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CONTENTS
STRATEGIC REPORT
IFC  Uniquely positioned
01  Highlights
02  Our year in review
04  Our strategy
05  Our business model
06  Growing EnQuest’s asset base
07  Key performance indicators
08  Operations – Thistle and Heather
10  Developments – Kraken
12  Acquisitions – Greater Kittiwake Area
14  Chairman’s statement
16  Chief Executive’s report
20  Risks and uncertainties
24  Operating review
33  Oil and gas reserves and resources
34  Financial review
40  Corporate social responsibility review

GOVERNANCE
44  Board of Directors
46  Senior management
48  Chairman’s letter
49  Corporate governance statement
52  Audit committee report
56  Directors’ remuneration report
75  Nomination committee report
77  Directors’ report

FINANCIAL STATEMENTS
81  Statement of Directors’ responsibilities in relation 

82 

to the Group financial statements
Independent Auditor’s report on the annual report 
and accounts to the members of EnQuest PLC
85  Group statement of comprehensive income
86  Group balance sheet
87  Group statement of changes in equity
88  Group statement of cash flows
89  Notes to the Group financial statements
122  Statement of Directors’ responsibilities for the 

Parent Company financial statements

123  Independent Auditor’s report to the members 

of EnQuest PLC

124  Company balance sheet
125  Notes to the financial statements
133  Company information

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

UNIQUELY 
POSITIONED
FOR GROWTH

EnQuest PLC  
Annual Report and Accounts 2013

An independent oil and gas 
development and production company

CONTENTS
STRATEGIC REPORT
IFC  Uniquely positioned
01  Highlights
02  Our year in review
04  Our strategy
05  Our business model
06  Growing EnQuest’s asset base
07  Key performance indicators
08  Operations – Thistle and Heather
10  Developments – Kraken
12  Acquisitions – Greater Kittiwake Area
14  Chairman’s statement
16  Chief Executive’s report
20  Risks and uncertainties
24  Operating review
33  Oil and gas reserves and resources
34  Financial review
40  Corporate social responsibility review

GOVERNANCE
44  Board of Directors
46  Senior management
48  Chairman’s letter
49  Corporate governance statement
52  Audit committee report
56  Directors’ remuneration report
75  Nomination committee report
77  Directors’ report

FINANCIAL STATEMENTS
81  Statement of Directors’ responsibilities in relation 

82 

to the Group financial statements
Independent Auditor’s report on the annual report 
and accounts to the members of EnQuest PLC
85  Group statement of comprehensive income
86  Group balance sheet
87  Group statement of changes in equity
88  Group statement of cash flows
89  Notes to the Group financial statements
122  Statement of Directors’ responsibilities for the 

Parent Company financial statements

123  Independent Auditor’s report to the members 

of EnQuest PLC

124  Company balance sheet
125  Notes to the financial statements
133  Company information

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

UNIQUELY 
POSITIONED

TECHNICAL SKILLS 

The Alma/Galia and Kraken developments exemplify 
how EnQuest is a leading force in integrated 
development. The Greater Kittiwake Area transaction 
fits within EnQuest’s goals of managing maturing 
fields and exploiting nearby discoveries and near field 
exploration opportunities; it demonstrates EnQuest’s 
skills as a proven acquirer of assets. 

 See pages 5, 10, 12, 17, 18 and 24 et seq 

OPERATING SCALE 

At the end of 2013, EnQuest had a direct workforce of 
approximately 600, or 1,800 including offshore 
contractors. EnQuest has a breadth and depth of 
in-house expertise which is matched by few, if any, UK 
oil companies of its size. 

 See pages 4, 5, 6, 8, 10, 12, 17, 18 and 24 et seq

FINANCIAL STRENGTH

With its strong balance sheet and strong cash flow 
generation, combined with its technical skills and 
operating scale, EnQuest is reinforcing its position as 
one of the top independent development partners of 
choice in the UK North Sea.

 See pages 5, 7, 14, 15, 19 and 34 et seq 

01

LARGEST UK 
INDEPENDENT 
PRODUCER  
IN THE UK 
NORTH SEA

Total production for the 
year ending November 2013
Total production in mass units 
(’000 Tonnes)

1,200

1,000

800

600

400

200

0

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Source: Department of Energy and Climate 
Change Statistics

For more information visit
www.enquest.com

HIGHLIGHTS

Reserves
(MMboe)
+51.6%

8
.
4
9
1

5
.
8
2
1

2012

2013

Production
(Boepd)
+6.2%

2
0
8
,
2
2

2
2
2
,
4
2

2012

2013

Cash flow from 
operations
($ million)
-5.3%

9
.
3
9
5

7
.
2
6
5

2012

2013

2013 
`` A 52% increase in net 2P reserves, including the 

positive impact of delivering the sanction of the Kraken 
development and increasing the life of the Alma/Galia 
field. A reserves replacement ratio of over 850%. 

`` 6.2% year on year production growth, underpinned by 

high operational up-times and strong reservoir 
performance. A well executed 2013 drilling 
programme, with a strong performance from Thistle, 
including a new production well. Broom also delivered 
good well performance.

`` Good $563 million cash flow from operations and 

strong $621 million EBITDA1 pre-exceptionals and fair 
value adjustments.

`` The agreed acquisition of 50% of the Greater Kittiwake 
Area (‘GKA’) assets, close to EnQuest’s Scolty/Crathes 
discoveries and to the Avalon prospect; providing an 
additional UK hub and adding 4.7 MMboe to reserves 
and c.2,000 Boepd of net production.

`` A further strengthened funding position, with a new 
credit facility for up to $1.7 billion and a £155 million 
retail bond.

2014 AND BEYOND
`` EnQuest plans to deliver over 15 wells in 2014.

`` Alma/Galia production to start up in H2 2014, adding 

approximately 50% to EnQuest’s average daily 
production.

`` Targeting net average 2014 EnQuest production of 

between 25,000 Boepd and 30,000 Boepd.

`` Kraken vessel conversion to commence and further 

appraisal drilling to assess upside potential.

``

Integration into EnQuest of production operations on 
the Greater Kittiwake Area in the UKCS and the Didon 
field in Tunisia.

`` Drilling of Cairngorm appraisal well.

`` Drilling of an exploration well on Avalon.

`` EnQuest’s end 2013 reserves have a life of over 

20 years.

`` 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.  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, write-off of intangible oil and gas assets and 
foreign exchange movements.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS 
 
 
02

OUR YEAR IN REVIEW

  Q1

KEY 
ACHIEVEMENTS

“EnQuest is well positioned  
for sustainable growth”
Amjad Bseisu Chief Executive

ENQUEST VALUES

CREATIVITY
My definition of creativity is the ability to 
manipulate ideas to meet a need or solve 
a problem; the ability to explore and think 
freely and to create ideas. These define you 
as a person or in a team environment. At 
EnQuest, our daily business is dynamic and 
in the world of offshore operations being 
creative in our thinking is key to problem 
solving on a daily basis to deliver our targets. 
One of the many reasons I enjoy working for 
EnQuest is the opportunities the company 
gives you to express yourself, both as an 
individual and as part of a team of 
energetic professionals.

Achievements

`` Successfully issued £145 million of retail 
bonds. The first such UK bonds to be 
issued in the Oil & Gas sector. 

`` Sanctioned the next phase of the Thistle 
LLX extension, following confirmation  
the project was eligible for a ‘brownfield’ 
tax allowance. 

`` Acquired 8% interest in the Alba 

producing oil field, providing net 2P 
reserves of 5.9 MMboe.

`` Increased gross 2P reserves for Alma/

Galia from 29 MMboe to 34 MMboe by 
extending the field life. 

`` Tied-in the new W6 injector well on  

West Don.

`` Secured the formal award of the licences 

offered to EnQuest in the 27th UK 
licensing round.

`` Took on direct duty holder responsibility 

for EnQuest’s UK operations. 

`` Achieved one million man-hours without 
any lost time incidents (‘LTI’s) on the 
EnQuest Producer project. 

Set to deliver C.A.G.R.1 of over 15%
between 2009 and 2014
Well ahead of long term target of an average of 10% growth p.a.
Average net production (Boepd) 

  a p p r o x i m a t e l y   1 5 %

C . A . G . R .

8
9
6
3
2

,

2
0
8
2
2

,

2
2
2
4
2

,

4
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,

3
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6
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1

,

0
5
1
0
1

,

,

0
0
0
0
3
–
0
0
0
5
2

,

John Telford
Operations Manager

2009

2010

2011

2012

2013

2014

1.  Compound annual growth rate

 EnQuest PLC Annual Report and Accounts 201303

  Q2

  Q3

  Q4

Achievements

Achievements

Achievements

`` Submitted the Field Development Plan 

`` Farmed out 55% of the Cairngorm 

(‘FDP’) for the Kraken development. Drilled 
a Kraken appraisal well, the results of which 
confirmed the North Kraken area; a second 
separate field, with a second separate £800 
million heavy oil tax allowance.

`` Announced EnQuest’s entry into North 

Africa, through a 70% operating interest in 
the producing Didon oil field and the 
Zarat Permit in Tunisia, including 2 
MMboe of net producing 2P oil reserves 
in Didon and over 40 MMboe of net 
contingent resources in Zarat. 

`` Delivered the EnQuest Producer vessel’s 
departure from dry dock on schedule and 
finished putting the main elements of the 
subsea system in place.

`` Achieved one year of operation without 
an LTI on the Northern Producer floating 
production facility.

discovery on a promoted basis. EnQuest 
remains as the operator.

`` Acquired a 50% interest in the Avalon 

prospect, close to the Scolty and Crathes 
discoveries. EnQuest to operate a 2014 
exploration well. 

`` Announced acquisition of a 50% interest 
in the Greater Kittiwake Area (‘GKA’), 
close to the Scolty and Crathes 
discoveries, creating a new EnQuest 
development and production hub. 

`` Completed and brought onstream the 
Don South West Area 6 injector well. 

`` Achieved six years free of LTIs on Thistle’s 

drilling operations.

`` Started production from the new well  
on the Thistle Western Fault Block. 

`` Secured the regulator’s sanction of  
the Kraken Field Development Plan;  
EnQuest and its partners then sanctioned 
the Kraken development, increasing 
EnQuest’s net 2P reserves by over 
60 MMboe. Kraken to become EnQuest’s 
sixth producing hub, after Alma/Galia 
and GKA. 

`` Established a new six year credit facility 
for up to $1.7 billion, providing capacity 
both for existing projects and for new 
opportunities, including a $500 million 
accordion facility. 

`` Completed the reactivation of the 

Heather drilling rig.

`` Provided much improved power 

redundancy on Thistle through the rebuilt 
B and new D turbine generators. 

`` Formal signing of the Kraken floating, 

production, storage and offloading vessel 
contract with Malaysian based firm, 
Bumi Armada Berhad.

`` Relocated the EnQuest Producer vessel to 
a UK yard, on the Tyne, for finishing and 
commissioning work.

Four years of strong cash flow generation:
450% reserve replacement ratio, reserve life over 20 years 

Reserves 2010–2013 (MMboe)

Cash flow 2010–2013

.

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ENQUEST VALUES

COLLABORATION
Kraken is a transformational project for 
EnQuest. As the project team we work 
together in a collaborative manner across  
our different disciplines to ensure that all the 
pieces of this complex jigsaw come together 
at the right time.

)

.

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Malcolm Coutie
Senior Drilling Engineer, Kraken

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
04

OUR STRATEGY

STRATEGIC 
FRAMEWORK

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.

DELIVERING 
SUSTAINABLE GROWTH

Exploiting our existing reserves

Making selective acquisitions

ALBA, GREATER KITTIWAKE AREA,  
DIDON/ZARAT

In 2013, EnQuest increased its net 2P 
reserves by 5.5 MMboe, through 
acquisitions. In 2014, it will increase them 
further through the acquisition of GKA 
and the expected completion of the 
acquisition of Didon/Zarat.

 See pages 12, 13, 16, 18, 19, 25 and 31

MARKET OPPORTUNIT Y

DONS, THISTLE/DEVERON,  
HEATHER/BROOM, ALBA

In EnQuest’s first four years, EnQuest 
increased its net 2P reserves by 25.4 
MMboe, as a result of revisions to reserve 
estimates, reflecting the benefits of our 
infill drilling programme and our 
increased reservoir knowledge.

 See pages 08, 09, 16 et seq and 24 et seq

Converting contingent 
resources into reserves

KRAKEN

In 2013, through the sanction of the 
Kraken development, EnQuest has been 
able to report gross reserves of 
approximately 140 MMboe.

 See pages 10, 11, 17, 19, 25 and 30

Commercialising and 
developing discoveries

ALMA/GALIA

Through the successful commercialisation 
of Alma/Galia and the sanction of the 
Alma/Galia development, EnQuest and its 
partner have been able to report a gross 
34 MMboe of 2P reserves.

 See pages 16, 17, 19, 25 and 29

EnQuest targets development and production opportunities in 
maturing basins, developments which are not large enough to be 
of interest to the major global oil companies. In-house EnQuest 
has the full spectrum of integrated technical capabilities needed 
to successfully deliver new oil field developments; combining 
subsurface, facilities planning and drilling. EnQuest believes that 
these technical skills, combined with its operational scale and its 
financial strength, leave EnQuest uniquely well positioned to 
deliver its sustainable growth strategy. 

As a company of substantial size, with high levels of cash 
generated from operations, EnQuest has good access to capital 
and has a strong balance sheet, providing capacity to acquire new 
assets. Sellers of oil field assets need buyers who not only have 
the required funding, but who have the necessary technical and 
operational capabilities, essential for the subsequent safe and 
effective management of the assets; EnQuest has all of these 
capabilities. Generally, the flow of assets available to EnQuest  
for possible acquisition has increased, facilitating potential new 
acquisition projects, such as EnQuest’s recent acquisition of the 
Greater Kittiwake Area (‘GKA’) assets. 

 EnQuest PLC Annual Report and Accounts 201305

OUR BUSINESS MODEL

REALISING  
VALUE THROUGH 
CAPABILITY

We believe that EnQuest has the right mix of 
capabilities for its business model, focused on 
development and production opportunities in 
maturing basins, opportunities which are not 
material enough for major oil companies.  
EnQuest has the full spectrum of integrated 
technical capabilities needed to deliver new oil  
field developments successfully; combining 
subsurface, facilities planning and drilling.  
EnQuest has substantial operational scale.

FOCUSED ON HUBS

FIELD LIFE EXTENSIONS

MARGINAL FIELD SOLUTIONS

NEW DEVELOPMENTS

`` Upgrading existing facilities
`` Newer technology, new seismic
`` Simplifying processes
`` Infill drilling, subsurface skill 
in identifying well targets 

`` Agile, innovative and cost 

efficient solutions

`` Redesigning and upgrading 

‘used’ facilities

`` Using existing infrastructure; 

tie-backs 

ASSETS
`` Heather/Broom
`` Thistle/Deveron
`` Greater Kittiwake Area

`` Maturing fields
`` Access through majors

ASSETS
`` The Don fields 
`` Alma/Galia 

`` Dormant fields
`` Access through majors  
and licensing rounds

UNIQUELY POSITIONED

`` 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

ASSETS
`` Kraken
`` Didon/Zarat 

`` Access through smaller 

companies

T

E

C

H

N

I

C

A

L

S

K

I

L

L

S

C A L E

G   S

ATIN

R
E
P
O

TURNING 
OPPORTUNITIES 
INTO VALUE

H
T
G
N
E

L  S TR

FINA N C I A

FOCUSED ON INSOURCED 
SKILLS AND 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

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 inside front cover

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS 
 
 
 
06

GROWING ENQUEST’S ASSET BASE

EnQuest’s principal UK assets at the end of 2013 were its 
interests in the producing operated oil fields Heather/Broom, 
Thistle/Deveron, West Don, Don Southwest and Conrie, the 
producing non-operated Alba oil field and the Alma/Galia  
and Kraken developments, with further development 
opportunities in the Scolty/Crathes, Cairngorm, Southwest 
Heather, Crawford/Porter and Kildrummy discoveries. During 
2013, EnQuest also announced its acquisition of interests in the 
Greater Kittiwake Area (‘GKA’) producing oil field in the UK 
North Sea, this transaction completed in Q1 2014. In early 2014, 
EnQuest was awarded a licence in the Don North East area.  
At the end of 2013, EnQuest had working interests in 31 UK 
production licences, covering 39 blocks or part blocks, and  
was the operator of 25 of these licences; including GKA  
and the Don North East area licence, the totals increase to  

37 licences and 47 blocks or part blocks, of which EnQuest 
operates 30 licences.

During 2012 and 2013, EnQuest also began establishing 
positions in maturing hydrocarbon basins outside the UK North 
Sea. At the end of 2013, EnQuest had interests in two blocks 
offshore Sabah, in Malaysia, this development opportunity was 
acquired in late 2012. In 2013, EnQuest announced its entry into 
North Africa, agreeing to acquire interests in the producing 
Didon oil field and in the Zarat Permit development 
opportunity, both in Tunisia, this transaction has yet to be 
completed. In 2013, EnQuest also agreed to acquire an interest 
in the North West October concession in Egypt, this 
transaction completed in Q4 2013. In Q1 2014, EnQuest  
was awarded two licences in the Norwegian Sea.

BUSINESS 
DEVELOPMENT 
TRANSACTIONS 
IN 2013

Our assets

8%

Acquired 8% of the Alba 
producing oil field

70%

Agreed to acquire a 70% 
operating interest in the 
producing Didon oil field  
and the Zarat Permit in Tunisia

50%

Farmed into 50% of  
the Avalon prospect

(55%)

Farmed out 55% of the 
Cairngorm discovery

50%

Agreed to acquire 50%  
of assets in the Greater 
Kittiwake Area

NORTH SEA

Production and developments

Discoveries

Other licences

THE DONS / CONRIE
THISTLE / DEVERON

PL760

Sandnessjoen

PL758

HEATHER / BROOM

SW Heather

Sullom Voe
Terminal

S h etl a n d
I s l a n d s

KRAKEN

Crawford

Cairngorm

O rkn ey
I s l a n d s

Kildrummy

ALBA

Avalon

Scolty / Crathes

GREATER KITTIWAKE AREA

Namsos

NORWAY

ENQUEST LICENCES
IN THE NORWEGIAN SEA

NORWAY

SCOTLAND

Aberdeen

INTERNATIONAL

SB-307/308

SOUTH CHINA SEA

ALMA / GALIA

GULF 
OF GABES

ZARAT

NORTH WEST
OCTOBER

SINAI
PENINSULA

SABAH
(MALAYSIA)

TUNISIA

BRUNEI
BRUNEI

EGYPT

G

U

L

F

O

F

S

U

E

Z

South East Asia / Malaysia

North Africa / Tunisia

LIBYA

North Africa / Egypt

ALGERIA

 EnQuest PLC Annual Report and Accounts 2013 
 
07

KEY PERFORMANCE INDICATORS 
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 VALUES

FOCUS
For me, focus is about understanding priorities, both at home 
and at work, and ensuring that I am giving the right level of 
attention to all the competing aspects of my life. For EnQuest, 
focus on understanding and addressing the key threats and 
opportunities to the business will deliver the results we need  
to secure our future.

Andrew Sekulin
Integrity Manager

NET 2P RESERVES
MMBOE 

  See pages 1, 3, 14, 16,  
24 and 33

REVENUE
$M

 See pages 34, 35 et seq

195 MMboe 

$961m

GROSS PROFIT 
$M

 See pages 34, 35 et seq

EBITDA
$M

 See pages 1, 16, 19 and 34

$429m

$621m

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)
Cash capex on property, plant and equipment oil and gas assets ($ million)

Reported data:
Cash generated from operations ($ million)
Net (debt)/cash ($ million)
Profit before tax ($ million)
Basic earnings per share (cents)
EBITDA1

1.  EBITDA has been adjusted to exclude foreign exchange losses.

2013

1.36

2012

2.00

194.76

128.52

24,222
961.2
109.7
35.5
428.9
984.3

562.7
(381.1)
330.9
24.4
621.3

22,802
889.5
111.6
32.3
441.3
842.2

593.9
89.9
403.4
46.2
634.6

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS08

UNIQUELY POSITIONED

OPERATIONS
DRIVING 
PERFORMANCE

7,925 

7,925 barrels per day
Thistle/Deveron produced an average  
of 7,925 barrels of oil per day in 2013

New life
Two projects which are prime examples of 
how EnQuest extends the lives of maturing 
oil fields through use of its brownfield 
modification expertise, increasing their 
commercial value through EnQuest’s 
technical capability and specialist skills. 

 EnQuest PLC Annual Report and Accounts 201309

MAGNUS

MAGNUS

SOUTH

211/17

PENGUIN
CLUSTER

33/6e

211/13b

CONRIE

WEST DON

211/13aF1

211/19a

DON NE

DON SW

PLAYFAIR

211/18c

211/18a

STATFJORD
NORD

HUTTON
NORTH WEST

211/16a

EIDER

KERLOCH

211

/21a

F3

211/
19aF3

33/
9bF1

PELICAN

2/4b

2/5

THISTLE

BROOM

2/4a

MURCHISON

HEATHER

3/1a
33/9
MURCHISON

HEATHER
SOUTH 
WEST

211/19b

2/10a

3/6

DEVERON

211/22aF1

211/23d

Thistle

OSPREY

211/
23a2F1

Heather

002/10

211/24c

211/22b

211/
23a2

MERLIN

211/
23a1

CAUSEWAY

2/10b

2/15a
CHEVIOT

3/11c

DUNLIN

CORMORANT

NORTH

211/22

211/
23f

211/
23c

SKYE

211/24a

2/15b

3/11a

DUNLIN SW

Rig builders with rope access skills assist the removal of the crown 
sheaves, 150ft up the Thistle derrick as part of the drilling 
maintenance programme.

211/
23a3

LLX saw two new cranes procured and an electrical power 
generator commissioned in 2013. 2014 will see the refurbishment 
of the separation process and the installation of the associated 
control and safety system.

HUTTON

THISTLE LATE LIFE EXTENSION/ 
HEATHER RETURN TO DRILLING

BRENT OIL

33/9c

33/9-6
DELTA

ORLANDO

LYELL

We are now seeing significant positive results from the 
Thistle Late Life Extension (‘LLX’) project. This entails a 
number of interlinked work streams, to date these have 
included the installation of a new power generation 
turbine to stabilise power supply issues and also 
topsides integrity projects. 

COLUMBA D

COLUMBA B

NINIAN

3/8b

3/7d

3/2a

3/2c

COLUMBA E

3/7bF1

003/08

STAFFA

Ultimately these projects are designed to secure the recovery of circa 35 
3/7c
million barrels of oil from the Thistle and Deveron fields. Following a major 
rig reactivation project, the investment programme yielded excellent 
results in 2013, with Thistle delivering its highest levels of production since 
003/12
the 1990s. A particular success was the new production well in the Western 
Fault Block, which came on stream in mid-August 2013. Work throughout 
3/12a
the year also included process simplification, new process control and 
safety systems. The Thistle brownfield tax allowance, secured in 2012, 
proved key to ensuring the delivery of the latter stages of this field life 
3/12b
extension programme.

STATFJORD

DUNBAR

33/
12a

33/12-1
Essentially the same life extension formula is being applied on Heather 
STATFJORD
through its return to drilling and redevelopment programmes, designed to 
extend the production life of the platform as it targets some of the 
estimated 360 million barrels of oil still remaining in the field. The rig 
reactivation phase of the project was completed at the end of 2013. The 
investment in the platform’s rig facilities paved the way for the first drilling 
programme on Heather since 2006, four wells are scheduled for 2014, the 
start of a two year infill drilling programme. A complementary facilities 
upgrade project has also begun with an initial focus on gas compression 
stability, new production and water injection flowlines and conductors 
reinforcement. The team is utilising its technical expertise, creativity and 
innovation and building on the experience gained from the Thistle project.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS10

UNIQUELY POSITIONED

DEVELOPMENTS
REALISING 
UNTAPPED 
POTENTIAL

Sustainable growth
The Kraken development is a 
transformational one for EnQuest; 
one of the largest new developments 
in the UK North Sea for many years 
and a new production hub with a life 
span in excess of 25 years. 

 140m

140 million barrels of oil.
Current approximate gross 
reserve estimates for Kraken 

 EnQuest PLC Annual Report and Accounts 201311

9/1a

9/2b

9/2a

9/2d

BRESSAY

9/3a

9/3c

KRAKEN

KRAKEN
NORTH

WESTERN
FEATURE

KRAKEN

9/3d

The pipeline end termination structures are utilised to connect  
the rigid flowlines to the risers at the FPSO and the manifolds at 
the wells.

The Kraken Field Development Plan (‘FDP’) was formally 
approved by the Department of Energy and Climate 
Change (‘DECC’) and sanctioned by EnQuest and its 
partners in Q4 2013, with major supplier arrangements 
already in place, including those for the project vessel.

The approved FDP constituted the development of the Kraken and 
Kraken North fields and with it the allocation of two separate heavy  
oil tax allowances for the development. The Kraken project exemplifies 
EnQuest’s ability to realise the potential of previously undeveloped oil 
fields through the combination of our uniquely integrated technical skills 
set, our core values and the commercial advantages inherent in both our 
operational scale and our financial strength.

In 2013, the sanction of Kraken drove an increase in EnQuest’s total net 2P 
reserves of over 60 million barrels of oil. It is expected to yield gross peak 
production of over 50,000 barrels per day. An oil tanker will undergo a 
conversion programme to become the floating, production, storage and 
offloading (‘FPSO’) vessel for the Kraken project. This vessel will be one of 
the largest assets of its kind operating in the North Sea, with an oil storage 
capacity in excess of 600,000 barrels. The field layout of the development 
will consist of 25 wells, tied back to the FPSO. Kraken is located in the East 
Shetland basin, approximately 125km east of the Shetland Islands. 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS12

UNIQUELY POSITIONED

ACQUISITIONS
IDENTIFYING 
FUTURE
OPPORTUNITIES
FOR GROWTH

4.7m

4.7 million barrels of oil, as at the 
economic date 1 January 2013.
EnQuest’s addition to net 2P reserves
from its Greater Kittiwake Area acquisition

 EnQuest PLC Annual Report and Accounts 201313

EnQuest acquired 50% of the Greater 
Kittiwake Area in the UK North Sea, 
close to its Scolty and Crathes 
discoveries and its Avalon prospect; 
creating a new EnQuest development 
and production hub. 

CRATHES

21/12d

GREATER KITTIWAKE AREA

WHINCHAT

21/17a

KITTIWAKE

21/19b

GOOSANDER

21/17b

21/18a

GROUSE

GADWALL

MALLARD

21/
17c

21/22

21/19a

021/19

DUCK

EAGLE

21/24b

21/25a

For a smaller scale map of GKA, showing it in the context of the 
adjacent Scolty and Crathes discoveries and the Avalon prospect, 
see page 6.

The Kittiwake platform

22/11b

EnQuest was delighted to acquire these Greater 
Kittiwake Area (‘GKA’) assets, providing existing 
production, additional reserves and the opportunity 
for a tie-back to GKA from EnQuest’s proposed 
development of Scolty/Crathes. If the tie-back 
opportunity is realised, it will enable us to extend  
the life of the GKA field. 

The acquisition also brings infill drilling opportunities in the GKA fields 
and improved potential from exploration opportunities, both in the GKA 
area and in EnQuest’s existing acreage nearby. 

This acquisition fits well with EnQuest’s model of managing mature fields 
and exploiting nearby discoveries and near field exploration opportunities. 

Assets acquired:
`` The entire 50% share of the Greater Kittiwake Area assets previously 

owned by Centrica North Sea Oil Limited.

`` A 100% interest in the Kittiwake to Forties oil export pipeline. 
`` 2P reserves of 4.7 MMboe, as at the economic date of 1 January 2013, 
and additional production; net production from these GKA fields  
was c.2,000 Boepd at the time this acquisition was announced in 
October 2013.

The acquisition completed at the start of March 2014.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS14

OVERVIEW

CHAIRMAN’S 
STATEMENT

EnQuest’s performance
EnQuest is delivering sustainable growth. 
Over our first four years to the start of 
2014, we have grown our original net 2P 
reserve base by almost 150%, 
representing a replacement ratio of 
approximately 450% and EnQuest now 
has a reserve life of over 20 years.
Dr James Buckee Chairman

In the first four years, EnQuest generated c.$2.1 billion in 
cash flow from operations, and has invested c.$2.3 billion  
in the future growth of the business. I believe that, in risk-
adjusted terms, EnQuest is positioned at the most value 
creating part of the exploration and production lifecycle. 
EnQuest’s momentum is strong, the Board and I are more 
excited by our prospects today than at any time since 
EnQuest’s inception.

Industry context
In 2013, oil prices remained strong and stable, for the third 
year in succession. This was a healthy backdrop for 
continuing investment and new opportunities in the energy 
industry. However, there have been cost increases which  
have directly contributed to the cancellation of some 
substantial development projects in the industry. This 
competitive environment underlines the scale of EnQuest’s 
achievement in successfully delivering the sanction of the 
Kraken development. 

In 2013, EnQuest put a new credit facility in place, for up to 
$1.7 billion. As a company of substantial size, with high levels 
of cash generated from operations, EnQuest has good 
access to capital and has a strong balance sheet, providing 
capacity to acquire new assets. Sellers of oil field assets need 
buyers who not only have the required funding, but who have 
the necessary technical and operational capabilities, 
essential for the subsequent safe and effective management 
of the assets. EnQuest has all of these capabilities. Generally, 
the flow of assets available to EnQuest for possible 
acquisition has increased, facilitating potential new 
acquisition projects, such as EnQuest’s recent acquisition  
of the Greater Kittiwake Area (‘GKA’) assets. 

Four years of strong cash flow generation:
450% reserve replacement ratio, reserve life over 20 years 

Reserves 2010–2013 (MMboe)

Cash flow 2010–2013

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 EnQuest PLC Annual Report and Accounts 2013 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15

We believe companies like EnQuest are the future of the UK 
North Sea. It is only by combining our skills and expertise with 
fiscal incentives that we can commit to significant new 
investments. In 2013, EnQuest benefited from aspects of the 
UK North Sea fiscal regime designed to encourage investment. 
The Thistle platform utilised a ‘brownfield’ allowance and the 
Kraken development secured two ‘heavy oil’ allowances. 
EnQuest continues to engage with the UK Government, 
seeking to optimise the fiscal structure of the UK North Sea. 

EnQuest also engages with the Scottish Government and 
welcomes statements that, in the event of there being an 
independent Scotland, the Scottish Government plans a 
stable and predictable fiscal and regulatory regime. EnQuest 
believes that in order to maximise the extraction of 
hydrocarbons, there is a fundamental requirement for a 
stable fiscal regime that incentivises investment.

EnQuest welcomes the recommendations of the 2013/2014 
Wood Review of oil and gas activity on the UK Continental 
Shelf and its regulation. Sir Ian Wood’s strategy ‘Maximising 
Economic Recovery for the UK’, proposes more rigorous 
stewardship of the UK’s remaining oil and gas resources 
through greater collaboration between operators and strong 
tripartite co-operation between the UK Department of Energy 
& Climate Change (‘DECC’), HM Treasury and the oil and gas 
industry. EnQuest believes that in some important respects the 
current system is out of date and no longer ‘fit for purpose’. It 
provides existing operators little incentive to accommodate 
third parties through their infrastructure and, without action, 
UK North Sea oil production will decline prematurely. If the 
Wood recommendations are implemented they should help to 
prolong the life of the North Sea and to maximise hydrocarbon 
extraction from this still rich maturing basin. 

EnQuest Board
There were no changes to the composition of the Board 
during 2013. The Directors collaborate in assessing and 
evolving EnQuest’s strategy and in key decisions on 
implementation; in 2013 these included the sanctioning of 
the Kraken development, the Kittiwake acquisition and 
EnQuest’s initiatives outside the UK North Sea. 

Although there were no changes to the Board itself in 2013, 
in October, EnQuest PLC announced the appointment of 
Stefan Ricketts as Company Secretary. This change followed 
Paul Waters stepping down as Company Secretary. Paul has 
been with EnQuest since its inception, the Board thanks him 
for his contribution and welcomes Stefan to his new role. 

EnQuest’s results are a reflection of the quality of all of our 
people and on behalf of the Board, I would like to thank my 
EnQuest colleagues for their continued hard work, 
commitment to our values, and successful pursuit of the 
Company’s development plans. 

human rights. In line with the recent expansion of our 
overseas activities, we are refining our approach to these 
areas to ensure that the Company’s policies are robust for 
international as well as local operations. Our values will 
remain consistent with our existing Code of Conduct and will 
comply with all applicable laws.

In 2013 we further embedded and extended our anti-
corruption programme, by launching a Group-wide training 
programme for all employees. By the end of the year the 
great majority of our employees had completed the training, 
which is being extended to all new joiners.

Dividend
The Company has not declared or paid any dividends since 
incorporation in 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 on  
such other factors as the Board of Directors of the  
Company considers appropriate.

Delivering sustainable growth 
2013 was another good year of delivery and progress for 
EnQuest. We continue to demonstrate that by targeting 
maturing assets and undeveloped oil fields, we can create 
value and deliver sustainable growth. In 2014, EnQuest will 
continue to invest in its current producing assets, bring 
Alma/Galia onstream, integrate the Greater Kittiwake Area 
acquisition and make substantial investments in the Kraken 
development, which is scheduled to come onstream by 2017. 
We are therefore on course for having six producing 
operated hubs in the UK and for achieving our objective of 
annual net production from the UK North Sea of around 
50,000 Boepd. Beyond that, we are creating further new 
potential from our UK asset portfolio and making low cost 
investments in international opportunities, securing 
EnQuest’s growth for the longer term. 

ENQUEST VALUES

EMPOWERMENT
One of the things I like most about EnQuest is that I am given 
clear accountability for my work and then empowered to deliver 
it. For me this means appropriate controls but, importantly, a 
lack of bureaucracy and the feeling that my efforts can really 
make a difference. I believe EnQuest’s culture of empowerment 
allows people to put their hearts into their work and gives us a 
real competitive edge.

Governance
The Company recognises the importance of having high 
standards in all areas of governance, this includes the area of 

Jane Mellor
Performance Management Team Lead

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS16

OVERVIEW

CHIEF 
EXECUTIVE’S 
REPORT

EnQuest’s strategy and business 
model; a good performance in 2013
In 2013, following the sanction of the 
large Kraken field in November, 
EnQuest increased its net 2P reserve 
base by 51.6% to 194.8 MMboe, 
reflecting a reserve replacement ratio 
of over 850% for 2013 and strongly 
reinforcing the sustainability of 
EnQuest’s growth model.
Amjad Bseisu Chief Executive

Existing assets continue to perform well, we produced an 
average of 24,222 Boepd in 2013, an increase of 6%. This was 
around the middle of the guidance range we indicated at the 
start of the year, even though first production from Alma/
Galia was rescheduled into 2014.

In 2013, we produced 8.7 million barrels of oil from our 
existing reserves. We also added 74.9 million barrels of oil to 
2P reserves; this was achieved through the sanction of the 
Kraken development, the extension of the planned Alma/
Galia field life, selective asset acquisitions, such as our stake 
in the producing Alba field, and from upward revisions to our 
existing fields. 

In 2013, cash flow generated from operations was $562.7 
million and EBITDA was $621.3 million. We invested $984.3 
million of cash on capital expenditure for the future growth 
of the business. 

In 2013, we agreed the acquisition of a 50% interest in the 
Greater Kittiwake Area, giving us an opportunity to extend  
its field life and also to enhance reserves by facilitating a 
proposed development of the Scolty and Crathes discoveries. 
This fits well with our objectives of managing maturing fields, 
exploiting nearby discoveries and near field exploration 

Over

850%

Reserve replacement ratio in 2013

Reserves
(MMboe)
+51.6%

8
.
4
9
1

.

5
8
2
1

Production
(Boepd)
+6.2%

2
0
8
2
2

,

2
2
2
,
4
2

EBITDA
($ million)
-2.1%

.

6
4
3
6

3
.
1
2
6

2012

2013

2012

2013

2012

2013

 EnQuest PLC Annual Report and Accounts 201317

opportunities. EnQuest also announced its first acquisition of 
an international producing asset, giving us an operating 
platform in Tunisia with short term infill drilling opportunities 
and a low cost entry point into potentially substantial 
development opportunities at the Zarat and Elyssa fields.

EnQuest is well positioned for sustainable growth and is 
successfully implementing its strategy to deliver that growth.

Operations and developments
Health, safety, environment and assurance (‘HSE&A’)
EnQuest will always maintain the highest level of vigilance 
with regard to HSE&A, we should acknowledge some 
significant achievements in 2013. The transfer of duty 
holdership (direct management of production platforms) to 
EnQuest from an outsourced contractor was conducted 
safely and effectively; a natural evolution of our integrated 
approach to operations management, giving us increased 
direct control over our assets. 

In 2013, EnQuest’s 2013 lost time injury frequency rate (‘LTIF’) 
of 1.4 compared favourably with the latest available industry 
average of 1.9. Also encouraging was that at the end of 2013 
our safety critical backlog (a measure of outstanding safety 
maintenance items) was almost zero. 

We will not be complacent, we have put in place a new series 
of challenging HSE&A objectives for 2014, by way of 
continuous improvement planning. We continue to exhibit 
leadership in demonstrating safety that comes before 
production and operations. 

Operations
In 2013, EnQuest delivered good production growth of 6%. 
We produced oil from the Thistle field at volumes not 
achieved since the mid-1990s, demonstrating EnQuest’s 
ability to rejuvenate maturing fields and to extend their field 
lives. New drilling at the successful Don fields enabled them 
to maintain their position as EnQuest’s highest volume 
producing hub. 

EnQuest delivered nine wells in 2013, including the successful 
Thistle and Dons drilling programmes. Uptime performance 
was strong and in the top quartile of UK operators as 
assessed by the UK Production Efficiency Taskforce, utilising 
DECC data, despite the relative maturity of EnQuest’s assets. 
The Heather/Broom hub also made a strong contribution to 
production, reflecting good well performance at Broom and 
improved operating efficiency at the Heather platform. In 
2014, Heather returns to drilling for the first time in eight 
years, following its recommencement of rig operations at the 
end of 2013.

Developments
Kraken
In November 2013, EnQuest delivered the sanction of the 
Kraken development in the UK North Sea; the largest single 
oil investment sanctioned in the UK last year. EnQuest 
originally acquired its interests in Kraken after a series of 
appraisal wells had proven both the presence of oil and also 
that its flow characteristics were good. Prior to sanction, 
EnQuest had a good understanding of the reservoir, had 
completed a full front end engineering design (‘FEED’) 
process and had the major supplier arrangements already in 
place, including those for the floating, production, storage 
and offloading vessel (‘FPSO’). 

EnQuest is the operator of the project. The Kraken 
development uses conventional technology and is 
anticipated to produce over 30,000 Boepd net to EnQuest  
at its peak rate; we expect it to come onstream by 2017, 
creating EnQuest’s sixth operated producing hub. With its 
long field life in excess of 25 years, Kraken further increases 
the sustainability of EnQuest’s growth. Comprehensive 
additional information on the Kraken project was published 
at EnQuest’s capital markets day for investors in Q4 2013, 
these materials are available on EnQuest’s website. 

Alma/Galia
In late 2012, EnQuest confirmed the sanction of the Alma/
Galia development, now with a gross 34 MMboe. By the end 
of 2013, the Alma/Galia subsea infrastructure had been put in 
place, drilling and completion operations were well underway 
and the ‘EnQuest Producer’ FPSO vessel had been moved to 
the Tyne in Newcastle, to undertake finishing yard scope and 
onshore commissioning. 

In H2 2013, as an assessment of the remaining work 
concluded that additional time was needed for the project, 
the anticipated date of first production was rescheduled into 
2014. Additional information on the Alma/Galia project was 
provided to investors at EnQuest’s capital markets day in Q4 
2013, including details in relation to health and safety, 
progress in the field, also revised capex and opex, with 
EnQuest’s net capex cost for the first phase at c.$45 per bbl. 
EnQuest now expects production to start in H2 2014. Alma/
Galia will significantly increase EnQuest’s production when it 
comes onstream, with an initial net peak production of 
c.13,000 Boepd.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS18

OVERVIEW
CHIEF EXECUTIVE’S REPORT 
CONTINUED

Acquisitions and disposals
UK North Sea
In January 2013, EnQuest agreed the acquisition of an 8% 
interest in the Alba oil field, including 5.9 MMboe of net 2P 
reserves, as at the economic date of 1 January 2012. Alba 
also brings EnQuest additional experience relevant to the 
development and operation of the Kraken field. The 
transaction completed in March 2013.

In H1 2013, EnQuest negotiated the farm out of a total of 55% 
of its previous 100% interest in the Cairngorm basement oil 
discovery. EnQuest received a promoted carry on the 
Cairngorm appraisal well, this transaction completed in 
August 2013 and an appraisal well is currently being drilled. 

In August 2013, EnQuest announced it had farmed into a 50% 
interest in the Avalon prospect. This is located close to the 
Scolty and Crathes discoveries, in each of which EnQuest has 
a 40% interest. An EnQuest operated exploration well is to 
be drilled on Avalon in 2014. 

In Q4 2013, EnQuest announced an agreement to acquire 
50% of the Greater Kittiwake Area assets, along with a 100% 
interest in the Kittiwake to Forties oil export pipeline. This 
gives EnQuest increased production and additional net 2P 
reserves of 4.7 MMboe, as at the economic date of 1 January 
2013. We see significant potential to improve production 
both through infill drilling and through exploring further 
prospects in the area. With Scolty, Crathes and Avalon all 
nearby and the possibility of a tie-back to Kittiwake, this 
acquisition creates the potential for a substantial new 
EnQuest hub and for an extension to the field life of GKA. 

International 
In Q4 2012, EnQuest announced its first measured steps 
outside of the UK North Sea, replicating its existing model by 
targeting previously underdeveloped assets in what will be a 
small number of other maturing regions. In 2012, EnQuest 
entered Malaysia with an initial investment of only US$3 
million, to acquire Nio Petroleum (Sabah) Limited and thereby 
a 42.5% interest in Blocks SB307 and SB308, offshore Sabah, 
Malaysia. In 2014, a well is being matured for drilling offshore 
Sabah, Malaysia.

In January 2014, EnQuest was offered and accepted two 
licences in the Norwegian 2013 Awards in Pre-defined Areas 
(‘APA’) licensing round, both located in the Norwegian Sea. 
EnQuest was offered production licence 758 (‘Rosslyng’), with 
EnQuest as the operator and having a 35% interest. EnQuest 
was also offered licence 760 (‘Chinook’), with Total as the 
operator, both Total and EnQuest having a 50% interest each. 
In both cases, the work commitments in the initial two year 
period entail 3D seismic licensing and reprocessing. 

In Q2 2013, EnQuest agreed its first acquisition of 
international producing assets, acquiring 70% and 
operatorship of the Didon oil field in Tunisia; including 2 
MMboe of net 2P producing oil reserves in Didon, along with 
over 40 MMboe of net contingent resources in the Zarat field. 
With an initial consideration of US$23 million on completion, 
this represents another low cost entry point into a new 
region, with the potential for a development of the Zarat field 
and possibly also the nearby Elyssa field. Completion of this 
transaction is expected in H2 2014. 

Building on this first move into North Africa, EnQuest has 
also made a small investment in a 50% interest in the North 
West October appraisal block in Egypt, with the possibility of 
a future development opportunity; the consideration is 
refundable if a development does not proceed.

 EnQuest PLC Annual Report and Accounts 201319

Financial performance
In 2013, EnQuest generated strong EBITDA of $621.3 million. 
EnQuest is in a strong financial position, having recently put  
in place a new credit facility, for up to $1.7 billion; providing 
capacity both for our current projects and for new 
opportunities. 2013 year end net debt of $381.1 million, 
compares to a $89.9 million net cash position at the end of 
2012 and reflects EnQuest’s increased investment programme.

In total, unit operating costs of $35.5 per barrel were on 
target; reflecting a good operational performance and good 
control of direct costs, although transportation costs were up 
due mainly to an increase in the costs per barrel at the Sullom 
Voe oil terminal in the Shetland Islands. Within the total, unit 
production costs of $27.2 per barrel were flat compared to the 
$27.4 per barrel equivalent costs incurred in 2012.

2014 so far
In Q1 2014, EnQuest was offered an ‘out of round’ licence (‘Don 
NE’) in the Don North East area for blocks 211/18e and 211/19c, 
including the Area 23 and Area 24 discovered oil accumulations 
and an undrilled extension to the Don NE field, in the same 
area as Don Southwest and West Don. This is a natural fit for 
EnQuest, providing new production opportunities and utilising 
existing infrastructure in the Don fields.

The Cairngorm appraisal well has recently reached its target, 
with indications of hydrocarbons in a relatively good quality 
basement reservoir.

Outlook for the rest of 2014 and beyond
Production performance has been good in 2014 so far, despite 
severe winter weather conditions. Average production for the 
full year 2014 is anticipated to be between 25,000 Boepd and 
30,000 Boepd, excluding production from uncompleted 
transactions. EnQuest plans to deliver over 15 wells in 2014. 

The drilling programme includes a new production well  
on Don Southwest, a production well workover on GKA,  
an ongoing intervention programme on Thistle, three 
production wells and one injection well on Alma/Galia and 
the recommencement of drilling on Heather for the first time 
since 2006, with two sidetracks and two workovers. Also, two 
production wells are planned for the non-operated Alba field.

The 2014 exploration and appraisal well drilling programme 
includes Cairngorm, Kraken and Avalon in the UK. 
Internationally, in H2 2014, a non-operated well is being 
matured for drilling in the Sabah area, offshore Malaysia. 

The drilling on Alma/Galia and the completion work on  
the EnQuest Producer will be followed by the anticipated 
start-up of production in the second half of 2014, revitalising 
the first field to produce oil in the UK North Sea, almost 
40 years after it initially came onstream. We are now moving 
ahead on the Kraken development, with the FPSO vessel  
for Kraken due to arrive in the yard in Q2 2014, for the 
commencement of its conversion programme.

With production from Alma/Galia due to start this year and 
Kraken scheduled to produce first oil by 2017, EnQuest’s 
already sanctioned development projects are set to deliver  
a material increase in production to around 50,000 Boepd. 

ENQUEST VALUES

PASSION
Passion is the desire and enthusiasm to meet the day to day 
challenges that working at EnQuest brings. I love my job and 
feel I have an important role to deliver for the company; passion 
is fundamental to wanting to be here, work through issues, play 
your part and benefit from the results. 

Brid O’Shea
Senior Environmental Adviser

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS20

BUSINESS REVIEW

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.  

RISK

MITIGATION

A Risk and Review Committee was established during 2013  
to review significant prospective commitments and advise 
the Chief Executive on risks therein.

The Group risk register is reviewed by the Executive 
Committee every month. Similarly, at each Board meeting 
the Board reviews and discusses the risk register with senior 
management to ensure that risks are being appropriately 
identified and actively managed.

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.

Set out below are the principal risks and the mitigations 
together with an estimate of the potential impact and 
likelihood of occurrence after the mitigation actions  
and how these have changed in the past year.

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

Potential impact – Medium (2012 Medium) 
Likelihood – Low (2012 Low)

There has been no material change in the 
potential impact or likelihood.

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 and where 
remediation may be dependent on suitable 
weather conditions offshore.

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

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

Potential impact – High (2012 High) 
Likelihood – Low (2012 Low)

There has been no material change in the 
potential impact or likelihood.

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.

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

In March 2013, EnQuest took on the role of duty holder for the Group’s operated fields  
in the North Sea. This has enabled the implementation of EnQuest HSE principles and 
values across its sites and has improved focus on HSE improvement activities. As a 
result, the Group has also strengthened its operating, auditing and integrity 
management capability accordingly.

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.

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 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. 

 EnQuest PLC Annual Report and Accounts 201321

RISK

MITIGATION

Project execution
The Group’s success will be dependent upon 
bringing new developments, such as Alma/Galia 
and Kraken, to production on budget and on 
schedule. 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.

Potential impact – High (2012 High) 
Likelihood – Medium (2012 Low) 

The likelihood of occurrence of an event 
impacting project execution will have increased  
to an extent by virtue of the commencement of 
the capital works on Kraken. However, it should 
be noted that project execution risk on Alma/
Galia is diminishing as the project works, 
particularly the FPSO, are coming to an end.

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

Potential impact – High (2012 High) 
Likelihood – Low (2012 Low)

There has been no material change in the 
potential impact or likelihood.

Financial
Inability to fund appraisal and development work 
programmes.

Potential impact – High (2012 High) 
Likelihood – Medium (2012 Medium)

There has been no material change in the 
potential impact or likelihood.

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. The Group also engages third party 
assurance experts to review, challenge and, where appropriate, make recommendations 
to improve the processes for project management, cost control and governance of 
major projects. 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 first production in H2 2014. In 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. The work required to implement these aims continues on the 
EnQuest Producer FPSO with the vessel at a finishing yard in the UK for final integration 
and commissioning prior to sailaway. The offshore drilling and completion campaign 
continues with all Alma wells now drilled through the reservoir and two of the six 
electrical submersible pump completions run. The piled mooring system and the majority 
of the subsea construction was completed in 2013 with only final mooring hook-up and 
riser pull-in to be completed post arrival of the FPSO.

The Kraken development was sanctioned by DECC and EnQuest’s partners in November 
2013. First oil production is scheduled by 2017. The development involves the drilling of 
25 new subsea horizontal wells which will be connected to an FPSO. Prior to sanction, 
EnQuest identified and optimised the development plan using EnQuest’s pre-
investment assurance processes. Six appraisal wells have been drilled in the area, new 
seismic data was completed, considerable subsurface modelling was undertaken and 
FEED studies (front end engineering and design) were carried out for the FPSO and 
subsea integrated equipment. In order to reduce project cost risk, more than 60% of the 
capital expenditure has been defined by actual tendering and placing of contracts. The 
FPSO will involve conversion of an existing tanker which will be under a leased 
contracting arrangement for a fixed price.

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 
enables 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.

During the year, the Group has refinanced its revolving credit facility with a new larger 
facility and has 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.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS22

BUSINESS REVIEW
RISKS AND UNCERTAINTIES 
CONTINUED

RISK

MITIGATION

Human resources
The Group’s success is dependent upon its ability 
to attract and retain key personnel and develop 
organisational capability to deliver strategic 
growth.

Potential impact – Medium (2012 Medium) 
Likelihood – Low (2012 Low)

There has been no material change in the 
potential impact or likelihood.

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

Potential impact – High (2012 High) 
Likelihood – Low (2012 Low)

There has been no material change in the 
potential impact or likelihood.

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

Potential impact – High (2012 High) 
Likelihood – Low (2012 Low)

There has been no material change in the 
potential impact or likelihood.

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

Potential impact – High (2012 Medium) 
Likelihood – Medium (2012 Low)

The increase in likelihood and impact reflects the 
possibility of a change in the regulatory and fiscal 
regimes following the referendum on Scottish 
independence in 2014.

The Group has established a competent employee base to execute its principal 
activities. In addition to this, the Group regularly monitors the employment market to 
provide remuneration packages, bonus plans and long term share-based incentive plans 
that incentivise performance and longer-term commitment to the Group.

EnQuest is undertaking a number of human resource initiatives to enable the Group  
to meet its growth aspirations. These initiatives are part of the overall People and 
Organisation strategy and have specific themes relating to Organisation, People, 
Performance and Culture. It is a Board-level priority that the Executive and senior 
management have the right mix of skills and experience. There continues to be a 
significant level of resourcing activity and recruitment, selection strategies and 
processes have been enhanced to ensure that our workforce is competent. EnQuest’s 
experienced HR department will continue to ensure that key capabilities are in place as 
the Group grows both in the UKCS and internationally.

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.

The focus on executive and senior management retention, succession planning and 
development remains an important priority for the Board and an increasing emphasis 
will be placed on this as the Group grows.

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.

The Group monitors oil price sensitivity relative to its capital commitments and has a 
policy which allows hedging of up to 75% 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.

The Group is establishing an in-house trading and marketing function to enable it to 
enhance its ability to mitigate the exposure to volatility in oil prices.

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.

In respect of the referendum on Scottish independence, senior management liaises with 
Scottish politicians and others to ensure that third parties are aware of EnQuest’s 
trading and investment activities and the importance of the oil industry in general to the 
local and national economies. 

 EnQuest PLC Annual Report and Accounts 201323

RISK

MITIGATION

Joint venture partners
Failure by joint venture parties to fund their 
obligations.

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

Potential impact – Medium (2012 Medium) 
Likelihood – Medium (2012 Medium)

There has been no material change in the 
potential impact or likelihood.

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.

Potential impact – Medium (2012 Medium) 
Likelihood – Low (2012 Low)

There has been no material change in the 
potential impact or likelihood. 

Acquisitions
The Group has been active in acquiring new 
assets. These have been producing, development 
and exploration assets most of which have been 
operated assets, although Alba is not operated by 
EnQuest.

The businesses of all of these assets are similar to 
the Group’s existing activities, but there are 
additional risks associated with acquisitions such 
as the difficulty in valuing assets, assumptions on 
oil price, funding, resourcing new activities and 
integration within existing operations.

Potential impact – Medium (2012 Low) 
Likelihood – Low (2012 Low)

The potential impact is higher due to acquisitions 
completed and pending, including Tunisia. 

International business
Whilst the majority of the Group’s activities and 
assets are in the UK, the international business is 
becoming more material. The Group’s 
international business is subject to the same risks 
as the UK business (e.g. HSE, production and 
project execution); however, there are additional 
risks that the Group faces including security of 
staff and assets, political, foreign exchange and 
currency control, taxation, legal and regulatory, 
cultural and language barriers and corruption.

Potential impact – Medium (2012 Low)  
Likelihood – Low (2012 Low)

The potential impact is higher as the international 
business is growing.

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.

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.

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 referred to above are 
in place to ensure it can attract and retain key personnel.

For all acquisitions, the Group performs extensive due diligence prior to announcing 
and subsequently completing the acquisition using suitably qualified in-house staff or 
third party specialists. In all cases, the Group seeks to mitigate risk in sale and purchase 
agreements by including suitable representations and warranties in the event of issues 
arising post completion. 

When evaluating acquisitions, a risk register is prepared and a risk review committee 
reviews commercial, technical and other business risks together with mitigation and how 
risks can be managed by the business on an ongoing basis.

EnQuest looks to minimise valuation risk on larger transactions by structuring purchase 
consideration to include a deferred consideration element contingent upon a future 
event such as the sanctioning of a future development. In the case of oil prices, the 
Group evaluates the value of potential targets at a range of oil prices to ensure that 
project economics are sufficiently robust.

Once a potential acquisition reaches an advanced stage, the Group develops a takeover 
plan to determine how the target business can be integrated into the Group. For 
operated assets, this will involve identifying key personnel to take on critical positions 
within the target and a plan to embed EnQuest policies and procedures into the newly 
acquired activity.

Initial funding and funding of subsequent investments are modelled within the Group’s 
internal planning models to ensure satisfactory funds can be made available without 
adverse effects on the existing funding requirements of the Group or its cost of capital.

Prior to entering into a new country, EnQuest evaluates the host country to assess 
whether there is an adequate and established legal and political framework in place to 
protect and safeguard first its expatriate and local staff and, second, any investment 
within the country in question.

When evaluating international business risks, a risk register is prepared and a risk review 
committee reviews commercial, technical and other business risks together with 
mitigation and how risks can be managed by the business on an ongoing basis.

EnQuest looks to employ suitably qualified host country staff and work with good quality 
local advisers to ensure it complies within national legislation, business practices and 
cultural norms whilst at all times ensuring that staff, contractors and advisers comply 
with EnQuest’s business principles, including those on fraud and corruption.

Where appropriate, the risks may be mitigated by entering a joint venture with partners 
with local knowledge and experience.

After country entry, EnQuest maintains a dialogue with local and regional government, 
particularly with those responsible for oil, energy and fiscal matters, and may obtain 
support from appropriate risk consultancies. When there is a significant change in the 
risk to people or assets within a country, the Group takes appropriate action to 
safeguard people and assets. 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS24

OPERATING REVIEW

OUR 
PERFORMANCE

“High production performance was 
underpinned by operational uptimes, 
high production efficiency and strong 
reservoir performance”
Nigel Hares Co-founder and Strategic Adviser (right)

David Heslop Managing Director, UKCS (left)

2013: High operational uptimes and high  
production efficiency
In 2013, EnQuest delivered nine wells with well workovers and 
new production and water injection wells, growing production 
by 6.2% to 24,222 Boepd (2012: 22,802 Boepd); a performance 
underpinned by high operational uptimes, high production 
efficiency and strong reservoir performance. This was 
achieved whilst ensuring that safe results, no harm to people 
and respect for the environment remained our top priorities.

In EnQuest’s first four years, revisions to reserve estimates 
have increased our net 2P reserves by 25.4 MMboe, reflecting 
the benefits of our infill drilling programme and our increased 
reservoir knowledge. These upgrades to reserve estimates 
are a direct result of EnQuest’s operational work programmes 
and an important source of value creation; in the four years 
since our inception, 9.6 MMboe has been produced by Thistle 
and we have increased Thistle’s net 2P reserves by almost 
twice that level, by 19.0 MMboe. 

In 2013, a series of operational performance efficiency 
measures were started under an ‘Operations Excellence’ 
programme, leveraging the potential of EnQuest’s in-house 
focused organisational structure. These included a focus  
on maximising production through loss management 
programmes and improved standardised reporting methods. 
New controls were also put in place to maximise our ability  
to avoid major accident hazards; a new major accident 
prevention model was developed, a new asset integrity 
review board was established, along with a new incident 

 EnQuest PLC Annual Report and Accounts 201325

review system. Waste minimisation initiatives were also 
launched to maximise cost efficiencies, these included a 
project to improve the efficiency of the way in which supplier 
contracts are managed.

An integral part of EnQuest is its values; collaboration, 
empowerment, agility, creativity, passion, respect and focus. 
This common set of values unifies the EnQuest organisation. 
The importance of ‘empowerment’ was underlined in 2013; 
more key jobs were brought in-house and became direct 
EnQuest staff positions, forums were established for 
information sharing and exchange of ideas and learning.  
All of which helped to drive production efficiency at our  
three operated producing hubs.

Close collaboration amongst the workforce was required  
for the successful transfer of duty holdership that took place 
in March 2013. Duty holdership is a core competency for 
EnQuest. The increased control secured by taking over as 
duty holder is helping to improve operational, production 
and cost efficiency.

EnQuest’s capability is continuing to grow across all its 
functions, we are again pleased to have been able to 
increase quality, strength and depth across the organisation.

ENQUEST’S HUBS

Thistle/Deveron
The Thistle field is located 
125 miles north east of 
the Shetland Isles and 
275 miles north east of 
Aberdeen, in block 211/18a. 
The Deveron field lies 3km 
to the west of the Thistle 
field, in the Northern  
North Sea.

Heather/Broom
The Heather field is located 
approximately 145km north 
east of the Shetland Islands 
in block 2/5. The Broom 
field is located 
approximately 7km to 
the west of the Heather 
platform, in the Northern 
North Sea. 

Kraken
The Kraken field is located in 
the East Shetland basin, to 
the west of the North Viking 
Graben; approximately 
125km east of the Shetland 
Islands. The Kraken field is 
located within block 9/2b in 
the Northern North Sea. 

The Don fields
The West Don and the Don 
Southwest fields are located 
approximately 7km apart in 
the Northern North Sea 
approximately 150km north 
east of the Shetlands. West 
Don is 17km north west of 
the Thistle field, in the 
Northern North Sea.

Alma/Galia
The Alma/Galia fields are 
located in blocks 30/24c 
and 30/25c respectively, 
310km southeast of 
Aberdeen. The Alma/Galia 
fields will be produced via 
the EnQuest Producer 
FPSO. Alma/Galia is located 
in the Central North Sea.

Greater Kittiwake Area 
(‘GKA’)
The GKA comprises of five 
fields, namely Kittiwake, 
Mallard, Gadwall, Goosander 
and Grouse, which are 
produced via the Kittiwake 
platform. The GKA is located 
in blocks 21/12a, 21/12d, 
21/17a, 21/17c, 21/18a and 
21/19, 160km North East of 
Aberdeen, in the Central 
North Sea. 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS26

OPERATING REVIEW

211/18c

THISTLE/DEVERON

211/18a

Working interest at end 2013: 
`` 99%

Decommissioning liabilities: 
`` Remain with former owner 

THISTLE

Fixed steel platform

Daily average net production:
`` 2013: 7,925 Boepd
`` 2012: 8,058 Boepd

DEVERON

211/23d

OSPREY

211/
23a2F1

$109m

Cash invested in 2013

2013

2014

In 2014, capital investment is continuing in the Thistle life 
extension project, ongoing activities include a control 
systems upgrade and significant simplification of processes, 
jacket integrity improvements and topsides structural 
integrity improvements.

Looking further ahead, there are presently 18 producing wells 
and seven water injection wells in Thistle/Deveron; these will 
be increased in number during 2016/17. 

Production at Thistle/Deveron achieved a net 7,925 Boepd in 
2013, with a particularly strong performance in the second 
half of the year, with peak spot rates over 16,000 Boepd and 
having finished 2013 at a daily average above 10,000 Boepd. 

Q1 2013 was negatively impacted by shutdowns of the third 
party Brent pipeline. Q1 2013 production was also affected by 
higher than normal levels of water injection downtime; this was 
in turn due to power source reliability issues, caused by 
outages of the B turbine whilst the new D turbine was  
being commissioned.

In H2 2013, production benefited from strong performance 
from a new production well which came onstream at the start 
of August. Thistle’s new D turbine and fully rebuilt B turbine 
are now providing better performance levels, resulting in 
improved power supply stability. Despite a two week 
scheduled platform shutdown for maintenance in October 
2013, production in the second half of 2013 was almost 
double the levels in the first half.

 EnQuest PLC Annual Report and Accounts 201327

THE DON FIELDS

211/13c

211/13b

CONRIE

WEST DON

211/18c

Working interest at end 2013: 
`` Don Southwest, 60%
`` Conrie, 60%
`` West Don, 63.45%
`` Don North East, 60%: Q1 2014 ‘out of round’ licence

DON NE

211/19a

Decommissioning liabilities: 
`` As per working liabilities

AREA 24

Floating production unit with subsea wells

DON SW

211/
19c

211/
18e

Daily average net production:
`` 2013: 11,014 Boepd
`` 2012: 10,992 Boepd

211/18b

211/
18a

211/
19aF3

$69m

Cash invested in 2013

2013

2014

Production at the Don fields achieved a net 11,014 Boepd  
in 2013, ahead of the 10,992 Boepd in 2012.

In Q1 2013, the Don fields were also negatively affected by 
the third party Brent pipeline shutdowns, however 
production benefitted from the West Don W6/W4 producer/
injector pair, following the tie in of the W6 injector well in Q1 
2013. The Don Southwest Area 6 producer, S12z, was 
completed and brought onstream in June 2013, followed by 
Area 6 injector, S13, in August. Operational performance 
highlights in H2 2013 included a record water injection rate  
of 58,000 bwpd.

Production optimising projects are still continuing on  
the Don fields, despite the fact that the drilling programme  
on EnQuest’s existing Don fields is coming to an end and 
production is therefore in natural decline. This natural decline 
will reduce 2014 production over 2013, although a new 
production well is planned to be drilled in H1 2014 in Don 
Southwest Area 22 (TJ). A maintenance shutdown is planned 
Q3 2014. 

Additionally, in Q1 2014, EnQuest accepted an ‘out of round’ 
licence (‘Don NE’) in the Don North East area for blocks 
211/18e and 211/19c, including Area 23 and Area 24 and an 
undrilled extension to the Don NE field. Within the first 
12 months of the licence, it is intended to submit a field 
development plan (‘FDP’) in relation to Area 24, to include  
at least one production well. This will provide further 
opportunities to enhance Dons area production. 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS28

OPERATING REVIEW

HEATHER/BROOM

PELICAN

HEATHER

Working interest at end 2013: 
`` Heather, 100%
`` Broom, 63%

Decommissioning liabilities: 
`` Heather, 37.5%
`` Broom, 63%

Fixed steel platform

Daily average net production:
`` 2013: 4,339 Boepd
`` 2012: 3,752 Boepd

3/2a

3/1a

WEST
LYELL

LYELL

3/2c

3/7d

2/4b

2/5

BROOM

2/4a

HEATHER
SOUTH WEST

2/10a

3/6

$57m

Cash invested in 2013

2013

2014

Production at Heather/Broom achieved a net 4,339 Boepd in 
2013, up 15.6% on 2012. Heather has continued to deliver 
strong year on year production growth, reflecting good well 
performance at Broom and improved operating efficiency at 
Heather. An improvement in Heather operating uptimes was 
achieved partly as a result of extensive work on the gas lift 
compression system. The Heather rig reactivation project 
was successfully completed in Q4 2013, with operations 
starting in early 2014.

Following the completion of the rig reactivation project, rig 
operations in Q1 2014 commenced with a workover of the 
H56 well, due onstream in H1 2014, to be followed by the 
sidetrack of H44 as a new injection well in the B2 block. The 
2014 programme also includes a sidetrack of H48 and a 
workover of the crestal E-Block producer H47.

The Heather life extension project includes a three year infill 
drilling campaign, to be split into two phases, whilst sharing 
the rig crew with Thistle, also a complementary facilities 
upgrade. There are nine wells in the initial programme, 
targeting 12 MMboe of reserves which are included in net 
2P reserves. 

 EnQuest PLC Annual Report and Accounts 201329

ALMA/GALIA

030/25
(AREA 4)

Working interest at end 2013: 
`` 65% in both fields

Decommissioning liabilities: 
`` 65% in both fields

Floating, production, storage and offloading unit with 
subsea wells

First oil expected in H2 2014
`` Net peak production to be in excess of 13,000 Boepd

30/24c

ALMA

30/
25c

INNES

GALIA

IRIS

$461m

Cash invested in 2013

2013

2014

Drilling and completion operations continue, with production 
anticipated in H2 2014.

In February 2013 EnQuest announced that it had approved 
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 second phase. 
The extension of the field life increased gross 2P reserves  
to 34 MMboe.

During 2013, the scope of the work on the FPSO expanded, 
including additional work on the existing marine and process 
systems. The FPSO was moved to the Tyne for finishing and 
commissioning work. 

By the end of 2013, subsea infrastructure was in place 
including subsea trees, manifolds, pipelines and umbilicals. 
Risers and mooring systems were pre-installed, awaiting 
arrival of the FPSO. Two wells were completed in 2013, with 
the first electrical submersible pump (‘ESP’) successfully 
installed on Alma on well K2, followed by the installation  
of the second ESP, in well K3.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS30

OPERATING REVIEW

KRAKEN

9/1b

9/1a

9/2b

KRAKEN
NORTH

WESTERN
FEATURE

KRAKEN

9/2a

9/2d

BRESSAY

9/3a

9/3c

Working interest at end 2013: 
9/3
`` 60%

Decommissioning liabilities: 
`` 60%

Floating, production, storage and offloading unit with 
subsea wells

First oil expected by 2017
`` Net peak production to be in excess of 30,000 Boepd

9/3d

$172m

Cash invested in 2013

2013

2014

The Kraken Field Development Plan (‘FDP’) was approved by 
the Department of Energy and Climate Change (‘DECC’) in 
H2 2013. First production is anticipated by 2017, with gross 
peak production of over 50,000 Boepd. The field layout of 
the development will consist of 25 wells, tied back to an 
FPSO. Following the project’s sanction, EnQuest has added 
over 60 MMboe to its net 2P reserves. 

Net capital cost to first oil is expected to be approximately 
$1.4 billion with a gross capital cost to first oil approximately 
$1.8 billion. EnQuest’s net capital costs equate to c.$27 per 
bbl, including the carry. Gross capital costs of the project are 
estimated to be approximately $3.2 billion. At the time of 
project sanction, the major supplier arrangements were 
already in place, including those for the FPSO vessel. 

In Q2 2014, the vessel will arrive at the shipyard in Singapore 
for the conversion scope to commence. Further appraisal 
drilling shall be undertaken to the west of the Kraken field in 
H2 2014 to assess the area known as the ‘Western Feature’.

In H2 2014, EnQuest expects to commence installation of the 
subsea structures at the first drill centre, where the initial 
wells for the development will be drilled. Delivery of the 
hydraulic submersible pumps (‘HSP’) used to provide the 
artificial lift will commence in Q3 2014. Detailed engineering, 
procurement and manufacture for all equipment relating to 
wells, subsea infrastructure and the FPSO will continue 
throughout 2014.

 EnQuest PLC Annual Report and Accounts 201331

GKA 
(GREATER KITTIWAKE AREA)

ALBA 
(NON-OPERATED)

CRATHES

21/12d

21/14b

GOOSANDER

WHINCHAT

21/17a

KITTIWAKE

21/19b

21/17b

21/18a

GROUSE

GADWALL

21/
17c

21/22

MALLARD

16/26a

21/19a

021/19

DUCK

EAGLE

15/30a

21/24b

21/25a

For map of GKA in context of adjacent fields, Scolty, Crathes and Avalon prospect 
please see page 6.

GREATER KITTIWAKE AREA (‘GKA’)

ALBA

16/27bF1

BRITANNIA

ALBA

16/27aR

22/2a

Acquisition completed
`` In Q1 2014

Working interest 50% in each of: 
`` Kittiwake, Grouse, Mallard, Gadwall, Goosander

Decommissioning liabilities: 
`` Kittiwake 25%
`` Mallard 30.5%
`` Grouse, Gadwall and Goosander 50%

Fixed steel platform

100% interest in export pipeline from GKA to Forties 
Unity platform

Acquisition completed
`` EnQuest’s acquisition of its interest in Alba completed  

at the end of March 2013

Working interest at end 2013: 
`` 8%

Decommissioning liabilities: 
`` 8%

Fixed steel platform

Daily average net production:
`` 2013: 9221 Boepd
`` 2012: –

Post acquisition programme in 2014

The Alba oil field is operated by Chevron.

EnQuest has taken over as the operator. The initial focus 
will be on integrating GKA into EnQuest and on an early 
workover programme planned in 2014. Next steps will 
include progressing the proposed field development  
plan submission for the nearby Scolty/Crathes discoveries,  
with the potential for a tie-back to GKA and exploration  
of nearby prospects.

In 2013, two wells were drilled and completed. In 2014, 
planned operations include the drilling of two production 
wells, also the acquisition of new 4D seismic survey, a key 
input for maturing future drilling targets. 

1.  Net production since the completion of the acquisition at the end of March 2013, 

averaged over the nine months to the end of December.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS32

OPERATING REVIEW
OTHER ASSET 
OPPORTUNITIES 

Cairngorm
Assessment of the results of the 
Cairngorm appraisal well is underway; 
preliminary analysis indicates a 173ft 
hydrocarbon column was encountered, 
with evidence of good reservoir properties 
in the fractured granite. With the results of 
the previous well and seismic, the overall 
indications in the structure are now of a 
total hydrocarbon column of 797ft. Further 
evaluation is ongoing.

Avalon
Following EnQuest’s 2013 farm in to a 50% 
interest in Avalon, close to Scolty/Crathes, 
an appraisal well will be drilled in 2014. 
EnQuest is the operator of this well. 

ENQUEST VALUES

AGILITY
A growing international organisation 
requires innovative solutions to the 
resourcing and execution of projects. 
Having the ability to integrate multi-
disciplinary teams from right across  
the organisation, allows a still small 
international organisation to have access 
to all the skills and capabilities of a major 
international operator, without needing  
a large in-country organisation. 

OUR HYDROCARBON ASSETS

EnQuest asset base as at 31 December 2013
Including Greater Kittiwake Area assets, the acquisition of which completed in 
Q1 2014, also two Norwegian licences awarded in Q1 2014. 

Production & 
Development

Discoveries

Licence

P902

P242

P2131

P1765

P1825

P1200

P236

P236

P236

P475

P1077

P3512

P0732

P2382

P242

P209

Blocks

2/4a

2/5

16/26

30/24c & 25c

30/24b

211/13b

211/18a

211/19a

9/2b

21/18a

21/12a

21/19

2/5

9/28a

P585, P250 & P220 

15/12b, 17a & 17n

P1214 & P1892

16/2b & 3d

Respective EnQuest  
Working Interest (%)

63

Name

Broom

63 & 100

Broom & Heather

8

65

65

63

63

Alba

Alma

Galia

West Don

West Don

60 & 60

99 & 99

Don SW & Conrie

Thistle & Deveron

Thistle

Kraken

Kittiwake

Goosander

Gadwall/Mallard/
Grouse

SW Heather

Crawford

Kildrummy

Cairngorm

Scolty

Crathes

Don NE

99

60

50

50

50

55

51

60

45

40

40

60

50

50

20

33

50

100

60

100

40

100

100

50

50

100

33

50

21/8a

21/12c & 13a

211/18e & 211/19c 

21/17a & 17c

21/12d

14/30a

3/17

2/4b

2/10a, 3/6 & 3/11c

8/5 & 9/1b

9/2d

14/30c

21/26a, 21/27c, 28/2b 
& 28/3b

15/17c

22/11b

21/6b

21/17b

9/15a

21/7a

6508/1 & 6608/10,11 35

6607/11 & 12

50

Røsslyng

Chinook

SB307 & SB308

42.5

Zarat Permit

Didon Concession

North West October 
Block

70

70

50

SB307 & SB308

Zarat & Elyssa

Didon

North West October 
Block

P1107

P1617

P2137

Other Licences P14152

P17862

P1463

P1753

P1967

P1968

P1976

P1978

P1991

P1996

P2000

P2005

P2006

P2027

P090

P2084
Norwegian Sea PL.7583
PL.7603

International Licences

Malaysia 

Tunisia4 

Egypt

John Penrose
General Manager, Malaysia

Notes
1.  Non-operated
2.  The acquisition of the Greater Kittiwake Area assets was announced in Q4 2013 and completed in Q1 2014
3.  These licences were awarded to EnQuest in January 2014 as part of the Norwegian 2013 Awards in Pre-defined 

Areas (‘APA’) licensing round

4.  The acquisition of these assets was announced in 2013 but had not completed as at 31 December 2013

 EnQuest PLC Annual Report and Accounts 201333

EnQuest Oil & Gas Reserves and Resources at 31 December 2013

UKCS

Other regions

Total

MMboe

MMboe

MMboe

MMboe

MMboe

Proven and Probable Reserves (notes 1,2,3 and 6)

At 1 January 2013

  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 2013

Contingent Resources (notes 1,2 and 4)

At 1 January 2013

  Revisions of previous estimates

  Discoveries, extensions and additions 

  Acquisitions (note 8)

  Disposals

  Promoted to reserves (note 7)

Contingent Resources at 31 December 2013

(8.83)

0.14

128.52

2.43

67.04

5.46

(8.69)

194.76

157.75

0.48

31.44

0.37

(2.09)

(70.95)

117.00

128.52

2.43

67.04

5.46

(8.69)

194.76

4.40

162.15

0.48

31.44

0.37

(2.09)

(70.95)

4.40

121.40

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 are based on the report 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 and consquent equity increase. Kraken  

project sanction was achieved in November 2013. Contingent Resources allocated to Alma/Galia have been classified as reserves as a result of development drilling and ongoing  
subsurface evaluation.

8.  8% equity was acquired in Alba on 22/2/2013.
9.  The above proven and probable reserves include 7 MMboe that will be consumed as lease fuel on the Alma and Kraken FPSOs.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS34

OVERVIEW

FINANCIAL 
REVIEW

“The Group’s financial performance  
in 2013 reflects solid operational 
performance set against a backdrop  
of significant capital investment in 
growth projects throughout the year.”
Jonathan Swinney Chief Financial Officer

Financial overview
In the year ended 31 December 2013, the Brent crude oil 
price averaged $108.7 per barrel compared to $111.7 per 
barrel for 2012. Total production volumes were 6% higher for 
the year ended 31 December 2013 which resulted in revenue 
of $961.2 million compared with $889.5 million in 2012.

Profit from operations before tax and 

finance income/(costs)

Depletion and depreciation
Intangible impairments and write-offs
Net foreign exchange losses 

EBITDA

Business performance

2013 
$ million

2012
 $ million

374.8
224.0
2.0
20.5

621.3

405.1
208.0
13.1
8.4

634.6

EBITDA for the year ended 31 December 2013 was $621.3 
million compared with $634.6 million in 2012. The lower 
EBITDA is mainly due to higher tariff and transportation costs 
and G&A costs offset by higher revenues. EBITDA has been 
adjusted to exclude foreign exchange losses. The increase in 
foreign exchange losses is principally due to exchange rate 
fluctuations of which $10.9 million relates to the retail bond.

The Group entered 2013 with $89.9 million of net cash. In 
October 2013, the Group established a fully underwritten 
new multi-currency revolving credit facility of up to $1.2 
billion plus a $500 million accordion feature. At the year end, 
$1.2 billion had been committed with the additional $500 
million being available depending on oil reserves, including 
increases resulting from acquisitions. The new facility 
replaces the $900 million facility entered into in March 2012. 
In Q1 2013, EnQuest successfully raised £145 million from the 
issue of a retail bond with a 5.5% coupon and maturity in 
2022. EnQuest raised a further £10 million in Q4. These funds 
together with strong ongoing operating cash flows from the 
existing portfolio of assets have been used to fund the 
capital investment programme. The closing net debt position 
was $381.1 million at 31 December 2013 and was comprised 
of the following:

Net debt/(cash) 

Bond1
Multi-currency revolving credit facility1
Cash and cash equivalents

2013 
$ million

254.5
199.4
(72.8)

381.1

2012 
$ million

–
34.6
(124.5)

(89.9)

1.  Stated excluding accrued interest and net of unamortised fees

Through these facilities, EnQuest has diversified its funding 
base and has provided capacity for current projects and for 
new opportunities. EnQuest continues to review 
opportunities for further diversification of its funding base.

$563m

Cash generated from operations in 2013

 EnQuest PLC Annual Report and Accounts 201335

Income statement
Production and revenue
Production levels, on a working interest basis, for the year 
ended 31 December 2013 averaged 24,222 Boepd compared 
with 22,802 Boepd in 2012. The increase is mainly due to 
additional production from Heather and Broom as well as the 
Alba field (acquired late March 2013), offset by marginally 
lower production from Thistle.

Heather and Broom production was significantly higher than 
2012 due to high levels of production efficiency and the 
absence of a planned shutdown in 2013. Thistle production 
was lower due to lack of water injection in Q1 and equipment 
outages (pump and separator) in the first half of the year, 
offset by a strong performance in the second half of the year 
from the new A60 well and additional perforations on the 
A57 well. Production volume in the Don fields was higher 
than 2012 as a result of additional wells drilled in late 2012 
and 2013. The increase was offset by lower production due to 
a higher than anticipated level of water injection outages 
compared with 2012. There was also a natural well decline 
from existing well stock. 

The Group’s blended average realised price per barrel of oil 
sold was $109.7 for the year ended 31 December 2013, 
slightly below the $111.6 per barrel received for 2012. This is 
consistent with average oil prices for 2012 and 2013. Revenue 
is predominantly derived from crude oil sales and for the year 
ended 31 December 2013 crude oil sales totalled $953.8 
million compared with $879.3 million in 2012. The increase in 
revenue is due to higher production and an over-lift of $2.6 
million compared with an under-lift of $24.4 million in 2012. 

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:

Reported 
year ended 
31 December 
2013 
$ million

Reported 
year ended 
31 December 
2012 
$ million

Cost of sales

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

– Production costs
– Transportation costs

– Operating costs
– Depletion of oil and gas properties

532.3

448.2

$

$

27.2
8.3

35.5
24.6

60.1

27.4
4.9

32.3
24.7

57.0

Cost of sales pre-exceptionals and depletion of fair value 
adjustments was $532.3 million for the year ended 31 
December 2013 compared with $448.2 million in 2012. The 
increase of $84.1 million is due to a change in lifting position 
from an under-lift in 2012 to an over-lift in 2013 which amounts 
to $27.0 million. There also has been a significant increase in 
transportation costs partly due to increased volumes, but 
mainly due to an increase in costs per barrel at the Sullom Voe 
Terminal and, to a lesser extent, the Brent pipeline. The 
purchase of the 8% interest in Alba in Q1 2013 also 
contributed to the increase in cost of sales.

The Group’s operating costs comprise production costs and 
tariff and transportation costs which were $313.9 million for the 
year ended 31 December 2013 compared with $269.5 million in 
2012. Transportation costs increased from $40.8 million to 
$73.5 million for the year ended 31 December 2013 mainly due 
to significantly higher unit costs per barrel at the Sullom Voe 
Terminal. Production costs increased by $11.7 million to $240.4 
million for the year ended 31 December 2013. The main 
increase was due to the Alba asset acquired in Q1 2013. In the 
other producing assets, higher costs in Thistle due to 
additional power generation, diesel and well intervention 
costs were offset by lower costs in the Dons and Heather hubs 
which in 2012 included the costs of planned shutdowns. 

The increase in the Group’s average unit production and 
transportation cost of $3.2 per barrel for the year ended 31 
December 2013 compared with 2012 is almost entirely due to 
the increase in transportation tariff rate for access to the 
Sullom Voe Terminal and Brent pipelines.

The Group’s depletion expense per barrel for the year is 
broadly consistent with the previous year with a decrease of 
$0.1 per barrel. The minor decrease is primarily due to the 
lower DD&A rate for the Heather and Broom hub due to its 
impairment in 2012 and a lower rate for the new Alba field 
offset by a higher rate in the Dons hub due to higher planned 
capex.

The Group’s change in lifting position was $2.6 million 
expense for the year ended 31 December 2013, compared 
with income of $24.4 million in 2012. The net over-lift during 
2013 has arisen mainly due to a December lifting at Alba 
which offset an under-lift in the operated assets.

Exploration and evaluation expenses
Exploration and evaluation expenses were $8.6 million in the 
year ended 31 December 2013, compared with $23.2 million 
reported in the previous year. The expenses in 2013 primarily 
relate to the costs of Norway, including overheads and 
expenses relating to obtaining new licenses which were 
awarded in January 2014, and the UK 28th Licensing Round to 
take place in April 2014. Costs were significantly higher in 
2012 due to the cost of an unsuccessful exploration well and 
a number of licence relinquishments.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS36

OVERVIEW
FINANCIAL REVIEW
CONTINUED

General and administrative expenses 
General and administrative expenses were $25.0 million in 
the year ended 31 December 2013 compared with $6.7 
million reported in the previous year. The main reasons for 
the increase are due to increased business development 
spend and a higher G&A recovery from partners in 2012.

Other expenses
Other expenses is comprised of net foreign exchange losses 
of $20.5 million in the year ended 31 December 2013.

Taxation 
The tax charge for the year of $146.6 million, excluding 
exceptional items, represents an effective tax rate of 43% 
compared with 33% in the previous year. The increase in the 
Group’s effective tax rate for the year is due primarily to a 
reduction in the level of tax benefits available from leasing 
arrangements, partly offset by an increase in the ring fence 
expenditure supplement. 

Exceptional items and depletion of fair value uplift
Exceptional losses totalling $8.8 million before tax have been 
disclosed separately in the year ended 31 December 2013 
mainly relating to additional depletion costs resulting 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 $46.6 million include $13.3 million of bond 
and loan interest payable, $12.6 million unwinding of discount 
on decommissioning provisions, a non-cash unrealised loss 
of $7.7 million mainly on the mark-to-market valuation of the 
Group’s 2014 oil hedges which are deemed ineffective for 
hedge accounting purposes. Other financial expenses of 
$14.2 million are primarily commitment and letter of credit 
fees as well as arrangement fee amortisation relating to the 
bank facilities. The Group capitalised $1.2 million for the year 
ended 31 December 2013 in relation to the interest payable 
on borrowing costs on its capital development projects.

Finance income
Finance income of $11.5 million includes $0.4 million of bank 
interest receivable, a non-cash unrealised gain of $9.5 million 
primarily on the mark-to-market of the Group’s foreign 
exchange hedges which are deemed ineffective for hedge 
accounting purposes and $1.4 million unwinding of discount 
on the financial asset created in 2012 as part of the 
consideration for the farm out of the Alma/Galia 
development to KUFPEC.

Earnings per share
The Group’s reported basic earnings per share were 24.4 cents 
for the year ended 31 December 2013 compared with 46.2 
cents in 2012. The decrease of 21.8 cents is attributable to 
lower profit before tax and a higher effective income tax rate 
in the current year compared with 2012. The Group’s reported 
basic earnings per share excluding exceptional items were 24.8 
cents for the year ended 31 December 2013 compared with 
33.1 cents in 2012. The decrease of 8.3 cents is mainly 
attributable to the higher effective income tax rate in the year 
ended 31 December 2013 compared with the prior year.

Cash flow and liquidity
The Group’s reported cash generated from operations in 
2013 was $562.7 million compared with $593.9 million in 2012. 
The reported cash flow from operations per issued Ordinary 
share was 72.3 cents per share compared with 75.7 cents per 
share in 2012. The reduction in cash generated is mainly due 
to the purchase of xmas tree stock not allocated to a specific 
field. Movements in trade receivables and payables are in 
line with normal business.

During the year ended 31 December 2013, $1.2 million was 
received in relation to an exploration refund for EnQuest 
Norge AS’s activities in Norway. In addition, $11.3 million was 
paid during the year ended 31 December 2013 in relation to 
EnQuest Group’s UK tax liabilities for non-operational 
activities and Petroleum Revenue Tax. It is anticipated that 
the underlying effective tax rate for 2014 will be 
approximately 55%, excluding one-off exceptional tax items. 
With continuing investment in the North Sea, the Group does 
not expect a material cash outflow for UK corporation tax on 
operational activities before 2020. This is due to the 
projected level of capital expenditure, which benefits from 
tax deductible first year capital allowances in the UK, and 
accumulated tax losses which are largely attributable to the 
Group’s capital investment programme to date. 

 EnQuest PLC Annual Report and Accounts 201337

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

2013 
$ million

2012
$ million

Expenditure on producing oil and gas 

assets

Development expenditure
Exploration and evaluation capital 

expenditure

Other capital expenditure

280.7
632.0

36.6
21.2

984.3

323.9
381.1

128.4
8.9

842.3

Dons hub
Thistle hub
Heather and Broom hub
Alma/Galia
Kraken
Alba
Other

Significant projects were undertaken during the year, including:
`` the Alma/Galia development including the FPSO and 

further drilling of the production wells;

`` the Kraken development including drilling the head target 
well, FPSO FEED costs and project management activities;

`` the Thistle life extension programme;
`` the Thistle drilling programme including the A60 well and 

A59 well work-over;

`` the Dons drilling programme with the DS producer and the 

OB injector; and

`` the Heather/Broom return to drilling programme and 

additional living quarters.

Net debt at 31 December 2013 amounted to $381.1 million 
compared with net cash of $89.9 million in 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. A further £10 million was raised in Q4 2013.

Balance sheet
The Group’s total asset value has increased by $1,005.7 
million to $3,550.5 million at 31 December 2013 (2012: 
$2,544.8 million).

Property, plant and equipment
Property, plant and equipment (PP&E) has increased to 
$2,871.2 million at 31 December 2013 from $1,816.6 million at 
31 December 2012. The increase of $1,054.6 million is mainly 
due to oil and gas asset capital additions of $840.7 million. 
The main spend relates to Kraken ($157.8 million) and Alma/
Galia ($437.2 million). There was also a $52.5 million addition 
in relation to the Alba acquisition, $415.3 million of carry 
relating mainly to Kraken ($240 million firm carry and $80 
million contingent carry) and the unwinding of the remaining 
Alma/Galia cost carry ($95.3 million). Depletion and 
depreciation charges of $232.6 million were incurred.

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

2013 
$ million

69.1
108.6
56.6
532.5
477.8
62.5
1.4

1,308.5

Intangible oil and gas assets
Intangible oil and gas assets increased by $33.4 million to 
$130.9 million at 31 December 2013. The increase is mainly 
due to pre-development costs at Scolty/Crathes, the 
Malaysian asset, an appraisal well at Cairngorm and 
acquisition of interests in Avalon and Egypt.

Investments
The Group holds an investment of 160,903,958 new ordinary 
shares in Ascent Resources plc which is valued at $2.4 million 
based on the quoted bid price as at 31 December 2013.

Inventory
Inventory increased by $31.5 million primarily due to the 
purchase of xmas trees not allocated to a specific field.

Trade and other receivables
Trade and other receivables have increased by $27.5 million 
to $267.2 million at 31 December 2013 compared with $239.7 
million in 2012. Joint venture and trade receivables remain 
consistent with the prior year and in line with continued 
significant capital expenditure on Alma/Galia and Kraken. 
Prepayments and accrued income decreased primarily due 
to facility fees for the old facility being fully amortised during 
2013. Other receivables have increased due to an increase in 
the under-lift position and miscellaneous receivables 
awaiting invoicing.

Cash and bank
The Group had $72.8 million of cash and cash equivalents at 
31 December 2013 and $225.8 million was drawn down on the 
$1.7 billion multi-currency revolving credit facility. Of the 
facility, at 31 December 2013 $1.2 billion had been committed 
and further amounts will be available depending on oil 
reserves, including increases resulting from acquisitions.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS38

OVERVIEW
FINANCIAL REVIEW
CONTINUED

Provisions
The Group’s decommissioning provision decreased by $4.6 
million to $228.4 million at 31 December 2013 (2012: $233.0 
million). During the year, the Group commissioned third party 
experts to complete the detailed triennial study to review 
decommissioning cost estimates for the operated producing 
hubs. The outcome of the study confirmed previous cost 
estimates in many areas, but reduced cost estimates in other 
areas due to scope of works required or method, time and 
cost of decommission. Those reductions in estimates were 
partly offset by the acquisition of the Alba asset and 
additional drilling on Alma/Galia together with $12.6 million 
due to the unwinding of the discount.

The Group acquired 40% of the Kraken field from Nautical 
Petroleum plc and First Oil plc in 2012 through payment of 
the development costs (other than operator costs) incurred 
from 1 January 2012 in respect of the development 
programme for the Kraken discovery which would otherwise 
have been payable by those partners.

A provision has been recognised for the contingent carry 
(additional consideration) which is dependent on a reserves 
determination. The reserves determination would be 
triggered by the carried parties based on drilling work or, if 
later, the date on which the firm carry expires. The contingent 
carry is pro-rated between 100–166 million barrels of 2P 
reserves. The field development plan which was approved in 
November 2013, stated 137 million barrels. This would give 
rise to a contingent carry of approximately $80 million which 
is included as a provision. The carry is estimated to be paid 
12 months after the firm consideration has expired in late 
2014 or early 2015.

Income tax
The Group had no corporation tax or supplementary 
corporation tax liability at 31 December 2013 compared with 
$3.8 million at 31 December 2012. The decrease of $3.8 
million is due to the submission of research and development 
expenditure claims, prior year tax adjustments and balances 
arising on acquisition. The Group had a $4 million Petroleum 
Revenue Tax (PRT) liability at 31 December 2013 compared to 
no liability at 31 December 2012. The increase is due to the 
aquisition of Alba, a PRT paying field. The income tax asset at 
31 December 2013 represents the expected refund on 
exploration activities undertaken in Norway.

Deferred tax liability
The Group’s deferred tax liability (net of deferred tax assets) 
has increased by $137.2 million to $746.3 million at 31 
December 2013 from $609.1 million in 2012. 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 and 
the acquisition of the companies holding an 8% interest in 
the Alba field. Total losses carried forward at the year end 
amount to approximately $1,088 million. 

Trade and other payables
Trade and other payables have increased to $363.3 million at 
31 December 2013 from $329.7 million at 31 December 2012. 
The increase of $33.6 million is due to an increase in trade 
payables in line with increased activity in the year.

Other financial liabilities
Other financial liabilities have increased by $153.2 million. 
The main reason for the increase relates to the Kraken firm 
carry of $164.2 million.

Financial risk management
The Group is exposed to the impact of changes in Brent 
crude oil prices on its revenue and profits. EnQuest’s policy  
is to have the ability to hedge oil prices up to a maximum of 
75% of the next 12 months production on a rolling annual 
basis, up to 60% in the following 12 month period and 50% in 
the subsequent 12 month period. Between November 2012 
and February 2013, put and call options covering 4.6 million 
barrels of oil production in 2013 were entered into partially to 
hedge the exposure to fluctuations in the Brent oil price. The 
2013 oil price hedge contracts consisted 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. 

In August and September 2013, some commodity hedging 
contracts were entered into partially to hedge the exposure 
to fluctuations in the Brent oil price during 2014. A total of 3.6 
million barrels of puts (300,000 barrels per month) were 
bought at a price of $106 per barrel and 7.2 million barrels of 
calls were sold at a price of $106 per barrel, which are only 
triggered if the monthly average price of Brent exceeds a 
fixed price for the given month (ranging from $119 to $124 per 
barrel). Since the year end the Company has swapped an 
additional 1 million barrels in Q2 at prices of approximately 
$109 per barrel.

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. 
To mitigate the risks of large fluctuations in the currency 
markets, the hedging policy agreed by the Board allows for 
up to 50% of non-US Dollar denominated operating 
expenditure and 70% of non-US Dollar capital expenditure to 
be hedged. During the first half of 2013, the Group entered 
into a series of forward contracts and structured products to 
hedge a portion of its Sterling, Euro and Norwegian Krone 

 EnQuest PLC Annual Report and Accounts 201339

exposure throughout 2013 and 2014. In 2013, a total of £223 
million was hedged at an average rate of $1.51:£1. The 
structured products have an average strike price of $1.46:£1. 
If the spot rate at expiry is above $1.64:£1 then there is no 
trade and the Group funds its Sterling requirement through 
the spot market or drawing Sterling on the bank facility. 
Between $1.64:£1 and $1.33:£1, EnQuest trades at the lower 
of $1.46:£1 and the spot rate, and below $1.33:£1, EnQuest 
trades a higher volume of currency at $1.46:£1. This structure 
has also been used for hedging a total of £182 million of 
Sterling exposure in 2014. 

The same structure has also been used to hedge the Group’s 
Norwegian Krone (NOK) exposure which arises as part of the 
Kraken development project. In 2013, a total of NOK255 million 
was hedged and in 2014 NOK367 million has been hedged.

In 2013, EnQuest exchanged a total of €74 million for $96 
million mainly done by placing forward contracts, however 
€11 million was placed on the same structured basis as the 
Sterling and Norwegian Krone arrangements described 
above. EnQuest will continue to look at opportunities to 
enter into foreign exchange hedging contracts.

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.

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)
Cash capex on property, plant and equipment oil and gas assets ($ million)

Reported data:
Cash generated from operations ($ million)
Net (debt)/cash ($ million)
Profit before tax ($ million)
Basic earnings per share (cents)
EBITDA

2013

1.36

2012

2.00

194.76

128.52

24,222
961.2
109.7
35.5
428.9
984.3

562.7
(381.1)
330.9
24.4
621.3

22,802
889.5
111.6
32.3
441.3
842.2

593.9
89.9
403.4
46.2
634.6

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS40

OVERVIEW

CORPORATE 
SOCIAL 
RESPONSIBILITY 
REVIEW

“The advances we have made in several 
key areas are testimony to the absolute 
priority given to our HSE&A activities 
and our determination to apply extra 
depth and substance to everything we 
do in this area”
John Atkinson Head of Health, Safety,  
Environment and Assurance (‘HSE&A’)

Health, Safety, Environment & Assurance:  
Delivery mode
It has been a year of continuing progress across  
EnQuest’s Health, Safety, Environment and Assurance 
(‘HSE&A’) landscape.

The advances we have made in several key areas are 
testimony to the absolute priority given to our HSE&A 
activities and our determination to apply extra depth and 
substance to everything we do in this area.

The ongoing roll-out of our HSE&A continuous improvement 
plan and launch of a comprehensive audit programme are 
illustrative of our active ‘delivery mode’ during 2013.

Specifically, the introduction of a new incident investigation 
procedure, uniquely devised and developed to reflect 
EnQuest’s organisation and operating practices, marked a 
significant step forward. During the year over 100 personnel 
were trained in the procedure. It has been set up to work 
seamlessly with another new feature of the HSE&A 
environment, our bespoke Synergi incident management 
software, to create a system that constitutes a step-change  
in terms of efficiency and effectiveness.

This and other measures, such as the implementation of new 
control of work systems and practices, and the 
standardisation of safety equipment deployed across all our 
operations, represent practical contributions to EnQuest’s 
operations excellence programmes.

See also EnQuest’s annual 
Environmental Reports  
to DECC and its major 
development project 
Environment Statement 
submissions; available  
on both the EnQuest  
and DECC websites.

 EnQuest PLC Annual Report and Accounts 201341

Within that context, there has been, and remains, a major 
focus upon the control of major accident hazards. A training 
and awareness course undertaken by the leadership team at 
the internationally renowned Spadeadam hazard test facility 
in Cumbria in early 2013 built momentum behind the work 
which has also, critically, involved the introduction of a major 
accident hazard barrier model now being deployed across all 
EnQuest sites. A continuing and increasing focus on the 
prevention of hydrocarbon releases is consistent with the 
industry drive for improvement in this crucial area of major 
accident prevention. 

In the environmental arena, our commitment to meeting our 
obligations is particularly apparent in our compliance with 
the increased disclosure requirements under the Department 
of Energy and Climate Change (‘DECC’) reporting framework 
(pages 78 and 79). We have proactively focused our 
environmental management arrangements on key areas such 
as produced water discharges and oil and chemical spill 
prevention. A major initiative is underway to identify and 
document all Environmental Critical Elements and to put in 
place measures to ensure the ongoing integrity of such 
equipment. Aside from the operational and environmental 
benefits this should deliver, it also prepares the Company for 
compliance with pending legislative change associated with 
the EU Directive on Safety of Offshore Oil and Gas Operations.

Evidence of our strong personal safety performance can be 
seen in our lost time incident frequency (‘LTIF’) rate, which for 
2013 stood at 1.36. The figure, which reflects the number of 
incidents per one million working hours, compares favourably 
with the latest available industry average of 1.89 for 2012.

A series of initiatives has served to ensure health awareness 
and improvements have been a consistent focus of attention 
both offshore and onshore. We have worked to create a 
relationship with our Occupational Health support provider 
that constitutes a value adding partnership. There is now a 
greater framework of systems and support for our offshore 
medics as they perform their everyday duties. More broadly, 
an ongoing programme of health promotion activities has 
featured desk drops on specific health and well-being issues.

Looking ahead, our continual improvement plan for 2014 is  
in place with the focus on four central themes, namely: 
Leadership and Culture; Control of Major Accident Hazards; 
Personal Health and Safety, and Environmental Controls. A 
series of managed activities sits behind each headline theme 
and implementation of the plan will be championed and 
monitored by our senior leadership team. 

1.36 LTIF

1.36 was EnQuest’s LTIF (lost time incident frequency) rate  
for 2013

ENQUEST VALUES

RESPECT
Respect is a fundamental value which we must follow if we wish 
to grow our business and achieve our goals, both personally and 
professionally. For me, respect should be the only way in which 
we operate as a business; having respect for safety, personnel, 
the environment and for one another is critical if we want  
to succeed. 

Rosann Middleton
Senior Human Resources Advisor

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS42

OVERVIEW
CORPORATE SOCIAL 
RESPONSIBILITY REVIEW
CONTINUED

“The variety of fund raising activities 
organised has served to enhance the 
spirit of teamwork and collaboration 
which we believe is a fundamental  
quality of our business”

Three Peaks Challenge on behalf of Archway raised in excess of £2,250.

Over

£116,000

Total EnQuest funds raised for Archway by the end of 2013

Community: Forging relationships
The principle of sustainability extends beyond our core 
business activities into our community and charity work.

The relationship we have developed with Aberdeen based 
organisation Archway epitomises this approach. Archway 
works to improve the quality of life of children, young people 
and adults with learning disabilities throughout Aberdeen 
and Aberdeenshire. When we nominated Archway as our 
chosen charity in April 2012, we aimed to raise £100,000 on 
its behalf in two years. By the end of 2013, we had already 
raised over £116,000. 

Importantly, however, we have done so by building a 
partnership with the charity from the outset. It is a 
partnership that reflects many of our company values and  
is about much more than providing financial assistance.  
Many people in EnQuest now feel a genuine affinity with the 
organisation. More than that, the variety of fund raising 
activities organised on its behalf has served to enhance the 
spirit of teamwork and collaboration which we believe is a 
fundamental quality of our business.

The fund raising efforts of EnQuest teams and individuals for 
Archway have included a golf tournament which raised over 
£50,000, a 300km cycling challenge over the north-east of 
Scotland’s highest roads, and a sponsored climb of the 
highest peaks in Scotland, England and Wales. They have 
also included a musical evening in Aberdeen and many other 
one-off events. EnQuest is raising money for Archway’s 
Appeal for Betty’s Place, a project to establish a specially 
adapted holiday cottage and specialist facilities for the 
people that the charity supports.

Our other main focus of community activity has been Tullos 
Primary School in Aberdeen. In line with our community 
involvement principles, our long standing support for the 
school has extended beyond financial help, and in 2013 
included active participation by EnQuest personnel in its 
science week activities. 

More broadly, EnQuest’s charity committee meets on a 
regular basis to consider individual requests for support  
that meet the criteria set out in our Community and  
Charity Policy.

 EnQuest PLC Annual Report and Accounts 201343

Our people: Expanding our horizons
EnQuest’s growth in 2013 was clearly apparent in our 
workforce statistics; a total of 86 employees and 199 
contractors joined us. That took our direct workforce at the 
end of 2013 to approximately 600, an increase of 100 over the 
year. When offshore contractors and shipyard projects are 
included, the overall figure rises to around 1,800. Our 2013 
attrition rate of 9% again compared favourably with the  
wider industry.

Over the course of 2013, as EnQuest added new dimensions 
to its UK operations and extended its geographical presence, 
a great deal of time and resources was directed at embedding 
organisational practices that befit our growing business. 

Our core principles were used to shape our People and 
Organisation strategy, which has provided the backdrop to 
much of our 2013 activity and will continue to do so. The 
strategy, in effect a ‘road map’ to sustainable business 
growth, is founded upon four themes: the right organisation, 
with great people, who deliver exceptional performance, in 
the EnQuest way. We put a series of initiatives and enabling 
events in place over the year to convert those themes into 
practical reality. Those ‘big moments’, across all four themes, 
have served to create a momentum which will carry the work 
forward into 2014 and beyond. 

EnQuest’s growth was also evident internationally in the 
development of our Malaysian operations and the creation  
of an EnQuest team in Tunisia following our acquisition of 
interests there. Skills and experience from our UK operations 
have been ‘exported’ to support the establishment of our 
operations in Tunisia. Nevertheless, we have spent time in 
our international locations, telling the EnQuest story and 
ensuring all our people there possess the necessary 
knowledge and understanding to embrace our working 
principles and values.

DIVERSITY POLICY
The Board works hard to ensure that it is able to recruit directors  
from different backgrounds, with diverse experience, 
perspectives, personalities, skills and knowledge. We believe 
that diversity amongst directors contributes towards a high 
performing, effective Board. 

EnQuest recruits where it works and 99% of our workforce is 
made up of local staff. Our gender statistics are representative  
of the demographics of the wider Oil & Gas industry and are 
made up as follows: 

Category

Directors
Senior managers
Total employees

Male

6
79
262

Female

% (Female)

1
5
80

14%
6%
23%

Longest Day Cycle Challenge raised in excess of £15,500.

While we want our international teams to operate 
independently, and remain directly accountable for their 
performance and results, they are nevertheless part of the 
EnQuest family and it’s important that our core principles are 
consistently applied, wherever we are working.

EnQuest’s efficient and progressive HR practices were also 
evident in the logistical exercise undertaken to relocate the 
EnQuest Producer project to Tyneside in late 2013. It involved 
a significant effort by the team, which delivered a smooth 
and professional operation to transfer the large number of 
personnel involved in the programme.

At a corporate level, we demonstrated our commitment to 
transparency via full compliance with the legislative disclosure 
requirements associated with executive remuneration.

The Strategic Report was approved by the Board and signed 
on its behalf by the Company Secretary on 25 March 2014.

Stefan Ricketts
General Counsel and Company Secretary

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS44

GOVERNANCE

BOARD OF DIRECTORS

DR JAMES BUCKEE
Chairman
Appointed: 22 February 2010

Committees: Nomination (Chairman)

Skills and experience: 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.

Other principal external appointments: Non-executive director 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
Appointed: 22 February 2010

Skills and experience: Amjad Bseisu 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 having previously been a founding 
non-executive director of Serica Energy plc and Stratic Energy Corporation. 

Other principal external appointments: Non-executive chairman of 
Enviromena Power Systems, a private company and the leading developer  
of solar services in the Middle East.

An experienced leadership team 
The balance of Executive and Non-
Executive Directors brings a broad  
range of industry, commercial and  
other relevant experience to the  
Board, which is vital to the  
management and governance  
of EnQuest’s growing business. 

JONATHAN SWINNEY
Chief Financial Officer
Appointed: 29 March 2010

Skills and experience: Jonathan Swinney 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, and 
left in 2010 to join EnQuest PLC. 

 EnQuest PLC Annual Report and Accounts 201345

HELMUT LANGANGER
Senior Independent Director
Appointed: 16 March 2010 

DR PHILIP NOLAN
Non-Executive Director
Appointed: 1 August 2012

Committees: Remuneration (Chairman), Audit and Nomination 

Committees: Audit, Nomination and Remuneration 

Skills and experience: 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. 

Other principal external appointments: Non-executive director of Schoeller 
Bleckmann Oilfield Equipment A.G. (Austria), Serinus Energy Inc. (formerly 
Kulczyk Oil Ventures Inc.) (Poland and Canada) and MND (Czech Republic).

Skills and experience: 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. 

Other principal external appointments: Non-executive chairman of John 
Laing plc. Phil also serves as chairman at Ulster Bank Ltd and at Affinity Water. 
He is also a non-executive director of Providence Resources P.l.c. 

JOCK LENNOX
Non-Executive Director
Appointed: 22 February 2010

CLARE SPOTTISWOODE
Non-Executive Director
Appointed: 1 July 2011

Committees: Audit (Chairman), Nomination and Remuneration

Committees: Audit, Nomination and Remuneration 

Skills and experience: Jock Lennox holds a Law degree and in 1980 qualified 
as a chartered accountant with Ernst & Young LLP, Edinburgh and is a 
member of the Institute of Chartered Accountants of Scotland. In 1988 Jock 
became a partner at Ernst & Young LLP, London, and retired in 2009. 

Other principal external appointments: 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.

Skills and experience: 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 director general of Ofgas, the UK gas regulator. From 
2002 to 2007 Clare was a non-executive director of Tullow Oil plc. 

Other principal external appointments: Non-executive chairman of Gas 
Strategies Group Limited and Flow plc and non-executive director of G4S plc, 
Ilika plc, the Payments Council and The Royal Bank of Canada Europe. 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS46

GOVERNANCE

SENIOR MANAGEMENT

RICHARD HALL
Head of Major Projects
Richard graduated from Leeds University with a BSc in Chemical Engineering 
and spent the first 10 years of his career gaining experience with operating oil 
companies (Amoco, Hess and Murphy Petroleum) as a supervisor in offshore 
field operations, petroleum engineering, project management and execution, 
and commercial negotiations. Richard was one of four founders and 
operations director of the service company UWG Ltd (now known as Acteon 
Group) which won the Institute of Petroleum Platinum award in 2001. He 
formed and led a team which won the prestigious Queen’s Award for Export. 
He subsequently went on to join Petrofac as vice president of operations & 
developments and, in addition, became general manager in Malaysia. Before 
joining EnQuest Richard was CEO and co-founder of Nio Petroleum which 
was acquired by EnQuest in 2012 with Richard joining the senior management 
team as Head of Major Projects.

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. From 1994 to 2009 Nigel was 
executive vice-president, international operations for Talisman Energy Inc 
based in Calgary, heading operations for the UK, Norway, Netherlands, 
Algeria, Sudan, Malaysia, Indonesia, Vietnam, Peru, Colombia and Trinidad; 
during this period international production grew from zero to 250,000 Boepd. 
In 2010 Nigel joined EnQuest PLC as COO, at the end of 2012 he adopted his 
current role.

DAVID HESLOP
Managing Director UKCS
David graduated with a BSc in Aeronautical Engineering from Manchester 
University and subsequently gained an MSc in Petroleum Engineering from 
Imperial College. 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 has a Masters degree in Petroleum Engineering from Heriot-Watt 
University 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.

 EnQuest PLC Annual Report and Accounts 201347

FAYSAL HAMZA
Head of International
Faysal 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).

GRAHAM COOPER
Head of Business Development
Graham 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. From 2011 to 2013 Graham was also 
a non-executive director of Ascent Resources PLC.

STEFAN RICKETTS
General Counsel and Company Secretary
Stefan 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, who graduated from the University of Bristol with a degree in law, 
began his early career as a solicitor 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
Human Resources 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.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS48

GOVERNANCE

CHAIRMAN’S 
LETTER 

Dear Shareholder
As the Company continues to grow both operationally and 
geographically, your Board recognises the challenge to ensure 
that we have the right people and processes in place and 
remains focused on effective risk management in order to 
create long-term sustainable value for the benefit of all 
stakeholders. While the Board can and does provide leadership, 
the good reputation of the Company depends upon the 
behaviour of every single employee and contractor, which is  
why we seek to maintain an environment where everybody  
feels responsible for the future success of the business. 

Corporate governance
Our approach to governance remains unchanged from last 
year. It begins with the recognition that it is not a set of rules, 
but the framework supporting the core values which defines 
what is and what is not acceptable. The Board sets clear 
expectations for conduct throughout the business, embracing 
difficult issues and being honest and open in business 
dealings. The governance framework, and perhaps more 
importantly the corporate culture and human relationships 
that underpin all governance frameworks, are operating well, 
but we are always striving to foster improvements whenever 
these become apparent. 

Within our governance framework we have three main Board 
committees: Audit Committee; Remuneration Committee; and 
Nomination Committee, which assist the Board in fulfilment of 
its corporate governance objectives. The core functions and 
activities of each can be found in their respective sections. In 
addition to this, our governance framework also contains 
several non-Board committees, including an Executive 
Committee, Operations Committee and the Group Health, 
Safety, Environment and Assurance team. Throughout this 
period we have given particular attention to the alignment  
of our assurance and risk processes and have made positive 
changes in order to improve their interaction and the flow  
of information. 

Board composition and succession planning
As Chairman, my role is to manage the Board, ensuring it 
operates effectively and contains the right balance of skills 
and experience to successfully execute the Company’s 
strategy. Your Board has devoted significant time to ensuring 
that we have effective succession and talent development 
programmes in place, and ensuring that the leadership teams 
have the right mix of skills in order to help ensure that the 
Company’s development plans can be successfully executed.

2013 was a year of stability within our Board structure, 
enabling us to focus our attentions on succession planning 
along with training and development. 

Board performance evaluation 
At the beginning of the 2013 financial year, we measured the 
performance of our Board by an externally facilitated board 
effectiveness review, conducted by Consilium Board 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, including by having a 
separate discussion with the Senior Independent Director. 
The outcome was positive, and summarised findings can be 
found on pages 50 and 51. 

In addition to this, at the end of the financial year under 
review, we conducted an internal board effectiveness review, 
including a review of the Chairman, further details of which 
are outlined on page 51. 

Strategy
The Board continued to provide strategic guidance to 
executive management throughout the year, which 
culminated in EnQuest’s annual Board strategy day in 
October 2013. The workshop involved a comprehensive 
review of our existing strategy as well as identification of key 
themes to help us navigate changes in the landscape for our 
business. We are confident that our strategy has positioned 
us well to achieve our long term goals and to maximise 
shareholder value. 

People 
Our results are a reflection of the quality of our people 
throughout the Group, and on behalf of the Board I would 
like to thank all my EnQuest colleagues for their continued 
hard work, commitment to our values, and successful pursuit 
of the Company’s development plans. 

Dr James Buckee
Chairman

 EnQuest PLC Annual Report and Accounts 2013 
49

CORPORATE GOVERNANCE STATEMENT

Statement of compliance
EnQuest is committed to the principles of corporate 
governance contained in the UK Corporate Governance 
Code (the ‘Code’) as issued by the Financial Reporting 
Council in September 2012. As a listed company, EnQuest 
reports on how it has complied with the provisions of the 
Code, as detailed below. The Board is pleased to report that 
the Company has complied with all the provisions of the 
Code throughout the year under review. 

Board composition
The Board of Directors is currently made up of two Executive 
Directors and five Non-Executive Directors, including the 
Chairman. All of the Directors served throughout the 
reporting period. Their biographies, including prior 
experience, are set out on pages 44 and 45.

EnQuest’s policy is to hire the best candidates for all 
purposes at all levels throughout the business, irrespective of 
gender, including candidates at Board level. With one female 
Non-Executive Director, Clare Spottiswoode, 14% of the 
current Board is female. Our overall gender statistics, which 
can be found on page 76 of the Nomination Committee 
report, are representative of the demographics of the wider 
oil and gas industry. At present, the Board has not set any 
specific aspirations in respect of gender diversity at Board 
level. However, the Board recognises the benefits of gender 
diversity and will continue to ensure that this is taken into 
account when considering any particular appointment. 

Whilst there were no changes to our Board of Directors in 
2013, Paul Waters stepped down as Company Secretary in 
October 2013. Paul had served at EnQuest since its inception 
and was instrumental in its flotation in 2010. Stefan Ricketts, 
in addition to his existing role as General Counsel has 
assumed the position of Company Secretary. 

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 management. Operational management of 
the Group on a day-to-day basis is managed by the 
Operations Committee, which comprises members of the 
Executive Committee, Asset Managers and selected senior 
management. 

Chairman and Chief Executive
The Chairman is an independent 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 its duties, to take independent 
professional advice if necessary, at the Company’s expense, 
up to a pre-determined limit.

Role of the Non-Executive Directors
The Non-Executive Directors have a mix of business skills, 
knowledge and experience which allows them to provide 
strong, independent judgement and an external perspective 
to the Board discussions. In turn, this leads to a diversity of 
views being aired at Board meetings, robust and constructive 
debate and an environment conducive to optimal decision 
making. At the same time, it reduces the likelihood of undue 
dominance from any one perspective. 

A key role of the Non-Executive Directors is to scrutinise the 
executive management in meeting agreed objectives and to 
monitor the reporting of performance. The Non-Executive 
Directors, in conjunction with the Chairman, meet at least 
once annually in order to facilitate this. They also ensure that 
financial controls and systems of risk management are both 
rigorous and appropriate for the needs of the business. 

Senior Independent Director
Helmut Langanger continues to be the Senior Independent 
Director. His role is designed to give comfort to fellow 
Directors and shareholders that there is a Director on the 
Board to whom they can turn if ever they have concerns 
about the way the Board is being run which they cannot 
address with the Chairman. His role also is to provide a 
sounding board for the Chairman and to serve as an 
intermediary with other Directors when necessary. The Senior 
Independent Director meets with the other Non-Executive 
Directors without the Chairman present at least annually in 
order to evaluate the performance of the Chairman. The 
outcome of their 2013 evaluation was positive. 

How the Board operates
During 2013, six scheduled meetings of the Board were held, 
five of which were held at the Company’s registered office in 
London, and one meeting was held offsite. Details of 
attendance at each of those meetings, and at meetings of 
the principal 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 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS50

CORPORATE GOVERNANCE STATEMENT CONTINUED

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.

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 2013:

Board 
meetings

Audit 
Committee

Remuneration 
Committee

Nomination 
Committee

Meetings held 
in 2013

Executive Directors
Amjad Bseisu1
Jonathan Swinney1

Non-Executive 
Directors
Dr James Buckee1
Helmut Langanger
Jock Lennox
Phil Nolan
Clare Spottiswoode

6

6
6

6
6
6
5
6

3

3

1

n/a
n/a

n/a
3
3
2
3

n/a
n/a

n/a
3
3
3
3

1
n/a

1
1
1
0
1

Notes:
n/a  not applicable where a Director is not a member of the Committee.
1.  Amjad Bseisu, Jonathan Swinney and James Buckee have attended Committee 

meetings by invitation. These details have not been included in the table.

Phil Nolan missed one Board meeting, one Audit Committee 
meeting and one Nomination Committee meeting, each 
occurring on the same day. These meetings were missed due 
to unavoidable business commitments. The Chairman and 
Non-Executive Directors have provided assurance to the 
Board that they remain fully committed to their respective 
roles and can dedicate sufficient time to meet what is 
expected of them.

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 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.

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.

Board evaluation
The Board evaluation process consists of an annual internal 
review exercise together with an independent third party 
evaluation carried out at least once every three years.

A thorough external Board effectiveness review was 
conducted at the beginning of the 2013 financial year by 
Consilium Board Review, who have no connections to the 
Company. 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 outcome was positive. 

 EnQuest PLC Annual Report and Accounts 201351

The review confirmed 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 review 
generated a number of insightful suggestions which have 
been implemented by the Board, which have included:
`` the Board agenda has been streamlined in order to ensure 

that key issues have been allocated sufficient time for 
Board consideration and discussion, by separating the 
reports for discussion/information against reports that 
require Board approval;

`` improved format for Board papers; and 
`` a 12-month rolling agenda has been prepared in order to 

ensure that the Board addresses all of the key issues 
throughout the year. 

At the end of the financial year under review, we conducted 
an internal Board effectiveness review, which consisted of a 
discussion between the Senior Independent Director and the 
Non-Executive Directors to discuss the Chairman’s 
performance, and a questionnaire sent to the full Board by 
the Chairman seeking opinions on the performance and 
effectiveness of the Board, its Committees and individual 
Directors. The principal areas covered within the 
questionnaire were:
`` strategy and investment matters;
`` interaction with shareholders; 
`` internal control and corporate governance; 
`` administration, support and development of the Board; 

and

`` Board membership and proceedings of meetings.

We encourage our people to raise any issues or concerns 
they may have either internally or through our external ‘Speak 
Up’ reporting line. There was one ‘Speak Up’ case reported 
in 2013, which was resolved satisfactorily. 

Relations with shareholders
The Company has an investor relations programme through 
which the Chief Executive, the Chief Financial Officer and 
senior management regularly meet with major shareholders. 
In 2013, numerous investor and broker sales meetings were 
held, presentations were made at international conferences 
and a capital markets day was held in London, 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.

Corporate governance at EnQuest is designed to promote 
the long term interests of our shareholders, strengthen 
management accountability, and foster responsible decision 
making. At the end of the 2013 financial year we invited the 
Governance Officers from our leading institutional 
shareholders to an opportunity to meet with the Chairman 
and Senior Independent Director in order to discuss any 
governance issues that they may wish to raise with the 
Company. This invitation was made in order to help ensure 
that we are openly promoting high standards of corporate 
governance. 

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.

The outcome of this process was discussed by the Board as a 
whole and the Board agreed that the Company is served by a 
strong, cohesive Board. Certain recommendations have been 
added to the Board action list for implementation, some of 
which, such as conducting a technical review the day before 
Board meetings, have already been trialled with success. 

2013 Annual Report
Following extensive review, the Board has concluded that  
the 2013 Annual Report and Accounts, as a whole, is fair, 
balanced and understandable and provides the information 
necessary for users to assess the Company’s performance, 
business model and strategy. 

Human rights
The Company recognises the importance of having high 
standards in all areas of governance, this includes the area of 
human rights. In line with the recent expansion of our 
overseas activities we are refining our approach to these 
areas to ensure that the Company’s policies are robust for 
international as well as local operations. Our values will 
remain consistent with our existing Code of Conduct and will 
comply with all applicable laws.

Anti-bribery and corruption
In 2013 we further embedded and extended our anti-
corruption programme, including launching a Group-wide 
training programme for all employees. By the end of the year 
the greater majority of our employees had completed the 
training, which is being extended to all new joiners.

Annual General Meeting
The Board uses the Company’s Annual General Meeting 
(‘AGM’) to communicate with investors and welcomes their 
participation. All shareholders, or their duly appointed proxies, 
are entitled to attend the AGM, at which the Board members 
are present. The Board views the AGM as a good opportunity 
to meet with smaller private shareholders. A summary 
presentation of results is given by the Chief Executive before 
the Chairman deals with the formal business. All shareholders 
present can question the Chairman, the Chairmen of the 
Committees and the rest of the Board both during the 
meeting and informally afterwards.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS52

AUDIT COMMITTEE REPORT

Dear Shareholder
Strong governance is a key feature of the way EnQuest 
manages its business and risks. The Audit Committee has a 
vital role in providing assurance that the financial statements 
provide a true and fair view of the Group’s financial affairs 
and that our internal business control systems remain 
effective. The way in which the Audit Committee discharged 
these responsibilities in 2013 is set out in this report.

During 2013 the Committee’s work has focused on three key 
areas. Firstly, we considered the integrity of our financial 
statements, and the key judgements and estimates that 
underpin these. Details of these, and how we satisfied 
ourselves as to their appropriateness, are set out in detail 
below. Secondly, we monitored the effectiveness of our 
internal controls, primarily through reviewing the work of our 
internal auditors in executing our approved internal audit 
plan, and feedback from our external auditors. And finally, we 
monitored the activities and performance of both our 
internal and external auditors, assessing their quality, 
independence and objectivity. Further, we re-evaluated 
whether we should build our own internal audit team, or 
whether the current outsource arrangement remained 
appropriate. Further details of our work are outlined below, 
and full details of the Committee’s terms of reference can be 
found on our website.

In addition to these activities, in the light of the significant 
spend on our new developments, Alma/Galia and Kraken, 
the Committee has spent time considering the effectiveness 
of our cost forecasting processes and cost controls over 
major capital projects. We will continue to focus on this area 
with assistance from our newly appointed internal auditors, 
PricewaterhouseCoopers LLP (‘PwC’), during 2014. 

As the size and complexity of EnQuest continues to grow, the 
Audit Committee is proactively directing activities to ensure 
the Group’s governance and control mechanisms are 
appropriately expanded. Examples of how we will be doing 
this over the coming year include:
`` during 2013 management started an exercise to identify 
the various assurance activities taking place around the 
Group. During 2014 the focus will be developed further 
through an assurance mapping exercise to be conducted 
by PwC. This will ensure that the Board has appropriate 
assurance over the Group’s risks and other areas of their 
responsibilities whilst avoiding duplication of effort; and

`` embedding the Group’s risk management policies  
and governance and control mechanisms in our 
international locations.

Jock Lennox
Chairman of the Audit Committee
25 March 2014

Role of the Audit Committee
The remit of the Audit Committee is summarised below and 
is detailed in full in its terms of reference, a copy of which is 
available on the Company’s website www.enquest.com under 
investors/shareholder centre. The main responsibilities of the 
Committee are to:
`` monitor the integrity of the financial statements, including 

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

`` monitor and review the process of audit of the Group’s 

proven and probable reserves by a recognised Competent 
Person;

`` monitor and review the Company’s internal control 

procedures and risk management systems;

`` monitor and review the effectiveness of the external and 

internal audit activities;

`` make recommendations to the Board on the appointment, 

review and removal of external auditors;

`` monitor whether any calls had been made to the externally 

facilitated ‘Speak Up’ reporting line;

`` establish the external auditors’ remuneration;
`` monitor the external auditors’ independence;
`` monitor the policy on external auditors’ non-audit services; 

and

`` identify 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.

Committee composition
As required by the Code, the Committee is comprised 
exclusively of Non-Executive Directors, biographies of whom 
are set out on pages 44 and 45. The Board is satisfied that 
the Chairman of the Committee, a previous audit partner of a 
Big Four audit firm and member of the Institute of Chartered 
Accountants in Scotland, meets the requirement for recent 
and relevant financial experience.

Membership of the Committee and attendance at the three 
meetings held during 2013 is provided in the table below:

Member

Jock Lennox (Chairman)
Clare Spottiswoode
Helmut Langanger
Phil Nolan

Date appointed  
Committee member

22 February 2010
1 July 2011
16 March 2010
1 August 2012

Attendance 
at meetings 
during the year

3/3
3/3
3/3
2/3

Meetings are also normally attended by the General Counsel 
and Company Secretary, the Chief Financial Officer and the 
Group Financial Controller and the external auditors. The 
Chief Executive and Chairman of the Board also attend the 
meetings when invited to do so by the Committee. Deloitte 
LLP, in their role as internal auditors during 2013, attended 
the meetings 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.

 EnQuest PLC Annual Report and Accounts 201353

Meetings during 2013 
In line with the Committee’s annual schedule, since the Committee last reported to you, three meetings have been held.  
A summary of the items discussed in each meeting is set out in the table below:

Agenda item

Aug 2013

Dec 2013

March 2014

Key risks, judgements and uncertainties impacting the half-year and year-end financial 
statements (reports from both management and EY)

Internal audit findings since last meeting

Internal audit plan for 2014

Re-evaluate appropriateness of outsourcing internal audit 

Results of internal audit re-tender

Review and approve external audit plan, including key risks and planned approach 

Approve external audit fees subject to the audit plan

Review level of non-audit service fees for EY

Evaluate quality, independence and objectivity of EY

Evaluate management’s planned approach to giving Board comfort on ’fair, balanced and 
understandable‘ statement

Corporate governance update

Presentation on the reserves audit and evaluation of their independence and objectivity

Internal control update for international locations 

Appropriateness of going concern assumption







































Financial reporting and significant financial statement reporting issues
The primary role of the Committee in relation to financial reporting is to assess, amongst other things:
`` the appropriateness of the accounting policies selected and disclosures made, including whether they comply with 

International Financial Reporting Standards; and

`` those judgements, estimates and key assumptions that could have a significant impact on the Group’s financial 

performance and position, or on the remuneration of senior management.

We consider these items together with both management and our external auditors, who both provide reports to the Audit 
Committee in respect of these areas at each Committee meeting. The main areas considered during 2013 are set out below:

Significant financial statement reporting issue

Consideration

Potential misstatement of oil and gas reserves
The Group has total proved and probable reserves at 31 December 
2013 of 194.8 MMboe. The estimation of these reserves is essential 
to:
`` the value of the Company;
`` assessment of going concern;
`` impairment testing;
`` decommissioning liability estimates; and
`` calculation of depreciation.

Impairment of tangible and intangible assets
Significant capital expenditure is incurred on projects and the 
fair value of these projects is a significant area of judgement. 
At 31 December 2013, a total of $3.0 billion was capitalised in 
respect of oil and gas assets and goodwill, the recovery of which is 
dependent upon the expected cash flows of the underlying assets. 

Adequacy of the decommissioning provision
The Group’s decommissioning provision is carried at $228 million 
at 31 December 2013, which is based on a discounted estimate 
of the future costs and timing to decommissioning the Group’s 
assets. Judgement exists in respect of the estimation of the costs 
involved, and timing of decommissioning activities.

Tax
The Group carries deferred tax balances at 31 December 2013 
totalling $868 million of tax assets and $1,618 million of tax 
liabilities. Given the complexity of certain tax legislation, risk exists 
in respect of some of the Group’s tax positions.

In the March meeting, management presented the Group’s 2P 
reserves, together with the report from Gaffney Cline, our  
reserves auditor.

We considered the scope of the work performed by Gaffney Cline 
and their independence and objectivity. We also considered the 
work performed by our external auditors, EY, in asserting the 
independence and objectivity of Gaffney Cline. 

Considered and challenged the key assumptions made by 
management. Consideration was also given to EY’s view of the work 
performed by management.

The Group commissioned Wood Group PSN to estimate the costs 
involved in decommissioning each of our operated fields and facilities.

We reviewed the report by management summarising the key findings 
and their impact on the provision. Regard was also given to the 
observations made by EY as to the appropriateness of the estimations 
made.

We received a report by the Group’s Head of Tax, outlining all 
uncertain tax positions, and evaluated the technical arguments 
supporting the position taken by management. We also took into 
account the views of EY as to the adequacy of our tax balances. 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS54

AUDIT COMMITTEE REPORT CONTINUED

Internal controls
We discharge our responsibility in respect of the Group’s 
internal control environment through directing and reviewing 
the work performed by our outsourced internal auditors, 
considering the reports issued by our external auditors, and 
through the reports issued by management in respect of 
internal controls. Further, we have regard for the other 
assurance activity performed by the Group’s Health, Safety, 
Environment and Assurance team over the operational and 
HSE risks within the Group. 

In respect of the work performed by the internal auditors, we 
set the internal audit plan each year. When setting the plan 
we consider recommendations from management, the 
internal auditors, and having consideration of the risks 
impacting the Company, which are reviewed by the Board. 
The 2013 internal audit plan focused on:
`` the processes and controls in place in respect of cost 

forecasting for our major projects;

`` a post implementation controls review of both the finance 

(Sunsystems) and procurement (Maximo) systems 
implemented during 2013;

`` reviewing the controls and processes supporting the 

purchase to pay process;

`` a supply chain management effectiveness review;
`` an HR report following up on the status of findings from a 

previous internal audit; and

`` reports detailing the controls planned to be implemented 

to support the Group’s international activities.

In all cases the audit conclusions were that the systems and 
processes were satisfactory. Where control enhancements 
were identified, the Committee ensured that appropriate 
action was being taken by management to implement any 
agreed improvements.

Internal audit
Since the flotation in 2010, the Group has outsourced its 
internal audit function to Deloitte LLP on the basis that this 
would be more efficient and effective than building an 
in-house function. We reviewed that position during the year, 
and concluded that an outsourced function remains the most 
appropriate for a company of this size. We will continue to 
keep this under review.

Together with management, a decision was taken to re-
tender the internal audit contract. This was in keeping with 
best practice corporate governance, and in recognition of 
the fact that the initial three-year audit cycle had been 
completed. A key selection criteria considered during this 
process was the level of experience and credentials in 
respect of capital project management that each firm would 
bring to EnQuest. Following this re-tender PwC were 
appointed as EnQuest’s internal auditors.

External audit
One of the Committee’s key responsibilities is to monitor the 
performance, objectivity and independence of EY, EnQuest’s 
external auditor, who has been the Group’s auditor since 
2010. Each year the Committee will review and agree the 
audit plan and the associated fees. The process for reviewing 
the performance of EY 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 EY when determining whether or not to 
recommend their reappointment. 

We formally evaluated the effectiveness of EY during our 
August meeting, and concluded that the Committee 
continues to be fully satisfied with the performance of EY, 
and that EY continues to be both objective and independent. 
As part of this process, the Committee considered the level 
of non-audit service fees provided by EY during the year, the 
compliance with our policy in respect of the provision of 
non-audit services by the auditor, and the safeguards in place 
to ensure continued independence and objectivity of EY. 

In recommending to reappoint EY for 2014, the Committee 
took note of the reduction from the prior year in both the 
absolute size of non-audit fees (from $898,000 in 2012 to 
$361,000 in 2013), and their size relative to audit fees (from 
213% in 2012 to 53% in 2013). The Committee expects the 
ratio of non-audit to audit to remain below 1:1 going forward.

 EnQuest PLC Annual Report and Accounts 2013Raising concerns at work 
Throughout the year, a whistleblowing procedure, titled the 
‘Speak Up’ reporting line, has been in place across the 
Group. This allows employees and contractors confidentially 
to raise any concerns about business practices through an 
independently appointed third party. Any disclosures under 
these arrangements are investigated promptly and notified 
to the Chairman of the Audit Committee, with follow-up 
action being taken as soon as practicable thereafter. 

Anti-bribery and corruption 
The Company has a zero tolerance approach to bribery and 
corruption. The Group Code of Conduct and other policies 
to combat bribery are issued to all employees, with training 
provided to ensure an understanding and awareness of the 
requirements of the policy.

55

Use of external auditors for non-audit services
The Audit Committee and Board believe that the external 
auditors’ independence and objectivity can potentially be 
affected by the level of non-audit services to EnQuest. 
However, the Committee acknowledges that certain work of 
a non-audit nature is best undertaken by the external auditor. 
To ensure objectivity and independence, the Committee has 
adopted a policy in relation to the provision of non-audit 
services by its external auditor. As part of this process the 
external auditors provide the 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. EY confirmed their 
independence and objectivity.

The key features of the non-audit services policy, the full 
version of which is available on our website, are as follows:
`` a pre-defined list of prohibited services has been 

established;

`` a schedule of services where the Group may engage the 
external auditor has been established and agreed by the 
Committee; 

`` any non-audit project work which could impair the 

objectivity or independence of the external auditor may 
not be awarded to the external auditor; and

`` delegated authority by the Audit Committee for the approval 

of non-audit services by the external auditor is as follows:

Authoriser

Chief Financial Officer
Chairman of the Audit Committee
Audit Committee

Value of services per  
non-audit project

Up to £50,000
Up to £100,000
Above £100,000

EY has served as the Company’s auditors since the Company 
was first formed in January 2010, and has conducted each of 
the Company’s external audits since formation. The 
Committee has adopted the recently implemented 
requirement of the Code that FTSE 350 companies tender 
their external audit contracts every 10 years and, in line with 
this policy, will re-tender this function in 2020, if not sooner. 
The Committee is aware of the EU developments that may 
make rotation of audit firms mandatory and may introduce 
further restrictions on the provision, by the auditors, of 
non-audit services. We will keep these developments under 
review. 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS56

DIRECTORS’ REMUNERATION REPORT 2013

Dear Shareholder
On behalf of the Board I am pleased to present EnQuest’s 
report on its remuneration policy and practice for the 
financial year ended 31 December 2013.

In addition to this opening statement, the report has three 
main sections: 
1. Governance of remuneration at EnQuest.
2. The policy report which sets out the policy for the 

remuneration of Directors for the current and future 
financial years. The policy report will be subject to a 
binding vote at the 2014 Annual General Meeting (‘AGM’) 
and will take effect from January 2014.

3. The remuneration report of the Executive Directors and 

Non-Executive Directors during 2013 which will be subject 
to an advisory shareholder vote at the 2014 AGM.

Our approach to remuneration
EnQuest has seen continued growth since it was formed in 
2010 and the Remuneration Committee is dedicated to 
ensuring that the remuneration policy supports business 
strategy, the highest levels of Company performance and 
governance, and through this, the delivery of shareholder 
value. The link between performance and reward is central to 
the remuneration philosophy throughout the Company, and  
all of EnQuest’s employees are aligned to organisational 
performance through the use of incentive schemes as part  
of their remuneration packages.

To align the Executive Directors with Company performance 
in both the short term and long term, the fixed remuneration 
element of their package is typically set below the market 
median, and is currently around the lower quartile level, 
relative to the oil and gas marketplace, with the intent that 
high levels of individual and Company performance will result 
in the variable elements of their packages delivering total 
reward at, or around, the upper quartile level. We believe 
that gearing our Executive Directors’ remuneration towards 
both short-term and long-term individual, and Company, 
performance is the appropriate way to deliver exceptional 
shareholder value.

EnQuest’s long-term incentive plan is entirely performance-
based and promotes a longer-term focus on the delivery of 
Company strategy. This adds a further layer of alignment 
between the Board, executive management, and 
shareholders. The performance conditions comprise targets 
set against total shareholder return relative to a comparator 
group of oil and gas companies, production growth per 
share, and reserves growth per share. 

The Committee has revisited the remuneration policy for the 
Executive Directors for the first time since IPO in 2010 and are 
proposing changes to the annual bonus and Performance 
Share Plan. Details of these changes are summarised below 
and included in the policy report and will ensure the Executive 
Directors are suitably incentivised to achieve upper quartile 
levels of variable pay in return for superior performance.

Remuneration outcomes for 2013
Once again, EnQuest has delivered excellent shareholder 
value with Total Shareholder Return (‘TSR’) being in the top 
quartile, relative to its oil and gas peers, over the last three 
years. Production was up by 6% in 2013 to 24,222 Boepd and 
the net 2P reserves base increased by 66 MMboe to 194.8 
MMboe. The Kraken project was sanctioned and progress 
continues to be made in getting the Alma/Galia 
development on stream in 2014. Remuneration awards for 
2013 were commensurate with the performance of EnQuest 
and the stretching targets set by the Company. 

2013 annual bonus
The Executive Directors’ annual bonus awards are based  
on a combination of financial and operational results and the 
achievement of strategic and personal objectives. Awards of 
100% of base salary (50% of maximum) for Amjad Bseisu and 
101% for Jonathan Swinney (51% of maximum) have been 
made in respect of 2013. Further details of how these awards 
were determined are set out on pages 67 to 68. The 
Committee considers these levels of awards to be 
appropriate in light of the strong operational results and  
the significant achievement in the sanctioning of the Kraken 
development which were offset by delays to the Alma/Galia 
project coming on stream.

2011 Performance Share Plan (‘PSP’) award
The 2011 PSP award, which had a three-year performance 
period ending 31 December 2013, vested at 66.7% of the 
maximum. Two of the three performance conditions were 
met in full (TSR and reserve growth per share), however  
the threshold production growth per share performance 
condition was not met. Details on the satisfaction of these 
performance conditions are included in the report.

Executive remuneration review – 2014 and beyond
The Committee reviewed its policy for Executive Directors  
at the beginning of 2014. We continue to believe that our 
remuneration structure should be closely aligned to 
shareholder returns, reflect best practice, be set against a 
backdrop of EnQuest’s growth strategy and Company values, 
and take into account the challenges of the industry in which 
we compete. We believe that an executive remuneration 
policy of below median fixed pay, with the potential for upper 
quartile total reward, continues to be the most appropriate 
model for the delivery of shareholder value. Our executive 
remuneration structure remains aligned with the aspirations 
of shareholders, appropriate for our growth aspirations and 
therefore largely unchanged.

Base salaries
For 2014, base salary increases for Amjad Bseisu and 
Jonathan Swinney were 4.9% and 6.1% respectively. These 
have been set by the Committee and take into account 
Company and individual Director performance. This 
continues to position their base salaries around the lower 
quartile of the oil and gas industry and the FTSE 250, which  
is in line with our policy of below median fixed pay.

 EnQuest PLC Annual Report and Accounts 201357

Changes to the annual bonus scheme
During 2013 the Company changed its annual bonus model 
for all employees in order to fully align their bonus outcomes 
to how the Company performs. In 2013, Amjad Bseisu’s  
annual bonus was based solely on Company performance, 
while Jonathan Swinney had an 80% weighting on Company 
performance with a separate 20% based on personal 
objectives. From 2014 it is proposed that Jonathan Swinney’s 
bonus have separate corporate and personal elements with 
the outcome of the corporate scorecard subject to an 
individual performance modifier. Amjad Bseisu’s bonus will  
be based solely on the corporate scorecard.

The corporate element will be assessed against a weighted 
scorecard of Company metrics, each of which have threshold, 
target, and stretch objectives and performance outcomes for 
each component will be determined within these boundaries. 
The maximum bonus will be increased from 200% to 225% for 
both Executive Directors. This increase will be accompanied 
by a corresponding increase in the level of stretch required 
for a maximum payout. On-target opportunity will remain the 
same. These changes will increase the link to annual 
performance and enable Executive Directors to earn market 
appropriate levels of variable reward.

In line with best practice, we are also introducing ‘clawback’ 
provisions into the annual bonus and PSP schemes from 2014. 
More details of this are included in the report.

PSP
EnQuest’s policy is that award levels should vary from year to 
year based on Company and individual performance. For PSP 
awards made in 2013, relating to the 2012 performance year, 
the Committee felt that it was appropriate to grant levels of 
awards equivalent to 160% of 2012 base salary for Amjad 
Bseisu and 152% for Jonathan Swinney. These awards were 
based upon the level of Company performance in the case  
of Amjad Bseisu and both the Company and individual 
performance in the case of Jonathan Swinney.

Awards under the PSP have been reviewed by the Committee 
to ensure that the overall remuneration for Executive Directors 
is consistent with long-term Company performance and our 
ability to retain our key executives. As levels of fixed pay are 
currently positioned around the lower quartile of the 
marketplace, the opportunity to achieve appropriate levels  
of remuneration in return for upper quartile total shareholder 
return has been reviewed. As such, it is proposed that  
the maximum levels of award under the PSP for stretch 
performance will be increased from 200% to 300% of  
base salary from 2015. Annual awards will continue to be 
determined by the Committee taking account of Company 
and individual performance in the year prior to grant. The 
increase in the maximum will provide the Committee with 
greater flexibility to reflect performance but it is only intended 
that awards in excess of 200% of salary would be made in  
years where stretch levels of corporate performance have 
been achieved. As the existing normal limit in the PSP is 

200% of salary (300% in exceptional circumstances), this will 
require shareholder approval for a change to the PSP rules 
and we will be consulting with shareholders later in 2014 
about this change.

After due consideration of Company performance in 2013 
and other factors, it was considered by the Committee that 
the appropriate level of awards under the PSP would be 
200% of base salary for 2013 for Amjad Bseisu and 182%  
of base salary for Jonathan Swinney.

We are committed to transparent communication and I hope 
you find this report of the Committee’s work comprehensive, 
clear and understandable. I hope you will support the 
resolution to vote for this Directors’ Remuneration Report 
and look forward to receiving your support at the 
forthcoming AGM.

Helmut Langanger
Chairman of the Remuneration Committee
25 March 2014

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS 
58

DIRECTORS’ REMUNERATION REPORT 2013 CONTINUED

GOVERNANCE AND APPROACH 
General governance
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 as amended in 
August 2013. It also describes the Group’s compliance with the Code in relation to remuneration. The Committee has taken 
account of the new requirements for the disclosure of directors’ remuneration and guidelines issued by major shareholder 
bodies when setting the remuneration strategy for the Company. 

This is the first time the Company has prepared the report in accordance with the amended regulations and the remuneration 
policy will take effect from the 2014 AGM.

Terms of reference
The Committee’s terms of reference are available on our website or on request. The remit of the Committee embraces the 
remuneration strategy and policy for the Executive Directors, senior management, and in certain matters, for the whole Company. 

Meetings in 2013
The Committee normally meets at least twice per year. During 2013 it met three times to review and discuss base salary 
adjustments for 2013, the setting of Company performance and related annual bonus for 2012, amendments to the annual 
bonus scheme, and approval of share awards.

Advisers to the Remuneration Committee
The Committee invites individuals to attend meetings to provide advice so as to ensure that the Committee’s decisions are 
informed and take account of pay and conditions in the Company as a whole. These individuals include:
`` the Chairman (Dr. James Buckee) is not a member but attends by invitation;
`` the Chief Executive (Amjad Bseisu);
`` the Chief Financial Officer (Jonathan Swinney);
`` the HR Director (Graeme Cook);
`` a representative of New Bridge Street (part of Aon plc), appointed as remuneration advisor by the Committee in 2013; and
`` the Company Secretary acts as secretary to the Committee (Stefan Ricketts/Paul Waters).

No Director takes part in any decision directly affecting his or her own remuneration.

Committee members, attendees and advice

Remuneration Committee member

Position

Helmut Langanger
Jock Lennox
Clare Spottiswoode
Phil Nolan

Chairman of the Remuneration Committee
Member from 22 February 2010
Member from 1 July 2011
Member from 1 August 2012

Comments

Independent
Independent
Independent
Independent

 EnQuest PLC Annual Report and Accounts 201359

POLICY SECTION
This section sets out the principles behind our remuneration policies and the remuneration structure for the Executive 
Directors. During 2013, we clarified our principles and we believe that our remuneration structure continues to be aligned 
with our growth aspirations and the creation of shareholder value.

Remuneration principles
During 2013, we reviewed our overall remuneration principles to ensure that they were aligned to our strategy. EnQuest’s 
strategic objective is to achieve sustainable growth by focusing on exploiting its existing reserves, commercialising and 
developing discoveries, converting contingent resources into reserves, and pursuing selective acquisitions.

We also want to ensure that we operate within the appropriate culture and, therefore, the principles support and reinforce the 
EnQuest values. Our principles are clear and simple, strengthen the link of reward for exceptional performance, as well as 
emphasise the importance of our values.

In summary, the principles underpinning our remuneration policy are that remuneration for Executive Directors should be:
1. Aligned with shareholders.
2. Fair, reflective of best practice, and market competitive.
3. Comprise of fixed pay set below the median, and variable pay capable of delivering remuneration at upper quartile.
4. Reward performance with a balance of short-term and long-term elements.

Executive Directors
General approach
The remuneration of the Executive Directors comprises base salary, participation in an annual bonus plan (paid partly in cash 
and partly in deferred shares), the PSP, private medical insurance, and cash in lieu of pension and other benefits.

When setting remuneration for the Executive Directors, the Committee takes into account the performance and experience 
of the Director, as well as the Company performance, employment conditions for other employees in the Company, and the 
external marketplace. Data is obtained from a variety of independent sources.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS60

DIRECTORS’ REMUNERATION REPORT 2013 CONTINUED

The following table details EnQuest’s remuneration policy which will become binding from 29 May 2014; subject to approval 
at the 2014 AGM:

Component

Purpose

Operation / key-features

Salary and fees To enable the recruitment 
and retention of Executive 
Directors who possess the 
appropriate experience, 
knowledge, commercial 
acumen and capabilities 
required to deliver 
sustained long-term 
shareholder value.

Pension & other 
benefits

Provide market competitive 
employee benefits that are 
in line with the marketplace 
and enable EnQuest to 
attract and retain high 
calibre employees, as well 
as providing tax efficient 
provision for retirement 
income.

`` Benchmarked against a 

comparator group 
generally of the same size 
and industry as EnQuest 
and who have a similar 
level of market 
capitalisation.

`` Salaries are typically 

below market median, 
and reviewed by the 
Remuneration 
Committee in January 
each year. 

`` Delivered as cash in lieu 
of benefits and pension, 
with the exception of 
private medical insurance 
which is provided as a 
benefit in kind.

`` Reviewed annually by the 

Remuneration 
Committee and adjusted 
to meet typical market 
conditions.

`` Where required, we 

would offer benefits in 
line with local additional 
market practice.

What is the maximum  
potential opportunity?

Salaries are typically only 
increased in line with 
the general workforce. 
Increases in excess of the 
general workforce may 
be made where there is 
a significant change in 
duties, contribution to 
Company performance, 
personal performance, 
external market conditions. 
Typically, the conditions 
and pay of all employees 
within the Company are 
factors considered by the 
Committee in its review.

The maximum allowance 
that would be offered 
is £50,000 plus private 
medical insurance, the cost 
of which is determined by a 
third-party provider. 

Annual bonus

Incentivises and rewards 
short term performance 
(over no more than one 
financial year) through 
the achievement of pre-
determined annual targets 
which support Company 
strategy and shareholder 
value.

`` Two-thirds paid as cash 
with the final third being 
delivered as shares which 
vest after two years, 
subject to continued 
employment.

`` Target – 100% of salary.
`` Maximum award – 

increased from 200% of 
salary to 225% of salary 
from 1 January 2014.
`` The bonus element 

`` The Committee has 
discretion to allow 
Executive Directors to 
receive dividends that 
would otherwise have 
been paid on deferred 
shares at the time of 
vesting.

delivered as deferred 
shares has no additional 
performance criteria and 
vests after two years.

Applicable performance measures

None

None

Using a scorecard 
approach, including 
key performance 
objectives such as 
financial, operational, 
project delivery, HSE&A 
targets and share price 
performance. These 
are set annually by the 
Remuneration Committee, 
with varying weightings. 
Performance against key 
objectives have a threshold, 
target and stretch 
component. 

Where the threshold level 
of performance is met for 
each element, bonuses will 
begin to accrue on a sliding 
scale from 0%.

 EnQuest PLC Annual Report and Accounts 201361

Component

Purpose

Operation / key-features

Performance 
Share Plan 
(‘PSP’)

`` Encourages alignment 

with shareholders on the 
longer-term strategy of 
the Company.

`` Enhances delivery of 

shareholder returns by 
encouraging higher levels 
of Company performance.
`` Encourages executives to 

build a shareholding.

`` PSP is the only form of 
long-term incentive.
`` Annual award levels are 

determined taking 
account of the 
performance of the 
Company and the 
Executive Director in the 
prior year. 

`` PSP shares vest over three 
years provided corporate 
performance conditions 
have been achieved.
`` The Committee has 
discretion to allow 
Executive Directors to 
receive dividends that 
would otherwise have 
been paid on shares at 
the time of vesting.

`` Awards may take the form 
of conditional awards, nil 
cost options or joint 
interests in shares. Where 
joint interests in shares 
are awarded, the 
participants and the 
Employment Benefit Trust 
(‘EBT’) acquire separate 
beneficial interests in 
shares in the Company. 

What is the maximum  
potential opportunity?

2014
`` Normal maximum – 200% 

of salary.

Applicable performance measures

The metrics used currently are: 
`` Relative TSR performance.
`` Production growth  

`` Exceptional maximum 

per share.

– 300% of salary.

`` 2015 onwards (subject to 
shareholder approval for 
changes to the PSP at the 
2015 AGM). Maximum 
award – 300% of salary.

`` Reserves growth per share.
`` For 2014, each measure  
has an equal weighting, 
however, the Remuneration 
Committee determines the 
weightings for the PSP 
each year.

`` 30% of the award vests for 
threshold performance.

`` 100% vests for 

achievement of stretch 
targets.

Restricted Share 
Plan (‘RSP’)

`` Awarded upon Initial 
Public Offering (‘IPO’) 
only. 

`` The Committee does not 

intend on granting 
further awards under this 
plan to existing Executive 
Directors, but may use on 
recruitment to buy out 
existing awards.

`` Granted upon IPO, with 

`` Awards of 1,609,063  

shares due to vest on the 
second, third and fourth 
anniversaries of the date 
of the award.

`` In future, the plan would 

only be used in the 
recruitment of an 
Executive Director to buy 
out entitlements 
foregone at previous 
employer.

and 591,324 shares were 
made to Amjad Bseisu 
upon IPO in 2010.

Awards of 536,354 and 
163,387 shares were 
made to Jonathan 
Swinney upon IPO  
in 2010.

The maximum limit of 
RSP awards that would  
be made at the time of 
recruitment would be 
300% of base salary.

There are no performance 
conditions, save continued 
employment, attached to 
these awards. 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS62

DIRECTORS’ REMUNERATION REPORT 2013 CONTINUED

Component

Purpose

Chairman and 
Non-Executive 
Director fees

To attract Non-Executive 
Directors of the calibre and 
experience required for a 
company of EnQuest’s size.

What is the maximum  
potential opportunity?

Applicable performance measures

Limited by the Company’s 
Articles of Association. 

None

Non-Executive Director 
fees have not increased 
since the Company was 
formed in 2010 and have 
been reviewed in the year. 
These will be set as follows 
for the following three 
years:

Chairman: £220,000
Director fee: £50,000
Senior Independent 
Director: £10,000
Committee Chairmen: 
£10,000

Operation / key-features

`` Fees for the Non-

Executive Directors are 
reviewed annually by the 
Chairman and Executive 
Directors and take into 
account: 
 – typical practice at 

other companies of a 
similar size and 
complexity to EnQuest;

 – the time commitment 
required to fulfil the 
role; and 

 – salary increases 

awarded to employees 
throughout the 
Company.

`` Non-Executive Directors 
are paid a base fee, with 
additional fees being paid 
to the Senior Independent 
Director and Committee 
Chairmen, to reflect the 
additional time 
commitments and 
responsibilities these 
roles entail.

`` The Non-Executive 

Directors are not eligible 
to participate in any of 
the Company incentive 
schemes.

`` The Chairman’s fee is set 

by the Senior 
Independent Director 
and consists of an 
all-inclusive fee. 

Note: Any awards vesting under the annual bonus or PSP will be subject to clawback in the event of a material misstatement of the Company’s accounts, errors in the calculation of 
performance, or gross misconduct by an individual for up to three years following the determination of performance.

Shareholding requirement
The Executive Directors are encouraged to build and maintain a shareholding in the Company, however there are no formal 
guidelines in place. This shareholding is encouraged through the vesting of shares under the Group’s share incentive plans. 
Existing shareholdings and shares acquired in the market are also taken into account.

Performance measures and targets
Annual bonus
The annual bonus scheme is a weighted scorecard of key performance indicators with a number of categories, under which 
the performance of the Company, and therefore the Executive Directors annual bonus is determined. The categories that 
form the scorecard may include, but are not limited to:

`` Health, Safety, Environment and Assurance;
`` financial (including EBITDA, opex and capex);
`` operational performance/production;
`` project delivery;
`` reserves additions; and
`` share price performance.

The measures in each category are selected by the Committee to support the creation of shareholder value. These criteria 
are also aligned with the longer-term strategy of the Company and the performance conditions of the Company’s long-term 
incentive scheme. In addition to considering performance against objectives, the Committee will consider the overall quality 
of the Company’s financial performance, and other factors, when determining annual performance pay awards. 

 EnQuest PLC Annual Report and Accounts 201363

For Jonathan Swinney and other senior executives below Board level, the result against the corporate scorecard is subject  
to an individual performance modifier. This ensures no bonus can be paid for individual performance unless corporate 
objectives have been achieved whilst ensuring bonuses are also geared to individual performance.

For Amjad Bseisu, the 2014 individual performance element will be based on the corporate scorecard. This will increase the 
sensitivity of his bonus to corporate performance. 

Executive Directors will receive any applicable annual bonus in cash and deferred shares. Typically, two-thirds of the 
applicable annual bonus will be distributed in cash around the time of the announcement of full year results, with one third 
being converted to EnQuest shares (without further performance conditions) and deferred for two years – subject to 
continued employment.

PSP
The PSP is typically awarded annually and has a vesting period of three years. Performance conditions are attached to the 
awards and have reflected the longer-term strategy of EnQuest since the Company formed in April 2010; namely:
`` TSR relative to a comparator group;
`` Production growth per share; and
`` 2P (Proven & Probable) Reserve additions per share.

In addition, in determining individual awards to Executive Directors, the Committee takes account of Company and individual 
performance in the year prior to grant. This results in award levels for individual Directors varying from year to year increasing 
the link to performance.

Approach to recruitment remuneration
In the event that the Company appoints a new Executive Director either internally or externally, when determining 
appropriate remuneration arrangements, the Committee will take into consideration a number of factors (including, but not 
limited to, quantum relating to prior arrangements and the remuneration of other Executive Directors in the Company, 
appropriate benchmarks in the industry and the financial condition of the Company). This ensures that the arrangements are 
in the best interests of both the Company and its shareholders without paying more than is necessary to recruit an executive 
of the required calibre.

Salaries for new hires (including internal promotions) will be set to reflect their skills and experience, the Company’s intended 
pay positioning and the market rate for the role. If it is considered appropriate to appoint a new Director on a below market 
salary initially (for example, to allow them to gain experience in the role) their salary may be increased to a market level over a 
number of years by way of a series of increases above the general rate of wage growth in the Group and inflation.

The ongoing remuneration package for a new Executive Director would be set in accordance with the remuneration package 
offered with the terms of the Company’s approved remuneration policy at the time. Different performance measures may be 
set for the year of joining the Board for the annual bonus, taking into account the individual’s role and responsibilities and the 
point in the year the executive joined.

Benefits and pensions for new appointees to the Board will normally be provided in line with those offered to other Executive 
Directors and employees taking account of local market practice, with relocation expenses/arrangements provided for if 
necessary. Tax equalisation may also be considered if an executive is adversely affected by taxation due to their employment 
with EnQuest. Legal fees and other relevant costs and expenses incurred by the individual may also be paid by the Company.

The Committee may make additional awards on appointing an Executive Director to ‘buy-out’ remuneration arrangements 
forfeited on leaving a previous employer. Any such payments would be based solely on remuneration lost when leaving the 
former employer and would reflect (as far as practicable) the delivery mechanism, time horizons and performance 
requirement attaching to that remuneration. The Group’s existing incentive arrangements will be used to the extent possible 
(subject to the relevant plan limits), although awards may also be granted outside of these schemes, if necessary, and as 
permitted under the Listing Rules.

In the case of an internal hire, any outstanding variable pay awarded in relation to the previous role will be allowed to pay out 
according to its terms of grant.

On the appointment of a new Chairman or Non-Executive Director, the fees will be set taking into account the experience 
and calibre of the individual. 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS64

DIRECTORS’ REMUNERATION REPORT 2013 CONTINUED

Service contracts
Amjad Bseisu and Jonathan Swinney entered into service agreements with the Company which are terminable by either party 
giving not less than 12 months’ written notice. The Company may terminate their employment without giving notice by making a 
payment equal to the aggregate of the Executive Directors’ basic salary and the value of any contractual benefits for the notice 
period including any accrued but untaken holiday. Such payments may be paid monthly and/or subject to mitigation.

Executive Directors

Amjad Bseisu 
Jonathan Swinney 

Date of appointment

Notice period

22 February 2010
29 March 2010

12 months
12 months

The Chairman and Non-Executive Directors have letters of appointment providing for three months’ notice, the details of 
which are provided below.

Non-Executive Directors’ letters of appointment

Dr James Buckee
Helmut Langanger
Jock Lennox
Clare Spottiswoode
Phil Nolan

Date of  
appointment

Notice  
period

Initial term  
of appointment

22 February 2010
16 March 2010
22 February 2010
1 July 2011
1 August 2012

3 months
3 months
3 months
3 months 
3 months

2 years
3 years
3 years
3 years
3 years

Policy on payment for loss of office
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 basic salary and cash benefit 
allowance for the notice period. Such payments may be made monthly and would be subject to mitigation. 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. Vesting would normally take place at the end of the original vesting period. 

Where Executive Directors leave the Company with good leaver status, and they have an entitlement to unvested shares 
granted under the PSP, the performance conditions associated with each award outstanding would remain in place and are 
typically tested at the end of the original performance period. Shares would typically then vest on their original due date in 
the proportion to the satisfied performance conditions and are normally pro-rated for time.

Annual bonus would not typically be paid to Executive Directors when leaving the Company; however, in good leaver 
circumstances the Committee has the discretion to pay a pro-rated bonus in cash, in consideration for performance targets 
achieved in the year. Deferred bonus shares held by good leavers may, at the Committee’s discretion, vest on a pro-rata basis. 

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. During the notice period the 
Non-Executive Director will continue to receive their normal fee.

Remuneration Committee discretion and determinations
The Committee will operate the annual bonus scheme, Deferred Bonus Share Plan, Long-Term Incentive Plan, Restricted 
Share Plan and Sharesave Scheme according to their respective rules and in accordance with the Listing Rules and HMRC 
requirements, where relevant. The Committee, consistent with market practice, retains discretion over a number of areas 
relating to the operation and administration of these arrangements. These include (but are not limited to) the following:
`` who participates in the plans;
`` the timing of grant of award and/or payment;
`` the size of an award and/or payment;
`` discretion relating to the measurement of performance in the event of a change of control or reconstruction;
`` applying ’good leaver’ status in circumstances such as death, ill health and other categories as the Committee determines 

appropriate and in accordance with the rules of the relevant plan;

`` discretion to disapply time pro-rating in the event of a change of control or good leaver circumstances;
`` adjustments or variations required in certain circumstances (e.g. rights issues, corporate restructuring, change of control, 

special dividends and other major corporate events); and

`` the ability to adjust existing performance conditions for exceptional events so that they can still fulfil their original purpose.

 EnQuest PLC Annual Report and Accounts 201365

If an event occurs which results in any applicable performance conditions and/or targets being deemed no longer appropriate 
(e.g. a material acquisition or divestment), the Committee will have the ability to adjust appropriately the measures and/or targets 
and alter weightings, provided that the revised conditions or targets are not materially less difficult to satisfy.

Outstanding share incentive awards that remain unvested or unexercised at the date of this report, as set out on page 70, 
remain eligible for vesting or exercise based on their original award terms.

Remuneration outcomes in different performance scenarios
The charts below set out an illustration of the remuneration arrangements for 2014 in line with the remuneration policy 
described on pages 59 to 66. The charts provide an illustration of the proportion of total remuneration made up of each 
component of the remuneration policy and the value of each component.

Three scenarios have been illustrated for each Executive Director:

Below threshold performance

Target performance

Maximum performance

`` Fixed remuneration
`` Zero annual bonus
`` No vesting under the annual bonus plan

`` Fixed remuneration
`` 100% of annual base salary as annual bonus 
`` 30% vesting under the PSP

`` Fixed remuneration
`` 225% of annual base salary as annual bonus
`` 100% vesting under the PSP

Fixed pay for 2014 will comprise the following elements:

Chief Executive – Amjad Bseisu
Chief Financial Officer – Jonathan Swinney

Salary

£430,000
£280,000

Cash in lieu  
of pension

£40,000
£30,000

Benefits

£1,500
£1,500

`` Salary is the base salary with effect from 1 January 2014 to 31 December 2014.
`` Cash in lieu of pension is as described in the emoluments table.
`` Benefits relates to the premium for private medical insurance for each Director.

The scenarios below do not take into account share price appreciation or dividends.

Chief Executive

£000s

1,220
%
7
2

%
5
3

%
8
3

470

%
0
0
1

2,730

%
7
4

%
6
3

%
7
1

Chief Financial Officer

£000s

800
%
6
2

%
5
3

%
9
3

310

%
0
0
1

1,780

%
7
4

%
5
3

%
8
1

Threshold
Performance

Target
Performance

Maximum
Performance

Threshold
Performance

Target
Performance

Maximum
Performance

Note: Fixed pay includes salary and taxable benefit values.

Fixed pay
Annual variable pay (annual bonus)
Long term incentives (PSP)

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS66

DIRECTORS’ REMUNERATION REPORT 2013 CONTINUED

Statement of consideration of employment conditions elsewhere in the Company
The remuneration arrangements for the Executive Directors are consistent with the remuneration principles that have been 
established and are similar to those of the other employees of EnQuest. 

The key differences are as follows:
`` Executive Directors and members of the Executive Committee have their fixed pay set below market median for the 
industry (currently around lower quartile for the Executive Directors). Other employees typically have their salaries 
positioned at, or above, market median. Specific groups of key technical employees may have their salaries set in the upper 
quartile of the industry.

`` All employees are offered a non-contributory pension scheme. Executive Directors are given cash in lieu of pension and 

benefits. Non-Executive Directors do not participate in pension or benefits arrangements.

`` Executive Directors have an element of the annual bonus converted to shares and deferred. Non-Executive Directors do 

not participate in the annual bonus scheme. 

`` Employees may elect to participate in the Deferred Bonus Share Plan (‘DBSP’) where they can defer a defined proportion  
of their annual bonus and receive a matching amount of shares that vest over the following three years. Executive and 
Non-Executive Directors do not participate in this share plan.

`` Executive Directors and other employees may participate in the HMRC approved Sharesave Scheme and benefit from share 

price growth. Non-Executive Directors may not participate.

During the annual remuneration review the Committee receives a report from the HR Director which details the remuneration 
arrangements of other executive and senior management, as well as the overall spend versus budget for all employees. This 
report helps to act as a guide to the Committee as to the levels of reward being achieved across the organisation so that they 
can ensure the Directors’ pay does not fall out of line with the general trends. 

Employees have not previously been directly consulted about the setting of Directors’ pay.

Statement of shareholder views
The Remuneration Committee welcomes and values the opinions of our shareholders with regard to the levels of Directors’ 
pay. The 2012 Directors’ Remuneration Report was voted in at the AGM held in May 2013, where 98% of the votes cast were in 
favour of it. No concerns have been raised by shareholders to the Remuneration Committee during 2013.

IMPLEMENTATION OF REMUNERATION POLICY IN 2013 (INFORMATION SUBJECT TO AUDIT)
Directors’ remuneration: the ‘single figure’
In this section of the report we have set out the payments made to the Executive and Non-Executive Directors of EnQuest 
during 2013 and 2012 and it includes a single total figure for each Director:

Director

Amjad Bseisu
Jonathan Swinney

Total

Director

Amjad Bseisu
Nigel Hares4
Jonathan Swinney

Total

2013 ‘single figure’ of remuneration – £000s

Salary  
and fees  
2013

All taxable 
 benefits  
2013 

410
264

674

1
1

2

Annual  
bonus 
20131

410
267

677

LTIP 
20132

495
276

771

Pension 
20133

40
30

70

2012 ‘single figure’ of remuneration – £000s

Salary  
and fees  
2012

All taxable 
benefits  
2012 

395
249
255

899

1
1
1

3

Annual  
bonus 
20121

474
200
291

965

LTIP 
20122

Pension 
20123

–
–
–

–

40
26
30

96

Total for  
2013

1,356
838

2,194

Total for  
2012

910
476
577

1,963

Notes: 
1.  Annual bonus was based on base salary levels and payment was made in respect of the full financial year. The amount stated is the full amount (including the portion deferred). One 

third of the annual bonus for Amjad Bseisu and Jonathan Swinney is paid in EnQuest PLC shares, deferred for two years, and subject to continued employment. 

2.  No PSP awards vested during 2012 or 2013. PSP awarded on 18 April 2011 vested from 18 April 2014. The LTIP value shown in the 2013 single figure is calculated by taking the number of 
performance shares that have vested (66.7% of the performance conditions were achieved) multiplied by the average value of the EnQuest share price between 1 October 2013 and 31 
December 2013, as the share price on this date was not known at the time of this report.

3.  Cash in lieu of pension and other benefits.
4.  Nigel Hares stepped down from the Board on 9 November 2012. No payment was made for loss of office. 50% of his 2012 annual bonus (£100,000) was paid in April 2013 with the 

remaining balance of £100,000 deferred until April 2014 payable subject to him continuing to provide consultancy support to the Company in relation to being a strategic advisor to the 
Chief Executive. He was granted ‘good leaver’ status in respect of share awards made to him under the Company’s share plans. These awards will vest on their original vesting dates and 
be subject to the same performance conditions as the rest of the Company.

 EnQuest PLC Annual Report and Accounts 201367

Arrangements for Nigel Hares
Nigel Hares has continued to provide consultancy support as an adviser to the Chief Executive since stepping down from the 
Board on 9 November 2012. No payment in lieu of notice was made to him for leaving employment of the Company, instead 
his consultancy arrangements commenced immediately. The total amount of payments made to Nigel Hares in relation to his 
consultancy services in 2013 was £266,250.

The remuneration of the Non-Executive Directors for the years 2012 and 2013 is made up as follows:

Director

Dr James Buckee
Helmut Langanger
Jock Lennox
Clare Spottiswoode
Alexandre Schneiter2
Phil Nolan3

Total

Director

Dr James Buckee
Helmut Langanger
Jock Lennox
Clare Spottiswoode
Alexandre Schneiter2
Phil Nolan3

Total

2013 ‘single figure’ of remuneration – £000s

Salary  
and fees  
20131

All taxable 
benefits  
2013

Total for  
2013

200
53
53
45
–
45

396

–
–
–
–
–
–

–

200
53
53
45
–
45

396

2012 ‘single figure’ of remuneration – £000s

Salary  
and fees  
2012 

All taxable 
benefits  
2012

Total for  
2012

200
53
53
45
19
19

389

–
–
–
–
–
–

–

200
53
53
45
19
19

389

Notes: 
1.  There was no increase in Non-Executive Director fees once again for 2013.
2.  Alexandre Schneiter stood down as a Non-Executive Director at the 2012 AGM on 30 May 2012. 
3.  Phil Nolan was appointed as a Non-Executive Director on 1 August 2012.

Annual bonus
The Executive Directors’ annual bonus for 2013 was based 100% on the Company performance contract for Amjad Bseisu and 
80% for Jonathan Swinney. The remaining 20% of Jonathan Swinney’s annual bonus depended upon him achieving a number 
of strategic and functional objectives.

The Committee carefully assessed the achievement of objectives against the Company performance contract, and Jonathan 
Swinney’s individual performance contract, to determine the overall level of annual bonus for each Executive Director.

The Committee assessed the following levels of performance by the Company for 2013:

EnQuest Company performance contract

HSE&A
Basket of leading & lagging HSE&A indicators
Financial
EBITDA, opex, capex & launch of Retail Bond
Operational performance
Production and 2P reserves additions
Project delivery
Alma/Galia start-up, Kraken sanction, Heather drilling & Thistle power
Corporate & business development
UKCS & international corporate & asset transactions 
People & organisation
Launch of people & organisation strategy & executive succession planning
Share price performance
Absolute & relative share price growth

Weighting

Level of 
performance

10%

15%

Target

Target

15% Above target

20% Below target

20%

10%

10%

Target

Target

Target

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS68

DIRECTORS’ REMUNERATION REPORT 2013 CONTINUED

Jonathan Swinney individual performance contract

HSE&A
HSE&A reporting
Financial
Manage Group overheads, audit, investor relations, tax
Strategic development
Retail Bond, property, ERP implementation 
People & organisation
Finance team, treasury & audit functions
External relations
Enhancement of investor holdings 
Cost & value management
Cost reduction programme

Weighting

Level of 
performance

5%

30%

Target

Target

20% Above target

20%

10%

15%

Target

Target

Target

Note to tables: Precise targets are commercially sensitive and are not being disclosed at this time.

As such, a Company performance of ‘Target’ was achieved by the Company, and an individual performance marginally above 
this by Jonathan Swinney. This resulted in the following annual bonus levels being achieved:

Name

Amjad Bseisu
Jonathan Swinney

Annual bonus for  
2013

% of  
base salary

% of maximum

£410,000
£267,000

100%
101%

50%
50.1%

Two-thirds of the amounts above have been paid in cash in March 2014. The remaining one-third was converted to EnQuest 
shares on the date of the award and deferred until March 2016. There are no additional performance conditions attached to 
this deferral as they have already been met.

PSP
The performance period for the 2011 PSP award completed on 31 December 2013 and the award vested in April 2014.  
The results of the performance conditions for the 2011 PSP award are as follows:

Grant date

Vesting date

Performance period

19 Apr 2011

19 Apr 2014

1 Jan 2011 – 31 Dec 2013

EnQuest TSR

33.34%

Production 

33.33%

Reserves 

Total award

33.33%

100%

Performance conditions & weighting

Base level

Threshold

Maximum

Actual 
performance 
achieved

–

21,074 Boepd

88.5 MMboe

Median (18th position)

24,418 Boepd

97.4 MMboe

Upper quartile  
(9th position)

28,049 Boepd

132.8 MMboe

Above upper quartile  
(7th position)

24,222 Boepd

194.8 MMboe

Percentage meeting performance conditions  
& total vest

100%

0%

100%

66.67%

The table below shows the number of nil cost options that vested and their value at 31 December 2013. This figure is 
calculated taking the average closing share price on each day of the period 1 October 2013 – 31 December 2013 and is used 
as the basis for reporting the 2013 ‘single figure’ of remuneration.

Name

Amjad Bseisu
Jonathan Swinney
Nigel Hares1

No. of shares

583,090
324,975
443,148

Portion 
vesting

No. of shares 
vesting

Average 
share price

66.67%

388,727
216,550
295,432

£1.273

Value at  
31 Dec 2013 
£’000s

495
276
376

Note:
1.  Nigel Hares ceased to be an Executive Director on 9 November 2012; however he was granted ‘good leaver’ status and his PSP award will vest from 19 April 2014.

 EnQuest PLC Annual Report and Accounts 201369

2013 PSP Awards
After due consideration of business performance in 2012, the Remuneration Committee awarded the Executive Directors the 
following performance shares on 19 April 2013.

Amjad Bseisu
Jonathan Swinney

Face value (% of 
salary)

Face value as at
31 Dec 20131

160%
152%

£622,447
£381,090

No. of Shares

490,000
300,000

Percentage of 
base salary

Performance 
period 

152% 1 Jan 2013 – 
144%

31 Dec 2015

Note:
1.  The share price used for this calculation was £1.2703 (the average share price during 1st October to 31st December 2013).

Summary of performance measures and targets
The 2010 PSP share awards granted in April 2013 had three sets of performance conditions associated with them, over a three 
year financial performance period:
`` One-third of the award relates to TSR against a comparator group of 33 oil and gas companies listed on the FTSE 350, AIM 

Top 100 and Stockholm NASDAQ OMX.

`` One-third relates to production growth per share.
`` One-third relates to reserves growth per share.

PSP vesting schedule

Relative TSR

Production growth per share  
(average over three years)

Reserves growth per share

Performance

Vesting

Performance

Vesting

Performance

Vesting

Below threshold

Threshold

Target

Maximum

Performance target base levels

Year of grant

2011
2012
2013

Below 
median

Median

–

Upper 
quartile

Less than 
5% growth 
from base

5% growth 
from base

Less than 
100% of base

0%

30% 110% of base

–

– 125% of base

0%

30%

–

0%

30%

65%

10% growth 
from base

100%

100% 150% of base

100%

Production 
growth per share 
base level

Reserves growth 
per share base 
level

21,074 Boepd 88.5 MMboe
23,698 Boepd 115.2 MMboe
22,802 Boepd 128.5 MMboe

The comparator group companies for the TSR performance condition relating to the 2013 PSP award are as follows:

FTSE 350

Afren
Cairn Energy
Essar Energy
Heritage Oil
Ophir Energy
Premier Oil
Salamander Energy
Soco International
Tullow Oil

Stockholm NASDAQ OMX

Alliance Oil
Blackpearl Resources
Lundin Petroleum
PA Resources
Shelton Petroleum

FTSE AIM - Top 100

Amerisur Resources
Bowleven
Circle Oil
Coastal Energy
Eland Oil & Gas
Falkland Oil & Gas
Faroe Petroleum
Geopark Holdings
Gulf Keystone Petroleum
Igas Energy
Indus Gas
Ithaca Energy
Maple Energy
Petroceltic International
Providence Resources
Range Resources
Rockhopper Exploration
Valiant Petroleum
Xcite Energy

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS70

DIRECTORS’ REMUNERATION REPORT 2013 CONTINUED

The number of PSP awards outstanding as at 31 December 2013 are as follows:

Grant date – April 2011
Amjad Bseisu
Jonathan Swinney

Grant date – April 2012
Amjad Bseisu
Jonathan Swinney

Grant date April – 2013
Amjad Bseisu
Jonathan Swinney

No. of shares 
awarded

Performance period

Performance conditions  
(& weighting)

Vesting  
date

583,090
324,975

391,701
254,663

490,000
300,000

1 Jan 2011 – 31 Dec 2013

1 Jan 2012 – 31 Dec 2014

1 Jan 2013 – 31 Dec 2015

TSR (34%)
Production growth (33%)
Reserves additions (33%)

TSR (34%)
Production growth (33%)
Reserves additions (33%)

TSR (34%)
Production growth (33%)
Reserves additions (33%)

19 April 2014

19 April 2015

29 April 2016

Pension and benefits
Executive Directors do not participate in the EnQuest Pension Plan and instead receive cash in lieu. Amjad Bseisu receives an 
annual allowance of £40,000 and Jonathan Swinney an amount of £30,000.

The Committee determined that these allowances should not be increased for 2014.

Statement of Directors’ shareholding and share interests
The interests of the Directors in the share capital of the Company as at 31 December 2013 are shown below:

RSP

Amjad Bseisu

Jonathan Swinney

31 December 
2012

1,206,797
443,493

402,265
122,540

Granted

Vested

Lapsed

–
–

–
–

402,266
147,831

134,089
40,847

–
–

–
–

31 December 
2013

804,531
295,662

268,176
81,693

Vesting period

Expiry date

1 Apr 2012 – 1 Apr 2014
19 Apr 2012 – 19 Apr 2014

31 Mar 2020
18 April 2020

1 Apr 2012 – 1 Apr 2014
19 Apr 2012 – 19 Apr 2014

31 March 2020
18 April 2020

Notes:
1.  Nil cost shares under the RSP vested in April 2012 and April 2013 but were not exercised. They were rolled over in line with the Plan rules.
2.  Nigel Hares continues to hold 1,072,709 nil cost awards under the RSP which vest between 1 April 2011 and 31 March 2020. Out of these shares 268,177 nil cost awards vested in April 

2011, 201,133 nil cost awards vested in April 2012, and 201,133 nil cost options vested in April 2013. They were rolled over in line with the Plan rules.

PSP

Amjad Bseisu

Jonathan Swinney

31 December  
2012

583,090
391,790
–

324,975
254,663
–

Granted

Vested

Lapsed

–
–
490,000

–
–
300,000

–
–
–

–
–
–

–
–
–

–
–
–

31 December 
 2013

583,090 
391,790
490,000

324,975
254,663
300,000

Vesting period

Expiry date

19 Apr 2011 – 19 Apr 2014
19 Apr 2012 – 19 Apr 2015
29 Apr 2013 – 29 Apr 2016

1 Apr 2012 – 1 Apr 2014
19 Apr 2012 – 19 Apr 2014
29 Apr 2013 – 29 Apr 2016

18 April 2021
18 April 2022
28 April 2023

18 April 2021
18 April 2022
28 April 2023

Note:
1.  Nigel Hares continues to hold 760,312 nil cost awards under the PSP. 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. These awards  
first vest on the third anniversary of the award date, subject to the achievement of performance conditions (as described  
on page 68.

Amjad Bseisu
Jonathan Swinney
Dr James Buckee
Helmut Langanger
Jock Lennox
Clare Spottiswoode
Phil Nolan 

Legally owned 
(number of 
shares) 

Value of legally 
owned shares as 
% of salary

Unvested and 
subject to 
performance 
conditions under 
the PSP

Vested but not 
exercised under 
the RSP

Unvested under 
the RSP

Sharesave

Total at 31 Dec 
2013

70,797,182
62,033
1,222,327
–
20,000
–
–

22,000%
29%
–
–
–
–
–

1,464,880
879,638
–
–
–
–
–

1.100.193
349,870
–
–
–
–
–

1,100,194
349,871
708,440
–
–
–
–

–
9,000
–
–
–
–
–

74,462,449
1,650,412
1,930,767
–
20,000
–
–

 EnQuest PLC Annual Report and Accounts 201371

Total shareholder return and CEO total remuneration (Information not subject to audit)
The following graph shows the Company’s performance, measured by total shareholder return compared with the 
performance of the FTSE 250 Index and FTSE 350 Oil and Gas Index, also measured by total shareholder return. The FTSE 
250 Index and FTSE 350 Oil and Gas Index has been selected for this comparison as it is the index used by the Company for 
the performance criterion for the 2010 PSP.

200

175

150

125

100

75

50

25

0

EnQuest
FTSE 250
FTSE 350 Oil & Gas

55%

38%

(3)%

Apr 10

Oct 10

May 11

Nov 11

May 12

Dec 12

Jun 13

Dec 13

Note: Rebased to 100

Historical Chief Executive pay
The table below sets out details of the Chief Executive’s pay for the current year and the previous four years and the payout of 
incentive awards as a proportion of the maximum opportunity for each period. The Chief Executive’s pay is calculated as per 
the ‘single figure’ of remuneration as shown on page 66.

During this time, Amjad Bseisu’s total remuneration has been:

‘Single figure’ of total remuneration
Annual bonus as a % of maximum
Long-term Incentive vesting rate as a % of maximum RSP

2009

–
–
–

2010

3,004
80%
–

£’000s

2011

731
42%
–

2012

910
60%
–

2013

1,356
50%
67%

Notes:
1.  Company was formed on 5th April 2010. No data available for 2009 and 2010 was a partial year.
2.  2010 ‘Single Figure’ includes the value of RSP awards made at the time of IPO which will vest, subject to continued employment on the 2nd, 3rd and 4th anniversaries of grant.

Relative spend on pay
The table below shows the actual expenditure of the Group on total employee pay, as well as profitability and distributions to 
shareholders, and change between the current and previous years: 

Relative spend on pay

EBITDA
Distribution to shareholders
Total employee pay

2012
US$’000

634.6
0
76,861

2013
US$’000

621.3
0
108,226

How the Chief Executive’s pay relates to the workforce

Base Salary £’000

Bonus £’000

Benefits £’000

Amjad Bseisu
All employees 
(average)

2012

395

78

2013

410

85

%

3.8

9

2012

474

25

2013

410

24

%

-14%

-4%

2012

41

10

2013

41

11

%

0%

10%

The profile of the workforce has changed considerably during this period with 249 employees as at 31 December 2013 versus 
210 employees as at 31 December 2012. The average base salary increase for employees on a like-for-like basis in the period 
under review was 4.2%. The number of 9% shown above reflects both the increase in base salaries and the change due to 
recruitment activity.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS72

DIRECTORS’ REMUNERATION REPORT 2013 CONTINUED

Statement of implementation of remuneration policy in 2014
Base salary and 2013 pay review
As stated in the annual statement to this report, the remuneration for the Executive Directors is geared towards variable pay, 
with base salaries currently set around the lower quartile benchmark for the oil and gas industry and comparable sized 
companies. In the view of the Committee it is therefore important to ensure that the base salaries of the Executive Directors 
are reviewed annually and that any increase reflects the change in scale and complexity of the role as the Company grows as 
well as the performance of the Executive Director.

The table below shows the change to salaries for 2014:

Name

Amjad Bseisu
Jonathan Swinney

Salary for 2013

Salary for 2014

% increase

£410,000
£264,000

£430,000
£280,000

4.9%
6.4%

Salaries for both Amjad Bseisu and Jonathan Swinney were increased to reflect the continuing growth and performance of 
EnQuest and the performance of the executives in the role. The increases for both Executive Directors continues to position 
their base salaries around the lower quartile range of their peers.

Annual bonus
The annual bonus scheme for 2014 will be amended as follows:
`` Executive Directors (and other executive management) will have threshold, target, and stretch levels of performance 

objectives attributed to key performance objectives.

`` Amjad Bseisu’s bonus will be determined solely by the performance of the Company. Jonathan Swinney’s will include a 

modifier based upon individual performance.

`` Maximum levels of award for the Executive Directors will increase from 200% to 225% of annual base salary applicable in 

the year of performance.

`` More stretching targets will apply at maximum to take account of this increase.

The 2014 targets, weightings and measures, which will affect the level of short-term incentive awards for the Directors are set 
out below:

Company 2014 performance measures scorecard

Category

Financial targets
Production
Reserves
Alma/Galia 
Kraken
EnQuest share price performance

Notes:
1.  Precise targets are commercially sensitive and are not being disclosed at this time.
2.  Performance in Health, Safety, Environment and Assurance is central to EnQuest’s overall results. This category is used as an overlay on overall Company performance.
3.  Amjad Bseisu’s 2014 performance measures scorecard will be the same as the corporate scorecard.

Jonathan Swinney 2014 performance measures scorecard

Health, Safety, Environment and Assurance
Financial
Strategic development
Organisation
External relations
Cost and value management

Weighting

15%
25%
10%
20%
20%
10%

Weighting

5%
30%
20%
20%
10%
15%

The choice of performance targets for 2014, and their respective weightings, reflects the Committee’s belief that any short-
term annual bonus should be tied both to the overall performance of the Company and the individual’s performance. 
The annual bonus model used for the Executive Directors, and all employees in the Company, is shown below. 

Target annual bonus

X

Company

Performance level

Stretch performance
On-target performance
Below-target performance

Multiplier

1.2–1.5
0.8–1.2
0.0–0.8

X

Individual

Individual performance

Exceed target
On target
Below target

Multiplier

1.2–1.5
0.8–1.2
0.0–0.8

 EnQuest PLC Annual Report and Accounts 201373

Performance share awards
2014 PSP awards
After due consideration of business performance in 2013, the continued growth of EnQuest, and performance of the 
Executive Directors, as well as other factors, the Remuneration Committee decided to award grants equal to 200% of salary 
for Amjad Bseisu and 182% of salary to Jonathan Swinney. These awards will be granted in late April 2014.

Summary of performance measures and targets
The PSP share awards granted in April 2014 had three sets of performance conditions associated with them over a three year 
financial period:
`` One-third of the award relates to TSR against a comparator group of 27 oil and gas companies listed on the FTSE 350,  

AIM Top 100 and Stockholm NASDAQ OMX. 

`` One-third relates to production growth per share.
`` One-third relates to reserves growth per share.

PSP vesting schedule

Threshold

Target

Maximum

Performance target base levels

Year of grant

2014
proposed

TSR comparator group

FTSE 350

Afren
Cairn Energy
Essar Energy
Ophir Energy
Premier Oil
Soco International
Tullow Oil

Relative TSR

Production growth per share  
(average over three years)

Reserves growth per share

Performance

Vesting Performance

Vesting Performance

Vesting

Below median

Median
–

Less than 5% 
growth from 
base
5% growth from 
base

0%

30%

– –

Upper quartile

100%

10% growth 
from base

Less than 100% 
of base

0%

30% 105% of base
– 110% of base

0%

30%
65%

100% 115% of base

100%

FTSE AIM - Top 100

Amerisur Resources
Bowleven
Eland Oil & Gas
Faroe Petroleum
Gulf Keystone Petroleum
Igas Energy
Iofina
Ithaca Energy
Lekoil
Parkmead Group
Petroceltic International
Providence Resources
Quadrise Fuels
Rockhopper Exploration
Xcite Energy

Production 
growth per share 
base level

Reserves growth 
per share base 
level

24,222 Boepd 194.8 MMboe

Stockholm NASDAQ OMX

Blackpearl Resources
Lundin Petroleum
PA Resources
Shelton Petroleum
Tethys Oil

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS74

DIRECTORS’ REMUNERATION REPORT 2013 CONTINUED

Consideration by the Directors of matters relating to Directors’ remuneration
During 2013 New Bridge Street (part of Aon plc) were appointed as advisors to the Remuneration Committee to provide 
guidance on appropriate types and levels of award for the Directors. New Bridge Street was selected by the Chairman of the 
Remuneration Committee on the basis of previous experience and marketplace reputation.

The Committee satisfied itself that the advice given was objective and independent by reviewing it against other companies 
in EnQuest’s comparator group. New Bridge Street is also a signatory to the Remuneration Consultants Group (‘RCG’) Code 
of Conduct which sets out guidelines for managing conflicts of interest. New Bridge Street does not provide any other 
services to the Company. The fees paid to New Bridge Street totalled £10,029 (excluding VAT) and were charged on the  
basis of the number of hours worked.

Statement of voting at the Annual General Meeting
The table below summarises the voting at the AGM held on 29 May 2013. The Group is committed to on-going shareholder 
dialogue and takes an active interest in voting outcomes. Where there are substantial votes against resolutions in relation to 
Directors’ remuneration, the reasons for any such vote will be sought, and any actions in response will be detailed here.

The following table sets out the actual voting in respect of the approval of the Remuneration Report:

Number of votes cast for

Percentage of votes for

464,131,741

98.11

Number of votes 
cast against

8,928,831

Percentage of votes 
cast against

1.89

Total votes cast

473,060,572

Number of votes 
withheld

10,098,645

Helmut Langanger
Chairman of the Remuneration Committee
25 March 2014

 EnQuest PLC Annual Report and Accounts 201375

NOMINATION COMMITTEE REPORT

Dear Shareholder
The work of the Nomination Committee in the past year has 
been focused on maintaining a balance of experienced 
Directors on the Board who can successfully manage 
EnQuest’s growth strategy. This year no changes were made 
to its membership. Our focus has been on Board evaluation, 
succession planning for the Executive Committee, and the 
adoption of a new Board delegation of authority; the latter of 
which establishes a revised framework for the approval of 
financial levels throughout the Group.

Dr James Buckee
Chairman of the Nomination Committee
25 March 2014

Nomination Committee membership
The Nomination Committee currently comprises the 
Chairman, four independent Non-Executive Directors and,  
to ensure input from the executives, the Chief Executive.  
The membership of the Nomination Committee, together 
with appointment dates and attendance at meetings, is set 
out below:

Member

James Buckee (Chairman)
Amjad Bseisu
Clare Spottiswoode
Helmut Langanger
Jock Lennox
Phil Nolan

Date appointed 
Committee member

22 February 2010
22 February 2010
1 July 2011
16 March 2010
22 February 2010
1 August 2012

Attendance at 
meetings during 
the year

1/1
1/1
1/1
1/1
1/1
0/1

Role of the Nomination Committee
The role of the Nomination Committee is summarised below 
and detailed in full in its terms of reference, a copy of which is 
available on the Company’s website www.enquest.com under 
investors/shareholder centre. The main responsibilities of the 
Committee are to: 
`` review the size, structure and composition of the Board in 
order to recommend changes to the Board and to ensure 
the orderly succession of Directors;

`` formalise succession planning and the process for new 

Director appointments;

`` identify, evaluate and recommend candidates for 

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

`` keep under review the outside directorships and time 

commitments expected from the Non-Executive Directors.

The Nomination Committee met once in 2013 and conducted 
a strategic review of EnQuest’s organisational model, as  
well as monitoring the succession considerations for its 
senior management. 

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.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS76

NOMINATION COMMITTEE REPORT CONTINUED

Appointment of Directors
There is a formal, rigorous and transparent procedure for 
appointments of new Directors to the Board. We use external 
consultancy services, which have no connection with the 
Company, in order to facilitate appointments and the 
Committee thoroughly reviews each candidate in terms of 
the balance of skills, knowledge and level of independence 
they would bring to the Board. The Committee also gives 
careful consideration to other existing commitments a 
candidate may have and whether they will be able to devote 
the appropriate amount of time in order to fully meet what is 
expected of them. Once the Committee has identified a 
suitable candidate a recommendation is made to the Board 
for appointment.

Succession planning
2013 was a year of stability for the Board which allowed the 
Committee to focus on succession planning. Since the 
Company is still relatively young, only four years, the length 
of tenure of each of the Non-Executive Directors is not 
considered to be long enough to adversely affect their 
independence. Nevertheless, succession planning for the 
Non-Executive Directors is an area we consistently keep 
under review, along with the succession planning of the 
Executive Directors. As the Company continues to grow both 
in the UKCS, and internationally, ensuring that the Board and 
senior management have the right blend of experience and 
skills and who demonstrate the EnQuest values in all that 
they do will be central to our success. We will continue to 
work closely with the Chief Executive and the HR Director to 
ensure that we are recruiting and developing Board members 
and executive management with all of these attributes. 

Diversity policy
The Board works hard to ensure that it is able to recruit 
Directors from different backgrounds, with diverse 
experience, perspectives, personalities, skills and 
knowledge. We believe that diversity amongst Directors 
contributes towards a high performing, effective Board. 

EnQuest recruits where it works and 99% of our workforce  
is made up of local staff.

Our gender statistics are representative of the demographics 
of the wider oil and gas industry and are made up as follows: 

Gender ratios

Directors 

Male 
Female 

Senior managers 

Male 
Female 

Total employees 

Male 
Female 

%

86%
14%

%

94%
6%

%

77%
23%

Re-election to the Board
The effectiveness and commitment of the Non-Executive 
Directors has been subject to formal evaluation, and the 
Nomination Committee is satisfied with the time 
commitment of each Non-Executive Director during the year. 
We are confident that each of them would be in a position to 
discharge their duties to the Company in the coming year 
and continue to bring the necessary skills required to the 
Board. Detailed biographies for each Director, including their 
skills and external appointments, can be found on pages 44 
and 45. As detailed in the 2014 Notice of AGM, all Directors 
will stand for re-election. 

Conflicts of interest
The Board operates a policy to identify and, where 
appropriate, manage conflicts or potential conflicts of 
interest 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.

 EnQuest PLC Annual Report and Accounts 201377

DIRECTORS’ REPORT

The Directors of EnQuest PLC (registered in England and 
Wales with Company No. 7140891) present their Annual 
Report together with the Group and Company audited 
financial statements for the year ended 31 December 2013. 
These will be laid before shareholders at the AGM to be held 
on Wednesday 28 May 2014.

Principal activities
The principal activities of the Group are oil and gas 
development and production with its main focus on the 
UKCS. EnQuests operated assets include the Thistle, 
Deveron, Heather, Broom, West Don, Don Southwest,  
Conrie, Kittiwake, Mallard, Gadwall, Goosander and Grouse 
producing fields and the Alma/Galia and Kraken 
developments; EnQuest also has an interest in the non-
operated Alba producing oil field. EnQuest had 31 UK 
production licences at the start of 2014. This increases to 37 
production licences with the inclusion of the assets from the 
acquisition of the Greater Kittiwake Area which completed in 
Q1 2014 and the Don North East area licence which was 
offered ‘out of round’ to EnQuest in Q1 2014; these licences 
cover 47 blocks or part blocks in the UKCS, 30 of the licences 
are operated by EnQuest. 

EnQuest has begun replicating its existing model in the 
UKCS by targeting previously underdeveloped assets in a 
small number of other maturing regions; complementing our 
operations and utilising our deep skills in the UK North Sea. 
In which context, EnQuest also has interests in two blocks 
offshore Sabah, in Malaysia, and an interest in the North 
West October concession in Egypt. The Group operates 
through a number of principal subsidiaries which are set out 
in note 29 of the financial statements on page 121.

Future developments
A summary of the future developments of the Company are 
provided within the Strategic Report on page 19.

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 Statement on pages 49 to 51.

Results and dividends
The Group’s financial statements for the year ended 
31 December 2013 are set out on pages 81 to 130.

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 44 and 
45. All of the current Directors served throughout the year. 

All the Directors will offer themselves for re-election at the 
AGM on 28 May 2014, 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:

Name

Amjad Bseisu1
Dr James Buckee
Helmut Langanger
Jock Lennox
Phil Nolan
Clare Spottiswoode
Jonathan Swinney

At 31 December 
2012

At 31 December 
2013

25 March
2014 

70,797,182
868,107
0
20,000
0
0
62,033

70,797,182
1,222,327
0
0
0
0
62,033

70,797,182
1,222,327
0
0
0
0
62,033

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

family of Amjad Bseisu has a beneficial interest.

Directors’ indemnity provisions
Under the Company’s Articles, the Directors of the Company 
may be indemnified out of the assets of the Company against 
certain costs, charges, expenses, losses or liabilities which may 
be 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 and 
the Company has provided indemnities to the Directors in a 
form consistent with the limitations imposed by law.

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 (2012: 
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 108.  
No person has any special rights with respect to control of 
the Company.

The Company did not purchase any of its own shares during 
2013 or up to and including 25 March 2014, being the date of 
this Directors’ Report.

Company share schemes
Between June 2013 and October 2013, the trustees of the 
Group Employee Benefit Trust (the ‘Trust’) purchased 
3,960,952 Ordinary shares to satisfy future employee share 
awards. At year end, the Trust held 1.97% of the issued share 
capital of the Company (2012: 2.85%) for the benefit of 
employees and their dependents. The voting rights in 
relation to these shares are exercised by the trustees.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS78

DIRECTORS’ REPORT CONTINUED

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

Baillie Gifford & Co
Amjad Bseisu and family1
Swedbank Robur Asset Management
Schroders Plc
Montanaro Investment Managers Limited
Norges Bank Investment Management

Number of 
Ordinary shares 
held at 
31 December 
2013

% of issued share 
capital held at 
31 December 
2013

Number of 
Ordinary shares 
held at 
25 March 
2014

% of issued share 
capital held at 
25 March 
2014

71,370,176
70,797,182
57,623,383
32,187,192
34,074.054
24,897,630

8.89%
8.82%
7.18%
4.01%
4.25%
3.10%

72,393,802
70,797,182
48,238,685
37,262,271
33,529,059
24,897,630

9.02%
8.82%
6.01%
4.64%
4.18%
3.10%

Note:
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
A summary of the key acquisitions and disposals throughout the year under review, can be found in the Strategic Report  
on pages 2 and 3.

Annual General Meeting
The Company’s AGM will be held at Café Royal Hotel, 68 Regent Street, London W1B 4DY on 28 May 2014. 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 133.

Greenhouse gas (‘GHG’) emissions
EnQuest has reported on all of the emission sources within its operational control required under the Companies Act 2006 
(Strategic Report and Directors’ Reports) Regulations 2013. These sources fall within the EnQuest consolidated financial 
statement. EnQuest has used the principles of the GHG Protocol Corporate Accounting and Reporting Standard (revised 
edition), ISO 14064-1 and data gathered to fulfil the requirements under the ’Environmental Reporting Guidelines: Including 
Mandatory Greenhouse Gas Emissions Reporting Guidance‘ June 2013.

The Mandatory Carbon Reporting (‘MCR’) report includes assets which are in the operational control of EnQuest. These are:
`` Heather Alpha
`` Thistle Alpha
`` Northern Producer Floating Production Facility
`` Drilling rigs under the control of EnQuest for exploration and appraisal purposes
`` All land based offices

All six greenhouse gases are reported as appropriate. It was not possible to determine gas venting emissions with any degree 
of accuracy for 2013 reporting. For gas venting, an estimate was made based on maximum vent rates in the vent permits in 
line with Environmental and Emissions Monitoring System reporting. Emission figures with the vented gas excluded are 
provided in brackets.

Total emissions within operational control
`` 516,269 tCO2e (414,550 tCO2e)

Intensity ratio
`` 44.47 kgCO2e/BOE (35.71 tCO2e/BOE)

Where BOE = barrel of oil equivalent.

 EnQuest PLC Annual Report and Accounts 201379

Global GHG emissions data for period 1 January to 31 December 2013

Scope 1 – Natural Gas Combustion
Scope 1 – Natural Gas Flare
Scope 1 – Turbine Diesel
Scope 1 – Engine Diesel
Scope 1 – Natural Gas Vent
Scope 1 – Refrigerant Losses
Scope 1 – Fugitive
Scope 1 – Drilling Rigs Diesel
Scope 1 – Office Refrigerants
Scope 1 – Natural Gas – London Office
Scope 2 – Office Electricity

Total

Intensity ratio: kgCO2e/BOE
Emissions reported above normalised to per barrel of oil equivalent (gross)

2013 reporting year 
(tCO2e)

% 
Total emissions

124,355.80 
189,576.26 
69,853.03 
18,263.87 
101,718.38 
24.42 
386.35 
11,134.83 
0.05 
22.33 
933.37 

516,268.69 

44.47 (35.71)

24.09%
36.72%
13.53%
3.54%
19.70%
0.00%
0.07%
2.16%
0.00%
0.00%
0.18%

100.00%

n/a

EnQuest has a number of financial interests, e.g. joint ventures and joint investments, for which it does not have operational 
control. Hence, the boundary for emissions within EnQuest’s operational control is different to the financial boundary. In line 
with MCR guidance this is fully disclosed.

EnQuest has voluntarily opted to have the emissions reported within the MCR scope verified to the internationally recognised 
ISO-14064-1 standard by a UKAS accredited verification body. This increases the robustness of the reported emissions and 
provides the reader with more confidence in the stated figures. This goes beyond the minimum requirements of the guidance.

CARBON
FOOTPRINT

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 27 days (2012: 
41 days).

Political and charitable donations
The Company made charitable, social and community-related donations totalling US$74,000 during the year (2012: US$48,346). 
No political donations were made during the year (2012: 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 
£155 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 64 of the 
Remuneration Report for details of compensation which the Directors are entitled to in the event of a change of control.

Important events subsequent to the year end
Events since the balance sheet date are summarised in note 28 to the financial statements on page 120.

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.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS80

DIRECTORS’ REPORT CONTINUED

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.

Independent auditors
Having reviewed the independence and effectiveness of the 
auditors, the Audit Committee has recommended to the 
Board that the existing auditors, EY, be reappointed. EY has 
expressed their willingness to continue as auditors. An 
ordinary resolution to reappoint EY 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 34 to 
39 and the notes to the financial statements on pages 89 to 
121 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 Strategic Report on pages 1 to 42. 
The financial position of the Group, its cash flow, liquidity 
position and borrowing facilities are described in the 
Financial Review on pages 34 to 39. In addition, note 27 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 194.8 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.

The Directors’ Report was approved by the Board and signed 
on its behalf by the Company Secretary on 25 March 2014.

Stefan Ricketts
General Counsel and Company Secretary

 EnQuest PLC Annual Report and Accounts 201381

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.

Fair, balanced and understandable
In accordance with the principles of the UK Corporate 
Governance Code, the Directors are responsible for 
establishing arrangements to evaluate whether the 
information presented in the Annual Report, taken as a 
whole, is fair, balanced and understandable and provides the 
information necessary for shareholders to assess the 
company’s performance, business model and strategy, and 
making a statement to that effect. This statement is set out 
on page 51 of the Annual Report.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS82

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS  
OF ENQUEST PLC (REGISTERED NUMBER: 07140891)

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 2013 and of the Group’s profit for the 
year then ended;

`` have been properly prepared in accordance with IFRSs as 

adopted by the European Union; and 

`` have been prepared in accordance with the requirements 
of the Companies Act 2006 and, as regards the Group 
financial statements, Article 4 of the IAS Regulation.

Our assessment of risks of material misstatement
We identified the following risks that have had the greatest 
effect on our overall audit strategy, the allocation of 
resources in the audit and directing the efforts of the 
engagement team:
`` the assessment of the carrying value of intangible and 

tangible assets; and

`` the impact of the estimation of the quantity of oil and gas 
reserves on impairment testing, depreciation, depletion 
and amortisation, decommissioning provisions and the 
going concern assessment.

Our application of materiality 
We apply the concept of materiality both in planning and 
performing our audit, and in evaluating the effect of 
misstatements on our audit and on the financial statements. 
For the purposes of determining whether the financial 
statements are free from material misstatement we define 
materiality as the magnitude of misstatement that makes it 
probable that the economic decisions of a reasonably 
knowledgeable person, relying on the financial statements, 
would be changed or influenced.

When establishing our overall audit strategy, we determined 
a magnitude of uncorrected and undetected misstatements 
that we judged would be material for the financial statements 
as a whole. We determined materiality for the Group to be 
$16.6 million. Our evaluation of materiality requires 
professional judgement and necessarily takes into account 
qualitative as well as quantitative considerations implicit in 
the definition.

We have audited the Group financial statements of EnQuest 
PLC for the year ended 31 December 2013 which comprise 
the Group Statement of Comprehensive Income, the Group 
Balance Sheet, the Group Statement of Changes in Equity, 
the Group Statement of Cash Flows and the related notes 1 
to 29. The financial reporting framework that has been 
applied in their preparation is applicable law and 
International Financial Reporting Standards (IFRSs) as 
adopted by the European Union.

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 81, 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 2013 
to identify material inconsistencies with the audited financial 
statements and to identify any information that is apparently 
materially incorrect based on, or materially inconsistent with, 
the knowledge acquired by us in the course of performing 
the audit. If we become aware of any apparent material 
misstatements or inconsistencies we consider the 
implications for our report.

 EnQuest PLC Annual Report and Accounts 201383

On the basis of our risk assessments, together with our 
assessment of the Group’s overall control environment, our 
judgement is that overall performance materiality (that is our 
tolerance for misstatement in an individual account or 
balance) for the Group should be 50% of materiality, namely 
$8.3 million. Our objective in adopting this approach is to 
ensure that total uncorrected and undetected audit 
differences in the financial statements as a whole do not 
exceed our materiality of $16.6 million.

We agreed with the Audit Committee that we would report 
to the Committee all audit differences in excess of $1 million, 
as well as differences below that threshold that, in our view, 
warranted reporting on qualitative grounds.

An overview of the scope of our audit
We used a risk-based approach for determining our audit 
strategy, ensuring that our audit teams performed consistent 
procedures and focused on addressing the risks that are 
relevant to the business. This approach focused our audit 
effort towards higher risk areas, such as significant 
management judgements, and on locations that were 
considered material based upon size, complexity and risk.

Our assessment of audit risk, our evaluation of materiality 
and our allocation of that materiality determined our Group 
audit scope. The factors that we considered when assessing 
the scope of the Group audit and the level of work to be 
performed at each location included the following: the 
financial significance and specific risks of the location, the 
effectiveness of the control environment and monitoring 
activities, including entity-level controls and recent internal 
audit findings.

Our Group audit scope focused on the activities in the North 
Sea, whilst the remaining locations were subject to testing 
based on our judgement of risk and materiality. The North 
Sea represents the principal business unit within the Group’s 
reportable segments and accounted for 99% of the Group’s 
total assets and 102% of the Group’s profit before tax. 

Our response to the risks identified above included the 
following:
`` We challenged management’s assessment  

of impairment triggers and whether or not a formal 
impairment test was required. Where a formal impairment 
test was necessary we challenged management’s 
assumptions including specifically the determination  
of cash generating units, cash flow projections, discount 
rates, perpetuity rates and sensitivities used. We performed 
detailed audit procedures on the impairment test model.

`` We audited EnQuest’s internal process for reserves 

estimation including the work performed by an external 
specialist. We assessed the objectivity and competence of 
both internal and external specialists. We also discussed 
and challenged the movements in reserves based on other 
information we became aware of during the performance 
of our audit. We confirmed that the reserves information 
has been consistently reflected in impairment testing, 
DD&A, decommissioning and the assessment of going 
concern.

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

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS84

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS  
OF ENQUEST PLC (REGISTERED NUMBER: 07140891) CONTINUED

Matters on which we are required to report by exception
We have nothing to report in respect of the following: 
Under the ISAs (UK and Ireland), we are required to report to 
you if, in our opinion, information in the Annual Report is: 
`` materially inconsistent with the information in the audited 

Other matters
We have reported separately on the parent Company financial 
statements of EnQuest PLC for the year ended 31 December 
2013 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
25 March 2014

financial statements; or 

`` apparently materially incorrect based on, or materially 

inconsistent with, our knowledge of the Group acquired in 
the course of performing our audit; or 

`` otherwise misleading.

In particular, we are required to consider whether we have 
identified any inconsistencies between our knowledge 
acquired during the audit and the Directors’ statement  
that they consider the Annual Report is fair, balanced and 
understandable and whether the Annual Report appropriately 
discloses those matters that we communicated to the Audit 
Committee which we consider should have been disclosed. 

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 80, in relation  

to going concern; and

`` the part of the Corporate Governance Statement relating 
to the Company’s compliance with the nine provisions  
of the UK Corporate Governance Code specified for  
our review.

 EnQuest PLC Annual Report and Accounts 201385

GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2013

Revenue
Cost of sales

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

equipment

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: may be reclassified 

subsequently to profit or loss  
(net of tax)

Available for sale financial assets

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

Earnings per share
Basic 
Diluted

Notes

5(a)
5(b)

5(c)
4
4

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

6
6

7

21
14

8

2013

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

–
(8,509)

(8,509)
–
(312)
–

–
–
–
–

(8,821)
–
–

(8,821)
5,276

Business 
performance 
US$’000

961,199
(532,259)

 428,940
(8,641)
–
–

–
(25,024)
–
(20,452)

374,823
(46,554)
11,487

339,756
(146,607)

Reported 
in year 
US$’000

Business 
performance 
US$’000

961,199
(540,768)

420,431
(8,641)
(312)
–

–
(25,024)
–
(20,452)

366,002
(46,554)
11,487

330,935
(141,331)

889,510
(448,186)

441,324
(23,157)
–
–

–
(6,650)
2,000
(8,445)

405,072
(21,211)
2,161

386,022
(126,357)

2012

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

–
(10,251)

(10,251)
–
(4,417)
(143,882)

175,929
–
–
–

17,379
–
–

17,379
85,174

Reported 
in year 
US$’000

889,510
(458,437)

431,073
(23,157)
(4,417)
(143,882)

175,929
(6,650)
2,000
(8,445)

422,451
(21,211)
2,161

403,401
(41,183)

193,149

(3,545)

189,604

259,665

102,553

362,218

46
398

190,048

US$
0.244
0.238

US$
0.331
0.326

2,554
–

364,772

US$
0.462
0.454

US$
0.248
0.243

The attached notes 1 to 29 form part of these Group financial statements.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS86

GROUP BALANCE SHEET
AT 31 DECEMBER 2013

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

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

TOTAL ASSETS

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

TOTAL EQUITY

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

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

TOTAL LIABILITIES

TOTAL EQUITY AND LIABILITIES

Notes

2013 
US$’000

2012 
US$’000

10
11
12
14
7
21

15
16

17
21

18

20
20
25
23
21
7

20
24
25
21

2,871,229
107,760
130,874
2,403
14,731
21,928

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

3,148,925

2,066,764

46,814
267,180
6,275
72,809
8,455

401,533

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

478,024

3,550,458

2,544,788

113,433
662,855
–
398
(10,280)
718,303

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

1,484,709

1,293,869

199,396
254,500
72
308,426
839
760,993

1,524,226

4,291
363,310
35
169,891
3,996

541,523

34,600
–
107
232,952
–
632,230

899,889

–
329,666
34
17,570
3,760

351,030

2,065,749

1,250,919

3,550,458

2,544,788

The attached notes 1 to 29 form part of these Group financial statements. 

The financial statements on pages 85 to 121 were approved by the Board of Directors on 25 March 2014 and signed on its 
behalf by: 

Jonathan Swinney
Chief Financial Officer

 EnQuest PLC Annual Report and Accounts 201387

GROUP STATEMENT OF CHANGES IN EQUITY
AT 31 DECEMBER 2013

At 1 January 2012
Profit for the year
Other comprehensive income

Share capital
US$’000

Merger reserve 
US$’000

113,433
–
–

662,855
–
–

Total comprehensive income for the year
Share-based payment charge
Shares purchased on behalf of Employee 

Benefit Trust

–
–

–

–
–

–

At 31 December 2012

113,433

662,855

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

–
–

–
–

–

–
–

–
–

–

At 31 December 2013

113,433

662,855

Cash flow 
hedge reserve 
US$’000

Available-for-
sale reserve 
US$’000

(2,600)
–
2,554

2,554
–

–

(46)

–
46

46
–

–

–

–
–
–

–
–

–

–

–
398

398
–

–

398

Share-based 
payments 
reserve 
US$’000

(5,961)
–
–

–
5,163

Retained 
earnings 
US$’000

166,481
362,218
–

362,218
–

Total  
US$’000

934,208
362,218
2,554

364,772
5,163

(10,274)

–

(10,274)

(11,072)

528,699

1,293,869

–
–

–
8,193

(7,401)

189,604
–

189,604
–

189,604
444

190,048
8,193

–

(7,401)

(10,280)

718,303

1,484,709

The attached notes 1 to 29 form part of these Group financial statements. 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS88

GROUP STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2013

CASH FLOW FROM OPERATING ACTIVITIES
Profit before tax
Depreciation
Depletion
Exploration costs impaired and written off
Impairment of oil and gas assets
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 in inventories
(Decrease)/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
Interest received

Net cash flows used in investing activities

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

Net cash flows from financing activities

NET DECREASE 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 29 form part of these Group financial statements. 

Notes

2013 
US$’000

2012 
US$’000

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

330,935
6,914
225,654
1,966
–
–
312
8,193
12,588
20,452
22,479

629,493
(30,828)
 (30,849)
(5,126)

562,690
–
(11,278)

551,412

(950,326)
(36,593)
2,648
583

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)

579,504

(838,399)
(128,403)
124,587
787

(983,688)

(841,428)

182,731
246,345
(7,401)
(35)
(9,025)
(35,712)

376,903

(55,373)
3,660
124,522

34,692
–
(10,274)
(89)
(632)
(14,065)

9,632

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

72,809

124,522

 EnQuest PLC Annual Report and Accounts 201389

NOTES TO THE GROUP FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013

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 2012 the Group acquired interests 
in an exploration licence in Malaysia, pre-qualified as an 
operator in the Norwegian North Sea and during December 
2013 completed the acquisition of 50% contractor interest in 
an Egyptian field.

The Group’s financial statements for the year ended 
31 December 2013 were authorised for issue in accordance 
with a resolution of the Board of Directors on 25 March 2014.

A listing of the Group companies is contained in note 29 
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 2013 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 2013.

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 
80 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 32.

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 2013. The principal 
effects of the adoption of these new and amended standards 
and interpretations are discussed below:

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. As a result of the guidance in 
IFRS 13, the Group re-assessed its policies for measuring fair 
values, in particular, its valuation inputs such as non-
performance risk for fair value measurement of liabilities. 
IFRS 13 also requires additional disclosures.

Application of IFRS 13 has not materially impacted the fair 
value measurements of the Group. Additional disclosures 
where required, are provided in the individual notes relating 
to the assets and liabilities whose fair values were 
determined. Fair value hierarchy is provided in note 22.

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 amendments affect presentation only 
and have no impact on the Group’s financial position  
or performance. 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS90

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

2. Summary of significant accounting policies continued
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. The 
amendments affect presentation only and have no impact on 
the Group’s financial position or performance. 

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. The amendment has no impact on the Group’s 
financial position or performance.

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.

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 and financial liabilities as 
defined in IAS 39. The Standard is effective for annual 
periods beginning on or after 1 January 2015. In subsequent 
phases, the IASB is addressing hedge accounting and 
impairment of financial assets. 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. 

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.

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:

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 the policy see Impairment of assets (excluding 
goodwill) and refer to the further economic assumptions 
below within Estimates in impairment of goodwill.

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 uses forward curve prices 
for the first three years before reverting to the Group’s long 
term pricing assumption and discounts using a rate derived 
from the Group’s post-tax weighted average cost of capital. 

 EnQuest PLC Annual Report and Accounts 201391

2. Summary of significant accounting policies continued 
In calculating the asset fair values the Group has applied an oil 
price assumption of US$108.42 per barrel in 2014, US$102.30 
per barrel in 2015, US$96.60 per barrel in 2016, thereafter 
US$90 inflated at 2% per annum from 2014 (2012: 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) 
and a post tax discount rate of 8.36% (2012: 8.36%).

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 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 forward 
curve followed by a long term real price assumption of US$90 
per barrel escalated for inflation. This oil price assumption 
represents management’s view of the long term oil price.

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% (2012: 2%) and an annual 
discount rate of 5% (2012: 5%).

Carry provision
Part of the consideration for the acquisition of the interest in 
the Kraken field in 2012 was through development carries. 
These were split into two parts, a firm carry where the amount 
was agreed and a contingent carry where the amounts are 
subject to a reserves determination. In assessing the amounts 
to be provided, management has made assumptions about 
the most likely amount outcome of the reserves 
determination. Future developments may require further 
revisions to the estimate. These would be recorded as a 
financial liability for any outstanding balance under the firm 
carry and as a provision for the contingent carry.

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. As there were no 
indications of impairment in the current year as allowed 
under IAS 36 the Group has used the most recent detailed 
calculations of the recoverable amount which was performed 
in 2012, for calculating the present value in use of the CGU. 
The 2012 calculation used forward curve prices for the first 
three years before reverting to the Group’s long term pricing 
assumption and discounted at a pre-tax rate of 20.4%.

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.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS92

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

2. Summary of significant accounting policies continued 
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 12 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
Long leasehold land

25% – 100%
period of lease

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

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

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. 

Farm outs – in the exploration and evaluation phase
The Group does not record any expenditure made by the 
farmee on its account. It also does not recognise any gain or 
loss on its exploration and evaluation farm out arrangements 
but redesignates any costs previously capitalised in relation 
to the whole interest as relating to the partial interest 
retained. Any cash consideration received directly from the 
farmee is credited against costs previously capitalised in 
relation to the whole interest with any excess accounted for 
by the farmor as a gain on disposal.

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 

No depreciation is charged on assets under construction. 

the farmee;

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.

–  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;

 EnQuest PLC Annual Report and Accounts 201393

2. Summary of significant accounting policies continued
–  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.

Carry arrangements
Where amounts are paid on behalf of a carried party these are 
capitalised. Where there is an obligation to make payments  
on behalf of a carried party and the timing and amount are 
uncertain, a provision is recognised. Where the payment is  
a fixed monetary amount, a financial liability is recognised.

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.

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.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS94

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

2. Summary of significant accounting policies continued 
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. 

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.

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 but through other comprehensive income. Any increase 
in fair value subsequent to an impairment loss is recognised 
in other comprehensive income.

 EnQuest PLC Annual Report and Accounts 201395

2. Summary of significant accounting policies continued
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 an average cost 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.

Available-for-sale reserve
Gains and losses (with the exception of impairment losses) 
arising from changes in available-for-sale financial 
investments are recognised in the available-for-sale reserve 
until such time that the investment is disposed of, where it is 
reclassified to profit or loss.

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.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS96

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

2. Summary of significant accounting policies continued
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.

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.

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. Transaction 
costs are amortised over the life of the facility.

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. 

Bond
Bonds are measured on an amortised cost basis.

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 if 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.

 EnQuest PLC Annual Report and Accounts 201397

2. Summary of significant accounting policies continued
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.

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 condition, 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.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS98

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

2. Summary of significant accounting policies continued
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. 

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. 

Field allowances
The UK taxation regime provides for a reduction in ring fence supplemental corporation tax where investments in new or 
existing UK assets qualify for a relief known as field allowances. Eligible assets qualify for field allowances depending on the 
size, type or nature of the field and are granted when DECC approves a field development plan or addendum to a field 
development plan. Field allowances are only triggered when production from the field commences. The Group is eligible for 
a number of field allowances which will materially reduce the level of future supplemental corporation taxation. Field 
allowances are recognised as a reduction in the charge to taxation in the years claimed.

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 two customers; Shell International Trading and Shipping Company 
Limited is the major customer and revenue receivable amounted to US$901,936,000 or 95% of total revenue (excluding oil 
hedge gains and losses) in the year ended 31 December 2013 (2012: US$879,307,000 or 99% of total revenue).

All non-current assets of the Group are located in the United Kingdom except for US$13,414,000 (2012: US$7,136,000) located 
in Malaysia and US$5,526,000 (2012: nil) located in Egypt. 

4. Exceptional items and depletion of fair value uplift

Recognised in arriving at profit/(loss) from operations before tax and finance income/(costs):
Impairment of available for sale investments (note 14)
Impairment of oil and gas assets
Gain on disposal of property, plant and equipment
Depletion of fair value uplift

Tax

2013
US$’000

2012 
US$’000

312
–
–
8,509

8,821
(5,276)

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

(17,379)
(85,174)

3,545

(102,553)

 EnQuest PLC Annual Report and Accounts 201399

4. Exceptional items and depletion of fair value uplift continued
Impairment of available-for-sale investments
As consideration for the disposal of the held for sale Petisovci asset, the Group received an investment in Ascent.  
The accounting valuation of this shareholding at 30 June 2013 resulted in a non-cash impairment of US$312,000 (2012: 
US$4,417,000). During the second half of the year the share price increased resulting in a reversal of part of the impairment 
loss. This is recognised in the available-for-sale reserve of US$398,000.

Impairment of oil and gas assets
As part of the annual impairment review process, no impairment triggers were highlighted therefore no impairment was 
required for the year ended 31 December 2013. In the year ended 31 December 2012 the Heather and Broom hub was 
impaired by US$143,882,000 (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 UK 
Limited (KUFPEC) with an effective date of 1 January 2012. The gain on disposal represents the difference between the total 
consideration received and the derecognition of 35% of the costs of development at the date of the agreement.

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$8,509,000 (2012: US$10,251,000) is included within cost of sales in the statement of comprehensive income.

Tax
In addition to the tax impact of the exceptional items, in the prior year 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 in the year ended 31 December 2012 by US$14,279,000, of which US$10,389,000 was 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 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

Year ended
31 December 
2013
US$’000

Year ended
31 December 
2012
US$’000

953,752
–
–
7,445
2

961,199

879,307
53
(137)
10,189
98

889,510

Year ended
31 December
2013
US$’000

Year ended
31 December
2012
US$’000

240,439
73,452
2,649
(1,426)
225,654

540,768

228,670
40,806
(24,360)
(3,459)
216,780

458,437

Year ended
31 December
2013
US$’000

Year ended
31 December
2012
US$’000

704
1,262
6,675

8,641

6,514
6,583
10,060

23,157

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS100

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

5. Revenue and expenses continued
(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

(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
2013
US$’000

108,226
6,914
21,450
(111,566)

25,024

Year ended
31 December
2012
US$’000

76,861
1,483
17,570
(89,264)

6,650

Year ended
31 December
2013
US$’000

Year ended
31 December
2012
US$’000

–

2,000

Year ended
31 December
2013
US$’000

Year ended
31 December
2012
US$’000

20,452

8,445

Year ended
31 December
2013
US$’000

Year ended
31 December
2012
US$’000

44,790
5,128
3,267
8,193
3,645

65,023
43,203

108,226

30,069
4,054
3,155
5,163
2,682

45,123
31,738

76,861

The average number of persons employed by the Group during the year was 245 (2012: 173).

Details of remuneration, pension entitlement and incentive arrangements for each Director are set out in the Remuneration 
Report on pages 56 to 74.

(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 (interim review)
Tax advisory services1
Other assurance services
Corporate finance services

Year ended
31 December
2013
US$’000

Year ended
31 December
2012
US$’000

336

272
73
318
43
–

706

1,042

188

207
67
745
5
148

1,172

1,360

1.  Costs of US$345,600 relating to tax advice on asset and corporate acquisitions were capitalised in the year ended 31 December 2012. No costs were capitalised in the current year.

 EnQuest PLC Annual Report and Accounts 2013101

6. Finance costs/income

Finance costs:
Loan interest payable
Bond interest payable
Unwinding of discount on decommissioning provisions (note 23)
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 (note 21)
Other financial income

Year ended
31 December
2013
US$’000

Year ended
31 December
2012
US$’000

2,954
10,360
12,588
–
7,724
2
14,167

47,795
(1,241)

46,554

429
9,457
1,447
154

668
–
10,148
335
2,147
3
8,307

21,608
(397)

21,211

686
871
479
125

11,487

2,161

Fair value gains and losses on financial instruments at fair value through profit or loss relate to foreign exchange forward and 
commodity forward contracts that did not qualify for hedge accounting.

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
Overseas income tax
Current income tax charge
Adjustments in respect of current income tax of previous years

Total current 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
Overseas income tax
Relating to origination and reversal of temporary differences

Total deferred income tax

Income tax expense reported in statement of comprehensive income

Year ended
31 December
2013
US$’000

Year ended
31 December
2012
US$’000

14,462
(2,075)

(3,379)
703

9,711

133,314
409
(2,112)

9

131,620

141,331

6,867
(362)

(2,007)
(842)

3,656

50,724
10,785
(23,593)

(389)

37,527

41,183

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS102

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

7. Income tax continued
(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% (2012: 62%)
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 decrease
North Sea oil and gas decommissioning rate restriction
Adjustments in respect of prior years
Overseas tax rate differences
Other differences

At the effective income tax rate of 43% (2012: 10%)

(c) Deferred income tax
Deferred income tax relates to the following:

Deferred tax liability
Accelerated capital allowances
Deferred PRT

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

Reconciliation of deferred tax liabilities, net

At 1 January 2013
Tax expense during the period recognised in profit or loss
Tax expense during the period recognised in OCI
Deferred taxes acquired

At 31 December 2013

Year ended
31 December
2013
US$’000

Year ended
31 December
2012
US$’000

330,935

403,401

205,179
15,250
508
(38,097)
–
21,948
(55,034)
(5,184)
409
2,824
(3,482)
(2,171)
(819)

141,331

250,109
6,552
3,310
(76,951)
(109,076)
19,081
(29,894)
(10,837)
396
14,279
(24,797)
(464)
(525)

41,183

Group balance sheet

Group profit and loss account

2013 
US$’000

2012 
US$’000

2013 
US$’000

2012 
US$’000

1,456,498
151,825

1,050,189
99,955

387,107
47,910

274,703
53,610

1,608,323

1,150,144

(647,228)
(114,113)
(100,720)

(359,406)
(116,476)
(65,175)

(287,822)
16,057
(31,632)

(253,847)
(4,108)
(32,831)

131,620

37,527

(862,061)

(541,057)

746,262

609,087

(14,731)
760,993

746,262

(23,143)
632,230

609,087

2013 
US$’000

(609,087)
 (131,620)
 (75)
 (5,480)

2012 
US$’000

(577,393)
(37,527)
(4,167)
10,000

 (746,262)

(609,087)

 EnQuest PLC Annual Report and Accounts 2013103

7. Income tax continued
(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$2,481,000 (2012: US$2,662,000) 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 has unused overseas tax losses in Canada of approximately CAD$14,880,000 (2012: CAD$17,106,000) and in 
Holland of €1,180,000 (2012: €1,070,000) 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 2014. Tax losses in Holland can 
be carried forward for a period of up to nine years and are likely to expire in 2014.

(e) Change in legislation
Finance Act 2013 enacted a change in the mainstream corporation tax rate, reducing it from 23% to 21% with effect from 1 
April 2014 and 20% with effect from 1 April 2015. The impact of the change in tax rate was an increase in the tax charge of 
US$409,000.

Finance Act 2012 enacted a restriction on costs incurred in respect of decommissioning to 50%, compared to the North Sea 
ring fence rate of 62% on or after 21 March 2012. The impact of the decommissioning relief restriction in 2012 was an increase 
in the tax charge of US$14,279,000, of which US$10,389,000 related to the revaluation 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 was an increase in the 
tax charge of US$396,000.

(f) Factors affecting future tax charges
As at 31 December 2013, the Group is eligible for Field Allowances in the UK on Conrie, Alma, Galia, Thistle, Deveron, Kraken 
and Kraken North which will reduce the Ring Fence profits chargeable to Supplementary Charge. Field Allowances are only 
granted when DECC approves a field development plan and are triggered when production commences.

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)

Diluted (excluding exceptional items)

Profit after tax

Weighted average  
number of shares

Earnings per share

Year ended 31 December

Year ended 31 December

Year ended 31 December

2013 
US$’000

2012 
US$’000

 189,604

 362,218

–

189,604

193,149

193,149

–

362,218

259,665

259,665

2013 
Million

778.2

18.1

796.3

778.2

796.3

2012 
Million

784.1

13.3

797.4

784.1

797.4

2013 
US$

0.244

2012 
US$

0.462

(0.006)

(0.008)

0.238

0.248

0.243

0.454

0.331

0.326

9. Dividends paid and proposed
The Company paid no dividends during the year ended 31 December 2013 (2012: nil). At 31 December 2013 there are no 
proposed dividends (2012: nil).

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS104

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

10. Property, plant and equipment

Cost:
At 1 January 2012
Additions
Farm in to West Don
Farm out
Cost carry
Reclassified from intangible assets (note 12)
Change in decommissioning provision

At 31 December 2012
Additions
Acquired
Cost carry
Reclassified to intangible assets (note 12)
Change in decommissioning provision

At 31 December 2013

Depletion and depreciation:
At 1 January 2012
Impairment charge for the year
Charge for the year

At 31 December 2012
Charge for the year

At 31 December 2013

Net carrying amount:
At 31 December 2013

At 31 December 2012

At 1 January 2012

Land and 
buildings
US$’000

Oil and gas 
assets
US$’000

Office 
furniture and 
equipment
US$’000

–
–
–
–
–
–
–

–
17,272
–
–
–
–

1,982,250
829,463
29,752
(143,054)
86,698
31,221
62,239

2,878,569
840,665
52,541
415,300
(448)
(44,615)

12,490
8,859
–
–
–
–
–

21,349
6,491
–
–
–
–

Total
US$’000 

1,994,740
838,322
29,752
(143,054)
86,698
31,221
62,239

2,899,918
864,428
52,541
415,300
(448)
(44,615)

17,272

4,142,012

27,840

4,187,124

–
–
–

–
–

–

715,222
143,882
216,780

1,075,884
225,654

5,960
–
1,483

7,443
6,914

721,182
143,882
218,263

1,083,327
232,568

1,301,538

14,357

1,315,895

17,272

2,840,474

13,483

2,871,229

–

–

1,802,685

1,267,028

13,906

1,816,591

6,530

1,273,558

During the year ended 31 December 2013, the Group acquired a non-operated interest in the producing oil field Alba, in the  
UK Continental Shelf, which has been accounted for as an asset acquisition. US$52,541,000 is included within acquired costs.

In November 2013, the Kraken field received Field Development Plan (FDP) approval which triggered the deferred 
consideration of US$45,000,000 due to Canamens Limited. In addition, US$5,000,000 in respect of the Group’s interest in 
Kraken and a further £7,000,000 (US$11,592,000) in respect of back-in payments associated with the sole risk drilling 
undertaken by the previous operator of the Kraken appraisal well and exploration sidetrack became payable. These amounts 
are included within ‘Additions’.

The consideration payable to Nautical Petroleum plc and First Oil plc for 40% of the Kraken field in 2012 were development 
carries, split between a US$240,000,000 ‘firm’ carry (payable on FDP approval) and a ‘contingent’ carry (payable up to 
US$144,000,000 subject to reserves determination). US$320,000,000 has been included within ‘Cost carry’ above. The 
remaining US$164,176,000 balance of the ‘firm’ carry and US$80,000,000 of the ‘contingent’ carry have been provided within 
financial liabilities (note 21) and provisions (note 23) respectively as at 31 December 2013.

Under the 2012 farm out agreement with KUFPEC for a 35% share of the Alma/Galia development, KUFPEC were required  
to carry the Company for US$182,000,000. This amount was initially recognised as an ‘other receivable’ (note 21) and then 
transferred to PP&E as the carry was exhausted. During the year KUFPEC carried the Company for US$98,300,000 (2012: 
US$86,698,000) under this carry arrangement. The cost of the 35% share of assets disposed in 2012 was US$143,054,000.

There has been no impairment in the year ended 31 December 2013. In the prior year the Heather and Broom hub was 
impaired by US$143,882,000 following a delay in phasing of production to allow drilling of the West Fault Block well at Thistle 
in 2013 and an increase in capital expenditure associated with the field life extension programme. Refer to note 11 in respect 
of key assumptions used in value in use calculations.

At 31 December 2012, due to the recognition of proven and probable reserves for the Kraken field, US$61,994,000 of costs  
in relation to Kraken were reclassed from intangible to PP&E. Also during 2012, 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.

 EnQuest PLC Annual Report and Accounts 2013105

10. Property, plant and equipment continued
The net book value at 31 December 2013 includes US$1,581,847,000 (2012: US$599,620,000) of pre-development assets  
and development assets under construction which are not being depreciated. Also US$10,142,000 of land and US$7,130,000 
(2012: nil) of costs relating to the construction of the Group’s new head office have not been depreciated.

The amount of borrowing costs capitalised during the year ended 31 December 2013 was US$1,241,000 and relate to the 
Alma/Galia and Kraken development projects as well as the construction of the new office building (2012: US$397,000). The 
weighted average rate used to determine the amount of borrowing costs eligible for capitalisation is 0.95% (2012: 0.84%).

The net book value of property, plant and equipment held under finance leases and hire purchase contracts at 31 December 
2013 was US$141,000 (2012: US$141,000) of oil and gas assets. The net book value of US$10,695,000 (2012: nil) for land is held 
under a long lease. 

11. Goodwill
A summary of goodwill is presented below:

At 1 January and 31 December

2013
US$’000

2012
US$’000

107,760

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 assessing whether goodwill has been impaired, the carrying amount of the CGU, including goodwill, is compared with its 
recoverable amount. In certain circumstances IAS 36 allows the use of the most recent detailed calculations of the 
recoverable amount performed in an earlier period as the basis for the current year’s goodwill impairment test. The most 
recent detailed calculation of the recoverable amount was performed in 2012 and this has been used as the basis for the tests 
in the current year as the criteria of IAS 36 has been met. 

The recoverable amount of the CGU in 2012 was 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. 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; and
`` 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 in the 2012 test, management 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. 

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 in 2012 was 20.4%.

Sensitivity to changes in assumptions
The key assumptions to which the calculation of the value in use is most sensitive are oil price and production volumes.  
No sensitivities need to be included as there is not a reasonably possible change that could result in an impairment. 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS 
106

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

12. Intangible oil and gas assets

Cost
At 1 January 2012
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
Additions
Farm out
Acquisition of interests in licences
Write-off of relinquished licences previously impaired
Unsuccessful exploration expenditure written off
Change in decommissioning provision
Reclassified from property, plant and equipment (note 10)

At 31 December 2013

Provision for impairment
At 1 January 2012
Impairment charge for the year
Write-off of relinquished licences previously impaired

At 31 December 2012
Impairment charge for the year
Write-off of relinquished licences previously impaired

At 31 December 2013

Net carrying amount:
At 31 December 2013

At 31 December 2012

At 1 January 2012

US$’000

125,704
77,120
39,103
(4,754)
(6,514)
(31,221)
1,254

200,692
30,852
(2,648)
6,837
(6,553)
(704)
(155)
448

228,769

(101,357)
(6,583)
4,754

(103,186)
(1,262)
6,553

(97,895)

130,874

97,506

24,347

Included within ‘Acquisition of interests in licences’ in 2013 is US$1,310,000 relating to a farm-in to a 50% non-operated 
interest in exploration licence P2006 Block 21/6b (Avalon) completed during the year. Also included is the Group’s 50% 
interest in the North West October block in Egypt, acquired in December from Arabian Oil Company Limited (AOC), which  
is refundable by AOC in the event that first oil is not achieved.

Included within ‘Acquisition of interests in licences’ in 2012 was the US$36,103,000 initial payment made for the acquisition  
of 20% of Kraken from Canamens Limited. On 31 December 2012, the costs associated with Kraken were reclassified to PP&E 
due to the recognition of proven and probable reserves. In addition, costs of US$3,000,000 to acquire an interest in two 
exploration licences in Malaysia are included within ‘Acquisition of interests in licences’. 

In August 2013, an agreement was completed whereby KUFPEC and Spike Exploration UK Ltd (‘Spike’) are to take 25% and 
30% working interests respectively in the Cairngorm discovery (blocks 16/2b and 16/3d). KUFPEC and Spike have agreed to 
pay a premium by way of a promoted carry on the Cairngorm appraisal well and to pay their equity share of back costs of 
US$2,648,000 which are disclosed within ‘Farm out’ costs. 

During the year ended 31 December 2013, US$6,553,000 of costs relating to relinquished licences previously impaired were 
written off (2012: US$4,754,000).

The impairment charge for the year ended 31 December 2013 includes costs in relation to the Peik licence which is in the 
process of being relinquished. During the year ended 31 December 2012 the impairment charge includes the costs of the 
Tryfan exploration well which proved to be uncommercial.

 EnQuest PLC Annual Report and Accounts 2013107

13. Assets held for sale

At 1 January 2012
Reclassified to intangible fixed assets (note 12)

At 31 December 2013 and 31 December 2012

US$’000

1,254
(1,254)

–

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 were reclassified to intangible fixed assets.

14. Investments

Cost
At 1 January 2012, 31 December 2012 and 31 December 2013

Provision for impairment
At 1 January 2012
Impairment charge for the year

At 31 December 2012
Impairment charge for the year
Reversal of impairment loss

At 31 December 2013

Net carrying amount:
At 31 December 2013

At 31 December 2012

At 1 January 2012

US$’000

19,231

(12,497)
(4,417)

(16,914)
(312)
398

(16,828)

2,403

2,317

6,734

The investment relates to 160,903,958 new ordinary shares in Ascent acquired in 2011. The accounting valuation of the Group’s 
shareholding (based on the quoted share price of Ascent) resulted in an additional non-cash impairment of US$312,000 in the six 
months to 30 June 2013 (year ended 31 December 2012: US$4,417,000). Since June 2013, the quoted share price has increased, 
resulting in a reversal of part of the impairment loss of US$398,000. This has been recognised in the available-for-sale reserve. 

15. Inventories

Crude oil
Diesel
Materials

16. Trade and other receivables

Trade receivables
Joint venture receivables
Underlift position
VAT receivable
Other receivables

Prepayments and accrued income

2013 
US$’000

16,273
1,179
29,362

46,814

2013 
US$’000

93,252
116,341
17,248
16,751
15,055

258,647
8,533

267,180

2012 
US$’000

15,301
–
–

15,301

2012 
US$’000

94,818
100,918
9,242
14,751
652

220,381
19,341

239,722

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 2013 no impairment provision for 
trade receivables was necessary (2012: nil). 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS108

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

16. Trade and other receivables continued
Joint venture receivables relate to billings to joint venture partners and were not impaired. At 31 December 2012 the amount 
included as due from KUFPEC in respect of the carry was US$53,261,000.

As at 31 December 2013 and 31 December 2012 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 largely due to their short-term maturities.

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 
due to their short-term maturities. Included within the cash balance at 31 December 2013 is restricted cash of nil (2012: 
US$14,880,000) relating to cash held under Performance Guarantee Agreements with suppliers.

18. Share capital
The share capital of the Company as at 31 December was as follows:

Authorised, issued and fully paid 802,660,757 (2012: 802,660,757) Ordinary shares of £0.05 each
Share premium

2013
US$’000

61,249
52,184

2012
US$’000

61,249
52,184

113,433

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.

There were no new issues of shares during 2013 or 2012.

At 31 December 2013 there were 25,510,520 shares held by the Employee Benefit Trust (2012: 22,966,471), the increase is 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. A Sharesave Plan was approved in 
2012. The grant values for all schemes are based on the average share price from the three days preceding the 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 2013, 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:

2013 awards
2012 awards
2011 awards
2010 awards

Weighted 
average fair 
value per 
share

127p
124p
137p
101p

Trued up 
vesting rate

99%
95%
78%
58%

 EnQuest PLC Annual Report and Accounts 2013109

19. Share-based payment plans continued
The following shows the movement in the number of share awards held under the DBSP scheme outstanding:

Outstanding at 1 January 
Granted during the year
Exercised during the year
Forfeited during the year

Outstanding at 31 December

1. 

Includes invested and matching shares.

2013
Number1

1,018,357
848,922
(359,077)
(24,201)

2012
Number1

526,080
783,410
(230,743)
(60,390)

1,484,001

1,018,357

There were no share awards exercisable at either 31 December 2013 or 2012.

The weighted average contractual life for the share awards outstanding as at 31 December 2013 was 1.0 years (2012: 1.1 years).

The charge recognised in the 2013 statement of comprehensive income in relation to matching share awards amounted to 
US$1,058,000 (2012: US$701,000).

Restricted Share Plan (RSP)
Under the Restricted Share Plan scheme, employees are granted shares in EnQuest over a discretionary vesting period, at the 
direction of the Remuneration Committee of the Board of Directors of EnQuest, which may or may not be subject to the 
satisfaction of performance conditions. Awards made in 2010, 2011, 2012 and 2013 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:

2013 awards
2012 awards
2011 awards
2010 awards

Weighted 
average fair 
value per 
share

127p
122p
119p
103p

Trued up 
vesting rate

98%
85%
92%
92%

The following table shows the movement in the number of share awards held under the RSP scheme outstanding:

Outstanding at 1 January
Granted during the year
Exercised during the year
Forfeited during the year

Outstanding at 31 December

Exercisable at 31 December

2013 
Number

8,158,207
1,567,800
(1,055,827)
(290,462)

2012 
Number

8,305,132
686,000
(738,753)
(94,172)

8,379,718

8,158,207

2,191,424

1,312,156

The weighted average contractual life for the share awards outstanding as at 31 December 2013 was 1.0 years (2012: 1.2 years).

The charge recognised in the year ended 31 December 2013 amounted to US$3,007,000 (2012: US$2,572,000). 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS110

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

19. Share-based payment plans continued
Performance Share Plan (PSP)
Under the Performance Share Plan, the shares vest subject to performance conditions. The PSP share awards granted in 2011, 
2012 and 2013 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 third 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:

2013 awards
2012 awards
2011 awards

Weighted 
average fair 
value per 
share

127p
124p
137p

Trued up 
vesting rate

97%
94%
96%

The following table shows the movement in the number of share awards held under the PSP scheme outstanding:

Outstanding at 1 January
Granted during the year
Forfeited during the year

Outstanding at 31 December

2013 
Number

4,602,639
3,936,000
(239,613)

2012 
Number

1,668,522
3,021,117
(87,000)

8,299,026

4,602,639

There were no share awards exercisable at either 31 December 2013 or 2012.

The weighted average contractual life for the share awards outstanding as at 31 December 2013 was 1.5 years (2012: 1.9 years).

The charge recognised in the year ended 31 December 2013 amounted to US$4,066,000 (2012: US$1,802,000). 

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 three or five 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:

2013 awards
2012 awards

Weighted 
average fair 
value per 
share

20p
20p

Trued up 
vesting rate

100%
83%

 EnQuest PLC Annual Report and Accounts 2013111

19. Share-based payment plans continued
The following shows the movement in the number of share options held under the Sharesave plan outstanding:

Outstanding at 1 January
Granted during the year
Forfeited during the year

Outstanding at 31 December

2013 
Number

697,380
464,460 
(75,720)

1,086,120

2012 
Number

–
746,880
(49,500)

697,380

There were no share options exercisable at either 31 December 2013 or 2012.

The weighted average contractual life for the share options outstanding as at 31 December 2013 was 2.5 years (2012: 2.9 years).

The charge recognised in the 2013 statement of comprehensive income amounted to US$62,000 (2012: US$88,000).

The Company has recognised a total charge of US$8,193,000 (2012: US$5,163,000) 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 2012 the Group had a 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 
comprising a committed amount of US$525,000,000 with an additional US$375,000,000 available primarily for investment 
opportunities with the lenders’ consent. 

On 30 October 2013 the Group established a new six year US$1,700,000,000 multi-currency credit facility, comprising of a 
committed amount of US$1,200,000,000 with a further US$500,000,000 available through an accordion structure.

Interest on the revolving credit facility is payable at US LIBOR plus a margin of 2.50% to 3.75%, dependent on specified 
covenant ratios. A facility non-utilisation commitment fee is payable at 40% of the interest margin. 

At 31 December 2013, US$225,809,000 was drawn down under the Group’s facility agreement (2012: US$34,600,000) and LoC 
utilisation was US$181,543,000 (2012: US$123,750,000). Unamortised facility fees of US$26,413,000 have been netted off 
against the draw downs in the balance sheet.

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.

Bond
In February 2013, the Group issued a 5.5% Sterling Retail Bond through the Order book for Retail Bonds (ORB) of the London 
Stock Exchange (ORB). The original bond raised £145,000,000 with an additional £10,245,000 issued in November 2013.

The bond pays a coupon of 5.5% payable bi-annually in February and August and matures in 2022.

The bond had a fair value of US$263,498,446 but is carried at its amortised cost of US$258,791,000. The fair value has been 
determined by reference to the price available from the market on which the bond is traded.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS112

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

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

Financial instruments at fair value through profit or loss
Current assets
Derivatives not designated as hedges:
Commodity forward contracts
Forward foreign currency contracts

Non-current assets
Derivatives not designated as hedges:
Forward foreign currency contracts

Current liabilities
Derivatives not designated as hedges:
Commodity forward contracts
Forward foreign currency contracts

Non-current liabilities
Derivatives not designated as hedges:
Forward foreign currency 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

2013 
US$’000

2012 
US$’000

–

121

–
8,455

8,455

702

5,084
631

5,715

839

1,170
–

1,170

–

299
–

299

–

–

95,302

21,226

19,447

164,176

8,455
21,928

30,383

169,891
839

170,730

17,150

96,472
19,447

115,919

17,570
–

17,570

Commodity forward contracts
In August and September 2013, the Group entered into five options in order to hedge the exposure to changes in future cash 
flows from the sale of oil production for approximately 3,600,000 barrels of oil in 2014. These instruments were deemed to be 
ineffective for hedge accounting purposes and are therefore designated as ‘At fair value through profit and loss’ (FVTPL). 
These contracts had a fair value of US$5,084,000 (loss). Losses of US$5,084,000 were taken into profit and loss during the year 
and are included within other finance expenses.

In November 2012, the Group entered into three separate put and call options in order to hedge the exposure to 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. 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 nil (2012: US$871,000). The gains of US$871,000 at 
31 December 2012 were reversed during the current year and have been taken to the income statement where US$1,170,000  
is included within other finance costs and US$299,000 is included within other finance income. 

During 2013, additional put and call options hedging oil production for approxiamately 3,600,000 barrels of oil in 2013 were 
entered into but had expired by 31 December 2013. Therefore there is no fair value or profit and loss account impact during 
the year.

 EnQuest PLC Annual Report and Accounts 2013113

21. Other financial assets and financial liabilities continued
Forward foreign currency contracts
During the year ended 31 December 2013, the Group entered into various forward currency contracts, namely Sterling, Euro 
and Norwegian Krone. These contracts do not qualify for hedge accounting. At 31 December 2013 these had a net fair value of 
US$7,688,000 (asset). The gains of US$7,688,000 were recognised in profit and loss, US$9,158,000 shown within other finance 
income and US$1,470,000 shown within other finance expenses. These contracts are due to expire during 2014 and 2015.

Also during the year various forward foreign currency contracts, namely Sterling and Euro, were entered into. However, these 
had expired by 31 December 2013 and therefore have no fair value or impact on the income statement. 

At 31 December 2012 three foreign currency contracts were held with a net fair value of US$121,000 (liability); these had fully 
unwound by 31 December 2013. During 2013, the unrealised loss of US$46,000 net of deferred tax of US$75,000 was reversed 
through other comprehensive income. There was no impact in profit or loss during the year in respect of these contracts 
(2012: nil).

Other receivable
As part of the farm out to KUFPEC of 35% of the Alma/Galia development, KUFPEC agreed to 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, the fair value of which was US$19,300,000. Receivables were recognised for both of these at 31 December 2012. At 31 
December 2013, the carry element has fully unwound and during the year ended 31 December 2013, US$95,300,000 was 
capitalised within property, plant and equipment. The unwinding of discount on the other receivable of US$1,447,000 is 
included within finance income for the year ended 31 December 2013 (2012: US$479,000).

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. At 31 December 2012, as costs were expected to exceed the cap, a liability of US$17,150,000 was 
recognised. This was subsequently settled during the year ended 31 December 2013. 

The consideration for the acquisition of 40% of the Kraken field from Nautical and First Oil in 2012 was through development 
carries. These were split into a ‘firm’ carry and a ‘contingent’ carry dependent upon reserves determination. A financial 
liability is recognised at 31 December 2013 for the remainder of the ‘firm’ carry amounting to US$164,176,000. This is expected 
to expire at the end of 2014 or early 2015. The ‘contingent’ carry has been accounted for as a provision (note 23).

At 1 January 2012
Additions during the year
Unwinding of discount

At 31 December 2012
Additions during the year
Utilised during the year
Unwinding of discount

At 31 December 2013

Other 
liability 
US$’000

–
17,150
–

17,150
240,000
(92,974)
–

164,176

Other 
receivable 
US$’000

–
114,602
479

115,081
–
(95,302)
1,447

21,226

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS114

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

22. Fair value measurement
The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities:

Assets measured at fair value:
Derivative financial assets
Forward foreign currency contracts
Other financial assets
Available-for-sale financial investments
Quoted equity shares

Liabilities measured at fair value:
Derivative financial liabilities
Forward foreign currency contracts
Commodity forward contracts
Other liability
Liabilities for which fair values are disclosed  

(notes 20 and 25)

Interest bearing loans and borrowings
Obligations under finance leases
Sterling retail bond

Quoted prices 
in active markets 
(Level 1) 
US$’000

Total 
US$’000

Significant 
observable
inputs 
(Level 2) 
US$’000

Significant 
unobservable 
inputs 
(Level 3) 
US$’000

Date of valuation

31 December 2013

9,158

–

9,158

31 December 2013

2,404

2,404

–

31 December 2013
31 December 2013

1,470
5,084

31 December 2013
31 December 2013
31 December 2013

 199,396
107
263,498

–
–

–
–
–

1,470
5,084

199,396
107
263,498

–

–

–
–

 –
– 
–

There have been no transfers between Level 1 and Level 2 during the period.

The forward foreign currency and the commodity forward contracts were valued externally by the respective banks.

23. Provisions

At 1 January 2012
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
Additions during the year
Acquisition
Changes in estimates
Unwinding of discount
Utilisation

At 31 December 2013

Decomm issioning 
provision 
US$’000

Carry provision 
US$’000

181,237
37,609
14,569
(7,054)
10,061
10,148
(13,618)

232,952
3,941
27,341
(48,711)
12,588
315

–
–
–
–
–
–
–

–
80,000
–
–
–
–

Total 
US$’000

181,237
37,609
14,569
(7,054)
10,061
10,148
(13,618)

232,952
83,941
27,341
(48,711)
12,588
315

228,426

80,000

308,426

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 2032 assuming 
no further development of the Group’s assets. The liability is discounted at a rate of 5.0% (2012: 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.

 EnQuest PLC Annual Report and Accounts 2013115

23. Provisions continued
Carry provision
Consideration for the acquisition of 40% of the Kraken field from Nautical and First Oil in 2012 was through development 
carries. A provision has been recognised for the ‘contingent’ carry which is dependent on a reserves determination. The 
reserves determination would be triggered by the carried parties, based on drilling work, or if later the date on which the 
‘firm’ carry expires. The ‘contingent’ carry is pro-rated between 100 and 166 million barrels of proven and probable reserves. 
The FDP which was approved in November 2013 stated 137 million barrels and this would give rise to a carry of approximately 
US$80,000,000. The carry is estimated to be paid 12 months after the ‘firm’ carry has expired in late 2014 or early 2015.

24. Trade and other payables

Trade payables
Accrued expenses
Other payables

2013 
US$’000

131,526
231,295
489

363,310

2012 
US$’000

81,885
232,877
14,904

329,666

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 largely due to the short-term maturities.

25. 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 nine years. The future minimum rental commitments under these 
non-cancellable leases are as follows:

2013 
US$’000

2012 
US$’000

Not later than one year
After one year but not more than five years
Over five years

2,703
3,267
2,235

8,205

2,025
4,781
2,772

9,578

Lease payments recognised as an operating lease expense during the year amounted to US$2,676,000 (2012: US$2,324,819). 

Under the Dons Northern Producer Agreement a minimum notice period of 12 months exists whereby the Group expects the 
minimum commitment under this agreement to be approximately US$24,363,000 (2012: US$17,240,000).

(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

2013  
Minimum 
payments 
US$’000

2013  
Present value  
of payments 
US$’000

2012  
Minimum 
payments 
US$’000

2012  
Present value 
of payments 
US$’000

36
74

110
(3)

107

35
72

107
–

107

37
110

147
(6)

141

34
107

141
–

141

The leases are fixed rate leases with an effective borrowing rate of 2.37% (2012: 2.37%) and have an average remaining life of 
two years (2012: three years).

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS116

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

25. Commitments and contingencies continued
On 20 December 2013, the Group entered into a bareboat charter with Armada Kraken PTE Limited (Armada) for the lease of 
an FPSO vessel for the Kraken field. The lease will commence on the date of first production which is currently targeted to 
come onstream by 2017. Armada will construct the vessel and the Group will incur an initial payment, before the lease 
commences, of US$100,000,000 due on certain milestones being reached by Armada.

(iii) Capital commitments
At 31 December 2013, the Group had capital commitments excluding the above lease commitments amounting to 
US$447,293,000 (2012: US$203,620,000).

Contingencies
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 production.

In addition, there is contingent consideration of US$20,000,000 after the acquisition of Nio (Sabah) Limited which will be 
determined based on proven and probable 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 2014.

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 ended 31 December 2012.

26. 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 29 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 2013 (2012: 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:

Short term employee benefits
Share-based payments
Post employment pension benefits

2013 
US$’000

3,775
4,314
31

8,120

2012 
US$’000

4,306
4,086
30

8,422

 EnQuest PLC Annual Report and Accounts 2013117

27. 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 2013 and 2012 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 2012, the Board of EnQuest approved a policy to hedge up to a maximum of 75% 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 three put and call options, to hedge approximately 1,000,000 barrels 
of oil in the first quarter of 2013 and during the year the Group entered into put and call options covering a further 3,600,000 
barrels of oil production for 2013. These contracts consisted of put spreads at US$95–US$100 per barrel and US$70-US$75 per 
barrel and calls at an average of US$121.6 per barrel, all executed at nil cost.

In August and September 2013, some commodity hedging contracts were entered into partially to hedge the exposure to 
fluctuations in the Brent oil price during 2014. A total of 3,600,000 barrels of puts (300,000 barrels a month) were bought at a 
price of US$106 per barrel and 7,200,000 barrels of calls were sold at a price of US$106, which are only triggered if the monthly 
average price of Brent exceeds a fixed price for the given month (ranging from US$119 to US$124 per barrel). Since the year 
end the Company has swapped an additional 1,000,000 barrels in Q2 at prices of approximately US$109 per barrel.

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 2013
31 December 2012

+US$10/Bbl 
increase 
US$’000

12,069
76,337

–US$10/Bbl 
decrease 
US$’000

(35,907)
(76,323)

+US$10/Bbl 
increase 
US$’000

4,586
29,008

–US$10/Bbl 
decrease 
US$’000

(13,645)
(29,003)

This analysis includes the impact of the ineffective oil hedges outstanding at 31 December 2013.

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 and the bond which is denominated in Sterling. 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% 
(2012: 1%) of the Group’s sales and 91% (2012: 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 partially to hedge the 
Group’s exposure to fluctuations in foreign currencies, namely Sterling and Euro. The contracts matured during 2012 and 2013.

During the first half of 2013, the Group entered into a series of forward contracts and structured products to hedge a portion 
of its Sterling, Euro and Norwegian Krone exposure throughout 2013 and 2014. In 2013, a total of £223,000,000 was hedged at 
an average rate of US$1.51:£1. The structured products have an average strike price of US$1.46:£1. If the spot rate at expiry is 
above US$1.64:£1 then there is no trade and the Group funds its Sterling requirement through the spot market or drawing 
Sterling on the bank facility. Between US$1.64:£1 and US$1.33:£1, EnQuest trades at the lower of US$1.46:£1 and the spot rate 
and below US$1.33:£1, EnQuest trades a higher volume of currency at US$1.46:£1. This structure has also been used for 
hedging a total of £182,000,000 of Sterling exposure in 2014. 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS118

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

27. Risk management and financial instruments continued
The same structure has also been used to hedge the Group’s Norwegian Krone (NOK) exposure which arises as part of the 
Kraken development project. In 2013, a total of NOK255,000,000 was hedged and in 2014 NOK367,000,000 has been hedged.

In 2013, EnQuest exchanged a total of €74,000,000 for US$96,000,000 mainly done by placing forward contracts, however 
€11,000,000 was placed on the same structured basis as the Sterling and Norwegian Krone arrangements described above. 

The following table summarises the impact on the Group’s pre-tax profit and equity (due to the change in the fair value of 
monetary assets and liabilities) of a reasonably possible change in the United States Dollar to Sterling exchange rate:

31 December 2013
31 December 2012 

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

(30,917)
(24,918) 

30,917
24,918

(11,748)
 (9,234)

11,748
9,234

Credit risk
The Group trades only with recognised international oil and gas operators and at 31 December 2013 there were no trade 
receivables past due (2012: nil), and US$1,981,000 of joint venture receivables past due but not impaired (2012: US$4,078,000). 
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

2013 
US$’000

4
–
–
–
1,977

1,981

2012 
US$’000

143
144
78
89
3,624

4,078

At 31 December 2013, the Group had two customers accounting for 72% of outstanding trade and other receivables (2012: 
one customer, 87%) and three joint venture partners accounting for 99% of joint venture receivables (2012: three joint venture 
partners, 90%). 

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 2013 the Group was in 
compliance with all financial covenant ratios agreed with its bankers. 

At 31 December 2012 the Group had a 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 
comprising a committed amount of US$525,000,000 with an additional US$375,000,000 available primarily for investment 
opportunities with the lenders’ consent. On 31 October 2013, the Group established a six year US$1,700,000,000 multi-
currency credit facility, comprising of a committed amount of US$1,200,000,000 with a further US$500,000,000 available 
through an accordion structure. An upfront arrangement fee of 2.00% was payable.

Interest on the revolving credit facility is payable at LIBOR relative to each agreed loan period plus a margin of 2.50% to 3.75% 
dependent on the Group’s leverage ratio. Facility non-utilisation commitment fees are payable at 40% of the interest margin. 

 EnQuest PLC Annual Report and Accounts 2013119

27. Risk management and financial instruments continued
The maturity profiles of the Group’s non-derivative financial liabilities are as follows: 

Year ended 31 December 2013

Loans and borrowings
Bond
Obligations under finance leases
Accounts payable and accrued liabilities
Other liability
Carry provision

Year ended 31 December 2012

Loans and borrowings
Obligations under finance leases
Accounts payable and accrued liabilities
Financial expenses
Other liability

On demand 
US$’000

Up to 1 year 
US$’000

1 to 2 years 
US$’000

2 to 5 years 
US$’000

Over 5 years 
US$’000

Total 
US$’000

–
–
–
363,310
–
–

363,310

26,100
14,140
35
–
164,176
–

204,451

21,580
14,140
36
–
–
80,000

115,756

38,310
42,418
36
–
–
–

80,764

255,809
299,502
–
–
–
–

341,799
370,200
107
363,310
164,176
80,000

555,311

1,319,592

On demand 
US$’000

Up to 1 year 
US$’000

1 to 2 years 
US$’000

2 to 5 years 
US$’000

Over 5 years 
US$’000

–
–
329,666
–
–

329,666

–
34
–
1,123
17,150

18,307

–
35
–
–
–

35

34,600
72
–
–
–

34,672

–
–
–
–
–

–

Total 
US$’000

34,600
141
329,666
1,123
17,150

382,680

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 2013

Foreign exchange forward contracts
Foreign exchange forward contracts

Year ended 31 December 2012

Foreign exchange forward contracts
Foreign exchange forward contracts

On demand 
US$’000

Less than 
3 months 
US$’000

3 to 12 months 
US$’000

 1 to 2 years 
US$’000

>2 years
US$’000

–
–

–

16,126
(16,126)

 43,440
(43,440)

45,475
(45,475)

–

–

–

–
–

–

On demand 
US$’000

–
–

–

Less than 
3 months 
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

105,041
(105,041)

–

Total 
US$’000

6,298
(6,298)

–

At 31 December 2012 and 2013, the Group held commodity forward contracts for which, based on the oil price at 31 
December 2012 and 2013, 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 25, 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 87.

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 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. In addition there is approval from the Board to hedge 
up to 75% of annual production in year 1, 60% in year 2 and 50% in year 3. 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.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS120

NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

27. Risk management and financial instruments continued
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.

The Group monitors capital using the gearing ratio and return on shareholders’ equity as follows:

Loans, borrowings and bond 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)

2013 
US$’000

453,896
(72,809)

381,087

1,484,709
189,604
193,149
0.306
0.257
13%
13%

2012 
US$’000

34,600
(124,522)

(89,922)

1,293,869
362,218
259,665
0.027
n/a
28%
20%

28. Post balance sheet events
In January 2014, EnQuest was offered and accepted two licences in the Norwegian 2013 Awards in Pre-defined Areas 
licensing round, both located in the Norwegian Sea. EnQuest was offered production licence 758 (Rosslyng), with EnQuest as 
the operator and having a 35% interest. EnQuest was also offered licence 760 (Chinook), with Total as the operator, both Total 
and EnQuest having a 50% interest each. In both cases, the work commitments in the initial two year period entail 3D seismic 
licensing and reprocessing. 

In Q1 2014, EnQuest accepted an ‘out of round’ licence in the Don North East (Don NE) area for blocks 211/18e and 211/19c, 
including Area 23 and Area 24 and an undrilled extension to the Don NE field. Within the first twelve months of the licence, it 
is intended to submit a field development plan in relation to Area 24, to include at least one production well. This will provide 
further opportunities to enhance Dons area production. 

Acquisition of Greater Kittiwake assets
On 22 October 2013, the Group announced an agreement with Centrica North Sea Oil Limited (Centrica) to acquire the UKCS 
Greater Kittiwake area assets as well as Centrica’s 100% interest in the Kittiwake to Forties oil export pipeline. Consideration 
is US$39,900,000 and will additionally assume net debt of US$5,100,000, which is subject to certain working capital and other 
adjustments. The Group acquired the Greater Kittiwake assets partly due to its proximity to the Scolty/Crathes field and the 
potential for a tie-back, in addition, the Group sees significant potential to improve production through infill drilling and 
through exploring further prospects in the area.

The acquisition completed on 28 February 2014.

The provisional fair values of the identifiable assets and liabilities of Greater Kittiwake, as at the date of acquisition are:

Property, plant and equipment 
Intangible assets
Working capital
Underlift position
Decommissioning provision
Deferred tax liability

Total identifiable net assets at fair value
Goodwill arising on acquisition 

Purchase consideration

Provisional 
fair value 
recognised 
on acquisition 
US$’000 

59.2
19.8
(9.2)
6.0
(66.2)
(7.9)

1.7
55.0

56.7

 EnQuest PLC Annual Report and Accounts 2013121

28. Post balance sheet events continued

Purchase consideration transferred
Contingent consideration

Total purchase consideration

US$’000

30.0
26.7

56.7

The fair values are provisional as the acquisition completed after the year end and a full assessment of the fair values is still 
required. The review of the fair value of the assets and liabilities acquired will be completed within 12 months of the 
acquisition.

The goodwill of US$55,000,000 comprises the value of expected synergies arising from the acquisition. None of the goodwill 
recognised is expected to be deductible for income tax purposes. 

As the acquisition did not complete prior to the end of the year, there has been no contribution to revenue or profit before 
tax for the Group. 

Transaction costs have been expensed and will be included in administration expenses.

The Group will pay deferred consideration of US$30,000,000 contingent on regulatory approval of a Field Development Plan 
for the Scolty field and/or the Crathes field. This has been fair valued at US$18,000,000. In addition contingent consideration 
may be payable subject to future exploration success with a fair value of US$8,700,000. At the acquisition date, the fair value 
of the total contingent consideration was estimated to be US$26,700,000. 

29. Subsidiaries
At 31 December 2013, EnQuest PLC had investments in the following subsidiaries:

Name of company

Principal activity

Country of 
incorporation

Proportion of  
nominal value of  
issued shares  
controlled by  
the Group

EnQuest North Sea BV
EnQuest Britain Limited 

Intermediate holding company
Intermediate holding company and provision of Group 

Netherlands
England

EnQuest Dons Limited1
EnQuest Dons Oceania Limited1
EnQuest Heather Limited1
EnQuest Thistle Limited1
Stratic Energy (UK) Limited1
Stratic UK (Holdings) Limited1
Grove Energy Limited1

Grove Energy (Tunisia) Limited1
EnQuest ENS Limited1
EnQuest UKCS Limited1
EnQuest Norge AS
EnQuest Heather Leasing Limited1
Nio Petroleum (Sabah) Limited1
EnQuest Dons Leasing Limited1
EQ Property Limited1
EnQuest Energy Limited1
EnQuest Production Limited1
EnQuest Global Limited1
EnQuest NWO Limited1
EnQuest Malaysia Limited1
EnQuest UK Limited1
EnQuest ED Limited1
EQ Petroleum Developments  

Malaysia SDN. BHD1 

1.  Held by subsidiary undertaking.

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
Intermediate holding company and exploration  

of hydrocarbons

Exploration, extraction and production of hydrocarbons
Exploration, extraction and production of hydrocarbons
Exploration, extraction and production of hydrocarbons
Exploration, extraction and production of hydrocarbons
Leasing
Exploration, extraction and production of hydrocarbons
Dormant
Property development
Exploration, extraction and production of hydrocarbons
Exploration, extraction and production of hydrocarbons
Intermediate holding company
Exploration, extraction and production of hydrocarbons
Exploration, extraction and production of hydrocarbons
Dormant
Dormant 
Exploration, extraction and production of hydrocarbons

England
Cayman Islands
England
England
England
England
Canada

USA
England
England
Norway
England
England
England
England
England
England
England
England
England
England
England
Malaysia

100%
100%

100%
100%
100%
100%
100%
100%
100%

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS122

STATEMENT OF DIRECTORS’ RESPONSIBILITIES FOR  
THE PARENT COMPANY FINANCIAL STATEMENTS

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.

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. 

 EnQuest PLC Annual Report and Accounts 2013123

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 2013 which 
comprise the Company Balance Sheet and the related notes 
1 to 15. 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). 

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 122, 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 and to identify any 
information that is apparently materially incorrect based on, 
or materially inconsistent with, the knowledge acquired by us 
in the course of performing the audit. If we become aware of 
any apparent material misstatements or inconsistencies we 
consider the implications for our report.

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 2013 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.

Opinion on other matters 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 Strategic Report and 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 2013.

Ernst & Young LLP 
Gary Donald (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
25 March 2014

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS124

COMPANY BALANCE SHEET
AT 31 DECEMBER 2013

Fixed assets
Investments

Current assets
Debtors
Cash at bank and in hand 

Creditors: amounts falling due within one year

Net current assets/(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
Share-based payment reserve
Profit and loss account

Note

2013 
US$’000

2012 
US$’000

3

5
4

8

9

10
11
11
11
11
11

1,349,177

1,449,179

224,681
668

225,349

32,196
160

32,356

(118,859)

(265,833)

106,490

(233,477)

1,455,667

1,215,702

(254,500)

–

1,201,167

1,215,702

61,249
52,184
905,890
40,143
(10,280)
151,981

61,249
52,184
1,081,890
40,143
(11,072)
(8,692)

1,201,167

1,215,702

The attached notes 1 to 15 form part of these Company financial statements.

The financial statements on pages 124 to 130 were approved by the Board of Directors on 25 March 2014 and signed on its 
behalf by:

Jonathan Swinney
Chief Financial Officer

 EnQuest PLC Annual Report and Accounts 2013125

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013

1. Corporate information
The Company financial statements of EnQuest PLC (the 
Company) for the year ended 31 December 2013 were 
authorised for issue in accordance with a resolution of the 
Directors on 25 March 2014.

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.

During 2012 the Group acquired interests in an exploration 
licence in Malaysia, pre-qualified as an operator in the 
Norwegian North Sea and during December 2013 completed 
the acquisition of a 50% contractor interest in an Egyptian field.

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 2013 
of US$15,327,000 (2012: loss US$757,000). There were no other 
recognised gains or losses in the period (2012: 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 80 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.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS126

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

2. Summary of significant accounting policies continued 
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.

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 2012
Additions 
Disposals

At 31 December 2012
Additions 

At 31 December 2013

Provision for impairment
At 1 January 2013
Impairment charge for the year

At 31 December 2013

Net book value
At 31 December 2013

At 31 December 2012

At 31 December 2011

Unlisted 
subsidiary 
undertakings 
US$’000

1,202,483
859,319
(613,431)

1,448,371
75,998

Other listed 
investments 
US$’000

808
–
–

808
–

Total 
US$’000

1,203,291
859,319
(613,431)

1,449,179
75,998

1,524,369

808

1,525,177

–
176,000

176,000

1,348,369

1,448,371

1,202,483

–
–

–

–
176,000

176,000

808

1,349,177

808

808

1,449,179

1,203,291

 EnQuest PLC Annual Report and Accounts 2013127

3. Investments continued
Current year additions include US$67,805,000 of new shares issued by the Company’s subsidiary EnQuest Global Limited 
which is the holding company of the Group’s entities in Egypt and Malaysia. 

On 25 November 2013 and 5 December 2013, the Company’s subsidiary EnQuest North Sea BV distributed, in total, 
US$176,000,000 of share premium through a reduction of the net intercompany receivable from EnQuest PLC. This has been 
accounted for as a dividend. The distribution of share premium in EnQuest North Sea BV has resulted in a reduction in the 
subsidiary’s net assets, creating an impairment in the Company’s investment in the subsidiary. 

On 7 December 2012, as part of a Group reorganisation, the investment in Stratic UK Holdings Limited was transferred to 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. 

EnQuest Norge AS was established in Norway on 27 June 2012.

Details of the Company’s subsidiaries at 31 December 2013 are provided in note 29 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. 

4. Cash at bank and in hand

Cash at bank and in hand

2013 
US$’000

668

2012 
US$’000

160

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)
Corporation tax recoverable

2013 
US$’000

224,681
–
–

224,681

2012 
US$’000

30,412
1,170
614

32,196

6. Deferred tax
The Company has unused UK mainstream corporation tax losses of US$2,481,000 (2012: US$1,980,000) for which no deferred 
tax asset has been recognised at the balance sheet date due to the uncertainty of recovery of these losses. 

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS128

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

7. Derivative financial instruments

Financial instruments: cash flow hedges
Creditors: amounts falling due within 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 liabilities

2013 
US$’000

2012 
US$’000

–

–

121

1,170

3,704

299

–

–

3,704

3,704

1,170

1,170

420

420

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 27 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.

During November 2012, the Company entered into 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. These 
derivative instruments had fully unwound by the end of December 2013 and therefore had no fair value. The gains of 
US$871,000 recognised in 2012 were reversed during 2013 within profit and loss. 

In October 2013, the Company entered three 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 2014. These instruments were deemed to be 
ineffective and are therefore designated as at fair value through profit and loss. Losses of US$3,704,000 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 of which matured in 2013, which qualified for hedge accounting in the Group financial 
statements (see note 21 of the Group financial statements). As these had fully unwound by 31 December 2013, they had no fair 
value (2012: liability US$121,000).

 EnQuest PLC Annual Report and Accounts 2013129

8. Creditors: amounts falling due within one year

Bond interest
Amounts due to subsidiaries
Derivative financial instruments (note 7)
Accruals

9. Creditors: amounts falling after one year

Bond

2013 
US$’000

4,291
110,096
3,704
768

118,859

2012 
US$’000

–
265,055
420
358

265,833

2013 
US$’000

254,500

2012 
US$’000

–

In February 2013, the Company issued a 5.5% Sterling Retail Bond through the Order book for Retail Bonds (ORB) of the 
London Stock Exchange. The original bond raised £145,000,000 with an additional £10,245,000 issued in November 2013.

The bond pays a coupon of 5.5% payable bi-annually in February and August and matures in 2022.

10. Issued share capital

Allotted, called up and fully paid  
802,660,757 (2012: 802,660,757) Ordinary shares of £0.05 each

2013 
US$’000

2012 
US$’000

61,249

61,249

At 31 December 2013 there were 25,510,520 shares held by the Employee Benefit Trust (2012: 22,966,471). The increase is due 
to the purchase of shares to satisfy awards made under the Company’s share-based incentive schemes.

11. Reserves

At 1 January 2013
Share-based payments charge
Loss for the year
Reclassification to merger reserve 
Shares purchased on behalf of Employee Benefit Trust

52,184
–
–
–
–

1,081,890
–
–
(176,000)
–

Share premium 
US$’000

Merger reserve 
US$’000

Other 
reserve 
US$’000

40,143
–
–
–
–

Share-based 
payments 
reserve 
US$’000

(11,072)
8,193
-
–
(7,401)

Retained 
earnings 
US$’000

 (8,692)
-
 (15,327)
176,000
–

Total 
US$’000

1,154,453
8,193
(15,327)
–
(7,401)

At 31 December 2013

52,184

905,890

40,143

(10,280)

 151,981

1,139,918

On 25 November 2013 and 5 December 2013, the Company’s subsidiary EnQuest North Sea BV distributed, in total, 
US$176,000,000 of share premium, through a reduction of the net intercompany receivable from EnQuest PLC. The 
distribution of share premium in EnQuest North Sea BV has resulted in a reduction in the subsidiary’s net assets, creating an 
impairment in the Company’s investment in the subsidiary. The impairment charge has been reclassified to the merger 
reserve which was created in 2010 when the Group was formed.

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS130

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2013

11. 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 Company 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. The 
reserve is adjusted for any write down in the value of the investment in the subsidiary.

Other reserve
The other reserve is used to record any other transactions taken straight to reserves as non-distributable.

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.

12. Transactions with Directors
Details of Directors’ remuneration are provided in the Directors’ Remuneration Report.

13. 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 (2012: nil).

14. Auditors’ remuneration
The Company paid US$10,400 (2012: US$10,080) 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.

15. Post balance sheet events
Refer to note 28 of the Group financial statements.

 EnQuest PLC Annual Report and Accounts 2013131

NOTES

For more information visit:  
www.enquest.com

 EnQuest PLC Annual Report and Accounts 2013STRATEGICREPORTGOVERNANCEFINANCIALSTATEMENTS132

NOTES

 EnQuest PLC Annual Report and Accounts 2013133

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
Tulchan Communications
85 Fleet Street
London
EC4Y 1AE

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
28 May 2014: 2014 Annual General Meeting
August 2014: 2014 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 presentation may contain certain forward looking statements with respect to EnQuest’s 
expectation and plans, strategy, management’s objectives, future performance, production, 
costs, revenues, reserves 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 presentation should be construed as a profit forecast. Past share performance 
cannot be relied on as a guide to future performance.

No representation or warranty, express or implied, is or will be made in relation to the 
accuracy or completeness of the information in this presentation and no responsibility or 
liability is or will be accepted by EnQuest PLC or any of its respective subsidiaries, affiliates 
and associated companies (or by any of their respective officers, employees or agents) in 
relation to it.

 EnQuest PLC Annual Report and Accounts 2013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 

Dubai, UAE 
14th Floor, Office #1403 
Arenco Tower 
Dubai Internet City 
Dubai, UAE 
Tel:  +971 445 673 90 
Fax: +971 445 679 60

Stavanger, Norway 
PO Box 499 
4003 Stavanger 
Norway 

For more information, please visit:  
www.enquest.com