target
to reduce absolute emissions by 25% by
2030, as well as our commitment to an
accelerated target of net zero emissions
by 2040. Achieving these will involve
a hierarchy of options for avoiding,
reducing, substituting and offsetting GHG
emissions, which includes opportunities
for carbon capture, utilisation and storage.
Residual emissions, which are hard
to eliminate through operational
improvements, will be offset using
high-quality carbon offset projects
with positive socioeconomic and
biodiversity impacts. This strategy is
in line with our sustainability objectives,
the UN Sustainable Development Goals
(SDGs) and the Taskforce on Climate-
related Financial Disclosures (TCFD) -
see our website for more details:
www.capricornenergy.com/working-
responsibly.
We are actively engaged in voluntary
carbon markets and have acquired a
portfolio of high-quality carbon offsets,
including nature-based sequestration,
landfill gas and refrigerant gas destruction.
We make annual carbon disclosure
submissions to the CDP. In 2021, we
submitted the Climate Change
questionnaire and received a rating of B-,
which falls within the ‘management band’.
We report on both an operated and an
equity basis. We have set out targets
against equity Scope 1 and 2 emissions,
taking accountability for assets beyond
our operational control. Due to the
dynamic nature of our evolving portfolio,
we will use 2022 as the baseline against
which our targets will be measured,
with full year emissions from our Egypt
portfolio taken into account. We also
report Scope 3 emissions from business
travel and from the use of products sold.
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Streamlined Energy and Carbon Reporting
Emissions
Our operated annual GHG emissions arise largely from exploration and appraisal activities and, in absolute terms, vary with the
duration and nature of our projects. From an operated perspective, 2021 was a year of low activity for Capricorn, with three
surveys in support of planning for projects in the North Sea, and both total and normalised GHG emissions remained low.
GHG Emissions from Operated activities
Scope 1 (direct) emissions from fuel combustion, flaring and waste incineration
UK
Capricorn total
Scope 2 (indirect) emissions (location-based) from electricity consumption in
our UK, Mexico, Senegal and Egypt offices
UK
Capricorn total
Total gross Scope 1 and Scope 2 emissions
UK
Capricorn total
Total energy consumption
UK
Capricorn total
GHG intensity ratio: of Scope 1 and scope 2 emissions to 1000 hours worked
UK
Capricorn total
Scope 3 emissions from business travel
Unit
tCO2e
tCO2e
kWh
tCO2e/
1000 wh
tCO2e
2021
885
911*
95
107*
980
1,018*
2020
0
24,440
136
175
136
24,615
3,833,910
3,971,755
592,273
98,360,873
2.98
2.86
451*
0.44
35.48
336
* Figures assured by Deloitte LLP, see page 211 for further details.
Details about our data, methodologies and calculations can be found in Capricorn Emissions Methodology – Basis of Reporting Appendix on page 211 and
our website.
Energy use
Direct energy use from operated
assets mainly comprises diesel fuel
combustion in field operations and
minor electricity consumption in our
offices. We seek to minimise energy use
during exploration activities through
planning and efficient working. As our
exploration programmes vary annually,
so too does energy consumption.
Electricity use in 2021 was 1,719 GJ,
which is 689 GJ less than in 2020,
with variation during the year largely
associated with local weather
conditions. Our indirect energy
consumption in 2021 at 1,719 GJ
was lower than 2020 owing to
COVID-19 restrictions.
Low-Carbon Assets and Equipment
To minimise the energy used in our
exploration activities, we assess the
fuel consumption of rigs, vessels and
helicopters. In 2021, we added fuel
efficiency to our selection criteria for
tenders for operational programmes,
and have implemented this approach
tendering vessels for geophysical and
geotechnical survey work in the UK
and Mauritania.
We will strive to align our supply chain
products and services with our own
emissions reduction target of net zero
by 2040 or earlier.
Capricorn equity emissions
The majority of our equity-based
emissions were Scope 1 emissions from
the Catcher and Kraken non-operated
assets in the North Sea, and those from
the Egypt Western Desert assets post
completion in September 2021.
2021 Capricorn Equity Emissions
Total equity emissions
Total equity CO2e – Scope 1
Total equity CO2e – Scope 2
Total equity CO2e – Scope 3
Our indirect (Scope 3) emissions, largely
from travel, were also limited due to
COVID-19 restrictions. Travel emissions
increased once our Egypt transaction was
completed and travel restrictions eased.
Equity Scope 3 from business travel
Equity Scope 3 from product*
Intensity (scope 1+2)**
* Scope 3 from product includes categories 9, 10, 11.
** Intensity is calculated on the entitlement basis.
Measure
tCO2e
tCO2e
tCO2e
tCO2e
tCO2e
tCO2e
kg/boe
2021
3,388,119
146,579
107
3,241,433
451
3,240,982
19.87
Capricorn Energy PLC Annual Report and Accounts 2021
57
Behaving Responsibly to the Environment continued
Protecting Biodiversity and
the Environment
We adopt a precautionary approach to
biodiversity risk management and follow
the mitigation hierarchy to minimise
risks associated with both operated
and non-operated opportunities. Our
commitment not to operate in UNESCO
World Heritage Sites was recently
extended to include International Union
for Conservation of Nature (IUCN)
categories Ia (Strict Nature Reserves) and
Ib (Wilderness Areas). All biodiversity-
related commitments are covered by our
Business Principles in our Code of Ethics
and our Environment and Climate
Change Policy.
We have increased the use of biodiversity
data and continue to strengthen our
capacity in biodiversity management. We
are monitoring the development of the
post-2020 global biodiversity framework
action targets relevant to our business.
Measures we take to mitigate
potential impacts include biodiversity
risk screening; Environmental Baseline
Surveys; Environmental and Social Impact
Assessments (ESIAs) and associated
environmental management and
monitoring plans; and Biodiversity
Action Plans in specific locations,
where appropriate.
Biodiversity Risk Screening
In 2021, Capricorn reviewed several
new locations with the potential to
contain protected and priority areas for
biodiversity conservation. The ‘high’
biodiversity risk in some areas informed
the decision not to progress with
our investment, while in others, we
recommended allocating additional
resources for biodiversity management.
Environmental Baseline Surveys
Environmental Baseline Surveys (EBSs)
provide data about the existing
environment that may be impacted by our
planned activities, enabling us to assess
potential impacts and define mitigations.
Entry and exit surveys help to delineate
our potential impact, and demonstrate
that we have met our commitments
under regulatory and good international
industry practice. They also avoid liability
for the impacts of others.
In 2021, we undertook an EBS in our
Woodstock licence areas in the UK,
in preparation for drilling the Diadem
exploration well in 2022. We also planned
a combined environmental baseline,
geophysical and site survey in Mauritania,
which commenced in January 2022.
(cid:2) More detail on biodiversity is available in our Data
Appendix: www.capricornenergy.com/working-
responsibly
Water, Effluents and Pollution
Water resilience in the face of climate
change and growing demand is an area
of increasing focus for Capricorn and our
industry. We closely monitor wastewater
discharges, and report on both water use
and discharge. In 2021, we completed
CDP’s full Water Security questionnaire
for the first time, earning a score of B-.
We recognise that our newly acquired
production and exploration assets in Egypt
are located in areas of high water stress.
Therefore, we will work closely with our
partners to improve the understanding
and use of water resources; these will be
considered in field-wide ESIAs scheduled
for completion in 2022.
We also revised the health, safety and
environment (HSE) criteria on our
investment proposal checklist to include
the need to take into account the water
stress of locations when considering
possible new venture activities.
Our 2021 Performance
In 2021, our use of freshwater remained
low, in line with the level of operational
activity undertaken during the year.
100% of water withdrawal (1,132m3)
was freshwater. Our discharges in 2021
were largely limited to domestic sources
and minor discharges from offshore
survey work.
In Egypt, we are working with our partners
and the EGPC to verify reporting on water
extraction and discharge that has been
initiated by the joint venture companies.
We will report equity water data in our
2022 CDP Water Security questionnaire.
(cid:2) For further information, please see our Sustainability
Report: www.capricornenergy.com/working-
responsibly
Product Stewardship
It is our responsibility to ensure all
production operations and the
transportation of crude oil from our
non-operated production to buyers
comply with regulatory requirements,
as well as our own Code of Ethics and our
Environment and Climate Change Policy.
We engage with our partners to ensure
proper stewardship is in place via routine
Operator Committee and Technical
Committee meetings. Hydrocarbon
sales are carried out by marketing agents
on our behalf, with the gas from our
non-operated assets in Egypt sold
domestically to the EGPC.
58
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
CASE STUDY
ENVIRONMENTAL
MANAGEMENT IN EGYPT
Alongside our partner Cheiron, Capricorn completed the purchase of Shell’s
Western Desert assets in September 2021. Ahead of this acquisition, due diligence
was undertaken based on International Finance Corporation (IFC) Standards and good
international industry practice references.
The process concluded that the assets
have been managed well, with a focus
on integrity, major hazard management,
and health and safety. We will work
with Cheiron, the Egyptian General
Petroleum Corporation (EGPC) and
other partners to ensure the safety
culture established by BADR Petroleum
Company (Bapetco) is built upon.
Reducing Emissions
Alongside Cheiron and Bapetco, we
undertook a baseline study to assess
our GHG emissions impact and identify
reduction opportunities. The audit,
conducted in late 2021, was the start of
our baselining activity for these assets,
with a detailed inventory of emissions
planned for early 2022. The audit
reviewed the accuracy of reporting in
the Western Desert operating fields,
the protocols used for reporting and
any areas of uncertainty that need
closing in 2022.
Committed to the World Bank’s Zero
Routine Flaring by 2030 initiative,
we are working towards eliminating
routine flaring from our operations by
the end of this decade. Flare-reduction
projects are being implemented in
Egypt and additional opportunities
identified. We are also replacing diesel
generators with cleaner-burning gas
equipment, and integrating solar
power to reduce our reliance on
diesel and gas. We will explore other
options, including carbon capture and
storage and the wider application of
renewable power.
Managing Water
Managing water risks effectively is
important in the Western Desert,
an area of considerable water scarcity.
We will focus on using freshwater
efficiently and managing water
discharge responsibly. This will involve
enhanced understanding of water
demand; quality and availability
of sources; users and stakeholder
vulnerabilities; environmental linkages;
and discharges or abstractions
affecting water resources to
inform improvements.
Capricorn Energy PLC Annual Report and Accounts 2021
59
Behaving Responsibly to People
Behhaavvingg Reespponssibblyy
tto PPeeooplee
At Capricorn, our people are the key to our success. Our
employees’ well-being, safety and security is one of our core
values that underpins how we do business and the behaviours
we expect. Our culture promotes honesty and openness, and
we have programmes in place that prioritise health, safety,
inclusion, well-being and security.
BUSINESS PRINCIPLES
– We develop the potential of our people.
– We foster a workplace that respects
personal dignity and rights, is non-
discriminatory and provides fair
rewards.
– We provide a healthy, safe and secure
work environment.
This year, the following people issues
were identified as being of high
materiality:
37
Major Accident Prevention
(cid:2) See our Materiality Matrix on page 25
2021 PERFORMANCE AGAINST SUSTAINABILITY OBJECTIVES
– Established our diversity and inclusion
(D&I) strategy and working group,
and developed tools and methods
to embed D&I in the way we work.
– Delivered the next phase of our talent
management programme, as we shift
to a more production-based strategy.
– Continued to support staff on
COVID-19 and facilitated a return
to office working.
– Reviewed and updated our
competency procedures in relation
to health, safety and environment
(HSE) and major accident safety.
– Revised our Project Delivery Process
with improved integration of HSE
elements.
– Completed a Corporate Responsibility
Management System (CRMS) audit
and closed out all findings.
– Implemented an enhanced incident
reporting system across the Company.
– Reviewed our security guidelines
against the latest ISO standard, and
assessed information sources and
providers to identify potential
improvements.
– Performed a cyber security audit
and held a cyber security breach
emergency response exercise.
– Revised our technical competencies
project and strengthened links to our
Corporate Major Accident Prevention
Policy (CMAPP).
– Introduced Crisis Incident
Management (CIM) emergency
incident software and held simulation
exercises to evaluate its effectiveness.
– Revised our contractor assessment
criteria in relation to emissions, energy
efficiency objectives and our net zero
targets.
– Set improved contractor HSE
leadership expectations, including
revised key performance indicators
(KPIs) for forthcoming projects.
– Aligned our scoring mechanism
for contractor HSE evaluations with
International Association of Oil & Gas
Producers (IOGP) methodologies.
(cid:2) See our Sustainability Report for more information about our SDG performance
60
Capricorn Energy PLC Annual Report and Accounts 2021
Managing People and Talent
Delivering on our strategy and achieving
sustainable results are only possible
thanks to the skills, experience and
passion of our people. Our employee
processes are underpinned by our
values of Building Respect, Nurturing
Relationships and Acting Responsibly, as
well as our High Performing Behaviours.
Proactively managing and empowering
people to reach their full potential is key
to business success. During 2021, we
welcomed 53 new colleagues to the
business, with the skills, competencies
and technical knowledge required to serve
our production-based business model.
Our talent management strategy
continues to focus on growing our
talent through such measures as active
succession planning and mentoring;
leadership, management and
development programmes; and annual
objectives and development plans.
Diversity and Inclusion (D&I)
We acknowledge diversity in all its
dimensions and welcome people with
differing backgrounds, skills, experiences
and perspectives.
Our Group People Management
Policy guides how we build D&I into
all aspects of recruitment, learning
and development, and remuneration
and benefits. We also have policies on
disability, equality and diversity, fixed-
term and part-time employees, flexible
working and harassment. We continue to
develop metrics that promote equality of
opportunity, pay and reward on a non-
discriminatory basis.
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Total workforce
238
(2020: 204)
Gender split
Total workforce
Male/Female
Employees
111
Direct Contractors
21
Management
10
People Managers
43
Average age of staff
44
(2020: 45)
Board members
Male/Female
2021
5
2020
6
2019
6
2018
7
2017
8
99
7
3
23
3
3
3
2
2
Employment type
210
28
Employees
Direct Contractors
191
Full-time
19
Part-time
For current and aspiring people managers,
we have added the TalentBuilder®
programme to our longstanding
Management Bootcamp programme,
and a Career Focus module is available
for all staff.
Workplace Safety
Providing a safe working environment
is a core element of working responsibly.
Overall accountability for minimising risks
to people and the environment remains
with the Board but responsibility for
implementation across the Group falls to
the Management Team. All our people
must apply our safe systems of work.
Managing day-to-day operational safety
hazards involves several systems to
promote safe working procedures.
These are linked to those of our principal
contractors where they operate key
assets. Our own personnel provide clear
oversight, and procedures are bridged
where necessary to ensure responsibilities
are understood and activities are
managed effectively.
Minimising Health and Security Risks
We support all staff who could be
exposed to health risks through their work.
The main threat remains the potential
exposure to infectious diseases, either
where we have assets or during travel
to prospective destinations. In locations
where endemic diseases such as malaria
are prevalent, we have mechanisms in
place to minimise the risk, and remain
vigilant to any new or re-emerging
epidemics and pandemics.
We perform risk assessments before
international travel, which cover
inoculations and country briefings,
as well as general advice on basic travel
health, natural disasters, security alerts
and female traveller security. Our Traveller
Health and Security intranet site provides
all personnel with security advice and
travel management procedures for our
countries of operation.
Despite the pandemic restrictions,
we have continued to conduct business-
critical trips to locations such as
Mauritania, Egypt and Suriname, in
accordance with the rules of both home
and destination countries. Due to our risk
assessment and mitigation procedures,
including the use of virtual meetings
where possible, no infectious cases were
recorded as a result of business travel.
Our D&I ambition
To elevate our existing practices, in 2021,
we developed and implemented our
strategic D&I ambition:
“To nurture an inclusive and sustainable
culture, where differences are encouraged,
embraced and recognised as key drivers of
value to all stakeholders.”
We have developed a strategic framework
to cultivate D&I across the business and in
2022, we will roll out activities that focus
on nurturing a diverse and inclusive
culture; attracting, developing and
retaining the very best people; and
reflecting diverse values and perspectives
in our social investment decisions and
practices.
Employee Engagement
So that everyone feels involved and
valued by their colleagues, managers and
senior leaders, we aim to create a positive,
collaborative work environment that
enables our people to fulfil their potential.
We engage with employees through
regular staff meetings, AGMs, focus
groups and our intranet and, with the
ongoing pandemic, we often use virtual
channels to keep our people informed
while working at home.
Our monthly Group-wide pulse surveys
provided an annual employee engagement
score of 8.3, which is +0.7 above the
industry benchmark, while colleagues’
concerns, ideas and suggestions are
discussed at our biannual Employee Voice
Forum meetings. The main themes
continued to be our response to COVID-19,
flexible and hybrid working practices, and
plans for returning to the office.
Learning and Development
Providing our people with learning
opportunities is essential to meeting
the highest standards and making our
business more successful. Each colleague
has a personal learning ‘budget’ to help
them to fulfil their potential, deliver our
objectives and meet the changing
demands of our industry.
Typically, development opportunities are
offered through e-learning and classroom
training, ‘lunch and learn’ sessions
and workshops, as well as seminars,
conferences, field trips and international
secondments. Due to the pandemic,
in-person training opportunities migrated
to online delivery or were postponed.
Mandatory compliance e-learning
modules delivered via the Capricorn
Academy enable colleagues to improve
their understanding of our processes
and procedures, as well as important
governance, regulatory and security topics.
Capricorn Energy PLC Annual Report and Accounts 2021
61
Behaving Responsibly to People continued
Employee Well-being
Staff well-being plays an important role
across our business and never more so
than during the COVID-19 lockdowns.
Our health and well-being programme
in the UK helps staff to understand how
their behaviour and lifestyle can affect
their health, explore their values and
attitudes and, where appropriate, change
their behaviour. Now in its third year, the
programme of activities is accessible to all
staff across all locations, with a focus on
three areas: Getting Healthy, Maintaining
Health and Regaining Health.
To promote good physical and mental
health, we have run exercise and yoga
sessions, walking challenges and virtual
tours, as well as workshops and webinars
covering meditation, anxiety and stress
management, financial well-being,
understanding change, and healthy
Lost Time Injury Frequency (LTIF)
(Lost time injuries per million hours worked)
2021
2020
2019
2018
2017
Capricorn: 0.00
IOGP benchmark: 0.24
Capricorn: 0.00
IOGP benchmark: 0.26
Capricorn: 0.00
IOGP benchmark: 0.24
Capricorn: 0.00
IOGP benchmark: 0.26
Capricorn: 0.00
IOGP benchmark: 0.27
Capricorn total for employees and contractors.
The benchmark used is the latest available
International Association of Oil & Gas Producers
(IOGP) figure at the beginning of the year for
the industry overall.
eating. Our HR staff have also completed
mental health first aid training to
strengthen the support we provide.
necessary. New operational security
guidelines were developed for release
across the Company in late 2021.
As restrictions eased in the UK, returning
to the office became a source of concern
for some. Using video briefings and other
updates, we reassured staff about the
risk controls in place including those
relating to travel, COVID-19-safe offices,
emergency procedures and expected
behaviour. All personnel were given
briefings and supporting materials
as part of the phased return.
We are trialling hybrid working in the UK
as part of our shift to more flexible working
practices without impairing our ability to
deliver our work programmes. Offices in
Mexico and Egypt will undergo a similar
process once restrictions allow.
Our 2021 Performance
With zero recordable injuries in our
operated assets, our occupational safety
performance exceeded our target; this was
set using the IOGP benchmarks, which we
use as lagging KPIs. We recognise that our
operational activity in 2021 was limited to
survey and environmental work in Mexico
and East Orkney, as well as Mauritania in
January 2022.
For 2022, we have reviewed our KPI
weightings to reflect the greater level of
field activities that will take place in 2022
across the portfolio.
Security
We have a duty of care to protect our
people and our assets, and place high
importance on protecting our investments,
reputation and data. All security measures
are balanced with human rights and our
social responsibility considerations, and
executed in accordance with international
law and industry best practice. As a
member of the IOGP Security Committee,
we remain vigilant to emerging threats,
and offer support, advice and training as
While we reported no security
incidents affecting our staff or premises
during 2021, the impact of COVID-19 on
Mexico’s economy has led to an increase
in kidnappings, cyber crime and violent
crime. Key members of the Capricorn
Mexico team now engage in weekly
meetings to ensure we have the measures
in place to keep our people safe.
Meanwhile, in Egypt, we are promoting
safe driving practices, and we have
conducted two exercises simulating
road traffic accidents involving Capricorn
personnel to ensure emergency teams
are fully aware of what measures to take.
Major Accident Prevention
Our industry faces a number of major
hazards and we have extensive safety
measures and procedures in place to
prevent accidents across every phase
of our activities. Where it is not possible
to eliminate the risks, we manage them
to a level that is As Low As Reasonably
Practicable (ALARP). This underpins
legislation in the UK Continental Shelf
and many other jurisdictions, as well as
aligning with industry good practice.
Operated Assets
Our Corporate Major Accident
Prevention Policy (CMAPP)1 captures
the arrangements we have to address
and control these risks for our operated
activities. CMAAP remained unchanged
in 2021 but we are planning a major
review of CMAPP in 2022 as we move
towards greater operated production,
meeting the changing needs for major
accident prevention competency.
A CMAPP training module has been
incorporated into the Capricorn Academy
and now forms a fundamental part of our
induction process for new personnel.
1 Required under the UK Offshore Installations (Offshore Safety Directive) (Safety Case) Regulations 2015.
62
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
As part of planning for the Diadem well in
2022, we also reviewed and refreshed the
Safety and Environmental Management
System.
Non-Operated Assets
Depending on the activity, our equity
share of the asset and the regulatory
framework under which we operate,
we seek to influence our joint venture
partners through Operating Committee
and Technical Committee meetings.
In 2021, we continued to support our
partners in preventing major accidents
on our non-operated assets, primarily in
the UK and Egypt. We are also working
to increase the level of data provided to
us as a non-operating partner, to enable
greater scrutiny and reporting in the area
of energy efficiency, emissions, objectives
and targets towards net zero.
Crisis Management and
Emergency Response
We focus on prevention but, should a
significant accident or incident occur,
we maintain a three-tiered crisis and
emergency response that supports our
activities around the world.
For a quick and effective tactical response,
trained local Incident Management Teams
are in place in all operational locations.
These are supported by Incident Response
Teams in our field assets, normally
provided by our contractors.
Our Crisis and Emergency Response Team
(CERT) in Edinburgh provides strategic
and tactical support, depending on local
capability. Specialists can be called in to
assist in crisis management and to prevent
escalation, in accordance with the priority
issues of People, Environment, Assets and
Reputation (the PEAR principle).
CASE STUDY
CONTRACTOR SELECTION AND
ENERGY EFFICIENCY
In reviewing our HSE tendering processes in 2021, one strategic goal was to
drive energy efficiency and reduced emissions throughout the supply chain,
with an initial focus on operated activities. We included energy efficiency and
emissions as a differentiating factor in selecting contractors for drilling, marine
and aviation services.
Average greenhouse gas (GHG) emissions were calculated for the activity to be
undertaken, based on data supplied by contractors, and those with emissions
greater than 10% above the average were removed from the tendering process.
As well as numeric criteria, contractors are now also asked for their energy
transition strategies as part of all tenders.
This method was used for contracting vessels for the geotechnical and
geophysical surveys for both the Diadem and East Orkney Basin projects.
It was also used in selecting the drilling contractor and aviation service provider
for the Diadem project.
We will continue to drive down our own emissions towards our net zero target,
as well as sending a strong message to our supply chain partners that we expect
the same from our contractors. In 2022, we will enhance our GHG emissions
reporting to Scope 3 emissions from our contracted activities.
Due to COVID-19 restrictions, CERT
members remained ready to respond
virtually and still received weekly training
and operational briefings covering
security, travel, health and emergency
response scenarios. In September 2021,
we switched to a combination of remote
and in-person provision as we began the
return to office working.
Supported by an independent specialist,
we held four remote emergency response
exercises in 2021. These simulations tested
our response to scenarios such as road
traffic accidents and injuries in Egypt, as well
as to a cyber security attack on Capricorn.
The simulations used Crisis Incident
Management (CIM), our new ISO-accredited
crisis and emergency management tool.
Contractors
We rely on third-party suppliers and
contractors for much of the technical
expertise, equipment and services we need
to maintain our operational capability. The
annual average number of field contractors
in 2021 was 33 people, which is 12% of the
total workforce and 5% of hours worked.
Selecting Contractors
Contractor performance impacts our
licence to operate, so effective selection,
strong working relationships and good
performance are fundamental to our
success. In evaluating tenders, we require
suppliers to use management systems
and ways of working that align with our
Code of Ethics, policies, standards and
procedures, where applicable.
We have improved our scrutiny of
key equipment providers in terms of
environmental performance as part
of the tendering process. In 2021, we
assessed the energy efficiency and
emissions of vessels, rigs and helicopters
as a differentiator in our contractor
selection process.
Pre-Qualification Tools
We use specialist services in some
jurisdictions to identify pre-approved
vendors and examine their performance
prior to tendering. For many UK projects,
we use Achilles’ Oil and Gas Europe platform
to assess the potential contractors in the
European oil and gas market. With a new
well in the North Sea scheduled for 2022,
we have completed the long-lead tendering
process and contracting for pre-work.
We also helped Invest in Africa (IIA) to
develop a similar system – the African
Partner Pool – in Senegal, and have
started discussions with IIA about
supporting our need for sourcing
contractors in Mauritania.
Capricorn Energy PLC Annual Report and Accounts 2021
63
Behaving Responsibly to Society
Behhaavvingg Reespponssibblyy
tto SSooccietyyy
We seek to make a positive difference to society, investing in efforts
to support economic and community development. At the same
time, we recognise that we must manage and mitigate any potential
risks and impacts associated with our activities to support the
communities that may be affected by our operations. Respecting
and protecting human rights across our operations is a fundamental
part of our integrated approach.
BUSINESS PRINCIPLES
– We seek to make a positive social
impact in every area where we operate
by working ethically and with integrity.
This year, the following societal issues
were identified as being of high
materiality:
– We respect and promote the human
51 Indigenous Peoples’ Rights
rights of individuals, communities and
indigenous peoples.
– We acknowledge the aspirations and
concerns of the communities in which
we work, and will respond to and
address grievances fairly.
53 Local Content and Local Procurement
(cid:2) See our Materiality Matrix on page 25
2021 PERFORMANCE AGAINST SUSTAINABILITY OBJECTIVES
– Applied human rights guidance in
planned operations, including the
availability of transparent grievance
procedures.
– Agreed, established and tracked
social investment across the Group
to positively impact the communities
with which we work.
– Delivered a specialist-run, in-house
human rights ‘lunch and learn’ session
for all staff.
– Rolled out human rights and modern
slavery training to employees.
– Audited the application of modern
slavery prevention requirements in
selected projects.
– Reviewed and revised the criteria
for selecting and assessing social
investment projects, improving
alignment to the United Nations
Sustainability and Development
Goals (UNSDGs), and developed
an assessment tool.
– Applied stakeholder engagement
registers to forthcoming projects
and demonstrated that stakeholder
engagement follows our latest
guidance.
(cid:2) See our Sustainability Report for more information about our SDG performance
64
Capricorn Energy PLC Annual Report and Accounts 2021
Prof. Naipal, Project Manager
with Wim Kouwe, Capricorn
Asset Manager at the mangrove
rehabilitation project, Suriname
Human Rights Management
Policies and Guidelines
Respecting human rights is a fundamental
part of our commitment to protecting
our business and our stakeholders. We
support internationally recognised human
rights standards, have mechanisms in
place for raising and addressing grievances,
and include requirements on modern
slavery in supplier contracts.
To ensure human rights are respected
and promoted in our relationships with
contractors, communities and other
stakeholders, we seek to comply with
international standards such as the UN
Universal Declaration of Human Rights
and the UN Guiding Principles on Business
and Human Rights.
Our Human Rights Guidelines define
how we identify, assess and manage
issues at key project stages, including
the assessment of potential investments.
Our position on human and labour rights
is integrated into our Corporate Social
Responsibility (CSR) Policy and our Code of
Ethics, most recently reviewed and revised
in November 2021 to include our renewed
strategy and linkages with the UN SDGs.
Adherence to the Code is included in all
tender and contract documentation.
Human Rights Training
We updated our human rights training
and rolled out new e-learning modules
through the Capricorn Academy in
November 2021. In January 2022, we
held a ‘lunch and learn’ session on human
rights. Hosted by specialists from the
Institute of Human Rights for Business, the
session looked at potential human rights
issues across the industry and how they
could be mitigated within the Company.
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
CASE STUDY
STAKEHOLDER ENGAGEMENT
IN MAURITANIA
As we plan for our first operated activity in Mauritania,
stakeholder engagement with local communities and
organisations is front of mind. To inform this dialogue,
in early 2021, we commissioned a third-party specialist
to deliver a stakeholder scoping report.
This report examines considerations
including the socio-economic context
of Mauritania, the concerns and
priorities of key stakeholders, and
the history of engagement with the
oil and gas sector. It also looked in
detail at some of the key facets of the
stakeholder landscape in Mauritania,
such as the significant environmental
and biodiversity importance offshore;
the UNESCO-protected World
Heritage Site of Parc National du Banc
d’Arguin and its local Imraguen people;
and the importance of the fishing
industry to the national economy.
Combined with engagement with
our peers and with government and
authority bodies in-country, it has
been instrumental in helping us to
engage with stakeholders around the
Environmental Baseline Survey (EBS)
which commenced in January 2022.
Having presented our proposed
stakeholder engagement plan for
government feedback, we sought
to engage with key NGOs and
representatives of the local fishing
communities. Information about the
grievance mechanism established to
support the EBS activity was shared
through information leaflets provided
in both French and Arabic.
Modern Slavery
We have a zero-tolerance approach to
modern slavery and human trafficking,
which has become a significant global
issue. We do not employ forced, bonded or
child labour, and take all reasonable steps
to ensure that slavery, in all its different
forms, does not exist in any part of our
operations or supply chain.
We publish an annual Modern Slavery
Statement (www.capricornenergy.com/
working-responsibly) and have rolled out
refresher training as an e-learning module
to employees and contractors.
Assessing Our Supply Chain
We use a consistent approach for
assessing proposed acquisitions and
planned activities, understanding where
the supply chain could represent modern
slavery risks. We found no significant risks
of forced or compulsory labour in our
activities in 2021, but have flagged
locations where vulnerabilities exist
for managing projects in the future.
The standard terms and conditions
within our contracts specify our zero
tolerance for modern slavery, and
include our right to audit suppliers
and subcontracting parties. Our tender
process includes specific questions about
whether potential contractors, vendors
and suppliers have modern slavery policies
and procedures in place.
We use specialist contractors with
well-developed employment practices
that understand our requirements
and standards. Our suppliers often use
subcontractors of their own so, while our
influence diminishes down the supply
chain, we continue to use our leverage
to promote good employment practices,
address non-discriminatory behaviour
and prevent child labour.
We audited the application of our modern
slavery processes across selected projects
in 2021 and intend to undertake a more
detailed assessment of our principal
contractors in 2022.
Capricorn Energy PLC Annual Report and Accounts 2021
65
Behaving Responsibly to Society continued
Local Procurement
We encourage our principal contractors to
engage local personnel where appropriate
skills and services exist. In line with our
Operating Standards, we have set out a
comprehensive process through which
the ‘national content’ of received tender
submissions will be assessed. Where
applicable, contractors are required to
confirm that they, and any subcontractors,
will comply with the required minimum
percentage of national content and
associated reporting requirements.
The categorisation of local, national and
international vendors depends on the
definitions used within local legislation.
In Suriname, for example, the national oil
company (Staatsolie) provides guidance
on national content. In Mexico, the
methodology is based on a framework that
is mandatory by law. Under our Production
Sharing Contract (PSC) with the Mexican
National Hydrocarbons Commission
(CNH)1, each of our key contracts carries a
percentage target for local content. This is
assessed during the tender process, and is
monitored and reported throughout the
duration of the contract.
Local Community Engagement
We aim to enhance our community
development activities by understanding
and addressing the needs, aspirations and
concerns of the communities in which
we work.
We consult with local stakeholders to
identify any potential impacts associated
with our activities and to acquire local
knowledge to inform any future plans.
This enables us to minimise risks,
maximise shared economic and social
benefits, and foster long-lasting
relationships with community partners,
governments, investors and employees.
Stakeholder engagement will be a key
part of our operated exploration activity
in Egypt in 2022. To support our seismic
work, we will undertake extensive
engagement with local communities
around issues such as land access and
compensation. We are also using targeted
stakeholder engagement to support our
early stage activity in Mauritania (page 65).
Security and Human Rights
Operating in complex and challenging
environments, we recognise the need to
maintain the safety and security of our
people and operations while respecting
human rights.
As part of our standard procedures,
100% of our operations are subject to
human rights reviews and modern slavery
assessments. Security contractors, where
required, are assessed on their adherence
to our principles and standards, and their
activities, equipment and training also
need to meet the requirements of key
human rights standards and guidelines.
Before we enter a new country as an
operator, our due diligence process
involves human rights screening. We
review key indicators from international
indices such as the Global Slavery Index
and the US Trafficking in Persons Report,
and research the risks using specialist
geopolitical advisers. We assess potential
impacts through Environmental and Social
Impact Assessments (ESIAs) and, where
necessary, undertake a Human Rights
Impact Assessment. If any current or
potential issues are identified, we engage
with those affected to consider how best
to manage them.
Prior to proceeding with a non-operated
joint venture, we check any human rights
issues and identify any risks that may
require management by the operator.
Delivering Social and
Economic Benefits
We seek to mitigate any negative impacts
and enhance the positive benefits that
arise from our operations while sharing the
value generated by oil and gas activities.
Taking a long-term approach to social
investment, we promote good practice,
support a wide range of international
agreements and standards such as the
UN SDGs, and support capacity building
in the communities where we operate.
Our social investment strategy is
informed by stakeholder engagement
at a community level. We have recently
updated the criteria under which we
select social investment projects and
assess their success. These are grouped
into four priority areas: community health;
community economic and environmental
benefit; community protection and
climate adaptation; and education and
innovation. We have also started applying
a comparative assessment tool for
potential projects, as well as a range
of key performance indicators (KPIs) to
demonstrate the inputs, short-term
outputs and longer-term outcomes
of each project.
Both the social investment criteria
and KPIs are aligned with the UN SDGs,
which provide an additional framework for
understanding ESG risks and opportunities.
This also supports the development of
Impact Benefit Plans for each major
project.
In Egypt, we are looking to establish social
investment plans that support local and
national priorities. These include Egypt
Vision 2030, a sustainable development
strategy targeting a better life for all
Egyptians by 2030.
We have also commissioned two Social
Needs Assessments across two of our
operated blocks – West El Fayoum and
South East Horus – in which we are due to
conduct seismic surveys in 2022. These
assessments will help us to understand
local community concerns and needs,
and opportunities to support them.
Social Management
In accordance with our Corporate
Responsibility Management System
(CRMS), we evaluate the potential social
benefits, risks and impacts of any major
activity. The scope and nature of such
Social Impact Assessments (SIAs)
depend on local context and regulations.
Given the environmental and social
interdependencies, an SIA usually forms
part of an ESIA, but these are sometimes
separated as a legislative requirement.
For each project, the SIA often includes
a Social Management Plan (SMP). The SMP
assesses the benefits and impacts of a
project, with the aim of mitigating any
negative impacts and providing a positive
overall benefit.
No SIAs were required or undertaken in
2021, but they have been commissioned
for our operated seismic programme in
Egypt in 2022. We are also undertaking
early preparatory work for a potential ESIA
in Mauritania.
In Mexico, we are required to report
annually to Secretaría de Energía (SENER),
the Mexican Department of Energy, to
demonstrate the implementation of our
SMP. Due to its closure at the start of the
pandemic, our 2019 and 2020 reports
were submitted when SENER reopened
in late 2021.
1 Comisión Nacional de Hidrocarburos.
66
Capricorn Energy PLC Annual Report and Accounts 2021
Mangrove rehabilitation project, Weg naar Zee, Paramaribo, Suriname
Capricorn Energy PLC Annual Report and Accounts 2021
67
Strategic ReportLeadership and GovernanceFinancial StatementsAdditional Information Operational Review
Operational
and Financial
Review
68
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
STRATEGIC DELIVERY
2022 OUTLOOK
– Acquisition of Shell’s Western Desert production and
exploration portfolio in Egypt with significant potential
for production growth, operating efficiencies, exploration
resources and decarbonisation.
– Retained balance sheet strength to enable further expansion of
the producing asset base through investment and acquisition.
– Contingent payments receivable from recent asset sales:
• US$76m additional consideration due in H1 2022 from
•
UK sale;
further UK payments in subsequent four years dependent
on oil price and production performance;
• up to further US$100m receivable in 2023 or 2024 for
Senegal sale dependent on oil price and first production
timing.
– High-graded exploration portfolio now focused on shorter
– Capital return of US$500m expected in Q2 2022 by way
of tender offer to close in April, alongside ongoing share
repurchase programme of up to US$200m, both subject
to shareholder approval.
– Capricorn WI production to average 37,000-43,000 boepd
with 2022 exit rates forecast to exceed top end of guidance
range.
• Oil and condensate expected to comprise 35%-40% of
production mix.
– Production costs forecast to be US$4.5 – US$5.5 boe.
– Current estimates of 2022 capital expenditure total
approximately US$200m, including:
• Egypt production and development expenditure of
US$90-110m targeted at delivering substantial production
growth during 2022.
capital cycle, infrastructure-led opportunities.
• Egypt exploration expenditure of US$30-35m to sustain the
– Portfolio resilience to energy transition scenarios: carbon
reduction initiatives underway with a pathway to net zero
by 2040 at the latest; portfolio value resilient under the IEA’s
STEPS, SDS and NZE scenarios.
resource base.
• UK infrastructure-led exploration expenditure of ~US$40m,
predominantly on the Jaws and Diadem wells, with no
further well commitments beyond 2022.
– Resolution of the Indian tax dispute, resulting in receipt of
• Other international exploration of US$30-35m, principally
in Mexico, with no further commitments beyond 2022 and
any further investment contingent on farm-downs.
RESERVES
The Group 2P reserves increased during the year by 4.5 mmboe
from 32.9 mmboe at Year End 2020 to 37.4 mmboe at Year End
2021 (on an Entitlement Interest basis). This was principally as a
result of the sale of the UK North Sea assets (-27.2 mmboe on
divestment completion) plus the acquisition of the Western Desert
Assets in Egypt (39.0 mmboe added on EI basis on acquisition
completion; or 94.6 mmboe on Working Interest equivalent basis),
and after accounting for Capricorn production in the calendar year.
a tax refund of US$1.06bn.
– Almost US$1bn committed to shareholder capital returns:
US$257m special dividend in Q1 2021 following completion of
Senegal asset sale; following the Indian tax refund, US$500m
tender offer to close in April 2022 and ongoing share buyback
programme of up to US$200m.
2021 FINANCIAL HIGHLIGHTS
– Year-end Group cash of US$314m; net cash of US$133m after
debt drawn to fund the Egypt acquisition of US$181m.
– Working interest Egypt oil and gas production of ~36,500
boepd, within guidance of 33,000-38,000 boepd; net
entitlement production of 1.5mmboe.
– Revenues from Egypt production of US$56m: average realised
oil price of US$77.8/bbl and gas price of US$2.9/mcf (average
production cost US$6.0/boe).
– Net cash generated from oil and gas production of US$185m.
– Net Group capital expenditure of US$66m.
– Operating loss US$131m (2020 Restated: US$130m
operating loss) from continuing operations.
– Profit after tax of US$895m (2020: Loss of US$394m),
including India tax refund.
Capricorn Energy PLC Annual Report and Accounts 2021
69
Operational Review continued
Capricorn’s assets in Egypt’s Western Desert offer sustained
production and reserves growth in an attractive, lower cost
operating environment.
North Sea
Working interest production from
Capricorn’s interests in the UK Catcher
and Kraken fields was approximately
18,300 bopd. The Company completed
its sale of these interests to Waldorf
Production in Q4 2021. Under contingent
payment provisions in the sale terms,
based on 2021 production levels and
average oil prices, a payment of ~US$76m
is due to be made by Waldorf to Capricorn
in Q2 2022.
Uncapped further contingent consideration
will be payable in respect of calendar years
2022 to 2025, based on average oil prices
and production volumes (subject to
minimum thresholds).
Egypt
Working interest production across the
four main concession areas of Obaiyed
(Capricorn 50% WI), Badr El Din (Capricorn
50% WI), North-East Abu Gharadig
(Capricorn 26% WI) and Alam El Shawish
West (Capricorn 20% WI) averaged ~36,500
boepd during the period from acquisition
completion on 23 September to year end
2021, with ~38% of the production mix
being oil and condensate. Oil sales
averaged US$77.8/bbl and gas sales
averaged US$2.9/mcf.
Before acquisition completion, two drilling
rigs operated, completing exploration
commitment wells and principally oil,
gas, and water injection development
wells with a total of 15 wells drilled in 2021.
Between completion of the acquisition and
31 December 2021, production rates grew
by 8%. A third drilling rig is now operating,
with an additional two drilling rigs to be
contracted in H1 2022 to further support
increasing production and focusing on
liquids-rich opportunities. A programme
of up to 40 new production or injection
wells is scheduled for 2022, with a number
of field extension drilling opportunities
also identified.
Two facilities development projects are
progressing: the initial development of the
Teen discovery and the enhancement of
Obaiyed compression facilities to improve
recovery rates. An improved baseline
survey of greenhouse gas emissions is
anticipated to be completed in 2022
with decarbonisation activities underway
including gas replacement for diesel,
centralisation of power and electrification.
In- field renewables application is under
evaluation and a suite of opportunities
for flare reduction in support of our
commitment to the World Bank’s zero
routine flaring by 2030 initiative have
been identified.
Capricorn’s working interest Egypt
production for 2022 is anticipated to be
37,000-43,000 boepd with production
growth through the year meaning that
2022 exit rates are expected to exceed
the top end of guidance, benefiting from
investment in increased production. With
a focus on liquids-rich opportunities, oil
and condensate are expected to comprise
35-40% of the production mix.
70
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Exploration is core to Capricorn’s value strategy. Our focus is on
advantaged resources that can be rapidly commercialised and that
remain competitive during the energy transition.
Egypt
Capricorn’s Western Desert exploration
interests hold significant short-cycle
exploration potential, with nine firm
commitment wells and three seismic
acquisition programmes across four
exploration concessions planned in the
next three years.
Since completion, the prospect portfolio
has been matured with drilling targets
identified. Capricorn will initiate its
operated exploration programme in Egypt
with two wells (Capricorn 50% WI) in our
South Abu Sennan concession, planned
for H2 2022. This is anticipated to be the
start of a continuous drilling campaign
across all three operated concessions,
which will extend through to the end of
2023. The non-operated NUMB W1
exploration well (Capricorn 50% WI) was
safely drilled in North Um Baraka in Q4
2021 by the operator Cheiron, with the
well being temporarily plugged.
3D seismic acquisition will begin in Q1
2022 in the non-operated North Um
Baraka concession (Capricorn 50% WI),
with further 3D acquisition expected over
the Capricorn-operated concessions from
Q3 2022. These new, high-resolution
seismic surveys will provide significantly
improved imaging in prospective areas
and will be particularly beneficial in
imaging the deeper and under-explored
Jurassic and Palaeozoic sections.
Mexico
Capricorn has interests in four blocks in
the Gulf of Mexico, two as Operator: Blocks
9 (Capricorn 50% WI) and 15 (Capricorn
50% WI), and two as non-Operator: Blocks
7 (Capricorn 30% WI) and 10 (Capricorn
15% WI).
Two wells were drilled on Block 10 in 2021:
– The second commitment exploration
well Sayulita-1EXP resulted in the
second oil find on the licence;
– The Saasken-2DEL appraisal well, an
aggressive step-out on the first oil
discovery on Block 10, Saasken, made
in 2020.
The Joint Venture is working to incorporate
the well results into the evaluation plan
for the Saasken discovery and Block 10
with the commercial potential of a cluster
development being assessed. Drilling of
the Yatzil prospect on Block 7, Capricorn’s
final commitment exploration well in
Mexico, is due to spud in H2 2022.
UK
In H2 2021, Capricorn farmed into and
became operator of five Southern North
Sea licences: P2428 and P2567 (Capricorn
60% WI) and P2560, P2561 and P2562
(Capricorn 70% WI) with partner Deltic
Energy. We completed the acquisition
of nearly 700km2 of broadband 3D
seismic data over the P2428 licence and
surrounding area in November 2021,
which fulfils the work programme
commitments for the current and next
licence phases and will inform a drilling
decision in the coming year.
The Jaws exploration well on licence
P2380 (Capricorn 50% WI) spudded
in November 2021. The well reached
total depth in late January 2022, after
encountering 31m of fair to good quality
Jurassic reservoir sandstones, but these
were water-bearing. The well will be
permanently plugged and abandoned.
Preparations continue to drill on the
Diadem prospect in the neighbouring
P2379 licence area (Capricorn 50% WI,
Operator), with an expected spud in Q2
2022. A drill stem test is planned in a
success case.
On licence P2468 (Capricorn 50% WI,
Operator) in the East Orkney Basin, two
seabed cores were obtained to help inform
a decision on the acquisition of 3D seismic
data in this undrilled basin.
Suriname
Capricorn operates Block 61 (100% WI),
situated in the Guyana-Suriname basin,
where significant discoveries continue to
be made in 2021-2022. Acquisition of 3D
seismic is being evaluated, which is the
work commitment for the next exploration
phase. Capricorn is seeking partners to
participate in this next phase.
Israel
Capricorn has a 33.34% WI as Operator
in eight licences offshore Israel. Evaluation
of all reprocessed seismic data has
been finalised with an assessment of
prospectivity being undertaken ahead
of a Joint Venture drill or drop decision
on the licences in Q3 2022.
Mauritania
Capricorn has a 90% WI as Operator in
Block C7 offshore Mauritania effective from
May 2021. The licence has a two-year first
exploration period. In Q4 2021, seismic
reprocessing data was received and is
being interpreted over the Dauphin
prospect, an amplitude-supported target
updip from a discovery in the same
stratigraphic interval. Dauphin could
contain as much as one billion barrels of
recoverable oil. An environmental baseline
and drilling site survey was mobilised in Q1
2022 with data gathered to inform a drilling
decision ahead of the next license phase.
Capricorn Energy PLC Annual Report and Accounts 2021
71
Financial Review
India Tax Dispute Resolution
In November 2021, the Group entered
into statutory undertakings with the
Government of India in respect of
new legislation enabling the refund
of retrospective taxes collected from
Capricorn in India by way of asset seizures
since 2014. Under the new legislation
Capricorn was required to withdraw its
rights under the international arbitration
award and cease enforcement action.
Capricorn undertook all necessary steps
under the legislation and the refund of
taxes of INR 79 billion (approximately
US$1.06 billion) was received in February
2022. The Group has therefore recorded
the tax refund as exceptional income in the
results for the year ending 31 December
2021, at the year-end exchange rate.
On settlement of the INR refund,
Capricorn immediately converted the
amounts received into US$, recording
exchange losses of US$15m. This loss
is a non-adjusting post balance sheet
event and will be recorded in the 2022
Income Statement.
Capricorn intends to return US$500m of
the tax refund received to shareholders
immediately via a tender offer and up to
a further US$200m via an ongoing share
buyback programme.
Business Combination: Acquisition of
Egypt Western Desert Concessions
In September 2021, Capricorn, together
with its consortium partner Cheiron,
completed the acquisition of 11
concessions in Egypt’s Western desert
from Shell. There are eight exploration,
development and producing concessions,
across four areas, which are now operated
by Cheiron, and three new exploration
concessions operated by Capricorn.
The acquisition of the concessions
was determined to form a business
combination under IFRS 3. Assets and
their related liabilities acquired are
recorded at fair value.
Consideration
Net book value on acquisition:
Fair value of non-current assets acquired
Current assets and liabilities acquired
Deferred tax liabilities
Goodwill arising
Deferred tax liabilities have been
recorded on the temporary difference
existing between the tax base of the
non-current assets acquired and their tax
base values. Goodwill has been recognised
on the excess of the purchase price over
the combined fair value of the assets
and the subsequent deferred tax
liability recognised.
The purchase price includes initial
consideration of US$310.1m; deferred
consideration in respect of future oil
price upside through to 2025, with a
fair value at acquisition of US$61.1m;
US$1.8m being the fair value of amounts
due of future, short-term exploration
success which are capped at a maximum
US$40.0m; and US$5.0m being proposed
final adjustments currently under
negotiation with Shell. Costs of the
acquisition are charged directly to the
Income Statement and included within
administration charges.
The current assets and liabilities
recognised through the acquisition
include trade receivables of US$27.8m,
inventory balances relating to production
activities of US$9.6m offset by net
joint operation payables of US$29.2m.
Development inventory balances are
included within the fair value of non-
current assets in line with the Group’s
accounting policy.
US$m
378.0
390.2
8.2
(45.8)
352.6
25.4
The acquisition was part funded through
debt drawn of US$181.4m through two
new borrowing facilities secured over
the Egypt assets with the balance
of US$133.7m from corporate cash
balances held.
Discontinued Operations: Disposal
of UK Producing assets
Capricorn completed the sale of its UK
producing assets, Catcher and Kraken,
in November 2021. Assets and liabilities
relating to the operations to be sold
were re-classified as held-for-sale with
effect from the date of the transaction
agreement of 8th March 2021, and results
from operations and the ultimate loss on
disposal presented as discontinued
operations, with comparatives restated.
A profit of US$25.0m was recorded on
discontinued operations for the year.
This profit on discontinued operations
includes profit for the year from operations
of US$198.8m offset by the loss on disposal
of US$173.8m. The economic effective date
for the transaction was 1 January 2020,
therefore the post-economic date profit
recorded by Capricorn reduces proceeds
due on completion and drives the ultimate
loss on disposal.
Consideration at completion included cash
of US$63.9m, purchaser bonds of US$30m
(subsequently sold by the Group at par),
and future earn-out consideration being a
share of future revenues generated by oil
prices in excess of US$52/bbl, subject to
minimum production levels being met.
72
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Net cash outflow for the year
US$m
0
100
200
300
400
500
600
700
800
Opening cash as at 1 January 2021
Return of cash to shareholders and share re-purchase
Net cash inflow from operations – UK discontinued operations
Proceeds on disposal of producing assets – UK1
Loan drawdowns
Consideration for acquisition of Egypt business
Net cash outflow from operations – Egypt
Exploration expenditure (net of disposal proceeds)
Development expenditure
Oil and gas asset acquisition and disposal costs2
Pre-award costs and new venture activities3
Administration expenses, office leases and corporate assets4
Net finance costs, equity and other movements
Closing cash as at 31 December 2021
569.6
(265.0)
93.9
189.6
181.4
(310.1)
(4.2)
(38.9)
(24.0)
(12.2)
(27.3)
(22.3)
(16.4)
314.1
Liquidity decrease
Liquidity Increase
1 Consideration on disposal of US$63.9m and purchaser bonds of US$30.0m, subsequently sold.
2 Costs of disposal of UK producing assets (US$1.3m), Senegal assets (US$6.0m) and acquisition costs of Egypt business (US$4.9m).
3 Cash outflows on new venture activities of US$18.6m not relating to pre-award activities are reallocated from administration costs.
4 Office lease cash outflows were US$2.2m and corporate asset cash outflows were US$2.9m.
At the date of completion, the fair value
of this earn-out consideration was
US$197.4m and the post completion
fair value decrease of US$8.1m to
31 December 2021 is included in the
profit from discontinued operations above.
As the earn-out relates to the disposal of
a business, rather than an asset disposal,
proceeds receivable are outwith the scope
of IFRS 15 allowing for recognition on the
balance sheet at the year end.
The impairment charge at the date
of transfer to held-for-sale resulted
from changes in the tax base of the
assets, from continued use to disposal,
eliminating deferred tax liabilities included
in the asset carrying amounts previously
tested for impairment. Those deferred
tax liabilities were previously offset by a
deferred tax asset relating to non-asset
specific tax losses, which also reverses.
Discontinued Operations: Contingent
consideration on Senegal asset sale
Capricorn disposed of its interests
in Senegal in 2020. Under the sale
agreement, Capricorn is due further
consideration of up to US$100m based
on the first oil date and the prevailing oil
price. At the year end, the risk-weighted
fair value of this receivable was US$51.4m,
however, being an asset sale, this is not
held on the balance sheet given the lack
of certainty over the additional revenue
to be recognised.
Capricorn held cash balances of
US$314.1m at 31 December 2021,
representing a net cash outflow of
US$255.5m over the year. Net cash inflows
excluding the shareholder returns were
US$9.5m. The acquisition of the Egypt
business and subsequent development
and production cash flows led to a cash
net outflow of US$147.4m after offsetting
debt drawn down. Cashflows from the
UK producing assets up to the completion
of the sale, together with the disposal
proceeds, resulted in cash inflows of
US$283.5m. Third-party transaction
costs incurred in the year were US$12.2m,
including US$6.0m in respect of the
Senegal asset sale.
Exploration expenditure in the year of
US$62.5m was offset by cash inflows of
US$23.6m, resulting from working capital
adjustments received on completion of
the farm-down of Block 10 in Mexico.
Reconciliation of statutory cash flow to cash outflow from operations:
Operating cash flow per statutory cash flow statement
Non-GAAP Adjustments:
Cash flows relating to discontinued operations
Pre-award and new venture costs reallocated
Administrative costs reallocated
Acquisition costs of Egypt business reallocated
Net cash outflow from operations
US$m
179.9
(233.5)
27.3
17.2
4.9
(4.2)
Capricorn Energy PLC Annual Report and Accounts 2021
73
Financial Review continued
Key Statistics
Production – net WI share (boepd)
Sales volumes – net EI oil (bblpd)
Sales volume – net EI gas (mmscf)
Average price per bbl (US$)
Revenue from production (US$m)
Average production costs per boe (US$)
Continuing Operations
Exploration assets
Eastern
During the year, the Group relinquished
its two operated licences and remaining
non-operated licence in Côte d’Ivoire,
with costs of US$15.6m charged to the
Income Statement.
In the UK, the Shell operated Jaws
exploration well completed in January
2022 and was unsuccessful. Costs
incurred on the licence of US$17.4m to
31 December, together with costs of
US$5.0m on neighbouring licences
now to be relinquished, have been
charged to the Income Statement.
In Israel, costs of US$2.6m are charged
as unsuccessful exploration costs.
Costs in Mauritania of US$28.9m remain
capitalised as exploration activities
continue.
Western
In Mexico, the farm-down of a 15% interest
in Block 9 and farm-in to an equivalent
15% interest in Block 10 completed in
July 2021. Capricorn paid back costs and
interim period adjustments on Block 10
and together with drilling costs, total
spend on this block was US$26.7m. In
return, the group received back costs and
interim period adjustments of US$23.6m
from ENI for Block 9, which were credited
against capitalised costs carried on the
balance sheet.
The Saasken-2DEL appraisal well on Block
10 did not encounter hydrocarbons. Costs
associated with the well were charged as
unsuccessful and contingent resources
were reduced. A possible Saasken
discovery extension into neighbouring
Block 9 was reclassified as prospective
resources. Remaining capitalised costs on
Block 9 have been impaired in full.
Together with historic costs incurred on
Block 15, which is to be relinquished, this
results in a total impairment charge and
unsuccessful cost write off of US$26.7m.
Contingent resources booked for the
successful Sayulita-1 oil discovery well on
Block 10 partly offset the contingent
resource reduction for Saasken.
Egypt
The first exploration well drilled since
completion of the acquisition on the North
Um Baraka concession was unsuccessful
and costs of US$2.9m expensed.
Results for the period
Post-acquisition gross profit from
Egypt concessions
Production during the final quarter
of the year following the acquisition has
been strong, generating a gross profit
before depletion charge for the period
of US$43.9m, including other income of
US$7.3m and Mongolia royalty interest
of US$0.9m. Other income relates to the
tax-gross up in Egypt, where under the
concessions, each contractor’s share of
Income Tax payable on profit is paid by
EGPC on behalf of the contractor. To
achieve this result, each contractor
receives a notional increase in its
entitlement share of production to cover
the tax charge. This production is sold on
behalf of the contractor by EGPC which
then settles the Income Tax liability from
the proceeds. Sales and production
volumes above, along with the Group’s 2P
reserve estimates, excluded this tax gross
up production.
Total production costs of US$20.5m
and depletion charges of US$31.2m are
included in gross profit. Depletion charges
are based on the fair value of the assets on
acquisition, additions over the final quarter
of the year and the costs of future capital
expenditure consistent with the recovery
of the current 2P reserve estimates.
74
Capricorn Energy PLC Annual Report and Accounts 2021
Year ended
31 December
2021
36,459
5,360
51,599
77.8
56.2
6.0
Pre-award costs incurred in the year were
US$15.8m and unsuccessful exploration
cost write-offs noted previously total
US$50.6m.
Administrative costs have increased
year-on-year from US$41.1m in 2020 to
US$58.2m in the current year. The increase
includes US$3.1m of internal time-writing
and external transaction costs associated
with the Egypt business combination,
increased costs with regard to the India
Tax Refund settlement of US$4.0m
and internal costs pursuing business
development opportunities as Capricorn
looks to expand its current portfolio.
Net fair value movements in the year
result in a loss of US$1.7m (2020: profit of
US$0.1m). The gain on the increase in the
residual value of the Vedanta shares held
of US$5.5m was offset by the increased
fair value of the amounts due to Shell as
deferred consideration in relation to the
Egypt acquisition.
Net finance costs in the year to
31 December 2021 of US$64.4m include
the release of remaining prepaid facility
fees in connection with the Group’s
previous RBL facility which was cancelled
during the year, and a US$54.7m historic
exchange losses recycled from Other
Comprehensive Income on the liquidation
of non-USD functional currency
subsidiaries which previously held
interests in UK exploration assets.
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Equity movements
Return of cash to Shareholders
Equity movements in the year include the
return of cash to shareholders in January
2021 of US$257.2m following the disposal
of the Senegal assets in 2020.
Share Re-purchase
In November 2021, Capricorn entered
into a non-discretionary share re-purchase
agreement for the buy-back of shares of up
to £20.0m. As the re-purchase is non-
discretionary, the full £20m (US$26.8m)
was charged immediately against equity,
with an accrual set up for the amounts
committed. As shares are purchased, costs
are offset against the accrual. At the year
end, 2.7m shares had been repurchased
at a cost of £5.0m (US$6.6m) leaving a
remaining accrual of US$20.2m.
The agreement expired at the end of
February 2022 with US$15.5m of the
accrual remaining unutilised. This will
be released against equity in 2022.
Outlook
Capricorn enters 2022 with a strong
balance sheet, with brought forward net
cash of US$133m at 31 December 2021
and US$1.06bn received from the Indian
tax refund in February 2022 (of which up
to US$700m is planned to be returned to
shareholders). The Group continues to look
for opportunities to expand its current
portfolio through acquisition.
This Strategic report has been
approved by the Board and
is signed on their behalf by
Simon Thomson
Chief Executive
8 March 2022
Capricorn Energy PLC Annual Report and Accounts 2021
75
Board of Directors
Responsible Governance
Corporate Governance
Statement
Audit Committee Report
Nomination Committee
Report
Directors’ Remuneration
Report
Directors’ Report
78
80
84
96
102
106
140
76 Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Capricorn Energy PLC Annual Report and Accounts 2021
77
Board of Directors
Left to right:
Peter Kallos, Erik B. Daugbjerg, Nicoletta Giadrossi, Simon Thomson, James Smith, Catherine Krajicek, Keith Lough, Alison Wood
Committee membership key
Committee Chair
A
Audit
Committee
R Remuneration
Committee
N Nomination and
Governance Committee
EC Executive Committee
RM
Group Risk Management
Committee
EV Employee Voice Forum
SC Sustainability Committee
78
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Simon Thomson
Chief Executive (57)
Committee membership
James Smith
Chief Financial Officer (45)
Committee membership
Nicoletta Giadrossi
Non-Executive Chair (55)
Committee membership
Keith Lough
Non-Executive Director (63)
Committee membership
EC RM N SC
EC RM SC
Term of office
Term of office
Simon was appointed to the Board
in November 2006 as Legal and
Commercial Director and became
Chief Executive in July 2011.
Independent
Not applicable
Skills and experience
• LLB (Hons), Aberdeen University
• Diploma in Legal Practice, Glasgow
University
Simon Thomson was appointed Chief
Executive in July 2011 having been
Legal and Commercial Director since
2006 and having held various posts
across the organisation, including
Head of Assets. Simon originally joined
Capricorn in 1995.
James was appointed to the Board in
May 2014 as Chief Financial Officer.
Independent
Not applicable
Skills and experience
• MA (Hons) in English, University
of Oxford
James Smith joined Capricorn in
March 2014 from Rothschild where
he was a director of the Energy and
Power Team with 15 years’ experience
advising exploration and production
companies, oil majors and national
oil companies on their merger and
acquisition transactions and equity
and debt market financing.
Key external appointments
Key external appointments
No external appointments
Public companies:
None
Non-public companies:
Non-Executive Director of Graham’s
The Family Dairy Limited
Non-Executive Director of Graham’s
The Family Dairy Group Limited
Non-Executive Director of Edinburgh
Art Festival
N
R SC
Term of office
Nicoletta was appointed as an
independent Non-Executive Director
in January 2017 and became
Non-Executive Chair in January 2021.
Independent
Yes
Skills and experience
A
N SC
Term of office
Keith was appointed as an
independent Non-Executive
Director in May 2015.
Independent
Yes
Skills and experience
• MA Economics, University of
• BA in Mathematics and Economics,
Edinburgh
Yale University
• MSc in Finance, London Business
• MBA, Harvard Business School
School
Keith Lough is a Fellow Chartered
Certified Accountant (FCCA) and has
formerly held the position of Finance
Director of British Energy PLC and
Chief Executive of Composite Energy
Ltd. Keith was also a Non-Executive
Director of the UK Gas and Electricity
Markets Authority from 2012 to
July 2019.
Key external appointments
Public companies:
Non-Executive Chairman
of Southern Water
Non-Executive Chairman of
Rockhopper Exploration PLC
Non-Executive Director (and senior
independent director) of Hunting plc
Non-public companies:
None
Nicoletta Giadrossi has held several
global executive roles in energy and
capital equipment. She has been:
General Manager in GE Oil and Gas,
Refinery & Petrochemicals Division
until 2008; Vice President and General
Manager, EMEA at Dresser-Rand
(now Siemens) until 2012; Head of
Operations in Aker Solutions Asa, and
President (Europe, Africa, Middle East,
Russia & India) at Technip, a role she
held until 2016. Nicoletta is currently
Senior Adviser, Industry and Energy,
for Bain Capital Partners, Europe.
Key external appointments
Public companies:
Non-Executive Director of Brembo S.p.A
Non-Executive Director of Koninklijke
Vopak N.V.
Non-Executive Director of Falck
Renewables
Non-public companies:
Non-Executive Director of TecHouse AS
Non-Executive Chair of Ferrovie dello
Stato Italiane SpA
Peter Kallos
Non-Executive Director (62)
Committee membership
Alison Wood
Non-Executive Director (58)
Committee membership
Catherine Krajicek
Non-Executive Director (60)
Committee membership
Erik B. Daugbjerg
Non-Executive Director (52)
Committee membership
R N EV SC
R A SC
A SC
R SC
Term of office
Term of office
Term of office
Term of office
Peter was appointed as an
independent Non-Executive
Director in September 2015.
Alison was appointed as an
independent Non-Executive
Director in July 2019.
Catherine was appointed as an
independent Non-Executive
Director in July 2019.
Independent
Yes
Independent
Yes
Independent
Yes
Skills and experience
Skills and experience
Skills and experience
• BSc (Hons) Applied Physics,
Strathclyde University
• BA in Engineering, Economics and
Management, Oxford University
• MEng Petroleum Engineering,
• MBA, Harvard Business School
Heriot-Watt University
Peter Kallos has held a number
of posts at Enterprise Oil including
Head of Business Development,
CEO Enterprise Italy and General
Manager of the UK business before
his appointment in 2002 as Executive
Vice President International and
Offshore at Petro-Canada. In 2010,
Peter became Chief Executive of
Buried Hill Energy.
Key external appointments
Public companies:
Executive Chairman of Buried Hill
Energy
Non-public companies:
None
Alison Wood’s previous executive roles
include Group Strategic Development
Director at BAE systems and Global
Director of Strategy and Corporate
Development at National Grid. She
has also previously held a number
of non-executive positions and board
committee memberships, including at
BTG plc, THUS plc, e2V plc and Cobham
plc. Alison is currently a Non-Executive
Director and Remuneration Committee
Chair of TT Electronics plc and The British
Standards Institution.
• BSc and MSc in Petroleum
Engineering, Colorado School
of Mines
Catherine Krajicek started her career
with Conoco as an associate engineer
and remained with the company for a
total of 22 years, progressing through
a variety of oil and gas technical and
subsequently asset management
roles in both the US and Indonesia.
In 2007, Catherine left ConocoPhillips
and joined Marathon Oil where she
went on to hold a number of senior
executive (Vice President) roles before
retiring from Marathon in 2018.
Key external appointments
Key external appointments
Public companies:
Public companies:
None
Non-Executive Director of TT
Electronics plc
Non-Executive Director of Oxford
Instruments plc
Non-public companies:
Non-Executive Director of The British
Standards Institution
Non-public companies:
None
Erik was appointed as an independent
Non-Executive Director in May 2020.
Independent
Yes
Skills and experience
• BA in Business Administration,
Southern Methodist University,
Dallas
Erik B. Daugbjerg has over 20 years’
experience in both midstream and
upstream oil and gas sectors in the US
including founding roles at two oil and
gas operators based in the Permian
Basin. In 2006, Erik co-founded Pecos
Operating Company, and in 2010,
co-founded RSP Permian, Inc. Erik has
extensive public markets experience,
including delivery of acquisitions and
disposals, and he played an integral
role in the disposal of RSP Permian to
Concho Resources, Inc in July 2018 for
US $9.5 billion.
Key external appointments
Public companies:
Director of Kimbell Royalty Partners
Non-public companies:
Co-Founder of Pecos Operating
Company, LLC
Capricorn Energy PLC Annual Report and Accounts 2021
79
Responsible Governance
Ressppoonsibblee
GGovveernnannce
Delivering on our strategy, achieving our objectives and creating long-term value for our shareholders
require robust, transparent corporate governance. We protect our business against existing and
emerging risks through comprehensive policies and management systems, underpinned by our
core values, Business Principles, Standard Operating Procedures and Corporate Responsibility
Management System (CRMS).
BUSINESS PRINCIPLES
– We manage risk and seek to continually improve.
– We behave honestly, fairly, with integrity and in a sustainable manner.
This year, the following governance issues were identified as having high materiality:
5
10
11
Climate Change Policy and Planning (including Global Energy Transition)
Funding
Government ABC Practices
15 Management of Material Issues
18
Reserves Valuations and Capital Expenditure
(cid:2) See our Materiality Matrix on page 25
2021 PERFORMANCE AGAINST SUSTAINABILITY OBJECTIVES
– Strengthened our Climate and Energy Transition roadmap,
committing to net zero by 2040 or earlier.
– Improved communication about climate change for the
– Used a range of International Energy Agency (IEA) scenarios
to analyse the robustness of our Group reserves under the
ongoing energy transition.
investment community and wider stakeholders.
– Reviewed and revised our Code of Ethics to reflect our
– Revised our processes for ESG risk management and target
Company strategy.
setting with internal and external stakeholders.
– Refreshed our Company risk profile and risk acceptance
– Recorded, tracked and reported our Scope 1 and 2 equity
emissions, and demonstrated ‘activity normalised’ reductions
in operated projects.
statement.
– Completed an internal audit to examine and improve
sustainability reporting.
– Adopted carbon pricing as part of our revised portfolio
resilience modelling against a variety of scenarios.
– Assessed bribery and corruption risk within our existing assets
and performed due diligence on several other opportunities.
– Approved the migration of our current management systems
– Reviewed our CRMS against the revised Group strategy, and
to a single Operating Management System.
performed a CRMS audit in selected projects.
(cid:2) See our Sustainability Report for more information about our SDG performance
80
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Working Responsibly
At Capricorn, working responsibly means striving to deliver value
for all our stakeholders in a safe, secure, and environmentally and
socially responsible manner. Our sustainability strategy spans
efforts to:
– protect the environment and transition to more sustainable
energy sources;
– support society by creating value for our stakeholders; and
– use social governance structures to ensure we conduct our
business ethically and with integrity.
We have the right values, principles and policies in place to deliver
this, and we make sure our people understand and uphold them.
Our comprehensive systems and standards reinforce our culture,
while externally, we support agreements and frameworks that
promote responsible working practices and the resilience of
our business.
Code of Ethics
Our Code of Ethics describes how we do business and outlines
our core values, High Performing Behaviours and Business
Principles. It sets out our position on environmental and social
themes, and provides guidance on issues including conflicts
of interest, bribery and corruption, political contributions, tax
principles and anti-competitive behaviour. Our Code of Ethics
applies to everyone who carries out work for or on behalf of, or
provides services to, Capricorn.
We most recently reviewed the Code in November 2021 to
ensure it meets future business needs. Amendments included
updated Business Principles wording, explicit references to energy
transition, more transparent linkages with the United Nations
Sustainability and Development Goals (UNSDGs), improved
social investment criteria and an extended commitment not to
operate in International Union for Conservation of Nature (IUCN)
Ia and Ib category locations to protect biodiversity.
Employees are encouraged to report any non-compliance
with the Code, or other concerns surrounding ethical issues,
by speaking directly to their line manager, using a confidential
phone line or contacting the whistleblowing charity Protect.
Where appropriate, independent investigations are conducted.
Anti-Bribery and Corruption (ABC) Practices
Maintaining transparent relationships, free from bribery, fraud
and corruption, with governments, authorities, contractors and
suppliers is a high priority for us. Our zero-tolerance position
helps us to maintain our strong culture of ethics and compliance,
and protects the Group’s reputation.
All entries into new jurisdictions require an ABC risk assessment
to highlight exposure to potential risks and ensure the necessary
level of due diligence. New venture and business development
activity spans a range of locations with varying risk profiles, so it
is critical to identify the level of risk in locations where corruption
could impact our operations and our reputation.
Through the Capricorn Academy, we provide annual staff training
on bribery and corruption. Bespoke sessions to staff in higher
risk roles were delivered during the year, including a workshop in
Mexico in October 2021. The Management Team and the Board
continue to receive ABC training.
Transparency and Reporting
As a listed public company, we report annually in line with UK
regulations. In 2021, we responded to all queries associated with
our Annual Report and Accounts, and to information requests
from stakeholders including investor analysts and shareholder
representatives. At the Company’s AGM in May 2021, the Directors’
Remuneration Report, while approved, received fewer than 80% of
votes in favour. We undertook a stakeholder engagement exercise
following the vote. See the Directors’ Remuneration Report on
pages 106 to 139 for more information.
Capricorn Energy PLC Annual Report and Accounts 2021
81
Responsible Governance continued
CASE STUDY
TRANSITIONING TO EGYPT
The transitioning of our Egypt assets into the Capricorn business was a complex
and large-scale process.
It involved a number of important elements such as joint
venture (JV) partner governance, data transfer, IT system
change-out projects, commercial agreement reviews,
production and exploration asset management preparation,
human resource planning and governmental consents.
As Capricorn did not have a presence in Egypt, a New Country
Entry (NCE) Project was also commissioned as part of the
overarching transition programme. We registered our local
entity with the authorities, hiring an in-country team and
establishing an office.
We worked closely with our partner Cheiron (the operator of
the production assets) to ensure that the success factors were
in place on the change-of-control day and the consortium
started strongly.
Capricorn successfully took over the operatorship of a
number of the exploration concessions and quickly picked
up the planning for operations in early 2022. We ensured
we had the right people in Cairo to manage our business,
providing a strong foundation from which to support our
participation in all of the assets included in the transaction.
Although many integration workstreams will run well
into 2022, the operational aspects of the production and
exploration assets have been handed over to the respective
teams, and the Cairo-based team are effectively managing
our Egypt business under the leadership of our in-country
Managing Director.
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Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Creating and Distributing Value
In 2021, we began moving our portfolio towards production and
made strategic, timely and financially prudent sales of several
of our assets. Taken together, these steps have enabled us to
continue creating value for our global shareholders. This included
the divestment of assets in Senegal, as well as Catcher and Kraken
in the UK North Sea.
The sale of assets allows us to distribute value to our shareholders
and makes funds available for strategic investments. Funds from
the sale of our Senegal operations were reinvested into production
assets in Egypt. These are onshore operations with lower production
costs, production and development growth opportunities,
attractive exploration potential and longer-life reserves. The Egypt
assets also offer the potential to reduce our GHG emissions.
In December 2020, the international arbitration tribunal
considering Capricorn’s claim against the Government of India
over a tax dispute found in our favour. In August 2021, the Indian
Government introduced the Taxation Laws (Amendment) Bill
2021, which proposed amendments to the retrospective taxation
measures introduced by the Finance Act 2012. This resolution
returned ~US$1.06 billion to Capricorn, of which up to US$700
million will be returned to shareholders. The remainder will be
used to further expand our portfolio of low-cost, sustainable
production assets.
Our Sustainability Report and accompanying Data Appendix (both
of which are published on our website: www.capricornenergy.com/
working-responsibly) provide investors, analysts and other
interested parties with comprehensive information about our
performance. We apply global standards to ensure our reporting is
of the highest quality and aligns with our shareholders’ preferences,
as well as a number of established frameworks and standards.
Relevant information and regular announcements are also provided
via the investors section of our website (www.capricornenergy.com/
investors) and through investor meetings, all of which were held
remotely during 2021.
Climate change and energy transition are considered principal
risks to our business. We continue to consider the specific
challenges, risks and opportunities they represent to improve
our understanding and response. We have revised and improved
our Climate and Energy Transition roadmap and set a clear target
for achieving our net zero commitment by 2040. This year, we have
reported on an operated basis in general and, for the first time, on
an equity basis for greenhouse gases (GHGs).
Payments to Governments
We are committed to financial transparency and compliance in
the jurisdictions where we work, many of which are complex and
uncertain from a legislative perspective. As in previous years, our
2021 disclosures included the payments to governments detailed
in our Extractive Industries Transparency Initiative (EITI) reporting.
We also report additional payments, including VAT, payroll taxes
and social security costs.
Public Policy and Lobbying
While we do not engage in party politics or make donations to
political parties, candidates or lobbyists, each of our assets are
responsible for engaging with host governments as part of their
local Stakeholder Engagement Plan. Our wider involvement in
public policy development is conducted through industry bodies
such as the International Association of Oil & Gas Producers (IOGP)
and regional groups including Offshore Energies UK, BRINDEX and
the Association of Mexican Hydrocarbon Businesses (AMEXHI)1.
Economics and Funding
Expanding and diversifying our production base is a strategic
imperative. It helps us to add value, fund our exploration and
development activity, and generate returns for shareholders.
In a challenging business environment impacted by falling oil
prices and COVID-19, we actively manage our portfolio of assets
and work with our JV partners to allocate capital and financial
resources efficiently.
1 Asociación Mexicana de Empresas de Hidrocarburos.
Capricorn Energy PLC Annual Report and Accounts 2021
83
Corporate Governance Statement
Nicoletta Giadrossi
Chair
“ Good governance, combined
with our responsible culture,
helps to ensure that the Company
continually works in line with
its purpose to the benefit of
its many stakeholders.”
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Capricorn Energy PLC Annual Report and Accounts 2021
Dear Shareholder
The Capricorn Board believes that strong corporate governance
practices are fundamental to the successful delivery of our strategic
purpose as a responsible and sustainable upstream energy
company. Good governance, combined with our responsible
culture, helps to ensure that the Company continually works in
line with its purpose to the benefit of its many stakeholders and
each of our Directors is committed to their role in promoting
these at Capricorn. Working responsibly is at the core of what
we do, and we strive to deliver value for stakeholders in a safe,
secure, and environmentally and socially responsible manner.
As we move through the energy transition, the importance of our
culture becomes ever stronger. The Board works with integrity at
all times, in an open and honest environment, setting the tone for
the culture throughout the organisation. Key to our success is our
people and we are proud of the behaviours that they demonstrate
in undertaking their work (see pages 60-63).
During 2021, we continued to consider ESG-related matters as
a priority and, with effect from March 2022, have set up a Board
Sustainability Committee to support that work. More information
on this committee can be found on page 91. The Board focuses
on ensuring that the Company has the necessary resources in
place to meet its strategic objectives and this year Capricorn
developed its energy transition team to assist with this.
Information on our strategy and key performance indicators can
be found on pages 12 and 37. The Board continues to review and
develop its framework of prudent and effective controls, enabling
opportunities and risks to the implementation of the strategy to be
determined and addressed. These processes are further described
in the risk management section (which includes the Company’s
viability statement on pages 46 to 55) and the internal control
statement on pages 93 to 95.
The Board understands that it should ensure effective engagement
and participation with stakeholders. Our approach to stakeholder
engagement during the year is set out on pages 26 to 29, which
also includes a statement from our Directors in accordance with
section 172 of the Companies Act 2006. Some of the key issues
that were engaged on during the year are noted there.
Succession planning continues to be a strong area of focus for the
Board, and throughout the year, both the Board and Nomination
Committee considered the required skills and competencies
at our Board, executive and senior management levels. Further
information on our succession planning work can be found in
the Nomination Committee Report on page 103.
Compliance with the UK Corporate Governance Code
As a company incorporated in the United Kingdom with a Premium
Listing on the London Stock Exchange, Capricorn is required to
report against the UK Corporate Governance Code (as published
by the Financial Reporting Council and available on its website at
www.frc.org.uk) (the ‘Code’). This statement reports compliance
with the version of the Code published in July 2018. Capricorn is
fully committed to achieving compliance with the principles and
provisions set out in the Code and the Board is responsible for
ensuring that an appropriate framework is in place to do so.
The information in this statement (together with the Strategic
Report, Audit Committee Report, Nomination Committee Report,
Directors’ Remuneration Report, and Directors’ Report) describes
the manner in which the Company has applied the main principles
of governance set out in the Code and complied with the individual
Code provisions. It is the Board’s view that the Company has
complied with the 2018 version of the Code throughout 2021.
The Board recognises that reporting in some areas will continue
to evolve in future years and will continue to monitor, review and
develop its governance arrangements to ensure these are effective.
During 2021, given the challenges that were being felt as a result
of the ongoing global COVID-19 pandemic, a key focus of the
Company remained on employee engagement. The Company’s
formal workforce advisory panel, established in early 2019 in line
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
with the Code, which we refer to as the Employee Voice Forum
(EVF), continued with a new Chair, Peter Kallos, following my moving
to Chair of the Company. The EVF, comprising seven employees
who provide a broad representative mix of regions and functions
across the business, provided a good opportunity for employees to
discuss, with a Non-Executive Director, issues of importance to staff
during the year. These matters were then discussed at Board level,
enhancing the Board’s understanding of the Company’s culture.
The COVID-19 pandemic once again placed emphasis on the
importance of the EVF (alongside our other employee engagement
mechanisms) during 2021 given that most of our employees
continued to work from home for the majority of the year, having
done so since March 2020. The EVF met twice during the year with
the first of these meetings taking place in May 2021, and a further
meeting in December 2021. The employee members also hold a
pre-meeting (without the Chair present) in advance of scheduled
EVF meetings in order to identify agenda items and topics for
discussion. Due to the Government guidance and restrictions in
place for much of 2021, these meetings were mainly held remotely
by video conferencing and all forum members, or their designated
alternates, were present. Employee members are also provided with
summarised outputs from the Company’s employee engagement
surveys to assist in stimulating discussion and to help identify any
other matters for prioritisation and discussion at EVF meetings.
In 2021, the EVF proved to be a helpful forum for the Board to
understand employee views in relation to the trial hybrid working
practice put in place in the second half of the year following the
long period of staff working from home. Following each meeting,
the Chair reports to the Board on the matters discussed by the EVF,
thereby allowing for broader Board discussion of any topics or issues
identified by the workforce and appropriate consideration of these
in the context of the Board’s decision making.
The Board
Capricorn’s business is international in scope and carries political,
commercial and technical risks. Accordingly, particular attention
is paid to the composition and balance of the Board to ensure that
it has wide experience of the industry and regulatory environment
in which Capricorn operates, and appropriate financial, operational
and risk management skills. In each Board appointment, whether
executive or non-executive, objectivity and integrity, as well
as skills, experience, ability and diversity, are prerequisites for
appointment and assist the Board in its key functions. This also
applies to senior management appointments below Board level
and to our succession planning.
The Company supports ongoing refreshment of the Non-Executive
Directors as it brings new and diverse thinking to the Company as
well as ensuring there is a healthy level of independent challenge to
management. The Board’s collective skills and experience equip it
to direct the Company’s strategy and meet its business needs as
they evolve. The Board is mindful, however, that an appropriate
balance between Directors who can bring a new perspective and
those who provide continuity is essential for the business.
Board Changes
Following Erik B. Daugbjerg’s appointment with effect from
14 May 2020 and my taking the role of Non-Executive Chair of the
Company from 1 January 2021, the Board continues to consider the
composition of its members and what skills or other attributes may
require to be added to enhance the effectiveness of the Board.
As further detailed in the Nomination Committee Report, set out on
pages 102 to 104, during its review of Board composition in 2021,
the Nomination Committee, alongside the Board, determined
that the Board would benefit from deepening the diversity of its
membership. On 22 February 2022, the Company announced the
appointment of Luis Araujo as a Non-Executive Director with effect
from 11 May 2022. With many years’ experience working in Brazil
and other countries, Luis will bring excellent emerging market
insights to the Board in addition to his other areas of expertise,
including in relation to energy transition issues.
The Chair succession and handover process that took place at the
end of 2020 enabled an effective and seamless transition of the
leadership of the Board. Further information on Board succession
planning is included in the Nomination Committee Report on
page 103.
In line with Code recommendations, from 1 January 2021,
I stepped down as Chair of the Remuneration Committee
and retired as a member of the Audit Committee. Alison Wood
was appointed Chair of the Remuneration Committee and
has extensive experience in this area, having served on the
Remuneration Committees of a number of other listed companies.
In addition, Erik B. Daugbjerg was appointed a member of the
Remuneration Committee and Catherine Krajicek was appointed
a member of the Audit Committee. Further details composition
of the various Board committees are detailed on pages 90-92.
The Board currently comprises two Executive Directors and six
Non-Executive Directors, including the Chair. The Directors of the
Company as at the date of this statement are set out in the table
below and further biographical information about our Directors is
also included in the Board of Directors section on page 79.
Name
Role
Date of
appointment
(in current role)
Date of last
re-election
Simon Thomson Chief Executive July 2011
11 May 2021
James Smith
Nicoletta Giadrossi
Keith Lough
Peter Kallos
Alison Wood
Catherine Krajicek
Erik B. Daugbjerg
Chief Financial
Officer
Non-Executive
Chair
Non-Executive
Director
May 2014
11 May 2021
January 2021 11 May 2021
May 2015
11 May 2021
Non-Executive
Director
September
2015
11 May 2021
Non-Executive
Director
Non-Executive
Director
Non-Executive
Director
July 2019
11 May 2021
July 2019
11 May 2021
May 2020
11 May 2021
Diversity is a key element of the Capricorn Board, with emphasis
placed not only on gender but also on culture, nationality, experience
and cognitive diversity. Following the appointment of Alison Wood
and Catherine Krajicek as Non-Executive Directors, the number of
women on the Board increased from one to three with effect from
1 July 2019 and the position of Chair is also now occupied by a
woman. The Board continues to demonstrate diversity in a wider
sense, with Directors from Europe and the USA as well as the UK,
bringing a range of domestic and international experience to the
Board. This diversity will be deepened from May 2022 upon the
appointment of Luis Araujo, who has South American heritage
and citizenship in Brazil, Portugal and the U.K.
The Board’s diverse range of experience and expertise covers
not only a wealth of knowledge and practice of operating in
the oil and gas industry but also extensive technical, operational,
financial, governance, legal and commercial expertise. Further
information on diversity within Capricorn is included in the
Nomination Committee Report on pages 102 to 104 and
in the Strategic Report section of this Annual Report.
Board Competencies
Executive experience – 8
Oil and gas – 7
Financial – 4
Legal – 2
Environment/sustainability – 3
Energy – 5
Government relations – 3
International – 5
Capricorn Energy PLC Annual Report and Accounts 2021
85
Corporate Governance Statement continued
Division of Responsibilities Between Chair
and Chief Executive
The Company has a clear division of responsibilities between
the positions of Chair and the Chief Executive, which is set out
in writing and agreed by the Board.
Chair: key responsibilities
Chief Executive: key responsibilities
– Managing the business and
proposing and developing
the Company’s strategy
and overall objectives in
consultation with the Board.
– Driving the successful and
efficient achievement of the
Company’s key performance
indicators (KPIs) and
strategic objectives.
– Leading the Executive Team
in ensuring the effective
implementation of decisions
of the Board and its
committees.
– Providing strong and
coherent leadership of the
Company and effectively
communicating the
Company’s culture, values
and behaviours internally
and externally.
– Engagement with
shareholders and
other stakeholders.
– Leading the Board in
an ethical manner and
promoting effective Board
relationships.
– Ensuring that the Board
plays a full and constructive
part in the determination
and development of the
Company’s strategy.
– Building a well-balanced
Board, considering Board
composition and Board
succession.
– Ensuring the effectiveness
of the Board and individual
Directors.
– Overseeing the annual
Board evaluation and
acting on its results.
– Ensuring appropriate
induction and development
programmes for Directors.
– Setting the Board agenda,
chairing Board meetings
and overseeing
implementation of
the Board’s decisions.
– Engagement with
shareholders and
other stakeholders
when appropriate.
Senior Independent Director
Peter Kallos continues to be the Company’s Senior Independent
Non-Executive Director. The main responsibilities of this role are
as follows:
– to provide a sounding board for the Chair and to serve as an
intermediary with other Directors when necessary;
– to be available to shareholders and other stakeholders if they
have any concerns which contact through the normal channels
of Chair, Chief Executive or Chief Financial Officer has failed to
resolve or for which such contact is inappropriate;
– to meet with the other Non-Executive Directors without the
Chair present, at least annually, in order to appraise the Chair’s
performance; and
– to act as Chair of the Employee Voice Forum.
Performance Evaluation
The Board continually strives to improve its effectiveness and
recognises that the performance evaluation process represents
an annual opportunity to enhance overall Board effectiveness.
In line with the Code recommendation to conduct an externally
facilitated Board evaluation at least every three years, the Board
appointed Gould Consulting to facilitate its performance
evaluation for 2021 (previous externally facilitated evaluations
took place in 2018, 2015 and 2012, with evaluations conducted
internally in the intervening years).
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Capricorn Energy PLC Annual Report and Accounts 2021
The main action points arising from the 2020 internal performance
evaluation and progress made against these are set out in the table
below.
Key action points/Implementation (disclosed in
last year’s Corporate Governance Statement)
Implementation
ESG reporting to the Board –
The Board considered how best
to optimise discussion on ESG
matters and it was agreed that
the Board should receive updates
on a more formal basis in respect
of such matters.
Board meetings – the management
presentation – The Board considered
that the format, content and structure
of the management presentation had
been developed during the year and
timely distribution ahead of meetings
allowed the Board members sufficient
time to understand the detail of the
ongoing operations of the organisation.
The Board considered that there was
an opportunity to streamline the
presentation itself to allow greater
time for discussion around key areas.
Communications between Board
meetings – In addition to event
driven updates provided by the
Executive Directors between
scheduled Board meetings, the
Board considered how to further
optimise communications amongst
its members and there was to be
a focus on regular updates from
Executive Directors.
Risk discussion – The Board will
continue to discuss risk at each
meeting and will increase the
time given to the risk discussion
in a structured, extensive and
formalised manner.
Throughout 2021, ESG
has been a standing
agenda item at each
Board meeting and our
Energy Transition Director
has attended Board
meetings since her
appointment during the
year to provide updates on
ESG-related matters. With
effect from 3 March 2022,
a new Board committee,
known as the Sustainability
Committee, has been
formed (more information
can be found on pages 91
and 92).
Streamlining of
the management
presentation took place
during 2021 and further
work will continue in this
area in 2022.
The CEO and CFO
regularly updated the
non-executive members
of the Board between
scheduled Board
meetings, either by
call or email update.
Risk is included in
every management
presentation to the
Board for discussion
and is reported on and
discussed at each Board
meeting, and a deep-dive
risk review is undertaken
annually.
As noted, in 2021, in line with the Code, an external Board
performance evaluation was carried out, facilitated by Gould
Consulting. This was the first performance evaluation undertaken
by Gould Consulting, who had no other connection to the Board
or to the Company. To facilitate their evaluation, Gould Consulting
reviewed multiple sets of Board and committee Papers, including
management presentations, had each Board member complete
a pre-interview questionnaire, conducted one-to-one interviews
with each Board member and the Company Secretary and
facilitated a group discussion amongst several members of
senior management including the Chief Operating Officer, the
Exploration Director and other senior managers who have regular
contact with the Board. Gould Consulting also attended the
December 2021 Board and committee meetings as observers.
During the year, the Senior Independent Non-Executive Director
met with the Non-Executive Directors (excluding Nicoletta
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Giadrossi), to discuss and appraise the performance of the Chair.
The outcome and findings from the 2021 externally facilitated
performance evaluation were discussed at the January 2022
Board call and subsequent March 2022 Board meeting. The main
action points arising from the 2021 performance evaluation
include the following:
Key action points
Implementation
Increase Chair-led
engagement with
Non-Executive
Directors individually
between meetings
The Chair will conduct informal dialogue
with each Non-Executive Director
between meetings to aid discussion
at meetings and to discuss key agenda
items in advance. In addition, the Senior
Independent Director and Chair will
increase the frequency of their out-of-
round discussions.
Ensure smooth
transition between
the first and second
days of Board meetings
The Non-Executive Directors will have
time, without executives or management
present, at the end of day one and at the
start of day two to discuss matters raised
and those to be discussed further.
Restructure of
management
presentations
Refresh the Board
strategy day
Board Committee
Papers for wider
distribution
Whilst continuing the advanced
distribution of the management
presentation to Board members, the
management presentation itself will
be further focused on the key issues
for consideration by the Board.
Discussions to be held in advance of
the strategy-focused Board meeting to
determine the key issues to be discussed
with input from an appropriate and
diverse range of speakers.
In addition to the previous process of
providing reports to the Board from each
committee chair and the distribution
of committee minutes to all Board
members, all Board Committee Papers
are now sent to all members of the Board.
As explained above, some improvements have been identified and
have already been implemented or will be addressed during 2022.
Following the Board performance evaluation process conducted
in 2021, the Board and Board committees are satisfied that they
are operating effectively and that each Director has performed well
in respect of that Director’s role on the Board and its committees.
The Board believes that all of the Directors’ performance continues
to be effective and that they each demonstrate commitment
to their role. The Nomination Committee has also reviewed the
outcomes of the 2021 evaluation to consider how these influence
or otherwise impact on Board composition.
The Executive Directors have their performance reviewed by the
Remuneration Committee against the Group KPIs which are set
annually (further details of the KPIs can be found on pages 34 to
37). The 2021 bonuses payable to the Executive Directors under
the Company’s discretionary cash bonus scheme (described
further in the Directors’ Remuneration Report on pages 106 to
139) are linked directly to the Group’s performance against these
KPIs. As the KPIs set out our strategic objectives, this ensures that
executive performance is directly linked to Group strategy.
Independence of Non-Executive Directors
The Board considers the independence of each of the Non-
Executive Directors on an ongoing basis, taking into account their
integrity, their objectivity and their contribution to the Board and its
committees. The Board is of the view that the following behaviours
are essential for a Director to be considered independent:
– provides an objective, robust and consistent challenge to
the assumptions, beliefs and views of senior management
and the other Directors;
– questions intelligently, debates constructively and challenges
rigorously and dispassionately;
– acts at all times in the best interests of the Company and its
shareholders and other stakeholders;
– has a detailed and extensive knowledge of the Company’s
business and of the market as a whole which provides a solid
background against which they can consider the Company’s
strategy objectively and help the Executive Directors develop
proposals on strategy; and
– has no close ties or material relationships with the Company,
either directly or indirectly.
Having reviewed the independence of each of the Non-Executive
Directors against these criteria, the Board concluded that all
Non-Executive Directors demonstrated each of the required
competencies to a high level and are, therefore, each considered
independent by the Board.
Time Commitment of Non-Executive Directors
The Board recognises its responsibility under the Code to take
into account other demands on each Director’s time, with a view
to ensuring that its Directors (particularly those Non-Executive
Directors who sit on other public company boards) have sufficient
time to devote to their role on the Capricorn Board. Prior to
appointment, each individual’s other significant commitments
are disclosed and there is also a policy in place to ensure that
additional external appointments are not undertaken without
prior consultation. The other directorships held by each Non-
Executive Director (where applicable) are disclosed in the Board
of Directors section on pages 78 and 79.
None of our Non-Executive Directors currently sits on more than
four public company boards (including Capricorn) and those who
do sit on other public company boards have taken appropriate
steps to ensure that they have sufficient time to devote to their role
on the Capricorn Board. By way of example, I have actively reduced
the number of directorships I hold in order to ensure that I have
sufficient time to devote to my role as Chair of the Company.
Re-election of Directors
In accordance with the Code, all of the Company’s Directors are
subject to annual re-election by shareholders. As such, each of the
current Directors will seek re-election at the AGM to be held on
11 May 2022.
Induction and Development
New Directors receive a full and appropriate induction on joining
the Board. This involves a tailored programme of meetings with
other Board members, senior management and the Company
Secretary.
Capricorn Energy PLC Annual Report and Accounts 2021
87
Corporate Governance Statement continued
In addition, new Directors receive a comprehensive induction pack
which contains a wide range of materials including:
During 2021, the subjects covered by these seminars included:
Board
Board Papers and minutes of previous
meetings; schedule of matters reserved to the
Board; list of Board and committee members
and dates of appointment; and schedule of
dates for Board and committee meetings.
Committees
Terms of reference for all Board committees.
Risk
Key policies
Organisation
Governance
Legal/
regulatory
Terms of reference for Risk Management
Committee and minutes of last meeting;
current Group Risk Matrix and Risk Appetite
Statement; FRC Guidance on Risk
Management, Internal Control and Related
Financial and Business Reporting.
Capricorn Operating Standards & Processes,
Group Corporate Responsibility Management
System; Group Code of Ethics; Group Corporate
Major Accident Prevention Policy; Dealing
Code; Insider Lists Process; Procedures,
Systems and Controls for Compliance with
the Market Abuse Regulation, the Listing
Rules and the Disclosure Guidance and
Transparency Rules.
Organisational Structure, Group Structure
Chart; latest Annual Report and Accounts.
UK Corporate Governance Code; supporting
FRC Guidance; FRC Feedback Statement on
UK Board Succession Planning; ICSA and
Investment Association Guidance on the
Stakeholder Voice in Board Decision Making.
Memorandum on continuing obligations
of directors of premium listed companies;
ICSA Guidance on Directors’ General Duties;
ICSA Guidance on Liability of Non-Executive
Directors; GC 100 Guidance on Directors
Duties: Section 172 and Stakeholder
Considerations; GC 100 and Investor Group
Guidance on Directors’ Remuneration
Reporting.
Insurance
Full details of Directors’ and Officers’
liability cover.
The Company ensures that new Directors also receive additional
induction support and training when assuming any additional
responsibilities such as membership of Board committees.
Where appropriate, the Company arranges for new Non-Executive
Directors to receive additional briefings on key matters regularly
discussed by the Board.
The Company provides, on an ongoing basis, the necessary
resources for developing and updating its existing Directors’
knowledge and capabilities. In particular, the Company
is committed to the provision of continuing professional
development training for its Directors. In 2021, the Company
continued with its practice of providing a Directors’ education
programme consisting of a number of seminars for Board
members, which are presented by the Company’s external
advisers/guest speakers/members of senior management,
on subjects appropriate to the Company’s business, including
changes to legislation, regulation and market practice.
Q1 A presentation from Goldman Sachs on the market
environment
Q2 A pre-strategy session (on the same day as the Board’s
annual strategy session) including a presentation delivered
by Wood Mackenzie on ‘Upstream and Exploration outlook’
Q3 The Company Secretary led a presentation and discussion
on updates in the governance environment
Q4 A presentation from the Company’s Energy Transition
Director: COP26 – what it means for the oil and gas industry
and the impact on Capricorn’s energy transition strategy
These seminars are incorporated into the schedule for the relevant
Board meeting and are attended by all Directors present at such
meetings as well as the Chief Operating Officer and Director of
Exploration (the Company keeps a record of attendance). Any
Director may request that a particular subject be covered in
a seminar.
Information and Support
The Board has full and timely access to all relevant information
to enable it to discharge its duties. Under the direction of the
Chair, the Company Secretary is responsible for ensuring good
information flows within the Board and its committees and
between executive management and Non-Executive Directors,
as well as facilitating induction and assisting with professional
development as required. The Company Secretary ensures the
presentation of high quality information to the Board and its
committees and that all Papers and information are delivered
in a timely fashion. Board and committee Papers are delivered
securely through an electronic platform.
The Company Secretary is responsible for advising the Board,
through the Chair, on all corporate governance matters, and
each Director has access to the advice and services of the
Company Secretary.
There is also a procedure agreed by the Board for Directors, in
furtherance of their duties, to take independent professional
advice if necessary, at the Company’s expense.
Conflicts of Interest
The Board has in place a procedure for the consideration and
authorisation of conflicts or possible conflicts with the Company’s
interests. All Directors are aware of the requirement to submit
details to the Company of any current situations (appointments
or otherwise) which may give rise to a conflict, or potential conflict,
of interest. The Board will continue to monitor and review potential
conflicts of interest on a regular basis.
Whistleblowing
The Group has a robust Whistleblowing Policy in place through
which the workforce can raise any matters of concern – further
information on the Group’s Whistleblowing Policy is included in
the Audit Committee Report on page 97.
Matters Reserved to the Board and Delegation of Authority
The Board has a formal schedule of matters specifically reserved
to it for decision, which is divided into categories covering
different types of decisions, including: corporate; Board/directors;
financial/operational; and legal/regulatory.
By way of example, some of the matters which the Board
considered and/or approved during 2021 and Q1 2022 were:
88
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Corporate
Board/Directors
The Company’s 2020 and 2021
Annual Report and Accounts
and 2021 Half Yearly Report
Appointment of new Non-
Executive Director
The Company’s 2021 AGM
circular
Creation of the Sustainability
Committee
The Company’s Risk Appetite
Statement
Expansion of the Nomination
Committee to include wider
governance considerations
Review of the Company’s
Corporate Responsibility
Management System
Detailed review of talent
management and of succession
contingency planning
Financial/Operational
Legal/Regulatory
Oversight of the resolution
of the Indian tax issue and
proposed subsequent
return of up to US$700m
to shareholders
Approval of the Company’s
Modern Slavery Statement
and its publication on the
Company’s website
Approval of the Group Tax
Strategy and its publication
on the Company’s website
The sale of the Company’s
interest in the Catcher and
Kraken fields in the UK
The acquisition of production
and exploration assets in Egypt
The appropriateness of the
Group going concern sign-off
for the 2020 and 2021 full year
accounts and 2021 half year
Financial Statements
The Company’s viability
statement
The Company’s annual work
programme and budget
Group Reserves and Resources
In addition to the above, the Board conducts an annual review of
the effectiveness of the Company’s internal controls (with ongoing
monitoring throughout the year), an intensive annual strategy
session (normally in June each year), and an annual deep-dive
risk management workshop (held at the final meeting of each
calendar year).
The Board also has an approved set of financial delegations of
authority to ensure clarity throughout the business concerning
the distinction between financial matters which require Board
approval and those that can be delegated to senior management.
Board and Management Committee Structure During 2021
Board of Directors
Board Committees (Audit, Remuneration and Nomination*)
Risk Management
Committee
Chief Executive
Executive Committee (ExecCo)
Management Team (MT)
Exploration Leadership Team (ELT)
* Further information on our Board committees is contained later in this
statement on pages 91 and 92 and in the separate Audit Committee Report,
Nomination Committee Report and Directors’ Remuneration Report.
The senior management structure beneath Board level comprises
an Executive Committee (ExecCo) and Management Team (MT),
each of which continues to play a key role in supporting the Board.
During the year, the ExecCo comprised the Executive Directors (the
Chief Executive and the Chief Financial Officer), the Chief Operating
Officer and the Director of Exploration. The ExecCo is chaired by the
Chief Executive and meets approximately six times per year with
those meetings scheduled in advance of Board meetings.
Key elements of the ExecCo’s role include the following:
– devising and generating the Company’s strategy to be
proposed to the Board for approval and implementing
and communicating this strategy across the business;
– implementing the business plan, the key performance
indicators and annual work programme and budget
following their approval by the Board;
– considering business development and new venture projects
prior to recommending these to the Board; and
– providing leadership and guidance to the Company on purpose,
vision, strategy, culture, corporate governance, corporate
responsibility and HSE matters.
The MT is chaired by the Chief Operating Officer and meets
formally six times per year, with four of those meetings focusing
on a quarterly performance review of the business.
The key elements of the MT’s role include the following:
– developing and executing the annual work programme and
budget, which will deliver the Company’s strategic objectives;
– assessing and determining the mitigation plans for key
business risks and ensuring that risks are captured and
reviewed regularly;
– coordinating operations and licence management along with
resource allocation and organisational alignment to ensure
timely and cost-effective delivery against approved budgets;
– oversight of the Company’s commitment to working
responsibly; and
– reviewing and approving the Company’s Operating Standards.
A number of members of the MT are also members of the
RMC, which identifies and reviews key business risks – further
information on the role of the RMC is contained in the Internal
Control section of this statement on pages 93 to 95
The Exploration Leadership Team (ELT), which is chaired by the
Director of Exploration, meets on a monthly basis to assist the
Director of Exploration in delivering a robust exploration portfolio,
with a particular focus on the following:
– providing assurance that opportunities being pursued by new
ventures are sufficiently value-adding and meet Capricorn’s
strategic objectives;
– considering whether opportunities being pursued have
acceptable subsurface, above-ground and fiscal attributes
to continue evaluation;
– developing a timeline for each existing or proposed opportunity
which drives to a decision, including drill or drop, as expeditiously
as practical;
– ensuring that the subsurface geoscience aspects of all
exploration and appraisal and new venture opportunities
align with Capricorn’s strategic objectives;
– ensuring consistent, efficient screening and ranking of
exploration opportunities, following initial data room
assessment but prior to detailed evaluation, utilising the
significant knowledge and experience of the team;
– ensuring that the significant knowledge and experience of the
team is utilised appropriately and consistently in the delivery
of best practice across all areas of geological and geophysical
(G&G) analysis in accordance with Capricorn’s business plan
and core business principles; and
– considering and/or seeking appropriate data subscriptions,
purchases and academic collaborations to ensure rapid
opportunity evaluation and capture.
Capricorn Energy PLC Annual Report and Accounts 2021
89
Corporate Governance Statement continued
Board Meetings
During 2021, a total of seven scheduled meetings of the Board
were held. Due to the COVID-19 pandemic and related UK and
Scottish government guidance and restrictions in place during
early and then late 2021, one Board meeting was held virtually
in early 2021 and the rest were held in person, unless travel
restrictions required Directors from abroad to join virtually. Five
of these meetings were conducted over two consecutive days
following the usual format for Board meetings described below,
with another two shorter meetings held to update the Board
and/or to approve specific matters during 2021.
could continue to attend all scheduled Board and committee
meetings and were also able to do so ‘on camera’.
The annual timetable for Board and committee meetings
is discussed at least 18 months prior to its commencement,
allowing the Directors to plan their time accordingly. The Board
and committees have agreed dates for all scheduled meetings
in 2022 and 2023. This process ensures that the Chair can be
comfortable that each Director is able to devote sufficient time
and resources to their role on the Board and, where relevant,
its committees.
The first day of Board meetings normally includes a CEO meeting
with the Non-Executive Directors and (when applicable) a Board
education session, followed by a report from the CEO and CFO
and a management presentation, both of which form part of the
formal business of the Board meeting. The CEO and CFO report
and management presentation provide a detailed update from
senior management and other employees on key projects, assets
or matters to be considered at the Board meeting, allowing
opportunity for a technically rigorous discussion. This information
allows the Board to understand more fully any risks or challenges
to the business plan and strategy and also provides broad
exposure to the employee base within the Company.
Board committee meetings are also scheduled for the same dates
as Board meetings and are either split over two days or scheduled
for one day, depending on the number of committee meetings
required. Board committee meetings take place prior to the main
part of the Board meeting so that the Chair of each committee can
provide a report to the Board. These are followed by the remainder
of the formal business of the Board meeting. The Chair also holds
a meeting with the other Non-Executive Directors (without the
Executive Directors) at the end of each day of the Board meeting.
Details of attendance at each of the Board meetings during 2021,
and at meetings of each of the Board committees, are set out
below. As disclosed above, the COVID-19 pandemic and related
restrictions have meant that not all meetings were able to be held
in person. The Company has however very successfully used its
technological communication platforms to ensure that Directors
Following the 2021 Board Performance Evaluation, in advance
of the Board meetings, the Chair now has informal meetings with
each Non-Executive Director to consider key issues for discussion
at the meeting. The formal agenda for each scheduled Board
meeting is set by the Chair in consultation with the Chief Executive
and the Company Secretary. The system for establishing agenda
items means that the Chair, the Board and each of the Board
committees have the confidence that all required items are
included on their agenda at the most appropriate time of the
year and that there is sufficient time allocated for discussion,
allowing the Directors to discharge their duties effectively.
Formal minutes of all Board and committee meetings are
circulated to all Directors prior to the subsequent Board meeting
and are considered for approval at that Board meeting. In addition,
the members of the Board are in frequent contact between
meetings regarding progress of the Group’s business plan, one
example being an annual Board update call in January ahead of
the other scheduled Board meetings for the year. There is also a
procedure in place to allow Board meetings to be convened at
short notice where required to deal with specific matters which
need to be considered between scheduled Board meetings.
As noted above, the Non-Executive Directors have a practice of
meeting informally at the end of each Board meeting without
Executive Directors being present. At these Non-Executive forums,
the Non-Executive Directors are invited by the Chair to bring
forward any matter pertaining to the business of the Board that
they believe would benefit from discussion in such forums. This
practice also applies after Board committee meetings to ensure
that Non-Executive Directors can discuss any relevant issues
arising from those meetings without management being present.
Directors’ Attendance at 2021 Board and Committee Meetings
The table below sets out the attendance record of each Director at scheduled Board and Board committee meetings during 2021.
Meetings held during 2021(1)
Executive Directors
Simon Thomson (Chief Executive)
James Smith (Chief Financial Officer)
Non-Executive Directors
Nicoletta Giadrossi (Chair)
Peter Kallos (Senior Independent Director)
Keith Lough
Alison Wood
Catherine Krajicek
Erik B. Daugbjerg
Board
7
Audit
Committee
Remuneration
Committee
Nomination
Committee
4
3
3
Meetings
attended
Meetings
attended
Meetings
attended
Meetings
attended
7
7
7
7
7
7
7
7
N/A2
N/A3
N/A
N/A
4
4
4
N/A
N/A2
N/A
3
3
N/A
3
N/A
3
3
N/A
3
3
3
N/A
N/A
N/A
Notes:
N/A not applicable (where a Director is not a member of the committee).
1
During 2021, certain Directors who were not committee members attended meetings of the Audit Committee, Remuneration Committee and
Nomination Committee by invitation. These details have not been included in the table.
Simon Thomson is not a member of the Remuneration Committee but attends its meetings by invitation (other than parts of meetings where he would
be conflicted). Mr Thomson also attends Audit Committee meetings by invitation.
James Smith is not a member of the Audit Committee but attends its meetings by invitation.
2
3
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Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Board Committees
Board Committee Structure During 2021
Board of Directors
Audit
Committee
Remuneration
Committee
Nomination
Committee
Each of the Board committees is provided with all necessary
resources to enable its members to undertake their duties in an
effective manner and has formal terms of reference approved by
the Board. Copies of the terms of reference are available on the
Company’s website. The Company Secretary acts as secretary to
the Board committees. The minutes of all committee meetings
are circulated to all Directors.
In line with best practice, more detailed reports from the
Audit and Nomination Committees are presented as separate
reports (on pages 96 to 104) rather than including these in the
Corporate Governance Statement. In addition, full details of
the Company’s remuneration policy are given in the separate
Directors’ Remuneration Report on pages 106 to 139. Summary
details of the composition of each committee and meetings held
during 2021 are set out below.
Audit Committee
The members of the Audit Committee during the year were
as follows:
– Keith Lough (Chair);
– Catherine Krajicek; and
– Alison Wood.
The Audit Committee met four times during 2021 and currently
comprises three independent Non-Executive Directors. In line
with Code requirements and following her appointment as Chair
of the Company, Nicoletta Giadrossi retired as a member of the
committee with effect from 31 December 2020 and Catherine
Krajicek was appointed a member of the committee with effect
from 1 January 2021. The Chair of the Board is not a member of
the committee but attends its meetings by invitation. Further
information on the role, responsibilities and work of the Audit
Committee is included in the Audit Committee Report on pages
96 to 101.
Remuneration Committee
The members of the Remuneration Committee during the year
were as follows:
– Alison Wood (Chair);
– Nicoletta Giadrossi;
– Peter Kallos; and
– Erik B. Daugbjerg.
The Remuneration Committee met three times during 2021 and
with effect from 1 January 2021 comprised four independent
Non-Executive Directors. In line with Code requirements and
following her appointment as Chair of the Company, Nicoletta
Giadrossi retired as Chair of the committee but remains a member.
With effect from 1 January 2021, Alison Wood was appointed
Chair of the committee and Erik B. Daugbjerg was appointed
a member of the committee. The Chief Executive is not a
member of the committee but attends its meetings by invitation.
The committee’s and management’s remuneration advisers may
also be invited to attend the committee’s meetings as required.
None of the members of the Remuneration Committee, nor
the Chief Executive nor the Chair, participated in any meetings
or discussions relating to their own remuneration. The committee
has established a practice of meeting informally without any
Executive Directors or advisers present to allow the Non-Executive
Directors to discuss any matter which has arisen in the meeting (or
relating to the duties of the committee) which they believe would
benefit from discussion in such forum.
Further information on the role, responsibilities and work of
the Remuneration Committee is included in the Directors’
Remuneration Report on pages 106 to 139.
Nomination Committee
The members of the Nomination Committee during the year were
as follows:
– Nicoletta Giadrossi (Chair);
– Simon Thomson;
– Keith Lough; and
– Peter Kallos.
The Nomination Committee met three times in 2021. Following
her appointment as Chair of the Company, Nicoletta Giadrossi
was appointed Chair of the committee with effect from 1 January
2021. As such, the current members of the committee include the
new Chair and two of the Company’s independent Non-Executive
Directors. In addition, to ensure continuing executive input on
nomination matters, the Chief Executive is also a member of the
committee. With effect from 3 March 2022, Cathy Krajicek joined
the membership of the Nomination Committee in addition to
those members who sat in 2021.
From 3 March this year, the Nomination Committee has expanded
its remit to include corporate governance in a broader sense.
Whilst corporate governance is a key consideration at all times for
the Board, including corporate governance within the committee’s
responsibilities demonstrates the commitment of Capricorn to
good governance.
Following the decision to expand its remit, from March 2022,
the Nomination and Governance Committee’s role also includes:
– monitoring the operation of the UK Corporate Governance
Code and its implementation and compliance by the Company;
– reviewing developments in corporate governance and advising
the Board with respect to developments in the law and practice
of corporate governance; and
– reviewing and approving changes to the Board’s corporate
governance practices and policies.
Further information on the role, responsibilities and work of the
Nomination Committee is included in the separate Nomination
Committee Report on pages 102 to 104.
Changes to Board Committee Structure
In addition to the expansion of the Nomination Committee’s remit
to include broader corporate governance matters, with effect from
3 March 2022, a new committee, the Sustainability Committee,
has been established. Matters of the environment, safely, social
responsibility and sustainability are considered within every Board
decision and, therefore, are a key element of each Board meeting
but establishing a committee dedicated to these matters will
further embed the importance within the Board and wider
organisation. The energy transition and Capricorn’s role in it is of
particular importance to the Board and the formation of this new
committee, the membership of which comprises the full Board,
will allow it further dedicated time. The terms of reference of this
committee include:
– advising and supporting the board in the drafting of the
Sustainability and Net Zero roadmap and assessing its progress
and reviewing disclosures being made regarding the roadmap;
– reviewing the policies, practices and performance relating to
sustainability and the disclosures and annual reporting on
sustainability;
– reviewing the policies, practices and performance relating to
safety, including in particular regarding the safe and responsible
performance of the Group’s operations;
– reviewing the policies, practices and performance relating to
social responsibility; and
– reviewing the policies, practices and performance relating to
environmental matters including, in particular, protection of
the environment and disclosure of Greenhouse Gas emissions.
Capricorn Energy PLC Annual Report and Accounts 2021
91
Corporate Governance Statement continued
Shareholders and the Annual General Meeting (AGM)
Communications with shareholders are given high priority by
the Board. The Company has implemented the provisions of the
Companies Act 2006 regarding electronic communication with
its shareholders, in order to give shareholders more choice and
flexibility in how they receive information from the Company.
Capricorn responds promptly to correspondence from
shareholders and the Company’s website contains a wide
range of information on the Company, including a dedicated
investor relations section.
In order to ensure that the members of the Board develop an
understanding of the views of major shareholders, there is regular
dialogue with institutional shareholders, including meetings with
executive management after the announcement of the year end
and half year results. The Board is kept informed of any issues
raised by shareholders both as a standing agenda item in Board
Papers and through feedback at Board meetings and following
results or other significant announcements. In addition, the
Company maintains an investor relations database which details all
meetings with investors or other related stakeholders. All analyst
reports relating to the Company are also distributed to the Board.
A list of the Company’s major shareholders can be found in the
Directors’ Report on page 142. The Company recognises that
the success of the comply-or-explain approach under the Code
depends on an ongoing and open dialogue with shareholders,
and remains committed to engaging with shareholders, as well
as governance and proxy voting agencies, on any matter which
they wish to discuss in relation to the Company’s governance.
The Company has a rolling programme of investor roadshows
to ensure that senior management are regularly engaging with
current and potential investors. During the last 18 months, certain
Directors have also engaged directly (either through meetings
or by telephone/written correspondence) with specific investors,
investor groups, and proxy advisory agencies on a range of matters
including progress against strategic objectives, diversity and
remuneration. During 2021, investor meetings were held either
through virtual communications platforms or in person when safe
to do so due the restrictions in place in response to the COVID-19
pandemic.
AGM details (2021 and 2022)
Overview
2021 AGM: held as a closed
meeting due to COVID-19
on Tuesday 11 May 2021 at
the Company’s Head Office
– At least 74% of all issued shares
voted by shareholders in each
resolution
– Highest votes in favour >98%
for 11 resolutions
– The Remuneration Report
resolution was passed with
65.13% in favour. Details of the
engagement process carried out
with shareholders following that
result are detailed on this page
92 and the following page 93
– Full Director attendance
expected
– 13 ordinary resolutions and
four special resolutions being
proposed to shareholders
2022 AGM: to be held on
Wednesday, 11 May 2022
at The Gallery, Kimpton
Charlotte Square Hotel, 38
Charlotte Square, Edinburgh
(full details in Notice of AGM)
92
Capricorn Energy PLC Annual Report and Accounts 2021
The Board uses the AGM to communicate with private
and institutional investors and has always welcomed their
participation in annual general meetings. However, as a result
of the COVID-19 pandemic and the measures that the UK
and Scottish governments had put in place restricting public
gatherings, for the safety of our shareholders, our employees,
our advisers and the general public, attendance at the 2021
AGM in person was unfortunately not possible and as such,
just the Executive Directors were present, in order to constitute
the quorum of two shareholders required for the Meeting to be
held, and to deal with the formal business of the Meeting.
The Notice of AGM sent to shareholders on 30 March 2021, which
was also published on the Company’s website, fully explained
these arrangements to shareholders and recommended that
shareholders submit their votes on each of the resolutions being
proposed by proxy in advance of the meeting, or to authorise the
Chair of the meeting to vote on their behalf. The Company also
enabled shareholders to submit any questions in advance of the
meeting. These arrangements were implemented in line with
regulatory guidance published in relation to holding AGMs during
the COVID-19 pandemic, as well as the approach adopted by other
FTSE companies in order to safely conduct their AGMs.
Under normal circumstances, it is policy for all Directors to
be present at the AGM, with the Chair of each of the Board
committees also expected to attend and be prepared to answer
shareholder questions on areas within their remit. Our employees
based in Edinburgh are also normally invited to attend the
AGM as the Directors recognise that this provides a valuable
opportunity for workforce engagement with the Board. In 2021,
given employees were not able to attend the AGM, the Company
held a virtual staff meeting immediately after the AGM.
As part of our commitment to transparency we look to involve
shareholders fully in the affairs of the Company and to give
them the opportunity at the AGM to ask questions about the
Company’s performance and activities. Details of resolutions to
be proposed at the AGM on 11 May 2022 and an explanation
of each resolution can be found in the separate Notice of AGM
Circular accompanying this Annual Report and Accounts.
The proxy votes for and against each resolution, as well as
abstentions, will be counted before the AGM and the results will
be made available following the meeting after the shareholders
have voted in a poll on each resolution. Both the Form of Proxy
and the poll card for the AGM include a ‘vote withheld’ option
in respect of each resolution, to enable shareholders to abstain
on any particular resolution. It is explained on the Form of Proxy
that a ‘vote withheld’ is not a vote in law and will not be counted
in the calculation of the proportion of the votes ‘for’ or ‘against’
a resolution.
At the AGM held on 11 May 2021, as noted above, Resolution 2
(Approval of the Remuneration Report) passed with 65.13% of
votes in favour. Following this result, the Chair of the Remuneration
Committee wrote to the Company’s major shareholders offering
a meeting to discuss the outcome of that vote and to provide the
opportunity to raise any concerns relating to the Remuneration
Report. Engagement took place with several shareholders and
proxy advisory bodies and the feedback received was that they
would welcome:
– a more comprehensive explanation of the alignment between
Company performance and bonus outcomes;
– more detailed disclosure of the KPIs used in the annual bonus
scheme for both the reporting year and the year ahead; and
– in the future, if the Remuneration Committee is considering
exercising any discretion in relation to the Company’s various
incentive arrangements, earlier engagement, ideally at the time
a decision is made.
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
The Remuneration Committee would like to thank those
shareholders that participated in the post-AGM engagement
process and for the feedback that was provided to the
Remuneration Committee Chair. As detailed in the Directors’
Remuneration Report on pages 106 to 139, each of the
considerations has been addressed with significantly increased
levels of disclosure set out. The Company will continue to engage
with shareholders and their respective proxy advisory bodies as we
look forward to the 2022 AGM.
Information Pursuant to the Takeover Directive
The Company has provided the additional information required by
the Disclosure and Transparency Rules of the UK Listing rules (and
specifically the requirements of DTR 7.2.6 in respect of directors’
interests in shares; appointment and replacement of directors;
powers of the directors; restrictions on voting rights and rights
regarding control of the Company) in the Directors’ Report.
Internal Control
The Board has overall responsibility for the Group’s system of
internal control, which includes all material controls, including
financial, operational and compliance controls and related risk
management, and for regularly reviewing its effectiveness. The
system of internal control is designed to identify, evaluate and
manage significant risks associated with the achievement of the
Group’s strategic objectives. Because of the limitations inherent in
any system of internal control, Capricorn’s system is designed to
meet its particular needs and the risks to which it is exposed, with
a focus on managing risk rather than eliminating risk altogether.
Consequently, it can only provide reasonable and not absolute
assurance against material misstatement or loss.
The Company has in place an Integrated Internal Control and
Assurance Framework (the ‘Framework’), which plays a critical role
in setting out how the Company manages and assures itself that
the risks relating to the achievement of corporate vision, strategy
and objectives are effectively controlled. The Framework is based
on the committee of Sponsoring Organisations (COSO) framework
and its five key components, which is a commonly used and
recognised international framework for considering internal
control systems. The COSO framework seeks to help organisations
develop systems of internal control which help facilitate the
achievement of business objectives and improvements in
Company performance. The COSO framework also supports
organisations in adapting to increasingly complex business
environments and managing risks to acceptable levels with the
aim of safeguarding shareholders’ interests and Company assets.
The Framework has been in place for the 2021 financial year
and up to the date of approval of the Annual Report and Accounts.
The Board, supported by the Audit Committee, has carried out a
review of the effectiveness of the systems of internal control during
2021 and will ensure that a similar review is performed in 2022.
In so doing, the Board and Audit Committee took into account
the assurance provided by the Chief Executive in respect of the
effectiveness of the Group’s system of internal control. The Board is
accordingly satisfied that effective controls are in place and that risks
have been mitigated to a tolerable level across the Group in 2021.
Particular attention has been placed by the Company’s
management on ensuring that an effective system of internal
control has been maintained during the year in relation to the key
risks in the Company’s business activities. Enhancements have
been made during 2021 to the following key controls, business
processes and procedures:
– the Board completed a risk workshop which focused on the
Group Risk Appetite Statement and its alignment with the
delivery of the Group’s strategic objectives. The objective of the
workshop was to confirm that the Group continued to deliver
the strategy in alignment with the tolerance levels set within
the Group Risk Appetite Statement;
– the rollout of the new risk management and incident
management software solution continued throughout 2021.
The new solution is now fully embedded throughout the
organisation and is being used to manage risks for all corporate,
operational and project risks. The solution has facilitated
improved reporting on all risks to the Group and has provided a
more systematic process for the management of risks, controls
and actions across the business;
– the Management Team conducted a quarterly review of the
risks, mitigations and actions identified on the Group risk
register to ensure ownership for the risks, mitigations and
actions were clearly assigned and implementation dates for
actions were tracked;
– the Group Code of Ethics was reviewed and updated. An Arabic
and French version was developed for our operations in Egypt
and Mauritania. Compliance certificates were also completed by
key staff members and contractors confirming compliance with
the Group’s Code of Ethics;
– several activities were completed to enhance our bribery
and corruption controls across the business including the
completion of country specific risk assessments for Egypt and
Mauritania which supplemented the overarching Group risk
assessment already in place;
– a compliance dashboard was maintained to assess compliance
with several key regulations impacting the Group including
the UK Bribery Act, the General Data Protection Regulation
(GDPR), the corporate criminal offence for the failure to prevent
the facilitation of tax evasion (CCO), the Group’s corporate
major accident prevention policy (CMAPP) and modern slavery.
The dashboard was presented at each Risk Management
Committee meeting and annually to the Audit Committee as
part of the year end control assessment. There were no material
weaknesses identified;
– The Audit Committee confirms that its has complied with the
provisions of the Competition and Markets Authority’s Order
for the 2021 financial year;
– the IT department continued safeguarding its end user estate
through the roll out of critical system and security patches to
ensure any outsider threats were made known and home
workers were protected. Additional security controls were also
implemented to protect against any malicious COVID-19 SPAM
and phishing attempts;
– EY, the Group’s internal auditor, delivered the annual internal
audit plan which consisted of several risk areas identified from
the risk register. Topics covered in 2021 included cyber security,
the risk and assurance process, ESG and sustainability reporting
and mergers and acquisitions process. The Group has been
working through the year to implement the identified
improvements; and
– to ensure awareness, understanding and compliance
on important governance, regulatory and security topics,
mandatory e-learning was also implemented across the
Group, which included comprehensive modules on bribery
and corruption, CMAPP, CRMS, human rights, modern slavery,
cyber security, cyber fraud, and tax evasion.
The following describes the key elements of the Framework
and the processes used by the Board during 2021 to review the
effectiveness of the system and the approach to be taken in 2022.
1. Strategic Direction
The Company’s strategy and business plan are proposed by
the ExecCo and approved by the Board. The Chief Executive
is responsible for managing the Company’s business and
implementing the Company’s strategic objectives in consultation
with the Board and ExecCo. The Chief Executive is also responsible
for implementing the decisions of the Board and its committees
and driving performance measured against the Company’s KPIs.
2. Operating Management
The Company operates two regional units covering different
countries and assets and with multiple partners on both an
operated and a non-operated basis. The assets within each region
are the principal focus for our regional managers, who are tasked
with delivering the strategic objectives for their particular region,
Capricorn Energy PLC Annual Report and Accounts 2021
93
Corporate Governance Statement continued
with a combination of operational and technical teams as well as
functional departments providing support to each of the assets.
The implementation of the Capricorn Operating Standards
supports this process, providing assurance, standards and
consistency in the delivery of our strategic objectives.
The Executive Directors continue to be supported by the ExecCo
as well as by the MT and ELT. Further information on these teams
and their remit can be found on page 89. There are also a number
of functional department heads whose roles include providing
expert input and challenge to the Company’s work programmes,
budgets and business plan; and supplying the Directors with full
and accurate information with which to make statements on the
adequacy of internal control.
The Company refreshes its business plan, work programme
and budget on an annual basis in line with its overall strategy.
These documents start at asset level before being consolidated
at regional and Company levels. The business plan sets out
detailed objectives and KPIs for each asset and supporting
functional departments and is consolidated into the Company’s
strategic planning. After an iterative process, the annual business
plan, work programme and associated budget are presented
to the Board for approval.
The asset management teams then have the required authority
to implement the business plan and to deliver the agreed work
programmes within the approved budget and delegations of
authority, and in accordance with the internal control framework.
3. Risk Management
The Board is responsible for maintaining sound risk management
and internal control systems across the Capricorn Group. The
Board must satisfy itself that the significant risks faced by the
Group are being managed appropriately and that the system
of risk management and internal control is sufficiently robust
to respond to internal or external changes in the Group’s
business environment.
The Risk Management Committee (RMC) continues to be
responsible for the development of risk management strategy
and processes within the Company and for overseeing the
implementation of the requirements of this strategy. It does this
by ensuring that the framework for the identification, assessment,
mitigation and reporting on all areas of risk is fit for purpose and
that appropriate assurance arrangements are in place in relation
to these risks to bring them within the Risk Appetite Statement
approved by the Board.
To supplement the role of the RMC, the Group Risk Management
Process defines the steps through which Capricorn seeks to
systematically identify, analyse, assess, treat and monitor the
business risks faced by the Group. The Group Risk Management
Process also identifies the risk management organisational
structure through which business risks are managed and regularly
reviewed at operating, asset, country and Company levels. Asset-
level, project-level, country-level and functional-level risk registers
are used to capture, assess, monitor and review risks before the
principal risks are consolidated into the Group risk register.
In 2021, risk management updates were presented at each Board
meeting and as part of an annual process, the Board undertook
a strategic risk workshop in December 2021 (see page 48).
The RMC, which meets on a quarterly basis, is currently chaired
by the Chief Executive and comprises the Executive Directors
and senior functional management. The internal auditor also
attends RMC meetings, in order to ensure integration of the
Group’s internal audit plan with the risk management process.
Regular MT risk sessions were also held during 2021 to manage
and facilitate the assessment and treatment of business risks
that may affect the Company’s ability to deliver its strategy.
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Capricorn Energy PLC Annual Report and Accounts 2021
Enhancements to our approach to risk management during 2021
included the following:
– The MT formally conducted a review of the risks, mitigations
and actions identified on the Group risk register each quarter
to ensure ownership for the risks. Mitigations and actions were
clearly assigned and implementation dates for actions were
tracked; and
– The RMC reviewed a gross to net risk assessment of principal
risks, in order to gain a deeper understanding of high impact
risks and identify any areas where there is a reliance on controls
and mitigating actions; and
– The rollout of the new risk management and incident
management software solution continued throughout the
year. The new solution is now fully embedded throughout
the organisation and is being used to manage risks for all
corporate, operational and project risks. The solution has
facilitated improved reporting on all risks to the Group and
has provided a more systematic process for the management
of risks, controls and actions across the business.
The RMC reports on the Company’s risk profile to both the Audit
Committee and the Board. Additionally, the Audit Committee and
the Board receive internal reviews of the effectiveness of internal
controls relative to the key risks. The conclusion of the Board
following these reviews during 2021 is that the internal controls
in respect of key risks are effective.
4. Assurance
The ‘three lines of defence’ framework adopted by the Board
provides three levels of assurance against the risks facing the
Company: firstly at the operational level; secondly through
overview by functional management and the RMC; and thirdly
through internal or joint venture audits.
The integrated internal control and assurance framework
document includes a description of the Company’s business and
assurance models and of its organisation and committee structure
and defines the relevant roles and responsibilities. The framework
defines the key policies and procedures which govern the way in
which Capricorn conducts its business and is therefore a core part
of its system of internal control.
During 2021, the Directors reviewed the effectiveness of
the Company’s system of financial and non-financial controls,
including operational and compliance controls, risk management
and high-level internal control arrangements through the
completion of internal control self-assessment questionnaires.
These questionnaires, which are tailored to each region or
function, are designed to provide an internal assessment of
the effectiveness of key controls for the Group’s principal risks.
Additionally, assurance maps for principal risks are developed,
which outline the key sources of assurance across the ‘three
lines of defence’. The ‘three lines of defence model’ is a method
of assessing different sources of assurance the Group can rely
on when analysing key risks and controls. Assurance is gained
through the application of the business management system
which directs the day-to-day running of the business (first line),
the oversight functions within Capricorn which provide challenge
to the risk and control environment (second line) and any third-
party reviews the Group instructs to assess the status of a risk/
control (third line). The assurance maps help identify potential
areas of control weakness and/or ineffective use of assurance
resources across the Group, which influenced the topics included
in the 2021 Group internal audit plan.
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
The Directors derived assurance from the following internal and
external controls during 2021:
– a schedule of matters specifically reserved for decision by
the Board;
– implementation of the Capricorn Operating Standards for key
business activities;
– an appropriate organisational culture and structure;
– control over non-operated joint venture activities through
delegated representatives;
– specific delegations of authority for all financial transactions and
other key technical and commercial decisions;
– segregation of duties where appropriate;
– business and financial reporting, including KPIs;
– functional management reviews;
– an annual ‘letters of assurance’ process, through which asset
and functional managers review and confirm the adequacy
of internal financial and non-financial controls and their
compliance with Company policies, and report any control
weaknesses identified in the past year and actions taken
in respect of any weaknesses identified in the prior year;
– a ‘letter of assurance’ from the Chief Executive confirming the
adequacy of internal controls within the Company in line with
its policy, and reporting of any control weaknesses identified in
the past year and actions taken in respect of any weaknesses
identified in the prior year;
– an annual internal audit plan, which is approved by the Audit
Committee and Board and is driven by risks and key controls;
– reports from the Audit Committee and RMC;
– reports from the external auditor on matters identified during
its statutory audit;
– reports from audits by host Governments and co-venturers;
– independent third-party reviews; and
– the skills and experience of the workforce.
Nicoletta Giadrossi
Chair
8 March 2022
Capricorn Energy PLC Annual Report and Accounts 2021
95
Audit Committee Report
Keith Lough,
Keith Lough
Chair of the Audit Committee
Chair of the Audit Committee
Members and Meetings in 2021
Keith Lough (Chair)
Catherine Krajicek
Alison Wood
Member
since
05/14
07/19
07/19
Meetings
attended
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Capricorn Energy PLC Annual Report and Accounts 2021
While the Group’s portfolio of assets
has been refocused, the Audit Committee
remain steadfast in ensuring that the Group’s
risk management process is robust and
complete and that transactions completed
during the year are recorded correctly and
presented appropriately in the Group
Financial Statements.
Dear Shareholder
The Audit Committee’s primary responsibilities include the
integrity of the Group’s Financial Statements, the effectiveness of
the Group’s risk management and internal assurance processes
and related governance and compliance matters.
Composition and Summary of Audit Committee Meetings
During the Year
I served as Chair of the Audit Committee for the duration of the
year, having been appointed Chair in 2018.
Serving with me on the Audit Committee during 2021 were two
of my fellow Non-Executive Directors, Catherine Krajicek and
Alison Wood. The members of the committee have been chosen
to provide the wide range of financial and commercial experience
needed to fulfil these duties. Alison and I are qualified accountants
with recent and relevant financial experience. Catherine brings
comprehensive industry knowledge. Alison and Catherine are
considered by the Board to be independent.
During 2021, Nicoletta Giadrossi also attended meetings in
her capacity as Chair of the Board but was not a member of
the committee.
At our request, the CFO, the Chief Executive (in his capacity as
executive responsible for internal audit) and senior members of
the Finance department and Risk and Compliance department
attend each meeting. Additionally, both internal and external
auditors attend. I also met privately with the external audit partner
to discuss matters relevant to the Group throughout the year.
The Audit Committee met four times in 2021, with meetings
arranged around the key external reporting dates. The first
meeting in March 2021 focused on the 2020 year end external
audit process (reported in the 2020 Annual Report and Accounts).
Meetings in June and September both centred on the Group’s
half year reporting and a December meeting focused on planning
for the 2021 year end and external audit process and the internal
auditors work programme for 2022. Subsequent to the year end,
a further meeting was held in March 2022 to conclude on the
2021 audit and significant issues.
Responsibilities and Activities During the Year
The terms of reference of the committee take into account the
requirements of the UK Corporate Governance Code and are
available for inspection on the Group’s website. A summary of the
committee’s principal responsibilities and activities during the year
are set out below.
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Principal responsibilities of the committee
Activities during the year
Key areas formally discussed
Financial Statements
– Monitoring the integrity of
the Financial Statements
of the Group and formal
announcements relating to the
Group’s financial performance;
– reviewing any significant
financial reporting judgements;
and
– reviewing the appropriateness
of accounting policies, their
consistent application and
disclosures in financial
statements.
External audit
– Overseeing the Group’s
relationship with the external
auditors, including:
• making recommendations
to the Board as to
the appointment or
reappointment of the
external auditor;
reviewing their terms
of engagement and
engagement for non-
audit services; and
•
• monitoring the external
auditor’s independence,
objectivity and effectiveness.
– Reviewing the Group’s internal
financial controls and internal
control and Risk Management
systems and oversight of the
Group’s Risk Management
Committee; and
– monitoring and reviewing the
effectiveness of the Group’s
internal audit function.
Internal risk
management
and assurance
Whistleblowing
procedures
– Reviewing the Group’s
whistleblowing procedures and
ensuring that arrangements are
in place for the proportionate
and independent investigation
of possible improprieties in
respect of financial reporting
and other matters and for
appropriate follow-up action.
– March 2021: 2020 Financial
Statements approval (included
in 2020 Annual Report and
Accounts).
– June 2021: Half year key
accounting issues, estimates
and assumptions.
– September 2021: Approval of
half year financial statements.
– December 2021: Year end key
accounting issues, estimates
and assumptions.
– March 2022: Approval of 2021
year end financial statements.
– At each meeting the committee
receives an updated report from
the external auditors which
either explains their plans and
scope for the forthcoming
audit or review or contains
the conclusions from their
work performed.
– Going concern conclusions
and linkage to the viability
statement; and
– significant accounting issues
at the half year and year end
(see below);
– Reviewing the external auditor’s
scope and audit plan for the
2021 year end;
– discussing the materiality levels
set by the auditor;
– approval of the auditor’s
remuneration;
– consideration of the results of
the external audit with the
auditor and management; and
– assessment of the effectiveness
of the external audit (see
overleaf).
– At each meeting, the Audit
– Reviewing the Group’s
Committee receives:
• an update from
management on the
latest Risk and Assurance
Committee meetings and
risk management process;
and
• a report from the internal
auditors, tracking the
progress of internal audits
and their output and
recommendations.
corporate and operational
risk register;
– reviewing reports on
the activities of the Risk
Management Committee;
– selection of internal audit
work planned for 2021 and
consideration for future years;
and
– assessment of key findings
raised from internal audits
conducted in the year.
– In December, the Audit
Committee agreed on the
proposed programme of
internal audits for 2022.
– The committee’s annual review
and approval of the Group’s
whistleblowing procedures was
performed at the March 2022
meeting, incorporating updates
for new branch locations in
Egypt and Mauritania.
– Reviewing and approving of
the Group’s whistleblowing
procedures.
Other matters
– Reviewing the Group’s policy for
approval of non-audit work to
the Company’s auditor; and
– reviewing booking of Group
reserves and resources.
– The committee’s annual review
and approval of the Group’s
policy for approval of non-audit
work was undertaken at the
December meeting.
– Review and approval of the
Group policy for approval
of non-audit work to the
Company’s auditor; and
– classification of reserves and
resources for disclosure in the
Annual Report.
The review of the Annual Report and Accounts for fair, balanced and understandable presentation and disclosure, while considered by
the Audit Committee, is formally performed and approved by the full Board.
Capricorn Energy PLC Annual Report and Accounts 2021
97
Audit Committee Report continued
Financial Statements
At each reporting date, the Audit Committee reviews the results for the relevant period and the key assets and liabilities in the Group
balance sheet, focusing on the key estimates, assumptions and judgements that management has used in applying the relevant
accounting standard.
The key issues identified at the December 2021 year end were the accounting for the sale of the Group’s producing assets in the North
Sea, accounting for the Egypt business combination, the impairment of intangible exploration/appraisal assets in Mexico and accounting
for the India Tax Refund. As always, the assessment of the ability of the Group to continue to operate as a going concern and the viability
statement is also considered by the Audit Committee.
2021 Year End Significant Accounting Issues:
Sale of Capricorn’s Producing Assets in the UK North Sea
Capricorn announced that it had concluded the sale of its interests in the Catcher and Kraken producing assets to Waldorf in November
2021. The sale was announced by the Group in March 2021 with assets being reclassified as held-for-sale at that time which was
reflected in the Group’s half year financial statements where an impairment was recorded before recording a profit from discontinued
operations in the full year results.
Audit Committee action
Audit Committee conclusions
The Audit Committee reviewed the initial accounting for the sale
of the Group’s interests of the Group’s two UK producing assets
at the half year in June and September 2021 and concluded on
the accounting treatment for the sale of the assets on completion
in November 2021.
The Audit Committee reviewed the computations for the loss
on disposal of the Group’s UK producing assets. The committee
focused on the accounting at the date the sale was announced,
at the half-year reporting date and at the point the sale completed
in November 2021. The committee concluded that the disclosures
made by management were appropriate at each point in time.
Key for the Audit Committee was ensuring that the value of the
assets was correctly recorded, including the valuation of future
earn-out consideration payable to the Group, mid-year impairment
and the loss on disposal in the annual accounts was correctly
computed and that presentation in the half year and year end
financial statements was appropriate.
The committee also reviewed and agreed the appropriateness of
the risk-weighting applied to market valuations for future earn-out
consideration, confirming with the auditors that the recognition
of this future income at the point of completion of the transaction
was appropriate.
Business Combination: Acquisition of Egypt Western Desert Producing Assets
Capricorn completed the acquisition of exploration, development and producing assets in the Western Desert, Egypt from Shell in
September 2021. The acquisition was determined to be a business combination.
Audit Committee action
Audit Committee conclusions
The Audit Committee reviewed managements calculation for
the goodwill arising on completion of the transaction.
The key assumptions for the accounting included Capricorn’s
fair value models used to determine the value of the assets on
recognition in the Balance Sheet. The committee took time to
understand those assumptions, including commodity pricing, cost
assumptions, reserves and production forecasts and discount rates
applied. The committee also reviewed the recognition of deferred
tax liabilities required under IFRS 3 and the subsequent goodwill
that arises.
The committee sought clarification on the Group’s reserve
and production forecast, understanding adjustments that had
occurred since acquisition, and were updated on work performed
to date by third-party reserve auditors engaged by the Company.
The committee confirmed that the commodity prices used were
appropriate and were satisfied that the assumptions provided a
fair basis on which to value the assets acquired. The committee
were satisfied that the inflation rates applied incorporated increase
rates of inflation for local Egyptian costs.
The committee challenged management as to the
appropriateness of the cost assumptions used given ongoing
discussions with the operator and sought explanations for the
changes to valuations to incorporate increased inflation rates for
costs forecast to be incurred in local currency.
The committee agreed with managements’ conclusion on the
recognition of deferred tax liabilities (and non-recognition of
potential deferred tax assets) and the goodwill computed on
the acquisition.
Impairment of Intangible Exploration/Appraisal Asset
In Mexico, Capricorn completed the farm-in/farm-down with ENI swapping a 15% interest in Block 9 for a 15% interest in Block 10. After
completion, the Saasken-2 appraisal well was drilled on Block 10, but the unsuccessful well also resulted in an impairment of remaining
exploration/appraisal costs capitalised in Block 9.
Audit Committee action
Audit Committee conclusions
The Audit Committee noted the impairment charge if the year
of US$19.6m recorded in the year and sought explanation from
management as to the indicator that led to the impairment and
the arising charge.
The committee concluded that the impairment charge had been
appropriately recorded and understood managements’ reasoning
for recording as an impairment rather than unsuccessful write-off,
with no current plans to relinquish the licence.
The committee challenged management of the remaining costs
held on Block 10 following the unsuccessful appraisal well.
The committee agreed with managements conclusion for
retaining the remaining costs on Block 10 associated with the
original Saasken discovery.
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Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Accounting for the Tax Refund Following the Award Under the Indian Tax Arbitration
In November 2021, Capricorn announced that it had entered into undertakings with the Government of India in order to participate
in the scheme introduced by Indian legislation allowing the refund of taxes previously collected from the Group in India.
Audit Committee action
Audit Committee conclusions
The Audit Committee challenged management on the treatment
of India Tax Refund and subsequent receipt of cash from India and
its recognition in the Income Statement and Balance Sheet for and
at the year end.
The committee concluded that the income had been correctly
recognised and recorded in the financial statements for the year
ending 31 December 2021 and had been disclosed appropriately.
The committee sought explanations from management as to the
presentation of the exceptional income included in profit before
tax, rather than a tax refund through the tax line.
The committee also noted the exchange rates used to record the
initial recognition and subsequent exchange loss disclosed as a
non-adjusting post balance sheet event.
Going Concern and Viability
At each reporting date, management considers the factors relevant to support a statement of going concern included in note 12 to the
Financial Statements. The Audit Committee reviews and challenges management’s conclusions so that we may, in turn, provide comfort
to the Board that management’s assessment has been considered, challenged and is appropriate.
The Audit Committee carefully reviewed management’s going concern conclusion based on the Group’s latest cash and debt position.
Downside case assumptions were reviewed, run with sustained low oil prices, reduced production, cost increases and a reduction in
available finance and default by joint venture partners. In all cases, the Group retained a significant funding surplus. This confirmed that
the Group is fully funded to meet its work programme and firm commitments over the period of 12 months from the date of signing
the Financial Statements. The Audit Committee subsequently recommended to the Board that the Group continue to use the going
concern basis in preparing its Financial Statements.
The committee also reviews and challenges management on the sensitivity analysis performed to support the Group’s viability
statement, included in the Strategic Report on page 47. The viability statement review included assessing both the operational risks
identified by management, including reserve downgrades and major emergency incidents and corporate risks identified, including
volatile oil prices, failure to deliver the net zero 2040 roadmap, a failure to expand the production base and a failure to deliver exploration
success. Following this challenge, the committee recommended approval of the viability statement to the Board.
External Audit
The current version of the UK Corporate Governance Code states that FTSE 350 companies should put the external audit contract
out to tender at least every 10 years. Capricorn complied with this provision before it came into force and completed an external audit
retendering process in 2013. PwC were subsequently appointed as external auditors of the Group, on the recommendation of the Audit
Committee at that time. The 2021 year end audit therefore represents the ninth year of PwC’s tenure as Group auditors. Capricorn will
retender for the role of Group auditors during 2022 for appointment of the new auditors (or reappointment of PwC) at the AGM in 2023.
This complies with the Competition and Markets Authority 2014 Order requiring a mandatory tender after 10 years.
As noted in last year’s report, Bruce Collins replaced Lindsay Gardiner as PwC’s lead audit partner on the Capricorn engagement
following approval of the 2021 Annual Report and Accounts. Bruce, was previously Director on the Capricorn audit engagement
between 2013 and 2015 but was not involved in the Capricorn audit between 2015 and 2020 and is therefore is not precluded from
accepting the role of lead audit partner.
Assessment of External Audit Process
The committee has an established framework to assess the effectiveness of the external audit process. This comprises:
Audit Committee action
Audit Committee conclusion
An assessment of the independence of the auditors.
The Audit Committee consider PwC to be independent.
A review of the audit plan including the materiality level set by the
auditors and the process they have adopted to identify Financial
Statement risks and key areas of audit focus summarised in the
Independent Auditors Report on pages 146 to 151.
A review of the Audit Quality Inspection (‘AQI’) report on our
auditor, published by the FRC with particular emphasis on any
key messages applicable to Capricorn.
A review of the final audit report, noting key areas of auditor
judgement and the reasoning behind the conclusions reached.
Regular communications through formal Papers submitted
and presentations to the committee, including a review by
the committee of the extent to which the auditors have
challenged management.
The committee accepted the level of materiality set by the auditors.
There were no matters raised in the AQI report that caused concern
for the Audit Committee.
The Audit Committee reviewed findings on the key audit issues
identified. The committee was satisfied that appropriate challenge had
been made of management and that the audit process was robust.
The audit plan for the year ending 31 December 2021 was
presented to the Audit Committee in September 2021 and is
summarised in the Independent Auditor’s Report on pages 146
to 151. Audit findings on significant matters are presented to the
committee, together with the work performed by the auditors to
challenge management’s key estimates and assumptions.
Separate meetings between myself as Chair of the Audit
Committee and the lead audit engagement partner.
Separate meetings were held in advance of all committee meetings
during the year.
A formal questionnaire issued to all Audit Committee members and
Capricorn senior management who are involved in the audit covering
the robustness of the audit process, the quality of delivery, the quality
of reporting, and the quality of the auditor’s people and service.
No matters of significance were reported.
Capricorn Energy PLC Annual Report and Accounts 2021
99
Audit Committee Report continued
Of particular focus for the committee is the assessment of the judgement applied by PwC during each stage of the audit process
including setting audit materiality, identifying the risks to the Financial Statements, evaluating audit findings and communicating those
areas of judgement to the committee.
The Audit Committee noted the level of planned materiality and agreed on the levels of misstatements to be reported to the committee.
The final audit report was presented to the Audit Committee in March 2022. The committee agreed with the conclusions reached by the
auditors, noting the degree of judgement around areas of significant audit risk.
The significant accounting issues identified by the Audit Committee were included in the significant matters identified by the external
auditors in their audit plan. There were no other specific areas that the Audit Committee requested the auditors to look at.
At the end of each annual reporting cycle, the Audit Committee reflect on the quality of the audit provided by the auditors. At each Audit
Committee meeting, the auditor presents an update on their progress and, where appropriate, conclusions on their half year review and
full year audit and how the audit has been conducted in relation to the plan presented to the Audit Committee, with the committee able
to challenge the audit at any point. Following conclusion of the 2020 year end audit, the committee discussed the quality of the audit
service provided, using the questionnaire responses as a basis for the discussion. Although there were no significant matters reported
and the Audit Committee did conclude that the auditors had delivered an audit of appropriate quality, the committee believed that
improvements to the audit process could be made, and this was communicated to the new engagement partner in our subsequent
separate meetings.
Although the formal assessment of the 2021 audit has yet to be formally undertaken, provisional discussions held at the March 2022
Committee meeting did not identify any matter where the Audit Committee believed that the quality of the audit had regressed from
previous years. The committee were satisfied that the process had improved over the 2020 year end audit.
Internal Risk Management and Assurance
The Audit Committee reviews the Group’s principal risks at each meeting. The Group Risk Management Committee meet in advance
of the Audit Committee and minutes are reviewed by the Audit Committee and follow up queries addressed with management. The
Group’s risk management project plan is also presented with the Audit Committee closely monitoring the close out of recommendations
raised during completed internal audits, as well as noting progress of ongoing audits and plans for future audits, ensuring they remain
on schedule. The Audit Committee also complete an annual review of managements formal internal controls assessment.
The Group’s principal risk dashboard is updated in advance of every meeting and changes to operational and corporate risks noted and
discussed. The Audit Committee will challenge management on the classification of risks where further clarification is sought on either
the assessment of the likelihood of a risk materialising or its estimated financial impact. During the current period, risks were reviewed
against a backdrop of volatile commodity prices and the ongoing COVID-19 pandemic, together with the risks associated with the
integration of the Egyptian business into the Group.
Internal Audit
Following a competitive tender process, Ernst & Young LLP (‘EY’) was appointed as the Group’s internal auditor with effect from
July 2013. EY will continue in the role of internal auditor for at least the year ending 31 December 2022 and will therefore be excluded
from the planned tender process for the Group’s external audit.
Prior to the beginning of each year, an internal audit plan is developed by the internal auditors, in consultation with senior management,
based on a review of the outcome of the previous year’s internal audits, the outcome of the annual assessment of effectiveness of internal
control (refer to pages 146 to 151), the results of historical audits of fundamental business processes and the significant risks in the Group
Risk Matrix and identified mitigation measures. The plan is then presented to the Audit Committee for review and approval. The internal
auditors also participate in meetings of the Group Risk Management Committee to maintain an understanding of the business activities
and associated risks and to update the Group Risk Management Committee on the internal audit work plan. The Audit Committee
also receives updates on the internal audit work plan on an ongoing basis. The external auditor does not place any reliance on the work
undertaken by the Group’s internal audit function due to the nature of the scope and the timing of their work. The external auditor does
however, attend all Committee meetings where internal audit updates are given and meets separately with the internal auditor and the
Audit Committee Chair to discuss areas of common focus in developing their audit plan.
During 2021, the Group’s internal auditors conducted audits on cyber security, risk management and assurance, ESG reporting and
the Group’s project delivery process for mergers and acquisitions. No high risk findings were identified across the audits conducted.
Working Responsibly – Whistleblowing and Related Policies
The Group is committed to working responsibly as part of its strategy to deliver value for all stakeholders. This means delivering value
in a safe, secure, environmentally and socially responsible manner.
As part of this, the Audit Committee is responsible for ensuring the Group has a robust Whistleblowing Policy in place and this policy
is reviewed annually by the committee. The Group’s current version of the policy was first presented to, and approved by, the Audit
Committee at the March 2018 meeting and most recently re-approved at the March 2022 meeting.
The committee is also responsible for and is satisfied that arrangements are in place for the proportionate and independent investigation
of possible improprieties in respect of financial reporting and other matters and for appropriate follow-up action.
The Group has in place a comprehensive anti-bribery and corruption management system and Code of Ethics. Regular training updates
are provided to all employees and long-term contractors in addition to the training that is provided to all new staff joining the Company.
As Capricorn enters new countries, monitoring is undertaken, and training is refreshed. Further information regarding these policies can
be found on the Group’s website.
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Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Other Matters:
Provision of Non-Audit Services
We have a long-established policy in relation to the supply of non-audit services by the external auditor. The Group will engage an
external adviser to provide non-audit services on the basis of the skills and experience required for the work, where benefit will be derived
as a result of the third party’s knowledge of the Group and at a reasonable cost. These advisers may include the Group’s external auditor,
under a restricted set of circumstances, although, before the engagement commences, the Audit Committee must be satisfied that the
auditor’s objectivity and independence would not be compromised in any way as a result of being instructed to carry out those services.
The policy on approval of non-audit fees for the Group’s auditor is re-approved annually. All non-audit fees should be approved by the
Audit Committee in advance of the engagement with a practical workaround of only seeking approval from the committee Chair, rather
than seeking full committee approval, in advance for fees below an approved threshold of £100,000. This approval will then be ratified
at the next meeting of the committee.
The policy is available online on the Group’s website.
PwC provided other services during the year including certification of the Group’s EITI submission in Senegal and non-statutory audits
of the Group’s timewriting recharges to operated assets.
A full analysis of remuneration paid to the Group’s external auditor in respect of both audit and non-audit work is provided in note 7.5 to
the Financial Statements.
Board and Committee Performance Evaluation
The Board retains overall responsibility for implementation of its annual performance evaluation and the process and outcomes of the
2021 externally conducted evaluation are described in the Corporate Governance Statement on pages 86 to 87. The process included
a review of all Board committees and it was concluded that the relationship between the Board and its committees is functioning
well, with all committees fully meeting their remit. The Audit Committee works together with the Board in seeking to address any
performance evaluation outcomes relating to the work of the committee.
Keith Lough
Chair of the Audit Committee
8 March 2022
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101
Nomination Committee Report
Nicoletta Giadrossi
Chair of the Nomination Committee
Members and Meetings in 2021
Nicoletta Giadrossi (Chair)
Keith Lough
Peter Kallos
Simon Thomson
Member
since
Meetings
attended
05/18
05/15
09/15
03/13
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Capricorn Energy PLC Annual Report and Accounts 2021
Dear Shareholder
Role and Membership of the Committee
Capricorn’s Nomination Committee, alongside the Board, plays a
key role in ensuring that the composition of the Board is aligned
with the Company’s values, culture and strategy and that the Board
has in its membership what is required to provide appropriate
challenge and effective leadership for the business. To maintain
the correct balance of skills and representation, Board succession
planning is fundamental for the ongoing success of the Company
and is a key focus of the Nomination Committee.
The membership of the committee during 2021 is set out in
the table below and comprises a majority of independent Non-
Executive Directors. The Chief Executive is also a member of the
committee. With effect from 3 March 2022, the remit of the
committee was expanded to include a greater focus on governance.
In addition, and from the same date, independent Non-Executive
Director, Catherine Krajicek, became an additional member of the
newly-named Nomination and Governance Committee.
During 2021, the role of the Nomination Committee included:
– reviewing and evaluating the structure, size and composition
(including the balance of skills, knowledge, experience and
diversity) of the Board;
– giving full consideration to succession planning for Directors
and other senior executives, ensuring plans are in place for
orderly succession and taking into account the Company’s
strategy and the challenges and opportunities that it faces;
– overseeing the development of a diverse pipeline for
succession; and
– ensuring that appointments made to the Board promote
diversity of gender, social and ethnic backgrounds.
Following the decision to expand its remit, from March 2022, the
Nomination and Governance Committee’s role also includes:
– monitoring the operation of the UK Corporate Governance
Code and its implementation and compliance by the Company;
– reviewing developments in corporate governance and advising
the Board with respect to developments in the law and practice
of corporate governance; and
– reviewing and approving changes to the Board’s corporate
governance practices and policies.
Board Changes
Whilst the Board membership was diverse in terms of the range
of nationalities, culture and international experience represented, as
a result of its ongoing review and evaluation of the composition of
the Board during the year, the Nomination Committee recognised
that the Board would benefit from further enhancing the diversity
of its membership and commenced a search for an additional
Non-Executive Director. On 22 February 2022, following a process
assisted by Ridgeway Advisors, the Company announced the
appointment of Luis Araujo as a Non-Executive Director with effect
from 11 May 2022. With many years’ experience working in Brazil
and other countries, Luis will bring excellent emerging market
insights to the Board, in addition to his other areas of expertise,
including in relation to energy transition issues.
Chair Succession
On 1 January 2021, I took on the role of Chair, following a
thorough and comprehensive succession process led by one of the
Company’s independent Non-Executive Directors. As disclosed
in the Corporate Governance Statement on pages 84 to 95, the
composition of the various Board Committees was refreshed with
effect from 1 January 2021 in line with Code recommendations.
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Succession Planning and Development of Executive Talent
In 2017, the Parker Review on ethnic diversity of UK Boards
was published, with the target that no member company of
the FTSE 250 lack a person of colour as a director on its board by
2024. The Board, and the Nomination Committee, recognised that
ethnic diversity, and the benefits it brings, was missing amongst
the Company’s Board membership. In Q4 2021, we commenced
a search for a new Non-Executive Director. As noted above, the
Company instructed recruitment consultants, Ridgeway, in
connection with this appointment. Apart from providing prior
recruitment advice, Ridgway has no other connection with the
Company or any of its individual Directors. The Board was therefore
pleased to announce that its diversity will be deepened from
May 2022 upon the appointment of Luis Araujo, who has South
American heritage and citizenship in Brazil, Portugal and the
UK. I am delighted that Luis is joining our Board. His skills and
experience will bring a further level of challenge and new and
diverse perspective to the Board.
On a regular basis, the Nomination Committee evaluates the
combination of skills, experience, independence and knowledge
of the Company whilst considering the length of service of
members of the Board. Recommendations in terms of director
membership are made to the Board accordingly. Diversity is an
important principle of a well-functioning Board and encompasses
multiple aspects including gender diversity, social and ethnic
diversity, cognitive diversity to ensure the avoidance of groupthink,
and personal strengths and experience. All appointments are made
on merit and objective criteria, promoting the diversity principles.
Working together, the Board and Nomination Committee
maintain a comprehensive succession plan for appointments
to the Board ensuring there is an appropriate balance of skills
and experience that continues to align with our strategic aims.
The Company’s talent management strategy, for positions both
on and out with the Board, continues to focus on growing talent
through a number of measures including active succession
planning and mentoring, programmes designed to aid
leadership and management development; and annual
objective and development plan setting.
The Company’s succession planning also includes contingency
plans for the sudden or unexpected departure of Executive
Directors (including the Chief Executive) and other senior roles,
which are reviewed by the Board.
Following the acquisition of the assets in Egypt and the sale of
the UK Catcher and Kraken interests in 2021, a recruitment and
reorganisation campaign was undertaken to ensure that the
organisation was best set-up to support the new asset base and
ensure successful implementation of the Company’s strategy.
Details of this recruitment and reorganisation were shared with
the Board.
The Board has a deep understanding of the Company’s talent
management and succession planning, receiving regular updates
from the Group HR Manager, as well as knowledge of the range of
measures being used to continue to develop and recruit talented
senior employees.
During 2021, our mentor programme, which commenced in
May 2019, continued to provide invaluable support to colleagues
whose ambitions are to grow and develop into senior roles within
the business. With the initial cohort having had two years’ of
mentoring from senior management and Non-Executive Directors,
a further group of individuals were identified as employees who
would benefit from the mentoring programme and they started
the programme in the middle of the year. These colleagues have
been partnered with non-executive Board members as well as
senior managers to gain knowledge and strategic understanding
from their experience in these areas.
Diversity
As noted, the Nomination Committee very much values
the benefits of building a diverse Board, not just in terms of
gender and social and ethnic background, but also to promote
diversity of cognitive and personal strengths. Following the
retirement of Ian Tyler as Chair and my taking the position
with effect from 1 January 2021, women represent 37.5% of the
Board membership (being three women out of eight members).
Following the appointment of Luis Araujo in May 2022, this
percentage will be 33%. The Directors’ range of knowledge and
practice covers not only a wealth of experience of operating in
the oil and gas industry but also extensive technical, operational,
financial, governance, legal and commercial expertise. The Board
remains diverse in terms of the range of nationalities, culture and
international experience of its members but, as previously noted,
recognised that it fell short in terms of ethnic diversity and the
ambitions of the Parker Review. The committee will continue to
monitor and consider diversity for all future Board appointments,
whilst also continuing to recruit on merit.
At levels below the Board, we continue to think more broadly
than gender diversity in all areas of our work, taking into account
diversity in many dimensions. Our diversity and inclusion strategy
aims to nurture an inclusive and sustainable culture, where
differences are encouraged, embraced and recognised as key
drivers of value to all our stakeholders. A diverse and inclusive
culture, where everyone can uniquely contribute and thrive
and which values and encourages individual differences is
nurtured throughout Capricorn. The Board and Executive
Committee are committed to ensuring such a culture is
embedded in the organisation.
As noted in last year’s Annual Report, following the internal
reorganisation that took place in 2020, the Board decided to
replace the Senior Leadership Team with a smaller, more focused
Executive Committee comprising the two Executive Directors,
the Chief Operating Officer and the Director of Exploration. This
change took effect from 1 December 2020 and as such there are
currently no women on the small Executive Team. There are a
number of standing agenda items that encourage attendance
from other employees in the organisation, many of whom are
female. We are pleased that, at 31 December 2021, the number
of female direct reports to the Executive Committee has increased
significantly since the same time last year with six female direct
reports to the Executive Committee and 14 male (2020: one
female, 19 male). Of the value creating, enabling and protecting
roles identified in our talent management programme, 26% of
the talent pool are female. The gender split of our management
population is two-thirds male to one-third female and looking
at our broader talent pool, the gender diversity of our employee
population is 47% female and 53% male.
Capricorn Energy PLC Annual Report and Accounts 2021
103
Nomination Committee Report continued
As noted in the strategic review section of this report (pages 2
to 75), the Company has developed and shared with staff our
strategic framework which is designed to cultivate D&I across the
business. In recognition of our current diversity challenges within
our management and executive populations, the first initiative,
launched in 2021, was our Shadow4Success programme. The
pilot programme aims to provide an opportunity for under-
represented groups to gain a better understanding of how our
Executive Team operates, with the intention of increasing the
diversity of applications for more senior roles in Capricorn.
The Company has continued to participate fully in the annual
submission of gender performance data as part of the FTSE
Women Leaders Review (formerly the Davies Review and
the Hampton-Alexander Review) aimed at improving the
representation of women in leadership positions in the FTSE 350.
The FTSE Women Leaders Review published in February 2022
noted our increased percentage of female direct reports to the
Executive Committee but highlighted that this committee was
all-male.
The Board and Nomination and Governance Committee,
alongside the Capricorn organisation, will continue to promote
diversity in its widest possible sense. Our strategies, polices and
practices encourage this and seek to ensure the potential of our
team can be met, driving the success of the individuals within it
and the business as a whole.
Changes to the Committee Since Year-End
From 3 March this year, the committee has expanded its remit
to include governance in a broader sense. Whilst corporate
governance is a key consideration at all times for the Board,
including governance within the committee’s responsibilities
demonstrates the commitment of Capricorn to good and
responsible governance.
Board and Committee Performance Evaluation
The Board is committed to annual evaluations of its performance
in order to assess and improve its effectiveness on an ongoing
basis, with the individual Directors also evaluated to determine
whether each director continues to contribute effectively. In line
with the UK Corporate Governance Code, which provides that
FTSE 350 companies should have an externally facilitated board
evaluation process at least every three years, the Board appointed
Gould Consulting to facilitate the 2021 Board performance
evaluation (previous externally facilitated evaluations took place in
2018, 2015 and 2012, with internally run evaluations conducted in
the intervening years). Gould Consulting had no prior connection
to the Board or its Directors.
The Board retains overall responsibility for implementation of its
annual performance evaluation and the process and outcomes
of the 2021 externally conducted evaluation are described in
the Corporate Governance Statement on pages 86 and 87. The
process included a review of all Board committees and it was
concluded that the relationship between the Board and its
committees is functioning well, with all committees fully meeting
their remit. The Nomination and Governance Committee works
together with the Board in seeking to address any performance
evaluation outcomes relating to Board composition and
succession planning.
Nicoletta Giadrossi
Chair of the Nomination Committee
8 March 2022
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105
Strategic ReportLeadership and GovernanceFinancial StatementsAdditional Information Directors’ Remuneration Report
Alison Wood
Chair of the Remuneration Committee
Members and Meetings in 2021
Alison Wood (Chair)
Erik B. Daugbjerg
Nicoletta Giadrossi
Peter Kallos
Member
since
Meetings
attended
01/21
01/21
01/17
09/15
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Capricorn Energy PLC Annual Report and Accounts 2021
Part 1 – Annual Statement from the Chair of the
Committee
Dear Shareholder
As the Chair of Capricorn’s Remuneration Committee,
I am pleased to present our Directors’ Remuneration Report
for 2021, a period during which we continued to apply the
executive remuneration policy that was strongly supported
at the 2020 AGM.
The committee remains of the view that this policy is still fit for
purpose and it will, therefore, continue to be applied during 2022.
As a result, shareholders will not be asked to approve a new
Directors’ Remuneration Policy until the expiry of the current policy
at the AGM in 2023. However, for ease of reference, the substantive
provisions of the existing policy are repeated in Part 3 of this report.
Part 2 of this report contains this year’s Annual Report on
Remuneration and explains how the provisions of the above policy
were actually applied in 2021 and how they will be operated in
2022. The Annual Report on Remuneration will be subject to an
advisory vote to be held at the AGM on 11 May 2022.
Shareholder Engagement Following the 2021 AGM
The committee was disappointed that the 2020 Annual Report on
Remuneration received a 34.87% vote against at the 2021 AGM.
Prior to the 2021 meeting, and in the months that followed, the
committee sought to engage with our largest shareholders to
understand their concerns. The conclusions reached from this
consultation exercise (details of which were included in an update
statement published on our website in November 2021) were that
a number of shareholders and/or their proxy advisers:
– would like to see more detailed disclosure of the KPIs used in
the annual bonus scheme (including, where possible, specific
target ranges and payment scales);
– would welcome a more comprehensive explanation of the
alignment between company performance and bonus
outcomes; and
– would, in circumstances where the committee is considering
exercising any discretion in relation to the Company’s various
incentive arrangements, prefer to be notified at the time the
decision is made.
The committee wishes to thank those shareholders who
engaged in the above exercise. We will continue to improve the
transparency of our bonus scheme disclosures (while at the same
time taking into account the Board’s concerns around commercial
sensitivity). In this report, we have also sought to provide greater
clarity on the way in which the scheme is aligned to the interests
of shareholders. The committee will continue to engage with
investors on an ongoing basis to make sure their views are
reflected appropriately in the committee’s decisions.
Summary of 2021 Business Context and
Key Remuneration Decisions
The work of the committee in 2021 was conducted against
a backdrop of a year in which the Company progressed its
key strategic initiatives, including portfolio management and
retaining a resilient balance sheet, whilst striving to deliver value
in a safe, sustainable, environmentally and socially responsible
manner for all of our stakeholders. Particular highlights included
the following:
– successful resolution of the Indian tax matter, with funds of
~US$1.06bn refunded to the Group in February 2022 and
a proposed subsequent return to shareholders of up to
US$700m announced;
– in March 2021, the Company announced the acquisition of
a portfolio of upstream oil and gas production, development
and exploration interests in Egypt and the sale of its declining
production assets in the UK Catcher and Kraken fields,
transactions which completed in September and November
2021 respectively; and
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
– following receipt of the necessary approvals at a General
Meeting held on 8 January 2021, Capricorn successfully
returned to shareholders approximately US$250 million from
the proceeds of the sale to Woodside of all the Group’s interests
in Senegal.
Against this background, the key remuneration-related decisions
made by the committee in 2021 are described in more detail in
the Annual Report on Remuneration contained on pages 109 to
129 and can be summarised as follows:
– Base salary increases
In accordance with its normal practice, the base salaries of the
Company’s Executive Directors (being Simon Thomson and
James Smith) were reviewed by the committee at its meeting in
December 2021 and it was agreed that an increase of 3% would
be applied to both individuals with effect from 1 January 2022.
The above increase was consistent with the level of standard
annual salary increase awarded to other employees at that time.
– 2021 annual bonus – overview and purpose
Capricorn’s annual bonus arrangements are based on a balanced
scorecard of measures directly aligned with our Group KPIs.
These are, in turn, derived from the Company’s overall strategy of
creating, adding and delivering value for stakeholders by
reinvesting cash flow from producing assets into value accretive
exploration, appraisal, development and production assets which
can be monetised at different stages of the life cycle in order to
optimise the portfolio and create the opportunity for significant
returns of value to be made to shareholders.
In order to deliver this strategy, we maintain a balance sheet
that is resilient to price shocks and volatility and invest to target
resources that can be competitive and relevant through the
energy transition. The goals that we set for the bonus scheme
directly reflect these objectives and relate to:
• maintaining a licence to operate;
• delivering a sustainable business;
• delivering exploration success;
• production performance; and
• balance sheet management.
Like many similarly sized companies in our sector, our KPIs
(and, therefore, our bonus arrangements) focus on a broad
range of strategic measures that support our ability to create
long-term superior shareholder returns, with short-term
financial objectives forming a much less significant element
of how we create value for our shareholders. This approach is,
in part, driven by the fact that the financial results in any one
year may be materially impacted by exploration/appraisal
asset write-offs and may include costs associated with activity
undertaken in several prior accounting periods. As a result,
year-on-year financial results can be highly volatile and may
not necessarily reflect activities undertaken in that period or
long-term shareholder interests.
Inevitably, the above balance between strategic and financial
goals can lead to situations where the bonus outturn for a
particular year appears at odds with a narrow analysis of the
pure financial performance delivered during that time. The
committee does, however, review each year’s bonus awards to
make sure they are appropriately reflective of the performance
of the Company as a whole and fairly reward the achievements
that will best drive shareholder returns in the longer term. The
committee has a track record of exercising its discretion to
reduce award levels where deemed appropriate.
– 2021 annual bonus – structure and outturn
The overall structure of the Executive Directors’ bonus scheme
for 2021 was unchanged from the prior year with the whole
of the individuals’ opportunity being dependent on the
achievement of Group KPIs.
Based on an assessment of the extent to which the relevant
targets were achieved, awards made under the annual bonus
scheme to the Executive Directors during the year (as a
percentage of annual salary) were 75.63% for both Simon
Thomson and James Smith. In accordance with its normal
practice noted above, these award levels were reviewed by the
committee in the context of the Company’s overall performance
during the year and it was concluded that resolution of the
long-standing Indian tax dispute; high levels of achievement in
respect of HSSE and ESG targets; and maintenance of a resilient
balance sheet warranted good award levels in these areas. As
detailed further on pages 114 to 119, scoring was significantly
lower in the exploration and corporate projects categories.
Under the Company’s current approved remuneration policy,
any part of an Executive Directors’ bonus that is in excess of
100% of the individual’s base salary for the relevant year is
deferred into Capricorn shares for three years. Given that this
threshold was not reached by the above bonuses, they were
paid out wholly in cash.
Further details of the way in which these awards were
determined and paid are set out on pages 114 to 119 of the
Annual Report on Remuneration.
– Long-Term Incentive Plan (LTIP) – partial vesting
of 2018 awards
The performance period applicable to the LTIP awards granted
in 2018 came to an end during 2021. Over this period, the
Company’s Total Shareholder Return was sufficient to place
it between the fourth and fifth positions in a group of 15
comparator companies with the result that:
•
the ‘core’ elements of these awards vested in respect of
84.6% of the shares over which they were granted; and
• no part of the ‘kicker’ elements of these awards vested and
they lapsed in full.
As part of the above vesting process, the LTIP’s rules required
the committee to review the Company’s overall performance
over the three years from the grant of the awards. After due and
careful consideration, the committee concluded that there had
been a sustained improvement in such overall performance
during that time.
The vested awards held by the Executive Directors are subject
to a further two-year holding period during which they cannot
normally be exercised and any shares that are ultimately
acquired by them will constitute ‘relevant shares’ for the
purposes of the post-employment shareholding requirement
described on page 136.
– LTIP – grant of 2021 awards
During 2021, the committee made the fifth annual grant under
the Company’s LTIP that was adopted at the 2017 AGM. Given
that the COVID-19 related market uncertainty that had existed
in 2020 (and which had led to the application of a reduction
to the quantum of LTIP awards made in that year) no longer
existed, the committee was of the view that there should be a
return to the Company’s standard approach. As a consequence,
the Executive Directors’ 2021 awards had a face value equal to
the 2.5 x base salary level envisaged by the policy.
Further details of the awards made to Executive Directors in
2021 are set out in the Annual Report on Remuneration.
– Non-Executive Directors’ fees and Chair’s fee
During 2021, the committee reviewed the Chair’s fees in
the context of market and inflationary data and the time
commitment of the role. Following this review, it was decided
that the fee should be increased by 3% from £180,000 to
£185,400, effective 1 January 2022.
Capricorn Energy PLC Annual Report and Accounts 2021
107
Each of the committee’s decisions described above was made
in the context of the requirements of the 2018 UK Corporate
Governance Code and, in particular, after considering the various
factors set out in its Provision 40. For example, the committee’s
ongoing commitment to improve the level of disclosures around
the annual bonus scheme is intended to enhance transparency
and promote effective engagement with shareholders and the
workforce. Similarly, the decision to disapply LTIP ‘dividend
equivalent’ rights in connection with the return of cash reflected
a desire to mitigate reputational and other risks from excessive
rewards. The committee was satisfied that, during 2021, the
approved remuneration policy operated as intended and delivered
outcomes that fairly reflected the resilient nature of the business
and its achievements over the year.
Applying the Policy in 2022
An overview of the way in which the current remuneration policy
will be applied in 2022 is set out on pages 127 to 129 in the
Annual Report on Remuneration. In summary:
– on 1 January 2022, the above noted increases to the base
salaries of the Chief Executive and CFO came into effect;
– the Group KPI measures used for the annual bonus scheme
(and their respective weightings and payment scales) have been
reformulated for 2022 in order to ensure consistency with the
Company’s strategic priorities for the period. In particular, the
selected KPIs reflect the Company’s ongoing but increased
focus on its business within the energy transition whilst
delivering value for our shareholders. They also encourage
delivery of a unique value proposition that is supported by
financial management that is both resilient and responsible; and
– no material changes have been made to the manner in which
the LTIP will operate in 2022.
Feedback on Directors’ Remuneration Report
We welcome questions and feedback from all those interested on
both the content and style of this report. We also look forward to
receiving your support for the Directors’ Remuneration Report at
the AGM to be held on 11 May 2022.
Alison Wood
Remuneration Committee Chair
8 March 2022
Directors’ Remuneration Report continued
The fees paid to Non-Executive Directors were also reviewed
during the year by the Board (excluding the Non-Executive
Directors). Following this review, it was determined that, with
effect from 1 January 2022, the basic annual fee would also
be increased by 3% from £75,500 to £77,765. No change was
made to the additional fee payable for chairing the audit and/or
remuneration committees.
– Other decisions made, and discretions exercised, by the
committee during 2021
The only substantive discretions exercised by the committee
during 2021 related to the operation of the Company’s various
share-based incentive schemes. In particular, the committee:
• exercised its discretion to disapply ‘dividend equivalent’
rights attaching to 2017 LTIP awards in relation to the special
dividend paid as part of the return of cash that was approved
by shareholders in the early part of the year – further details
around this issue were provided in last year’s Directors’
Remuneration Report;
• decided to give participants in the Company’s Share
Incentive Plan (SIP) the ability, if they so wished, to reinvest
the above noted special dividend that was paid in respect
of their plan holding in further ‘dividend shares’; and
• made various decisions in relation to the treatment of a small
number of leavers (none of whom were Executive Directors).
As disclosed at the time, in November 2021, the committee
permitted James Smith to sell a proportion of his shareholding
in the Company so he could manage his personal arrangements
given the then anticipated special dividend arising from the
receipt of the Indian tax refund. As a result of this disposal,
Mr Smith’s interest in the Company fell temporarily below
the requirements of the ‘in service’ element of Capricorn’s
shareholding guidelines for Executive Directors but remained
significant at approximately 122% of salary immediately
following the disposal. Although his holding remained below
the required level as at 31 December 2021, it is considered
likely (based on current projections) that the vesting of his
LTIP award originally granted on 13 March 2019 (which is
scheduled to occur in mid-March 2022) will result in him once
again being fully in compliance with the above requirements.
To the extent that this does not prove to be the case, it is
envisaged that, within a year of completion of the return of
value (and in fulfilment of undertakings given at the time
he originally received the permission), Mr Smith will take the
steps necessary to ensure that he is once again in compliance
with the director shareholding requirements. Further details
surrounding this issue are set out on page 125 of the Annual
Report on Remuneration.
– Consideration of remuneration arrangements for the wider
workforce during 2021
In accordance with the terms of the Company’s approved
remuneration policy, the committee regularly reviewed the
remuneration levels and incentive arrangements for employees
below senior management level.
During the year, members of staff were also given the
opportunity to raise issues on a variety of matters, including
executive pay, via a number of mechanisms, including the
Company’s Employee Voice Forum which, throughout 2021,
was chaired by Peter Kallos, who is a member of the committee.
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Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Part 2 – Annual Report on Remuneration
Introduction
This Annual Report on Remuneration provides details of the way in which the committee operated during the financial year to
31 December 2021 and explains how Capricorn’s approved Directors’ Remuneration Policy that is described on pages 130 to 139
was implemented during that period. It also summarises how that policy will be applied in 2022.
In accordance with the requirements of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008
(as amended) (the “Regulations”), this part of the report will be subject to an advisory vote at the 2022 AGM.
The Company’s auditor is required to report to Capricorn’s shareholders on the ‘auditable parts’ of this Annual Report on Remuneration
(which have been highlighted as such below) and to state whether, in their opinion, those parts have been properly prepared in
accordance with the Regulations and the Companies Act 2006.
On the basis that Capricorn has fewer than 250 UK employees, the Company is not required to publish or report its gender pay gap
information.
Operation of the Remuneration Committee During 2021
Members of the Remuneration Committee
The members of the Remuneration Committee during the year were as follows:
– Alison Wood (joined the committee and became its Chair on 1 January 2021);
– Nicoletta Giadrossi (ceased to be Chair of the committee on 1 January 2021);
– Peter Kallos; and
– Erik B. Daugbjerg (joined the committee on 1 January 2021).
The individuals who served on the committee, each of whom is an independent Non-Executive Director of the Company, had no
personal financial interest (other than as shareholders) in the matters decided, no potential conflicts of interest from cross-directorships
and no day-to-day involvement in running the business. Prior to her appointment as Chair in January 2021, Alison Wood had served on
the remuneration committees of other listed companies for more than 12 months.
Biographical information on the individuals who were committee members as at 31 December 2021 is shown on page 79 and details of
attendance at the committee’s meetings during 2021 are shown on page 90.
Internal Assistance Provided to the Committee
The Chief Executive is not a member of the Remuneration Committee but may attend its meetings by invitation and is consulted in
respect of certain of its proposals. The Chief Executive is not involved in any discussions in respect of his own remuneration. During the
year, the committee also received assistance and advice on remuneration policy from the Company Secretary.
External Assistance Provided to the Committee
As and when the Remuneration Committee considers it appropriate, it takes external advice on remuneration from a number of sources.
During the year, it received the following assistance:
Adviser
Assistance provided to the committee during 2021
Alvarez & Marsal
Taxand UK LLP2
Appointed by the committee to give periodic advice on
various aspects of the directors’ remuneration packages.
Also assisted with the preparation of the Directors’
Remuneration Report and provided support on a
number of miscellaneous remuneration related projects
during the year, including in relation to the consultation
process with shareholders that took place both before
and after the 2021 AGM.
Deloitte LLP2
Appointed by the Company’s Management Team but
provided assistance to the committee in relation to
preparation of the Directors’ Remuneration Report and
the consultation process with shareholders that took
place before the 2021 AGM.
£1,568
Fees for committee
assistance in 20211
Other services provided to the
Company during 2021
£22,910
Provided advice on various
aspects of remuneration
practice across the Group.
Provided advice on various
aspects of remuneration
practice across the Group.
Ernst & Young LLP
Appointed by the Company to carry out an
independent verification of its achievement against
performance conditions applicable to the Company’s
LTIPs and share option schemes.
N/A – no advice
provided to the
committee
Internal auditor of the
Company throughout the year.
Shepherd and
Wedderburn LLP
Appointed by the Company to carry out regular
calculations in relation to the LTIP performance
conditions. Also assisted with the preparation of
the Directors’ Remuneration Report.
£24,463
General legal services to the
Group throughout the year.
Notes:
1 The bases for charging the fees set out in the table were agreed by the committee at or around the time the particular services were provided and, in general,
reflected the time spent by the adviser in question on the relevant matter.
2 Both of Alvarez & Marsal Taxand UK LLP and Deloitte LLP are members of the Remuneration Consultants Group and their work is governed by the Code of Conduct
in relation to executive remuneration consulting in the UK.
3 The committee reviews the performance and independence of all its advisers on a continuous basis. No issues relating to performance or independence were noted
by the committee during the year.
Capricorn Energy PLC Annual Report and Accounts 2021
109
Directors’ Remuneration Report continued
Statement of Shareholder Voting at General Meetings
The table below shows the voting outcome at the last general meeting(s) at which shareholders were asked by the Company to approve
a resolution relating to its Directors’ Remuneration Report and Directors’ Remuneration Policy:
Date of general
meeting
Number of
votes ‘For’ and
‘Discretionary’
% of votes cast
Number of
votes ‘Against’
% of votes cast
Total number
of votes cast
Number
of votes
‘Withheld’1
11 May 2021 246,776,576
65.13% 132,138,647
34.87% 378,915,223
48,842
14 May 2020 417,923,175
93.01% 31,405,942
6.99% 449,329,117
26,501
Description of resolution
To approve the 2020 Directors’
Remuneration Report
To approve the 2020 Directors’
Remuneration Policy
Note:
1 A vote withheld is not a vote in law.
The committee acknowledges the significant level of votes that were cast against last year’s Directors’ Remuneration Report. A summary
of the reasons for those votes, as far as known to the committee, and details of the actions taken in response to those concerns are
included in the Chair’s Annual Statement on page 106.
Payments to Past Directors During 2021 (Audited)
During the year to 31 December 2021, there were no payments to past directors of the kind that require to be disclosed in terms of the
Regulations.
Single Total Figure Table for 2021 (Audited)
The tables below set out the remuneration received by Executive Directors and Non-Executive Directors during the year in the following
categories.
Salary
+
Benefits
+
Pension
+
SIP
+
Annual
Bonus
+
Long-term
incentives
=
Total
remuneration
Executive Directors
Fixed Remuneration
Variable Remuneration
Totals
Financial
year
Salary
and fees Benefits1 Pension2
SIP3
Annual bonus4…
…paid in
cash
…deferred
into
shares
…total
bonus
Long-term
incentives5
Total
remuneration
Total
fixed
remuneration
Total
variable
remuneration
Directors
Simon
Thomson
James
Smith
2021
£592,517 £42,400 £88,878 £7,197 £448,091
£0 £448,091
£771,809 £1,950,892
£730,992
£1,219,900
2020
£586,650 £35,291 £87,998
£0 £549,984
£0 £549,984
£219,808
£1,479,731
£709,939
£769,792
2021
£385,377 £37,537 £57,807 £7,197 £291,441
£0 £291,441
£501,990 £1,281,349
£487,918
£793,431
2020
£381,561 £38,611 £57,234
£0
£357,713
£0
£357,713
£142,965
£978,084
£477,406
£500,678
Notes:
1 Taxable benefits available to the Executive Directors during 2021 were a company car/car allowance, private health insurance, death-in-service benefit and a gym
and fitness allowance. This overall package of taxable benefits was largely unchanged from 2020, with the higher figure for Simon Thomson in 2021 primarily being
attributable to increased charges for his company car.
2 Additional disclosures relating to the pension provision for the Executive Directors during 2021 are set out on pages 113 and 114.
3 This column shows the face value (at date of award) of matching and free shares provided to the Executive Directors under the SIP during the relevant period.
Further details on the way in which the SIP was operated during 2021 are set out on page 125.
4 Under the Company’s annual bonus scheme for 2020 and 2021, any sums awarded in excess of 100% of salary are delivered in the form of deferred share awards,
which normally vest after a period of three years from grant. Further information in relation to the annual bonus scheme for 2021 is provided on pages 114 to 119.
For the avoidance of doubt, the quantum of awards made under this arrangement is not attributable, either wholly or in part, to share price appreciation.
5 This column shows the value of shares that vested in respect of LTIP awards with performance conditions that ended during the period in question. Further details
of the LTIP’s operation during 2021, including how the level of award was determined, confirmation of the amount (if any) of the above vesting value that was
attributable to share price appreciation and a summary of any discretions that were exercised, are provided on pages 120 to 124.
6 Following the end of the year to 31 December 2021, the committee considered whether there were any circumstances that could or should result in the recovery or
withholding of any sums pursuant to the clawback arrangements contained within the Company’s remuneration policy. The conclusion reached by the committee
was that it was not aware of any such circumstances.
110
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Non-Executive Directors
Fixed Remuneration
Variable Remuneration
Totals
Financial
year
Salary and fees1
Benefits
Pension2
Annual
bonus2
Long-term
incentives2
Total
remuneration
Total fixed
remuneration
Total variable
remuneration
Directors
Nicoletta Giadrossi3
Keith Lough4
Peter Kallos
Alison Wood5
Catherine Krajicek
Erik B. Daugbjerg6
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
£180,000
£85,500
£85,500
£85,500
£75,500
£75,500
£85,500
£75,500
£75,500
£75,500
£75,500
£47,527
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£180,000
£180,000
£85,500
£85,500
£85,500
£85,500
£85,500
£85,500
£75,500
£75,500
£75,500
£75,500
£85,500
£85,500
£75,500
£75,500
£75,500
£75,500
£75,500
£75,500
£75,500
£75,500
£47,527
£47,527
–
–
–
–
–
–
–
–
–
–
–
–
Notes:
1 As disclosed in the 2020 Annual Report on Remuneration, the annual fee payable to the Company’s Chair for 2021 was unchanged at £180,000.
Similarly, the basic annual fee for Non-Executive Directors in 2021 remained at £75,500, being the same level paid in 2020.
2 The Non-Executive Directors do not participate in any of the Company’s long-term incentive arrangements and are not entitled to a bonus or pension contributions.
3 Nicoletta Giadrossi was appointed as Chair of the Company on 1 January 2021 (prior to which she was a Non-Executive Director). During 2020, she received
a further annual fee of £10,000 for her role as Chair of the Remuneration Committee.
4 A further annual fee of £10,000 was payable to Keith Lough for his role as Chair of the Audit Committee during 2020 and 2021.
5 A further annual fee of £10,000 was payable to Alison Wood for her role as Chair of the Remuneration Committee during 2021.
6 Erik B. Daugbjerg was appointed as a Non-Executive Director on 14 May 2020. His fees for 2020 reflect the period from that date to the year end.
TSR Performance Graph and Further Information on Chief Executive Pay
Introduction
The following chart demonstrates the growth in value of a £100 investment in the Company and an investment of the same amount in
both the FTSE 250 Index and the FTSE 350 Oil & Gas Producers Index over the last 10 years. These comparisons have been chosen on
the basis that: Capricorn was a constituent member of the FTSE 250 Index for the whole of 2021; and the FTSE 350 Oil & Gas Producers
Index comprises companies that are exposed to broadly similar risks and opportunities as Capricorn.
The table following the graph illustrates the movements in the total remuneration of the Company’s Chief Executive during the same
10-year period.
Performance Graph – Comparison of 10-Year Cumulative TSR on an Investment of £100
£300
£250
£200
£150
£100
£50
0
Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18 Dec 19
Dec 20
Dec 21
FTSE 250
Capricorn
FTSE 350 Oil & Gas
Capricorn Energy PLC Annual Report and Accounts 2021
111
Directors’ Remuneration Report continued
Total Remuneration of Chief Executive During the Same 10-Year Period
Financial year
Chief Executive
Total remuneration
of Chief Executive1
Annual variable element award
rates for Chief Executive
(as % of max. opportunity)
Long-term incentive vesting
rates for Chief Executive
(as % of original award level)
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
Simon Thomson
Simon Thomson
Simon Thomson
Simon Thomson
Simon Thomson
Simon Thomson
Simon Thomson
Simon Thomson
Simon Thomson
Simon Thomson
£1,950,892
£1,479,731
£1,173,630
£2,204,001
£2,992,615
£2,081,601
£1,292,167
£1,073,425
£962,765
£1,018,570
60.5%
75%
65%
70%
76.9%
80.2%
75%
78.5%
63%
86%
67.7%2
27.4%
0%
56.7%
90.8%
81.7%
23.4%
0%
0%
0%
Notes:
1 The amounts disclosed in this column have been calculated using the same methodology prescribed by the Regulations for the purposes of preparing the single
total figure table shown on page 110.
2 As explained on page 122, Simon Thomson’s 2018 LTIP award vested in respect of 84.6% of its ‘core’ award (being the element granted over ordinary shares worth
2 x base salary). This represents 67.7% of the total award (i.e. ‘core’ plus ‘kicker’ awards) that was granted over shares worth 2.5 x salary.
Pay Ratio Information in Relation to Chief Executive’s Remuneration
The Regulations require certain companies to disclose the ratio of the Chief Executive’s pay, using the amount set out in the single total
figure table, to that of the median, 25th and 75th percentile total remuneration of full-time equivalent UK employees.
Although the above requirement does not technically apply to Capricorn (on the basis that it had fewer than 250 UK employees during
2021), the committee felt that it would be appropriate to include the relevant disclosures this year on an entirely voluntary basis as it
helps to demonstrate the link between the Chief Executive’s pay and the remuneration of the wider workforce. A similar decision was
made for the last three years, with the result that the following table shows the relevant ratios for each of 2021, 2020, 2019 and 2018:
Year
2021
2020
2019
2018
Method of calculation adopted
25th percentile pay ratio
(Chief Executive :
UK employees)
Median pay ratio
(Chief Executive :
UK employees)
75th percentile pay ratio
(Chief Executive :
UK employees)
Option A
Option A
Option A
Option A
29 : 1
22 : 1
19 : 1
36 : 1
20 : 1
14 : 1
12 : 1
22 : 1
11 : 1
8 : 1
7 : 1
11 : 1
The median, 25th percentile and 75th percentile figures used to determine the above ratios were calculated by reference to the full-time
equivalent annualised remuneration (comprising salary, benefits, pension, SIP, annual bonus and long-term incentives) of all UK-based
employees of the Group as at 31 December 2021 (i.e. ‘Option A’ under the Regulations). The committee selected this calculation
methodology as it was felt to produce the most statistically accurate result.
The committee considers that the median pay ratio for 2021 that is disclosed in the above table is consistent with the pay, reward and
progression policies for the Company’s UK employees taken as a whole. It reflects the fact that a greater proportion of Executive Director
pay is linked to annual performance through a higher annual bonus opportunity (a percentage of which is subject to deferral into shares).
The committee notes that each of the pay ratios for 2021 is higher than in the immediately preceding year. This is largely attributable to
the fact that the level of vestings during 2021 under the Company’s various discretionary share incentive plans were significantly higher
than those that occurred in the period of 12 months to 31 December 2020. Given that the Executive Directors receive a higher level of
annual award (as a percentage of salary) under those arrangements than almost all other employees, this increased vesting had a greater
proportionate impact on the total remuneration level of the Chief Executive. For the avoidance of doubt, the differences in the ratios
between 2021 and 2020 are not attributable to any material change in the Company’s employment models or the use of a different
calculation methodology.
Pay details for the individuals whose 2021 remuneration is at the median, 25th percentile and 75th percentile amongst UK based
employees are as follows:
Salary
Total pay and benefits
Chief Executive 25th percentile
Median 75th percentile
£592,517
£45,000
£66,512
£104,114
£1,950,892
£67,584
£98,120
£180,278
Percentage Annual Change in Directors’ Remuneration Elements Compared to All Group Employees
The table below compares the percentage change in various elements of each Directors’ remuneration between:
– 2020 and 2021; and
– 2019 and 2020,
and the percentage change in the same remuneration elements of all the Group’s employees in respect of those same periods.
112
Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
All Group employees
Executive Directors
Simon Thomson
James Smith
Non-Executive Directors
Nicoletta Giadrossi
Keith Lough
Peter Kallos
Alison Wood
Catherine Krajicek
Erik B. Daugbjerg
Between 2020 and 2021
Between 2019 and 2020
% change
in base
salary/fees
2.0%1
% change
in taxable
benefits
(6.1)%2
% change
in annual bonus
% change
in base
salary/fees
% change
in taxable
benefits
% change
in annual
bonus
(16.7)%
3.0%
(0.4)%
2.2%
1.0%
1.0%
20.1%3
(2.8)%
(18.5)%
(18.5)%
110.5%4
0%
0%
13.2%5
0%
58.9%6
0%
0%
0%
0%
0%
0%
N/A
N/A
N/A
N/A
N/A
N/A
1.7%
1.7%
0%
0%
0%
100.0%
100.0%
N/A
2.7%
5.0%
17.3%
17.3%
0%
0%
0%
0%
0%
0%
N/A
N/A
N/A
N/A
N/A
N/A
Notes:
1 The standard level of salary increase across the Group in 2021 was 1.0%. However, a small number of individuals received higher percentage increases which raised
the average for all employees to 2%.
2 This fall in taxable benefits for all Group employees was largely attributable to a material decrease in the cost of private health insurance premiums.
3 As highlighted on page 110, this increase in the Chief Executive’s taxable benefits was primarily attributable to higher charges for his company car.
4 Nicoletta Giadrossi was appointed as Chair of the Company on 1 January 2021 and, with effect from that date, her annual fee increased to £180,000.
5 Alison Wood was appointed as Chair of the Remuneration Committee on 1 January 2021 and, with effect from that date, became entitled to a further annual fee
of £10,000.
6 Erik B. Daugbjerg was appointed as a Non-Executive Director on 14 May 2020.
7 The Non-Executive Directors are not eligible to participate In the annual bonus scheme.
Executive Directors’ Base Salaries During 2021
Based on a review carried out in November 2020, the following salary increases for Executive Directors became effective on
1 January 2021:
2021 Annual Salary Details
Job title
Annual salary as at
31 December 2020
Annual salary as at
1 January 2021
% increase with effect from
1 January 2021
Current directors
Simon Thomson
Chief Executive
James Smith
CFO
£586,650
£381,561
£592,517
£385,377
1.0%
1.0%
The increases shown in the above table for both Simon Thomson and James Smith were consistent with the level of standard annual
salary increase awarded to other employees on 1 January 2021.
Executive Directors’ Pension Provision During 2021 (Audited)
In accordance with the terms of the Directors’ Remuneration Policy described on pages 131 to 135, the Company operates a defined
contribution, non-contributory Group personal pension plan which is open to all UK permanent employees. During 2021, the Company
contributed 10% of basic annual salary (15% in respect of current Executive Directors) on behalf of all qualifying employees.
As explained in the Chair’s Annual Statement that was contained in the Directors’ Remuneration Report for the year ended 31 December
2020, the committee has decided that, with effect from 1 January 2023, the above contribution rates will be aligned so that all employees
and Executive Directors will benefit from an annual Company pension contribution of 12.5% of basic salary.
The Company also has a pension committee which meets on a regular basis to assess the performance and suitability of the Company’s
pension arrangements.
James Smith is a member of the Company scheme and, during the year, received Company contributions up to his statutory annual
allowance. The balance of his 15% of basic salary entitlement for the year ended 31 December 2021 was paid as additional salary.
During the year, Simon Thomson received an amount equal to 15% of his annual basic salary in the form of additional salary as his
pension arrangements have already reached the relevant lifetime limit.
Details of the actual amounts of pension contributions/additional salary that were paid to the Executive Directors during 2021 are set
out in the ‘pension’ column of the single total figure table on page 110.
Annual Bonus – 2021 Structure and Outcome (Audited)
During 2021, Capricorn operated an annual bonus scheme for all employees and Executive Directors. Commentary on the overall
structure and purpose of this arrangement (including an explanation of how it seeks to ensure a high degree of alignment with the
Company’s overall strategy and fairly reward the achievements that best drive the creation of shareholder value) is contained in the
Chair’s Annual Statement on page 107. The maximum level of bonus award for Executive Directors and certain PDMRs for the year
was 125% of annual salary.
Capricorn Energy PLC Annual Report and Accounts 2021
113
Directors’ Remuneration Report continued
For all participants other than the Executive Directors, 2021 bonus awards were based on achievement against a mixture of personal
objectives and Group-wide KPIs. When determining the level of award attributable to the personal performance element of these
individuals’ bonuses, consideration was also given to the extent to which they demonstrated the Company’s ‘high performance
behaviours’ during the period and also the level of their understanding, application and compliance with the Company’s various
standards and policies. The final level of all bonuses awarded to employees below Executive Director/PDMR level was reviewed and
approved by the committee.
Consistent with the approach adopted in 2020, 100% of each Executive Director’s bonus opportunity for the year to 31 December 2021
was determined by reference to the extent to which certain Group KPIs were achieved. Taking into account commercial sensitivities
around disclosure, a summary of the relevant targets, ascribed weightings, payment scales and achievement levels is set out below.
2021 Annual Bonus Scheme – Group KPI Performance Conditions (100% Weighting) and Achievement Levels
Purpose
2021 KPI
Measurement and payment scale
ESG and HSSE
KPI measures and performance achieved in 2021
– Achieve lagging HSSE indicators measured
against IOGP targets.
Deliver value in
a safe, secure and
environmentally
and socially
responsible
manner.
– A key focus for the business but given the lower levels of
operated activity in 2021, a reduced weighting was allocated
to this element of the ESG and HSSE KPI than in previous years
with threshold, target and stretch goals identified at the start of
the year.
– Achieve a number of specified leading indicators
that support Company policies and standards
in relation to HSSE and corporate responsibility;
focusing on matters identified in our materiality
matrix, governance and people.
– Four projects were identified and KPI scoring metrics identified
prior to commencement of the year:
– Project 1: Deliver leadership programme for Major Accident
Prevention;
– Project 2: Define and document QA/QC requirements for
projects;
– Project 3: Establish and roll-out our Diversity and Inclusion
Strategy and Plans; and
– Project 4: Develop and deliver environmental and biodiversity
protection programmes for our operated activities.
– Develop our understanding of CCUS application
and opportunity identification including required
carbon pricing.
– Evaluate and demonstrate CCUS applications by year-end
including technical, commercial, and financial considerations,
setting out a roadmap for potential application in the portfolio
and the pros/cons of investment.
– Recording, tracking and reporting our Scope 1
– Ensure equity (working interest) reporting of Scope 1 and 2
and 2 emissions.
emissions for the 2021 Annual Report, with clear and
consistent boundaries set, aligned with external benchmarks.
Demonstrate ‘activity normalised’ emissions improvements in
operated projects during 2021, with target and stretch goals of
percentage improvements identified.
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Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
2021 performance
– Operated activities, including surveys, have resulted in zero incidents and spills.
Multiple road transport trips in higher risk countries have been managed with
zero injuries and high potential incidents through a full understanding of road
risks. The stretch goal was, therefore, met.
Weighting
Bonus
awarded
KPI Remuneration
Committee decision
(as % of allocated proportion
of maximum opportunity)
17.5% 15.75%
Substantially
achieved
– Project 1: The requirements of the Corporate Major Accident Prevention Policy
were re-emphasised to required persons and is included in HSSE inductions for
new start employees and appropriate contractors. For a full score to have been
achieved, further roll-out of major accident hazard leadership awareness would
have been completed;
– Project 2: Significant improvements were made in the application of the
Capricorn Project Delivery Process (CPDP) to exploration projects; a register
was developed detailing all ongoing capital and other projects, and for
contracted services, inspections were made by Capricorn or specialised
companies of all vessels, rigs and helicopters contracted to ensure they
meet the required standards. A full score would have required documentation of
QA/QC processes for all other operations. This is due to be completed in 2022;
– Project 3: A D&I strategy was created and discussed within the organisation prior
to formal presentation to staff during the year and launched prior to year end;
and
– Project 4: A biodiversity screening tool was applied to multiple NV projects as
well as Egypt exploration; East Orkney and Diadem surveys, conducted in UK
waters, were accompanied by assessments of the environment through standard
UK studies and forms, with permits granted on time; detailed environmental
studies were conducted in Mauritania to inform an early baseline survey that
mobilised in January 2022 to inform the project on seabed/canyon bed locations.
For a full score, further progress in the ’Assess’ stage was required.
– CCUS screening and application was matured during 2021 with a presentation
given to the Board in December outlining possible options for participation in
Egypt and the UKCS. The ‘Identify’ stage was therefore successfully completed
and these projects are now in the ‘Assess’ stage. Scope 1 and 2 equity emissions
were included in our Sustainability Report.
– Energy efficiency and emissions clauses have been incorporated into all contract
awards (including for operations at Diadem drilling in the UKCS). However, in
2021, it proved difficult to demonstrate emissions improvement in our operated
projects as: (i) activity levels were very low; (ii) there was only one technically
acceptable, available vessel for the East Orkney GeoTech survey; and (iii) there
was only one commercially viable vessel in the required window for the Diadem
site survey.
Capricorn Energy PLC Annual Report and Accounts 2021
115
Directors’ Remuneration Report continued
Purpose
2021 KPI
Measurement and payment scale
ESG and HSSE continued
KPI measures and performance achieved in 2021
– Agree, establish and track social investment
across the Group that helps deliver a positive
impact on the communities with which we work.
– Further develop the framework, in line with the UN SDGs,
for the social investment plans across the Group, including
quantifying the overall impact of the programme(s).
– Communicate our climate change
performance and our processes for
governance, risk management and target
setting with internal and external stakeholders
in a transparent and consistent manner.
– Threshold goal: Carbon disclosure project rating maintained
or improved; target goal: threshold achieved plus TCFD
reporting requirements met; stretch goal: target achieved
plus SASB requirements met.
Exploration and New Ventures
– Mature “Advantaged” prospects achieving
commercial thresholds that can be considered
for future exploration drilling.
Grow the
reserves and
resources base
to provide a
basis for future
growth.
– Addition of net mean unrisked resources with threshold (>10
mmboe (ILX opportunity) – zero score), target (>40 mmboe
(several ILX or single high impact opportunities) – half score)
and stretch (>80 mmboe (high impact opportunity) – full score)
goals identified.
– Conduct our operated and non-operated
– Projects executed on plan with threshold (meet objectives –
exploration and appraisal activities successfully,
on time and on budget.
zero score); target (on time and budget – half score); and stretch
(on time and 10% less than budget – full score) goals identified.
– Add new commercial resources to replace
– Net 2C Contingent Resources added with threshold (0 net
reserves and grow value.
mmboe added – zero score), target (5 net mmboe added – half
score) and stretch goals (10 net mmboe added – full score)
identified.
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Capricorn Energy PLC Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Weighting
Bonus
awarded
KPI Remuneration
Committee decision
(as % of allocated proportion
of maximum opportunity)
2021 performance
– Investments were made in Mexico, Suriname and the UK that have resulted in
environmental, medical and educational benefits to the communities and areas
where we work. This has included a US$50,000 donation in each of Mexico and
Suriname to help alleviate the challenges of the COVID-19 pandemic through
the purchase of medical and test equipment for local hospitals, benefitting over
1,000 people. In our mangrove rehabilitation project, six sediment trapping units
have been built and remote monitoring has been established using satellite
images of mangrove sites. In Mexico, since 2020, the turtle conservation project
has patrolled 6,000km of beaches and resulted in 80,896 hatchings in 2021.
In the UK, we continue to support three PhD students as part of the Clean Energy
scholarship and contribute to 27 research projects.
– Our climate change score through the Carbon Disclosure Project (CDP) remained
static at B- and discussions are planned to understand what further is required
to improve the rating. We continue to work closely with partners on emission
reduction projects as well as progressing clean energy projects and the purchase
of the highest quality carbon offsets.
– Water: for the first time, we participated in the CDP Water Security questionnaire.
We continue to work with our partners and on our operated activities on water
extraction and disposal, notably in Egypt where we are working on both
exploration and production assets with our partners. We are aware of the
criticality of water resources in water scarce regions and factor this into our
exploration and operational plans.
– TCFD: an EY internal audit showed that “Capricorn achieved an average coverage
rating of 100% across the 11 recommended disclosures, with an average quality
score of 56%. This compares to an average coverage score of 79% and average
quality score of 49% across UK energy companies included in the tool.”
– SASB: to improve the quality and transparency of our reporting, we have
assessed and aligned our reporting against the Sustainability Accounting
Standards Board (SASB) Oil & Gas – Exploration & Production Sustainable
Accounting Standard.
– Several prospects in South Abu Sennan, onshore Egypt, were matured in 2021
20%
7.5%
and classified as ‘drill-ready’. They are anticipated to be drilled in H2 2022.
Dauphin in Mauritania C7, was re-captured as Operator, and is of significant scale.
The prospect would offer significant net potential resources well in excess of the
target goal of 40 mmbbls.
– All projects executed in 2021 met their original basis of design objectives. The
Diadem site survey, East of Orkney GeoTech survey and UK MNSH 3D seismic
survey (all operated) were delivered on time and budget. The Mexico Block 10
wells, Saasken and Sayulita (non-operated), were delivered on time and under
budget. The Egypt onshore wells, TAMR-1 and NUMB-5 were delivered but over
budget and, therefore, did not score.
– No additional resources have been booked versus the 2021 opening position.
Partially
achieved
Capricorn Energy PLC Annual Report and Accounts 2021
117
Directors’ Remuneration Report continued
Purpose
2021 KPI
Measurement and payment scale
Production Performance
KPI measures and performance achieved in 2021
Maximise
revenues
through
efficient
operations.
– Deliver net production within guidance targets.
– Assessed against the pre-agreed public production guidance
outlined in early 2021 (16,000 to 19,000 bopd) from net
production of the Kraken and Catcher assets with threshold
(16,000 bopd – zero score), target (17,500 bopd – half score)
and stretch (>19,000 bopd – full score) goals identified.
– Deliver operating costs within guidance targets.
– Assessed against the 2021 budget values converted into an
opex/boe guidance around the targeted or expected blended
value across the Kraken and Catcher assets with threshold
(US$25/boe – zero score), target (US$23/boe – half score) and
stretch (5 years
US$m
75.8
10.8
–
86.6
53.7
–
–
53.7
59.8
–
6.9
66.7
–
–
–
–
At 31 December 2020, all financial assets were expected to mature within 12 months.
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
175
Section 3 – Working Capital, Financial Instruments and Long-Term Liabilities continued
3.10 Financial Instruments continued
Financial Liabilities
Carrying amount and fair value
Financial liabilities at amortised cost
Trade payables
Accruals and other payables
Joint operation payables
Lease liabilities
Loans and borrowings
Financial liabilities at fair value
Deferred consideration on business combinations
Derivative financial instruments
Financial liabilities – hedge options
At
31 December
2021
US$m
At
31 December
2020
US$m
1.6
59.5
90.9
3.7
177.0
70.0
–
10.6
42.3
37.1
240.0
–
–
3.2
402.7
333.2
The fair value of financial liabilities, other than the deferred consideration and hedge options, has been calculated by discounting the
expected future cash flows at prevailing interest rates.
Maturity Analysis of Financial Liabilities
The expected financial maturity of the Group’s financial liabilities at 31 December 2021 is as follows:
Financial liabilities at amortised cost
Trade payables
Accruals and other payables
Joint operation payables
Lease liabilities
Loans and borrowings
Financial liabilities at fair value
Deferred consideration on business combinations
< 1 year
US$m
1-2 years
US$m
2-5 years
US$m
>5 years
US$m
1.6
59.5
90.9
2.4
10.9
20.9
186.2
–
–
–
1.3
47.2
49.1
97.6
–
–
–
–
118.9
–
118.9
–
–
–
–
–
–
–
The expected financial maturity of the Group’s financial liabilities at 31 December 2020 was as follows:
Financial liabilities at amortised cost
Trade payables
Accruals and other payables
Joint operation payables
Lease liabilities
Financial liabilities – hedge options
< 1 year
US$m
1-2 years
US$m
2-5 years
US$m
>5 years
US$m
10.6
42.3
37.1
43.2
3.2
136.4
–
–
–
44.8
–
44.8
–
–
–
89.5
–
89.5
–
–
–
62.5
–
62.5
176
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Section 3 – Working Capital, Financial Instruments and Long-Term Liabilities continued
3.10 Financial Instruments continued
Fair Value
The Group holds hedge options which are held at fair value determined by models which have observable inputs.
Capricorn holds listed equity shares, being the residual shareholding in Vedanta Limited as a financial asset at fair value through profit or
loss. The Group determines and discloses the fair value by reference to the quoted (unadjusted) prices in active markets for those shares at
the measurement date.
At
31 December
2021
US$m
At
31 December
2020
US$m
Assets measured at fair value – Level 1
Financial assets at fair value through profit or loss
Listed equity shares
Assets measured at fair value – Level 2
Financial assets at fair value through profit or loss
Earn-out consideration
Non-listed investment fund
Derivative financial instruments
Financial assets – hedge options
Liabilities measured at fair value – Level 2
Financial liabilities at fair value
Deferred consideration on business combinations
Derivative financial instruments
Financial liabilities – hedge options
Liabilities measured at fair value – Level 3
Financial liabilities at fair value
Deferred consideration on business combinations
10.8
5.2
189.3
6.9
–
–
–
0.2
(68.2)
–
–
(3.2)
(1.8)
137.0
–
2.2
3.11 Financial Risk Management: Objectives and Policies
The main risks arising from the Group’s financial instruments are commodity price risk, liquidity risk, credit risk and foreign currency risk.
The Board of Capricorn Energy PLC, through the Treasury Subcommittee, reviews and agrees policies for managing each of these risks
and these are summarised below.
The Group’s Treasury function and Executive Team as appropriate are responsible for managing these risks, in accordance with the policies
set by the Board. Management of these risks is carried out by monitoring of cash flows, investment and funding requirements using a
variety of techniques. These potential exposures are managed while ensuring that the Company and the Group have adequate liquidity at
all times in order to meet their immediate cash requirements. There are no significant concentrations of risks unless otherwise stated. The
Group does not enter into or trade financial instruments, including derivatives, for speculative purposes.
The primary financial assets and liabilities comprise cash, short- and medium-term deposits, money market liquidity funds, listed equity
shares, intra-group loans and other receivables and financial liabilities held at amortised cost. The Group’s strategy has been to finance
its operations through a mixture of retained profits, bank borrowings and other production-related streaming agreements. Other
alternatives such as equity issues and other forms of non-investment-grade debt finance are reviewed by the Board, when appropriate.
Commodity Price Risk
Commodity price risk arises principally from the Group’s Egyptian production, which could adversely affect revenue and debt availability
due to changes in commodity prices.
The Group measures commodity price risk through an analysis of the potential impact of changing commodity prices. Based on this
analysis and considering materiality and the potential business impact, the Group may choose to hedge.
Linked to production in the UK North Sea, the Group continued to hedge during 2021 in order to protect debt capacity and support
committed capital programmes. No hedging of production in Egypt was in place at the year end, though this remains under review with
Capricorn and the operator looking at hedging opportunities.
Transacted derivatives are designated, where possible, in cash flow hedge relationships to minimise accounting income statement
volatility. The Group is required to assess the likely effectiveness of any proposed cash flow hedging relationship and demonstrate that the
hedging relationship is expected to be highly effective prior to entering into a hedging instrument and at subsequent reporting dates.
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
177
Section 3 – Working Capital, Financial Instruments and Long-Term Liabilities continued
3.11 Financial Risk Management: Objectives and Policies continued
Liquidity Risk
The Group closely monitors and manages its liquidity risk using both short- and long-term cash flow projections, supplemented by debt
and equity financing plans and active portfolio management. Cash forecasts are regularly produced and sensitivities run for different
scenarios including, but not limited to, changes in asset production profiles and cost schedules.
The Group runs various sensitivities on its liquidity position throughout the year. This includes scenarios forecasting a prolonged economic
downturn as a result of COVID-19 and further volatility in oil prices. Further details are noted in the Viability Statement provided on page 47.
Details of the Group’s debt facilities can be found in note 3.2. The Group is subject to semi-annual forecast liquidity tests as part of the
facility agreements.
The Group invests cash in a combination of money market liquidity funds and term deposits with a number of international and UK
financial institutions, ensuring sufficient liquidity to enable the Group to meet its short and medium-term expenditure requirements.
Credit Risk
Credit risk arises from cash and cash equivalents, investments with banks and financial institutions, trade and other receivables and joint
operation receivables.
Customers and joint operation partners are subject to a risk assessment using publicly available information and credit reference
agencies, with follow-up due diligence and monitoring if required. At the year end, the Group’s trade receivables primarily relates to
amounts due from EGPC for oil and gas sales in Egypt. Amounts are recognised after providing for expected credit losses.
Investment credit risk for investments with banks and other financial institutions is managed by the Group Treasury function in
accordance with the Board-approved policies of Capricorn Energy PLC. These policies limit counterparty exposure, maturity, collateral and
take account of published ratings, market measures and other market information. The limits are set to minimise the concentration of
risks and therefore mitigate the risk of financial loss through counterparty failure.
It is Capricorn’s policy to invest with banks or other financial institutions that, firstly, offer the greatest degree of security in the view of
the Group and, secondly, the most competitive interest rates. Repayment of principal is the overriding priority and this is achieved by
diversification and shorter maturities to provide flexibility. The Board continually re-assesses the Group’s policy and updates as required.
At the year end the Group does not have any significant concentrations of bad debt risk. As at 31 December 2021 the Group had
investments with eighteen counterparties (2020: thirteen) to ensure no concentration of counterparty investment risk. The increase in the
number of counterparties holding investments reflects the Group’s increased cash balance. At 31 December 2021 and at 31 December
2020 all of these investments were instant access.
The maximum credit risk exposure relating to financial assets is represented by the carrying value as at the balance sheet date.
Foreign Currency Risk
Capricorn manages exposures that arise from non-functional currency receipts and payments by matching receipts and payments in the
same currency and actively managing the residual net position.
The Group also aims where possible to hold surplus cash, debt and working capital balances in the functional currency of the subsidiary,
thereby matching the reporting currency and functional currency of most companies in the Group. This minimises the impact of foreign
exchange movements on the Group’s Balance Sheet.
Where residual net exposures do exist and they are considered significant, the Company and Group may from time-to-time opt to use
derivative financial instruments to minimise exposure to fluctuations in foreign exchange and interest rates.
The following table demonstrates the sensitivity to movements in the US$:GBP exchange rate, with all other variables held constant, on
the Group’s monetary assets and liabilities. These are considered to be reasonably possible changes for the purposes of sensitivity analysis.
The Group’s exposure to foreign currency changes for all other currencies is not material.
10% increase in GBP to US$
10% decrease in GBP to US$
At 31 December 2021
At 31 December 2020
Effect on profit
before tax
US$m
Effect on
equity
US$m
Effect on profit
before tax
US$m
(18.5)
18.5
(2.2)
2.2
(24.4)
24.4
Effect on
equity
US$m
(18.6)
18.6
178
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Section 4 – Income Statement Analysis
This section contains further Income Statement analysis, including segmental analysis,
details of employee benefits payable in the year and finance costs.
Significant Accounting Judgements in This Section:
Segmental Disclosures and Discontinued Operations
IFRS 8 ‘Operating Segments’ does not provide guidance as to whether segment disclosures apply to discontinued operations. During
the current period, Capricorn has presented segmental disclosures inclusive of the results of the discontinued operations relating to the
UK producing assets, Catcher and Kraken. 2020 comparative information is presented exclusive of Senegal and Norway results which are
classified within discontinued operations, since they either had little impact or were not included in results reported to the Board.
Effective 1 January 2021, Capricorn restructured its operations and reporting segments following the disposal of the Group’s operations
in Senegal. Revised segments consisted of a UK development and producing asset segment to the point of disposal, containing the
Kraken and Catcher producing assets, an Eastern Assets segment for exploration activities in Mauritania, Côte d’Ivoire and Israel, and a
Western Assets segment for continuing exploration activities in the UK, Mexico and Suriname. The Egypt segment was added following
the acquisition during the year. Comparative information has been restated to reflect these changes.
Key Estimates and Assumptions in This Section:
There are several key estimates and assumptions used in the calculation of the Group’s share-based payment charges. These are detailed in
note 4.4 (b).
4.1 Segmental Analysis
Operating Segments
Capricorn’s strategy is to create, add and realise value from a balanced portfolio within a self-funding business model. Each business unit
is headed by a Regional Director (a Regional Director may be responsible for more than one business unit) and the Board monitors the
results of each segment separately for the purposes of making decisions about resource allocation and performance assessment.
As noted above, Capricorn had four reporting segments during 2021; Egypt, Eastern assets, Western assets and UK producing assets.
The Other Capricorn Energy Group segment exists to accumulate the activities and results of the Parent and other holding companies
together with other unallocated expenditure and net assets/liabilities including amounts of a corporate nature not specifically attributable
to any of the business units.
Non-current assets as analysed on a segmental basis consist of: intangible exploration/appraisal assets; property, plant & equipment –
development/producing assets; and other property, plant & equipment and intangible assets.
Geographical information: non-current assets
Egypt
Côte d’Ivoire
Mauritania
Israel
Eastern
Mexico
UK
Suriname
Western
UK producing assets
Other Capricorn
Total non-current assets
At
31 December
2021
US$m
403.0
–
28.9
–
28.9
38.8
12.4
15.6
66.8
–
4.6
503.3
At
31 December
2020
(restated)
US$m
–
12.2
21.0
1.7
34.9
57.1
8.0
13.5
78.6
849.8
10.1
973.4
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
179
Section 4 – Income Statement Analysis continued
4.1 Segmental Analysis continued
The segment results for the year ended 31 December 2021 are as follows:
Revenue
Other income
Cost of sales
Depletion and amortisation charges
Gross profit
Pre-award costs
Unsuccessful exploration costs
Impairment of intangible exploration/appraisal assets
Impairment of disposal group property plant & equipment
– development/producing assets
Other operating income
Depreciation – purchased assets
Amortisation – right-of-use assets
Amortisation of other intangible assets
Other administrative expenses
Operating profit/(loss)
Exceptional income – India tax refund
Fair value loss – deferred consideration
(Loss)/Gain on financial assets at fair value through profit or
loss
Finance income
Finance costs
(Loss)/Profit before tax from continuing operations
Tax charge
(Loss)/Profit for the year from continuing operations
Loss on disposal of discontinued operations
Profit from discontinued operations
Eastern
US$m
Western
US$m
UK
producing
assets
US$m
Other
Capricorn
Energy
Group
US$m
–
–
–
–
–
–
(18.2)
–
–
–
–
–
–
–
–
–
–
–
–
(1.7)
(29.5)
(19.6)
–
–
(0.1)
(0.1)
(0.2)
(0.5)
411.8
–
(103.8)
(35.3)
272.7
–
–
–
(56.0)
–
–
–
–
–
0.9
–
–
–
0.9
(13.2)
–
–
–
0.6
(0.2)
(1.9)
(4.5)
(50.5)
Group
adj for
segments
US$m
(411.8)
–
103.8
35.3
Total
US$m
57.1
7.3
(20.5)
(31.2)
(272.7)
12.7
–
–
–
56.0
–
–
–
–
–
(15.8)
(50.6)
(19.6)
–
0.6
(0.3)
(2.0)
(4.8)
(51.1)
(18.2)
(51.7)
216.7
(68.8)
(216.7)
(130.9)
–
–
–
–
–
(18.2)
–
(18.2)
–
–
–
–
–
–
1,070.7
–
–
–
1,070.7
(7.2)
–
(0.7)
(54.7)
(107.1)
–
(107.1)
–
–
(8.1)
–
(9.8)
198.8
–
198.8
(173.8)
–
5.5
5.2
(11.1)
1,001.5
–
1,001.5
–
–
8.1
–
9.8
(198.8)
–
(198.8)
173.8
25.0
5.5
4.5
(68.9)
873.7
(4.2)
869.5
–
25.0
Egypt
US$m
56.2
7.3
(20.5)
(31.2)
11.8
(0.9)
(2.9)
–
–
–
–
–
(0.1)
(0.1)
7.8
–
(7.2)
–
–
(3.1)
(2.5)
(4.2)
(6.7)
–
–
(Loss)/Profit attributable to equity holders of the Parent
(6.7)
(18.2)
(107.1)
25.0
1,001.5
–
894.5
Balances as at 31 December 2021:
Capital expenditure
Total assets
Total liabilities
Non-current assets
437.2
525.3
367.7
403.0
12.2
29.4
1.9
28.9
60.9
289.6
33.3
66.8
5.8
1.1
(5.8)
511.4
– 1,402.1
– 2,246.4
–
–
44.9
4.6
–
–
447.8
503.3
All revenue from UK producing assets is attributable to the sale of oil and gas produced in the UK, from assets that were disposed of on
2 November 2021.
Revenue in the Egypt segment, contains revenue generated from eight concessions in the Western Desert, onshore The Arab Republic
of Egypt, for the period from 24 September 2021 to 31 December 2021. All revenue related to sales to a single customer.
As at 31 December 2021, the capital expenditure balance in the Egypt segment includes Property, plant & equipment – development/
producing assets recognised at the acquisition date of US$390.2m.
All transactions between segments are carried out on an arm’s length basis.
180
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Section 4 – Income Statement Analysis continued
4.1 Segmental Analysis continued
The segment results for the year ended 31 December 2020 were as follows:
Revenue
Cost of sales
Depletion and amortisation charges
Gross profit
Pre-award costs
Unsuccessful exploration costs
Other operating income
Depreciation – purchased assets
Amortisation – right-of-use assets
Amortisation of other intangible assets
Other administrative expenses
Operating (loss)/profit
Gain on fair value of financial assets at fair value through
profit or loss
Interest income
Finance costs
(Loss)/Profit before taxation from continuing operations
Tax charge
(Loss)/Profit for the year from continuing operations
Eastern
(restated)
US$m
Western
(restated)
US$m
–
–
–
–
(1.6)
(11.6)
–
–
–
–
–
(13.2)
–
–
–
(13.2)
–
(13.2)
–
–
–
–
(3.7)
(67.2)
–
–
(0.2)
(0.3)
(0.3)
(71.7)
–
–
(0.1)
(71.8)
(0.1)
(71.9)
UK
producing
assets
(restated)
US$m
394.3
(115.5)
(215.7)
63.1
–
–
–
–
–
–
–
63.1
–
–
(23.3)
39.8
–
39.8
Other
Capricorn
Energy
Group
(restated)
US$m
0.4
–
–
0.4
(6.8)
–
1.4
(0.1)
(1.9)
(4.9)
(33.4)
(45.3)
0.1
0.8
(27.8)
(72.2)
–
(72.2)
Group
adj for
segments
(restated)
US$m
(394.3)
115.5
215.7
(63.1)
–
–
–
–
–
–
–
Total
(restated)
US$m
0.4
–
–
0.4
(12.1)
(78.8)
1.4
(0.1)
(2.1)
(5.2)
(33.7)
(63.1)
(130.2)
–
–
23.3
(39.8)
–
(39.8)
0.1
0.8
(27.9)
(157.2)
(0.1)
(157.3)
(Loss)/Profit from discontinued operations
–
–
–
(276.3)
39.8
(236.5)
(Loss)/Profit attributable to equity holders of the Parent
(13.2)
(71.9)
39.8
(348.5)
–
(393.8)
Balances as at 31 December 2020:
Capital expenditure
Total assets
Total liabilities
Non-current assets
21.2
39.1
3.2
34.9
68.4
121.3
9.9
39.0
892.9
461.1
78.6
849.8
236.2
582.9
36.4
10.1
(5.5)
359.3
(0.9) 1,635.3
(0.9)
509.7
–
973.4
All revenue from UK producing assets is attributable to the sale of oil and gas produced in the UK. 31.3% of the Group’s sales of oil and gas
are to a single customer that marketed the crude on Capricorn’s behalf and delivered it to the ultimate buyers, prior to a change in the
marketing of crude during the second half of 2020.
All transactions between the segments are carried out on an arm’s length basis.
4.2 Pre-Award Costs
Egypt
Eastern
Western
Other
Year ended
31 December
2021
US$m
Year ended
31 December
2020
(restated)
US$m
0.9
–
1.7
13.2
15.8
–
1.6
3.7
6.8
12.1
Pre-award costs represent time costs, legal fees and other direct charges incurred in pursuit of new opportunities in regions which
complement the Group’s current licence interests and risk appetite. The pre-award costs for the year ended 31 December 2021 have
been revised to reflect the Group’s operating segments.
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
181
Section 4 – Income Statement Analysis continued
4.3 Administrative and Other Expenses
Year ended
31 December
2021
US$m
Year ended
31 December
2020
US$m
Administrative expenses – recurring departmental expenses and corporate projects
Administrative expenses – Indian tax arbitration costs
Other expenses – costs incurred on business combination
43.4
9.9
4.9
58.2
4.4 Employee Benefits: Staff Costs, Share-Based Payments and Directors’ Emoluments
a) Staff Costs
Year ended
31 December
2021
Year ended 31 December 2020
Wages and salaries
Social security costs
Redundancy costs
Other pension costs
Share-based payments
Continuing
operations
US$m
Continuing
operations
US$m
Discontinued
operations
US$m
33.3
3.1
0.1
2.7
10.2
49.4
28.5
7.4
0.9
2.1
9.1
48.0
1.8
(1.0)
0.2
0.1
–
1.1
35.3
5.8
–
41.1
Total
US$m
30.3
6.4
1.1
2.2
9.1
49.1
Staff costs are shown gross before amounts recharged to joint operations. The share-based payments charge represents amounts in respect
of equity-settled options.
No staff costs were directly associated with discontinued operations in 2021.
The monthly average number of full-time equivalent employees, including Executive Directors and individuals employed by the Group
working on joint operations was:
Continuing operations:
UK
Egypt
Mexico
Discontinued operations:
Norway
Senegal
Number of employees
Monthly
average
2021
Monthly
average
2020
178
1
7
186
–
–
–
164
–
7
171
7
2
9
186
180
182
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Section 4 – Income Statement Analysis continued
4.4 Employee Benefits: Staff Costs, Share-Based Payments and Directors’ Emoluments continued
b) Share-Based Payments
Income Statement Charge
Included within gross staff costs (continuing operations):
SIP
LTIP
Employee Share Scheme
Year ended
31 December
2021
US$m
Year ended
31 December
2020
US$m
1.4
7.3
1.5
10.2
0.7
7.1
1.3
9.1
Details of those awards with a significant impact on the results for the current and prior year are given below, together with a summary of
the remaining awards.
Share-Based Payment Schemes and Awards Details
The Group operates a number of share award schemes for the benefit of its employees.
The number of share awards made by the Company during the year is given in the table below, together with their weighted average fair
value (“WAFV”) and weighted average grant or exercise price (“WAGP/WAEP”):
SIP – free shares
SIP – matching shares
LTIP
Employee Share Scheme
Year ended 31 December 2021
Year ended 31 December 2020
WAFV
£
1.70
1.77
0.78
0.93
WAGP/
WAEP
£
1.70
1.77
1.81
1.81
Number
of shares
344,908
258,432
8,102,636
1,378,373
10,084,349
WAFV
£
1.03
1.25
0.67
0.78
WAGP/
WAEP
£
1.03
1.25
1.32
1.32
Number
of shares
550,756
342,032
8,327,281
1,173,776
10,393,845
The awards existing under the LTIP with the weighted average grant price (‘WAGP’) are as follows:
At 1 January
Granted during the year
Exercised during the year
Lapsed during the year
At 31 December
2021
Number
of shares
25,817,970
8,102,636
(1,080,135)
(3,259,882)
WAGP
£
1.72
1.81
2.07
1.92
2020
Number
of shares
26,186,465
8,327,281
(1,154,333)
(7,541,443)
29,580,589
1.71
25,817,970
WAGP
£
1.94
1.32
1.82
2.03
1.72
The weighted average remaining contractual life of outstanding awards under the LTIP at 31 December 2021 was 1.0 year (2020: 1.2
years). Included in the above are 1,708,123 of exercisable LTIP awards (2020: 1,386,998). No exercise price is payable in respect of LTIP
awards.
The awards existing under all share schemes other than the LTIP with the weighted average of the grant price, exercise price and notional
exercise prices (“WAGP/WAEP”) are as follows:
At 1 January
Consolidation of shares
Granted during the year
Exercised during the year
Lapsed during the year
At 31 December
2021
2020
Number
of shares
WAGP/WAEP
£
Number
of shares
WAGP/WAEP
£
10,605,095
(476,152)
1,981,713
(1,238,991)
(170,293)
1.80
1.78
1.79
1.91
1.70
10,129,768
–
2,066,564
(929,045)
(662,192)
10,701,372
1.79
10,605,095
1.93
–
1.23
1.94
1.81
1.80
The weighted average remaining contractual life of outstanding awards under all other schemes at 31 December 2021 was 6.1 years
(2020: 6.8 years). Included in the above are 1,753,329 of exercisable ESAS (2020: 1,401,152) and exercisable share options of 2,428,892
(2020: 2,844,905). No exercise price is payable in respect of ESAS; the share options had a range of exercise prices from £1.54 to £1.87.
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
183
Section 4 – Income Statement Analysis continued
4.4 Employee Benefits: Staff Costs, Share-Based Payments and Directors’ Emoluments continued
b) Share-Based Payments continued
Assumptions and Inputs
The fair value of the Capricorn Energy PLC LTIP scheme awards and the ESAS share awards were calculated using a Monte Carlo model.
Awards in prior years were valued similarly.
Vesting % is by reference to the market performance of the Company’s TSR compared with a group of peer companies. Vesting
percentages for LTIPs can be above 100%. For details on the vesting conditions attached to the LTIPs refer to the Directors’ Remuneration
Report on page 121. For the ESAS, 100% vesting occurs if the Company’s TSR is in excess of the median of the comparator group,
otherwise the ESAS will lapse in full.
Capricorn Energy PLC share awards normally have a ten year life from the date of grant. Awards were exercised on a regular basis
throughout the year, subject to the normal employee dealing bans imposed by the Company at certain times. The weighted average
share price during the year was £1.77 (2020: £1.39).
The main inputs to the models include the number of options, share price, leaver rate, trigger points, discount rate and volatility of share
prices of the Company and the comparator group.
– Leaver rate assumptions are based on past history of employees leaving the Company prior to options vesting and are revised to equal
the number of options that ultimately vest.
– Trigger points are based on the length of time after the vesting periods for awards in 2021, further details are below.
– The risk-free rate is based on the yield on a zero-coupon government bond with a term equal to the expected term on the option
being valued.
– Volatility was determined as the annualised standard deviation of the continuously compounded rates of return on the shares of the
Company and of a peer group of similar companies selected from the FTSE, as disclosed in the Directors’ Remuneration Report on
page 124, over a three-year period to the date of award.
– No expected dividends were factored into the model as the Company customarily operates a share consolidation scheme which leaves
the number of share awards unchanged before and after any dividend.
The following assumptions and inputs apply:
Scheme name
SIP
LTIP
Employee Share Scheme
Volatility
Risk-free rate
per annum
0%
0%
34% – 44% 0.39% – 1.41%
34% – 44% 0.39% – 1.19%
Lapse due to
withdrawals
per annum
5%
0%
5%
Employee Exercise Trigger Point Assumptions
For 2021 awards, the assumption used for the Employee Share Scheme and the LTIP awards is that Executive Directors and employees
will exercise 50% at the end of the two-year holding period, being the five-year anniversary date, and the remaining 50% on the six-year
anniversary date.
c) Directors’ Emoluments and Remuneration of Key Management Personnel
Details of each Director’s remuneration, pension entitlements, share options and awards pursuant to the LTIP are set out in the Directors’
Remuneration Report on pages 106 to 139. Directors’ remuneration, their pension entitlements and any share awards vested during the
year are provided in aggregate in note 8.9.
Remuneration of Key Management Personnel
The remuneration of the Directors of the Company and of the members of the management and corporate teams who are the key
management personnel of the Group is set out below in aggregate.
Short-term employee benefits
Termination benefits
Post-employment benefits
Share-based payments
Year ended
31 December
2021
US$m
Year ended
31 December
2020
US$m
4.9
–
0.3
2.4
7.6
6.4
0.2
0.3
2.9
9.8
In addition, employer’s National Insurance Contributions for key management personnel in respect of short-term employee benefits were
US$0.7m (2020: US$0.9m).
Share-based payments shown above represent the cost to the Group of key management personnel’s participation in the Company’s
share schemes, measured under IFRS 2.
During 2021, 1,244,941 shares awarded to key management personnel vested under the LTIP (2020: 613,791).
184
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Section 4 – Income Statement Analysis continued
4.5 Finance Costs
Loan interest and facility fee amortisation
Other finance charges
Lease interest (note 3.3)
Exchange loss
Exchange loss recycled from Other Comprehensive Income
Year ended
31 December
2021
US$m
Year ended
31 December
2020
(restated)
US$m
13.7
0.2
0.3
–
54.7
68.9
6.4
0.2
0.3
21.0
–
27.9
Loan interest and facility fee amortisation include US$2.8m (2020: US$nil) of Egypt Junior and Senior debt facility interest charges
and US$7.5m of costs released from prepayments in respect to the Group’s Reserve-Based Lending facility which was cancelled on
completion of the sale of the two UK producing assets.
The foreign exchange loss recycled from Other Comprehensive Income of US$54.7m, relating to historic translation losses, arose on
the liquidation of two subsidiaries in 2021. Both subsidiaries were GBP functional and held interests in UK exploration assets. The first
subsidiary incurred an exchange loss of US$39.4m, relating to an interest in the UK Kraken asset during the exploration phase. The second
subsidiary had an exchange loss of US$15.3m, having previously held an interest in a UK exploration asset sold several years ago.
4.6 Earnings per Ordinary Share
Basic and diluted earnings per share are calculated using the following measures of profit/(loss):
Profit/(loss) and diluted profit/(loss) after taxation from continuing operations
Profit/(loss) and diluted profit/(loss) attributable to equity holders of the Parent
The following reflects the share data used in the basic and diluted earnings per share computations:
Weighted average number of shares
Less weighted average shares held by ESOP and SIP Trusts
Basic weighted average number of shares
Potential dilutive effect of shares issuable under employee share plans:
LTIP awards
Approved and unapproved plans
Employee share awards
Diluted weighted average number of shares
Potentially issuable shares not included above:
LTIP awards
Approved and unapproved plans
Employee share awards
Number of potentially issuable shares
Year ended
31 December
2021
US$m
Year ended
31 December
2020
(restated)
US$m
869.5
894.5
(157.3)
(393.8)
Number
of shares
2021
‘000
Number
of shares
2020
‘000
501,874
(6,709)
589,782
(7,041)
495,165
582,741
10,666
17
2,874
–
–
–
508,722
582,741
18,575
2,298
2,277
25,818
2,845
4,620
23,150
33,283
2020 potentially issuable shares were all anti-dilutive due to the loss for the year.
The 2020 weighted average number of shares used in the calculations of earnings per share above has been adjusted to reflect the
consolidation of shares which took place in January 2021.
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
185
Section 5 – Taxation
This section highlights the Group’s taxation policies, including both the accounting policy
and wider strategy and governance policies. Details can also be found on deferred tax
liabilities and unrecognised deferred tax assets existing at the year end and the current tax
charge recorded on Egypt’s taxable profits.
Significant Accounting Judgements in This Section:
Recognition of Deferred Tax Liabilities and Tax Charge on Profits from Egypt Concessions
Under the Egypt concession agreements, each contractor’s share of Income Tax due on taxable profit for the year is paid on the
contractor’s behalf by EGPC. However, the tax liability remains with the contractor to the point of settlement. Therefore, Capricorn
has recognised deferred tax liabilities on the temporary taxable difference between the carrying value of non-current assets and their
tax written down values. Capricorn also records a tax charge in the period for tax that is payable on the Group’s share of profits from
production in Egypt and records other income to reflect the settlement of this liability on the Group’s behalf. The other income is recorded
in gross profit, see note 2.2.
Deferred Taxation – Potential Deferred Tax Assets on Egypt Concessions
IAS 12 requires deferred tax assets and liabilities to be recognised on the temporary difference that results from business combinations.
When considering the recognition of potential deferred tax assets, Capricorn concluded that, with assets recognised at fair value on
acquisition in accordance with IFRS 3, any deferred tax asset recorded on a concession would increase the carrying value of the cash-
generating unit relating to that concession over and above its fair value, immediately leading to impairment. Therefore, no deferred tax
assets have been recorded on initial recognition of the assets and liabilities acquired through the Egypt business combination. At the year
end Capricorn have again reviewed whether deferred tax assets should be recognised and have assessed this both on the availability of
future taxable profits over which the assets could be utilised and the carrying value of assets on the Balance Sheet at the year end. It was
concluded that no deferred tax asset should be recognised.
Key Estimates and Assumptions in This Section:
In determining whether future taxable profits are available to recognise deferred tax assets, Capricorn uses the same economic models
that are used for measuring the fair value of oil and gas assets. The key assumptions are therefore consistent with those detailed in
section 2.
Accounting Policy
The total tax charge or credit represents the sum of current tax and deferred tax.
The current tax charge or credit is based on the taxable profit or loss for the year. Taxable profit or loss differs from net profit or loss
as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years
and it further excludes items that are never taxable or deductible. Where there are uncertain tax positions, Capricorn assesses
whether it is probable that the position adopted in tax filings will be accepted by the relevant tax authority, with the results of this
assessment determining the accounting that follows. If it is not considered probable that the income tax filing position will be
accepted by the tax authority, the uncertainty is reflected within the carrying amount of the applicable tax asset or liability by using
either the most likely amount or an expected value of the tax treatment, depending on which method is considered to better
predict the resolution of the uncertainty, based on the underlying facts and circumstances.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities
in the Financial Statements and the corresponding tax bases used in the computation of taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences that exist only where it is probable that taxable profits will
be generated against which the carrying value of the deferred tax asset can be recovered.
Deferred tax liabilities are recognised for all taxable temporary differences except in respect of taxable temporary differences
associated with investments in subsidiaries, associates and interests in joint operations where the timing of the reversal of the
temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
A deferred tax asset or liability is not recognised if a temporary difference arises on initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable
profit or loss. However, where the recognition of an asset is associated with an interest in a joint operation, which applies to all of
Capricorn’s intangible exploration/appraisal assets and property, plant & equipment – development/producing asset additions, and
Capricorn is not able to control the timing of the reversal of the temporary difference or the temporary difference is expected to
reverse in the foreseeable future, a deferred tax asset or liability shall be recognised.
Current and deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted by the balance
sheet date.
186
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Section 5 – Taxation continued
5.1 Tax Strategy and Governance
The Group’s tax strategy is fully aligned with its overarching business objectives and principles and applies to all taxes paid or borne by
the Group. Capricorn aims to be a good corporate citizen, managing its tax affairs in a transparent and responsible manner in all the
jurisdictions in which it operates, and seeks to build and maintain open and constructive relationships with all tax authorities. The Group is
committed to transparency of tax contributions and other payments to governments and supports the Extractive Industries Transparency
Initiative. Capricorn reports payments to governments in its Annual Report and Accounts as well as additional voluntary disclosures of
taxes paid by the Group.
Capricorn undertakes tax planning that supports the business and reflects commercial and economic activity. The Group’s policy is to
not enter into any artificial tax avoidance schemes but to build and maintain strong collaborative working relationships with all relevant
tax authorities based on transparency and integrity. Capricorn aims for certainty in relation to the tax treatment of all items; however, it
is acknowledged that this will not always be possible, for example where transactions are complex or there is a lack of maturity in the
tax regime in the relevant jurisdiction in which the Group is operating. In such circumstances Capricorn will seek external advice where
appropriate and ensure that the approach adopted in any relevant tax return includes full disclosure of the position taken. Capricorn may
also seek to work directly with tax authorities to resolve uncertainties where the tax laws are unclear or complex.
5.2 Tax Charge on Profit/(Loss) for the Year
Analysis of Tax Charge on Profit/(Loss) for the Year
Current tax charge:
Overseas corporation taxes
Total current tax charge on profit/(loss) from continuing operations
Deferred tax credit:
Deferred tax charge on recognition of financial assets
Deferred tax credit on non-current assets – Egypt
Total deferred tax credit on profit/(loss) from continuing operations
Total tax charge on profit/(loss) from continuing operations
Year ended
31 December
2021
US$m
Year ended
31 December
2020
US$m
7.3
7.3
0.1
(3.2)
(3.1)
4.2
0.1
0.1
–
–
–
0.1
The current tax charge for the year ending 31 December 2021 of US$7.3m arises on taxable profit in Egypt from the period from
acquisition and is settled by EGPC on the Group’s behalf.
Factors Affecting the Tax Charge for the Year
A reconciliation of the income tax charge applicable to the profit/(loss) before income tax to the UK statutory rate of income tax is as follows:
Profit/(Loss) before tax from continuing operations
Year ended
31 December
2021
US$m
Year ended
31 December
2020
US$m
873.7
(117.4)
Profit/(Loss) before tax multiplied by the UK statutory rate of corporation tax of 19% (2020: 19%)
166.0
(22.3)
Effect of:
Special tax rates and reliefs applying to oil and gas activities in the UK
Special tax rates and reliefs applying to oil and gas activities in Egypt
Impact on deferred tax of adjustments in respect of prior years
Temporary differences not recognised
Permanent items non-deductible
Exchange differences
India tax refund not subject to tax
Total tax charge on profit/(loss) from continuing operations
(10.7)
3.0
–
26.0
23.4
–
(203.5)
4.2
(16.9)
–
(2.0)
37.3
7.9
(3.9)
–
0.1
The reconciliation shown above has been based on the average UK statutory rate of corporation tax for 2021 of 19% (2020: 19%).
The Finance Act 2021 was enacted on 10 June 2021 and increased the UK main rate of corporation tax from 19% to 25% with effect
from 1 April 2023. The increased UK rate has been taken into account in computing the UK deferred taxes at the 31 December 2021
balance sheet date and reflected in these financial statements.
The applicable UK statutory tax rate applying to North Sea oil and gas activities is 40% (2020: 40%). The applicable statutory tax rate
applying to oil and gas activities in Egypt is currently 40.55%.
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
187
Section 5 – Taxation continued
5.2 Tax Charge on Profit/(Loss) for the Year continued
Factors Affecting Tax Charge for the Year continued
The effect of special tax rates and reliefs applying to oil and gas activities of US$(10.7)m (2020: US$(16.9)m) comprises US$(8.0)m (2020:
US$8.5m) in respect of differences between the average UK statutory rate and the special rates applying to oil and gas activities in the UK
and US$(2.7)m (2020: US$(8.4)m) in respect of the UK ring fence expenditure supplement (“RFES”) claimed in the year.
The Egyptian tax rate is 40.55%.
The effect of temporary differences not recognised of US$26.0m (2020: US$37.3m) includes:
– a US$15.4m (2020: US$17.1m) movement in the year predominantly in respect of the unrecognised deferred tax asset on UK ring
fence corporation tax losses and supplementary tax charge;
– US$(0.9)m (2020: US$nil) movement in the year in respect of unrecognised deferred tax asset on Egypt oil and gas assets and tax
losses;
– US$9.5m (2020:US$5.5m) in respect of UK tax losses and other temporary differences arising in the year on which a deferred tax asset
was recognised;
– US$2.0m (2020: US$12.6m) in respect of overseas tax losses and other temporary differences; and
– in 2020, US$2.1m unsuccessful exploration costs on which future tax relief is available but the expenditure has been expensed
through the Income Statement; US$nil in the current year.
The effect of permanent items non-deductible of US$23.4m (2020: US$7.9m) includes:
– US$3.2m (2020: US$2.5m) in respect of lapsed share incentives for which no tax relief is due;
– US$10.4m (2020: US$3.0m) in respect of non-deductible foreign exchange losses;
– US$2.2m (2020: US$nil) set-up costs in Egypt not deductible for tax purposes;
– US$6.8m (2020: US$1.0m) in respect of assets written off on closure of operations; and
– US$1.0m (2020:US$nil) of other permanent items non-deductible.
5.3 Deferred Tax Assets and Liabilities
Reconciliation of Movement in Deferred Tax Assets/(Liabilities):
Deferred tax assets
At 1 January 2020
Deferred tax credit/(charge) through the Income Statement
At 31 December 2020
Temporary
difference in
respect of non-
current assets
US$m
(303.6)
53.3
(250.3)
Losses
US$m
232.0
(40.5)
191.5
Deferred tax credit/(charge) through discontinued operations
250.3
(191.5)
At 31 December 2021
Deferred tax liabilities
At 1 January 2020 and 31 December 2020
Deferred tax liabilities recognised on business combinations
Deferred tax (credit)/charge through the Income Statement
At 31 December 2021
Deferred tax liabilities analysed by country:
Egypt
UK
–
–
(52.5)
(11.7)
(64.2)
–
–
6.7
14.9
21.6
Other
temporary
differences
US$m
Total
US$m
71.6
(12.8)
58.8
(58.8)
–
–
–
(0.1)
(0.1)
–
–
–
–
–
–
(45.8)
3.1
(42.7)
As at
31 December
2021
US$m
As at
31 December
2020
US$m
(42.6)
(0.1)
(42.7)
–
–
–
188
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Section 5 – Taxation continued
5.3 Deferred Tax Assets and Liabilities continued
Recognised Deferred Tax Assets
As at the current and previous balance sheet date, no net deferred tax asset has been recognised in the UK as other temporary differences
and tax losses are only recognised to the extent that they offset the UK deferred tax liability arising on business combinations and carried
interests attributable to UK Ring Fence trading activity, as it is not considered probable that future profits will be available to recover the
value of the asset.
The applicable UK statutory tax rate applying to North Sea oil and gas activities of 40% is made up of Ring Fence Corporation Tax (“RFCT”)
of 30% and Supplementary Charge Tax (“SCT”) of 10%. At the balance sheet date the Group has US$159.3m RFCT losses which can be
offset against RFCT of 30% on future ring fence trading profits and US$69.8m SCT losses which can be offset against SCT of 10% on
future ring fence trading profits.
In 2020 the Group had US$486.3m of RFCT and US$409.8m of SCT losses carried forward to offset against future ring fence trading profits.
A deferred tax asset has been recognised in respect of RFCT losses of US$17.8m offsetting in full a deferred tax liability on ring fence
temporary differences in respect of non-current assets. No deferred tax asset has been recognised on other ring fence temporary
differences of US$141.5m (2020: US$nil) relating to RFCT losses, US$69.8m and US$642.0m (2020: US$nil) relating to activated
investment allowances, as it is not considered probable that these amounts will be utilised in future periods.
Unrecognised Deferred Tax Assets
No deferred tax asset has been recognised on the following as it is not considered probable that it will be utilised in future periods:
UK fixed asset temporary differences
UK ring fence corporation tax trading losses
UK supplementary charge tax loss
UK other ring fence temporary differences
UK non-ring fence trading losses
UK excess management expenses
UK non-trade deficits
UK temporary differences on share-based payments
Egypt fixed asset temporary differences
Egypt ring fence corporation tax trading losses
Mexico tax losses and temporary differences
Brazil tax losses
Israel temporary differences in respect of non-current assets
At
31 December
2021
US$m
At
31 December
2020
US$m
30.2
141.5
69.8
642.0
–
386.3
72.6
30.3
51.4
25.8
136.1
0.6
2.7
24.3
–
–
148.7
3.7
331.7
79.6
38.5
–
–
127.0
0.6
–
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
189
Section 6 – Discontinued Operations and Assets and Liabilities Held-For-Sale
6.1 Profit/(Loss) from Discontinued Operations
Sale of Capricorn’s Interest in the Catcher and Kraken Producing Assets (“UK Producing Assets”)
On 8 March 2021, Capricorn agreed to sell its interests in the UK Catcher and Kraken producing assets to Waldorf Production Limited,
and following approval from joint operation partners and relevant authorities the sale completed on 2 November 2021.
Assets and liabilities within the transaction perimeter were reclassified as held-for-sale as at 8 March 2021. Comparative information
for financial performance of the UK North Sea producing assets has been restated as discontinued operations for the year ended
31 December 2020.
Consideration under the agreement was:
– an initial cash consideration of US$425.0m, subject to adjustments for working capital and other customary interim period
adjustments from the economic effective date of 1 January 2020;
– further purchaser bonds of US$30.0m, sold shortly after completion, and
– additional contingent consideration (“earn-out consideration”) dependent on oil prices from 2021 to the end of 2025 and minimum
production levels being achieved, which at 2 November 2021 had a risk-weighted fair value of US$197.4m.
At the date of disposal, the interim period and working capital adjustments reduced the consideration due on completion by US$361.1m.
The interim period adjustments reflect the cash inflows generated from oil and gas sales during the period, offset by outflows on the
costs of production, including fixed and variable lease payments, and working capital movements. The total consideration including all
adjustments was US$289.6m.
The risk-weighted fair value of the contingent consideration as at 31 December 2021 had fallen by US$8.1m from the date of completion
to US$189.3m, see note 3.5.
Impairment tests were conducted on the disposal group as at the date of reclassification as held-for-sale resulting in an impairment
charge against the carrying value of the disposal group of US$56.0m. The impairment arose principally as a result of the reversal of
deferred tax liabilities, previously included within the carrying value of the asset within the impairment test. Following the change of the
expected recovery of the assets through disposal rather than through ongoing production, temporary differences on the asset reversed
eliminating the deferred tax liability in full. Those deferred tax liabilities were previously offset by a deferred tax asset on non-asset specific
tax losses which also reversed on the change in recovery.
Sale of Capricorn Norge AS (“Norway”)
Capricorn’s sale of Capricorn Norge AS to Sval Energi AS completed on 28 February 2020.
The financial performance of the Norwegian subsidiary was presented as discontinued operations in the Financial Statements for the year
ended 31 December 2020.
Sale of Working Interests in Senegal
Capricorn disposed of its entire 40% working interest in its Senegal exploration and development assets in December 2020. The financial
performance of the Senegal operations was presented as discontinued operations for the year ended 31 December 2020.
The financial performance of the discontinued operations is expanded in the tables below.
Revenue
Cost of sales
Depletion and amortisation
Gross Profit
Impairment of disposal group
Operating profit
Loss on financial asset at fair value through profit or loss – earn out consideration
Finance costs
Profit before tax from discontinued operations
Taxation
Profit after tax from discontinued operations
Loss on disposal of discontinued operations
Profit from discontinued operations
190
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
UK
producing
assets
US$m
Year ended
31 December
2021
US$m
411.8
(103.8)
(35.3)
272.7
(56.0)
216.7
(8.1)
(9.8)
411.8
(103.8)
(35.3)
272.7
(56.0)
216.7
(8.1)
(9.8)
198.8
198.8
–
–
198.8
(173.8)
198.8
(173.8)
25.0
25.0
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Section 6 – Discontinued Operations and Assets and Liabilities Held-For-Sale continued
6.1 Profit/(Loss) from Discontinued Operations continued
Revenue
Cost of sales
Depletion and amortisation
Gross Profit
Pre-award costs
Administrative expenses
Operating profit/(loss)
Finance costs
Profit/(Loss) before taxation from discontinued operations
Taxation
Current tax credit
Deferred tax credit
Profit after tax from discontinued operations prior to disposal
Loss on disposal of discontinued operations
UK
producing
assets
(restated)
US$m
394.3
(115.5)
(215.7)
63.1
–
–
63.1
(23.3)
39.8
–
–
39.8
–
Norway1
US$m
Senegal2
US$m
Year ended
31 December
2020
(restated) US$m
–
–
–
–
(1.5)
(0.3)
(1.8)
(0.3)
(2.1)
2.4
0.2
–
–
–
–
–
–
–
–
–
–
–
394.3
(115.5)
(215.7)
63.1
(1.5)
(0.3)
61.3
(23.6)
37.7
2.4
0.2
0.5
(39.5)
–
(237.3)
40.3
(276.8)
Profit/(Loss) from discontinued operations
39.8
(39.0)
(237.3)
(236.5)
1 Period ended 28 February 2020
2 Period ended 22 December 2020
Earnings per Share for Profit/(Loss) from Discontinued Operations
Profit/(Loss) per ordinary share – basic (cents)
Profit/(Loss) per ordinary share – diluted (cents)
Loss on Disposal of UK Producing Assets
The loss on disposal of the UK producing assets on 2 November 2021 is calculated as follows:
Base consideration
Interim period adjustment
Cost of disposal
Net proceeds
Purchaser bonds
Earn-out consideration
Total net consideration
Derecognition of assets and liabilities:
Assets held-for-sale, net of impairment (note 6.3)
Liabilities held-for-sale (note 6.3)
Loss on disposal of UK North Sea producing assets
2021
cents
5.05
4.91
2020
cents
(40.59)
(40.59)
US$m
425.0
(361.1)
(1.7)
62.2
30.0
197.4
289.6
(837.0)
373.6
(173.8)
Earn-out consideration is included in the loss on sale calculation and recorded on the Balance Sheet as this future income represents
consideration receivable from the disposal of a business rather than revenue generated from the sale of an asset, which would fall under
IFRS 15.
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
191
Section 6 – Discontinued Operations and Assets and Liabilities Held-For-Sale continued
6.1 Profit/(Loss) from Discontinued Operations continued
Loss on Disposal of UK Producing Assets continued
Gross Profit: Revenue and Cost of Sales
Oil sales
Gas sales
(Loss)/Gain on hedge options designated for hedge accounting (note 3.7)
Loss on options after cessation of hedge accounting
Loss on hedge options not designated for hedge accounting
Release of deferred revenue (note 3.9)
Revenue from oil and gas sales
Production costs
Oil inventory and underlift adjustment
Variable lease charges
Cost of sales
Depletion and amortisation (note 2.4)
Gross profit
Year ended
31 December
2021
US$m
Year ended
31 December
2020
US$m
405.7
1.6
(14.9)
(2.3)
–
21.7
323.7
0.8
56.0
–
(0.1)
13.9
411.8
394.3
(81.8)
3.4
(25.4)
(75.9)
(16.6)
(23.0)
(103.8)
(115.5)
(35.3)
(215.7)
272.7
63.1
During the ten month period until the disposal on 2 November 2021, the UK North Sea production averaged ~19,000 boepd (twelve
months to 31 December 2020: ~21,000 boepd). Average sale prices increased to US$70.37/boe (31 December 2020: US$42.23/boe).
The improving oil price realised in 2021 reflected the recovery in oil prices compared with the oil prices impacted by the COVID-19
pandemic during 2020. The higher average oil price in 2021 led to realised hedging losses compared with the significant hedging gains
of 2020. On completion of the disposal, remaining hedges no longer qualified for hedge accounting and the loss on the maturity of those
options of US$2.3m is disclosed separately above.
Loss on Disposal of Capricorn Norge AS (‘Norway’)
The loss on disposal of Capricorn Norge AS in 2020 was calculated as follows:
Gross cash proceeds
Costs of disposal
Net proceeds
Disposal of cash and cash equivalents
Disposal of assets and liabilities held-for-sale:
Intangible exploration/appraisal assets
Property, plant and equipment – development/producing assets
Other property, plant & equipment and intangible assets
Trade and other receivables
Income tax asset
Loans and borrowings
Lease liability
Trade and other payables
Provisions – decommissioning
Translation loss recycled from Other Comprehensive Income
Loss on disposal of Capricorn Norge AS
US$m
105.2
(0.5)
104.7
(2.2)
(24.3)
(74.3)
(1.4)
(7.6)
(28.1)
22.9
0.5
12.4
2.5
(97.4)
(44.6)
(39.5)
On completion of the sale in February 2020, the merger reserve of US$255.9m relating to the acquisition of Capricorn Norge AS was
transferred to retained earnings.
192
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Section 6 – Discontinued Operations and Assets and Liabilities Held-For-Sale continued
6.1 Profit/(Loss) from Discontinued Operations continued
Loss on Disposal of Working Interests in Senegal
The loss on disposal of Senegal oil and gas assets in 2020 was calculated as follows:
Gross cash proceeds
Costs of disposal
Net proceeds
Derecognition of assets and liabilities:
Intangible exploration/appraisal assets
Property, plant and equipment – development/producing assets
Joint operation receivables
Joint operation payables
Loss on disposal of Senegal oil and gas assets
US$m
524.8
(7.7)
517.1
(145.7)
(602.0)
(24.1)
17.4
(237.3)
Deferred consideration of up to US$100.0m was receivable dependent upon the first oil date and the oil price at that time. In accordance
with IFRS15, no amount is recognised at the balance sheet date as there is no reasonable certainty that it would not reverse in future
periods. At 31 December 2021, the risk-weighted fair value of the deferred consideration was US$51.4m (2020: US$27.2m). The Senegal
transaction was determined to be an asset sale rather than business disposal.
The costs of disposal of US$7.7m included amounts accrued at 31 December 2020 of US$6.0m.
6.2 Cash Flow Information for Discontinued Operations
Net cash flows from operating activities
Net cash flows used in investing activities
Net cash flows used in financing activities
Net increase in cash and cash equivalents
Net cash flows from/(used in) operating activities
Net cash flows (used in)/from investing activities
Net cash flows used in financing activities
Net increase/(decrease) in cash and cash equivalents
1 Period ended 28 February 2020
2 Period ended 22 December 2020
UK
producing
assets
US$m
240.4
(9.4)
(42.5)
188.5
UK
producing
assets
(restated)
US$m
290.1
(32.2)
(55.0)
202.9
Norway
US$m
Senegal
US$m
–
–
–
–
–
–
–
–
Norway1
US$m
Senegal2
US$m
1.5
(6.4)
(0.4)
(5.3)
(0.2)
284.5
(5.4)
278.9
Period ended
2 November
2021
US$m
240.4
(9.4)
(42.5)
188.5
Year ended
31 December
2020
US$m
291.4
245.9
(60.8)
476.5
There was no cash and cash equivalents disposed of on the sale of the UK producing assets in 2021.
In 2020, US$2.2m cash and cash equivalents was disposed of on the sale of Capricorn Norge AS; there was no cash and cash equivalents
disposed of on the sale of the Senegal assets.
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
193
Section 6 – Discontinued Operations and Assets and Liabilities Held-For-Sale continued
6.3 Assets and Liabilities Held-For-Sale
At 31 December 2020 and 31 December 2021 there were no assets or liabilities held-for-sale. Transfers to and from assets and liabilities
held-for-sale during the current year were as follows:
Assets held–for–sale
Property, plant & equipment –
development/producing assets
Inventory
Trade and other receivables
Liabilities held–for–sale
Lease liabilities
Trade and other payables
Provisions – decommissioning
Transferred to
held–for–sale
8 March
2021
US$m
Impairment of
disposal group
at date
of transfer
US$m
Movement
US$m
Disposal
2 November
2021
US$m
814.5
15.0
48.7
(56.0)
–
–
5.4
0.7
8.7
(763.9)
(15.7)
(57.4)
878.2
(56.0)
14.8
(837.0)
227.6
29.8
153.9
411.3
–
–
–
–
(27.7)
(7.6)
(2.4)
(199.9)
(22.2)
(151.5)
(37.7)
(373.6)
Following the agreement entered into in March 2021 to sell the Kraken and Catcher UK North Sea producing assets to Waldorf
Production Limited, the UK North Sea assets and associated liabilities were reclassified as held-for-sale, forming a single disposal group.
On the date of transfer of the assets and liabilities into the disposal group, an impairment test was performed comparing the carrying
value of the disposal group against its recoverable value, based on fair value less cost of disposal (falling within Level 2 of the fair value
hierarchy), resulting in an impairment of US$56.0m, which was allocated to property, plant & equipment – development/producing assets,
charged to the Income Statement.
194
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Section 7 – Capital Structure and Other Disclosures
This section includes details of Capricorn’s issued share capital and equity reserves.
Other disclosures include details on the auditors’ remuneration. Details on the Group’s policy on
the award of non-audit work to the auditors can be found in the Report of the Audit Committee.
Significant Accounting Judgements in This Section:
There are no significant accounting judgements in this section.
Key Estimates and Assumptions in This Section:
There are no key estimates or assumptions in this section.
7.1 Issued Capital and Reserves
Called-Up Share Capital
Allotted, issued and fully paid ordinary shares
At 1 January 2020
Issued and allotted for employee share options
At 31 December 2020
Issued and allotted for employee share options pre consolidation
Number
231/169p
ordinary
‘000
589,553
165
589,718
99
Number
21/13p
ordinary
‘000
231/169p
ordinary
US$m
21/13p
ordinary
US$m
–
–
–
–
12.6
–
12.6
–
–
–
–
–
Consolidation of shares
(589,817)
499,076
(12.6)
12.6
Issued and allotted for employee share options post consolidation
Share re-purchase
At 31 December 2021
Share premium
At 1 January
Arising on shares issued for employee share options
At 31 December
–
–
–
253
(2,482)
496,847
–
–
–
2021
US$m
490.1
0.8
490.9
–
–
12.6
2020
US$m
489.8
0.3
490.1
The Company does not have a limited amount of authorised share capital. On 11 January 2021, Capricorn undertook a share
consolidation where the existing ordinary shares of 231/169 pence each were replaced with ordinary shares of 21/13 pence each, see
note 7.2.
a) Shares held by ESOP Trust
The cost of shares held by the ESOP Trust at 31 December 2021 was US$8.1m (2020 US$4.4m). The number of shares held by the Trust
at 31 December 2021 was 3,590,198 (2020 2,788,271) and the market value of these shares was £6.8m/US$9.1m (2020: £5.8m/
US$8.0m). During 2021, the Group purchased 3,450,260 (2020: 1,028,000) shares at a cost of US$8.7m (2020: US$1.0m). During 2021,
1,628,784 (2020: 1,708,070) shares vested and 600,000 (2020: 825,000) shares were transferred from the ESOP Trust to the SIP Trust.
During 2021, 419,549 shares were created on share consolidation.
b) Shares held by SIP Trust
The cost of shares held by the SIP Trust at 31 December 2021 was US$9.4m (2020: US$9.0m). The number of shares held by the Trust
at 31 December 2021 was 2,960,087 (2020: 3,177,717) and the market value of these shares was £5.6m/US$7.5m (2020: £6.7m/
US$9.1m).
c) Foreign currency translation
Unrealised foreign exchange gains and losses arising on consolidation of non-US$ functional currency subsidiary undertakings are
taken directly to reserves. Foreign exchange differences arising on intra-group loans are not eliminated on consolidation; this reflects
the exposure to currency fluctuations where the subsidiaries involved have differing functional currencies. These intra-group loans are
not considered to be an investment in a foreign operation. The foreign currency translation reserve includes US$54.7m recycled to the
Income Statement in 2021 on the completion of liquidation of various subsidiaries.
d) Merger and capital reserves
The merger reserve of US$255.9m arose in 2012 on shares issued by Capricorn on the acquisition of Capricorn Norge AS. On completion
of the sale of the subsidiary in February 2020, the merger reserve was transferred to retained earnings.
Capital reserves of US$40.9m include amounts arising on various Group acquisitions and transactions and the capital redemption reserve
arising from the 2013-2014 share re-purchase programme. US$0.8m of capital reserves relates directly to Capricorn Energy PLC, the
Company.
e) Hedge reserve
There was no hedge reserve remaining at 31 December 2021 (2020: US$(3.4)m). The hedge reserve is used to recognise the effective
portion of gains or losses on the derivatives that are designated for, and qualify as, cash flow hedges. There were no outstanding hedge
options at the year end.
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
195
Section 7 – Capital Structure and Other Disclosures continued
7.2 Return of Cash to Shareholders and Share Re-Purchase
On 8 January 2021, Capricorn received shareholder approval for the return of cash to shareholders of 32 pence per eligible ordinary share
totalling £188.0m. US$250.0m of the proceeds from the sale of Senegal assets were converted to £ in December 2020 and the return
was paid to shareholders on 25 January 2021. The total return to shareholders, after exchange differences from the date of the conversion
from US$ to £ and associated costs, was US$257.2m.
Capricorn plans to return up to US$700.0m of the India tax refund proceeds to shareholders. US$500.0m will be returned by way of a
tender offer and US$200.0m will be returned by way of an ongoing share re-purchase programme, subject to shareholder approval. On
15 November 2021, it was announced that the Company would commence the re-purchase programme with an initial amount of up to
£20m out of the planned US$200.0m programme. This initially ran until the end of February 2022. At 31 December 2021, 2.7m shares
had been repurchased at a cost of US$6.6m.
7.3 Capital Management
The objective of the Group’s capital management structure is to ensure that there remains sufficient liquidity within the Group to carry
out committed work programme requirements. The Group monitors the long-term cash flow requirements of the business in order to
assess the requirement for changes to the capital structure to meet that objective and to maintain flexibility. The Group is subject to semi-
annual forecast liquidity tests as part of the Senior and Junior Debt Facilities. The Group has complied with the capital requirements of
these tests at all times during the year.
Capricorn manages the capital structure and makes adjustments to it in light of changes to economic conditions. To maintain or adjust the
capital structure, Capricorn may re-purchase shares, make a special dividend payment to shareholders, return capital, issue new shares for
cash, repay debt, put in place new debt facilities or undertake other such restructuring activities as appropriate. No significant changes
were made in the objectives, policies or processes during the year ended 31 December 2021.
Capital and net debt, including lease liabilities, was as follows:
Loans and borrowings
Lease liabilities
Less cash and cash equivalents
Net funds
Equity
Capital and net funds
Gearing ratio
At
31 December
2021
US$m
At
31 December
2020
US$m
177.0
3.7
(314.1)
(133.4)
1,798.6
1,665.2
–
240.0
(569.6)
(329.6)
1,125.6
796.0
–
–
As detailed in note 7.2 Capricorn returned cash of US$257.2m to shareholders in January 2021. This dividend was paid out of retained earnings.
7.4 Guarantees
It is normal practice for the Group to issue guarantees in respect of obligations during the normal course of business.
Since the cancellation of the RBL, issued guarantees are now issued from a number of bilateral unsecured lines.
The Group provided the following guarantees at 31 December 2021:
– various guarantees for the Group’s operational commitments for the current year of US$52.5m (2020: US$45.1m); and
– Parent Company Guarantees for the Group’s obligations under joint operating agreements and other contracts.
196
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Section 7 – Capital Structure and Other Disclosures continued
7.5 Auditors’ Remuneration
Fees payable to the Group’s external auditors (including associate firms) for:
Audit fees:
Auditing of the Financial Statements of the Group and the Company
Auditing of the Financial Statements of subsidiaries
Non-audit fees:
Audit-related assurance services
Other assurance services relating to corporate finance transactions
Non-audit services not included above
Year ended
31 December
2021
US$’000
Year ended
31 December
2020
US$’000
487
457
944
234
83
–
317
396
479
875
267
424
6
697
Total fees
1,261
1,572
The Group has a policy in place for the award of non-audit work to the auditors which requires Audit Committee approval (see the Audit
Committee Report on page 101).
The split of audit fees to non-audit fees payable to the auditors is as follows:
2021 Fees to the Auditors
2020 Fees to the Auditors
Non-audit fee:
(cid:142)(cid:132)(cid:226)(cid:401)(cid:335)(cid:385)(cid:216)(cid:457)(cid:457)(cid:457)
Audit fee:
(cid:142)(cid:132)(cid:226)(cid:320)(cid:266)(cid:266)(cid:216)(cid:457)(cid:457)(cid:457)
Non-audit fee:
(cid:142)(cid:132)(cid:226)(cid:390)(cid:320)(cid:385)(cid:216)(cid:457)(cid:457)(cid:457)
Audit fee:
(cid:142)(cid:132)(cid:226)(cid:238)(cid:385)(cid:259)(cid:216)(cid:457)(cid:457)(cid:457)
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
197
Company Balance Sheet
As at 31 December 2021
Non-current assets
Investments in subsidiaries
Long-term intercompany receivables
Current assets
Cash and cash equivalents
Other receivables
Derivative financial instruments
Total assets
Current liabilities
Lease liability
Derivative financial instruments
Trade and other payables
Non-current liabilities
Lease liability
Total liabilities
Net assets
Equity
Called-up share capital
Share premium
Shares held by ESOP/SIP Trusts
Capital reserves
Retained earnings:
At 1 January
Loss for the year
Other movements in retained earnings
Total equity
Note
8.2
8.3
8.4
8.5
8.6
8.6
8.7
7.1
7.1
7.1a,b
7.1d
2021
US$m
2020
US$m
1,155.1
8.1
1,163.2
1,146.4
3.0
1,149.4
32.1
7.0
–
39.1
251.9
2.3
3.4
257.6
1,202.3
1,407.0
1.8
–
97.1
98.9
1.3
1.3
100.2
1.7
3.4
10.7
15.8
3.0
3.0
18.8
1,102.1
1,388.2
12.6
490.9
(17.5)
0.8
898.2
(4.5)
(278.4)
615.3
12.6
490.1
(13.4)
0.7
1,167.6
(531.0)
261.6
898.2
1,102.1
1,388.2
The Financial Statements on pages 198 to 207 were approved by the Board of Directors on 8 March 2022 and signed on its behalf by:
James Smith
Chief Financial Officer
Simon Thomson
Chief Executive
198
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Company Statement of Cash Flows
For the year ended 31 December 2021
Cash flows from operating activities:
Loss before taxation
Share-based payments charge
Impairment of investment in subsidiary
Waiver of intercompany loan
Finance income
Finance costs
Other receivables movement
Trade and other payables movement
Net cash from/(used in) operating activities
Cash flows from investing activities:
Dividend received
Group funding
Interest received and other finance income
Net cash flows from investing activities
Cash flows from financing activities:
Return of cash to shareholders
Share re-purchase
Facility fees, other interest and charges
Cost of shares purchased
Proceeds from issue of shares
Lease payments
Net cash flows used in financing activities
Net (decrease)/increase in cash and cash equivalents
Foreign exchange differences
Opening cash and cash equivalents at beginning of year
Closing cash and cash equivalents
Note
2021
US$m
2020
US$m
(4.5)
(531.0)
1.5
–
–
(6.5)
1.0
(9.7)
67.5
49.3
–
–
–
–
(257.2)
(7.8)
(0.9)
(8.7)
0.9
(1.8)
(275.5)
(226.2)
6.4
251.9
32.1
1.6
855.7
138.7
(486.6)
12.8
4.9
(7.4)
(11.3)
183.3
82.1
2.0
267.4
–
–
(4.3)
(1.0)
0.3
(1.4)
(6.4)
249.7
–
2.2
251.9
7.1a
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
199
Retained
earnings
US$m
1,167.6
(531.0)
(531.0)
255.9
9.1
–
–
(3.4)
898.2
(4.5)
(4.5)
(257.2)
10.2
–
(26.8)
–
(4.6)
Total
equity
US$m
1,910.8
(531.0)
(531.0)
–
9.1
0.3
(1.0)
–
1,388.2
(4.5)
(4.5)
(257.2)
10.2
0.9
(26.8)
(8.7)
–
615.3
1,102.1
–
–
(255.9)
–
–
–
–
0.7
–
–
–
–
–
0.1
–
–
0.8
Company Statement of Changes in Equity
For the year ended 31 December 2021
At 1 January 2020
Loss for the year
Total comprehensive expense
Merger reserve transferred to retained earnings (note 7.1d)
Share-based payments
Exercise of employee share options
Cost of shares purchased
Cost of shares vesting
Equity share
capital and
share
premium
US$m
Shares held
by ESOP/SIP
Trusts
US$m
Merger
and capital
reserves
US$m
502.4
(15.8)
256.6
–
–
–
–
0.3
–
–
–
–
–
–
–
(1.0)
3.4
At 31 December 2020
502.7
(13.4)
Loss for the year
Total comprehensive expense
Return of cash to shareholders
Share-based payments
Exercise of employee share options
Share re-purchase
Cost of shares purchased
Cost of shares vesting
–
–
–
–
0.9
(0.1)
–
–
–
–
–
–
–
–
(8.7)
4.6
At 31 December 2021
503.5
(17.5)
200
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Section 8 – Notes to the Company Financial Statements
This section contains the notes to the Company Financial Statements.
The issued capital and reserves of the Company are largely consistent with the Capricorn
Energy PLC Group Financial Statements, as per note 7.1
Key Estimates and Assumptions in This Section:
Impairment Testing of Investments in Subsidiaries
The Company’s investment in Capricorn Oil Limited has been tested for impairment by comparison against the fair value of intangible
exploration/appraisal assets, property, plant & equipment – development/producing assets and working capital, including cash and
cash equivalents and intercompany receivables, held within the Capricorn Oil Limited sub-group. The fair value of oil and gas assets is
calculated using the same assumptions as noted in section 2.
8.1 Basis of Preparation
The Financial Statements of Capricorn Energy PLC (Formerly Cairn Energy PLC) have been prepared in accordance with UK-adopted
International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under
those standards. Changes to the accounting framework from EU adopted IFRS are as described for the Group in note 1.1 b).
The Company applies accounting policies consistent with those applied by the Group. To the extent that an accounting policy is relevant
to both Group and Company Financial Statements, refer to the Group Financial Statements for disclosure of the accounting policy.
Material policies that apply to the Company only are included as appropriate.
Capricorn has used the exemption granted under s408 of the Companies Act 2006 that allows for the non-disclosure of the Income
Statement of the Parent company.
8.2 Investments in Subsidiaries
Accounting Policy
The Company’s investments in subsidiaries are carried at cost less provisions resulting from impairment. In testing for impairment
the carrying value of the investment is compared to its recoverable amount, being its fair value less costs of disposal. The fair value
includes the discounted future net cash flows of oil and gas assets held by the subsidiary, using estimated cash flow projections
over the licence period. For exploration assets, estimated discounted cash flows are risk-weighted for future exploration success.
Discounted future net cash flows are calculated using an estimated short-term oil price based on the forward curve and long-term
oil price of US$55/bbl unescalated (2020: US$55/bbl unescalated), escalation for costs of 4.0% (2020: 0.5%) and a discount rate of
10% (2020: 10%). Full details on the assumptions used for valuing oil and gas assets can be found in section 2.
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
201
Section 8 – Notes to the Company Financial Statements continued
8.2 Investments in Subsidiaries continued
Cost
At 1 January 2020
Additions
At 31 December 2020
Additions
At 31 December 2021
Impairment
At 1 January 2020
Impairment charge
At 31 December 2020 and 31 December 2021
Net book value
At 31 December 2019
At 31 December 2020
At 31 December 2021
Subsidiary
undertakings
US$m
3,693.5
7.5
3,701.0
Total
US$m
3,693.5
7.5
3,701.0
8.7
8.7
3,709.7
3,709.7
1,698.9
855.7
1,698.9
855.7
2,554.6
2,554.6
1,994.6
1,146.4
1,994.6
1,146.4
1,155.1
1,155.1
Additions during the year of US$8.7m (2020: US$7.5m) relate to the Company’s investment in Capricorn Oil Limited. These represent
share awards made by the Company to the employees of Capricorn Energy Holdings Limited (a principal subsidiary of Capricorn Oil
Limited).
At the year end, investments in subsidiaries were reviewed for indicators of impairment and impairment tests conducted where indicators
were identified. No impairment arose at the year end. At December 2020, the Company’s investment in Capricorn Oil Limited was
impaired to reflect the fair value or value in use of the underlying assets of the Capricorn Oil Group. In 2020 a charge of $855.7m was
made to the Company’s Income Statement.
The recoverable value of the assets of Capricorn Oil Limited used in the impairment test is based on the market value of tangible assets
held by its subsidiaries, cash and cash equivalents held and an assumption that the recoverable value of exploration assets is broadly
aligned to the carrying value. Removing the value attributed to future exploration success would not indicate an impairment in 2021.
202
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Section 8 – Notes to the Company Financial Statements continued
8.2 Investments in Subsidiaries continued
The Company’s subsidiaries as at the balance sheet date are set out below. The Company holds 100% of the voting rights and beneficial
interests in the ordinary shares of the following companies:
Direct Holdings
Cairn UK Holdings Limited
Capricorn Energy Investments
Limited
Capricorn Oil Limited
Capricorn Senegal (Holding)
Limited
Indirect Holdings
Agora Oil and Gas (UK) Limited
Alba Resources Limited2
Capricorn (Tamar) Limited
Partnership
Business
Country of
incorporation
Country of
operation
Registered office address
Holding company Scotland
Scotland
Investment
Scotland
Scotland
50 Lothian Road, Edinburgh, EH3 9BY
50 Lothian Road, Edinburgh, EH3 9BY
Holding company Scotland
Holding company England
Scotland
50 Lothian Road, Edinburgh, EH3 9BY
Scotland Wellington House 4th Floor, 125 The Strand, London,
WC2R 0AP
Business
Country of
incorporation
Country of
operation
Registered office address
Scotland
Scotland
Israel
Exploration
Exploration
Limited
Partnership
company
Holding company Scotland
Exploration
Brazil
Capricorn Americas Limited
Capricorn Brasil Petróleo e Gás
Ltda
Capricorn Côte d’Ivoire Limited
Scotland
Capricorn Egypt (Holding) Limited Holding company England
Exploration
Capricorn Egypt Limited
Exploration
England
UK
UK
UK
Israel
50 Lothian Road, Edinburgh, EH3 9BY
50 Lothian Road, Edinburgh, EH3 9BY
Vitania Tel-Aviv Tower, 20 Haharash St. TLV Israel,
6761310
Scotland
Brazil
50 Lothian Road, Edinburgh, EH3 9BY
Praia de Botafogo 228, 16th floor, suite 1601
Zip Code 22250-040 Rio de Janeiro, Brazil
Côte d’Ivoire 50 Lothian Road, Edinburgh, EH3 9BY
UK
Wellington House 4th Floor, 125 The Strand, London,
WC2R 0AP
Wellington House 4th Floor, 125 The Strand, London,
WC2R 0AP
50 Lothian Road, Edinburgh, EH3 9BY
Holding company Scotland
Scotland
Capricorn Energy Holdings
Limited
Capricorn Energy Mexico S. de R.L.
de C.V.
Capricorn Energy Search Limited2 Exploration
Exploration
Capricorn Energy UK Limited
Exploration
Mexico
Mexico
Scotland
England
Scotland
UK
Av. Paseo de la Reforma 295, Cuauhtémoc, CP 06500,
CDMX, México
50 Lothian Road, Edinburgh, EH3 9BY
Wellington House 4th Floor, 125 The Strand, London,
WC2R 0AP
50 Lothian Road, Edinburgh, EH3 9BY
Exploration
Scotland
Morocco
Capricorn Exploration and
Development Company Limited2
Capricorn Exploration Limited1
Capricorn Ireland Limited2
Capricorn Low Carbon Solutions
Limited
Capricorn Mauritania Limited
Capricorn Nicaragua BV
Capricorn Offshore Exploration
Limited
Capricorn Oil and Gas Tunisia
GmbH2
Capricorn Petroleum Limited
Capricorn Production (Holdings)
Limited
Capricorn Production I Limited
Capricorn Production II Limited
Capricorn Resources
Management Limited
Capricorn Senegal Limited
Capricorn Spain Limited2
Capricorn Suriname BV
Non-trading
Exploration
Scotland
Scotland
Carbon trading
England
Exploration
Exploration
Exploration
Scotland
The
Netherlands
Scotland
Non-trading 50 Lothian Road, Edinburgh, EH3 9BY
50 Lothian Road, Edinburgh, EH3 9BY
Republic
of Ireland
UK
Wellington House 4th Floor, 125 The Strand, London,
WC2R 0AP
Mauritania 50 Lothian Road, Edinburgh, EH3 9BY
Non-trading 50 Lothian Road, Edinburgh, EH3 9BY
Israel
50 Lothian Road, Edinburgh, EH3 9BY
Non-trading
Switzerland Non-trading Gubelstrasse 5, Postfach 1524, CH-6301 Zug,
Holding company Scotland
Scotland
Dormant
Scotland
Scotland
Switzerland
50 Lothian Road, Edinburgh, EH3 9BY
50 Lothian Road, Edinburgh, EH3 9BY
Dormant
Dormant
Royalty interest
Scotland
Scotland
Scotland
Scotland
Scotland
Mongolia
50 Lothian Road, Edinburgh, EH3 9BY
50 Lothian Road, Edinburgh, EH3 9BY
50 Lothian Road, Edinburgh, EH3 9BY
Exploration
Exploration
Exploration
Scotland
Scotland
The
Netherlands
Senegal
Spain
Suriname
50 Lothian Road, Edinburgh, EH3 9BY
50 Lothian Road, Edinburgh, EH3 9BY
50 Lothian Road, Edinburgh, EH3 9BY
Nautical Holdings Limited2
Holding company England
UAH Limited2
Holding company England
UK
UK
Wellington House 4th Floor, 125 The Strand, London,
WC2R 0AP
Wellington House 4th Floor, 125 The Strand, London,
WC2R 0AP
1 Exempt from audit under Section 480 of the Companies Act
2 Company is in the process of liquidation
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
203
Section 8 – Notes to the Company Financial Statements continued
8.3 Long-Term Intercompany Receivables
Long-term intercompany receivables
At
31 December
2021
US$m
At
31 December
2020
US$m
8.1
8.1
3.0
3.0
Long-term intercompany receivables include amounts due from Capricorn Energy Investments Limited of US$6.8m.
8.4 Cash and Cash Equivalents
Cash at bank
Money market funds
8.5 Other Receivables
Other receivables
Amounts receivable from subsidiary undertakings
Prepayments
8.6 Derivative Financial Instruments
Current assets
Financial assets – hedge options maturing within one year
Current liabilities
Financial liabilities – hedge options maturing within one year
At
31 December
2021
US$m
At
31 December
2020
US$m
32.1
–
32.1
1.9
250.0
251.9
At
31 December
2021
US$m
At
31 December
2020
US$m
3.1
2.3
1.6
7.0
2.3
–
–
2.3
At
31 December
2021
US$m
At
31 December
2020
US$m
–
–
–
3.4
(3.4)
–
At 31 December 2020, mark-to-market gains and losses on commodity derivatives were recorded as financial assets and liabilities.
Capricorn Energy PLC entered into option contracts with third parties and back-to-back contracts with a subsidiary on the same date,
with the same terms. Therefore there are equal financial assets and liabilities. Details of Group hedging can be found in note 3.7. All
hedges matured on 31 December 2021, with no further option contracts being signed.
8.7 Trade and Other Payables
Trade and other payables
Amounts payable to subsidiary undertakings
Accruals
Accruals include US$20.2m payable for the share re-purchase agreed in 2021.
At
31 December
2021
US$m
At
31 December
2020
US$m
–
76.0
21.1
97.1
0.5
8.1
2.1
10.7
204
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Section 8 – Notes to the Company Financial Statements continued
8.8 Financial Instruments
Set out below is the comparison by category of carrying amounts and fair values of all the Company’s financial instruments that are
carried in the Financial Statements. The fair value of financial assets and liabilities, other than those relating to hedge options, has been
calculated by discounting the expected future cash flows at prevailing interest rates. Hedge options are valued using models with
observable inputs.
Financial Assets
Carrying amount and fair value
Financial assets at amortised cost
Cash and cash equivalents
Other receivables – amounts receivable from subsidiary undertakings
Other receivables – other
Long-term intercompany receivables
Derivative financial instruments
Financial assets – hedge options
At
31 December
2021
US$m
At
31 December
2020
US$m
32.1
2.3
3.1
8.1
251.9
–
2.3
3.0
–
3.4
45.6
260.6
For all financial assets held at amortised cost, their carrying amount is considered to be the same as their fair value.
Maturity Analysis of Financial Assets
The expected financial maturity of the Company’s financial assets at 31 December 2021 is as follows:
Financial assets at amortised cost
Cash and cash equivalents
Other receivables – amounts receivable from subsidiary undertakings
Other receivables – other
Long-term intercompany receivables
< 1 year
US$m
1–2 years
US$m
2–5 years
US$m
>5 years
US$m
32.1
2.3
3.1
–
37.5
–
–
–
1.3
1.3
–
–
–
6.8
6.8
–
–
–
–
–
The expected financial maturity of the Company’s financial assets at 31 December 2020 was as follows:
Financial assets at amortised cost
Cash and cash equivalents
Other receivables – other
Long-term intercompany receivables
Financial assets – hedge options
Financial Liabilities
Carrying amount and fair value
Financial liabilities at amortised cost
Trade and other payables
Amounts payable to subsidiary undertakings
Accruals
Lease liability
Derivative financial instruments
Financial liabilities – hedge options
< 1 year
US$m
1–2 years
US$m
2–5 years
US$m
>5 years
US$m
251.9
2.3
–
3.4
257.6
–
–
3.0
–
3.0
–
–
–
–
–
–
–
–
–
–
At
31 December
2021
US$m
At
31 December
2020
US$m
–
76.0
21.1
3.1
–
100.2
0.5
8.1
2.1
4.7
3.4
18.8
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
205
Section 8 – Notes to the Company Financial Statements continued
8.8 Financial Instruments continued
Maturity Analysis of Financial Liabilities
The expected financial maturity of the Company’s financial liabilities at 31 December 2021 is as follows:
Financial liabilities at amortised cost
Amounts payable to subsidiary undertakings
Accruals
Lease liability
< 1 year
US$m
1–2 years
US$m
2–5 years
US$m
>5 years
US$m
76.0
21.1
1.8
98.9
–
–
1.3
1.3
–
–
–
–
–
–
–
–
The expected financial maturity of the Company’s financial liabilities at 31 December 2020 was as follows:
Financial liabilities at amortised cost
Trade and other payables
Amounts payable to subsidiary undertakings
Accruals
Lease liability
Derivative financial instruments
Financial liabilities – hedge options
< 1 year
US$m
1–2 years
US$m
2–5 years
US$m
>5 years
US$m
0.5
8.1
2.1
1.7
3.4
15.8
–
–
–
3.0
–
3.0
–
–
–
–
–
–
–
–
–
–
–
–
Financial Risk Management: Risk and Objectives
The Company’s financial risk management policies and objectives are consistent with those of the Group detailed in note 3.11.
The Company is not exposed to material foreign currency exchange rate risk.
8.9 Capital Management
Capital and net debt were made up as follows:
Continuing operations
Amounts payable to subsidiary undertakings
Lease liability
Less cash and cash equivalents
Net debt/(funds)
Equity
Capital and net debt/(funds)
Gearing ratio
At
31 December
2021
US$m
At
31 December
2020
US$m
76.0
3.1
(32.1)
47.0
1,102.1
1,149.1
8.1
4.7
(251.9)
(239.1)
1,388.2
1,149.1
4%
–
206
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Section 8 – Notes to the Company Financial Statements continued
8.10 Related Party Transactions
The Company’s subsidiaries are listed in note 8.2. The following table provides the Company’s balances which are outstanding with
subsidiary undertakings at the balance sheet date:
Amounts payable to subsidiary undertakings
Amounts receivable from subsidiary undertakings
At
31 December
2021
US$m
At
31 December
2020
US$m
(76.0)
10.4
(65.6)
(8.1)
–
(8.1)
The amounts outstanding are unsecured, repayable on demand and will be settled in cash.
The following table provides the Company’s transactions with subsidiary undertakings recorded in the loss for the year:
Amounts invoiced to subsidiaries
Amounts invoiced by subsidiaries
Year ended
31 December
2021
US$m
Year ended
31 December
2020
US$m
11.1
20.4
13.7
56.8
Directors’ Remuneration
The remuneration of the Directors of the Company is set out below. Further information about individual Directors’ remuneration is
provided in the audited section of the Directors’ Remuneration Report on pages 106 to 139.
Emoluments
Share-based payments
Year ended
31 December
2021
US$m
Year ended
31 December
2020
US$m
3.3
1.8
5.1
3.4
0.4
3.8
Pension contributions of US$0.2m (2020: US$0.2m) were made on behalf of Directors in 2021.
748,413 LTIP share awards to Directors vested during 2021 (2020: 290,683). Share-based payments disclosed above represent the
market value at the vesting date of these awards in that year.
Other Transactions
During the year the Company did not make any purchases in the ordinary course of business from an entity under common control
(2020: US$nil).
In 2021 there were no dividends received from subsidiary companies. In December 2020 the Company received a dividend from its
subsidiary, Capricorn Oil Limited, of US$484.6m, of which US$183.3m was settled in cash and US$301.3m by offset against previous
borrowings.
The Company waived a loan of US$138.7m due from Capricorn Senegal (Holding) Limited in December 2020 (2021: US$nil).
Subsequent to the year end the Company received a dividend payment of US$1,056.1m from Cairn UK Holdings Limited following the
receipt of the India tax refund into that subsidiary.
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
207
Licence List
As at 31 December 2021
Country
Asset name
Licence
Block(s)
Operator
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
UK
UK
UK
UK
UK
UK
UK
UK
UK
Alam El Shawish West Alam El Shawish
Al Assil, Al Karam, Bahga, Al Magd Cheiron (20%)
Badr El Din
Badr El Din
Bed-19, Bed-20
Bed 2-17
Bed-3
Bed 2-17
Bed-3
Bed-2, Bed-17
Bed-3
North Alam El Shawish North Alam El Shawish NAES-1
Cheiron (50%)
Cheiron (50%)
Cheiron (50%)
Cheiron (50%)
North East Abu
NEAG Extension
NEAG-1, NEAG-2, NEAG-3,
Cheiron (26%)
Gharadig Extension
NEAG-4, NEAG-5
North East Abu
Gharadig TIBA
NEAG TIBA
JG, JD, SHEIBA
Cheiron (26%)
North Matruh
North Matruh
Teen
North Um Baraka
North Um Baraka
Numb-1
Obaiyed
Sitra
Obaiyed
Sitra
Obaiyed
Sitra
Cheiron (50%)
Cheiron (50%)
Cheiron (50%)
Cheiron (50%)
South Abu Sennan
South Abu Sennan
South Abu Sennan
Capricorn Egypt Limited
Southeast Horus
Southeast Horus
Southeast Horus
Capricorn Egypt Limited
West El Fayium
West El Fayium
West El Fayium
Capricorn Egypt Limited
Plymouth*
Breagh South*
Portsmouth*
Prometheus*
Cadence*
Woodstock
Jaws
Manhattan
P2428
P2560
P2561
P2562
P2567
P2379
P2380
P2381
43/7, 43/8
Capricorn Energy UK Limited
42/13b, 42/17, 42/18
Capricorn Energy UK Limited
42/19, 42/20b
42/22, 42/23
43/11, 43/12b
Capricorn Energy UK Limited
Capricorn Energy UK Limited
Capricorn Energy UK Limited
22/11b, 22/12b, 22/16b, 22/17c
Capricorn Energy UK Limited
22/12d
Shell U.K. Limited (50%)
22/13c, 22/18d
Capricorn Energy UK Limited
East Orkney Basin
P2468
13/10, 13/3, 13/4, 13/5, 13/8,
13/9, 14/1, 14/6, 6/28, 6/29
No Operator
Mauritania Block C7
C7 Psc
C7
Capricorn Mauritania Limited
Mexico
Block 7
CNH-R02-L01-A7.CS-
7
Eni (45%)
2017
Mexico
Block 9
CNH-R02-L01-A9.
9
Capricorn Energy Mexico
CS-2017
Mexico
Block 10
CNH-R02-L01-A10.
10
Eni (65%)
Capricorn
Energy
interest
(%)
20
50
50
50
50
26
26
50
50
50
50
50
50
50
60
70
70
70
60
50
50
100
50
90
30
50
15
50
Mexico
Block 15
CS/2017
CNH-R03-L01-G-
TMV-01-2018
Israel
Block 39
Licence No. 39
Israel
Block 40
Licence No. 40
Israel
Block 45
Licence No. 45
Israel
Block 46
Licence No. 46
Israel
Block 47
Licence No. 47
Israel
Block 48
Licence No. 48
Israel
Block 52
Licence No. 52
Israel
Block 53
Licence No. 53
Suriname Block 61
Block 61
* Name subject to change
15
39
40
45
46
47
48
52
53
61
208208
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Capricorn Energy Mexico
Capricorn Offshore Exploration
33.34
Limited
Capricorn Offshore Exploration
33.34
Limited
Capricorn Offshore Exploration
33.34
Limited
Capricorn Offshore Exploration
33.34
Limited
Capricorn Offshore Exploration
33.34
Limited
Capricorn Offshore Exploration
33.34
Limited
Capricorn Offshore Exploration
33.34
Limited
Capricorn Offshore Exploration
33.34
Limited
Capricorn Suriname B.V.
100
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Group Reserves and Resources
As at 31 December 2021
Group Proven Plus Probable Oil and Gas Reserves (2P)
31 December 2020
Disposals
Acquisitions
Additions and Discoveries
Technical Revisions
Commodity Price Revisions
Production
31 December 2021
All current 2P Reserves are located within the Western Desert Assets in Egypt
Sensitivity Analysis with Different Hydrocarbon and Carbon Emission Prices
Total Group 2P Reserves
WEO-2021 Stated Policies Scenario (STEPS)
WEO-2021 Sustainable Development Scenario (SDS)
WEO-2021 Net Zero Scenario (NZE)
Greenhouse Gas Emissions Associated with 2P Reserves
Estimated Scope 1 and 2 emissions
Estimated Scope 3 emissions*
WI
Mt
2.7
33.4
WI
mmboe
EI
mmboe
32.9
(27.2)
94.6
0.0
0.0
0.0
(9.3)
91.0
WI
mmboe
91.8
91.0
90.1
WI
Mt
1.1
13.8
32.9
(27.2)
39.0
0.0
0.0
0.0
(7.3)
37.4
EI
mmboe
36.8
37.1
37.2
EI
kg CO2
equiv/boe
36
368
* Since Capricorn Energy does not control how its products are utilised, Scope 3 emissions are estimated for Categories 9, 10 & 11 of the GHG Protocol (downstream
distribution, refining and use of products assuming all hydrocarbons are combusted).
Subdivision of 2P Reserves
By country
Egypt
Within 20 lowest ranking countries from Transparency International’s Corruption Perception Index
Within protected conservation areas or habitats
Group Contingent Oil and Gas Reserves (2C Development Pending)
31 December 2020
Disposals
Acquisitions
Discoveries
Revisions
31 December 2021
WI
EI
WEO World Energy Outlook 2021, International Energy Agency
Working Interest
Entitlement Interest
%
100
0
0
WI
mmboe
1.2
(1.2)
9.8
0.0
0.0
9.8
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021 209
209
Glossary
The following are the main terms and abbreviations used in this report:
3Rs
2C
2D
3D
2P
ABC
AFE
AGM
ALARP
APP
AQI
BAP
Bapetco
bbl
bbls
bn
boe
boepd
bopd
Brexit
BRINDEX
Denotes best estimate scenario of contingent resources
two dimensional
three dimensional
Proved plus probable reserves, denotes best estimate
scenario
Capricorn core values: Respect, Relationships and
Responsibility
anti bribery and corruption
authority for expenditure
annual general meeting
as low as reasonably practicable
African Partner Pool
Audit Quality Inspection
Biodiversity Action Plan
BADR Petroleum Company
barrel
barrels
billion
barrels of oil equivalent
barrels of oil equivalent per day
barrels of oil per day
Britain’s exit from the European Union
the Association of British Independent Oil Exploration
Companies
British Standard Time
BST
carbon capture, utilisation and storage
CCUS
Carbon Disclosure Project
CDP
Chief Executive Officer
CEO
Crisis and Emergency Response Team
CERT
Chief Financial Officer
CFO
Crisis Incident Management
CIM
Corporate Major Accident Prevention Policy
CMAPP
National Hydrocarbons Commission
CNH
CO2
carbon dioxide
CO2e
carbon dioxide equivalent
Chief Operating Officer
COO
COS
Capricorn Operating Standards
COVID-19 2019 novel coronavirus disease
CR
CRMS
CSR
DAC
E&A
EGPC
EITI
EMEA
ESG
ESAS
ESIA
ETS
ESOP
ETS
EU
EVF
ExecCo
EY
FlowStream FlowStream Thruer Ltd
FPSO
FRC
G&G
GDPR
GHG
GJ
GoI
GRI
H1/2
corporate responsibility
Corporate Responsibility Management System
corporate social responsibility
Direct Air Capture
exploration and appraisal
Egyptian General Petroleum Company
Extractive Industries Transparency Initiative
Europe, Middle East and Africa
Environmental, Social and Governance
Employee Share Award Scheme
Environmental and Social Impact Assessment
Emissions Trading Scheme
employee share option plan
Emissions Trading Scheme
European Union
Employee Voice Forum
Executive Committee
Ernst & Young LLP
floating production storage and offloading
Financial Reporting Council
geological and geophysical
General Data Protection Regulation
greenhouse gas
gigajoule
Government of India
Global Reporting Initiative
first/second half (of a year)
HR
HSE
HSSE
IAS
IASB
ICSA
IEA
IFC
IFRS
IIA
INPG
IOGP
IP
IPIECA
human resources
health, safety and environment
health, safety, security and environment
International Accounting Standards
International Accounting Standards Board
The Chartered Governance Institute
International Energy Agency
International Finance Corporation
International Financial Reporting Standards
Invest in Africa (not-for-profit organisation)
National Institute for Oil and Gas (Senegal)
International Association of Oil and Gas Producers
investment proposal
International Petroleum Industry Environmental
Conservation Association
JV
joint venture
KPI
key performance indicator
LATAM
Latin America
LIBOR
London Interbank Offered Rate
LNG
Liquefied Natural Gas
LTIF
lost time injury frequency
LTI
lost time injuries
LTIP
Long Term Incentive Plan
million
m
mmbbls million barrels of oil
mmboe
MSA
MT
NATIN
NECCUS
NGO
NPV
OECD
million barrels of oil equivalent
Modern Slavery Act
Management Team
Institute for Natural Resources and Engineering Studies
North East Carbon Capture, Utilisation and Storage
non-governmental organisation
Net Present Value
Organisation for Economic Cooperation and
Development
Organization of the Petroleum Exporting Countries
Oslo/Paris convention (for the Protection of the Marine
Environment of the North-East Atlantic)
person discharging managerial responsibility
Production Sharing Contract
PricewaterhouseCoopers LLP
reserves based lending
Ring Fence Corporation Tax
Risk Management Committee
return to office
Sustainability Accounting Standards Board
Industrial Safety, Operational Safety and Environmental
Protection Administration System
Supplementary Charge Tax
The United Nations Sustainable Development Goals
social impact assessment
Senior Independent Director
share incentive plan
small and medium-sized enterprises
SNE development, Senegal
sediment trapping units
terms and conditions
Task Force on Climate-related Financial Disclosures
total recordable injury rate
total shareholder return
United Kingdom
United Kingdom Continental Shelf
United Nations
United Nations Global Compact
United States dollar
working interest
SCT
SDGs
SIA
SID
SIP
SMEs
SNE
STUs
Ts and Cs
TCFD
TRIR
TSR
UK
UKCS
UN
UNGC
US$
WI
Woodside Woodside Energy Ltd.
YTD
OPEC
OSPAR
PDMR
PSC
PwC
RBL
RFCT
RMC
RTO
SASB
SASISOPA
year to date
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Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Appendix: Capricorn Energy Emissions Methodology – Basis of Reporting
Notes About GHG Data
We report our GHG emissions in accordance with the GHG Protocol Corporate Accounting and Reporting Standard (World Resources
Institute/World Business Council for Sustainable Development). We use the published 100-year Global Warming Potentials (GWPs)
for CO2, CH4 and N2O from the Intergovernmental Panel on Climate Change (IPCC) – with the Fourth Assessment Report (AR4) values
applied when using Defra 2021 emission factors (they are already integrated), and the Fifth Assessment Report (AR5) values applied
when using other emission factors. All GHG emissions are reported in tonnes of carbon dioxide equivalent (CO2e) after applying GWPs
recommended by the Intergovernmental Panel on Climate Change’s Fourth Assessment Report. We report five years of data from a
baseline of four years earlier.
Capricorn’s operated boundaries of Scope 1, Scope 2 and Scope 3 emissions will include the following activities for 2021:
In 2021 the operational activities included the following:
Diadem survey
East Orkney survey
Offices
UK – Edinburgh
UK – London
Mexico – Mexico City
Egypt – Cairo
Senegal – Dakar
Travel data covering air, rail travel and hotel stay
February – March 2021
June, September 2021
all year round
all year round
all year round
October – December 2021
January – March 2021
all year round
1: Scope 1 GHG Emissions from Operated Activities
Definition
Scope 1 emissions: direct GHG emissions which occur from sources that are owned or controlled by the Company, for example, emissions
from combustion in owned or controlled boilers, furnaces or vehicles.
At present, Capricorn is undertaking exploration activities only. We are not operating any production assets. Our operated Scope 1
emissions arise from:
– fuel combustion during offshore rig, marine vessel, and aircraft operations, also including land-based vehicles, and for heating the
Edinburgh office;
– flaring during well testing (not since 2018); and
– incineration of waste on marine vessels.
Fuel Combustion
The rig, vessels and helicopters keep a daily log of fuel usage, and each provides us with a total figure for fuel consumption, in litres, at
the end of each month. Fuel consumption figures for land-based vehicles are partly drawn from accurate fuel consumption records and
partly from estimates when exact fuel usage is impractical to track. For our contracted vehicles at our newly opened Egypt office, we have
used a conservative assumption of 7km per litre to calculate fuel consumption.
Natural gas combustion for heating in the Edinburgh office is calculated as a proportion of the natural gas usage for the whole building.
A fuel density figure is used to convert litres of fuel into tonnes. The fuel density is provided by the rig, vessels, or helicopter operator when
available. Otherwise, a typical density is used from API 2009. Figures in tonnes are then converted into CO2e using GWPs for carbon
dioxide (CO2), methane (CH4) and nitrous oxide (N2O) from the API Compendium 2009 which uses the Intergovernmental Panel on
Climate Change’s Fourth Assessment Report.
Flaring
There has been no flaring associated with well testing since 2018. When well testing is carried out, the volume of oil and gas flared is
measured and converted into mass (tonnes) using densities obtained from well test samples that are analysed in the laboratory. Scope
1 GHG emissions (tonnes of CO2e) are then calculated using emission factors from EEMS (Environmental Emissions Monitoring System)
Atmospheric Emissions Calculations, 2008.
Waste Incineration
Waste Incineration is managed by our contracted marine vessels during seismic surveys. For surveys performed in 2021, waste
incineration only makes a small contribution towards our overall Scope 1 emissions. The Scope 1 GHG emissions (tonnes of CO2e) are
calculated using emission factors from the GHG Protocol.
Estimates and Uncertainties
Natural gas combustion for heating Capricorn’s Edinburgh office is calculated as a proportion of the natural gas usage for the whole
building. We use the most applicable emission factors available, but there will always be a small margin of error from these as they may
not match fuel type exactly.
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021 211
211
Appendix: Capricorn Energy Emissions Methodology – Basis of Reporting continued
2: Scope 2 GHG Emissions
Definition
Scope 2 emissions: electricity and district heating/cooling indirect emissions are from the generation of purchased electricity and district
heating/cooling consumed by the Company. Purchased electricity and district heating/cooling is defined as electricity and district heating/
cooling that is purchased or otherwise brought into the organisational boundary of the Company.
Our Scope 2 emissions arise from the electricity consumption in our offices in Edinburgh, London, Mexico City, Dakar and Cairo.
We report Scope 2 emissions in line with GHG Protocol Scope 2 Guidance:
1. Market-based – (transmission and distribution losses are excluded)
2. Location-based – we use emission factors from the International Energy Agency (IEA) (updated to IEA 2021 in 2021). These are grid
average emission factors for each country.
For the market-based method we use emission factors, where available, in the following order of preference:
a. Supplier-specific emission factors – obtained from Capricorn’s electricity suppliers.
b. Residual mix emission factors – obtained from the Association of Issuing Bodies (AIB) document ‘European Residual Mixes 2020’.
c. Location-based emission factors – these are the same IEA and Defra emission factors that we use for calculating location-based
emissions.
Estimates and Uncertainties
Most of our electricity consumption happens in our head office in Edinburgh (72.2% of our total electricity in 2021), followed by London,
Mexico, Dakar and Cairo offices (22.4%, 4.12%, 1.02% and 0.22% of total respectively). Electricity consumption for the Edinburgh, London,
Mexico, Dakar and Cairo offices is taken from meter readings. The Cairo Office opened and started functioning in October 2021 with just
five employees, which accounts for the low energy consumption and percentage total contribution.
Supplier-specific emission factors were requested from the electricity suppliers of all of Capricorn offices, however for 2021 only the
Edinburgh office was available. For the London office, the energy supplier provides 100% renewable electricity, but we can confirm it only
with a certificate for previous periods.
3: Scope 3 GHG Emissions
Definition
Scope 3 emissions: Scope 3 emissions are a consequence of Capricorn’s activities but occur from sources not owned or controlled by
Capricorn.
Capricorn currently reports Scope 3 emissions from Category 6 business travel (well-to-tank emissions are excluded) including air and rail
travel (excluding Tube) and hotel accommodation. (We do not report separately our operational and non-operational business travel.)
For calculating Scope 3 (business travel) GHG emissions, we use Defra methodology, including its recommendation to include an uplift for
the influence of radiative forcing in air travel emissions. This uplift ensures that the maximum climate impact of an organisation’s travel habits
is captured. In our air travel GHG emissions calculations, we use journey type (domestic, short haul, long haul and international), seat class
(economy, premium economy, business, first) and distance travelled. In our rail travel GHG emissions calculations, we use rail type (national
rail, international rail) and distance. Scope 3 emissions excluded from this 2021 operated emissions report are supply chain and employee
commuting. We updated to the latest Defra 2021 emission factors in 2021 (see http://www.ukconversionfactorscarbonsmart.co.uk/).
It is Capricorn policy that all travel for Edinburgh- and London-based staff, and usually the smaller offices, is booked using its corporate
travel agent Reed & Mackay, except under special exception. As a result, all our travel data in 2021 was obtained in reports from Reed &
Mackay, and these included details on journey type, seat class and kilometres travelled, as well as emissions from hotel stay.
GHG Normalisation
To meet UK reporting requirements, GHG emissions need to be reported normalised to an appropriate performance measure
representative of the business. For 2021, Capricorn did not have revenue from operated production facilities in 2021, or in the previous
four years, and activities were of an exploration nature only (i.e., seismic survey and associated activities). Its GHG emissions have been
normalised to total employee and contractor hours worked. They are presented as tonnes of CO2e per 1,000 hours worked. In 2021, only
two operated seismic surveys in the North Sea were performed by four vessels for the Diadem project survey and East Orkney survey.
Hours worked are collected for employees and for contractors. Employee hours are derived primarily from the Capricorn time-writing
system that employees use to log their working hours. Employee hours include hours worked by ‘direct contractors’ (contracted for more
than three months to an organisational position) as these are captured in the time-writing system.
Capricorn’s Human Resources department compiles the figures and enters them into UL360 database each month.
Hours worked by field-based contractors are collected monthly, together with other HSE KPI data, from each vessel, rig, aircraft, and shore
base. For offshore workers, the hours are often calculated on a 12-hour workday basis.
Estimates and Uncertainties
Hours worked by field-based contractors are often calculated on a 12-hour workday basis rather than a precise log of time worked.
GHG Assurance
Deloitte have provided independent third-party limited assurance in accordance with the International Standard for Assurance
Engagements 3000 (“ISAE 3000”) and Assurance Engagements on Greenhouse Gas Statements ("ISAE 3410") issued by the
International Auditing and Assurance Standards Board (“IAASB”) over selected metrics, identified with *, within Capricorn Energy’s energy
consumption and greenhouse gas (GHG) emission disclosure. Deloitte’s full unqualified assurance opinion, which includes details of the
metrics assured, can be found on our website. www.capricornenergy.com/working-responsibly
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Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Equity Reporting
From 2021, Capricorn will report Scope 1 GHG emissions based on the equity share within both operated as well as non-operated
projects. This data will be presented for the first time, so unfortunately the data cannot be presented in comparison to previous periods.
Capricorn’s equity boundaries of Scope 1 emissions will include the following activities for 2021:
Equity Share
Project name
Location
Duration
Operating Company
Capricorn operated
50%
50%
Diadem Survey
East Orkney Survey
UK (North Sea)
UK (North Sea)
February-March 2021
June and September 2021
Capricorn Energy PLC
Capricorn Energy PLC
Capricorn non-operated (Equity on entitlement basis)
20%
29,5%
8.5%
20%
20%
11%
50%
Catcher
Kraken
AESW
BED
OBAIYED
NEAG
NUMB W1/W5
UK (North Sea)
UK (North Sea)
Egypt (Western Desert)
Egypt (Western Desert)
Egypt (Western Desert)
Egypt (Western Desert)
Egypt (Western Desert)
January – October 2021
January – October 2021
October – December 2021
October – December 2021
October – December 2021
October – December 2021
October – December 2021
Bumi Armada UK Ltd
EnQuest PLC
BAPETCO
BAPETCO
BAPETCO
BAPETCO
Cheiron
Capricorn equity boundaries for Scope 2 emissions will include 100% emissions from electricity consumption in Capricorn offices.
Capricorn has also extended its reporting to include equity share on an entitlement basis of Scope 3 greenhouse gas emissions. The
boundaries of Scope 3 include business travel, transportation and distribution, the processing of sold products, and use of sold products,
as defined by the GHG Protocol.
Capricorn has chosen to report these Scope 3 categories as they present significant greenhouse gas emission contributions. However, we
do not control how our product is ultimately processed into consumer products, therefore we have conservatively accounted for 100% of
products being combusted within our methodology.
To anticipate future greenhouse gas emission responsibilities, Capricorn has also calculated Scope 3 emissions from the use of sold
products, transportation and distribution, and for the processing of sold products, for our 2P reserves (equity share on an entitlement
basis). The methodology applied to this process aligns with the GHG protocol for reserve calculation and uses.
To meet UK reporting requirements, GHG emissions need to be reported normalised to an appropriate performance measure
representative of the business. To normalise equity emissions, Capricorn’s total production share was used, thus equity emissions were
normalised as CO2e per barrel of oil equivalent. This methodology applies to both our Scope 1 and Scope 3 emissions.
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021 213
213
Registrars
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
UK Shareholder
Helpline Number
T: 0371 384 2660
Overseas Shareholder
Helpline Number
T: +44 121 415 7047
Textel Helpline Number
T: 0371 384 2255
Shareview Dealing
Helpline Number
T: 0345 603 7037
www.shareview.co.uk
Company Information
Financial Advisers
Rothschild & Co
New Court
St Swithin’s Lane
London
EC4N 8AL
Secretary
Anne McSherry
Solicitors
Shepherd and Wedderburn LLP
1 Exchange Crescent
Conference Square
Edinburgh
EH3 8UL
Auditor
PricewaterhouseCoopers LLP
144 Morrison Street
Edinburgh
EH3 8EB
Stockbrokers
Morgan Stanley
20 Bank Street
Canary Wharf
London
E14 4AD
J.P. Morgan Cazenove
25 Bank Street
Canary Wharf
London
E14 5JP
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Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
Strategic Report
Leadership and Governance
Financial Statements
Additional Information
Notes
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021 215
215
Notes
216216
Capricorn Energy PLC (Formerly Cairn Energy PLC) Annual Report and Accounts 2021
(cid:1)(cid:2)(cid:3)(cid:4)(cid:5)(cid:5)(cid:6)(cid:7)(cid:8)
Printed on material from well-managed, FSC®-certified forests and other
controlled sources. This publication was printed by an FSC®-recognised printer
that holds an ISO 14001 certification.
These materials contain forward-looking statements regarding Capricorn,
our corporate plans, future financial condition, future results of operations,
future business plans and strategies. All such forward-looking statements
are based on our management’s assumptions and beliefs in the light of
information available to them at this time. These forward-looking statements
are, by their nature, subject to significant risks and uncertainties and actual
results, performance and achievements may be materially different from
those expressed in such statements. Factors that may cause actual results,
performance or achievements to differ from expectations include, but are not
limited to, regulatory changes, future levels of industry product supply, demand
and pricing, weather and weather-related impacts, wars and acts of terrorism,
development and use of technology, acts of competitors and other changes
to business conditions. Capricorn undertakes no obligation to revise any such
forward-looking statements to reflect any changes in Capricorn’s expectations
with regard thereto or any change in circumstances or events after the date hereof.
Head Office
50 Lothian Road,
Edinburgh,
EH3 9BY
T: +44 131 475 3000
F: +44 131 475 3030
E: pr@capricornenergy.com
www.capricornenergy.com
London
4th Floor,
Wellington House,
125 Strand,
London,
WC2R 0AP
United Kingdom
Mexico
Torre Mayor, Avienda
de la Reforma 505,
Piso 36, Colonia
Cuauhtémoc,
Delegación
Cuauhtémoc,
06500, Mexico City,
Mexico
Mauritania
Ilot C 544,
Tevragh Zeina,
Noakchott,
Mauritania
Egypt
5th Floor,
7 Road 150,
11431 Maadi,
Cairo, Egypt
www.capricornenergy.com/ar2021