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Annual Report
and Accounts 2022
Capricorn Energy PLC
Capricorn is an Egypt-focused energy
producer, with an attractive portfolio of
onshore exploration, development and
production assets in the Western Desert.
Outside Egypt, the Company has selective
exploration interests which it is seeking to
monetise, farm-down or exit.
Capricorn is headquartered in Edinburgh,
Scotland.
Annual Report and Accounts 2022
1
2022 Highlights
Net working interest oil and gas production averaged (boepd)
~34,200
Year-end net Group cash
US$597m
Cash and cash equivalents of US$757m less debt drawn of US$160m.
Egypt oil and gas sales revenue
US$229m
Returned to shareholders in 2022
US$529m
Strategic review launched in February 2023 following
public shareholder campaign and Board changes
Net zero target
2040
or earlier in Scope 1 and 2 equity emissions
Contents
Strategic Report
Chair’s Statement
Interim CEO’s Review
Industry Context
TCFD
Materiality Review
Measuring Our Progress
Behaving Responsibly
to the Environment
Behaving Responsibly to People
Behaving Responsibly to Society
Risk Management
Viability Statement
Principal Risks to the Group
in 2022-2023
Stakeholders and S172 Statement
Operational and Financial Review
2
6
8
11
15
16
22
25
28
31
32
33
40
43
Leadership and Governance
Board of Directors
Responsible Governance
Corporate Governance Statement
Audit Committee Report
Nomination & Governance
Committee Report
Directors’ Remuneration Report
Sustainability Committee 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
Section 2 – Oil and Gas Assets,
Operations and Other Non-Current
Assets
Section 3 – Working Capital,
Financial Instruments and
Long-term Liabilities
Section 4 – Income Statement
Analysis
Section 5 – Taxation
50
52
54
66
72
76
110
112
118
126
126
127
128
129
130
132
140
149
157
Section 6 – Discontinued Operations
and Business Combination
161
Section 7 – Capital Structure and
Other Disclosures
Company Balance Sheet
165
168
Company Statement of Cash Flows 169
Company Statement of Changes in
Equity
Section 8 – Notes to the Company
Financial Statements
Additional Information
Licence List
Group Reserves and Resources
Glossary
TCFD Reporting
Company Information
170
171
177
178
179
180
185
Strategic Report Capricorn Energy PLC
2
Annual Report and Accounts 2022
Chair’s Statement
Craig van der Laan
Chair
I was appointed Chair of Capricorn in February 2023, alongside five other new members
of Capricorn’s Board following a public campaign by a number of shareholders. The
overwhelming shareholder vote in favour of the new Board appointments underscored the
expectations for change. Consistent with those expectations, we immediately commenced
a strategy review after appointment. Today, 85 days later, we are pleased to report our initial
findings, which include five areas of decisive strategic action. These include a decision to
make a material return of capital to shareholders; a significant cost reduction as part of
a broader plan to preserve shareholder cash; the curtailment of expensive exploration
activities outside of near field activity in Egypt; plans to improve the Egypt business;
and a drive for a culture change across the Company.
As we take the next actions in our review, I am pleased to announce that Capricorn will
benefit from the leadership of Randy Neely, a highly accomplished industry figure with
extensive experience of successful operations in Egypt, who will join the business as
Chief Executive on 1 June 2023.
Our review of strategy continues, and I look forward to updating shareholders on our medium
to long term findings in the months ahead. I would like to be very clear on our intention in
the near term, and on an ongoing basis, to return all excess capital to our shareholders.
As we look to enact positive change in the business, I am grateful for the support that we
have been given by our new colleagues as we execute our strategy for the benefit of all of
our shareholders.”
Annual Report and Accounts 2022
3
Maximising value for all stakeholders
The past year has seen unprecedented
upheaval and change at Capricorn. A
proposed recommended takeover by
Tullow Oil plc was announced in June 2022
with the recommendation subsequently
withdrawn by the Board in response to
shareholders’ objections. Thereafter, the
Board recommended a reverse takeover of
NewMed Energy (NewMed) which was also
met with vigorous opposition and a public
campaign by a number of shareholders,
including demands for fundamental Board
renewal and the termination of the
NewMed deal. This culminated in the
resignation of all but two members of the
previous Board and overwhelming
shareholder support for the appointment of
six new Board members at an extraordinary
general meeting held on 1 February 2023.
I was elected to the Board and appointed
Chair of Capricorn at that time and am
honoured to serve in this role alongside the
other new members of the Board. We bring
to Capricorn a broad skillset of industry,
shareholder engagement and capital
markets expertise, which is essential for the
Board to deliver against shareholders’ strong
mandate and expectations for change.
The three months since the shareholder
meeting have been a period of extraordinary
energy and renewal and this will continue
as the Board works tirelessly to ensure
Capricorn is managed for all of its diverse
mix of shareholders, with an overriding focus
on shareholder value generation. Since
joining the Board, I have personally met a
wide range of our investors, to ensure the
Board understands shareholders’ concerns
and expectations as we develop our plans for
Capricorn. Almost 75% of Capricorn’s shares
were voted at the February 2023 meeting,
with over 99% of these supporting the
appointment of six new Board members.
Unsurprisingly, the messages from
shareholders have therefore been consistent,
at the heart of which is an expectation for
change and a new approach. This culture
of transparent engagement will continue,
focusing on the acknowledgement of
shareholder concerns and providing clear
explanations for the positions we take.
Immediate priorities
Following the February general meeting,
the Board announced a strategic review
to explore options for Capricorn’s future
direction. Our immediate focus in the
context of this review was to address
the pressing matter of the NewMed
transaction. Having considered the views
of a significant number of shareholders
and their unwillingness to support the
proposed NewMed transaction, as well as
recommendations to vote against the deal
from leading proxy advisory agencies, and
the need for the renewed Board to be able
to consider all available alternative
strategies for Capricorn, the Board advised
shareholders to vote against the NewMed
proposal. At the pending shareholder
meeting, shareholders would have been
asked to consider approving the NewMed
deal, the completion of which remained
subject to a range of conditions from
NewMed, and as such no certainty that
the deal would have been completed on
the then contemplated terms. Shortly
thereafter, the Company and NewMed
mutually agreed on 15 February 2023
the termination with immediate effect
of the business combination agreement,
and therefore the NewMed transaction.
The decision provided the Board with
greater strategic optionality in deciding
Capricorn’s future direction.
We have heard clearly from shareholders
and are pleased to outline five immediate
priorities which have had our focus since
taking office 85 days ago.
1. Return of value
to shareholders
The tax refund in February 2022 from the
Government of India of more than US$1bn
enabled Capricorn to return US$529m of
capital to shareholders in the form of a
tender offer and buyback programme in
2022. As a newly constituted Board, our
first commitment is to outline our plans
to conduct another material distribution
of cash to shareholders within operating
requirements. We have stress tested the
capital requirements of the business,
so we have a clear understanding of how
to manage safely our assets in the current
market environment.
The Board is returning approximately
US$575m via a special dividend of
c.US$450m expected to be paid in May
2023, a further special dividend in Q4
2023 of US$100m dependent upon
certain conditions and a share buyback
of at least US$25m over the next twelve
months. The US$100m special dividend
in Q4 2023 is dependent upon a number
of factors including: addressing our
receivables position in Egypt; the outcome
of conversations with stakeholders in
Egypt around licence extensions and
renegotiation of terms; actual oil and gas
price outcomes for the remainder of 2023;
and the conclusions of our strategic review
as it relates to further cost actions and
future investment in our Egypt business.
The special dividend of approximately
US$$450m, which will be accompanied
by a share consolidation and is subject to
shareholder approval, is expected to be
paid on 23 May as a final cash dividend of
115 pence per share. The consolidation and
special dividend record date is expected to
be 15 May, with dealings in the consolidated
shares (ex-dividend) expected to commence
on 16 May. The Board commits to return to
shareholders all excess cash flow not
required for our go forward core operational
focus both today and on an ongoing basis.
In proposing these returns of value, the
Board has been focused on the need to
ensure Capricorn has sufficient capital and
working capital to operate under a range of
assumptions, in a market which is volatile
and where significant cash receipts are in
some cases beyond our control. Balancing
this is a clear expectation from shareholders
that surplus cash be returned, which is what
we are announcing today.
2. Cost cuts and
cash preservation
On 23 March 2023 we announced a
material cost cutting exercise across
Capricorn. We have commenced an
employee consultation process which
is anticipated to reduce the UK workforce
by ~70% to c.40 people to better reflect the
go forward needs of the business. This will
create a new, leaner organisation to support
the Egypt assets and result in a total global
organisation of c.70 employees. Ongoing
staff costs will be reduced by more than 50%
while still retaining the necessary capability
and headcount to safely and efficiently
achieve our goals. In 2023, there will be
costs associated with this restructuring
which are expected to be offset by in-year
savings, with the full annualised benefit of
the cost reduction to be seen in 2024.
With fewer people, we will require much
less office space and ancillary services.
Capricorn will be moving out of its current
office on Lothian Road, Edinburgh as
planned but will not be moving into the
new offices in Edinburgh which were
outlined in last year’s annual report. The
search for smaller, lower cost alternative
office space in Edinburgh is now underway.
Significantly smaller, low-cost premises will
also be found in London for those limited
activities which need to take place there.
The Board has also reviewed its external
consulting arrangements with a view to
reducing costs and having a fresh start,
ruling a line under the events of the last
12 months and presenting a new face to
the market. We have therefore appointed
Bank of America as corporate broker and
financial adviser to replace four other
banking advisers, and on the
communications side, Camarco.
These cost saving initiatives are expected
to realise identified total gross G&A savings
of at least US$35m, representing a >50%
reduction on 2022 gross G&A. These
savings will be fully realised in 2024.
Opportunities for further savings will
continue to be pursued, with costs to be
aligned to activity on an ongoing basis.
All these initiatives are designed to preserve
cash for the benefit of shareholders, to
meet shareholders’ expectations of
commercial rigour and sound financial
Strategic Report Capricorn Energy PLC
4
Annual Report and Accounts 2022
Chair’s Statement continued
management, and to ensure surplus cash
is returned to shareholders as it becomes
available. This renewed approach should
in due course assist the Board to gain
shareholder support for the proposed
strategic direction, in whatever form it takes.
3. Ceasing exploration
activities outside of near
field activity in Egypt
We plan to monetise, farm down or exit all
exploration activities that fall outside low
cost, near term, short cycle exploration in
Egypt which has the potential in the near
term to increase Capricorn’s profitability
and value. This applies to all activities in
Mauritania, Suriname, Mexico and the
UK North Sea, where we will look to shortly
conclude the best value outcomes for these
elements of our portfolio. Large-scale,
high-risk exploration in a market that is
transitioning is not a model the new Board
believes a business of Capricorn’s size should
pursue. Following the Q1 drilling of the Yatzil
well in Mexico, Capricorn has no further
international commitment wells outside
Egypt, minimising spend on international
exploration during the rest of 2023, with
no committed spending in 2024 and any
further activity in Mauritania and Suriname
conditional on successfully farming down
our interest, ensuring capital preservation
and flexibility. A process has commenced
for the potential sale of our UK assets.
4. Improve the
Egypt business
The Egypt business contains a diverse
portfolio of oil and gas assets with multiple
reservoir levels, providing significant
opportunities for reserves additions
from drilling and improved recovery, and
production optimisation. Our strategic goal
in Egypt is to work with our joint venture
partners to deliver reserves and production
growth and reliable free cash flow
generation for returns to shareholders. In
the short term, the focus is on stabilising
and growing production, particularly of
liquids, in order to continue to benefit from
today’s high prices, whilst ensuring cost
efficiency. This can be achieved through
rapid development of our recent near field
extension successes in the BED and Sitra
areas, and renewed focus on well selectivity
and rig performance. In particular, we will
look to optimise the investment level to
maximise free cash flows.
The Board is also, in conjunction with our
JV Partner, considering options to improve
the fiscal terms in country, more in line with
other operators and such that our activities
can deliver better economics (which will
benefit us) which will allow us to invest
more (which will benefit Egypt). This would
support the potential unlocking of our
material 82.6mmboe 2C contingent
resources within the Egyptian portfolio.
We will focus on how best to achieve this
opportunity, which if successful has the
potential to double our existing reserves
base.
5. Culture change
The Board recognises the need for a change
in culture, one which scrutinises every
pound spent in the interest of shareholder
value, one which is entrepreneurial and
flexible such that market opportunities can
be taken advantage of quickly, and one
where we listen to our key stakeholders,
not least our owners.
A renewed culture at Capricorn will prioritise:
– Focusing on shareholder value: effective
and rigorous cost control and the
ongoing measurement of returns,
ultimately supporting our ability to
ensure excess capital is returned to
shareholders.
– Building effective and respectful
relationships: we listen, we
communicate openly and we engage
effectively to improve our business and
ensure we respect and deliver for our
key stakeholders, notably in our host
country of Egypt and our shareholders.
– Being transparent and open: we swiftly
acknowledge issues as they arise, deal
with concerns and learn lessons from
things that we get wrong, as well as
get right.
– Empowering people: we are building
a lean, high performing team of people
that will be trusted to deliver, and
enabled to be entrepreneurial in order
to quickly capture opportunities.
The Board recognises that there are a
number of important matters 85 days in
that remain work in progress and are a
focus for action:
– Improving our receivables position
in Egypt.
– Continued engagement with key
stakeholders on Egypt licence extensions
and renewed fiscal terms.
– Seeking to address restricted cash in
Egypt.
– Final conclusions of the strategic review
process and establishing a new
leadership team.
– Delivering additional cost savings to align
costs to activity on an ongoing basis.
We will update the market on these
matters in due course and plan to hold a
Capital Markets Day in Q4 2023.
Appointment of new Chief Executive
I am pleased to confirm that Randy Neely
will join Capricorn as Chief Executive on
1 June. Randy was previously President
and CEO of TransGlobe Energy, an Egypt-
focused production and development
business with operations in the Eastern
and Western Deserts. At TransGlobe
Energy Randy led negotiations which
resulted in an amended, extended and
consolidated Production Sharing Contract
with EGPC in Egypt, and ultimately the
negotiations which led to the merger
between TransGlobe and VAALCO Energy
in October 2022. He has more than 25
years of industry experience in executive
and financial roles, including CFO of Zodiac
Exploration, CFO of Pearl (Blackpearl)
Exploration & Production and CFO of
Trident Exploration. In accordance with
Listing Rule 9.6.15, Capricorn confirms that
there are no further details to be disclosed
pursuant to Listing Rule 9.6.13.
Randy will succeed Chris Cox, Interim Chief
Executive, who will leave the business after
a handover period. On behalf of the Board,
I would like to thank Chris for his significant
contribution to the business since his
appointment.
Medium to longer term strategy
and business model
The Board has publicly stated that the
Strategic Review involves the consideration
of all options.
In the few weeks we have been in office, the
Board’s focus and capacity has been taken
up by the immediate priorities of coming
up to speed on all aspects of Capricorn and
its business, to enable informed decisions
on the return of capital, significantly
reducing exploration activity and spend,
costs, culture and improving the Egypt
business. With an initial trajectory now set
in these areas, we will progress our
evaluation of the future strategic options
available before landing on and announcing
the right course of action. The decisions will
all be anchored in what will deliver most
value to shareholders.
Shareholders should be reassured that
these decisions will be guided by discipline,
returns, our existing producing assets, risk
management, short-cycle capital returns,
exploiting existing oil and gas deposits in
Egypt, reviewing our role as an operator
versus non-operator and how as an
organisation we address the energy
transition and the role we play in it.
Once our medium to long term strategic
thoughts have been formalised, I look
forward to engaging in a discussion with
shareholders as to the options available to
us, including at the Capital Markets Day to
be held in Q4 2023.
Strategic Outlook
Looking ahead, we are entering a period of
renewal for Capricorn as we tighten costs,
maintain discipline around capital
preservation and capital allocation, and
foster a strong culture. The Board has a clear
mandate for change from shareholders and
faces high expectations. We will provide
further clarity on Capricorn’s direction as a
business in the months ahead, guided at all
times by the imperative to maximise value
and create opportunity for all our
shareholders, host governments,
communities and people. We as a Board
are confident that we can realise the true
value within Capricorn’s portfolio and bring
about a way forward for the Company that
is in the best interest of all stakeholders.
I look forward to providing you with further
updates as the strategy and its execution
progress.
Craig van der Laan
Chair
Annual Report and Accounts 2022
5
Responsible business
Our activities will continue to advocate a
responsible approach to our operations,
stakeholders and communities, and we will
continue to deliver our core operations
efficiently and safely.
I am also pleased with the progress that we
are making on our sustainability agenda.
This has always been present in Capricorn’s
approach, but now more than ever is at the
forefront of our decision-making and the
considerations of our stakeholders. It is also
an important factor both in terms of how
we shape our portfolio and in the way that
we operate.
Our people
In a year of major change and transformation,
I would like to acknowledge the
commitment and drive of colleagues at
Capricorn. Our people have demonstrated
steadfast commitment through a period of
great uncertainty. A number of colleagues
have left or are in the process of leaving
the business following decisions taken to
match organisational size to our activity set.
On behalf of the Board, I would like to
thank all of them for their service.
We will also continue in the coming year
to focus on diversity and inclusion,
recognising that we operate in a global
industry and in many different countries. It
is important to ensure that we benefit from
the diverse perspectives that people bring.
Statement of purpose
As part of the review of strategy post
the arrival of the new Board, a refreshed
statement of purpose is being considered
to ensure it is aligned with the new
strategy. The Company’s purpose will
be anchored in the safe, responsible and
sustainable discovery and production of oil
and gas in Egypt to generate energy for
individuals and organisations, value for
Capricorn’s shareholders and opportunity
for Capricorn’s broader stakeholders
including our host country, our colleagues
and supply chain.
Board Composition
Alongside my own appointment as Chair,
Capricorn announced on 1 February 2023
the appointments of Chris Cox as Interim
Chief Executive, Richard Herbert as senior
independent director and Hesham Mekawi,
Maria Gordon and Tom Pitts as
independent non-executive directors.
On 24 January 2023, Nicoletta Giadrossi,
Simon Thomson, Alison Wood, Luis Araujo
and Peter Kallos resigned from the Board
with immediate effect. James Smith and
Keith Lough resigned from the Board on
1 February 2023.
In the 85 days since appointment, the new
Board members have been greatly assisted
by the two continuing Directors, Catherine
Krajicek and Erik B. Daugbjerg. They have
both provided continuity for the Board and
valuable insight into Capricorn, its people
and its operations. They have also
demonstrated unswerving goodwill
towards the new Directors, against the
backdrop of an extraordinarily difficult
period of change. As announced on
11 April 2023, Catherine and Erik have
both advised that they will not stand for
re-election at the 2023 Annual General
Meeting. On behalf of the whole Board,
I would like to thank them both for their
contribution and support for the Board’s
strategy and initiatives and wish them well.
As a consequence of these changes, the
Board will be seeking to find one or more
new Directors as soon as possible. We will
in particular be focussing on the
appointment of diverse candidates, to
address the current imbalance. These
processes do take some time and it is
important we appoint the right candidates.
We will keep shareholders informed of our
progress and provide a further update at
the annual general meeting.
Strategic Report Capricorn Energy PLC
6
Annual Report and Accounts 2022
Interim CEO’s Review
Chris Cox
Interim Chief Executive
Operationally, the first full year of operations following the acquisition of Shell’s Western Desert
production and exploration portfolio in Egypt was completed. In common with other E&P
businesses in the country, a number of operational challenges impacted the 2022 drilling
programme, but Capricorn continues to see significant potential for production growth,
operating efficiencies and reserves addition through successful exploration and
development activity.
Capricorn further high-graded its exploration portfolio during 2022, reinforcing focus on
lower-cost infrastructure-led opportunities with quicker payback potential, at the same time
as limiting capital allocation to the remaining frontier positions, with no further commitment
wells outside onshore Egypt exploration activity following the drilling of the Yatzil well in
Mexico during Q1 2023, which was committed prior to the new Board being in place.
Capricorn remains committed to its Net Zero by 2040 target, with near term targets of a
15% GHG equity emissions reduction by 2025, and a 30% reduction by 2030. Our producing
assets continue to demonstrate resilience to transition risks of climate change and the ability
to deliver value for shareholders when tested against the International Energy Agency’s
Net Zero scenario, based on the economic assumptions we apply.
Annual Report and Accounts 2022
7
Operational Outlook
In Egypt, the 2023 drilling programme is expected to deliver >40 wells across the producing
concessions, with the aim of optimising oil recovery in both existing and new discoveries.
Included in this is a near-field extension well programme to improve reserves replacement
and in the event of success, drive towards the higher end of our 2023 production guidance.
The focus remains on liquid rich opportunities in the BED, Sitra, AESW and NEAG Concessions
although we anticipate drilling new wells at the Obaiyed gas condensate field to help
moderate underlying declines.
Chris Cox
Interim Chief Executive
Strategic Report Capricorn Energy PLC
8
Annual Report and Accounts 2022
Industry Context
The global energy crisis of 2022 has
demonstrated the fragility of the world’s,
and in particular Europe’s, energy system
and led to unparalleled energy market
pressures. Persistent underinvestment
in energy supply has exacerbated the
impact of geopolitical tensions.
Industry and policy makers have struggled
to react to the energy crisis quickly enough
to ensure sufficient short-term energy
security. Longer-term policy responses are
just now emerging and suggest that while
demand for hydrocarbon-derived energy
looks set to grow in the medium term, the
policy response to the impact to global
energy markets of Russia’s invasion of
Ukraine may yet make 2022 a key
milestone in the acceleration of a
distributed, decarbonised energy system.
Crisis highlights the need to change
energy systems
2022 highlighted the critical challenge of
providing reliable, affordable energy as a
cornerstone of economic stability in very
stark terms. Countries facing spiralling fuel
and food inflation demanded increased
domestic production, wherever short-
cycle investment opportunities were
possible. However, the scale of the issue
and the time required to implement
change in the energy system have been
highlighted very clearly to governments
and consumers. It is also becoming more
widely accepted that companies need to
develop integrated solutions to energy
provision that acknowledge the near-term
necessity of existing sources alongside the
critical need to decarbonise. The most
environmentally responsible of the
existing hydrocarbon resources should be
preferentially produced with a focus on
improving environmental efficiency of
production, including through carbon
capture and storage (CCS), as companies
including Capricorn are pursuing in Egypt.
The critical role of upstream producers’ in
the energy supply chain is also creating
opportunities to add value through the
integration of renewable resources, both
to improve upstream efficiency and for
standalone generation, again as is being
pursued in Egypt.
Persistent underinvestment
The 2022 energy crisis has also
demonstrated the key need to invest
further in gas production and
transportation infrastructure, both fixed
and floating. Record levels of global coal
demand reached in late 2022 show that
the potential for gas to enable the
multi-decade transition to lower-emissions
energy cannot be taken for granted.
Investment, particularly in efficient,
relatively low emissions sources in reliable
jurisdictions will have the potential to
generate very material value for
shareholders and stakeholders. However,
achieving the necessary doubling of gas
production that is modelled to be required
to enable a transition to net zero by 2050
will be extremely challenging (source:
ThunderSaid Energy, 3/1/23). A switch
away from Russian gas would see Europe
needing to add liquefied natural gas (LNG)
supplies of up to 100bcm per year by
2030 (source: Platts, Oct 2022 Long-term
gas outlook, Goldman Sachs Research
Aug 2022). Additional capacity is being
sanctioned particularly in the US and
A key phase in the
multi-decade transition to
emissions-free energy will
be ensuring that relatively
low-emissions hydrocarbon-
based energy, particularly
from reliable sources of gas,
will be available to reduce
the leverage of unreliable
suppliers.
Annual Report and Accounts 2022
9
Qatar which will be available later this
decade; however, the availability of
material undeveloped LNG resources
in other reliable jurisdictions is relatively
limited. While the European gas price
will return to the long-run marginal cost
of production, probably set by US LNG
exports, (source: IHS Markit 222 LNG
Breakeven) it seems likely that it will take
at least the next decade to return to this
equilibrium, increasing our mid-term LNG
and gas price outlook.
In the meantime governments should be
incentivising increased production from
reliable players. In Europe, conflicting
messages regarding support for the
upstream industry paired with the political
inevitability of windfall taxes demonstrate
that despite the market pressures, Europe
remains a very uncertain investment
location for the upstream industry.
The longer-term outlook, driven by EU’s
REPOWER initiative and the US’s Inflation
Reduction Act (IRA) mean that the
ultimate consequences of 2022’s
geopolitical fractures may yet prove
positive for the transition to a low-carbon
energy system. These initiatives should
provide unprecedented stimulus for
industry to invest in a decentralised,
decarbonised energy system, supported
by CCS and with hydrogen as an energy
transport and storage medium. Indeed,
the scale and breadth of the IRA could
potentially kick-start a race to develop
cost-efficient clean energy technology
that will ultimately reduce hydrocarbon
demand.
Strategic Report Capricorn Energy PLC
10
Annual Report and Accounts 2022
Industry Context continued
Key
drivers
Energy
demand
Continuing economic development and population
growth drives growth in primary energy demand,
particularly from emerging economies. Non-OECD
economic growth tends to be an important
influence on oil and gas demand, being economies
with a greater manufacturing bias, which is more
energy intensive than service sectors. These
economies also have growing needs to move goods
and people, with non-OECD countries seeing the
fastest growth in vehicle ownership as incomes and
populations rise.
– Global economic activity in 2022 experienced a
broad-based slowdown. Despite this, limited oil
supply and supply disruptions drove oil prices of
US$100/barrel or above for much of the year, with
gas spot prices at all-time highs. Russia’s ongoing
war with Ukraine contributed to a significant
reduction in gas supplies to Europe, driving
year-on-year gas prices many times higher.
– In the second half of 2022, OPEC+’s decision to cut
supply by around 2m barrels per day supported
high prices.
– Rising demand for alternative sources of oil and
gas to replace Russian exports.
– New policies in major energy markets are
encouraging increased investment in clean
energy.
– Increasing demand, coupled by restricted supply
of capital for energy system investments creates
tensions between host governments for sources
of equity and debt finance.
Climate change
and energy transition
The need to address climate change impacts energy
demand and the energy mix. A range of actions
affect global efforts to combat climate change:
government intervention through policy, regulation
and support for mitigation and adaptation, business
commitments to net zero and associated actions,
changes in consumer behaviour, deployment of new
technologies and investment in alternative energies.
The intergovernmental panel on climate change
(IPCC) reports that delivering a 1.5 degree or 2
degree warming scenario requires emissions to fall
between 2020 and 2025, a daunting goal made
more challenging by the impact to energy supplies
of the war in Ukraine. Some governments are
actively seeking to diversify oil and gas supplies and
increase the share of renewables and nuclear in the
energy mix.
– Major policy responses to support energy
transition: US IRA, EU Fit for 55 and REPowerEU,
Japan’s GX programme and new clean energy
targets for China and India.
– Policies announced in 2022 will drive major clean
energy investment out to 2030, a rise of more
than 50% compared to today, according to
the IEA.
– 2022 global carbon emissions remain at record
levels at 40.6bn CO2 (Global Carbon Project).
– Global demand for natural gas is forecast to
double to 2050 in some net zero scenarios,
creating a material business opportunity.
– Current spending on clean energy technology
is outstripping that on fossil fuels (IEA).
2022 Backdrop
Short-term
opportunities
and risks driver
Long-term
opportunities
and risks driver
– Fossil fuel share of global energy mix just below
– On current projections, the world is considerably
75% by 2030 (IEA STEPS – Stated Policies
Scenario).
– IEA projects under STEPS scenario that natural gas
demand plateaus by the end of this decade, with
oil demand levelling off in the mid-2030s
– Upstream oil and gas investment of US$650bn
to 2030, a rise of 50% on recent years (IEA STEPS).
– Long-term sales agreements provide certainty
outside a pathway to 1.5 degree warming.
– Annual clean energy investment projected
to be US$2trn annually by 2030 (IEA STEPS).
– Current growth rates for solar, wind, EV and
battery deployment would lead to a more rapid
transformation of the global energy system
by 2030 than the IEA STEPS projections,
if maintained.
on pricing.
Links to
principal risks
– Volatile oil and gas prices.
– Political and fiscal uncertainties.
– Inability to access capital.
Material issues
– Investment in clean technologies and business
innovation.
– Future challenges and costs to achieving pathway
to net zero by 2040.
– Political and fiscal uncertainties.
– Inability to access capital.
– Reduction of GHG emissions.
– Climate change and energy transition.
– Reduction in fossil fuel consumption.
– Managing a ‘Just Transition’.
– Investment in clean technology and business
innovation.
Annual Report and Accounts 2022
11
Task Force on Climate-related Financial Disclosures (TCFD) Report
Task Force on Climate-related
Financial Disclosures (TCFD) Report
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: governance, strategy, risk
management and metrics and targets.
Solving the ‘Energy Trilemma’ while
dealing with increasing ESG pressures
2022 has seen a significant ramping-up in
pressure on global energy issues. The
disruption caused by Russia’s invasion of
Ukraine in February 2022 caused a global
energy crisis, with energy prices soaring to
record highs.
Solving the Energy Trilemma became a
priority, as governments tried to balance
sustainable and affordable energy with
security of supply.
Regulatory, societal and political pressures,
emanating from Western Europe and
North America, but now resonating
internationally, are being reflected in
the concerted development of global
sustainability standards affecting virtually
all ESG criteria. There has been a particular
focus on climate change and the transition,
notably formalised in the Corporate
Sustainability Reporting Directive (CSRD)
guidelines adopted by the EU Parliament
in November 2022 and evolving Task Force
on Climate-related Financial Disclosure
(TCFD) requirements.
The Oil and Gas industry response
In response, at the industry level, it is clear
that the European major oil and gas
corporations are stepping up their
investment allocation to low carbon energy
solutions, on average now accounting for
around 25% of their total investment
spends1 in the near term. The independent
exploration and production (E&P) sector is
also responding in its strategic thinking
and reporting. From our own assessment
Capricorn is positioned in the top quartile
compared to its independent peers on its
Carbon Disclosure Project (CDP) scoring,
and similarly in terms of its targets for net
zero emissions (under Scope 1 and Scope
2) by 2040.
Our net zero pathway
Consequently we are conscious of the need
to set out our net zero pathway more clearly
for our stakeholders, and to demonstrate
real strategic progress in meeting those
targets. In doing so we must nevertheless
be transparent that this is a journey that
cannot be completed overnight, and
requires us to assure all our stakeholders,
including investors, that we as a business
can successfully position ourselves through
the energy transition, while continuing to
deliver attractive returns and sustainable
assets.
We set out our updated net zero pathway
in September 2022 which commits to
reducing Scope 1 and 2 CO2 emissions by
15% by 2025, 30% by 2030 and entirely by
2040 or earlier. The clear principles
underpinning these targets are: Avoid,
Reduce, Substitute, Sequester
and Offset.
Decarbonisation and diversification
The short to medium-term strategy is
based on decarbonisation of existing and
planned oil and gas assets, through
electrification of our operations, a move to
no routine flaring, use of energy-efficient
transport, services and infrastructure, and
the reduction of fugitive emissions. Over
the past year Capricorn has assessed a
number of opportunities in the clean
energy sector, across geothermal,
hydrogen, solar and carbon capture,
utilisation and storage (CCUS) themes.
The strategy review, which is currently
being conducted, is expected to provide
further clarity on our medium to long-term
energy transition strategy, including the
diversification into clean technologies.
As we move along this pathway, offsetting
will be undertaken to compensate for
ongoing net emissions, but is regarded
as only a temporary form of mitigation –
ultimately the business will need to aim for
a robust, fully net zero status operationally.
Early advances in Egypt
The advances being made in Egypt give
us considerable confidence in our short to
medium-term targets. We are anticipating
a significant reduction in daily diesel
consumption for power generation in
three years. Using flare gas for power is
expected to further reduce emissions,
and installation of transmission lines to
electric submersible pump (ESP) wells
will significantly assist in electrification of
operations. Longer-term opportunities in
Egypt include CCUS, biofuel and waste
heat recovery projects.
We are making progress with our carbon
capture and storage study, with initial data
collection and candidate storage and
screening phases now completed. The next
phase of the project will model and further
screen potential storage sites.
(1) Source: Wood Mackenzie
1 Source: Wood Mackenzie
Strategic Report Capricorn Energy PLC
12
Annual Report and Accounts 2022
Task Force on Climate-related Financial Disclosures (TCFD) Report continued
Our Net Zero
Commitment
in Action
Focus on Scope 1 and 2 equity
emissions reduction
Zero routine flaring
First UK independent to commit to
World Bank Zero Routine Flaring by 2030
Portfolio resilience
Current portfolio creates value in stringent
transition scenario testing
Clear principles underpin target
Avoid, reduce and substitute
– Power generator rationalisation
and fuel substitution of diesel for
clean-burning gas progressing
– Electrification of Badr El Din (BED)
area with completion in 2023
– Exploring feasibility for installation of
waste heat recovery units at Obaiyed
Central Processing Platform (CPP)
– Progression of workstream on solar
integration at NEAG
– Assessing methane monitoring
solutions
Sequester
Study to test technical and commercial
feasibility for CCUS
Offset
Progression of workstream on diversified
high-quality carbon offsets
Use of more
energy-efficient
vessels and services
where practicable
Flare and vent
reduction including
zero flaring by 2030
Electrification of
operations
Detect and reduce
fugitive emission
Where we are now
Short-term target
By 2025 reduce emissions by
15%
2025
Climate change and
transition governance
Capricorn attaches high importance to
climate change considerations at Board
level and throughout the organisation,
together with broader environmental,
societal and governance responsibilities.
Internally climate change and energy
transition are ranked as principal risks for the
business. The formation of the Sustainability
Committee, which meets twice a year, has
embedded consideration of climate change,
the transition and wider sustainability
factors in to every Board decision. Examples
include the screening of all new investment
opportunities with resilience testing against
transition and climate change, and the
vetting of contractors for drilling, marine and
aviation services for compliance with energy
efficiency and emissions standards.
This approach will be further refined as part
of the Company’s strategic review.
TCFD risk assessment turns
to physical risks
As part of its governance, the Company has
progressed in its TCFD reporting, which
now lies at the heart of its climate-related
financial disclosure for the financial markets,
investors and broader stakeholders. The
main objective of TCFD compliance is to
provide transparency on the risks and
opportunities presented to the business
by climate change. To the end of 2021,
Capricorn had reported analysis of the
transition risks for the Company on the
value of its asset portfolio based on policy,
legal, technological, market and reputational
factors. In 2022, we extended this
assessment to cover physical risks from
climate change, including the severity and
frequency of extreme weather, impacting
our assets or operating environment.
Insurance specialist, Willis Towers Watson
(WTW) was commissioned to assess the
Value at Risk impacts associated with
climate hazards, and the level of operational
vulnerability on our current and future
portfolio. Overall the assessment’s
modelling indicates that increased drought
and heat stress and a decrease in correlated
precipitation are likely across Capricorn sites
by 2050. Due to the location of our assets,
other climate hazards such as river flooding,
cyclones and rising sea levels are predicted
to be broadly stable.
In terms of Value at Risk, the likely impact
was concluded to be very low under the
Representative Concentration Pathways
(RCP) 2.6 scenario, where global warming
is kept below 2°C above pre-industrial
temperatures. Under the more extreme
RCP 8.5 ‘hothouse’ scenario, drought stress
was identified as the most material risk for
the Company in the 2040-2050 timeframe,
with medium Value at Risk (defined as
US$1-10m impact on cash flow and
potentially US$25-100m in terms of market
capitalisation). These risks have been
entered into the Company’s risk register.
Mitigatory measures are already being put
in place to address the impact of stressed
water resources and high temperatures on
our operations and employees in Egypt. As
a result of the WTW report the Board will
consider any further additional measures
that should be actioned in the short to
medium term to address issues raised.
Visit our Sustainability Report for further information
Annual Report and Accounts 2022
13
Operational
improvement
measure
Carbon capture
and storage
opportunities
Biofuels
Waste heat
recovery
Renewable/
hybrid power
Short to medium-term target
Long-term target
By 2030 reduce emissions by
30%
2030
By 2040 reach
Net
Zero
2040
Strategic Report Capricorn Energy PLC
14
Annual Report and Accounts 2022
Task Force on Climate-related Financial Disclosures (TCFD) Report continued
Task Force on Climate-related Financial Disclosures: Cross-reference table
Capturing all 11 recommendations for Governance, Strategy, Risk Management and Metrics & Targets.
Recommendations
Governance
Disclose the organisation’s
governance around climate-
related risks and opportunities
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
Risk Management
Disclose management’s role
in assessing and managing
climate-related risks and
opportunities
Metrics and Targets
Disclose the metrics and
targets used to assess and
manage relevant climate-
related risks and opportunities
where such information is
material
a) Describe the Board’s oversight of climate-related risks and opportunities
b) Describe management’s role in assessing and managing climate-related risks
and opportunities
a) Describe the climate-related risks and opportunities the organisation has identified
over the short, medium and long term.
Page 180
Pages 180
and 181
Pages 182
and 183
b) Describe the impact of climate-related risks and opportunities on the organisation’s
Page 183
businesses, strategy and financial planning.
c) Describe the resilience of the organisation’s strategy taking into consideration different
climate-related scenarios, including a 2ºC or lower scenario.
Pages 183
and 184
a) Describe the organisation’s processes for identifying and assessing climate-related risks
Page 181
b) Describe the organisation’s processes for managing climate-related risks
Page 181
c) Describe how processes for identifying, assessing, and managing climate-related risks
Page 181
are integrated into the organisation’s overall risk management
a) Disclose the metrics used by the organisation to assess climate-related risks and
Page 184
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,
Page 184
and the related risks
c) Describe the targets used by the organisation to manage climate-related risks and
Page 184
opportunities and performance against targets
Case study
Emissions Reduction: Diadem exploration well
The operated Diadem exploration well, drilled in the UK Central North Sea, presented one
of the first opportunities for Capricorn to put its emissions reduction planning into action.
The first stage of this was to develop and
present our emissions reduction plan
and corporate net zero strategy to the
UK environmental regulators as part
of our drilling permit environmental
assessment. Through the development
of this plan, we identified the aspects
of the project that have the greatest
impact on emissions and worked out
the best process for reducing the
atmospheric impact. Our planning also
ensured that the Diadem work aligned
with the Energy White Paper, the North
Sea Transition Deal and OPRED’s Net
Zero Strategy.
With the implementation of this plan,
Capricorn kept the emissions from
drilling operations to a minimum.
The plan detailed how we use energy
efficiency and emissions as a
differentiating factor in our contractor
selection, how we designed the project
to minimise the environmental impact
in the event of a discovery and how we
selected a drilling rig equipped with
specialist NOX reducing units in its
engines along with a suite of other
emissions reduction strategies.
Our approach and presentation of our
emissions reduction plan was highly
commended during our drilling permit
application process. Capricorn continues
to look for new ways to reduce our
emissions footprint and we shall be
implementing similar emissions
reduction plans in future operations.
Annual Report and Accounts 2022
15
Materiality Review
To support our licence to operate
and guide our approach to
sustainability, we need to listen
to our stakeholders so we
understand what matters
most to them.
We also need to make a careful assessment
of the issues that we believe will have the
most impact on the Company, both in
terms of its finances and potential risks.
The process we used to do so included
a close review of international reporting
requirements, benchmarking against our
peers, increasing the focus of our scrutiny
and conducting extensive engagement,
including a survey and one-to-one
interviews, with our stakeholders.
This year we have taken a more rigorous
approach to our materiality assessment
with the resulting Materiality Matrix clearly
identifying which issues are of most
importance, both internally and externally.
We address the issues deemed to be of ‘high’,
‘significant’ and ‘medium’ importance in our
Sustainability Report at www.capricornenergy.com/
working-responsibly.
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10.00
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8.00
7.00
6.00
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24
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Importance to Capricorn (based on risk after mitigations)
Materiality Issues by Theme
Environment
People
1 Climate Change & Energy Transition
8 Workplace Safety & Security
Governance
16 Managing a ‘Just Transition’
2 Reduction of GHG Emissions
3 Reduction of Fossil Fuel Consumption
4 Protection of Biodiversity &
Ecosystems
5 Discharges to Air, Sea, Land & Sound
6 Protection of Fresh Water Resources
7 Circular Approach & Minimisation
9 Diversity, Equality & Inclusion
17 Building & Maintaining a Responsible
10 Health & Well-being
11 Talent Management
12 Learning & Development
Society
13 Safeguarding Human Rights
Supply Chain
18 Decommissioning, Closure
& Rehabilitation Commitment
19 Ethics, Transparency & Regulatory
Compliance
20 Anti-Bribery & Corruption Practices
of Waste
14 Supporting & Safeguarding Local
21 Robust Whistleblowing Mechanisms
Communities
22 Emergency Preparedness & Crisis
15 Investing in Local Skills, Recruitment
Management
& Procurement
23 Data & Cyber Security
24 Investment in Clean Technologies
& Business Innovation
25 Linking Remuneration &
Incentivisation to Sustainability and
Other Non-Financial Performance
Measures
Strategic Report
Capricorn Energy PLC
16
Annual Report and Accounts 2022
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
2022 KPIs
2022 Progress
HSSE Lagging Indicators: Achieve lagging
HSSE indicators measured against IOGP
targets.
HSSE Leading Indicators: Achieve HSSE
leading indicators surrounding safety
leadership.
Environmental: Outline a roadmap and
deliver opportunities to achieve Scope 1
and 2 emissions reductions versus our
short-, medium- and long-term net zero
targets.
Social: Agree, establish and track social
investment across the Group, which
helps to deliver a positive impact on
the communities with which we work.
Governance: Communicate our climate
change strategy, performance, and our
processes for governance, risk
management, target setting and carbon
pricing.
Governance: Enhance our approach to
Diversity & Inclusion.
Key Risks
– Future challenges and costs to
achieving pathway to Net Zero 2040
– Lack of adherence to health, safety,
environment and security policies
– Breach of Code of Ethics.
Operated activities, including well drilling, resulted in zero reportable regulatory spills to
the environment and, for Total Recordable Injury Rate and Lost Time Injury Frequency,
as reported in International Association of Oil & Gas Producers (IOGP) statistics, scores
which were better than the lowest number of all activity averages. This resulted in the
stretch target being met.
The HSSE leadership visits that took place in 2022 were strongly supported across
the business with contributions across the operational footprint. All participants used
the Site Safety Visit Guide to plan, execute and report on their leadership visits with
messaging communicated to staff, contractors and suppliers, which indirectly
contributed to the positive outcome on the lagging indicators.
In July 2022, management visited the Bapetco assets in Egypt for the purpose of
general management and observation, with good dialogue taking place on matters
for follow-up.
In August 2022, management visited the Valaris 123, which drilled the operated Diadem
well rig to demonstrate HSSE leadership and to focus on major accident hazard
prevention.
Members of management visited the seismic operations being undertaken in the
South-East Horus concession in Egypt, in September 2022. The focus of the visit was
HSSE leadership and to demonstrate and assess safety behaviours and lifesaving rules.
An action tracker was put in place for the operational period.
A field visit was undertaken to the Egypt production operations to undertake an
Environmental and Safety Audit with good progress noted against previous findings.
A visit was made to the West El Fayium concession seismic operations to observe health
and safety behaviours and a comprehensive visit report was prepared and
disseminated.
On 7 December 2022, an HSSE & CSR day was held in the Edinburgh office, with over
140 participants from across the organisation in attendance.
Progress with GHG emissions reductions initiatives in Egypt gave confidence to set
bolder Scope 1 and 2 targets, which were communicated to investors during the
September 2022 update. A new, near-term target of 15% reduction by 2025 has been
set, while the 2030 emissions reduction target was increased from 25% to 30%.
An emissions baseline assessment in Egypt was completed providing assurance on the
quality of emissions reporting. This is fully in line with the latest American Petroleum
Institute (API) GHG compendium (Nov-21). Bapetco have identified a suite of projects
and a roadmap to deliver on an ambitious Scope 1 and 2 emissions reduction pathway.
Significant progress was made on emissions improvement initiatives including mobile
diesel generator reduction, electrification using gas as power fuel, planning for multiple
flare reduction and waste heat recovery projects, and investigating feasibility for carbon
capture and storage at Badr El Din and Obaiyed through subsurface evaluation.
In January 2022, Capricorn purchased high-quality carbon offsets with BP, Shell and
Tradewater; all are verified with either Verra, Gold Standard or the American Carbon
Registry.
The inputs and outcomes from 2022 social investment efforts were assessed and it
was concluded that these meet the social investment guidelines for investments and
that they were being actively managed by the social advisors in collaboration with a
number of external stakeholders. A social management framework was developed in
2021 in line with the UN SDGs and this was first used in 2022, including using the
social investment screening tool.
Social investment projects undertaken in 2022 in Mexico included: the second year of
the Turtle Conservation Project where our donations funded the patrolling of 7,000km
of beach, an increased number of hatchlings being released year-on-year and a
technology transfer education and innovation programme with 25 participants.
Annual Report and Accounts 2022
17
Strategic objective: ESG and HSSE continued
2022 Progress
In Suriname, we assisted for a third year in the mangrove rehabilitation project, with our
donation being used to acquire key pieces of equipment to support the construction of
sediment trapping units which increased the area now protected. Donations were also
given to create a community hub, with six local schools having access; 200-300 local
students and youths accessed the hub on a weekly basis and gained IT skills and
experience. Further donations funded the tuition fees for a two-year MSc in Public
Health for seven students and also allowed the purchase of key pieces of equipment
for the electrical engineering element of the oil and gas stream of NATIN Phase 2
programme which had 30 participants.
In the UK, a Clean Energy Scholarship at Heriot Watt University was supported,
enabling three students to be supported through a clean energy PhD. Also at Heriot
Watt University, a donation enabled 16 PhD students to be funded through
GeoNetZero CDT.
In Egypt, a financial donation and the provision of volunteer trainers was made towards
the Al Amal Graduate Training Programme, which had 42 participants.
CDP: In December 2022, we received our Water and Climate Change CDP ratings
(both B) relating to 2021 ESG data, submitted in July 2022. Our prior-year submission
for Climate Change was (-B) and Water (B). This puts us among the top performers
amongst our peers, on both metrics.
TCFD: We delivered a detailed standalone TCFD report, published as part of the Annual
Report 2021. We addressed all four pillars (Governance, Strategy, Risks and Metrics and
Targets) and 11 disclosures as required by the framework, including the assessment of
transition risks of climate change on our portfolio.
In 2022, we assessed the potential impact of the physical risks of climate change on
our assets. We conducted a study with an independent provider, Willis Towers Watson,
who helped us calculate Value at Risk (VaR) for three principal climate scenarios. The
results of this analysis are included in the TCFD 2022 disclosures and published as part
of the 2022 Annual Report and Sustainability Report.
SASB: To improve the quality and transparency of our reporting, we assessed and
aligned our reporting against the Sustainability Accounting Standards Board (SASB) Oil
& Gas – Exploration & Production Sustainable Accounting Standard (SASB, Oil & Gas –
Exploration & Production Index 2021).
An independent D&I survey was commissioned in April 2022; 170 employees
responded to the survey. We compared our results with those from 100+ energy
companies operating in the UKCS and Capricorn achieved 7.7 (out of 10) on the
D&I Index, 0.6 higher than the UKCS average of 7.1.
A D&I working group was formed in January 2022. The group identified several key
initiatives to further embed D&I into our culture: to improve opportunities for under-
represented groups to move into senior roles in the organisation; in January 2022 our
‘Shadow4success’ initiative started. A diverse group of female colleagues were
independently selected for the programme to shadow our Executive Team throughout
the year; in January 2022, we launched an ‘Inclusion calendar’, which is designed to
provide an overview and raise awareness of key dates and activities to reflect the
diverse population of our staff and the communities in which we work; and D&I training
was delivered for all staff between September 2022 and November 2022.
Past performance in KPI category
Remuneration
Weighting
(as % of allocated
proportion of maximum
opportunity)
Bonus awarded
20.00%
20.00%
Read more in the Remuneration Report –
pages 76 to 109
Strategic Report202220212020100%90%90% Capricorn Energy PLC
18
Annual Report and Accounts 2022
Measuring Our Progress continued
Strategic objective: Exploration and New Ventures
2022 KPIs
2022 Progress
Prospect Maturation & Well Planning:
Mature our key exploration projects for
planned drilling in 2022/23 in Egypt,
UK and Mauritania.
Exploration Operations: Conduct our
operated and non-operated exploration
and appraisal activities (surveys and drilling)
successfully, on time and on budget.
Adding Resources: Add new commercial
resources through E&A drilling, coupled
with conceptual development studies.
Key Risks
– n/a
The proposed prospects to be drilled in the SAS concession were agreed with the joint
venture, with the first (Saqr) spudded in February 2023.
Plymouth was evaluated using 2D seismic surveys – relative acoustic impedance
attribute. Ion 3D was acquired in late 2021 and processed products delivered in
May 2022.
Farm-down work continued during the year. Drilling planning has progressed with
the well design simplified and the ESIA preparations underway.
All projects executed in 2022 met their original basis of design objectives. The Jaws
exploration well was delivered on budget and the South East Horus 3D seismic and
West El Fayium 3D seismic both completed more than 10% under budget. The
Diadem exploration well completed, but over budget and, therefore, did not score.
The Jaws exploration well in the UKCS, operated by Shell (Capricorn 50% WI) was
completed in late January 2022. The well encountered 31m of Jurassic Fulmar sands
but was unfortunately water wet.
The Capricorn operated Diadem well (50% WI) was completed in September 2022
but was also unsuccessful, failing to find hydrocarbons.
As both wells were unsuccessful, no new contingent resources were added, resulting
in a zero score. Both licences P2380 and P2379 were relinquished by year-end.
Past performance in KPI category
Remuneration
Weighting
(as % of allocated
proportion of maximum
opportunity)
Bonus awarded
5.75%
20.00%
Read more in the Remuneration Report –
pages 76 to 109
20222021202028.75%38%36% Annual Report and Accounts 2022
19
Strategic objective: Production
2022 KPIs
2022 Progress
Reserves/Resource Conversion: Sanction
incremental development investment to
convert WI 2C Resources and 2P
Undeveloped Reserves into WI 2P
Producing Reserves.
Delivering Production and Opex Targets:
Deliver Net production targets within
public market guidance issued in January
2022.
Deliver operating cost/boe targets within
public market guidance in January 2022 in
relation to Egypt (US$4.5 – US$5.5 per boe).
Key Risks
– Underperformance of Egypt assets
– Reserves downgrade or impairment
The target of 15 mmbboe converted was based on 100% reserves replacement, where
production was expected to be ~40 kboepd (or an annual volume of 14.6 mmboe) on
the basis 40-50 wells would be drilled in 2022. The targets were not met.
The target was set with the ambition of drilling 40-50 new wells in the year. Due to
various reasons, the joint venture was only able to deliver 31 new wells, impacting
the production volumes. Oil and condensate volumes were above threshold of
12,950 bopd but below target of 15,000 bopd, scoring 1.5%. Gas production and oil
equivalent production were below threshold of 140 mmscf/d and 40,000 boepd
respectively, resulting in zero score.
Although the absolute opex was in line with guidance in terms of US$ annual
expenditure, the overall performance was impacted by the production performance
being below target and therefore pulled the opex/boe out of guidance, averaging
US$5.7/boe.
Past performance in KPI category
Remuneration
Weighting
(as % of allocated
proportion of maximum
opportunity)
Bonus awarded
1.50%
20.00%
Read more in the Remuneration Report –
pages 76 to 109
Strategic Report2022202120207.5%59%60% Capricorn Energy PLC
20
Annual Report and Accounts 2022
Measuring Our Progress continued
Strategic objective: Financial Performance
2022 KPIs
2022 Progress
Headroom Test: Maintain 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 met.
Funding Plan: Executable funding plan
presented and approved by the Board
to effect the Company’s strategy or as
required in line with any approved
acquisition.
Key Risks
– Volatile oil and gas projects
– Political and fiscal uncertainties
– Egypt receivables balance
– Inability to access capital
This funding test was maintained and therefore scored fully for this element of the
financial performance KPI.
The October 2022 redetermination for the reserve-based lending (RBL) debt facility
associated with Egypt completed and the KPI fully met for this element of the financial
performance KPI.
Following the annual strategic review, an all-share merger with Tullow Oil plc was
proposed and a funding plan prepared accordingly. This plan changed following the
recommendation to combine with NewMed Energy. In February 2023, the Company
and NewMed mutually agreed to terminate the Business Combination Agreement
with the associated funding plan not completed, meaning zero score achieved for this
element of the financial performance KPI.
Past performance in KPI category
Remuneration
Weighting
(as % of allocated
proportion of maximum
opportunity)
Bonus awarded
10.00%
20.00%
Read more in the Remuneration Report –
pages 76 to 109
Strategic objective: Corporate projects
2022 KPIs Key risks
2022 Progress
Identify projects agreed with the Board of
strategic significance during the year to
enhance the portfolio.
Whilst a number of business development opportunities were reviewed, no corporate
projects concluded and no score was achieved in this element of the corporate
projects KPI.
Key Risks
– Failure to unlock value from the strategic
review.
Pre-determined portfolio management projects (commercially confidential) were
only partially achieved, scoring below half marks for this element of the corporate
projects KPI.
Past performance in KPI category
Remuneration
Weighting
(as % of allocated
proportion of maximum
opportunity)
Bonus awarded
2.00%
20.00%
Read more in the Remuneration Report –
pages 76 to 109
Further information on the 2022 KPI weightings and scoring metrics can be found in the Directors’ Remuneration Committee
Report pages 76 to 109.
20222021202050%80%86%20222021202010%31%70% Annual Report and Accounts 2022
21
Strategic Report Capricorn Energy PLC
22
Annual Report and Accounts 2022
Annual Report and Accounts 2022
Behaving Responsibly to the Environment
A responsible approach to the
Environment
We at Capricorn continue to deepen our commitment and
energise our actions to take a responsible approach to the
environment. We are refocusing our efforts on net zero
emissions by 2040 or earlier, and reinforcing our approach to
biodiversity and water management. Ours is 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. We are working
hard to find ways to find a manageable trajectory for the oil
and gas industry to meet the demand for reliable, affordable
energy as it transitions to net zero emissions.
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.
At the end of 2022, the following
environmental issues were identified
as being of high materiality:
– Climate change and energy transition
– Reduction of GHG emissions
– Reduction of fossil fuel consumption
– Protection of biodiversity and
ecosystems
– Discharges to air, sea, land and sound
– Protection of fresh water resources
– Circular approach – minimisation of
waste
See our Materiality Matrix within our
Sustainability Report
2022 Performance Against Sustainability Objectives
– Revised our Climate and Energy
Transition strategy.
– Developed short-, medium- and
long-term sustainability objectives
and targets.
– Integrated carbon pricing
mechanisms and re-evaluated the
resilience of our portfolio.
– Assessed physical risks of climate
change on our portfolio.
– Undertook an Environmental
Baseline Survey, furthered
knowledge of biodiversity and
ecosystem services risks in
Mauritania.
– Commenced the environmental and
social impact assessment (ESIA)
process for our exploration work in
Mauritania, including engagement
with key stakeholders.
– Improved our reporting against TCFD
– Applied our improved water
and SASB requirements.
– Began disclosing Scope 3 emissions
from the use of our products.
– Applied newly developed biodiversity
assessment tools and improved
disclosure of biodiversity issues.
resilience and stress ranking and
reporting to opportunity screening.
– Completed environmental and social
impact assessments for our operated
exploration projects in Egypt.
See our Sustainability Report for more information about our SDG performance
Emissions and energy use
We are committed to promoting the
efficient use of energy, with the aim of
conserving natural resources, reducing
atmospheric emissions and mitigating
the impacts of our operations. Our net zero
roadmap – see pages 12 and 13 for more
detail – sets out our near to mid-term target
to reduce absolute emissions by 15% by
2025 and 30% 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 Task Force on Climate-
related Financial Disclosures (TCFD).
For more details, see our website:
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 2022, we
improved our CDP rating from B- to B
for both climate change and water
questionnaires. This positions us among
the top performers in our peer group.
We report on both an operated and an
equity basis. We have set out targets against
equity absolute 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, employee commuting
and from the use of products sold.
Streamlined energy and
carbon reporting (SECR)
Our GHG emissions from our Operated
Activities are outlined in the SECR table
below, and form part of our UK regulatory
reporting requirements.
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.
2022 was a key year for improved GHG
Annual Report and Accounts 2022
23
emissions understanding associated with
the Egyptian producing assets, whereby
the JV completed a more comprehensive
baseline survey in our first full year of
ownership, with the applied methodologies
independently confirmed as consistent
with international standards. This gives us
an opportunity to apply new approaches
and techniques to lower emissions from
this 2022 baseline over the next three years
to achieve our target of a minimum of 15%
reduction by 2025. We are pleased that
Bapetco has already identified, and in some
cases, started to execute measures that will
move us to lower absolute emissions.
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.
Low-carbon assets and equipment
To minimise the energy used in our
exploration activities, we assess the fuel
consumption of rigs, vessels and
helicopters. We continue to use fuel
efficiency as one of our selection criteria
when tendering vessels for geophysical
and geotechnical surveys. 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 non-operated
assets in the Western Desert, Egypt. These
have been outlined in the 2022 Capricorn
Equity Emissions table on page 24.
We have been working closely with our
partners in Egypt to significantly improve
confidence in emissions measurement and
reporting, and to develop a suite of
decarbonisation projects, which include:
– electrification, to reduce diesel
consumption which is progressing well;
– flare reduction projects are underway
with flare gas to power projects being
developed;
– fugitive identification which has
been completed with a corrective
maintenance plan in place;
– integration of larger scale solar power,
which is under consideration;
– waste heat recovery units with the
potential to materially reduce emissions
by removing hot oil heaters;
– feasibility for waste heat recovery
which is being explored for certain sites;
– the potential for carbon dioxide
sequestration, which is being
studied; and
– the use of biofuels and hydrogen,
which is being considered.
Our indirect (Scope 3) emissions are also
reported, including emissions from
products sold.
Reduction of GHG emissions
We know from our engagement with
stakeholders that the reduction of
greenhouse gas (GHG) emissions is a key
demand of our external stakeholders, and
is also seen as a principal business risk by
the Company. Our approach to reducing
our GHG emissions is based around clear,
simple principles: Avoid, Reduce,
Substitute, Sequester and Offset.
See our Sustainability Report for data on all
emissions.
GHG emissions from operated activities (SECR)
Scope 1 (direct) emissions from fuel combustion, flaring and waste incineration
UK
Capricorn total
Scope 2 (indirect) emissions (location-based) from electricity consumption
UK
Capricorn total
Total gross Scope 1 and Scope 2 emissions
UK
Capricorn total
Total energy consumption
UK
Capricorn total
Unit
tCO2e
tCO2e
tCO2e
kWh
GHG intensity ratio: of Scope 1 and Scope 2 emissions to 1,000 hours worked
UK
Capricorn total
tCO2e/1,000 wh
Scope 3 emissions from business travel
UK
Capricorn total
tCO2e
2022
2021
3,659.41
7,862.61*
183.90
223.31*
885
911*
95
107*
3,843.31
8,085.92*
980
1,018*
1,754,673
19,755,280
3,833,782
3,971,555
1.17
3.12
1,202.16
1,202.16*
3.35
3.2
451
451*
* 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. Details about our corporate
definitions, data and methodologies are outlined within our Basis of Reporting. Note: Figures do not include Scope 3 from the use of products.
Strategic Report Capricorn Energy PLC
24
Annual Report and Accounts 2022
Behaving Responsibly to the Environment continued
2022 Capricorn equity emissions
Operated and non-operated
Total equity emissions
Total equity CO2e – Scope 1
Operated
Non-operated
Total equity CO2e – Scope 2
Total equity CO2e – Scope 3
Category 1 – Purchased goods and
services
Category 3 – Fuel and energy-related
activities
Category 4 – Upstream transportation
and distribution
Category 5 – Waste generated in
operations
Category 6 – Business travel
Category 7 – Employee commuting
Category 9 – Downstream transportation
and distribution
Category 10 – Processing of sold products
Category 11 – Use of sold products
Intensity (Scope 1+2)*
tCO2e
tCO2e
tCO2e
kgCO2e/boe
Measure
2022
2021
tCO2e
tCO2e
tCO2e
tCO2e
tCO2e
tCO2e
tCO2e
tCO2e
tCO2e
tCO2e
tCO2e
tCO2e
2,353,023
3,388,119
269,412
146,579
3,849
549
265,563
146,030
223
107
2,083,388
3,241,433
3,401
23
1,027
44
1,202
393
n/a
n/a
n/a
1
451
n/a
69,832
68,010
50,989
152,397
1,939,457
3,037,595
activities such as Social Impact Assessment
(SIA), as per national requirements, for our
3D seismic Projects in our operated
concessions (West El Fayium and South
East Horus) and for our exploration drilling
campaign, which started in Q1 2023.
The fundamental concept which Capricorn
applies to manage potential impacts to
biodiversity is that of the Mitigation
Hierarchy; that is taking measures to Avoid,
Minimise, Restore, and finally Offset negative
impacts. We recognise the challenges in
achieving this, particularly in the marine
realm, and will be looking to develop KPIs to
assist us with delivering this commitment.
Water, effluents and pollution
Discharges to air, sea, land & sound
An important part of our commitment
to the environment is the minimisation
of discharges and emissions from our
operations. It ranks highly in the concerns
of our external stakeholders. As we move
into a more active phase in our Egyptian
operations it is a subject on which we are
putting a particular focus. As with our
broader waste policy we are working
towards a Reduce, Reuse, Recycle principle
with our emissions.
47.4
19.87
See the Sustainability Report for details and our
performance against KPIs.
*
Intensity is calculated on the entitlement basis.
Protecting Biodiversity and
the environment
Capricorn is committing increasing time
and resources to the protection of
biodiversity and natural ecosystems in
recognition of the importance of the
sustainable use of nature in supporting the
United Nations Sustainable Development
Goals (UN SDGs) and the UN’s crucial role
in addressing climate change.
We updated our biodiversity policy at the
end of 2021, and during 2022 we have
implemented and built on new tools and
guidelines for assessing and managing risk
to biodiversity from our operations. We are
also following the development of the
numerous initiatives to support business
action on nature such as Business for
Nature, the Task Force on Nature-related
Financial Disclosures (TNFD), the Science-
Based Targets Network (SBTN) and the
Aligning accounting approaches for Nature
(Align) project.
In 2022 we delivered a number of training
events to increase biodiversity awareness
and management capacity including: a
three-quarter-day session on no net loss for
biodiversity (developed and delivered by
The UN Environment Programme World
Conservation Monitoring Centre (UNEP-
WCMC), a Board education session
addressing the evolving corporate nature
management and reporting requirements,
and a lunch and learn for all staff.
Protecting and screening
biodiversity and sensitive areas
As nature and biodiversity risk are
inherently location-specific, prior to
entering new areas, we undertake detailed
screening and consultation to identify
protected areas and priority locations for
biodiversity conservation. The finding of
high biodiversity risk has led to recent
decisions not to progress investment,
or been followed by the commitment
to implement Biodiversity Action Plans.
We have an extensive and sophisticated
toolset for assessing biodiversity risks.
For more detail see our Sustainability Report.
Assessing and managing our
impact on biodiversity
On entry to new projects, Capricorn
undertakes Environmental Baseline Surveys
(EBS) to define existing environmental and
biodiversity conditions around planned
operations. In 2022 we completed an
EBS and agreed the Environmental and
Social Impact Assessment (ESIA) Terms
of Reference with the Mauritanian
Government for our proposed exploration
drilling in the C7 licence block, offshore
Mauritania. In Egypt we completed an
Environmental Impact Assessment (EIA),
and all related studies required for our
Protection of freshwater resources
Climate change and increased water
consumption are putting greater pressure
on freshwater resources around the world.
Access to clean, safe water for local
communities is a fundamental human
right and is enshrined within the UN SDGs.
We therefore take our responsibility for
protecting and maintaining the sources
and quality extremely seriously. Our
Corporate Environmental and Climate
Change Policy outlines the Company’s
commitment to efficient operations
regarding water usage. This policy aims to
protect water sources and water quality
where we operate, promotes the efficient
use of water, and includes the need to
engage with local communities to ensure
environmental resources are conserved.
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 Egyptian
General Petroleum Corporation (EGPC).
Annual Report and Accounts 2022
25
Behaving Responsibly to People
A responsible approach to our
People
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.
At the end of 2022, the following people
issues were identified as being of high
materiality:
– Workplace safety and security
– Diversity, equality and inclusion
– Health and well-being
– Talent management
– Learning and development
See our Materiality Matrix within our
Sustainability Report
2022 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 the environment
(HSE) and major accident safety in
drilling operations.
– Revised our Project Delivery Process
with improved integration of HSE
elements within the Wells Project
Management Procedure.
– Implemented an HSSE management
system roadmap for our in-country
team in Cairo.
– Established a system to track social
investment across the Group that
helps deliver a positive impact on the
communities with which we work.
– Implemented an enhanced incident
reporting system across the Company
and provided training to users.
– Reviewed our security guidelines
against the latest ISO standard, and
assessed information sources and
providers to identify potential
improvements and updated our
Business Continuity Plan.
– Revised our technical competencies
project and strengthened links to our
Corporate Major Accident Prevention
Policy (CMAPP).
– Reviewed and updated our corporate
policies to ensure alignment with
latest legislation and clarity of
messaging.
– 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 and
achieved our stretch target for 2022.
See our Sustainability Report for more information about our SDG performance
Our 2022 performance
With over 1.5m total hours recorded
throughout the year, one Restricted Work
Day Case (RWDC) and zero Lost Time
Injuries (LTIs) in our operated assets, our
occupational safety performance exceeded
our target; this was set using the IOGP
benchmarks, which we use as lagging KPIs.
This performance was exceptional,
recognising that the activity level in 2022
was much higher and more complex than
in 2021, featuring an offshore well in the
UKCS and two seismic projects in the
newly acquired Egyptian Western Desert
concessions covering a total of 1,060 sq km.
Lost Time Injury Frequency (LTIF)
(lost time injuries per million hours worked)
2022
2021
2020
2019
2018
Capricorn: 0.00
IOGP benchmark: 0.22
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 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.
Total Recordable Injury Rate (TRIR)
(total recordable injuries per million
hours worked)
2022
2021
2020
2019
2018
Capricorn: 0.65
IOGP benchmark: 0.70
Capricorn: 0.00
IOGP benchmark: 0.92
Capricorn: 0.00
IOGP benchmark: 0.99
Capricorn: 0.98
IOGP benchmark: 0.92
Capricorn: 0.00
IOGP benchmark: 0.99
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.
Strategic Report Capricorn Energy PLC
26
Annual Report and Accounts 2022
Behaving Responsibly to People continued
Total workforce
200
(2021: 238)
Employees and Direct Contractors
Gender split
Total workforce
Male/Female
Employees
94
Direct Contractor
10
Management
9
People Managers
33
Average age of staff
43
(2021: 44)
Board members
Male/Female
2022
6
2021
5
2020
6
2019
6
2018
7
91
5
3
24
3
3
3
3
2
Employment type
Employees
Direct contractors
185
Full time
172
15
Part time
13
During 2022, we welcomed 28 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 recognise that our success depends
on a diverse range of talented people with
the necessary skills and passion, and
acknowledge diversity in all its dimensions:
national origin, age, race and ethnicity,
religion and belief, gender, sexual orientation
and marital status. We nurture a diverse and
inclusive culture, where everyone can
uniquely contribute and thrive; a culture
which values and encourages individual
differences, unleashing the potential of our
talent and flourishes under the collective
strength and value that diversity brings.
See our Sustainability Report for more information
about our SDG performance and details of our Policies.
Our D&I ambition
We aim to nurture a diverse and inclusive
culture where everyone can uniquely
contribute and thrive: a culture that values
and encourages individual differences,
unleashes the potential of our talent and
flourishes under the collective strength
and value that diversity brings.
Our people
We will focus our outreach across a breadth
of communities to support a more diverse
talent pool, as we strive to attract, develop
and retain the very best talent.
In 2022, Capricorn Energy announced two
potential merger activities. Later in the year,
a voluntary redundancy programme was
announced as part of these new strategic
plans. Employees were given clarity about
both the merger plans and the voluntary
redundancy programme with a clear
signpost of where they could access further
information and support.
Measuring engagement: Pulse Surveys
2022 marked the fourth year of our ‘Have
your say’ pulse surveys and the key areas of
focus were the Company’s merger strategy
and the support given during this period of
change. These short, regular snapshots
continue to attract consistently high
participation rates of around 90%, 4% above
the industry average.
Our engagement scores at the end of each
quarter of 2022 were 8.2, 7.5, 6.7 and 6.2
respectively, compared to the industry
benchmark of 7.5. Throughout, the majority
of the scores for each component of the
survey tended to be higher than the
industry average. The year-end figure of
6.2 – a 2.1 reduction compared to Q4 2021
– can largely be attributed to a period of
uncertainty experienced by colleagues
from June 2022 when plans for a potential
merger were first communicated.
Employee Voice Forum
Our Employee Voice Forum gives our
people direct access to the Board. There are
two meetings each year, chaired by a
Non-Executive Director, at which colleagues’
material concerns, ideas and suggestions
are discussed. The main themes explored
in 2022 covered future working practices,
long-term and short-term strategy and
future focus of the Company.
Our communities
Our commitment to D&I reaches beyond
the boundaries of our business to
incorporate the diverse values and
perspectives of the communities and
societies of the countries within which we
are privileged to work. We will continue to
reflect these values and perspectives in our
social investment decisions and practices
in all countries in which we operate.
Learning and development
Group-wide learning opportunities
Operating to the highest standard means
providing optimised learning opportunities
for our people. The right education also
means our business is more efficient,
effective and successful. We invest in
developing our people, helping them to fulfil
their potential, deliver our objectives and
meet the changing demands of our industry.
Employee engagement
Commitment to employee engagement
Our people are the foundation on which
our success is built. We aim to create a
positive, collaborative work environment
that enables colleagues to fulfil their
potential. We respect personal dignity and
rights, and want everyone to feel involved
and valued by their colleagues, managers
and senior leaders.
Leadership and management
development
We continued our partnership with a local
provider to work with each senior leader on
a one-to-one basis. The sessions provided
coaching and insights on strengths and
characteristics, and look at resilience,
managing relationships, emotional
intelligence, inclusive leadership and
succession planning. Each individual also
benefited from a robust development plan
with short-, medium- and long-term actions.
Annual Report and Accounts 2022
27
For current and aspiring people managers,
we have added the TalentBuilder®
programme to our Management Bootcamp
programme, while a Career Focus module
is now available for all staff.
Training
38 hours
Average amount of training given to
non-management staff
(2021: 31)
31 hours
Average amount of training given to
management staff
(2021: 30)
Workplace safety
Providing a safe working environment is
central to working responsibly. 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. As an HSSE initiative, in 2022 we
undertook several senior leadership visits to
our operated and non-operated activities
with the aim of promoting safety
leadership across staff, contractors and
suppliers. Additionally, we held the HSSE
and Social Responsibility Day for our staff
across the global offices promoting a wide
range of safety, environmental and social
challenges and mitigations.
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.
Employee well-being
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. We learned a great deal about
the role of health and well-being at work
during the COVID-19 lockdowns, and our
programme of activities – now in its fourth
year – 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 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 eating. Our HR staff have also
completed mental health first aid training
to strengthen the support we provide.
Following a phased return to office working,
we have introduced hybrid working in the
UK as part of our shift to more flexible
working practices without impairing our
ability to deliver our work programmes.
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 necessary.
New operational security guidelines were
developed for release across the Company
in late 2021. 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).
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 (such as in Mexico City and Cairo) 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).
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.
In 2022 field contractors accounted for
approximately 79% of our workforce and
76% of hours worked across the business.
These figures are up from 2021’s 15% and
5% respectively.
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 improved our scrutiny
of key equipment providers in terms of
environmental performance and emissions
monitoring as part of the tendering process.
In 2022, we assessed the energy efficiency
and emissions of vessels, rigs, seismic
vehicles and helicopters, as well as
contractor HSSE data metrics aligned with
IOGP averages, 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. We continued to use the Achilles’
Oil and Gas Europe platform to assess
potential contractors in the European oil and
gas market. This supported the identification
of potential vendors for the Diadem project
(see page 29).
Strategic Report Capricorn Energy PLC
28
Annual Report and Accounts 2022
Behaving Responsibly to Society
A responsible approach to
Society
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.
– We respect and promote the human
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.
At the end of 2022, the following
societal issues were identified as being
of high materiality:
– Safeguarding human rights
– Supporting and safeguarding local
communities
– Investing in local skills, recruitment
and procurement
See our Materiality Matrix within our
Sustainability Report
2022 Performance Against Sustainability Objectives
– Applied human rights guidance in
planned operations, including the
availability of transparent grievance
procedures.
– Delivered a specialist run, in-house
human rights ‘lunch and learn’
session for all staff.
– Implemented new social investment
projects and carried out scoping for
potential projects across the Group.
– Applied the recently developed
Social Investment screening tool to
potential and new social investment
projects.
– Rolled out human rights and modern
– Developed Stakeholder Engagement
slavery training to employees.
– Audited the application of modern
slavery prevention requirements in
selected projects.
Plans for all new projects
demonstrating application of
stakeholder engagement guidance.
See our Sustainability Report for more information about our SDG performance
Identifying and assessing
human rights risks
Our starting point in safeguarding human
rights in our business is to identify and
assess potential internal and external risks
of human rights transgressions within our
sphere of influence. The standards that we
work within include compliance with or
consideration of the UN Universal
Declaration of Human Rights; the
UN Guiding Principles on Business and
Human Rights; the International Finance
Corporation (IFC) Performance Standards;
and the ISO26000 Guidance for Social
Responsibility.
With this in mind we have developed our
own Human Rights Guidelines which
define how we identify, assess and
manage potential issues, not least when
we are considering or entering new
projects. The guidelines include a five-step
process which has been incorporated into
our Corporate Responsibility Management
System (CRMS). Our overall position on
human and labour rights is summarised in
our Corporate Social Responsibility (CSR)
policy and our Code of Ethics. The relevant
documents can be found on our website
and the key points are that in all activities,
we will:
– Respect, support and promote
internationally recognised human rights
standards wherever we operate and
seek to ensure non-complicity in
human rights abuses aligned with the
UN Guiding Principles on Business and
Human Rights.
– Identify, assess, prevent or mitigate
adverse human rights impacts resulting
from or caused by our business through
effective due diligence and mitigation
processes.
– Maintain zero tolerance of all forms of
modern slavery and not be complicit in
the use of forced, compulsory, bonded
or child labour or any form of human
trafficking.
– Provide human rights training to our
personnel and actively promote
awareness of human rights issues with
our stakeholders.
Ahead of any major project, we undertake
extensive Environmental and Social
Impact Assessments (ESIAs and SIAs),
and where necessary Human Rights
Impact Assessments (HRIAs). Where
potential issues are identified we engage
in detail with interested parties to consider
how best to manage or mitigate risks
and develop comprehensive Social
Management Plans (SMPs).
Annual Report and Accounts 2022
29
Human rights training
The human rights and modern slavery
modules of our training programme were
each completed by 181 people during
2022, representing 98% of Capricorn’s
employees across our sites. This is
undertaken through the e-learning
platform of the Capricorn Learning
Academy scheme.
As part of our wider training, in January
2022, the Institute of Human Rights
presented a Lunch & Learn session in our
Edinburgh office to help employees
understand the context of this vital subject.
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; we 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.
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 2022,
but it remains an important procurement
consideration. For example, though our
work in Mauritania is in its early stages as we
prepare the ground for future drilling, we
have a responsibility to get our approach to
human rights and labour practices correct
given the country’s low scoring in the 2018
Global Slavery Index. 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.
In 2022, we undertook an audit of one of
our Tier 1 vendors, providing services
during the Diadem drilling campaign. The
audit was to ensure prevention of modern
slavery risks within the supply chain, and
the key areas of focus included:
– determination of contractor’s parent
Company policy position on matters of
modern slavery and conformance with
Capricorn policies and procedures;
– test understanding of potential risks
within the local supply chain used by
the Contractor;
– assessment of conditions of
employment of personnel and
subcontract or agency personnel; and
– examine safeguards in place.
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 apply 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.
Strategic Report Capricorn Energy PLC
30
Annual Report and Accounts 2022
Behaving Responsibly to Society continued
Social investment plans
around the world
Egypt
We followed a rigorous process, including
site visits and presentations, to identify a
select number of appropriate projects that
were candidates for consideration as social
investments in Egypt. We are now in the
final stages of reviewing the preferred
candidate. In line with the findings of the
Social Impact Assessment (SIA), our focus
was on veterinary issues, people’s health,
and water. It is crucial that we support
projects that leave a lasting legacy.
Suriname
Capricorn continues to work on its licence
commitments in Suriname, working
closely with Staatsolie, the national oil
company. During 2022 we held an
Operators’ Forum in the Suriname capital,
Paramaribo, in November and participated
in a Technical Committee Meeting.
Through the Production Sharing Contract
(PSC) started in 2018 we are committed to
a spend of US$100,000 per annum on
local social responsibility and community
investment programmes and training.
In 2022, Capricorn agreed to support
seven students taking a two-year MSc
degree in Public Health at Anton de Kom
University. This project, in which we cover
the students’ tuition fees for the two years
of the course, meets criteria in both the
Community Health and Education
categories. The students we are
supporting are drawn from community or
other local hospitals or are current local
government employees with a particular
interest in public health.
Community hub in Coronie
Having previously invested in much-
needed IT and office equipment at the
Institute for Natural Resources and
Engineering Studies in the Suriname
capital, Paramaribo, in 2022 we supported
a community hub in the district of Coronie
in the same way. The hub provides local
students with a place to study, complete
homework and improve their IT skills. An
investment from Capricorn of US$56,000
provided IT equipment and printers not
otherwise available in the area. Six schools
– four primary and two secondary – have
access to the hub. The committee keeps
an eye on how it is progressing and reports
that it is popular and well-used and
continues to run well.
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 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.
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.
When categorising local, national and
international vendors we use definitions
used within local legislation. Although we
have only limited contracting requirements
in both Mexico and Suriname we follow this
principle in both. In Suriname, the national
oil company (Staatsolie) provides guidance
on national content.
In Mexico, the methodology is based on
a framework that is mandatory by law,
and under our Production Sharing
Contract (PSC) with the Mexican National
Hydrocarbons Commission (CNH), 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. To support our
seismic exploration work in Egypt in 2002,
we undertook 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 (see page 42).
Annual Report and Accounts 2022
31
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 existing and emerging 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.
As in previous years, Capricorn’s risk
management process is based on a holistic
approach and 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, financial,
strategic and reputational.
Risk governance
Overall responsibility for the system of risk
management and internal control rests
with the Board. The Board set the risk
appetite each year and is responsible for
reviewing and monitoring the application
of the risk framework. Principal risks and
opportunities, 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.
At the third line of defence is the internal
Audit function which provide assurance on
the effectiveness of our Risk Management
process and other key controls to the Risk
Management Committee, chaired by the
Chief Executive Officer, and then to the
Board and its Committees.
The Board carried out a robust assessment
of the Group’s principal and emerging risks
in 2022.
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 CFO in 2022
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 and emerging risks
Audit Committee
Management Team
Chaired by Non-Executive Director in 2022
Chaired by COO in 2022
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’s 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
Strategic Report Capricorn Energy PLC
32
Annual Report and Accounts 2022
Viability Statement
In accordance with the provisions of the UK
Corporate Governance Code, the Board has
assessed the viability of the Group over a
period longer than the 12-month period
required for its Going Concern assessment.
Period of assessment
The Directors have assessed the viability
of the Group over a three-year period to
April 2026. In selecting the length of period
over which to assess viability, the Board has
considered the following:
– The Group’s financial outlook is assessed
primarily through its business planning
process. At least annually the Board
considers the Group’s business plan and
cashflow projections over a three-year
period.
– Key assumptions which underpin
the Group’s internal forecasts include
forecast oil prices, production profiles,
forecast cost levels for drilling and
operations, and availability of debt under
the Group’s borrowing facilities. The
Board considers that most significant
risks to the business are shorter term
in nature, in particular those associated
with asset performance, volatility of
commodity prices and availability and
repayment of debt under the current
facilities.
– The Group’s longer-term work
programme is in part dependent on the
results of future exploration activity and
optimisation of capital allocation.
Consequently, the Board has determined
that three years is the appropriate period
over which to assess the Group’s viability.
– the effect of volatile oil and gas prices on
the business, on our partners, and other
stakeholders’ financial positions;
– volatility of cash revenue receipts in
Egypt due to irregular settlements of
trade receivables due from EGPC;
– the impact of operational performance
and oil prices on contingent
consideration in respect of divested
assets;
– a lack of availability and/or increased
cost of debt facilities to fund our capital
programme and execute our strategy;
and
– the results of any exploration or
appraisal activities.
Financial forecasts
The Group’s base case financial forecasts
are based on the following key
assumptions that reflect the principal risks:
– Production profiles and expenditure
forecasts on an asset-by-asset basis
based on the Group’s business plan.
– Forecast oil prices in line with the
two-year forward curve and US$60/bbl
thereafter.
– Egypt trade receivables settlement
forecasts based on a proportion of
the balance due.
– Contingent consideration receipts in
respect of divested assets based on
expected production and forecast oil
prices as above.
– Forecast availability and repayments
of debt based on current position of
redetermination process in respect of
the RBL facility as well as the current
amortisation schedule.
Principal risks
The Directors have considered the impact
of the principal risks of the business on the
Group’s financial viability over the
assessment period as well as the mitigation
strategy in respect of those risks. While all
of the risks could potentially impact
performance, the principal risks and
uncertainties that are considered to affect
the Board’s assessment of the Group’s
financial viability in this period are:
– operational performance of its
producing assets;
Further sensitivity analysis is also assessed
around the base case, reflecting a more
severe impact of the principal risks, both
individually and in aggregate as follows:
– Lower crude oil prices, with both a
sustained low oil price scenario of
20-25% of the base case as well as a
more severe oil price crash case with a
subsequent recovery modelled
separately within the assessment period.
– A 10% reduction in forecast production
volumes for the first half of the
assessment period and 5% thereafter.
– Other downside assumptions in respect
of contingent consideration receipts and
Egypt trade receivables settlements.
The Group has considered two main
downside scenarios:
– a sustained period of lower oil prices of
20-25% lower than the base case with
all of the other sensitivities assumed to
occur simultaneously and in aggregate;
and
– a more severe oil price crash scenario
assumed to occur in the current year,
with prices dropping to US$35/bbl
and then recovering over a period of
18 months, combined with a 10%
reduction in production and downside
sensitivities in respect of contingent
consideration receipts and Egypt trade
receivables settlements.
In each of these downside scenarios it is
assumed that discretionary cash returns
to shareholders planned in the base case
would be cancelled or postponed as
required to ensure sufficient financial
headroom remained available.
Taking this into account, in each of these
combined downside scenarios the Group
is forecasting sufficient financial headroom
throughout the assessment period.
Conclusion
The Directors’ assessment of viability is
based on the Group’s current position,
prospects, and the principal risks and
uncertainties affecting the business. As
part of this analysis the Directors have also
considered mitigations that could be
deployed to increase headroom although
they are not required in either of the main
downside scenarios tested.
Based on this analysis, the Directors’ have a
reasonable expectation that the Group can
continue in operation and meet its liabilities
as they fall due over the three-year period
to April 2026.
Annual Report and Accounts 2022
33
Principal Risks to the Group in 2022-2023
The following pages provide a summary overview of the principal risks to the Group at
the end of 2022, the potential impacts, the mitigation measures and the risk appetite.
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
7
2
7
9
11
5
4
2
5
3
4
8
10
6
Low
Medium
High
Likelihood
Risk
Viability
1 Volatile oil and gas prices
2
3
Underperformance of Egypt assets
Failure to unlock value from strategic review
4 Reserves downgrade or impairment
5
Future challenges and costs to achieving
pathway to net zero by 2040
6 Political and fiscal uncertainties
7
Lack of adherence to health, safety,
environment and security policies
8 Egypt receivables balance
9 Breach of code of ethics
10
Inability to access capital
11 Major cyber risk
✓
✓
✓
✓
✓
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.
Cost inflation has been identified as
an emerging risk. 2022 saw significant
rate increases for rigs, equipment and
personnel and whilst this has impacted
on specific assets across the Group
portfolio, the cumulative effect has
been manageable. Should factors such
as geopolitical concerns, supply chain
challenges and an increase in global
project activity continue to drive a rise in
costs, the potential for material impacts
on capital expenditure will increase.
Strategic Report Capricorn Energy PLC
34
Annual Report and Accounts 2022
Risk Management continued
Strategic objective: Production
Principal risk: Underperformance of Egypt assets
Owner: Managing Director, Egypt
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 or result in an impairment on the balance sheet.
Impact
Mitigation
2022 movement
– Cost/schedule
overruns
Actively engage with all partners early to establish
good working relationships.
– Delay or reduction
in cash flow
– HSE incidents
– Negative impact
on asset value
– Reputational
damage
Actively participate in operational and technical
meetings to challenge, apply influence and/or
support partners to establish a cohesive JV view.
Conducting independent economic analysis on all
investment opportunities and only voting in favour
of those that meet Capricorn’s requirements.
Actively monitoring and looking for wells and project
delivery improvement opportunities, in liaison with
our partner, and via our Bapetco secondees.
Proactive engagement and recommending
solutions to challenges at Bapetco Board, and
in JV meetings.
This risk increased in 2022.
2022 overall production averaged ~34,200 boepd,
within revised full-year guidance of 33,000-36,000
boepd. This was lower than original full-year
guidance principally due to the JV drilling fewer
development wells than originally planned and
targeting oil versus higher-rate lower-value gas; the
Teen gas condensate project start-up date being
delayed from 2022 to 2023; and, certain gas wells
performing below year-end 2021 expectations.
Principal risk: Reserves downgrade or impairment
Owner: Chief Petroleum Engineer
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 or result in an impairment on the balance sheet.
Impact
Mitigation
2022 movement
– Reduction in
cash flow
– Reduction in
share price
– Reputational
damage
Annual Reserves & Resources independently
reviewed internally, and in parallel, the use of
external Reserves Estimators.
Appropriate allocation of capital to Near Field
Exploration (NFE) wells to add more material new
or additional reserves and resources.
Maturation of opportunities within existing fields.
Positive and regular engagement with operators
and partners to share knowledge, offer support
and exert influence.
This risk increased in 2022.
Capricorn holds interests across four main
concession areas: 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).
2022 oil production grew 10% year-on-year (YoY)
and averaged ~14,500 bopd net to Capricorn’s
working interest (WI), with ~80% of revenues being
generated from oil and condensate sales in a
supportive price environment.
The Group 2P reserves decreased by 10.2 mmboe
during the year from 37.4 mmboe at year-end 2021
to 27.2 mmboe at year-end 2022 on an entitlement
interest basis. This was principally due to Egyptian
production of 4.7 mmboe and some downward
revisions in gas reserves within the AESW and
Obaiyed concessions.
Annual Report and Accounts 2022
35
Strategic objective: Financial performance
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
2022 movement
– Reduction in
future cash flow
Sensitivity analysis conducted to assess robustness
of Group financial forecasts for funding plan.
Operators’ cost initiatives delivering material cost
reductions on development projects.
– Value impairment
of development
projects
– JV partner capital
constraints
This risk remained static in 2022.
An underlying increase in demand, combined
with below target supply from OPEC and increased
tension over the Ukraine crisis helped to push prices
higher in 2022.
Oil price fluctuations are expected to continue in
2023 and this could materially impact on the cash
flow from Egypt production and the value of the
Catcher/Kraken earnout payments.
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
2022 movement
– 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.
This risk remained static in 2022.
Capricorn has licences in jurisdictions with
moderate to high risk of political or fiscal
uncertainty.
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.
The elevated oil price has resulted in producers
being targeted in certain jurisdictions, which has
materially impacted on value. There is a risk that
the Group is subject to fiscal penalties or claims
in existing or recently exited licences.
Strategic Report Capricorn Energy PLC
36
Annual Report and Accounts 2022
Risk Management continued
Strategic objective: Financial performance continued
Principal risk: Egypt receivables balance
Owner: Managing Director, Egypt
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
– Requirement for
cash injections
from existing
funds
– Uncertain financial
outcomes
Maintain positive relationships with governments
and key stakeholders.
Active and regular discussions with EGPC to agree
payment schedules.
Partial payment in Egyptian Pound where amounts
can be immediately reinvested in the JV.
Other settlement mechanisms available.
2022 movement
New principal risk.
EGPC receivables position was US$97m
at December 2022, including US$66m
of amounts overdue.
Discussions are ongoing with EGPC to agree
2023 payment schedules and other settlement
mechanisms.
Principal risk: Inability to access capital
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
2022 movement
– Work programme
Disciplined allocation of capital across the portfolio.
This risk remained static in 2022.
restricted by
reduced capital
availability
– Loss of value
Continue to assess multiple forms of financing.
The divestment of Capricorn’s interests in the
Kraken and Catcher fields in the UK North Sea
completed in Q4 2021. The sale provided flexibility
to enhance the producing asset base while retaining
exposure to oil price growth through the earnout
considerations as part of the sale.
In Q1 2022, Capricorn received a tax refund from
the Government of India of ~US$1.06bn. This
enabled a capital return to shareholders via a
~US$500m tender offer and an additional US$25m
share buyback programme, completed in July 2022.
Financing is also in place for Egypt operations.
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.
Annual Report and Accounts 2022
37
Strategic objective: ESG
Principal risk: Future challenges and costs to achieving pathway to net zero by 2040
Owner: Chief Executive Officer
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
2022 movement
– 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 decreased in 2022.
There was continued attention to climate change
from a range of stakeholders in 2022. This attention
has led, and we expect it to continue to lead, to
additional regulations designed to reduce
greenhouse gas (GHG) emissions.
The Group’s progress with GHG emissions
reductions initiatives in Egypt has been positive.
This has resulted in a new, near-term GHG reduction
target of 15% by 2025 and 30% by 2030. The
Company has set a net zero target of 2040 or earlier.
Bapetco have identified a suite of projects and a
roadmap to deliver on an ambitious Scope 1 and 2
emissions reduction pathway and expects to reduce
GHG emissions by 23% over the period December
2019 to December 2023. Significant progress has
been made on emissions improvement initiatives
including mobile diesel generator reduction,
electrification using gas as power fuel, planning for
multiple flare reduction and waste heat recovery
projects, and investigating feasibility for carbon
capture and storage at BED and Obaiyed through
subsurface evaluation.
Strategic Report Capricorn Energy PLC
38
Annual Report and Accounts 2022
Risk Management continued
Strategic objective: ESG continued
Principal risk: Lack of adherence to health, safety, environment and security policies
Owner: Chief Executive Officer
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
2022 movement
This risk remained static in 2022.
The Group’s lost time injury frequency (LTIF) for
operated activity in 2022 was zero per million hours
worked. Our total recordable injury rate (TRIR) for
2022 was 0.65 per million hours worked. There were
zero recordable spills above the IOGP level to the
environment.
The Group will continue to work responsibly with
all partners as part of our strategy to deliver value
for all stakeholders.
– 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 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 operated and
non-operated 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: Breach of Code of Ethics
Owner: Chief Executive
Risk appetite
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.
Impact
Mitigation
2022 movement
– Fines
– Criminal
prosecution
– Reputational
damage
Business Code of Ethics and supporting compliance
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.
Whistleblowing policy and process. Financial
procedures in place to mitigate fraud.
This risk remained static in 2022.
There were no reportable instances of breaches
of the Group Code of Ethics.
The Group operates in countries deemed high-risk
for bribery and corruption. A compliance
programme will be implemented for each area
of operation.
Annual Report and Accounts 2022
39
Strategic objective: Corporate viability
Principal risk: Failure to unlock value from the strategic review
Owner: Chief Executive 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
– Negative
shareholder
reaction
– Loss of value
Experienced new Board assembled to undertake
strategic review of Capricorn’s business including
an assessment of the future cash needs of the
business.
Third party appointed to review organisational
structure and requirements for the business
going forward.
Re-sizing of UK staff numbers to appropriate levels.
Significant reductions planned as part of this
process which commenced in March 2023.
2022 movement
New principal risk.
Capricorn appointed six new Board members on
1 February 2023. The Board’s first course of action
is to conduct a comprehensive strategic review
of Capricorn’s business and the several potential
directions for the future of the Company. These
will be evaluated from the perspective of both
maximising the Company’s value and acting
in the best interests of all stakeholders.
There is a risk that the strategic review fails to identify
an appropriate path forward for the Company
resulting in negative stakeholder reactions.
Principal risk: Major cyber attack
Owner: Group IT Manager
Risk appetite
Low – Capricorn is committed to maintaining high standards in all the Group’s business dealings.
The Group has no tolerance for risks which may compromise its reputation for integrity or impact
on the continuity of operations.
Impact
Mitigation
– Loss of value
– Loss of stakeholder
confidence
Security awareness programme in place supported
by regular staff susceptibility phishing training
and testing.
– Impact on
business
continuity
Annual mandatory security awareness e-learning
training delivered to all staff.
Cyber Incident Response Plan in place which
has been verified and tested by Capricorn in
combination with third parties.
Security Operations Centre providing 24/7 network
and device monitoring, alerting and response.
Programme in place to align the Group’s cyber
controls with the National Institute of Standard and
Technology (NIST) Cyber Security Framework.
2022 movement
New principal risk.
The external cyber security threat environment
is continuously evolving and becoming more
sophisticated, and the risk of a significant
cyber-attack is ever present.
In 2022, Capricorn began a 3-year information
security improvement programme to align the
control framework with the NIST Cyber Security
Framework. The original target was to achieve a
maturity level of 3.3 over 3 years, from a start of 1.3.
A recent third-party review of our progress against
NIST assigned a score of 2.6 which was a positive
result for the Group.
Strategic Report Capricorn Energy PLC
40
Annual Report and Accounts 2022
Stakeholders and S172 Statement
Understanding what matters to our stakeholders is fundamental to enabling
us to operate. Continuous engagement is integral to our day-to-day operations
and working together towards shared goals is a key factor in facilitating the
long-term success of the business.
The Directors of Capricorn Energy PLC, and
those of all UK companies, are bound by
their duties under the Companies Act 2006
to promote the success of the Company for
the benefit of its members, and in doing so,
having regard to the interests and views of
all relevant stakeholders.
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. Such
engagement underpins the governance
framework embedded throughout our
business and helps to ensure we maintain
the highest standards of business conduct.
Throughout the past year, there has
been extensive engagement regarding
a number of significant matters which
has helped shape the Company’s actions;
these include the return of capital following
receipt of the Indian tax refund proceeds,
proposed mergers, Board composition,
ongoing operational arrangements and the
energy transition. All key business decisions
considered include an analysis of
stakeholder considerations, anticipated
impact and any mitigating factors. 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.
Details of how the Board and senior
management engage and foster strong
relationships with some of our key
stakeholders, and examples of the impact
of this engagement are set out below.
Further information can also be found throughout
the Strategic Report and in our exploration of key
strategic decisions made in the Governance Report.
Why is it important
to engage?
How the Board and/or
management engaged
Key topics of engagement
Examples of the impact of such
engagement and actions taken
– The views of our investors
influence our strategic
and operational decision-
making
– We are dependent on
shareholders for access
to funding
– We are accountable to
our shareholders
– We are responsible to
them for compliance
with local and/or
international laws
– Their permissions are
required for us to access
acreage and operate
– Undertaking a full investor
programme including:
• Holding over 180
investor meetings
including one-to-ones
and attending roadshows
/conferences
• Conducting regular
financial reporting
• Responding in a timely
manner to investor and
analyst enquiries
• Offering shareholders the
opportunity to submit
questions by email in
advance of general
meetings (as well as
being able to raise
questions at the
meetings themselves)
• Post-general meeting
correspondence to
discuss vote outcomes
– Meetings with Heads of
State, UK and Country
Ambassadors, Ministers
and Civil Servants
s
r
o
t
s
e
v
n
I
s
t
n
e
m
n
r
e
v
o
G
– Return of capital to
– Regular reviews of corporate
shareholders following
receipt of the Indian
tax refund
– Proposed merger
opportunities and
transactions
– ESG matters including
energy transition
– Board composition
– Strategy and
performance
– Corporate governance
objectives
– Return of capital being
conducted by way of tender
offer as opposed to special
dividend
– Contributed to the decisions
to not proceed with the
proposed combinations with
Tullow Oil plc and NewMed
Energy Limited Partnership
(as discussed on page 3)
– Board composition changes
(as discussed on page 56)
– Legal Compliance
– ESG matters
– Major accident
prevention
– Investment and
economic growth
– Continued monitoring of
responsible performance at
Board meetings and annual
review of CRMS and objective
KPI setting
– Implementation of enhanced
incident reporting system
– Reviewing feedback and
commentary from
government and regulatory
bodies regarding
performance expectation
– KPIs include performance
against leading and lagging
indicators for health, safety
and environmental
protection and are reviewed
at all Board meetings
Annual Report and Accounts 2022
41
Why is it important
to engage?
How the Board and/or
management engaged
Key topics of engagement
Examples of the impact of such
engagement and actions taken
,
s
r
e
n
t
r
a
p
s
s
e
n
i
s
u
B
partners in joint ventures.
responsible to
contractors, suppliers and
partners
– We are commercially
– Their performance
s – We are reliant on our
r
o
t
c
a
r
t
n
o
c
d
n
a
s
r
e
e
p
directly impacts our
financial, operational and
responsible performance
– We have an ethical
responsibility to
maximise social and
economic benefit and to
minimise impact on
livelihoods and the
environments in which
we operate
– They provide an
alternative perspective,
strengthening our
knowledge of local
situations and/or specific
demands
s
e
i
t
i
n
u
m
m
o
c
l
a
c
o
L
s
p
u
o
r
g
t
s
e
r
e
t
n
i
d
n
a
– 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
s
e
e
y
o
p
m
E
l
– 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)
– Community meetings
– Reviews of social investment
strategies aligned with
UN SDGs
– Senior management visits
– Media monitoring
– Regular staff meetings
– Monthly ‘pulse’ surveys
– Employee Voice Forum
(EVF) meetings (discussed
on page 26)
– Policies and standards
– Industry reputation
– Investment
opportunities for
growth
– Long-term
relationships
– ESG matters
– Careful selection of
contractors (discussed on
page 27)
– Continued membership of
IOGP Security Committee
(performance against IOGP
benchmarks discussed on
page 25)
– Actively engage with all
JV partners early to establish
good working relationships
– Protection of resources
– Community investment
and livelihoods
– Community
development and
social investment
– Access to employment
and business
opportunities
– Transparency of
payments to
governments
– Education assistance
focus to include adaptation
to climate change
– 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 Egypt
and Suriname including
supporting further education
in the health and energy
sectors (discussed on
page 30)
– Long-term and
– Introduced the
short-term strategy
– Internal mobility
– Working practices
– Lessons learned from
– Working practice focus
projects
groups
– General Meetings
– Exit interviews
Shadow4success
programme to encourage
under-represented groups to
apply for senior roles within
the Company (discussed on
page 17 and see our
Sustainability Report for
more detail)
– Adoption of a permanent
hybrid working strategy.
– Continuing the development
and delivery of health and
well-being initiatives
– Formation of an employee
representative group,
providing support to
employees primarily on
cross-department matters
Strategic Report
Capricorn Energy PLC
42
Annual Report and Accounts 2022
Stakeholders continued
Case study
Mauritania ESIA stakeholder management
Block C7 in Mauritania borders the Banc d’Arguin, a UNESCO national park where the local
communities are populated by the Imraguen people who maintain proprietary and ancient
fishing practices.
We undertake to protect the national park in full consultation
with all concerned in order to protect their livelihood and
mitigate any loss they may experience as a result of our work.
We have undertaken detailed stakeholder engagement and
reporting and are building an understanding of the needs
and priorities of this community group, consulting with
multiple Mauritanian and international organisations and
NGOs over the course of 2022.
In November 2022 we held a public meeting in Nouamghar,
a coastal village in the national park, at which we presented
the Terms of Reference for our Environmental and Social
Impact Assessment to around 90 local people.
We were there expressly to engage with the local communities;
to present our plans clearly and to listen to their feedback and
incorporate that feedback into our EIA planning. Many of their
questions related to social investment, covering topics such
as water and jobs, and to concerns about the impact our
work may have on their fishing sites and practices. It was
clear to us at the meeting that local people were highly
engaged with the process and keen to be involved in the
decision-making. We will continue to build on the feedback
we received with a social investment scoping visit to these
communities planned for early 2023.
We understand the importance of working through the
national park management and are committed to minimising
our impact on their environment as well as making a positive
contribution to their society. If and when drilling begins in
Mauritania, we will have laid good foundations in terms of
our relationships with the local community.
Annual Report and Accounts 2022
43
Operational and Financial Review
Operational and Financial Review
Strategic Review – Initial Findings:
– Strategic review commenced on
2022 Financial Highlights
– Working interest Egypt oil and gas
1 February 2023
– Capital returns: the Board commits to
return to shareholders all excess cash
flow not required for our go forward
core operational focus, resulting in
a significant return of capital of
approximately US$575m via a
c.US$450m special dividend proposed
to be paid in May 2023, a further special
dividend in Q4 2023 of US$100m
dependent upon certain conditions and
a share buyback of at least US$25m
over the next twelve months
• The US$100m special dividend in Q4
2023 is dependent upon a number
of factors including: addressing our
receivables position in Egypt; the
outcome of conversations with
stakeholders in Egypt around licence
extensions and renegotiation of
terms; actual oil and gas price
outcomes for the remainder of 2023;
and the conclusions of our strategic
review as it relates to further cost
actions and future investment in
our Egypt business
production ~34,200 boepd, comprising
42% liquids and within revised guidance
of 33,000-36,000 boepd; net
entitlement sales volumes 4.7 mmboe
– Revenues from Egypt production
US$229m: average realised oil price of
US$98.8/bbl and gas price of US$2.9/
mcf (average total production cost
US$5.7/boe)
– Net cash generated from Egypt oil
and gas production US$104m,
comprising US$129m net cashflow
generated during the year and deferred
consideration and settlements paid
US$24m
– Tax refund of US$1.06bn in Q1 2022
resulting from Indian tax dispute
resolution
– US$529m returned to shareholders
in H1 2022 via tender offer and share
repurchase programme
– Year-end Group cash and cash
equivalents US$757m; net cash
US$597m after debt drawn to
31 December 2022 of US$160m
– Egypt trade receivables at
– Cost saving programme initiated:
31 December 2022 US$97m
identified and actioned initial gross G&A
reduction of at least US$35m on a run
rate basis; opportunities for further cost
savings to be pursued, with costs to be
aligned to activity on an ongoing basis
to maximise cash
– Materially scale back all exploration
spend outside Egypt and monetise,
farm-down or exit all other exploration
positions. A process has commenced
for a potential sale of our UK assets
– Focusing on maximising value of Egypt
by optimising investment, well selection
and rig performance, continuing to
focus on liquids production growth and,
alongside partners, exploring options to
enhance fiscal terms
– Appointment of new Chief Executive:
Randy Neely, former President and CEO
of Egypt-focused operator TransGlobe
Energy Corporation to join Capricorn
on 1 June 2023
– Strategic review continues with medium
to longer term strategic outcomes to be
presented in due course, with a Capital
Markets Day to be held in Q4 2023
ESG Highlights
– Net zero by 2040: good progress on
decarbonisation pathway, on track for
15% GHG equity emissions reduction
by 2025
– Earnout consideration on the disposal
of the UK Catcher and Kraken interests
in relation to 2022 production and oil
prices US$137m received in Q1 2023;
US$77m production earnout in relation
to 2021 production received in
H1 2022
– Group capital expenditure on oil and
gas assets US$162m
– Operating loss after tax US$160m
from continuing operations
•
Impairment charge of US$43m
on Egypt producing assets
• Non-Egypt unsuccessful exploration
costs of US$94m
– Profit of US$109m from discontinued
operations from increase in value of
earnout from sale of UK producing
interests
– Loss after tax of US$51m
2023 Outlook
– The Board is confident in the outlook for
the Group. We believe that over time we
can deliver meaningful improvement
and efficiencies to the way Capricorn
is run to deliver good returns for
shareholders. The next stage of our
strategic review will seek to address
this point
– Capricorn WI production to average
32,000-36,000 boepd, remaining
broadly flat on 2022 and continuing
to focus on liquids opportunities
• Oil and condensate production
expected to average between
14,000-16,000 bopd on a WI basis,
with gas expected to average
100-112 mmscf/d on a WI basis
– Operating costs forecast to be stable at
US$5-US$7/boe influenced by liquids
processing volume and absolute
production levels
– Current estimates of 2023 capital
expenditure total approximately
~US$155-175m, including:
• Egypt production and development
expenditure of US$100-120m, with
five rigs in country focused on
production and development drilling
and influenced by the phasing of
minor and major projects
expenditure
• Egypt exploration expenditure of
~US$25m to sustain the resource
base
• Committed non-Egypt exploration
expenditure of up to US$30m,
including costs associated with
the Yatzil well in Mexico which was
drilled in Q1 2023, with no further
commitment wells in the
international exploration portfolio
outside Egypt
– Additional earnout consideration in
respect of the Catcher and Kraken
interests will be due in relation to
production and oil prices in calendar
years 2023 to 2025, subject to
minimum production and oil price
thresholds being met
Reserves
The Group 2P reserves decreased by 10.2
mmboe during the year from 37.4 mmboe
at year-end 2021 to 27.2 mmboe at
year-end 2022 on an entitlement interest
basis. This was principally due to Egyptian
production of 4.7 mmboe and some
downward revisions in gas reserves within
the AESW and Obaiyed concessions.
The AESW revisions are related to
disappointing reservoir properties in the
Karam-11 well and a limited connected
reservoir volume in the Assil-105 well.
Obaiyed reserves have been downgraded
due to a steeper production decline,
which is partly attributed to lower activity
as the consortium focuses on higher-
value oil production.
Capricorn’s 2P reserves have decreased
by 10% relative to the year-end 2020
estimate provided in the shareholder
circular for the Egypt acquisition, once
adjusted for interim production and the
re-classification of the Teen full-field
development (3.9 mmboe) from reserves
to contingent resources, as detailed in
the 2021 Annual Report.
Strategic Report Capricorn Energy PLC
44
Annual Report and Accounts 2022
Operational and Financial Review continued
Production
Egypt
Working interest production across the
four main concession areas in the Western
Desert 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
~34,200 boepd during the period, with
~42% of the production mix comprising oil
and condensate, as liquids opportunities
continued to offer the best returns in the
current price environment.
The Joint Venture originally planned to drill
>40 development wells in 2022, but this
was not achieved due to logistical and rig
acceptance challenges associated with the
two rigs imported from Algeria into Egypt,
and operational performance issues with
the third new rig. These factors contributed
to a 2022 new well count of 31 with five rigs
operating by Q4 2022. With overall drilling
and completion performance improving by
year-end, ongoing improvement initiatives
are required to achieve the targeted average
ten new wells/year per rig to deliver overall
production growth from the Western Desert.
Looking ahead, the 2023 well programme
targeting >40 wells will use six rigs for both
development and exploration wells while
we continue to work to optimise the
programme and improve overall drilling,
completion and hook-up performance.
The Teen project is expected to come on
stream during 2023, tying in three existing
wells in a pilot evaluation to determine
optimal full field exploitation.
Decarbonisation initiatives continue
building on the work that commenced in
2022 relating to projects to reduce flaring,
venting and identification of fugitive
emissions. Additionally, verification of the
overall calculation methodology for GHG
emissions, associated with our 2022
baseline was completed in Q4 2022.
Capricorn’s short and medium term
GHG equity emission reduction targets
(15% by 2025/30% by 2030) are on track.
Exploration
Egypt
Post year-end, Capricorn’s first operated
drilling operations onshore Egypt began in
Q1 2023 on the Saqr-1X well in the South
Abu Sennan concession, resulting in a dry
well. This was the first of an expected five
well programme in 2023, with the next
well in the sequence, Seman-1X, currently
drilling. During 2022, the operated
acquisition of two 500 sq km 3D seismic
surveys was completed safely and under
budget in the Southeast Horus and West
El Fayium concessions in support of future
exploration activity. A seismic survey was
also completed in the non-operated North
Um Baraka concession.
UK
Capricorn operates five UK Southern North
Sea licences: P2428 and P2567 (Capricorn
60% WI) and P2560, P2561 and P2562
(Capricorn 70% WI) with partner Deltic
Energy.
The Capricorn-operated Diadem exploration
well spudded in Q2 2022, reaching total
depth in Q3 2022. Hydrocarbons were not
found, and the well was permanently
plugged and abandoned. The non-operated
Jaws well completed operations in Q1 2022
and was unsuccessful. Across the five
Mid North Sea High licences, seismic
reprocessing and prospect maturation
continues ahead of well investment
decisions in H2 2023. There is no further
capital commitment on the remaining UK
licences and a process has commenced for
the potential sale of the UK assets.
During 2022, Capricorn relinquished the
P2379, P2380, P2381 and P2468 licences.
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).
Capricorn’s final commitment exploration
well in Mexico, Yatzil-1X in Block 7 (Eni
Operator) was drilled in Q1 2023 and
discovered hydrocarbons. According to
preliminary Operator estimates, around
200 million barrels of oil may be in place
and the Operator is examining options
to determine commerciality. Capricorn
internal analysis led to the decision not
to participate in the forthcoming phases
and the Company has therefore informed
partners of its decision to withdraw from
the Block 7 licence. Capricorn’s withdrawal
processes in Blocks 9 and 10 and the
JV relinquishment process in Block 15 are
ongoing with completion expected during
the course of 2023.
Suriname
Capricorn operates Block 61 (100% WI),
situated in the Guyana-Suriname basin
where significant discoveries continue to be
made. Capricorn is seeking to farm-down
its interest in the licence.
Mauritania
Capricorn has a 90% WI as Operator
in Block C7 offshore Mauritania. An
environmental baseline and drilling site
survey was completed in Q1 2022 with
data gathered to inform a drilling decision
ahead of the next licence phase. Capricorn
has requested a six-month extension on
the licence which it is discussing with the
Mauritanian authorities, with a drill or
drop decision due in September 2023.
Discussions with potential partners are
ongoing with a view to farming down
Capricorn’s working interest.
Annual Report and Accounts 2022
45
Financial review
Key production statistics
Production – net WI share (boepd)
Sales volume – net El oil (bblpd)
Sales volume – net El gas (mmscfd)
Average price per bbl (US$)
Revenue from production (US$m)
Average production costs per boe (US$)
*
from date of acquisition to 31 December 2021
Loss for the Year
Loss from Egypt operating segment
Loss from other Capricorn Group continuing operations
Exceptional income – India tax refund
Profit from discontinued operations
Loss/(Profit) after taxation
Egypt Operating Segment Results
In Capricorn’s first full year of production
in Egypt, total revenue was US$228.9m.
US$181.4m was generated on sale of
liquids with an average price of US$98.8
per bbl on net sales volumes of 1.8 mbbls.
Gas revenue was US$47.5m from volumes
of 16,230 mmscf at the contracted rate of
US$2.9/mscf.
Cost of sales in the year were US$71.2m.
Production costs decreased slightly to
US$5.7 per boe, on working interest
production, while depletion charges were
US$124.1m, at a weighted average rate of
US$23.3 per boe across the concessions.
Following the downward reserves revisions
on the Obaiyed and AESW concessions,
impairment charges of US$42.6m arise, with
related deferred tax credits of US$17.3m.
Capricorn records other income on
additional production that is notionally
allocated to the Group to cover tax due on
profits from the concessions. This is offset
by an equal and opposite tax charge. In the
current year, the value of this income and
notional tax gross-up is US$54.8m.
Net finance costs in Egypt of US$21.4m,
include US$14.9m of loan interest and
charges and the Group recognised a fair
value loss of US$12.7m on deferred
consideration payable on the 2021
business combination.
The total tax charge on Egypt operations
for the year is US$31.8m, being the tax
gross-up charge of US$54.8m offset by
deferred tax credits on impairment and
other deferred tax movements. These
include the recognition of deferred tax
assets of US$7.1m on two concessions,
which is supported by future profits forecast.
Results from Other Continuing
operations
The loss on other Capricorn continuing
operations of US$141.1m includes
unsuccessful exploration costs of US$94.1m
and administration charges of US$64.1m,
with offsetting net finance income of
US$18.9m.
Year ended
31 December
2022
Year ended
31 December
2021*
34,228
5,028
44,471
98.8
228.9
5.70
36,459
5,360
51,599
77.8
56.2
6.00
Unsuccessful costs during the year
included UK Diadem and Jaws well costs of
US$29.3m and US$13.5m. Remaining costs
of US$19.3m on Block 7 in Mexico have
been expensed following the results of the
Yatzil well. After internal analysis, Capricorn
decided not to participate in forthcoming
phases and the Company has informed
partners of its decision to withdraw from
Block 7.
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
(19.2)
(141.1)
–
109.3
(51.0)
(6.7)
(194.5)
1,070.7
25.0
894.5
Administration costs include costs
associated with the India tax refund of
US$13.1m and transaction costs of
US$8.1m incurred in relation to the two
deals recommended to shareholders
by the previous Board.
Net finance income of US$18.9m includes
interest earned on deposits and money
market funds of US$14.7m.
Discontinued Operations
Earn-out consideration on disposal
of UK Producing assets
Year-on-year increases in the fair value of
the earn-out consideration due increased
by US$110.4m, offset by a deferred tax
charge of US$4.1m. Interest due on the
2021 receivable and a refund of prior year
costs totalling US$3.0m, brought the total
profit for the year to US$109.3m.
Cash received in 2022 was US$77.2m and
the second payment due of US$136.7m,
including interest from 1 January 2023,
was received on 31 March 2023.
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$100m based on the first oil date
and the prevailing oil price. No revenue has
been recognised for this payment to date.
Strategic Report Capricorn Energy PLC
46
Annual Report and Accounts 2022
Operational and Financial Review continued
Financial review continued
Net cash inflow for the Period
Opening net cash as at 1 January 2022
India tax refund
Return of cash to shareholders and share buy-back
Net cash inflow from Egypt operations
Egypt deferred consideration and working capital settlement
Egypt exploration expenditure
Egypt development expenditure
UK earnout consideration and working capital settlement
Exploration expenditure – non-Egypt
Pre-award costs and carbon credits
Administration expenses, business development and other
Net finance income less equity movements
Closing cash as at 31 December 2022
US$m
132.7
1,056.0
(528.6)
128.6
(24.1)
(27.9)
(62.2)
67.6
(67.0)
(16.0)
(53.9)
(8.3)
596.9
* other costs include non oil and gas asset expenditure of US$4.9m and lease costs of US$2.5m.
Cash balances at 31 December 2022
of US$756.8m were offset by borrowings
in Egypt of US$159.9m. Cash includes
restricted cash balances of US$52.5m
which may not be distributed to
shareholders. Of this amount, US$43.5m
is available for use to fund non-operated
concessions in Egypt.
The India tax refund of INR 79 billion was
settled in February 2022. On settlement
of the INR refund, Capricorn immediately
converted the amounts received into
US$ and £, realising US$1,056.0m.
Subsequently cash was returned to
shareholders through a tender offer and
share re-purchase programme which,
together with costs, totalled US$528.6m.
Cash inflows from operations in Egypt of
US$104.5m, include settlement of deferred
consideration and can be reconciled to
cash flows from operations per the
statutory cash flow as follows:
Operating cash flow per statutory cash flow statement
Non-GAAP Adjustments:
Discontinued operations – working capital settlements
Pre-award and new venture costs reallocated
Administration expenses and India arbitration costs
Net cash inflow from operations
Balance Sheet
The Group’s net asset position at 31 December 2022 is summarised as follows:
Exploration assets
Development assets and goodwill
Other non-current assets
Financial assets at fair value through profit and loss
Trade and other receivables and payables and inventory
Net cash, including unamortised facility fees
Deferred consideration on business combination
Net deferred taxation and other liabilities
Net assets
US$m
63.5
9.6
25.1
30.4
128.6
US$m
95.2
274.9
14.1
230.6
94.9
598.2
(61.8)
(31.5)
1,214.6
Exploration assets
At the year end, the Group held exploration
assets of US$95.2m, with US$26.8m in
Egypt, US$39.3m in Mauritania, US$17.0m
in Suriname and US$12.1m across
remaining UK licences.
In Egypt, exploration is focused on the
Group’s operated concessions, where a
six well programme commenced in 2023,
and on near-field exploration opportunities
across the non-operated concessions.
In Mauritania and Suriname, Capricorn is
seeking to farm-down its working interest
before committing further expenditure to
these two licences.
Development assets and goodwill
At the year end, the carrying value of the
Group’s producing assets in Egypt was
US$249.5m. Additions in the year of
US$71.5m were offset by a reversal of
accruals of US$29.2m. These accruals were
included in the opening balances following
the acquisition of the Egypt business, but
without further information to reconcile
these accruals to subsequent spend,
Capricorn has reversed in full.
Depletion and impairment charges in
the year were US$166.7m. Goodwill of
US$25.4m relating to the Egypt business
combination was also tested for
impairment, with none identified.
Other assets and liabilities
Financial assets at fair value through
profit and loss include US$224.1m of
the earn-out due in relation to the sale
of the Group’s UK producing assets, with
US$134.4m due within one year and
subsequently settled in Q1 2023, with
additional interest of US$2.3m. Deferred
consideration due on the Egypt business
combination is also held at fair value and
the current liability of US$25.0m was
settled in January 2023.
Trade receivables at the year end were
US$96.9m, an increase of US$33.6m
across the year. US$66.0m of this amount
was overdue.
The Group’s net deferred tax position in
Egypt was a liability of US$26.8m, with a
UK deferred tax liability of US$4.1m. It is
anticipated that deferred taxes will reverse
without any future cash outflow.
Annual Report and Accounts 2022
47
Equity movements
Return of cash to shareholders and
share buy-back
Following the receipt of the India tax
refund, Capricorn returned US$511.5m to
shareholders by way of a tender offer and
share buy-back programme in H1 2022.
After adjusting for opening accruals, cash
outflows in relation to the returns were
US$528.6m across the year.
Post-balance sheet capital reduction
In anticipation of further returns to
shareholders, Capricorn undertook a share
premium cancellation which completed
in 2023, following a shareholder vote on
15 December 2022. The cancellation
received the required confirmation for
the Court of Session in late January 2023
and was registered with the Register of
Companies on 31 January 2023, which
is the effective date of the cancellation.
The full amount of the Company’s share
premium accounts transferred to retained
earnings increasing distributable reserves
available for future returns.
This Strategic report has been
approved by the Board and
is signed on their behalf by
Chris Cox
Interim Chief Executive
27 April 2023
Strategic Report
Capricorn Energy PLC
48
Annual Report and Accounts 2022
Leadership
and
Governance
Board of Directors
Responsible Governance
Corporate Governance Statement
Audit Committee Report
Nomination & Governance
Committee Report
Directors’ Remuneration Report
Sustainability Committee Report
Directors’ Report
50
52
54
66
72
76
110
112
Annual Report and Accounts 2022
49
Leadership and Governance Capricorn Energy PLC
50
Annual Report and Accounts 2022
Board of Directors
Committee membership
Skills and experience
N
Term of office
Craig was appointed as Non-Executive
Chair in February 2023.
Independent
Yes
• B.A. and Bachelor of Laws (LL.B.), University of Sydney
A qualified lawyer, Craig has nearly three decades of senior international executive
experience across a wide range of industries, including multinational public
companies at FTSE100 and ASX20 level with exposure to operations in over 50
countries. He is an experienced driver of strategic initiatives, complex transactions,
portfolio reconstructions and capital market activities with a strong commitment
to delivering the highest standards of corporate governance at Capricorn.
Key external appointments
Public companies:
Non-Executive Director of SHAPE Group
Non-public companies:
None
Committee membership
Skills and experience
EC
RM
Term of office
Chris was appointed as a Director and
Interim Chief Executive Officer in
February 2023.
Independent
No
• Bachelor’s degree in Petroleum Engineering, Imperial College, University of
London
Chris has over 40 years’ experience in the global oil and gas upstream sector.
Most recently, he was CEO of Spirit Energy and Managing Director of Centrica
E&P where he delivered significant and sustainable improvements in complex
businesses. Chris possesses deep knowledge of a broad range of disciplines
relevant to Capricorn’s portfolio, including subsurface, drilling, projects, operations,
M&A and JV management.
Key external appointments
Public companies:
Non-Executive Director of Nostrum Oil & Gas PLC
Non-public companies:
None
Committee membership
Skills and experience
R
SC
Term of office
Erik was appointed as a Non-Executive
Director in May 2020.
Independent
Yes
• 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$9.5bn.
Key external appointments
Public companies:
Director of Kimbell Royalty Partners
Non-public companies:
Co-Founder of Pecos Operating Company, LLC
Committee membership
Skills and experience
R
A
N
Term of office
Maria was appointed as a Non-
Executive Director in February 2023.
Independent
Yes
• Master’s degree, Fletcher School of Law and Diplomacy, Tufts University
• Bachelor’s degree in Political Science, University of Wisconsin
• Chartered Financial Analyst
• Corporate Director Certificate, Harvard Business School
Maria has strong governance experience, having served as chair, senior director
and committee member of various public companies. She currently serves as
Non-Executive Chair of Constellation Oil Services, a deep-water drilling oil services
company based in Brazil. She has two decades of direct investment experience in
senior roles, including as Head of Emerging Markets Equity Strategy at Goldman
Sachs and PIMCO. With that she brings considerable expertise in portfolio
management and equity and debt capital markets.
Key external appointments
Public companies:
None
Non-public companies:
Non-Executive Chair of Constellation Oil Services
Craig van der Laan
Non- Executive Chair (57)
Chris Cox
Interim Chief Executive (62)
Erik B. Daugbjerg
Non-Executive Director (53)
Maria Gordon
Non-Executive Director (49)
Committee membership key
Committee Chair
A Audit Committee
R Remuneration Committee
N
Nomination &
Governance Committee
Annual Report and Accounts 2022
51
Committee membership
Skills and experience
EV
A
N
Term of office
Richard was appointed as a
Non-Executive Director and
Senior Independent Director
in February 2023.
Independent
Yes
• Bachelor’s degree in Geology, University of Bristol
Richard is a petroleum geologist with over 40 years’ experience in the oil and gas
sector, including leading executive roles across the world’s major hydrocarbon
provinces. Most recently, Richard served as CEO of Frontera Energy Corporation
and Global Head of Exploration for BP.
His career started at Phillips Petroleum, followed by 19 years at BP in senior
exploration and development positions spanning Southeast Asia, Latin America,
the US, Angola and the UK North Sea. After leaving BP, Richard spent six years
with TNK-BP in Russia, serving first as VP Exploration and then EVP Technology.
After that he worked in Canada as Vice-President, Exploration of Talisman Energy
for five years, before returning to BP as Head of Exploration in 2013.
Richard Herbert
Senior Independent Director
(64)
Key external appointments
Public companies:
Chief Executive Officer of Angus Energy PLC
Non-Executive Director of PGS ASA
Non-public companies:
None
Committee membership
Skills and experience
SC
A
Term of office
Catherine was appointed as a
Non-Executive Director in July 2019.
Independent
Yes
• 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
Public companies:
None
Non-public companies:
None
Committee membership
Skills and experience
N
SC
Term of office
Hesham was appointed as a
Non-Executive Director in February
2023.
Independent
Yes
• Advanced Management Program (AMP), Harvard Business School
• MBA, Boston University
• Bachelor’s degree in Engineering, Cairo University
Hesham is an accomplished senior corporate executive with over 30 years of
experience at BP, serving most recently as Regional President of BP North Africa.
He brings considerable industry knowledge and experience of the North Africa
region, having developed strong political and business relationships in the region.
Key external appointments
Public companies:
Non-Executive Director of Orange Egypt
Non-public companies:
Non-Executive Director of Egypt’s Sovereign Infrastructure & Utilities Sub-Fund
Committee membership
Skills and experience
A
R
Term of office
Tom was appointed as a Non-
Executive Director in February 2023.
Independent
Yes
• Master’s degree, Queens’ College, University of Cambridge
Tom has over 25 years’ investment banking and private equity experience in
public and private markets. He is currently a partner at LionRock Capital, having
previously served in senior leadership positions at firms including Credit Suisse,
Morgan Stanley and D.E. Shaw. Tom has broad experience in emerging markets,
capital markets and structuring of complex financial products.
Key external appointments
Public companies:
None
Non-public companies:
Non-Executive Vice Chairman of Harmony Advisors
Non-Executive Director of SiGi Capital
Catherine Krajicek
Non-Executive Director (61)
Hesham Mekawi
Non-Executive Director (62)
Tom Pitts
Non-Executive Director (57)
EC Executive Committee
RM
Group Risk Management
Committee
EV Employee Voice Forum
SC Sustainability Committee
Leadership and Governance
Capricorn Energy PLC
Capricorn Energy PLC
52
52
Annual Report and Accounts 2022
Responsible Governance
Responsible
Governance
Delivering on our strategy, achieving our objectives and
creating long-term value for our shareholders requires 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.
At the end of 2022, the following
governance issues were identified as
being of high materiality:
– Managing a Just Transition
– Responsible supply chain
– Decommissioning closure and
rehabilitation
– Ethics, transparency and regulatory
compliance
– Anti-bribery and corruption practices
– Robust whistleblowing mechanisms
– Emergency preparedness and crisis
management
– Data and cyber security
– Investment in clean technologies
and business innovation
– Remuneration
See our Materiality Matrix within our
Sustainability Report
2022 Performance against Sustainability Objectives
– Further strengthened our Climate
and Energy Transition roadmap,
committing to net zero by 2040 or
earlier, with a reduction of emissions
of 15% by 2025 and 30% by 2030.
– Continued to communicate about
climate change for the investment
community and our wider
stakeholders.
– Recorded, tracked and reported
our Scope 1 and 2 equity emissions,
reporting against additional Scope 3
listings.
– Set up a Sustainability Committee in
March 2022, which featured all Board
members meeting twice to discuss
sustainability-related issues and
review policies.
– Developed a new Operating
Management System based on the
IOGP OMS model, designed to focus
on all phases of an asset life.
– Undertook a detailed review of our
CMAPP and resource base to meet
the need for major accident
prevention.
– Enhanced our approach to Diversity
& Inclusion, and commissioned an
independent D&I survey with 170
employee respondents to compare
our results with those from 100+
other energy companies.
– Set up a D&I working group to
identify several key initiatives to
focus on.
See our Sustainability Report for more information about our SDG performance
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. 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. The Management Team and the
Board continue to receive ABC training.
Annual Report and Accounts 2022
53
Creating and distributing value
In 2022, our portfolio continued to move
towards production following a strategic
change in 2021. A focus on two potential
mergers in 2022 meant no further
divestments were made during the year.
The sale of assets allows us to distribute
value to our shareholders and makes funds
available for strategic investments such as
the 2021 investment in Egypt. 2022 saw
our first full year of operations, and the
investment used funds from the sale of our
Senegal operations at the end of 2020.
Egypt’s onshore operations had lower
production costs and strong production
and development growth opportunities,
while providing the opportunity for us to
reduce our GHG emissions.
Although no divestments occurred during
the year, the new Board elected in early
2023 will continue to make strategic and
timely decisions on the sales of our assets if
financially prudent; returning dividends to
shareholders and providing further
opportunity to invest in low-cost,
sustainable production assets.
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 2022 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).
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. We actively manage our
portfolio of assets and work with our JV
partners to allocate capital and financial
resources efficiently.
Transparency and reporting
As a listed public company, we report
annually in line with UK regulations.
In 2022, we responded to all queries
associated with our Annual Report and
Accounts, and to information requests
from stakeholders including investor
analysts and shareholder representatives.
The Company continued to apply the
executive remuneration policy that was
strongly supported at the 2020 AGM and
at the Company’s AGM in May 2022, the
Directors’ Remuneration Report received
95% of votes in favour of it, following a
lower approval vote of 65.13% in 2021.
More details of that policy can be found
in our Directors’ Remuneration Report,
pages 79 to 87. Following the UK corporate
governance framework, we will be seeking
shareholder approval for the remuneration
policy at the 2023 AGM, being three years
since its last approval, which will be
operated for the rest of 2023.
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.
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.
Leadership and Governance Capricorn Energy PLC
54
Annual Report and Accounts 2022
Corporate Governance Statement
Craig van der Laan
Chair
Dear Shareholder
The past few months have seen significant change in the
organisation from a corporate governance perspective. Following
the proposed combination with NewMed Energy Limited
Partnership in late September 2022 (and preceding
recommendation to shareholders in June 2022 to approve an
all-share merger with Tullow Oil Plc), a shareholder notice to
requisition a general meeting at which resolutions would be
proposed to make changes to the Board, led to the appointment
of six new Directors, including my appointment. Seven members
of the Board in place during 2022 resigned from the Board in
advance of the new Director appointments on 1 February 2023.
This Board, in place from 1 February 2023, believes that having
strong corporate governance practices in place is a vital enabler for
Capricorn and its Board to navigate its stated strategic review and
the ongoing growth of the Company efficiently and appropriately.
This belief, combined with the commitment of the Board to ensure
that decisions are made responsibly and with consideration of the
Company’s many stakeholders, are values that each of the
Directors are committed to demonstrating both within and
outside of the organisation.
As has been the case for many years, key to the Company’s
successful future, is its people (see pages 25 to 27). The
organisation faced considerable change during 2022, with long
periods of uncertainty during that time. It is a testament to the
people and the culture within Capricorn that individuals, teams
and the business as a whole continued to promote the responsible,
supportive and dedicated culture of the business. The Board works
with integrity and in an honest and open environment and I have
seen this, firsthand, reflected throughout the organisation.
As we continue to move through the energy transition, the formation
of the Sustainability Committee of the Board in March 2022 has
supported the Company’s work in this area, demonstrating its
commitment to environment-, social- and governance-related
matters. More information on the work and membership of this
committee can be found on pages 110 and 111.
Both 2022 and to date in 2023 have seen significant engagement
with stakeholders, both internally to the organisation and in the
wider, external environment. The strategic announcements made
during the year were the main focus of those engagements with
employees and contractors. The Executive Directors and other
Board members in place during the year engaged frequently with
shareholders and interested parties as the proposed transactions
proceeded. The Company’s approach to stakeholder engagement
during the year is set out on pages 40 and 41, which also includes
a statement from our Directors in accordance with Section 172 of
the Companies Act 2006. Some of the key issues, including the
proposed transactions announced, that were engaged on during
the year, are noted there.
Details on our strategy and key performance indicators can be
found on pages 16 to 20. The Board regularly reviews and develops
its framework of effective and prudent controls, which enables risks
and opportunities to the execution of the strategy to be identified
and addressed. The risk management section of this Annual Report
is on pages 33 to 39 and the internal control statement on pages
63 to 65 further describes these processes and controls.
During 2022, succession planning continued to be an important
matter for the Board. The Nomination & Governance Committee
and full Board frequently considered the required competencies
and skills at Board, executive and senior management levels, taking
into account matters such as term in office, diversity and strategic
goals. The Board considered this an area of particular importance
given the corporate changes proposed during the year and the
movements at Board and senior management levels that were
announced alongside those changes. Change will continue for the
organisation in 2023 as we progress the announced headcount
reduction. Further information on our succession planning work
can be found in the Nomination & Governance Committee Report
on pages 72 and 73.
Given the challenges and uncertainties being faced as a result
of the proposed corporate transactions during 2022, employee
engagement remained a key focus of the Company and of the
Board. The Employee Voice Forum (EVF), which is our formal
workforce advisory panel, established in 2019 in line with the
Financial Reporting Council’s UK Corporate Governance Code,
continued during 2022 under the chairmanship of Peter Kallos,
then Senior Independent Director. Following his appointment on
1 February 2023, Richard Herbert assumed the role of chair of the
EVF. The EVF currently comprises four employees from a range of
functions and regions, and has a rotating membership. Members
gather questions and areas of consideration from employees in
their allocated departments and bring these to the forum for
Annual Report and Accounts 2022
55
discussion. These issues of importance to employees are then
discussed with the Board, allowing Board members to gain a
greater understanding and feel for the Company’s culture and to
identify any areas that may be impacting it or which are enhancing
it. Appropriate consideration of matters raised to the Board
through the forum can then be made in the context of the Board’s
decision-making. The EVF’s scheduled meetings were in May and
September 2022. An additional meeting was added to the
schedule in Q1 2023, following the appointment of the current
Board in February 2023, to introduce Richard as chair to the
employee members and to allow questions to be raised with him.
Given the period of change that the organisation is experiencing,
further meetings of the EVF are proposed to be added to those
already scheduled for 2023.
In advance of the EVF meetings, the employee members of the
forum hold a pre-meeting, without the Chair present, to identify
agenda items and topics for consideration by the EVF. Following a
number of years during which the COVID-19 pandemic required
that the meetings be held using video-conferencing, the meetings
in 2022 were held in person. In the event that a member was
based in another region to the location of the meeting, or was
unable to be present at the meeting in person, video-conferencing
technology was once again utilised to ensure full participation by
members or their alternates. The results of employee engagement
surveys (see page 26) are shared with the Board and summarised
results of those surveys are provided to employee members of
the EVF to allow them to further consider topics for prioritised
discussion in the forum. Engagement levels were impacted by
the proposed transactions announced during the year, and the
employee voice forum assisted the Directors in understanding
the variety of reasons for this and allowed them to discuss at Board
level what steps could be taken to help address these matters,
which included, for example, more frequent ‘townhall’ meetings
with all staff to ensure they were kept updated appropriately on
progress being made.
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.
This statement reports compliance with the version 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 & Governance
Committee Report, Sustainability 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. As explained in the 2020 Annual Report and
Accounts, the pension contribution rates for Executive Directors and
staff would be aligned at 12.5% with effect from 1 January 2023.
Save for this element of non-compliance during 2022 (which has
now been remedied), it is the Board’s view that the Company has
complied with the 2018 version of the Code throughout 2022.
Period of non-compliance
On 24 January 2023, Capricorn announced that the Board, having
continued to engage with its shareholders ahead of a 1 February
2023 general meeting to approve the proposed combination
with NewMed Energy, had understood the concerns that had
been raised in relation to the alignment of the general meeting
to approve the merger with NewMed (the “GM”) and the general
meeting requisitioned by a shareholder to remove seven of the
nine then Board members and appoint six new Directors (the
“Requisitioned GM”), both then scheduled for 1 February 2023.
The Board announced that it intended to adjourn the GM to
22 February. Alongside this, Nicoletta Giadrossi (Chair), Simon
Thomson (CEO), Peter Kallos (SID), Alison Wood (independent
Non-Executive Director) and Luis Araujo (independent Non-
Executive Director) announced they would be stepping down from
the Board with immediate effect, with Keith Lough (independent
Non-Executive Director and Chair of Audit Committee) and
James Smith (CFO) remaining in place until the Requisitioned GM.
Catherine Krajicek and Erik B. Daugbjerg would also remain on the
Board and continue post the Requisitioned GM, with the aim of
ensuring an orderly transition and an appropriate continuation
of governance.
It was agreed by the Board that James and Keith’s retention was key
to ensure the ongoing good governance of the Company and allow
for an effective handover of key processes including the annual
reporting/audit to the new Directors following the Requisitioned
GM. No other changes were made to the reporting or corporate
governance structure of the Company. In the interim, work was
undertaken to support the onboarding of the new Directors and to
ensure that the Company would remain fully able to comply with its
ongoing obligations as a Premium Listed issuer and to ensure that
at all times a Board that had the information it needed to maintain
orderly management and oversight of the Company.
Whilst the Company remained in compliance with the vast majority
of the principles of the UK Corporate Governance Code (the “Code”)
during the period of its reduced membership ahead of the
Requisitioned GM, there were some in respect of which it
temporarily did not, most notably provisions 15, 25 and 32 of the
Code, all of which related to the minimum membership of Board
committees and/or the appointment of specific Board roles. Given
the short and defined duration of this non-compliance (~ seven
days), and the lack of any clearly required responsibilities for these
committees/Board roles in that transitory period, the non-
compliance did not have an impact on the standard of the
Company’s ongoing corporate governance. For example, there were
no Directors’ Remuneration Committee meetings scheduled for the
interim period, nor did the Company expect there to be a significant
risk that any meeting would need to be convened in the period prior
to the Requisitioned GM.
Following the appointment of six new Directors to the Board and
the appointment of reconstituted Board committees, those
provisions of the Code were once again fully complied with.
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.
The Board
It is important that the Capricorn Board has the required skills,
experience and expertise to allow it to operate effectively and
efficiently across a number of geographies and disciplines given
the international nature of its business. The Board has, following
the change in its membership in February 2023, considered the
competencies of its Directors, which includes industry experience
in addition to financial, regulatory, risk-management and
sustainability experience, to ensure that it is fit-for-purpose in
pursuing the strategy of the Company. The Board will continually
review these competencies to ensure they are appropriate for the
Company’s requirements, taking into account the strategy of the
organisation and the environment in which it operates. Board
appointments, for both executive and non-executive positions,
consider an individual’s objectivity and integrity along with the
abilities, skills, experience and diversity that they can bring to the
Board. This process is applied below Board level in senior
management and other appointments and such matters are
taken into account when considering succession plans.
Independent and objective challenge from non-executive
directors is encouraged at Capricorn and changes to the Board
membership can support this. It is important that new
perspectives are complemented with experience in the Company
to provide continuity for the business and its stakeholders.
Leadership and Governance Capricorn Energy PLC
56
Annual Report and Accounts 2022
Corporate Governance Statement continued
Board changes
During the year, Luis Araujo joined the Capricorn Board as a
Non-Executive Director with effect from 11 May 2022. Luis had
many years’ experience gained from working in Brazil and other
countries, and brought his emerging market insights to matters
considered by the Board during the year; his experience with
energy transition issues was valuable, notably in his role on the
Sustainability Committee. As noted, Luis stood down from the
Board in late January 2023. For further detail, please see the
Nomination & Governance Committee Report, set out on page 73.
The Board currently comprises one Executive Director and seven
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 pages 50 and 51.
Name
Role
Date of appointment
(in current role)
Date of last
re-election
Chris Cox
Craig van der Laan
Catherine Krajicek
Erik B. Daugbjerg
Maria Gordon
Richard Herbert
Hesham Mekawi
Tom Pitts
Interim Chief
Executive
Non-Executive
Chair
Non-Executive
Director
Non-Executive
Director
Non-Executive
Director
Non-Executive
Director
Non-Executive
Director
Non-Executive
Director
February 2023
February 2023
–
–
July 2019
May 2022
May 2020
May 2022
February 2023
February 2023
February 2023
February 2023
–
–
–
–
Diversity is a fundamental tenet of the Capricorn Board. This extends
beyond gender to culture, experience, nationality, cognitive diversity
and heritage. From 2019 to February 2023, there were three women
on the Board, and, following Nicoletta’s appointment to Chair
on 1 January 2021, a women occupied a senior Board position.
Following the change of the Board composition on 1 February
2023, we currently have two female Directors and a female,
Clare Mawdsley, occupies the role of acting Chief Financial Officer.
The Board demonstrates diversity in a broader sense in terms of UK
and international experience. During 2022, the Board deepened
this diversity following Luis’ appointment in May of that year. Luis,
with South American heritage and citizenship in Brazil, Portugal
and the United Kingdom, joined Erik B. Daugbjerg and Catherine
Krajicek (both from the USA) and Nicoletta Giadrossi, from Italy,
as members of the Board from outside of the UK. Since February
2023, in addition to continuing members Erik and Catherine
from the USA, I join the Board with Australian nationality, Hesham
Mekawi is from Egypt, Tom Pitts from Canada, Maria Gordon has
both British and Russian nationality and Richard Herbert and
Chris Cox are from the UK. Following these Board changes, we
remain compliant with the targets of the 2017 Parker Review.
Further information on the diversity within the Capricorn Board,
including in terms of its wide range of experience and expertise
across the industry, governance, technical and commercial arenas,
is included in the Nomination & Governance Committee Report on
page 74 and in the Strategic Report section of this Annual Report.
As announced on 11 April 2023, Erik B. Daugbjerg and Catherine
Krajicek will not seek re-election at the AGM this year. We recognise
that the Board composition following, in particular, Catherine’s
departure, falls short of our ambitions for a diverse membership and
that of the FRC as announced in April 2022. We will be seeking to
add to the Board as soon as possible, focusing on the appointment
of diverse candidates to address the imbalance. An update on
progress will be provided at the AGM in June.
Current Board Competencies
Executive experience – 6
Oil and gas – 6
Financial – 6
Legal – 1
Environment/sustainability – 7
Energy – 4
Government relations – 5
International – 7
Division of responsibilities between the Chair and the
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
During 2022, Peter Kallos was the Company’s Senior Independent
Non-Executive Director. Since his appointment on 1 February
2023, Richard Herbert has assumed the role of Senior Independent
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.
Annual Report and Accounts 2022
57
Board performance evaluation
The annual performance evaluation process is considered by
the Board as an opportunity to improve its effectiveness and
to enhance its processes and procedures where appropriate. As
reported in the Company’s Annual Report and Accounts 2021, the
performance evaluation process in 2021 was externally facilitated
by Gould Consulting, in line with the Code recommendation that
this evaluation be conducted by an external party at least every
three years. Previously externally facilitated evaluations took place
in 2018, 2015 and 2012, with evaluations conducted internally in
the intervening years.
The main action points arising from the 2021 externally facilitated
performance evaluation process, and the progress made against
these during 2022 are set out in the table below.
Key action points (disclosed in
last year’s Corporate Governance
Statement)
Increase Chair-led engagement
with Non-Executive Directors
individually between meetings
Ensure a smooth transition
between the first and second
days of Board meetings
Restructure of management
presentations
Implementation
Prior to each Board meeting,
the Chair conducted informal
dialogue with each Non-
Executive Director to aid
discussion at the relevant
upcoming meetings and to
discuss key agenda items in
advance. In addition, the Senior
Independent Director and
Chair increased the frequency
of their out-of-round
discussions.
In addition to the conversations
held between the Chair and
each Director in advance of
Board meetings, there were
a significant number of
discussions held with Board
members throughout the year
to update and discuss with
Non-Executive Directors the
progress being made on the
announced proposed corporate
transactions.
The Non-Executive Directors
have time allocated in the
Board meeting schedule,
without executives or
management present, at the
end of day one to discuss
matters raised and to
determine if further discussion
is required and a summary of
discussions held is provided by
the Chair at the start of the
second day of each Board
meeting.
Whilst continuing the
advanced distribution of the
management presentation
to Board members, the
management presentation
itself has been further focused
on the key issues for
consideration by the Board,
allowing more time for
discussion amongst Board
members and senior
management, where relevant,
on these key issues.
Refresh the Board strategy day Discussions were held amongst
Board Committee Papers for
wider distribution
the Board in advance of the
strategy focused Board
meeting to determine the key
issues to be discussed and
what internal and external
input and range of speakers
would benefit the strategy
discussion.
In addition to the ongoing
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 previously noted, the 2021 performance evaluation was
externally facilitated by Gould Consulting. That was the first
evaluation of Capricorn’s Board performance that Gould
Consulting had undertaken and they had no other connection
to the Board or to the Company.
It was agreed at the meeting of the Board in September 2022, that
the Board performance evaluation for the year would be undertaken
internally. The Company Secretary prepared a questionnaire to assist
this process, which was reviewed and approved by the Chair and
Senior Independent Director. Each Director was asked to complete
the questionnaire and provide the responses to the Chair, save in
respect of questions relating to the performance of the Chair,
responses to which were submitted to the Senior Independent
Director. A questionnaire was also sent to several members of senior
management who have regular interaction with the Board. The
responses to that questionnaire were submitted to the Company
Secretary who then compiled the responses and, following
anonymisation, sent a summary to the Chair to assist in the
evaluation process. Each of the questionnaires sought views on the
performance of the Board in relation to the corporate transaction
activity that took place during 2022.
Following receipt of the questionnaires, meetings were held with
the Chair and each of the Non-Executive Directors to discuss the
questionnaire responses. The Senior Independent Director then
met with the Directors, excluding the Chair, to discuss the responses
to the chair performance questionnaire. The outcome and findings
from the 2022 Board performance evaluation were then discussed
in detail at the December 2022 meeting of the Board.
The main action points resulting from the 2022 Board
performance evaluation are set out below.
Key action points
Implementation
Communication
with staff
Management
presentation structure
During times of strategic change,
ensure more regular communication
from Board members in addition to
those communications already given
by the Executives on a regular basis.
It was noted that the attendance at
the management presentation from
staff was beneficial for succession
planning and business awareness
purposes, and this would be
developed with further streamlining
of topics discussed to allow deeper
discussion with relevant employees
and amongst the Board, with Board
feedback provided after meetings.
Leadership and Governance Capricorn Energy PLC
58
Annual Report and Accounts 2022
Corporate Governance Statement continued
Given the changes that took place to the membership of the Board
on 1 February 2023, the Board intends to regularly review the
format and planning of Board meetings to refine the proceedings,
if required, throughout the year. The annual performance review
that will take place in Q4 2023 will be a valuable tool to assist this
process and Board performance into 2024.
Having undertaken the Board performance evaluation process in
2022, the Board and Board committees were satisfied that they
were operating effectively and that each Director had performed
in respect of their individual role on the Board and its committees.
The reconstituted Board believes that all of the Directors now in
place are effective and that each demonstrates commitment
to their role.
The performance of the Executive Directors is further reviewed by
the Remuneration Committee against the Group KPIs which are
set annually (further details of the KPIs and how achievement has
been measured against them can be found on pages 16 to 20).
The 2022 bonuses payable to the Executive Directors under the
Company’s discretionary cash bonus scheme (described in further
detail in the Directors’ Remuneration Report on pages 76 to 109)
are linked directly to the Group’s performance against these KPIs.
The KPIs set out the Company’s strategic objectives, ensuring that
executive performance is directly linked to Group strategy.
In respect of the position of the interim Chief Executive, given the
term of the appointment, shorter-term performance targets were
put in place and the performance of the interim Chief Executive
will be reviewed by the Remuneration Committee against these
as appropriate, with disclosure made in the 2023 Annual Report
and Accounts. For more information, see page 107 of the
Directors’ Remuneration Report.
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 believes 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 director(s) develop
proposals on strategy; and
– Has no close ties or material relationships with the Company,
either directly or indirectly.
Six of the eight Directors of the Board were nominated by a
shareholder of the Company to be appointed as Directors from
1 February 2023. These Directors are independent in their
appointment and have no relationship, other than by being
nominated, with the nominating shareholder.
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 50 and 51.
None of our Non-Executive Directors 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.
Re-election of Directors
In accordance with the Code, each of the Company’s Directors
are subject to annual re-election by shareholders. As such, each
of the current Directors, save for Erik B. Daugbjerg and Catherine
Krajicek, who, as announced on 11 April 2023, will not be standing
for re-election at this year’s AGM, will seek re-election at the AGM
to be held on 20 June 2023.
Induction and development
New Directors, including Luis Araujo following his appointment
in May 2022 and each of Craig van der Laan, Richard Herbert,
Maria Gordon, Hesham Mekawi, Tom Pitts and Chris Cox,
following their appointment on 1 February 2023, received 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.
In addition, new Directors receive a comprehensive induction pack
which contains a wide range of materials including:
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
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, Group
Corporate Responsibility Guiding Principles;
Group Code of Ethics; Anti-Bribery-and-
Corruption (ABC) Management System;
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 on: Board Effectiveness; Audit
Committees and audit tenders; and Risk
Management Internal Controls and Related
Financial Business.
Annual Report and Accounts 2022
59
Legal/regulatory Memorandum on continuing obligations of
directors of premium listed companies; ICSA
Guidance on Directors’ General Duties; ICSA
Guidance on Liability of Non-Executive
Directors; Section 172 and Stakeholder
Considerations.
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 2022, 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 or members of senior management,
on subjects appropriate to the Company’s business, including
changes to legislation, regulation and market practice. During
2022, the subjects covered by these seminars included:
– Drilling on the UK Continental Shelf – presented by the
Company’s Drilling & Operations Manager and Risk &
Compliance Manager;
– UK Takeover Code Obligations – presented by Company
advisers;
– A presentation and discussion on updates in the governance
environment – presented by the Company Secretary; and
– Biodiversity and its upcoming regulation – presented by the
Company’s Senior HSE Advisor and Energy Transition Director.
These seminars were incorporated into the schedule for the
relevant Board meeting and were 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 UK Corporate Governance Code and
related 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 pages 70 and 71.
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 2022 and 2023 to date were:
Corporate
Board/Directors
The Company’s 2021 and
2022 Annual Report and
Accounts and 2022 Half-Yearly
Report
Appointment of new
Non-Executive Directors
The Company’s 2022 AGM
circular
Creation of the Sustainability
Committee
The Company’s Risk Appetite
Statement
Review of the Company’s
Corporate Responsibility
Management System
Expansion of the Nomination
& Governance Committee to
include wider governance
considerations
Detailed review of talent
management and of
succession contingency
planning
Financial/Operational
Legal/Regulatory
Approval to recommend the all-
share merger with Tullow Oil plc
and thereafter to withdraw that
recommendation and
recommend to shareholders
to approve a combination with
NewMed Energy. In February
2023, the reconstituted Board
recommended to shareholders
to vote against the NewMed
transaction, which resulted in
the mutual agreement with
NewMed to terminate the
relevant business combination
agreement.
The appropriateness of the
Group going concern sign-off
for the 2021 and 2022 full year
accounts and 2022 half-year
Financial Statements
The Company’s viability
statement included in the
2021 and 2022 Annual Report
and Accounts
The Company’s annual work
programme and budget
Oversight of the resolution
of the Indian tax issue and
subsequent return of value of
US$500m to shareholders by
way of tender offer
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
Leadership and Governance Capricorn Energy PLC
60
Annual Report and Accounts 2022
Corporate Governance Statement continued
Financial/Operational
Legal/Regulatory
Group Reserves and Resources
The acquisition of production
and exploration assets in Egypt
The recommendation to
shareholders to approve the
cancellation of the share
premium account of the
Company
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), intensive strategy sessions, 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.
During 2022, the senior management structure beneath Board
level comprised an Executive Committee (ExCo) and Management
Team (MT), each which played a key role in supporting the Board.
Board and management committee structure during 2022
Board of Directors
Board Committees
(Audit, Remuneration and Nomination & Governance*)
Risk Management
Committee
Chief Executive
Executive Committee (ExCo)
Management Team (MT)
Exploration Leadership Team (ELT)
* Further information on our Board committees is contained later in this
statement on pages 61 to 63 and in the separate Audit Committee Report,
Nomination & Governance Committee Report and Directors’ Remuneration
Report.
During the year, the ExCo comprised the Executive Directors
(the Chief Executive and the Chief Financial Officer), the Chief
Operating Officer and the Director of Exploration. The ExCo was
chaired by the Chief Executive and met approximately six times
with those meetings scheduled in advance of Board meetings.
Key elements of the ExCo’s role included 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 was chaired by the Chief Operating Officer and met
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 included 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 page 65.
The Exploration Leadership Team (ELT), which was chaired by
the Director of Exploration, met 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.
Board meetings
During 2022, a total of 11 scheduled meetings of the Board were
held. Five of these meetings were conducted over two consecutive
days following the usual format for Board meetings, described
below, with another six shorter meetings held to update the Board
and/or to approve specific matters during 2022. In addition to
these formal meetings, there were a large number of Board calls
that took place to discuss, primarily, matters relating to the
proposed transactions. As part of the strategic discussions taking
place during the year, an M&A Committee of the Board,
comprising independent Non-Executive Directors was formed to
discuss progress and met regularly with the Executive Directors,
senior management and advisors with weekly updates as
appropriate sent to the full Board.
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 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.
Annual Report and Accounts 2022
61
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 short meeting with the other Non-Executive Directors (without
the Executive Directors).
Details of attendance at each of the Board meetings during 2022,
and at meetings of each of the Board committees, are set out
below. The Company has very successfully used its technological
communication platforms to ensure that Directors who are unable
to attend any meeting in person are still able 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 early to allow the Directors to plan their time accordingly.
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 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. 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. This process was utilised when
matters surrounding the transaction proposals in 2022/early 2023
required discussion and decision in short order.
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 2022 Board and Committee meetings
The table below sets out the attendance record of each Director at scheduled Board and Board committee meetings during 2022.
Board
Meetings held during 2022(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
Luis Araujo
Audit
Committee
Remuneration
Committee
Nomination &
Governance
Committee
Sustainability
Committee
4
4
4
2
Board
11
Meetings
Attended
Meetings
Attended
Meetings
Attended
Meetings
Attended
Meetings
Attended
11
11
11
11
11(2)
11
11
11
8(6)
n/a(3)
n/a(4)
n/a(3)
n/a
n/a
n/a
4
4
4
n/a
n/a
4
4
n/a
4
n/a
4
n/a
4
n/a
4
4
4
n/a
2(5)
n/a
n/a
2
2
2
2
2
2
2
2
2
Notes:
n/a not applicable (where a Director is not a member of the committee).
1 During 2022, certain Directors who were not committee members attended meetings of the Audit Committee, Remuneration Committee and Nomination &
Governance Committee by invitation. These details have not been included in the table.
2 Keith Lough was unable to attend the second day of one of the two-day Board meetings due to illness.
3 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.
4 James Smith is not a member of the Audit Committee but attends its meetings by invitation.
5 Catherine Krajicek attended both meetings of the Nomination & Governance Committee that were held following her appointment to the committee in March 2022.
6 Luis Araujo attended all meetings of the Board from his appointment in May 2022.
Leadership and Governance Capricorn Energy PLC
62
Annual Report and Accounts 2022
Corporate Governance Statement continued
Board committees
Board committee structure during 2022
Board of Directors
Audit
Committee
Remuneration
Committee
Nomination &
Governance
Committee
Sustainability
Committee
Each of the Board committees is provided with all necessary
resources to enable them to undertake their duties in an effective
manner and has formal terms of reference approved by the Board.
Copies of the terms of reference, which were reviewed and updated
in line with the 2018 version of the Code and approved by the
Board in March 2022, 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,
Nomination & Governance and Sustainability Committees are
presented as separate reports (on pages 66 to 111) 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 76 to 109.
Summary details of the composition of each committee and
meetings held during 2022 are set out below.
matter which has arisen in the meeting (or relating to the duties of
the committee) which they believe would benefit from discussion
in such a forum.
Further information on the role, responsibilities and work of
the Remuneration Committee is included in the Directors’
Remuneration Report on pages 76 to 109.
Nomination & Governance Committee
The members of the Nomination & Governance Committee during
the year were as follows:
– Nicoletta Giadrossi (Chair);
– Simon Thomson;
– Keith Lough;
– Peter Kallos; and
– Catherine Krajicek.
The Nomination & Governance Committee met four times in 2022.
Following her appointment as Chair of the Company, Nicoletta
Giadrossi was appointed Chair of the committee with effect from
1 January 2021 and, with effect from 3 March 2022, Catherine
Krajicek joined the membership of the committee in addition to
those members who sat in 2021. As such, the members of the
committee included the new Chair and three of the Company’s
independent Non-Executive Directors. In addition, to provide
executive input on nomination matters, the Chief Executive was
also a member of the committee.
Audit Committee
The members of the Audit Committee during the year were as
follows:
– Keith Lough (Chair);
– Catherine Krajicek; and
– Alison Wood.
From 3 March 2022, the Nomination & Governance Committee
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.
The Audit Committee met four times during 2022 and comprised
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 66 to 71.
Following the decision to expand its remit, from March 2022,
the Nomination & Governance Committee’s terms of reference
also include the roles of:
– 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.
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 four times during 2022 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 remained a
member of the committee. 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 was not a member of the committee but
attended its meetings by invitation. The committee’s remuneration
advisers during 2022 are also 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 after each Committee
meeting to allow the Non-Executive Directors to discuss any
Further information on the role, responsibilities and work of the
Nomination & Governance Committee is included in the separate
Nomination & Governance Committee Report on pages 72 to 74.
Changes to Board Committee structure during the year
Sustainability Committee
In addition to the expansion of the Nomination & Governance
Committee’s remit to include broader corporate governance
matters, with effect from 3 March 2022, a new committee, the
Sustainability Committee, was established. The Sustainability
Committee met two times in 2022. Matters relating to the
environment, safety, 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 further embeds 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
during 2022 comprised the full Board, allows 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;
Annual Report and Accounts 2022
63
– 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.
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 114. 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 2022, engagement with investors was of
notably high importance following the corporate transactions
proposed and investor meetings were held either through virtual
communications platforms or in person.
AGM details (2022 and 2023)
Overview
2022 AGM: the first AGM since
the 2019 meeting to be held as
an open meeting since
restrictions were put in place
due to COVID-19 in 2020, was
held on 11 May 2022 at The
Galley, Kimpton Charlotte
Square Hotel, 38 Charlotte
Square, Edinburgh
2023 AGM: to be held on
Tuesday, 20 June 2023 at The
Galley, Kimpton Charlotte
Square Hotel, 38 Charlotte
Square, Edinburgh
(full details in Notice of AGM)
– Full Director attendance save
for one Director who had
taken ill the previous evening;
– At least 54.52% of all issued
shares voted by shareholders
in each resolution
– Highest votes in favour >97%
for 13 resolutions and all votes
passed with at least 93.65% in
favour
– Full Director attendance
expected other than one
Director who is expected to
be out of the country on the
date of the meeting
– 12 ordinary resolutions and
five special resolutions being
proposed to shareholders
The Board uses the AGM to communicate with private and
institutional investors and has always welcomed their participation
in annual general meetings. The Directors were pleased, therefore,
that the 2022 meeting could be held in person following the
lifting of COVID-19 related restrictions and that the 2023 meeting
will also be held in person.
It is policy for all Directors to be present at the AGM, when possible,
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
invited to attend the AGM as the Directors recognise that this
provides a valuable opportunity for workforce engagement with
the Board.
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 20 June 2023 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 2022, the remuneration report received
over 95% of votes in favour, following a lower vote in favour (65.13%)
to approve the remuneration report in 2021. Following shareholder
engagement, the 2021 Annual Report looked to address matters
raised by stakeholders such as: the need for a more comprehensive
explanation of the alignment between Company performance
and bonus outcomes; and more detailed disclosure of the KPIs
used in the annual bonus scheme. The 2021 Annual Report
addressed these concerns and included significantly increased
levels of disclosure.
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
Leadership and Governance Capricorn Energy PLC
64
Annual Report and Accounts 2022
Corporate Governance Statement continued
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 2022 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
2022 and will ensure that a similar review is performed in 2023.
In so doing, the Board and Audit Committee took into account
the assurance provided by the year-end internal control report
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 2022.
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 2022 to the following key controls, business
processes and procedures:
– The Capricorn Board incorporates an annual workshop into one
of its Board meetings to consider and address a key risk to the
business. The theme for this year’s session was ‘ESG- What lies
ahead for Capricorn?’. The objective of the workshop was to give
the Board further insight into the ESG macro environment and
the potential risks and opportunities for Capricorn. The
workshop was facilitated by the Energy Transition Director and
Risk & Compliance Manager;
– 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;
– Compliance certificates were completed by all staff members
and contractors confirming compliance with the Group’s Code
of Ethics;
– Capricorn commenced a project in 2022 to improve the
business management system used throughout the Company.
The management system structure follows that as
recommended by the International Association of Oil & Gas
Producers (IOGP), of which Capricorn is a member. It will deliver
a single system applicable across the whole Company that is
simple to describe to stakeholders, including contractors, other
operators, and governments and provide a platform to access
all organisational documentation which is consistent,
connected and without duplication;
– The Group’s Business Resilience Plan and Cyber Incident
Response Plan were both revised and updated in 2022;
– 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 regulations (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;
– IT continued to progress the plan to implement the NIST Cyber
Security Framework. Several initiatives were completed in 2022
and the Group is on course to deliver the three-year plan;
– EY, the Group’s internal auditor in 2022, delivered the annual
internal audit plan which consisted of several risk areas
identified from the risk register. Topics covered in 2022
included culture, values and internal communications and
Egypt operations. 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 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. Bespoke training
was also provided to the Egypt and Mexico offices on bribery
and corruption.
The following describes the key elements of the Framework
and the processes used by the Board during 2022 to review the
effectiveness of the system and the approach to be taken in 2023.
1. Strategic direction
The Company’s strategy and business plan are proposed by the
ExCo 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 ExCo. 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 non-operated basis. The assets within each region
are the principal focus for our asset managers, who are tasked
with delivering the strategic objectives for their particular region,
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.
In 2022, the Executive Directors continued to be supported by
the ExCo as well as by the MT and ELT. 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.
Annual Report and Accounts 2022
65
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
2022 Group internal audit plan.
The Directors derived assurance from the following internal and
external controls during 2022:
– 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;
– 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.
Craig van der Laan
Chair
27 April 2023
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 2022, 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 2022.
The RMC, which meets on a quarterly basis, was chaired by the Chief
Financial Officer in 2022 and comprised 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 2022 to manage and facilitate
the assessment and treatment of business risks that may affect the
Company’s ability to deliver its strategy.
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 2022 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 2022, 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.
Leadership and Governance Capricorn Energy PLC
66
Annual Report and Accounts 2022
Audit Committee Report
Members and Meetings in 2022
Tom Pitts
Chair of the Audit Committee
Following the 2023 Board changes,
the new Audit Committee have
engaged with key internal and
external stakeholders to ensure a
successful induction, strengthening
governance where weaknesses were
identified and revising the Group’s
approach to internal audit to better
suit the organisation moving forward.”
2023 Audit Committee
Tom Pitts (Chair)
Member since February 2023
Maria Gordon
Member since February 2023
Richard Herbert
Member since February 2023
Catherine Krajicek
Member since July 2019
Members and meetings in 2022
Member
since
Meetings
attended
Keith Lough (Chair)
May 2014
Catherine Krajicek
July 2019
Alison Wood
July 2019
Dear Shareholder
Composition of the Audit Committee
Following the changes to the Capricorn Energy PLC Board, I was
appointed Chair of the Audit Committee in February 2023. Serving
alongside me are my fellow, newly appointed independent
Non-Executive Directors, Maria Gordon and Richard Herbert and
additionally Catherine Krajicek provided continuity having served
on the Audit Committee under both the previous and current
Board of Directors.
The members of the committee have been chosen to provide the
wide range of financial and commercial experience needed to fulfil
these duties. Maria, Richard and Catherine are considered by the
Board to be independent.
Prior to my appointment, the Audit Committee was chaired by
Keith Lough, with fellow Non-Executive Director Alison Wood
serving alongside Catharine. Nicoletta Giadrossi also continued
to attended meetings in her capacity as Chair of the Board of
Capricorn Energy PLC but was not a member of the committee.
Keith, Alison and Nicoletta resigned from the Board in 2023.
Summary of Audit Committee meetings during 2022 and
subsequent to the year end
The previous Audit Committee met four times in 2022, with
meetings arranged around the key external reporting dates.
The first meeting in March 2022 focused on the 2021 year-end
external audit process (reported in the 2021 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 2022 year-end.
Following the change in the composition of the Audit Committee,
a series of induction meetings were held to familiarise the new
members of the Audit Committee with the current issues facing
the Company in its financial reporting and risk management
activities. These consisted of the following:
– a general induction meeting with Capricorn senior
management summarising the Group’s approach to risk
management and the standing items to be considered on an
annual basis by the Audit Committee;
– a meeting with the Group’s internal auditor and Risk and
Compliance manager discussing the Group’s internal control
framework and approach to internal audit going forward;
Annual Report and Accounts 2022
67
– a presentation from Capricorn senior finance staff on the Group’s significant accounting policies, focusing on key issues for the 2022
year-end Financial Statements; and
– a meeting with the Group’s external auditors including a summary of the approved audit plan for the 2023 year-end and the
materiality levels to which the auditors will be planning their work.
A formal meeting of the Audit Committee was held in March 2023 to update on the 2022 audit and significant accounting issues and an
update on the going concern and viability statements. A second meeting was held in April 2023 to approve the Group’s 2022 year-end
Financial Statements.
Meetings are attended by senior Capricorn staff from finance, including the Chief Financial Officer, risk management and other
departments as appropriate. The Group’s external auditors also attend all meetings and the Group’s internal auditors attended during
2022 before being stood-down in 2023, discussed below.
Responsibilities and activities during the year
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.
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.
Financial
Statements
Principal responsibilities of the committee
Activities during the year
Key areas formally discussed
– Monitoring the integrity of the
– March 2022: 2021 Financial
– Going concern conclusions,
Financial Statements of the Group
and formal announcements
relating to the Group’s financial
performance;
Statements approval (included in
2021 Annual Report and Accounts).
– June 2022: Half-year key accounting
issues, estimates and assumptions.
– Reviewing any significant financial
reporting judgements; and
– Reviewing the appropriateness of
– September 2022: Approval of
half-year Financial Statements.
– December 2022: Year-end key
linkage to the viability statement
and impact of proposed
transactions; and
– Significant accounting issues
at the half-year and year-end
(see below);
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.
– 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.
Internal risk
management
and assurance
Whistleblowing
procedures
accounting issues, estimates and
assumptions.
– March/April 2023: Approval
of 2022 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.
– Reviewing the external auditor’s
scope and audit plan for the 2022
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
Committee receives:
• An update from management
– Reviewing the Group’s corporate
and operational risk register;
– Reviewing reports on the activities
on the latest Risk and
Assurance Committee
meetings and risk
management process; and
• a report from the internal
of the Risk Management
Committee;
– Consideration of internal audit
work planned for 2023 and for
future years; and
auditors, tracking the progress
of internal audits and their
output and recommendations.
– Assessment of key findings raised
from internal audits conducted in
the year.
– The committee’s annual review
and approval of the Group’s
whistleblowing procedures was
performed at the December 2022
meeting.
– Reviewing and approving
of the Group’s whistleblowing
procedures.
Leadership and Governance Capricorn Energy PLC
68
Annual Report and Accounts 2022
Audit Committee Report continued
Other matters
– Reviewing the Group’s policy for
– The committee’s annual review
approval of non-audit work to the
Company’s auditor; and
– Reviewing booking of Group
reserves and resources.
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.
Following the change in the composition of the Audit Committee, the governance of the Group’s hydrocarbon reserves and resources
estimation process has been strengthened. Capricorn’s Reserves and Resources Reporting Committee, responsible for recommending
the booking of Group reserves and resources to the Board, will now be chaired by a Non-Executive Director. We believe having a non-
executive Chair this sub-committee and report into the Audit Committee will strengthen oversight of the Group’s processes in this matter.
For the current year end, Catherine and Richard have had several meetings with the Group’s Senior Petroleum Engineer to conclude on
the Group’s 2022 year-end reserves and resources bookings.
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.
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 judgments that management has used in applying the relevant
accounting standard.
The key issues identified at the December 2022 year-end were: the impairment review performed on the Group’s intangible exploration/
appraisal assets, property, plant and equipment, development/producing assets and goodwill, the valuation of contingent consideration
receivable and trade receivables after expected credit loss adjustments and a change in accounting policy regarding exploration/
appraisal assets as a consequence of the NewMed transaction. 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, including the implications of the
NewMed combination.
2022 year-end significant accounting issues
Impairment review
Impairment reviews have been performed across the Group’s exploration/appraisal, asset portfolio and the Group’s Egypt development/
producing assets. Reductions to reserve estimates and increased capital expenditure costs in Egypt indicated that impairment may
exist on the Egypt development/producing assets and these were tested for impairment along with goodwill allocated to the Egypt
operating segment.
Audit Committee action
Audit Committee conclusions
The Audit Committee reviewed management’s conclusion on the
impairment tests performed on the Group’s exploration/appraisal
assets.
In determining the appropriateness of the value of assets used in
Egypt assets impairment tests, the Audit Committee confirmed
that the corporate assumptions used in the supporting economic
models were consistent with those approved by the PLC Board.
The Audit Committee reviewed the assumptions proposed,
comparing against the market range of assumptions noted
by the external auditor, challenging management.
Corporate assumptions approved by the PLC Board in place before
the February meeting had been applied in the impairment test
calculations. The Audit Committee were satisfied that the impairment
tests had been performed correctly and that the impairment on two
Egypt concession areas had been properly recorded.
The Audit Committee noted that a single corporate discount rate
may not be appropriate and that a move to country-specific
discount rates should be considered, though took comfort from
management confirming that there would be no material change to
the impairment recorded if the discount rate were increased to fall
within the market range expected to be applied to assets in Egypt.
Expected credit loss: Earn-out considerations, contingent consideration and trade receivables
Expected credit losses on the Group’s receivables classified as financial instruments, are reviewed at each reporting date.
Audit Committee action
Audit Committee conclusions
The Audit Committee reviewed management’s calculation for
the expected credit loss adjustments posted against the earn-out
consideration receivable from Waldorf and trade receivables due
from EGPC in Egypt.
The Audit Committee challenged management on the
assumptions underlying the credit loss adjustments proposed.
The Audit Committee were satisfied that expected credit loss
adjustments were appropriate provided in the Financial Statements.
Annual Report and Accounts 2022
69
Change in accounting policy for Exploration Assets
As part of the proposed combination with NewMed, Capricorn indicated its intention to change its accounting policy in relation to
exploration/appraisal. With that deal now terminated the Audit Committee reconsidered the proposed change.
Audit Committee action
Audit Committee conclusions
The Audit Committee discussed the rationale proposed by
management for the change in accounting policy under the
proposed combination, which would have led to an immediate
expensing of all non-well specific exploration costs.
The Audit Committee concluded that with Capricorn continuing
to execute an exploration-focused strategy during 2022, it was
appropriate to maintain the Group’s existing policy of capitalising
all general exploration and appraisal costs, pending allocation to
successful or unsuccessful exploration wells, or impairment on
cessation of exploration activity.
The Audit Committee will further review the accounting policy
choice on completion of the strategic review which will determine
the outlook for the business going forward.
Going concern and viability
At each reporting date, management considers the factors relevant to support a statement of going concern included in note 1.2 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,
factoring in the planned shareholder returns. As well as the Group’s base case scenario, a downside scenario, with sustained low oil prices,
reduced production, cost increases and a reduction in available finance, and an oil-price crash scenario, with a sharp fall and slow recovery
in oil price, were reviewed, ensuring that the Group’s planned returns to shareholders did not lead to a potential going concern issue.
The Audit Committee subsequently recommended to the Board that the Group continues 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 32. 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 ten years. Capricorn complied with this provision before it came into force and completed an external audit
re-tendering process in 2013. PwC were subsequently appointed as external auditors of the Group, on the recommendation of the
Audit Committee at that time. The 2022 year-end audit therefore represents the tenth year of PwC’s tenure as Group auditors.
Capricorn had previously indicated that it intended to re-tender for the role of Group auditors during 2022 for appointment of the
new auditors (or re-appointment of PwC) at the AGM in 2023 in compliance with the Competition and Markets Authority 2014 Order
requiring a mandatory tender after ten years. Following the announcements of proposed merger combinations during 2022, the Audit
Committee wrote to the FRC seeking a one-year extension to the tender process. The FRC granted the Company’s request agreeing that
with the proposed transactions, running a robust tender process would not be possible. The Group therefore propose to run a re-tender
process for the external audit during 2023 for appointment at the AGM in 2024. PwC will continue for an eleventh year as auditor of the
Group. Bruce Collins remains lead audit partner.
Assessment of external audit process
The Audit Committee has an established framework to assess the effectiveness of the external audit process that will continue going
forward. This comprises:
Audit Committee action
Audit Committee conclusion
An assessment of the independence of the auditors.
The Audit Committee considered 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 118 to 125).
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 Audit 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 2022 was
originally presented to the Audit Committee in September,
re-presented to the reconfigured Committee during the induction
meeting in February 2023 and is summarised in the Independent
Auditor’s Report on pages 118 to 125.
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.
Leadership and Governance Capricorn Energy PLC
70
Annual Report and Accounts 2022
Audit Committee Report continued
Separate meetings were held between myself and my
predecessor as Chair of the Audit Committee and the lead audit
engagement partner.
Separate meetings were held regularly during the year, both with
myself and my predecessor as Chair.
A formal questionnaire issued to all Audit Committee members
and senior Capricorn 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.
Steps have been taken by both management and the auditors to
ensure that inefficiencies identified after the 2021 audit have not
been repeated. The questionnaire approach will be actioned after
the completion of this report, though tailored to reflect the Audit
Committee changes in the period.
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 April 2023. 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 2022 year-end audit, the committee discussed the quality of the audit
service provided, using the questionnaire responses as a basis for the discussion, and concluded that the auditors had delivered an audit
of appropriate quality. The Audit Committee noted that there were certain inefficiencies in the performance of the audit, largely driven
by the acquisition of the Egypt assets and partially reflected in increased fees for the year and the committee were pleased to see that
management had worked with the auditors to agree on improvements ahead of the current year-end audit.
Though the formal assessment of the 2022 audit has yet to be formally undertaken, provisional discussions held at the March 2023
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 pleased to hear that inefficiencies encountered in 2021 had not repeated in 2022.
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 management’s 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 back-drop of uncertainty caused by the proposed corporate transactions, together with the risks associated with the continued
integration of the Egyptian business into the Group.
Internal audit
Ernst & Young LLP (“EY”) continued in the role of internal auditor throughout the year ending 31 December 2022.
Prior to the beginning of the year, an internal audit plan was 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 page 118 to 125), the results of historical audits of fundamental business processes and the significant risks in the Group
Risk Matrix and identified mitigation measures. The plan was then presented to the Audit Committee for review and approval. During
2022, the Group’s internal auditors conducted audits on ‘Culture, Values and Internal Communications’ and ‘Egypt Country Review’.
No high-risk findings were identified across the audits conducted. A further planned audit on ‘HSE Incident Reporting and Investigation’.
No plan had been presented by EY for 2023 internal audits pending conclusion of the business combination recommended by the
previous Board, thus allowing EY the opportunity to tender for the audit of the potential combined Group. Following termination of that
transaction and a re-assessment of Group’s approach to internal audit, the Audit Committee have decided to bring management of the
internal audit process in-house.
The Group’s external auditor did 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. Going forward the Audit Committee will develop their audit plan to ensure that future internal
audits are aligned with the external audit, avoiding duplication, as the Audit Committee continue to ensure that the Group’s controls are
operating effectively.
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
Annual Report and Accounts 2022
71
Committee at the March 2022 meeting and most recently re-approved at the December 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.
Other matters:
Provision of non-audit services
Capricorn has 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 audit-related services on corporate transactions 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
Details on the internal evaluation conducted during 2022 can be found on pages 57 and 58 of the Corporate Governance Statement.
There were no action points directly impacting the Audit Committee.
Tom Pitts
Chair of the Audit Committee
27 April 2023
Leadership and Governance Capricorn Energy PLC
72
Annual Report and Accounts 2022
Nomination & Governance Committee Report
Capricorn’s Nomination & Governance Committee plays a leading
role in ensuring that the composition of the Board is appropriate
to enable the Company to deliver on its strategic aims whilst
promoting its values and culture. It is vital that the Board has in
its membership what is needed to provide appropriate challenge
and effective leadership for the business, and the committee looks
to ensure the Board maintains the correct balance of skills and
representation. Board succession is an important area of planning
for the ongoing success of the Company and is a key focus of the
Nomination & Governance Committee.
The membership of the committee during 2022 is set out in
the table to the right and comprised a majority of independent
Non-Executive Directors. The Chief Executive was 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. At the same date, the membership of the committee
was also expanded as independent Non-Executive Director,
Catherine Krajicek became a member of the Nomination
& Governance Committee.
Prior to the committee’s role expansion, the then named
Nomination Committee’s remit 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 & 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
Craig van der Laan
Chair
Nomination & Governance Committee
2023 Nomination & Governance Committee
Craig van der Laan (Chair)
Member since February 2023
Maria Gordon
Member since February 2023
Richard Herbert
Member since February 2023
Hesham Mekawi
Member since February 2023
Members and meetings in 2022
Nicoletta Giadrossi
(Chair)
May 2018
Jan 2021 (Chair)
Member
since
Meetings
attended
Simon Thomson
Mar 2013
Keith Lough
May 2015
Peter Kallos
Sept 2015
Catherine Krajicek
Mar 2022
*
**
* Keith missed one meeting due to illness.
** Catherine attended both meetings of the committee that were held
following her appointment to the committee in March 2022.
Annual Report and Accounts 2022
73
Board changes during 2022
Whilst the membership of the Board 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 2021, the committee then in place recognised
that the Board would benefit from further enhancing the diversity of its membership.
The Parker Review on ethnic diversity of UK Boards was published in 2017, 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 committee, recognised that ethnic diversity, and the benefits
it brings, was missing amongst the Company’s Board membership. In Q4 2021, a search was commenced for a new Non-Executive
Director. The Company instructed recruitment consultants, Ridgeway Advisors, in connection with this appointment. Apart from providing
prior recruitment advice, Ridgeway had no other connection with the Company or any of its individual Directors. The Board was pleased
to announce that its diversity was deepened from May 2022 upon the appointment of Luis Araujo, who had South American heritage
and citizenship in Brazil, Portugal and the UK. With experience gained working in Brazil and other countries, Luis brought his emerging
market insights to the Board along with a focus on energy transition issues.
Also during 2022, as the Chair of the Audit Committee was approaching eight years in post as a Non-Executive Director, a search was
commenced, assisted by Ridgeway, for a new Non-Executive Director, with appropriate experience to enable that individual to be appointed
chair of the Audit Committee. This process started in early 2022 but was put on hold following the announcement in June 2022 of the
proposed merger with Tullow Oil plc.
Board changes in 2023
In December 2022, shareholder Palliser Capital Master Fund Ltd requisitioned a general meeting to consider resolutions to remove
seven of the Company’s nine Directors from the Board of Directors of the Company and to appoint six new Directors to the Board.
The general meeting was held on 1 February 2023. At the end of January, in advance of that general meeting, five Directors, including
the then Chair, Nicoletta Giadrossi and CEO, Simon Thomson, stepped down from the Board. In addition to Catherine Krajicek and
Erik B. Daugbjerg, who continue as Non-Executive Directors, Keith Lough and James Smith remained on the Board up to the date of
the general meeting, to ensure ongoing oversight of reporting obligations and other corporate governance requirements. For the week
in advance of the general meeting, the Nomination & Governance committee membership consisted of Keith Lough and Catherine
Krajicek, both independent Non-Executive Directors.
On 1 February 2023, six new Directors were appointed to the Board by an overwhelming shareholder vote to sit alongside continuing
Board members, Catherine Krajicek and Erik B. Daugbjerg. On the same date, it was agreed that the membership of the Nomination &
Governance Committee would comprise myself, as chair of the committee, Maria Gordon, Richard Herbert and Hesham Mekawi. The newly
formed Nomination & Governance Committee carefully considered the roles of Chair of the Board, Senior Independent Director and Chief
Executive. The committee evaluated the balance of skills, knowledge, independence, experience and diversity on the Board and considered
candidates on merit and against objective criteria and, within that context, sought to ensure that any appointment made would promote
diversity of gender, social and ethnic backgrounds, and cognitive and personal strengths, ensuring also that appointees would have enough
time available to devote to the relevant position. No member of the Nomination & Governance Committee, who was also a proposed
appointee, would vote on his or her own appointment. After careful consideration, it was recommended to the Board, by whom it was
agreed, that I be appointed as Chair of the Board, Richard Herbert be appointed as Senior Independent Director and that Chris Cox be
appointed as an Executive Director of the Company, to serve as interim CEO, each appointment being made with immediate effect.
On 11 April 2023, it was announced that Erik B. Daugbjerg and Catherine Krajicek would not be standing for re-election at this year’s
AGM. The Nomination & Governance Committee will shortly be considering the membership of the affected Board committees.
Succession planning
On a regular basis, the Nomination & Governance 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 & Governance 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 the Company’s strategic aims.
The Company’s talent management strategy, for both Executive Board and other senior management positions, focuses 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 an Executive Director
and other senior roles, which are reviewed by the Board.
During 2022, the Company undertook a voluntary redundancy programme for UK employees. It was important to ensure that succession
planning remained fit-for-purpose following the departure of those employees electing to leave the organisation. This is also a vital piece
of ongoing work as we progress through the stated headcount reduction.
The Board has a good 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 2022, 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. A second cohort of individuals identified as
employees who would benefit from the mentoring programme started the programme in the middle of 2021. These colleagues were
partnered with non-executive Board members as well as senior managers to gain knowledge and strategic understanding from their
experience in these areas.
Leadership and Governance Capricorn Energy PLC
74
Annual Report and Accounts 2022
Nomination & Governance Committee Report continued
Diversity
As noted, the Nomination & Governance 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. Women currently represent
25% of the Board membership (being two women out of eight members) and Clare Mawdsley sits as acting Chief Financial Officer.
The committee, and the Board, recognise that, to gain the benefits of a diverse membership, further female representation is required.
This will be of even greater importance following Catherine Krajicek’s announced departure from the Board after the AGM in June 2023.
We will be seeking to add to the Board as soon as possible, with a focus on diverse candidates to address this imbalance. We intend to
provide an update on progress made at this year’s AGM.
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 and commercial expertise. Following 1 February 2023, the Board continues to
be diverse in terms of the range of nationalities, culture and international experience of its members and meets 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
is committed to ensuring such a culture is embedded in the organisation. In February 2023, we were pleased to appoint Clare Mawdsley
to the role of acting Chief Financial Officer. Clare’s appointment is a welcome deepening of the diversity on our previously all-male
Executive Committee. As at 31 December 2022, following a reorganisation as a result of a process of voluntary redundancy, including
interim reporting lines, the number of female direct reports to the Executive Committee was seven female and 18 male (2021: six female,
14 male). Of the business critical roles identified in our talent management programme, 24% of the talent pool is female. The gender split
of our management population has greatly increased in female representation from one-third female/two-thirds male at the end of 2021
to 42% female and 58% male at the end of 2022. Looking at our broader talent pool, the gender diversity of our employee population is
49% female and 51% male. These numbers will change as a result of the announced headcount reduction process, the consultation in
respect of which is ongoing. Diversity and inclusion will remain an important focus of the Company going forward.
In recognition of the Company’s diversity challenges within its management and executive populations, a new pilot programme was
introduced in 2022, called the Shadow4success programme, with the aim to provide an opportunity for under-represented groups
to gain a better understanding of how the Executive Committee and Board operate and to ultimately seek to increase the diversity of
applications for more senior roles within Capricorn. The Shadow4success programme, which formed part of the Company’s diversity and
inclusion strategy, had eight participants, each with an assigned member of the Executive Committee that would rotate during the year
to provide a broad range of experience for the participant during the course of the programme. Following completion of the pilot,
feedback will be provided for taking into account in the designing of future programmes.
As noted in the strategic review section of this report (pages 2 to 47), the Company has developed our strategic framework which is
designed to cultivate D&I across the business and developed methods to embed it within the way we do work.
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 2023 noted our increased percentage
of female direct reports to the Executive Committee but highlighted that this committee was, at the time of data submission in 2022,
all-male. The Board and Nomination & 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.
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. For the 2022 Board performance evaluation, the process was
undertaken internally (see pages 57 and 58).
The Board retains overall responsibility for implementation of its annual performance evaluation and the process and outcomes of the
2022 internally conducted evaluation are described in the Corporate Governance Statement on pages 57 and 58. The process included
a review of all Board committees and it was concluded that the relationship between the Board and its committees was functioning well,
with all committees fully meeting their remit. The Nomination & Governance Committee works together with the Board in seeking to
address any performance evaluation outcomes relating to Board composition and succession planning.
It is an important role of the newly reconstituted Board to ensure that the Board and its committees function as appropriate to best
enable the Company to deliver on its strategy as we progress through the year and beyond.
Craig van der Laan
Chair of the Nomination & Governance Committee
27 April 2023
Annual Report and Accounts 2022
75
Leadership and Governance Capricorn Energy PLC
76
Annual Report and Accounts 2022
Directors’ Remuneration Report
Part 1 – Annual Statement from the Chair
of the Committee
Dear Shareholder,
I am pleased to present our Directors’ Remuneration Report for
2022, my first since accepting the position of Remuneration
Committee Chair following my election to the Board on 1 February
2023. Many of the key decisions set out in this report relate to the
implementation of the policy prior to my appointment, however
the approach for 2022 is consistent with the remuneration policy
endorsed by shareholders at the 2020 AGM. In this report we have
also sought to provide an indication of our future approach to
senior executive pay matters.
This report comprises three sections:
Part 1 – this Annual Statement;
Part 2 – our new Directors’ Remuneration Policy, which will be
put to a binding shareholder vote at the forthcoming AGM; and
Part 3 – our Annual Report on Remuneration, setting out how
our existing policy was implemented in 2022 and how we intend
to implement the new Policy in 2023; together with this Annual
Statement, it will be put to an advisory vote at the AGM.
Remuneration Policy renewal and implementation for 2023
The current policy was approved by shareholders in 2020 and
therefore, under the UK corporate governance framework, we
are required to seek re-approval for a new policy in 2023.
The past year has been a period of exceptional change at
Capricorn. In February 2023, the Board announced a strategic
review to explore options for Capricorn’s future direction. There
have also been substantial changes in the constitution of the
Board, with the Company in the process of making permanent
executive appointments. Given this context, the Remuneration
Committee determined to delay our full review of the
remuneration policy until there was greater clarity regarding the
future direction of the business. The objective is to ensure that any
future remuneration strategy fully supports our strategic priorities
as a business and the investment proposition presented to our
shareholders.
Maria Gordon
Chair
Directors’ Remuneration Committee
2023 Directors’ Remuneration Committee
Maria Gordon (Chair)
Member since February 2023
Erik B. Daugbjerg
Member since January 2021
Tom Pitts
Member since February 2023
Members and meetings in 2022
Member
since
Meetings
attended
Alison Wood (Chair)
Jan 2021
Erik B. Daugbjerg
Jan 2021
Nicoletta Giadrossi
Jan 2017
Peter Kallos
Sept 2015
Annual Report and Accounts 2022
77
The policy renewal at the 2023 AGM will, therefore, be largely
technical in nature, with only minor changes being proposed.
Key decisions include:
– Base salary – Although the policy will remain unchanged,
base salary levels for incoming executives are expected to be
positioned more modestly than for previous incumbents.
– Benefits – The value of regular ongoing benefits will be
reduced. The current car allowance has been eliminated for
permanent Executive Directors. Pension benefits for new
Executive Directors will be capped at the all-employee rate.
– Annual bonus – The maximum opportunity is unchanged. We
are increasing bonus deferral so that 25% of any awarded bonus
is deferred into shares, to ensure greater long-term alignment
with investors (previously only the portion over 100% of salary
was subject to deferral). Targets for 2023 will focus on our
short-term operational priorities and re-stabilising the business.
– LTIP – No change proposed to the policy. However, the
committee is minded to review both operational award levels
and performance criteria for any 2023 grants to ensure that
they reflect the strategic priorities of the group.
Overall, we intend to take a more measured approach to pay than
has been the case historically. Our full policy is set out in Part 2 of
this report (pages 79 to 87).
Whilst formulating our approach to the new policy, we took
into account the views of the Company’s largest shareholders
and investor representative bodies on our existing approach to
remuneration. Following the conclusion of the strategic review,
we intend to undertake a more holistic review of our approach to
pay. We would once again consult with our major shareholders
regarding our proposed approach and, where necessary, seek
approval for a revised policy at a future general meeting.
Executive Board changes
Simon Thomson and James Smith stepped down from their
positions as Chief Executive Officer and Chief Financial Officer
on 24 January 2023 and 1 February 2023, respectively. The exit
arrangements for Simon Thomson and James Smith were largely
limited to contractual terms. Although the current policy provides
scope to enable partial vesting of unvested LTIP awards subject
to time pro-rating and performance, the committee determined
that all unvested LTIP share awards subject to performance should
lapse in full. Given that both individuals were in office for the
entirety of the 2022 performance year, they were eligible to
receive a bonus award in respect of 2022 in light of performance
against targets set in early 2022. As detailed below, the committee
exercised downward discretion to reduce the bonus outcomes
for both individuals.
Chris Cox was appointed interim CEO on 1 February 2023 on a
short-term contract. His salary was positioned at £550k, which is
~13% lower than the previous permanent incumbent. The annual
bonus maximum was also set at 100% of salary, which is lower
than the 125% of salary limit under our policy. No long-term share
awards have been granted. In order to provide alignment with
shareholders during the course of his tenure, the committee have
agreed to deliver any FY22 bonus earned in shares, based on the
share price at the point of appointment.
As noted above, we intend to take a more measured approach
when determining the remuneration arrangements for any
executives appointed during the course of 2023. While the
detail of pay arrangements will need to reflect the nature of the
candidates appointed, our current intention is for the levels of fixed
pay and long-term incentives to be lower than for the previous
incumbents, and for a significant proportion of the package to be
clearly aligned with performance, execution of the strategy and
the interests of our shareholders. The performance criteria for
incentive awards to incoming directors, including future LTIP
awards, will be set based on business circumstances at the time
of appointment. We will suitably engage with investors regarding
the performance targets applicable to any long-term incentive
awards granted to incoming Executive Directors and provide
suitable disclosures in due course.
Summary of 2022 Business Context and Key Remuneration
Decisions
As noted elsewhere in the Annual Report and Accounts, the
Company had considered various transactions during 2022 that
were intended to realise value for our shareholders. During this
period the Company continued to progress its key strategic
initiatives whilst working in a safe, sustainable, environmentally and
socially responsible manner for all stakeholders. Highlights of work
undertaken during the year included the following:
– successful conclusion of a long-running dispute between
Capricorn and the Government of India dating back to a
January 2014 retrospective taxation claim and subsequent
asset seizure in relation to the 2007 initial public offering of
Cairn India Limited. This resulted in Capricorn receiving a tax
refund from the Government of India of approximately
US$1.06bn;
– a US$500m return of value to shareholders by way of tender
offer, completed in April 2022; and
– working towards the first operated exploration wells in Egypt,
which spudded in Q1 2023.
Against this background, the committee was required to review
the bonus outcome against the targets previously set in respect of
2022. The formulaic outcome under the 2022 bonus was 39.25%
of maximum. The committee undertook a review of the outcome
in the context of the Company’s overall financial and operational
performance during the year and determined that discretion
should be exercised to reduce the final outcome by more than
40%. As a result of this discretion the actual bonus payable to
former Executive Directors was limited to 22.5% of maximum.
The 2019 LTIP was subject to TSR performance conditions, with
the award vesting at 73.7% of maximum for the ‘core’ elements.
No part of the ‘kicker’ elements vested and they lapsed in full.
As noted above, the LTIP awards granted to Executive Directors
in 2020, 2021 and 2022 lapsed in full on cessation of employment.
Further details of incentive outcomes are set out in Part 3 of this
Report.
Consideration of remuneration arrangements for the wider
workforce during 2022
In accordance with best practice, the committee regularly takes
into account remuneration practices in the wider organisation
when determining senior executive pay arrangements.
The committee as previously constituted had determined that
annual salary increases for the Executive Directors would be
capped at 4%, which was below the level of standard annual salary
increase awarded to other employees at that time of 6%.
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. These included the Company’s Employee
Voice Forum which enables two-way communication between
employees and the Board; throughout 2022 this was chaired by
Peter Kallos who was a member of the committee during the
whole of the year.
Decisions have been 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, being
clarity, simplicity, risk, predictability, proportionality and alignment
to culture. The committee is satisfied that, during 2022, the
approved remuneration policy operated as intended and delivered
outcomes that fairly reflected business achievements over the year.
Leadership and Governance Capricorn Energy PLC
78
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Feedback on Directors’ Remuneration Report
This has been a period of major change for the business and as your
new Remuneration Committee Chair I am committed to an approach
to pay which is aligned with our strategy and which is in the best
interests of the business and our stakeholders. I am also keen to
maintain a dialogue with our investors so that the different
perspectives on pay are taken into account by the committee when
making key decisions.
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 and
new Directors’ Remuneration Policy at the AGM to be held on
20 June 2023.
Maria Gordon
Remuneration Committee Chair
27 April 2023
Annual Report and Accounts 2022
79
Part 2 – Directors’ Remuneration Policy
Introduction
Background and details of approval process
This Directors’ Remuneration Policy provides an overview of the Company’s policy on directors’ pay that will be applied in 2023, subject
to shareholder approval at the 2023 AGM. It sets out the various pay structures that the Company will operate and summarises the
approach that the committee will adopt in certain circumstances such as the recruitment of new directors and/or the making of any
payments for loss of office. In accordance with the requirements of the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008 (as amended) (the “Regulations”), the policy contained in this part will be subject to a binding vote at the AGM
to be held on 20 June 2023 and will take effect immediately upon receipt of such approval from shareholders.
Overview of the decision-making process that was followed for the determination of the new policy
As explained in the Chair’s introduction on pages 76 to 78, the Board is currently undertaking a strategic review of the business. In light of
this ongoing process, no material changes are being proposed to the Company’s existing policy. It is the committee’s intention to review
the remuneration arrangements during 2023 to ensure the remuneration framework is aligned with our strategy going forward. The
committee will seek to engage with shareholders if any material changes are being proposed at that point.
As part of the policy renewal, the committee took into account the remuneration-related provisions contained in the 2018 UK Corporate
Governance Code and, in particular, sought to ensure that the proposals for the new policy adequately addressed the requirements
contained in its Provision 40 (relating to clarity, simplicity, risk mitigation, predictability, proportionality and alignment to culture).
In its deliberations, the committee received support and advice from Deloitte, its newly appointed independent external advisor.
No other committee was involved in the decision-making process, but the Non-Executive Directors took into account broader Board
discussions when developing the final approach.
The final decisions around the structure of the new policy were taken by the committee alone in order to avoid any conflicts of interest arising.
Significant revisions made to the previous policy
The proposed policy largely mirrors the previous policy approved by shareholders at the 14 May 2020 AGM. However, and as noted in the
Chair’s introduction on pages 76 to 78, a relatively small number of changes have been made in order to aid the operation of the policy
and increase flexibility in certain areas, and to reflect evolving market and best practice. In particular:
– the pension policy for Executive Directors has been updated so as to ensure that the levels of Company contributions they receive will
be in line with those offered to the wider UK workforce;
– for any annual bonus payment, 25% of the amount will be awarded in shares under the Company’s Deferred Bonus Plan; and
– the removal of the previous car allowance for Executive Directors.
Purpose and role of the Remuneration Committee
The Remuneration Committee determines and agrees with the Board the overall remuneration policy for the Executive Directors and
the Group’s PDMRs (Persons Discharging Managerial Responsibilities). Within the terms of this agreed policy, the committee is also
responsible for:
– determining the total individual remuneration package for each Executive Director and the PDMRs;
– determining the level of awards made under the Company’s LTIPs and employee share award schemes and the performance
conditions which are to apply;
– determining the KPIs used to measure performance for the annual bonus scheme;
– determining the bonuses payable under the Company’s annual bonus scheme;
– determining the vesting levels of awards under the Company’s LTIPs and employee share award schemes; and
– determining the policy for pension arrangements, service agreements and termination payments for Executive Directors and PDMRs.
The committee also reviews the overall remuneration levels and incentive arrangements (including the Group-wide bonus scheme) for
employees below senior management level but does not set individual remuneration amounts for such individuals. This oversight role
allows the committee to take into account pay policies, employment conditions and culture within the Group as a whole when designing
the reward structures of the Executive Directors and PDMRs. For example, the committee considers the standard increase applied to
basic pay across the Group when setting Executive Directors’ base salaries for the same period.
The committee operates within written terms of reference agreed by the Board. These are reviewed periodically to ensure that the
committee remains up-to-date with best practices appropriate to Capricorn, its strategy and the business and regulatory environment in
which it operates. The current version of the terms of reference are available on the Company’s website.
Consultation with relevant stakeholders
The committee is always keen to ensure that, in carrying out its mandate, it takes into account the views and opinions of all the relevant
stakeholders in the business. During 2022, discussions were held with a number of shareholders around any impacts of the proposed
corporate transactions on Executive Director pay.
The Company will engage with its major investors and a selection of proxy agencies regarding the policy renewal, to explain the proposed
approach and offer a meeting to discuss the changes being put to shareholder at this year’s AGM.
Historically, the committee has not undertaken a formal consultation exercise with employees in relation to the Group’s policy on senior
management remuneration. Members of staff are, however, regularly given the opportunity to raise issues on a variety of matters,
including executive pay, via a number of mechanisms such as the Company’s Employee Voice Forum, the attendance of Directors at
team meetings and employee engagement surveys. The committee believes that this mechanism ensures that its obligations under
Provision 41 of the 2018 UK Corporate Governance Code are met.
Leadership and Governance Capricorn Energy PLC
80
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Overview of proposed remuneration policy
A description of each of the elements comprised in the pay packages for Capricorn’s directors under its remuneration policy is as follows:
Policy Table – elements of directors’ remuneration package
Remuneration
element
Purpose and
link to strategy
Operation
Opportunity
Framework for assessing performance
Base salary Helps recruit
and retain
employees.
Reflects
individual
experience
and role.
Benefits
Helps recruit
and retain
employees.
None
None
Whilst the committee
has not set a monetary
maximum, annual
increases will not normally
exceed the level of
standard increase
awarded to other
employees except that
more significant increases
may be awarded at the
discretion of the
committee taking into
account factors such as:
– an increase in the
scope and
responsibility of the
individual’s role; or
– the individual’s
development and
performance in the role
following appointment;
or
– a re-alignment with
market rates.
Benefits are intended to
be market competitive.
The committee has not
set a monetary maximum
for other benefits as the
cost of these may vary
from time to time. The
maximum value for any
all-employee plans will be
in line with the maximum
value for all other
employees.
Normally reviewed annually (with
changes taking effect on 1 January)
and/or when otherwise appropriate,
including when an individual changes
position or responsibility.
Aim is to provide a competitive base
salary relative to the market (although
the committee does not place undue
emphasis on benchmarking data and
exercises its own judgement in
determining pay levels).
Decision influenced by:
– role and experience;
– average change in broader workforce
salaries;
– individual performance; and
– remuneration practices in companies
of a broadly similar size and value and
relevant oil and gas exploration and
production companies.
Directors are entitled to a competitive
package of benefits. For UK executives,
the major elements include, but are not
limited to, permanent health insurance,
private health insurance, death-in-service
benefit and a gym and fitness allowance.
Directors may also participate in any
all-employee plans on the same basis
as other employees.
The committee reserves the right to
provide further benefits where this is
appropriate in the individual’s particular
circumstances (for example costs
associated with relocation as a result
of the director’s role with the Company).
Executive Directors are also eligible for
other benefits which are introduced
for the wider workforce on broadly
similar terms.
Annual Report and Accounts 2022
81
Remuneration
element
Purpose and
link to strategy
Operation
Opportunity
Framework for assessing performance
Annual
bonus
Rewards the
achievement
of annual KPIs
and/or other
objectives
linked to the
Company’s
strategic goals.
Maximum % of salary:
125%
Bonuses are awarded by reference to
performance against specific targets
normally measured over a single
financial year.
75% of any amounts awarded to an
individual under this arrangement
are paid out in full shortly after the
assessment of the performance targets
has been completed. The remainder
of the bonus will normally be deferred
into an award of shares for a three-year
period, (or such other period as
determined by the committee), with the
vesting of deferred amounts typically
subject to continued employment only.
Annual bonuses may be subject to
clawback, and the extent to which
deferred share awards vest may be
reduced, if certain events occur in the
period of three years from the end of
the relevant financial year. These include
the committee becoming aware of:
– a material misstatement of the
Company’s financial results;
– an error in the calculation of
performance targets which, had it
been known at the relevant time,
would have reasonably been
expected to have resulted in a lower
award being made;
– an act committed by the relevant
participant that has (or could have)
resulted in summary dismissal by
reason of gross misconduct; or
– a corporate failure which arose due
to the conduct of management and
which has resulted in the appointment
of a liquidator or administrator.
The detailed terms of the clawback
mechanism applicable to the cash
element of any annual bonus award
are set out in an individual agreement
entered into between the Company
and the relevant Executive Director. This
provides the committee with a variety of
alternative means by which value can be
recovered including:
– the reduction of future bonus awards;
– the application of a reduction in the
number of shares in respect of which
share awards would otherwise vest or
be exercisable; and
– requiring the individual to make a
cash payment to the Company.
The measures and targets
applicable to the annual bonus
scheme (and the different
weightings ascribed to each of
them) are set annually by the
committee in order to ensure
they are relevant to participants
and take account of the most
up-to-date business plan and
strategy.
All, or a significant majority, of the
bonus opportunity will normally
be determined by reference to
performance against demanding
Group KPIs. Further detail in
respect of the approach taken for
2022 and 2023 is set out in the
Annual Report on Remuneration.
The remaining part of a director’s
bonus (if any) will normally be
based on the achievement of
personal objectives relevant to
that individual’s role within the
business.
Where possible, a payment scale
(ranging from 0% at ‘threshold’,
not more than 50% at ‘target’ and
100% at ‘maximum’) for different
levels of achievement against
each KPI and/or other objective is
specified by the committee at the
outset of each year. The payment
scale may be varied to reflect
the stretch of the underlying
targets set.
The committee has discretion
to vary the measures and
weightings during the year if
events arise which mean that
it would be inappropriate to
continue with the originally
prescribed structure. The
committee expects that this
discretion will only be exercised
in exceptional circumstances and
not to make the bonus scheme
for that year less demanding than
when it was originally set.
In addition, the committee
has discretion to adjust awards
or outcomes to ensure that the
ultimate bonus payment for
a financial year is fair and
reasonable and properly reflects
performance over that period.
Leadership and Governance Capricorn Energy PLC
82
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Remuneration
element
Purpose and
link to strategy
Operation
Opportunity
Framework for assessing performance
Long Term
Incentive
Plan
Incentivises
Executive
Directors to
deliver long-
term
performance
for the benefit
of shareholders,
thereby aligning
the interests of
the directors
with those of
the Company’s
investors.
Normal total maximum
% of salary: 250%.
Vesting of awards granted under
the LTIP will be determined
based on performance against
stretching targets, normally
measured over a period of at least
three years.
The committee will review and
set weightings and targets for
each LTIP grant to ensure they
remain appropriate. A significant
proportion of any award will
normally be linked to share
price-based measures. The
Remuneration Committee may
change the balance of the
measures, or use different
measures for subsequent awards,
as appropriate. Where material
changes are made to the type
of performance conditions, the
committee will consult with
major shareholders prior to
making any such decision.
Up to 25% of the maximum
award may vest for threshold
performance.
The committee retains the
discretion to vary the vesting
outcome level produced by
the formulaic operation of the
performance conditions in
circumstances where, based
on its independent judgement,
it considers it appropriate to do
so (e.g. where the outturn from
the assessment of the prescribed
targets is not, in the committee’s
view, a genuine reflection of the
underlying performance of the
Company).
As noted in the Chair’s statement,
the details of performance criteria
for 2023 onwards will be
determined in due course based
on the strategic priorities at the
time of award.
The LTIP was established by the
Company following receipt of the
necessary shareholder approvals
at the 2017 AGM.
Awards will normally be made annually
with vesting dependent on achievement
of performance conditions chosen by the
committee that are typically measured
over a period of at least three years.
Vesting of awards will generally take
place on the third anniversary of grant or
shortly following the date on which the
performance conditions are assessed by
the committee.
All awards that vest will normally be
subject to a holding period in terms of
which the relevant shares will only be
released/become exercisable after a
further period of at least two years
following the end of the performance
period.
The committee reviews the quantum
of awards annually, taking into account
factors such as market rates and overall
remuneration. The committee also
retains the discretion to adjust award
levels in certain circumstances e.g. where
there has been a significant movement
in the Company’s share price.
Under the rules of the LTIP, awards may
be subject to malus and/or clawback
provisions if certain events occur after
their grant but before the expiry of the
period of three years from the end of the
relevant performance period. These
events include:
– the committee becoming aware
of a material misstatement of the
Company’s financial results;
– the committee becoming aware of an
error in the calculation of performance
targets which, had it been known at
the relevant time, would have
reasonably been expected to have
resulted in a lower award being made;
– the relevant participant committing
an act that has (or could have) resulted
in summary dismissal by reason of
gross misconduct; or
– a corporate failure arising, due to the
conduct of management, which has
resulted in the appointment of a
liquidator or administrator.
Annual Report and Accounts 2022
83
Remuneration
element
Purpose and
link to strategy
Operation
Opportunity
Framework for assessing performance
Retirement
benefits
Rewards
sustained
contribution.
Share
ownership
policy
Aligns Executive
Director and
shareholder
interests and
reinforces
long-term
decision-
making.
None
For Executive Directors,
the Company’s pension
contributions are at a
level that is capped at
the maximum amount
payable to the wider UK
employee population
(currently 12.5% of basic
salary).
Not applicable.
None
The Company operates a defined
contribution group personal pension
plan in the UK. The scheme is non-
contributory and all UK permanent
employees, including the Executive
Directors, are eligible to participate.
The Company contributes a specified
percentage of basic annual salary for
senior employees, including Executive
Directors.
Where an Executive Director has an
individual personal pension plan (or
overseas equivalent), the Company pays
its contribution to that arrangement.
If an Executive Director’s pension
arrangements are fully funded or
applicable statutory limits are reached,
an amount equal to the Company’s
contribution (or the balance thereof)
is paid in cash.
During their employment, Executive
Directors are obliged to build up and
maintain a target holding of shares
worth 200% of salary.
Executive Directors are also normally
required to maintain a shareholding
equal to 200% of final salary for a period
of two years after they step down from
the Board.
Further details relating to both the
above requirements (including the
particular shares to which they relate
and the enforcement mechanisms that
have been put in place) are set out on
page 103 and 104.
Leadership and Governance Capricorn Energy PLC
84
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Remuneration
element
Purpose and
link to strategy
Operation
Opportunity
Framework for assessing performance
Non-
Executive
Chair’s fees
and
Non-
Executive
Directors’
fees
Helps recruit
and retain
high-quality,
experienced
individuals.
Reflects time
commitment
and role.
Non-Executive Directors’ fees are
considered annually and are set by the
executive members of the Board and the
Non-Executive Chair taking into account
a range of relevant factors such as:
– market practice;
– time commitment; and
– responsibilities associated with
The aggregate fees of the
Non-Executive Chair and
Non-Executive Directors
will not exceed the limit
from time to time
prescribed in the
Company’s Articles of
Association.
None
the roles.
Additional fees may be payable for
additional Board responsibilities such
as membership and/or chair of a
committee.
The Non-Executive Chair’s fee is similarly
considered annually and is determined in
light of factors such as market practice,
the time commitment and
responsibilities associated with the role
and other relevant factors.
Role-appropriate benefits may be
provided in certain circumstances.
This includes the reimbursement of any
expenses incurred in the performance
of duties (and associated tax on those
expenses).
None of the Non-Executive Directors nor
the Non-Executive Chair participates in
any of the Company’s share schemes
and they are not entitled to a bonus or
pension contributions. Their fees can
however be paid in cash or in shares
(or a balance of both)
Notes:
(1)
(2)
(3)
allowance.
A description of how the Company intends to implement the policy set out in this table during the financial year to 31 December 2023 is provided on pages 107
and 108.
The following differences exist between the Company’s above policy for the remuneration of directors and its approach to the payment of employees generally:
Participation in the LTIP is typically aimed at the Executive Directors and certain selected senior managers. Other employees are eligible to participate in the
•
Employee Share Award Scheme (details of which are provided in section 4.4 of the notes to the Financial Statements on page 154).
• A lower level of maximum annual bonus opportunity applies to employees other than the Executive Directors and certain PDMRs.
• Benefits offered to other employees generally comprise permanent health insurance, private health insurance, death-in-service benefit and gym and fitness
In general, these differences arise from the development of remuneration arrangements that are market competitive for the various categories of individuals.
They also reflect the fact that, in the case of the Executive Directors and PDMRs, a greater emphasis is placed on variable pay.
The choice of the performance metrics applicable to the annual bonus scheme reflect the committee’s belief that any incentive compensation should be tied
to appropriately challenging measures of both the overall performance of the Company against its strategic KPIs and (where appropriate) those areas that the
relevant individual can directly influence.
The performance conditions applicable to the LTIP will be selected by the committee to ensure that they align with the Company’s strategic objectives going forward.
(4)
(5) Where a nil-cost option award under the LTIP becomes exercisable, it will generally remain so until the 10th anniversary of the date on which it was granted.
Annual Report and Accounts 2022
85
Detailed provisions
Common terms of share awards
Awards under any of the Company’s discretionary share plans may:
– be granted as conditional share awards or nil-cost options or in other such form that the committee determines has the same
economic effect;
– have any performance conditions applicable to them amended or substituted by the committee if an event occurs which causes the
committee to determine that an amended or substituted performance condition would be more appropriate and not materially less
difficult to satisfy;
– incorporate the right to receive an amount (in cash or additional shares) equal to the value of dividends which would have been paid
on the shares under the award that vest up to the time of vesting (or, where the award is subject to a holding period, release). This
amount may be calculated assuming that the dividends have been reinvested in the Company’s shares on a cumulative basis;
– be settled in cash at the committee’s discretion;
– be adjusted in the event of any variation of the Company’s share capital or any demerger, delisting, special dividend or other event that
may affect the Company’s share price; and
– otherwise be adjusted or amended in accordance with the provisions of the relevant plan rules.
Legacy awards
The committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any
discretions available to it in connection with such payments) notwithstanding that they are not in line with the policy set out above
where the terms of the payment were agreed (i) before 15 May 2014 (the date the Company’s first shareholder-approved directors’
remuneration policy came into effect); (ii) before the policy set out above came into effect, provided that the terms of the payment were
consistent with the shareholder-approved directors’ remuneration policy in force at the time they were agreed; or (iii) at a time when the
relevant individual was not a director of the Company and, in the opinion of the committee, the payment was not in consideration for the
individual becoming a director of the Company. For these purposes ‘payments’ includes the committee satisfying awards of variable
remuneration and, in relation to an award over shares, the terms of the payment are ‘agreed’ at the time the award is granted.
Minor amendments
The committee may make minor amendments to the policy to aid its operation or implementation without seeking shareholder
approvals (e.g. for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) provided that
any such change is not to the material advantage of the participant.
Annual variable pay arrangements for the interim CEO
Notwithstanding the terms of the policy table set out on pages 80 to 84, the committee retains the discretion to operate a different
annual bonus structure in 2023 for the interim CEO in terms of which:
– his maximum opportunity will be capped at 100% of base salary per annum;
– short-term targets will be set to reflect the interim nature of the role;
– any bonus awarded will be satisfied wholly by the delivery of unrestricted shares (with the number of those shares being determined
by reference to their value on 1 February 2023, being his commencement date); and
– alternative clawback arrangements may be applied.
Remuneration scenarios relating to the above policy
The Regulations require the Company to present charts illustrating the level of remuneration that would be received by each person who
is an Executive Director in the first year of operation of the proposed policy set out in Part 2 of this report. However, at the time of drafting
this policy, the Company does not have any permanent Executive Directors on the Board. As a result, and in order to ensure appropriate
levels of transparency, the charts below show remuneration outcomes for the proposed policy that would be received under minimum,
on-target and maximum scenarios by both:
– the current interim CEO; and
– a theoretical permanent Executive Director.
Interim CEO
Permanent Executive Director
Minimum
On-Target
Maximum
Maximum
with share
price growth
£663,983
100%100%
71%
29%
55%
55%
Minimum
£663,983
100%100%
£938,983
On-Target
£1,695,233
39%
20%
41%
£1,213,983
Maximum
£2,726,483
45%
45%
£1,213,983
Maximum
with share
price growth
25%
25%
50%
20%
20%
60%
£3,413,983
Fixed elements
Annual Variable
Long-Term Incentives
Leadership and Governance Capricorn Energy PLC
86
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
In developing the above scenarios, the following assumptions have been made:
– The ‘minimum’ columns are intended to show the fixed level of remuneration to which the interim CEO and permanent Executive
Director are, or would be, entitled in 2023 irrespective of performance levels, namely base salary (with the current rate payable to the
interim CEO being used in both cases), benefits (using, for both charts, the former CEO’s details set out in the 2022 single total figure
table provided on page 90) and pension (calculated by applying the percentage entitlement for those individuals set out in the policy
table against the above salary figures).
– The ‘on-target’ scenario seeks to illustrate the remuneration the interim CEO and permanent Executive Director would receive
if performance was in line with expectation. In addition to the fixed elements summarised above, it assumes a 50% of maximum
payout under the annual bonus scheme (with the interim CEO having a 100% of salary maximum opportunity and a 125% of salary
maximum being applied to the permanent Executive Director). In the case of the permanent Executive Director, this scenario also
assumes a 50% vesting of an LTIP award granted over shares worth 250% of salary. No such LTIP award has been included for the
interim CEO.
– The ‘maximum’ columns demonstrate total remuneration levels in circumstances where the above variable elements pay out in full.
– For the ‘maximum with share price growth’ column, share-price appreciation of 50% over the relevant performance period has been
assumed for any LTIP award. For all other columns, any post-grant share price movements have not been taken into account for the
purposes of valuing LTIP and deferred bonus awards.
– The Executive Directors are entitled to participate in the SIP on the same basis as other employees. The value that may be received
under this arrangement is subject to legislative limits and, for simplicity, has been excluded from the above chart.
Recruitment policy
Base salaries
Salaries for any new director hires (including internal promotions) will be set to reflect their skills and experience, the Company’s intended
pay positioning and the market rate for the role. Where it is appropriate to offer a below-market salary initially, the committee will have
the discretion to allow phased salary increases over time for newly appointed directors, even though this may involve increases in excess
of the rate for the wider workforce and inflation.
Benefits
Benefits for new appointees to the Board will normally be provided in line with those offered to other Executive Directors and employees
taking account of local market practice, with relocation expenses/arrangements provided for if necessary. Tax equalisation may also be
considered if an executive is adversely affected by taxation due to their employment with Capricorn. Legal fees and other reasonable
costs and expenses incurred by the individual may also be paid by the Company. Retirement benefits for any new Executive Directors will
be in accordance with the terms of the policy.
Variable pay
Where an individual is appointed to the Board, the committee will ensure that ongoing variable remuneration arrangements are framed
in accordance with the terms of, and are subject to the limits contained in, the Company’s policy table set out above, however, different
performance measures may be set for the year of joining the Board, taking into account the individual’s role and responsibilities and the
point in the year the executive joined.
For an internal appointment, any variable pay element awarded in respect of the prior role may be allowed to pay out according to its
terms, adjusted as relevant to take into account the appointment.
Buy-outs
The committee may make awards to ‘buy-out’ a candidate’s remuneration arrangements and contractual terms that are forfeited as a
result of joining the Company. In doing so, the design of these awards would appropriately reflect the value, nature, time horizons and
performance requirements attaching to the forfeited remuneration. Shareholders will be informed of any such arrangements at the time
of appointment.
Non-Executive Chair and Non-Executive Directors
On the appointment of a new Non-Executive Chair and other Non-Executive Directors, the fees will be set taking into account a range of
relevant factors such as market practice, time commitment and the responsibilities associated with the role. Where specific cash or share
arrangements are delivered to Non-Executive Directors, these will not include share options or other performance-related elements.
Permanent Executive Directors’ service contracts
Executive Directors have a rolling service contract that provides for 12 months’ notice by the director or the Company. The committee
believes that this policy on notice periods provides an appropriate balance between the need to retain the services of key individuals who
will benefit the business and the need to limit the potential liabilities of the Company in the event of termination. The service contracts
may also include restrictive covenants which may apply after leaving the Company.
The Executive Directors’ service contracts are available for inspection, on request, at the Company’s registered office.
Exit payment policy for Executive Directors
Executive Directors’ contracts allow for termination with contractual notice from the Company or termination with a payment in lieu of
notice, at the Company’s discretion. The contracts also allow for phased payments to be made on termination with an obligation on the
individual to mitigate loss. Neither notice nor a payment in lieu of notice will be given in the event of gross misconduct. The committee’s
approach when considering payments in the event of termination is to take account of the individual circumstances including the reason
for termination and the contractual obligations of both parties as well as the relevant share plan and pension scheme rules.
Annual Report and Accounts 2022
87
In the event of termination by the Company, an Executive Director would be entitled to receive an amount representing base salary and
the value of benefits and pension contributions due under the individual’s service contract for the notice period. Directors are not entitled
to participate in any additional redundancy scheme. The committee will have the authority to settle legal claims against the Group
(e.g. for unfair dismissal, discrimination or whistle-blowing) that arise on termination. The committee may also authorise the provision
of outplacement services and pay reasonable legal expenses associated with the termination.
On termination of employment, the committee has discretion as to the amount of bonus payable in respect of the year of termination.
The bonus paid would reflect the Company’s and the individual’s performance during that period. However, any bonus payable (in cash
and/or share awards as determined by the committee) on termination would not normally exceed a pro-rated amount to reflect the
period for which the individual had worked in the relevant year.
As a general rule, if an Executive Director ceases employment, all unvested share awards granted pursuant to the Company’s deferred
bonus arrangements will lapse immediately. However, if such cessation occurs by reason of death, injury, permanent disability, or because
the individual’s employing company or part of the business in which he/she is employed is transferred out of the Group, retirement with
the agreement of the Company, or in any other circumstances determined by the committee other than where an individual has been
summarily dismissed (in each case, a ‘good leaver’), those awards will not lapse and will normally continue to vest at the end of the
original vesting period. The committee may determine that a deferred bonus award should vest before the normal time in certain
circumstances, for example where an individual has died. The committee also has the discretion to time pro-rate any awards held by such
a good leaver.
As a general rule, if an Executive Director ceases employment, all unvested awards granted pursuant to the Company’s LTIP will lapse
immediately. However, if such cessation occurs by reason of death, injury, permanent disability, or because the individual’s employing
company or part of the business in which he/she is employed is transferred out of the Group, or in any other exceptional circumstances
determined by the committee (in each case, a ‘good leaver’), those awards will not lapse and will normally continue to vest at the end of
the original performance period but only if, and to the extent that, the applicable performance conditions are satisfied. The committee
may determine that an award should vest before the normal time in certain circumstances, for example where an individual has died. It is
the Remuneration Committee’s normal policy to time pro-rate any awards held by such a good leaver, although it retains the discretion
to refrain from doing so in exceptional circumstances. Any holding period attached to the share awards would normally continue to apply
unless the committee determines otherwise.
If an Executive Director ceases employment, LTIP awards subject to a holding period will normally be released (or if structured as nil-cost
options, become exercisable) on the original timescales. These awards will, however, lapse where cessation occurs due to the individual’s
gross misconduct, or if the committee considers it appropriate, the individual’s bankruptcy. The committee has the discretion to
accelerate the release of shares in certain circumstances, for example death.
In the event of a change of control or winding up of the Company, treatment of share awards will be in accordance with the relevant plan
rules. The committee has the discretion to disapply time pro-rating in the event of a change of control.
If there is a demerger or special dividend, the committee may allow awards to vest on the same basis as for a change of control.
Non-Executive Directors’ letters of appointment
None of the Non-Executive Directors nor the Non-Executive Chair has a service contract but all have letters of appointment that set out
their duties and responsibilities, the time commitment expected by the Company, and the basis on which their fees will be paid. These
letters of appointment have either: no fixed term but can be terminated with immediate effect by either the director concerned or the
Company; or have a fixed term of three years but can be terminated with one month’s notice by either the director concerned or the
Company, and, in both cases, are subject to the Company’s Articles of Association, which provide for the annual election or re-election
by shareholders of all the Company’s directors. There are no provisions for compensation payable on termination of appointment.
None of the Non-Executive Directors nor the Non-Executive Chair participates in any of the Company’s share schemes and they are not
entitled to a bonus or pension contributions.
The Non-Executive Directors’ and Non-Executive Chair’s letters of appointment are available for inspection, on request, at the Company’s
registered office.
Leadership and Governance
Capricorn Energy PLC
88
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Part 3 – 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 2022 and explains how Capricorn’s approved Directors’ Remuneration Policy that was in force during that period was
implemented. It also summarises how the new Directors’ Remuneration Policy set out on pages 79 to 87 will be applied in 2023,
assuming it is approved by shareholders at the AGM to be held on 20 June 2023.
In accordance with the requirements of the Regulations, this part of the report, together with Part 1 – Annual Statement from the Chair
of the Committee, will be subject to an advisory vote at the 2023 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 2022
Members of the Remuneration Committee
The members of the Remuneration Committee during the year were as follows:
– Alison Wood (Chair of the committee);
– Nicoletta Giadrossi;
– Peter Kallos; and
– Erik B. Daugbjerg.
The individuals who served on the committee during 2022, each of whom was an independent Non-Executive Director of the Company
throughout the period, 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 (Chair of the committee in 2022) had served on the remuneration committees of other listed companies for more
than 12 months. Details of attendance at the committee’s meetings during 2022 are shown on page 76.
Following recent Board changes, details of current Remuneration Committee membership is set out below:
– Maria Gordon (current Chair of the committee)
– Erik B. Daugbjerg; and
– Tom Pitts
Biographical information on the individuals who are currently committee members is shown on pages 50 and 51.
Internal assistance provided to the Committee
The Company’s 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 their 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 2022
Fees for committee
assistance in 20221
Other services provided to the
Company during 2022
Alvarez & Marsal
Taxand UK LLP2
Appointed by the committee to give periodic advice during
the period to 11 March 2022 on various aspects of the
directors' remuneration packages. Also assisted with the
preparation of the 2021 Directors’ Remuneration Report
and provided support on a number of miscellaneous
remuneration-related projects.
£16,319
Mercer LLC2
Appointed by the committee to give periodic advice during
the period from 11 March 2022 on various aspects of the
directors' remuneration packages.
£19,500
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
Provided advice on various
aspects of remuneration practice
across the Group in the period to
11 March 2022.
Provided advice on various
aspects of remuneration practice
across the Group in the period
from 11 March 2022.
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 2021 and 2022 Directors'
Remuneration Reports.
£20,485
General legal services to the
Group throughout the year.
Notes:
(1)
(2)
(3)
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.
Both Alvarez & Marsal Taxand UK LLP and Mercer LLC are (or were when providing advice to the committee) 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.
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.
Annual Report and Accounts 2022
89
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:
Description of resolution
To approve the 2021
Directors’ Remuneration
Report
To approve the 2020
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 2022
169,523,838
95.75%
7,529,592
4.25% 177,053,430
172,162
14 May 2020
417,923,175
93.01% 31,405,942
6.99% 449,329,117
26,501
Note:
(1) A vote withheld is not a vote in law.
The committee welcomed the endorsement of both the above resolutions that was shown by the vast majority of shareholders at the
relevant meetings and gave due consideration to any concerns raised by investors who did not support the resolutions.
Departure of Simon Thomson and James Smith
As previously announced, Simon Thomson and James Smith stepped down from their positions as Chief Executive Officer and Chief
Financial Officer on 24 January 2023 and 1 February 2023, respectively.
On 1 February 2023, Simon Thomson was served with 12 months’ notice to terminate his employment with Capricorn and, with effect
from 3 February 2023, was placed on garden leave. A similar notice was served on James Smith on 27 February 2023, with his garden
leave commencing on that same date. During the period of garden leave, individuals continued to receive salary and benefits including
pension contributions.
James Smith’s garden leave continued until 14 April 2023 at which point the Company exercised its right to end his employment and
make a payment in lieu of notice in respect of the balance of his notice period. This payment in lieu of notice, which reflected application
of mitigation, totalled £68,802.66. He also received a payment in respect of 14.5 days of accrued annual leave.
Simon Thomson’s employment was brought to an end on 21 April 2023. Going forward, he will be paid an amount equivalent to salary,
pension and benefits in monthly instalments in lieu of the remainder of his contractual notice period. Such amounts will be subject to
reduction to take account of any sums earned during the payment period from any alternative roles that he fulfils.
Both individuals were considered for a bonus in respect of 2022. Further details of the way in which these amounts were calculated
(and the reduced level awarded to Simon Thomson and James Smith compared to the wider employee base) and paid are set on pages
91 to 100.
Consistent with the rules of the Company’s Long Term Incentive Plan (or “LTIP”), both Simon Thomson and James Smith will retain any
awards that vested prior to the date on which they ceased employment. For the avoidance of doubt, any outstanding holding periods
applicable to those awards will continue to operate as before. All unvested LTIP awards held by James Smith and Simon Thomson,
however, immediately lapsed on the cessation of their employment (i.e. the committee declined to exercise its discretion to treat these
individuals as “good leavers” for the purposes of the plan rules).
All “free” or “matching” shares awarded to Simon Thomson and James Smith under the all-employee Share Incentive Plan (or “SIP”) less
than three years prior to their leaving date were forfeited for no consideration on cessation of their employment. The balance of their
shares under this arrangement have been released to them in accordance with the rules of the SIP.
Leadership and Governance Capricorn Energy PLC
90
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Single total figure table for 2022 (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 during 2022
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
2022
£610,293 £45,233 £91,544 £7,199
£171,645
£0 £171,645 £982,859
£1,908,773
£754,269 £1,154,504
2021
£592,517 £42,400 £88,878 £7,197
£448,091
£0 £448,091 £771,809
£1,950,892
£730,992 £1,219,900
2022
£396,938 £39,652 £59,541 £7,199
£111,639
£0 £111,639 £639,255
£1,254,224
£503,330
£750,894
2021
£385,377 £37,537 £57,807 £7,197
£291,441
£0 £291,441 £501,990
£1,281,349
£487,918
£793,431
Notes:
(1)
Taxable benefits available to the Executive Directors during 2022 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 2021, with the higher figures for both Simon Thomson and
James Smith primarily being attributable to increased charges for their company cars.
(2) Additional disclosures relating to the pension provision for the Executive Directors during 2022 are set out on page 91.
(3)
This column shows the face value (at date of award) of matching and free shares provided to Executive Directors under the SIP during the relevant period.
Further details on the way in which the SIP was operated during 2022 are set out on page 103.
Further information in relation to the annual bonus scheme for 2022 is provided on pages 91 to 100. 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.
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 2022, 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 100 to 103.
Following the end of the year to 31 December 2022, 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.
(4)
(5)
(6)
Non-Executive Directors
Financial year
Salary
and fees1
Benefits
Pension2
Annual
bonus2
Long-term
incentives2
Total
remuneration
Total fixed
remuneration
Total variable
remuneration
Fixed Remuneration
Variable Remuneration
Totals
Directors
Nicoletta
Giadrossi
2022
2021
£185,400
£180,000
Keith Lough3 2022
2021
Peter Kallos
2022
2021
Alison Wood4 2022
Catherine
Krajicek
Erik B.
Daugbjerg
2021
2022
2021
2022
2021
Luis Araujo5
2022
2021
£87,765
£85,500
£77,765
£75,500
£87,765
£85,500
£77,765
£75,500
£77,765
£75,500
£49,432
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£185,400
£185,400
£180,000
£180,000
£87,765
£87,765
£85,500
£85,500
£77,765
£77,765
£75,500
£75,500
£87,765
£87,765
£85,500
£85,500
£77,765
£77,765
£75,500
£75,500
£77,765
£77,765
£75,500
£75,500
£49,432
£49,432
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Notes:
(1)
(2)
As disclosed in the 2021 Annual Report on Remuneration, the annual fee payable to the Company’s Chair for 2022 was increased from £180,000 to £185,400.
Similarly, the basic annual fee for Non-Executive Directors in 2022 was increased from £75,500 to £77,765.
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) A further annual fee of £10,000 was payable to Keith Lough for his role as Chair of the Audit Committee during 2021 and 2022.
(4) A further annual fee of £10,000 was payable to Alison Wood for her role as Chair of the Remuneration Committee during 2021 and 2022.
(5) Luis Araujo was appointed as a Non-Executive Director on 11 May 2022. His fees for 2022 reflect the period from that date to the year-end.
Annual Report and Accounts 2022
91
Executive Directors’ base salaries during 2022
Based on a review carried out in November 2021, the following salary increases for Executive Directors became effective on 1 January 2022:
2022 Annual Salary Details
Job title
Directors
Simon Thomson
Chief Executive
James Smith
CFO
Annual salary as at
31 December 2021
Annual salary as at
1 January 2022
% increase with
effect from
1 January 2022
£592,517
£610,293
£385,377
£396,938
3.0%
3.0%
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 2022.
Executive Directors’ pension provision during 2022 (audited)
In accordance with the terms of the Directors’ Remuneration Policy, the Company operates a defined contribution, non-contributory
Group personal pension plan which is open to all UK permanent employees. During 2022, the Company contributed 10% of basic annual
salary (15% in respect of current Executive Directors) on behalf of all qualifying employees.
With effect from 1 January 2023, and in accordance with the terms of the new Directors’ Remuneration Policy set out on pages 79 to 87,
the above contribution rates were aligned so that all employees and Executive Directors now 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.
Throughout 2022, James Smith was 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 2022 was paid in cash.
During the year, Simon Thomson received an amount equal to 15% of his annual basic salary in the form of additional cash as his pension
arrangements have already reached the relevant lifetime limit.
Details of the actual amounts of pension contributions/additional cash that were paid to the Executive Directors during 2022 are set out
in the ’pension’ column of the single total figure table on page 90.
Annual bonus – 2022 structure and outcome (audited)
During 2022, Capricorn operated an annual bonus scheme for all employees and Executive Directors. The maximum level of bonus
award for Executive Directors and certain PDMRs for the year was 125% of annual salary.
For all participants other than the Executive Directors, 2022 bonus awards were based on achievement against a mixture of personal
objectives, project-based KPIs 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 2021, 100% of each Executive Director’s bonus opportunity for the year to 31 December 2022
was determined by reference to the extent to which certain Group KPIs were achieved. A summary of the relevant targets, ascribed
weightings, payment scales and achievement levels is set out below.
Leadership and Governance Capricorn Energy PLC
92
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
KPI measures and performance achieved in 2022
Purpose
ESG and HSSE
Deliver value
in a safe, secure and
environmentally
and socially
responsible
manner.
2022 KPI
Measurement and payment scale
2022 performance
– HSSE Lagging Indicators: Achieve
lagging HSSE indicators measured
against IOGP targets.
– An important focus for the business across our operated portfolio
– Operated activities, including well drilling, resulted in zero reportable regulatory
4%
4%
Fully achieved
of surveys and onshore and offshore wells, with increased
weighting allocated in 2022 than in the prior year given planned
activities. Threshold, target and stretch goals identified at the start
of the year.
spills to the environment and, for Total Recordable Injury Rate and Lost Time
Injury Frequency, as reported in International Association of Oil & Gas Producers
(IOGP) statistics, scores which were better than the lowest number of all activity
averages. This resulted in the stretch target being met.
Weighting
Bonus awarded
committee decision
KPI remuneration
(as % of allocated proportion
of maximum opportunity)
– HSSE Leading Indicators: Achieve
HSSE leading indicators surrounding
safety leadership.
– A number of executive/management visits were targeted to take
place during 2022 to embed, monitor and audit safety culture
amongst staff, contractors and joint ventures, with threshold (one
visit), target (two or more visits) and stretch (four visits plus
Group-wide HSSE day held) numbers of visits agreed at
commencement of the year.
– The HSSE leadership visits that took place in 2022 were strongly supported
4%
4%
– Environmental: Outline a roadmap and
deliver opportunities to achieve Scope 1
and 2 emissions reductions versus our
short-, medium- and long-term net-zero
targets.
– Target-based scoring identified with threshold (0% score) for
securing project(s) that contributed towards our 2040 target,
target (50% score) for securing project(s) that contributed towards
our 2030 target, and stretch (100% score) for securing project(s)
that contributed to our 2040 target plus project(s) that contributed
towards our 2030 target plus project(s) that helped to deliver
improvements before 2025.
across the business with contributions across the operational footprint. All
participants used the Site Safety Visit Guide to plan, execute and report on their
leadership visits with messaging communicated to staff, contractors and
suppliers, which indirectly contributed to the positive outcome on the lagging
indicators.
– In July 2022, management visited the Bapetco assets in Egypt for the purpose of
general management and observation, with good dialogue taking place on
matters for follow-up.
– In August 2022, management visited the Valaris 123, which drilled the operated
Diadem well rig to demonstrate HSSE leadership and to focus on major accident
hazard prevention.
– Members of management visited the seismic operations being undertaken in
the South-East Horus concession in Egypt in September 2022. The focus of the
visit was HSSE leadership and to demonstrate and assess safety behaviours and
lifesaving rules. An action tracker was put in place for the operational period.
– A field visit was undertaken to the Egypt production operations to undertake an
Environmental and Safety Audit with good progress noted against previous
findings.
disseminated.
– A visit was made to the West El Fayium concession seismic operations to observe
health and safety behaviours and a comprehensive visit report was prepared and
set bolder Scope 1 and 2 targets, which were communicated to investors during
the September 2022 update. A new, near-term target of 15% reduction by 2025
has been set, while the 2030 emissions reduction target was increased from 25%
to 30%.
– An emissions baseline assessment in Egypt was completed providing assurance
on the quality of emissions reporting. This is fully in line with the latest American
Petroleum Institute (API) GHG compendium (November 2021). Bapetco have
identified a suite of projects and a roadmap to deliver on an ambitious Scope 1
and 2 emissions reduction pathway. Significant progress was made on emissions
improvement initiatives including mobile diesel generator reduction,
electrification using gas as power fuel, planning for multiple flare reduction and
waste heat recovery projects, and investigating feasibility for carbon capture and
storage at Badr El Din and Obaiyed through subsurface evaluation.
– In January 2022, Capricorn purchased a portfolio of high-quality carbon offsets
with BP, Shell and Tradewater; all are verified with either Verra, Gold Standard or
the American Carbon Registry.
– On 7 December 2022, an HSSE & CSR day was held in the Edinburgh office, with
over 140 participants from across the organisation in attendance.
– Progress with GHG emissions reductions initiatives in Egypt gave confidence to
5%
5%
Annual Report and Accounts 2022
93
KPI measures and performance achieved in 2022
2022 KPI
Measurement and payment scale
2022 performance
Deliver value
– HSSE Lagging Indicators: Achieve
– An important focus for the business across our operated portfolio
in a safe, secure and
lagging HSSE indicators measured
of surveys and onshore and offshore wells, with increased
environmentally
against IOGP targets.
weighting allocated in 2022 than in the prior year given planned
activities. Threshold, target and stretch goals identified at the start
of the year.
– Operated activities, including well drilling, resulted in zero reportable regulatory
spills to the environment and, for Total Recordable Injury Rate and Lost Time
Injury Frequency, as reported in International Association of Oil & Gas Producers
(IOGP) statistics, scores which were better than the lowest number of all activity
averages. This resulted in the stretch target being met.
Purpose
ESG and HSSE
and socially
responsible
manner.
– HSSE Leading Indicators: Achieve
– A number of executive/management visits were targeted to take
HSSE leading indicators surrounding
place during 2022 to embed, monitor and audit safety culture
safety leadership.
amongst staff, contractors and joint ventures, with threshold (one
visit), target (two or more visits) and stretch (four visits plus
Group-wide HSSE day held) numbers of visits agreed at
commencement of the year.
– The HSSE leadership visits that took place in 2022 were strongly supported
across the business with contributions across the operational footprint. All
participants used the Site Safety Visit Guide to plan, execute and report on their
leadership visits with messaging communicated to staff, contractors and
suppliers, which indirectly contributed to the positive outcome on the lagging
indicators.
– In July 2022, management visited the Bapetco assets in Egypt for the purpose of
general management and observation, with good dialogue taking place on
matters for follow-up.
– In August 2022, management visited the Valaris 123, which drilled the operated
Diadem well rig to demonstrate HSSE leadership and to focus on major accident
hazard prevention.
– Members of management visited the seismic operations being undertaken in
the South-East Horus concession in Egypt in September 2022. The focus of the
visit was HSSE leadership and to demonstrate and assess safety behaviours and
lifesaving rules. An action tracker was put in place for the operational period.
– A field visit was undertaken to the Egypt production operations to undertake an
Environmental and Safety Audit with good progress noted against previous
findings.
– A visit was made to the West El Fayium concession seismic operations to observe
health and safety behaviours and a comprehensive visit report was prepared and
disseminated.
– On 7 December 2022, an HSSE & CSR day was held in the Edinburgh office, with
over 140 participants from across the organisation in attendance.
Weighting
Bonus awarded
(as % of allocated proportion
of maximum opportunity)
KPI remuneration
committee decision
4%
4%
Fully achieved
4%
4%
– Environmental: Outline a roadmap and
– Target-based scoring identified with threshold (0% score) for
deliver opportunities to achieve Scope 1
securing project(s) that contributed towards our 2040 target,
and 2 emissions reductions versus our
target (50% score) for securing project(s) that contributed towards
short-, medium- and long-term net-zero
our 2030 target, and stretch (100% score) for securing project(s)
targets.
that contributed to our 2040 target plus project(s) that contributed
towards our 2030 target plus project(s) that helped to deliver
improvements before 2025.
– Progress with GHG emissions reductions initiatives in Egypt gave confidence to
5%
5%
set bolder Scope 1 and 2 targets, which were communicated to investors during
the September 2022 update. A new, near-term target of 15% reduction by 2025
has been set, while the 2030 emissions reduction target was increased from 25%
to 30%.
– An emissions baseline assessment in Egypt was completed providing assurance
on the quality of emissions reporting. This is fully in line with the latest American
Petroleum Institute (API) GHG compendium (November 2021). Bapetco have
identified a suite of projects and a roadmap to deliver on an ambitious Scope 1
and 2 emissions reduction pathway. Significant progress was made on emissions
improvement initiatives including mobile diesel generator reduction,
electrification using gas as power fuel, planning for multiple flare reduction and
waste heat recovery projects, and investigating feasibility for carbon capture and
storage at Badr El Din and Obaiyed through subsurface evaluation.
– In January 2022, Capricorn purchased a portfolio of high-quality carbon offsets
with BP, Shell and Tradewater; all are verified with either Verra, Gold Standard or
the American Carbon Registry.
Leadership and Governance Capricorn Energy PLC
94
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Purpose
2022 KPI
ESG and HSSE continued
Measurement and payment scale
2022 performance
– Social: Agree, establish and track social
investment across the Group that helps
to deliver a positive impact on the
communities with which we work.
– A milestone-based scoring requiring the development of the
existing framework, in line with the UN SDGs, for the social
investment plans across the Group, including quantifying the
overall impact of the programme(s).
– The inputs and outcomes from 2022 social investment efforts were assessed
3%
3%
Weighting
Bonus awarded
committee decision
KPI remuneration
(as % of allocated proportion
of maximum opportunity)
– Governance: Communicate our climate
change strategy, performance, and our
processes for governance, risk
management, target setting and carbon
pricing.
– Target based scoring identified with threshold (0% score) for the
Carbon Disclosure Project (CDP) rating maintained or improved,
target (50% score) for the CDP rating being maintained or
improved plus TCFD reporting requirements met, and stretch
(100% score) achieved if the CDP rating was maintained or
improved plus TCFD reporting requirements being met plus
Sustainability Accounting Standards Board (SASB) requirements
being met.
– CDP: In December 2022, we received our Water and Climate Change CDP
2%
2%
ratings (both B) relating to 2021 ESG data, submitted in July 2022. Our prior-year
submission for Climate Change was (-B) and Water (B). This puts us among the
top performers amongst our peers, on both metrics.
– Governance: Enhance our approach to
– A milestone-based target of completing an independent survey
– An independent D&I survey was commissioned in April 2022; 170 employees
2%
2%
Diversity & Inclusion
with staff to provide a benchmark to D&I awareness in the oil and
gas industry and the countries where we participate; and increase
and further embed D&I into our culture at Board, Management
and general staff levels.
and it was concluded that these met the social investment guidelines for
investments and that they were being actively managed by the social advisors in
collaboration with a number of external stakeholders. A social management
framework was developed in 2021 in line with the UN SDGs and this was first
used in 2022, including using the social investment screening tool.
– Social investment projects undertaken in 2022 in Mexico included: the second
year of the Turtle Conservation Project where our donations funded the patrolling
of 7,000km of beach, an increased number of hatchlings being released year-on-
year and a technology transfer education and innovation programme with 25
participants.
– In Suriname, we assisted for a third year in the mangrove rehabilitation project,
with our donation being used to acquire key pieces of equipment to support the
construction of sediment trapping units which increased the area now protected.
Donations were also given to create a community hub, with six local schools
having access; 200-300 local students and youths accessed the hub on a weekly
basis and gained IT skills and experience. Further donations funded the tuition
fees for a two-year MSc in Public Health for seven students and also allowed the
purchase of key pieces of equipment for the electrical engineering element of the
oil and gas stream of NATIN Phase 2 programme which had 30 participants.
– In the UK, a Clean Energy Scholarship at Heriot Watt University was supported,
enabling three students to be supported through a clean energy PhD. Also at
Heriot Watt University, a donation enabled 16 PhD students to be funded
through GeoNetZero CDT.
– In Egypt, a financial donation and the provision of volunteer trainers was made
towards the Al Amal Graduate Training Programme, which had 42 participants.
– TCFD: We delivered a detailed standalone TCFD report, published as part of the
Annual Report 2021. We addressed all four pillars (Governance, Strategy, Risks
and Metrics and Targets) and 11 disclosures as required by the framework,
including the assessment of transition risks of climate change on our portfolio.
.
– In 2022, we assessed the potential impact of the physical risks of climate change
on our assets. We conducted a study with an independent provider, Willis Towers
Watson, who helped us calculate Value at Risk (VaR) for three principal climate
scenarios. The results of this analysis are included in the TCFD 2022 disclosures
and published as part of the 2022 Annual Report and Sustainability Report.
– SASB: To improve the quality and transparency of our reporting, we assessed and
aligned our reporting against the Sustainability Accounting Standards Board
(SASB) Oil & Gas – Exploration & Production Sustainable Accounting Standard
(SASB, Oil & Gas – Exploration & Production Index 2021).
responded to the survey. We compared our results with those from 100+ energy
companies operating in the UKCS and Capricorn achieved 7.7 (out of 10) on the
D&I Index, 0.6 higher than the UKCS average of 7.1.
– A D&I working group was formed in January 2022. The group identified several
key initiatives to further embed D&I into our culture including: to improve
opportunities for under-represented groups to move into senior roles in the
organisation; and commenced in January 2022 our ‘Shadow4success’ initiative.
A diverse group of female colleagues was independently selected for the
programme to shadow our Executive Team throughout the year; in January
2022, we launched an ‘Inclusion calendar’, which is designed to provide an
overview and raise awareness of key dates and activities to reflect the diverse
population of our staff and the communities in which we work; and D&I training
was delivered for all staff between September 2022 and November 2022.
Annual Report and Accounts 2022
95
Purpose
2022 KPI
ESG and HSSE continued
Measurement and payment scale
2022 performance
– Social: Agree, establish and track social
– A milestone-based scoring requiring the development of the
investment across the Group that helps
existing framework, in line with the UN SDGs, for the social
to deliver a positive impact on the
communities with which we work.
investment plans across the Group, including quantifying the
overall impact of the programme(s).
– The inputs and outcomes from 2022 social investment efforts were assessed
and it was concluded that these met the social investment guidelines for
investments and that they were being actively managed by the social advisors in
collaboration with a number of external stakeholders. A social management
framework was developed in 2021 in line with the UN SDGs and this was first
used in 2022, including using the social investment screening tool.
– Social investment projects undertaken in 2022 in Mexico included: the second
year of the Turtle Conservation Project where our donations funded the patrolling
of 7,000km of beach, an increased number of hatchlings being released year-on-
year and a technology transfer education and innovation programme with 25
participants.
– In Suriname, we assisted for a third year in the mangrove rehabilitation project,
with our donation being used to acquire key pieces of equipment to support the
construction of sediment trapping units which increased the area now protected.
Donations were also given to create a community hub, with six local schools
having access; 200-300 local students and youths accessed the hub on a weekly
basis and gained IT skills and experience. Further donations funded the tuition
fees for a two-year MSc in Public Health for seven students and also allowed the
purchase of key pieces of equipment for the electrical engineering element of the
oil and gas stream of NATIN Phase 2 programme which had 30 participants.
– In the UK, a Clean Energy Scholarship at Heriot Watt University was supported,
enabling three students to be supported through a clean energy PhD. Also at
Heriot Watt University, a donation enabled 16 PhD students to be funded
through GeoNetZero CDT.
– In Egypt, a financial donation and the provision of volunteer trainers was made
towards the Al Amal Graduate Training Programme, which had 42 participants.
KPI remuneration
committee decision
Weighting
Bonus awarded
(as % of allocated proportion
of maximum opportunity)
3%
3%
– Governance: Communicate our climate
– Target based scoring identified with threshold (0% score) for the
– CDP: In December 2022, we received our Water and Climate Change CDP
2%
2%
change strategy, performance, and our
Carbon Disclosure Project (CDP) rating maintained or improved,
processes for governance, risk
target (50% score) for the CDP rating being maintained or
management, target setting and carbon
improved plus TCFD reporting requirements met, and stretch
ratings (both B) relating to 2021 ESG data, submitted in July 2022. Our prior-year
submission for Climate Change was (-B) and Water (B). This puts us among the
top performers amongst our peers, on both metrics.
pricing.
(100% score) achieved if the CDP rating was maintained or
improved plus TCFD reporting requirements being met plus
Sustainability Accounting Standards Board (SASB) requirements
being met.
– TCFD: We delivered a detailed standalone TCFD report, published as part of the
Annual Report 2021. We addressed all four pillars (Governance, Strategy, Risks
and Metrics and Targets) and 11 disclosures as required by the framework,
including the assessment of transition risks of climate change on our portfolio.
.
– In 2022, we assessed the potential impact of the physical risks of climate change
on our assets. We conducted a study with an independent provider, Willis Towers
Watson, who helped us calculate Value at Risk (VaR) for three principal climate
scenarios. The results of this analysis are included in the TCFD 2022 disclosures
and published as part of the 2022 Annual Report and Sustainability Report.
– SASB: To improve the quality and transparency of our reporting, we assessed and
aligned our reporting against the Sustainability Accounting Standards Board
(SASB) Oil & Gas – Exploration & Production Sustainable Accounting Standard
(SASB, Oil & Gas – Exploration & Production Index 2021).
– Governance: Enhance our approach to
– A milestone-based target of completing an independent survey
– An independent D&I survey was commissioned in April 2022; 170 employees
2%
2%
Diversity & Inclusion
with staff to provide a benchmark to D&I awareness in the oil and
gas industry and the countries where we participate; and increase
and further embed D&I into our culture at Board, Management
and general staff levels.
responded to the survey. We compared our results with those from 100+ energy
companies operating in the UKCS and Capricorn achieved 7.7 (out of 10) on the
D&I Index, 0.6 higher than the UKCS average of 7.1.
– A D&I working group was formed in January 2022. The group identified several
key initiatives to further embed D&I into our culture including: to improve
opportunities for under-represented groups to move into senior roles in the
organisation; and commenced in January 2022 our ‘Shadow4success’ initiative.
A diverse group of female colleagues was independently selected for the
programme to shadow our Executive Team throughout the year; in January
2022, we launched an ‘Inclusion calendar’, which is designed to provide an
overview and raise awareness of key dates and activities to reflect the diverse
population of our staff and the communities in which we work; and D&I training
was delivered for all staff between September 2022 and November 2022.
Leadership and Governance Capricorn Energy PLC
96
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Purpose
2022 KPI
Measurement and payment scale
2022 performance
Weighting
Bonus awarded
committee decision
KPI remuneration
(as % of allocated proportion
of maximum opportunity)
Exploration and
New Ventures
Grow the reserves
and resources base
to provide a basis for
future growth.
– Prospect Maturation & Well Planning
• Mature our key exploration projects
for planned drilling in 2022/23 in
Egypt, UK and Mauritania.
– Milestone-based targets: Prospect selection for Egypt operated
– The proposed prospects to be drilled in the SAS concession were agreed with the
8%
2%
Partially achieved
exploration drilling: gain approval from JV partners for the
Capricorn recommended drilling prospects and associated
optimum timing.
– Finalise prospect maturation and selection from new 3D seismic in
the MNSH in UKCS, and secure approved budget funds from JV
partner(s) for drilling operations in 2023.
– Secure a JV partner in Mauritania Block C7 with approved budget
funds for drilling operations in 2023.
joint venture, with the first (Saqr) to be spudded in early February 2023.
– Farm-down work continued during the year. Drilling planning has progressed
with the well design simplified and the ESIA preparations underway.
• Exploration Operations: Conduct
our operated and non-operated
exploration and appraisal activities
(surveys and drilling) successfully, on
time and on budget.
– Target-based scoring identified with threshold (0% score) for
– All projects executed in 2022 met their original basis of design objectives. The
6%
3.75%
operations meeting the basis of design objectives, target (50%
score) for operations completing on time and on budget (+/- 10%),
and stretch (100% score) for operations completing on time and
10% less than budget.
Jaws exploration well was delivered on budget and the South East Horus 3D
seismic and West El Fayium 3D seismic both completed more than 10% under
budget. The Diadem exploration well completed, but over budget, and, therefore,
did not score.
• Adding Resources: Add new
commercial resources through E&A
drilling, coupled with conceptual
development studies.
– Target-based scoring determined by net 2C Contingent Resources
added with threshold (0% score) for 0 net mmboe added, target
(50% score) for 15 net mmboe added, and stretch (100% score) for
30 net mmboe added.
– The Jaws exploration well in the UKCS, operated by Shell (Capricorn 50% WI) was
6%
0%
completed in late January 2022. The well encountered 31m of Jurassic Fulmar
sands but was unfortunately water wet.
Production
Maximise revenues
through efficient
operations.
– Reserves/Resource Conversion:
Sanction incremental development
investment to convert WI 2C Resources
and 2P Undeveloped Reserves into WI
2P Producing Reserves.
– Delivering Production and Opex
Targets: Deliver Net production targets
within public market guidance issued in
January 2022.
– Measured according to the conversion of Contingent Resources
and Undeveloped Reserves to 2P Reserves with threshold (0%
score) for 10mmboe converted, target (50% score) for 15mmboe
converted, and stretch (100% score) for 20mmboe converted.
– Measured against the public production guidance communicated
to the markets via the RNS in January 2022 (37,000 to 43,000
boepd net, with oil and condensate anticipated to be between
35-40% of the overall production), with threshold (0% score) for
achieving low-end of guidance, target (50% score) for achieving
middle of guidance, and stretch (100% score) for achieving at or
above top-end of guidance.
– Deliver Operating Cost/boe Targets:
Delivering operating cost/boe targets
within public market guidance in
January 2022 in relation to Egypt
(US$4.5 – US$5.5 per boe).
– Assessed against the 2022 budget values converted into an Opex/
boe guidance as presented to the market in January 2022, with
threshold (0% score) for achieving low-end of guidance, target (50%
score) for achieving middle of guidance (US$5/boe), and stretch
(100% score) for achieving at or above top-end of guidance.
– The Capricorn operated Diadem well (50% WI) was completed in September
2022 but was also unsuccessful, failing to find reservoir hydrocarbons.
– As both wells were unsuccessful, no new contingent resources were added,
resulting in a zero score. Both licences P2380 and P2379 were relinquished
by year-end.
– The target of 15 mmbboe converted was based on 100% reserves replacement,
5%
0%
Partially achieved
where production was expected to be ~40 kboepd (or an annual volume of
14.6 mmboe) on the basis 40-50 wells would be drilled in 2022. The targets
were not met.
– The target was set with the ambition of drilling 40-50 new wells in the year.
10%
1.5%
Due to various reasons, the joint venture was only able to deliver 31 new wells,
impacting the production volumes. Oil and condensate volumes were above
threshold of 12,950 bopd but below target of 15,000 bopd, scoring 1.5%. Gas
production and oil equivalent production were below threshold of 140 mmscf/d
and 40,000 boepd respectively, resulting in zero score.
– Although the absolute opex was in line with guidance in terms of US$ annual
5%
0%
expenditure, the overall performance was impacted by the production
performance being below target and therefore pulled the opex/boe out of
guidance, averaging US$5.7/boe.
Annual Report and Accounts 2022
97
Purpose
2022 KPI
Measurement and payment scale
2022 performance
Exploration and
New Ventures
Weighting
Bonus awarded
(as % of allocated proportion
of maximum opportunity)
KPI remuneration
committee decision
Grow the reserves
– Prospect Maturation & Well Planning
– Milestone-based targets: Prospect selection for Egypt operated
– The proposed prospects to be drilled in the SAS concession were agreed with the
8%
2%
Partially achieved
and resources base
• Mature our key exploration projects
exploration drilling: gain approval from JV partners for the
to provide a basis for
for planned drilling in 2022/23 in
Capricorn recommended drilling prospects and associated
future growth.
Egypt, UK and Mauritania.
optimum timing.
joint venture, with the first (Saqr) to be spudded in early February 2023.
– Farm-down work continued during the year. Drilling planning has progressed
with the well design simplified and the ESIA preparations underway.
– Finalise prospect maturation and selection from new 3D seismic in
the MNSH in UKCS, and secure approved budget funds from JV
partner(s) for drilling operations in 2023.
– Secure a JV partner in Mauritania Block C7 with approved budget
funds for drilling operations in 2023.
• Exploration Operations: Conduct
– Target-based scoring identified with threshold (0% score) for
our operated and non-operated
operations meeting the basis of design objectives, target (50%
exploration and appraisal activities
score) for operations completing on time and on budget (+/- 10%),
(surveys and drilling) successfully, on
and stretch (100% score) for operations completing on time and
time and on budget.
10% less than budget.
– All projects executed in 2022 met their original basis of design objectives. The
Jaws exploration well was delivered on budget and the South East Horus 3D
seismic and West El Fayium 3D seismic both completed more than 10% under
budget. The Diadem exploration well completed, but over budget, and, therefore,
did not score.
6%
3.75%
• Adding Resources: Add new
– Target-based scoring determined by net 2C Contingent Resources
commercial resources through E&A
added with threshold (0% score) for 0 net mmboe added, target
drilling, coupled with conceptual
(50% score) for 15 net mmboe added, and stretch (100% score) for
development studies.
30 net mmboe added.
– The Jaws exploration well in the UKCS, operated by Shell (Capricorn 50% WI) was
completed in late January 2022. The well encountered 31m of Jurassic Fulmar
sands but was unfortunately water wet.
6%
0%
– The Capricorn operated Diadem well (50% WI) was completed in September
2022 but was also unsuccessful, failing to find reservoir hydrocarbons.
– As both wells were unsuccessful, no new contingent resources were added,
resulting in a zero score. Both licences P2380 and P2379 were relinquished
by year-end.
Production
Maximise revenues
– Reserves/Resource Conversion:
– Measured according to the conversion of Contingent Resources
through efficient
Sanction incremental development
and Undeveloped Reserves to 2P Reserves with threshold (0%
operations.
investment to convert WI 2C Resources
score) for 10mmboe converted, target (50% score) for 15mmboe
and 2P Undeveloped Reserves into WI
converted, and stretch (100% score) for 20mmboe converted.
– The target of 15 mmbboe converted was based on 100% reserves replacement,
where production was expected to be ~40 kboepd (or an annual volume of
14.6 mmboe) on the basis 40-50 wells would be drilled in 2022. The targets
were not met.
5%
0%
Partially achieved
– Delivering Production and Opex
– Measured against the public production guidance communicated
– The target was set with the ambition of drilling 40-50 new wells in the year.
10%
1.5%
Due to various reasons, the joint venture was only able to deliver 31 new wells,
impacting the production volumes. Oil and condensate volumes were above
threshold of 12,950 bopd but below target of 15,000 bopd, scoring 1.5%. Gas
production and oil equivalent production were below threshold of 140 mmscf/d
and 40,000 boepd respectively, resulting in zero score.
2P Producing Reserves.
January 2022.
Targets: Deliver Net production targets
to the markets via the RNS in January 2022 (37,000 to 43,000
within public market guidance issued in
boepd net, with oil and condensate anticipated to be between
35-40% of the overall production), with threshold (0% score) for
achieving low-end of guidance, target (50% score) for achieving
middle of guidance, and stretch (100% score) for achieving at or
above top-end of guidance.
– Deliver Operating Cost/boe Targets:
– Assessed against the 2022 budget values converted into an Opex/
– Although the absolute opex was in line with guidance in terms of US$ annual
5%
0%
Delivering operating cost/boe targets
boe guidance as presented to the market in January 2022, with
within public market guidance in
January 2022 in relation to Egypt
(US$4.5 – US$5.5 per boe).
threshold (0% score) for achieving low-end of guidance, target (50%
score) for achieving middle of guidance (US$5/boe), and stretch
(100% score) for achieving at or above top-end of guidance.
expenditure, the overall performance was impacted by the production
performance being below target and therefore pulled the opex/boe out of
guidance, averaging US$5.7/boe.
Leadership and Governance Capricorn Energy PLC
98
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Purpose
2022 KPI
Measurement and payment scale
2022 performance
Weighting
Bonus awarded
committee decision
KPI remuneration
(as % of allocated proportion
of maximum opportunity)
Financial Performance
Maintain Financial
Strength and
flexibility
– Headroom Test: maintain 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 met.
– Funding Plan: executable funding
plan presented and approved by
the Board to effect the Company’s
strategy or as required in line with
any approved acquisition.
– Milestone-based scoring requiring maintenance of a
– This funding test was maintained and therefore scored fully for this element of
5%
5%
Partially achieved
US$50m ‘headroom’.
the financial performance KPI.
– Milestone-based scoring based on meeting appropriate tests.
– The October 2022 redetermination for the reserve-based lending (RBL) debt
5%
– Milestone-based scoring based on approval of funding plan in
– Following the annual strategic review, an all-share merger with Tullow Oil plc was
10%
accordance with the KPI.
Corporate Projects
Deliver a sustainable
business
– Identify projects agreed with the Board
of strategic significance during the year
to enhance the portfolio.
– Develop and execute plans to enhance the portfolio to: (i) increase
the scale of operating cash flow (5%); (ii) diversify the cash flow
generating base (5%); (iii) integrate new assets in a timely and
effective manner, (5%) and (iv) achieve predetermined portfolio
management projects (5%, commercially confidential).
facility associated with Egypt completed and the KPI fully met for this element of
the financial performance KPI.
proposed and a funding plan prepared accordingly. This plan changed following
the recommendation to combine with NewMed Energy. In February 2023, the
Company and NewMed mutually agreed to terminate the Business Combination
Agreement and the associated funding plan was not completed, meaning zero
score achieved for this element of the financial performance KPI.
5%
0%
– Whilst a number of business development opportunities were reviewed, no
15%
0%
Partially achieved
corporate projects concluded and no score was achieved in this element of the
corporate projects KPI.
– Pre-determined portfolio management projects (commercially confidential) were
5%
2%
only partially achieved, scoring below half marks for this element of the corporate
projects KPI
Total
100%
39.25%
Annual Report and Accounts 2022
99
Purpose
2022 KPI
Financial Performance
Strength and
flexibility
funds in all financial projections covering
all currently committed and planned
expenditure, including capital funds for
exploration, appraisal, incremental
development and production opex.
applicable facility tests met.
plan presented and approved by
the Board to effect the Company’s
strategy or as required in line with
any approved acquisition.
Measurement and payment scale
2022 performance
Weighting
Bonus awarded
(as % of allocated proportion
of maximum opportunity)
KPI remuneration
committee decision
Maintain Financial
– Headroom Test: maintain a US$50m
– Milestone-based scoring requiring maintenance of a
– This funding test was maintained and therefore scored fully for this element of
5%
5%
Partially achieved
‘headroom’ from existing sources of
US$50m ‘headroom’.
the financial performance KPI.
– Debt Liquidity: covenants or
– Milestone-based scoring based on meeting appropriate tests.
– The October 2022 redetermination for the reserve-based lending (RBL) debt
5%
– Funding Plan: executable funding
– Milestone-based scoring based on approval of funding plan in
accordance with the KPI.
facility associated with Egypt completed and the KPI fully met for this element of
the financial performance KPI.
– Following the annual strategic review, an all-share merger with Tullow Oil plc was
proposed and a funding plan prepared accordingly. This plan changed following
the recommendation to combine with NewMed Energy. In February 2023, the
Company and NewMed mutually agreed to terminate the Business Combination
Agreement and the associated funding plan was not completed, meaning zero
score achieved for this element of the financial performance KPI.
10%
5%
0%
Corporate Projects
Deliver a sustainable
– Identify projects agreed with the Board
– Develop and execute plans to enhance the portfolio to: (i) increase
– Whilst a number of business development opportunities were reviewed, no
15%
0%
Partially achieved
business
of strategic significance during the year
the scale of operating cash flow (5%); (ii) diversify the cash flow
to enhance the portfolio.
generating base (5%); (iii) integrate new assets in a timely and
effective manner, (5%) and (iv) achieve predetermined portfolio
management projects (5%, commercially confidential).
corporate projects concluded and no score was achieved in this element of the
corporate projects KPI.
– Pre-determined portfolio management projects (commercially confidential) were
only partially achieved, scoring below half marks for this element of the corporate
projects KPI
5%
2%
Total
100%
39.25%
Leadership and Governance Capricorn Energy PLC
100
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
2022 annual bonus scheme – overview of awards and actual payments made
In accordance with its normal practice, the above outturn from the assessment of the Group KPIs was subject to a further review by the
committee in order to assess whether the resulting level of awards that it would generate for Executive Directors under the annual bonus
scheme structure for 2022 would be fair and reasonable in the context of the Company’s overall financial and operational performance
during the year. The conclusion reached was that, in the circumstances, it would be appropriate for the committee to exercise its
overarching discretion (contained within the approved remuneration policy) and apply a reduction to these amounts.
In particular, it decided that, for the purposes of calculating the Executive Directors’ bonuses, the assumed level of overall achievement for
the Group KPIs would be limited to 22.5% rather than the 39.25% shown in the table above. The impact of this decision is illustrated below.
2022 annual bonus scheme – overview of awards and actual payments made
The application of the outturn from the above performance condition assessments resulted in the following bonuses becoming payable
to Simon Thomson and James Smith:
Award elements
Weighting (as % of max. bonus opportunity)
100%
100%
Simon Thomson
James Smith
Group KPI measures
Group KPI measures
x
Assumed achievement level (after the application of the
committee’s above noted discretionary reduction)1
Award percentage (as % of max. bonus opportunity)
=
Award calculation
Max. bonus opportunity (as % of salary)
x
Award percentage (as calculated above)
Form of payment
=
Total award (as % of salary)
Total award (as an amount)
Cash payment2
Deferred share award3
22.5%
22.5%
125%
22.5%
28.125%
£171,645
£171,645
£0
22.5%
22.5%
125%
22.5%
28.125%
£111,639
£111,639
£0
Notes:
(1)
(2)
(3)
In the absence of the committee’s discretionary reduction to the Group KPI achievement level, the total award (as a percentage of salary) for both Simon
Thomson and James Smith would have been 49.06% (i.e. 39.25% achievement x 125% of salary maximum opportunity).
Cash payments due under the annual bonus scheme were paid to the relevant individuals shortly after completion of the assessment of the relevant
performance measures and conditions.
Under the Company’s annual bonus scheme for 2022, any amounts awarded in excess of 100% of salary would have been delivered in the form of share awards
granted under the Company’s Deferred Bonus Plan.
Long-Term Incentives
Introduction
During the year to 31 December 2022, the Executive Directors participated in the Company’s LTIP (which was approved by shareholders
at the AGM held on 19 May 2017).
The LTIP enables selected senior individuals to be granted conditional awards or nil-cost options over ordinary shares, the vesting of
which is normally dependent on both continued employment with the Group and the extent to which pre-determined performance
conditions are met over a specified period of three years.
Overview of performance conditions
For the awards granted to Executive Directors under the LTIP since its original adoption (including those granted in 2022), the
performance conditions compromise two distinct elements, namely:
– Conditions applicable to the ‘core award’
The first condition applies to that element of each award which is over ordinary shares normally worth 200% of the individual’s salary
(the ‘core award’) and involves an assessment of the Company’s TSR performance over a three-year performance period
(commencing on the date of grant) relative to the performance achieved by a pre-determined comparator group of companies in the
same sector (details of which are set out on page 103). Vesting will then take place as follows:
Ranking of Company against the comparator group
Percentage of ordinary shares comprised in core award that vest
Below median
Median
Upper quartile or above
0%
25%
100%
Between median and upper quartile
25%–100% on a straight-line basis
– Conditions applicable to the ‘kicker award’
The second condition applies to the remaining part of each grant (the ‘kicker award’), being an element that is granted over ordinary
shares normally worth 50% of salary. This part of the award will vest in full if, over the same three-year measurement period (i) the
Annual Report and Accounts 2022
101
Company achieves an upper quartile ranking (or above) in the comparator group; and (ii) the TSR actually achieved by the Company
is at least 100%. For the avoidance of doubt, if either of these requirements is not satisfied, no part of the kicker award will vest.
No part of an award granted under the LTIP during 2019 and earlier years will vest unless the Remuneration Committee is satisfied that
there has been an overall satisfactory and sustained improvement in the performance of the Company as a whole over the performance
period. In the case of awards granted in 2020 and later years, the committee retains the discretion to adjust the vesting level produced
by the formulaic operation of the performance conditions described above in circumstances where, based on its independent
judgement, it considers it appropriate to do so (e.g. where the outturn from the assessment of the prescribed targets is not, in the
committee’s view, a genuine reflection of the underlying performance of the Company).
Dividend equivalent rights
All outstanding awards under the LTIP have been granted on terms that participants will receive a payment (in cash and/or shares) on,
or shortly following, the settlement of their awards of an amount equivalent to the dividends that would have been payable on the shares
acquired between the date of grant and the expiry of any applicable holding period. Where required, the committee will decide the basis
on which the value of such dividends shall be calculated, which may assume the reinvestment of dividends. The rules of the LTIP also give
the committee the discretion to disapply these provisions in relation to all or part of any special dividend.
LTIP awards granted during 2022 (audited)
On 11 March 2022, the following awards under the LTIP were granted to Executive Directors:
Description
of award
Form of award
Basis of award
granted
Share price at
date of grant3
No. of shares
over which
award originally
granted
Face value
(£000) of
shares over
which award
originally
granted4
% of shares over
which award
originally
granted that
vest at
threshold
Vesting
determined by
performance
over
Directors
Simon
Thomson
Core award
Nil-cost option 2 x base salary
£1.957
623,702
£1,221
of £610,293
Kicker award Nil-cost option 0.5 x base salary
£1.957
155,925
£305
of £610,293
James Smith Core award
Nil-cost option 2 x base salary
£1.957
405,659
£794
of £396,938
Kicker award Nil-cost option 0.5 x base salary
£1.957
101,414
£198
of £396,938
25% 3 years until
10 March
2025
100%
25% 3 years until
10 March
2025
100%
Notes:
(1) Details of the performance conditions applicable to the awards granted in 2022 are provided on pages 100 and 101.
(2) No price is payable by participants for their shares on the exercise of a nil-cost option granted under the LTIP.
(3)
This figure represents the closing mid-market price of a share in the Company for the dealing day immediately preceding the date of grant. (The actual closing
price on 11 March 2022 was £1.911.)
The values shown in these columns have been calculated by multiplying the ‘number of shares over which the award was originally granted’ by the ‘share price at
date of grant’.
In the period following the grant of the above awards, no change was made to their exercise price or the date on which they will become exercisable.
(4)
(5)
As explained on page 77, the above awards immediately lapsed in full on the cessation of employment of Simon Thomson and
James Smith.
LTIP – awards vesting during the year (audited)
On 12 March 2022, the three-year performance period applicable to the awards granted under the LTIP on 13 March 2019 to
various participants (including Executive Directors) came to an end. Thereafter, the Remuneration Committee assessed the relevant
performance conditions. The results of this assessment, which was completed on 16 March 2022, can be summarised as follows:
Award
Core award
Performance measure
measure Performance achieved 2019-2022
% of award
subject to
% of award
vested
Relative TSR performance against a
comparator group of 17 companies.
100% Capricorn’s TSR over the period placed it
73.72%
between the fifth and sixth highest ranked
companies in the comparator group. After a
careful consideration of a variety of factors, the
committee also concluded that there had
been a sustained improvement in the overall
performance of the Company over the three
years in question.
Kicker award
For any part of the kicker award to vest, (i) the
Company must achieve at least an upper
quartile ranking in the above comparator
group; and (ii) the TSR actually achieved by
the Company must be at least 100%.
100% As Capricorn’s ranking in the comparator
0%
group was below upper quartile, no part of the
kicker award vested and it lapsed immediately
on completion of the committee’s above
noted assessment.
Notes:
(1) Further details of the performance conditions that applied to the above awards are set out on pages 100 and 101.
(2) No discretions relating to the vesting of the above awards were exercised by the Remuneration Committee during or after the relevant performance period.
(3) The TSR calculations used to inform the committee’s determinations in relation to the above awards were independently verified by Ernst & Young LLP.
Leadership and Governance
Capricorn Energy PLC
102
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
The following table shows, for each of the Executive Directors, details of the LTIP awards that vested during the year:
Description of
award
Form of award
Date of grant
Directors
No. of
shares over
which
award
originally
granted
% of award to
vest as per
performance
condition
assessment
Date of
vesting
No. of
shares that
vested1
Value of
shares
vesting2
Amount of
vesting value
attributable to
share price
appreciation3
Simon Thomson Core award Nil-cost option
13/03/19 687,947 16/03/22
73.72% 507,151 £982,859
£132,365
Kicker award Nil-cost option
13/03/19 171,986 16/03/22
0%
0
£0
£0
James Smith
Core award Nil-cost option
13/03/19 447,444 16/03/22
73.72% 329,853 £639,255
£86,090
Kicker award Nil-cost option
13/03/19 111,861 16/03/22
0%
0
£0
£0
Notes:
(1)
(2)
(3)
Following their vesting, the above awards became subject to a two-year holding period during which they cannot normally be exercised. As highlighted on page
89, this holding period will continue to operate notwithstanding the cessation of employment of the relevant individuals.
The values shown in this column (which are included in the single total figure table for 2022) have been calculated by multiplying the number of shares that
vested by £1.938, being the closing mid-market price of a share in the Company on the day such vesting occurred.
The values shown in this column have been calculated by (i) multiplying the grant date face value of the relevant award (as disclosed in previous Directors’
Remuneration Reports) by the above noted vesting percentage; and (ii) deducting that amount from the applicable ‘value of shares vesting’ figure.
(4) No discretions were exercised in relation to the awards set out in the above table as a result of share price appreciation or depreciation.
LTIP – awards exercised during 2022 (audited)
No LTIP awards were exercised by the Executive Directors during the year to 31 December 2022.
LTIP – other awards held by Executive Directors during the year
For the sake of completeness, and in order to allow comparisons to be made with the awards granted during 2022, set out below are
details of the other unvested awards under the LTIP that were held by the Executive Directors during the year:
Date of grant
Plan
Description
of award
Form of
award
Basis of award
granted2
No. of
shares over
which
award
originally
granted
Face value
(£000) of
shares over
which
award
originally
granted4
% of shares
over which
award
originally
granted
that vest at
threshold
Vesting
determined by
performance
over three years
until…
Share price
at date of
grant3
Directors
Simon
Thomson
28/07/20
LTIP
Core
award
Nil-cost
option
LTIP
Kicker
award
Nil-cost
option
17/03/21
LTIP
LTIP
James Smith 28/07/20
LTIP
Core
award
Kicker
award
Nil-cost
option
Nil-cost
option
Core
award
Nil-cost
option
LTIP
Kicker
award
Nil-cost
option
1.6 x base
salary of
£586,650
0.4 x base
salary of
£586,650
2 x base salary
of £592,517
0.5 x base
salary of
£592,517
1.6 x base
salary of
£381,561
0.4 x base
salary of
£381,561
£1.323 709,478
£939
25%
27/07/23
£1.323 177,369
£235
100%
£1.801 657,986
£1,185
25%
16/03/24
£1.801 164,496
£296
100%
£1.323 461,449
£611
25%
27/07/23
£1.323 115,362
£153
100%
17/03/21
LTIP
LTIP
Core
award
Kicker
award
Nil-cost
option
Nil-cost
option
2 x base salary
of £385,377
0.5 x base
salary of
£385,377
£1.801 427,958
£771
25%
16/03/24
£1.801 106,989
£193
100%
Notes:
(1) Further details of the performance conditions that apply to these awards are set out on pages 100 and 101.
(2)
Capricorn’s normal practice is to grant awards on the basis of 2 x salary (in the case of the ‘core’ award) and 0.5 x salary (for the ‘kicker’ award). The reduced grant
levels in 2020 reflected the fact that, at the time those awards were made, Capricorn had experienced a material fall in its share price (when compared to the
‘pre-COVID 19’ level). Further information on this issue was set out in the 2020 Directors’ Remuneration Report.
This figure represents the closing mid-market price of a share in the Company for the dealing day immediately preceding the relevant date of grant.
The values shown in this column have been calculated by multiplying the relevant ‘number of shares over which the award was originally granted’ by the
appropriate’share price at date of grant’.
(3)
(4)
(5) During 2022, no changes were made to the exercise prices of the above awards or the date on which they will become exercisable.
As explained on page 77, each of the awards detailed in the table above immediately lapsed in full on the cessation of employment of
Simon Thomson and James Smith.
Annual Report and Accounts 2022
103
Comparator group companies applicable to LTIP awards
The table below provides details of the comparator groups applicable to each tranche of awards granted under the LTIP to Executive
Directors that were outstanding (and unvested) during 2022.
Company
Africa Oil Corp.
Aker BP ASA
DNO ASA
Energean PLC (formerly named Energean Oil & Gas PLC)
EnQuest PLC
Genel Energy PLC
Harbour Energy PLC (formerly named Premier Oil PLC)
Hurricane Energy PLC
Kosmos Energy Limited
Lundin Energy AB (formerly named Lundin Petroleum AB)*
Nostrum Oil & Gas PLC
Pharos Energy PLC (formerly named SOCO International PLC)
Rockhopper Exploration PLC
Santos Limited
Seplat Energy PLC ( formerly named Seplat Petroleum Development Company PLC)
Serica Energy PLC
Sound Energy PLC
Tullow Oil PLC
Vår Energi ASA
Comparator group applicable to LTIP awards granted on….
13/03/19
28/07/20
17/03/21
11/03/22
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
* Denotes companies that have delisted during the applicable performance period. For awards granted under the LTIP, the committee’s normal policy is to remove
from the relevant comparator group any company that has delisted less than half way through the applicable performance period. For delistings that occur after
that time, the relevant company is retained and moved in line with the remaining members of the group.
Participation of Executive Directors in all-employee share schemes during 2022
Introduction
In order to encourage increased levels of long-term share ownership amongst its general employee population, the Company launched
an HM Revenue and Customs-approved SIP in April 2010. The SIP provides eligible employees, including Executive Directors, with the
following benefits:
– ‘Partnership shares’ – employees can authorise deductions of up to £1,800 per tax year from pre-tax salary, which are then used to
acquire ordinary shares on their behalf.
– ‘Matching shares’ – the Company can award further free shares to all participants who acquire partnership shares on the basis of up to
two matching shares for every one partnership share purchased. For the tax year 2022/2023, the Company awarded two matching
shares for every one partnership share purchased and intends to continue using this award ratio for the tax year 2023/2024.
– ‘Free shares’ – employees can be given up to £3,600 worth of ordinary shares free in each tax year. On 14 April 2022, an award of free
shares was made to employees.
In certain circumstances, the rules of the SIP also allow participants to reinvest dividends paid on their plan shares in further ‘dividend shares’.
As the SIP is an ‘all employee’ arrangement, no performance conditions are imposed in relation to any matching or free shares awarded
pursuant to its terms.
Details of Executive Directors’ SIP participation in 2022
Details of the shares purchased by and awarded to the Executive Directors under the SIP during the course of the year are as follows:
Directors
Simon Thomson
James Smith
Total SIP shares
held at 01/01/22
Free shares
awarded on
14/04/22 at a price
of £1.967 per share
Partnership shares
awarded on
06/05/22 at a price
of £2.076 per share
Matching shares
awarded on
06/05/22 at a price
of £2.076 per share
Total SIP shares
held at 31/12/22
40,685
27,433
1,830
1,830
867
867
1,734
1,734
45,116
31,864
The total number of shares held by each of the above Executive Directors under the SIP is included in their beneficial shareholdings
disclosed in the Directors’ Report on pages 112 and 113.
Shareholding guidelines for Directors (audited)
A formal share ownership policy for Executive Directors has been in place for a number of years under which they are required, during
employment, to build up and maintain a target holding, currently equal to 200% of salary. In order to facilitate the achievement of the
requirement, the share ownership policy provides that, until the necessary holding is achieved, an Executive Director is normally obliged to
retain shares with a value equal to 50% of the net-of-tax gain arising from any vesting or exercise under the Company’s share incentive plans.
Leadership and Governance Capricorn Energy PLC
104
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
In addition, and with effect from 14 May 2020, being the date the 2020 Directors’ Remuneration Policy was approved by shareholders,
Executive Directors (and certain other senior managers) are normally obliged to maintain a specified holding of shares for a period of two
years following cessation of employment. In particular:
– the requirement is to maintain a post-employment holding of relevant shares equal to 200% of final salary;
– if this targeted holding has not been achieved at the point employment ceases, the requirement will apply to all relevant shares held
at that time;
– ‘relevant shares’ will include all shares acquired by the individual on the exercise of awards that vest under any of the Company’s
discretionary share plans, including the LTIP and the Deferred Bonus Plan, on or after 1 January 2020 (other than those that are sold
in order to satisfy tax liabilities arising on exercise)
– shares subject to awards that vest on or after 1 January 2020 but which remain unexercised (e.g. because a holding or deferral period
applies), or which have been granted under the Deferred Bonus Plan, will also count as ‘relevant shares’, but on a net-of-tax basis
– until such time as the 200% of salary target is achieved, any relevant shares acquired by an individual will be placed in a nominee structure;
– relevant shares held by or on behalf of an individual will also count towards the satisfaction of the existing share ownership policy that
is described above;
– for the avoidance of doubt, any shares acquired by an individual other than pursuant to a discretionary share plan (e.g. purchases using
his/her own resources) will not be subject to the post-employment holding requirement; and
– the committee will retain the discretion to reduce or waive the post-employment holding requirement in limited circumstances
(such as on the death of the individual or where his/her personal circumstances change).
The following table discloses the beneficial interest of each Director in the ordinary shares of the Company as at 31 December 2022
(or date of cessation of directorship, if earlier).
Shares held
Awards over shares under the LTIP
Ordinary
shares2
Ordinary shares
held in the SIP3
Total holding of
ordinary shares
Ordinary shares
subject to
vested but
unexercised
awards4
Ordinary shares
subject to
unvested
awards5
Total interest in
ordinary shares
Compliance with shareholding
requirements
In-service
requirement
Post-cessation
requirement
Value of
holding as a %
of salary on
1 January
20236 7
Value of
holding as a %
of salary on
1 January
20236 8
Executive directors
Simon Thomson
658,074
James Smith
Non-Executive Directors
Nicoletta Giadrossi
0
–
Peter Kallos
Keith Lough
Alison Wood
Catherine Krajicek
Erik B. Daugbjerg
Luis Araujo
9,292
–
–
–
–
–
45,116
31,864
703,190
1,136,751
2,488,956
4,328,897
31,864
739,349
1,618,831
2,390,044
507%
251%
232%
232%
–
–
–
–
–
–
–
–
9,292
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,292
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
667,366
76,980
744,346
1,876,100
4,107,787
6,728,233
Notes:
(1) Details of the Company’s share ownership policies for Executive Directors are set out on pages 103 and 104.
(2)
(3)
Includes shares held by connected persons.
Under the rules of the SIP, certain shares awarded to participants must be retained in the plan for a specified ‘holding period’ of up to five years. The receipt of
these shares is not subject to the satisfaction of performance conditions.
(4) This column shows all vested but unexercised awards under the LTIP that were held by the director concerned as at 31 December 2022.
(5)
This column shows all unvested and outstanding awards under the LTIP that were held by the director concerned as at 31 December 2022 (i.e. including those
granted during the year). Details of these entitlements, the vesting of which is subject to the satisfaction of performance conditions, are set out on pages 101 to 103.
Share price used is the average share price for the period of 90 days up to and including 31 December 2022.
(6)
(7) This holding includes (i) all shares held by the individual; and (ii) the net-of-tax number of all shares subject to vested but unexercised LTIP awards.
(8) This holding includes the net-of-tax number of all shares subject to vested but unexercised LTIP awards.
(9) The shareholding numbers noted above were unchanged as at the earlier of the date of this report or the date of cessation of directorship of the individual listed.
Payments to past Directors during 2022 (audited)
During the year to 31 December 2022, there were no payments to past directors of the kind that require to be disclosed in terms of the
Regulations.
Dilution of share capital pursuant to share plans during 2022
In any 10-year rolling period, the number of ordinary shares which may be issued in connection with the Company’s ‘discretionary share
plans’ (which includes the LTIP and the share option/award schemes used to incentivise less senior employees) cannot exceed 5% of the
Company’s issued ordinary share capital.
In addition, in any 10-year rolling period, the number of ordinary shares which may be issued in connection with all of the Company’s
employee share schemes (whether discretionary or otherwise) cannot exceed 10% of the Company’s issued ordinary share capital.
It should also be noted that all shares acquired by or awarded to participants under the SIP and the Deferred Bonus Plan are existing
ordinary shares purchased in the market. As a result, neither the SIP nor the Deferred Bonus Plan involves the issue of new shares or the
transfer of treasury shares.
Annual Report and Accounts 2022
105
Board appointments with other companies during 2022
The Board believes, in principle, in the benefits of Executive Directors accepting positions as Non-Executive Directors of other companies
in order to widen their skills and knowledge for the benefit of the Company, provided that the time commitments involved are not
unduly onerous. The Executive Directors are permitted to retain any fees paid for such appointments.
The appointment of any Executive Director to a Non-Executive position with another company must be approved by the Nomination &
Governance Committee. In the case of a proposed appointment to a company within the oil and gas industry, permission will only
normally be given if the two companies do not compete in the same geographical area.
Details of the non-executive positions with other companies that were held by Capricorn’s Executive Directors during 2022, and the fees
that were payable, are as follows:
Director
Position held
Fees received for the year to 31/12/22
Simon Thomson
Non-Executive Director, Graham's The Family Dairy Limited
Non-Executive Director, Edinburgh Art Festival
£14,583
£0
Relative importance of spend on pay
Set out below are details of the amounts of, and percentage change in, remuneration paid to or receivable by all Group employees and
distributions to shareholders in the years ended 31 December 2021 and 2022.
Employee costs (US$m)
Distributions (US$m)1
Financial Year
2021
Financial Year
2022
36.1
284.02
34.3
511.5
% change
(5.0)%3
80.1%
Notes:
(1)
(2)
For the purposes of the above table, ‘Distributions’ include amounts distributed to shareholders by way of dividend and share buyback. The figure for 2022
represents the aggregate of (i) the share purchases undertaken as part of the tender offer that was completed in April 2022; and (ii) the regular share-buybacks
that occurred throughout the year.
The above distributions figure for 2021 has been updated to correct an error that appeared in last year’s Directors’ Remuneration Report (where it was incorrectly
stated as being US$257.2m).
(3) This fall in employee costs is largely attributable to lower levels of annual bonuses being awarded in 2022 when compared to 2021.
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 2022; 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 ten-year cumulative TSR on an investment of £100
£350
£300
£250
£200
£150
£100
£50
0
Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18 Dec 19
Dec 20
Dec 21
Dec 22
FTSE 250
Capricorn
FTSE 350 Oil & Gas
Leadership and Governance
Capricorn Energy PLC
106
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Total remuneration of Chief Executive during the same ten-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)
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
Simon Thomson
Simon Thomson
Simon Thomson
Simon Thomson
Simon Thomson
Simon Thomson
Simon Thomson
Simon Thomson
Simon Thomson
Simon Thomson
£1,908,773
£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
22.5%
60.5%
75%
65%
70%
76.9%
80.2%
75%
78.5%
63%
59%2
67.7%
27.4%
0%
56.7%
90.8%
81.7%
23.4%
0%
0%
Notes:
(1)
(2)
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 90.
As explained on page 101, Simon Thomson’s 2019 LTIP award vested in respect of 73.7% of its ‘core’ award (being the element granted over ordinary shares
worth 2 x base salary). This represents 59.0% 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
2022), 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 four years, with the result that the following table shows the relevant ratios from 2018 to 2022.
Year
2022
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
Option A
28 : 1
29 : 1
22 : 1
19 : 1
36 : 1
18 :1
20 : 1
14 : 1
12 : 1
22 : 1
10 : 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 2022 (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 2022 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 performance through a higher annual bonus opportunity (a percentage of which may be subject to deferral into shares)
and a higher level of long-term incentive award grants.
The committee notes that each of the pay ratios for 2022 is marginally lower than in the immediately preceding year. This is largely
attributable to the discretionary reduction that was applied by the committee when calculating the 2022 annual bonus award for
Executive Directors (see page 100 for further details). No such reduction was applied to the bonus awards made to any other employees.
For the avoidance of doubt, the differences in the ratios between 2022 and 2021 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 2022 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
£610,293
£47,380
£56,486
£101,021
£1,908,773
£68,761
£104,733
£182,137
Annual Report and Accounts 2022
107
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:
– 2021 and 2022
– 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.
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
Luis Araujo2
Between 2021 and 2022
Between 2020 and 2021
Between 2019 and 2020
% change
in base
salary/fees
% change
in taxable
benefits
% change
in annual
bonus
% change
in base
salary/fees
% change
in taxable
benefits
% change
in annual
bonus
% change
in base
salary/fees
% change
in taxable
benefits
% change
in annual
bonus
4.4%1
(0.25)% (13.02)%
2.0%
(6.1)%
(16.7)%
3.0%
(0.4)%
2.2%
3.0%
3.0%
3.0%
2.6%
3.0%
2.6%
3.0%
3.0%
n/a
6.7%
5.6%
(61.7)%4
(61.7)%4
1.0%
1.0%
20.1%
(18.5)%
(2.8)%
(18.5)%
1.7%
1.7%
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
n/a
n/a
110.5%
0%
0%
13.2%
0%
58.9%
n/a
0%
0%
0%
0%
0%
0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0%
0%
0%
100.0%
100.0%
n/a
n/a
0%
0%
0%
0%
0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Notes:
(1)
The standard level of salary increase across the Group in 2022 was 3.0%. However, a small number of individuals received higher percentage increases which
raised the average for all employees to 4.4%.
(2) Luis Araujo was appointed as a Non-Executive Director on 11 May 2022.
(3) The Non-Executive Directors are not eligible to participate in the annual bonus scheme.
(4)
The greater reduction in the annual bonus figures for Simon Thomson and James Smith (when compared to all employees) arose due to the discretionary
adjustment applied to their 2022 awards by the committee (see page 100 for further details).
Implementation of remuneration policy in 2023
The following table provides details of how the Company intends to implement the key elements of the new Directors’ Remuneration
Policy described in pages 79 to 87, assuming it is approved by shareholders at the AGM to be held on 20 June 2023.
Remuneration
element
Base salary
Benefits
Implementation during 2023
Chris Cox was appointed interim CEO on 1 February 2023 on a short-term contract which can be extended subject
to agreement between both Chris and the Company. He will receive an annual base salary of £550,000.
It is expected that there will be no change to the benefit provision in 2023 save for the removal of the previous car
allowance for permanent Executive Directors.
Executive Directors will be given the opportunity to participate in the SIP on the same terms as apply to all other
eligible employees in the arrangement.
Annual bonus
In accordance with the requirements of the policy, Executive Directors will be eligible to receive a bonus of up to
125% of base salary depending on the extent to which specified measures are satisfied over 2023.
For the interim CEO, his bonus opportunity has been capped at 100% of base salary per annum. Short-term targets
have been set for the interim CEO for 2023 to reflect the interim nature of the role. In addition, any bonus awarded to
the interim CEO will be paid in unrestricted shares (with the number of such shares being determined by reference
to their value on 1 February 2023, being his commencement date).
Similar to prior years, for senior executives in the wider Group, the 2023 bonus will be based on a corporate scorecard
incorporating financial, strategic and operational measures. Detailed targets for any incoming Executive Directors
would be based on the outcomes of the strategic review. Retrospective disclosure of targets applying to Executive
Directors will be provided in next year‘s remuneration report.
To the extent that LTIP awards are granted to Executive Directors in 2023, the committee will await the finalisation of
the strategic review before publishing the performance measures and targets applicable to the award. The committee
will suitably engage with major shareholders if material changes to the current LTIP framework are proposed. Once the
performance measures and targets are finalised for any incoming executive directors, the committee intends to
publish them on the Company’s website.
The committee does not intend to grant LTIP awards to individuals who have been appointed to the Board in an
interim capacity. As such, Chris Cox has not been granted an LTIP award in his interim capacity.
LTIP
Leadership and Governance Capricorn Energy PLC
108
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Remuneration
element
Retirement
benefits
Implementation during 2023
During 2023, and in accordance with the requirements of the new policy, the Company will contribute 12.5% of basic
salary on behalf of the Executive Directors (including the interim CEO) or pay them an equivalent amount of additional
salary. This rate of pension contributions is equal to the amount paid to the wider UK employee population.
Non-Executive
Chair’s and
Non-Executive
Directors’ fees
The fees for Non-Executive Directors have been adjusted to reflect additional time commitments associated with
execution of the role, particularly in the context of the changes to the Board and the current transition within the
business. The approach will continue to be kept under review to ensure that fees suitably reflect the scope and
responsibilities associated with the role.
The annual Non-Executive Chair’s fee for 2023 will be £270,000.
For 2023, the annual Non-Executive Director fee will be £80,000. The additional fees for committee chair and
membership are set out below.
Chair
2023 supplement (for Chair only)
Member
Audit committee/
Remuneration Committee
Sustainability Committee
Nomination & Governance
Committee
£15,000
£10,000
–
£10,000
n/a
n/a
£10,000
£5,000
£5,000
Non-Executive letters of appointment
The following table sets out the dates of the letters of appointment for the Non-Executive Chair and each of the current Non-Executive
Directors and specifies the dates on which those individuals are next subject to election or re-election:
Director
Craig van der Laan
Catherine Krajicek
Erik B. Daugbjerg
Maria Gordon
Richard Herbert
Hesham Mekawi
Tom Pitts
Date of original appointment
Date when next subject to election or re-election
1 February 2023
01 July 2019
14 May 2020
1 February 2023
1 February 2023
1 February 2023
1 February 2023
20 June 2023
20 June 2023*
20 June 2023*
20 June 2023
20 June 2023
20 June 2023
20 June 2023
* Catherine Krajicek and Erik B. Daugbjerg do not intend to stand for re-election at the AGM on 20 June 2023.
The Directors’ Remuneration Report was approved by the Board on 27 April 2023 and signed on its behalf by:
Maria Gordon
Chair of the Remuneration Committee
27 April 2023
Annual Report and Accounts 2022
109
Leadership and Governance Capricorn Energy PLC
110
Annual Report and Accounts 2022
Sustainability Committee Report
I am pleased to present Capricorn’s first Sustainability
Committee report, following the committee’s formation
in March 2022.
Matters of environment, safety, social responsibility and
sustainability are considered within each Board deliberation and
decision and are, therefore, a key element of the Company’s Board
meetings. Given the importance of these issues, with effect from
3 March 2022, a dedicated committee, the Sustainability
Committee, was established to further embed these matters in
Board process and in the culture of the wider organisation. The
membership of the committee upon its formation was the full
Board of Capricorn, enabling the committee to establish its role
during its inception year. From 1 February 2023, I was pleased
to be appointed the Chair of the Sustainability Committee and
am joined in membership of the committee by Erik B. Daugbjerg
and Hesham Mekawi, both of whom have extensive industry
knowledge and awareness of the importance of sustainability
in this industry and wider environment as we move through the
Energy Transition. The Company’s Energy Transition Director,
Valentina Kretzschmar, is a non-Board attendee at the
committee’s meetings. The Company Secretary acts as secretary
to the committee and attends all of its meetings.
The role of the committee includes:
– 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.
Catherine Krajicek
Chair
Sustainability Committee
2023 Sustainability Committee
Catherine Krajicek (Chair)
Member since March 2022
Erik B. Daugbjerg
Member since March 2022
Hesham Mekawi
Member since February 2023
Members and meetings in 2022
Member
since
Meetings
attended
Nicoletta Giadrossi
(Chair)
Luis Araujo
Mar 2022
Mar 2022
Erik B. Daugbjerg
Mar 2022
Peter Kallos
Mar 2022
Catherine Krajicek
Mar 2022
Keith Lough
James Smith
Mar 2022
Mar 2022
Simon Thomson
Mar 2022
Alison Wood
Mar 2022
Annual Report and Accounts 2022
111
The inaugural meeting of the committee took place in June 2022,
with full Board attendance, and considered, amongst those
matters listed above, the following key issues, with follow-up and
ongoing discussion of these items at the committee’s second
meeting of the year in September:
– the external environment relating to ESG and the Energy
Transition;
– Capricorn’s work within the ESG and Energy Transition
environment; and
– A peer analysis of work being undertaken in these areas.
Following the announcement on 1 June 2022 of a proposed
merger with Tullow Oil plc and, thereafter, the Board’s revised
recommendation in late September 2022, proposing a
combination with NewMed Energy, the impact of each proposal
on the Company’s energy transition and net zero pathway were
considered in depth at committee and/or Board-level.
Of absolute importance to the Company is its illustrative pathway to
Scope 1 and Scope 2 net zero. This pathway, and the work that had
commenced on delivering it, was considered by the committee
during the year. Our stakeholders rightly place significant
importance on this pathway and we will continue to focus on this
as a key objective of the organisation in 2023. Further information
on the Company’s net zero pathway and other sustainability
matters can be found in the Strategic Report on pages 22 to 24.
As announced on 11 April 2023, I shall not be standing for
re-election at this year’s AGM. The Nomination & Governance
Committee will shortly be considering the membership and chair
ship of the sustainability committee following my departure, with
the vital work of this committee continuing in 2023.
Catherine Krajicek
Chair of the Sustainability Committee
27 April 2023
Leadership and Governance Capricorn Energy PLC
112
Annual Report and Accounts 2022
Directors’ Report
The Directors of Capricorn Energy PLC (registered in Scotland with company number SC226712) (the “Company”) present their Annual
Report and Accounts for the year ended 31 December 2022 together with the audited consolidated Financial Statements of the Group
and Company for the year. These will be laid before shareholders at the AGM to be held on 20 June 2023. The Directors’ Report and the
Strategic Report (which includes trends and factors likely to affect future development, performance and position of the business, our
Section 172 Statement and a description of the principal risks and uncertainties of the Company’s Group can be found on pages 2 to 47
and is hereby incorporated by reference), collectively comprise the management report as required under the Financial Conduct
Authority’s Disclosure Guidance and Transparency Rules.
Results and dividend
The Group made a loss after tax of US$51.0m (2021: profit after tax of US$894.5m).
The Directors do not recommend the payment of a dividend for the year ended 31 December 2022 and did not for the year ended
31 December 2021.
Further to the Company’s strategic review which began on 1 February 2023, the Board is committed to returning to shareholders all
excess cash flow not required for its future core operational focus. This process will include a special dividend of approximately US$450m
proposed to be paid in May 2023 and a further special dividend in Q4 2023 of US$100m subject to the satisfaction of certain conditions.
Additional details regarding this return of capital are available in the Chair’s Statement on page 3.
Strategic report
Details of the Group’s strategy and business model during the year and the information that fulfils the requirements of the Strategic Report
can be found in the Strategic Report section on 2 to 47 of this document, which are deemed to form part of this report by reference.
Details of Capricorn’s offices and Capricorn’s advisers are given at the end of this report.
Change of control
All of the Company’s share incentive plans contain provisions relating to a change of control and further details of these plans are
provided in the Directors’ Remuneration Report on pages 76 to 109. Generally, outstanding options and awards will vest and become
exercisable on a change of control, subject to the satisfaction of performance conditions, if applicable, at that time.
Other than in respect of the US$325m senior debt facility agreement entered into by Capricorn Egypt Limited and its partner Cheiron Oil &
Gas Ltd (“Cheiron”) with Société Générale and other syndicated banks dated 24 June 2021 and the US$80m junior debt facility agreement
entered into by Capricorn Egypt Limited and its partner Cheiron with Trafigura Ventures V B.V. and Deutsche Bank AG. dated 24 June 2021
(together the “Egypt Facility Agreements”), there are no significant agreements to which the Company or a member of the Group is a party
that take effect, alter or terminate in the event of a change of control of the Company. In terms of each of the Egypt Facility Agreements,
if there is a change of control of the Company, the majority lenders may cancel the commitments and all outstanding amounts will
become immediately due and payable.
Corporate governance
The Company’s Corporate Governance Statement is set out on pages 54 to 65 and is deemed to form part of this report by reference.
Directors
The names and biographical details of the current Directors of the Company are given in the Board of Directors section on pages 50 and
51. The beneficial interests of the Directors in the ordinary shares of the Company are shown below:
As at
31 December 2021
Number of shares
As at
31 December 2022
Number of shares
As at
26 April 2023
Number of shares
Chris Cox1
Craig van der Laan1
Maria Gordon1
Richard Herbert1
Hesham Mekawi1
Catherine Krajicek
Erik B. Daugbjerg
Tom Pitts1
Former Directors
Simon Thomson2
James Smith3
Nicoletta Giadrossi2
Keith Lough3
Peter Kallos2
Alison Wood2
Luis Araujo4
–
–
–
–
–
0
0
–
–
–
–
–
–
0
0
–
1,150,319
27,433
0
0
703,190
31,864
0
0
9,292
9,292
0
–
0
0
0
0
0
0
0
0
0
0
–
–
–
–
–
–
–
Notes:
1 Appointed as a Director on 1 February 2023.
2 Resigned as a Director on 24 January 2023.
3 Resigned as a Director on 1 February 2023.
4 Luis Araujo was appointed as a Director on 11 May 2022 and resigned from this appointment on 24 January 2023.
Annual Report and Accounts 2022
113
Details of outstanding awards over ordinary shares in the Company held by the Directors (or any members of their families) are set out
in the Directors’ Remuneration Report on pages 102 to 104.
None of the Directors have a material interest in any contract, other than a service contract or letter of appointment, with the Company
or any of its subsidiary undertakings. Details of the Directors’ service contracts and letters of appointment are set out in the Directors’
Remuneration Report on pages 86 and 87.
Share capital
The issued share capital of the Company is shown in section 7.1 of the notes to the Financial Statements. As at 26 April 2023,
315,072,439 ordinary shares of 21/13 pence each have been issued, are fully paid up and are quoted on the London Stock Exchange.
The rights attaching to the ordinary shares are set out in the Company’s Articles of Association. There are no special control rights in
relation to the Company’s shares and the Company is not aware of any agreements between holders of securities that may result in
restrictions on the transfer of securities or on voting rights.
Voting rights
The following paragraph details the position in relation to voting rights attaching to shares set out in the Company’s Articles of
Association. However, the Company recognises that best practice is now to hold a poll on all shareholder resolutions. It is the Company’s
current practice, therefore, to hold a poll and it is committed to doing so going forward.
Subject to any special rights or restrictions attaching to any class of shares, at a general meeting or class meeting, on a show of hands,
every member present in person and every duly appointed proxy entitled to vote shall have one vote and on a poll, every member
present in person or by proxy and entitled to vote shall have one vote for every share held by him/her. In the case of joint holders of a
share, the vote of the senior member who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes
of the other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the register of
members in respect of the joint holding. Under the Companies Act 2006, members are entitled to appoint a proxy, who need not be
a member of the Company, to exercise all or any of their rights to attend and to speak and vote on their behalf at a general meeting or
class meeting. A member may appoint more than one proxy in relation to a general meeting or class meeting provided that each proxy
is appointed to exercise the rights attached to a different share or shares held by that member. A corporation which is a member of the
Company may authorise one or more individuals to act as its representative or representatives at any meeting of the Company, or at any
separate meeting of the holders of any class of shares. A person so authorised shall be entitled to exercise the same powers on behalf of
such corporation as the corporation could exercise if it were an individual member of the Company.
Restrictions on voting
No member shall, unless the Directors of the Company otherwise determine, be entitled in respect of any share held by him/her to
attend or vote at a general meeting of the Company either in person or by proxy if any call or other sum presently payable by him/her to
the Company in respect of shares in the Company remains unpaid. Further, if a member has been served with a notice by the Company
under the Companies Act 2006 requesting information concerning interests in shares and has failed in relation to any shares to provide
the Company, within 14 days of the notice, with such information, the Directors of the Company may determine that such member shall
not be entitled in respect of such shares to attend or vote (either in person or by proxy) at any general meeting or at any separate general
or class meeting of the holders of that class of shares. Proxy forms must be submitted not less than 48 hours (or such shorter time as the
Board may determine) (excluding, at the Board’s discretion, any part of any day that is not a working day) before the time appointed for
the holding of the meeting or adjourned meeting or, in the case of a poll taken more than 48 hours after it was demanded, not less than
24 hours (or such shorter time as the Board may determine) before the time appointed for the taking of the poll at which it is to be used.
Variation of rights
Whenever the share capital of the Company is divided into different classes of shares, all or any of the special rights attached to any class
may, subject to statute and unless otherwise expressly provided by the rights attached to the shares of that class, be varied or abrogated
either with the consent in writing of the holders of not less than three-quarters in nominal value of the issued shares of that class or with
the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. At every such separate
general meeting, the quorum shall be two persons holding or representing by proxy at least one-third in nominal value of the issued
shares of the class. These provisions also apply to the variation or abrogation of the special rights attached to some only of the shares of
any class as if the shares concerned and the remaining shares of such class formed separate classes. The rights attached to any class of
shares shall, unless otherwise expressly provided by the terms of issue of such shares or the terms upon which such shares are for the
time being held, be deemed not to be varied or abrogated by the creation or issue of further shares ranking pari passu with, or
subsequent to, the first mentioned shares or by the purchase by the Company of its own shares.
Transfer of shares
Subject to any procedures set out by the Directors in accordance with the Articles of Association, all transfers of shares shall be effected
by instrument in writing in any usual or common form or in any other form acceptable to the Directors of the Company. The instrument
of transfer shall be executed by, or on behalf of, the transferor and (except in the case of fully paid shares) by, or on behalf of, the transferee.
The transferor shall be deemed to remain the holder of the shares concerned until the name of the transferee is entered in the register of
members of the Company.
The Directors may, in their absolute discretion and without assigning any reason therefor, refuse to register a transfer of any share which is
not a fully paid share unless such share is listed on the Official List of the UK Listing Authority and traded on the London Stock Exchange’s
main market for listed securities. The Directors may also refuse to register a transfer of a share in uncertificated form where the Company
is entitled to refuse (or is excepted from the requirement) under the Uncertificated Securities Regulations 2001 to register the transfer
and they may refuse any such transfer in favour of more than four transferees.
The Directors may also refuse to register any transfer of a share on which the Company has a lien.
The Directors may, in their absolute discretion and without assigning any reason therefore refuse to register a transfer of any share
in certificated form unless the relevant instrument of transfer is in respect of only one class of share, is duly stamped or adjudged or
certified as not chargeable to stamp duty, is lodged at the transfer office or at such other place as the Directors may determine, is
accompanied by the relevant share certificate(s) and such other evidence as the Directors may reasonably require to show the right
of the transferor to make the transfer and is in favour of not more than four transferees jointly. If the Directors refuse to register a transfer,
Leadership and Governance Capricorn Energy PLC
114
Annual Report and Accounts 2022
Directors’ Report continued
they shall, as soon as practicable and in any event within two months after the date on which the transfer was lodged with the Company
(in the case of a share in certificated form) or the date on which the operator instruction (as defined in the Uncertificated Securities
Regulations 2001) was received by the Company (in the case of a share in uncertificated form) (or in either case such longer or shorter
period (if any) as the Listing Rules may from time to time permit or require), send to the transferee notice of the refusal.
Major interests in share capital
As at 31 December 2022 and 17 April 2023 (being the latest practicable date prior to the date of this report), the Company had received
notification that shareholdings of 3% and over were as set out in the table below.
Fund Manager
Madison Avenue Partners
Kite Lake Capital Management
Palliser Capital
Newtyn Partners
BlackRock
Vanguard Group
Dimensional Fund Advisors
Legal & General Investment Management
Sand Grove Capital Management
Irenic Capital Management
Shares as at
31 December 2022
% Share
Capital
Shares as at
17 April 2023
% Share
Capital
25,380,902
23,293,368
21,596,799
19,064,348
16,765,359
14,996,549
14,142,546
12,219,212
9,791,451
5,055,155
8.06
7.39
6.85
6.05
5.32
4.76
4.49
3.88
3.11
1.60
25,380,902
23,293,368
23,559,258
22,034,542
17,897,874
11,231,682
14,144,523
13,092,320
9,791,451
17,302,847
8.06
7.39
7.48
6.99
5.68
3.56
4.49
4.16
3.11
5.49
Political donations
No political donations were made and no political expenditure was incurred during the year.
Greenhouse gas emissions
Details of the Group’s greenhouse gas emissions can be found in the Strategic Report section on pages 22 to 24, which are deemed to
form part of this report by reference. Our response to the Streamline Energy and Carbon Reporting (SECR) framework has been provided
on pages 22 and 23 of this Annual Report and Accounts and is also deemed to form part of this report by reference.
Employee and stakeholder engagement
Details of the Company’s engagement with employees and external stakeholders are noted in the Strategic Report on pages 25 to 27
and in our Section 172 Statement on pages 40 and 41, which are hereby incorporated in this report by reference.
Financial instruments
The financial risk management objectives and policies of the Company are detailed in Section 3.8 of the Financial Statements.
Disclosure of information under LR 9.8.4C
For the purposes of Listing Rule 9.8.4C, the Company confirms there are no disclosures to be made in respect of Listing Rule 9.8.4R.
Acquisition of Own Shares
Following receipt of the India tax refund proceeds of approximately US$1.06 billion, Capricorn undertook to return up to US$700 million
to shareholders. Having consulted with shareholders on the capital return options, it was determined that the most appropriate means of
returning value was to conduct a tender offer to return up to US$500 million and to return a further sum of up to US$200 million by way
of an ongoing share repurchase programme.
In November 2021, the Company commenced a share buyback programme of an initial amount of up to £20 million out of the planned
US$200 million programme, to be purchased for cancellation. Capricorn entered into an agreement with its brokers, Morgan Stanley,
to repurchase for cancellation ordinary shares in the capital of the Company on the Company’s behalf and within certain pre-set parameters.
This programme finished on 28 February 2022, at which point, 4,432,805 ordinary shares had been repurchased and were subsequently
cancelled. The nominal value of the shares purchased was £71,606.85 and the aggregate amount of consideration paid by the Company
(excluding dealing and associated costs) for those shares was £8,381,754.12.
On 7 April 2022, the Company commenced another share buyback programme as part of the wider return of up to US$200 million.
For this tranche, Capricorn entered into a non-discretionary arrangement with JP Morgan Securities plc in relation to the purchase by
JP Morgan Securities plc of ordinary shares in the capital of the Company for an initial aggregate purchase price of up to US$25,000,000
and the on-sale of such shares to Capricorn for cancellation. This programme finished on 6 July 2022 and resulted in the purchase and
subsequent cancellation of 9,427,439 ordinary shares in the capital of the Company.
The tender offer opened in March 2022, through which shareholders were invited to tender some or all of their shareholding for purchase
pursuant to terms set out in the corresponding shareholder circular. The tender offer completed on 6 April 2022 and 171,073,128
ordinary shares (representing approximately 34.52% of the issued ordinary share capital of the Company as at that date) were purchased
at the strike price of 223 pence per share and were subsequently cancelled. The total value of the ordinary shares purchased through the
tender offer was £381,493,075, being the equivalent of approximately US$500 million.
Additionally, further to the Company’s strategic review which began on 1 February 2023, the Board is committed to returning to
shareholders all excess cash flow not required for its future core operational focus. This process will include a share buyback of at least
US$25m over the next twelve months.
Appointment and replacement of Directors
The Company’s Articles of Association provide that Directors can be appointed by the Company by ordinary resolution, or by the Board.
The Nomination & Governance Committee makes recommendations to the Board on the appointment and replacement of Directors.
Further details of the rules governing the appointment and replacement of Directors are set out in the Corporate Governance Statement
on page 58 and in the Company’s Articles of Association.
Annual Report and Accounts 2022
115
Directors’ indemnities
As permitted by the Company’s Articles of Association, the Directors have the benefit of an indemnity which is a qualifying third-party
indemnity provision as defined in Section 234 of the Companies Act 2006 (a “Qualifying Third Party Indemnity Provision”). The indemnity
was in force throughout the last financial year and is currently in force.
Powers of the Directors
Subject to the Company’s Articles of Association, UK legislation and any directions given by special resolution, the business of the
Company is managed by the Board. The Directors currently have powers both in relation to the issuing and buying back of the Company’s
shares and are seeking renewal of these powers at the forthcoming AGM.
Articles of Association
Unless expressly specified to the contrary therein, the Company’s Articles of Association may be amended by a special resolution of the
Company’s shareholders.
Directors’ responsibility statement
The Directors are responsible for preparing the Annual Report and Accounts, the Directors’ Remuneration Report and the Financial
Statements in accordance with applicable laws and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have prepared
the Group and parent Company Financial Statements in accordance with UK-adopted international accounting standards in conformity
with the requirements of the Companies Act 2006. Additionally, the Financial Conduct Authority’s Disclosure Guidance and Transparency
Rules require the Directors to prepare the Group Financial Statements in accordance with international financial reporting standards
adopted by the UK. Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and Company for that
period. In preparing these Financial Statements, the Directors are required to:
– select suitable accounting policies and then apply them consistently;
– make judgements and accounting estimates that are reasonable and prudent;
– state whether for the Group and Company, international accounting standards in conformity with the requirements of the Companies
Act 2006 and, for the Group, UK-adopted international financial reporting standards have been followed, subject to any material
departures disclosed and explained in the Financial Statements; and
– prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue
in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions
and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the
Financial Statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group Financial
Statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and Group and hence
for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company’s website (www.capricornenergy.com). Legislation in the
United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Following careful review and consideration of the Capricorn Energy PLC Annual Report and Accounts 2022 (the ‘Accounts’), the Directors
consider that the Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders
to assess the Group’s performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the Board of Directors section on pages 50 and 51, confirm that, to the
best of their knowledge:
– the Group Financial Statements, which have been prepared in accordance with UK-adopted International Financial Reporting
Standards (IFRS), give a true and fair view of the assets, liabilities, financial position, and loss of the Group and profit of the Company; and
– the Strategic Report section on pages 2 to 47 of this document includes a fair review of the development and performance of the
business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
Disclosure of Information to Auditors
Each of the Directors of the Company as at 27 April 2023, being the date this report is approved, confirm that, as far as they are aware,
there is no relevant audit information of which the Company’s auditors are unaware. In making this confirmation, the Directors have taken
appropriate steps to make themselves aware of the relevant audit information and to establish that the Company’s auditors are aware of
this information.
AGM 2023
The AGM of the Company will be held at The Gallery, Kimpton Charlotte Square Hotel, 38 Charlotte Square, Edinburgh EH2 4HQ at
12.00 noon on Tuesday 20 June 2023. The resolutions to be proposed at the AGM are set out and fully explained in the Notice of AGM
which has been posted to shareholders together with this Annual Report and Accounts. Full details are included in the Notice of AGM.
Recommendation
The Board considers that all of the resolutions to be considered at the AGM are in the best interests of the Company and its shareholders
as a whole and unanimously recommends that you vote in favour of all of the proposed resolutions.
This Annual Report was approved by the Board of Directors and authorised for issue on 27 April 2023.
By order of the Board
Anne McSherry
Company Secretary
27 April 2023
Leadership and Governance Capricorn Energy PLC
116
Annual Report and Accounts 2022
Financial
Statements
Annual Report and Accounts 2022
117
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
1.1 Accounting Policies
1.2 Going Concern
Section 2 – Oil and Gas Assets, Operations
and Other Non-Current Assets
2.1 Gross Profit: Revenue and Cost of Sales
2.2 Intangible Exploration/Appraisal Assets
2.3 Property, Plant & Equipment –
Development/Producing Assets
2.4 Goodwill
2.5 Other Property, Plant & Equipment
and Intangible Assets
2.6 Capital Commitments
2.7 Impairment Sensitivity Analysis
Section 3 – Working Capital, Financial
Instruments and Long-Term Liabilities
3.1 Cash and Cash Equivalents
3.2 Loans and Borrowings
3.3 Inventory
3.4 Trade and Other Receivables
3.5 Financial Assets and Financial Liabilities
at Fair Value Through Profit or Loss
3.6 Trade and Other Payables
3.7 Financial Instruments
3.8 Financial Risk Management:
Objectives and Policies
Section 4 – Income Statement analysis
4.1 Segmental Analysis
4.2 Pre-Award Costs
4.3 Administrative and Other Expenses
4.4 Employee Benefits: Staff Costs, Share-Based
Payments and Directors’ Emoluments
4.5 Finance Income
4.6 Finance Costs
4.7 Earnings per Ordinary Share
4.8 Exceptional Income – India Tax Refund
118
126
126
127
128
129
130
131
133
134
136
138
138
138
139
140
141
141
142
143
144
145
147
149
152
152
152
155
155
155
156
Section 5 – Taxation
5.1 Tax Strategy and Governance
5.2 Tax Charge on (Loss)/Profit for the Year
5.3 Deferred Tax Assets and Liabilities
Section 6 – Discontinued Operations and
Business Combination
6.1 Profit from Discontinued Operations
6.2 Cash Flow Information for
Discontinued Operations
6.3 Prior Year Business Combination
6.4 Discontinued Operations – Senegal
Contingent Asset
Section 7 – Capital Structure
and Other Disclosures
7.1 Issued Capital and Reserves
7.2 Return of Cash to Shareholders
7.3 Capital Management
7.4 Guarantees
7.5 Auditors’ Remuneration
Company Financial Statements
Company Balance Sheet
Company Statement of Cash Flows
Company Statement of Changes in Equity
Section 8 – Notes to the
Company Financial Statements
8.1 Basis of Preparation
8.2 Investments in Subsidiaries
8.3 Long-Term Intercompany Receivables
8.4 Cash and Cash Equivalents
8.5 Other Receivables
8.6 Trade and Other Payables
8.7 Financial Instruments
8.8 Capital Management
8.9 Related Party Transactions
158
158
159
161
162
163
164
165
166
166
166
167
168
169
170
171
171
174
174
174
174
174
176
176
Financial Statements Capricorn Energy PLC
118
Annual Report and Accounts 2022
Independent Auditors’ Report to the Members of Capricorn Energy PLC
Report on the audit of the financial statements
Opinion
In our opinion, Capricorn Energy PLC’s group financial statements and company financial statements (the “financial statements”):
– give a true and fair view of the state of the group’s and of the company’s affairs as at 31 December 2022 and of the group’s loss and
the group’s and company’s cash flows for the year then ended;
– have been properly prepared in accordance with UK-adopted international accounting standards as applied in accordance with the
provisions of the Companies Act 2006; and
– have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report, which comprise: the Group and Company Balance Sheets
as at 31 December 2022; the Group Income Statement, the Group Statement of Comprehensive Income, the Group and Company
Statements of Cash Flows and the Group and Company Statements of Changes in Equity for the year then ended; and the notes to the
financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided.
Other than those disclosed in note 7.5, we have provided no non-audit services to the company or its controlled undertakings in the
period under audit.
Our audit approach
Context
Capricorn Energy PLC is an independent, UK-based energy company, focused on oil and gas exploration, development and production.
Capricorn’s activities are focused in North West Europe, North and West Africa and Latin America. In the comparative period Capricorn
sold its interest in the Catcher and Kraken North Sea producing assets and acquired a working interest in production, development and
exploration assets in Egypt. Capricorn’s headquarters and finance team are in Edinburgh supported by small finance teams in Mexico
and Egypt.
Overview
Audit scope
– We conducted audit work on 8 components. 3 of these components were subject to a full scope audit, the remaining 5 were subject
to specified scope. All audit work performed to support the group audit report was performed by the group engagement team in the
UK. Our audit scope covered 92% of total assets.
Key audit matters
– Going Concern Assessment (group and company)
– Valuation of production assets (group)
– Valuation of Goodwill (group)
– Valuation of intangible exploration assets (group)
– Valuation of contingent consideration receivable arising from sale of North Sea assets (group)
– Valuation of Investments in subsidiaries (company)
Materiality
– Overall group materiality: US$15,300,000 (2021: US$15,450,000) based on 1% of Total Assets.
– Overall company materiality: US$12,500,000 (2021: US$12,000,000) based on 1% of Total Assets.
– Performance materiality: US$11,475,000 (2021: US$11,600,000) (group) and US$9,375,000 (2021: US$9,000,00) (company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Going concern assessment, valuation of producing assets, valuation of Goodwill and valuation of investments in subsidiaries are new key
audit matters this year. Valuation of the producing assets acquired and contingent consideration payable in Egypt and Presentation of
settlement from Government of India, which were key audit matters last year, are no longer included because of the fact that they did not
represent a significant risk or area of significant focus. Otherwise, the key audit matters below are consistent with last year.
Annual Report and Accounts 2022
119
Key audit matter
How our audit addressed the key audit matter
Our audit procedures and conclusions relating to going concern are
set out in the “Conclusions relation to going concern” section below.
Going Concern Assessment (group and company)
As disclosed in Note 1.2 Going concern, the company’s
board are proposing a return of US$450.0m cash to
shareholders and with further planned cash returns of
US$100.0m and a US$25.0m share buy-back.
Under the terms of the borrowing facilities entered into in
connection with the group’s Egypt assets, a subsidiary of
the group jointly and severally guarantees performance of
the obligations of the joint venture counterparty. Should
the counterparty fail to meet its repayment obligations,
the lenders could enforce this guarantee.
Significant auditor attention was required in assessing the
group’s cash flow forecasts under various scenarios and
evaluating the sufficiency of the group’s funding to meet
its current and contracted commitments as and when they
fall due for at least the 12 month period from the date of
approval of the Financial Statements.
Valuation of production assets (group)
Under IAS 36, where there is an impairment trigger, assets
must be evaluated for impairment.
In auditing the impairment of producing assets for the year ended
31 December 2022, we have performed the following procedures:
– Validated the reserves estimates prepared by management’s
Following the performance from producing wells being
below expectation and a downgrade in reserve volumes
management have assessed that there is an impairment
trigger on the Group’s producing assets in Egypt.
internal and external experts. We evaluated management’s internal
and external reserves experts for competence and objectivity;
– Discussed reserves estimates with management’s reserves experts
to assess any key judgements or differences between the internal
and external experts. Where there were differences, we sought
explanations for these;
Management estimates the recoverable amount of the
producing assets using a discounted cash flow model,
which estimates the future cash flow projections over the
licence period of the assets, discounted back to present day.
– Understood the source of the operator’s forecasts of oil and gas
production, validated to reserves data, compared to operator
budgets and assessed Capricorn’s previous ability to forecast oil
and gas production figures;
The key assumptions used by management include the
following: Discount rate, Short term oil price, Long Term
oil price, future capital and operating costs and estimates
of hydrocarbon reserves.
Based upon the discounted cash flow projections used
by management, there was an impairment charge of
US$42.6m recognised in relation to the AESW and
Obaiyed concession areas in the current year.
Refer to notes 2.3 and 2.7 to the financial statements
– Assessed the operating and capital cost forecasts used in the
model by validating to operator forecasts and other evidence
where appropriate;
– Benchmarked key assumptions including comparing the
commodity price, inflation and discount rates used to expected
ranges prepared by our own Valuation experts;
– Assessed each of the individual concession agreements to confirm
terms that may affect the valuation;
– Assessed the composition of each CGU based on the requirements
of IAS 36;
– Validated the mathematical accuracy and integrity of the model for
each concession and agreeing the net book values to Capricorn’s
books and records;
– Assessed the results of management’s sensitivity analysis, and
performed our own sensitivities;
– Considered the global focus on clean energy transition and climate
change in the context of the key assumptions made, in particular in
relation to the estimation of the cost of carbon; and
– Assessed the disclosures in the financial statements to confirm that
they are in line with the model reviewed.
We found that the discount rate used by management to be below
our independently assessed market benchmark range. Our audit
therefore focused on the sensitivity of the impairment assessments to
movements in the key assumptions and there was not a material
difference when we applied assumptions within the acceptable range.
We determined that management’s disclosures were appropriate.
Financial Statements Capricorn Energy PLC
120
Annual Report and Accounts 2022
Independent Auditors’ Report to the Members of Capricorn Energy PLC continued
Valuation of Goodwill (Group)
Goodwill of US$25.4m arose on the acquisition of the
Western Desert assets in Egypt in 2021.
Under IAS 36 Goodwill is required to be tested for impairment
annually, and management performed this test as at
31 December 2022.
Management estimates the recoverable amount of the
producing assets using a discounted cash flow model,
which estimates the future cash flow projections over the
licence period of the assets, discounted back to present day.
The key assumptions used by management include the
following: Discount rate, Short term oil price, Long Term
oil price, future capital and operating costs and estimates
of the reserves.
Based upon the discounted cash flow projections used
by management, there was no impairment to Goodwill
in the current year.
Refer to notes 2.4, 2.7 and 6.3 to the financial statements.
In auditing the valuation of goodwill for the year ended 31 December
2022, we have completed the following procedures:
– Compared the following assumptions used in the assessment
of the valuation of goodwill to the assumptions audited as part
of the producing assets impairment testing as per above:
•
•
• historical costs used in the calculations;
the operating and capital cost forecasts;
•
•
impact of climate change on the forecasts; and
• key assumptions including comparing the commodity price,
reserves estimates;
forecast oil and gas production per concession;
inflation and discount rates
– Validated the mathematical accuracy and integrity of the model
and agreeing the net book value of assets and liabilities into
Capricorn’s books and records;
– Assessed the results of management’s sensitivity analysis, and
performed our own sensitivities; and
– Assessed the disclosures in the financial statements.
We found that the discount rate used by management to be below
our independently assessed market benchmark range, however there
was no difference in the conclusion that there was not an impairment
of goodwill in the current year.
We also assessed management’s conclusion on sensitivity disclosures
and agree that no impairment arises under any of the sensitivities
performed.
Therefore we have concluded that management’s conclusion and
disclosures are appropriate.
Valuation of intangible exploration assets (group)
The Group has exploration and appraisal assets of US$95.2m
at 31 December 2022.
IFRS 6 requires exploration and evaluation assets to be
assessed for impairment when facts and circumstances
suggest that the carrying amount of an exploration and
evaluation asset may exceed its recoverable amount.
Management’s assessment for impairment triggers
conducted on the Group’s capitalised exploration and
evaluation assets did not identify any indicators of impairment
beyond the unsuccessful exploration costs and impairment
charges recognised in the Group’s income statement.
In auditing the valuation of intangible exploration and evaluation
assets for the year ended 31 December 2022, we have completed the
following procedures:
– Obtained and challenged management’s assumptions in relation
to impairment triggers;
– Obtained evidence that the licences are still held by Capricorn and
expiry is not imminent or there is evidence to support the likelihood
of licence extension;
– Obtained budgets to evidence plans for further exploration works
at the assets at 31 December 2022, including meeting minimal
work commitments under the licences;
– Reviewed the results of any exploration activities in the period;
– Reviewed board minutes for any evidence as at 31 December 2022
that would indicate that the licences will not be maintained; and
Refer to note 2.2 to the financial statements
– Reviewed the financial statement disclosures.
We did not identify any additional triggers that had not been
identified by management.
Annual Report and Accounts 2022
121
Valuation of contingent consideration receivable
arising from sale of North Sea assets (group)
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 was
completed on 2 November 2021.
Included in the consideration receivable for the sale is an
additional contingent consideration ("earn-out consideration"),
which is dependent on future oil prices from 2021 to the end
of 2025 and the production levels being achieved by the assets
in that period.
As at 31 December 2022 management recorded the
contingent consideration at a fair value of US$224.1m.
Refer to note 6.1 to the financial statements.
Valuation of Investments in subsidiaries (company)
The carrying value of investments in the company balance
sheet is US$597.8m.
At the year end, investments in subsidiaries were reviewed for
indicators of impairment and impairment tests conducted
where indicators were identified. Following this review,
management concluded that the investment in Cairn UK
Holdings Limited was fully impaired due to the distribution
of the settlement from the Government of India, resulting
in a charge to the income statement of US$387.7m.
In addition, the Company’s investment in Capricorn Oil Limited
was also impaired to reflect the fair value of the underlying
assets of the Capricorn Oil Group. The fall in the value of the
investments in the Capricorn Oil Group is principally due to
a reduction in the fair value of the Group’s underlying assets.
This resulted in a charge of US$178.6m to the Income
Statement in 2022.
This is an area of audit focus because the support for the
carrying value is based on judgements and estimates made
by management in their impairment assessment, in particular
in respect of projected cash flows and discount rate.
Refer to note 8.2 to the financial statements
In auditing the valuation of the contingent consideration, we have
performed the following procedures:
– Obtained the sale and purchase agreement to verify terms and
conditions under which the contingent consideration is calculated
and payable;
– Obtained corroborative evidence to support the estimation of
future production figures, including comparing to actual historical
production and previous forecasts provided by the operators of
Kraken and Catcher;
– Obtained the external valuation report provided to management
and assessed oil price assumptions utilised by management
through comparison to oil price assumptions provided by our
valuations experts;
– Engaged PwC Valuation experts to assess the appropriateness
of the contingent consideration valuation methodology and
model used by management’s experts to determine their fair
value of the award;
– Challenged the application of credit risk in management’s
calculation including engaged PwC Valuations experts to
independently assess the credit risk adjustment relating to
the counterparty;
– Validated the mathematical accuracy of management’s final model
and performed sensitivities on the fair value of the consideration;
– Verified payment of the amounts due in March 2023 to the bank
statements; and
– Evaluated the disclosure in the financial statements.
We found that the credit risk assumption used by management
was different from that determined by our internal valuation experts,
however the difference did not materially impact the valuation.
We found that management’s methodology was appropriate and
the other assumptions were supportable. We determined that
management’s disclosures were materially appropriate.
In assessing the carrying value of investments in subsidiaries, we
undertook the following work:
– For the investment in Cairn UK Holdings we verified dividends paid
by the entity during 2022 to board minutes in order to conclude
that the asset had no remaining value after the distribution of the
proceeds arising from the settlement with the Government of India;
– For the investment in Capricorn Oil Group, we compared the
resulting investment balance to our audit work on the other assets
and liabilities of the Group, including considering the impact on
underlying fair value;
– Validated the mathematical accuracy and integrity of the model
and agreed the net book value of assets and liabilities into
Capricorn’s books and records;
– Agreed the cash balances in the group to the underlying
confirmations of cash for the in scope subsidiaries; and
– Evaluated the disclosure in the financial statements.
Based on the procedure, we concluded that the valuation of
investments in subsidiaries is appropriate.
Financial Statements
Capricorn Energy PLC
122
Annual Report and Accounts 2022
Independent Auditors’ Report to the Members of Capricorn Energy PLC continued
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements
as a whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry
in which they operate.
The Group’s activities are managed centrally from the Group’s Head Office in Edinburgh, with components representing each of the
geographical locations in which they operate. We have included components which accounted for the largest share of the Group’s
results or where we considered there to be areas of significant risk. We identified 3 components which, in our view, required an audit
of their complete financial information due to their relative size or risk characteristics. The work in the remaining 5 components was
determined by their individual contribution to the Group’s overall financial performance or balance sheet, and their risk profile. All
components were audited by the Group engagement team in the UK.
The impact of climate risk on our audit
Our audits considered the impact of climate change. As part of our audit, we made enquiries with management to understand the process
adopted to assess the extent of the potential impact of climate risk on the Group’s financial statements and to support the disclosures
made in the Sustainability Review in the Strategic Report. We also read the Group’s governance process in response to climate risk.
Using our knowledge of the business, we focused our work on how the impact of climate commitments made by the Group would
impact the assumptions within the discounted cash flows prepared by management that are used in the Group’s goodwill and
producing asset impairment tests. We also evaluated whether the impact of both physical and transitional risks had been appropriately
included in management’s going concern and viability assessments. We challenged the completeness of management’s climate impact
assessment by reading the external reporting made by management as well as internal climate plans and Board minutes.
We also considered the completeness of the impact on financial statement line items by comparing management’s assessment of the
impact of climate risk, including the potential impact on the underlying assumptions and estimates as outlined in the basis of preparation
in note 1.2 of the Notes to the Group financial statements.
Finally, we assessed the consistency of the information in the front half of the Annual Report regarding the Task Force on Climate-Related
Financial Disclosures (TCFD) and the financial statements.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality US$15,300,000 (2021: US$15,450,000).
US$12,500,000 (2021: US$12,000,000).
Financial statements – group
Financial statements – company
How we
determined it
1% of Total Assets
Rationale for
benchmark applied
We believe that total assets is an appropriate measure
that reflects the size of the Group’s operations
1% of Total Assets, capped at 90% of the group
materiality
The company’s purpose is to hold investments in the
subsidiaries of the group. The company has limited
income statement transactions, therefore the
appropriate benchmark for assessing materiality is total
assets.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range
of materiality allocated across components was US$532,000 and US$14,100,000. Certain components were audited to a local statutory
audit materiality that was also less than our overall group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the
nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes.
Our performance materiality was 75% (2021: 75%) of overall materiality, amounting to US$11,475,000 (2021: US$11,600,000) for the
group financial statements and US$9,375,000 (2021: US$9,000,000) for the company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and
aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above US$765,000
(group audit) (2021: US$685,000) and US$625,000 (company audit) (2021: US$615,000) as well as misstatements below those amounts
that, in our view, warranted reporting for qualitative reasons.
Annual Report and Accounts 2022
123
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group’s and the company’s ability to continue to adopt the going concern basis of
accounting included:
– Obtaining and evaluating management’s going concern assessment, base case forecasts and downside scenarios, and comparing
the forecasts to approved budgets;
– Considering the historical reliability of management’s cash flow forecasting;
– Assessing key inputs into the models, including cost assumptions, commodity prices, production forecasts, forecast distributions and
payment profiles, comparing these to the inputs used in other key accounting estimates in the financial statements or other sources
of evidence;
– Assessing the mitigating actions identified by management in downside scenarios and corroborating these to internal and external
sources of evidence;
– Obtaining and confirming the opening cash balances and the terms and conditions associated with debt facilities and ensuring these
are appropriately considered in the model;
– Assessing management’s consideration of the impact on the going concern analysis of the cross guarantee clauses contained within
the Group’s debt facility relating to its assets in Egypt;
– Assessed management’s sensitivity analysis to understand the impact of changes in cash flow on the resources available to the group;
– Assessing the mathematical accuracy of management’s model; and
– Evaluating the disclosures in relation to management’s going concern assessment.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the group’s and the company’s ability to continue as a going concern for a period of at least
twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group’s and the
company’s ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate
to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this
report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information, which includes reporting based on the Task Force on Climate-related
Financial Disclosures (TCFD) recommendations. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance
thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required
to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information,
we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ Report, we also considered whether the disclosures required by the UK Companies
Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and
matters as described below.
Strategic report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’
Report for the year ended 31 December 2022 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit,
we did not identify any material misstatements in the Strategic report and Directors’ Report.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Financial Statements Capricorn Energy PLC
124
Annual Report and Accounts 2022
Independent Auditors’ Report to the Members of Capricorn Energy PLC continued
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the
corporate governance statement relating to the company’s compliance with the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information are
described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing
material to add or draw attention to in relation to:
– The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
– The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
– The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material uncertainties to the group’s and company’s ability to continue to
do so over a period of at least twelve months from the date of approval of the financial statements;
– The directors’ explanation as to their assessment of the group’s and company’s prospects, the period this assessment covers and why
the period is appropriate; and
– The directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in operation and
meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the group and company was substantially less in scope than
an audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the
statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement
is consistent with the financial statements and our knowledge and understanding of the group and company and their environment
obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial statements and our knowledge obtained during the audit:
– The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides
the information necessary for the members to assess the group’s and company’s position, performance, business model and strategy;
– The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
– The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s compliance
with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review
by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibility Statement, the directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also
responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to compliance with production sharing contracts in Egypt and other oil and gas regulations, and we considered the extent to which
non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a
direct impact on the financial statements such as the Companies Act 2006 and tax legislation. We evaluated management’s incentives
and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that
the principal risks were related to posting inappropriate journal entries in relation to management override of controls. Audit procedures
performed by the engagement team included:
– Enquiries of management around known or suspected instances of non-compliance with laws and regulations, claims and litigation,
and instances of fraud;
– Evaluation of management’s controls designed to prevent and detect irregularities;
– Review of board minutes;
– Challenging management on judgements and on the assumptions and judgements made in their significant accounting estimates;
– Identifying and testing journal entries, including any journal entries representing unusual account combinations.
Annual Report and Accounts 2022
125
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance
with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not
detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We
will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to
enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– we have not obtained all the information and explanations we require for our audit; or
– adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from
branches not visited by us; or
– certain disclosures of directors’ remuneration specified by law are not made; or
– the company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 23 May 2013 to audit the financial
statements for the year ended 31 December 2013 and subsequent financial periods. The period of total uninterrupted engagement
is 10 years, covering the years ended 31 December 2013 to 31 December 2022.
Other matter
In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial
statements will form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct
Authority in accordance with the ESEF Regulatory Technical Standard (’ESEF RTS’). This auditors’ report provides no assurance over
whether the annual financial report will be prepared using the single electronic format specified in the ESEF RTS.
Bruce Collins (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
27 April 2023
Financial Statements
Capricorn Energy PLC
126
Annual Report and Accounts 2022
Group Income Statement
For the year ended 31 December 2022
Continuing operations
Revenue
Other income
Cost of sales
Depletion charge
Gross profit
Pre-award costs
Unsuccessful exploration costs
Impairment of intangible exploration/appraisal assets
Impairment of property, plant & equipment – development/producing assets
Other operating income
Administrative and other expenses
Operating loss
Fair value loss – deferred consideration on business combinations
Gain on financial assets at fair value through profit or loss
Finance income
Finance costs
Exceptional income – India tax refund
(Loss)/Profit before tax from continuing operations
Taxation
Tax charge
(Loss)/Profit from continuing operations
Note
2022
US$m
2021
US$m
2.1
2.1
2.1
2.3
4.2
2.2
2.2
2.3
4.3
3.5
4.5
4.6
4.8
5.2
229.6
54.8
(71.2)
(124.1)
89.1
(9.2)
(93.5)
–
(42.6)
5.8
(65.0)
57.1
7.3
(20.5)
(31.2)
12.7
(15.8)
(50.6)
(19.6)
–
0.6
(58.2)
(115.4)
(130.9)
(12.7)
2.3
15.7
(18.2)
–
(7.2)
5.5
4.5
(68.9)
1,070.7
(128.3)
873.7
(32.0)
(160.3)
(4.2)
869.5
Profit from discontinued operations
6.1
109.3
25.0
(Loss)/Profit for the year attributable to equity holders of the Parent
(51.0)
894.5
Earnings per share for (loss)/profit from continuing operations:
(Loss)/Profit per ordinary share – basic (cents)
(Loss)/Profit per ordinary share – diluted (cents)
Earnings per share for (loss)/profit attributable to equity holders of the Parent:
(Loss)/Profit per ordinary share – basic (cents)
(Loss)/Profit per ordinary share – diluted (cents)
Group Statement of Comprehensive Income
For the year ended 31 December 2022
(Loss)/Profit for the year attributable to equity holders of the Parent
Other Comprehensive (Expense)/Income – items that may be recycled to the Income
Statement
Currency translation differences
Currency translation differences recycled on disposal of subsidiaries
Fair value loss on hedge options
Hedging loss recycled to the Income Statement
Fair value on hedge options recycled to the Income Statement on cessation of hedge
accounting
Other Comprehensive (Expense)/Income for the year
Total Comprehensive (Expense)/Income for the year attributable to equity holders of
the Parent
Total Comprehensive (Expense)/Income from:
Continuing operations
Discontinued operations
4.7
4.7
4.7
4.7
Note
4.6
(44.88)
(44.88)
175.58
170.91
(14.28)
(14.28)
180.63
175.82
2022
US$m
(51.0)
(16.7)
–
–
–
–
(16.7)
2021
US$m
894.5
2.0
54.7
(14.2)
14.9
2.7
60.1
(67.7)
954.6
(177.0)
109.3
(67.7)
874.9
79.7
954.6
Annual Report and Accounts 2022
127
Group Balance Sheet
As at 31 December 2022
Non-current assets
Intangible exploration/appraisal assets
Property, plant & equipment – development/producing assets
Goodwill
Other property, plant & equipment and intangible assets
Financial assets at fair value through profit or loss
Deferred tax asset
Current assets
Cash and cash equivalents
Inventory
Trade and other receivables
Financial assets at fair value through profit or loss
Total assets
Current liabilities
Loans and borrowings
Lease liabilities
Deferred consideration on business combinations
Trade and other payables
Non-current liabilities
Loans and borrowings
Lease liabilities
Provisions – well abandonment
Deferred consideration on business combinations
Deferred tax liabilities
Total liabilities
Net assets
Equity attributable to equity holders of the Parent
Called-up share capital
Share premium
Shares held by ESOP/SIP Trusts
Foreign currency translation
Merger and capital reserves
Retained earnings
Total equity
Note
2.2
2.3
2.4
2.5
3.5
5.3
3.1
3.3
3.4
3.5
3.2
3.5
3.6
3.2
3.5
5.3
7.1
7.1
7.1a,b
7.1c
7.1d
2022
US$m
95.2
249.5
25.4
14.1
96.2
7.1
487.5
756.8
8.1
142.5
134.4
1,041.8
1,529.3
25.4
1.9
25.0
55.7
108.0
133.2
2.4
3.4
36.8
30.9
206.7
314.7
2021
US$m
98.3
373.9
25.4
5.7
120.4
–
623.7
314.1
10.8
1,211.2
86.6
1,622.7
2,246.4
10.9
2.4
20.9
152.2
186.4
166.1
1.3
2.2
49.1
42.7
261.4
447.8
1,214.6
1,798.6
8.0
495.4
(15.3)
(90.8)
45.5
771.8
12.6
490.9
(17.5)
(74.1)
40.9
1,345.8
1,214.6
1,798.6
The Financial Statements on pages 126 to 167 were approved by the Board of Directors on 27 April 2023 and signed on its behalf by:
Chris Cox
Interim Chief Executive
Financial Statements Capricorn Energy PLC
128
Annual Report and Accounts 2022
Group Statement of Cash Flows
For the year ended 31 December 2022
Cash flows from operating activities:
(Loss)/Profit before tax from continuing operations
Profit before tax from discontinued operations
(Loss)/Profit before tax including discontinued operations
Adjustments for non-cash income and expense and non-operating cash flows:
Other income – tax entitlement volumes
Release of deferred revenue
Unsuccessful exploration costs
Depreciation, depletion and amortisation
Impairment of intangible exploration/appraisal assets
Impairment of property, plant & equipment – development/producing assets
Share-based payments charge
Impairment of disposal group property, plant & equipment – development/producing assets
Exceptional income – India tax refund
Fair value loss – deferred consideration on business combinations
(Gain)/Loss on financial assets at fair value through profit or loss
Finance income
Finance costs
Adjustments to operating cash flows for movements in current assets and liabilities:
Inventory movement
Trade and other receivables movement
Trade and other payables movement
Net cash flows from operating activities
Cash flows from investing activities:
Exceptional income – India tax refund
Expenditure on intangible exploration/appraisal assets
Expenditure on property, plant & equipment – development/producing assets
Expenditure on other property, plant & equipment and intangible assets
Deferred consideration received – discontinued operations
Consideration paid for assets acquired through business combination
Deferred consideration paid on business combination
Expenditure on financial assets at fair value through profit and loss
Proceeds on disposal of financial assets
Proceeds on disposal of intangible exploration/appraisal assets – continuing operations
Proceeds on disposal of oil and gas assets – discontinued operations
Proceeds on disposal of purchaser bonds on sale of oil and gas assets – discontinued
operations
Costs incurred on disposal of oil and gas assets
Tax paid on investing activities
Interest received and other finance income
Note
6.1
2022
US$m
(128.3)
113.4
2021
US$m
873.7
198.8
(14.9)
1,072.5
3.4
3.6
4.8
(54.8)
–
93.5
129.9
–
42.6
10.5
–
–
12.7
(112.7)
(15.7)
18.2
2.7
(38.7)
(9.8)
63.5
1,056.0
(94.9)
(62.2)
(11.7)
75.7
(3.2)
(20.9)
–
12.8
–
–
–
–
(0.2)
12.5
(7.3)
(21.7)
50.6
73.6
19.6
–
10.2
56.0
(1,070.7)
7.2
2.6
(4.5)
78.7
(4.6)
(70.8)
(11.5)
179.9
–
(62.5)
(24.0)
(2.9)
–
(310.1)
–
(6.9)
–
23.6
63.9
30.0
(7.3)
–
0.2
Net cash flows from/(used in) investing activities
963.9
(296.0)
Cash flows from financing activities:
Return of cash to shareholders
Share re-purchase
Debt arrangement fees
Other interest and charges
Proceeds from borrowings
Repayment of borrowings
Proceeds from issue of shares
Cost of shares purchased
Lease payments
Net cash flows used in financing activities
Net increase/(decrease) in cash and cash equivalents
Opening cash and cash equivalents at beginning of year
Foreign exchange differences
7.2
7.1
3.2
3.2
7.1a
–
(528.6)
–
(11.7)
–
(21.5)
4.5
(19.8)
(2.5)
(579.6)
447.8
314.1
(5.1)
(257.2)
(7.8)
(4.6)
(5.8)
181.4
–
0.9
(8.7)
(46.1)
(147.9)
(264.0)
569.6
8.5
Closing cash and cash equivalents
3.1
756.8
314.1
Annual Report and Accounts 2022
129
Group Statement of Changes in Equity
For the year ended 31 December 2022
At 1 January 2021
502.7
(13.4)
(130.8)
40.8
(3.4)
729.7
1,125.6
Equity
share
capital and
share
premium
US$m
Shares
held by
ESOP/
SIP Trusts
US$m
Foreign
currency
translation
US$m
Merger
and capital
reserves
US$m
Hedge
reserve
US$m
Retained
earnings
US$m
Total
equity
US$m
Profit for the year
Fair value loss on hedge options
Hedging loss recycled to the Income Statement
Fair value on hedge options recycled on cessation of
hedge accounting
Currency translation differences
Currency translation differences recycled on disposal
of subsidiary
Total comprehensive income
Return of cash to shareholders
Share-based payments
Exercise of employee share options
Share re-purchase
Cost of shares purchased
Cost of shares vesting
At 31 December 2021
Loss for the year
Currency translation differences
Total comprehensive expense
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
–
–
–
–
2.0
54.7
56.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
503.5
(17.5)
(74.1)
40.9
–
–
–
–
4.5
(4.6)
–
–
–
–
–
–
(16.7)
(16.7)
–
–
–
(19.8)
22.0
–
–
–
–
–
–
–
–
–
–
4.6
–
–
At 31 December 2022
503.4
(15.3)
(90.8)
45.5
–
(14.2)
14.9
894.5
–
–
894.5
(14.2)
14.9
2.7
–
–
3.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.7
2.0
54.7
894.5
954.6
(257.2)
10.2
–
(26.8)
–
(4.6)
(257.2)
10.2
0.9
(26.8)
(8.7)
–
1,345.8
1,798.6
(51.0)
–
(51.0)
10.5
–
(511.5)
–
(22.0)
(51.0)
(16.7)
(67.7)
10.5
4.5
(511.5)
(19.8)
–
771.8 1,214.6
Financial Statements Capricorn Energy PLC
130
Annual Report and Accounts 2022
Section 1 – Basis of Preparation
This section includes the Group’s general accounting policies applicable across the
Financial Statements. Accounting policies specific to individual notes to the accounts are
embedded in the notes themselves.
1.1 Accounting Policies
a) Basis of preparation
The consolidated Financial Statements of Capricorn Energy PLC (’Capricorn’ or ’the Group’) for the year ended 31 December 2022
were authorised for issue in accordance with a resolution of the Directors on 26 April 2023. Capricorn is a limited company
incorporated and domiciled in the United Kingdom whose shares are publicly traded. The registered office is located at
50 Lothian Road, Edinburgh, Scotland, EH3 9BY. The registered company number is SC226712.
Capricorn prepares its Financial Statements on a historical cost basis, unless accounting standards require an alternate
measurement basis. Where there are assets and liabilities calculated on a different basis, this fact is disclosed either in the relevant
accounting policy or in the notes to the Financial Statements. The Financial Statements comply with the Companies Act 2006 as
applicable to companies using International Financial Reporting Standards (’IFRS’). Accounting policies have been applied
consistently across all periods disclosed.
The Group’s Financial Statements are prepared on a going concern basis.
b) Accounting standards
The Financial Statements of Capricorn 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.
Effective as of 1 January 2022, Capricorn adopted the following amendments to the standards:
– Amendments to IFRS 16 ’Leases’;
– Amendments to IAS 16 ’Property, plant and equipment’;
– Amendments to IAS 37 ’Provisions, contingent liabilities and contingent assets’; and
– Annual improvements including minor amendments to IFRS 9 ’Financial instruments’ and IFRS 16 ’Leases’.
The adoption of the amendments above has had no material impact on Capricorn’s results or Financial Statement disclosures.
There are no new standards or amendments issued by the IASB and endorsed under the Companies Act, which have yet to be
adopted by the Group that will materially impact the Group’s Financial Statements.
c) Basis of consolidation
The consolidated Financial Statements include the results of Capricorn Energy PLC and its subsidiary undertakings to the balance
sheet date. Where subsidiaries follow differing accounting policies from those of the Group, those accounting policies have been
adjusted to align with those of the Group. Intercompany balances and transactions between Group companies are eliminated on
consolidation, though foreign exchange differences arising on intercompany balances between subsidiaries with differing
functional currencies are not offset.
The results of subsidiaries acquired or incorporated in any year are included in the Income Statement and Statement of Cash
Flows from the effective date of acquisition, while the results of subsidiaries disposed of or liquidated during the year are included
in the Income Statement and Statement of Cash Flows to the date at which control passes from the Group.
d) Joint arrangements
Capricorn is a partner (joint operator) in oil and gas exploration, development and production licences which are unincorporated
joint arrangements. All of the Group’s current interests in these arrangements are determined to be joint operations. A full list
of oil and gas licence interests can be found on page 177.
Costs incurred relating to an interest in a joint operation other than costs relating to production activities are capitalised in
accordance with the Group’s accounting policies for oil and gas assets as appropriate (notes 2.2 and 2.3). All the Group’s intangible
exploration/appraisal assets and property, plant & equipment – development/producing assets relate to interests in joint operations.
Capricorn’s working capital balances relating to joint operations are included in trade and other receivables (note 3.4) and trade
and other payables (note 3.6). Any share of finance income or costs generated or incurred by the joint operation is included within
the appropriate income statement account.
Annual Report and Accounts 2022
131
Section 1 – Basis of Preparation continued
1.1 Accounting Policies continued
e) Foreign currencies
These Financial Statements continue to be presented in US dollars (US$), the functional currency of the Parent.
In the Financial Statements of individual Group companies, Capricorn translates foreign currency transactions into the functional
currency at the rate of exchange prevailing at the transaction date (or an approximation thereof where not materially different).
Monetary assets and liabilities denominated in a foreign currency are translated into the functional currency at the rate of exchange
prevailing at the balance sheet date. Exchange differences arising are taken to the Income Statement except for those incurred on
borrowings specifically allocable to development projects, which are capitalised as part of the cost of the asset, though there were
none in either the current or preceding year.
The Group maintains the Financial Statements of the Parent and subsidiary undertakings in their functional currency. Where
applicable, the Group translates subsidiary Financial Statements into the presentation currency, US$, using the closing rate method
for assets and liabilities which are translated at the rate of exchange prevailing at the balance sheet date and rates at the date of
transactions for income statement accounts. Capricorn takes exchange differences arising on the translation of net assets of Group
companies whose functional currency is non-US$ directly to reserves.
Rates of exchange to US$1 were as follows:
GBP
Closing
2022
YTD
Average
2022
0.827
0.808
Closing
2021
0.739
YTD
Average
2021
0.727
f) Exceptional items
Where items have a significant impact on profit or loss, occur infrequently and are not part of the Group’s normal operating cycle,
such items may be disclosed as exceptional items on the face of the Income Statement.
1.2 Going concern
The Directors have considered the factors relevant to support a statement of going concern. In assessing whether the going concern
assumption is appropriate, the Board considered the Group cash flow forecasts under various scenarios, identifying risks and mitigating
factors and ensuring the Group has sufficient funding to meet its current and contracted commitments as and when they fall due for a
period of at least 12 months from the date of signing these Financial Statements.
At the balance sheet date and the date of this report, the Group has significant surplus cash balances, following receipt of the India
tax refund, exceeding debt drawn on the Senior Secured Borrowing and Junior Debt Facilities which part-funded the Egypt acquisition.
This cash surplus has been adjusted for the immediate proposed return of US$450.0m cash to shareholders, an additional cash return of
US$100.0m, subject to certain conditions, and a US$25.0m share buy-back planned by the Board. After adjusting for these planned
returns, under both Capricorn’s and the lenders’ assumptions, the Group has sufficient resources to maintain compliance with the
financial covenant associated with the facilities in terms of a 12-month forward-looking liquidity test.
A downside scenario run includes a return to lower oil prices of US$60 per bbl in the short-term, a reduction in forecast production,
increases to forecast operating and drilling costs, and a cancellation of guarantees that would require to be cash collaterised. An oil price
crash scenario assumes a sharp fall in oil price to US$35 per bbl before a gradual return to the downside price assumptions by Q2 2024.
Both the downside and oil-price crash scenarios assume that the proposed additional US$100.0m cash return and share buy-back would
be cancelled or postponed. Further mitigants identified by the Directors include the ability to reduce forecast but uncommitted capital
expenditure, the sale of non-oil and gas assets held on the balance sheet, cancellation of discretionary share purchases and the realisation
of contingent assets expected to be recovered over the coming twelve months.
Under the terms of the borrowing facilities entered into in connection with the Group’s Egypt assets, Capricorn as borrowers jointly and
severally guarantee performance of the obligations of the joint venture counterparty. Should the counterparty fail to meet its repayment
obligations, the lenders could enforce this guarantee, though other routes to recovery would be more likely. Capricorn would also have
legal routes to recover any sums paid on behalf of the counterparty under this guarantee. The Directors planned returns ensure that
sufficient resources remain within the Group in order to meet its contracted commitments as and when they fall due for at least the
twelve month period from the date of approval of the Financial Statements in event of default by the counterparty.
The Board and Audit Committee assessments of risk and mitigants to the Group’s operational existence beyond this 12-month period
is included in the Viability Statement on page 32.
Financial Statements Capricorn Energy PLC
132
Annual Report and Accounts 2022
Section 2 – Oil and Gas Assets, Operations and Other Non-Current Assets
This section contains details of Capricorn’s oil and gas assets, including the profit generated
from operations in Egypt, exploration costs capitalised at the year end and development/
producing assets and associated impairment tests performed.
Key estimates and assumptions in this section:
Climate change assumptions
Capricorn’s cost of carbon assumptions are included in the fair value models used to attribute value to the assets acquired through the
business combination in Egypt, detailed below. Those models will also determine the useful life-of-field assumptions for each producing
asset and increasing costs of carbon could result in reduced commercial reserve volumes. Sensitivities performed on alternate carbon
cost assumptions did not have a significant impact on the acquisition fair values of the assets in Egypt.
Capricorn’s models have no residual value attributed to producing assets as at the end of the economic field life title passes to the
Egyptian Government. There are therefore no decommissioning assets or liabilities to record. There are currently no assets that have been
identified as at risk of becoming stranded.
Estimation of hydrocarbon reserves and long-term oil price assumption
Oil and gas reserve volumes and related production profiles are estimated based on Capricorn’s internal process manual which follows
industry best practice. This represents Capricorn’s best estimate of reserves as at the reporting date. Capricorn’s Reserves and Resources
Reporting Committee, which provides oversight, advice and guidance while providing senior level review, reports to the Group’s Audit
Committee before ultimately requesting approval of annual reserve volumes by the Board.
A third-party audit of Capricorn’s reserves and resources estimates is conducted annually. At the year end, the third-party auditor’s
reserve estimates are higher than Capricorn’s internal estimates, largely due to different assumptions on the number and timing of future
development wells and their inclusion of reserves that Capricorn classifies as contingent resources pending approval of a field
development plan. Capricorn believe it is appropriate to remain with the Group’s internal reserve estimates.
A change in reserve volumes would impact depletion charges and related deferred tax liabilities and indicate a possible impairment of
assets.
Capricorn increased its long-term oil price assumption from US$55/bbl to US$60/bbl unescalated. The Group’s short-term assumption
remains linked to the forward curve over a two-year period.
Estimation of fair value of assets for use in impairment tests
The fair value of property, plant & equipment – development/producing assets in Egypt and related goodwill, acquired through the 2021
business combination (see note 6.3), used in the Group’s impairment tests has been measured using the net present value of discounted
future cash flows.
The key assumptions used in the Group’s discounted cash flow models reflect past experience and take account of external factors.
These assumptions include:
– short/medium-term oil price based on a six-month average forward curve for two years from the balance sheet date;
– long-term oil price of US$60/bbl (2021: US$55/bbl) unescalated;
– Egypt price differentials to base oil prices;
– cost of carbon offsets in line with Capricorn’s commitment to offsetting emissions and reaching net zero by 2040;
– reserve estimates of 2P discovered resource based on P50 reserve estimates;
– production profiles based on Capricorn’s internal estimates including assumptions on performance of assets;
– cost profiles for future development spend and operating costs escalated at 4.0% per annum (2021: 4.0% per annum); and
– post-tax discount rates of 10% (2021: 10%).
The assumptions applied in 2021 were used to measure the fair value of assets acquired through the business combination.
Annual Report and Accounts 2022
133
Section 2 – Oil and Gas Assets, Operations and Other Non-Current Assets continued
2.1 Gross Profit: Revenue and Cost of Sales
Accounting policies
Revenue
Revenue from oil sales represents the Group’s share of sales from its producing interests in Egypt, at the point in time when
ownership of the oil has passed to the buyer. On domestic sales, the point of sale is determined to be the point when oil is
delivered to the communal storage tanks in the onshore facilities. Sales relating to the export of oil are recognised once the cargo
is fully loaded onto a crude tanker and the necessary export documentation received. Revenue is measured using the monthly
average Brent oil price, plus or minus the applicable price differential premium or discount to reach the Official Selling Price and
is recorded at fair value including estimates to reduce revenue to the Group’s expected entitlement share of sales volumes.
Revenue from the sale of gas in Egypt is recorded based on the volume of gas accepted each day by customers at the delivery point.
Revenue from royalties is calculated on production from fields in Mongolia.
Other income – tax entitlement volumes
Under the concession agreements in Egypt, income tax due on taxable profit is paid on Capricorn’s behalf by EGPC. To achieve
this through the agreements, Capricorn notionally receive a greater share of hydrocarbon production in excess of the Group’s
entitlement interest share of production equal to the amount required to cover the tax payable. The oil is produced and sold on
Capricorn’s behalf and proceeds remitted to the tax authorities. This income falls outwith the definition of revenue and is therefore
shown as other income with an equal and opposite tax charge recorded through current taxation.
Cost of sales and inventory
Production costs include Capricorn’s share of costs incurred by the joint operation in extracting oil and gas. Also included are
marketing and transportation costs and loss-of-production insurance costs payable over the year.
Oil inventory is measured at market value in accordance with established industry practice.
Oil sales
Gas sales
Revenue from oil and gas sales
Royalty income
Total revenue
Other income – Tax entitlement volumes
Other income
Production costs and inventory movements
Cost of sales
Depletion (note 2.3)
Gross profit
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
181.4
47.5
228.9
0.7
229.6
54.8
54.8
(71.2)
(71.2)
(124.1)
89.1
41.3
14.9
56.2
0.9
57.1
7.3
7.3
(20.5)
(20.5)
(31.2)
12.7
Financial Statements Capricorn Energy PLC
134
Annual Report and Accounts 2022
Section 2 – Oil and Gas Assets, Operations and Other Non-Current Assets continued
2.1 Gross Profit: Revenue and Cost of Sales continued
Revenue
Capricorn receives oil and gas revenue from eight producing concessions in Egypt, based on an entitlement interest. Payment terms are
within 30 days from the date of the invoice for oil sales and 45 days from the date of the invoice for gas sales.
Oil and gas revenue in Egypt for the year ended 31 December 2022 was US$228.9m (period from 24 September 2021 to 31 December
2021: US$56.2m), from net entitlement production of 4.7 mmboe (period from 24 September 2021 to 31 December 2021: 1.4 mmboe)
of which ~39% (period from 24 September 2021 to 31 December 2021: ~39%) was liquids. Oil sales averaged US$98.8/boe (period from
24 September 2021 to 31 December 2021: US$77.8/boe) and with gas sales fixed at US$2.9/mcf (period from 24 September 2021 to
31 December 2021: US$2.9/mcf). Other income represents tax paid on Capricorn’s behalf by EGPC, see section 5.
Production costs over the period were US$71.2m (period from 24 September 2021 to 31 December 2021: US$20.5m), or US$5.7/boe
(period from 24 September 2021 to 31 December 2021: US$6.0/boe) (on a working interest ("WI") basis).
2.2 Intangible Exploration/Appraisal Assets
Accounting policy
Capricorn follows a successful efforts-based accounting policy for oil and gas assets.
Costs incurred prior to obtaining the legal rights to explore an area are expensed immediately to the Income Statement as
pre-award costs.
Expenditure incurred on the acquisition of a licence interest is initially capitalised on a licence-by-licence basis. Costs are held,
undepleted, within intangible exploration/appraisal assets until such time as the exploration phase on the licence area is complete
or commercial reserves have been discovered and a field development plan approved.
Exploration expenditure incurred in the process of determining oil and gas exploration targets is capitalised initially within
intangible exploration/appraisal assets and subsequently allocated to drilling activities. Costs are recognised following a cost
accumulation model where any contingent future costs on recognition of an asset are recognised only when incurred. This
includes where Capricorn has entered into a ’farm-in’ agreement to either acquire or part-dispose of an exploration interest.
A farm-in is an agreement in which a party agrees to acquire from one or more of the existing licencees an interest in an
exploration licence, for a consideration which may consist of the performance of a specified work obligation on behalf of the
existing licencees. This obligation may be subject to a monetary cap. Refund of full or partial costs incurred to date may also
be included in a farm-in agreement. Where Capricorn has part-disposed of an exploration licence interest through a farm-in
arrangement, a ’farm-down’, the contingent consideration payable by the third party on Capricorn’s behalf is not recognised
in the Financial Statements. The future economic benefit which Capricorn will receive as a result of the farm-down will be
dependent upon future success of any exploration drilling.
Exploration/appraisal drilling costs are capitalised on a well-by-well basis until the success or otherwise of the well has been
established. The success or failure of each exploration/appraisal effort is judged on a well-by-well basis. Drilling costs are written
off on completion of a well unless the results indicate that hydrocarbon reserves exist and there is a reasonable prospect that
these reserves are commercial and work to confirm the commercial viability of such hydrocarbons is intended to be carried out
in the foreseeable future. Where results of exploration drilling indicate the presence of hydrocarbons which are ultimately not
considered commercially viable, all related costs are written off to the Income Statement.
Following appraisal of successful exploration wells, if commercial reserves are established and technical feasibility for extraction
demonstrated and approved in a field development plan, then the related capitalised intangible exploration/appraisal costs are
transferred into a single field cost centre within property, plant & equipment – development/producing assets, after testing for
impairment (see below).
Proceeds from the disposal or farm-down of part or all of an exploration/appraisal asset are credited initially to that interest with
any excess being credited to the Income Statement.
Impairment
Intangible exploration/appraisal assets are reviewed regularly for indicators of impairment and tested for impairment where such
indicators exist. An indicator that one of the Group’s assets may be impaired is most likely to be one of the following:
– there are no further plans to conduct exploration activities in the area;
– exploration drilling in the area has failed to discover commercial reserve volumes;
– changes in the oil price or other market conditions indicate that discoveries may no longer be commercial; or
– development proposals for appraisal assets in the pre-development stage indicate that it is unlikely that the carrying value of
the exploration/appraisal asset will be recovered in full.
In such circumstances the intangible exploration/appraisal asset is allocated to any property, plant & equipment – development/
producing assets within the same cash-generating unit (CGU) and tested for impairment. Any impairment arising is recognised
in the Income Statement for the year. Where there are no development assets within the CGU, the excess of the carrying amount
of the exploration/appraisal asset over its recoverable amount is charged immediately to the Income Statement.
Annual Report and Accounts 2022
135
Section 2 – Oil and Gas Assets, Operations and Other Non-Current Assets continued
2.2 Intangible Exploration/Appraisal Assets continued
Egypt
US$m
Eastern
US$m
Western
US$m
Cost
At 1 January 2021
Additions
Unsuccessful exploration costs
Disposals
At 31 December 2021
Additions
Unsuccessful exploration costs
At 31 December 2022
Impairment
At 1 January 2021
Impairment charges
Disposals
At 31 December 2021
Unsuccessful exploration costs
At 31 December 2022
Net book value
At 31 December 2020
At 31 December 2021
At 31 December 2022
–
6.6
(2.9)
–
3.7
22.5
0.6
26.8
–
–
–
–
–
–
–
3.7
26.8
34.9
12.2
(18.2)
–
28.9
10.5
(0.1)
39.3
–
–
–
–
–
–
34.9
28.9
39.3
Total
US$m
148.1
80.0
(50.6)
(59.6)
117.9
90.4
(113.1)
113.2
61.2
(29.5)
(59.6)
85.3
57.4
(113.6)
29.1
95.2
36.0
19.6
(36.0)
19.6
(19.6)
–
77.2
65.7
29.1
36.0
19.6
(36.0)
19.6
(19.6)
–
112.1
98.3
95.2
Additions to intangible exploration/appraisal assets were funded through cash and working capital.
Egypt
Additions in Egypt of US$22.5m mainly relate to North Um Baraka, Badr El Din and the three Capricorn operated concessions, South Abu
Sennan, West El Fayium and South East Horus. Unsuccessful exploration costs of US$2.9m recorded in 2021, offset by an accrual reversal
of US$0.6m in 2022, relate to the North Um Baraka concession, where an unsuccessful well completed in January 2022.
Eastern
Additions in the year of US$10.5m include US$10.4m which were incurred on Mauritania Block 7 and total costs of US$39.3m remain
capitalised at the year end.
Western
Additions of US$57.4m include US$11.4m in Mexico, US$44.5m in the UK and US$1.5m in Suriname.
In the UK, additions of US$22.7m and US$13.5m were incurred on the P2379 and P2380 licences containing the Diadem and Jaws wells
completed in the year, with remaining additions of US$8.3m incurred across the rest of the UK portfolio. US$10.4m of the Diadem
additions were short-term lease costs. Both Diadem and Jaws wells were unsuccessful, and costs of US$29.3m and US$13.5m
respectively were charged to the Income Statement, with a further US$1.9m of unsuccessful costs incurred on other UK portfolio
licences. Further costs of US$17.4m relating to the Jaws well were charged to the Income Statement in 2021. At 31 December 2022
costs of US$12.1m remain capitalised in respect of UK licences.
In Mexico additions for the year of US$11.4m were spread across Blocks 7, 9, 10 and 15. Unsuccessful costs of US$68.9m include
US$49.6m which were charged to the Income Statement for Blocks 9, 10 and 15 where Capricorn has or will be exiting from the licences.
This includes costs of US$19.6m impaired in 2021 on Block 9 (discussed further below). The remaining unsuccessful costs of US$19.3m
relate to Block 7 where the Yatzil well completed in 2023. Capricorn internal analysis led to the decision not to participate in the
forthcoming phases and the Company has therefore informed partners of its decision to withdraw from the licence.
In Suriname total costs of US$17.0m remain capitalised at the year end.
Impairment review
At the year end, Capricorn reviewed its remaining intangible exploration/appraisal assets for indicators of impairment. No indicator of
impairment was identified on any of the Group’s remaining exploration/appraisal assets.
Subsequent to the year end, the Directors have confirmed that Capricorn will seek to farm-down its interests in Mauritania and Suriname
before committing to further exploration activity. Failure to find a partner and subsequent withdrawal from either or both licences would
result in all costs currently capitalised in relation to these licences being charged to the Income Statement.
In 2021, in Mexico, the Saasken-2 appraisal well did not encounter hydrocarbons and as a result a possible Saasken extension into
neighbouring Block 9 was reclassified from contingent resources to prospective resources, indicating possible impairment. Following
impairment testing, the remaining costs capitalised of US$19.6m were impaired in full. In 2022, Capricorn submitted notice to the
Mexican authorities of the Group’s intention to withdraw from Block 9 and remaining costs charged as unsuccessful exploration costs.
Financial Statements Capricorn Energy PLC
136
Annual Report and Accounts 2022
Section 2 – Oil and Gas Assets, Operations and Other Non-Current Assets continued
2.3 Property, Plant & Equipment – Development/Producing Assets
Accounting policy
Costs
All costs incurred after the technical feasibility and commercial viability of producing hydrocarbons has been demonstrated
and a development plan approved are capitalised within development/producing assets on a field-by-field basis. Subsequent
expenditure is capitalised only where it either enhances the economic benefits of the development/producing asset or replaces
part of the existing development/producing asset. Any remaining costs associated with the part replaced are expensed.
Costs of borrowings relating to the ongoing construction of development/producing assets and facilities are capitalised during
the development phase of the project. Capitalisation ceases once the asset is ready to commence production.
Net proceeds from any disposal, part disposal or farm-down of development/producing assets are credited against the
appropriate portion of previously capitalised cost. A gain or loss on disposal of a development/producing asset is recognised in the
Income Statement to the extent that the net proceeds, measured at fair value, exceed or are less than the appropriate portion of
the net capitalised costs.
Depletion and amortisation
Depletion is charged on a unit-of-production basis, based on proved and probable reserves on a field-by-field basis. Fields within
a single development area may be combined for depletion purposes. Where production commences prior to completion of the
development, costs to be depleted include the costs-to-complete of the facility required to extract the volume of reserves
recorded. Amortisation charged on right-of-use leased assets is also charged on a unit-of-production basis, based on proved
and probable reserves.
Impairment
Development/producing assets are reviewed for indicators of impairment at the balance sheet date. Indicators of impairment
for the Group’s development assets include:
– downward revisions of reserve estimates;
– increases in cost estimates for development projects; or
– a decrease in the oil price or other negative changes in market conditions.
Impairment tests are carried out on each development/producing asset at the balance sheet date where an indicator of
impairment is identified. The test compares the carrying value of an asset to its recoverable amount based on the higher of its
fair value less costs of disposal or value in use. Where the fair value less costs of disposal supports the carrying value of the asset,
no value-in-use calculation is performed.
If it is not possible to calculate the fair value less costs of disposal of an individual asset, the fair value less costs of disposal is
calculated for the CGU containing the asset and tested against the carrying value of the assets and liabilities in the CGU for
impairment. Where an asset can be tested independently for impairment, this test is performed prior to the inclusion of the
asset into a CGU for further impairment tests.
If the carrying amount of the asset or CGU exceeds its recoverable amount, an impairment charge is made.
Where there has been a charge for impairment in an earlier period that charge will be reversed in a later period where there has
been a change in circumstances to the extent that the recoverable amount is higher than the net book value at the time. In
reversing impairment losses, the carrying amount of the asset will be increased to the lower of its original carrying value or the
carrying value that would have been determined (net of depletion) had no impairment loss been recognised in prior years.
Decommissioning
At the end of the producing life of a field, costs are incurred in plugging and abandoning wells, removing subsea installations and
decommissioning production facilities. Capricorn recognises the full discounted cost of decommissioning as an asset and liability
when the obligation to rectify environmental damage arises. The decommissioning asset is included within property, plant &
equipment – development/producing assets with the cost of the related installation. The liability is included within provisions.
Revisions to the estimated costs of decommissioning which alter the level of the provisions required are also reflected in
adjustments to the decommissioning asset. The amortisation of the asset is calculated on a unit-of-production basis based on
proved and probable reserves. The amortisation of the asset is included in the depletion charge in the Income Statement and
the unwinding of discount of the provision is included within finance costs.
Annual Report and Accounts 2022
137
Section 2 – Oil and Gas Assets, Operations and Other Non-Current Assets continued
2.3 Property, Plant & Equipment – Development/Producing Assets continued
Cost
At 1 January 2021
Acquisitions through business combinations
Additions
Disposals
At 31 December 2021
Additions
Other cost adjustments
At 31 December 2022
Depletion, amortisation and impairment
At 1 January 2021
Depletion charge – continuing operations
Depletion and amortisation charges – discontinued operations
Disposals
At 31 December 2021
Depletion charge
Impairment
At 31 December 2022
Net book value
At 31 December 2020
At 31 December 2021
At 31 December 2022
Egypt
US$m
–
390.2
14.9
–
405.1
71.5
(29.2)
447.4
–
31.2
–
–
31.2
124.1
42.6
197.9
UK
producing
assets
US$m
UK producing
right-of-use
leased assets
US$m
1,177.7
–
–
(1,177.7)
316.3
–
–
(316.3)
–
–
–
–
–
–
–
–
517.0
–
27.1
(544.1)
127.2
–
8.2
(135.4)
–
–
–
–
–
–
–
–
–
660.7
189.1
373.9
249.5
–
–
–
–
Total
US$m
1,494.0
390.2
14.9
(1,494.0)
405.1
71.5
(29.2)
447.4
644.2
31.2
35.3
(679.5)
31.2
124.1
42.6
197.9
849.8
373.9
249.5
Egypt
Capricorn acquired its development/producing assets in Egypt through a business combination in 2021 (see note 6.3). Subsequent
expenditure on development activities across the concessions totalled US$14.9m in 2021 and US$75.1m in 2022. The 2022 other cost
adjustments of US$29.2m relate to the reversal of accruals which were included in the acquisition costs of assets in 2021. The seller has
not provided sufficient information to allow the new operator to reconcile the reversal of those accruals back to subsequent costs.
Capricorn have therefore reversed those accruals at the year end.
The 2021 acquisition was funded through a combination of cash and borrowings, with further deferred consideration due on future oil
prices. Subsequent additions have been funded through cash and working capital.
Depletion of US$124.1m (2021: US$31.2m) was charged to the Income Statement based on entitlement interest production during the
year (2021: from 24 September 2021 to the end of the year). The costs for depletion include future capital costs-to-complete consistent
with the life-of-field reserve estimates used in the calculation.
Impairment review
The Group’s development/producing assets in Egypt were reviewed for indicators of impairment. Indicators were identified where
performance from producing wells had fallen below expectation resulting in downgrades to reserve volumes. Subsequent impairment
tests identified an impairment of US$42.6m across two of the Egypt concession areas, AESW and Obaiyed. Impairment sensitivity
analysis is provided in note 2.7.
UK Producing asset disposals
On 8 March 2021, Capricorn entered into an agreement to sell its entire interests in the UK Catcher and Kraken producing assets. The sale
completed on 2 November 2021 (see note 6.1). At the date of the agreement, assets were re-classified as held-for-sale before the disposal
completed. US$35.3m of amortisation and depletion charges were recorded on the assets prior to re-classification.
Financial Statements Capricorn Energy PLC
138
Annual Report and Accounts 2022
Section 2 – Oil and Gas Assets, Operations and Other Non-Current Assets continued
2.4 Goodwill
At 1 January 2021
Goodwill arising on acquisition
At 31 December 2021 and 31 December 2022
Egypt
US$m
–
25.4
25.4
Goodwill arose on the acquisition of the Western Desert assets in Egypt in 2021 (see note 6.3). There were no subsequent measurement
period adjustments to the original acquisition accounting. Goodwill has been tested for impairment at 31 December 2022 but no
impairment was identified. Impairment sensitivity analysis is provided in note 2.7.
2.5 Other Property, Plant & Equipment and Intangible assets
Carbon
credits
US$m
Intangible
assets
US$m
Property, plant
& equipment
US$m
Right-of-use
assets
US$m
Cost
At 1 January 2021
Additions
At 31 December 2021
Additions
At 31 December 2022
Depreciation and amortisation
At 1 January 2021
Charge for the year
At 31 December 2021
Charge for the year
At 31 December 2022
Net book value
At 31 December 2020
At 31 December 2021
At 31 December 2022
–
–
–
6.8
6.8
–
–
–
–
–
–
–
6.8
36.5
0.9
37.4
3.9
41.3
30.4
4.8
35.2
3.5
38.7
6.1
2.2
2.6
Total
US$m
56.2
1.3
57.5
14.2
10.4
0.4
10.8
–
9.3
–
9.3
3.5
10.8
12.8
71.7
10.0
0.3
10.3
0.3
10.6
0.4
0.5
0.2
4.3
2.0
6.3
2.0
8.3
5.0
3.0
4.5
44.7
7.1
51.8
5.8
57.6
11.5
5.7
14.1
During the year, the Group invested US$6.8m in high-quality, verified carbon credits, which will be used to offset the Group’s future emissions
from its operations in Egypt, in order to achieve its net zero targets. For more details see TCFD Reporting, on pages 180 to 184. None of
the carbon credits purchased have subsequently been retired. Amortisation of the carbon credits will commence on first retirement.
2.6 Capital Commitments
Oil and gas expenditure:
Intangible exploration/appraisal assets
Property, plant & equipment – development/producing assets
Contracted for
At
31 December
2022
US$m
At
31 December
2021
US$m
36.0
114.0
150.0
71.8
93.7
165.5
Capital commitments represent Capricorn’s share of obligations in relation to its interests in joint operations. These commitments include
Capricorn’s share of the capital commitments of the joint operations themselves.
The capital commitments for intangible exploration/appraisal assets include US$17.2m (2021: US$23.5m) in Egypt, US$0.5m (2021:
US$34.4m) for operations in the UK and US$18.3m (2021: US$11.1m) for remaining commitments in Mexico.
As at 31 December 2022, the capital commitments for property, plant & equipment – development/producing assets were solely related
to Egypt operations.
There were no short-term lease commitments at the 2022 balance sheet date (2021: US$nil).
Annual Report and Accounts 2022
139
Section 2 – Oil and Gas Assets, Operations and Other Non-Current Assets continued
2.7 Impairment Sensitivity Analysis
Capricorn recorded an impairment of US$42.6m on the Obaiyed and AESW concession areas. Impairment sensitivity analysis has been
performed of the Group’s long-term oil price and discount rate assumptions with results presented below. Changes arising on the
change of assumptions relate to the AESW and Obaiyed concessions only. No impairment arises on any of the other Egypt concession
areas or on goodwill under any of the sensitivities performed.
Changes to other assumptions used to calculate the recoverable value of the Group’s Egypt assets have no significant impact on the
impairment charge.
Property, plant & equipment – Development/producing assets
Long-term oil price:
US$55/bbl
US$65/bbl
US$70/bbl
Discount rate:
12%
14%
Impairment
charge
(increase)/
decrease
US$m
Deferred tax
credit/(charge)
on change
US$m
Net Income
Statement
impact
US$m
(14.2)
10.0
22.3
(7.8)
(12.9)
5.8
(4.1)
(9.0)
3.2
5.2
(8.4)
5.9
13.3
(4.6)
(7.7)
Financial Statements
Capricorn Energy PLC
140
Annual Report and Accounts 2022
Section 3 – Working Capital, Financial Instruments and Long-Term Liabilities
This section includes detail on the Group’s loan facilities, movements in lease liabilities
and financial assets and liabilities at the year-end. The Group’s financial risk management
objectives and policies are also contained in this section.
Significant accounting judgements and key estimates and assumptions in this section:
India tax refund receivable
The Group recorded the tax refund due from India as a receivable at the prior year end (see note 4.8).
Financial assets at fair value through profit or loss – Earnout consideration
Under the sales agreement for the disposal of the Group’s UK producing assets, Capricorn is entitled to earnout consideration from the
purchaser calculated on a share of future production through to 2025 on revenue in excess of US$52/bbl. The earnout consideration is
dependent on minimum annual future production levels being achieved. Capricorn have obtained market values for the oil price option
subsequently adjusting for expected credit loss provisions.
3.1 Cash and Cash Equivalents
Cash at bank
Bank deposit less than three months
Money market funds
At
31 December
2022
US$m
At
31 December
2021
US$m
63.4
298.0
395.4
756.8
84.8
–
229.3
314.1
At 31 December 2022, US$52.5m (2021: US$8.9m) of cash and cash equivalents are restricted and not available for immediate ordinary
business use. This includes US$43.5m (2021: US$8.9m) of cash and cash equivalents in Egypt.
Cash and cash equivalents earn interest at floating rates. Short-term investments are made for varying periods, which can be as short
as instant access but generally not more than three months, depending on the cash requirements of the Group. At 31 December 2022
Capricorn had invested surplus funds into money market funds and short-term bank deposits. These meet the criteria of cash and
cash equivalents.
Capricorn limits the placing of funds and other investments to banks or financial institutions that have ratings of A- or above from at least
two of Moody’s, Standard & Poor’s or Fitch, unless a sovereign guarantee is available from a AAA--rated government. The counterparty
limits vary between US$50.0m and US$200.0m depending on the ratings of the counterparty. No investments are placed with any
counterparty with a five-year credit default swap exceeding 250 bps. Investments in money market liquidity funds are only made with
AAA-rated liquidity funds and the maximum holding in any single fund is 20% of total investments.
Annual Report and Accounts 2022
141
Section 3 – Working Capital, Financial Instruments and Long-Term Liabilities continued
3.2 Loans and Borrowings
Reconciliation of opening and closing liabilities to cash flow movements:
Opening liabilities
Loan advances in the year disclosed in the Cash Flow Statement:
Senior Debt Facility
Junior Debt Facility
Loan repayments in the year disclosed in the Cash Flow Statement:
Senior Debt Facility
Other movements in Cash Flow Statement:
Debt arrangement fees
Non-cash movements:
Accrued debt facility interest
Amortisation of debt arrangement fees
Closing liabilities
Amounts due less than one year
Amounts due greater than one year
Closing liabilities
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
177.0
–
–
–
–
141.4
40.0
181.4
(21.5)
–
_
(4.6)
2.2
0.9
–
0.2
158.6
177.0
25.4
133.2
158.6
10.9
166.1
177.0
Capricorn Egypt Debt Facilities
In September 2021 Capricorn Egypt Limited entered into a US$325.0m Senior Debt Facility and an US$80.0m Junior Debt Facility
jointly with Cheiron, the joint operation partner in Egypt, to finance the acquisition of the Egyptian Western Desert Portfolio. The facility
commitments are split 50:50 with Cheiron. An accordion feature on the Senior Facility permits additional future commitments of up to
US$200.0m subject to the amortisation of investor commitments. Facility commitments began amortising in September 2022 and the
maximum drawdown available to Capricorn at 31 December 2022 was US$119.9m for the Senior Debt Facility and US$40.0m for the
Junior Debt Facility.
Interest on debt drawn is charged at the appropriate LIBOR for the currency drawn plus an applicable margin. The Senior Debt Facility
remains subject to biannual redeterminations, has a market standard suite of covenants and is cross-guaranteed by all Group companies
party to the facility, including Cheiron. Any debt drawn is repayable in line with the amortisation of bank commitments over the period from
September 2022 to the extended final maturity date of September 2026. All drawings in the year were denominated in US$.
With effect from 1 July 2023, it is intended that the Secured Overnight Financing Rate (SOFR) will replace LIBOR as the benchmark for
calculating interest on the two facilities. The rate of interest on borrowings will be the aggregate of the reference rate, margin and a credit
adjustment spread, whereby the reference rate will be the applicable Term SOFR for a period equal in length to the interest period of the loan.
3.3 Inventory
Spare parts – Egypt concessions
31 December
2022
US$m
31 December
2021
US$m
8.1
10.8
Spare parts inventories in Egypt are maintained by Bapetco on behalf of the operator Cheiron. Inventory is held at net realisable value,
measured at cost less provisions for obsolescence, based on the age of the items held.
Financial Statements Capricorn Energy PLC
142
Annual Report and Accounts 2022
Section 3 – Working Capital, Financial Instruments and Long-Term Liabilities continued
3.4 Trade and Other Receivables
Accounting policy
Trade receivables represent amounts due from the sale of oil and gas from the Group’s assets in Egypt, acquired during 2021,
royalty payments receivable from producing fields in Mongolia and previously from oil and gas sales from UK producing assets
disposed of during 2021. Other receivables primarily represent recharges to joint operations. Joint operation receivables relate
to Capricorn’s interest in its oil and gas joint arrangements, including Capricorn’s participating interest share of the receivables
of the joint arrangements themselves.
Trade receivables, other receivables and joint operation receivables, which are financial assets, are measured initially at fair value
and subsequently recorded at amortised cost.
A loss allowance is recognised, where material, for expected credit losses on all financial assets held at the balance sheet date.
Expected credit losses are the difference between the contractual cash flows due to Capricorn and the discounted actual cash
flows that are expected to be received. Where there has been no significant increase in credit risk since initial recognition, the loss
allowance is equal to 12-month expected credit losses. Where the increase in credit risk is considered significant, lifetime credit
losses are provided. For trade receivables a lifetime credit loss is recognised on initial recognition where material.
Prepayments, which are not financial assets, are measured at historic cost.
India tax refund receivable
Trade receivables
Other receivables
Prepayments
Joint operation receivables
At
31 December
2022
US$m
At
31 December
2021
US$m
–
96.9
19.6
5.3
20.7
1,070.7
63.3
14.0
7.8
55.4
142.5
1,211.2
The India tax refund receivable of US$1,070.7m was settled in February 2022, see note 4.8.
Trade receivables relate to the Group’s producing assets in Egypt. Capricorn remain in discussions with EGPC and the operator to
manage the receivables position.
Trade receivables are initially recorded at fair value, adjusting for expected credit losses, and subsequently measured at amortised cost.
Revenue is recognised at the point in time where title passes to the customer and payment becomes unconditional. The fair value
measurement of revenue for oil and gas sales in Egypt includes adjustments to invoiced quantities for expected entitlement share
adjustments.
Other receivables balance of US$19.6m (2021: US$14.0m) includes interventure receivables of US$9.1m (2021: US$7.7m), VAT
recoverable in the UK and Mexico of US$4.4m (2021: US$3.5m) and money market interest receivable of US$3.3m (2021: US$1.5m).
Reconciliation of opening and closing receivables to operating cash flow movements:
Opening trade and other receivables
Closing trade and other receivables
Decrease/(Increase) in trade and other receivables
Foreign exchange
India tax refund (received)/receivable
Decrease in joint operation receivables relating to investing activities
(Decrease)/Increase in other receivables relating to investing activities
Increase in prepayments relating to investing activities
Increase/(Decrease) in prepayments and other receivables relating to financing activities
Trade and joint operation receivables derecognised on disposal of the UK assets
Trade and other receivables recognised on purchase of Egypt assets (note 6.3)
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
1,211.2
(142.5)
1,068.7
(17.3)
(1,056.0)
(27.7)
(8.7)
0.6
1.7
–
–
74.6
(1,211.2)
(1,136.6)
0.2
1,070.7
(1.3)
0.2
2.7
(7.4)
(57.4)
58.1
Trade and other receivables cash flow movement
(38.7)
(70.8)
The movements in joint operation receivables relating to investing activities relate to the Group’s share of the receivables of joint
operations in respect of exploration, appraisal and development activities.
Annual Report and Accounts 2022
143
Section 3 – Working Capital, Financial Instruments and Long-Term Liabilities continued
3.5 Financial Assets and Financial Liabilities at Fair Value Through Profit or Loss
Financial assets
Non-current assets
Financial assets at fair value through profit or loss – earnout consideration
Financial assets at fair value through profit or loss – non-listed investment fund
Current assets
Financial assets at fair value through profit or loss – earnout consideration
Financial assets at fair value through profit or loss – listed equity investments
At
31 December
2022
US$m
At
31 December
2021
US$m
89.7
6.5
96.2
134.4
–
134.4
113.5
6.9
120.4
75.8
10.8
86.6
Financial assets at fair value through profit or loss – Earnout consideration
The fair value of earnout consideration receivable, due in annual instalments from 2023 through to 2026, increased by US$110.4m
during 2022 to a closing fair value receivable of US$224.1m in the Balance Sheet as at 31 December 2022. The 2021 current receivable
of US$75.8m relating to 2021 production was settled during the year. See note 6.1 for further detail.
On 31 March 2023, Capricorn received US$136.7m in full settlement of the 2022 earnout consideration due with interest from 1 January
2023 of US$2.3m.
Financial assets at fair value through profit or loss – Listed equity investments
In 2021, Capricorn invested US$6.9m into a non-listed trust in India and with a minimum investment period of five years, this is recorded
as a non-current financial asset and measured at fair value.
In March 2022, the Group sold its remaining shareholding in Vedanta, listed in India, for INR968m (US$12.7m).
Financial liabilities
Non-current liabilities
Financial liabilities at fair value through profit or loss – deferred consideration on business combination
Current liabilities
Financial liabilities at fair value through profit or loss – deferred consideration on business combination
At
31 December
2022
US$m
At
31 December
2021
US$m
(36.8)
(36.8)
(25.0)
(25.0)
(49.1)
(49.1)
(20.9)
(20.9)
Financial liabilities at fair value through profit or loss – deferred consideration on business combination
Deferred consideration is due to Shell following the Egypt business combination in 2021. Amounts due are determined by the average
annual dated Brent oil price for each year up to 2024, with a maximum US$25.0m due for each year if the average price exceeds
US$75/bbl. The full US$25.0m was payable in respect of 2022 and was settled in January 2023.
The fair value of the liability in respect of remaining years is based on third-party mark-to-market valuations. During the year, the Group
made a loss of US$12.7m (2121: US$7.2m) on fair value movements increasing the liability.
Financial Statements Capricorn Energy PLC
144
Annual Report and Accounts 2022
Section 3 – Working Capital, Financial Instruments and Long-Term Liabilities continued
3.6 Trade and Other Payables
Accounting policy
Trade and other payables are non-interest bearing and are measured at fair value initially then amortised cost subsequently.
Joint operation payables are payables that relate to Capricorn’s interest in its oil and gas joint arrangements, including Capricorn’s
participating interest share of the trade and other payables of the joint arrangements themselves. Where Capricorn is operator
of the joint operation, joint operation payables also include amounts that Capricorn will settle to third parties on behalf of joint
operation partners. The amount to be recovered from partners for their share of such liabilities are included within joint operation
receivables.
Trade payables
Other taxation and social security
Accruals and other payables
Joint operation payables
At
31 December
2022
US$m
At
31 December
2021
US$m
1.5
1.9
21.6
30.7
55.7
1.6
0.2
59.5
90.9
152.2
The reduction in accruals and other payables are mainly due to a balance of US$20.2m paid for the share re-purchase, see note 7.1.
Joint operation payables include US$18.3m (2021: US$30.0m) and US$12.1m (2021: US$0.5m) relating to exploration/appraisal asset
and development/producing asset costs respectively.
The decrease in joint operation payables for development/production assets at the balance sheet date compared to the prior year was
due to payables of US$60.3m at 31 December 2021 relating to the newly acquired production/development assets in Egypt.
Reconciliation of opening and closing payables to operating cash flow movements:
Opening trade and other payables
Closing trade and other payables
(Decrease)/Increase in trade and other payables
Foreign exchange
Decrease in trade payables relating to investing activities
Decrease/(Increase) in joint operation payables relating to investing activities
Decrease/(Increase) in accruals and other payables relating to other non-operating activities
Decrease in accruals and other payables relating to investing activities
Increase in accruals and other payables relating to financing activities
Trade and other payables derecognised on disposal of the UK assets
Joint operation payables recognised on purchase of Egypt assets (note 6.3)
Trade and other payables movement recorded in operating cash flows
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
(152.2)
55.7
(96.5)
3.4
0.5
61.6
18.7
3.0
(0.5)
–
–
(9.8)
(91.6)
152.2
60.6
–
–
(16.4)
(19.0)
1.2
(0.6)
22.2
(59.5)
(11.5)
Movements above for investing activities relate to exploration, appraisal and development activities through the Group’s joint operations.
Movements relating to production activities are included in amounts through operating cash flows. The movement in accruals and other
payables relating to other non-operating activities is in relation to the share re-purchase.
Annual Report and Accounts 2022
145
Section 3 – Working Capital, Financial Instruments and Long-Term Liabilities continued
3.7 Financial Instruments
Below is the comparison by category of carrying amounts and fair values of all the Group’s financial instruments that are carried in the
Financial Statements.
Financial assets
Carrying amount and fair value
Financial assets at amortised cost
Cash and cash equivalents
Trade receivables
Other receivables
Joint operation receivables
Financial assets at fair value through profit or loss
Earnout consideration
Listed equity shares
Non-listed investment fund
At
31 December
2022
US$m
At
31 December
2021
US$m
756.8
96.9
19.6
14.1
224.1
–
6.5
1,118.0
314.1
63.3
14.0
38.4
189.3
10.8
6.9
636.8
Due to the short-term nature of financial assets held at amortised cost, their carrying amount is considered to be the same as their fair value.
There are no material impairments of financial assets held on the Balance Sheet at either 31 December 2022 or 2021.
Maturity analysis of financial assets
All financial assets at amortised costs are expected to mature within 12 months. The expected financial maturity of the Group’s
financial assets at fair value through profit or loss at 31 December 2022 is as follows:
Financial assets at fair value through profit or loss
Earnout consideration
Non-listed investment fund
<1 year
US$m
1–2 years
US$m
2–5 years
US$m
>5 years
US$m
134.4
–
134.4
52.9
–
52.9
36.8
6.5
43.3
–
–
–
The expected financial maturity of the Group’s financial assets at fair value through profit or loss at 31 December 2021 was as follows:
Financial assets at fair value through profit or loss
Earnout consideration
Listed equity shares
Non-listed investment fund
Financial liabilities
Carrying amount and fair value
Financial liabilities at amortised cost
Trade payables
Accruals and other payables
Joint operation payables
Lease liabilities
Loans and borrowings
Financial liabilities at fair value
Deferred consideration on business combinations
<1 year
US$m
1–2 years
US$m
2–5 years
US$m
>5 years
US$m
75.8
10.8
–
86.6
53.7
–
–
53.7
59.8
–
6.9
66.7
–
–
–
–
At
31 December
2022
US$m
At
31 December
2021
US$m
1.5
21.6
30.7
4.3
158.6
61.8
278.5
1.6
59.5
90.9
3.7
177.0
70.0
402.7
The fair value of financial liabilities has been calculated by discounting the expected future cash flows at prevailing interest rates.
Financial Statements Capricorn Energy PLC
146
Annual Report and Accounts 2022
Section 3 – Working Capital, Financial Instruments and Long-Term Liabilities continued
3.7 Financial Instruments continued
Financial liabilities continued
Maturity analysis of financial liabilities
The expected financial maturity of the Group’s financial liabilities at 31 December 2022 is as follows:
Financial liabilities at amortised cost
Trade payables
Accruals and other payables
Joint operation payables
Lease liabilities
Loans and borrowings
Financial liabilities at fair value
Deferred consideration on business combinations
<1 year
US$m
1–2 years
US$m
2–5 years
US$m
>5 years
US$m
1.5
21.6
30.7
1.9
25.4
25.0
106.1
–
–
–
0.8
42.1
36.8
79.7
–
–
–
1.6
91.1
–
92.7
–
–
–
–
–
–
–
The expected financial maturity of the Group’s financial liabilities at 31 December 2021 was as follows:
Financial liabilities at amortised cost
Trade payables
Accruals and other payables
Joint operation payables
Lease liabilities
Loans and borrowings
Financial liabilities at fair value
Deferred consideration on business combinations
<1 year
US$m
1–2 years
US$m
2–5 years
US$m
>5 years
US$m
1.6
59.5
90.9
2.4
10.9
20.9
186.2
–
–
–
1.3
47.2
49.1
97.6
–
–
–
–
118.9
–
118.9
–
–
–
–
–
–
–
Fair value
Capricorn holds a non-listed investment fund as a non-current financial asset at fair value through profit or loss. The Group determines
and discloses the fair value by reference to the net asset valuation provided by ICICI bank – the custodian/fund accounting service
provider for Vasuki India Fund.
At
31 December
2022
US$m
At
31 December
2021
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
Earnout consideration
Non-listed investment fund
Liabilities measured at fair value – Level 2
Financial liabilities at fair value
Deferred consideration on business combinations
Liabilities measured at fair value – Level 3
Financial liabilities at fair value
Deferred consideration on business combinations
–
10.8
224.1
6.5
189.3
6.9
(58.9)
(68.2)
(2.9)
(1.8)
168.8
137.0
Annual Report and Accounts 2022
147
Section 3 – Working Capital, Financial Instruments and Long-Term Liabilities continued
3.8 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.
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 period of sustained low
oil prices. Further details are noted in the Viability Statement provided on page 32.
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 2022 the Group had
investments with 21 counterparties (2021: 18) to ensure no concentration of counterparty investment risk. At 31 December 2022 the
Group’s investments were a combination of instant access and term deposits. At 31 December 2021 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.
Financial Statements Capricorn Energy PLC
148
Annual Report and Accounts 2022
Section 3 – Working Capital, Financial Instruments and Long-Term Liabilities continued
3.8 Financial Risk Management: Objectives and Policies continued
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 2022
At 31 December 2021
Effect on
profit
before tax
US$m
(17.9)
17.9
Effect on
equity
US$m
(5.3)
5.3
Effect on
profit
before tax
US$m
(18.5)
18.5
Effect on
equity
US$m
(2.2)
2.2
Annual Report and Accounts 2022
149
Section 4 – Income Statement Analysis
This section contains further Income Statement analysis, including segmental analysis,
details of employee benefits payable in the year, finance income 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. For the
comparative period, Capricorn has presented segmental disclosures inclusive of the results of the discontinued operations relating to
the UK producing assets, Catcher and Kraken. The current year movements, largely relating to fair value movements on the earnout
consideration due, are included within the ’Other Capricorn Energy Group’ segment.
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 had three reporting segments during 2022; Egypt, Eastern and Western assets.
The Egypt segment was added following the acquisition in 2021. The Eastern operating segment includes costs associated with interests
in Mauritania. The Western segment holds continuing UK North Sea exploration interests, Mexico and Suriname. The Board monitored
the results of each segment separately for the purposes of making decisions about resource allocation and performance assessment.
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; goodwill; and other property, plant & equipment and intangible assets.
Geographical information: non-current assets
Egypt
Eastern
Mexico
UK
Suriname
Western
Other Capricorn Energy Group
Total non-current assets
At
31 December
2022
US$m
At
31 December
2021
US$m
303.3
403.0
39.3
0.6
12.1
17.1
29.8
11.9
28.9
38.8
12.4
15.6
66.8
4.6
384.3
503.3
Financial Statements Capricorn Energy PLC
150
Annual Report and Accounts 2022
Section 4 – Income Statement Analysis continued
4.1 Segmental Analysis continued
Operating segments continued
The segment results for the year ended 31 December 2022 are as follows:
Egypt
US$m
Eastern
US$m
Western
US$m
Revenue
Other income
Cost of sales
Depletion and amortisation charges
Gross profit
Pre-award costs
Unsuccessful exploration costs
Impairment of property, plant & equipment – development/producing assets
Other operating income and expenses
Depreciation – purchased assets
Amortisation – right-of-use assets
Amortisation of other intangible assets
Other administrative expenses
Operating profit/(loss)
Fair value loss – deferred consideration
Gain on financial assets at fair value through profit or loss
Finance income
Finance costs
Profit/(Loss) before tax from continuing operations
Tax charge
Loss for the year from continuing operations
Profit from discontinued operations
228.9
54.8
(71.2)
(124.1)
88.4
(2.8)
0.6
(42.6)
4.0
–
(0.1)
–
(0.8)
46.7
(12.7)
–
0.3
(21.7)
12.6
(31.8)
(19.2)
–
Other
Capricorn
Energy
Group
US$m
0.7
–
–
–
0.7
(5.6)
–
–
1.8
(0.3)
(1.8)
(3.2)
(56.9)
Total
US$m
229.6
54.8
(71.2)
(124.1)
89.1
(9.2)
(93.5)
(42.6)
5.8
(0.3)
(2.0)
(3.5)
(59.2)
–
–
–
–
–
–
(0.1)
–
–
–
–
–
–
–
–
–
–
–
(0.8)
(94.0)
–
–
–
(0.1)
(0.3)
(1.5)
(0.1)
(96.7)
(65.3)
(115.4)
–
–
–
–
(0.1)
–
(0.1)
–
–
–
2.3
2.9
(91.5)
–
(91.5)
–
–
2.3
13.1
0.6
(49.3)
(0.2)
(49.5)
109.3
(12.7)
2.3
15.7
(18.2)
(128.3)
(32.0)
(160.3)
109.3
(Loss)/Profit attributable to equity holders of the Parent
(19.2)
(0.1)
(91.5)
59.8
(51.0)
Balances as at 31 December 2022:
Capital expenditure
Total assets
Total liabilities
Non-current assets
64.8
478.7
272.7
303.3
10.5
40.0
1.2
39.3
57.4
10.7
143.4
278.0
732.6 1,529.3
16.5
24.3
314.7
29.8
11.9
384.3
Revenue in the Egypt segment contains revenue generated from eight concessions in the Western Desert, onshore The Arab Republic
of Egypt. 90% of revenue related to sales to a single customer.
All transactions between segments are carried out on an arm’s length basis.
Annual Report and Accounts 2022
151
Section 4 – Income Statement Analysis continued
4.1 Segmental Analysis continued
Operating segments continued
The segment results for the year ended 31 December 2021 were as follows:
Revenue
Other income
Cost of sales
Depletion and amortisation charges
Gross profit
Pre-award costs
Unsuccessful exploration costs
Impairment of intangible exploration/appraisal assets
Impairment of disposal group property plant &
equipment – development/producing assets
Other operating income
Depreciation – purchased assets
Amortisation – right-of-use assets
Amortisation of other intangible assets
Other administrative expenses
Operating profit/(loss)
Exceptional income – India tax refund
Fair value loss – deferred consideration
(Loss)/Gain on financial assets at fair value through profit
or loss
Finance income
Finance costs
(Loss)/Profit before tax from continuing operations
Tax charge
(Loss)/Profit for the year from continuing operations
Loss on disposal of discontinued operations
Profit from discontinued operations
Eastern
US$m
Western
US$m
UK
producing
assets
US$m
Other
Capricorn
Energy
Group
US$m
Group
adj for
segments
US$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)
(411.8)
–
103.8
35.3
(272.7)
–
–
–
56.0
–
–
–
–
–
Total
US$m
57.1
7.3
(20.5)
(31.2)
12.7
(15.8)
(50.6)
(19.6)
–
0.6
(0.3)
(2.0)
(4.8)
(51.1)
(18.2)
(51.7)
216.7
(68.8)
(216.7)
(130.9)
–
–
–
–
–
–
–
–
(0.7)
(54.7)
–
–
1,070.7
–
–
–
1,070.7
(7.2)
(8.1)
–
(9.8)
5.5
5.2
(11.1)
8.1
–
9.8
5.5
4.5
(68.9)
(18.2)
(107.1)
198.8
1,001.5
(198.8)
873.7
–
–
–
–
–
(4.2)
(18.2)
(107.1)
198.8
1,001.5
(198.8)
869.5
–
–
–
–
(173.8)
–
–
–
173.8
25.0
–
25.0
Egypt
US$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
44.9
4.6
–
–
–
2,246.4
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. 91% of 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$390.2m.
All transactions between the segments are carried out on an arm’s length basis.
Financial Statements
Capricorn Energy PLC
152
Annual Report and Accounts 2022
Section 4 – Income Statement Analysis continued
4.2 Pre-Award Costs
Egypt
Western
Other
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
2.8
0.8
5.6
9.2
0.9
1.7
13.2
15.8
Pre-award costs represent time costs, legal fees and other direct charges incurred in pursuit of new opportunities in regions which
complement the Group’s current licence interests and risk appetite. Other pre-award costs relate to new opportunities outside the
current regions of the business.
4.3 Administrative and Other Expenses
Administrative expenses – recurring departmental expenses and corporate projects
Administrative expenses – Indian tax arbitration costs
Other expenses – costs incurred on business combination
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
51.9
13.1
–
65.0
43.4
9.9
4.9
58.2
Included within current-year corporate projects are costs of US$8.1m relating to corporate transactions subsequently terminated.
4.4 Employee Benefits: Staff Costs, Share-Based Payments and Directors’ Emoluments
a) Staff costs
Wages and salaries
Social security costs
Redundancy costs
Other pension costs
Share-based payments
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
31.1
7.8
0.6
2.6
10.5
52.6
33.3
3.1
0.1
2.7
10.2
49.4
Staff costs are shown gross before amounts recharged to joint operations. The share-based payments charge represents amounts in
respect of equity-settled options.
The monthly average number of full-time equivalent employees, including Executive Directors and individuals employed by the Group
working on joint operations was:
Continuing operations:
UK
Egypt
Mexico
Number of employees
Monthly
average
2022
Monthly
average
2021
186
17
7
210
178
1
7
186
Annual Report and Accounts 2022
153
Section 4 – Income Statement Analysis continued
4.4 Employee Benefits: Staff Costs, Share-Based Payments and Directors’ Emoluments continued
b) Share-based payments
Income statement charge
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
Included within gross staff costs (continuing operations):
SIP
LTIP
Employee Share Scheme
1.5
7.4
1.6
10.5
1.4
7.3
1.5
10.2
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 2022
Year ended 31 December 2021
WAFV
£
1.97
2.14
1.08
1.33
WAGP/
WAEP
£
1.97
2.14
1.96
1.96
Number
of shares
355,020
247,763
7,475,459
1,290,742
9,368,984
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
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
2022
Number
of shares
29,580,589
7,475,459
(4,382,718)
(5,287,088)
WAGP
£
1.71
1.96
2.06
1.71
2021
Number
of shares
25,817,970
8,102,636
(1,080,135)
(3,259,882)
27,386,242
1.72 29,580,589
WAGP
£
1.72
1.81
2.07
1.92
1.71
The weighted average remaining contractual life of outstanding awards under the LTIP at 31 December 2022 was 1.0 year (2021: 1.0 year).
Included in the above are 1,083,247 of exercisable LTIP awards (2021: 1,708,123). 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
2022
2021
Number
of shares
WAGP/WAEP
£
Number
of shares
WAGP/WAEP
£
10,701,372
–
1,893,525
(4,622,837)
(548,812)
1.79
–
1.98
1.88
1.75
10,605,095
(476,152)
1,981,713
(1,238,991)
(170,293)
7,423,248
1.79
10,701,372
1.80
1.78
1.79
1.91
1.70
1.79
The weighted average remaining contractual life of outstanding awards under all other schemes at 31 December 2022 was 7.0 years
(2021: 6.1 years). Included in the above are 874,146 of exercisable ESAS (2021: 1,753,329) and exercisable share options of 574,964
(2021: 2,428,892). No exercise price is payable in respect of ESAS; the share options had a range of exercise prices from £1.54 to £1.87.
Financial Statements Capricorn Energy PLC
154
Annual Report and Accounts 2022
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 percentage 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 101. 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 £2.22 (2021: £1.77).
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 2022; 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 103, 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
0%
Risk-free rate
per annum
0%
35% – 44% 0.39% – 1.31%
35% – 44% 0.39% – 1.31%
Lapse due to
withdrawals
per annum
5%
0%
5%
Employee exercise trigger point assumptions
For 2022 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 76 to 109. 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
Post-employment benefits
Share-based payments
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
3.9
0.3
2.3
6.5
4.9
0.3
2.4
7.6
In addition, employer’s National Insurance Contributions for key management personnel in respect of short-term employee benefits
were US$0.6m (2021: US$0.7m).
Share-based payments shown above represent the cost to the Group of key management personnel’s participation in the Company’s
share schemes, measured under IFRS 2.
During 2022, 1,392,309 shares awarded to key management personnel vested under the LTIP (2021: 1,244,941).
Annual Report and Accounts 2022
155
Section 4 – Income Statement Analysis continued
4.5 Finance Income
Bank and other interest receivable
Dividend income
Other finance income
Exchange gain
4.6 Finance Costs
Loan interest
Facility fees amortisation
Other finance charges
Unwinding of discount – provisions
Lease interest
Exchange loss
Exchange loss recycled from Other Comprehensive Income
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
15.0
0.3
0.4
–
15.7
0.2
–
–
4.3
4.5
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
13.2
0.9
1.2
0.1
0.2
2.6
–
18.2
2.8
7.8
3.3
–
0.3
–
54.7
68.9
Loan interest of US$13.2m (2021: US$2.8m) was charged on the Egypt Junior and Senior Debt Facilities. The current year facility fees
amortisation also relates to the Egypt facilities while the comparative includes US$7.5m of costs released from prepayments in respect
to the Group’s previous 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 in 2021, relating to historic translation losses, arose
on the liquidation of two subsidiaries. Both subsidiaries were GBP functional and previously 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$15.3m, having previously held an interest in a UK exploration asset sold several years ago.
4.7 Earnings per Ordinary Share
Basic and diluted earnings per share are calculated using the following measures of (loss)/profit:
(Loss)/Profit and diluted (loss)/profit after taxation from continuing operations
(Loss)/Profit and diluted (loss)/profit attributable to equity holders of the Parent
The following reflects the share data used in the basic and diluted earnings per share computations:
Weighted average number of shares
Less weighted average shares held by ESOP and SIP Trusts
Basic weighted average number of shares
Potential dilutive effect of shares issuable under employee share plans:
LTIP awards
Approved and unapproved plans
Employee share awards
Diluted weighted average number of shares
Potentially issuable shares not included above:
LTIP awards
Approved and unapproved plans
Employee share awards
Number of potentially issuable shares
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
(160.3)
(51.0)
869.5
894.5
Number
of shares
2022
’000
Number
of shares
2021
’000
364,470
(7,313)
501,874
(6,709)
357,157
495,165
–
–
–
10,666
17
2,874
357,157
508,722
29,976
1,124
4,928
18,575
2,298
2,277
36,028
23,150
The 2022 share re-purchase programme reduced the weighted average number of shares (see note 7.1). 2022 potentially issuable shares
were all anti-dilutive due to the loss on continuing operations for the year.
Financial Statements Capricorn Energy PLC
156
Annual Report and Accounts 2022
Section 4 – Income Statement Analysis continued
4.8 Exceptional Income – India Tax Refund
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 INR79bn (approximately US$1.06bn) was received in
February 2022. The Group recorded the tax refund due as exceptional income in the results for the year ending 31 December 2021
at the exchange rate prevailing at the year end, recognising an asset of US$1,070.7m.
On receipt of the tax refund in February 2022, the Group immediately converted the Indian Rupee receipt into US$. After conversion,
the US$ sums received were US$1,056.0m with an exchange loss of US$14.7m recorded which is included in the results for the year
ended 31 December 2022.
The presentation of the tax refund of US$1,070.7m in 2021 as exceptional income within profit or loss before taxation reflects that the
asset seizures in 2014, enforced by the India Income Tax Department (IITD), resulted in an exceptional loss on disposal of those assets
which was also recorded in profit or loss before taxation. Though the proceeds seized were allocated against retrospective tax
assessments raised by the IITD, and that the tax collected has now been refunded, no tax charge was ever recorded in the Group
Financial Statements, therefore the accounting treatment of the tax refund as a non-tax item is consistent with past disclosures.
Annual Report and Accounts 2022
157
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 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 2.1.
Deferred taxation – Potential deferred tax assets on Egypt concessions
At the year end Capricorn have 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 a deferred tax asset should be recognised in relation to two of the Egyptian concessions.
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.
Financial Statements Capricorn Energy PLC
158
Annual Report and Accounts 2022
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 (Loss)/Profit for the Year
Analysis of tax charge on (Loss)/Profit for the year
Current tax charge:
Overseas corporation taxes
Total current tax charge on (loss)/profit from continuing operations
Deferred tax (credit)/charge:
Reversal of deferred tax charge on recognition of financial assets
Deferred tax movement on non-current assets – Egypt
Deferred tax charge on non-current assets – Egypt – prior year adjustment
Deferred tax charge/(credit) from continuing operations
Total tax charge on (loss)/profit from continuing operations
UK deferred tax charge
Total deferred tax charge on profit from discontinued operations
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
55.0
55.0
(0.1)
(32.7)
9.8
(23.0)
32.0
4.1
4.1
7.3
7.3
0.1
(3.2)
–
(3.1)
4.2
–
–
The current tax charge of US$55.0m includes tax of US$54.8m (period from 24 September 2021 to 31 December 2021: US$7.3m) which
relates to taxable profits arising in Egypt. This tax is settled by EGPC on the Group’s behalf.
Factors affecting the tax charge for the year
A reconciliation of the income tax charge applicable to the (loss)/profit before income tax to the UK statutory rate of income tax is as follows:
(Loss)/Profit before tax from continuing operations
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
(128.3)
873.7
(Loss)/Profit before tax multiplied by the UK statutory rate of corporation tax of 19% (2021: 19%)
(24.4)
166.0
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
Disposal of financial assets at fair value through profit or loss
Permanent items (non-taxable)/non-deductible
India tax refund not subject to tax
Group relief surrendered against profits/gains arising in discontinued operations
Total tax charge on (loss)/profit from continuing operations
(25.5)
18.6
9.8
41.1
0.2
6.9
–
5.3
32.0
(10.7)
3.0
–
26.0
–
23.4
(203.5)
–
4.2
The reconciliation shown above has been based on the average UK statutory rate of corporation tax for 2022 of 19% (2021: 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 applicable UK statutory corporation tax rate applying to North Sea oil and gas activities is currently 40% (2021: 40%). A temporary
Energy (Oil and Gas) Profits Levy of 25% was legislated in July 2022, effective from 26 May 2022. A further increase to 35% from
1 January 2023 was substantively enacted in November 2022.
Annual Report and Accounts 2022
159
Section 5 – Taxation continued
5.2 Tax Charge on (Loss)/Profit for the Year continued
Factors affecting tax charge for the year continued
The applicable statutory tax rate applying to oil and gas activities in Egypt is currently 40.55% (2021: 40.55%).
The applicable rates have been reflected in these financial statements as appropriate.
The effect of temporary differences not recognised of US$41.1m (2021: US$26.0m) includes:
– a US$33.8m (2021: US$15.4m) movement in the year in respect of the unrecognised deferred tax asset on UK ring fence corporation
tax losses, energy (oil and gas) profits levy losses, supplementary charge tax and oil and gas investment allowances;
– a US$(10.0)m (2021: US$(0.9)m) movement in the year in respect of unrecognised deferred tax assets on Egypt oil and gas assets and
tax losses;
– a US$4.7m (2021: US$9.5m) movement in the year in respect of UK tax losses and other temporary differences arising in the year on
which no deferred tax asset was recognised; and
– a US$12.6m (2021: US$2.0m) movement in the year in respect of overseas tax losses and other temporary differences arising in the
year on which no deferred tax was recognised.
The effect of permanent items non-deductible of US$6.9m (2021: US$23.4m) includes:
– US$2.2m (2021: US$3.2m) in respect of share-based payment charges;
– US$(5.1)m (2021: US$10.4m) predominantly in respect on non-taxable adjustments related to foreign exchange and tax relief on
exercised share options;
– US$9.3m (2021: US$2.2m) in respect of costs in Egypt considered non-deductible for tax purposes;
– US$(3.4)m (2021: US$6.8m) in respect of overseas costs considered non-deductible/taxable; and
– US$3.9m (2021: US$0.8m) in respect of other permanent items considered non-deductible.
5.3 Deferred Tax Assets and Liabilities
Reconciliation of movement in deferred tax assets/(liabilities):
Deferred tax assets
At 1 January 2021
Deferred tax credit/(charge) through the Income Statement
At 31 December 2021
Deferred tax credit through the Income Statement
At 31 December 2022
Deferred tax liabilities
At 1 January 2021
Deferred tax (charge)/credit recognised on business combinations
Deferred tax (charge)/credit through the Income Statement
At 31 December 2021
Deferred tax credit/(charge) through discontinued operations
Deferred tax credit/(charge) through the Income Statement
At 31 December 2022
Deferred tax assets analysed by country:
Temporary
difference in
respect of
non-current
assets
US$m
(250.3)
250.3
–
7.1
7.1
–
(52.5)
(11.7)
(64.2)
–
32.5
(31.7)
Losses
US$m
191.5
(191.5)
–
–
–
–
6.7
14.9
21.6
9.1
(16.7)
14.0
Egypt
Deferred tax liabilities analysed by country:
Egypt
UK
Other
temporary
differences
US$m
58.8
(58.8)
–
–
–
–
–
(0.1)
(0.1)
(13.2)
0.1
Total
US$m
–
–
–
7.1
7.1
–
(45.8)
3.1
(42.7)
(4.1)
15.9
(13.2)
(30.9)
As at
31 December
2022
US$m
As at
31 December
2021
US$m
7.1
7.1
–
–
As at
31 December
2022
US$m
As at
31 December
2021
US$m
(26.8)
(4.1)
(30.9)
(42.6)
(0.1)
(42.7)
Financial Statements Capricorn Energy PLC
160
Annual Report and Accounts 2022
Section 5 – Taxation continued
5.3 Deferred Tax Assets and Liabilities continued
Recognised deferred tax assets
Egypt
Deferred tax assets of US$7.1m (2021: US$nil) have been recognised in respect of Egypt oil and gas non-current assets temporary
differences of US$17.6m (2021: US$nil) on two concessions as future profits are expected to be available on those concessions to recover
the value of the assets. In 2021, a deferred tax asset on Egypt tax losses of US$16.4m partially offset a deferred tax liability on temporary
differences in respect of Egypt oil and gas assets on a single concession. Those tax losses were used in full during 2022.
At the balance sheet date the Group has US$24.7m (2021: US$51.4m) temporary differences in respect of Egypt non-current assets and
US$27.4m (2021: US$25.8m) Egypt tax losses which can be offset against future oil and gas profits in Egypt. No deferred tax asset has
been recognised in respect of these temporary differences as it is not considered probable that these amounts will be utilised in future
periods.
UK
As at the balance sheet date, a deferred tax asset has been recognised in respect of UK Ring Fence Corporation Tax (RFCT) losses and
UK supplementary charge tax (SCT) losses of US$12.1m (2021: US$17.8m) only to the extent that it offsets 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 UK ring fence temporary differences of US$278.0m (2021: US$141.5m) relating to
RFCT losses, US$274.1m (2021: US$69.8m) relating to SCT losses and US$609.5m (2021: US$642.0m) relating to oil and gas investment
allowances and Energy Profits Levy (EPL) losses, as it is not considered probable that these amounts will be utilised in future periods.
Deferred tax liabilities
Egypt
Deferred tax liabilities of US$26.8m (2021: US$42.6m) have been recognised across six concessions in respect of taxable temporary
differences of US$66.0m (2021: US$121.5m) related to Egypt oil and gas non-current assets. No tax losses are available to offset these
taxable temporary differences (2021: US$16.4m of Egypt tax losses offset taxable temporary differences, as noted above).
UK
A deferred tax liability of US$4.1m (2021: US$nil) has been recognised in respect of earnout consideration due in relation to the disposal
of UK oil and gas producing assets.
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 RFCT trading losses
UK SCT loss
UK other ring fence temporary differences
UK excess management expenses
UK non-trade deficits
UK temporary differences on share-based payments
UK disallowed tax interest expenses
UK temporary difference on financial asset held at fair value
Egypt fixed asset temporary differences
Egypt ring fence corporation tax trading losses
Mexico tax losses and other temporary differences
Brazil tax losses
Israel temporary differences in respect of non-current assets
Mauritania fixed assets temporary differences
Suriname fixed assets temporary differences
At
31 December
2022
US$m
At
31 December
2021
US$m
35.0
278.0
274.1
609.5
354.9
80.6
39.5
19.9
0.5
24.7
27.4
196.5
–
–
0.7
0.6
30.2
141.5
69.8
642.0
386.3
72.6
30.3
19.9
–
51.4
25.8
136.1
0.6
2.7
–
–
Annual Report and Accounts 2022
161
Section 6 – Discontinued Operations and Business Combination
This section contains details of the profit from discontinued operations in the year,
primarily arising on earnout consideration due on the prior years disposal of the Group’s
UK producing assets, and details on the prior year acquisition of the business in Egypt.
6.1 Profit 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.
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 (’earnout 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 fair value of US$197.4m including an adjustment for expected
credit losses.
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 fair value of the earnout consideration fell by US$8.1m from 2 November 2021 to US$189.3m at 31 December 2021. The first annual
payment of earnout consideration of US$75.8m due on 2021 production was received in 2022. With strong oil prices and production
levels above forecast across the assets, the fair value of the remaining earnout consideration receivable increased by US$110.4m during
2022 to a closing fair value receivable of US$224.1m in the Balance Sheet as at 31 December 2022 (see note 3.5).
The earnout consideration was recognised in the 2021 loss on sale calculation and remains as a receivable recognised on the Balance
Sheet as this future income represents consideration receivable from the disposal of a business rather than revenue generated from the
sale of an asset, which would fall under IFRS 15.
A breakdown of the total profit from discontinued operations is as follows:
Revenue
Cost of sales
Depletion and amortisation
Gross profit
Impairment of disposal group – property, plant & equipment – development/producing assets
Operating profit
Gain/(Loss) on financial asset at fair value through profit or loss – earnout consideration
Finance income
Finance costs
Profit before tax from discontinued operations
Taxation
Profit after tax from discontinued operations
Loss on disposal of discontinued operations
Profit from discontinued operations
Earnings per share for profit from discontinued operations
Profit per ordinary share – basic (cents)
Profit per ordinary share – diluted (cents)
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
–
1.5
–
1.5
–
1.5
110.4
1.5
–
411.8
(103.8)
(35.3)
272.7
(56.0)
216.7
(8.1)
–
(9.8)
113.4
198.8
(4.1)
–
109.3
–
109.3
2022
cents
30.60
30.60
198.8
(173.8)
25.0
2021
cents
5.05
4.91
An audit of the Catcher joint operation for the period from January 2019 to December 2020 resulted in a refund of production costs
from the operator of US$1.5m which has been credited to discontinued operations in 2022.
Financial Statements Capricorn Energy PLC
162
Annual Report and Accounts 2022
Section 6 – Discontinued Operations and Business Combination continued
6.1 Profit from Discontinued Operations continued
Sale of Capricorn’s interest in the Catcher and Kraken Producing Assets (“UK producing Assets”) continued
The loss on disposal of the UK producing assets on 2 November 2021 is calculated as follows:
Base consideration
Interim period adjustment
Cost of disposal
Net proceeds
Purchaser bonds
Earnout consideration
Total net consideration
Derecognition of assets and liabilities:
Assets held-for-sale, net of impairment
Liabilities held-for-sale
Loss on disposal of UK North Sea producing assets
6.2 Cash Flow Information for Discontinued Operations
Net cash flows used in operating activities
Net cash flows from investing activities
Net increase in cash and cash equivalents
Net cash flows from operating activities
Net cash flows used in investing activities
Net cash flows used in financing activities
Net increase in cash and cash equivalents
2021 earnout and interest payment received in June 2022.
There was no cash and cash equivalents disposed of on the sale of the UK producing assets in 2021.
US$m
425.0
(361.1)
(1.7)
62.2
30.0
197.4
289.6
(837.0)
373.6
(173.8)
UK
producing
assets
US$m
Year ended
31 December
2022
US$m
(9.6)
77.2
67.6
(9.6)
77.2
67.6
UK
producing
assets
US$m
Period ended
2 November
2021
US$m
240.4
(9.4)
(42.5)
240.4
(9.4)
(42.5)
188.5
188.5
Annual Report and Accounts 2022
163
Section 6 – Discontinued Operations and Business Combination continued
6.3 Prior Year Business Combination
Accounting policy
Capricorn accounts for the acquisitions of subsidiaries, or an asset or collection of assets which are determined to meet the
definition of a business, using the acquisition method. The assets and liabilities acquired are measured at their fair values at the
date of acquisition.
Acquisition-related costs are recognised in the Income Statement as incurred.
Where the acquisition includes any assets or liability resulting from a contingent consideration arrangement, this is to be
measured at fair value at the date of acquisition.
Capricorn measures goodwill as the excess of the consideration paid over the net of the assets and liabilities acquired. Where the
value of the assets acquired exceeds the consideration paid, negative goodwill arises and is recorded in the Income Statement.
Acquisition of Egyptian Business
On 24 September 2021, Capricorn Energy PLC, together with its consortium partner Cheiron Petroleum Corporation, completed the
acquisition of a portfolio of upstream oil and gas production, development and exploration interests from Shell Egypt NV and Shell
Austria GmbH in the Western Desert, onshore The Arab Republic of Egypt.
Capricorn Egypt, a wholly owned subsidiary of Capricorn, acquired 50% of the portfolio of interests being sold by Shell, comprising of 13
concessions, including five exploration concessions. Producing fields are split over four distinct areas, each with different characteristics
and geographies: the Obaiyed Area; Badr El Din (“BED”); North East Abu Gharadig (“NEAG”); and Alam El Shawish West (“AESW”). In
addition, Capricorn acquired a 25% interest in Bapetco, a joint venture company which runs operations on all of the producing
concessions on behalf of the operator Cheiron. Joint Venture partners in Bapetco are EGPC (50%) and Cheiron (25%). Bapetco does not
hold any assets or liabilities and all costs it incurs are allocated across the concessions, with each joint operation partner paying its share
of the expense incurred.
A summary of the assets acquired is as follows:
Area
Concession and
exploration blocks
Capricorn
working interest
in concession
Partners in
concession
Obaiyed Area Obaiyed
50% Cheiron (50%)
North Matruh
50% Cheiron (50%)
North Um Baraka
50% Cheiron (50%)
Badr El Din
(BED)
Sitra
BED
BED 2 & 17
BED 3
North Alam El Shawish
(“NAES”)
50% Cheiron (50%)
50% Cheiron (50%)
50% Cheiron (50%)
50% Cheiron (50%)
50% Cheiron (50%)
Operating
company
Obaiyed Petroleum
Company
Obaiyed Petroleum
Company
North Um Baraka
Petroleum Company
Sitra Petroleum Company
Bapetco
Bapetco
Bapetco
NAES Petroleum Company
NEAG
NEAG Tiba and NEAG
26% Cheiron (26%);
Tiba Petroleum Company
Extension
Apache Egypt (48%)
AESW
AESW
20% Cheiron (20%); North Petroleum
AESW Petroleum Company
International Company SA
(35%); Neptune (25%)
Abu Sennan
South Abu Sennan
50% Cheiron (50%)
Horus
South-East Horus
El Fayium
West El Fayium
50% Cheiron (50%)
50% Cheiron (50%)
Capricorn Egypt Limited
Capricorn Egypt Limited
Capricorn Egypt Limited
Capricorn
working interest
in operating
company
25%
25%
25%
25%
25%
25%
25%
25%
13%
10%
100%
100%
100%
Financial Statements Capricorn Energy PLC
164
Annual Report and Accounts 2022
Section 6 – Discontinued Operations and Business Combination continued
6.3 Prior Year Business Combination continued
Goodwill arising on acquisition
Goodwill of US$25.4m arose on the acquisition and is recorded on the Balance Sheet (see note 2.4). The recognition of goodwill was
driven by the recording of deferred tax liabilities on the fair value of assets and liabilities recorded on acquisition.
Goodwill was calculated as follows:
Property, plant & equipment – development/producing assets
Inventory
Trade and other receivables
Joint operation payables
Deferred tax liabilities
Total identifiable assets acquired at fair value
Cash payable
Deferred consideration
Total consideration
Goodwill
US$m
390.2
9.6
58.1
(59.5)
(45.8)
352.6
315.1
62.9
378.0
25.4
There are no decommissioning liabilities under the concession agreements in Egypt. Trade and other receivables are shown after
expected credit loss. The fair value of receivables does not materially differ from the gross contractual amounts receivable.
Consideration and costs of acquisition
The cash consideration payable consisted of US$310.1m settled on completion (including US$181.4m drawn under two loan facilities,
(see note 3.2) and a further US$5.0m due on final settlement amounts. Deferred consideration of US$62.9m included US$61.1m, which
is the fair value, at the date of completion, of deferred consideration of up to US$100.0m payable based on future oil prices. The value of
this deferred consideration has been obtained using Level 2 valuations.
The remaining US$1.8m of further deferred consideration related to the fair value contingent payments of up to US$40.0m due on future
exploration success on short-term exploration wells. Given the risk profile of exploration drilling the fair value at acquisition of this
contingent consideration is low. This fair value was determined using Level 3 valuations.
At 31 December 2021, the total liability for deferred consideration was US$70.0m, with US$20.9m due within one year and US$49.1m
due after one year. See note 3.5 for the liability as at 31 December 2022.
Acquisition costs of US$4.9m were included within administration and other expenses charged to the Income Statement.
Impact on profit for the year
The Group’s profit reduced by US$6.7m as a result of the loss on the Egypt business from acquisition to 31 December 2021 (see note 4.1).
Had the full year’s results of the Egypt business been included in the Group’s results to 31 December 2021, the Capricorn Group profit for
that year would have increased by US$22.5m.
Sensitivity analysis
The fair value of assets recognised on acquisition is based on the net present value of discounted future cash flows over the economic
field-life of the concessions using the Group’s corporate assumptions detailed in section 2. Capricorn performed sensitivity analysis to
changes to the Group’s long-term oil price, discount rate and inflation assumptions which would have impacted the value of the fair value of
the assets recorded.
Increasing the Group’s long-term oil price assumption at the date of acquisition from US$55/bbl unescalated to US$60/bbl unescalated,
US$65/bbl unescalated and US$70/bbl unescalated would have increased the fair value of assets recognised on acquisition to
US$411.5m, US$431.0m and US$449.5m respectively. Increasing the Group discount rate assumption from 10% to 11% and 12% would
have reduced the value of assets recognised to US$381.7m and US$373.6m respectively. Increasing the Group inflation rate assumption
from 4% to 5% and 6% would have reduced the fair value of assets recognised to US$379.4m and US$368.3m respectively. Reducing the
inflation rate assumption to 3% would have increased the fair value of assets recognised to US$400.7m.
6.4 Discontinued Operations – Senegal Contingent Asset
In December 2020, Capricorn disposed of its entire 40% working interest in its Senegal exploration and development assets.
Further deferred consideration of up to US$100.0m is due, dependant on the timing of first oil production from the assets and on the
average Brent oil price during the first six months of production. Assuming average Brent oil prices remain above US$60/bbl during the
first six months of production, Capricorn will receive US$100.0m if first oil production is achieved in 2023, falling to US$50.0m if first oil
production is achieved by 30 June 2024. No payment is due if first oil production occurs after this time.
In accordance with IFRS 15, no amount is recognised at the balance sheet date as there is no reasonable certainty that any revenue
recorded would not reverse in future periods.
Annual Report and Accounts 2022
165
Section 7 – Capital Structure and Other Disclosures
This section includes details of Capricorn’s issued share capital and equity reserves.
Other disclosures include details on the independent auditors’ remuneration. Details on the
Group’s policy on the award of non-audit work to the independent auditors can be found in
the Report of the Audit Committee.
Significant accounting judgements and key estimates and assumptions in this section:
There are no significant accounting judgements or key estimates and assumptions in this section.
7.1 Issued Capital and Reserves
Called-up share capital
Allotted, issued and fully paid ordinary shares
At 1 January 2021
Issued and allotted for employee share options pre-consolidation
Consolidation of shares
Issued and allotted for employee share options post-consolidation
Share re-purchase
At 31 December 2021
Issued and allotted for employee share options post-consolidation
Share re-purchase
At 31 December 2022
Share premium
At 1 January
Arising on shares issued for employee share options
At 31 December
Number
231/169p
ordinary
’000
589,718
99
(589,817)
–
–
–
–
–
–
Number
21/13p
ordinary
’000
–
–
499,076
253
(2,482)
496,847
677
(182,452)
315,072
231/169p
ordinary
US$m
21/13p
ordinary
US$m
12.6
–
(12.6)
–
–
–
–
–
–
2022
US$m
490.9
4.5
495.4
–
–
12.6
–
–
12.6
–
(4.6)
8.0
2021
US$m
490.1
0.8
490.9
The Company does not have a limited amount of authorised share capital. Capricorn completed a tender offer on 6 April 2022. Under
the terms of the tender offer, 171,073,128 ordinary shares were purchased at the strike price of 223 pence per share. The total value of
the ordinary shares purchased was, therefore, £381.5m (US$498.6m). On 15 November 2021, Capricorn commenced a re-purchase
programme of £20.0m. This ran until the end of February 2022. A further re-purchase programme commenced on 7 April 2022 of up
to US$25.0m, which completed in July 2022. Both re-purchase programmes were not fully utilised. The share re-purchase in retained
earnings also includes stamp duty and costs associated with the tender offer and share re-purchases.
A shareholder vote took place on 15 December 2022 approving the cancellation of the Company’s share premium account (the
“Cancellation”). The Cancellation received the required confirmation from the Court of Session on Friday 27 January and was registered
with the Registrar of Companies (and therefore took effect) on 31 January 2023. The full amount of the Company’s share premium at
31 December 2022 transferred to retained earnings on the effective date.
a) Shares held by ESOP Trust
The cost of shares held by the ESOP Trust at 31 December 2022 was US$6.9m (2021: US$8.1m). The number of shares held by the Trust
at 31 December 2022 was 2,632,826 (2021: 3,590,198) and the market value of these shares was £6.9m/US$8.3m (2021: £6.8m/
US$9.1m). During 2022, the Group purchased 7,158,195 (2021: 3,450,260) shares at a cost of US$19.8m (2021: US$8.7m). During 2022,
7,595,567 (2021: 1,628,784) shares vested and 520,000 (2021: 600,000) 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 2022 was US$8.4m (2021: US$9.4m). The number of shares held by the Trust at
31 December 2022 was 2,758,656 (2021: 2,960,087) and the market value of these shares was £7.2m/US$8.7m (2021: £5.6m/US$7.5m).
c) Foreign currency translation
Unrealised foreign exchange gains and losses arising on consolidation of non-US$ 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.
d) Merger and capital reserves
Capital reserves of US$45.5m include amounts arising on various Group acquisitions and transactions and the capital redemption reserve
arising from the 2013-2014 share re-purchase programme. Capital reserves of US$4.6m arose on the share re-purchase programme which
ran from April to July 2022. US$5.4m of capital reserves relates directly to Capricorn Energy PLC, the Company.
Financial Statements Capricorn Energy PLC
166
Annual Report and Accounts 2022
Section 7 – Capital Structure and Other Disclosures continued
7.2 Return of Cash to Shareholders
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$250.0m of the proceeds from the sale of Senegal assets were converted to GBP in December 2020 and the return
was paid to shareholders on 25 January 2021. The total return to shareholders, after exchange differences from the date of the
conversion from US$ to GBP and associated costs, was US$257.2m.
7.3 Capital Management
The objective of the Group’s capital management structure is to ensure that there remains sufficient liquidity within the Group to carry
out committed work programme requirements. The Group monitors the long-term cash flow requirements of the business in order to
assess the requirement for changes to the capital structure to meet that objective and to maintain flexibility. The Group is subject to
semi-annual forecast liquidity tests as part of the Senior and Junior Debt Facilities. The Group has complied with the capital requirements
of these tests at all times during the year.
Capricorn manages the capital structure and makes adjustments to it in light of changes to economic conditions. To maintain or adjust the
capital structure, Capricorn may re-purchase shares, make a special dividend payment to shareholders, return capital, issue new shares
for cash, repay debt, put in place new debt facilities or undertake other such restructuring activities as appropriate. No significant
changes were made in the objectives, policies or processes during the year ended 31 December 2022.
Capital and net funds, including lease liabilities, was as follows:
Loans and borrowings
Lease liabilities
Less cash and cash equivalents
Net funds
Equity
Capital and net funds
Gearing ratio
At
31 December
2022
US$m
At
31 December
2021
US$m
158.6
4.3
(756.8)
177.0
3.7
(314.1)
(593.9)
1,214.6
(133.4)
1,798.6
620.7
1,665.2
–
–
7.4 Guarantees
It is normal practice for the Group to issue guarantees in respect of obligations during the ordinary course of business. Guarantees are
issued from a number of bilateral unsecured lines.
The Group has provided the following guarantees at 31 December 2022:
– various guarantees for the Group’s operational commitments for the current year of US$69.1m (2021: US$52.5m); and
– Parent company guarantees for the Group’s obligations under joint operating agreements and other contracts.
Under the terms of the facilities entered into in connection with the Group’s Egypt assets, Capricorn Egypt Limited and Cheiron Oil & Gas
Limited, as borrowers, jointly and severally guarantee performance of their obligations to each lender. This includes an undertaking to pay
each lender whenever another obligor does not pay any amount, as if it was the principal obligor. As a result, Capricorn Egypt Limited and
Capricorn Egypt (Holding) Limited have provided guarantees in respect of the obligations owed to the lenders by Capricorn Egypt and the
joint venture counterparty, Cheiron.
Annual Report and Accounts 2022
167
Section 7 – Capital Structure and Other Disclosures continued
7.5 Auditors’ Remuneration
Fees payable to the Group’s external auditors (including associate firms) for:
Audit fees:
Auditing of the Financial Statements of the Group and the Company
Auditing of the Financial Statements of subsidiaries
Non-audit fees:
Audit-related assurance services
Other assurance services relating to corporate finance transactions
Other non-audit services not included above
Year ended
31 December
2022
US$’000
Year ended
31 December
2021
US$’000
463
674
1,137
248
173
125
546
487
457
944
234
83
83
317
Total fees
1,683
1,261
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 71).
The split of audit fees to non-audit fees payable to the auditors is as follows:
2022 Fees to the Auditors
2021 Fees to the Auditors
Non-audit fee:
US$546,000
Non-audit fee:
US$317,000
Audit fee:
US$1,137,000
Audit fee:
US$944,000
Financial Statements Capricorn Energy PLC
168
Annual Report and Accounts 2022
Company Balance Sheet
As at 31 December 2022
Non-current assets
Investments in subsidiaries
Long-term intercompany receivables
Current assets
Cash and cash equivalents
Other receivables
Total assets
Current liabilities
Lease liability
Trade and other payables
Non-current liabilities
Lease liability
Total liabilities
Net assets
Equity
Called-up share capital
Share premium
Shares held by ESOP/SIP Trusts
Capital reserves
Retained earnings:
At 1 January
Profit/(Loss) for the year
Other movements in retained earnings
Total equity
Note
8.2
8.3
8.4
8.5
8.6
7.1
7.1
7.1a,b
7.1d
2022
US$m
597.8
6.0
603.8
630.1
18.8
648.9
2021
US$m
1,155.1
8.1
1,163.2
32.1
7.0
39.1
1,252.7
1,202.3
1.1
4.4
5.5
–
–
1.8
97.1
98.9
1.3
1.3
5.5
100.2
1,247.2
1,102.1
8.0
495.4
(15.3)
5.4
615.3
661.4
(523.0)
753.7
12.6
490.9
(17.5)
0.8
898.2
(4.5)
(278.4)
615.3
1,247.2
1,102.1
The Financial Statements on pages 168 to 176 were approved by the Board of Directors on 27 April 2023 and signed on its behalf by:
Chris Cox
Interim Chief Executive
Annual Report and Accounts 2022
169
Company Statement of Cash Flows
For the year ended 31 December 2022
Cash flows from operating activities:
Profit/(Loss) before taxation
Share-based payments charge
Impairment of investment in subsidiary
Finance income
Finance costs
Other receivables movement
Trade and other payables movement
Net cash (used in)/from operating activities
Cash flows from investing activities:
Dividend received
Group funding
Interest received and other finance income
Net cash flows from investing activities
Cash flows from financing activities:
Return of cash to shareholders
Share re-purchase
Other interest and charges
Cost of shares purchased
Proceeds from issue of shares
Lease payments
Net cash flows used in financing activities
Net increase/(decrease) in cash and cash equivalents
Foreign exchange differences
Opening cash and cash equivalents at beginning of year
Closing cash and cash equivalents
Note
8.9
7.1a
2022
US$m
661.4
1.5
566.2
(1,254.3)
6.0
(4.0)
1.2
(22.0)
1,056.4
102.3
7.6
1,166.3
–
(528.6)
(0.2)
(19.8)
4.5
(1.7)
(545.8)
598.5
(0.5)
32.1
630.1
2021
US$m
(4.5)
1.5
–
(6.5)
1.0
(9.7)
67.5
49.3
–
–
–
–
(257.2)
(7.8)
(0.9)
(8.7)
0.9
(1.8)
(275.5)
(226.2)
6.4
251.9
32.1
Financial Statements Capricorn Energy PLC
170
Annual Report and Accounts 2022
Company Statement of Changes in Equity
For the year ended 31 December 2022
At 1 January 2021
Loss for the year
Total comprehensive expense
Return of cash to shareholders
Share-based payments
Exercise of employee share options
Share re-purchase
Cost of shares purchased
Cost of shares vesting
At 31 December 2021
Profit for the year
Total comprehensive income
Share-based payments
Exercise of employee share options
Share re-purchase
Cost of shares purchased
Cost of shares vesting
Equity share
capital and
share
premium
US$m
Shares held
by ESOP/
SIP Trusts
US$m
Merger
and capital
reserves
US$m
Retained
earnings
US$m
Total
equity
US$m
502.7
(13.4)
0.7
898.2
1,388.2
–
–
–
–
0.9
(0.1)
–
–
–
–
–
–
–
–
(8.7)
4.6
503.5
(17.5)
–
–
–
4.5
(4.6)
–
–
–
–
–
–
–
(19.8)
22.0
–
–
–
–
–
0.1
–
–
0.8
–
–
–
–
4.6
–
–
5.4
(4.5)
(4.5)
(257.2)
10.2
–
(26.8)
–
(4.6)
615.3
661.4
661.4
10.5
–
(511.5)
–
(22.0)
(4.5)
(4.5)
(257.2)
10.2
0.9
(26.8)
(8.7)
–
1,102.1
661.4
661.4
10.5
4.5
(511.5)
(19.8)
–
753.7
1,247.2
At 31 December 2022
503.4
(15.3)
Annual Report and Accounts 2022
171
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 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.
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$60/bbl unescalated (2021: US$55/bbl unescalated), escalation for costs of 4.0% (2021: 4.0%) and a discount
rate of 10% (2021: 10%). Full details on the assumptions used for valuing oil and gas assets can be found in section 2.
Financial Statements Capricorn Energy PLC
172
Annual Report and Accounts 2022
Section 8 – Notes to the Company Financial Statements continued
8.2 Investments in Subsidiaries continued
Cost
At 1 January 2021
Additions
At 31 December 2021
Additions
At 31 December 2022
Impairment
At 1 January 2021 and 31 December 2021
Impairment charge
At 31 December 2022
Net book value
At 31 December 2020
At 31 December 2021
At 31 December 2022
Subsidiary
undertakings
US$m
3,701.0
8.7
3,709.7
Total
US$m
3,701.0
8.7
3,709.7
8.9
8.9
3,718.6
3,718.6
2,554.6
2,554.6
566.2
566.2
3,120.8
3,120.8
1,146.4
1,155.1
1,146.4
1,155.1
597.8
597.8
Additions during the year of US$8.9m (2021: US$8.7m) 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. Following this review, the Company’s investment in Cairn UK Holdings Limited was fully impaired resulting in a
charge to the income statement of US$387.7m. This subsidiary now holds no value following the distribution of the India tax refund to
Capricorn Energy PLC on receipt of the payment. In addition, the Company’s investment in Capricorn Oil Limited was impaired to reflect
the fair value of the underlying assets of the Capricorn Oil Group. A charge of US$178.5m was made to the Income Statement in 2022
(2021: US$nil). The fall in the value of the investments in the Capricorn Oil Group principally reflects reduction due to distributions by the
subsidiary and a reduction in the value of the Group’s producing assets. The carrying value of investments in subsidiaries at 31 December
2022 represents the Company’s investment in Capricorn Oil Limited. Investments in Capricorn Senegal (Holding) Limited and Capricorn
Energy Investments Limited are carried at nominal values.
The recoverable value of the assets of Capricorn Oil Limited used in the impairment test is based on the fair value of the producing assets
adjusted by deferred consideration payment and trade payables and receivables, earnout receivable for discontinued operations, market
value of tangible assets held by its subsidiaries, cash and cash equivalent 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 increase
the impairment recognised by US$94.5m.
Annual Report and Accounts 2022
173
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
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
Scotland Wellington House 4th Floor, 125 The Strand,
50 Lothian Road, Edinburgh, EH3 9BY
London, WC2R 0AP
Business
Country of
incorporation
Country of
operation
Registered office address
Exploration
Scotland
Agora Oil and Gas (UK) Limited
Holding company Scotland
Capricorn Americas Limited
Capricorn Côte d’Ivoire Limited
Scotland
Exploration
Capricorn Egypt (Holding) Limited Holding company England
UK
50 Lothian Road, Edinburgh, EH3 9BY
50 Lothian Road, Edinburgh, EH3 9BY
Scotland
Côte d’Ivoire 50 Lothian Road, Edinburgh, EH3 9BY
UK
Capricorn Egypt Limited
Exploration
England
Egypt
Capricorn Energy Holdings Limited Holding company Scotland
Capricorn Energy Mexico
S. de R.L. de C.V.
Capricorn Energy Search Limited1
Capricorn Energy UK Limited
Exploration
Exploration
Scotland
England
Exploration
Mexico
Scotland
Mexico
Scotland
UK
Exploration
Scotland
Morocco
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
Avenida Paseo de la Reforma 505, Piso 36,
Colonia Cuauhtémoc, Mexico
50 Lothian Road, Edinburgh, EH3 9BY
Wellington House 4th Floor, 125 The Strand,
London, WC2R 0AP
50 Lothian Road, Edinburgh, EH3 9BY
Capricorn Exploration and
Development Company Limited1
Capricorn Ireland Limited1
Capricorn ISR Production
Limited Partnership
Capricorn Low Carbon
Solutions Limited
Capricorn Mauritania Limited
Capricorn Nicaragua BV
Capricorn Offshore
Exploration Limited
Capricorn Oil and Gas
Tunisia GmbH1
Capricorn Petroleum Limited
Capricorn Production
(Holdings) Limited
Capricorn Production I Limited2
Capricorn Production II Limited2
Capricorn Resources
Management Limited
Capricorn Senegal Limited
Capricorn Spain Limited1
Capricorn Suriname BV
Exploration
Scotland
Israel
Limited
Partnership
company
Carbon trading
Republic
of Ireland
Israel
50 Lothian Road, Edinburgh, EH3 9BY
Vitania Tel-Aviv Tower, 20 Haharash St.
TLV Israel, 6761310
England
UK
Wellington House 4th Floor, 125 The Strand,
London, WC2R 0AP
Exploration
Exploration
Exploration
Scotland
The
Netherlands
Scotland
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,
Holding company Scotland
Holding company Scotland
Scotland
Scotland
CH-6301 Zug, 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 Limited1
Holding company England
UAH Limited1
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) Company is in the process of liquidation
(2) Exempt from audit under Section 480 of the Companies Act
Financial Statements Capricorn Energy PLC
174
Annual Report and Accounts 2022
Section 8 – Notes to the Company Financial Statements continued
8.3 Long-Term Intercompany Receivables
Long-term intercompany receivables
At
31 December
2022
US$m
At
31 December
2021
US$m
6.0
6.0
8.1
8.1
Long-term intercompany receivables include amounts due from Capricorn Energy Investments Limited of US$6.0m (2021: US$6.8m).
8.4 Cash and Cash Equivalents
Cash at bank
Bank deposits less than three months
Money market funds
At
31 December
2022
US$m
At
31 December
2021
US$m
8.6
298.0
323.5
630.1
32.1
–
–
32.1
At 31 December 2022, US$7.9m (2021: US$nil) of cash and cash equivalents are restricted and not available for immediate ordinary
business use. See note 3.1 for details on the placing of surplus funds on deposit and money market funds.
8.5 Other Receivables
Other receivables
Amounts receivable from subsidiary undertakings
Prepayments
8.6 Trade and Other Payables
Trade and other payables
Amounts payable to subsidiary undertakings
Accruals
At
31 December
2022
US$m
At
31 December
2021
US$m
4.4
14.3
0.1
18.8
3.1
2.3
1.6
7.0
At
31 December
2022
US$m
At
31 December
2021
US$m
0.2
0.4
3.8
4.4
–
76.0
21.1
97.1
2021 accruals include US$20.2m payable for the share re-purchase. Amounts payable to subsidiary undertakings reduced following a
dividend by Capricorn Oil Limited.
8.7 Financial Instruments
Set out below is the comparison by category of carrying amounts and fair values of all the Company’s financial instruments that are
carried in the Financial Statements. The fair value of financial assets and liabilities has been calculated by discounting the expected future
cash flows at prevailing interest rates.
Financial assets
Carrying amount and fair value
Financial assets at amortised cost
Cash and cash equivalents
Other receivables – amounts receivable from subsidiary undertakings
Other receivables
Long-term intercompany receivables
At
31 December
2022
US$m
At
31 December
2021
US$m
630.1
14.3
4.4
6.0
654.8
32.1
2.3
3.1
8.1
45.6
For all financial assets held at amortised cost, their carrying amount is considered to be the same as their fair value.
Annual Report and Accounts 2022
175
Section 8 – Notes to the Company Financial Statements continued
8.7 Financial Instruments continued
Maturity analysis of financial assets
The expected financial maturity of the Company’s financial assets at 31 December 2022 is as follows:
Financial assets at amortised cost
Cash and cash equivalents
Other receivables – amounts receivable from subsidiary undertakings
Other receivables – other
Long-term intercompany receivables
<1 year
US$m
1–2 years
US$m
2–5 years
US$m
>5 years
US$m
630.1
14.3
4.4
–
648.8
–
–
–
–
–
–
–
–
6.0
6.0
–
–
–
–
–
The expected financial maturity of the Company’s financial assets at 31 December 2021 was as follows:
Financial assets at amortised cost
Cash and cash equivalents
Other receivables – amounts receivable from subsidiary undertakings
Other receivables – other
Long-term intercompany receivables
Financial liabilities
Carrying amount and fair value
Financial liabilities at amortised cost
Trade and other payables
Amounts payables to subsidiary undertakings
Accruals
Lease liability
<1 year
US$m
1–2 years
US$m
2–5 years
US$m
>5 years
US$m
32.1
2.3
3.1
–
37.5
–
–
–
1.3
1.3
–
–
–
6.8
6.8
–
–
–
–
–
At
31 December
2022
US$m
At
31 December
2021
US$m
0.2
0.4
3.8
1.1
5.5
–
76.0
21.1
3.1
100.2
Maturity analysis of financial liabilities
The expected financial maturity of the Company’s financial liabilities at 31 December 2022 is as follows:
Financial liabilities at amortised cost
Trade and other payables
Amounts payable to subsidiary undertakings
Accruals
Lease liability
<1 year
US$m
1–2 years
US$m
2–5 years
US$m
>5 years
US$m
0.2
0.4
3.8
1.1
5.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The expected financial maturity of the Company’s financial liabilities at 31 December 2021 was as follows:
Financial liabilities at amortised cost
Amounts payable to subsidiary undertakings
Accruals
Lease liability
<1 year
US$m
1–2 years
US$m
2–5 years
US$m
>5 years
US$m
76.0
21.1
1.8
98.9
–
–
1.3
1.3
–
–
–
–
–
–
–
–
Financial risk management: risk and objectives
The Company’s financial risk management policies and objectives are consistent with those of the Group detailed in note 3.8.
The Company is not exposed to material foreign currency exchange rate risk.
Financial Statements Capricorn Energy PLC
176
Annual Report and Accounts 2022
Section 8 – Notes to the Company Financial Statements continued
8.8 Capital Management
Capital and net (funds)/debt were made up as follows:
Continuing operations
Amounts payable to subsidiary undertakings
Lease liability
Less cash and cash equivalents
Net (funds)/debt
Equity
Capital and net (funds)/debt
Gearing ratio
At
31 December
2022
US$m
At
31 December
2021
US$m
0.4
1.1
(630.1)
(628.6)
1,247.2
618.6
76.0
3.1
(32.1)
47.0
1,102.1
1,149.1
–
4%
8.9 Related Party Transactions
The Company’s subsidiaries are listed in note 8.2. The following table provides the Company’s balances which are outstanding with
subsidiary undertakings at the balance sheet date:
At
31 December
2022
US$m
At
31 December
2021
US$m
Amounts payable to subsidiary undertakings
Amounts receivable from subsidiary undertakings
(0.4)
20.3
19.9
(76.0)
10.4
(65.6)
The amounts outstanding are unsecured, repayable on demand and will be settled in cash.
The following table provides the Company’s transactions with subsidiary undertakings recorded in the profit/(loss) for the year:
Amounts invoiced to subsidiaries
Amounts invoiced by subsidiaries
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
21.8
5.1
11.1
20.4
Directors’ remuneration
The remuneration of the Directors of the Company is set out below. Further information about individual Directors’ remuneration is
provided in the audited section of the Directors’ Remuneration Report on pages 76 to 109.
Emoluments
Share-based payments
Year ended
31 December
2022
US$m
Year ended
31 December
2021
US$m
2.5
2.1
4.6
3.3
1.8
5.1
Pension contributions of US$0.2m (2021: US$0.2m) were made on behalf of Directors in 2022.
837,004 LTIP share awards to Directors vested during 2022 (2021: 748,413). Share-based payments disclosed above represent the
market value at the vesting date of these awards in that year.
Other transactions
During the year the Company did not make any purchases in the ordinary course of business from an entity under common control
(2021: US$nil).
In February 2022 the Company received a dividend payment of US$1,056.4m from Cairn UK Holdings Limited following the receipt of
the India tax refund into that subsidiary.
In November 2022 the Company received a dividend from its subsidiary, Capricorn Oil Limited, of US$187.4m, all of which was offset
against previous borrowings (2021: US$nil).
Annual Report and Accounts 2022
177
Licence List
As at 31 December 2022
Country
Asset name
Licence
Block(s)
Operator
Egypt
Alam El Shawish West
Alam El Shawish
Al Assil, Al Barq, Al Karam,
Cheiron (20%)
Badr El Din
BED 2-17
BED-3
Badr El Din
BED 2-17
BED-3
Al Magd, Bahga
BED-19, BED-20
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 Gharadig
NEAG Extension
NEAG-1, NEAG-2, NEAG-3,
Cheiron (26%)
NEAG-4, NEAG-5
North East Abu Gharadig
NEAG Tiba
JG, JD, Sheiba
Cheiron (26%)
North Matruh
North Matruh
North Matruh-1 Teen
Cheiron (50%)
North Um Baraka
North Um Baraka
North Um Baraka, Numb-1
Cheiron (50%)
Obaiyed
Sitra
Obaiyed
Sitra
Obaiyed
Sitra
Cheiron (50%)
Cheiron (50%)
South Abu Sennan
South Abu Sennan
South Abu Sennan
Capricorn Egypt Limited
South-East Horus
South-East Horus
South-East Horus
Capricorn Egypt Limited
West El Fayium
West El Fayium
West El Fayium
Capricorn Egypt Limited
Plymouth
Breagh South
Portsmouth
Prometheus
Cadence
Mauritania Block C7
Mexico
Block 7
Mexico
Block 9*
P2428
P2560
P2561
P2562
P2567
C7 PSC
CNH-R02-L01-A7.CS-2017
CNH-R02-L01-A9.CS-2017
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
C7
7
9
Capricorn Energy UK Limited
Capricorn Energy UK Limited
Capricorn Energy UK Limited
Capricorn Mauritania Limited
Eni (45%)
Capricorn Energy Mexico
Mexico
Block 10*
CNH-R02-L01-A10.CS-2017 10
Eni (65%)
Mexico
Block 15**
CNH-R03-L01-G-
TMV-01-2018
Suriname Block 61
Block 61
15
61
* Notice of withdrawal submitted and in the process of exiting
** Relinquished, awaiting final certificate from CNH
Capricorn Energy Mexico
Capricorn Suriname B.V.
100
Capricorn
Energy
interest
(%)
20
50
50
50
50
26
26
50
50
50
50
50
50
50
60
70
70
70
60
90
30
50
15
50
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
Egypt
UK
UK
UK
UK
UK
Additional Information Capricorn Energy PLC
178
Annual Report and Accounts 2022
Group Reserves and Resources
As at 31 December 2022
Reserves
The Group 2P reserves decreased by 10.2 mmboe during the year from 37.4 mmboe at year-end 2021 to 27.2 mmboe at year-end
2022 on an entitlement interest basis. This was principally due to Egyptian production of 4.7 mmboe and some downward revisions
in gas reserves within the AESW and Obaiyed concessions. The AESW revisions are related to disappointing reservoir properties in the
Karam-11 well and a limited connected reservoir volume in the Assil-105 well. Obaiyed reserves have been downgraded due to a
steeper production decline, which is partly attributed to lower activity as the consortium focuses on higher-value oil production.
Capricorn’s 2P reserves have decreased by 10% relative to the year-end 2020 estimate provided in the shareholder circular for the Egypt
acquisition, once adjusted for interim production and the reclassification of Teen full-field development (3.9 mmboe) from reserves to
contingent resources, as detailed in the 2021 Annual Report.
Group proven plus probable oil and gas reserves (2P)
Working Interest (WI)
Entitlement Interest (EI)
31 December 2021
Disposals
Acquisitions
Additions and Discoveries
Technical Revisions
Commodity Price Revisions
Production
Oil
mmbbls
31.1
0.0
0.0
0.6
1.7
0.2
(5.3)
Gas
bcf
335.3
0.0
0.0
1.6
(91.5)
0.6
(40.2)
31 December 2022
28.3
205.8
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-2022 Stated Policies Scenario (STEPS)
WEO-2022 Announced Pledges Scenario (APS)
WEO-2022 Net Zero Emissions by 2050 Scenario (NZE)
Greenhouse gas emissions associated with 2P reserves
Estimated Scope 1 emissions
Estimated Scope 3 emissions*
boe
mmboe
Oil
mmbbls
91.0
0.0
0.0
0.9
(14.7)
0.3
(12.5)
65.0
Gas
bcf
136.6
0.0
0.0
0.7
(35.0)
0.2
(16.3)
boe
mmboe
37.4
0.0
0.0
0.4
(6.0)
0.1
(4.7)
13.0
0.0
0.0
0.3
0.2
0.1
(1.8)
11.8
86.2
27.2
WI
mmboe
EI
mmboe
66.5
65.8
61.6
EI
Mt
1.0
11.1
26.4
26.6
25.4
EI
kg CO2
equiv/boe
33
380
WI
Mt
3.3
26.9
* 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 2021
Disposals
Acquisitions
Discoveries
Revisions*
31 December 2022
* Change in EI due to a change in the calculation methodology
WEO World Energy Outlook 2022, International Energy Agency
%
100
0
0
WI
mmboe
EI
mmboe
9.8
0.0
0.0
0.0
(0.1)
9.7
2.9
0.0
0.0
0.0
1.0
3.9
Annual Report and Accounts 2022
179
Glossary
The following are the main terms and abbreviations used in this report:
Million
Master of Business Administration
1,000 cubic feet
m
MBA
mcf
mmscf/d Million standard cubic feet per day
Mid North Sea High
MNSH
Master of Science
MSc
Not applicable
n/a
National Energy Action
NEA
NEAG
North East Abu Gharadig
NewMed NewMed Energy Limited Partnership
NFE
NOX
OGP
opex
OPRED
Near Field Exploration
Nitric oxide
Open Government Partnership
Operating expenses
Offshore Petroleum Regulator for Environment
& Decommissioning
People, Environment, Assets and Reputation
Doctor of Philosophy
Public limited company
Representative Concentration Pathway
Regulatory News Services
Restricted Work Day Case
Science Based Targets Network
Streamline Energy and Carbon Reporting
Social Management Plans
System of National Accounts
Tonnes of carbon dioxide equivalent
United Nations Environment Programme’s World
Conservation Monitoring Centre
The United Nations Educational, Scientific and Cultural
Organization
Value at Risk
Vice President
Weighted Average Exercise Price
Weight Average Grant Price
Willis Towers Watson
Year-on-year
PEAR
PhD
PLC
RCP
RNS
RWDC
SBTN
SECR
SMPs
SNA
tCO2e
UNEP
WCMC
UNESCO
VaR
VP
WAEP
WAGP
WTW
YoY
2C
2D
3D
2P
ABC
AESW
AGM
ALARP
AMEXHI
API
AQI
ASA
BA
Bapetco
bbl
BCF
BCM
BED
bn
boe
boepd
bopd
bps
BRINDEX
BST
CCO
CCS
CCUS
CDP
CDT
CECP
CEO
CERT
CFO
CGU
CMAPP
CNH
CO2
CPP
CSRD
D&I
E&P
EBS
EIA
ELT
ESEF
ESEF RT
ESP
EVP
FTSE
GBP
HRIA
IAASB
IEA STEPS
IITD
IPPC
IRA
ISA
ISEA
ISO
IT
JPMS
LLC
LLP
Denotes best estimate scenario of contingent resources
Two dimensional
Three dimensional
Proved plus probable reserves, denotes best estimate
scenario
anti bribery and corruption
Alam Shawish West
Annual General Meeting
As low as reasonably practicable
Association of Mexican Hydrocarbon Businesses
American Petroleum Institute
Audit Quality Inspection
Administrative Services Agreement
Bachelor of Arts
BADR Petroleum Company
Barrel
Billion cubic feet
Billion cubic metres
Badr El Din
Billion
Barrels of oil equivalent
Barrels of oil equivalent per day
Barrels of oil per day
Basis point
The Association of British Independent Oil Exploration
Companies
British Standard Time
Corporate Criminal Offence
Carbon Capture and Storage
Carbon capture, utilisation and storage
Carbon Disclosure Project
The Centre for Doctoral Training
Corporate Environmental & Climate Change Policy
Chief Executive Officer
Crisis and Emergency Response Team
Chief Financial Officer
Cash-generating unit
Corporate Major Accident Prevention Policy
National Hydrocarbons Commission
Carbon dioxide
Central Processing Platform
Corporate Sustainability Reporting Directive
Diversity and Inclusion
Exploration and Production
Environmental Baseline Surveys
Social Impact Assessment
Exploration Leadership Team
The European Single Electronic Format
The European Single Electronic Format Regulatory
Technical Standard
Electric Submersible Pump
Executive Vice President
The Financial Times Stock Exchange
British pound sterling
Hyman Rights Impact Assessments
International Auditing and Assurance Standards Board
International Energy Agency’s Stated Policies Senario
India Income Tax Department
Intergovernmental Panel on Climate Change
Inflation Reduction Act
International Standards on Auditing
International Standards on Assurance Engagements
International Organisation for Standardization
Information Technology
J.P. Morgan Securities
Limited liability company
Limited liability partnerships
Additional Information Capricorn Energy PLC
TCFD Reporting
180
Annual Report and Accounts 2022
Task Force on Climate-related
Financial Disclosures (TCFD) Report
Capricorn Energy’s climate-related financial disclosures made in the 2022
Annual Report are aligned with the TCFD’s recommendations and
recommended disclosures, consistent 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. We have also assessed the
potential impact of the physical risks of climate change on our assets.
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 Remuneration (see pages
79 to 102). 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:
– progress on approved decarbonisation
initiatives, including the reduction of
diesel power generation, gas flaring and
fugitive methane emissions in Egypt;
– progress on approved investment for
electrification of Egypt operations and
subsurface screening for 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
investments target 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 near-term net zero carbon
emissions target of 15% by 2025 and
increasing the 2030 target from 25% to
30%
– setting a near-term target addressed our
stakeholders’ concerns and enabled the
Company to more effectively measure
progress on reducing GHG emissions.
– review and approval of the climate
change category in the Group Risk
Appetite Statement. Completing a risk
workshop which assessed the current
and future risks to Capricorn in relation
to climate change and the transition.
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.
In March 2022, the Board established the
Sustainability Committee, highlighting the
importance of ESG matters 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 has
allowed 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.
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 Interim 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 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.
Capricorn’s Energy Transition Director is
responsible 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.
Annual Report and Accounts 2022
181
TCFD Reporting continued
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.
Capricorn’s Strategy and Energy Transition
Advisor, working as part of the Strategy and
Business Development team is responsible
for the development of 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.
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.
Risk Management Committee
meets quarterly to discuss and
challenge the Group’s principal
climate related risks and
opportunities.
Management team meet quarterly
to perform a deep-dive review of
the Group’s principal climate related
risks and opportunities. The
conclusion from the discussion are
captured in the updated risk reports
presented at the Risk Management
Committee.
Board
Meets every two months. A risk
management Board paper is
presented at each Board meeting
which details the Group’s principal
climate related risks and
opportunities.
Regular updates provided by the
Management Team, including the
Energy Transition Director’s briefing.
Sustainability Committee: meets
every four months.
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, hazard
identification (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. All risk information
is captured using the Group’s risk
management software tool.
Climate-related risks are classified in
alignment with TCFD’s description of
physical and transition risks:
Transition risks – are those risks related to
the transition to a lower carbon economy
including policy and legal, technology,
markets, and reputational risks.
Physical risks – are 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.
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 (pages 31 and 15
respectively).
b) Describe the organisation’s processes
for managing climate-related risks
The Group applies one of the 4Ts to each
identified climate-related 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 levels of
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 page 37.
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 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.
Additional Information Capricorn Energy PLC
182
Annual Report and Accounts 2022
TCFD Reporting continued
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 two to
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), Announced Pledges
Scenario (APS) and Net Zero Emissions
(NZE) Scenario – to account for a wide
range of uncertainties in the post-2030
period.
Capricorn considers the following risks to
be key climate-related risks in the short,
medium and long term.
The current strategy review is expected to
address and provide further detail on the
climate and energy transition strategy
across different time horizons.
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$31/tCO2e in 2023, rising to US$50/tCO2e in 2030
with a 5% escalation thereafter to 2050.
– 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.
– The above measures are currently in place.
Technology (medium to long term)
– Increasing costs of transition to
lower-emission technology.
– Implementation of decarbonisation technologies at the field level in Egypt.
– Increase in gas production within the portfolio, with decarbonisation options including
– Substitution of existing products
carbon-capture, utilisation and storage (CCUS) and solar for in-field use.
and services with lower emissions
options.
– Funding of Heriot-Watt University research scholarships.
– Application of inherently lower emission equipment and contractor services.
– The above measures are currently in place.
Market (medium to long term)
– Decline in oil demand and oil price.
– Faster than expected shift away
– Low-cost portfolio to generate value in a 1.5 degree scenario.
– Embed low oil and gas prices, as well as carbon prices when screening for new
from gas, leading to lower gas prices.
investments.
– Changing market sentiment as
– Consider diversification into clean technologies, such as solar and geothermal in the
consumers switch away from fossil
fuels.
– Access to capital.
Reputation (short term)
– Public perception of the oil and gas
industry is changing.
– Lack of trust in the oil and gas
industry’s net zero ambitions.
Chronic (long term)
medium term.
– Ensure strong balance sheet, low leverage, strong free cash-flow generation.
– Maintain transparency relating to all ESG issues.
– Comply with the highest reporting standards.
– Ensure continued engagement with external stakeholders. Currently in place.
– Rising mean temperatures and risk
– We assessed the materiality and plausible impact and likelihood ranges with focus on
of drought.
Drought, Heat Stress and Windstorm on our business using an independent provider (WTW).
– Rising sea levels.
– Increased extreme weather events.
– Rising water stress including
– Drought Stress (prolonged periods of rain and water shortage), in particular for the
RCP8.5 hothouse world had been identified as the most material risk for Capricorn
Energy by 2040-2050 timeframe.
conflicting uses and availability.
– The impact of this chronic hazard for this scenario was estimated as likely being in
the medium Value at Risk (VAR) impact range (US$1-10m on Cashflow and US$25-100m
Market Cap Loss) with a ’probable’ likelihood forecasted by the climate models utilised.
– For RCP4.5 and 2040-2050 timeframe, this hazard was estimated to have low Value at Risk
(VAR) impact (US$0.1-1m on Cashflow and US$5-25m Market Cap Loss), whereas for the
low carbon emission world RCP2.6, the Value at Risk (VAR) impact for the same timeframe
was estimated to be likely to be very low (similar to estimates for current climate conditions).
– Water resource and resilience studies in Egypt, including a planned in-house water challenge.
– 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 (see our Sustainability Report).
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Annual Report and Accounts 2022
183
TCFD Reporting continued
Capricorn has recognised and is currently working on scoping and implementing a number of climate-related opportunities as we try to
address our stakeholders’ key concerns illustrated in the Materiality Matrix (page 15, with further information in our Sustainability Report).
Type
Climate-related Opportunities
Capricorn’s Response
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– Use of lower-emission sources of energy.
– Shift toward decentralised energy generation.
– Use of supportive policy incentives.
– Use of new technologies.
– Participation in carbon market.
– In Egypt, we are replacing diesel generators with cleaner-
burning gas generators, and electrifying well sites and
downhole pumps using centralised power generation. We also
plan to integrate solar power to further 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.
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$60/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$31/tCO2e in
2023, rising to US$50/tCO2e in 2030, with
a 5% escalation thereafter until 2050.
c) Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-related
scenarios, including a 2°C or
lower scenario
The TCFD recommends the use of scenario
analysis in disclosure of climate-related risks
and opportunities. Scenario analyses
aligned with the TCFD framework help
companies explore different futures and the
implications of climate-related
circumstances on business strategy.
The findings of the recently conducted
scenario analysis exercise, which tested the
resilience of Capricorn’s Egypt portfolio
against IEA’s STEPS, APS 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 includes a variable oil
price of US$88 for 2023 decreasing down
to US$70 for 2025 and US$60 flat for 2030
to 2050 US$6/mcf gas price (long term,
inflated at 2% from 2025) and carbon
prices of US$31/tCO2e in 2023, increasing
to US$50/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 103% of the value we
derive for our financial planning purposes.
Our portfolio outperforms our planning
scenario by 38% in the APS scenario.
Additional Information
Capricorn Energy PLC
184
Annual Report and Accounts 2022
TCFD Reporting continued
Egypt: Asset Value relative to Capricorn Planning Case NAV including carbon costs
%
9
5
1
%
8
3
1
%
3
0
1
%
0
0
1
%
0
0
1
Net asset value
Carbon costs
IEA scenarios are modelled using IEA’s assumptions
associated with each of the scenarios.
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).
APS 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.
IEA STEPS
IEA APS
IEA NZE
Capricorn
planning
(=Impairment)
Capricorn
planning
(=Impairment)
at NZE
carbon price
Metrics and Targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such
information is material
TCFD recommended disclosures
Risks and opportunities identified
Metrics and targets
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.
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.
– Net zero, with 2025, 2030 and 2040 targets set for
Scope 1 and 2 emissions on an equity basis, pages
11, 12 and 16 and 22 to 24. We will measure
progress against our 2022 baseline.
– Remuneration policy with embedded climate
related targets, pages 92 and 93.
– Pro-active engagement with our employees
to increase awareness and help deliver net zero,
pages 180 and 181.
– Key assumptions: commodity prices for
opportunity screening and financial planning,
page 183.
– Carbon price, page 182.
– Capricorn’s environmental impact, pages 22 to 24.
– Scope 1 and 2 on an operational and equity basis,
pages 22 to 24.
– Scope 3. We have undertaken further definition
and reporting of our Scope 3 emissions to include
emissions from categories 1, 3, 4, 5, 6, 7 (operated)
and 9, 10 and 11 (equity), pages 22 to 24.
– TCFD climate-related risk and management,
page 181.
c) Describe the targets used by the
organisation to manage climate-
related risks and opportunities
and performance against targets.
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.
– 2025, 2030 and 2040 targets and planned
progress, pages 11, 12 and 22 to 24.
– Scope 1 and 2 and planned progress, pages 11,
12, 16 and 22 to 24.
– Scope 3 and planned progress, pages 22 to 24.
– Flaring and planned progress, pages 11, 12
and 23.
Annual Report and Accounts 2022
185
Company Information
Financial Adviser and
Corporate Broker
Merrill Lynch International
(BofA Securities)
2 King Edward Street
London
EC1A 1HQ
Registrars
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Secretary
Anne McSherry
Solicitors
Shepherd and Wedderburn LLP
1 Exchange Crescent
Conference Square
Edinburgh
EH3 8UL
Independent auditors
PricewaterhouseCoopers LLP
144 Morrison Street
Edinburgh
EH3 8EB
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
Additional Information Capricorn Energy PLC
Notes
186
Annual Report and Accounts 2022
Annual Report and Accounts 2022
187
Notes
Additional Information Capricorn Energy PLC
Notes
188
Annual Report and Accounts 2022
Capricorn Energy
INV4190867
The outer cover of this report has been laminated
with a biodegradable film. Around 20 months
after composting, an additive within the film will
initiate the process of oxidation.
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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
www.capricornenergy.com/ar2022