EnQuest

Welcome to the 
EnQuest PLC Annual 
Report and Accounts 
2012

This interactive pdf allows you to easily 
access the information that you want, 
whether printing, searching for a 
specific item or going directly to 
another page, section or website.

Use the document controls located at the 
bottom of each page to navigate through 
this report. Use the contents to jump 
straight to the section you require.

Search the entire 
document by 
keyword

Print a single page 
or whole sections

Return back to  
the contents at  
the beginning  
of the document

Next Page

Previous Page

Links
Throughout this report there are 
links to pages, other sections and 
web addresses for additional 
information. The web links are 
recognisable by the light blue 
underline simply click to go to 
web URL www.enquest.com

Contents

Overview

1  Highlights for 2012
2  What We Have Achieved in 3 Years
4  Our Strategy
5  Our Hub Focused Model
6  Our Assets
7  Our Differentiators – The EnQuest Way

Business Review

8  Field Life Extensions – Thistle Life Extension
10  Marginal Field Solutions – Alma/Galia
12  New Developments – The Kraken Discovery
14  Chairman’s Statement
16  Chief Executive’s Report
22  Risks and Uncertainties
24  Operating Review
31  Oil and Gas Reserves and Resources
32  Financial Review
38  Corporate Social Responsibility Review
40  EnQuest Values

Governance

42  Board of Directors
44  Senior Management
46  Directors’ Report
49  Corporate Governance Report
54  Remuneration Report

Financial Statements
60  Statement of Directors’ Responsibilities in Relation to the Group 

Financial Statements

61  Independent Auditor’s Report on the Annual Report and 

Accounts to the Members of EnQuest PLC
62  Group Statement of Comprehensive Income
63  Group Balance Sheet
64  Group Statement of Changes in Equity
65  Group Statement of Cash Flows
66  Notes to the Group Financial Statements
93  Statement of Directors’ Responsibilities for the Parent Company 

Financial Statements

94  Independent Auditor’s Report to the Members of EnQuest PLC
95  Company Balance Sheet
96  Notes to the Financial Statements
101  Company Information

Annual Report and Accounts 2012

An independent oil and gas development 
and production company

DELIVERING GROWTH

OUR 
COMPANY
OUR 
PEOPLE

–WHAT 
WE DO

We are an oil and gas development and production 
company focused on turning opportunities into value 
by targeting maturing assets and undeveloped oil fields.

Delivering value
EnQuest’s development and production 
focused strategy is working, we are 
building momentum and the successful 
implementation of our strategy is proving 
that our model is repeatable. We are 
excited by our potential to keep growing 
and to keep delivering value.

EnQuest’s people
EnQuest is its people. We are differentiated 
by the breadth and depth of our teams, 
by their knowledge and experience in 
engineering, subsurface, execution and 
operations and by their leadership in 
innovative integrated developments.

See how the values of the EnQuest 
team are implemented throughout the 
business on pages 40–41

CONTENTS

OVERVIEW
1  Highlights for 2012
2  What We Have Achieved in 3 Years
4  Our Strategy
5  Our Hub Focused Model
6  Our Assets
7  Our Differentiators

– The EnQuest Way

BUSINESS REVIEW
8  Field Life Extensions

– Thistle Life Extension
10  Marginal Field Solutions

– Alma/Galia

12  New Developments

– The Kraken Discovery

14  Chairman’s Statement
16  Chief Executive’s Report
22  Risks and Uncertainties
24  Operating Review
31  Oil and Gas Reserves 

and Resources

32  Financial Review
38  Corporate Social Responsibility 

Review

40  EnQuest Values

GOVERNANCE
42  Board of Directors
44  Senior Management
46  Directors’ Report
49  Corporate Governance Report
54  Remuneration Report

FINANCIAL STATEMENTS
60  Statement of Directors’ 

61 

Responsibilities in Relation to the 
Group Financial Statements
Independent Auditor’s Report on 
the Annual Report and Accounts 
to the Members of EnQuest PLC

62  Group Statement of 

Comprehensive Income

63  Group Balance Sheet
64  Group Statement of Changes 

in Equity

65  Group Statement of Cash Flows
66  Notes to the Group 

Financial Statements
93  Statement of Directors’ 

Responsibilities for the Parent 
Company Financial Statements

94  Independent Auditor’s Report to 
the Members of EnQuest PLC

95  Company Balance Sheet
96  Notes to the Financial Statements
101  Company Information

Cover image: 
Alma/Galia development project 
team members at the EnQuest 
Producer vessel in dry dock in 
Hamburg, where it is undergoing 
major modifications and life 
extension work.

 
 
 
 
–HIGHLIGHTS 
FOR 2012

Basic earnings per share 
Cents

Delivering growth

2012

2012

46.2

2011

7.6

507.9%

Net profit after tax2
$ million

2012

2011

259.7

136.1

90.8%

Production
Boepd

2012

2011

3.8%

Reserves
MMboe

2012

2011

11.5%

128.51

115.2

1  EBITDA is calculated by taking profit/loss from 

operations before tax and finance income/(costs) 
and adding back depletion (adjusted for depletion 
of fair value uplift), depreciation, impairment and 
write-off of intangible oil and gas assets.

2   Before exceptional items and depletion of fair 

value uplift.

■■ Strong $593.9 million cash flow 

from operations and $626.2 million 
EBITDA1, pre-exceptional and fair 
value adjustments

■■ EnQuest performed well in 2012. 
Despite an expected decline in 
production at the Dons, the strength 
of production at Thistle in particular 
resulted in strong production of 
22,802 Boepd

■■ The 2012 14 well drilling programme 

was well executed, with a particularly 
strong operational performance at 
the Thistle and Don fields

■■ An 11.5% growth in net 2P reserves 
and a reserves replacement ratio 
of 262.2%

■■ EnQuest started to establish a 

presence in two oil basins outside the 
UK North sea: Norway and Malaysia

22,802

23,698

2013 and beyond

■■ Targeting net average 2013 

production of between 22,000 
Boepd and 27,000 Boepd
–  Driven by a programme 

delivering 12 wells, including 
six production wells

■■ First oil from EnQuest’s new Alma/
Galia hub is on track for Q4 2013

■■ The new development of the Kraken 

discovery is on track for Field 
Development Plan (‘FDP’) submission 
in Q2 2013

■■ Net 2P reserves at the start of 2013 

have a life of over 15 years, extending 
to over 25 years if Kraken’s 
contingent resources are converted 
to reserves

■■ EnQuest is actively considering 

developments on at least a further 
three licences in its discovery ‘hopper’

■■ With its differentiated strong 

development execution capability, 
EnQuest is well placed to continue to 
capture and realise new development 
opportunities, assuring our medium 
and long term growth

1

How does your team
make a difference?
While many companies take a 
sequential approach to project 
execution, we often progress 
projects in parallel – and can do 
so because of our nimbleness and 
speed of reaction.

One of the distinctive features of 
EnQuest is that we don’t have to 
work through many layers of the 
business to reach decision makers. 
Things can be made to happen 
quickly and efficiently.

From a career perspective, our 
prospective growth means team 
members can remain in a post 
or working discipline they enjoy, 
but nevertheless develop their 
responsibilities and capabilities 
as the business grows.

Name: Derek Liversidge (centre)
EnQuest position:  
Wells Delivery Manager

SEE MORE ABOUT OUR EXTENSIVE 
DRILLING ACTIVITY ON P8–13

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–WHAT WE HAVE 
ACHIEVED IN 3 YEARS

2010–2012: Significant cash flow from operations, over $1.5 billion of cash flow generated
US$ million

H1 2010

H2 2010

H1 2011

H2 2011

H1 2012

H2 2012

318

240

By the end of 2012...

14 WELLS 

SUCCESSFULLY 
DRILLED

The successes of a 14 well 
programme in 2012 and the 
delivery of the Thistle and Dons 
work programmes enabled us 
to achieve our production 
targets for the year.

NORWAY AND MALAYSIA
In 2012 we announced our first 
steps outside of the UK North 
Sea, preparatory moves to 
replicate our existing model 
by targeting previously 
undeveloped assets in a small 
number of other maturing 
regions; complementing our 
operations and utilising our deep 
skills in the UK North Sea.

39 UK PRODUCTION 

LICENCES

(81)

x
e
p
a
C

134

s
n
o
i
t
a
r
e
p
o
m
o
r
f

w
o
fl
h
s
a
C

8

h
s
a
c
t
e
n
9
0
c
e
D

133

s
n
o
i
t
a
r
e
p
o
m
o
r
f

w
o
fl
h
s
a
C

(74)

x
e
p
a
C

76

h
s
a
c
t
e
n
0
1
n
u
J

9

r
e
h
t
o
d
n
a
g
n
c
n
a
n
fi

i

,

x
a
T

* Excludes borrowing.

2010

Launch of EnQuest

■■ First drilling on the Thistle 

platform for 20 years

■■ Increased production by 

55% in first year

■■ 26th Licensing Round 

success

■■ Acquisition of Stratic 
Energy Corporation

2

338

(170)

(35)

(108)

(5)

379

h
s
a
c
t
e
n
1
1
c
e
D

266

h
s
a
c
t
e
n
1
1
n
u
J

x
e
p
a
C

r
e
h
t
o
d
n
a
g
n
c
n
a
n
fi

i

,

x
a
T

s
n
o
i
t
a
r
e
p
o
m
o
r
f

w
o
fl
h
s
a
C

93

h
s
a
c
t
e
n
2
1
n
u
J

(504)

(22)

x
e
p
a
C

r
e
h
t
o
d
n
a
g
n
c
n
a
n
fi

i

,

x
a
T

s
n
o
i
t
a
r
e
p
o
m
o
r
f

w
o
fl
h
s
a
C

41

h
s
a
c
t
e
n
0
1
c
e
D

(88)

r
e
h
t
o
d
n
a
g
n
c
n
a
n
fi

i

,

x
a
T

x
e
p
a
C

r
e
h
t
o
d
n
a
g
n
c
n
a
n
fi

i

,

x
a
T

s
n
o
i
t
a
r
e
p
o
m
o
r
f

w
o
fl
h
s
a
C

354

s
n
o
i
t
a
r
e
p
o
m
o
r
f

w
o
fl
h
s
a
C

90

h
s
a
c
t
e
n
2
1
c
e
D

(338)

(19)

x
e
p
a
C

*
r
e
h
t
o
d
n
a
g
n
c
n
a
n
fi

i

,

x
a
T

2011

■■ Field Development Plan 

(FDP) submission and Board 
sanction of Alma/Galia

■■ Acquired a further 8% of the 
Broom producing oil field 

■■ Thistle reached a production 
milestone of 2 MMbbls in one 
calendar year for the first 
time since 2000

■■ Don Southwest reached a 
milestone of 10 MMbbls of 
cumulative production, just 
two years after coming 
onstream

■■ Discovery of both Conrie 

and Crathes fields

EnQuest PLCAnnual Report 2012OVERVIEW 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010–2012: 300% reserves replacement
MMboe

Full year 2010

Full year 2011

Full year 2012

On track to deliver approximately 20% CAGR* 
Between 2009 and 2014
Average net production (Boepd)

21.5

128.5

35.1

115.2

(8.2)

80.5

(7.4)

15.4

88.5

(8.4)

0
1
0
2
f
o
t
r
a
t
s

s
e
v
r
e
s
e
r
P
2
t
e
N

0
1
0
2
n
o
i
t
c
u
d
o
r
P

0
1
0
2

s
n
o
i
t
i
d
d
a

e
v
r
e
s
e
R

1
1
0
2
f
o
t
r
a
t
s

s
e
v
r
e
s
e
r
P
2
t
e
N

1
1
0
2
n
o
i
t
c
u
d
o
r
P

1
1
0
2

s
n
o
i
t
i
d
d
a

e
v
r
e
s
e
R

2
1
0
2
f
o
t
r
a
t
s

s
e
v
r
e
s
e
r
P
2
t
e
N

2
1
0
2
n
o
i
t
c
u
d
o
r
P

2
1
0
2

s
n
o
i
t
i
d
d
a

e
v
r
e
s
e
R

3
1
0
2
f
o
t
r
a
t
s

s
e
v
r
e
s
e
r
P
2
t
e
N

Over
**33,000**

C A G R   a p p r o x i m a t e l y   2 0 %

23,698 22,802

21,074

27,000
0
0
0
5

,

13,613

10,150

0
0
0
2
2

,

2008

2009

2010

2011

2012

2013

2014

*  Compound annual growth rate
** To be updated following Alma/Galia results

  Guidance range

2012

2013

■■ Acquisition of 60% of 
the Kraken discovery, 
assumption of operatorship

■■ DECC FDP approval for 

Alma/Galia

■■ Acquired a further 

18.5% of the West Don 
producing oil field

■■ 27th Licensing Round 

success

■■ Heather return to drilling 

project under way

■■ Five years free of Lost 

Time Incidents (LTIs) on 
drilling operations in the 
Thistle field

■■ Announced first steps 

outside of the UK North Sea

■■ Agreed acquisition of 8% of 
the Alba producing oil field

■■ Successful issue of £145m 
retail bonds. The bonds 
were admitted to trading 
through the Order Book for 
Retail Bonds of the London 
Stock Exchange

3

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
–OUR
STRATEGY

EnQuest intends to deliver sustainable growth by focusing on 
exploiting its existing reserves, commercialising and developing 
discoveries, converting contingent resources into reserves and 
pursuing selective acquisitions.

Focused on oil and oil linked 
hydrocarbons

Control through operatorship and 
high working interests

Turning development and 
production opportunities into value 
by targeting maturing assets and 
undeveloped oil fields

Being a development partner 
of choice

Long term average growth aims at time of 
our IPO:

Largest UK Independent Producer in the UK North Sea
Total production for the year ending November 2012 
Total production in mass units: tonnes

10% GROWTH

IN PRODUCTION AND 
RESERVES PER ANNUM

1,000,000

900,000

800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

t
s
e
u
Q
n
E

l
i

O
w
o

l
l

u
T

l
i

O

i

r
e
m
e
r
P

t
n
a

i
l

a
V

a
c
a
h
t
I

l
i

O

t
s
r
i
F

l

d
e
fi
r
i
a
F

r
u
o
v
a
e
d
n
E

t
e
P
e
o
r
a
F

Source: Department of Energy and Climate Change website

4

EnQuest PLCAnnual Report 2012OVERVIEW 
 
 
 
 
–OUR HUB  
FOCUSED MODEL

Growth through the realisation  
of untapped potential.

How EnQuest adds value

The assets

–FIELD LIFE 
EXTENSIONS

■■ Upgrading existing facilities

■■ Heather/Broom

■■ Newer technology, new seismic

■■ Thistle/Deveron

■■ Simplifying processes

■■ Maturing fields

■■ Infill drilling, subsurface skill 
in identifying well targets

■■ Ex majors

–MARGINAL 
FIELD SOLUTIONS

■■ Agile, innovative and cost efficient 

■■ Dons and Alma/Galia

solutions

■■ Redesigning and upgrading ‘used’ 

facilities

■■ Using existing infrastructure; 

tie-backs

■■ Dormant fields

■■ Ex majors and licensing rounds

SEE OUR FIELD LIFE EXTENSIONS
CASE STUDY ON P8–9

–NEW 
DEVELOPMENTS

■■ Deploying technical and financial 
capacity too stretching for some 
previous owners

■■ Integrated teams commercialising 

and developing discoveries

■■ Low risk, low cost near field 
development and appraisal

SEE OUR MARGINAL FIELD SOLUTIONS
CASE STUDY ON P10–11

■■ Kraken

■■ Ex smaller companies

SEE OUR NEW DEVELOPMENTS
CASE STUDY ON P12–13

5

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–OUR
ASSETS

Growing EnQuest’s asset base
EnQuest’s principal assets at the end of 2012 were its interests in 
the Heather/Broom, Thistle/Deveron, West Don, Don Southwest 
and Conrie producing oil fields, the Alma and Galia development, 
the new Kraken development, and further development 
opportunities in the Southwest Heather, Peik, Crawford/Porter, 
Cairngorm, Crathes/Scolty/Torphins and Kildrummy discoveries. 
Further afield EnQuest also has a development opportunity in the 
Bambazon oil discovery in Malaysia.

In the UK at the end of December 2012, including the assets it was 
offered in the UK’s 27th Licensing Round, EnQuest had working 
interests in 39 production licences covering 55 blocks or part 
blocks in the UKCS and was the operator of 31 of its 39 licences.

During 2012 and in 2013 to date, EnQuest consolidated positions 
in its existing asset base and added material new interests. This 
was achieved primarily through asset acquisitions and through 
licensing rounds. EnQuest also significantly enhanced its 
economics on the Alma/Galia development through a farm out.

West Don

63%

Alma/Galia

(35%)

Kraken

60%

Alba

8%

Kildrummy

60%

Cairngorm

100%

Acquired a further 18.5% of 
West Don for $34 million

Farmed out 35% of 
Alma/Galia, generating 
a $176 million gain on 
disposal

Acquired 60% of Kraken in 
three tranches, assumed 
operatorship

Agreed acquisition of 8% 
of Alba for £19 million, 
adding reserves and 
producing barrels

Built position to a 60% 
interest in Kildrummy, 
assumed operatorship

Acquired the remaining 
interests in Cairngorm, 
now have 100% of both 
blocks

Sullom Voe
Terminal

Shetland
Islands

Orkney
Islands

KILDRUMMY
KILDRUMMY

THE DONS / CONRIE
THE DONS / CONRIE

THISTLE / DEVERON
THISTLE / DEVERON

HEATHER / BROOM
HEATHER / BROOM

KRAKEN
KRAKEN

PEIK
PEIK

CRAWFORD / PORTER
CRAWFORD / PORTER

CAIRNGORM
CAIRNGORM

ALBA
ALBA

CRATHES / SCOLTY / TORPHINS
CRATHES / SCOLTY / TORPHINS

Scotland

Aberdeen

Production and developments

New developments – FDP 
submission anticipated in Q2 2013

Discoveries

Other licences

27th Licensing Round offers

SB303

ALMA / GALIA
ALMA / GALIA

 > A more detailed table of EnQuest’s licences can 

be found on page 25.

Assets outside the UK North Sea
EnQuest has acquired an appraisal opportunity at the Bambazon 
discovery and other exploration targets in a maturing oil basin in 
Malaysia, as part of the execution of its long term growth strategy.

S o u t h

C h i n a   S e a

Sabah

Acquired 42.5% interest in 
Blocks SB307 and SB308, 
offshore Sabah in Malaysia, 
for an initial $3 million

SB307

Tiga Papan

Emerald
Sw

Sf 30

Barton

Furious South

Sabah
Malaysia

Saint Joseph

Bambazon

6

Kinarut

SB308

M A L A Y S I A

Collins Se

EnQuest PLCAnnual Report 2012OVERVIEW 
–OUR DIFFERENTIATORS
THE ENQUEST WAY

Focused on execution
■■ Leadership in innovative 

developments
■■ Integrated teams
■■ Proven depth 
in engineering, 
subsurface, execution 
and operations

■■ Innovative and cost 

efficient development 
solutions

■■ Proven acquirer 

of assets

KILLS

S

S

C

A

L

E

TURNING 
OPPORTUNITIES
INTO VALUE 

STREN G T H

Technical skills
The Alma/Galia development exemplifies 
how EnQuest is now a leading force in 
integrated development.

The new Kraken development opportunity 
demonstrates EnQuest’s skills as a proven 
acquirer of assets.

Operating scale
With a direct workforce of around 500, 
and 1,600 including offshore contractors, 
EnQuest has a breadth and depth of 
expertise matched by few if any UK oil 
companies of its size.

Financial strength
With a strong balance sheet and strong 
cash flow generation, combined with  
its technical skills and operational scale, 
EnQuest is increasingly becoming the 
independent development partner of 
choice in the UK North Sea.

7

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–FIELD LIFE EXTENSIONS

THISTLE LIFE
EXTENSION (LLX)

Thistle is a prime example of how 
we are able to recover more oil from 
mature assets through a combination of 
innovative ways of working and technical 
expertise. It demonstrates what EnQuest 
does best and underlines our long term 
commitment to the North Sea.

Barrels of oil

3  million barrels of oil 

produced in 2012

Reactivation of drill rig

Process simplification

Power upgrade

EnQuest’s commitment to investing in mature infrastructure 
to realise untapped production potential is exemplified 
by its Thistle Late Life Extension (LLX) project. This large 
scale programme extends the field life and realises reserves. 
Production from Thistle, which was installed in 1976, had been 
in decline before EnQuest instigated this multi-faceted 
revitalisation project.

The first phase was a successful rig reactivation project and 
the subsequent drilling of five new wells, resulting in a rise in 
production levels not seen since the 1990s. Drilling operations 
were not only characterised by efficiency and excellent results, 
but by exceptional safety performance: the team recorded five 
years free of any lost time incidents (LTIs).

The subsequent stages of Thistle LLX involve a programme 
of coordinated enhancements to the infrastructure and to key 
systems. The first major element of this programme saw the 
successful installation of a new power generation turbine and 
local equipment room, significantly enhancing power supply in 
terms of capacity and reliability. The installation and heavy lift 
required careful planning and was flawlessly executed by a team 
who demonstrated many EnQuest values, such as agility, 
collaboration and creativity.

Other elements of the programme include a process 
simplification exercise to create a fit-for-purpose plant 
environment, a new process control and safety system, 
topsides integrity work, and structure focused workscopes 
to maintain the jacket integrity of the asset. The latter stages 
of the programme were significantly bolstered in early 2013 
when it was announced that EnQuest had secured a brownfield 
tax allowance in support of its plans to maximise recovery from 
Thistle. EnQuest is among the first operators to secure the 
allowance, which is one of a series of UK Government measures 
aimed at stimulating growth in the North Sea, and enables the 
business to commit fully to a new phase of investment.

8

SEE MORE ABOUT OUR 
OPERATIONS ON P24–31

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
Installation of Thistle’s new 
gas turbine generator

THISTLE LLX
visit the multimedia section 
of enquest.com for more 
information on the LLX 
project.

Sullom Voe
Terminal

Shetland
Islands

How will Thistle benefit 
from the LLX (late life 
extension) upgrades?
When feasibility studies originally 
identified that Thistle’s field life could 
be extended by a further 15 years or 
more, EnQuest was quick to seize on 
this substantial opportunity to add 
value and to recognise its potential 
for other maturing fields. 

Orkney
Islands

The Thistle LLX upgrades 
enhance asset integrity and allow 
for the further safe extraction 
of hydrocarbons. This project 
demonstrates EnQuest’s continued 
belief in the future of the North Sea.

KILDRUMMY

Name: Michele Eaves
EnQuest position:  

THISTLE / DEVERON
THISTLE / DEVERON

HEATHER / BROOM

KRAKEN

PEIK
Why has this project been 
so successful to date?
From the outset, we sought to 
engage everyone involved in 
dialogue about how we could 
make Thistle better – how we 
could recover those extra barrels.

CRAWFORD / PORTER

CAIRNGORM

We knew the principles: we needed 
people to share the vision, we 
needed the processes, and we 
needed to create a cycle of policy 
setting and practical improvements 
to drive change. Once those were 
established, we knew operational 
excellence would emerge.

Name: Mark Bayman
EnQuest position:  
Thistle Area Manager

CRATHES / SCOLTY / TORPHINS

Aberdeen

PILOT

Production and developments

Discoveries

Other licences

ALMA / GALIA

9

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 
–MARGINAL FIELD SOLUTIONS

ALMA/GALIA

Alma/Galia is not only creating a new 
lease of life for what was the UK North 
Sea’s first producing field, but the 
project exemplifies the ability of 
EnQuest’s people to formulate strong 
economic solutions for mature assets.

■■ Blocks 30/24 and 30/25

■■ 310km southeast of Aberdeen

■■ Water depth approximately 80m

■■ Reservoir depth approximately 9,000ft

■■ Distance from EnQuest Producer to Alma, 2.1km

■■ Distance from Alma to Galia, 5.4km

■■ Six Electrical Submersible Pump (‘ESP’) wells on Alma, 

dual ESP completion

■■ One ESP well on Galia, dual ESP completion

■■ Two water injection wells at the Alma water injection 

drill centre

ALMA/GALIA PROPOSED SUBSEA INFRASTRUCTURE

Alma/Galia is EnQuest’s first new hub. It reflects our focus on 
identifying new opportunities in mature assets and creating a 
technology led solution to maximise recovery. The past year has 
seen the key elements of the project remain on track and we 
continue to anticipate first oil in Q4 of 2013. This flagship project 
is revitalising the UK North Sea’s first producing field, formerly 
known as Argyll.

EnQuest’s distinctive project execution model is being deployed 
for Alma/Galia. This integrated project team approach is 
designed to achieve optimum efficiency and performance 
across all areas of the project. The execution team possesses 
extensive experience as well as in-depth skills across the 
subsurface and development disciplines.

Towards the end of 2012, significant milestones were reached 
on the subsea installation elements of Alma/Galia. Specifically, 
pipeline works authorisations have been approved, subsea 
trenching operations were completed, and flowlines were laid 
between the two fields and the EnQuest Producer Floating 
Production, Storage and Offloading vessel (FPSO) location. 
The mooring installation contract was awarded and equipment 
factory accepting testing programmes also commenced.

10

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
Sullom Voe

Terminal

Shetland

Islands

Orkney

Islands

KILDRUMMY

KILDRUMMY

THE DONS / CONRIE

THE DONS / CONRIE

THISTLE / DEVERON

THISTLE / DEVERON

HEATHER / BROOM

HEATHER / BROOM

KRAKEN

KRAKEN

PEIK

PEIK

CRAWFORD / PORTER

CRAWFORD / PORTER

CAIRNGORM

CAIRNGORM

ALBA

ALBA

CRATHES / SCOLTY / TORPHINS

CRATHES / SCOLTY / TORPHINS

Scotland

Aberdeen

Production and developments

New developments – FDP 
submission anticipated in Q2 2013

The EnQuest Producer 
re-fit in Hamburg

Discoveries

Other licences

27th Licensing Round offers

The infrastructure will feature six producing wells on Alma and 
one producer on Galia, tied back to the EnQuest Producer which 
is currently in the port of Hamburg, Germany, undergoing major 
modification and life extension work. The Hamburg team are 
leading this modification programme, which includes upgrade 
work on the swivel, hull strengthening, and the refurbishment of 
all facilities and systems.

During 2012 the Kuwait Foreign Petroleum Exploration 
Company (KUFPEC) became a partner in Alma/Galia, acquiring 
a 35% interest. The farm out agreement brings further technical 
and financial strength to the project. In early 2013 the EnQuest 
Board also approved an increase in the scope and specification 
of the project, with the objective of extending field life, 
optimising costs and enabling a potential second phase 
development. These changes are expected to extend the FPSO 
vessel life materially (to up to 15 years), and to add additional 
wells in any second development phase.

ALMA / GALIA
ALMA / GALIA

Gross field 2P reserves

34 MMBoe

Why did you re-use an 
existing vessel for the 
Alma/Galia FPSO?
The FPSO element of Alma/Galia 
demonstrates that EnQuest isn’t 
‘put off’ by old assets. While others 
may have looked at the Uisge Gorm 
(the name of the vessel before it 
became the EnQuest Producer) 
and considered it to be at the end 
of its useful life, that wasn’t the case 
with us.

Having completed a similar process 
with the Northern Producer in the 
Don fields, we understood the scale 
of what we were getting into, we 
were prepared to take that on and 
manage our way through it.

Name: Craig Matthew (right)
EnQuest position:  
New Developments Manager

SEE MORE ABOUT OUR 
OPERATIONS ON P24–31

11

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–NEW DEVELOPMENTS

THE KRAKEN
DISCOVERY

The Kraken project illustrates our ability 
to identify new opportunities and quickly 
create an innovative development 
environment to exploit them with 
maximum efficiency. With an anticipated 
production life of 25 years, it is set to 
become core to our long term production.

EnQuest direct workforce at the end of 2012 approximately

500

As EnQuest increased its interest in the Kraken discovery during 
2012 and assumed operatorship, we took pivotal steps to 
establish a robust foundation for the project. A proven EnQuest 
execution model has been applied to take forward one of the 
largest current development projects in the North Sea. The Field 
Development Plan (FDP) for Kraken is scheduled for submission 
in the second quarter of 2013.

A series of acquisitions during 2012, saw the Company build a 60% 
interest in this opportunity in the East Shetland Basin, a field which 
was first discovered in the 1980s. We became operator upon the 
completion of the last of those deals in September. The proposed 
development concept is essentially that of a conventional rather 
than a heavy oil type of development.

In 2012 the project team was intensely focused on the concept 
selection phase of the project, ahead of FDP submission. The main 
phases of subsea installation are expected to begin in early 2015, 
with first oil from the field targeted in 2016, subject to FDP approval.

A dedicated Kraken team was formed at the early stages of the 
project, an integrated group comprising of professionals with skills 
and experience from across the spectrum of industry disciplines.

KRAKEN PROPOSED SUBSEA INFRASTRUCTURE

12

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
THE DONS / CONRIE

THE DONS / CONRIE

THISTLE / DEVERON

THISTLE / DEVERON

HEATHER / BROOM

HEATHER / BROOM

KRAKEN
KRAKEN

PEIK

CRAWFORD / PORTER
CRAWFORD / PORTER

CAIRNGORM
CAIRNGORM

Sullom Voe
Terminal

Shetland
Islands

EnQuest workforce, including offshore contractors, at the end 
of 2012 approximately

1,600

Orkney
Islands

KILDRUMMY
KILDRUMMY

What makes this project 
so exciting?
Kraken is a major project for 
EnQuest, with a technically 
challenging subsurface environment 
and a demanding delivery schedule.

For me, I’m excited by the passion 
I see from the team, the level of 
expertise from my colleagues, and 
how the teams share knowledge 
to come up with creative ideas 
and solutions.

ALBA
ALBA
How important is the 
team dynamic to a project 
like Kraken?
Very. The successful delivery of the 
Kraken project is dependent on the 
CRATHES / SCOLTY / TORPHINS
CRATHES / SCOLTY / TORPHINS
execution of the development as a 
whole. For this to be achieved, the 
team needs to be able to interface 
and understand the implication of 
each stream of work on the rest of 
the development.

Scotland

Aberdeen

Name: Andy Beck (left)
EnQuest position:  
Kraken Subsurface Team Leader

Production and developments

New developments – FDP 
submission anticipated in H1 2013

Discoveries

Other licences

27th Licencsing Round offers

It is important that all team members 
are comfortable to freely discuss and 
achieve a common understanding of 
what is right for Kraken, and the 
working environment at EnQuest 
allows for this.

Name: Alisdair MacInnes (right)
EnQuest position:  
Kraken Developments Manager

ALMA / GALIA
ALMA / GALIA

13

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–CHAIRMAN’S 
STATEMENT

Overview
EnQuest delivered on plan in 2012, with 
production of 22,802 Boepd. In each 
of the three years since EnQuest’s 
inception, we have reported good 
results. Across those three years we 
have generated a total of $1,517.9 million 
of cash flow from operations, with 
production up 68% and an overall 
reserves replacement ratio of 300%. 

Dr James Buckee
Chairman

Basic earnings per share
Cents

2012

46.2

2011

7.6

507.9%

This performance is well ahead 
of our long term target of an 
average of 10% per annum 
growth in production and 
reserves, and reflects the 
successful implementation 
of our development and 
production strategy.

EnQuest’s technical, 
operational and execution 
capabilities have continued 
to grow during the year, 
particularly with the significant 
progress on the Alma/Galia 
development and the rapid 
assimilation of Kraken.

14

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
Market conditions
In 2012, EnQuest’s average realised oil price, net of hedging, was 
$111.6 per barrel, up from $107.6 per barrel in 2011. It is now two 
years since the Brent oil price last averaged below $100 per barrel 
and market oil price expectations remain high. Whilst we also 
continue to be positive on the longer term outlook for oil prices, 
we nonetheless take a prudent approach in the assumptions we 
use for business appraisal and planning purposes.

Marginal field solutions are another important leg of EnQuest’s 
value creation model. We target dormant or undeveloped fields, 
that may have been too small in scale for the majors. We use a 
flexible approach and develop new solutions, redesigning and 
upgrading old facilities and using existing infrastructure. The 
EnQuest team achieved this at the Don fields and is now using a 
similar approach at Alma/Galia, with first oil due onstream in Q4 
2013, less than three years after we secured the licence.

In both 2011 and 2012, EnQuest and the rest of the industry actively 
engaged with the UK Government, seeking improvements in the 
fiscal structure of the UK North Sea to encourage investment. 
The improved allowances in the March 2012 UK Budget were 
encouraging. These were followed in the autumn by welcome 
new allowances for brownfield projects, in support of investment 
in mature oil fields. These new allowances are positive for EnQuest 
as it seeks to extend field lives and to sustain investment in mature 
North Sea fields, such as Thistle and Heather. The investment this 
creates safeguards existing jobs and supports the creation of new 
jobs across the energy supply chain, it also partially restores the 
momentum lost by the initial tax increase.

EnQuest was also encouraged by recent UK Government 
measures aimed at providing certainty on the availability of tax 
relief on decommissioning costs, which should have the effect 
of increasing investment in the UK North Sea and extending the 
productive life of the UK’s oil and gas reserves. Greater certainty 
on decommissioning tax relief can be more reliably factored into 
investment decisions and commercial decommissioning security 
arrangements and should therefore stimulate new commercial 
activity across the UK Continental Shelf. This will also help to 
facilitate the sale of assets to companies most suited to invest in 
them and EnQuest is in a very good position to take advantage 
of these developments.

The EnQuest strategy and business model
The implementation of EnQuest’s strategy is proving its potential 
to create value. We believe that EnQuest’s development and 
production focused model can provide consistent returns over 
the production lifecycle, in contrast to the more speculative 
nature of frontier exploration. EnQuest realises value from oil field 
development and production opportunities by targeting maturing 
assets and undeveloped fields. We exercise a high level of control 
over developments, as a result of having a majority working 
interest and being the field operator. We believe that its capabilities 
differentiate EnQuest; with the levels of expertise we maintain 
in-house, EnQuest’s teams can achieve high levels of collaboration, 
continuity and accumulated shared knowledge.

EnQuest focuses on hubs, utilising three main approaches. 
Firstly, we extend field lives by upgrading facilities, utilising 
modern technology. This includes deployment of subsurface 
expertise and skill, and modern seismic, to identify the well 
targets and then execute infill drilling programmes. This extends 
oil field asset lives. We have already proved this model at Thistle. 
Daily production levels have increased from lows which were 
approaching 2,000 Boepd in 2005, to over 8,000 Boepd at the 
end of 2012, which are the highest levels achieved since the late 
1990s. We have plans to invest further in Thistle, these have been 
facilitated by the new brownfield tax allowances. We are also 
investing in Heather, where we are upgrading the drilling rig to 
enable us to drill wells for the first time since 2006. 

EnQuest’s third value creation leg is through new developments. 
We acquire interests in assets which may have been thought 
technically or financially too challenging for others and then 
deploy EnQuest’s capabilities, to commercialise and develop 
discoveries. After Alma/Galia the new development of the 
Kraken discovery is our current focus, this would be EnQuest’s 
fifth hub.

The EnQuest Board
In August 2012, I was delighted to welcome Dr Philip Nolan to 
the Board, as a new Non-Executive Director. Phil’s wealth of both 
technical and management expertise makes him a valuable 
addition to the Board as EnQuest continues to develop and 
execute its strategy.

After the assembly of an effective operations team in Aberdeen 
and the successful implementation of EnQuest’s strategy in its 
critical first years, in November 2012, Nigel Hares decided that 
he was planning to reduce the amount of time dedicated to 
EnQuest to be balanced by more time spent on personal affairs.

Nigel therefore stood down from the Board and now advises on 
future strategy and development. Operations have continued to 
be managed by David Heslop, General Manager UKCS and his 
team. Amjad Bseisu, the rest of the Board and I are very grateful 
to Nigel for the excellent contribution he has made to EnQuest 
and we look forward to continuing to work closely with him.

EnQuest is its people. I believe that their technical knowledge 
and capability, their experience and passionate commitment 
are EnQuest’s most important assets. Although the organisation 
has grown considerably in size, it continues to retain the agility 
essential to take full advantage of new opportunities. The Board 
and I would like to thank our workforce for another year of 
delivery of good results and for putting in place the building 
blocks for the next stages of EnQuest’s growth.

Delivering sustainable growth
EnQuest is proving that it can deliver sustainable growth 
through increasing production and reserves. Whilst the UK 
North Sea will continue to be our main focus, there are also 
potential opportunities to pursue EnQuest’s strategy outside 
the UK. We have taken our first steps internationally, in Norway 
and Malaysia. We will retain a focused approach to our 
international expansion.

15

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–CHIEF EXECUTIVE’S
REPORT

Delivering on target in 2012
EnQuest executed well in 2012 with 
production of 22,802 Boepd, which 
was above the mid-point of our 
guidance range. This was due to a 
successful 14 well drilling programme 
in 2012, including five production wells 
brought onstream. In the three years 
since our inception, we have built a 
strong technically focused organisation 
that has generated significant levels of 
production and cash flow.

Amjad Bseisu
Chief Executive

EBITDA
$ million

2012

2011

0.5%

Production
Boepd

2012

2011

3.8%

Net profit after tax
$ million

2012

2011

136.1

90.8%

626.2

629.1

22,802

23,698

259.7

In 2012, cash flow generated 
from operations was $593.9 
million and EBITDA was 
$626.2 million. A net 3.7% 
increase in the average realised 
oil price helped EnQuest to 
achieve a profit before tax and 
net finance costs of $405.1 
million, 3.8% up on 2011.

16

SEE MORE OF OUR  
OPERATIONS ON P24–31

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
Audited net 2P reserves at the end of 2012 were 128.5 MMboe, 
an increase of 11.5% on 2011, even with the farm out of Alma/
Galia. EnQuest achieved a strong reserves replacement ratio of 
262.2% in 2012. This reserves growth reflects positive increases 
at our existing producing fields, as well as reserves relating to 
our 20% direct interest in Kraken.

Execution of the Alma/Galia development made significant 
progress, with the successful batch drilling of six wells and 
with the modifications to the EnQuest Producer vessel well 
underway. A major proportion of the subsea infrastructure work 
was successfully carried out during 2012. The farm out of 35% of 
Alma/Galia was also achieved during the year, recognising the 
significant value being generated by the project.

In 2012, EnQuest acquired 60% of the Kraken discovery; 
potentially one of the largest new oil field developments in the 
UK North Sea since Buzzard. EnQuest took over as operator in 
September 2012 and has deployed the same integrated project 
development capabilities utilised on Alma/Galia. The submission 
of the Kraken Field Development Plan (‘FDP’) is expected in 
Q2 2013.

EnQuest’s strategy
EnQuest’s development and production focused strategy 
continues to be implemented successfully; reserves and 
production growth have been delivered above target. Progress 
on the Alma/Galia development and on the new Kraken 
development is demonstrating our ability to execute and to 
bring new fields onstream. The farm out of 35% of Alma/Galia, 
with the $175.9 million gain on disposal that it generated, was 
material evidence of EnQuest’s success in turning opportunities 
into value; both the Alma/Galia and the Kraken projects 
demonstrate that EnQuest is increasingly a natural partner of 
choice for major integrated development projects in the UK 
North Sea.

The UK North Sea continues to have very significant 
opportunities, with over 300 undeveloped fields remaining. 
In 2012, EnQuest also announced its first steps outside the UK 
North Sea. EnQuest has prequalified as an operator in Norway. 
We have also established a presence in Malaysia. We acquired 
NIO Petroleum (Sabah) Limited, which owns 42.5% in Blocks 
SB307 and SB308 offshore Sabah. The opportunity for EnQuest 
in Malaysia is similar to the UK North Sea, where EnQuest can 
establish development solutions for existing discoveries as well 
as taking over mature fields no longer material for the major 
oil companies.

Our Company, our people
The breadth and depth of EnQuest’s teams, their proven skills 
in engineering, subsurface, execution and operations, their 
leadership in innovative integrated developments, are all key to 
our success. Particularly critical is EnQuest’s in-house ability to 
understand the subsurface and to be able to integrate this fully 
with all the required facilities elements. EnQuest seeks to be the 
operator of its developments and fields; through operatorship 
and majority working interests, we exercise a level of control 
which allows us to take full advantage of our technical skills and 
operational scale.

By the end of 2012, EnQuest’s direct workforce had grown to 
approximately 500 people, in excess of four times the level at 
the time of our IPO. As an integral part of EnQuest’s recent 
establishment of a presence in both Norway and Malaysia, we 
now have small experienced senior teams in place in Stavanger 
and in Kuala Lumpur. 

Health, safety, environment and assurance (‘HSE&A’)
HSE&A is our top priority and HSE&A is deeply embedded in 
our culture and values. It is the most critical aspect of how we 
manage the business, with regard to our people themselves and 
to our installations and the environment in which we operate. 
Exhibiting leadership in safety is key and we seek continuous 
improvement in our HSE&A performance.

Good levels of performance in HSE&A have continued, with 
EnQuest achieving top quartile performance in several of key 
HSE&A KPIs. This included a five year Lost Time Incident free 
(‘LTI’ free) milestone for the Thistle drill rig, particularly impressive 
given its high level of activity. EnQuest also achieved a significant 
reduction in hydrocarbon releases across our assets.

Operations
EnQuest drilled 14 wells in 2012, successfully delivering the Thistle 
and Dons drilling programmes, together with the subsequent 
increase in production. In addition, EnQuest successfully 
progressed the installation of the new turbine power generator on 
Thistle which will deliver the power generation capability to sustain 
high levels of water injection uptime.

The Alma/Galia development
In 2012, EnQuest received the approval of the Department 
of Energy and Climate Change (‘DECC’) for the Alma and 
Galia developments. EnQuest secured Alma/Galia through 
the 26th Licensing Round in 2010, extending the life of the 
first North Sea oil field to come into production.

17

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–CHIEF EXECUTIVE’S
REPORT CONTINUED

On track to deliver approximately 20% CAGR* 
Between 2009 and 2014
Average net production (Boepd)

Over
**33,000**

C A G R   a p p r o x i m a t e l y   2 0 %

23,698 22,802

21,074

27,000
0
0
0
5

,

13,613

10,150

0
0
0
2
2

,

2008

2009

2010

2011

2012

2013

2014

*  Compound annual growth rate
** To be updated following Alma/Galia results

  Guidance range

Capital investment
$ million

2012

2011

291.7

175.2%

802.9

18

In February 2013, EnQuest announced an increase in reserves 
and also in the scope and specification of the Alma/Galia 
development. The additional scope extends the field life, 
optimises operating costs and enables a potential second 
phase of development. Gross project capital expenditure 
is now approximately $1.3 billion, including contingency. 
These changes should extend the life of the FPSO vessel, 
to up to 15 years, and will allow additional wells in any second 
development phase. With the extended field life, the gross 
field 2P reserves are increased from 29 MMboe to 34 MMboe. 
This relates only to the existing first phase of development. 
The net effect of the capital cost increases, the benefit of the 
reserves increase and the operational improvements to the 
project, is a positive increase in the net present value overall; 
the improvements also create the potential for additional 
reserves and value in a potential second phase. We remain 
on track for first oil in Q4 2013. 

Kraken – a major development in the North Sea
In 2012, EnQuest acquired the right to 60% of the Kraken 
oil discovery and became the operator of the proposed 
development. We are enthusiastic about Kraken, and anticipate 
it becoming a key part of EnQuest’s asset base.

Kraken is anticipated to have a long field life and therefore a 
production profile that complements shorter life fields such as 
the Don fields and Alma/Galia. Along with Alma/Galia, Kraken 
should help to secure EnQuest’s medium term production and 
reserves growth.

EnQuest’s execution team is leading the development, utilising 
its integrated project development capabilities. FDP submission 
is expected in Q2 2013 and first oil is targeted in 2016.

Near field and low cost exploration and appraisal
EnQuest’s exploration and appraisal strategy is focused on low 
cost and near field opportunities. In 2012 EnQuest participated 
in two such wells. One was Tryfan, a non-operated well which 
had significant potential, but proved to be uncommercial. As 
anticipated, the Kildrummy appraisal well results showed an oil 
column which was thicker than previously discovered in that 
field. Analysis of the commerciality of various potential 
Kildrummy development options is ongoing.

Business development
In 2012, EnQuest further consolidated its existing asset positions 
and built new ones. Operated oil field development asset 
opportunities in the UKCS require significant skills and capabilities 
as well as financial strength. EnQuest is selective and rigorous in 
its approach, always starting with the fundamentally important 
subsurface analysis, which is carried out in-house.

In Q1 2012, we agreed the acquisition of a further 18.5% working 
interest in West Don, increasing our interest to a majority 63.45%. 
During H1 2012, in three separate tranches, we agreed the 
acquisition of an aggregate interest of 60% in the Kraken oil 
discovery, the first tranche for a fixed sum and the second two 
tranches via development carries. During 2012 EnQuest also 
increased its interest in the Kildrummy discovery from 40% to 60%.

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
EnQuest has continued to build its interest in the Cairngorm 
discovery; having acquired 100% of Block 16/2b of Cairngorm 
through the acquisition of Stratic Energy Corporation in 2010. 
We successfully applied for 50% of Block 16/3d, in the UK’s 26th 
Licensing Round and in December 2012, EnQuest took on the 
ownership of the whole of the Cairngorm discovery. This was 
achieved by completing the acquisition of the remaining 50% 
of Block 16/3d through a swap arrangement in exchange for 
non-core assets which EnQuest owned in Holland.

EnQuest also agreed a small disposal in December 2012, selling 
a Dutch asset, licence P8 (Horizon West), to Van Dyke Energy 
for a $3 million initial cash consideration, plus $3 million 
contingent on future production.

Finally, in October 2012, EnQuest was pleased to have been 
offered 11 licences in the UK’s 27th Licensing Round.

EnQuest continues to have a strong balance sheet, ending the 
year with an $89.9 million positive net cash position. Capital 
expenditure on property, plant and equipment oil and gas assets 
was $802.9 million in 2012. Capital investment on bringing Alma/
Galia towards first oil in Q4 2013, amounted to $421.3 million, 
including $86.7 million in relation to the carry element of the 
project. The $184.3 million 2012 investment programme at 
Thistle contributed to the 48.2% increase in its production during 
2012. Other elements of the 2012 capex programme included; 
$54.0 million at Heather/Broom, $128.8 million on the Don and 
Conrie fields, and $26.0 million on preparatory work at Kraken.

The unit cost of sales production and transportation was 
$32.3 per Boe in 2012, similar to the $31.9 per Boe in 2011, despite 
the impact of reduced production, higher oil prices and general 
upward pressure on market levels of operating costs. This good 
result reflects EnQuest’s focus on control of costs.

Another strong financial performance
In 2012, EBITDA was again strong at $626.2 million, a similar level 
to the $629.1 million generated in 2011. This reflected the 3.7% 
year on year increase in the realised oil price and also the 3.5% 
expected decline in production. Underlying operational 
performance was strong.

2013 highlights so far
In January 2013, EnQuest announced that it had agreed to acquire 
an 8% non-operated interest in the producing Alba oil field, in the 
UK North Sea, adding reserves and producing barrels and further 
diversifying EnQuest’s asset base. This transaction completed in 
late March 2013.

Tell us why the Heather 
return to drilling project is 
such a milestone for the 
platform
2013 marks the 40th anniversary of 
the discovery of the Heather field 
and 35 years of production. Twice in 
her life Heather faced the prospect 
of decommissioning, and EnQuest’s 
Return to Drilling (R2D2) project is 
designed to extend field life to 
around 2030.

The prime objective of the upgrade 
project is to provide an enhanced 
drilling facility in preparation for a 
comprehensive drilling programme, 
and the team has already identified 
many innovative project solutions.

Work is still to be completed, but 
great progress has been made so far 
thanks to the teamwork, creativity 
and collaboration shown by EnQuest 
and our core contractors.

Name: John Cowie (far right)
EnQuest position:  
Heather/Dons Area Manager

19

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–CHIEF EXECUTIVE’S
REPORT CONTINUED

Proven and probable reserves (net 2P MMboe)
At 1 January 2012
Production during 2012
Revisions to estimates
Discoveries, extensions and additions
Acquisitions and disposals

As at 31 December 2012

Contingent resources (net MMboe)
At 1 January 2012
Revisions to estimates
Discoveries, extensions and additions
Acquisitions
Disposals
Promoted to reserves

As at 31 December 2012

 > For detail see page 31.

115.21
(8.21)
10.23
20.40 
(9.11) 

128.52

116.78
(7.42)
8.69
93.42
(27.52)
(21.80)

162.15

In Q1 2013, EnQuest successfully raised £145 million from the 
issue of a retail bond, with a 5.5% coupon and a 2022 maturity. 
We were pleased, both to have been the first oil company to 
launch a retail bond on the London Stock Exchange’s Order 
Book for Retail Bonds and also that the issue was one of the 
largest raised in the market. This bond allows EnQuest to 
diversify its funding base and extend the tenor of its borrowings 
and complements our already strong balance sheet.

In Q1 2013, EnQuest also sanctioned the next phase of the 
Thistle life extension project, facilitated by its qualification for 
the brownfield allowance programme, announced by the UK 
Government late in 2012. Thistle is a prime example of how 
EnQuest is able to recover more oil from maturing assets 
through a combination of innovation and technical expertise. 

Outlook for 2013 and beyond
Average production guidance for the full year 2013 is between 
22,000 Boepd and 27,000 Boepd, as approximately 1,000 
Boepd has been lost, primarily due to third party shutdowns 
of the Brent pipeline in Q1 2013. In addition to first oil from  
Alma/Galia, production improvements will come from three 
production wells in our existing producing fields; one new 
production well on Don Southwest, one well coming back 
onstream as a result of a workover on Heather, and another new 
well on Thistle. In total in 2013, EnQuest plans to deliver 12 wells. 
This includes three exploration/appraisal wells, with one each at 
both Cairngorm and Kraken and a further exploration/appraisal 
well is expected to be drilled in Malaysia in late 2013.

Why are you considering 
potential opportunities 
in Norway?
Entering the Norwegian market is a 
sensible step for EnQuest as it seeks 
to expand internationally. The geology 
in the Norwegian North Sea is very 
similar to that in the UKCS. The 
extensive skill set we have within the 
Company is transferable and we 
already have a small team working out 
of Stavanger.

Norway provides an ideal opportunity 
to replicate our existing business 
model of targeting undeveloped 
assets with near field appraisal and 
exploration prospects.

Name: Ernest Robertson
EnQuest position:  
Exploration Team Lead

20

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
EnQuest’s total investment programme in 2013, prior to 
regulatory approval of the Kraken FDP, is expected to be 
approximately $750 million, with around $350 million to be 
invested in the Alma/Galia development. In addition to the wells 
programme and the Alma/Galia development work, other major 
projects will also contribute to reserves and production in 2013 
and will provide a foundation for future reserves and production 
growth. At Thistle, these include the next phase of the late life 
extension project and the delivery of a secure new power supply 
through the completion and commissioning of the new 30 MW 
gas turbine generator. In Q3 2013, following the successful rig 
reactivation programme, Heather will return to drilling for the 
first time since 2006.

We continue to target submission of the Kraken FDP in Q2 2013. 
Pre-development expenditure of around $75 million for Kraken 
is included in the Group’s 2013 investment programme of $750 
million; this pre-development expenditure includes the costs of 
the Kraken appraisal well, being drilled to provide additional data 
for the main development. The 2013 Kraken expenditure will 
depend on phasing, particularly near to the year end, as well 
as potential spending on long lead items.

At the end of 2012, including the licences it was offered in the 
UK 27th Licensing Round, EnQuest had 39 production licences 
covering 55 blocks or part blocks, up from 22 production licences 
at the end of 2011. In addition to the current producing fields, 
EnQuest is actively considering new development proposals on 
at least three of its other licences. EnQuest has a strong discovery 
portfolio within its existing asset base and anticipates it will further 
consolidate these positions and continue to build new ones. 
EnQuest’s net 2P reserves at the start of 2013 have a life of over 
15 years, extending to over 25 years if Kraken contingent resources 
can be converted into reserves.

With our centre of excellence and capability in Aberdeen, 
we will continue to take advantage of EnQuest’s integrated 
appraisal, development and operations model, both on 
our existing asset base and on new basins with mature and 
undeveloped field potential. 

ABRIDGED GROUP INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2012

2012

Exceptional 
items and 
depletion of 
fair value 
uplift 
US$’000

Business 
performance 
US$’000

Total for 
period 
US$’000

Business 
performance 
US$’000

Revenue
Cost of sales

889,510
(448,186)

–
(10,251)

889,510
(458,437)

2011 

Exceptional 
items and 
depletion of 
fair value 
uplift 
US$’000

–
(16,973)

(16,973)
–
8,644
(12,497)
–
–
8,194
–
–

Total for 
period 
US$’000

935,974
(508,790)

427,184
(36,962)
8,644
(12,497)
–
–
8,194
(13,755)
(3,344)

(10,251)
–
–
(4,417)
(143,882)
175,929
–
–
–

431,073
(23,157)
–
(4,417)
(143,882)
175,929
–
(6,650)
(6,445)

935,974
(491,817)

444,157
(36,962)
–
–
–
–
–
(13,755)
(3,344)

Gross profit/(loss)
Exploration and evaluation expenses
Gain on disposal of asset held for sale
Impairment on available for sale assets
Impairment of oil and gas assets
Gain on disposal of property, plant and equipment
Well abandonment expenses
General and administration expenses
Other (expenses)/income, net

Profit/(loss) from operations before tax and 

finance income/(costs)

EBITDA*

441,324
(23,157)
–
–
–
–
–
(6,650)
(6,445)

405,072

626,181

17,379

422,451

390,096

(12,632)

377,464

–

626,181

629,102

8,194

637,296

Notes:
*  EBITDA is calculated by taking profit/loss from operations before tax and finance income/(costs) and adding back depletion (note 10, adjusted for depletion of 

fair value uplift), depreciation (note 10), impairment (note 12) and write-off of intangible oil and gas assets (note 12). EBITDA is not a measure of financial 
performance under IFRS.

21

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–RISKS AND
UNCERTAINTIES

Management of risks and uncertainties
The Board has articulated EnQuest’s strategy to deliver 
shareholder value by:
■■ exploiting its hydrocarbon reserves
■■ commercialising and developing discoveries
■■ converting its contingent resources into reserves and
■■ pursuing selective acquisitions

In pursuit of this strategy, EnQuest has to face and manage 
a variety of risks. As a result, the Board has established a risk 
management framework, embedding the principles of effective 
risk management throughout the business.

Key business risks
The Group’s principal risks could lead to a significant loss of 
reputation or could prevent the business from executing its 
strategy and creating value for shareholders. These risks, along 
with mitigating actions are set out below:

Risk

Mitigation

Health, Safety and Environment (HSE)
Oil and gas development, production and 
exploration activities are complex and HSE 
risks cover many areas including operational 
safety, personal health and safety, 
compliance with regulatory requirements 
and potential environmental harm.

The Group maintains, in conjunction with its core contractors, a comprehensive programme of 
health, safety, environmental, asset integrity and assurance activities and has implemented a 
continuous improvement programme, promoting a culture of transparency in relation to HSE 
matters. The Group has established a Corporate HSE Committee which meets quarterly. HSE 
performance is discussed at each Board meeting.

The Group has also taken over as duty holder on its producing assets and strengthened its 
operating capability accordingly.

Production
The Group’s production is critical to its 
success and is subject to a variety of risks 
including subsurface uncertainties, operating 
in a difficult environment with mature 
equipment and potential for significant 
unexpected shutdowns and unplanned 
expenditure to occur.

In addition, the Group has a positive, transparent relationship with the UK Health and Safety Executive.

The Group’s programme of asset integrity and assurance activities provides leading indicators of 
significant potential issues which may result in unplanned shutdowns or which may in other 
respects have the potential to undermine asset availability and uptime. The Group continually 
assesses the condition of its assets and operates extensive maintenance and inspection 
procedures designed to minimise the risk of unplanned shutdowns and expenditure. The Group 
monitors both leading and lagging KPIs in relation to its maintenance activities and liaises closely 
with its downstream operators to minimise pipeline and terminal production impacts.

Lower than expected reservoir 
performance may have a material impact 
on the Group’s results.

Life of asset production profiles are audited by independent reserves auditors. The Group also 
undertakes regular internal peer reviews. The Group’s forecasts of production are risked to 
reflect appropriate production risks.

The Group’s delivery infrastructure on 
the UKCS is dependent on the Sullom 
Voe Terminal.

The Sullom Voe Terminal has a good safety record and its safety and operational performance 
levels are regularly monitored and challenged by the Group and other Terminal owners and users 
to ensure that operational integrity is maintained.

Project Execution
The Group’s success will be dependent upon 
bringing new developments to production 
on budget and on schedule. The Alma/Galia 
development is the Group’s first since 
inception and it involves significant capital 
expenditure. To be successful, the Group 
must ensure that project implementation is 
both timely and on budget. Failure to do so 
may have a material negative impact on the 
Group’s performance.

The Group has project teams which are responsible for the planning and execution of such new 
projects with a dedicated team for each development. The Group has detailed controls, systems and 
monitoring processes in place to ensure that deadlines are met, costs are controlled and that design 
concepts and Field Development Plans are adhered to and implemented. These are modified when 
the circumstances require, but only through a controlled management of change process and with 
the necessary internal and external authorisation and communication. EnQuest ensures that 
responsibility for delivering time critical supplier obligations and lead times are fully understood, 
acknowledged and proactively managed by the most senior levels within supplier organisations.

The Alma/Galia development is progressing towards conclusion and all major contracts for 
supply are procured and in place. In February 2013, EnQuest announced it had approved 
additional project scope with the objectives of extending the field life, optimising operating costs 
and enabling a potential second phase development. Drilling, subsea construction and FPSO 
conversion are all currently in progress.

Reserve Replacement
Failure to develop its contingent and 
prospective resources or secure new 
licences and/or asset acquisitions and realise 
their expected value.

The Group puts a strong emphasis on subsurface analysis and employs industry leading 
professionals. The Group continues to recruit in a variety of technical positions which enable it 
to manage existing assets and evaluate the acquisition of new assets and licences. All analysis 
is subject to internal, and where appropriate, external peer review. All reserves are currently 
externally audited by a Competent Person. In addition, EnQuest has an active Business 
Development team both in the UK and internationally developing a range of opportunities.

22

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
Risk

Mitigation

Financial
Inability to fund appraisal and development 
work programmes.

The Group has secured appropriate bank facilities and has recently issued a retail bond both 
of which can be used to fund its development activities. This funding is supported by operating 
cash inflow from the Group’s producing assets. The Group reviews its cash flow requirements 
on an ongoing basis to ensure it has suitable resources for its needs.

Human Resources
The Group’s success is dependent upon its 
ability to attract and retain key personnel.

The Group monitors its employee value proposition to support the recruitment and retention 
of technical, commercial and professional personnel, used in identifying and executing its 
principal activities. Specifically, the Group regularly monitors the employment market to provide 
remuneration packages, bonus plans and long term share-based incentive plans targeted to 
incentivise performance and commitment to the Group.

To enable the Company to meet its growth aspirations, the Group is undertaking a number 
of human resource initiatives. These are part of the overall people and organisation strategy 
and have specific themes relating to organisation, people, performance and culture. Senior 
management succession planning and development are Board level priorities. There continues 
to be a significant level of resourcing activity and robust recruitment and selection strategies 
and processes are in place. EnQuest’s experienced HR department will continue to seek to 
recruit in line with current workforce plans and forecasts.

The Group also maintains market competitive contracts with key suppliers to support the 
execution of work where the necessary skills do not exist within the Group’s employee base.

Finally, the Group is developing its international presence and is currently building expertise and 
capability in those jurisdictions.

Reputation
The reputational and commercial exposures 
to a major offshore incident are significant.

Operational activities are conducted in accordance with approved policies, standards and 
procedures. Interface agreements are agreed with all core contractors.

The Group undertakes regular audit activities to provide assurance on compliance with 
established policies, standards and procedures.

Oil Price
A material decline in oil and gas prices may 
adversely affect the Group’s results of 
operations and financial condition.

The Group monitors oil price sensitivity relative to its capital commitments and has a policy which 
allows hedging of up to 50% of its production.

In order to develop its resources, the Group needs to be able to fund substantial levels of investment. 
The Group will therefore regularly review and implement suitable policies to hedge against the 
possible negative funding impacts of changes in oil prices.

Political and Fiscal
Changes in the political, regulatory or fiscal 
environment affecting the Group’s ability to 
deliver its strategy.

It is difficult for the Group to predict the timing or severity of such changes. However, through Oil 
& Gas UK and other industry associations the Group does engage with Government and other 
appropriate organisations in order to ensure the Group is kept abreast of expected potential 
changes and takes an active role in making appropriate representations.

At a more operational level, the Group has procedures to identify impending changes in relevant 
regulations to ensure legislative compliance.

Joint Venture Partners
Failure by joint venture parties to fund their 
obligations.

The Group operates regular cash call and billing arrangements with its co-venturers to mitigate 
the Group’s credit exposure at any one point in time and keeps in regular dialogue with each 
of these parties to ensure payment. Risk of default is mitigated by joint operating agreements 
allowing the Group to take over any defaulting party’s share in an operated asset.

Dependence on other parties where the 
Group is not the operator.

The Group generally prefers to be the operator. The Group maintains regular dialogue with 
its partners to ensure alignment of interests and to maximise the value of joint venture assets.

Competition
The Group operates in a competitive 
environment across many areas including 
the acquisition of oil and gas assets, the 
marketing of oil and gas, the procurement of 
oil and gas services and access to human 
resources.

The Group has a strong balance sheet which puts it in a favourable position to be able to 
compete effectively and move quickly when looking to acquire assets.

The Group also has strong technical and business development capabilities to ensure it is well 
positioned to identify potential acquisition opportunities.

The Group has good relations with oil and gas service providers and constantly keeps the market 
under review.

Human resources are key to the Group’s success and programmes outlined above are in place 
to ensure it can attract and retain key personnel.

23

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–OPERATING
REVIEW

2012 operational overview – 
good execution
In 2012, EnQuest delivered a good 
overall operational performance, with 
production at an average of 22,802 
Boepd, above the mid-point of our 
guidance. This success was due to 
thorough preparation and to excellence 
in execution. In particular, there was 
good drilling and intervention work 
at Thistle/Deveron and the Dons.

This production result was 
achieved despite the negative 
impact of third party pipeline 
outages in H1 2012. By the 
start of 2013, EnQuest had 
grown its net 2P reserves to 
128.5 MMboe, having achieved 
a reserves replacement ratio  
of 262.2% in 2012; EnQuest  
is demonstrating its ability to 
deliver production growth for 
both the medium and the long 
term. EnQuest’s capability 
continues to grow across all 
functions and we are pleased 
to have been able to increase 
the quality, strength and depth 
across the organisation.

Nigel Hares
Co-founder and  
Strategic Adviser

David Heslop
General Manager
UKCS

24

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
EnQuest asset base as at 31 December 2012
Including the licences offered to EnQuest as part of the UK 
27th Licensing Round and Q1 2013 acquisitions

UK production  
& developments

Licence
P902

Blocks
2/4a

Respective 
EnQuest 
working 
interest (%) Name
63

Broom

Operational highlights of the year also included the safe and 
effective installation of the new gas turbine generator and 
local equipment room on Thistle; facilities with a weight of 
approximately 300 tonnes. The detailed design work for the 
next phase of the life extension project on Thistle was delivered 
and work was undertaken to improve water injection capability 
at Thistle. Another important operational achievement was the 
improvement in gas compression capability at Heather in H2 
2012. The drilling programme at Heather will now start in the 
second half of the year after the drilling team completes the final 
well in the current phase on Thistle. Cost performance for all the 
work performed by the two semi-submersible rigs on contract 
was enhanced by the commitment to long term contracts in 
2011 and 2012 at very competitive rates. Across all our sites 
in 2011 and 2012, EnQuest has now delivered approximately 
$100 million of brownfield workscope, demonstrating the 
commitment and capability in managing mature assets in the 
North Sea.

In H1 2012, as a natural evolution of its integrated approach to 
operations management, EnQuest commenced the transition to 
become the duty holder on its UK operations. The duty holder is 
responsible for the safe operation of offshore installations. The 
transition process has been smooth to date and bringing these 
skills fully in-house will allow EnQuest to develop further its 
operational capability. Taking over duty holdership will facilitate 
future growth through the resulting increased direct control, 
helping to improve operational, production and cost efficiency. 
EnQuest plans to take on direct duty holder responsibilities on 
27 March 2013.

Safety is the priority across all of EnQuest’s operations and 2012 
was a good year against our HSE&A performance metrics. We 
had a successful HSE offshore inspection on Thistle and the 
Thistle HSE safety case was also approved. We therefore believe 
EnQuest is increasingly being recognised as a leader in the 
safety management of life extension activity on aging facilities. 
The HSE safety case approvals were critical elements of 
EnQuest’s preparation for its transfer to duty holdership. 

We recently achieved a half a million man hours LTI free at the 
Blohm & Voss yard in Hamburg, where the EnQuest Producer 
FPSO is being modified and refurbished. In recognition of this 
safety achievement, a donation was made to a community 
charity in the Hamburg area.

P242
P1077
P213
P1765
P1825
P1200 & 
P236
P236
P236
P475
UK discoveries P242
P090
P209
P585, P250 
& P220 
P1214 & 
P1892
P1107
P1617

Malaysian 
discoveries
UK other licences P1751
P1608
P1753
P1753
P1574
P1575
P1463
P1582
P1618
P1790
P1487
P1269
P1967

UK 27th Licensing 
Round offers

P1968

THISTLE / DEVERON
THISTLE / DEVERON

P1976
THE DONS / CONRIE
THE DONS / CONRIE
P1978
P1991
P2000
P2030
HEATHER / BROOM
HEATHER / BROOM
P2084
P2027
P1996

P2005

KRAKEN
KRAKEN

PEIK
PEIK

Sullom Voe
Terminal

Shetland
Islands

2/5
9/2b & 2c
16/26
30/24c & 25c
30/24b
211/13b & 18a

63 & 100
60
8
65
65
63

Broom & Heather
Kraken
Alba1
Alma
Galia
West Don

60 & 60
211/18a
99 & 99
211/18a
99
211/19a
55
2/5
33
9/15a
9/28a
51
15/12b, 17a & 17n 60

Don SW & Conrie
Thistle & Deveron
Thistle
SW Heather
Peik
Crawford & Porter
Kildrummy

16/2b & 3d

100

Cairngorm

Scolty & Torphins
Crathes
Bambazon

40
40
42.5

21/8a
21/12c & 13a
SB307 &
SB308
100
3/1c
100
3/11a
33
3/17
55
3/22a
55
3/26
60
9/6a & 9/7b
20
14/30a
100
20/15a
21/13c
40
21/27a & 28/2a 100
211/1a, 2a & 3a 60
50
211/18c
50
2/4b

100

2/10a, 3/6 & 
3/11c
60
8/5 & 9/1b
100
9/2d
50
14/30c
15/17c
100
20/14, 19 & 20 50
50
21/7a
100
21/17b
100
21/26a, 21/27c, 
28/2b & 28/3b
22/11b

50

1 

 In February 2013, EnQuest 
announced that it had agreed to 
acquire an 8% non-operated interest 
in the Alba producing oil field.

CRAWFORD / PORTER
CRAWFORD / PORTER

CAIRNGORM
CAIRNGORM

 > For detailed map see page 6.

Orkney
Islands

KILDRUMMY
KILDRUMMY

25

ALBA

ALBA

CRATHES / SCOLTY / TORPHINS

CRATHES / SCOLTY / TORPHINS

Scotland

Aberdeen

Production and developments

New developments – FDP 

submission anticipated in Q2 2013

Discoveries

Other licences

27th Licensing Round offers

ALMA / GALIA

ALMA / GALIA

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS211/16a

Kerloch

Kerloch

211

/21a

F3

Cormorant

Cormorant

North

North

Magnus

South

211/

13c

211/13a

Penguin
Penguin
Cluster
Cluster

33/6e

211/12a

211/17

211/12b

211/13b

211/13d

–OPERATING REVIEW
CONTINUED

211/13aF1

West Don

Conrie

211/14

211/19a

33/9d

Don Ne
Don Ne

211/18c

Don Sw

211/18b

211/18a

Playfair
Playfair

Thistle and Deveron

Statfjord
Statfjord
Nord
Nord

Working interest at end of 2012:
■■ 99% in both fields
33/
Decommissioning liabilities:
9bF1
■■ remain with former owners (apart from new incremental 

211/
19aF3

developments)
Fixed steel platform
33/9-6
33/9-6
Daily average net production:
Delta
Delta
■■ 2012: 8,058 Boepd
■■ 2011: 5,436 Boepd

Murchison
Murchison

33/9c

Eider

Eider

Deveron

33/9
33/9
Murchison
Murchison

Thistle
Thistle

211/19b

33/9a

211/24c

Statfjord
Statfjord

2013
In February 2013, EnQuest announced that it had sanctioned 
the next phase of the Thistle life extension project, facilitated 
by its qualification for the brownfield allowance programme 
announced by the UK Government at the end of 2012. EnQuest’s 
investment in Thistle so far has included facilities and integrity 
systems upgrades, a major rig reactivation programme and 
drilling of six wells, and has resulted in significantly increased 
production. EnQuest is now implementing a technology led 
work programme to simplify and streamline processes and 
to improve production and injection reliability and platform 
integrity. We anticipate over the medium term this will allow 
cost reductions on the platform.

In Q1 2013, a workover of the A53/60 injector well was 
successfully carried out, along with the successful start of the 
new power turbine generator. In Q2 2013, a new production well 
is planned in the West Fault Block.

211/22aNW

211/23d

Osprey
Osprey

211/
23a2F1

211/22b

211/22aSE

Causeway
Causeway

211/
23a2

Merlin
Merlin

2012
Production at Thistle/Deveron achieved a net 8,058 Boepd 
in 2012, up 48.2% on 2011. Base oil production increased 
over 2011 and was better than expected due to more reliable 
power and enhanced water injection rates, supplemented 
with oil production from three installed electrical submersible 
pumps (‘ESPs’).

211/
23a1

Dunlin
Dunlin

211/
23f

Two new wells were completed during the year. The Deveron P1 
ESP well (now A58/03) was completed in Q1 2012 and started 
production in Q2 2012, with productivity at the upper end of the 
pre-drill estimate. Drilling on the new A59/45 (a sidetrack of well 
A46/45 to Area 6) was completed in late September and the 
third Thistle ESP came onstream in October 2012.

There were three workovers in 2012, all of which achieved their 
objectives; including two water injection workovers, both of 
which successfully increased water injection capacity and 
achieved better target injection support within the reservoir.

In H2 2012 the new power generator was lifted onto the Thistle 
platform, ahead of planned testing at the end of 2012.

Following a successful wireline intervention, the Thistle A27/17 
injection well came back online in mid December, helping to 
increase year end production levels.

The offshore drilling team on Thistle achieved a major industry 
safety milestone during the period, with five years of operation 
without an LTI. The facility also completed a successful 
regulatory ageing life extension audit.

26

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
Magnus
South

211/
13c

211/13a

211/13b

211/13d

Penguin
Penguin
Cluster
Cluster

211/12a

211/17

211/12b

West Don

Conrie

211/13aF1

The Don and Conrie Fields

33/6e

Working interests at end of 2012:
■■ Don Southwest, 60%
■■ Conrie, 60%
■■ West Don, 63.45%
Decommissioning liabilities:
■■ as per working interests
211/14
Floating production unit with subsea wells
211/19a
33/9d
Daily average net production:
■■ 2012: 10,992 Boepd
■■ 2011: 12,770 Boepd

Don Ne
Don Ne

211/18c

Don Sw

211/18b

211/18a

Playfair
Playfair

Statfjord
Statfjord
Nord
Nord

211/
19aF3

33/
9bF1

Murchison
Murchison

33/9c

33/9-6
33/9-6
Delta
Delta

2013
The successful 2012 drilling and intervention programme in 
33/9
33/9
the Dons area enabled an early start to the 2013 programme 
Murchison
Murchison
in Don Southwest Area 6. Continued infill drilling included a Don 
Southwest DS production well, drilled in Area 6. Its injector pair 
well OB will be drilled in Q2 and both should be online in Q3 2013.

211/19b

Thistle
Thistle

The W6 (NJ) well, which was drilled in 2012, was tied in and 
brought online in Q1 2013.

33/9a

The facilities upgrade programme will continue at the Don fields, 
211/24c
including a gas compression efficiency pipework project. There 
will be a two week shutdown in 2013.

211/16a

211/22aNW

Eider

Eider

Kerloch

Kerloch

211

/21a

F3

211/22b

2012
Production at the Don and Conrie fields achieved a net 10,992 
Boepd in 2012, down 13.9% on 2011. The year on year decline was 
expected and was due mainly to the decline in production from 
the S5 well, which was drilled and brought onstream in 2010. 
Overall an extensive drilling and intervention programme in the 
Dons area was successfully completed on time and on budget 
in 2012.

Deveron

211/23d

In 2012, four wells were drilled in the Don fields. The sidetrack of 
Don Southwest well S1 to the updip ‘horst’ area of the field (now 
designated well S11) came online in July with a good initial rate 
211/
on prognosis at 15,000 Boepd. Also at Don Southwest, S10Y 
23a2F1
came onstream in Q4 2012, with an initial rate which was in line 
with expectations.

Osprey
Osprey

211/22aSE

West Don well W2 had been shut in pending abandonment 
since an unsuccessful workover in 2010. Operations to abandon 
the well were completed during September 2012 and then 
an up-dip sidetrack of well W2 (now designated well W5) 
was drilled and brought online in October at an initial rate 
of 2,000 Boepd.

Causeway
Causeway

211/
23a2

211/
23a1

Merlin
Merlin

Dunlin
Dunlin

Statfjord
Statfjord

Cormorant

Cormorant

North

North

211/
W6 (NJ) southern injector spudded Q4 2012 and was completed 
23f
with a successful injection test.

27

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–OPERATING REVIEW
CONTINUED

2/4b

2/5F2

2/4a

Broom

Heather
Southwest

Pelican
Pelican

2/5F2

3/1b

Heather

3/1a

West
West
Lyell
Lyell

Heather and Broom

Brent Gas
Brent Gas

Orlando
Orlando

3/3b

Working interests at end of 2012:
■■ Heather, 100%
■■ Broom, 63%
Decommissioning liabilities:
■■ Heather, 37.5%
■■ Broom, 63%
Fixed steel platform
Daily average net production:
■■ 2012: 3,752 Boepd
■■ 2011: 5,492 Boepd

Lyell
Lyell

003/03
003/03

3/4c

29/3aUP

29/3-1
29/3-1

Strathspey
Strathspey

3/4b

3/4aF2

2/10a

3/6

002/10

2/10b

Ninian
Ninian

3/2c

3/7d

3/2a

Columba B
Columba B

Columba D
Columba D

Columba E
Columba E

3/7c

3/7bF1

003/08
003/08

3/8b

3/9c

3/9a

3/10c

Alwyn
Alwyn
North
North

29/3cUP

Staffa
Staffa

3/
9e

29/6dUP

003/09
003/09

3/10a

2012
Production at Heather/Broom achieved a net 3,752 Boepd in 2012, 
down 31.7% on 2011; as anticipated reflecting the natural decline 
in production from the Broom BR2 well. Plant management at 
Heather was good, resulting in high production efficiency.

2/15a
Cheviot
Cheviot

3/11c

A scheduled one month maintenance shutdown of Heather was 
successfully completed.

The Heather rig reactivation achieved project milestones, 
including the installation of an 80 tonne mud treatment package. 
Extensive maintenance work was required once inspection was 
completed, which was hindered by the impact of the Norovirus 
and by a general shortage of helicopters in the North Sea. 
Completion of the return to drilling programme is expected 
in Q3 2013.

3/11a

3/17

28

2013
003/12
003/12
In 2013, following the return to drilling in Q3, a workover is 
scheduled to bring H47 back onstream in Q4 2013. A wireline 
perforation campaign is also scheduled, with additional 
Dunbar
Dunbar
perforations for three wells planned to result in increases to 
production. The integrity upgrade programme at Heather will 
continue into 2013. A three week shutdown will take place in July.

3/14j

3/15b

Ellon
Ellon

3/
14h

3/
14a

EnQuest will continue with its infill programme at Heather, with 
20 potential infill targets, of which nine have been selected for 
the initial programme.

3/14e

3/18

3/19a

3/19c

Nuggets
Nuggets
Complex
Complex

3/23b

3/24c

Jura
Jura

Martin
Martin

Linge
Linge

30/7-2
30/7-2

3/20c

3/20a

3/25b

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
1/9-1
1/9-1
Tommeliten
Tommeliten
Alpha
Alpha

11/9b

30/20b

30/25b

2/7c

2/7-19
2/7-19

Alma and Galia Development

2/7-29
2/7-29

Working interest:
■■ 65% in both fields
Decommissioning liabilities:
■■ 65% in both fields
Floating Production Storage and Offloading unit with 
subsea wells
First oil anticipated Q4 2013:
■■ Net peak production to be in excess of 13,000 Boepd

31/21

30/25a

030/25

Orion
Orion

Affleck
Affleck

30/18b

30/23

30/19b

30/24a

30/24b

Innes

Galia

30/28

30/29

30/24c

Alma
Alma

30/
25c

Background
These fields, previously called Argyll and Duncan, were awarded 
to EnQuest in the 26th Licensing Round in early 2011.

Iris
Iris

In Q4 2011, EnQuest sanctioned a redevelopment project 
with nine wells, initially set to recover a gross 29 MMboe of 2P 
reserves. Having begun with a 100% working interest in the 
development, EnQuest farmed out 35% to KUFPEC. First 
production is anticipated in Q4 2013, at a net peak rate of over 
13,000 Boepd.

2012
In 2012, DECC approved the FDPs for both the Alma and Galia 
fields. EnQuest executed well on its development of its new 
Alma/Galia hub, and finished the year on track for first oil in 
Q4 2013.

Six wells were successfully batch drilled on Alma in 2012, they 
were then suspended pending further drilling and the installation 
of completions. Six wells were batch drilled in 2012 (K1 to K6), of 
the six, the three that were through the reservoir section at the 
year end were all at or better than prognosis.

In 2012, the key elements of the project execution required to 
deliver first oil in Q4 2013 proceeded on schedule. Modification 
of the floating production storage and offloading (‘FPSO’) 
vessel in Hamburg continued with the first dry dock related 
work nearing completion as planned; destruct work was 
completed, the refurbishment of the ship systems was well 
underway and the turret had been reinstalled. The topsides 
design for the FPSO was finalised around the 2012 year end.

Angus
Angus

31/26

Other key elements of the project also proceeded well, with a 
major proportion of the subsea infrastructure work successfully 
carried out by the year end. Pipeline works authorisations 
were approved for both the Alma and Galia fields and subsea 
trenching operations were completed. Subsea flowlines were 
laid between Alma/Galia and the FPSO location, along with the 
umbilical between Alma and Galia. Riser clump weights were 
also installed. The mooring installation contract was awarded, 
as was the pile fabrication sub-contract.

2013
In February 2013, EnQuest announced an increase in the scope 
and specification of the Alma/Galia project with the objective of 
extending the field life, optimising operating costs and enabling 
a potential second phase of development. These improvements 
add swivel capacity and extend vessel and project life. EnQuest 
is incurring costs relating to compliance with recent UKCS 
marine code changes, which require upgrades to the mooring 
system and strengthening of the swivel and vessel hull. 

The Alma/Galia drilling programme continues in 2013. Three of 
the Alma production wells batch drilled in 2012 will be completed 
in 2013. A new injection well will also be drilled on Alma. EnQuest 
anticipates ‘sail away’ of the FPSO in Q3 2013, ahead of first oil in 
Q4 2013.

29

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–OPERATING REVIEW
CONTINUED

3/23a

3/24b

3/22a

3/26

3/27a

3/28c

3/29a

Nuggets
Nuggets
Complex
Complex

3/24a

3/25b

3/30b

RhumRhum

003/30
003/30

3/28b

3/28a

20/9a

3/29b

003/30
003/30

21/1b

21/6b

3/27b

Bressay
Bressay

9/3b 9/3e 9/4a

9/5b

21/6a

8/5

9/1b

9/1a

9/2b

9/2a

9/2d

Kraken

9/2c

9/6a

9/7b

9/3a

9/3c

9/3d

9/8b

9/26

9/27

009/23
009/23

9/28a

Crawford

Devenick

Bruce
Bruce

9/9g

15/11b

9/9d

Keith
Keith

15/16d

15/16e

24/12-3 S
24/12-3 S

009/28
009/28

9/29a

9/
29b

9/28b

16/3c

15/3d

15/3a

15/3e

16/1b

Braemar

21/7b

21/8b

21/8a

Torphins
Torphins

21/7a

21/9b

21/10b

21/9c

21/9F1

22/6b

Bacchus
Bacchus

Forties
Forties

22/6c

Brimmond

20/15a

21/11

21/12b

21/13c

21/14a

21/10c

Scolty

21/8c

Bennachie
Bennachie

Nelson
Nelson

20/14

Bentley
Bentley

9/
20/19
9h

9/9c

20/15b

Dauntless
Dauntless

9/10b

20/20

25/1-1
25/1-1
Frigg
Frigg

21/12d

Durward
Durward

Crathes

21/14b

Goosander
Goosander

Wagtail

15/13a

21/19

9/8a

9/9a

21/17b

Kittiwake
Kittiwake

Gadwall
Gadwall

21/20c

21/
20f

Hood
Hood

22/11b

Cayley
Cayley

021/19
021/19

21/20b

Christian
Christian

Kildrummy

Cook
Cook

Bligh
Bligh

Burdock
Burdock

15/12b

21/21

15/12a

15/17F2

21/22

15/17F3

Sheryl
Sheryl

Piper
Piper
21/27c
b
b

21/
26a

15/17c

Blakeney
Blakeney

21/24b

15/18c

Pict
Pict

Saxon
Saxon

Clapham
Clapham

21/25a

15/18b

Teal
Teal

Teal
Teal
South
South

21/25b

Guillemot
Guillemot
W And Nw
W And Nw

22/21a

22/21c

Gannet
Gannet
Complex
Complex

15/18d

15/18a

22/26d

16/1a

16/2b

16/3d

15/16b

The Kraken Development
In 2012, EnQuest acquired a 60% interest in the Kraken discovery 
and in H2 2012 EnQuest became the operator of the new 
Cairngorm
development. Kraken is a large heavy oil accumulation in the UK 
North Sea, located in the East Shetland Basin, to the west of the 
North Viking Graben. It is being progressed to development 
following earlier appraisal well tests, the successful results of 
15/16a
which de-risked the project prior to EnQuest’s acquisition of its 
working interests.

15/3-1
15/3-1
S Gudrun
S Gudrun

Brae
Brae
East
East

Balfour

016/01
016/01

16/2d

16/3b

16/6c

16/8c

16/7a

15/3c

16/6b

Piper a
Piper a
Kildrummy
The results of the H2 2012 Kildrummy appraisal well showed an 
oil column which was thicker than previously discovered in that 
field, although not as thick as had been anticipated. A range of 
development options continues to be evaluated.
15/17b

Chanter
Chanter

Saltire
Saltire

Maria
Maria

Iona
Iona

Cairngorm
Cairngorm is a basement opportunity, with potential. An appraisal 
well is to be drilled in 2013.

Brochel
Brochel

015/17
015/17

015/19
015/19

Dalmore

Dalmore

Sedgwick
Sedgwick

Beinn
Beinn

Moby
Moby

Tartan
Tartan
Gudrun
Gudrun

15/3b

15/3-4
15/3-4

16/
8a

16/
7bF1

Kingfisher
Kingfisher

Brae
Brae
West
West

Brae
Brae
North
North

Brae
Brae
Central
Central

The new development remains on track for submission of 
the FDP in Q2 2013, and subject to the anticipated regulatory 
approvals, for first oil in 2016. The Kraken Environmental 
Statement was submitted in Q1 2013 and the DECC consultation 
process commenced. Following submission of the FDP and 
confirmation of all the details that are a pre-requisite for that 
submission, EnQuest will then provide comprehensive updated 
15/6-10
15/6-10
detailed information on this project. In 2013, an appraisal well will 
be drilled at Kraken, in order to provide additional data for the 
field development.

15/5-5
15/5-5
Glitne
Glitne

Brae
Brae
South
South

Glitne
Glitne

Miller
Miller

16/8b

15/6b

16/8e

15/6e

15/5a

Crathes/Scolty
Options for a proposed Crathes/Scolty development are being 
analysed, with a number of potential hosts under consideration. 
In order to accommodate the time required for this ongoing 
analysis, a licence extension is being sought and is anticipated.

30

Crawford/Porter
Development studies at Crawford/Porter continue; the result 
of further drilling in the vicinity will be factored into project 
sanction decisions. Combining Crawford/Porter with other 
adjacent projects may produce a more economically attractive 
alternative than a stand-alone project. EnQuest therefore no 
longer recognises 2P reserves for Crawford/Porter.

Westray
Westray

Malaysia
In H2 2012, EnQuest acquired a 42.5% interest in Blocks SB307 
and SB308 offshore in Sabah, Malaysia; with one near field 
appraisal opportunity at the oil discovery in Bambazon and 
five prospects. The partners on the Sabah blocks are Lundin 
Petroleum and PETRONAS Carigali. EnQuest also acquired 
an office base in Kuala Lumpur and a small management team 
with extensive experience in South East Asia. An exploration/
appraisal well is expected to be drilled in the area in H2 2013.

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
EnQuest oil and gas reserves and resources at 31 December 2012

UKCS

Other regions

Total

MMboe

MMboe

MMboe

MMboe

MMboe

Proven and probable reserves (notes 1,2,3 and 6)

At 1 January 2012

 Revisions of previous estimates 

 Discoveries, extensions and additions (note 7)

 Acquisitions and disposals (note 8)

Production:

 Export meter

 Volume adjustments (note 5)

 Production during period:

Proven and probable reserves at 31 December 2012

Contingent resources (notes 1,2 and 4)

At 1 January 2012

 Revisions of previous estimates

 Discoveries, extensions and additions 

 Acquisitions (note 8)

 Disposals (note 8)

 Promoted to Reserves (note 7)

Contingent resources at 31 December 2012

(8.35)

0.14

115.21

10.23

20.40

(9.11)

(8.21)

128.52

111.77

(7.42)

8.69

93.42

(26.91)

(21.80)

157.75

115.21

10.23

20.40

(9.11)

(8.21)

128.52

116.78

(7.42)

8.69

93.42

(27.52)

(21.80)

162.15

5.01

(0.61)

4.40

Notes
1  Reserves and resources are quoted on a working interest basis.
2  Proven and probable reserves and contingent resources have been assessed by the Group’s internal reservoir engineers, utilising geological, geophysical, 

engineering and financial data. 

3  The Group’s proven and probable reserves have been audited by a recognised Competent Person in accordance with the definitions set out under the 2007 

Petroleum Resources Management System and supporting guidelines issued by the Society of Petroleum Engineers. 

4  Contingent resources relate to technically recoverable hydrocarbons for which commerciality has not yet been determined and are stated on a best technical 

case or “2C” basis.

5  Correction of export to sales volumes. 
6  All volumes are presented pre SVT value adjustment.
7  Contingent resources previously allocated to Kraken have been classified as reserves as a result of ongoing development planning.
8  An additional 18.5% equity was acquired in West Don. 35% of the equity in the Alma/Galia development was farmed out.

How will EnQuest benefit 
by being the duty holder?
As EnQuest continues to grow, a 
natural and logical progression for 
the Company is to move to a more 
integrated approach to Operations 
Management. Taking on duty holder 
responsibility at all our operated 
sites will allow EnQuest to be in 
direct control of all its operations 
which will result in a fully engaged 
workforce all moving towards a 
common goal of safe results with 
no harm to people and respect for 
the environment.

Name: Andy Lane
EnQuest position:  
Duty Holder Project Director

31

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–FINANCIAL
REVIEW

Financial Overview
The Group’s financial performance 
in 2012 reflects good operational 
performance and a period of significant 
capital investment in growth projects 
throughout the year.

Jonathan Swinney
Chief Financial Officer

In the year ended 31 December 
2012, the Brent crude oil price 
averaged $111.7 per barrel 
broadly the same as $111.4 per 
barrel average for 2011. As 
anticipated, total production 
volumes were 3.5% lower for 
the 12 months to 31 December 
2012 and this, together with 
a net under-lift position at 
31 December 2012, resulted 
in revenues for the year of 
$890 million compared with 
$936 million in 2011.

32

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
Profit from operations before tax and 

finance income/(costs)
Depletion and depreciation
Intangible impairments and write-offs

EBITDA

Business Performance

2012
$ million

2011
$ million

405.1
208.0
13.1

626.2

390.1
202.0
37.0

629.1

EBITDA for the 12 months ended 31 December 2012 was $626.2 
million compared with $629.1 million in 2011. The lower EBITDA 
is due to lower production volumes partially offset by lower 
intangible impairments and write-offs, lower operating costs, 
tariffs and transportation costs in 2012 and higher oil collar 
hedging costs in 2011.

The Group entered 2013 with $89.9 million net cash. Strong 
ongoing operating cash flows from its existing portfolio of assets 
and a new credit facility have been used to fund a significant capital 
investment programme. In March 2012, the Group established a 
new multi-currency revolving credit facility of up to $900 million 
with seven banks. Initially $525 million was committed and the 
further amounts will be available depending on oil reserves, 
including increases resulting from acquisitions. The new facility 
replaced the previous $280 million facility which expired in March 
2012. In Q1 2013, EnQuest successfully raised £145 million from 
the issue of a retail bond, with a 5.5% coupon and a 2022 maturity. 
This bond allows EnQuest to diversify its funding base and 
complements the already strong balance sheet.

Income Statement
Production and revenue
Production levels, on a working interest basis, for the 12 months 
to 31 December 2012 averaged 22,802 Boepd compared with 
23,698 Boepd in 2011. The decrease in production was expected 
and due mainly to lower volumes on the Don fields and Heather 
and Broom, offset by higher volumes from Thistle. Production in 
the Don fields was lower mainly due to the decline in production 
from the S5 well. This was partially offset by a full year’s 
production from S8Z and the new S10 and S11 wells and W5 
sidetrack as well as the acquisition of an additional 18.5% in West 
Don. Heather and Broom production was lower than 2011 due to 
natural field decline, a planned shutdown on Heather and by the 
unscheduled third party related closure in Q2 2012 of the Ninian 
Pipeline System. Thistle volumes were higher due to the two 
new wells that came into production during the year.

The Group’s blended average realised price per barrel of oil sold 
was $111.6 for the 12 months to 31 December 2012, broadly in line 
with the $111.8 per barrel excluding oil collar hedging costs ($107.6 
per barrel including oil collar hedging costs) for 2011. This is 
consistent with average oil prices for 2012 and 2011. Revenue is 
predominantly derived from crude oil sales and for the 12 months 
ended 31 December 2012 crude oil sales were $879.3 million 
compared with $960.4 million in 2011. The reduction in revenue 
is due to lower production and an under-lift in the year of $24.4 
million compared with an over-lift of $14.6 million in 2011.

Operating costs
Cost of sales comprises cost of operations, tariff and 
transportation expenses, change in lifting position, inventory 
movement and depletion of oil and gas assets. Cost of sales for 
the Group (pre-exceptionals and depletion of fair value 
adjustments) were as follows:

Cost of sales

Unit operating cost, adjusted for over/
under-lift and inventory movements 
(per Boe):

– Production and transportation costs
– Depletion of oil and gas properties

Reported 
Year ended 
31 December 
2012 
$ million

Reported 
Year ended 
31 December 
2011 
$ million

448.2

$

491.8

$

32.3
24.7

57.0

31.9
23.2

55.1

Cost of sales pre-exceptionals and depletion of fair value 
adjustments was $448.2 million for the year ended 31 December 
2012 compared with $491.8 million in 2011. The decrease of $43.6 
million is mainly due to the $39.0 million change in lifting position 
from a net over-lift in 2011 to a net under-lift at 31 December 
2012, together with a decrease in operating costs.

The Group’s operating costs comprise cost of operations and 
tariff and transportation expenses which were $269.5 million for 
the year ended 31 December 2012 compared with $276.1 million 
in 2011. The decrease in operating costs was due to shutdowns 
and major works on Thistle in 2011 and the S2 well intervention 
on Don Southwest in 2011. This was offset by a full planned 
shutdown on Heather and the W1 well intervention on West Don, 
together with lower tariff and transportation costs due to lower 
production volumes in the year ended 31 December 2012 
compared with 2011. The increase in the Group’s average unit 
production and transportation cost of $0.4 per Boe for the 
year ended 31 December 2012 compared with 2011 is primarily 
attributable to the lower levels of production in the Don fields 
and Heather and Broom.

The Group’s depletion expense per Boe for the year is broadly 
consistent with the previous year with an increase of $1.5 per 
Boe (6%). The primary reason for this is higher estimates of the 
future capital expenditure requirement on the Don fields.

The Group’s change in lifting position was $24.4 million income 
for the year ended 31 December 2012, compared with expense 
of $14.6 million in 2011. The net under-lift during 2012 has arisen 
due to an under-lift balance at 31 December 2012 of $9.3 million 
mainly in the Don fields combined with the reversal of the 
over-lift of $15.1 million at the end of 2011 mainly in the Thistle 
and Broom fields.

33

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–FINANCIAL REVIEW
CONTINUED

Exploration and evaluation expenses
Exploration and evaluation expenses were $23.2 million in the 
year ended 31 December 2012, compared with $37.0 million 
reported in the previous year. The expenses in 2012 primarily 
relate to the costs of Norway licence applications and the 
UK 27th Licensing Round, the cost write-off associated with 
the Juniper, Gorse and Pilot licences following a decision 
to relinquish these licences and the cost of the unsuccessful 
Tryfan exploration well.

General and administrative expenses
General and administrative expenses were $6.7 million in the 
year ended 31 December 2012 compared with $13.8 million 
reported in the previous year. The expenses primarily relate to 
the Group’s general management and business development 
expenses net of recharges to joint venture partners. The 
decrease in general and administrative expenses of $7.1 million 
reflects the increasing number of joint ventures which are 
subject to such recharges.

Other income and other expenses
Other income includes monies received from a third party as 
compensation for the termination of a business development 
transaction. Other expenses includes net foreign exchange 
losses of $5.5 million and expenses related to the ineffectiveness 
of foreign currency contracts designated as hedges of $2.9 
million in the year ended 31 December 2012.

Taxation
The tax charge for the year of $126.4 million excluding 
exceptional items, represents an effective tax rate of 33% 
compared with 64% in the previous year. The decrease in the 
Group’s effective tax rate for the year is mainly due to the 
benefit provided by leasing arrangements, the increase in the 
ring fence expenditure supplement and prior year deferred tax 
adjustments. Partially offsetting these decreases, in July 2012, 
the Finance Act 2012 brought in a restriction on the tax relief 
available on decommissioning expenditure incurred on or after 
21 March 2012 to 50% which has resulted in an increase in the tax 
charge of $3.9 million.

Exceptional items and depletion of fair value uplift
Exceptional income totalling $17.4 million before tax has been 
disclosed separately in the year ended 31 December 2012 
relating to:
■■ a $175.9 million gain on disposal of 35% of the Alma/Galia 

development through the farm out and cost carry agreement 
with KUFPEC; 

■■ a $143.9 million impairment of the Heather and Broom hub 

following a delay in phasing of production, particularly to allow 
the drilling of the West Fault Block well at Thistle in 2013 and 
an increase in estimated capital expenditure associated with 
the field life extension programme. The Heather and Broom 
hub inherited a high net book value of $423 million, reflecting 
the fair value uplift when Lundin acquired the Heather and 
Broom assets prior to the formation of EnQuest; and 
■■ a non-cash impairment of $4.4 million in relation to the 

valuation of the Group’s shareholding in Ascent Resources plc.

In addition, a one off deferred tax adjustment of $10.4 million 
in respect of the restriction on the tax relief available on 
decommissioning expenditure on UK oil and gas offshore 
activities has been reported as an exceptional item.

Additional depletion costs of $10.3 million have resulted from 
the fair value uplift of the Dons oil and gas assets on acquisition 
at IPO and are reported as a fair value adjustment.

Finance costs
Finance costs of $21.2 million include $0.7 million of loan interest 
payable, $10.1 million unwinding of discount on decommissioning 
provisions, a non-cash unrealised loss of $2.1 million on the 
marked-to-market of the Group’s 2012 oil collars which are deemed 
ineffective for hedge accounting purposes. Other financial 
expenses are primarily commitment and arrangement fees relating 
to the new bank facilities and letter of credit fees. The Group 
capitalised $0.4 million for the year ended 31 December 2012 in 
relation to the interest payable on borrowing costs on its capital 
development projects.

Finance income
Finance income of $2.2 million includes $0.7 million of bank 
interest receivable, a non-cash unrealised gain of $0.9 million 
on the marked-to-market of the Group’s 2013 oil collars which 
are deemed ineffective for hedge accounting purposes and 
$0.5 million unwinding of discount on the financial asset created 
as part of the consideration for the farm out of the Alma/Galia 
development to KUFPEC.

34

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
Earnings per share
The Group’s reported basic earnings per share were 46.2 cents 
for the year ended 31 December 2012 compared with 7.6 cents 
in 2011. The increase of 38.6 cents is attributable to an increase 
in gross profit, a lower effective income tax rate in the year 
ended 31 December 2012 compared with the previous year, 
together with the exceptional gain on the disposal of fixed 
assets. This was partially offset by the impairment of the Heather 
and Broom hub. The Group’s reported basic earnings per share 
excluding exceptional items were 33.1 cents for the year ended 
31 December 2012 compared with 17.0 cents in 2011. The increase 
of 16.1 cents is mainly attributable to the lower effective income 
tax rate in the year ended 31 December 2012 compared with the 
previous year.

Cash flow and liquidity
The Group’s reported cash generated from operations in 2012 
was $593.9 million compared with $656.3 million in 2011. The 
reported cash flow from operations per issued Ordinary share 
was 75.7 cents per share compared with 81.9 cents per share 
in 2011. This reduction in cash generated from operations is 
primarily due to the increase in joint venture receivables which 
relates to the significant capital expenditure on the Alma/Galia 
development.

During the year ended 31 December 2012, $0.8 million of 
income tax payments were made in relation to the settlement 
of EnQuest North Sea BV’s Dutch corporate income tax liabilities. 
It is anticipated that the underlying effective tax rate for 2013 will 
be approximately 60%, excluding one-off exceptional tax items. 
The Group also does not expect a cash outflow for UK income 
tax on operational activities until beyond 2014. This is due to the 
projected level of capital expenditure, which benefits from tax 
deductible first year capital allowances, and accumulated tax 
losses which are themselves largely attributable to the Group’s 
capital investment programme to date.

Cash outflow on capital expenditure is set out in the table below:

Expenditure on producing oil and gas 

assets

Development expenditure
Exploration and evaluation capital 

expenditure

Other capital expenditure

2012
$ million

2011
$ million

323.9
381.1

128.4
8.9

842.3

170.9
43.6

54.0
9.4

277.9

Significant projects were undertaken during the year, including:
■■ the Alma/Galia development;
■■ the Thistle drilling programme including A58/03, A59/45, A56/13, 
A13/22, A53/60, A22/59 and late life extension programme for 
facilities including the power generation upgrade;

■■ the acquisition of a further 18.5% interest in West Don and 

on the Don fields the S10, S11 and W5 producer wells, and the 
W6 injector well;

■■ the programme to reactivate the drilling rig on the Heather 

platform;

■■ the acquisition of the interests in Kraken and subsequent 

expenditure to progress the opportunity to sanction in 2013; and

■■ the Kildrummy and Tryfan exploration wells and activities on 

actual or potential exploration prospects and pre-drilling costs.

Net cash at 31 December 2012 amounted to $89.9 million 
compared with $378.9 million in 2011.

In Q1 2013, EnQuest successfully raised £145 million from the 
issue of a retail bond, with a 5.5% coupon and a 2022 maturity. 
This bond allows EnQuest to diversify its funding base and 
complements the already strong balance sheet.

How significant is the 
brownfield tax allowance?
This is a positive step which 
demonstrates the Government’s 
commitment to the future of the North 
Sea. For Thistle in particular, the 
allowance has helped to ensure the 
commercial viability of the next phase 
of the Late Life Extension project.

Name: Kim Combe (near right)
EnQuest position:  
Thistle Business Analyst

35

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–FINANCIAL REVIEW
CONTINUED

KEY PERFORMANCE INDICATORS

Lost Time Incident Frequency (LTIF)

2P reserves (MMboe)

Business performance data:
Production (Boepd)
Revenue ($ million)
Realised oil price per barrel ($)
Opex per barrel (production and transportation costs) ($)
Gross profit excluding exceptional items ($ million)
Capex on property, plant and equipment oil and gas assets ($ million)
Capex on intangible oil and gas assets ($ million)

Reported data:
Cash generated from operations ($ million)
Net cash ($ million)
Profit before tax ($ million)
Cash generated from operations per share (cents)
Basic earnings per share (cents)
Basic earnings per share excluding exceptional items (cents)

2012

2.00

128.52

22,802
889.5
111.6
32.31
441.3
802.9
116.2

593.9
89.9
403.4
75.7
46.2
33.1

2011

0.90

115.21

23,698
936.0
107.6
31.9
444.2
291.7
64.2

656.3
378.9
362.8
81.9
7.6
17.0

During the year, the Group changed the frequency used in recording its Lost Time Incident Frequency (LTIF) metric, to align with the Oil & Gas UK standard, which 
during 2012 the Group found to be the most appropriate benchmark. The 2011 comparative figure has been restated from an LTIF of 0.44 to an LTIF of 0.90.

Balance Sheet
The Group’s total asset value has increased by $596.1 million to 
$2,544.8 million at 31 December 2012 (2011: $1,948.7 million).

Property, plant and equipment
Property, plant and equipment (PP&E) has increased to 
$1,816.6 million at 31 December 2012 from $1,273.6 million 
at 31 December 2011. The increase of $543.0 million is mainly 
due to oil and gas asset capital additions including farm ins 
and farm outs of $802.9 million, other additions of $8.9 million, 
a reclassification of Kraken costs of $62.0 million from 
intangible assets on recognition of 2P reserves and additional 
decommissioning provisions of $62.2 million, mostly arising 
on drilling new development wells, partially offset by depletion 
and depreciation charges of $218.3 million in the year, the 
impairment of the Heather and Broom hub of $143.9 million 
and a reclassification of Crawford/Porter to intangible assets 
of $30.8 million.

The oil and gas asset capital additions during the year are set 
out in the table below:

Dons hub
Thistle hub
Heather and Broom hub
Alma/Galia
Other new developments

2012
$ million

128.8
184.3
54.0
421.3
14.5

802.9

Intangible oil and gas assets
Intangible oil and gas assets increased by $73.2 million to $97.5 
million at 31 December 2012. The increase is mainly due to the 
reclassification of Crawford and Porter costs from PP&E to 
intangible fixed assets, the cost of the Kildrummy exploration 
well and the acquisition of the Malaysian exploration licences. 
The Kraken acquisition costs and the subsequent additions 
during the year have been transferred to PP&E.

Investments
The Group holds an investment of 160,903,958 new ordinary 
shares in Ascent Resources plc which is valued at $2.3 million 
based on the quoted bid price as at 31 December 2012.

Asset held for sale
During 2012, the $1.3 million of costs associated with the Group’s 
Dutch licences, which had been classified as held for sale at 
31 December 2011, were reclassified to intangible fixed assets on 
finalisation of a swap arrangement with Sterling Resources 
Limited for a 50% share in the Cairngorm licence Block 16/3d.

Trade and other receivables
Trade and other receivables have increased by $113.1 million to 
$239.7 million at 31 December 2012 compared with $126.6 million 
in 2011. The increase is mainly due to higher joint venture 
receivables which relates primarily to the significant capital 
expenditure on the Alma/Galia development together with an 
increase in receivables of $9.3 million relating to net under-lift 
position at 31 December 2012.

36

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
Cash and bank
The Group had $124.5 million of cash and cash equivalents at 
31 December 2012 and $34.6 million was drawn down on the 
$900 million multi-currency revolving credit facility. Of the 
facility, $525 million was initially committed with additional 
amounts up to $900 million becoming available dependent on 
increasing reserves or through acquisitions. Included within the 
cash balance at 31 December 2012 is restricted cash of $14.9 
million relating to cash held under Performance Guarantee 
Agreements with suppliers.

Financial Risk Management
The Group is exposed to the impact of changes in Brent crude 
oil prices on its revenue and profits. During 2011, put and call 
options covering 3 million barrels of oil production in 2012 were 
entered into partially to hedge the exposure to fluctuations in 
the Brent oil price. The 2012 oil price hedge contracts consisted 
of put spreads at $95 per barrel and $70 per barrel and calls at 
an average of $122 per barrel, all executed at nil cost. In May 
2012, one of the oil price collars was re-priced to give a revised 
average cap of $123.3 per barrel.

Between November 2012 and February 2013, further put and 
call options covering 4.60 million barrels of oil production for 
2013 were entered into to partially hedge the exposure to 
fluctuations in the Brent oil price. The 2013 oil price hedge 
contracts consist of put spreads at $95-$100 per barrel and 
$70-$75 per barrel and calls at an average of $121.6 per barrel, 
all executed at nil cost.

As a result of the commodity price hedging programme 
undertaken, EnQuest has protected approximately $440 million 
of its capital expenditure for 2013, assuming the oil price remains 
above the lower level of the put spreads. This equates to over 
half of the capital expenditure programme projected for 2013.

EnQuest’s functional currency is US dollars. Foreign currency 
risk arises on purchases and the translation of assets and 
liabilities denominated in currencies other than US dollars. 
During the second half of 2011, the Group entered into a number 
of forward currency contracts to hedge a total of £126.5 million 
(at an average rate of $1.577 to £1) and €52.7 million (at an 
average rate of $1.34 to €1) of forecast 2012 capital project 
spend. During 2012 EnQuest did not enter into any foreign 
exchange hedging contracts. EnQuest will continue to look at 
opportunities to enter into foreign exchange hedging contracts, 
in line with the policy agreed by the Board which allows for up to 
50% of operating expenditure and 70% of capital expenditure to 
be hedged, in order to mitigate the risks of large fluctuations in 
the currency markets, specifically the US dollar versus sterling 
and the US dollar versus the euro. Surplus cash balances are 
deposited as cash collateral against in-place letters of credit as a 
way of reducing interest costs. Otherwise cash balances can be 
invested in short term bank deposits and AAA rated liquidity 
funds, subject to Board approved limits and with a view to 
minimising counterparty credit risks.

Provisions
The Group’s decommissioning provision increased by $51.8 
million to $233.0 million at 31 December 2012 (2011: $181.2 
million). The increase is due to the combined impact of additions 
of $37.6 million during the year resulting from the Group’s drilling 
programme, $7.5 million due to farm in and farm out activity, 
$10.1 million due to changes in estimates and $10.1 million due to 
the unwinding of the discount. This was offset by utilisation of 
the provision of $13.6 million on well abandonment and various 
small facility decommissioning workscopes.

Income tax
The Group’s income tax liability increased to $3.8 million at 
31 December 2012 from $1.7 million at 31 December 2011. The 
increase of $2.1 million is due to UK income tax arising on foreign 
exchange movements. The income tax asset as at 31 December 
2012 represents the expected refund on exploration activities 
undertaken in Norway, and an expected refund in Holland on 
the carry back of tax losses incurred in 2012.

Deferred tax liability
The Group’s deferred tax liability (net of deferred tax assets) has 
increased by $31.7 million to $609.1 million at 31 December 2012 
from $577.4 million in 2011. The increase is mainly due to the 
capital expenditure programme undertaken by the Group 
during the year which provides the Group with 100% first year 
capital allowance claims, as well as an increase in ring fence 
taxation losses carried forward. There was a one-off deferred 
tax adjustment of $10.4 million in respect of the restriction 
on decommissioning relief which has been reported as an 
exceptional item together with a deferred tax credit of $89.2 
million in respect of the impairment of the Heather and Broom 
hub. Total losses carried forward at the year end amount to 
approximately $600 million. This excludes $54.5 million of 
pre-trading expenditure which is expected to become tax 
deductible in 2013.

Trade and other payables
Trade and other payables have increased to $329.7 million at 
31 December 2012 from $234.3 million at 31 December 2011. The 
increase of $95.4 million is primarily due to an increase in trade 
creditors and accruals of $96.1 million resulting from the Group’s 
drilling and capital project programmes which were ongoing at 
the end of 2012.

37

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–CORPORATE SOCIAL 
RESPONSIBILITY REVIEW

EnQuest’s ongoing commitment to 
responsible operations is captured by 
the terms of our principal aim: safe 
results, with no harm to people and 
respect for the environment.

Safe results, with no harm to people and respect for 
the environment
Our work in this regard is strengthened by the EnQuest values, 
which are increasingly serving to shape and influence attitudes, 
behaviours and practices across our organisation. We are 
determined to maintain a positive and proactive Health, Safety, 
Environment and Assurance (‘HSE&A’) environment that 
reflects those values.

Our overall HSE&A performance in 2012 illustrates how 
EnQuest’s principles can deliver significant achievements. 
Prominent among our accomplishments was the recording of 
five years free of Lost Time Incidents (LTIs) on drilling operations 
in the Thistle field, as well as a successful Health and Safety 
Executive (HSE) offshore inspection on Thistle. Further, the HSE 
approved a material change to the installation’s safety case.

EnQuest’s LTIF score increased from 0.9 in 2011 to 2.0 in 2012. 
The LTIs were of low risk potential. The number of events which 
could have had potentially high or serious consequences (known 
as high incident potential occurrences or HIPOs) reduced 
significantly from 4 in 2011 to only 1 in 2012.

We recorded a marked reduction in hydrocarbon releases: one 
was recorded during 2012, compared to three in 2011. A review 
of bunkering operations yielded a drop in bunkering related 
incidents, from 12 in 2011 to 6 in 2012.

Operationally, we completed an actuator repair to eliminate a 
subsea hydraulic control fluid leak in the Broom field, allowing 
for the reinstatement of the Broom gas lift subsea isolation valve.

Bill Marr (left) and Audrey Sinclair (right) receiving EnQuest’s Healthy 
Working Lives silver award

38

EnQuest’s Environmental Management System (EMS) was 
further developed during the year. It plays a crucial role in 
ensuring that we effectively manage and mitigate our impact on 
the environment. The system is aligned with the requirements of 
the environmental management system standard ISO 14001. As 
required by the Department of Energy and Climate Change 
under OSPAR (the Oslo and Paris convention for the protection 
of the marine environment of the North East Atlantic), EnQuest’s 
environmental management system was independently verified 
against the ISO 14001 principles. EnQuest successfully obtained 
re-verification.

Our ongoing work to foster a culture of health and wellbeing across 
the organisation paid dividends. Having been presented with a 
Healthy Working Lives (HWL) bronze award in 2011, we received a 
silver award in 2012. Through 2013 EnQuest will continue to support 
this Government initiative designed to help employers create a 
safer, healthier and more motivated workforce, as it offers practical 
information and advice to help improve health and safety and the 
wellbeing of everyone at work.

Throughout the year we continued to broaden the capabilities 
and expertise of the HSE&A team, making a number of new 
appointments. We added an Occupational Health Adviser, 
Human Factors Adviser, Graduate Environmental Adviser and 
Safety Engineering Technical Authority to the team.

A maturing organisation
EnQuest’s focus following our launch was on building our 
organisation and demonstrating our commercial and operational 
credentials. During 2012 we built on that in many respects, 
maturing organisationally and developing a distinctive EnQuest 
culture that we are now successfully projecting both within and 
beyond the business.

We continued to grow significantly during 2012: 82 new 
employees and 183 new contractors joined us. At the end of 
2012, there was a direct workforce of approximately 500, rising 
to around 1,600 including offshore contractors.

People have joined us in significant numbers in several key areas, 
including new developments, wells delivery and operations, 
as well as in the geoscience and reservoir disciplines. Our 2012 
attrition rates compared very favourably with wider industry 
trends at approximately 10%.

We can conclude that our strategy to attract skilled and 
committed people within a tight recruitment market remains 
highly effective, while we are continuing to punch above our 
weight in terms of retention. That success is based on two key 
elements: a strong production and development strategy that 
presents new and exciting challenges to industry professionals, 
and our set of organisational values.

Those values are serving to drive the development of our 
distinctive EnQuest culture, which increasingly represents a 
competitive advantage for our business as we look to broaden 
our horizons. In order to accommodate the continuing growth 
of the business, plans are being progressed to build new 
operational headquarters in Aberdeen. We have recently 
established a presence in Malaysia, where we now have interests 
in two blocks offshore Sabah. We have opened an office in 
Stavanger, Norway, in support of plans to develop interests in 

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
The nursery children from 
Aberdeen’s Tullos Primary 
enjoying their new waterproofs

the Norwegian North Sea. The port of Hamburg has also 
become a key area of activity for us, hosting the refurbishment 
and modification work on the EnQuest Producer for the Alma/
Galia development.

Alma/Galia features among the performance highlights of 2012 
as significant progress was achieved across the project 
environment. The year was also characterised by strong 
production delivery rates, a successful wells campaign, and 
robust transition preparations ahead of assuming duty holder 
status in 2013. It also featured a strong performance by our 
London based business development function. It is a strategic 
priority to ensure we have the capabilities, resources and 
leadership in place to maintain the momentum across all 
these areas.

Our new people and organisation strategy will be central to that 
commitment. A framework for achieving our growth objectives, 
it is based on four themes; the right organisation, with great 
people, who deliver exceptional performance, in the EnQuest 
way. This strategy provides the reference points for new phases 
of activity in building the organisation, and it will be clearly 
articulated across the organisation and beyond throughout 2013 
and 2014.

The people and organisation strategy captures many principles 
of the EnQuest culture, the development of which during 2012 
took the form of many different strands. One of those involved 
the formation of the EnQuest Leadership Network. With a stable 
leadership team in place, the network has been established to 
link people from different areas of EnQuest and engage them 
with the organisation in a wider context.

They are being encouraged to lead their respective areas in ways 
that serve to connect the whole business, armed with a greater 
understanding of its breadth and how they contribute to the overall 
strategy. The initiative supports our culture by promoting enhanced 
communication, greater interaction and performance excellence.

A positive community contribution
EnQuest’s work to develop ever closer relationships in our local 
community, and provide active and tangible support in line with 
our community and charity policy, took on many and diverse 
forms during 2012.

One of the most significant developments reflected our 
commitment to develop sustainable relationships with individual 
organisations. We nominated Aberdeen based Archway, which 
supports adults and children with learning disabilities, as our 
chosen charity. We aim to raise £100,000 over two years to help 
it create several new facilities. By the end of the 2012, nine 
months into the campaign, we had already raised over £35,000 
through a diverse range of fundraising activities. Our plans for 
2013 also include supporting a local authority initiative to restore 
the Piper Alpha Memorial Garden at Aberdeen’s Hazlehead Park 
in time for the 25th anniversary of the disaster in July 2013.

EnQuest again supported a range of initiatives at Tullos Primary 
School, enhancing a relationship that dates back to 2010. This 
included a contribution of waterproof suits to allow nursery age 
children to use the Aberdeen school’s outdoor area in any 
weather. Our corporate support activities extended to numerous 
other educational institutions, local good causes and charity 
campaigns. EnQuest people, both as individuals and groups, 
instigated and completed a variety of fundraising projects to 
benefit specific charities.

The Company fosters a working environment that encourages 
participation in community focused activities, as well as in health, 
wellbeing and team focused opportunities. During 2012, Team 
EnQuest competed in league 1 of the Corporate Decathlon after 
being promoted the previous year. Applying EnQuest values 
such as collaboration, passion, agility and focus, it recorded a 
series of notable achievements against teams from many of the 
largest businesses in the northeast of Scotland.

How does EnQuest sustain 
a robust HSE&A culture?
The organisation fully supports the 
HSE&A Continuous Improvement 
Plan which encompasses a series of 
projects, campaigns and reviews, 
with the core aim of achieving 
further improvements across the 
areas of process safety, personal 
safety and health, environmental 
performance and quality assurance.

However the key to our success is 
sustainability and we are committed 
to maintaining an HSE&A culture 
that reflects our Company values 
and marries with our long term plans 
for our people and the environment.

Name: John Atkinson
EnQuest position:  
Head of HSE&A 

39

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–ENQUEST
VALUES

EnQuest people are safe, 
creative and passionate, 
with a relentless focus 
on results.

40

EnQuest’s people are unified 
by a common set of values, 
these values are what 
differentiates us as an 
organisation.

We have a Code of Conduct 
which sets out the behaviours 
we must follow. The values 
however inspire us to create 
the organisation that we want 
it to be.

Amjad Bseisu
Chief Executive

Stefan Ricketts
General Counsel

Colin Smith
Logistics Superintendent – Aberdeen

Michelle McRobbie
Process Engineer – Hamburg

Respect

Focus

In EnQuest respect is paramount, for our 
people, our environment and the safety 
of others.

“At EnQuest everyone works to the same 
level and talks to each other, not at each 
other, or down to each other. You can see 
the respect come through and with this 
you get far more cooperation.”

EnQuest is an organisation with a 
relentless focus on results. Our people 
are accountable and responsible, and 
entrusted to take ownership of decisions 
and appropriate actions.

“If you are out in the shipyard, on the 
vessel, or anywhere in the yard you have 
to constantly be aware of what’s going on 
around you. You cannot lose your focus – 
and it’s great!”

EnQuest PLCAnnual Report 2012BUSINESS REVIEW 
Simon Richards
Drilling Operations Manager – Aberdeen

Ali Young
Drilling Superintendent – Aberdeen

Vas Anastasiadis
IT Systems Analyst – London

Agility

Creativity

Passion

Nimble technical and commercial 
behaviour from a responsive and flexible 
team allows EnQuest to meet its growth 
targets and to react to challenges.

“We are always dealing with a workface 
that is small, that is a long way away, 
and that you can never touch. But well 
engineers do relate to that and remain 
flexible and agile to address the ever 
changing conditions.”

Creativity and innovation to embrace new 
ideas and deliver solutions differentiates 
EnQuest from its peers. They result in a 
motivated workforce with greater self-
confidence, pride and self-management.

EnQuest is a passionate, enthusiastic and 
committed organisation. Individuals and 
teams inspire others and create a catalyst 
with positive impact on the organisation 
and projects.

“We have a diverse knowledge across 
the team, so we use that knowledge to 
be creative in coming up with solutions. 
The creativity that comes from designing 
wells right through to drilling and 
execution can be huge.”

“The variety of IT projects that we are 
handling in EnQuest at the moment is 
something that excites me and makes 
me want to come to work every day.”

Richard Hall
General Manager, International – London

Iain Kellock
Graduate Quantity Surveyor – Hamburg

Collaboration

Empowerment

In EnQuest we take on challenges and 
find solutions through mutual trust, 
knowledge sharing and teamwork.

“People from a range of different disciplines 
and teams across EnQuest worked on the 
Sabah transaction in Malaysia, our first 
international project. It was a truly 
collaborative effort and I expect it to prove 
typical of how we work together on other 
international projects. Having established a 
presence in Norway and Malaysia, 
collaboration between our international 
offices and London and Aberdeen will be 
central to our future success.”

EnQuest recognises that an empowered 
workforce is fundamental to its success. 
By clearly defining each role, our people 
are encouraged to be accountable and 
responsible, and entrusted to take ownership 
of decisions and appropriate actions.

“As a young engineer only months into the 
job I definitely feel empowered. It gives me 
great confidence to deal with the packages 
of work I’ve been given to deal with.”

 X To view our values video in full please 
visit our website www.enquest.com

41

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS–BOARD OF
DIRECTORS

Dr James Buckee
Chairman
James Buckee holds a BSc Honours degree in Physics and a 
PhD in Astrophysics. Between 1971 and 1987, James held various 
petroleum engineering positions with Shell International, Burma 
Oil and BP, London. In 1987 James was appointed as operations 
manager for BP Norway, and thereafter vice-president, 
development programmes, for BP Alaska. In 1989 James 
returned to the UK as manager, planning, for BP Exploration. 
In 1991 he was appointed president and chief operating officer 
of BP Canada Inc. and in 1993 as president and chief executive 
officer of Talisman Energy Inc. (formerly BP Canada). James 
retired from Talisman Energy Inc. in 2007. James was appointed 
as Non-Executive Chairman of EnQuest PLC in 2010, and 
chairs the Nomination Committee. James also serves as a 
non-executive director on the board of Cairn Energy PLC, 
Rodinia Oil Corp., PetroFrontier Corp., Magma Global and 
Black Swan Energy. James is also on the advisory board of 
KERN partners.

Amjad Bseisu
Chief Executive
Amjad holds a BSc Honours degree in Mechanical Engineering 
and an MSc and D.ENG degree in Aeronautical Engineering. 
From 1984 to 1998, Amjad worked for the Atlantic Richfield 
Company (ARCO), eventually becoming president of ARCO 
Petroleum Ventures and ARCO Crude Trading Inc. In 1998 
Amjad founded the operations and investment business for 
Petrofac Limited and was the chief executive officer of Petrofac 
Energy Developments International Limited. In 2010 Amjad 
formed EnQuest PLC and was appointed as Chief Executive. 
Previously Amjad was a founding non-executive director of 
Serica Energy plc and Stratic Energy Corporation. Amjad is also 
non-executive chairman of Enviromena Power Systems, a 
private company and the leading developer of solar services in 
the Middle East.

Jonathan Swinney
Chief Financial Officer
Jonathan qualified as a chartered accountant with Arthur 
Andersen in 1992 and is a member of the Institute of Chartered 
Accountants of England and Wales. Jonathan qualified as a 
solicitor in 1997 and trained at Cameron McKenna, joining the 
acquisition finance team upon qualification. In 1998 Jonathan 
joined Credit Suisse First Boston working within the corporate 
broking team. Jonathan later moved to Lehman Brothers 
advising on a wide range of transactions and in 2006 he 
became a managing director within the corporate broking 
team. Jonathan joined Petrofac Limited in April 2008 as head 
of mergers and acquisitions for the Petrofac Group. Jonathan 
left Petrofac Limited to join EnQuest PLC in 2010 when he was 
appointed to the Board.

42

EnQuest PLCAnnual Report 2012GOVERNANCE 
Helmut Langanger
Senior Non-Executive Director
Helmut Langanger holds an MSc degree in Petroleum Engineering 
and an MA in Economics. Between 1974 and 2010, Helmut was 
employed by OMV, Austria where he was a reservoir engineer until 
1980. From 1981 to 1985, Helmut was an evaluation engineer for the 
technical and economic assessment of international E&P ventures, 
and from 1985 to 1989 he held the position of vice-president, 
planning and economics for E&P and natural gas projects. In 1989 
Helmut was appointed as senior vice-president of international E&P 
and in 1992 became senior vice-president of E&P for OMV’s global 
operations. From 2002 Helmut had been the group executive 
vice-president for E&P, OMV until he retired in 2010. In 2010 Helmut 
was appointed to the Board of EnQuest PLC and sits on the 
Audit and Nomination Committees and chairs the Remuneration 
Committee. Helmut is also a non-executive director of the boards 
of Schoeller Bleckmann Oilfield Equipment A.G. (Austria), Kulczyk 
Oil Ventures Inc. (Poland) and MND (Czech Republic).

Dr Philip Nolan
Non-Executive Director
Phil Nolan holds both a BSc and a PhD in Geology and has an 
MBA from the London Business School. Phil has held a number 
of senior positions in the oil and gas sector including serving 
as an executive director of BG Group plc and as chief executive 
officer of Transco. Prior to this Phil was head of acquisitions 
and disposals at BP Exploration and managing director of 
Interconnector (UK) Ltd. Phil was CEO of Eircom, Ireland’s 
national telecommunications supplier from 2002 to 2006 and 
is currently non-executive chairman of John Laing plc and the 
Irish Management Institute. Phil also serves as a non-executive 
director at Ulster Bank Ltd and at Providence Resources Plc. 
In 2012 Phil was appointed to the Board of EnQuest PLC and 
sits on the Audit, Remuneration and Nomination Committees.

Jock Lennox
Non-Executive Director
Jock Lennox holds a Law degree and in 1980 qualified as 
a chartered accountant with Ernst & Young LLP, Edinburgh. 
In 1988 Jock became a partner at Ernst & Young LLP, London, 
and retired in 2009. In 2010 Jock was appointed to the Board 
of EnQuest PLC and sits on the Nomination and Remuneration 
Committees and chairs the Audit Committee. Jock is a non-
executive director of Dixons Retail plc, Hill & Smith Holdings plc, 
A&J Mucklow Group plc, and Oxford Instruments plc. Jock is 
also a trustee of the Tall Ships Youth Trust.

Clare Spottiswoode
Non-Executive Director
Clare Spottiswoode holds an M.Phil degree in Economics and 
an MA in Mathematics and Economics. Clare began her career 
in the Treasury before starting her own software company. 
Between 1993 and 1998 she was also director general of 
Ofgas, the UK gas regulator. From 2002 to 2011 Clare was 
a non-executive director of Tullow Oil plc. Currently, Clare 
is non-executive chairman of Gas Strategies Group Limited 
and is also a non-executive director of G4S plc, Ilika plc, 
EnergySolutions Inc., Severn Energy International Limited and 
The Royal Bank of Canada Europe. Clare is also an independent 
director of the Payments Council. Clare was appointed to the 
Board of EnQuest PLC in 2011 and sits on the Audit, Nomination 
and Remuneration Committees. 

43

 EnQuest PLC Annual Report 2012BUSINESS REVIEWGOVERNANCEOVERVIEWFINANCIAL STATEMENTS–SENIOR
MANAGEMENT

Nigel Hares
Co-founder and Strategic Adviser
From 1972 to 1994, Nigel worked for BP in the UK, Abu Dhabi, 
Norway and Alaska. At BP, Nigel’s roles included those of drilling, 
petroleum, reservoir, well-site, and offshore production engineer. 
Nigel also held positions of production and pipeline superintendent, 
manager of petroleum engineering, manager of reservoir 
studies for Middle East, Europe and Africa and business advisor, 
developing global gas strategies for BP. Nigel then moved to 
Talisman Energy Inc. as executive vice-president, international 
operations, heading international operations for the UK, Norway, 
Netherlands, Algeria, Sudan, Malaysia, Indonesia, Vietnam, Peru, 
Colombia and Trinidad. In 2010 Nigel joined EnQuest PLC. Nigel 
stepped down from the Board at the end of 2012.

David Heslop
General Manager UKCS
David Heslop graduated with a BSc in Aeronautical Engineering 
and subsequently gained an MSc in Petroleum Engineering. 
David was initially a wireline engineer at Schlumberger, working 
in the Middle East, before moving to Mobil Oil where amongst 
other roles, he was the development manager responsible for 
exploration, development and reservoir management activities 
for over 50 fields in Continental Europe. Prior to joining EnQuest 
in June 2011, David was at Talisman Energy where his roles 
included: vice president, wells; vice president of the Greater 
Fulmar area; and subsurface manager.

Andrew Thomson
General Manager Technical
Andrew Thomson has a Masters degree in Petroleum 
Engineering and a wealth of experience working as a petroleum, 
reservoir and operations engineer. Andrew first worked for 
Schlumberger and spent seven years working for Britoil and 
BP. In 1990 Andrew co-founded RML where he was managing 
director, then Senergy in 2005, where he held roles as CFO 
and then CEO of Senergy Investments. Andrew is a ‘Competent 
Person’ in reserves reporting and is a chartered engineer. 
Andrew joined EnQuest in October 2010, having supported 
the formation of EnQuest as a consultant. His primary 
responsibilities are technical quality assurance, reserves, 
exploration, pre-developments, business development and 
functional subsurface co-ordinator, reporting directly to the CEO.

Tim Bradbury
Deputy General Manager UKCS
Tim Bradbury has an Honours degree in Chemical Engineering and 
began his career as a process engineer at Grangemouth Refinery 
before moving onto a variety of onshore and offshore engineering 
positions on the BP Forties field. After three years as petroleum 
engineering manager in Indonesia, he went on to manage the 
technical and commercial issues of Southern North Sea gas fields, 
then the commissioning and early operation of the first hydrocarbon 
development in Papua New Guinea. Tim then moved to Abu Dhabi 
for three years as safety manager, and then to Alaska as operations 
manager of Prudhoe Bay. In 1999 Tim returned to Aberdeen to 
manage the Forties field and then joined the BP petrochemicals 
business, first as manufacturing manager at a PTA plant in South 
Carolina and then as logistics director for BP Chemicals in Europe. 
Following that Tim joined the Ineos Polymers business, first as 
supply chain director and subsequently became their European 
manufacturing director, before joining EnQuest in early 2011.

44

EnQuest PLCAnnual Report 2012GOVERNANCE 
Health, Safety, Environment and 
Assurance (‘HSE&A’)

Graham Cooper
Head of Business Development
Graham Cooper graduated from 
Cambridge University with a Masters in 
Natural Sciences and then worked as a 
wireline logging engineer before joining 
Conoco in 1982 as a geologist and 
petrophysicist. During his time at Conoco, 
Graham held a number of technical roles, 
both in the UK and Dubai, before moving 
into various commercial roles. In 1999, 
Graham joined Shell UK as new business 
development manager in Aberdeen and 
subsequently moved to The Hague in 
2005 to take up the role of vice-president 
commercial for global exploration. Graham 
latterly became head of Shell’s commercial 
academy, before joining EnQuest in 
October 2010.

Faysal Hamza
Head of Strategy & Corporate 
Development
Faysal Hamza has an MBA from Georgetown 
University in Washington and over 23 years 
of experience in oil and gas finance, business 
development and private equity. Faysal 
joined EnQuest in 2011 and prior to that was 
managing director, private equity at Swicorp, 
a financial firm operating in the Middle 
East and North Africa. Faysal has also held 
roles as senior executive at Arab Petroleum 
Investment Corporation (APICORP), 
group business development manager 
with the Alturki Group in Saudi Arabia, and 
management positions at Arco International 
Oil & Gas Company (ARCO) in the US, Saudi 
International Bank in London and the Saudi 
Arabian Oil Company (Saudi Aramco).

John Atkinson
Head of HSE&A
John Atkinson’s career in the industry 
spans a variety of on and offshore 
engineering, maintenance and operational 
roles. He was a commissioning engineer 
for Taylor Instruments before moving 
into an offshore role as instrument 
engineer for Shell’s North Sea assets. 
John subsequently became operations 
superintendent at Amerada Hess, 
followed by a period as maintenance 
manager. At Petrofac John was a field 
manager prior to moving to Lundin 
Britain where his roles included operations 
manager, business delivery manager 
and Heather asset manager. John joined 
EnQuest PLC in 2010 and moved into the 
role of Head of HSE&A in 2011.

Human Resources (‘HR’)

Craig Matthew
New Developments Manager
Craig Matthew graduated with an Honours 
degree in Civil Engineering and has over 
20 years of field development, project 
management, engineering and construction 
experience. Initially Craig spent 10 years 
working for Stena in a variety of subsea roles 
whilst also completing a Post Graduate 
Certificate in Project Management. Craig 
then joined Kerr-McGee as subsea manager, 
eventually becoming project manager for 
the Dumbarton field development. Craig 
became part of EnQuest via Petrofac Energy 
Developments, after joining them as project 
manager for the Dons area development.

Stefan Ricketts
General Counsel
Stefan Ricketts joined EnQuest in 2012 and 
is responsible for all legal and Company 
secretarial matters. Prior to joining EnQuest, 
Stefan was a partner at Fulbright & Jaworski, 
LLP heading its energy and natural resources 
practice in the Asia-Pacific region. He had 
previously been general counsel at BG 
Group plc. Stefan, whose early career 
as a solicitor was with Herbert Smith, 
has significant experience as a lawyer 
and in management working across the 
energy chain and in all phases of project 
development and operations. In previous 
roles he has been based in London, Paris, 
Dubai, Jakarta, Singapore and Hong Kong.

Graeme Cook
HR Director
Graeme holds an MA in Accountancy and 
Economics from the University of Dundee 
and has over 20 years’ experience in both 
finance and HR leadership roles. Graeme’s 
early career was spent predominantly with 
Schlumberger in the UK, Africa, Middle 
East and Asia. Graeme returned to the UK 
in 2004 and was appointed as HR director 
for BG Group’s Mediterranean basin and 
Africa region. Prior to joining EnQuest in 
April 2011, Graeme was group head of 
talent and leadership for Legal & General 
PLC, where he was accountable for the 
resourcing, performance management, 
succession and development of the 
leadership group of this City institution.

45

 EnQuest PLC Annual Report 2012BUSINESS REVIEWGOVERNANCEOVERVIEWFINANCIAL STATEMENTSDIRECTORS’ REPORT

The Directors of EnQuest PLC (registered in England & Wales 
with Company No. 7140891) present their Annual Report 
together with the Group and Company audited financial 
statements for the year ended 31 December 2012. These will be 
laid before shareholders at the AGM to be held on Wednesday 
29 May 2013.

Principal activities
The principal activities of the Group are oil and gas development 
and production with its main focus on the UKCS. EnQuest’s 
principal assets at the end of 2012 were its interests in the 
Heather/Broom, Thistle/Deveron, West Don, Don Southwest and 
Conrie producing oil fields, the Alma and Galia development, and 
further development opportunities in the Southwest Heather, 
Peik, Crawford/Porter, Cairngorm, Crathes/Scolty/Torphins, 
Kildrummy and Kraken discoveries. Further afield EnQuest also 
has a development opportunity in the Bambazon oil discovery 
in Malaysia. The Group operates through a number of principal 
subsidiaries which are set out in note 28 of the financial 
statements on page 92.

Business Review
The Business Review includes the financial performance during 
the financial year, future developments, performance of the 
Group and principal risks and uncertainties facing the Group.  
A review of the business is incorporated by reference, forming 
part of this Directors’ Report and further information can be 
found in the following sections below:
■■ Chairman’s Statement on pages 14 and 15;
■■ Chief Executive’s Report on pages 16 to 21;
■■ Operating Review on pages 24 to 31;
■■ Financial Review on pages 32 to 37;
■■ Key Performance Indicators on page 36; and
■■ Corporate Social Responsibility Review on pages 38 and 39.

The Company’s ‘forward looking statements’ form part of the 
Business Review on pages 14 to 39.

Corporate governance statement
In accordance with the Financial Services Authority’s Disclosure 
and Transparency Rules (DTR) 7.2.1, the disclosures required by 
DTR 7.2.2 and DTR 7.2.7 may be found in the Corporate 
Governance Report on pages 49 to 53.

Results and dividends
The Group’s financial statements for the year ended 31 December 
2012 are set out on pages 60 to 100.

The Company has not declared or paid any dividends since 
incorporation on 29 January 2010 and does not have current 
intentions to pay dividends in the near future. Any future 
payment of dividends is expected to depend on the earnings and 
financial condition of the Company and such other factors as the 
Board of Directors of the Company consider appropriate.

Directors
The Directors’ biographical details are set out on pages 42 and 43. 
All of the current Directors served throughout the year, except for 
Alexandre Schneiter and Nigel Hares who served as Directors until 
30 May 2012 and 9 November 2012 respectively and Phil Nolan, 
who was appointed with effect from 1 August 2012.

46

All the Directors will offer themselves for re-election at the 
Annual General Meeting (AGM) on 29 May 2013, in accordance 
with the UK Corporate Governance Code provision for annual 
re-election of all directors of FTSE 350 companies.

Directors’ interests
The interests of the Directors in the Ordinary shares of the 
Company are shown below:

At 
31 December 
2011 or 
appointment 
date

At 
31 December 
2012

26 March 
2013

Name

Amjad Bseisu1

70,142,289

70,797,182

70,797,182

Dr James Buckee

691,370

868,107

868,107

Nigel Hares2

3,455,000

Helmut Langanger

0

N/A

0

N/A

0

Jock Lennox

Phil Nolan

Alexandre Schneiter3

400,000

Clare Spottiswoode

0

20,000

20,000

20,000

0

0

N/A

0

0

N/A

0

Jonathan Swinney

62,033

62,033

62,033

Notes:
1  The shares are held by Double A Limited, a discretionary trust in which the 

extended family of Amjad Bseisu has a beneficial interest.

2  Nigel Hares served as a Director until 9 November 2012.
3  Alexandre Schneiter served as a Director until 30 May 2012.

Directors’ indemnity provisions
Under the Company’s Articles, the Directors of the Company 
maybe indemnified out of the assets of the Company against all 
costs, charges, expenses, losses or liabilities sustained or incurred 
in or about the execution of their duties. Such qualifying third 
party indemnity provision remains in force as at the date of 
approving the Directors’ Report.

Share capital
The Company’s share capital during the year consisted of 
Ordinary shares of £0.05 each (Ordinary shares). Each Ordinary 
share carries one vote. There were 802,660,757 Ordinary shares 
in issue at the end of the year (2011: 802,660,757). All of the 
Company’s issued Ordinary shares have been fully paid up. 
Further information regarding the rights attaching to the 
Company’s Ordinary shares can be found in note 18 to the 
financial statements on page 83. No person has any special rights 
with respect to control of the Company.

The Company did not purchase any of its own shares during 2012 
or up to and including 25 March 2013, being the date of this 
Directors’ Report.

Company share schemes
Between September 2012 and December 2012, the trustees  
of the Group Employee Benefit Trust (the ‘Trust’) purchased 
5,710,188 Ordinary shares to satisfy future employee share 
awards. At year end, the Trust held 2.85% of the issued share 
capital of the Company (2011: 2.27%) for the benefit of employees 
and their dependents. The voting rights in relation to these shares 
are exercised by the trustees.

EnQuest PLCAnnual Report 2012GOVERNANCE 
Substantial interests in shares
In accordance with Chapter 5 of the DTR, the shareholders listed on the following table have notified the Company of their interests in 
the Ordinary shares of the Company as at the dates shown below:

Name

Amjad Bseisu and family1

Baillie Gifford & Co

Swedbank Robur Asset Management

Montanaro Investment Managers Limited

Acadian Asset Management

Number of 
Ordinary 
shares held at 
31 December 
2012

% of issued 
share capital 
held at 
31 December 
2012

Number of 
Ordinary 
shares held at 
26 March 
2013

% of issued 
share capital 
held at 
26 March 
2013

70,797,182

8.82% 70,797,182

62,244,543

59,098,399

32,354,249

26,395,592

7.75% 62,726,961

7.36% 59,069,701

4.03% 32,354,249

3.16% 24,865,541

8.82%

7.81%

7.36%

4.03%

3.10%

Notes:
1  The shares are held by Double A Limited, a discretionary trust in which the extended family of Amjad Bseisu has a beneficial interest.

Acquisitions and disposals
On 31 January 2012, the Company completed the acquisition of 
two companies from Canamens Limited, whose assets include the 
20% interest in the Kraken oil discovery, for an initial consideration 
of US$45 million and a contingent consideration of US$45 million 
dependent upon approval of the Kraken Field Development Plan 
by the Department of Energy and Climate Change.

In March 2012, the Company announced that it had agreed to 
acquire an additional 18.5% interest in West Don from JX Nippon 
Exploration and Production (UK) Limited for a cash consideration 
of US$34 million. This acquisition, which includes US$2 million of 
tax allowances, takes EnQuest’s holding in West Don to 63.5%. 

On 16 March 2012, the Company announced the completion of 
the acquisition of a further 25% of the Kraken discovery, together 
with interests in the surrounding exploration acreage, from 
Nautical Petroleum plc and Nautical AG.

On 29 May 2012, the Company announced an agreement to farm 
out 35% of Alma and Galia to the Kuwait Foreign Petroleum 
Exploration Company.

On 14 September 2012, the Company announced the completion 
of the acquisition of a third tranche of the Kraken discovery, 
representing a 15% interest from First Oil plc. This acquisition 
brought the Company’s overall interest in the Kraken discovery 
to 60%.

On 20 September 2012, the Company acquired Nio Petroleum 
(Sabah) Limited from Nio Petroleum Limited for an initial  
cash consideration of US$3 million, plus a further contingent 
consideration of up to US$20 million, which will be determined 
based on 2P reserves associated with an approved Field 
Development Plan on Blocks SB307 and SB308 offshore  
in Sabah, Malaysia.

On 23 January 2013, the Company announced that EnQuest 
Britain Limited (a wholly owned subsidiary of the Company)  
had agreed with CIECO Energy (UK) Limited to acquire two  
of its affiliate companies which together hold a total of an 8% 
non-operated interest in the producing oil field Alba, in the UK 
Continental Shelf. The acquisition completed on 22 March 2013, 
with consideration, net of cash acquired, totalling US$29.7 million 
plus a further deferred cash consideration of up to US$0.8 million 
contingent on certain project milestones.

In December 2012, the Company agreed the disposal of a 
Dutch asset, licence P8 (Horizon West) to Van Dyke Energy  
for US$3 million initial cash consideration, plus US$3 million 
contingent on future production.

Annual General Meeting
The Company’s AGM will be held at Sofitel London St James 
Hotel, 6 Waterloo Place, London SW1Y 4AN on 29 May 2013. 
Formal notice of the AGM, including details of special business,  
is set out in the Notice of AGM which accompanies this Annual 
Report and Accounts and is available on the Company’s website 
at www.enquest.com.

Registrars
In connection with the Ordinary shares traded on the London 
Stock Exchange, the Company’s share registrar is Capita 
Registrars. For the Ordinary shares traded on NASDAQ OMX 
Stockholm the Company’s share registrar is Euroclear Sweden. 
Full details of both registrars can be found in the Company 
Information section on page 101.

Creditors’ payment policy
It is the Company and Group’s policy to settle all debts with 
creditors on a timely basis and in accordance with the terms of 
credit agreed with each supplier. Average creditor payment days for 
the year under review were approximately 41 days (2011: 34 days).

Political and charitable donations
The Company made charitable, social and community-related 
donations totalling US$48,346 during the year (2011: US$62,674). 
No political donations were made during the year (2011: nil).

Change of control agreements
The Company is not party to any significant agreements which 
take effect, alter or terminate upon a change of control of the 
Company following a takeover bid, except in respect of: (a) the 
Revolving Credit Facility Agreement, which includes provisions 
that, upon a change of control, permit each lender not to provide 
certain funding under that facility and to cancel its exposure to 
credit which may already have been advanced to the Company; 
and (b) the Company’s Euro Medium Term Note Programme 
(under which the Company currently has in issue euro medium 
term notes with an aggregate nominal amount of £145 million), 
pursuant to which if there is a change of control of the Company, 
a holder of a note has the option to require the Company to 
redeem such note at its principal amount, together with any 
accrued interest thereon. See page 57 of the Remuneration 
Report for details of compensation which the Directors are 
entitled to in the event of a change of control.

47

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSDIRECTORS’ REPORT CONTINUED

Important events subsequent to the year end
Events since the balance sheet date are summarised in note 27 to 
the financial statements on page 92.

Directors’ statement as to disclosure of information to 
auditors
The Directors who held office at the date of the approval of the 
Directors’ Report confirm that, so far as they are each aware, 
there is no relevant audit information of which the Company’s 
auditors are unaware; and each Director has taken all steps  
that they ought to have taken as Directors in order to make 
themselves aware of any relevant audit information and to 
establish that the Company’s auditors are aware of that 
information.

Responsibility statements under the DTR
The Directors who held office at the date of the approval of the 
Directors’ Report confirm that, to the best of their knowledge, 
the financial statements, prepared in accordance with IFRS as 
adopted by the European Union, give a true and fair view of the 
assets, liabilities, financial position and profit of the Company  
and the undertakings included in the consolidation taken  
as a whole; and the Directors’ Report, Operating Review and 
Financial Review include a fair review of the development and 
performance of the business and the position of the Company 
and the undertakings included in the consolidation taken as a 
whole, together with a description of the principal risks and 
uncertainties that they face.

Audit and auditors
Having reviewed the independence and effectiveness of the 
auditors, the Audit Committee has recommended to the Board 
that the existing auditors, Ernst & Young LLP, be reappointed. 
Ernst & Young LLP has expressed their willingness to continue as 
auditors. An ordinary resolution to reappoint Ernst & Young LLP 
as auditors of the Company and authorising the Directors to set 
their remuneration will be proposed at the forthcoming AGM.

Financial risk and financial instruments
Information on financial risk management, including credit and 
liquidity risks and information about financial instruments, is set 
out in the Financial Review on pages 32 to 37 and the notes to 
the financial statements on pages 66 to 92 respectively.

Going concern
The Group’s business activities, together with the factors likely  
to affect its future development, performance and position are 
set out in the Business Review on pages 8 to 41. The financial 
position of the Group, its cash flow, liquidity position and 
borrowing facilities are described in the Financial Review on 
pages 32 to 37. In addition, note 26 to the financial statements 
includes the Group’s objectives, policies and processes for 
managing its capital; its financial risk management objectives; 
details of its financial instruments and hedging activities; and its 
exposures to credit risk and liquidity risk.

The Group has considerable financial resources together with  
2P reserves of 128.5 MMboe. As a consequence, the Directors 
believe that the Group is well placed to manage its business  
risks successfully.

The Directors have a reasonable expectation that the Group  
has adequate resources to continue in operational existence  
for the foreseeable future. Thus they continue to adopt the  
going concern basis of accounting in preparing the annual 
financial statements.

Approved by the Board on 26 March 2013.

Paul Waters
Company Secretary

48

EnQuest PLCAnnual Report 2012GOVERNANCE 
CORPORATE GOVERNANCE REPORT

Chairman’s introduction

Dear Shareholder
Your Board is committed to maintaining high standards of 
corporate governance. As the Company continues to grow both 
operationally and geographically, your Board recognises the 
challenge to ensure that we have in place the right people and 
processes to manage risk and opportunity effectively.

I have set out below my statement of how the Company has applied 
the principles of the 2010 UK Governance Code (the Code) for the 
year ended 31 December 2012. It is the Board’s view that the 
Company has complied with the Code throughout 2012, except 
where reported below.

The Board
The role of the Board
The Board has a formal schedule of matters specifically  
reserved to it for decision, which has been approved by the 
Board. Its reserved matters include determination of the overall 
strategy of the Group, to review business plans and trading 
performance, to approve major capital investment projects, 
examine acquisition opportunities and divestment possibilities, 
review significant financial and operational issues, and review  
and approve the Company’s financial statements, control and  
risk management systems.

The Board delegates the execution of its strategic objectives to 
the Executive Committee, which supports the Chief Executive  
in the discharge of his role and responsibilities. Operational 
management of the Group on a day-to-day basis is managed  
by the Operational Committee, which comprises members  
of the Executive Committee, Asset Managers and selected  
Senior Management.

Board composition
The Board of Directors comprises the Chairman, the Chief 
Executive, the Chief Financial Officer and four Non-Executive 
Directors. The biographical details of each are set out on 
pages 42 and 43. Alexandre Schneiter served as a Non-Executive 
Director during part of the year, and retired at the AGM held on 
30 May 2012. The Board appointed a new Independent Non-
Executive Director, Phil Nolan, with effect from 1 August 2012. 
Nigel Hares who served as an Executive Director stood down 
from the Board on 9 November 2012.

Chairman and Chief Executive
The Chairman is a Non-Executive Director. His key responsibility 
is the leadership of the Board, ensuring its effectiveness on all 
aspects of its role and setting the agenda. The Chief Executive’s 
role is the operational management of the business, developing 
strategy in consultation with the Board and then implementing 
such strategy. The division of responsibilities between the 
Chairman and the Chief Executive has been clearly established, 
set out in writing and agreed by the Board.

The Board has full and timely access to all relevant information  
to enable it to perform its duties. The Company Secretary is 
responsible for advising the Board, through the Chairman, on all 
governance matters. In addition, each Director has access to the 
advice and services of the Company Secretary. There is also a 
procedure agreed by the Board, in furtherance of the duties, to 
take independent professional advice if necessary, at the 
Company’s expense, up to a pre-determined limit.

Non-Executive Directors
The Non-Executive Directors bring independent judgement to 
bear on issues of strategy and resources, and independently 
challenge and constructively comment on the performance of 
key business objectives and targets.

Senior Independent Non-Executive Director
Helmut Langanger continues to be the Senior Independent 
Non-Executive Director. The main responsibilities for the Senior 
Independent Non-Executive Director are as follows:
■■ to be available to shareholders in the event that they may feel  
it inappropriate to relay views through the Chairman, Chief 
Executive or the Chief Financial Officer;

■■ to provide a sounding board for the Chairman and to serve  
as an intermediary with other Directors when necessary; and
■■ to meet with the other Non-Executive Directors without the 
Chairman present at least annually in order to evaluate the 
performance of the Chairman.

Board diversity
The Board is aware of the provisions of the Governance Code 
and has due regard for the benefits of diversity, including gender, 
on the Board.

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. In accordance with the directors’ interests 
provisions in the Companies Act 2006, all the Directors are 
required to submit details to the Company Secretary of any 
situations which may give rise to a conflict, or potential conflict,  
of interest. The Board monitors and reviews potential conflicts  
of interest on a regular basis.

How the Board operates
During 2012, six scheduled meetings of the Board were held, four 
of which were held at the Company’s registered office in London, 
one meeting was held at the Company’s Aberdeen office, and 
one meeting held offsite. Details of attendance at each of those 
meetings, and at meetings of the Board Committees, are set out 
in the table on page 50.

During the year, a number of other meetings took place to deal 
with specific matters that required consideration at short notice, 
and in each case, notice was duly given to all the Directors. Any 
Director who is unable to attend scheduled or short notice Board 
meetings in person is invited to join the meeting by video or 
telephone conferencing facilities, or is given the opportunity to 
be consulted and comment in advance of the meeting by 
telephone or in writing.

The formal agenda for each scheduled Board meeting is drawn 
up by the Company Secretary in consultation with the Chairman 
and with agreement from the Chief Executive. Formal minutes of 
all Board and Committee meetings are circulated to all Directors 
prior to the next Board meeting and are considered for approval 
at that Board meeting. In addition, the Chief Executive is in 
frequent contact with the Non-Executive Directors between 
meetings in order to keep them updated with progress on the 
Group’s business. The Chairman also meets the Non-Executive 
Directors informally, without any executives present, to discuss 
matters in respect of the business.

49

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSCORPORATE GOVERNANCE REPORT CONTINUED

Directors’ attendance at Board and Board 
Committee meetings
The table below sets out the attendance record of each Director 
at scheduled Board and Board Committee meetings during 2012:

Audit Committee
The Audit Committee currently comprises four Non-Executive 
Directors, all of whom are considered by the Board to be 
independent and have recent and relevant financial experience.

Board 
meetings

Audit 
Committee

Remuneration 
Committee

Nomination 
Committee

Meetings held 

in 2012

Executive Directors
Amjad Bseisu1

Nigel Hares2

Jonathan Swinney1

Non-Executive Directors
Dr James Buckee1

Helmut Langanger

Jock Lennox

Phil Nolan3

Alexandre Schneiter4

Clare Spottiswoode

6

6

4

6

6

6

6

2

3

6

3

3

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

3

3

1

n/a

3

3

3

2

n/a

3

1

1

n/a

n/a

1

1

1

0

n/a

1

Notes:
n/a not applicable where a Director is not a member of the Committee.
1  On occasion Amjad Bseisu, Jonathan Swinney and Jim Buckee have attended 
Committee meetings by invitation. These details have not been included on 
the table.

2  Nigel Hares stood down as a Director on 9 November 2012. The number of 

meetings attended is stated up to and including that date.

3  With effect from 1 August 2012, Phil Nolan was appointed as a Non-Executive 

Director and member of the Audit, Nomination and Remuneration Committees. 
The number of meetings attended is stated with effect from that date.

4  Alexandre Schneiter retired as a Director at the AGM held on 30 May 2012. The 

number of meetings attended is stated up to and including that date.

Board Committees
The Board has established an Audit Committee, a Remuneration 
Committee and a Nomination Committee, each of which has formal 
terms of reference approved by the Board. The terms of reference 
for each of these Committees satisfy the requirements of the 
Governance Code and are reviewed internally on an ongoing basis 
by the Board. Copies of the terms of reference are available on the 
Company’s website.

The Committees are provided with all necessary resources to 
enable them to undertake their duties in an effective manner.  
The Company Secretary acts as secretary to the Committees 
and minutes of all Committee meetings are available to 
all Directors.

Set out below are reports from the Audit Committee, 
Remuneration Committee and Nomination Committee.

The members of the Audit Committee during the year were  
as follows:
■■ Jock Lennox (Chairman)
■■ Helmut Langanger
■■ Phil Nolan (joined the Committee on 1 August 2012)
■■ Clare Spottiswoode

The Audit Committee met three times in 2012. At the request  
of the Audit Committee, the Chief Financial Officer and a senior 
member of the finance department attended each of these 
meetings. The Chief Executive and Chairman also attended the 
meetings when invited to do so by the Committee. In addition,  
all three meetings were attended by the external auditors, who 
receive copies of all the Audit Committee papers. Deloitte, in their 
role as internal auditors, attended as appropriate. The Chairman 
of the Committee regularly meets with the external audit partner 
and the internal audit partner to discuss matters relevant to the 
Company.

The main responsibilities of the Audit Committee include:
■■ monitoring the integrity of the financial statements, including 

annual and interim reports and any other formal announcement 
relating to the Company’s financial performance;

■■ monitoring and reviewing the process of audit of the Group’s 

proven and probable reserves by a recognised Competent Person;

■■ monitoring and reviewing the Company’s internal control 

procedures and risk management systems;

■■ monitoring and reviewing the effectiveness of the external and 

internal audit activities;

■■ making recommendations to the Board on the appointment, 

review and removal of external auditors;

■■ monitoring whether any calls had been made to the externally 

facilitated whistle-blowing line;

■■ establishing the external auditors’ remuneration;
■■ monitoring the external auditors’ independence;
■■ monitoring the policy on external auditors’ non-audit 

services; and

■■ identifying any matters in respect of which it considers that action 
or improvement is needed and making recommendations to the 
Board as to the steps to be taken.

In fulfilling its responsibility to monitor the integrity of financial 
reports to shareholders, the Audit Committee reviewed the 
accounting principles, policies and practices adopted in the 
presentation of public financial information.

50

EnQuest PLCAnnual Report 2012GOVERNANCE 
During the year under review, the Group’s half year financial report 
and full year Annual Report were reviewed by the Audit Committee 
before recommending publication to the Board. In carrying out this 
review the Committee received reports from, and held discussions 
with management and the external auditors. The key financial 
reporting issues considered during the year focused on how 
management had applied the critical accounting estimates  
and judgements. This included key assumptions regarding 
decommissioning cost estimates, the results of goodwill and asset 
impairment testing, including key assumptions such as oil price 
forecasts and discount rates, the appropriateness of the carrying 
value of intangibles, and taxation.

In addition, the Committee considered the results of the internal 
audits conducted during the year, the feedback on internal 
controls provided by the external auditors, and the Group’s 
approach to estimating oil and gas reserves and their audit  
by a recognised Competent Person.

The Committee held private meetings with the external auditors 
without management present. These meetings provided the 
opportunity for direct feedback and discussion between the 
Committee and the external auditors. The Committee also 
considered the performance of the external auditor and internal 
audit and the effectiveness of its own performance. Various 
improvements were identified and adopted.

In its role of monitoring and approving the level and type of 
non-audit services to be delivered by the external auditor, the 
Committee had regard to consideration whether through its 
knowledge of specific transactions, the external auditor was best 
placed to deliver various services to the Group. Assessment of 
the continuing independence of the external auditor was also 
undertaken. As a result of these considerations a number of 
projects were approved to be performed by the external auditors 
during the year and a number were not. It is the policy that the 
Group has relationships with a number of service providers that 
can provide similar services to the external auditors. Further 
details on the Group’s policy on the use of the external auditors 
to provide non-audit services, on auditor independence, and on 
how the Committee assesses the independence and objectivity 
of the external auditors is provided on page 53.

Each year, the internal audit plan for the following year is 
co-developed with Deloitte, based on a review of the significant 
risks identified by the Group, discussion with senior management 
and with the Audit Committee. The internal audits performed 
during 2012 were selected to address risks associated with the 
rapid expansion of the Group. The specific areas of focus were 
the Group’s procurement and payment processes for new 
developments; the cost monitoring process for major projects; 
human resource management, and management reporting. A 
follow up review of the results of the 2011 internal audits was also 
conducted. Where issues were identified during these audits, the 
Committee satisfied itself that appropriate action was being taken 
by management to address the findings. The approach to internal 
audit will be considered again in 2013 and its link with other aspects 
of risk management assurance that are conducted in the Group.

In 2012 the Group updated its Code of Conduct policy, which all 
employees and contractors are required to comply with, by 
augmenting its sections on business ethics, in particular to reflect 
the Company’s Charity Policy and keeping in view the impact of 
the UK Bribery Act.

Remuneration Committee
The Remuneration Committee currently comprises four Non-
Executive Directors, all of whom are considered by the Board to 
be independent.

The members of the Remuneration Committee during the year 
were as follows:
■■ Helmut Langanger (Chairman)
■■ Jock Lennox
■■ Phil Nolan (joined the Committee on 1 August 2012)
■■ Clare Spottiswoode

The Remuneration Committee met three times in 2012. The Chief 
Executive and Chairman also attended the meetings when 
invited to do so by the Committee. The Chief Executive did not 
participate in any discussions relating to his own remuneration.

The main responsibilities of the Remuneration Committee include:
■■ setting the remuneration policy for the Chairman, Executive 

Directors and Senior Executives;

■■ assessing and determining total compensation packages 
available to the Executive and Non-Executive Directors;

■■ monitoring the remuneration of senior management other than 

the Executive Directors whose remuneration it sets;

■■ making recommendations to the Board for its approval, and 

that of shareholders, on the design of long term share incentive 
plans and making recommendations for the grant of awards to 
executives under such plans; and

■■ determining policy and scope for pension rights and any 

compensation payments and ensuring compliance with the 
Governance Code in this respect.

Further information on the Remuneration Committee can be 
found in the Remuneration Report on pages 54 to 57.

Nomination Committee
The Nomination Committee currently comprises the Chairman, 
four Independent Non-Executive Directors and, to ensure input 
from the Executive, the Chief Executive.

The members of the Nomination Committee during the year 
were as follows:
■■ Dr James Buckee (Chairman)
■■ Helmut Langanger
■■ Jock Lennox
■■ Phil Nolan (joined the Committee on 1 August 2012)
■■ Clare Spottiswoode
■■ Amjad Bseisu

The main responsibilities of the Nomination Committee include:
■■ reviewing the size, structure and composition of the Board in 
order to recommend changes to the Board and to ensure the 
orderly succession of Directors;

■■ formalising succession planning and the process for new 

Director appointments;

■■ identifying, evaluating and recommending candidates for 

appointment or reappointment as Directors or as Company 
Secretary, taking into account the balance of knowledge, skills 
and experience required to serve the Board; and

■■ reviewing the outside directorships/commitments of Non-

Executive Directors.

51

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSCORPORATE GOVERNANCE REPORT CONTINUED

The Nomination Committee met once in 2012, in order to deal 
with the appointment of Phil Nolan as a Non-Executive Director 
of the Company. The following procedure was followed in 
respect of this appointment:

The Committee evaluated the balance of skills, knowledge and 
experience of the Board with a view to identifying any gaps in the 
skill set of the Board and also where gaps would exist following 
Alexandre Schneiter standing down as a Director at the 2012 
AGM. The Committee then decided to conduct a search for a 
new Non-Executive Director with a commercial and/or financial 
background and with relevant oil and gas sector experience.  
The Committee instructed Heidrick & Struggles, an independent 
executive search firm, to conduct the search, from which a list of 
candidates was provided to the Chairman and Chief Executive. 
Following this, a shortlist was prepared and candidates were  
first interviewed by the Chairman and Chief Executive, and the 
preferred candidates were interviewed again by other members 
of the Committee and the Executive Directors.

This process identified Phil Nolan as the preferred candidate 
based on his business and commercial skills and his experience  
of the oil and gas sector (his biographical details are set out on 
page 43). The Nomination Committee then recommended to the 
Board that Phil Nolan be appointed a Non-Executive Director of 
the Company and his proposed appointment was unanimously 
approved by the Board. Consequently, Phil was appointed with 
effect from 1 August 2012, and at the same time was appointed a 
member of the Company’s Audit, Nomination and Remuneration 
Committees.

The Board and Nomination Committee are satisfied that the 
individuals currently fulfilling key senior management positions  
in the Group have the requisite depth and breadth of skills, 
knowledge and experience to ensure that orderly succession  
to the Board and Executive Committee can take place.

Board performance evaluation
At the end of 2012, the Board appointed Consilium Board Review, 
an independent external facilitator, to conduct a Board evaluation 
review. The process consisted of a questionnaire, one-to-one 
structured interviews with each Director and selected senior 
management, and a full Board discussion of the conclusions and 
recommendations. The external facilitator also dealt with the 
evaluation of the Chairman, by having a separate discussion  
with the Senior Independent Director. 

The evaluation showed that we are building from a strong base, 
with an informal, engaged and supportive working climate on  
the Board, coupled with a healthy level of challenge and debate. 
Relations between Executive Directors and Non-Executive 
Directors are good and there is a strong degree of alignment  
on the areas requiring attention over the coming year as part  
of the Board’s commitment to continuous improvement.

The agreed action points from the 2012 Board evaluation review, 
against which progress will be disclosed in EnQuest’s 2013 
Annual Report, are set out in summary below:
■■ the Board Agenda to be more streamlined, by separating 

reports for discussion/information against reports that require 
Board approval;

■■ Board approval reports to provide executive summaries; and 
■■ a 12 month rolling agenda to be prepared to ensure that the 
Board addresses all of the key issues throughout the year. 

Induction, information and support
New Directors receive a full induction following their appointment, 
covering the activities of the Group and its key business and 
financial risks, the terms of reference of the Board and its 
Committees and the latest financial information about the Group.

The Chairman ensures that Directors update their skills, 
knowledge and familiarity with the Company in order to fulfil 
their roles on the Board and on Board Committees. Ongoing 
training is provided as necessary and includes updates from  
the Company Secretary on changes to the Listing Rules, 
requirements under the Companies Act and other regulatory 
matters. Directors may consult with the Company Secretary  
at any time on matters related to their role on the Board.

Internal controls
The Company’s system of internal controls is designed to 
manage, rather than eliminate, the risk of failure to achieve 
business objectives and can only provide reasonable and not 
absolute assurance against misstatement or loss. The Board will 
continue to review and improve the system of internal controls.

The Board recognises the need for effective internal controls  
and for evaluating and managing the risks of the Company.  
Such matters are brought to the attention of the Board at its 
formal Board meetings or ad hoc discussions.

High level controls in operation include:
■■ review of management accounts with comparison of actual 

performance against prior periods and budget;

■■ approval of orders, authorisation of invoices and the 

requirement of two signatures to make a transfer from the 
principal bank accounts;

■■ reconciliation of control accounts;
■■ prior approval by the Board for major investments; 
■■ segregation of duties between relevant functions and 

departments; and

■■ major capital projects are managed through a stage gate 

process, which is subject to peer review at each stage gate. 
Additionally, cash flow forecasts are presented to the Board 
throughout the process.

The Board has ensured that the process for identifying, 
evaluating and managing the significant risks faced by the Group 
accords with the Turnbull Guidance, and that the process has 
been in place for the year under review and up to the date of 
approval of the Annual Report and Accounts.

The Board is aware of the need to conduct regular risk 
assessments to identify any deficiencies in the controls currently 
operating over all aspects of the Group. The Board reviews the 
business risk register at each meeting and monitors the 
assessment of risk and the action required for each risk area. 

The financial reporting procedures were reviewed during the 
year, following which the Board was able to confirm that the 
financial reporting procedures established provided them with  
a reasonable basis on which to make proper judgements on  
the financial position and prospects of the Company on an 
ongoing basis.

Details of principal risk and uncertainties are discussed in the 
Business Review on pages 22 and 23.

52

EnQuest PLCAnnual Report 2012GOVERNANCE 
Communication with shareholders
The Company has a very active investor relations programme 
through which the Chief Executive, the Chief Financial Officer, 
and senior management regularly meet with major shareholders. 
In 2012, numerous investor and broker sales meetings were held, 
presentations were made at international conferences and an 
investor field trip was held in Aberdeen, which together provided 
for comprehensive and engaging dialogue with shareholders and 
potential investors. The Company periodically arranges for formal 
surveys of investor opinion to be conducted, these are reported 
in full to the Board.

The Company issues its results and other news releases promptly 
and publishes them on the Company’s website at www.enquest.com. 
Other corporate information issued during the year is also available on 
the website. Shareholders and other interested parties can subscribe 
to receive news updates by email by registering online on the website.

At the 2013 AGM, a business presentation will be provided for the 
benefit of shareholders. The Chairman will aim to ensure that the 
respective Chairmen of the Audit and Remuneration Committees 
attend the AGM to answer questions and that the other Directors 
also attend.

Compliance with the governance statement
The Company complied with the provisions of the Governance 
Code, except that for the financial period under review up to 
1 August 2012, there was only an equal balance of Executive and 
Independent Non-Executive Directors who sat on the Board. 
Following the retirement of Alexandre Schneiter on 30 May 2012, 
and the appointment of Phil Nolan with effect from 1 August 2012 
as an Independent Non-Executive Director, there became a 
greater number of independent Non-Executive Directors to 
Executive Directors, at which point full compliance with the 
provisions of the Governance Code was achieved.

On behalf of the Board

Dr James Buckee
Chairman of the Board
26 March 2013

Auditor independence
The Audit Committee and Board recognise the importance and 
objectivity of the Group’s external auditors, Ernst & Young LLP, 
when performing their role in the Company’s reporting to 
shareholders. The external auditors provide the Audit Committee 
with information about their policies and processes for maintaining 
independence and monitoring compliance with current regulatory 
requirements, including those regarding the rotation of audit 
partners and staff. Ernst & Young LLP confirmed their 
independence and objectivity.

During the year it was apparent that the fees for non-audit 
services were likely to exceed the audit fees. The Audit 
Committee received a request from management to engage the 
external auditors on certain tax projects. After considering other 
alternatives, management were of the opinion that the advice 
proposed by the external auditors provided the best options  
for EnQuest and its shareholders. The Audit Committee was 
satisfied that this process had been rigorous and that appropriate 
safeguards had been put in place to sustain the external  
auditors’ independence. In addition, and before the tax projects 
commenced, the Chairman of the Audit Committee and the  
Chief Financial Officer met with shareholder bodies such as the 
Association of British Insurers specifically, during the financial 
year, to discuss non-audit services and auditor independence. 
Following this meeting, the Audit Committee approved the 
external auditors’ engagement on the tax projects and adopted 
a revised policy in respect of the provision of non-audit services 
to the Company by the external auditor. This policy is available 
on the Company’s website at www.enquest.com. Audit services 
fees payable to Ernst & Young LLP during 2012 amounted to 
$355,000 (2011: $263,000) and $965,000 (2011: $991,000)  
for non-audit services including tax advice on asset and 
corporate acquisitions. 

Management, and the external auditors, provided the Audit 
Committee with details of the safeguards in place to ensure 
independence was maintained in respect of the non-audit 
services provided during 2012. The Audit Committee assessed 
these safeguards to be adequate. 

The overall performance, independence and objectivity of the 
auditors is reviewed regularly by the Audit Committee. In addition 
to the procedures for assessing independence and objectivity 
described above, this process involves interviewing key members 
of the organisation who are involved in the audit process, on an 
annual basis, to obtain feedback as to the performance of the 
external auditors. Additionally, the Audit Committee members 
take into account their own view of the performance of Ernst & 
Young LLP when determining whether or not to recommend 
their reappointment. 

53

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSREMUNERATION REPORT

Introduction
The Directors’ Remuneration Report has been prepared in 
accordance with the requirements of the Companies Act 2006 
and Schedule 8 of the Large and Medium-sized Companies  
and Groups (Accounts and Reports) Regulations 2008 (the 
‘regulations’). The report also meets the relevant requirements  
of the Financial Services Authority’s Listing Rules and describes 
how the Board has applied the Principles of Good Governance 
relating to Directors’ remuneration.

A resolution to approve the report will be put to shareholders at 
the AGM on 29 May 2013.

Information not subject to audit
Remuneration Committee
The Remuneration Committee is a formal Committee of the 
Board, and has powers delegated to it under the Company’s 
Articles. Its terms of reference were formally adopted by the 
Board in March 2010, a copy of which is available on the 
Company’s website. The primary purposes of the Remuneration 
Committee, as set out in its terms of reference, are to:
■■ recommend to the Board the broad policy in respect of senior 

management remuneration;

Remuneration strategy – overview

■■ ensure that the levels of remuneration are appropriate in order 

to encourage enhanced performance;

■■ approve the design and set the targets for any performance-

related pay scheme;

■■ review the design of all share incentive plans before approval 
by the Board and shareholders, to monitor the application of 
the rules of such schemes and the overall aggregate amount  
of such awards; and

■■ set the remuneration of the Chairman, Executive Directors and 
senior management including annual cash bonus and share 
incentive arrangements.

The members of the Remuneration Committee up until the date 
of this report were Helmut Langanger (Chairman), Jock Lennox, 
Clare Spottiswoode and Phil Nolan. Phil Nolan was appointed 
onto the Remuneration Committee in August 2012. All members 
of the Remuneration Committee are considered by the Board  
to be independent as explained in the Corporate Governance 
Report on pages 49 to 53. The Chairman, Chief Executive, HR 
Director and the Company Secretary attend meetings of the 
Remuneration Committee by invitation but do not participate  
in any discussions that directly relate to their own remuneration.

The combined remuneration components of the package are competitively placed so as to attract, retain and
engage the most talented individuals who possess the attributes and values required to achieve the Company’s
objectives and deliver outstanding shareholder value.

Underpins the business strategy by gearing total remuneration toward both individual and corporate long term 
performance, whilst maintaining an overall reward level which is market competitive.

Basic salary, pensions and 
benefits.

Short term performance
incentive.

Long term performance
incentive.

Recognise the value to the
Company of the skill,
knowledge, experience and
performance an individual
brings to the role and provide
a market competitive package.

Drive and reward the annual
performance of the individual,
and therefore the Company,
against corporate and personal 
objectives and KPIs.

Align performance to long
term strategy and objectives
and reward the delivery of
sustained Company success
and maximise the value of
total shareholder return.

Provide a market competitive
level of remuneration,
benchmarked against a
comparator group within the
oil and gas sector whose
companies have a similar level
of market capitalisation.

The achievement of
challenging individual and
corporate targets, set
annually, and aligned to the
Company strategy.

Maintained focus and vested
interest in increasing the
Company’s share price
performance over the
medium to long term.

REMUNERATION
PHILOSOPHY

REMUNERATION
DESIGN

PACKAGE
ELEMENT

OBJECTIVE

APPLICATION

54

EnQuest PLCAnnual Report 2012GOVERNANCE 
EnQuest’s remuneration policy is geared towards the promotion 
of behaviour and performance throughout the organisation 
which promotes engagement with the long term growth and 
success of EnQuest. Fundamental to this is the requirement to 
deliver a level of reward which is sufficient to attract, retain and 
motivate highly talented individuals in an increasingly competitive 
global market. The Remuneration Committee believes that this 
approach is sustainable and will deliver results that are in the best 
interest of the shareholders.

In light of this objective, the EnQuest remuneration framework  
is focused on the key managerial, technical, commercial and 
professional staff populations, and underpinned by the following 
guiding principles:

The chart below illustrates the relationship between base salary and 
the variable elements of remuneration for Executive Directors at 
different levels of performance. For on-target performance, a bonus 
award of 100% of salary and a Performance Share Plan (PSP) award 
worth 50% of the normal maximum Long Term Incentive award,  
i.e. 100% of salary, has been assumed. For stretch performance,  
a bonus award of 200% of salary is assumed and a PSP award in line 
with the normal maximum, i.e. 200% of salary, has been assumed.

Relationship between salary and variable elements of pay 
for Executive Directors

Stretch

■■ the remuneration framework should reflect EnQuest’s focus on 
growth with the emphasis on ensuring sustainable long term 
growth;

On-target

■■ total reward should be competitive when compared to the 
benchmarked compensation levels of other UK oil and gas 
companies that are of a similar size to EnQuest; and

■■ the remuneration structure should be consistent with UK 

corporate governance principles and best practice. 

In line with the Association of British Insurers’ Guidelines  
on Responsible Investment Disclosure, the Remuneration 
Committee will ensure that the incentive structure for Executive 
Directors and senior management does not raise environmental, 
social or governance risks by unintentionally motivating 
irresponsible behaviour. More generally, the Remuneration 
Committee will ensure that the overall remuneration policy  
does not encourage inappropriate operational risk-taking.

Within the framework, Executive Directors, senior management 
and key technical, commercial and professional staff are 
incentivised by having the various components of their package 
benchmarked as follows:

■■ basic salaries are typically set at a market median level or 

below, benchmarked against UK oil and gas companies of a 
similar size to EnQuest. In some circumstances upper quartile 
basic salaries may be offered to attract key technical staff in a 
competitive market; and

■■ the performance pay and share awards are set above the 
market median and are structured so that individuals can 
achieve a total remuneration level that is in the upper quartile 
range of the market, subject to the achievement of challenging 
performance objectives by both the Company and the 
individual.

The Remuneration Committee believes establishing a reward 
framework which sets the fixed elements at median or below and 
provides incentives capable of delivering upper quartile pay for 
delivery of superior performance is the most effective way in 
which to ensure that the Executive Directors and senior 
management are incentivised to deliver the Company’s strategic 
goals and therefore long term shareholder value.

The Company’s annual remuneration programme currently 
consists of three primary components: base salary and benefits, 
annual performance pay, and long term incentive awards granted 
under the Company’s current share plan incentives. 

0%

100%

200%

300%

400%

500%

■ Base salary     ■ Performance pay     ■ PSP

Percentage of salary

The amount of base salary, annual performance pay and long 
term incentive awards granted to the Executive Directors during 
2012 are set out in the remuneration table on page 58.

On 9 November 2012 Nigel Hares stepped down from his 
position as an Executive Director and since that date has 
provided consultancy services to EnQuest as an adviser to the 
Chief Executive. Details of the remuneration received by Nigel 
Hares for 2012 are disclosed on the Directors’ Remuneration table 
on page 58.

Reward component
Base salary and benefits
The base salary and benefits of the Executive Directors are 
reviewed annually by the Remuneration Committee and any 
changes take effect from 1 January each year. In conducting the 
base salary review, the Committee takes into consideration 
factors such as the current competitive market conditions, pay 
and conditions among the wider workforce, and particular skills, 
such as leadership ability and management effectiveness, 
experience, responsibility and proven or expected performance 
of the particular individual. The Committee obtains information 
regarding competitive market conditions from external 
benchmarking agencies, as required.

The Remuneration Committee annually evaluates the performance 
of each of the Executive Directors and benchmarks their salaries 
against comparator companies within the oil and gas market. Any 
adjustments to base salary (including the Chief Executive’s) are 
initiated and approved by the Remuneration Committee.

Prior to the start of the 2013 financial year the Committee carried 
out a review of the Executive Directors’ salaries, which resulted in an 
increase in line with the lower quartile of the FTSE 250 benchmark 
companies: £410,000 for Amjad Bseisu (3.8% increase) and 
£264,000 for Jonathan Swinney (3.5% increase). The average 
increase for the Company’s other employees was 4.3%.

55

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 
REMUNERATION REPORT CONTINUED

The Company provides a defined contribution pension plan  
for certain employees below Executive Director level. In lieu of 
such benefits for the Executive Directors, the Company pays  
an allowance of £30,000 per annum (£40,000 for the Chief 
Executive). These remained the same as prior years and have  
not changed since the Company was formed.

Annual performance pay
The discretionary performance pay scheme applies to all 
employees and Executive Directors and is based on individual 
and Company performance against objectives. Each measure  
is given a respective weighting, with the Executive Directors 
receiving 80% of performance pay based on Company 
performance targets and 20% based on individual performance 
targets. The Executive Directors’ individual performance is 
measured through personal performance contracts which were 
set and approved by the Remuneration Committee in January 
2012 and then reviewed by the Remuneration Committee in 
January 2013. The Company’s performance objectives are based 
on annually defined Key Performance Indicators (KPIs), which 
require the achievement of operational targets, financial 
performance, HSE standards, portfolio growth and share price 
performance. These measures were met or exceeded for 
financial performance, portfolio growth, HSE standards and 
share price performance; and between the threshold and 
on-target levels for operational performance.

The choice of the Company performance targets for 2012, and 
their respective weightings, reflect the Committee’s belief that 
any short term performance pay should be tied both to the 
overall performance of the Company and the individual’s 
performance. Similar targets will be used for the 2013 scheme 
with the addition of categories for project delivery and people 
and organisation.

Executive Directors are able to receive performance pay of up to 
100% of salary for performance that is in line with expectations. 
For outstanding individual and Company performance, bonuses 
of up to 200% of salary may be paid. At least one third  
of performance pay is paid in shares which vest after two  
years, subject to continued employment. The actual level of 
performance pay awarded to the Executive Directors in 2012 was 
120% of salary for Amjad Bseisu, 69% of salary for Nigel Hares, 
and 114% of salary for Jonathan Swinney, taking into account a 
blend of Company and individual performance.

Long term share incentives
In order to incentivise Executive Directors and selected senior 
management to deliver superior levels of long term performance 
for the benefit of shareholders, the Remuneration Committee’s 
policy is to award these individuals with share incentives under 
the long term incentive plans. The current plans are the EnQuest 
PLC Performance Share Plan 2010 (2010 PSP), the EnQuest PLC 
Restricted Share Plan 2010 (2010 RSP) and the EnQuest PLC 
Deferred Bonus Share Plan 2010 (2010 DBSP). Executive 
Directors received initial awards relating to the IPO under the 
2010 RSP and subsequent long term share incentives under the 
2010 PSP only.

2010 PSP
The 2010 PSP enables Executive Directors and selected senior 
employees to be granted conditional awards over Company 
shares, the vesting of which is normally dependent on both 
continued employment with the Company and the extent to 
which pre-determined performance conditions are met over a 
specified period of three financial years. The scheme is intended 
to incentivise the participants to create shareholder value whilst 
retaining due focus on the underlying financial performance of 
the Company and to align their interests closely with those of 
shareholders. The value of share awards to a participant under 
the 2010 PSP in any financial year is subject to a limit of 200%  
of base salary, although a 300% of salary limit can be awarded  
to an individual by the Remuneration Committee in exceptional 
circumstances.

In 2012, PSP awards with a market value of 112% of salary were 
granted to Amjad Bseisu, Nigel Hares received an award 
equivalent to 119% of salary, and 124% for Jonathan Swinney.

Under the PSP, the shares vest subject to the achievement of 
performance conditions. The 2010 PSP share awards granted in 
2012 had three sets of performance conditions associated with 
them. One third of the award relates to Total Shareholder Return 
(TSR) against a comparator group of 38 oil and gas companies 
listed on the FTSE 350, AIM Top 100 and Stockholm NASDAQ 
OMX; one third relates to production growth per share, and one 
third relates to reserves growth per share, over a three year 
financial performance period.

TSR performance condition
The TSR targets for the 2012 awards are as follows:

Ranking against the comparator group

% of this element of the 
award which vests

Below median
Median
Upper quartile

0%
30%
100%

For performance between median and upper quartile vesting is 
determined on a pro-rata basis.

Production growth per share condition
Performance against this condition is measured from a base net 
export production per share of 23,698 Boepd as at 31 December 
2011. The targets for the 2012 awards are as follows:

Average annual growth in net export 

production per share over three years

% of this element of the 
award which vests

Less than 105%
105%
110%

0%
30%
100%

For performance that is between 105% and 110% of base, vesting 
is determined on a pro-rata basis.

56

EnQuest PLCAnnual Report 2012GOVERNANCE 
Reserves growth per share condition
Performance against this condition is measured from a base of 
net 2P reserves of 115.2 MMboe as at 31 December 2011. The 
targets for the 2012 awards are as follows:

3-year cumulative net 2P reserves

Less than 110% of base
110% of base
125% of base
150% of base

% of this element of the 
award which vests

0%
30%
65%
100%

For performance that is between 110% and 150% of base, vesting 
is determined on a pro-rata basis.

It is intended that the targets attached to the awards to be 
granted in 2013 will be similar to those used in 2012.

The Remuneration Committee granted an aggregate of 3,021,117 
share awards to Executive Directors and senior management on 
19 April 2012.

2010 RSP
The 2010 RSP was established for use at the time when the 
Company became listed on the Main Market of the London Stock 
Exchange in April 2010 in order to facilitate the deferral of IPO 
bonuses and to grant retention focused awards. Other than being 
subject to continued employment, the RSP awards have no 
performance targets, and vest in tranches over two, three and 
four years from the date of grant. The 2010 RSP is available  
as a retention tool whereby awards may be made to selected 
individuals who join the Company part way through the year, 
having left accrued benefits with a previous employer. In this 
regard, the Remuneration Committee granted an aggregate  
of 686,000 share awards to selected employees on 19 April  
and 20 August 2012.

2010 DBSP
Under the 2010 DBSP, employees, below Executive Director 
level, who achieve a pre-determined rating under the annual 
appraisal system, are invited to defer a proportion of their 
annual performance pay into Company shares. Under the plan, 
the shares which are acquired with a participant’s performance 
pay are called ‘Invested Shares’. Following such an investment, 
the Company will generally grant the participant an additional 
award over a number of shares being a specified ratio to the 
number of Invested Shares and these awards are called 
‘Matching Shares’. The Remuneration Committee granted an 
aggregate of 391,705 Matching Shares on 19 April 2012, which 
were awarded to participants on the basis of a 1:1 ratio to the 
Invested Shares. No further awards were granted under the 
2012 DBSP during the year.

Non-Executive Directors
The remuneration of each of the Non-Executive Directors (other 
than the Chairman) is determined by the Chairman and the 
executive members of the Board within limits set out in the 
Articles and having taken independent advice on appropriate 
levels. The remuneration of the Chairman is determined by the 
Committee (in his absence), again based on independent advice. 
The Company’s policy is to set levels of fees so as to ensure that 
they are sufficient to attract experienced individuals and reflect 
the increased responsibilities of the Non-Executive Directors.

The Non-Executive Directors’ annual fees for 2012 were 
£200,000 for Dr James Buckee and £45,000 for each of the 
other Non-Executive Directors. In addition to this, an annual  
fee of £8,000 is payable to Jock Lennox and Helmut Langanger 
for their roles as Chairman of the Audit and Remuneration 
Committees respectively. Actual fees paid for the year ended 
31 December 2012 are shown in the remuneration table on 
page 58.

The Non-Executive Directors cannot participate in the 
Company’s share incentive arrangements and are not entitled  
to a bonus or pension contribution. 

Service contracts/letters of appointment
The Company’s policy is for all Executive Directors to have 
contracts of service which can be terminated by either the 
Director concerned or the Company on giving 12 months’ notice 
of termination. In the event of termination by the Company (other 
than as a result of a change of control), the Executive Directors 
would be entitled to loss of salary and cash benefit allowance  
for the notice period. Depending on the circumstances of 
termination, the Executive Directors may be entitled, or the 
Remuneration Committee may exercise its discretion to allow  
the Executive Directors, to receive a pro-rated proportion of their 
outstanding awards under the long term share incentive plans.

On a change of control of the Company resulting in the 
termination of an Executive Director’s employment, the Executive 
Director is entitled to compensation of a sum equal to his/her 
annual basic salary as at the date of termination of employment.

The Non-Executive Directors do not have service contracts but 
their terms are set out in a letter of appointment. Their terms of 
appointment may be terminated by either party giving three 
months notice in writing. The letters of appointment set out the 
time commitment expected by the Company and the Board is 
satisfied that each of the Non-Executive Directors commits 
sufficient time to fulfil their duties as a Director of the Company. 

The Executive Directors’ service contracts and the Non-
Executive Directors’ letters of appointment are available for 
inspection on request and will be available for inspection before 
and during the AGM to be held on 29 May 2013. 

57

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSREMUNERATION REPORT CONTINUED

Details of the service contracts and letters of appointment of the current Directors of the Company are given in the tables below:

Executive service contract
Amjad Bseisu

Jonathan Swinney

Non-Executive letters of appointment
Dr James Buckee

Helmut Langanger

Jock Lennox

Clare Spottiswoode

Phil Nolan

Date of 
appointment

Notice 
period

22 February 2010

12 months

29 January 2010

12 months

Date of 
appointment

Notice 
period

Initial term of 
appointment

22 February 2010

3 months 

16 March 2010

3 months 

22 February 2010

3 months 

1 July 2011

3 months 

1 August 2012

3 months

2 years1

3 years1

3 years1

3 years

3 years

1  Following expiry of the initial term, Dr James Buckee, Helmut Langanger and Jock Lennox each had their term of appointment extended by a further three years.

Performance graph
The following graph shows the Company’s share price since trading of the Company’s shares began on the London Stock Exchange 
on 6 April 2010 against the FTSE 250 index and FTSE 350 Oil and Gas index.

180

160

140

120

100

80

60

40

20

0

EnQuest 

FTSE 250 

FTSE 350 Oil and Gas

06/04/2010

31/12/2010

31/12/2011

31/12/2012

Information subject to audit
Directors’ remuneration for the year ended 31 December 2012

Salary £

Cash 
allowance
 benefits1
£

Performance 
pay2 
£

Fees 
£

Total 2012 
£

Total 2011 
£

Executive
Amjad Bseisu

Nigel Hares3

Jonathan Swinney

Non-Executive
Dr James Buckee

Helmut Langanger

Jock Lennox

Alexandre Schneiter4

Clare Spottiswoode

Phil Nolan5

Robin Pinchbeck6

Total

58

395,000

40,000

474,000

249,474

25,808

200,000

255,000

30,000

291,000

–

–

–

909,000

475,282

576,000

730,000

570,000

455,000

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

200,000

200,000

200,000

53,000

53,000

18,750

53,000

53,000

18,750

45,000

45,000

18,750

18,750

53,000

53,000

45,000

22,500

–

–

–

18,049

899,474

95,808

965,000

421,000 2,348,782

2,146,549

EnQuest PLCAnnual Report 2012GOVERNANCE 
Notes:
1  Cash allowance in lieu of pension and other benefits. None of the Directors are eligible to receive pension contributions from the Company. The Executive Directors 

receive the non-cash benefit of private medical insurance cover as well.

2  Performance pay was based on 2012 base salary levels and payment was made in respect of the full financial year. For Amjad Bseisu and Jonathan Swinney, one 
third of the performance pay will be paid in EnQuest PLC shares, deferred for two years and subject to continued employment. For Nigel Hares, one half of the 
performance pay will be deferred until April 2014.

3  Nigel Hares stood down from his position as a Director of the Company on 9 November 2012 and assumed a consultancy role as adviser to the Chief Executive for 

which he received consultancy fees of £32,500 until the end of the financial year.
4  Alexandre Schneiter stood down as a Director at the 2012 AGM on 30 May 2012.
5  Phil Nolan was appointed as a Non-Executive Director on 1 August 2012.
6  Robin Pinchbeck stood down as a Non-Executive Director at the 2011 AGM on 25 May 2011.

Directors’ interests in restricted share plan awards as at 31 December 2012

Director

At 
31 December 
2011

Granted 
during year

Awards 
vested

Awards 
lapsing

At 
31 December 
2012

Vesting 
periods

Expiry 
date

Amjad Bseisu1

1,609,063

Jonathan Swinney1

536,354

591,324

163,387

–

–

–

–

402,266

147,831

134,089

40,847

–

–

–

–

1,206,797

1 April 2012–1 April 2014

31 March 2020

443,493

19 April 2012–19 April 2014

18 April 2020

402,265

1 April 2012–1 April 2014

31 March 2020

122,540

19 April 2012–19 April 2014

Notes:
1  Nil cost award shares under the Restricted Share Plan vested in April 2012 but were not exercised. They were rolled over in line with the Plan rules.

■■ During 2012, 1,194,343 nil cost award shares vested. The share price at the date of vesting was 130.8 pence, and as the shares were 

granted at nil cost, the aggregate gain on vesting amounted to £1,562,200.

■■ Nigel Hares continues to hold 1,072,709 nil cost awards under the Restricted Share Plan which vest between 1 April 2011 and 

31 March 2020. Out of these shares, 268,177 nil cost awards vested in April 2011 and 201,133 nil cost awards vested in April 2012 but 
were not exercised. They were rolled over in line with the Plan rules.

Directors’ interests in performance share plan awards as at 31 December 2012

Director

At 
31 December 
2011

Granted 
during year

Awards 
vested

Awards 
lapsing

Amjad Bseisu

583,090

–

–

391,790

Jonathan Swinney

324,975

–

–

254,663

–

–

–

–

–

–

–

–

At 
31 December 
2012

583,090

391,790

324,975

254,663

Vesting 
periods

Expiry 
date

19 April 2014

18 April 2021

19 April 2015

18 April 2022

19 April 2014

18 April 2021

19 April 2015

18 April 2022

Notes:
Nigel Hares continues to hold 760,312 nil cost awards under the Performance Share Plan. 443,148 nil cost awards were granted on 19 April 2011 and 317,164 nil cost 
awards were granted on 19 April 2012.

The table above shows the maximum number of shares that could be released if awards were to vest in full. The share price on the 
date of the 2012 grants was 124.3p. These awards first vest on the third anniversary of the award date, subject to the achievement of 
performance conditions (as described on pages 56 and 57).

On behalf of the Board

Helmut Langanger
Chairman of the Remuneration Committee
26 March 2013

59

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSSTATEMENT OF DIRECTORS’ RESPONSIBILITIES IN 
RELATION TO THE GROUP FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report 
and the Group financial statements in accordance with applicable 
United Kingdom law and regulations. Company law requires the 
Directors to prepare Group financial statements for each financial 
year. Under that law, the Directors are required to prepare Group 
financial statements under International Financial Reporting 
Standards as adopted by the European Union.

Under Company law the Directors must not approve the Group 
financial statements unless they are satisfied that they give a true 
and fair view of the state of affairs of the Group and of the profit 
or loss of the Group for that period. In preparing the Group 
financial statements the Directors are required to:
■■ present fairly the financial position, financial performance and 

cash flows of the Group;

■■ select suitable accounting policies in accordance with IAS 8: 
Accounting Policies, Changes in Accounting Estimates and 
Errors and then apply them consistently;

■■ present information, including accounting policies, in a manner 

that provides relevant, reliable, comparable and 
understandable information;

■■ make judgements and estimates that are reasonable and 

prudent;

■■ provide additional disclosures when compliance with the 

specific requirements in IFRSs is insufficient to enable users to 
understand the impact of particular transactions, other events 
and conditions on the Group’s financial position and financial 
performance; and

■■ state that the Group has complied with International Financial 

Reporting Standards as adopted by the European Union, 
subject to any material departures disclosed and explained  
in the financial statements.

The Directors are responsible for keeping adequate accounting 
records that are sufficient to show and explain the Group’s 
transactions and disclose with reasonable accuracy at any time 
the financial position of the Group and enable them to ensure 
that the Group financial statements comply with the Companies 
Act 2006 and Article 4 of the IAS Regulation. They are also 
responsible for safeguarding the assets of the Group and hence 
for taking reasonable steps for the prevention and detection of 
fraud and other irregularities.

The Directors are also responsible for preparing the Directors’ 
Report, the Directors’ Remuneration Report and the Corporate 
Governance Statement in accordance with Companies Act 2006 
and applicable regulations, including the requirements of the 
Listing Rules and the Disclosure and Transparency Rules.

60

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
INDEPENDENT AUDITOR’S REPORT ON THE ANNUAL 
REPORT AND ACCOUNTS TO THE MEMBERS OF 
ENQUEST PLC (REGISTERED NUMBER: 07140891)

We have audited the Group financial statements of EnQuest PLC 
for the year ended 31 December 2012 which comprise the Group 
Statement of Comprehensive Income, Group Balance Sheet,  
the Group Statement of Changes in Equity, the Group Statement 
of Cash Flows and the related notes 1 to 28. The financial 
reporting framework that has been applied in their preparation  
is applicable law and International Financial Reporting Standards 
(IFRS) as adopted by the European Union.

Opinion on financial statements
In our opinion the Group financial statements:
■■ give a true and fair view of the state of the Group’s affairs as  
at 31 December 2012 and of its profit for the year then ended;

■■ have been properly prepared in accordance with IFRS as 

adopted by the European Union; and

■■ have been prepared in accordance with the requirements of 
the Companies Act 2006 and Article 4 of the IAS Regulation.

This report is made solely to the Company’s members, as a body, 
in accordance with Chapter 3 of Part 16 of the Companies Act 
2006. Our audit work has been undertaken so that we might 
state to the Company’s members those matters we are required 
to state to them in an auditor’s report and for no other purpose. 
To the fullest extent permitted by law, we do not accept or 
assume responsibility to anyone other than the Company  
and the Company’s members as a body, for our audit work,  
for this report, or for the opinions we have formed.

Respective responsibilities of Directors and auditor
As explained more fully in the Statement of Directors’ 
Responsibilities in respect of the Group financial statements set 
out on page 60, the Directors are responsible for the preparation 
of the Group financial statements and for being satisfied that 
they give a true and fair view. Our responsibility is to audit  
and express an opinion on the Group financial statements in 
accordance with applicable law and International Standards on 
Auditing (UK and Ireland). Those standards require us to comply 
with the Auditing Practices Board’s Ethical Standards for 
Auditors.

Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts  
and disclosures in the financial statements sufficient to give 
reasonable assurance that the financial statements are free  
from material misstatement, whether caused by fraud or  
error. This includes an assessment of: whether the accounting 
policies are appropriate to the Group’s circumstances and  
have been consistently applied and adequately disclosed; the 
reasonableness of significant accounting estimates made by the 
Directors; and the overall presentation of the financial statements. 
In addition, we read all the financial and non-financial information 
in the Annual Report and Accounts to identify material 
inconsistencies with the audited financial statements. If we 
become aware of any apparent material misstatements or 
inconsistencies we consider the implications for our report.

Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report for 
the financial year for which the Group financial statements are 
prepared is consistent with the Group financial statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you 
if, in our opinion:
■■ certain disclosures of Directors’ remuneration specified by law 

are not made; or

■■ we have not received all the information and explanations we 

require for our audit.

Under the Listing Rules we are required to review:
■■ the Directors’ statement, set out on page 48, in relation to 

going concern;

■■ the part of the Corporate Governance Report relating to the 
Company’s compliance with the nine provisions of the UK 
Corporate Governance Code specified for our review; and
■■ certain elements of the report to shareholders by the Board  

on Directors’ remuneration.

Other matter
We have reported separately on the parent Company financial 
statements of EnQuest PLC for the year ended 31 December 
2012 and on the information in the Directors’ Remuneration 
Report that is described as having been audited.

Ernst & Young LLP
Gary Donald (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
26 March 2013

61

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSGROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2012

2012

Exceptional 
items and 
depletion of 
fair value 
uplift (note 4)
US$’000

Business 
performance
US$’000

Notes

2011

Exceptional 
items and 
depletion of 
fair value uplift 
(note 4)
US$’000

Reported 
in year
US$’000

Business 
performance
US$’000

Reported 
in year
US$’000

935,974
(508,790)

427,184
(36,962)
8,644
(12,497)
–

–
8,194
(13,755)
–
(3,344)

Revenue
Cost of sales

Gross profit/(loss)
Exploration and evaluation expenses
Gain on disposal of asset held for sale
Impairment of investments
Impairment of oil and gas assets
Gain on disposal of property, plant and 

equipment

Well abandonment 
General and administration expenses
Other income 
Other expenses

Profit/(loss) from operations before 

tax and finance income/(costs)

Finance costs
Finance income

Profit/(loss) before tax
Income tax

Profit/(loss) for the year attributable 

to owners of the parent

Other comprehensive income for the 

year, after tax:

Cash flow hedges (net of tax)

Total comprehensive income for the 
year, attributable to owners of the 
parent

Earnings per share
Basic
Diluted

5(a)
5(b)

5(c)
4
4
4

4
4
5(d)
5(e)
5(f)

6
6

7

21

8

–
(10,251)

889,510
(458,437)

935,974
(491,817)

444,157
(36,962)
–
–
–

–
–
(13,755)
–
(3,344)

–
(16,973)

(16,973)
–
8,644
(12,497)
–

–
8,194
–
–
–

431,073
(23,157)
–
(4,417)
(143,882)

175,929
–
(6,650)
2,000
(8,445)

889,510
(448,186)

 441,324
(23,157)
–
–
–

–
–
(6,650)
2,000
(8,445)

405,072
(21,211)
2,161

386,022
(126,357)

(10,251)
–
–
(4,417)
(143,882)

175,929
–
–
–
–

17,379
–
–

17,379
85,174

422,451
(21,211)
2,161

403,401
(41,183)

390,096
(18,598)
3,955

375,453
(239,400)

(12,632)
–
–

(12,632)
(62,430)

377,464
(18,598)
3,955

362,821
(301,830)

259,665

102,553

362,218

136,053

(75,062)

60,991

2,554

364,772

US$
0.462
0.454

US$
0.170
0.170

(2,600)

58,391

US$
0.076
0.076

US$
0.331
0.326

The attached notes 1 to 28 form part of these Group financial statements.

62

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
GROUP BALANCE SHEET
AT 31 DECEMBER 2012

ASSETS
Non-current assets
Property, plant and equipment
Goodwill
Intangible oil and gas assets
Asset held for sale
Investments
Deferred tax assets
Other financial assets

Current assets
Inventories
Trade and other receivables
Income tax receivable
Cash and cash equivalents
Other financial assets

TOTAL ASSETS

EQUITY AND LIABILITIES
Equity
Share capital
Merger reserve
Cash flow hedge reserve
Share-based payment reserve
Retained earnings

TOTAL EQUITY

Non-current liabilities
Borrowings
Obligations under finance leases
Provisions
Other financial liabilities
Deferred tax liabilities

Current liabilities
Trade and other payables
Obligations under finance leases
Other financial liabilities
Income tax payable

TOTAL LIABILITIES

TOTAL EQUITY AND LIABILITIES

Notes

2012 
US$’000

2011 
US$’000

10
11
12
13
14
7
21

15
16

17
21

18

20
24
22
21
7

23
24
21

1,816,591
107,760
97,506
-
2,317
23,143
19,447

1,273,558
107,760
24,347
1,254
6,734
12,617
–

2,066,764

1,426,270

15,301
239,722
2,007
124,522
96,472

478,024

11,842
126,554
2,618
378,907
2,510

522,431

2,544,788

1,948,701

113,433
662,855
(46)
(11,072)
528,699

113,433
662,855
(2,600)
(5,961)
166,481

1,293,869

934,208

34,600
107
232,952
-
632,230

899,889

329,666
34
17,570
3,760

351,030

–
–
181,237
335
590,010

771,582

234,337
–
6,870
1,704

242,911

1,250,919

1,014,493

2,544,788

1,948,701

The attached notes 1 to 28 form part of these Group financial statements.

The financial statements on pages 62 to 92 were approved by the Board of Directors on 26 March 2013 and signed on its behalf by:

Jonathan Swinney
Chief Financial Officer

63

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSGROUP STATEMENT OF CHANGES IN EQUITY
AT 31 DECEMBER 2012

Share capital
US$’000

Merger 
reserve
US$’000

Cash flow 
hedge reserve
US$’000

Share-based 
payments 
reserve
US$’000

Available-for-
sale reserve
US$’000

113,174
–

662,855
–

–
–

2,540
–

–
–

Retained 
earnings
US$’000

104,327
60,991

Total
US$’000

882,896
60,991

–
–

–

–

(259)
4,881

–

(13,123)

(5,961)

–
–

–
5,163

–
(10,629)

10,629

–
–

–

(2,600)
(10,629)

10,629

–

–
–

–

–

–

–
–

–
–

–

–

60,991

58,391

–
–

1,163

–
4,881

1,163

–

(13,123)

166,481

934,208

362,218
–

362,218
2,554

362,218
–

364,772
5,163

–

(10,274)

528,699

1,293,869

At 1 January 2011
Profit for the year
Other comprehensive income:
Losses arising during the year on cash 

flow hedges (net of tax)

Marked-to-market value of investment
Reclassification of impairment of 

investments

Total comprehensive income for the 

year

Issue of shares to Employee Benefit 

Trust

Share-based payment charge
Bonus liability accrual settled in shares 

granted during the year

Shares purchased on behalf of 

Employee Benefit Trust

–
–

–

–

259
–

–

–

–
–

–

–

–
–

–

–

(2,600)
–

–

(2,600)

–
–

–

–

At 31 December 2011

113,433

662,855

(2,600)

Profit for the year
Other comprehensive income

Total comprehensive income for 

the year

Share-based payment charge
Shares purchased on behalf of 

Employee Benefit Trust

–
–

–
–

–

–
–

–
–

–

–
2,554

2,554
–

–

(10,274)

At 31 December 2012

113,433

662,855

(46)

(11,072)

The attached notes 1 to 28 form part of these Group financial statements.

64

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
GROUP STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2012

CASH FLOW FROM OPERATING ACTIVITIES
Profit before tax
Depreciation
Depletion
Exploration and evaluation expenses
Impairment of oil and gas assets
Well abandonment
Gain on disposal of asset held for sale
Gain on disposal of property, plant and equipment
Impairment on available-for-sale investments
Share-based payment charge
Unwinding of discount on decommissioning provisions
Unrealised exchange losses
Net finance costs

Operating profit before working capital changes
Increase in trade and other receivables
(Increase)/decrease in inventories
Increase in trade and other payables

Cash generated from operations
Decommissioning spend
Income taxes paid

Net cash flows from operating activities

INVESTING ACTIVITIES
Purchase of property, plant and equipment
Purchase of intangible oil and gas assets
Proceeds from farm out
Acquisition of available-for-sale investments
Interest received

Net cash flows used in investing activities

FINANCING ACTIVITIES
Proceeds from bank facilities
Shares purchased by Employee Benefit Trust
Repayment of obligations under finance leases
Interest paid
Other finance costs paid

Net cash flows from/(used) in financing activities

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
Net foreign exchange on cash and cash equivalents
Cash and cash equivalents at 1 January

CASH AND CASH EQUIVALENTS AT 31 DECEMBER

The attached notes 1 to 28 form part of these Group financial statements.

Notes

2012
US$’000

2011
US$’000

5(d)
5(b)
5(c)
4
4
4
4
4
5(g)
6
5(f)
6

403,401
1,483
216,780
23,157
143,882
–
–
(175,929)
4,417
5,163
10,148
8,445
8,902

649,849
(105,088)
(3,459)
52,610

593,912
(13,618)
(790)

362,821
1,784
217,233
36,962

(8,194)
(8,644)
–
12,497
4,881
7,793
3,344
6,850

637,327
(1,940)
562
20,383

656,332
(9,192)
(10,855)

579,504

636,285

(838,399)
(128,403)
124,587
–
787

(223,947)
(53,964)
–
(808)
1,834

(841,428)

(276,885)

34,692
(10,274)
(89)
(632)
(14,065)

–
(13,123)
–
(1)
(9,633)

9,632

(22,757)

(252,292)
(2,093)
378,907

124,522

336,643
869
41,395

378,907

65

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE GROUP FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2012

1. Corporate information
EnQuest PLC (EnQuest or the Company) is a limited liability 
Company registered in England and is listed on the London Stock 
Exchange and Stockholm NASDAQ OMX market.

The Group’s principal activities are the exploration for, and 
extraction and production of hydrocarbons in the UK Continental 
Shelf. During the year the Group acquired interests in an exploration 
licence in Malaysia and pre-qualified as an operator in the 
Norwegian North Sea.

The Group’s financial statements for the year ended 31 December 
2012 were authorised for issue in accordance with a resolution of 
the Board of Directors on 26 March 2013.

A listing of the principal Group companies is contained in note 28 
to these Group financial statements.

2. Summary of significant accounting policies
Basis of preparation
The Group financial information has been prepared in accordance 
with International Financial Reporting Standards (IFRS) as adopted 
by the European Union as they apply to the financial statements of 
the Group for the year ended 31 December 2012 and applied in 
accordance with the Companies Act 2006. The accounting policies 
which follow set out those policies which apply in preparing the 
financial statements for the year ended 31 December 2012.

The Group financial information has been prepared on a historical 
cost basis. The presentation currency of the Group financial 
information is United States dollars and all values in the Group 
financial information are rounded to the nearest thousand 
(US$’000) except where otherwise stated.

Going concern concept
The Directors’ assessment of going concern concludes that the 
use of the going concern basis is appropriate and there are no 
material uncertainties that may cast significant doubt about the 
ability of the Group to continue as a going concern. See page 48 
in the Directors’ Report for further details.

Basis of consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has the sole 
right to exercise control over the operations and govern the 
financial policies generally accompanying a shareholding of  
more than half of the voting rights. The existence and effect  
of potential voting rights that are currently exercisable or 
convertible are considered when assessing the Group’s control. 
Subsidiaries are fully consolidated from the date on which control 
is transferred to the Group and are de-consolidated from the 
date that control ceases.

Intercompany profits, transactions and balances are eliminated 
on consolidation. Accounting policies of subsidiaries have been 
changed where necessary to ensure consistency with the policies 
adopted by the Group.

Unincorporated jointly controlled assets
Oil and gas operations are conducted by the Group as co-
licensees in unincorporated joint ventures with other companies. 
The Group’s financial statements reflect the relevant proportions 
of production, capital costs, operating costs and current assets 
and liabilities of the joint venture applicable to the Group’s 
interests. The Group’s current joint venture interests are detailed 
on page 25.

Business combinations
Business combinations are accounted for using the acquisition 
method. The cost of an acquisition is measured as the aggregate  
of the consideration transferred, measured at acquisition date fair 
value and the amount of any controlling interest in the acquiree.  
For each business combination, the acquirer measures the non-
controlling interest in the acquiree either at fair value or at the 
proportionate share of the acquiree’s identifiable net assets. Those 
petroleum reserves and resources that are able to be reliably valued 
are recognised in the assessment of fair values on acquisition. Other 
potential reserves, resources and rights, for which fair values cannot 
be reliably determined, are not recognised.

New standards and interpretations
The Group has adopted new and revised IFRS’s that are relevant 
to its operations and effective for accounting periods beginning 
on or after 1 January 2012. The principal effects of the adoption  
of these new and amended standards and interpretations are 
discussed below:

IFRS 7 Financial Instruments: Disclosures – Enhanced 
Derecognition Disclosure Requirements
The amendment requires additional disclosure about financial 
assets that have been transferred but not derecognised to enable 
the user of the Group’s financial statements to understand the 
relationship with those assets that have not been derecognised 
and their associated liabilities. In addition, the amendment 
requires disclosures about the entity’s continuing involvement in 
derecognised assets to enable the users to evaluate the nature of, 
and risks associated with, such involvement. The Group does not 
have any assets with these characteristics so there has been no 
effect on the presentation of its financial statements.

Standards issued but not yet effective
Standards issued and relevant to the Group, but not yet effective 
up to the date of issuance of the Group’s financial statements  
are listed below. This listing is of Standards and Interpretations 
issued, which the Group reasonably expects to be applicable at  
a future date. The Group intends to adopt these Standards when 
they become effective. The Directors do not anticipate that the 
adoption of these Standards will have a material impact on the 
Group’s accounts in the period of initial application.

IAS 1 Presentation of Items of Other Comprehensive Income – 
Amendments to IAS 1
The amendments change the grouping of items presented in  
the statement of comprehensive income. Items that would be 
reclassified to profit or loss at a future point in time would be 
presented separately from items that will never be reclassified. 
The revisions become effective for annual periods beginning on 
or after 1 July 2012.

66

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
2. Summary of significant accounting policies continued
IFRS 9 Financial Instruments – Classification and Measurement
IFRS 9 as issued reflects the first phase of the IASB’s work  
on the replacement of IAS 39 and applies to classification and 
measurement of financial assets as defined in IAS 39. The 
Standard is effective for annual periods beginning on or after  
1 January 2015. In subsequent phases, the IASB will address 
classification and measurement of financial liabilities, hedge 
accounting. The adoption of the first phase of IFRS 9 will have  
an effect on the classification and measurement of the Group’s 
financial assets, but will not have an impact on classification  
and measurements of financial liabilities. However, the Group 
determined that the effect shall be quantified in conjunction with 
the other phases when issued to present a comprehensive picture.

IAS 16 Property, Plant and Equipment – This improvement clarifies 
that major spare parts and servicing equipment that meet the 
definition of property, plant and equipment are not inventory.

These improvements are effective for annual periods beginning 
on or after 1 January 2013.

Critical accounting estimates and judgements
The management of the Group has to make estimates and 
judgements when preparing the financial statements of the 
Group. Uncertainties in the estimates and judgements could have 
an impact on the carrying amount of assets and liabilities and the 
Group’s result. The most important estimates and judgements in 
relation thereto are:

IFRS 10 Consolidated Financial Statements/ IAS 27 (Revised) 
– Separate Financial Statements
IFRS 10 establishes a single control model that applies to all 
entities including special purpose entities and introduces changes 
which will require management to exercise significant judgement 
to determine which entities are controlled, and therefore, are 
required to be consolidated by a parent. The consolidation 
requirements forming part of IAS 27 will be revised and 
contained within IFRS 10. These Standards are effective for 
annual periods beginning on or after 1 January 2014 in the 
European Union.

IFRS 11 Joint Arrangements
IFRS 11 establishes a clear principle that is applicable to the 
accounting for all joint arrangements. The Standard is effective 
for annual periods beginning on or after 1 January 2014 in the 
European Union. The most significant change is that IFRS 11 
requires the use of the equity method of accounting for interests 
in jointly controlled entities thereby eliminating the proportionate 
consolidation method.

IAS 28 (Revised) – Investments in Associates and Joint Ventures
The Standard will be revised due to the introduction of IFRS 11 
and 12. The Standard describes the application of the equity 
method to investments in joint ventures in addition to associates. 
The revision will become effective for annual periods beginning 
on or after 1 January 2014 in the European Union.

IFRS 12 Disclosure of Interests in Other Entities
Includes disclosure requirements for interests in subsidiaries, joint 
arrangements, associates and unconsolidated structured entities. 
The Standard is effective for annual periods beginning on or after 
1 January 2014 in the European Union.

IFRS 13 Fair Value Measurement
The Standard defines fair value, provides guidance on its 
determination and introduces consistent requirements for 
disclosures on fair value measurements. The Standard does not 
include requirements on when fair value measurement is required 
but prescribes how fair value is to be measured if another 
Standard requires it. The Standard is effective for annual periods 
beginning on or after 1 January 2013.

Annual improvements May 2012
IAS 1 Presentation of Financial Statements – This improvement 
clarifies the difference between voluntary additional comparative 
information and the minimum required comparative information. 
Generally the minimum required comparative information is the 
previous period.

Estimates in oil and gas reserves
The business of the Group is the exploration for, development of 
and production of oil and gas reserves. Estimates of oil and gas 
reserves are used in the calculations for impairment tests and 
accounting for depletion and decommissioning. Changes in 
estimates of oil and gas reserves resulting in different future 
production profiles will affect the discounted cash flows used  
in impairment testing, the anticipated date of decommissioning 
and the depletion charges in accordance with the unit-of-
production method.

Estimates in impairment of assets (excluding goodwill)
For details of policy see Impairment of assets (excluding 
goodwill) and refer to the further economic assumptions above 
within Estimates in oil and gas reserves.

In calculating the asset fair values the Group has applied an oil price 
assumption of US$107.60 per barrel in 2013, US$102.00 per barrel 
in 2014, US$97.80 per barrel in 2015, US$94.30 per barrel in 2016, 
US$91.70 per barrel in 2017 thereafter US$90 inflated at 2% per 
annum from 2013 (2011: US$119.25 per barrel in 2012, US$112.08 per 
barrel in 2013, US$104.73 per barrel in 2014, US$98.67 per barrel 
in 2015, US$97.42 per barrel in 2016 thereafter inflated at 2% per 
annum from 2012) and a discounted pre-tax rate of 20.4% 
(2011: 21.3%).

Determining whether an acquisition is a business combination  
or asset purchase
The Group analyses the transaction or event by applying the 
definition of a business combination, principally whether inputs, 
processes and outputs exist, including reviewing group strategy, 
control and resources. Should the acquired business not be 
viewed as a business combination then it is accounted for as  
an asset purchase.

Determining the fair value of property, plant and equipment  
on business combinations
The Group determines the fair value of property, plant and 
equipment acquired based on the discounted cash flows at the 
time of acquisition, from the proven and probable reserves. In 
assessing the discounted cash flows the estimated future cash 
flows attributable to the asset are discounted to their present 
value using a pre-tax discount rate that reflects the market 
assessments of the time value of money and the risks specific to 
the asset at the time of the acquisition. In calculating the asset fair 
value the Group will apply the long term oil price assumption, 
escalated for inflation and discounted at the pre-tax rate. The oil 
price assumption will represent management’s view of the long 
term oil price at the time of the transaction.

67

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE GROUP FINANCIAL STATEMENTS 
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2012

2. Summary of significant accounting policies continued
Decommissioning provision
Amounts used in recording a provision for decommissioning  
are estimates based on current legal and constructive 
requirements and current technology and price levels for  
the removal of facilities and plugging and abandoning of wells. 
Due to changes in relation to these items, the future actual cash 
outflows in relation to decommissioning are likely to differ in 
practice. To reflect the effects due to changes in legislation, 
requirements and technology and price levels, the carrying 
amounts of decommissioning provisions are reviewed on a 
regular basis.

The effects of changes in estimates do not give rise to prior year 
adjustments and are dealt with prospectively. While the Group 
uses its best estimates and judgement, actual results could differ 
from these estimates.

In estimating decommissioning provisions, the Group applies an 
annual inflation rate of 2% (2011: 2%) and an annual discount rate 
of 5% (2011: 5%).

Estimates in impairment of goodwill
Determination of whether goodwill has suffered any impairment 
requires an estimation of the value in use of the cash-generating 
units (CGU) to which goodwill has been allocated. The present 
value calculation requires the entity to estimate the future cash 
flows expected to arise from the CGU and a suitable discount 
rate. In calculating the present value in use of the CGU, the Group 
has used forward curve prices for the first five years before 
reverting to the Group’s long term pricing assumption and 
discounted at a pre-tax rate of 20.4% (2011: forward curve prices 
for the first four years before reverting to the Group’s long term 
pricing assumption and discounted at a pre-tax rate of 21.3%).

Taxation
The UK’s corporation tax legislation is complex. The Group’s 
operations are subject to a number of specific rules which apply 
to UK North Sea exploration and production. In addition, the tax 
provision is prepared before the relevant companies have filed 
their UK corporation tax and supplementary charge returns  
with HMRC and significantly, before these have been agreed.  
As a result of these factors the tax provision process necessarily 
involves the use of a number of estimates and judgements 
including those required in calculating the effective tax rate.  
In considering the tax on exceptionals, the Company applies  
the appropriate statutory tax rate to each exceptional item  
to calculate the relevant tax charge on exceptional items.

The Group recognises deferred tax assets on unused tax losses 
where it is probable that future taxable profits will be available for 
utilisation. This requires management to make judgements and 
assumptions regarding the amount of deferred tax that can be 
recognised, as well as the likelihood of future taxable profits.

Foreign currencies
Items included in the financial statements of each of the Group’s 
entities are measured using the currency of the primary 
economic environment in which the entity operates (functional 
currency). The Group financial statements are presented in 
United States dollars, the currency which the Group has elected 
to use as its presentation currency.

In the accounts of the Company and its individual subsidiaries, 
transactions in currencies other than a company’s functional 
currency are recorded at the prevailing rate of exchange on the 
date of the transaction. At the year end, monetary assets and 
liabilities denominated in foreign currencies are retranslated  
at the rates of exchange prevailing at the balance sheet date. 
Non-monetary assets and liabilities that are measured at historical 
cost in a foreign currency are translated using the rate of exchange 
as at the dates of the initial transactions. Non-monetary assets and 
liabilities measured at fair value in a foreign currency are translated 
using the rate of exchange at the date the fair value was 
determined. All foreign exchange gains and losses are taken  
to profit and loss in the statement of comprehensive income.

Classification and recognition of assets and liabilities
Non-current assets and non-current liabilities including provisions 
consist, for the most part, solely of amounts that are expected to 
be recovered or paid more than twelve months after the balance 
sheet date. Current assets and current liabilities consist solely  
of amounts that are expected to be recovered or paid within  
12 months after the balance sheet date.

Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated 
depreciation and any impairment in value. Cost comprises the 
purchase price or construction cost and any costs directly 
attributable to making that asset capable of operating as 
intended. The purchase price or construction cost is the 
aggregate amount paid and the fair value of any other 
consideration given to acquire the asset.

Oil and gas assets are depleted, on a field-by-field basis, using 
the unit-of-production method based on entitlement to proven 
and probable reserves, taking account of estimated future 
development expenditure relating to those reserves.

Depreciation on other elements of property, plant and 
equipment is provided on a straight-line basis at the following 
rates:

Office furniture and equipment

25% – 100%

Each asset’s estimated useful life, residual value and method of 
depreciation are reviewed and adjusted if appropriate at each 
financial year end.

No depreciation is charged on land or assets under construction.

The carrying amount of an item of property, plant and equipment 
is derecognised on disposal or when no future economic benefits 
are expected from its use or disposal. The gain or loss arising 
from the derecognition of an item of property, plant and 
equipment is included in the statement of comprehensive  
income when the item is derecognised. Gains are not classified  
as revenue.

Capitalised costs
Oil and gas assets are accounted for using the successful efforts 
method of accounting.

68

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
2. Summary of significant accounting policies continued
Intangible oil and gas assets
Expenditure directly associated with evaluation or appraisal 
activities is capitalised as an intangible asset. Such costs include 
the costs of acquiring an interest, appraisal well drilling costs, 
payments to contractors and an appropriate share of directly 
attributable overheads incurred during the evaluation phase.  
For such appraisal activity, which may require drilling of further 
wells, costs continue to be carried as an asset whilst related 
hydrocarbons are considered capable of commercial 
development. Such costs are subject to technical, commercial 
and management review to confirm the continued intent to 
develop, or otherwise extract value. When this is no longer  
the case, the costs are impaired and any impairment loss  
is recognised in the statement of comprehensive income.  
When exploration licences are relinquished without further 
development, any previous impairment loss is reversed and  
the carrying costs are written off through the statement of 
comprehensive income. When assets are declared part of  
a commercial development, related costs are transferred to 
property, plant and equipment oil and gas assets. All intangible 
oil and gas assets are assessed for any impairment prior to 
transfer and any impairment loss is recognised in the statement 
of comprehensive income.

Oil and gas assets
Expenditure relating to development of assets including the 
construction, installation and completion of infrastructure 
facilities such as platforms, pipelines and development wells,  
is capitalised within property, plant and equipment.

Farm outs – outside the exploration and evaluation phase
In accounting for a farm out arrangement outside the exploration 
and evaluation phase, the Group:
■■ derecognises the proportion of the asset that it has sold to  

the farmee;

■■ recognises the consideration received or receivable from  

the farmee, which represents the cash received and/or the 
farmee’s obligation to fund the capital expenditure in relation 
to the interest retained by the farmor and/or any deferred 
consideration;

■■ recognises a gain or loss on the transaction for the difference 

between the net disposal proceeds and the carrying amount of 
the asset disposed of. A gain is only recognised when the value 
of the consideration can be determined reliably. If not, then the 
Group accounts for the consideration received as a reduction 
in the carrying amount of the underlying assets; and 

■■ tests the retained interests for impairment if the terms of the 

arrangement indicate that the retained interest may be impaired.

The consideration receivable on disposal of an item of property, 
plant and equipment or an intangible asset is recognised initially 
at its fair value by the Group. However, if payment for the item is 
deferred, the consideration received is recognised initially at the 
cash price equivalent. The difference between the nominal 
amount of the consideration and the cash price equivalent is 
recognised as interest revenue. Any part of the consideration that 
is receivable in the form of cash is treated as a financial asset and 
is accounted for at amortised cost.

Asset swaps
For exchanges or part exchanges of intangible oil and gas assets 
they are accounted for at the carrying value of the asset given up 
and no gain or loss is recognised.

Changes in unit-of-production factors
Changes in factors which affect unit-of-production calculations 
are dealt with prospectively, not by immediate adjustment of 
prior years’ amounts.

Borrowing costs
Borrowing costs directly attributable to the construction of 
qualifying assets, which are assets that necessarily take a substantial 
period of time to prepare for their intended use, are added to the 
cost of those assets, until such time as the assets are substantially 
ready for their intended use. All other borrowing costs are 
recognised as interest payable in the statement of comprehensive 
income in accordance with the effective interest method.

Impairment of assets (excluding goodwill)
At each balance sheet date, the Group reviews the carrying 
amounts of its oil and gas assets to assess whether there is  
an indication that those assets may be impaired. If any such 
indication exists, the Group makes an estimate of the asset’s 
recoverable amount. An asset’s recoverable amount is the  
higher of an asset’s fair value less costs to sell and its value  
in use. In assessing value in use, the estimated future cash flows 
attributable to the asset are discounted to their present value 
using a pre-tax discount rate that reflects current market 
assessments of the time value of money and the risks specific  
to the asset.

If the recoverable amount of an asset is estimated to be less than 
its carrying amount, the carrying amount of the asset is reduced 
to its recoverable amount. An impairment loss is recognised 
immediately in the statement of comprehensive income.

Where an impairment loss subsequently reverses, the carrying 
amount of the asset is increased to the revised estimate of its 
recoverable amount, but only so that the increased carrying 
amount does not exceed the carrying amount that would have 
been determined had no impairment loss been recognised for the 
asset in prior years. A reversal of an impairment loss is recognised 
immediately in the statement of comprehensive income.

Goodwill
Goodwill acquired in a business combination is initially measured 
at cost, being the excess of the cost of the business combination 
over the net fair value of the identifiable assets, liabilities and 
contingent liabilities of the entity at the date of acquisition. 
Following initial recognition, goodwill is stated at cost less any 
accumulated impairment losses. Goodwill is reviewed for 
impairment annually or more frequently if events or changes in 
circumstances indicate that such carrying value may be impaired.

For the purposes of impairment testing, goodwill acquired is 
allocated to the cash-generating units that are expected to 
benefit from the synergies of the combination. Each unit or units 
to which goodwill is allocated represents the lowest level within 
the Group at which the goodwill is monitored for internal 
management purposes.

69

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE GROUP FINANCIAL STATEMENTS 
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2012

2. Summary of significant accounting policies continued
Impairment is determined by assessing the recoverable amount 
of the cash-generating unit to which the goodwill relates. Where 
the recoverable amount of the cash-generating unit is less than 
the carrying amount of the cash-generating unit and related 
goodwill, an impairment loss is recognised.

Where goodwill has been allocated to a cash-generating unit and 
part of the operation within the unit is disposed of, the goodwill 
associated with the operation disposed of is included in the 
carrying amount of the operation when determining the gain  
or loss on disposal of the operation. Goodwill disposed of in this 
circumstance is measured based on the relative values of the 
operation disposed of and the portion of the cash-generating 
units retained.

Non-current assets held for sale
Non-current assets classified as held for sale are measured at the 
lower of carrying amount and fair value less costs to sell.

Non-current assets are classified as held for sale if their carrying 
amount will be recovered through a sale transaction rather than 
through continuing use. This condition is regarded as met only 
when the sale is highly probable and the asset is available for 
immediate sale in its present condition. Management must be 
committed to the sale which should be expected to qualify for 
recognition as a completed sale within one year from the date of 
classification.

Financial assets
Financial assets within the scope of IAS 39 are classified as 
financial assets at fair value through profit or loss, loans and 
receivables, held-to-maturity investments, available-for-sale 
financial investments, or as derivatives designated as hedging 
instruments in an effective hedge, as appropriate. The Group 
determines the classification of its financial assets at initial 
recognition.

All assets are recognised initially at fair value plus transactions 
costs, except in the case of financial assets recorded at fair value 
through profit or loss.

Purchases or sales of financial assets that require delivery  
of assets within a time frame established by regulation  
or convention in the market place (regular way trades)  
are recognised on the trade date.

The Group’s financial assets include cash and short term 
deposits, trade and other receivables, loans and other 
receivables, quoted and unquoted financial instruments and 
derivative financial instruments.

Subsequent measurement of financial assets depends on their 
classification as described below:

Financial assets at fair value through profit or loss (FVTPL)
Financial assets are classified as at FVTPL when the financial 
asset is either held for trading or designated as at FVTPL. 
Financial assets are classified as held for trading if they are 
acquired for the purpose of selling or repurchasing in the near 
term. Derivatives are also classified as held for trading unless  
they are designated as effective hedging instruments as defined 
by IAS 39.

70

Financial assets at FVTPL are stated at fair value, with any gains 
or losses arising on remeasurement recognised in profit or loss.

Financial assets designated upon initial recognition at FVTPL are 
designated at their initial recognition date and only if the criteria 
under IAS 39 are satisfied.

The Group evaluates its financial assets held for trading, other 
than derivatives, to determine whether the intention to sell them 
in the near term is still appropriate. Where the Group is unable to 
trade these financial assets or management’s intention to sell 
them in the foreseeable future changes significantly, the Group 
may elect to reclassify these assets. The reclassification to loans 
and receivables, available-for-sale or held-to-maturity depends 
on the nature of the asset. This evaluation does not affect any 
financial assets designated at FVTPL using the fair value option 
at designation. These instruments cannot be reclassified after 
initial recognition.

Held-to-maturity investments
Non-derivative financial assets with fixed or determinable 
payments and fixed maturity are classified as held-to-maturity 
when the Group has the positive intention and ability to hold 
them to maturity. After initial measurement, held-to-maturity 
investments are measured at amortised cost using the effective 
interest method (EIR), less impairment. Amortised cost is 
calculated by taking into account any discount or premium on 
acquisition and fees or costs that are an integral part of the EIR. 
The EIR amortisation and losses arising from impairment are 
included in the profit or loss.

Available-for-sale financial investments
Listed and unlisted shares held by the Group that are traded  
in an active market are classified as being available for sale and 
are stated at fair value. Gains and losses arising from changes  
in fair value are recognised in other comprehensive income and 
accumulated in the available-for-sale reserve with the exception 
of impairment losses which are recognised directly in profit or 
loss. Where the investment is disposed of or is determined to be 
impaired, the cumulative gain or loss previously recognised in the 
available-for-sale reserve is reclassified to profit or loss.

Loans and receivables
These include trade receivables, loans and other receivables that 
have fixed or determinable payments that are not quoted in an 
active market and are measured at amortised cost using the 
effective interest method, less any impairment. Interest income  
is recognised by applying the effective interest rate, except for 
short term receivables when the recognition of interest would  
be immaterial.

Impairment of financial assets
The Group assesses, at each reporting date, whether there is any 
objective evidence that a financial asset is impaired. A financial 
asset is deemed to be impaired where there is objective evidence 
of impairment that, as a result of one or more events that have 
occurred after the initial recognition of the asset, the estimated 
future cash flows of the investment have been affected.

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
2. Summary of significant accounting policies continued
For listed and unlisted equity investments classified as available-
for-sale, a significant or prolonged decline in the fair value of the 
security below its cost is considered to be objective evidence  
of impairment. When an available-for-sale financial asset  
is considered to be impaired, cumulative gains and losses 
previously recognised in other comprehensive income are 
reclassified to profit or loss in the period. In respect of equity 
securities, impairment losses previously recognised in profit or 
loss are not reversed through profit or loss. Any increase in fair 
value subsequent to an impairment loss is recognised in other 
comprehensive income.

For financial assets carried at amortised cost, the amount of  
the impairment is the difference between the asset’s carrying 
amount and the present value of estimated future cash flows, 
discounted at the financial asset’s original effective interest rate. 
The carrying amount is reduced through use of an allowance 
account and the amount of the loss is recognised in profit or loss.

Derivatives
Derivatives are initially recognised at fair value on the date  
a derivative contract is entered into and are subsequently 
remeasured at their fair value. The method of recognising the 
resulting gain or loss depends on whether the derivative is 
designated as a hedging instrument.

The Group categorises derivatives as follows:

Fair value hedge
Changes in the fair value of derivatives that qualify as fair value 
hedging instruments are recorded in the profit or loss, together 
with any changes in the fair value of the hedged asset or liability.

Cash flow hedge
The effective portion of changes in the fair value of derivatives 
that qualify as cash flow hedges are recognised in other 
comprehensive income. The gain or loss relating to the ineffective 
portion is recognised immediately in the profit or loss. Amounts 
accumulated in shareholders’ equity are transferred to the profit 
or loss in the period when the hedged item will affect the profit 
or loss. When the hedged item no longer meets the requirements 
for hedge accounting, expires or is sold, any accumulated gain or 
loss recognised in shareholders’ equity is transferred to profit and 
loss when the forecast transaction which was the subject of the 
hedge occurs.

Net investment hedge
Hedges of net investments in foreign operations are accounted 
for in a similar manner as cash flow hedges. The gain or loss 
accumulated in shareholders’ equity is transferred to the profit  
or loss at the time the foreign operation is disposed of.

Derivatives that do not qualify for hedge accounting
When derivatives do not qualify for hedge accounting, changes 
in fair value are recognised immediately in the profit or loss.

Trade receivables
Trade receivables are recognised initially at fair value and 
subsequently measured at amortised cost less provision  
for impairment.

Inventories
Inventories of consumable well supplies are stated at the lower of 
cost and net realisable value, cost being determined on a first in 
first out (FIFO) basis. Inventories of hydrocarbons are stated at 
the lower of cost and net realisable value.

Under/over-lift
Under or over-lifted positions of hydrocarbons are valued at 
market prices prevailing at the balance sheet date. An under-lift 
of production from a field is included in current receivables and 
valued at the reporting date spot price or prevailing contract 
price and an over-lift of production from a field is included in 
current liabilities and valued at the reporting date spot price or 
prevailing contract price.

Cash and cash equivalents
Cash and cash equivalents includes cash at bank, cash in hand, 
outstanding bank overdrafts and highly liquid interest bearing 
securities with original maturities of three months or less.

Equity
Share capital
The balance classified as equity share capital includes the total 
net proceeds (both nominal value and share premium) on issue 
of registered share capital of the parent Company. Share issue 
costs associated with the issuance of new equity are treated as a 
direct reduction of proceeds.

Merger reserve
Merger reserve represents the difference between the market 
value of shares issued to effect business combinations less the 
nominal value of shares issued. The merger reserve in the Group 
financial statements also includes the consolidation adjustments 
that arise under the application of the pooling of interest method.

Cash flow hedge reserve
For cash flow hedges, the effective portion of the gain or  
loss on the hedging instrument is recognised directly as other 
comprehensive income in the cash flow hedge reserve. Upon 
settlement of the hedged item, the change in fair value is 
transferred to the statement of comprehensive income.

Share-based payments reserve
Equity-settled share-based payment transactions are measured 
at the fair value of the services received, and the corresponding 
increase in equity is recorded directly at the fair value of the 
services received. The share-based payments reserve includes 
treasury shares.

Retained earnings
Retained earnings contain the accumulated results attributable to 
the shareholders of the parent Company.

Employee benefit trust
EnQuest PLC shares held by the Group are deducted from the 
share-based payments reserve and are recognised at cost. 
Consideration received for the sale of such shares is also recognised 
in equity, with any difference between the proceeds from the sale 
and the original cost being taken to reserves. No gain or loss is 
recognised in the statement of comprehensive income on the 
purchase, sale, issue or cancellation of equity shares.

71

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE GROUP FINANCIAL STATEMENTS 
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2012

2. Summary of significant accounting policies continued
Provisions
Decommissioning
Provision for future decommissioning costs is made in full when 
the Group has an obligation to dismantle and remove a facility or 
an item of plant and to restore the site on which it is located, and 
when a reasonable estimate of that liability can be made. The 
amount recognised is the present value of the estimated future 
expenditure. An amount equivalent to the discounted initial 
provision for decommissioning costs is capitalised and amortised 
over the life of the underlying asset on a unit-of-production basis 
over proven and probable reserves. Any change in the present 
value of the estimated expenditure is reflected as an adjustment 
to the provision and the oil and gas asset.

The unwinding of the discount applied to future 
decommissioning provisions is included under finance costs  
in the statement of comprehensive income.

Other
Provisions are recognised when the Group has a present legal  
or constructive obligation as a result of past events, it is probable 
that an outflow of resources will be required to settle the 
obligation and a reliable estimate can be made of the amount  
of the obligation.

Derecognition of financial assets and liabilities
Financial assets
A financial asset (or, where applicable a part of a financial asset) 
is derecognised where:
■■ the rights to receive cash flows from the asset have expired;
■■ the Group retains the right to receive cash flows from the asset, 

but has assumed an obligation to pay them in full without 
material delay to a third party under a ‘pass-through’ 
arrangement; or

■■ the Group has transferred its rights to receive cash flows from 

the asset and either (a) has transferred substantially all the risks 
and rewards of the asset, or (b) has neither transferred nor 
retained substantially all the risks and rewards of the asset,  
but has transferred control of the asset.

Financial liabilities
A financial liability is derecognised when the obligation under  
the liability is discharged, cancelled or expires.

If an existing financial liability is replaced by another from the 
same lender, on substantially different terms, or the terms of an 
existing liability are substantially modified, such an exchange or 
modification is treated as a derecognition of the original liability 
and the recognition of a new liability such that the difference in 
the respective carrying amounts together with any costs or fees 
incurred are recognised in the statement of comprehensive 
income.

Interest-bearing loans and borrowings
Interest-bearing loans and borrowings are recognised initially  
at fair value, net of transaction costs incurred.

Borrowing costs are stated at amortised cost using the effective 
interest method.

The effective interest method is a method of calculating the 
amortised cost of a financial liability and of allocating interest 
expense over the relevant period. The effective interest rate  
is the rate that exactly discounts estimated future cash  
payments through the expected life of the financial liability,  
or a shorter period to the net carrying amount of the financial 
liability where appropriate.

Leases
The determination of whether an arrangement is, or contains  
a lease is based on the substance of the arrangement at the 
inception date. The arrangement is assessed for whether 
fulfilment of the arrangement is dependent on the use of a 
specific asset or assets or the arrangement conveys a right  
to use the asset or assets, even of that right is not explicitly 
specified in an arrangement.

Finance leases that transfer substantially all the risks and benefits 
incidental to ownership of the leased item to the Group, are 
capitalised at the commencement of the lease at the fair value  
of the leased property or, if lower, at the present value of the 
minimum lease payments. Lease payments are apportioned 
between finance charges and reduction of the lease liability so  
as to achieve a constant rate of interest on the remaining balance 
of the liability. Finance charges are recognised in finance costs  
in the income statement.

A leased asset is depreciated over the useful life of the asset. 
However, if there is no reasonable certainty that the Group will 
obtain ownership by the end of the lease term, the asset is 
depreciated over the shorter of the estimated useful life of the 
asset and the lease term.

Operating lease payments are recognised as an operating 
expense in the income statement on a straight-line basis over  
the lease term.

Revenue
Revenue is recognised to the extent that it is probable  
economic benefits will flow to the Group and the revenue  
can be reliably measured.

Oil and gas revenues comprise the Group’s share of sales from 
the processing or sale of hydrocarbons on an entitlement basis, 
when the significant risks and rewards of ownership have been 
passed to the buyer.

Tariff revenue is recognised in the period in which the services 
are provided at the agreed contract rates.

Exceptional items
As permitted by IAS 1 (Revised), Presentation of Financial 
Statements, certain items are presented separately. The items 
that the Group separately presents as exceptional on the face  
of the statement of comprehensive income are those material 
items of income and expense which because of the nature and 
expected infrequency of the events giving rise to them, merit 
separate presentation to allow shareholders to understand  
better the elements of financial performance in the year,  
so as to facilitate comparison with prior periods and to assess 
better trends in financial performance.

72

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
2. Summary of significant accounting policies continued
Depletion of fair value uplift to property, plant and equipment 
on acquiring strategic investments
IFRS requires that a fair value exercise is undertaken allocating 
the cost of acquiring controlling interests to the fair value of the 
acquired identifiable assets, liabilities and contingent liabilities. 
Any difference between the cost of acquiring the interest and the 
fair value of the acquired net assets, which includes identified 
contingent liabilities, is recognised as acquired goodwill. The fair 
value exercise is performed as at the date of acquisition.

The Directors have determined that for strategic investments it is 
important to identify separately the earnings impact of increased 
depletion arising from the acquisition date fair value uplifts made 
to property, plant and equipment over their useful economic 
lives. As a result of the nature of fair value assessments in the  
oil and gas industry the value attributed to strategic assets is 
subjective, based on a wide range of complex variables at a point 
in time. The subsequent depletion of the fair value uplifts bears 
little relationship to current market conditions, operational 
performance or cash generation. Management therefore reports 
and monitors the business performance of strategic investments 
before the impact of depletion of fair value uplifts to property, 
plant and equipment and the uplift is excluded from the business 
result presented in the Group statement of comprehensive 
income.

Employee benefits
Short term employee benefits
Short term employee benefits such as salaries, social premiums 
and holiday pay, are expensed when incurred.

Pension obligations
The Group’s pension obligations consist of defined contribution 
plans. A defined contribution plan is a pension plan under which 
the Group pays fixed contributions. The Group has no further 
payment obligations once the contributions have been paid. The 
amount charged to the statement of comprehensive income in 
respect of pension costs reflects the contributions payable in the 
year. Differences between contributions payable during the year 
and contributions actually paid are shown as either accrued 
liabilities or prepaid assets in the balance sheet.

Share-based payment transactions
Employees (including Directors) of the Group receive 
remuneration in the form of share-based payment transactions, 
whereby employees render services in exchange for shares or 
rights over shares (equity-settled transactions) of EnQuest PLC.

Equity-settled transactions
The cost of equity-settled transactions with employees is 
measured by reference to the fair value at the date on which they 
are granted. In valuing equity-settled transactions, no account  
is taken of any service or performance conditions, other than 
conditions linked to the price of the shares of EnQuest PLC 
(market conditions) or ‘non-vesting’ conditions, if applicable.

The cost of equity-settled transactions is recognised over the 
period in which the relevant employees become fully entitled  
to the award (the vesting period). The cumulative expense 
recognised for equity-settled transactions at each reporting date 
until the vesting date reflects the extent to which the vesting 
period has expired and the Group’s best estimate of the number 
of equity instruments that will ultimately vest. The statement of 

comprehensive income charge or credit for a period represents 
the movement in cumulative expense recognised as at the 
beginning and end of that period.

No expense is recognised for awards that do not ultimately vest, 
except for awards where vesting is conditional upon a market or 
non-vesting conditions, which are treated as vesting irrespective 
of whether or not the market or non-vesting condition is satisfied, 
provided that all other performance conditions are satisfied. 
Equity awards cancelled are treated as vesting immediately on 
the date of cancellation, and any expense not recognised for the 
award at that date is recognised in the statement of 
comprehensive income.

Taxes
Income taxes
Current tax assets and liabilities are measured at the amount 
expected to be recovered from or paid to the taxation authorities, 
based on tax rates and laws that are enacted or substantively 
enacted by the balance sheet date.

Deferred tax is provided in full on temporary differences arising 
between the tax bases of assets and liabilities and their carrying 
amounts in the Group financial statements. However, deferred 
tax is not accounted for if it arises from initial recognition of an 
asset or liability in a transaction other than a business 
combination that at the time of the transaction affects neither 
accounting nor taxable profit or loss. Deferred tax is measured on 
an undiscounted basis using tax rates (and laws) that have been 
enacted or substantively enacted by the balance sheet date and 
are expected to apply when the related deferred tax asset is 
realised or the deferred tax liability is settled. Deferred tax assets 
are recognised to the extent that it is probable that future taxable 
profits will be available against which the temporary differences 
can be utilised.

Deferred tax liabilities are recognised for taxable temporary 
differences arising on investments in subsidiaries and interests in 
joint ventures, except where the Group is able to control the 
reversal of the temporary difference and it is probable that the 
temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred income tax assets is reviewed  
at each balance sheet date. Deferred income tax assets and 
liabilities are offset, only if a legal right exists to offset current tax 
assets against current tax liabilities, the deferred income taxes 
relate to the same taxation authority and that authority permits 
the Group to make a single net payment.

Production taxes
In addition to corporate income taxes, the Group’s financial 
statements also include and disclose production taxes on net 
income determined from oil and gas production.

The Group distinguishes between income tax and production 
tax. Production tax relates to Petroleum Revenue Tax (PRT) and 
is accounted for under IAS 12 since it has the characteristics of an 
income tax as it is imposed under Government authority and the 
amount payable is based on taxable profits of the relevant fields. 
Current and deferred PRT is provided on the same basis as 
described above for income taxes.

73

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE GROUP FINANCIAL STATEMENTS 
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2012

3. Segment information
Management have considered the requirements of IFRS 8, in regard to the determination of operating segments, and concluded that 
the Group has only one significant operating segment being the exploration for, and the extraction and production of hydrocarbons.

All revenue is generated from sales to customers in the United Kingdom. Details of the Group’s revenue components are provided in 
note 5(a). All crude oil revenue is received from one major customer, Shell International Trading and Shipping Company Limited and 
amounted to US$879,307,000 or 99% of total revenue (excluding oil hedge gains and losses) in the year ended 31 December 2012 
(2011: US$954,051,000 or 98% of total revenue).

All non-current assets of the Group are located in the United Kingdom except for US$7,136,000 (2011: nil) located in Malaysia.

4. Exceptional items and depletion of fair value uplift

Recognised in arriving at profit/(loss) from operations before tax and finance income/(costs):
Gain on disposal of asset held for sale
Impairment of available for sale investments (note 14)
Impairment of oil and gas assets
Gain on disposal of property, plant and equipment
Well abandonment
Depletion of fair value uplift

Tax

2012
US$’000

2011
US$’000

–
(4,417)
(143,882)
175,929
–
(10,251)

17,379
85,174

102,553

8,644
(12,497)
–
–
8,194
(16,973)

(12,632)
(62,430)

(75,062)

Gain on disposal of asset held for sale
During the prior year the Group disposed of its held for sale interest in the Petisovci project in Slovenia in return for 150,903,958 new 
ordinary shares in Ascent Resources plc (Ascent) at a market value of US$18,422,000 creating a gain of US$8,644,000 in the year 
ended 31 December 2011.

Impairment of available for sale investments
Following disposal of the held for sale Petisovci asset, the Group held an investment in Ascent. The accounting valuation of this 
shareholding at 31 December 2012 resulted in a non-cash impairment of US$4,417,000 (2011: US$12,497,000).

Impairment of oil and gas assets
As part of the annual impairment review process, impairment triggers were highlighted which has led to a US$143,882,000 
impairment of the Heather and Broom hub (refer to note 10). 

Gain on disposal of property, plant and equipment
On 12 October 2012, the Company entered into an agreement to farm out 35% of the Alma/Galia development to KUFPEC with  
an effective date of 1 January 2012. To earn the 35% interest, KUFPEC agreed to pay EnQuest: 

a)  a total of US$113,187,000 representing 35% of certain costs incurred between 1 January 2012 and 30 September 2012; 
b)  a US$15,000,000 capital contribution;
c)  carry EnQuest from 1 October 2012 up to a cap of US$182,000,000 after which they will revert back to paying their share of  

the costs (35%). This carry has been recognised in other financial assets (refer note 21) and at 31 December 2012 the carry had 
reduced to US$95,302,000; and 

d) an additional amount of US$647,000 per month on top of their share of operating costs, for a period of 36 months after the date 
of first oil production. The present value of these payments of US$19,300,000 has been recognised as an other financial asset 
(refer to note 21). 

At 31 December 2012, the amounts due under (a) and (b) above had been received.

A ‘balancing payment’ was also agreed whereby should the cost of development exceed US$1,055,000,000 then EnQuest would be 
required to pay 17.5% of costs up to a cap on the cost of development of US$1,153,000,000. As costs are now expected to exceed 
the cap EnQuest will be liable to pay these additional costs and so a liability has been recognised for US$17,150,000 in other financial 
liabilities. 

In addition, a reserves protection mechanism was agreed to enable KUFPEC to recoup its investment to the date of first production 
(refer to note 24). 

The gain on disposal represents the difference between the total consideration and derecognition of 35% of the development at the 
date of the agreement.

74

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
4. Exceptional items and depletion of fair value uplift continued
Well abandonment expenses
During the year ended 31 December 2011 a credit of US$8,194,000 was recognised following a further review of options to recover 
funds from the previous Thistle field owners, relating to partial decommissioning of two wells covered by the Intervening Period and 
Decommissioning Liability Agreements.

Depletion of fair value uplift
Additional depletion arising from the fair value uplift of Petrofac Energy Developments Limited’s (PEDL) oil and gas assets on 
acquisition of US$10,251,000 (2011: US$16,973,000) is included within cost of sales in the statement of comprehensive income.

Tax
In addition to the tax impact of the exceptional items, the tax exceptional amount includes the impact of the 2012 enactment of a 
restriction on relief of costs incurred in respect of the decommissioning of UK oil and gas assets to 50%. This increased the tax charge 
by US$14,279,000, of which US$10,389,000 has been reflected as an exceptional item as it relates to the restriction on the opening 
decommissioning liability. 

5. Revenue and expenses
(a) Revenue

Revenue from crude oil sales
Gain/(loss) on realisation of financial instruments
Revenue from condensate sales
Tariff revenue
Other operating revenue

(b) Cost of sales

Cost of operations
Tariff and transportation expenses
Change in lifting position
Inventory movement (note 15) 
Depletion of oil and gas assets (note 10)

(c) Exploration and evaluation expenses

Unsuccessful exploration expenditure written off (note 12)
Impairment charge (note 12)
Pre-licence costs expensed

(d) General and administration expenses

Staff costs (note 5(g))
Depreciation (note 10)
Other general and administration costs
Recharge of costs to operations and joint venture partners

Year ended 
31 December 
2012 
US$’000

Year ended 
31 December 
2011 
US$’000

879,307
53
(137)
10,189
98

960,401
(36,509)
–
11,672
410

889,510

935,974

Year ended 
31 December 
2012 
US$’000

Year ended 
31 December 
2011 
US$’000

228,670
40,806
(24,360)
(3,459)
216,780

458,437

233,008
43,043
14,631
875
217,233

508,790

Year ended 
31 December 
2012 
US$’000

Year ended 
31 December 
2011 
US$’000

6,514
6,583
10,060

23,157

–
36,962
–

36,962

Year ended 
31 December 
2012 
US$’000

Year ended 
31 December 
2011 
US$’000

76,861
1,483
17,570
(89,264)

6,650

45,177
1,784
12,523
(45,729)

13,755

75

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE GROUP FINANCIAL STATEMENTS 
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2012

5. Revenue and expenses continued
(e) Other income

Other income

(f) Other expenses

Net foreign exchange losses

(g) Staff costs

Wages and salaries
Social security costs
Defined contribution pension costs
Expense of share-based payments (note 19)
Other staff costs

Total employee costs
Contractor costs

Year ended 
31 December 
2012 
US$’000

Year ended 
31 December 
2011 
US$’000

2,000

–

Year ended 
31 December 
2012 
US$’000

Year ended 
31 December 
2011 
US$’000

8,445

3,344

Year ended 
31 December 
2012 
US$’000

Year ended 
31 December 
2011 
US$’000

30,069
4,054
3,155
5,163
2,682

45,123
31,738

76,861

21,279
3,137
1,194
4,881
1,845

32,336
12,841

45,177

The average number of persons employed by the Group during the year was 173 (2011: 112).

Details of remuneration, pension entitlement and incentive arrangements for each Director are set out in the Remuneration Report on 
pages 54 to 59.

(h) Auditors’ remuneration
The following amounts were payable by the Group to its auditors Ernst & Young LLP during the year:

Fees payable to the Group’s auditors for the audit of the Group’s annual accounts
Fees payable to the Group’s auditors and its associates for other services:
The audit of the Group’s subsidiaries
Audit related assurance services
Tax advisory services(i)
Other assurance services
Corporate finance services

Year ended 
31 December 
2012 
US$’000

Year ended 
31 December 
2011 
US$’000

148

207
67
745
5
148

136

127
78
913
–
–

1,320

1,254

(i)  Includes costs of US$345,600 (2011: US$620,000) relating to tax advice on asset and corporate acquisitions. These have been capitalised as part of the cost of 

the asset. 

76

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
6. Finance costs/income

Finance costs:
Loan interest payable
Unwinding of discount on decommissioning provisions (note 22)
Cash flow hedge re-price premium
Fair value loss on financial instruments at fair value through profit or loss (note 21)
Finance charges payable under finance leases
Other financial expenses

Less: amounts included in the cost of qualifying assets

Finance income:
Bank interest receivable
Fair value gain on financial instruments at fair value through profit or loss (note 21)
Unwinding of financial asset
Other financial income

7. Income tax
(a) Income tax
The major components of income tax expense are as follows:

Group statement of comprehensive income
Current income tax
Current income tax charge
Adjustments in respect of current income tax of previous years
Deferred income tax
Relating to origination and reversal of temporary differences
Adjustments in respect of changes in tax rates
Adjustments in respect of deferred income tax of previous years

Income tax expense reported in statement of comprehensive income

Year ended 
31 December 
2012 
US$’000

Year ended 
31 December 
2011 
US$’000

668
10,148
335
2,147
3
8,307

21,608
(397)

21,211

686
871
479
125

2,161

–
7,793
5,867
–
–
4,938

18,598
–

18,598

1,808
2,147
–
–

3,955

Year ended 
31 December 
2012 
US$’000

Year ended 
31 December 
2011 
US$’000

4,860
(1,204)

50,335
10,785
(23,593)

860
807

237,034
68,085
(4,956)

41,183

301,830

(b) Reconciliation of total income tax charge
A reconciliation between the income tax charge and the product of accounting profit multiplied by the UK statutory tax rate is as follows:

Profit before tax

Statutory rate of corporation tax in the UK of 62% (2011: 59.3%)
Supplementary corporation tax non-deductible expenditure
Non-deductible expenditure
Deductible lease expenditure
Non-taxable gain on sale of assets
Petroleum revenue tax (net of income tax benefit)
North Sea tax reliefs
Tax in respect of non-ring fence trade
Deferred tax rate increase on North Sea oil and gas activities
Adjustments in respect of prior years
Overseas tax rate differences
Other differences

At the effective income tax rate of 10% (2011: 83%)

Year ended 
31 December 
2012 
US$’000

Year ended 
31 December 
2011 
US$’000

403,401

362,821

250,109
6,552
3,310
(76,951)
(109,076)
19,081
(29,894)
(10,837)
14,675
(24,797)
(464)
(525)

215,168
888
3,195
–
–
14,465
(6,341)
1,596
78,149
(4,149)
(1,141)
–

41,183

301,830

77

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE GROUP FINANCIAL STATEMENTS 
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2012

7. Income tax continued
(c) Deferred income tax
Deferred income tax relates to the following:

Deferred tax liability
Accelerated capital allowances
Other temporary differences

Deferred tax asset
Losses
Decommissioning liability
Other temporary differences

Deferred tax expense

Deferred tax liabilities, net

Reflected in balance sheet as follows:
Deferred tax assets
Deferred tax liabilities

Deferred tax liabilities, net

Group balance sheet

Group profit and loss account

2012
US$’000

2011
US$’000

2012
US$’000

2011
US$’000

1,050,189
99,955

1,150,144

775,486
46,345

821,831

274,703
53,610

222,657
39,999

(359,406)
(116,476)
(65,175)

(95,558)
(112,368)
(36,512)

(253,847)
(4,108)
(32,831)

107,284
(42,314)
(27,463)

37,527

300,163

(541,057)

(244,438)

609,087

577,393

(23,143)
632,230

(12,617)
590,010

609,087

577,393

In addition to the amount charged to the profit and loss, a deferred tax charge of US$4,167,000 (2011: credit US$4,242,000) in respect of 
cash flow hedges (note 21), is recognised as other comprehensive income.

(d) Tax losses
Deferred income tax assets are recognised for the carry-forward of unused tax losses and unused tax credits to the extent that it is 
probable that taxable profits will be available against which the unused tax losses/credits can be utilised.

The Group has unused UK mainstream corporation tax losses of US$2,662,000 (2011: US$nil) for which no deferred tax asset has 
been recognised at the balance sheet date due to the uncertainty of recovery of these losses.

The Group also has pre-trading ring fence expenditure of US$54,529,000 which has arisen following the acquisition of Canamens 
Energy North Sea Limited in early 2012 for which no deferred tax asset has been recognised. The expenditure is likely to become 
deductible and available to the Group for UK ring fence taxation purposes during 2013.

The Group has unused overseas tax losses in Canada of approximately CAD$17,106,000 (2011: CAD$76,577,000) and in Holland of 
€1,070,000 (2011: €920,000) for which no deferred tax asset has been recognised at the balance sheet date. The tax losses in 
Canada have expiry periods of between 7 and 20 years, none of which expire in 2013. The tax losses in Canada were adjusted in the 
2010 submitted returns to reflect the change in control of Stratic, resulting in a reduction in losses of CAD$47,554,000. Tax losses in 
Holland can be carried forward for a period up to nine years and are likely to expire in 2013.

(e) Change in legislation
The Finance Act 2012 enacted a restriction on relief of costs incurred in respect of decommissioning to 50%, compared to the North 
Sea ring fence rate of 62% of the relief. The impact of the decommissioning relief restriction in 2012 is an increase in the tax charge of 
US$14,279,000, of which US$10,389,000 relates to the restriction of the opening decommissioning balances. A change in the tax 
rate for non-ring fence companies was also enacted in the Finance Act 2012, reducing the corporation tax rate from 25% to 23% with 
effect from 1 April 2013. The impact of the change in tax rate is an increase in the tax charge of US$396,000.

In 2011, the enactment of the increase in the UK supplementary corporation tax rate on oil and gas activities in the North Sea 
increased the deferred tax charge in the income statement by US$78,149,000, of which US$68,086,000 relates to the revaluation of 
the opening deferred tax corporation tax balance.

78

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
8. Earnings per share
The calculation of earnings per share is based on the profit after tax and on the weighted average number of Ordinary shares in issue 
during the period.

Basic and diluted earnings per share are calculated as follows:

Basic
Dilutive potential of Ordinary shares granted under 

share-based incentive schemes

Diluted

Adjusted (excluding exceptional items)

Profit after tax
Year ended 31 December

2012 
US$’000

362,218

–

362,218

259,665

2011 
US$’000

60,991

–

60,991

136,053

Weighted average number 
of shares
Year ended 31 December

Earnings per share
Year ended 31 December

2012 
Million

784.1

13.3

797.4

784.1

2011 
Million

801.7

2.9

804.6

801.7

2012 
US$

0.462

–

0.454

0.331

2011 
US$

0.076

–

0.076

0.170

9. Dividends paid and proposed
The Company paid no dividends during the year ended 31 December 2012 (2011: nil). At 31 December 2012 there are no proposed 
dividends. (2011: nil).

10. Property, plant and equipment

Cost:
At 1 January 2011
Additions
Reclassified from intangible assets (note 12)
Change in decommissioning provision

At 31 December 2011
Additions
Farm in to West Don
Farm out
Cost carry
Reclassified from intangible assets (note 12)
Change in decommissioning provision

At 31 December 2012

Depletion and depreciation:
At 1 January 2011
Charge for the year

At 31 December 2011
Impairment charge for the year
Charge for the year

At 31 December 2012

Net carrying amount:
At 31 December 2012

At 31 December 2011

At 1 January 2011

Oil and gas 
assets
US$’000

Office 
furniture and 
equipment
US$’000

1,628,601
291,723
11,204
50,722

1,982,250
829,463
29,752
(143,054)
86,698
31,221
62,239

7,813
4,677
–
–

12,490
8,859
–
–
–
–
–

 Total
US$’000

1,636,414
296,400
11,204
50,722

1,994,740
838,322
29,752
(143,054)
86,698
31,221
62,239

2,878,569

21,349

2,899,918

497,989
217,233

715,222
143,882
216,780

4,176
1,784

5,960
–
1,483

502,165
219,017

721,182
143,882
218,263

1,075,884

7,443

1,083,327

1,802,685

13,906

1,816,591

1,267,028

1,130,612

 6,530

 1,273,558

3,637

1,134,249

A farm out agreement was entered into during the year with KUFPEC for a 35% share of the Alma/Galia development. Consideration 
included reimbursement of past costs (US$113,187,000), a capital contribution (US$15,000,000), a cost carry up to a cap of 
US$182,000,000 and future costs payable after the date of first oil production (US$23,292,000). The cost of the 35% share of assets 
disposed was US$143,054,000 (including the decommissioning asset).

During the year ended 31 December 2012 there was a US$143,882,000 impairment of the Heather and Broom hub following a delay 
in phasing of production, particularly to allow the drilling of the West Fault Block well at Thistle in 2013 and an increase in estimated 
capital expenditure associated with the field life extension programme. The Heather and Broom hub inherited a high net book value 
of US$423,000,000, reflecting the fair value uplift when Lundin acquired the Heather and Broom assets prior to the formation 
of EnQuest. Refer to note 11 in respect of key assumptions used in value in use calculations.

79

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE GROUP FINANCIAL STATEMENTS 
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2012

10. Property, plant and equipment continued
At 31 December 2012, due to the recognition of 2P reserves for the Kraken field, US$61,994,000 of costs in relation to Kraken were 
reclassed from intangible to property, plant and equipment. Also during the year, prior year pre-development costs in relation to 
Crawford and Porter (US$30,773,000) were transferred to intangible assets as a result of a decision to review development options.

The amount of borrowing costs capitalised during the year ended 31 December 2012 was US$397,000 and relate to the Alma/Galia 
development (2011: nil). The weighted average rate used to determine the amount of borrowing costs eligible for capitalisation is 
0.84% (2011: nil).

The additions during the year and the resultant net book value of property, plant and equipment held under finance leases and hire 
purchase contracts at 31 December 2012 was US$141,000 (2011: nil).

The net book value at 31 December 2012 includes US$535,827,000 (2011: US$107,433,000) of pre-development assets and 
development assets under construction which are not being depreciated.

11. Goodwill
A summary of the movement in goodwill is presented below:

At 1 January and 31 December

2012 
US$’000

107,760

2011 
US$’000

107,760

The balance represents goodwill acquired on the acquisition of Stratic and PEDL in 2010. Goodwill acquired through business 
combinations has been allocated to a single cash-generating unit (CGU), the UKCS, being the Group’s only significant operating 
segment and therefore the lowest level that goodwill is reviewed by the Board.

Impairment testing of goodwill
In accordance with IAS 36 Impairment of Assets, goodwill was reviewed for impairment at the year end. In assessing whether 
goodwill has been impaired, the carrying amount of the CGU, including goodwill, is compared with its recoverable amount.

The recoverable amount of the CGU has been determined on a value in use basis using a discounted cash flow model comprising 
asset-by-asset life of field projections. The pre-tax discount rate used is derived from the Group’s post-tax weighted average cost  
of capital and is reassessed each year. Risks specific to assets within the CGU are reflected within the cash flow forecasts.

Key assumptions used in value in use calculations
The key assumptions required for the calculation of value in use of the CGU are:
■■ oil prices
■■ production volumes
■■ discount rates

Oil prices are based on forward price curves for the first five years before reverting to the Group’s long term pricing assumptions. For 
the purposes of calculating value in use, management has applied an oil price assumption of US$107.60 per barrel in 2013, US$102.00 
per barrel in 2014, US$97.80 per barrel in 2015, US$94.30 per barrel in 2016, US$91.70 per barrel in 2017 thereafter US$90 inflated at 
2% per annum from 2013. In 2011, oil prices were based on US$119.25 per barrel in 2012, US$112.08 per barrel in 2013, US$104.73 per 
barrel in 2014, US$98.67 per barrel in 2015, US$97.42 per barrel in 2016 thereafter US$90 inflated at 2% per annum from 2012.

Production volumes are based on life of field production profiles for each asset within the CGU. The production volumes used in the 
value in use calculations were taken from the report prepared by the Group’s independent reserve assessment experts.

The discount rate reflects management’s estimate of the Group’s weighted average cost of capital (WACC). The WACC takes into 
account both debt and equity. The cost of equity is derived from the expected return on investment by the Group’s investors. The 
cost of debt is based on its interest-bearing borrowings. Segment risk is incorporated by applying a beta factor based on publicly 
available market data. The pre-tax discount rate applied to the Group’s pre-tax cash flow projections is 20.4% (2011: 21.3%).

Sensitivity to changes in assumptions
There are reasonably possible changes in key assumptions which could erode the estimated amount by which the calculated value in 
use exceeds the carrying value of the CGU. These are discussed below:
■■ oil price: management has considered the possibility of lower oil prices in the future. Revenue for the Group’s future oil production 
is directly linked to the market price of Brent blend oil. A fall in the price for Brent blend would directly impact the Group’s revenue 
and potentially the economic life of assets in the CGU. It is estimated that the long term price of oil that would cause the 
recoverable amount to be equal to the carrying amount of the CGU would be US$71.75 per barrel, escalated at 2% per annum 
(2011: US$80.71 per barrel, escalated at 2% per annum).

■■ production volumes: estimated production volumes were taken from the report prepared by the Group’s independent reserve 
assessment experts. On a weighted average basis, production would need to fall by 18.4% (2011: 24%) to cause the recoverable 
amount to fall below the carrying amount of the CGU.

80

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
12. Intangible oil and gas assets

Cost
At 1 January 2011
Additions
Write-off of relinquished licences previously impaired
Reclassified to property, plant and equipment (note 10)
Reclassified to asset held for sale (note 13)

At 31 December 2011
Additions
Acquisition of interests in licences
Write-off of relinquished licences previously impaired
Unsuccessful exploration expenditure written off
Reclassified to property, plant and equipment (note 10)
Reclassified from asset held for sale (note 13)

At 31 December 2012

Provision for impairment
At 1 January 2011
Impairment charge for the year
Write-off of relinquished licences previously impaired

At 31 December 2011
Impairment charge for the year
Write-off of relinquished licences previously impaired

At 31 December 2012

Net carrying amount:
At 31 December 2012

At 31 December 2011

At 1 January 2011

US$’000

108,124
64,165
(34,127)
(11,204)
(1,254)

125,704
77,120
39,103
(4,754)
(6,514)
(31,221)
1,254

200,692

(98,522)
(36,962)
34,127

(101,357)
(6,583)
4,754

(103,186)

97,506

24,347

9,602

During the year ended 31 December 2012, the Group acquired a 60% interest in the Kraken oil discovery in the UKCS in various 
tranches. The initial 20% interest was acquired through the acquisition of two entities from Canamens Limited for US$36,103,000. 
These costs are included within acquisition of interests in licences. The remaining 40% is by way of development carries. In addition 
costs of US$3,000,000 to acquire interests in an exploration licence in Malaysia are included within acquisition of interests in licences. 

During the year ended 31 December 2012, US$4,754,000 of costs relating to relinquished licences previously impaired were written 
off (2011: US$34,127,000).

The impairment charge for the year ended 31 December 2012 includes costs of the Tryfan exploration well which proved to be 
uncommercial. During the year ended 31 December 2011 costs of US$36,962,000 were impaired relating to dryhole wells or 
uneconomic assessment on evaluation of the assets.

13. Assets held for sale

At 1 January 2011
Disposals
Reclassified from intangible fixed assets (note 12)

At 31 December 2011
Reclassified to intangible fixed assets (note 12)

At 31 December 2012

US$’000

9,778
(9,778)
1,254

1,254
(1,254)

–

On 11 February 2011, the Group disposed of its held for sale interest in the Petisovci project (Petisovci) in Slovenia in return for 
150,903,958 new ordinary shares in Ascent at a market value of US$18,422,000, creating a gain of US$8,644,000.

During 2011, the FQuad Dutch assets were reclassified as held for sale as they were subject to a swap arrangement whereby these 
were to be transferred to Sterling Resources Limited for a 50% share in the Cairngorm licence Block 16/3d. This arrangement was 
finalised in December 2012 and therefore the costs have been reclassified to intangible fixed assets.

81

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE GROUP FINANCIAL STATEMENTS 
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2012

14. Investments

Cost
At 1 January 2011
Additions

At 31 December 2012 and 31 December 2011

Provision for impairment
At 1 January 2011
Impairment charge for the year

At 31 December 2011
Impairment charge for the year

At 31 December 2012

Net carrying amount:
At 31 December 2012

At 31 December 2011

At 1 January 2011

US$’000

–
19,231

19,231

–
(12,497)

(12,497)
(4,417)

(16,914)

2,317

6,734

–

The Group acquired an investment of 150,903,958 new ordinary shares in Ascent at a market value of US$18,422,000 on the disposal 
of the held for sale Petisovci asset on 11 February 2011 and a further 10,000,000 shares were purchased during 2011 increasing the 
value of the investment to US$19,231,000. The accounting valuation of the Group’s shareholding (based on the movement in the 
quoted share price of Ascent) has resulted in an additional non-cash impairment of US$4,417,000 in the year ended 31 December 
2012 (2011: US$12,497,000).

15. Inventories

Crude oil

16. Trade and other receivables

Trade receivables
Joint venture receivables
Other receivables

Prepayments and accrued income

2012 
US$’000

15,301

2011 
US$’000

11,842

2012
US$’000

94,818
100,918
24,645

220,381
19,341

239,722

2011
US$’000

75,031
33,411
9,313

117,755
8,799

126,554

Trade receivables are non-interest bearing and are generally on 15 to 30 day terms.

Trade receivables are reported net of any provisions for impairment. As at 31 December 2012 no impairment provision for trade 
receivables was necessary (2011: nil).

Joint venture receivables relate to billings to joint venture partners and were not impaired. The amount included at 31 December 2012 
in respect of amounts due from KUFPEC in respect of the carry was US$53,261,000.

As at 31 December 2012 and 31 December 2011 no other receivables were determined to be impaired.

The carrying value of the Group’s trade, joint venture and other receivables as stated above is considered to be a reasonable 
approximation to their fair value.

17. Cash and cash equivalents
The carrying value of the Group’s cash and cash equivalents is considered to be a reasonable approximation to their fair value. 
Included within the cash balance at 31 December 2012 is restricted cash of US$14,880,000 (2011: nil) relating to cash held under 
Performance Guarantee Agreements with suppliers.

82

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
18. Share capital
The share capital of the Company as at 31 December was as follows:

Authorised, issued and fully paid
802,660,757 (2011: 802,660,757) Ordinary shares of £0.05 each
Share premium

2012
US$’000

2011
US$’000

61,249
52,184

113,433

61,249
52,184

113,433

The share capital comprises only one class of Ordinary share. Each Ordinary share carries an equal voting right and right to a dividend.

On 14 April 2011, 3,197,852 Ordinary shares of £0.05 each were issued at par and allotted to the Company’s Employee Benefit Trust to 
satisfy awards made under the Company’s share-based incentive schemes. There were no new issues of shares during 2012.

At 31 December 2012 there were 22,966,471 shares held by the Employee Benefit Trust (2011: 18,139,465) due to the purchase of 
shares to satisfy awards made under the Company’s share-based incentive schemes net of shares used during the year.

19. Share-based payment plans
On 18 March 2010, the Directors of the Company approved three share schemes for the benefit of Directors and employees, being a 
Deferred Bonus Share Plan, a Restricted Share Plan and a Performance Share Plan. During 2012 a Sharesave Plan was approved by 
the Company. The grant values for all schemes are based on the average share price from the three days preceding date of grant.

Deferred Bonus Share Plan (DBSP)
Selected employees are eligible to participate under this scheme. Participants may be invited to elect or in some cases, be required, 
to receive a proportion of any bonus in Ordinary shares of EnQuest (Invested Awards). Following such award, EnQuest will generally 
grant the participant an additional award over a number of shares bearing a specified ratio to the number of his or her invested 
shares (Matching Shares). The awards granted in 2012 and 2011 will vest 33% on the first anniversary of the date of grant, a further 
33% after year two and the final 34% on the third anniversary of the date of grant. The awards granted in 2010 will vest 25% on the 
second anniversary of the date of grant, a further 25% after year three and the final 50% on the fourth anniversary of the date of 
grant. The invested awards are fully recognised as an expense in the period to which the bonuses relate. The costs relating to the 
matching shares are recognised over the vesting period and the fair values of the equity-settled matching shares granted to 
employees are based on quoted market prices adjusted for the trued up percentage vesting rate of the plan.

Details of the fair values and assumed vesting rates of the DBSP scheme are shown below:

2012 awards
2011 awards
2010 awards

Weighted 
average fair 
value per 
share

124p
137p
101p

Trued up 
vesting rate

86%
84%
98%

The following shows the movement in the number of share awards held under the DBSP scheme outstanding and not exercisable:

Outstanding at 1 January
Granted during the year
Vested during the year
Forfeited during the year

Outstanding at 31 December

* 

Includes invested and matching shares.

2012 
Number*

526,080
783,410
(230,743)
(60,390)

2011 
Number*

390,730
351,444
(94,292)
(121,802)

1,018,357

526,080

There were no share awards exercisable at either 31 December 2012 or 2011.

The weighted average contractual life for the share awards outstanding as at 31 December 2012 was 1.1 years (2011: 1.1 years).

The charge recognised in the 2012 statement of comprehensive income in relation to matching share awards amounted to 
US$701,000 (2011: US$308,000).

83

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE GROUP FINANCIAL STATEMENTS 
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2012

19. Share-based payment plans continued
Restricted Share Plan (RSP)
Under the Restricted Share Plan scheme, employees are granted shares in EnQuest over a discretionary vesting period, which may  
or may not be, at the direction of the Remuneration Committee of the Board of Directors of EnQuest, subject to the satisfaction  
of performance conditions. Awards made in 2010, 2011 and 2012 under the RSP will vest over periods between one and four years.  
At present there are no performance conditions applying to this scheme nor is there currently any intention to introduce them in the 
future. The fair value of the awards granted under the plan at various grant dates during the year are based on quoted market prices 
adjusted for an assumed vesting rate over the relevant vesting period.

Details of the fair values and assumed vesting rate of the RSP scheme are shown below:

2012 awards
2011 awards
2010 awards

Weighted 
average fair 
value per 
share

123p
119p
104p

Trued up 
vesting rate

95%
95%
98%

The following table shows the movement in the number of share awards held under the RSP scheme outstanding but not exercisable:

Outstanding at 1 January
Granted during the year
Vested during the year
Forfeited during the year

Outstanding at 31 December

Exercisable at 31 December

2012 
Number

8,036,955
686,000
(1,782,748)
(94,172)

2011 
Number

7,926,411
829,845
(298,515)
(420,786)

6,846,035

8,036,955

1,312,156

268,177

The weighted average contractual life for the share awards outstanding as at 31 December 2012 was 1.2 years (2011: 1.7 years).

The charge recognised in the year ended 31 December 2012 amounted to US$2,572,000 (2011: US$3,767,000).

Performance Share Plan (PSP)
Under the Performance Share Plan, the shares vest subject to performance conditions. The PSP share awards granted in 2011 and 
2012 had three sets of performance conditions associated with them. One third of the award relates to Total Shareholder Return 
(TSR) against a comparator group of 36 oil and gas companies listed on the FTSE 350, AIM Top 100 and Stockholm NASDAQ OMX; 
one third relates to production growth per share, and one third relates to reserves growth per share, over the three year performance 
period. Awards will vest on the 3rd anniversary.

The fair value of the awards granted under the plan at various grant dates during the year are based on quoted market prices 
adjusted for an assumed vesting rate over the relevant vesting period.

Details of the fair values and assumed vesting rate of the PSP scheme are shown below:

2012 awards
2011 awards

Weighted 
average fair 
value per 
share

124p
137p

Trued up 
vesting rate

97%
97%

The following table shows the movement in the number of share awards held under the PSP scheme outstanding but not exercisable:

Outstanding at 1 January
Granted during the year
Forfeited during the year

Outstanding at 31 December

2012 
Number

1,668,522
3,021,117
(87,000)

2011 
Number

–
1,722,022
(53,500)

4,602,639

1,668,522

There were no share awards exercisable at either 31 December 2012 or 2011.

The weighted average contractual life for the share awards outstanding as at 31 December 2012 was 1.9 years (2011: 2.2 years).

84

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
19. Share-based payment plans continued
The charge recognised in the year ended 31 December 2012 amounted to US$1,802,000 (2011: US$806,000).

Sharesave Plan
The Group operates an approved savings related share option scheme. The Plan is based on eligible employees being granted 
options and their agreement to opening a sharesave account with a nominated savings carrier and to save over a specified period, 
either 3 or 5 years. The right to exercise the option is at the employee’s discretion at the end of the period previously chosen, for a 
period of six months.

Details of the fair values and assumed vesting rates of the Sharesave plan are shown below:

2012 awards

Weighted 
average fair 
value per 
share

Trued up 
vesting rate

20p

93%

The following shows the movement in the number of share options held under the Sharesave plan outstanding but not exercisable:

Granted during the year
Forfeited during the year

Outstanding at 31 December

2012 
Number

746,880
(49,500)

697,380

2011
Number

–
–

–

There were no share options exercisable at either 31 December 2012 or 2011.

The weighted average contractual life for the share options outstanding as at 31 December 2012 was 2.9 years (2011: nil).

The charge recognised in the 2012 statement of comprehensive income amounted to US$88,000 (2011: nil).

The Company has recognised a total charge of US$5,163,000 (2011:US$4,881,000) in the statement of comprehensive income during 
the year, relating to the above employee share-based schemes. 

20. Loans and borrowings
Revolving credit facility
At 31 December 2011, the Group had US$156,250,000 of undrawn committed borrowing facilities available which expired in March 2012. 
On 6 March 2012, a new US$900,000,000 Multi-Currency Revolving Credit Facility Agreement with Lloyds TSB Bank, Bank of America 
Merrill Lynch, Barclays, BNP Paribas, Crédit Agricole CIB, NICB Bank and Royal Bank of Scotland was established. The new facility 
comprises a committed amount of US$525,000,000 for three years (subject to reserves), extendable to four years at the option of the 
Group (provided conditions are met) and a further year with the consent of the lenders. In addition, US$375,000,000 is available primarily 
for investment opportunities also with the lenders consent. The Letters of Credit (LoC) of US$123,750,000 under the old facility have been 
rolled into the new facility. The drawdown of US$34,600,000 at 31 December 2012 was subsequently repaid.

Interest on the revolving credit facility is payable at US LIBOR plus a margin of 2.25% to 3.25%, dependent on specified covenant 
ratios. A facility non-utilisation commitment fee is payable at 40% of the interest margin.

At 31 December 2012, US$34,600,000 was drawndown under the Group’s facility agreement (2011: nil) and LoC utilisation was 
US$123,750,000 (2011: US$123,750,000).

The Group considers there to be no material difference between the fair values of the interest bearing loans and borrowings and the 
carrying amounts in the balance sheet.

85

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE GROUP FINANCIAL STATEMENTS 
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2012

21. Other financial assets and financial liabilities

Financial instruments at fair value through other comprehensive income
Current liabilities
Cash flow hedges:
Forward foreign currency contracts

Non-current liabilities
Cash flow hedges:
Forward foreign currency contracts

Financial instruments at fair value through profit or loss
Current assets
Derivatives not designated as hedges:
Commodity forward contracts

Current liabilities
Derivatives not designated as hedges:
Commodity forward contracts

Loans and receivables
Current assets
Other receivable

Non-current assets
Other receivable

Other financial liabilities at amortised cost
Current liabilities
Other liability

Total current assets
Total non-current assets

Total assets

Total current liabilities
Total non-current liabilities

Total liabilities

2012
US$’000

2011
US$’000

121

6,507

–

335

1,170

2,510

299

363

95,302

19,447

17,150

96,472
19,447

115,919

17,570
–

17,570

–

–

–

2,510
–

2,510

6,870
335

7,205

The fair value measurements of the financial instruments held by the Group have been derived based on observable market inputs 
(as categorised within Level 2 of the fair value hierarchy under IFRS 7).

Commodity forward contracts
In November 2011, the Group entered into five separate put and call options in order to hedge the changes in future cash flows  
from the sale of oil production for approximately 3,000,000 barrels of oil in 2012 for accounting purposes. These instruments  
were deemed to be ineffective for hedging purposes and are therefore designated as at fair value through profit and loss (FVTPL). 
These derivative instruments had fully unwound by the end of December 2012 and therefore had no fair value (2011: US$2,147,000). 
The gains of US$2,147,000 recognised in 2011 were reversed during 2012 and are included within other finance costs.

In November 2012, the Group entered into three separate put and call options in order to hedge the changes in future cash flows 
from the sale of oil production for approximately 1,000,000 barrels of oil in the first quarter of 2013 for accounting purposes. These 
instruments were deemed to be ineffective for hedging purposes and are therefore designated as at fair value through profit and loss 
(FVTPL). The derivative instruments had a net asset fair value of US$871,000 (2011: nil) and gains of US$871,000 (2011: nil) were 
taken into profit and loss during the year and are included within other finance income.

Forward foreign currency contracts
During the year ended 31 December 2011, the Group had also entered into 11 forward currency contracts to partially hedge the 
Group’s exposure to fluctuations in foreign currencies, namely Sterling and Euro. These contracts qualified for hedge accounting. At 
31 December 2012 only three of the original contracts were in place with a total fair value liability of US$121,000 (2011: US$6,842,000). 
The movement through other comprehensive income during the year is an unrealised gain of US$2,554,000 (2011: US$2,600,000 
loss) net of a deferred tax credit of US$4,167,000 (2011: US$4,242,000 charge). The impact in profit or loss during the year was an 
expense of US$2,903,000 (2011: US$113,000) in respect of these contracts.

86

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
21. Other financial assets and financial liabilities continued
Other receivable
As disclosed in note 4, as part of the farm out to KUFPEC of 35% of the Alma/Galia development, KUFPEC will carry EnQuest  
up to a cap of US$182,000,000 and agreed to pay EnQuest a total of US$23,292,000 after production commences over a period  
of 36 months. Receivables have been recognised for both these:
■■ The carry element is being unwound over the period of the carry and at 31 December 2012 the remaining balance was 

US$95,302,000;

■■ A receivable has been recognised for the additional payments at its fair value of US$19,300,000. The unwinding of the discount on 

these future payments will be included within finance income in the income statement.

Other liability
Under the KUFPEC agreement a ‘balancing payment’ was also agreed whereby should the cost of development exceed US$1,055,000,000 
then EnQuest would be required to pay 17.5% of costs up to a cap on the cost of development of US$1,153,000,000. As costs are now 
expected to exceed the cap EnQuest will be liable to pay these additional costs, resulting in the recognition of a US$17,150,000 liability.

22. Provisions

At 1 January 2011
Additions during the year
Changes in estimates
Unwinding of discount
Utilisation

At 31 December 2011
Additions during the year
Farm in to West Don
Farm out of Alma/Galia development
Changes in estimates
Unwinding of discount
Utilisation

At 31 December 2012

Decommissioning
US$’000

 140,108
 33,821
16,901
7,793
(17,386)

181,237
37,609
14,569
(7,054)
10,061
10,148
(13,618)

232,952

Provision for decommissioning
The Group makes full provision for the future costs of decommissioning its oil production facilities and pipelines on a discounted 
basis. With respect to the Heather field, the decommissioning provision is based on the Group’s contractual obligation of 37.5% of the 
decommissioning liability rather than the Group’s equity interest in the field.

The provision represents the present value of decommissioning costs which are expected to be incurred up to 2030 assuming no 
further development of the Group’s assets. The liability is discounted at a rate of 5.0% (2011: 5.0%). The unwinding of the discount  
is classified as a finance cost (note 6).

These provisions have been created based on internal and third party estimates. Assumptions based on the current economic 
environment have been made which management believe are a reasonable basis upon which to estimate the future liability. These 
estimates are reviewed regularly to take into account any material changes to the assumptions. However, actual decommissioning 
costs will ultimately depend upon future market prices for the necessary decommissioning works required which will reflect market 
conditions at the relevant time. Furthermore, the timing of decommissioning liabilities is likely to depend on the dates when the fields 
cease to be economically viable. This in turn depends on future oil prices which are inherently uncertain.

23. Trade and other payables

Trade payables
Accrued expenses
Other payables

2012
US$’000

81,885
232,877
14,904

329,666

2011
US$’000

26,215
192,494
15,628

234,337

Trade payables are non-interest bearing and are normally settled on terms of between 10 and 30 days. Certain trade and other 
payables will be settled in currencies other than the reporting currency of the Group, mainly in Sterling.

Accrued expenses include accruals for capital and operating expenditure in relation to the oil and gas assets.

The carrying value of the Group’s trade and other payables as stated above is considered to be a reasonable approximation to their 
fair value.

87

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE GROUP FINANCIAL STATEMENTS 
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2012

24. Commitments and contingencies
Commitments
(i) Operating lease commitments
The Group has financial commitments in respect of non-cancellable operating leases for office premises. These leases have 
remaining non-cancellable lease terms of between one and ten years. The future minimum rental commitments under these  
non-cancellable leases are as follows:

2012
US$’000

2011
US$’000

Not later than one year
After one year but not more than five years
Over five years

2,025
4,781
2,772

9,578

1,372
2,170
–

3,542

Lease payments recognised as an operating lease expense during the year amounted to US$2,324,819 (2011: US$2,066,054).

Under the Dons Northern Producer Agreement a minimum notice period of twelve months exists whereby the Group expects the 
minimum commitment under this agreement to be approximately US$46,000,000 (2011: US$47,000,000).

(ii) Finance lease commitments
The Group had the following obligations under finance leases as at the balance sheet date:

Due in less than one year
Due in more than one year but not more than five years

Less future financing charges

2012 
Minimum 
payments
US$’000

2012 
Present value 
of payments
US$’000

2011 
Minimum 
payments
US$’000

2011 
Present value 
of payments
US$’000

37
110

147
(6)

141

34
107

141
–

141

–
–

–
–

–

–
–

–
–

–

The leases are fixed rate leases with an effective borrowing rate of 2.37% and have an average remaining life of three years.

(iii) Capital commitments
At 31 December 2012, the Group had capital commitments excluding the above lease commitments amounting to US$203,620,000 
(2011: US$310,408,000).

Contingencies
At 31 December 2012, potential future commitments included US$45,000,000 contingent consideration due to Canamens Limited after 
acquisition of two of its companies, US$5,000,000 in respect of the Group’s interest in Block 9/2b in the UK North Sea (Kraken) and a 
further potential commitment of £7,000,000 (US$11,200,000) is due in respect of back-in payments associated with the sole risk drilling 
undertaken by the previous operator on the Kraken 9/2b-04 appraisal well and 9/2b-04z exploration sidetrack. During 2012 EnQuest 
acquired interests in Kraken from Nautical Petroleum plc (25%) and First Oil plc (15%). The amounts payable are US$150,000,000 to 
US$240,000,000 and US$90,000,000 to US$144,000,000 respectively, linked to independent reserves determination between 
100 Mboe and 166 Mboe. All will become payable upon approval of the Kraken Field Development Plan (FDP) by the Department of 
Energy and Climate Change. The FDP is expected to be submitted in the first half of 2013.

As part of the KUFPEC farm in agreement, a reserves protection mechanism was agreed with KUFPEC to enable KUFPEC to recoup its 
investment to the date of first production. If on 1 January 2017, KUFPEC’s costs to first production have not been recovered or deemed to 
have been recovered, EnQuest will pay to KUFPEC an additional 20% share of net revenue (giving them 55% in total). This additional 
revenue is to be paid from January 2017 until the actual net revenue or the deemed net revenue equals or exceeds the costs to first oil.

In addition, there is contingent consideration of US$20,000,000 after the acquisition of Nio (Sabah) Limited which will be 
determined based on 2P reserves associated with an approved FDP on Blocks SB307 and SB308 in Malaysia. An exploration/
appraisal well is expected to be drilled in the area in the second half of 2013.

There is also deferred consideration of US$3,000,000 dependent on FDP approval in relation to the 20% interest in Kildrummy 
acquired from ENI UK Limited during the year.

88

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
25. Related party transactions
The Group financial statements include the financial statements of EnQuest PLC and its subsidiaries. A list of the Group’s principal 
subsidiaries is contained in note 28 to these Group financial statements.

Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on 
consolidation and are not disclosed in this note.

All sales to and purchases from related parties are made at normal market prices and the pricing policies and terms of these 
transactions are approved by the Group’s management. There have been no transactions with related parties who are not members 
of the Group during the year ended 31 December 2012 (2011: nil).

Compensation of key management personnel
The following table details remuneration of key management personnel of the Group comprising Executive and Non-Executive 
Directors of the Company and other senior personnel:

2012
US$’000

2011
US$’000

Short term employee benefits
Share-based payments
Post employment pension benefits

4,306
4,086
30

8,422

3,849
2,850
29

6,728

26. Risk management and financial instruments
Risk management objectives and policies
The Group’s principal financial assets and liabilities comprise trade and other receivables, cash and short term deposits, interest-
bearing loans, borrowings and finance leases, derivative financial instruments and trade and other payables. The main purpose of 
these financial instruments is to manage short term cash flow and raise finance for the Group’s capital expenditure programme.

The Group’s activities expose it to various financial risks particularly associated with fluctuations in oil price, foreign currency risk, 
liquidity risk and credit risk. Management reviews and agrees policies for managing each of these risks, which are summarised below. 
Also presented below is a sensitivity analysis to indicate sensitivity to changes in market variables on the Group’s financial instruments 
and to show the impact on profit and shareholders’ equity, where applicable. The sensitivity has been prepared for periods ended 31 
December 2012 and 2011 using the amounts of debt and other financial assets and liabilities held at those reporting dates.

Commodity price risk – oil prices
The Group is exposed to the impact of changes in Brent oil prices on its revenues and profits generated from sales of crude oil.

During 2010, the Board of EnQuest approved a policy to hedge up to a maximum of 50% of annual oil production. In November 2011, 
the Group entered into five separate put and call options to hedge approximately 3,000,000 barrels of oil in 2012. During November 
2012, the Company entered into a further three put and call options, to hedge approximately 1,000,000 barrels of oil in the first 
quarter of 2013. Since the year end the Group has entered into further put and call options covering 3,600,000 barrels of oil 
production for 2013.

The following table summarises the impact on the Group’s pre-tax profit and total equity of a reasonably possible change in the Brent 
oil price, with all other variables held constant:

Pre-tax profit

Total equity

31 December 2012
31 December 2011

+US$10/Bbl 
increase
US$’000

–US$10/Bbl 
decrease
US$’000

+US$10/Bbl 
increase
US$’000

–US$10/Bbl 
decrease
US$’000

76,337
70,836

(76,323)
(67,500)

29,008
26,918

(29,003)
(25,650)

Foreign currency risk
The Group has transactional currency exposures. Such exposure arises from sales or purchases in currencies other than the Group’s 
functional currency. The Group manages this risk by converting United States dollar receipts at spot rates periodically and as required 
for payments in other currencies. Approximately 1% (2011: 2%) of the Group’s sales and 89% (2011: 89%) of costs are denominated in 
currencies other than the functional currency.

During the year ended 31 December 2011, the Group had entered into 11 forward currency contracts to partially hedge the Group’s 
exposure to fluctuations in foreign currencies, namely Sterling and Euro. At 31 December 2012 only three of these contracts remained 
and are due to mature in 2013. These contracts qualify for hedge accounting and have been disclosed within note 21.

89

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE GROUP FINANCIAL STATEMENTS 
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2012

26. Risk management and financial instruments continued
The following table summarises the impact on the Group’s pre-tax profit and equity (due to change in the fair value of monetary 
assets and liabilities) of a reasonably possible change in the United States dollar to GBP Sterling exchange rate:

31 December 2012
31 December 2011

Pre-tax profit

Total equity

+10% US dollar 
rate increase
US$’000

–10% US dollar 
rate decrease
US$’000

+10% US dollar 
rate increase
US$’000

–10% US dollar 
rate decrease
US$’000

(24,918)
(25,056)

24,918
25,056

(9,234)
1,438

9,234
(1,438)

Credit risk
The Group trades only with recognised, international oil and gas operators and at 31 December 2012 there were no trade receivables 
past due (2011: nil), and US$4,078,000 of joint venture receivables past due but not impaired (2011: US$705,000). Receivable 
balances are monitored on an ongoing basis with appropriate follow-up action taken where necessary.

Ageing of past due but not impaired receivables:
Less than 30 days
30-60 days
60-90 days
90-120 days
120+ days

2012
US$’000

2011
US$’000

143
144
78
89
3,624

4,078

7
–
622
21
55

705

At 31 December 2012, the Group had one customer accounting for 87% of outstanding trade and other receivables (2011: one customer, 92%) 
and three joint venture partners accounting for 90% of joint venture receivables (2011: six joint venture partners, 80%).

With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, the Group’s 
exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these 
instruments.

Cash balances can be invested in short term bank deposits and AAA rated liquidity funds, subject to Board approved limits and with 
a view to minimising counterparty credit risks.

Liquidity risk
The Group monitors its risk to a shortage of funds by reviewing its cash flow requirements on a regular basis relative to its existing 
bank facilities and the maturity profile of these facilities. Specifically the Group’s policy is to ensure that sufficient liquidity or 
committed facilities exist within the Group to meet its operational funding requirements and to ensure the Group can service its debt 
and adhere to its financial covenants. Throughout the year and at 31 December 2012 the Group was in compliance with all financial 
covenant ratios agreed with its bankers.

On 6 March 2012, a new US$900,000,000 Multi-Currency Revolving Credit Facility Agreement with Lloyds TSB Bank, Bank of America 
Merrill Lynch, Barclays, BNP Paribas, Crédit Agricole CIB, NICB Bank and Royal Bank of Scotland was established. The new facility 
comprises a committed amount of US$525,000,000 for three years (dependent upon reserves), extendable to four years at the option 
of the Group (provided conditions are met) and a further year with the consent of the lenders. In addition, US$375,000,000 is available 
primarily for investment opportunities also with the lenders consent. The Letters of Credit of US$123,750,000 under the old facility were 
rolled into the new facility and have subsequently increased to US$181,500,000. An upfront arrangement fee of 1.75% was payable.

Interest on the revolving credit facility is payable at LIBOR relative to each agreed loan period plus a margin of 2.25% to 3.25% 
dependent on the Group’s leverage ratio. Facility non-utilisation commitment fees are payable at 40% of the interest margin.

90

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
26. Risk management and financial instruments continued
The maturity profiles of the Group’s non-derivative financial liabilities are as follows:

Year ended 31 December 2012
Loans and borrowings
Obligations under finance leases
Accounts payable and accrued liabilities
Financial expenses
Other liability

Year ended 31 December 2011

Accounts payable and accrued liabilities
Financial expenses

On demand
US$’000

Up to 1 year
US$’000

1 to 2 years
US$’000

2 to 5 years
US$’000

–
–
329,666
–
–

329,666

–
34
–
1,123
17,150

18,307

–
35
–
–
–

35

34,600
72
–
–
–

Total
US$’000

34,600
141
329,666
1,123
17,150

34,672

382,680

On demand
US$’000

Up to 1 year
US$’000

1 to 2 years
US$’000

2 to 5 years
US$’000

234,337
–

234,337

–
922

922

–
–

–

–
–

–

Total
US$’000

234,337
922

235,259

The following tables detail the Group’s expected maturity of payables/(receivables) for its derivative financial instruments. The 
amounts in these tables are different from the balance sheet as the table is prepared on a contractual undiscounted cash flow basis. 

Year ended 31 December 2012
Foreign exchange forward contracts
Foreign exchange forward contracts

Year ended 31 December 2011

Foreign exchange forward contracts
Foreign exchange forward contracts

On demand
US$’000

–
–

–

On demand
US$’000

–
–

–

Less than 
3 months
US$’000

6,298
(6,298)

–

Less than 
3 months
US$’000

50,691
(50,691)

3 to 12 months
US$’000

1 to 2 years
US$’000

 >2 years
US$’000

–
–

–

–
–

–

–
–

–

Total
US$’000

6,298
(6,298)

–

3 to 12 months
US$’000

1 to 2 years
US$’000

>2 years
US$’000

Total
US$’000

 219,750
(219,750)

25,395
(25,395)

–

–

-

–
–

–

295,836
(295,836)

–

At 31 December 2011 and 2012, the Group held commodity forward contracts for which, based on the oil price at 31 December 2011 
and 2012, there were no projected contracted cash flows.

Capital management
The capital structure of the Group consists of debt, which includes the borrowings disclosed in notes 20 and 24, cash and cash 
equivalents and equity attributable to the equity holders of the parent, comprising issued capital, reserves, and retained earnings as 
in the Group Statement of Changes in Equity on page 64.

The primary objective of the Group’s capital management is to optimise the return on investment, by managing its capital structure 
to achieve capital efficiency whilst also maintaining flexibility for future acquisitions. The Group regularly monitors the capital 
requirements of the business over the short, medium and long term, in order to enable it to foresee when additional capital will be 
required. Note 20 to the financial statements provides further details of the Group’s financing activity.

The Group also has approval from the Board to hedge the exchange risk on up to 70% and 50% of the non US dollar portion of the 
Group’s annual capital budget and operating expenditure respectively, and up to 50% of annual production. This is designed to 
minimise the risk of adverse movements in exchange rates and prices eroding the return on the Group’s projects and operations.

The Board regularly reassesses the existing dividend policy to ensure that shareholder value is maximised. It continues to believe that, 
in the light of the Group’s significant capital projects and exploration and acquisition opportunities, the enhancement of shareholder 
value can best be achieved by reinvesting the Group’s cash. Any future payment of dividends is expected to depend on the earnings 
and financial condition of the Company and such other factors as the Board considers appropriate.

91

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE GROUP FINANCIAL STATEMENTS 
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2012

26. Risk management and financial instruments continued
The Group monitors capital using the gearing ratio and return on shareholders’ equity as follows:

Loans and borrowings, net (A)
Cash and short term deposits

Net debt/(cash) (B)

Equity attributable to EnQuest PLC shareholders (C)
Profit for the year attributable to EnQuest PLC shareholders (D)
Profit for the year attributable to EnQuest PLC shareholders excluding exceptionals (E)
Gross gearing ratio (A/C)
Net gearing ratio (B/C)
Shareholders’ return on investment (D/C)
Shareholders’ return on investment excluding exceptionals (E/C)

2012
US$’000

2011
US$’000

34,741
(124,522)

–
(378,907)

(89,781)

(378,907)

1,293,869
362,218
259,665
0.027
n/a
28%
20%

934,208
60,991
136,053
n/a
n/a
7%
15%

27. Post balance sheet events
In December 2012, a Sale and Purchase Agreement was executed in respect of the sale of the P8A licence to Van Dyke Energy for an 
initial consideration of US$3,000,000 plus a contingent payment of a further US$3,000,000 payable once the field incorporating 
the licence reaches gross sales volumes of 2.5 million barrels. The carrying value was US$45,000 at 31 December 2012. This is 
expected to complete in the first half of 2013. 

On 21 January 2013 the Group received formal consent from the Department of Energy and Climate Change in respect of the Thistle 
Late Life Extension (LLX) development. The incremental reserves targeted by the development will receive Additionally Developed 
Oil Field Allowance in excess of £200,000,000 (US$320,000,000). This is a new field allowance announced by the Government in 
2012 to help mature fields in the UKCS and will apply when the taxation legislation receives Royal Assent in 2013.

On 23 January 2013, EnQuest Britain Limited agreed with CIECO Energy (UK) Limited to acquire two of its affiliate companies which 
together hold a total of an 8% non-operated interest in the producing oil field Alba, in the UK Continental Shelf. The acquisition 
completed on 22 March 2013, with consideration, net of cash acquired, totalling £19,622,000 (US$29,700,000) plus a further 
deferred cash consideration of up to £500,000 (US$800,000) contingent on certain project milestones.

In February 2013, the Group issued a 5.5% Sterling Retail Bond through the Order Book for Retail Bonds of the London Stock 
Exchange (ORB). The Bonds raised £145,000,000 and will pay a fixed gross rate of interest of 5.5% per annum until 2022.

28. Subsidiaries
At 31 December 2012, EnQuest PLC had investments in the following principal subsidiaries:

Name of Company

Principal activity

Country of incorporation

EnQuest North Sea BV
EnQuest Britain Limited

EnQuest Dons Limited(i)
EnQuest Dons Oceania Limited(i)
EnQuest Heather Limited(i)
EnQuest Thistle Limited(i)
Stratic Energy (UK) Limited(i)
Grove Energy Limited(i)

Intermediate holding company
Intermediate holding company and provision of Group 
manpower and contracting/procurement services

Exploration, extraction and production of hydrocarbons
Exploration, extraction and production of hydrocarbons
Exploration, extraction and production of hydrocarbons
Extraction and production of hydrocarbons
Exploration, extraction and production of hydrocarbons
Intermediate holding company and exploration of 

Netherlands
England

England
Cayman Islands
England
England
England
Canada

hydrocarbons

EnQuest ENS Limited(i)
EnQuest UKCS Limited(i)
EnQuest Norge AS
EnQuest Heather Leasing Limited(i)
Nio Petroleum (Sabah) Limited(i)

Extraction and production of hydrocarbons
Exploration, extraction and production of hydrocarbons
Exploration, extraction and production of hydrocarbons
Leasing
Exploration, extraction and production of hydrocarbons

England
England
Norway
England
England

(i)  Held by subsidiary undertaking.

Proportion of 
nominal value of 
issued shares 
controlled by 
the Group

100%
100%

100%
100%
100%
100%
100%
100%

100%
100%
100%
100%
100%

92

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
STATEMENT OF DIRECTORS’ RESPONSIBILITIES FOR 
THE PARENT COMPANY FINANCIAL STATEMENTS

The Directors are responsible for preparing the Directors’ Report 
and the financial statements in accordance with applicable law 
and regulations.

Company law requires the Directors to prepare financial 
statements for each financial year. Under that law the Directors 
have elected to prepare the financial statements in accordance 
with United Kingdom Generally Accepted Accounting Practice 
(United Kingdom Accounting Standards and applicable law). 
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 Company and of the profit or 
loss of the Company for that period. In preparing the financial 
statements the Directors are required to:
■■ select suitable accounting policies and then apply them 

consistently;

■■ make judgements and estimates that are reasonable and 

prudent;

■■ state whether applicable UK Accounting 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 Company and enable them to ensure 
that the Company financial statements comply with the 
Companies Act 2006. They are also responsible for safeguarding 
the assets of the Company and hence for taking reasonable steps 
for the prevention and detection of fraud and other irregularities.

93

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS 
OF ENQUEST PLC

We have audited the parent Company financial statements  
of EnQuest PLC for the year ended 31 December 2012 which 
comprise the Company Balance Sheet and the related notes 1  
to 14. The financial reporting framework that has been applied  
in their preparation is applicable law and United Kingdom 
Accounting Standards (United Kingdom Generally Accepted 
Accounting Practice).

Opinion on financial statements
In our opinion the parent Company financial statements:
■■ give a true and fair view of the state of the Company’s affairs  
as at 31 December 2012 and of its loss for the year then ended;

■■ have been properly prepared in accordance with United 
Kingdom Generally Accepted Accounting Practice; and

■■ have been prepared in accordance with the requirements of 

the Companies Act 2006.

This report is made solely to the Company’s members, as a body, 
in accordance with Chapter 3 of Part 16 of the Companies Act 
2006. Our audit work has been undertaken so that we might 
state to the Company’s members those matters we are required 
to state to them in an auditor’s report and for no other purpose. 
To the fullest extent permitted by law, we do not accept or 
assume responsibility to anyone other than the Company and  
the Company’s members as a body, for our audit work, for this 
report, or for the opinions we have formed.

Respective responsibilities of Directors and auditor
As explained more fully in the Statement of Directors’ 
Responsibilities set out on page 93, the Directors are responsible 
for the preparation of the parent Company financial statements 
and for being satisfied that they give a true and fair view. Our 
responsibility is to audit and express an opinion on the parent 
Company financial statements in accordance with applicable law 
and International Standards on Auditing (UK and Ireland). Those 
standards require us to comply with the Auditing Practices 
Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts  
and disclosures in the financial statements sufficient to give 
reasonable assurance that the financial statements are free  
from material misstatement, whether caused by fraud or error. 
This includes an assessment of: whether the accounting policies 
are appropriate to the parent Company’s circumstances and 
have been consistently applied and adequately disclosed; the 
reasonableness of significant accounting estimates made by the 
Directors; and the overall presentation of the financial statements. 
In addition, we read all the financial and non-financial information 
in the Annual Report and Accounts to identify material 
inconsistencies with the audited financial statements. If we 
become aware of any apparent material misstatements or 
inconsistencies we consider the implications for our report.

Opinion on other matter prescribed by the Companies Act 2006
In our opinion:
■■ the part of the Directors’ Remuneration Report to be audited 

has been properly prepared in accordance with the Companies 
Act 2006; and

■■ the information given in the Directors’ Report for the financial 

year for which the financial statements are prepared is 
consistent with the parent Company financial statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following matters 
where the Companies Act 2006 requires us to report to you if,  
in our opinion:
■■ adequate accounting records have not been kept by the parent 

Company, or returns adequate for our audit have not been 
received from branches not visited by us; or

■■ the parent Company financial statements and the part of the 

Directors’ Remuneration Report to be audited are not in 
agreement with the accounting records and returns; or

■■ certain disclosures of Directors’ remuneration specified by law 

are not made; or

■■ we have not received all the information and explanations we 

require for our audit.

Other matter
We have reported separately on the Group financial statements 
of EnQuest PLC for the year ended 31 December 2012.

Ernst & Young LLP
Gary Donald (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
26 March 2013

94

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
COMPANY BALANCE SHEET
AT 31 DECEMBER 2012

Fixed assets
Investments

Current assets
Debtors
Cash at bank and in hand 

Creditors: amounts falling due within one year

Net current liabilities

Total assets less current liabilities

Creditors: amounts falling due after one year

Net assets

Share capital and reserves
Called up share capital
Share premium account
Merger reserve
Other reserve
Cash flow hedge reserve
Share-based payment reserve
Profit and loss account

Note

2012
US$’000

2011
US$’000

3

5
4

8

7

9
10
10
10
10
10
10

1,449,179

1,203,291

32,196
160

32,356

(265,833)

(233,477)

13,487
155

13,642

(39,197)

(25,555)

1,215,702

1,177,736

–

(335)

1,215,702

1,177,401

61,249
52,184
1,081,890
40,143
–
(11,072)
(8,692)

61,249
52,184
1,081,890
–
(4,026)
(5,961)
(7,935)

1,215,702

1,177,401

The attached notes 1 to 14 form part of these Company financial statements.

The financial statements on pages 95 to 100 were approved by the Board of Directors on 26 March 2013 and signed on its behalf by:

Jonathan Swinney
Chief Financial Officer

95

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2012

1. Corporate information
The Company financial statements of EnQuest PLC (the 
Company) for the year ended 31 December 2012 were authorised 
for issue in accordance with a resolution of the Directors on 
26 March 2013.

EnQuest PLC (EnQuest or the Company) is a limited liability 
Company registered in England and is the holding Company  
for the Group of EnQuest subsidiaries (together ‘the Group’).

The Group’s principal activities are the exploration for,  
and extraction and production of hydrocarbons in the UK 
Continental Shelf.

2. Summary of significant accounting policies
Basis of preparation
The separate financial statements have been prepared in 
accordance with applicable UK Accounting Standards on a 
historical cost basis. The functional and presentation currency of 
the separate financial statements is United States dollars and all 
values in the separate financial statements are rounded to the 
nearest thousand (US$’000) except where otherwise stated.

No profit and loss account is presented by the Company as 
permitted by Section 408 of the Companies Act 2006. EnQuest 
reported a loss for the financial year ended 31 December 2012 of 
US$757,000 (2011: profit US$436,000). There were no other 
recognised gains or losses in the period (2011: nil).

Going concern concept
The Directors’ assessment of going concern concludes that the 
use of the going concern basis is appropriate and that there are 
no material uncertainties that may cast significant doubt about 
the ability of the Company to continue as a going concern. See 
page 48 in the Directors’ Report for further details.

Investments
Investments are stated at cost less any provision for impairment.

Deferred tax
Deferred tax is recognised in respect of all timing differences that 
have originated but not reversed at the balance sheet date where 
transactions or events have occurred at that date that will result 
in an obligation to pay more, or a right to pay less tax in the 
future.

Deferred tax assets are recognised only to the extent that it is 
considered more likely than not that there will be suitable taxable 
profits from which deferred tax is measured on an undiscounted 
basis at the tax rates that are expected to apply in the periods in 
which timing differences reverse based on tax rates and laws 
enacted or substantively enacted at the balance sheet date.

Amounts due from/to subsidiaries
Amounts due from/to subsidiaries are non-interest bearing 
short term funding to and from subsidiaries.

These are recognised at the fair value of consideration received 
or paid. Amounts receivable are stated net of any provision for 
impairment.

Derivatives
Derivatives are initially recognised at fair value on the date  
a derivative contract is entered into and are subsequently 
remeasured at their fair value. The method of recognising  
the resulting gain or loss depends on whether the derivative  
is designated as a hedging instrument.

The Group categorises derivatives as follows:

Cash flow hedge
The effective portion of changes in the fair value of derivatives 
that qualify as cash flow hedges are recognised through the 
statement of total recognised gains and losses. The gain or loss 
relating to the ineffective portion is recognised immediately  
in the profit and loss account. Amounts accumulated in 
shareholders’ equity are transferred to the profit and loss 
account in the period when the hedged item will affect the 
profit or loss. When the hedged item no longer meets the 
requirements for hedge accounting, expires or is sold, any 
accumulated gain or loss recognised in shareholders’ equity  
is transferred to the profit and loss account when the forecast 
transaction which was the subject of the hedge occurs.

Derivatives that do not qualify for hedge accounting
When derivatives do not qualify for hedge accounting, changes 
in fair value are recognised immediately in the profit and loss 
account.

Employee benefit trust
EnQuest shares held by the Group are deducted from the 
share-based payments reserve and are recognised at cost. 
Consideration received for the sale of such shares is also 
recognised in equity, with any difference between the proceeds 
from the sale and the original cost being taken to reserves.  
No gain or loss is recognised in the profit and loss account  
on the purchase, sale, issue or cancellation of equity shares.

Share-based payment transactions
Employees (including Directors) of the Group receive 
remuneration in the form of share-based payment transactions, 
whereby employees render services in exchange for shares or 
rights over shares (equity-settled transactions) of EnQuest.

96

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
2. Summary of significant accounting policies continued
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are 
granted. In valuing equity-settled transactions, no account is taken of any service or performance conditions, other than conditions 
linked to the price of the shares of EnQuest (market conditions) or ‘non-vesting’ conditions, if applicable.

The cost of equity-settled transactions is recognised over the period in which the relevant employees become fully entitled to the 
award (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until the 
vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity 
instruments that will ultimately vest. The profit and loss account charge or credit for a period represents the movement in cumulative 
expense recognised as at the beginning and end of that period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon market or 
non-vesting conditions, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, 
provided that all other performance conditions are satisfied. Equity awards cancelled are treated as vesting immediately on the date 
of cancellation, and any expense not recognised for the award at that date is recognised in the profit and loss account.

The Company operates a number of share award schemes on behalf of the employees of the Group which are described in detail 
within note 19 of the Group financial statements.

The reserve for the share-based payments is used to record the value of equity-settled share-based payments awarded to 
employees and transfers out of this reserve are made upon vesting of the original share awards.

3. Investments

Cost
At 1 January 2011
Additions

At 31 December 2011
Additions
Disposals

At 31 December 2012

Net book value
At 31 December 2012

At 31 December 2011

At 31 December 2010

Unlisted 
subsidiary 
undertakings 
US$’000

Other listed 
investments
US$’000

Total
US$’000

1,197,602
5,689

1,203,291
859,319
(613,431)

1,449,179

1,449,179

1,203,291

–
808

808
–
–

808

808

808

–

1,197,602

1,197,602
4,881

1,202,483
859,319
(613,431)

1,448,371

1,448,371

1,202,483

1,197,602

During the year ended 31 December 2012, the Company acquired Canamens Energy North Sea Limited and Canamens UK 814 and 
815 Limited which were subsequently renamed to EnQuest ENS Limited and EnQuest UKCS Limited.

On 7 December 2012, as part of a group reorganisation, the investment in Stratic UK Holdings Limited was transferred by the 
Company from the subsidiary entity Stratic Energy Corporation before subsequently being transferred to EnQuest Britain Limited 
along with investments in EnQuest ENS Limited, EnQuest UKCS Limited and EnQuest Dons Limited in exchange for new shares in 
EnQuest Britain Limited. Also, the subsidiary entity EnQuest North Sea BV transferred its investment in EnQuest Britain Limited to 
the Company.

In addition a new subsidiary EnQuest Norge AS was established in Norway on 27 June 2012.

Details of the Company’s principal subsidiaries at 31 December 2012 are provided in note 28 of the Group financial statements.

The interest in other listed investments at the end of the year is part of the Group’s 16% investment in the ordinary share capital of 
Ascent Resources plc, which is incorporated in Great Britain and registered in England and Wales.

97

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2012

4. Cash at bank and in hand

Cash at bank and in hand

2012 
US$’000

160

2011 
US$’000

155

Cash at bank earns interest at floating rates based on daily bank deposit rates.

The carrying value of the Company’s cash and cash equivalents as stated above is considered to be a reasonable approximation to 
their fair value.

5. Debtors

Amounts due from subsidiaries
Derivative financial instruments (note 7)
Deferred tax asset (note 6)
Corporation tax recoverable

2012 
US$’000

2011 
US$’000

30,412
1,170
–
614

32,196

8,313
2,510
2,664
–

13,487

6. Deferred tax
The movements in the deferred tax asset recognised by the Company during the current year are as follows:

At 1 January 2012
Charge to profit and loss account
(Charge)/credit to cash flow hedge reserve

At 31 December 2012

Tax losses 
US$’000

Other timing 
differences 
US$’000

1,250
(1,250)
–

–

1,414
–
(1,414)

–

Total 
US$’000

2,664
(1,250)
(1,414)

–

The Company has unused UK mainstream corporation tax losses of US$1,980,000 (2011: nil) for which no deferred tax asset has been 
recognised at the balance sheet date due to the uncertainty of recovery of these losses. 

7. Derivative financial instruments

Financial instruments: cash flow hedges
Creditors: amounts falling due within one year
Cash flow hedges:
Forward foreign currency contracts

Creditors: amounts falling due after more than one year
Cash flow hedges:
Forward foreign currency contracts

Financial instruments at fair value through profit or loss
Assets due within one year
Derivatives not designated as hedges:
Commodity forward contracts

Creditors: amounts falling due within one year
Derivatives not designated as hedges:
Commodity forward contracts

Total assets due within one year

Total assets

Total creditors: amounts falling due within one year
Total creditors: amounts falling due after more than one year

Total liabilities

98

2012
US$’000

2011
US$’000

121

5,105

–

335

1,170

2,510

299

1,170

1,170

420
–

420

363

2,510

2,510

5,468
335

5,803

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
7. Derivative financial instruments continued
Included within amounts falling due from/to subsidiaries are amounts relating to internal back to back derivatives with subsidiary 
entities for the above external derivatives (which are fair valued through profit and loss).

Full details of the Group’s financial risk management objectives and procedures can be found in note 26 of the Group financial 
statements. As the holding company for the Group, the Company faces similar risks over foreign currency and changes in oil prices.

The Company has taken advantage of the exemption under FRS 29 for parent Company accounts. The disclosures are included 
within the Group’s financial statements.

In November 2011, the Company entered into five separate put and call options on behalf of its subsidiaries; EnQuest Heather Limited, 
EnQuest Thistle Limited, EnQuest Dons Limited and Stratic Energy (UK) Limited; in order to hedge the changes in future cash flows 
from the sale of Brent oil production in 2012. These instruments were deemed to be ineffective and were designated as at fair value 
through profit and loss (FVTPL). These derivative instruments had fully unwound by the end of December 2012 and therefore had no 
fair value (2011: US$2,147,000). The gains of US$2,147,000 recognised in 2011 were reversed during 2012 within profit and loss.

During November 2012, the Company entered into a further three separate put and call options on behalf of its subsidiary EnQuest 
Heather Limited, in order to hedge the changes in future cash flows from the sale of Brent oil production in 2013. These instruments 
were deemed to be ineffective and are therefore designated as at fair value through profit and loss (FVTPL). Gains of US$871,000 
(2011: US$2,147,000) were taken into profit and loss during the year.

During the year ended 31 December 2011, the Company had entered into nine forward currency contracts on behalf of its subsidiaries; 
EnQuest Heather Limited, EnQuest Thistle Limited and EnQuest Dons Limited to partially hedge the Group’s exposure to fluctuations in 
foreign currencies, namely Sterling and Euro. At 31 December 2012 only three of the original contracts were in place of which all will mature 
in 2013. These contracts qualify for hedge accounting in the Group financial statements (see note 21 of the Group financial statements). At 
the balance sheet date, the fair value of these derivatives was a liability of US$121,000 (2011: US$5,440,000). The amounts in the cash flow 
hedge reserve of US$4,026,000 net of deferred tax liability of US$1,414,000 were reclassified to profit and loss during the period.

8. Creditors: amounts falling due within one year

Amounts due to subsidiaries
Derivative financial instruments (note 7)
Accruals

9. Issued share capital

Allotted, called up and fully paid
802,660,757 (2011: 802,660,757) Ordinary shares of £0.05 each

2012 
US$’000

265,055
420
358

265,833

2011 
US$’000

33,108
5,468
621

39,197

2012 
US$’000

2011 
US$’000

61,249

61,249

On 14 April 2011, 3,197,852 Ordinary shares of £0.05 each were issued at par and allotted to the Company’s Employee Benefit Trust to 
satisfy awards made under the Company’s share-based incentive schemes.

At 31 December 2012 there were 22,966,471 shares held by the Employee Benefit Trust (2011: 18,139,465) due to the purchase of 
shares to satisfy awards made under the Company’s share-based incentive schemes.

10. Reserves

At 1 January 2012
Loss recognised on cash flow hedges
Share-based payments charge
Loss for the year
Return of capital from subsidiary
Shares purchased on behalf of 

Employee Benefit Trust

Share 
premium 
US$’000

Merger 
reserve
 US$’000

Other
reserve
US$’000

Cash flow 
hedge reserve 
US$’000

52,184
–
–
–
–

 1,081,890
–
–
–
–

–
–
–
–
40,143

(4,026)
4,026
–
–
–

Share-based 
payments 
reserve 
US$’000

(5,961)
–
5,163
–
–

Retained 
(losses) 
US$’000

 (7,935)
–
–
(757)
–

Total
US$’000

1,116,152
4,026
5,163
(757)
40,143

At 31 December 2012

52,184

1,081,890

40,143

–

–

–

–

–

(10,274)

(11,072)

–

(10,274)

(8,692)

1,154,453

99

 EnQuest PLC Annual Report 2012OVERVIEWBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2012

10. Reserves continued
Nature and purpose of other reserves
Share premium
The excess contribution over the nominal value on the issuance of shares is accounted for as share premium.

Merger reserve
The Group merger reserve is used to record the difference between the market value of EnQuest shares issued to effect the business 
combinations less the nominal value of the shares issued, where merger relief applies to the transaction.

Cash flow hedge reserve
The cash flow hedge reserve represents the cumulative portion of gains or losses on hedging instruments deemed effective in cash 
flow hedges.

Other reserve
The other reserve is used to record any other transactions taken straight to reserves as non-distributable. During the year as part of 
the group reorganisation, the investment in Stratic UK Holdings Limited was transferred from a subsidiary entity Stratic Energy 
Corporation which resulted in a return of capital of US$20,932,000. In addition an intra-group promissory note was transferred from 
Stratic Energy Corporation as a return of capital of US$19,211,000.

Share-based payments reserve
The reserve for share-based payments is used to record the value of equity-settled share-based payments awards to employees and 
the balance of the shares held by the Company’s Employee Benefit Trust. Transfers out of this reserve are made upon vesting of the 
original share awards.

Share-based payment plan information is disclosed in note 19 of the Group financial statements.

11. Transactions with Directors
Details of Directors’ remuneration are provided in the Directors’ Remuneration Report.

12. Related party transactions
The Company has taken advantage of the exemption in FRS 8 not to disclose transactions with its wholly owned subsidiaries. 
There were no other related party transactions during the year (2011: nil).

13. Auditors’ remuneration
The Company paid US$10,080 (2011: US$9,600) to its auditors in respect of the audit of the financial statements of the Company.

Fees paid to the Group’s auditor and its associates for non-audit services are not disclosed in the individual accounts of the Company 
because group financial statements are prepared which are required to disclose such fees on a consolidated basis.

14. Post balance sheet events
Refer to note 27 of the Group financial statements.

100

EnQuest PLCAnnual Report 2012FINANCIAL STATEMENTS 
COMPANY INFORMATION

Registered Office
Cunard House
5th Floor
15 Regent Street
London
SW1Y 4LR

Corporate Brokers
J.P. Morgan Cazenove
10 Aldermanbury
London
EC2V 7RF

Merrill Lynch International
2 King Edward Street
London
EC1A 1HQ

Auditors
Ernst & Young LLP
1 More London Place
London
SE1 2AF

Legal Advisers to the Company
Ashursts
Broadwalk House
5 Appold Street
London
EC2A 2HA

Corporate and Financial Public Relations
Finsbury
Tenter House
45 Moorfields
London
EC2Y 9AE

EnQuest PLC shares are traded on the London Stock 
Exchange and on the NASDAQ OMX Stockholm, 
in both cases using the code ‘ENQ’.

Registrar
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

Swedish Registrar
Euroclear Sweden AB
Box 7822
SE-103 97 Stockholm
SVERIGE

Financial Calendar
29 May 2013: 2013 Annual General Meeting
August 2013: 2013 Half Year Results

Glossary
For a full list of Company definitions, please visit
the Glossary in the media centre section of our 
website www.enquest.com.

Forward looking statements: This report may contain certain forward 
looking statements with respect to EnQuest’s expectation and plans, 
strategy, management’s objectives, future performance, production, costs, 
revenues and other trend information. These statements and forecasts 
involve risk and uncertainty because they relate to events and depend upon 
circumstances that may occur in the future. There are a number of factors 
which could cause actual results or developments to differ materially from 
those expressed or implied by these forward looking statements and 
forecasts. The statements have been made with reference to forecast price 
changes, economic conditions and the current regulatory environment. 
Nothing in this report should be construed as a profit forecast. Past share 
performance cannot be relied on as a guide to future performance.

EnQuest PLC
Annual Report 2012

101

 
 
EnQuest office locations:

London, England
5th Floor, Cunard House
15 Regent Street
London, SW1Y 4LR
United Kingdom
Tel: +44 (0)20 7925 4900
Fax: +44 (0)20 7925 4936

Aberdeen, Scotland
Level 5, Consort House
Stell Road
Aberdeen, AB11 5QR
United Kingdom
Tel: +44 (0)1224 287000
Fax: +44 (0)1224 287105

Kuala Lumpur, Malaysia
Level 6, K Tower
156 Jalan Ampang
50450, Kuala Lumpur
Malaysia
Tel: +60 321 622 125
Fax: +60 321 622 123

Stavanger, Norway
PO Box 499
4003 Stavanger
Norway
Tel: +47 959 45 261

Dubai, UAE
14th Floor, Office #1403
Arenco Tower
Dubai Internet City
Dubai, UAE
Tel: +971 445 673 90
Fax: +971 445 679 60