EnWave
Annual Report 2022

Plain-text annual report

Enwell Energy plc Registered number 4462555 Annual Report and Financial Statements for the year ended 31 December 2022 Contents Strategic Report - Highlights - Chairman’s Statement - Chief Executive’s Statement - Business Model - Our Strategic Priorities - Overview of Assets - Overview of Reserves - - - - - Finance Review Key Performance Indicators Sustainability Principal Risks and Uncertainties Statement Under S172(1) of the Companies Act 2006 Corporate Governance Board of Directors Corporate Governance Statement Directors’ Report Independent Auditors’ Report Financials Consolidated Income Statement Consolidated Statement of Comprehensive Income Company Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Company Balance Sheet Company Statement of Changes in Equity Company Cash Flow Statement Notes forming part of the financial statements Corporate Information Glossary 2 4 7 11 13 15 18 21 25 26 29 37 40 42 47 50 57 58 58 59 60 61 62 63 64 65 112 113 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 1 Strategic Report Highlights Operational • Aggregate average daily production of 2,956 boepd (calculated on the days when the Group’s fields were actually in production) (2021: 4,730 boepd) • SV-31 development well successfully completed and brought on production in Q2 2022 • SC-4 appraisal well tested and produced hydrocarbons from its primary target reservoir in Q4 2022 • GOL-107 development well successfully completed in Q4 2023 and is undergoing long-term test production Financial • Revenue of $133.4 million (2021: $121.4 million), up 10%, primarily as a result of significantly higher gas prices • Gross profit of $85.9 million (2021: $73.9 million), up 16% • Operating profit of $75.8 million (2021: $66.2 million), up 15%, predominantly as a result of significantly higher gas prices • Net profit of $60.2 million (2021: $51.1 million), up 18% • Cash, cash equivalents and short-term investments of $88.7 million as at 31 December 2022 (2021: $92.5 million), and of $79.1 million as at 14 December 2023 • Average realised gas, condensate and LPG prices in Ukraine were significantly higher, particularly gas and LPG prices, at $960/Mm3 (UAH30,341/Mm3), $73/bbl and $143/bbl respectively (2021: $432/Mm3 (UAH11,677/Mm3) gas, $69/bbl condensate and $80/bbl LPG) • Interim dividend of 15 pence per ordinary share, £48.1 million in aggregate, paid in June 2023 (2021: nil) Outlook • The Russian invasion of Ukraine in February 2022 has had a significant impact on all aspects of life in Ukraine, including the Group’s business and operations, with all field operations being suspended for safety reasons from 24 February to 15 March 2022, after which production operations and some field activities resumed at the MEX-GOL and SV fields, and subsequently at the VAS field and SC licence area. The scale and duration of disruption to the Group’s business is currently unknown, and there remains significant uncertainty about the outcome of the war in Ukraine • In April and May 2023, the Ukrainian authorities took a number of regulatory actions against the Group, which included the suspension of the VAS production licence and SC exploration licence, and consequently all work at these licences has been suspended • Subject to the resolution of the regulatory issues and the Group’s ability to operate safely, development work planned for the remainder of 2023 and 2024 at the MEX-GOL and SV fields includes planning the deepening of the MEX-109 well to explore a deeper horizon, investigating the hydraulic fracturing of the SV-29 well, planning a workover of the MEX-102 well to access a shallower horizon, investigating the possible sidetracking of the MEX-119 well to access additional 2 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 reserves, installing additional compression equipment and upgrading the flow-line network and other field infrastructure • Further work on the VAS field and SC licence area will remain suspended until there is a resolution of the regulatory issues, including the lifting of the suspension orders • Currently, the Group retains approximately a quarter of its cash outside Ukraine, which enhances the Group’s ability to navigate the current risk environment for the foreseeable future, and provides a material buffer to any further disruptions to the Group’s operations • Development programme for the remainder of 2023 and 2024 expected to be funded from existing cash resources and operational cash flow Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 3 Chairman’s Statement I present the 2022 Annual Report and Financial Statements in circumstances that I wish were different. The invasion of Ukraine by Russia in February 2022 and the ongoing conflict has created a very challenging and worrying outlook for both the current and future situation in Ukraine, and I am greatly saddened by the terrible events occurring there. The invasion has had a significant impact on all aspects of life in Ukraine, including the Group’s business and operations, with all field operations being suspended for safety reasons from 24 February to 15 March 2022, after which production operations and some limited field activities resumed at the MEX-GOL and SV fields. Subsequently, in July 2022, drilling operations on the SC-4 well resumed on the SC licence area to complete the well, and in October 2022, production operations resumed at the VAS field. The overall scale and duration of disruption to the Group’s business is currently unknown, and there remains significant uncertainty about the outcome of the ongoing war in Ukraine. Notwithstanding the disruption caused by the war, during 2022, the Group continued with some development activities at the MEX-GOL, SV and VAS gas and condensate fields and SC licence in north- eastern Ukraine. At the SV field, the SV-31 development well was completed and brought on production in May 2022. At the MEX-GOL field, the GOL-107 development well was completed in late October 2023, and after initial testing demonstrated gas flows from the well, albeit at lower than expected rates, the well has now been hooked up to the gas processing facilities for longer-term testing to establish its optimal operating parameters and to assess whether stimulation may improve production rates. Additionally, at the MEX- GOL field, planning has continued for the deepening of the MEX-109 well to explore a deeper horizon, a workover of the MEX-102 well to access a shallower horizon and investigating the possible sidetracking of the MEX-119 well to access additional reserves. At the SV-29 development well, additional horizons were perforated and tested but stabilised production was not established and, consequently, the possible hydraulic fracturing of the well is under consideration. Drilling of the SC-4 appraisal well on the SC licence area was completed and testing of this well demonstrated strong flow rates of gas and condensate, and planning for the installation of surface facilities and pipelines has been undertaken. At the VAS field, planning for the further development of the field continued. Aggregate average daily production (calculated on the days when the fields were actually in production) from the MEX-GOL, SV and VAS fields during the year was 2,956 boepd, which is lower than the aggregate daily production rate of 4,730 boepd achieved during 2021 due to the disruption caused by the war and natural field decline. Although production volumes were lower, the dramatic rise in gas prices during the year has meant that revenues were still strong at $133.4 million (2021: $121.4 million). The Group’s net profit was also higher at $60.2 million (2021: $51.1 million), operating profit was $75.8 million (2021: $66.2 million), but cash generated from operations declined to $47.5 million (2021: $77.6 million), predominantly due to a build-up of receivables. There is significant disruption to the fiscal and economic environment in Ukraine due to the ongoing conflict resulting in a contraction in the economy, an increase in the rate of inflation and a weakening of the Ukrainian Hryvnia against other currencies. Furthermore, it is likely that fiscal and economic uncertainties will continue in the future until an acceptable resolution of the war occurs. The Ukrainian Government has implemented a number of reforms in the oil and gas sector in recent years, which include the deregulation of the gas supply market in late 2015, and subsequently, simplification of the regulatory procedures applicable to oil and gas exploration and production activities in Ukraine. The deregulation of the gas supply market, supported by electronic gas trading platforms and improved pricing transparency, has meant that Ukrainian market prices for gas broadly correlated with imported gas prices. During 2022, gas prices increased significantly, reflecting a similar trend in European gas prices, substantially as a result of the disruption to worldwide oil and gas supplies caused by the conflict. Condensate and LPG prices were also higher by comparison to the previous year for the same reason. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 4 Restructuring of Smart Holding Group In January 2023, the Company was notified that there had been a restructuring of the ownership of the PJSC Smart-Holding Group, a member of which held a major shareholding in the Company, and which was ultimately controlled by Mr Vadym Novynskyi (“Mr Novynskyi”). Under this restructuring, which occurred with effect from 1 December 2022, Mr Novynskyi disposed of his major indirect shareholding interest in the Company to two trusts registered in Cyprus named the SMART Trust and the STEP Trust. Further information is contained in the Company’s announcement dated 17 January 2023, and the TR-1 Forms published on 26 January 2023. Regulatory Actions by Ukrainian Authorities and Suspension of VAS and SC Licences In early December 2022, the Ukrainian Government imposed sanctions on Mr Novynskyi, as set out in the Company’s announcement dated 9 December 2022. As announced on 4 January 2023, new legislation, Law No. 2805-IX, relating to the natural resources sector was enacted in Ukraine, which came into force on 28 March 2023. This legislation is a substantial package of new procedures and reforms designed to improve the regulatory process relating to the exploration and development of natural resources in Ukraine. However, the legislation includes provisions that if the ultimate beneficial owner of a mineral or hydrocarbon licence becomes the subject of sanctions in Ukraine, then the State Geologic and Subsoil Survey of Ukraine (the “SGSS”) may suspend or revoke that licence. Following Law No. 2805-IX coming into force on 28 March 2023, the Ukrainian authorities have taken a number of regulatory actions against certain of the Group’s subsidiary companies in Ukraine. As announced on 12 April 2023, such regulatory actions included conducting a search at the Group’s Yakhnyky office, from where the MEX-GOL and SV fields are operated, and placing certain physical assets of the Ukrainian branch (representative) office of Regal Petroleum Corporation Limited (“RPC”) and LLC Arkona Gas-Energy (“Arkona”) (which respectively hold the MEX-GOL and SV fields and the SC exploration licence) under seizure, thereby restricting any actions that would change registration of the property rights relating to such assets, although the use of such assets was not restricted and therefore the Company has been able to continue to operate and produce gas and condensate from the MEX-GOL and SV fields. In addition, the Ministry of Justice of Ukraine (the “MoJ”) made an Order cancelling the registration entry made on behalf of a subsidiary of the Company named LLC Regal Petroleum Corporation (Ukraine) Limited in the Unified State Register of Legal Entities, Individuals–entrepreneurs and Civil Institutions of Ukraine (the “State Register”) relating to the ultimate beneficial owners of such company, which were stated as being the trustees of the SMART Trust and STEP Trust as previously notified to the Company, thereby restoring the previous entry in the State Register, Mr Novynskyi. Furthermore, the SGSS issued an Order to RPC requiring that additional information be provided and/or violations be eliminated in the disclosures relating to the ultimate beneficial owners of the MEX-GOL and SV licences respectively. On 2 May 2023, the MoJ made further Orders cancelling the registration entry made on behalf of three further Ukrainian subsidiaries of the Company named LLC Prom-Enerho Produkt (“PEP”), Arkona and LLC Well Investum (“Well Investum”) respectively in the State Register relating to the ultimate beneficial owners of such companies, which again were stated as being the trustees of the SMART Trust and STEP Trust, thereby restoring the previous entry, Mr Novynskyi. PEP holds the VAS production licence, Arkona holds the SC exploration licence and Well Investum is a dormant company. Following the issuance of the abovementioned Orders by the MoJ, Mr Novynskyi is registered in the State Register as the ultimate beneficial owner of each of PEP and Arkona, and is consequently recognised by the SGSS as the ultimate beneficial owner of each of the VAS production licence and SC exploration licence. As a result, on 4 May 2023, the SGSS issued orders suspending the VAS production licence and SC exploration licence for a period of 5 years effective from that date. Accordingly, the Company ceased all field and production operations on the VAS and SC licence areas. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 5 New Auditor and Temporary Suspension from trading on AIM In December 2022, as a result of the sanctions imposed on Mr Novynskyi, the Company’s previous auditor resigned, but I am now pleased to welcome Zenith Audit Ltd as the Company’s new auditor, with such appointment being finalised in September 2023. As the Company did not have an auditor prior to the appointment of Zenth Audit Ltd, it was not able to publish and post its audited 2022 Annual Report and Financial Statements to shareholders by the requisite deadline of 30 June 2023 as required by Rule 19 of the AIM Rules for Companies. As a result, trading in the Company’s ordinary shares on AIM was suspended with effect from 3 July 2023 pending the Company’s compliance with such requirements. However, with the publication and posting to shareholders of this 2022 Annual Report and Financial Statements, and upon the forthcoming publication of the Company’s unaudited interim results for the six month period ended 30 June 2023, which is anticipated to occur shortly, it is currently expected that the suspension from trading will be lifted. Board Changes In August 2022, Dmitry Sazonenko stepped down from the Board, and Dr Gehrig Schultz joined the Board as a Non-Executive Director. Gehrig is a very experienced geoscientist, and provides valuable technical input in the oversight of the Company’s operations. On behalf of the Board, I would like to thank Dmitry for his valued contribution during his tenure with the Company, and to welcome Gehrig to the Board. Interim Dividend On 15 June 2023, the Company paid an interim dividend of 15 pence per ordinary share, aggregating to approximately £48.1 million, which was the Company’s maiden dividend payment to its shareholders. Outlook The ongoing war in Ukraine means that there is a devastating humanitarian situation in Ukraine, as well as extreme challenges to the fiscal, economic and business environment. This has been exacerbated in respect of the Group by the regulatory actions of the Ukrainian authorities, culminating in the suspension of the VAS and SC licences. These circumstances mean that it is extremely difficult to plan future investment and operational activities at the Group’s fields but, subject to resolution of the current regulatory issues with the Ukrainian authorities, and subject to it being safe to do so, the Group is planning to undertake further limited development activities during the remainder of 2023 and beyond in order to continue the development of its fields. However, in doing so, the Group is taking and will take all measures available to protect and safeguard its personnel and business, with the safety and wellbeing of its personnel and contractors being paramount. The Group retains approximately a quarter of its cash reserves outside Ukraine, and this provides a material buffer to any further disruptions to the Group’s operations. This has enabled the Board to reach the opinion that the Group has sufficient resources to navigate the current risk environment for the foreseeable future. In conclusion, on behalf of the Board, I would like to thank all of our staff for the continued dedication and support they showed during the 2022 year, especially their remarkable fortitude since the invasion of Ukraine in February 2022. Chris Hopkinson Chairman Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 6 Chief Executive’s Statement Introduction The war in Ukraine has materially disrupted the Group’s development activity at its Ukrainian fields during 2022, with operations suspended for safety reasons at all fields immediately after the Russian invasion in February 2022. However, production operations and some field activities resumed at the MEX-GOL and SV fields in mid-March 2022, and this enabled the completion of the SV-31 development well, which came on production in May 2022. At the SV-29 development well, further intervals were perforated, but it was not possible to establish a stabilised flow rate, and the potential hydraulic fracturing of this well is now under consideration. In addition, upgrades to the gas processing facilities were completed. The GOL-107 development well was completed in late October 2023 and, after initial testing of the well demonstrated gas flows, albeit at lower than expected rates, the well has now been hooked up to the gas processing facilities to undergo longer-term testing to establish its optimal operating parameters and assess whether stimulation of the well may improve flow rates. On the SC licence area, drilling of the SC-4 appraisal well was suspended for a period, but drilling resumed in July 2022, and the well was completed and successfully tested in October 2022. In addition, the interpretation of the 150 km2 of 3D seismic, which was acquired over the 2021-2022 winter period, was completed. At the VAS field, all operations were suspended until October 2022, when production operations resumed. In addition, planning for the further development of the field, as well as for a proposed new well to explore the VED prospect within the VAS licence area continued. Overall production in 2022 was lower than the 2021 year due to the disruption to production operations caused by the war in Ukraine and natural field decline. Quality, Health, Safety and Environment (“QHSE”) The Group is committed to maintaining the highest QHSE standards and the effective management of these areas is an intrinsic element of its overall business ethos. The Group’s QHSE policies and performance are overseen by the Health, Safety and Environment Committee. Through strict enforcement of the Group’s QHSE policies, together with regular management meetings, training and the appointment of dedicated safety professionals, the Group strives to ensure that the impact of its business activities on its staff, contractors and the environment is as low as is reasonably practicable. The Group reports safety and environmental performance in accordance with industry practice and guidelines. I am pleased to report that during 2022, a total of 704,773 man-hours of staff and contractor time were recorded without a Lost Time Incident occurring. The total number of safe man-hours now stands at over 4,997,406 man-hours without a Lost Time Incident. No environmental incidents were recorded during the year. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 7 Production The average daily production of gas, condensate and LPG for the 351 days that the MEX-GOL and SV fields were producing and for the 147 days that the VAS field was producing, in each case, during the year ended 31 December 2022 is shown below: Field Gas (MMscf/d) Condensate (bbl/d) LPG (bbl/d) Aggregate boepd 2022 2021 2022 2021 2022 2021 2022 2021 MEX- GOL & SV 11.0 18.9 445 681 318 308 2,604 4,237 VAS 1.8 2.6 18 26 - - 352 493 Total 12.8 21.5 463 707 318 308 2,956 4,730 The Russian invasion of Ukraine in February 2022 meant that for safety reasons, the Group suspended all field operations for the period from 24 February to 15 March 2022, after which production operations and some field activities resumed at the MEX-GOL and SV fields, while all operations remained suspended at the VAS field and SC licence area. Subsequently, in July 2022, drilling resumed at the SC-4 well on the SC licence area and this well was completed and successfully tested in October 2022. Production operations remained suspended at the VAS field since it is located near Kharkiv in north-eastern Ukraine, which has experienced significant military activity, but in October 2022, production operations finally resumed at this field. As a result of the disruptions to operations caused by the war, the Group’s average daily production for the 2022 year has been materially adversely affected. In addition, as announced on 4 May 2023, as a result of regulatory actions by the Ukrainian authorities, the VAS production licence and the SC exploration licence have been suspended for a period of five years. Nevertheless, production is currently continuing at the MEX-GOL and SV fields at a rate of approximately 2,200 boepd. Operations In the period leading up to the Russian invasion of Ukraine in February 2022, there was relative fiscal and economic stability in Ukraine, as well as reductions in the subsoil tax rates and improvements in the regulatory procedures in the oil and gas sector in Ukraine. However, the war has caused significant disruption to the fiscal and economic conditions in Ukraine since then. During 2022, the material increase in gas prices in Europe did, however, feed through to the Group’s realised prices in Ukraine, and provided a significant boost to the Group’s revenues and profitability during the period. During 2022, the Group continued to refine its geological subsurface models of the MEX-GOL, SV and VAS fields, as well as the SC licence area, in order to enhance its strategy for the further development of such fields and licence area, including the timing and level of future capital investment required to exploit the hydrocarbon resources. At the MEX-GOL and SV fields, the SV-31 development well was completed in May 2022, having been drilled to a final depth of 5,240 metres. At that time, one interval, at a drilled depth of 5,210 - 5,219 metres, within the V-22 Visean formation was perforated, and, following initial testing, the well was hooked up to 8 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 the gas processing facilities. The well has produced strongly since then, and pursuant to the plans for this well, two additional intervals, at drilled depths of 5,187 - 5,189 and 5,120 - 5,123 metres, respectively within the V-22 and V-21 Visean formations, have also been perforated to access additional reserves. These additional intervals have also proved productive and materially boosted production rates from this well. At the SV-29 development well, additional intervals, at drilled depths of 4,955 - 4,960 and 5,037 - 5,046 metres, within the V-19 and V-20 Visean formation respectively were perforated, but such intervals were not productive. This well was completed in August 2021, having been drilled to a final depth of 5,450 metres. Previously, two intervals, at drilled depths of 5,246 - 5,249 metres and 5,228 - 5,232 metres respectively, within the V-22 Visean formation, were perforated, and although some gas flows were achieved, a stabilised flow from these intervals was not established. In light of the intermittent gas flows in these intervals, the possible hydraulic fracturing of the well is now under consideration. Drilling of the GOL-107 development well, targeting production from the V-20 and V-23 Visean formations, commenced in December 2022 and was completed in late October 2023, with the well having been drilled to a final depth of 5,190 metres. One interval, at a drilled depth of 5,140 - 5,143 metres, within the V-23 formation, was perforated and demonstrated gas flows, but at lower than anticipated rates. The well has now been hooked up to the gas processing facilities to undergo longer-term testing to establish its optimal operating parameters and assess whether stimulation of the well may improve flow rates. The well is currently producing at a flow rate of approximately 353 MMscf/d of gas and 11 bbl/d of condensate (73 boepd in aggregate). The Group continued to operate each of the SV-2 and SV-12 wells under joint venture agreements with NJSC Ukrnafta, the majority State-owned oil and gas producer. Under the agreements, the gas and condensate produced from the respective wells is sold under an equal net profit sharing arrangement between the Group and NJSC Ukrnafta, with the Group accounting for the hydrocarbons produced and sold from the wells as revenue, and the net profit share due to NJSC Ukrnafta being treated as a lease expense in cost of sales. However, during Q4 2021, the SV-2 well experienced water ingress and consequently had to be taken off production. A workover of this well was undertaken to replace the production string and remove obstructions in the well, but this work was unsuccessful and further remedial work is now being considered. In addition, in Q4 2021, the MEX-109 well also experienced water ingress and as a result was taken off production. A workover of the well was commenced, and steps were taken to seal the source of the water ingress, but the work was suspended as a result of the Russian invasion. However, the workover operations have now been completed, and the previously producing horizon has now been sealed to prevent water ingress into that horizon, so as to avoid possible disruption to another well which is producing from the same horizon. As a result, further production from such horizon in this well will not be possible, and the possible deepening of this well to explore deeper horizons is now being considered. Finally, at the MEX-GOL and SV fields, the upgrades to the gas processing facilities have been completed. These works involved an upgrade of the LPG extraction circuit, an increase to the flow capacity of the facilities, and a significant increase to the liquids tank storage capacity, which are designed to improve overall plant efficiencies, improve the quality of liquids produced and boost recoveries of LPG, while reducing environmental emissions. On the SC licence area, after a period of suspension, drilling operations resumed at the SC-4 well in July 2022 and the well was drilled to its final depth of 5,585 metres. The well is primarily an appraisal well, targeting production from the V-22 horizon, as well as exploring the V-16 and V-21 horizons, in the Visean formation. The well was successfully tested, demonstrating stabilised flow rates of 3 MMscf/d of gas and 3 bbl/d of condensate (535 boepd in aggregate), and planning for the installation of gas processing and other surface facilities has been undertaken. In addition, the interpretation of the 150 km2 of 3D seismic, that was acquired over the 2021 - 22 winter, was completed. At the VAS field, production operations resumed in October 2022, and planning for the further development of the field, as well as for a proposed new well to explore the VED prospect within the VAS licence area, has continued. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 9 Outlook The ongoing war in Ukraine has caused significant disruption to the country as a whole and to the Group’s business activities, and until there is a satisfactory resolution to the conflict, the disruption and uncertainty are likely to continue. However, subject to resolution of the current regulatory issues with the Ukrainian authorities and it being safe to do so, during the remainder of 2023 and 2024, the Group plans to continue the development of its fields to the extent it is possible to do so. At the MEX-GOL and SV fields, the development programme includes planning the deepening of the MEX- 109 well to explore a deeper horizon in the Visean formation, investigating the hydraulic fracturing of the SV-29 well, planning a workover of the MEX-102 well to access a shallower horizon, investigating the possible sidetracking of the MEX-119 well to access additional reserves, installing additional compression equipment and upgrading and maintaining the flow-line network and pipelines and other field infrastructure, as well as planning for the further development of the fields. Further work on the VAS and SC licence areas will remain suspended until there is a resolution of the regulatory issues, including the lifting of the suspension orders made in respect of those licences. Finally, I would like to add my thanks to all of our staff for the continued hard work and dedication they have shown over the course of 2022, and to especially recognise their continuing efforts and professionalism in the face of the extremely challenging current situation in Ukraine. Sergii Glazunov Chief Executive Officer Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 10 Business Model Activities Exploration We aim to identify new opportunities within our fields by accurate geological and geophysical analysis and modelling to achieve a high probability of success Appraisal We pursue methodical analysis and review of drilling results to refine our subsurface models and ensure that discoveries are adequately appraised prior to development Development We carefully plan our development activities using tailored drilling techniques and extraction processes so as to fully exploit our reserve base, safely and economically Production We continually monitor production results to manage reservoir performance and maximise extraction rates, as well as reviewing processing facilities to optimise recoveries Resources Large and growing reserves Our proved and probable (2P) reserves are approximately 58 MMboe through careful and incremental development Cutting edge technology We use modern, innovative technology and processes in our development activities, and encourage the investigation and adoption of new methods by our staff Detailed budgeting process A detailed budgeting process is essential to cost forecasting and performance discipline and to enable fiscal control of our business Highly experienced team We have well qualified and experienced technical management to plan and supervise operational activities. Additionally, we engage with suitably qualified local and international geological, geophysical and engineering experts and contractors to supplement and broaden the pool of expertise available to us 100% operatorship of assets Through our 100% operatorship of our fields, we have the ability to maintain rigidly monitored planning and operational discipline, and can promptly modify plans and schedules should adverse economic, operational or other issues arise Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 11 Stakeholders Employees We aim to be a model employer, with high reputational and behavioural standards, safe operational working conditions and clearly structured career opportunities and progression for employees Government We adopt and maintain best industry standards to fully exploit hydrocarbons resources for consumption within Ukraine, and support the development of the oil and gas industry in Ukraine Investors We maintain disciplined operational and financial management to deliver strong growth, successful development of reserves and profitable results Local community We embed corporate and social responsibility throughout our business activities, and contribute to and participate in local community and countrywide social and welfare programmes, including material humanitarian aid to provide support during the ongoing war in Ukraine Suppliers We maintain a clear and consistent approach to dealing with suppliers, ensuring adherence to contractual obligations and maintaining safe working practices Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 12 Our Strategic Priorities Our three strategic priorities 1 Deliver profitable production and reserves growth in Ukraine, with continued capital efficient operational excellence Key targets: Organic Growth • • • Expedite development of our assets, accelerate production growth, and exploit our resource base Careful field and reserves development planning Geological modelling to achieve high probability of success Growth of reserves and resources • Additional exploration, life cycle mix, new business opportunities and screening process Improving performance • • • Adopt oil and gas industry best practice Reduce costs of operations Application of drilling model Key risks: • • • Reservoir and operational performance Regional stability and conflict Commodity price shifts 2 Be a responsible steward of the resources we manage, produce and deliver to market Key targets: Operating safely and responsibly • Continual assessment and monitoring of a safe operating environment during the ongoing war in Ukraine Adopt and exceed industry standards Embed corporate and social responsibility process throughout business organisation • • Strong and stable governance • Adhere to the QCA Code and institutional shareholder body guidance Rigid operational financial and risk planning • • Ensure that future operations and sales reflect the market and forecasts Be cognisant of the necessity for good reservoir and corporate resource management Key risks: • • • Implementation and adherence to QHSE policies Maintenance of independence of Board of Directors Maintenance of controls and processes for financial and risk management Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 13 3 Recruit and retain a management team capable of delivering consistent top quartile performance across recognised industry and market metrics Key targets: Stakeholder buy-in • Team clear on behaviours, roles and responsibilities Retention • Keeping great people on the team Correct skills for the objective/role • Clarity of skills required for each position Attracting new talent • • Strong reputation as a model employer Transparent and clearly structured career opportunities, progression and talent nurturing Key risks: • • • Failure to challenge and motivate existing employees Compensation Competitiveness Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 14 Overview of Assets We operate four fields in the Dnieper-Donets basin in north-eastern Ukraine. Our fields have high potential for growth and longevity for future production - a strong foundation for success. MEX-GOL and SV fields The MEX-GOL and SV fields are held under two adjacent production licences, but are operated as one integrated asset, and have significant gas and condensate reserves and potential resources of unconventional gas. Production Licences We hold a 100% working interest in, and are the operator of, the MEX-GOL and SV fields. The production licences for the fields were granted to the Group in July 2004 with an initial duration of 20 years, and the duration of these licences have recently been extended to 2044 in order to fully develop the remaining reserves. The economic life of these fields extend to 2038 and 2042 respectively pursuant to the most recent reserves and resources assessment by DeGolyer and MacNaughton (“D&M”) as at 31 December 2017. The two licences, located in Ukraine’s Poltava region, are adjacent and extend over a combined area of 253 km², approximately 200 km east of Kyiv. Geology Geologically, the fields are located towards the middle of the Dnieper-Donets sedimentary basin which extends across the major part of north-eastern Ukraine. The vast majority of Ukrainian gas and condensate production comes from this basin. The reservoirs comprise a series of gently dipping Carboniferous sandstones of Visean age inter-bedded with shales at around 4,700 metres below the surface, with a gross thickness of between 800 and 1,000 metres. Analysis suggests that the origin of these deposits ranges from fluvial to deltaic, and much of the trapping at these fields is stratigraphic. Below these reservoirs is a thick sequence of shale above deeper, similar, sandstones at a depth of around 5,800 metres. These sands are of Tournasian age and offer additional gas potential. Deeper sandstones of Devonian age have also been penetrated in the fields. Reserves The development of the fields began in 1995 by the Ukrainian State company Chernihivnaftogasgeologiya (“CNGG”), and shortly after this time, the Group entered a joint venture with CNGG in respect of the exploration and development of these fields. The fields have been mapped with 3D seismic, and a geological subsurface model has been developed and refined using data derived from high-level reprocessing of such 3D seismic and new wells drilled on the fields. The assessment undertaken by D&M as at 31 December 2017 estimated proved plus probable (2P) reserves attributable to the fields of 50.0 MMboe, with 3C contingent resources of 25.3 MMboe. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 15 VAS field The VAS field is a smaller field with interesting potential. The field has assessed proved plus probable reserves in excess of 3 MMboe and substantial contingent and prospective resources, as well as potential resources of unconventional gas. Production Licence We hold a 100% working interest in, and are the operator of, the VAS field. The production licence for the field was granted in August 2012 with a duration of 20 years. The economic life of the field extends to 2032 pursuant to the most recent reserves and resources assessment by D&M as at 31 December 2018. The licence extends over an area of 33.2 km² and is located 17 km south-east of Kharkiv, in the Kharkiv region of Ukraine. The field was discovered in 1981, and the first well on the licence area was drilled in 2004. Geology Geologically, the field is located towards the middle of the Dnieper-Donets sedimentary basin in north-east Ukraine. The field is trapped in an anticlinal structure broken into several faulted blocks, which are gently dipping to the north, stretching from the north-east to south-west along a main bounding fault. The gas is located in Carboniferous sandstones of Bashkirian, Serpukhovian and Visean age. The productive reservoirs are at depths between 3,370 and 3,700 metres. Reserves The field has been mapped with 3D seismic, and a geological subsurface model has been developed and refined using data derived from such 3D seismic and new wells drilled on the field. The assessment undertaken by D&M as at 31 December 2018 estimated proved plus probable (2P) reserves of 3.1 MMboe, with 3C contingent resources of 0.6 MMboe, and prospective resources of 7.7 MMboe in the VED area of the field. The next well planned on the field is designed to explore the VED area of the field. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 16 SC Licence The SC licence area is located near to and has similar characteristics to the SV field, and is prospective for gas and condensate. Exploration Licence We hold a 100% working interest in, and are the operator of, the SC licence. The licence was granted in May 2017 with a duration of 20 years. The licence extends over an area of 97 km2, and is located in the Poltava region in north-eastern Ukraine, approximately 15 km east of the SV field. Geology Geologically, the field is located towards the middle of the Dnieper-Donets sedimentary basin which extends across the major part of north-eastern Ukraine. The vast majority of Ukrainian gas and condensate production comes from this basin. The reservoirs comprise a series of gently dipping Carboniferous sandstones of Visean age inter-bedded with shales at depth between 4,600 and 6,000 metres. Resources The licence is prospective for gas and condensate, and has been the subject of exploration since the 1980s, with five wells having been drilled on the licence since then, although none of these wells are currently on production. The assessment undertaken by D&M as at 1 January 2021 estimated proved plus probable (2P) reserves of 12.1 MMboe, with 3C contingent resources of 15.0 MMboe. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 17 Overview of Reserves 1. MEX-GOL and SV fields The Group’s estimates of the remaining Reserves and Resources at the MEX-GOL and SV fields are derived from an assessment undertaken by D&M, as at 31 December 2017 (the “MEX-GOL-SV Report”), which was announced on 31 July 2018. During the period from 1 January 2018 to 31 December 2022, the Group has produced 6.14 MMboe from these fields. The MEX-GOL-SV Report estimated the remaining Reserves as at 31 December 2017 in the MEX-GOL and SV fields as follows: Proved (1P) Proved + Probable (2P) Proved + Probable + Possible (3P) Gas 121.9 Bscf / 3.5 Bm3 218.3 Bscf / 6.2 Bm3 256.5 Bscf / 7.3 Bm3 Condensate 4.3 MMbbl / 514 Mtonne 7.9 MMbbl / 943 Mtonne 9.2 MMbbl / 1,098 Mtonne LPG 2.8 MMbbl / 233 Mtonne 5.0 MMbbl / 418 Mtonne 5.8 MMbbl / 491 Mtonne Total 27.8 MMboe 50.0 MMboe 58.6 MMboe The MEX-GOL-SV Report estimated the Contingent Resources as at 31 December 2017 in the MEX-GOL and SV fields as follows: Contingent Resources (1C) Contingent Resources (2C) Contingent Resources (3C) Gas 14.7 Bscf / 0.42 Bm3 38.3 Bscf / 1.08 Bm3 105.9 Bscf / 3.00 Bm3 Condensate 1.17 MMbbl / 144 Mtonne 2.8 MMbbl / 343 Mtonne 6.6 MMbbl / 812 Mtonne Total 3.8 MMboe 9.6 MMboe 25.3 MMboe Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 18 2. VAS field The Group’s estimates of the remaining Reserves and Resources at the VAS field and the Prospective Resources at the VED prospect are derived from an assessment undertaken by D&M as at 31 December 2018 (the “VAS Report”), which was announced on 21 August 2019. During the period from 1 January 2019 to 31 December 2022, 0.76 MMboe were produced from the field. The VAS Report estimated the remaining Reserves as at 31 December 2018 in the VAS field as follows: Proved (1P) Proved + Probable (2P) Proved + Probable + Possible (3P) Gas 9,114 MMscf / 258 MMm3 15,098 MMscf / 427 MMm3 18,816 MMscf / 533 MMm3 Condensate 205 Mbbl / 25 Mtonne 346 Mbbl / 42 Mtonne 401 Mbbl / 48 Mtonne Total 1.895 MMboe 3.145 MMboe 3.890 MMboe The VAS Report estimated the Contingent Resources as at 31 December 2018 in the VAS field as follows: Contingent Resources (1C) Contingent Resources (2C) Contingent Resources (3C) Gas Condensate - - - - 2,912 MMscf / 83 MMm3 74 Mbbl / 9 Mtonne The VAS Report estimated the Prospective Resources as at 31 December 2018 in the VED prospect as follows: Low (1U) Best (2U) High (3U) Mean Gas 23,721 MMscf / 672 MMm3 38,079 MMscf / 1,078 MMm3 62,293 MMscf / 1,764 MMm3 41,291 MMscf / 1,169 MMm3 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 19 3. SC Licence The Group’s estimates of the remaining Reserves and Contingent Resources at the SC Licence are derived from an assessment undertaken by D&M as at 1 January 2021 (the “SC Report”), which was announced on 2 June 2021. The SC Report estimated the remaining Reserves as at 1 January 2021 in the SC licence area as follows: Proved (1P) Proved + Probable (2P) Proved + Probable + Possible (3P) Gas 17.20 Bscf / 0.49 Bm3 65.16 Bscf / 1.85 Bm3 85.03 Bscf / 2.41 Bm3 Condensate 145 Mbbl / 16 Mtonne 548 Mbbl / 61 Mtonne 716 Mbbl / 80 Mtonne Total 3.2 MMboe 12.1 MMboe 15.7 MMboe The SC Report estimated the Contingent Resources as at 1 January 2021 in the SC licence area as follows: Contingent Resources (1C) Contingent Resources (2C) Contingent Resources (3C) Gas 8.56 Bscf / 0.24 Bm3 14.18 Bscf / 0.40 Bm3 81.16 Bscf / 2.30 Bm3 Condensate 72 Mbbl / 8 Mtonne 119 Mbbl / 13 Mtonne 682 Mbbl / 75 Mtonne Total 1.6 MMboe 2.6 MMboe 15.0 MMboe Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 20 Finance Review Despite the significant disruption caused by the Russian invasion of Ukraine early in the year, and almost entirely as a result of the significant increase in global gas prices, the Group’s financial performance in the 2022 year showed an improvement on 2021, with a net profit for the period of $60.2 million being an approximate 18% increase on the 2021 year (2021: $51.1 million). Revenue for the year, derived from the sale of the Group’s Ukrainian gas, condensate and LPG production, was up at $133.4 million (2021: $121.4 million). Most notably, within this total, the revenue from gas sales alone was up approximately 14% at $109.5 million (2021: $95.8 million). Aggregate production for the year (calculated on the days when the Group’s fields were actually in production) was down approximately 37.5% at 2,956 boepd (2021: 4,730 boepd) due to the disruption to operations as a result of the Russian invasion of Ukraine. During 2022, global, and particularly European, commodity prices increased, and these increases also occurred in Ukraine, and underpinned the 122% rise in average gas price realisations in the period at $960/Mm3 (UAH30,341/Mm3), with condensate and LPG average sales prices also up by 6% and 79% at $73/bbl and $143/bbl respectively (2021: $432/Mm3 (UAH11,677/Mm3), $69/bbl and $80/bbl respectively). During the period from 1 January 2023 to 14 December 2023, the average realised gas, condensate and LPG prices were $395/Mm3 (UAH14,426/Mm3), $71/bbl and $100/bbl respectively. Gross profit for the year was higher at $85.9 million (2021: $73.9 million). Cost of sales for the year was unchanged at $47.5 million (2021: $47.4 million). The decline in production drove a decline in depreciation, but such decline was offset by increased commodity prices which drove up the revenue-related costs of taxes and well rental. Cash generated from operations fell 39% to $47.5 million (2021: $77.7 million), most significantly as a consequence of the increase in trade and other receivables to $65.8 million (2021: $13.1 million). The subsoil tax rates applicable to gas production were stable during the first two months of 2022 at 29% for gas produced from deposits at depths shallower than 5,000 metres and 14% for gas produced from deposits deeper than 5,000 metres, except in respect of gas produced from new wells drilled after 1 January 2018, where the subsoil tax rates were reduced from 29% to 12% for gas produced from deposits at depths shallower than 5,000 metres and from 14% to 6% for gas produced from deposits deeper than 5,000 metres for the period between 2018 and 2022. The subsoil tax rates for condensate were 31% for condensate produced from deposits shallower than 5,000 metres and 16% for condensate produced from deposits deeper than 5,000 metres. However, with effect from 1 March 2022, changes to the subsoil production tax rates applicable to gas production were introduced. These changes modified the applicable tax rates based on gas prices, extended the incentive rates for new wells for a further 10 years and made improvements to the regulatory environment. The legislation which introduced these changes also included provisions that these rates will not be increased for 10 years. The new subsoil production tax rates applicable to gas production are as follows: (i) when gas prices are up to $150/Mm3, the rate for wells drilled prior to 1 January 2018 (“old wells”) is 14.5% for gas produced from deposits at depths shallower than 5,000 metres and 7% for gas produced from deposits deeper than 5,000 metres, and for wells drilled after 1 January 2018 (“new wells”) is 6% for gas produced from deposits at depths shallower than 5,000 metres and 3% for gas produced from deposits deeper than 5,000 metres; Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 21 (ii) (iii) when gas prices are between $150/Mm3 and $400/Mm3, the rate for old wells is 29% for gas produced from deposits at depths shallower than 5,000 metres and 14% for gas produced from deposits deeper than 5,000 metres, and for new wells is 12% for gas produced from deposits at depths shallower than 5,000 metres and 6% for gas produced from deposits deeper than 5,000 metres; when gas prices are more than $400/Mm3, for the first $400/Mm3, the rate for old wells is 29% for gas produced from deposits at depths shallower than 5,000 metres and 14% for gas produced from deposits deeper than 5,000 metres, and for new wells is 12% for gas produced from deposits at depths shallower than 5,000 metres and 6% for gas produced from deposits deeper than 5,000 metres, and for the difference between $400/Mm3 and the actual price, the rate for old wells is 65% for gas produced from deposits at depths shallower than 5,000 metres and 31% for gas produced from deposits deeper than 5,000 metres, and for new wells is 36% for gas produced from deposits at depths shallower than 5,000 metres and 18% for gas produced from deposits deeper than 5,000 metres. The tax rates applicable to condensate production were unchanged and so remain at 31% for condensate produced from deposits shallower than 5,000 metres and 16% for condensate produced from deposits deeper than 5,000 metres, for both old and new wells. As a direct result of the war in Ukraine, including the significant decline in domestic consumption disrupting the previous supply, demand and pricing dynamics, there has been a divergence between domestic and European gas pricing, and accordingly, the methodology (linked to European prices) used to determine the reference gas price for the subsoil tax rates has had a significantly detrimental effect for domestic gas producers. In order to address this issue, the Ukrainian Parliament, in September 2022, passed legislation which modified such methodology to ensure that it operates as originally intended (with such reference price being aligned with domestic prices). This methodology had an implementation date of 1 August 2022. In addition, the excise tax on LPG sales was suspended between 24 February 2022 and 30 September 2022, but was then reinstated, and the VAT rate applicable to condensate and LPG sales was reduced to 7% (from 20%) with effect from 18 March 2022. Finally, in early 2022, the Ukrainian Government imposed temporary and partial gas price regulation to support the production of certain food products through the supply of gas at regulated prices to the producers of such products. Under this scheme, all independent gas producers in Ukraine were required to sell up to 20% of their natural gas production for the period until 30 April 2022 at a price set as the cost of sales of the relevant gas producer (based on established accounting rules) for such gas, plus a margin of 24%, plus existing subsoil production taxes (the “Regulated Price”). This gas was then sold to specified producers of designated socially important food products at the Regulated Price, so as to reduce the energy costs of such producers during the period through to 30 April 2022. The designated products were certain types of flour, milk (with up to 2.5% fat), bread, eggs, chicken and sunflower oil, for sale in the Ukrainian domestic market. This temporary scheme has now concluded. Further details are set out in the Company’s announcement dated 17 January 2022. Administrative expenses for the year were 19% lower at $6.8 million (2021: $8.4 million), primarily as a result of: a 18% decrease in payroll and related taxes, and no performance related payments being made in 2022. Other expenses in the year increased as a result of the charitable donation of $6.5 million (2021: $0.1 million) for financial support to the Ukrainian humanitarian relief effort. The tax charge for the year was steady at $13.1 million (2021: $15.5 million charge), and comprised a current tax charge of $14.3 million (2021: $13.3 million charge) and a deferred tax credit of $1.2 million (2021: charge $2.2 million charge). A deferred tax asset relating to the Group’s provision for decommissioning as at 31 December 2022 of $0.5 million (2021: $0.5 million) was recognised on the tax effect of the temporary differences of the Group’s provision for decommissioning at the MEX-GOL and SV fields, and its tax base. A deferred tax liability relating to the Group’s development and production assets at the MEX-GOL and SV fields as at 22 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 31 December 2022 of $3.7 million (2021: $5.7 million) was recognised on the tax effect of the temporary differences between the carrying value of the Group’s development and production asset at the MEX-GOL and SV fields, and its tax base. A deferred tax asset relating to the Group’s provision for decommissioning as at 31 December 2022 of $0.3 million (2021: $0.3 million) was recognised on the tax effect of the temporary differences on the Group’s provision on decommissioning at the VAS field, and its tax base. A deferred tax liability relating to the Group’s development and production assets at the VAS field as at 31 December 2022 of $0.02 million (2021: deferred tax asset of $0.5 million) was recognised on the tax effect of the temporary differences between the carrying value of the Group’s development and production asset at the VAS field, and its tax base. Capital investment of $12.9 million reflects the investment in the Group’s oil and gas development and production assets during the year (2021: $24.3 million), primarily relating to the drilling of the SV-31 and GOL-107 wells. This significant $11.4 million reduction in capital investment is a function of the deferral of certain aspect of the Group’s development plans necessitated by the ongoing war in Ukraine. A review of any indicators of impairment of the carrying value of the Group’s assets was undertaken at the year end and this review did conclude that the Russian invasion of Ukraine and the suspension of the VAS production licence had resulted in such an indicator. Impairment reviews were therefore conducted on the carrying value of the Group’s assets and resulted in a recognition of an impairment loss of $4.3 million (2021: nil). With the material increase in commodity prices during the year, and necessary payment term accommodations that needed to be agreed with the Group’s largest indirect off-taker pursuant to a contract facilitated by the Group’s related party, LLC Smart Energy, trade receivables were up materially at $44.0 million (2021: $5.0 million). The year-end trade receivables were all paid post period end. Cash, cash equivalents and short-term investments held as at 31 December 2022 were slightly lower at $88.7 million (2021: $92.5 million), the decrease being predominantly a result of the $52.8 million increase in trade and other receivables. Cash, cash equivalents, short-term investments and trade and other receivables combined totalled $154.5 million (2021: $105.6 million), a 46% increase. The Group’s cash and cash equivalents balance as at 14 December 2023 was $79.1 million, held as to $58.5 million equivalent in Ukrainian Hryvnia and the balance of $20.6 million equivalent predominantly in US Dollars, Euros and Pounds Sterling. During 2022, the Ukrainian Hryvnia was relatively stable against the US Dollar, weakening from UAH27.3/$1.00 on 31 December 2021 to UAH36.6/$1.00 on 31 December 2022. The impact of this was $38.1 million of foreign exchange loss (2021: $1.6 million of foreign exchange gain). Increases and decreases in the value of the Ukrainian Hryvnia against the US Dollar affect the carrying value of the Group’s assets. However, in July 2022, the National Bank of Ukraine devalued the Ukrainian Hryvnia by 25% against the US Dollar in order to protect its foreign exchange reserves as the ongoing war continues to materially affect the Ukrainian economy. The official exchange rate of the Ukrainian Hryvnia to the US Dollar on 14 December 2023 is UAH37.0/$1.00. This devaluation is not expected to have a material net impact on the Group, as its production and sales are dictated by (but not directly linked to) international commodity prices, which are expected to materially offset general cost increases that will result from such devaluation. Cash from operations has funded the capital investment during the year, and the Group’s current cash position and positive operating cash flow are the sources from which the Group plans to fund the development programmes for its assets over the remainder of 2022 and beyond. This is coupled with the fact that the Group is currently debt-free, and therefore has no debt covenants that may otherwise impede its ability to implement contingency plans if domestic and/or global circumstances dictate. This flexibility and ability to monitor and manage development plans and liquidity is a cornerstone of our planning, and underpins our assessments of the future. With monetary resources at the end of the year of $88.7 million ($81.5 million of which was held outside Ukraine), and annual running costs of less than $8 million, the Group remains in a very strong position, notwithstanding the impact of the current conflict in Ukraine, as well as any local or global shocks that may occur to the industry and/or the Group. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 23 On 15 June 2023, the Company paid an interim dividend of 15 pence per ordinary share, approximately £48.1 million in aggregate, which was the Company’s maiden dividend payment to its shareholders. Bruce Burrows Finance Director Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 24 Key Performance Indicators The Group uses key performance indicators (KPIs) to measure its performance and achievements in its business activities. The KPIs are reviewed annually to ensure that the KPIs are relevant. The Group’s targeted and achieved results of its KPIs for 2022 are set out below. The Russian invasion of Ukraine in February 2022 had a material and ongoing impact on all operational and financial targets, and had a significant impact on the actual outcome for the year and therefore performance against target. The Level One KPI is an overriding KPI for performance related remuneration, and must be achieved to invoke the Level Two KPIs. Level One KPI 1. Fatalities of zero • • Target - Actual - zero zero Level Two KPIs 1. Total volumes of gas and condensate produced • • Target - 1,362,934 boe Actual - 939,230 boe 2. Lost Time Incidents • • Target - zero Actual - zero 3. Operating expenditure per barrel of oil equivalent • • Target - UAH 694 ($24.79) Actual - UAH 1,745 ($53,96) 4. Cashflow from operating activities • • Target - UAH 1,722 million ($61.5 million) Actual - UAH 874 million ($27.0 million) Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 25 Sustainability We strive to operate and develop our business in a sustainable way and believe in operating to top quartile ethical, safety and environmental standards. We intend to make a positive impact wherever we work. Transparency and fairness We succeed in business by working in an honest and ethical way, and we will not countenance bribery and corruption. Our Anti-Bribery and Corruption Policy explains our approach to these issues. It is also important that all our stakeholders are well informed about our work, and that we carry out tenders for operational services and equipment in a fair and transparent way. Our people Our people are our most valuable asset. We work hard to develop the talents and skills of our team, and we endeavour to recruit outstanding new employees to enrich our capabilities. At the same time, we place paramount emphasis on safety at work, as well as the broader health and safety of our employees, and have and continue to implement rigorous new processes and training across the business. Environmental protection We regularly update and modernise our infrastructure and ways of working to improve efficiency and reduce our impact on the natural world. Independent environmental research companies monitor the environment in the areas in which we operate to ensure that we meet the relevant standards and regulations. Local communities We work hard to give back to the communities where we work, not just by creating jobs and paying taxes, but by maintaining and contributing to local organisations and infrastructure. Among other things, we have supported local schools (e.g. materials for repair works and funding of school meals) and youth sports, as well as the repair of roads and local infrastructure, although the war has curtailed many of these initiatives in recent times. Humanitarian aid Since the commencement of the war, we have contributed to humanitarian aid initiatives in Ukraine, including contributing to the provision of medical equipment and supplies and other humanitarian aid. Environmental Management Protecting the natural environment has always been a key focus for us but arguably has never been more important than now. We carefully monitor the effects of our operations, regularly upgrade equipment to minimise our impact, and have implemented strict quality, health, safety and environmental policies. Our QHSE policies and performance are overseen by our Health, Safety and Environment Committee. We work to mitigate our environmental impact in many ways, including taking a responsible attitude to methods of production, carefully coordinating our activities, using only high-quality materials certified to international standards, and frequently updating our technology and processes. We have been accredited to environmental standard ISO 14001:2015 Environmental Management Systems, and our QHSE policies are designed to raise standards in these areas. Regular monitoring of environmental indicators for ongoing projects ensures we can continually assess our impact on the environment. Modernised infrastructure We continue to modernise our production infrastructure in order to improve both operational and environmental performance. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 26 Over recent years we have progressively upgraded infrastructure, including the metering and separation station (“MSS”) at the gas processing facility at the MEX-GOL and SV fields. This involved the replacement of equipment and automation of various processes, allowing us to solve a number of issues and reduce our environmental impact through, in particular: • • • • significant reduction of gas flaring, gas losses and air emissions expansion of pollution controls in and around the area development of an enclosed gas measuring system on a well stricter observance of environmental laws and safety regulations We also installed a new condensate stabilisation unit (“CSU”) at the MSS, enabling us to use raw materials more efficiently and greatly improve the MSS’s environmental performance. We also installed facilities to produce LPG at the MEX-GOL and SV fields. The LPG produced is not only a very marketable product (liquefied propane-butane) but is also a relatively environmentally friendly hydrocarbon fuel. We have undertaken work on the gas processing facilities at the MEX-GOL and SV fields to upgrade the LPG extraction circuit, increase the flow capacity of the facilities, and significantly increase the liquids tank storage capacity, all of which are designed to improve overall plant efficiencies, improve the quality of liquids produced and boost recoveries of LPG, while reducing environmental emissions. Our QHSE policies Our policies for quality, health, safety and environment protection focus on the following: • • • • using our capabilities in the most efficient ways possible protecting and improving environmental conditions where we work improving occupational health and safety developing and expanding employees’ skills Environmental monitoring From time to time, we commission independent environmental research companies to monitor the state of soil, underground and open water, and plant and animal life throughout the entire area of our activities. These studies have never detected any violation of relevant environmental standards. Streamlined Energy and Carbon Reporting (“SECR”) We remain very aware of the current drive globally to monitor, reduce and report levels of energy use in delivering Group performance, and note that SECR reporting requirements apply to the Group. However, as our United Kingdom emissions are de-minimis, with only two full-time employees in the United Kingdom and no operational presence, we fall below the minimum threshold and are currently exempt from reporting such information. Notwithstanding that exemption, but subject to the restrictions caused by the war in Ukraine, we are endeavouring to review our Ukrainian operations to determine the processes of self- reporting for our global operations, and formulating the content of our intended self-reporting. This initiative is intended to: • • • • disclose the environmental-related data currently collected, including: energy consumed, water consumed, greenhouse gas emissions and waste generated (in natural units and relative to volumes of extracted gas); determine any additional applicable indicators to be added, for example: natural gas and solid fuel consumed for heating, compressors and other equipment; diesel fuel used in diesel generators; consumption of petrol and diesel in vehicles, etc.; determine potential benchmarks; and determine the reporting frequency. Health and Safety Safety at work is fundamental and underpins all our success. We continue to improve our safety standards by introducing new processes and systems. We have introduced new production processes which are intended to meet or exceed all applicable health and safety standards in Ukraine, as well as aiming to be more efficient than previously. 27 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 In 2019, we launched our Near Miss reporting system, designed to increase occupational health and safety by detecting and eliminating dangerous incidents, situations, and practices (“Near Misses”). We now centrally record all Near Misses in our workplaces and seek to establish ways to reduce or eliminate the chances of dangerous incidents occurring in the future. We undertake practical training sessions and generate a register of reported Near Misses, ranked by risk level (identification, recognition and mitigation as a key to safe working). Since then, we have advanced our Near Miss reporting system by introducing a fully electronic process, carrying out Near Miss training for internal auditors and coaches, rolling out new ways to detect and eliminate Near Misses, and introducing Near Miss KPIs for our team. In 2020, we launched our TOP 10 safety standards for high risk operations, with leadership and training programmes for each of these standards. In 2021, we continued to develop our health and safety regime, with the implementation of a number of improvement measures, digitisation of health and safety procedures, the adoption of specific measures for the protection of employees against COVID-19, and an extensive occupational health and safety training programme for all employees. In addition, our operations were re-certified as complying with international standards of quality, occupational safety and health management systems, according to ISO 14001:2015 and ISO 45001:2018. In early 2022, in anticipation of possible military conflict between Russia and Ukraine, a crisis management committee was established to prepare for such a conflict, including developing emergency and contingency plans in case of war and undertaking safety and evacuation drills at operational sites. This proved crucial immediately following the invasion of Ukraine by Russia, facilitating the prompt and safe evacuation of personnel, who were then able to work remotely, as well as the evacuation of their families to the west of Ukraine. Surface and underground bomb shelters were constructed at all operational sites during 2022. Information and instruction materials have been developed and training has been conducted for all personnel, including safety actions in case of shelling or chemical or radiation contamination; mental health aid; and enhanced practical training on first aid and medical assistance. The safe implementation and undertaking of technical work also remains a priority, and all scheduled training was conducted as planned during 2022, including safe lifting operations, gas work safety, fire safety and safe driving. All operational sites maintain incident reporting transparency, and if incidents occurred, or were identified, appropriate corrective actions were undertaken. Despite the war, the Group operated within applicable legal, health, safety and environmental frameworks and, despite the imposition of martial law, successfully obtained all necessary approvals from environmental and labour inspection authorities. The preservation of human life and health is our highest value, and we will continue to work hard to further raise occupational health and safety standards. War in Ukraine The invasion of Ukraine by Russia which commenced on 24 February 2022 has caused a catastrophic humanitarian situation in Ukraine, as well as extreme challenges to the fiscal, economic and business environment. At the present time, the scope and duration of the war is unknown and there is a great deal of uncertainty about the ultimate impact that such war will have on Ukraine and its population. These circumstances mean that it is extremely difficult to plan future investment and operational activities at the Group’s fields. The Group is taking all possible measures to safeguard its staff, especially those who are located at the Group’s fields. Where possible, staff work remotely and have been supplied with all necessary devices and software to facilitate remote working, and only necessary field staff attend field operational facilities and locations, where all possible measures are maintained to minimise risk, such as ensuring that hydrocarbon inventories are kept at minimum levels. Currently, production and limited field operations are being undertaken at the MEX-GOL and SV fields. However, in undertaking such operations, the Group is taking, and will take, all measures available to protect and safeguard its personnel and business, with the safety and wellbeing of its staff and contractors being paramount. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 28 Principal Risks and Uncertainties Risks Overview Managing risks effectively is fundamental to the success of our business and we apply rigorous criteria across our operations and functions. We also operate to top quartile quality, health, safety and environmental (“QHSE”) standards, and we monitor and manage each of these areas. We evaluate the risks according to a common set of assessment criteria deployed across business units, corporate functions and capital investment projects, and then rank and prioritise risks by importance and by comparing their level against predetermined target risk levels and tolerance thresholds. For all major risks we have developed a strategy for how we respond and mitigation plans, with deadlines and responsibilities, so if a serious risk ever materialises, we know how we will react and will react quickly. The key team responsible for managing risks is our Management Risk Committee. This Committee monitors our business operations, identifies and records important risks, and formally reviews and updates our Risk Register and Mitigation Plan each quarter. In addition, oversight and responsibility of all QHSE matters falls to the HSE Committee composed of Board members and senior management. The Group’s QHSE policies are robustly enforced via management meetings, training and the work of our safety experts. The overall aim is always to ensure that the impact of our work on our staff, contractors and the environment is as low as is practically possible. We also operate a Near Miss reporting system, collecting and addressing reports on near miss incidents to monitor and improve occupational health and safety. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 29 Principal Risks and How We Manage Them The Group has a risk evaluation methodology in place to assist in the review of the risks across all material aspects of its business. This methodology highlights external, operational and technical, financial and corporate risks and assesses the level of risk and potential consequences. It is periodically presented to the Audit Committee and the Board for review, to bring to their attention potential risks and, where possible, propose mitigating actions. Key risks recognised and mitigation factors are detailed below:- Risk External risks War in Ukraine On 24 February 2022, Russia invaded Ukraine and there is currently a serious and ongoing war within Ukraine. This war is having a huge impact on Ukraine and its population, with significant destruction of infrastructure and buildings in the areas of conflict, as well as damage in other areas of Ukraine. The war is resulting in significant casualties and has caused a huge humanitarian catastrophe and refugee influx into neighbouring countries. The war is also impacting the fiscal and economic environment in Ukraine, as well as the financial stability and banking system in Ukraine, including restrictions on the transfer of funds outside Ukraine. The war is an escalation of the previous regional conflict risk faced by the business, a dispute that has been going on since 2014 in parts of eastern Ukraine, and since that time Russia has continued to occupy Crimea. The current war is also having a significant adverse effect on the Ukrainian financial markets, hampering the ability of Ukrainian companies and banks to obtain funding from the international capital and debt markets. The war has disrupted the Group’s business and operations, causing the suspension of field operations, albeit recommenced in March 2022 at the MEX-GOL and SV fields, in July 2022 at the SC licence area and in October 2022 at the VAS field, and has also impacted the supply of materials and equipment and the availability of contractors field operations. At present, the war is ongoing and the scope and duration of the war is uncertain. Risk relating to Ukraine Ukraine is an emerging market and as such the Group is exposed to greater regulatory, economic and political risks than it would be in other jurisdictions. Emerging economies are generally subject to a volatile political and economic environment, which makes to market downturns elsewhere in the world and could adversely impact the Group’s ability to operate in the market. Furthermore, the war in Ukraine is impacting the fiscal and economic environment, the financial and banking system, and the economic stability of Ukraine. As a result, Ukraine will require financial assistance and/or aid from international financial agencies to provide economic support and assist with the reconstruction of infrastructure and buildings damaged in the war. Banking system in Ukraine The banking system in Ukraine has been under great strain in recent years due to the weak level of capital, them vulnerable to undertake Mitigation The Group has assets in the areas of conflict in the east of Ukraine, and the war has disrupted its operations in those areas. The Group has been only undertaking limited field and production operations at the MEX-GOL, SV and VAS fields and SC licence area. At the fields, inventories of hydrocarbons are being maintained at minimum levels. At the sites where operations are suspended, there are no staff permanently on site, except for necessary security staff. Where possible, all other staff work remotely and have been supplied with all necessary devices and software to facilitate remote working. Additionally, the Group aims to maintain a significant proportion of its cash resources outside Ukraine. The Group continues to monitor the situation and endeavours to protect its assets and safeguard its staff and contractors. The Group minimises risk by continuously this monitoring the market in Ukraine and by maintaining as strong a working relationship as possible with the Ukrainian regulatory authorities. The Group also maintains a significant proportion of its cash holdings in international banks outside Ukraine. The creditworthiness and potential risks relating to the banks in Ukraine are regularly reviewed by the Group, Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 30 low asset quality caused by the economic situation, currency depreciation, changing regulations and other economic pressures generally, and so the risks associated with the banks in Ukraine have been significant, including in relation to the banks with which the Group has operated bank accounts. This situation was improving moderately following remedial action by the National Bank of Ukraine, but the current war has significantly affected such improvements, and the National Bank of Ukraine has imposed a number of restrictive measures designed to protect the banking system, including restrictions on the transfer of funds outside Ukraine (albeit that the Group aims to maintain a significant proportion of its cash resources outside to be In addition, Ukraine continues Ukraine. supported by funding from the International Monetary Fund, and has requested further funding support from the International Monetary Fund. Geopolitical environment in Ukraine Although there were some improvements in recent years, there has not been a final resolution of the political, fiscal and economic situation in Ukraine, and the current war has had a severe detrimental effect on the economic situation in Ukraine. The ongoing effects of this are difficult to predict and likely to continue to affect the Ukrainian economy and potentially the Group’s business. This situation is currently affecting the Group’s production and field operations, and the ongoing the Group’s development and operational planning for its assets. Climate change Any near and medium-term continued warming of the planet can have potentially increasing negative social, economic consequences, environmental generally, globally and regionally, and specifically in relation to the Group. The potential impacts include: loss of market; and increased costs of operations through increasing regulatory oversight and controls, including potential effective or actual loss of licences to operate. As a diligent operator aware of and responsive to its good stewardship responsibilities, the Group not only needs to monitor and modify its business plans and operations to react to changes, but also to ensure its environmental footprint is as minimal as it can practicably be in managing the hydrocarbon resources the Group produces. Operational and technical risks Quality, Health, Safety and Environment (“QHSE”) The oil and gas industry, by its nature, conducts activities which safety, environmental and security incidents. Serious incidents can not only have a financial impact but can also damage the opportunity to undertake further projects. The war in Ukraine poses significant risks to field operations, by way of potential threat to the lives of employees and contractors, and damage to equipment and infrastructure. reputation and is disrupting the Group’s instability health, cause and can but the geopolitical and economic events in Ukraine over recent years have significantly weakened the Ukrainian banking sector. This has been exacerbated by the current war in Ukraine. In light of this, the Group has taken and continues to take steps to diversify its banking arrangements between a number of banks in Ukraine. These measures are designed to spread the risks associated with each bank’s creditworthiness, and the Group endeavours to use banks that have the best available creditworthiness. Nevertheless, and despite the recent improvements, the Ukrainian banking sector remains weakly capitalised and so the risks associated with the banks in Ukraine remain significant, including in relation to the banks with which the Group operates bank accounts. As a consequence, the Group also maintains a significant proportion of its cash holdings in international banks outside Ukraine. The Group continually monitors the market and business environment in Ukraine and endeavours to recognise approaching risks and factors that may affect its business. However, the war in Ukraine creates material challenges in planning future investment and operations. The Group its operational is activities to minimise risk to its staff and contractors, and to limit its financial exposure. limiting The Group’s plans include: assessing, reducing and/or mitigating its emissions in its operations; and identifying climate change-related risks and assessing the degree to which they can affect its business, including financial implications. The HSE Committee is specifically tasked with overseeing, measuring, benchmarking and mitigating the Group’s environmental and climate impact, which will be reported on in future periods. At this stage, the Group does not consider climate change to have any material implications on the Group’s financial statements, including accounting estimates. The Group maintains QHSE policies and requires that management, staff and contractors adhere to these policies. The policies ensure that the Group meets Ukrainian legislative standards in full and achieves international standards to the maximum extent possible. As a result of the COVID-19 pandemic the Group has implemented processes and controls intended to ensure protection of all our stakeholders and minimise any disruption to our business. As a consequence of the current war in Ukraine, operations at the MEX-GOL, SV and VAS fields and SC licence area have been suspended for periods, and currently only limited field Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 31 Industry risks The Group is exposed to risks which are generally associated with the oil and gas industry. For example, the Group’s ability to pursue and develop its projects and undertake development programmes depends on a number of uncertainties, including the availability of capital, seasonal conditions, regulatory approvals, gas, oil, condensate and LPG prices, development costs and drilling success. As a result of these uncertainties, it is unknown whether potential drilling locations identified on proposed projects will ever be drilled or whether these or any other potential drilling to produce gas, oil or locations will be able condensate. In addition, drilling activities are subject to many risks, including the risk that commercially productive reservoirs will not be discovered. Drilling for hydrocarbons can be unprofitable, not only due to dry holes, but also as a result of productive wells that do not produce sufficiently to be economic. In addition, drilling and production operations are highly technical and complex activities and may be curtailed, delayed or cancelled as a result of a variety of factors. Production of hydrocarbons Producing gas and condensate reservoirs are generally characterised by declining production rates which vary depending upon reservoir characteristics and other factors. Future production of the Group’s gas and condensate reserves, and therefore the Group’s cash flow and income, are highly dependent on in operating existing producing wells, drilling new production wells and efficiently developing and exploiting any reserves, and finding or acquiring additional reserves. The Group may not be able to develop, find or acquire reserves at acceptable costs. The experience gained from drilling undertaken to date highlights such risks as the Group targets the appraisal and production of these hydrocarbons. further development and Risks relating operation of the Group’s gas and condensate fields in Ukraine The planned development and operation of the Group’s gas and condensate fields in Ukraine is susceptible to appraisal, development and operational risk. This could include, but is not restricted to, delays in the delivery of equipment in Ukraine, failure of key equipment, lower than expected production from wells that are currently producing, or new wells that are brought on-stream, problematic wells and complex geology which is difficult to drill or interpret. The generation of significant operational cash is dependent on the successful delivery and completion of the development and operation of the fields. The impacting planning and war the Group’s success in Ukraine the to is and production operations are continuing at the MEX- GOL and SV fields. Only essential staff are located at site, and all other staff are working remotely, either from areas away from the conflict areas or outside Ukraine. The Group has invested in technology that allows many staff to work just as effectively from remote locations. The Group has well qualified and experienced technical management staff to plan and supervise operational activities. In addition, the Group engages with suitably qualified local and international geological, geophysical and engineering experts and contractors to supplement and broaden the pool of expertise available to the Group. Detailed planning of development activities is undertaken with the aim of managing the inherent risks associated with oil and gas exploration and production, as well as ensuring that appropriate equipment and personnel are available for the operations, and that local contractors are appropriately supervised. In recent years, the Group has engaged external technical consultants to undertake a comprehensive review and re-evaluation study of the MEX-GOL and SV fields in order to gain an improved understanding of the geological aspects of reservoir the engineering, drilling and completion techniques, and the results of this study and further planned technical work are being used by the Group in the future development of these fields. The Group has established an ongoing relationship with such external technical consultants to ensure that technical management and planning is of a high quality in respect of all development activities on the Group’s fields. fields and staff, technical management The Group’s in consultation with its external technical consultants, carefully plan and supervise development and operational activities with the aim of managing the risks associated with the further development of the Group’s fields in Ukraine. This includes detailed review and consideration of available subsurface data, utilisation of modern geological software, and utilisation of engineering and completion techniques developed for the fields. With regards to operational activities, the that appropriate equipment and Group ensures personnel are available for the operations, and that operational contractors are appropriately supervised. In Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 32 implementation of development and operations at the Group’s fields. Drilling and workover operations Due to the depth and nature of the reservoirs in the Group’s fields, the technical difficulty of drilling or re- entering wells in the Group’s fields is high, and this and the equipment limitations within Ukraine, can than expected result outcomes for wells. Maintenance of facilities There is a risk that production or transportation facilities can fail due to non-adequate maintenance, control or poor performance of the Group’s suppliers. in unsuccessful or lower addition, the Group performs a review of indicators of impairment of its oil and gas assets on an annual basis, and considers whether an assessment of its oil and gas assets by a suitably qualified independent assessor is appropriate or required. The utilisation of detailed sub-surface analysis, careful well planning and engineering design in designing work programmes, along with appropriate procurement procedures and competent on-site management, aims to minimise these risks. the Ukrainian minimum The Group’s facilities are operated and maintained at legal standards above requirements. Operations staff are experienced and receive supplemental training to ensure that facilities are properly operated and maintained. Service providers are rigorously reviewed at the tender stage and are monitored during the contract period. the the Group’s development obligations Financial risks Exposure to cash flow and liquidity risk There is a risk that insufficient funds are available to meet to commercialise the Group’s oil and gas assets. Since a significant proportion of future capital requirements of the Group is expected to be derived from operational cash generated from production, including from wells yet to be drilled, there is a risk that in the longer term insufficient operational cash is generated, or that additional funding, should the need arise, cannot be secured. The war in Ukraine has disrupted production operations at the Group’s fields, and consequently reduced anticipated cash flows from those fields, and this has increased the risk regarding sufficiency of capital for development. In addition, the conflict may disrupt the sales market for hydrocarbons that are produced. Currently, however, hydrocarbon prices are very high, which is ameliorating the potential reduction in cash flows, and the Group’s financial sales counterparties are meeting obligations. In addition to the risk of operational cash shortfalls, there is a risk that even with robust cash flows and cash balances, the Group, from time to time, can suffer from non-Ukrainian operational banking appetite for businesses such as the Group’s business, which can ultimately manifest itself in having a restricted access to banking services. Ensuring appropriate business practices The Group operates in Ukraine, an emerging market, where certain inappropriate business practices may, from time to time occur, such as corrupt business practices, bribery, appropriation of property and fraud, all of which can lead to financial loss. their The Group maintains adequate cash reserves and closely monitors forecasted and actual cash flow, as well as short and longer-term funding requirements. The Group aims to maintain a significant proportion of its cash resources outside Ukraine. The Group does not currently have any loans outstanding, internal financial projections are regularly made based on the latest estimates available, and various scenarios are run to assess the robustness of the Group’s liquidity. However, as the risk to future capital funding is inherent in the oil and gas exploration and development industry and reliant in part on future development success, it is difficult for the Group to take any other measures to its this risk, other further mitigate development activities to its available capital funding from time to time. The Group aims to maintain as diverse a range of banking relationships as possible to reduce the risks associated with limited accessibility to banking services which may exist from time to time. tailoring than The Group maintains anti-bribery and corruption policies in relation to all aspects of its business, and ensures that clear authority levels and robust approval processes are in place, with stringent controls over cash management and the tendering and procurement processes. In addition, office and site protection is maintained to protect the Group’s assets. Hydrocarbon price risk The Group derives its revenue principally from the sale of its Ukrainian gas, condensate and LPG production. These revenues are subject to commodity price The Group sells a proportion of Its hydrocarbon production through offtake arrangements, which include pricing formulae so as to ensure that it achieves market 33 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 volatility and political influence. A prolonged period of low gas, condensate and LPG prices may impact the Group’s ability to maintain its long-term investment programme with a consequent effect on its growth rate, which in turn may impact the Company’s share returns. Lower gas, price or any shareholder condensate and LPG prices may not only decrease the Group’s revenues per unit, but may also reduce the amount of gas, condensate and LPG which the Group can produce economically, as would increases in costs associated with hydrocarbon production, such as subsoil taxes and royalties. The overall economics of the Group’s key assets (being the net present value of the future cash flows from its Ukrainian projects) are far more sensitive to long term gas, condensate and LPG prices than short-term price volatility. However, short-term volatility does affect liquidity risk, as, in the early stage of the projects, income from production revenues is offset by capital investment. In addition, the war in Ukraine may disrupt the sales market for hydrocarbons, although, currently, hydrocarbon prices are very high, and the Group’s sales counterparties are meeting their financial obligations. Currency risk Since the beginning of 2014, the Ukrainian Hryvnia significantly devalued against major world currencies, including the US Dollar, where it has fallen from UAH8.3/$1.00 on 1 January 2014 to UAH36.6/$1.00 on 31 December 2022, and UAH37.0/$1.00 on 14 December 2023. This devaluation has been a significant contributor to the imposition of banking restrictions by the National Bank of Ukraine over recent years. In addition, the geopolitical events in Ukraine over recent years and the current war in Ukraine are likely to continue to impact the valuation of the Ukrainian Hryvnia against major world currencies. Further devaluation of the Ukrainian Hryvnia against the US Dollar will affect the carrying value of the Group’s assets. Counterparty and credit risk The challenging political and economic environment in Ukraine and current war means that businesses can be subject to significant financial strain, which can mean that the Group is exposed to increased counterparty risk if counterparties fail or default in their contractual obligations to the Group, including in relation to the sale of its hydrocarbon production, resulting in financial loss to the Group. Financial markets and economic outlook The performance of the Group is influenced by global economic conditions and, in particular, the conditions prevailing in the United Kingdom and Ukraine. The economies in these regions have been subject to volatile pressures in recent periods, with the global economy having experienced a long period of difficulty, the COVID pandemic, and more particularly the current war in Ukraine. This has led to extreme the Ukrainian foreign exchange movements interest rates, and Hryvnia, high inflation and in prices for its products, as well utilising the electronic market platforms in Ukraine to achieve market prices for its remaining products. However, hydrocarbon prices in Ukraine are implicitly linked to world hydrocarbon prices and so the Group is subject to external price trends. In January 2022, the Ukrainian Government imposed temporary partial gas price regulations until 30 April 2022, designed to support the production of certain designated food products. Whilst an unhelpful interference in the functioning of the deregulated gas supply market in Ukraine, in its stated form and duration, this temporary scheme is not a material risk to the Company and its cash generation, and has now expired. The Group’s sales proceeds are received in Ukrainian Hryvnia, and the majority of the capital expenditure costs for the current investment programme will be incurred in Ukrainian Hryvnia, thus the currency of revenue and costs are largely matched. In light of the previous devaluation and volatility of the Ukrainian Hryvnia against major world currencies, and since the Ukrainian Hryvnia does not benefit from the range of currency hedging instruments which are available in more developed economies, the Group has adopted a policy that, where possible, funds not required for use in Ukraine be retained on deposit in the United Kingdom and Europe, principally in US Dollars. The Group monitors the financial position and credit quality of its contractual counterparties and seeks to manage the risk associated with counterparties by contracting with and creditworthy customers. Hydrocarbon production is sold on terms that limit supply credit and/or title transfer until payment is received. contractors The Group’s sales proceeds are received in Ukrainian Hryvnia and a significant proportion of investment expenditure is made in Ukrainian Hryvnia, which minimises risks related to foreign exchange volatility. However, hydrocarbon prices in Ukraine are implicitly linked to world hydrocarbon prices and so the Group is subject to external price movements. The Group holds a significant proportion of its cash reserves in the United Kingdom and Europe, mostly in US Dollars, with reputable financial institutions. The financial status of to manage is carefully monitored counterparties Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 34 increased credit risk relating to the Group’s key counterparties. counterparty risks. Nevertheless, the overall exposure that the Group faces as a result of these risks cannot be predicted and many of these are outside of the Group’s control. Corporate risks Ukrainian production licences The Group operates in a region where the right to production can be challenged by State and non-State parties. During 2010, this manifested itself in the form of a Ministry Order instructing the Group to suspend all operations and production from its MEX-GOL and SV production licences, which was not resolved until mid-2011. In 2013, new rules relating to the updating of production licences led to further challenges being raised by the Ukrainian authorities to the production licences held by independent oil and gas producers in Ukraine, including the Group. In March 2019, a Ministry Order was issued instructing the Group to suspend all operations and production from its VAS production licence, which was not resolved until March 2023. In 2020, LLC Arkona Gas-Energy (“Arkona”) faced a challenge from PJSC Ukrnafta concerning the validity of its SC production licence, which was ultimately resolved in Arkona’s favour by a decision of the Supreme Court of Ukraine in February 2021. During 2023, the Ukrainian authorities have taken a number of regulatory actions against the Group, which have culminated in Ministry Orders being made in May 2023 to suspend all operations and production at the VAS production licence and SC exploration licence. Excepting the current suspension Orders made in respect of the VAS production licence and SC exploration licence, all such challenges affecting the Group have been successfully defended through the Ukrainian legal system. In July 2023, new legislation was introduced in Ukraine, which will come into force in September 2024, and which requires that branches (or representative offices) of foreign companies operating in Ukraine register their ultimate beneficial owners in Ukrainian Registries. Regal Petroleum Corporation Ltd ("RPC"), which holds the MEX-GOL and SV licences, operates such a branch and will therefore be required to register its ultimate beneficial owners from the implementation of this law, which raises a potential risk that such registration will not be accepted by the Ukrainian authorities, and possibly result in regulatory action against RPC and/or its licences and assets, including suspension of the MEX- GOL and SV licences. The business environment is such that these types of challenges may arise at any time in relation to the Group’s operations, licence history, compliance with licence commitments and/or local regulations. In addition, production licences in issued with and/or carry ongoing Ukraine are compliance obligations, which if not met, may lead to the loss of a licence. Risks relating to key personnel The Group’s success depends upon skilled management as well as technical expertise and administrative staff. The loss of service of critical 35 feasible for practical or The Group ensures compliance with commitments and regulations relating to its production licences through Group procedures and controls or, where this is not logistical immediately considerations, seeks to enter into dialogue with the relevant Government bodies with a view to agreeing a reasonable time frame for achieving compliance or an alternative, mutually agreeable course of action. Work programmes are designed to ensure that all licence obligations are met and continual interaction with Government bodies is maintained in relation to licence obligations and commitments. The Group periodically reviews the compensation and contractual terms of its staff. In addition, the Group has developed relationships with a number of technical and Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 members from the Group’s team could have an adverse effect on the business. The current war in Ukraine has meant that, as far as possible, the Group’s staff have needed to move away from areas of conflict and work remotely. other professional experts and advisers, who are used to provide specialist services as required. As a result of the war, only essential staff are located at site, and all other staff are working remotely, either from areas away from the conflict areas or outside Ukraine. The Group has invested in technology that allows many staff to work just as effectively from remote locations. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 36 Statement by the Directors in performance of their statutory duties in accordance with Section 172(1) of the Companies Act 2006 Introduction The Directors of the Company must act in accordance with a set of general duties, which are detailed in Section 172(1) of the Companies Act 2006, as follows: “A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole and, in doing so have regard (amongst other matters) to: • • • • • • the likely consequences of any decision in the long term; the interests of the company’s employees; the need to foster the company’s business relationships with suppliers, customers and others; the impact of the company’s operations on the community and environment; the desirability of the company maintaining a reputation for high standards of business conduct; and the need to act fairly as between members of the company.” The Directors are mindful of their duty to promote the success of the Company as described above. Details of how the Directors have had regard to these matters can be found throughout this Annual Report and Financial Statements, where we provide examples of how we: take into account the likely consequences of long-term decisions; understand the importance of engaging with our employees; build relationships with stakeholders; understand the impact of our operations on the communities in our region and the environment we depend upon; attribute importance to behaving as a responsible business; and ensure that we act fairly between shareholders. Statement The Directors of the Company consider, both individually and collectively, that they have acted in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its shareholders as a whole (having regard to the stakeholders and matters set out in Section 172(1)(a-f) of the Companies Act 2006) in the decisions taken during the year ended 31 December 2022. Examples of this include: • Long-term decision-making We have a strategy for the development of our business and our oil and gas assets in Ukraine, and retain, monitor and adjust a corporate financial model for the economic life of our assets. Our plan is designed to have a long-term beneficial impact on the Company and to contribute to its success in safely producing gas, condensate and LPG from our fields in Ukraine. We will continue to operate our business with robust and documented financial and operational controls and in line with safety and environmental regulations and requirements. • Employees’ interests Our employees are fundamental to the delivery of our business plan. We aim to be a responsible employer in our approach to the remuneration and benefits that our employees receive. The health, safety and well-being of our employees is one of our primary considerations in the way we do business, and the training and development of our employees to develop their skills and expertise is fundamental in the highly technical and specialised oil and gas industry. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 37 • Relationships with stakeholders We aim to operate our gas and condensate fields in Ukraine safely and efficiently for the benefit of all of our stakeholders, including employees, Government, investors, local community and suppliers. In the operational extraction and production of gas, condensate and LPG, there are many risks, including to health, safety and the environment. In our operational activities, we rigorously apply our quality, health, safety and environmental (“QHSE”) policies to protect the safety of our employees and contractors, and to protect the environment from pollution. In the delivery of our hydrocarbon products, we aim to ensure that our products meet all applicable regulatory requirements and to be a reliable and consistent supplier to our customers. We also aim to act responsibly and fairly in how we engage with our contractors, suppliers and customers, and to co-operate with our industry regulators, all of which are integral to the successful delivery of our business plan and the stewardship of the resources we manage. • Impact on community and environment Our business plan takes into account the impact of the Company's operations on the community and environment in which we operate, and our wider societal responsibilities, particularly in Ukraine at our operational sites. Prior to the outbreak of the war, we had a broad range of corporate social responsibility (“CSR”) initiatives in Ukraine, supporting a number of community projects, including support of local schools (e.g. materials for repair works and funding of school meals) and youth sports, as well as the repair of roads and local infrastructure. Since the outbreak of the war, our initiatives have focussed on humanitarian aid, in particular the procurement of medical equipment and supplies. We also strictly adhere to our QHSE policies in our approach to the environment and ensure compliance with applicable health, safety and environmental regulatory requirements. Streamlined Energy and Carbon Reporting (“SECR”) We remain very aware of the current drive globally to monitor, reduce and report levels of energy use in delivering Group performance, and note that SECR reporting requirements apply to the Group. However, as our United Kingdom emissions are de-minimis, with only two full-time employees in the United Kingdom and no operational presence, we fall below the minimum threshold and are currently exempt from reporting such information. Notwithstanding that exemption, but subject to the restrictions caused by the war in Ukraine, we are endeavouring to review our Ukrainian operations to determine the processes of self-reporting for our global operations and formulating the content of our intended self-reporting. This initiative is intended to: • • • • disclose the environment-related data currently collected, including: energy consumed, water consumed, greenhouse gas emissions and waste generated (in natural units and relative to volumes of extracted gas); determine any additional applicable indicators to be added, for example: natural gas and solid fuel consumed for heating, compressors and other equipment; diesel fuel used in diesel generators; consumption of petrol and diesel in vehicles, etc.; determine potential benchmarks; and determine the reporting frequency. We will keep shareholders updated on this initiative of recognised significance. • Business conduct We aim to ensure that the Company behaves responsibly in the wider community, and that our business is operated in a responsible manner, operating within the high standards of business conduct and good governance expected for a business such as ours. We have in place, and monitor adherence to, our Anti-Bribery and Corruption Policy and a range of QHSE related policies. This approach contributes to the delivery of our business plan by ensuring we work in an honest and ethical way, and we require the same from our employees, contractors and others connected with the business. 38 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 • Fair engagement with shareholders Our intention is always to behave responsibly toward our shareholders and treat them fairly and equally, so they, too, may benefit from the successful delivery of our business plan. In light of our significant majority shareholder, we have in place a Relationship Agreement to ensure that the management and governance of the Company is and remains independent. We have adopted and, subject to limited exceptions, adhere to the Quoted Companies Alliance Corporate Governance Code 2018 (“QCA Code”) to ensure clearly defined governance procedures within our business. Strategic Report Approval The Strategic Report, which incorporates Highlights, Chairman’s Statement, Chief Executive’s Statement, Business Model, Our Strategic Priorities, Overview of Assets, Overview of Reserves, Finance Review, Key Performance Indicators, Sustainability, Principal Risks and Uncertainties and Statement under s172(1) of the Companies Act 2006, was approved by the Board on 20 December 2023 and signed on its behalf by: Chris Hopkinson Chairman Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 39 Corporate Governance Board of Directors Chris Hopkinson Non-Executive Chairman Chris Hopkinson was appointed as a Non-Executive Director in September 2017, and became Non- Executive Chairman in October 2017. Mr Hopkinson has extensive experience in the oil and gas industry, having worked in senior management roles in Kazakhstan, Africa, the Russian Federation and the Middle East. He began his career with Shell International, followed by technical and management roles with Yukos and Lukoil Overseas, before becoming Chief Executive Officer of Imperial Energy Group up until its acquisition by ONGC in 2009. He was then Vice-President Western Siberia for TNK-BP, Senior Vice- President North Africa for BG Group, Chief Executive Officer of International Petroleum Limited, and Chief Operating Officer for JSC National Company KazMunayGas. Mr Hopkinson is a member of the Society of Petroleum Engineers, and holds a BSc (Hons) in Applied Physics from St Andrews University. Audit Committee Chairman Remuneration Committee Chairman HSE Committee Member Sergii Glazunov Chief Executive Officer Sergii Glazunov was appointed as Chief Executive Officer in August 2017, having previously been Finance Director since November 2014, and a Non-Executive Director since February 2012 as a nominee of the Company's indirect majority shareholder, Smart Holding (Cyprus) Limited. Prior to joining the Smart Holding Group, Mr Glazunov held positions as Deputy Chief Executive Officer at JSC Concern AVEC & Co and Vice-President at JP Morgan Chase and Bank One Investment Management Group. He also has extensive teaching and academic research experience working at Wayne State and Michigan State Universities. Mr Glazunov is a Chartered Financial Analyst and holds a MSc in Mathematics from Kyiv State University, a MSc in Statistics from Michigan State University and an MBA from Wayne State University. HSE Committee Member Bruce Burrows Finance Director Bruce Burrows was appointed as Finance Director in June 2019, having previously been a Non-Executive Director since August 2017. Mr Burrows has extensive experience in the oil and gas industry, and, in particular, Ukraine and Eastern Europe, having been Finance Director of JKX Oil & Gas for 14 years until 2011. Since then, he has been Chief Financial Officer of Seven Energy International, Lekoil, and AITEO Group, and has served as a non-executive Director of Azonto Petroleum and European Goldfields. He is a member of the Institute of Chartered Accountants of Australia & New Zealand, and holds a BSc Honours from Canterbury University (New Zealand) and a Diploma in Accounting from Victoria University (New Zealand). Audit Committee Member Remuneration Committee Member Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 40 Dr Gehrig Schultz Non-Executive Director Gehrig Schultz became a Non-Executive Director in August 2022. He is a geophysicist with extensive experience in the global oil and gas industry. He commenced his career in South America, with management roles with Western Geophysical Inc. and Grant Geophysical Inc., before joining PGS Onshore Inc. to assist with the development of its geophysical business worldwide. He was then Chairman and Chief Executive Officer of Prospectiuni S.A. and Chairman of Tender Oil & Gas Limited, before founding Surus Geophysical B.V. to provide geophysical consulting services. He joined EPI Limited in 2018 as Chief Operating Officer of Geoscience, and currently leads the geoscience division. He has a BSc in Geophysical Engineering from the Colorado School of Mines, and a PhD in Geophysics from the University of Bucharest. Audit Committee Member Remuneration Committee Member HSE Committee Chairman Alexey Pertin Non-Executive Director Alexey Pertin was appointed as a Non-Executive Director in April 2011 and is a nominee of the Company's indirect majority shareholder, Smart Holding (Cyprus) Limited. He is currently Chairman of the Supervisory Board of PJSC Smart-Holding, having previously been Chief Executive Officer of PJSC Smart-Holding. He is also Deputy Chairman of the Supervisory Board of Metinvest B.V., and Chairman of the Strategic & Investment Committee of the Supervisory Board of Metinvest B.V. He also holds Director positions with Adeona Holdings Limited, Smart Holding (Cyprus) Limited and Smart Holding N.V. Mr Pertin previously held the position of Strategy and Corporate Development Director of PJSC Smart-Holding. Prior to joining the Smart Holding Group, he held various management positions at JSC Severstal-Group, including the positions of Deputy Chief Executive Officer for Business Development at JSC Severstal-Group and Chief Executive Officer of CJSC Izhora Pipe Plant. Mr Pertin graduated from Cherepovets State University and Saint Petersburg State Technical University with qualifications in financial management, and he also holds an MBA from Newcastle Business School, England. Yuliia Kirianova Non-Executive Director Yuliia Kirianova was appointed as a Non-Executive Director in May 2016 and is a nominee of the Company's indirect majority shareholder, Smart Holding (Cyprus) Limited. Ms Kirianova is currently the Chief Executive Officer of PJSC Smart-Holding, having previously been Chief Financial Officer and First Deputy Chief Executive Officer of PJSC Smart-Holding. Prior to joining the Smart Holding Group, Ms Kirianova held positions at ING Bank Ukraine, JSC System Capital Management and LLC DCH Investment Management. Ms Kirianova holds a degree in Finance from the National Academy of Management, Kyiv and an MBA from the Open University. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 41 Corporate Governance Statement The Company has adopted the Quoted Companies Alliance Corporate Governance Code 2018 (“QCA Code”). This statement sets out how the Company complies with, or departs from, the 10 principles of the QCA Code. 1. Strategy and business model The Group is engaged in the exploration and development of oil and gas projects, with assets in Ukraine. The Directors of the Company set the Company’s strategy and monitor its implementation through management and financial performance reviews. The Board also works to ensure that adequate resources are available to implement the Company’s strategy in a timely manner. The Company has set out a strategy and business model (including the key challenges to its implementation) to promote long-term value creation for shareholders and will update all shareholders on this in its Annual Report each year. The Board meets on a regular basis to discuss the strategic direction of the Company and any significant deviation or change will be highlighted promptly should this occur. 2. Understanding and meeting shareholders’ needs and expectations The Company is committed to listening to, and communicating openly with, its shareholders to ensure that its strategy, business model and performance are clearly understood. The Annual General Meeting is a forum for shareholders to engage in dialogue with the Board. The results of the Annual General Meeting are published via a regulatory information service and can be found in the News section of the Company’s website at www.enwell-energy.com. Chris Hopkinson, Chairman, Sergii Glazunov, Chief Executive Officer, and Bruce Burrows, Finance Director, are the principal contacts between the Company and its shareholders, with whom they each maintain a regular dialogue. The views of shareholders are communicated to the whole Board. The Company’s progress on achieving its key targets is regularly communicated to investors through its announcements to the market. The Company also utilises other professional advisers such as the Company’s Nominated Adviser, Broker and the Company Secretary, who provide advice and recommendations on shareholder communication. 3. Taking into account wider stakeholder and social responsibilities and their implications for long-term success The Board members recognise their responsibilities to stakeholders including staff, suppliers, customers, regulators and within the communities in which the Company operates. The Company has senior managers of its operating divisions who provide regular feedback to the Chief Executive Officer, who then ensures that the Board as a whole is informed of any major developments. In turn, the Board communicates with management and staff on key issues which may affect them in connection with the Group’s business. The Company is involved in the local communities close to its operations through sponsorship and community projects and activities. Careful attention is given to ensure that all operational activities are performed in an environmentally responsible manner and in accordance with applicable laws and regulations. Both the involvement in local communities and the performance of operational activities in an environmentally responsible manner are monitored by the Board to ensure that ethical values and behaviours are recognised. 4. Embedding effective risk management The Board regularly reviews the risks facing the business and the internal controls which are in place to address these risks. The Company has a Management Risk Committee that monitors the Group’s business operations and identifies key risks that are faced. The Management Risk Committee maintains a Risk Register and Mitigation Plan that is formally reviewed and updated quarterly. The Management Risk Committee regularly reports to the Board on risk management and mitigation. 42 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 The Company is committed to maintaining the highest quality, health, safety and environment (“QHSE”) standards and the effective management of these areas is an intrinsic element of the overall business ethos. The Company has a Health, Safety and Environment Committee that oversees and monitors the Group’s activities and adherence to its QHSE policies, as well as supervising the updating and implementation of such policies. The Health, Safety and Environment Committee meets regularly and reports to the Board on all QHSE matters. Through strict enforcement of the Group’s QHSE policies, together with regular management meetings, training and the appointment of dedicated safety professionals, the Company strives to ensure that the impact of its business activities on its staff, contractors and the environment is as low as is reasonably practicable. The Company reports safety and environmental performance in accordance with oil industry practice and guidelines. The Board is responsible for the Group’s system of internal control and reviewing its effectiveness. Any such system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. However, the Company believes that its internal control systems are appropriate to the Company’s business. Internal controls are assessed for effectiveness and risks are monitored and reviewed through regular Board and management meetings. 5. Maintaining a balanced and well-functioning Board In the spirit of the QCA Code, it is the Board’s function to ensure that the Company is managed for the long-term benefit of all shareholders and other stakeholders with effective and efficient decision-making. Corporate governance is an important part of that function, reducing risk and adding value to the Company. The Chairman oversees Corporate Governance compliance for the Company and the Board monitors the governance framework of the Company on an ongoing basis. As an AIM-quoted company, the Company is required to apply a recognised corporate governance code, demonstrating how it complies with such corporate governance code and where it departs from it. The Board has formally adopted the QCA Code as the basis for its corporate governance framework. The Board recognises the principles of the QCA Code, which focus on the creation of medium to long-term value for shareholders. The Company will provide annual updates on its compliance with the QCA Code in its Annual Reports. The composition of the Board is as follows: Board Member Chris Hopkinson (Chairman) Sergii Glazunov Alexey Pertin Yuliia Kirianova Bruce Burrows Gehrig Schultz * *appointed 24 August 2022 Meetings Attended (out of a total possible) 8/10 10/10 0/10 3/10 10/10 6/7 The Board comprises six Directors, being the Non-Executive Chairman, the Chief Executive Officer, the Finance Director and three Non-Executive Directors, reflecting a blend of different experience and backgrounds. The Non-Executive Chairman is Chris Hopkinson. The Chief Executive Officer, Sergii Glazunov, and two of the Non-Executive Directors are nominees of Smart Holding (Cyprus) Limited, the indirect majority shareholder of the Company. The Company has entered into a Relationship Agreement with Smart Holding (Cyprus) Limited, which regulates the relationship between them to ensure that the business and affairs of the Company are managed by the Board, independently of Smart Holding (Cyprus) Limited and its associated entities. The Board also has procedures in place to monitor and deal with Directors’ conflicts of interest. The Directors are expected to devote such time as is necessary for the proper performance of their respective duties. The Executive Directors are employees of the Group, and the Non- Executive Directors are expected to spend a minimum number of days on the Group’s business each year. The Board considers Chris Hopkinson and Gehrig Schultz to be independent Non-Executives in terms of Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 43 the QCA guidelines, although given the size of the Company, the Board has not appointed a senior independent Director. The Board is responsible for setting the direction of the Company through the establishment of strategic objectives and key policies. The Board has a schedule of matters reserved for its review and approval, and such items include Group strategy, approval of major capital expenditure projects, approval of the annual and interim results, annual budgets, dividend policy, Board composition and structure, and appointment and assessment of senior management. The Board monitors the exposure to key business risks and reviews the strategic direction of all operating subsidiaries, their annual budgets, their performance in relation to those budgets and their capital expenditure. The Board maintains its independence from the day-to-day responsibility for managing the business which it delegates to the Chief Executive Officer and the senior management team. The Chief Executive Officer, being the senior Executive Director, has a particular role and area of responsibility and continually engages with the Company’s shareholders and stakeholders. Regular Board meetings are held (a minimum of four per year) and ad hoc meetings are scheduled as required. The attendance at Board and Committee meetings during the year will be reported in the Annual Report. All Directors have access to management, including the Company Secretary, and to such information as is needed to carry out their duties and responsibilities fully and effectively. Furthermore, all Directors are entitled to seek independent professional advice concerning the affairs of the Company, at its expense. All Directors are subject to election by shareholders at the first opportunity following their appointment by the Board. In addition, Directors will retire by rotation and stand for re-election by shareholders at least once every three years in accordance with the Company’s Articles of Association. Further details of the Board of Directors, and their roles and background, are set out in the preceding pages of this Report. 6. Having appropriate experience, skills and capabilities on the Board The Board has a mix of experience, skills, gender, linguistic and personal qualities that help deliver the strategy of the Company, including managerial, technical and financial expertise in the oil and gas industry. The composition of the Board ensures that no one individual or group dominates the decision-making process. The Company will ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities to deliver the Company’s strategy and targets. The Directors keep their respective skills up-to-date through a combination of attendance at relevant industry events and conferences, continued professional development and experience gained from other board and management roles. 7. Evaluating Board performance Given the Company’s current size, the Board has not considered it necessary to undertake an external assessment of the Board performance and effectiveness during the period, but monitors for any such need. 8. Ethical values and behaviours The Company operates a corporate culture that is based on ethical values and behaviours. It maintains a quality system appropriate to the standards required for a Company of its size. The Board communicates regularly with management through meetings and messages, and information is cascaded to staff at operating subsidiaries via management meetings with operational personnel. The Company maintains appropriate policies which reflect these values, including an Anti-Bribery and Corruption Policy in relation to its compliance with the Bribery Act 2010, and Policies on Disclosure of Inside Information and Share Dealing. These policies set out the high ethical standards required of the Group’s staff in the course of carrying out its business activities regarding dealing with gifts, hospitality, corruption, fraud, the use of inside information and whistle-blowing. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 44 9. Maintaining governance structures and processes The Board In addition to the Chairman’s Statement and explanation provided under principle 5 above, the Chairman is responsible for the leadership of the Board and is pivotal to fostering a culture that adopts good corporate governance. The Chairman, together with the rest of the Board, sets the direction for the Company through a formal schedule of matters reserved for its decision. The Chief Executive Officer, as senior Executive Director, has a particular role and area of responsibility and continually engages with the Company’s shareholders and stakeholders. The Board has a schedule of matters reserved for its review and approval, and such items include Group strategy, approval of major capital expenditure projects, approval of the annual and interim results, annual budgets, dividend policy, Board composition and structure, and the appointment and assessment of senior management. The Board monitors the exposure to key business risks and reviews the strategic direction of all operating subsidiaries, their annual budgets, their performance in relation to those budgets and their capital expenditure. The Board delegates day-to-day responsibility for managing the business to the Chief Executive Officer and the senior management team. Committees The Board has established three committees, being the Audit Committee, Remuneration Committee and Health, Safety and Environment Committee. The Audit Committee and Remuneration Committee are composed of independent Non-Executive Directors (Chris Hopkinson and Gehrig Schultz) and an Executive Director (Bruce Burrows), and the Health, Safety and Environment Committee is composed of independent Non-Executive Directors (Chris Hopkinson and Gehrig Schultz) and an Executive Director (Sergii Glazunov). The QCA Code recommends that the membership of these committees is made up of only non-executive directors, but given the size of the Company and the fact that three of the Directors are nominees of Smart Holding (Cyprus) Limited, the indirect majority shareholder of the Company, the Board considers that the composition of these Committees is appropriate in the circumstances. Audit Committee The Audit Committee meets not less than twice a year to review the published financial information, and the effectiveness of external audit and internal financial controls. It deals with the appointment, terms of engagement and fees of the external Auditors, the scope of the audit, review of the financial statements and reports, including any changes to accounting policies or practices, and the review of the Group’s system of risk management and internal controls and compliance with applicable laws and regulations. Meetings are normally attended, by invitation, by a representative of the Auditors. The composition of the Audit Committee is as follows: Committee Member Chris Hopkinson (Chairman) Gehrig Schultz * Bruce Burrows *appointed 24 August 2022 Meetings Attended (out of a total possible) 2/2 1/1 2/2 Remuneration Committee The Remuneration Committee is responsible for establishing and developing the Company’s general policy on executive and senior management remuneration, having regard to the need to attract and retain individuals of the highest calibre and with the appropriate experience to make a significant contribution to the Group, and determining specific remuneration packages for Executive Directors and senior management. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 45 The composition of the Remuneration Committee is as follows: Committee Member Chris Hopkinson (Chairman) Gehrig Schultz * Bruce Burrows *appointed 24 August 2022 Meetings Attended (out of a total possible) 1/1 0/0 1/1 Health, Safety and Environment Committee The Health, Safety and Environment Committee meets not less than once a year to oversee and monitor QHSE matters affecting the Company and its business activities. It is responsible for the supervision of QHSE matters, including evaluation of the effectiveness of QHSE policies, assessment of Group performance regarding the impact of decisions relating to QHSE issues, oversight of compliance of QHSE policies with applicable international and oil industry practice and guidelines, and development and maintenance of the framework of QHSE policies for the management and reporting of QHSE issues affecting the Group. During the period, there was frequent communication between the HSE Committee members in relation to their remit, despite no formal meetings being convened, this being dictated by the disruption and adjustment to work locations and practices caused by the war in Ukraine. The composition of the Health, Safety and Environment Committee is as follows: Committee Member Gehrig Schultz * (Chairman) Chris Hopkinson Sergii Glazunov *appointed 24 August 2022 Meetings Attended (out of a total possible) 0/0 0/0 0/0 Nomination Committee The Directors do not consider that, given the size of the Company, it is appropriate to have a Nomination Committee. Any matters which would normally be dealt with by such a committee are considered by the Board. The appropriateness of such a committee will, however, be kept under regular review by the Company. 10. Communicating with shareholders and other relevant stakeholders The Board recognises that it is accountable to shareholders for the performance and activities of the Company and the Group. The Board engages in discussions with shareholders as appropriate from time to time through formal meetings or correspondence and audio-visual and telephone discussions. The Annual General Meeting of the Company provides an opportunity for the Directors to present to shareholders a report on current operations and developments and enables shareholders to express their views about the Company’s business. As required by Rule 26 of the AIM Rules for Companies, the Company publishes historical Annual Reports, Interim Reports, Notices of General Meetings and all announcements since the Company’s admission to the AIM Market, which are available in the News section of its website at www.enwell-energy.com. The Board does not publish an Audit Committee or Remuneration Committee report in its Annual Report as the Board considers this is not appropriate given the size and stage of development of the Company. The Board will consider annually whether it considers it appropriate for these reports to be included in future Annual Reports. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 46 Directors’ Report The Directors present their Annual Report and the audited consolidated financial statements for the year ended 31 December 2022. Statement under Section 172(1) of the Companies Act 2006 The Statement by the Directors in the performance of their statutory duties in accordance with Section 172(1) of the Companies Act 2006 is set out in the Strategic Report. Future Developments The future developments relating to the Group are described in the Strategic Report, and are therefore not repeated in the Directors’ Report in accordance with Section 414C(11) of the Companies Act 2006 and related statutory requirements. Dividends An interim dividend of 15 pence per ordinary share, totalling £48.1 million, was paid for the period on 15 June 2023 (2021: nil). No final dividend for the period is proposed (2021: nil). Capital Structure Details of the issued share capital, together with details of the movements in the Company's issued share capital during the year, are shown in Note 26. The Company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association of the Company and prevailing legislation. The Directors are not aware of any agreements between holders of the Company's shares that may result in restrictions on the transfer of securities or on voting rights. No person has any special rights of control over the Company's share capital and all issued shares are fully paid. With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association, the Companies Act 2006 and related legislation. The Articles of Association themselves may be amended by special resolution of the shareholders. The powers of the Directors are described in the Corporate Governance Statement. Directors and Directors’ Interests The Directors who held office during the year and up to the date hereof were as follows: Chris Hopkinson Sergii Glazunov Alexey Pertin Yuliia Kirianova Bruce Burrows Dmitry Sazonenko (resigned 24 August 2022) Gehrig Schultz (appointed 24 August 2022) None of the Directors who held office at the end of the financial year had any disclosable interest in the shares of the Company or any other Group companies. According to the register of Directors’ interests, no rights to subscribe for shares in or debentures of Group companies were granted to any of the Directors or their immediate families, or exercised by them, during the financial year. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 47 Directors’ Indemnities The Company has made qualifying third party indemnity provisions for the benefit of its Directors in accordance with Section 234 of the Companies Act 2006, which were made during the year and remain in force at the date of this report. Political Contributions During the year the Group did not make any political contributions (2021: nil). Financial Risk Management The Group’s financial risk management is disclosed in the Strategic Report, and is therefore not repeated in the Directors’ Report in accordance with Section 414C(11) of the Companies Act 2006 and related statutory requirements. Post Balance Sheet Events Details of significant events since the Balance Sheet date are contained in Note 32. Substantial Shareholders As at 20 December 2023, the Company had been notified of the following interests of 3% or more in its issued share capital: Substantial Shareholder Smart Energy (CY) Limited * Pope Asset Management Number of shares 264,996,769 22,273,339 % of issued ordinary share capital 82.65% 6.95% * Smart Energy (CY) Limited is 100% owned by Smart Holding (Cyprus) Limited, which is 100% owned by Proteas Trustees Ltd as trustee of the STEP Trust, and Proteas Trustee Services Ltd, Afroditi Loukaidou, Elena Iona and Maria Sokratous as trustees of the SMART Trust. Going Concern Assessment The Directors have assessed the ability of the Group and the Company to continue as a going concern, including considering the impact of the recent and ongoing war in Ukraine, and the results of this assessment are set out in Note 2. Directors’ Responsibilities Statement The Directors are responsible for preparing the Annual 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 prepared the Group and Company financial statements in accordance with UK-adopted international accounting standards. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing the financial statements, the Directors are required to: • • • select suitable accounting policies and then apply them consistently; state whether applicable UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; make judgements and accounting estimates that are reasonable and prudent; and 48 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 • prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. The Directors are responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors’ Confirmations In the case of each Director in office at the date the Directors’ Report is approved: • • so far as the Director is aware, there is no relevant audit information of which the Group’s and Company’s Auditors are unaware; and the Director has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Group’s and Company’s Auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006. Independent Auditors A resolution to reappoint Zenth Audit Ltd as Independent Auditors will be proposed at the next Annual General Meeting. On behalf of the Board Chris Hopkinson Chairman 20 December 2023 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 49 Independent Auditors’ Report to the members of Enwell Energy plc Report on the audit of the financial statements Opinion We have audited the financial statements of Enwell Energy plc (the “Company”) and together with its subsidiaries (the ”Group”). These financial statements are included within the Annual Report and Financial Statements (the "Annual Report"), which comprise: the consolidated and company balance sheets as at 31 December 2022; the consolidated income statement, the consolidated and company statements of comprehensive income, the consolidated and company cash flow statements, and the consolidated and company statements of changes in equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. In our opinion, Enwell Energy plc's Group financial statements and Company financial statements (the "financial statements"): • give a true and fair view of the state of the Group's and of the Company's affairs as at 31 December 2022 and of the Group's profit and the Group's and Company's cash flows for the year then ended; have been properly prepared in accordance with UK-adopted international accounting standards; and have been prepared in accordance with the requirements of the Companies Act 2006. • • Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern assumption on the Company financial statements In auditing the Company financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the Company financial statements is appropriate. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Company’s ability as a going concern. Material uncertainty related to going concern on the Group financial statements In forming our opinion on the Group financial statements, which is not modified, we have considered the adequacy of the disclosure made in Note 2 to the financial statements concerning the Group's ability to continue as a going concern. The Group's operations are entirely based in Ukraine. On 24 February 2022, the Russian Federation commenced a military invasion of Ukraine which disrupted the operations at the Group’s field locations. As described in Note 32 “Post balance sheet events” to the financial statements, following the adoption of new legislation the Ukrainian authorities suspended in May 2023 the VAS production licence and the SC exploration licence for a period of 5 years. The future development of this conflict and the future actions of the Ukrainian state authorities are inherently uncertain and might have potential short and long-term impact on the Group's operations, staff and assets in Ukraine. These conditions, along with the other matters explained in Note 2 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern and realise its assets in the normal course of business. The Group financial statements do not include the adjustments that would result if the Group were unable to continue as a going concern. 50 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 In auditing the Group financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the Group financial statements is appropriate. Our evaluation of the Directors' assessment of the Group's ability to continue to adopt the going concern basis of accounting included: • • • • • • We obtained the Directors' assessment and conclusions with respect to going concern. We discussed the going concern assessment with management and those charged with governance and challenged the key assumptions, estimates and judgements made in the assessment. We tested the cash flow model used in the going concern assessment. We assessed the likelihood of the different scenarios and sensitivities considered by the Directors, with specific consideration of the potential impact of the Russian military invasion of Ukraine and the suspension of other MEX-GOL and SV licences by the state authorities in Ukraine. We discussed with the Group legal advisors the measures taken by the Group to defend its business and assets in Ukraine We considered the appropriateness of the disclosures made in respect of going concern in the Group financial statements. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. Our audit approach Overview Audit scope • • • • • In addition to the statutory audit of the parent company, we conducted full scope audits of two significant components out of the Group's five components which were selected due to their size and risk characteristics. An audit of one or more account balances, classes of transactions or disclosures was performed at a further three components. This enabled us to obtain coverage of 100% of consolidated revenue, 100% coverage of consolidated profit before tax and 100% coverage of consolidated total assets of the group. Key audit matters • Material uncertainty related to going concern (refer to 'Material uncertainty related to going concern assumption on the Group financial statements' above) Carrying value of investments in, and loans to, subsidiary undertakings (parent) Materiality (2021 numbers are determined by the predecessor auditor) • Overall Group materiality: US$2,521,000 (2021: US$1,600,000) based on 5% of three-year average (2021: three-year average) profit before tax adjusted for non-recurring items. Overall Company materiality: US$1,690,000 (2021: US$1,511,000) based on 1% of total assets. Performance materiality: US$1,260,000 (2021: US$1,200,000) (Group) and US$845,000 (2021: US$1,133,000) (Company). The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. Key audit matters Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 51 In addition to going concern, described in the 'Material uncertainty related to going concern assumption on the Group financial statements’ section above, we determined the matters described below to be the key audit matters to be communicated in our report. This is not a complete list of all risks identified by our audit. Key audit matter How our audit addressed the key audit matter Carrying value of investments in, and loans to, subsidiary undertakings (parent) and Loans to Note 3 Refer ‘Significant Accounting Judgements and Estimates’ and Note 19 ‘Investments to Subsidiary Undertakings’. As at 31 December 2022, the Company has a total investment in subsidiaries of US$80.7 million (2021: US$ 87.4 million) comprising investment in shares of US$30.7 million (2021: US$ 38.5 million) and long-term investment loans of US$50.0 million (2021: US$ 48.9 million). As the balance sheet date management updated its assessment of the expected credit loss on the Company's intercompany loan receivable and determined that the provision against the loan receivable should be increased by US$2.1 million. In addition, management updated its assessment of the recoverable amount of the Company's investments in its subsidiaries and determined that an impairment loss of US$7.8 million should be recognised. The assessment of the recoverability of the investments' carrying value involves subjective judgements about future business performance, with key assumptions including cash flows and discount rates. The assessment of expected credit loss requires subjective judgements and estimates of the timing of future cash flows. Accordingly, this was an area of focus for our audit as there is a risk that the carrying value of the Company's investments in subsidiaries and receivables could be the materially misstated. intercompany to, for the key loans in, and reasonableness To address the risk that the carrying amount of subsidiary investments undertakings as at 31 December 2022, may be misstated, we performed the following procedures: - Discussed with management assumptions used; - Evaluated the overall methodology applied in management's assessment of the expected credit losses on loans to subsidiaries and determination of the recoverable amounts of investments in subsidiaries and appropriateness, and verified the mathematical accuracy of the related cash flow models; - Validated the assumptions used by management by agreeing or comparing them to external and internal sources, where appropriate; recalculated the weighted average cost of capital using inputs from external sources; - Agreed internally generated assumptions to the approved budgets and management plans; - Performed sensitivity analysis to understand if reasonably possible changes in management's assumptions would result in a material change in the balances; We concur with management's conclusions in respect of the carrying amount of investments in, and loans to, subsidiary undertakings as at 31 December 2022 and the resulting impact on profit or loss. We verified that the Company's assessment was appropriately accounted for and disclosed in the Company financial statements for the year ended 31 December 2022, including the disclosure of applicable estimates and judgements. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 52 How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. The Group is structured as two operating segments on a geographical basis: the UK head office and Ukrainian oil and gas exploration, development and production. The consolidated financial statements are a consolidation of seven legal entities, comprising the Group's operating businesses and centralised functions. Day-to-day management of the operations of the Group and the Company, including accounting and. financial reporting, is undertaken in Kyiv, Ukraine. Accordingly, a significant portion of our audit work was undertaken in Kyiv on our behalf by Ukrainian component auditors, part of an reputable international accounting network. In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed by us, as the group audit team, or by the local firm in Ukraine, as a component audit team. We conducted full scope audits of the parent company and of two components out of the Group's five components which were selected due to their size and risk characteristics. We audited the parent company financial statements and the component auditors audited the two local significant components (one of which was a representative office whereas we performed specific scope procedures for the holding company). An audit of one or more account balances, classes of transactions or disclosures was performed at a further three insignificant components. We carried two of these specific scope procedures and the component team carried out one specific scope engagement. Further specific audit procedures relating to the consolidation, compliance with laws and regulations outside of Ukraine including the audit of UK tax, and procedures relating to the appropriate presentation and disclosure of the Annual Report and Financial Statements were performed directly by us as the group audit team. This enabled us to obtain coverage of 100% of consolidated revenue, 10% coverage of consolidated profit before tax and 100% coverage of consolidated total assets of the Group. Where work was performed by our component team in Ukraine, we determined the level of involvement we needed to have in their work to ensure sufficient appropriate audit evidence had been obtained as a basis for our opinion on the financial statements. We conducted our oversight through regular dialogue via video conferencing, calls and other forms of communication as considered necessary and appropriate in the circumstances throughout the planning, execution, and completion phases of the audit. In addition, we performed a review of component auditor working papers to satisfy ourselves that the appropriate audit work had been performed. We also attended key meetings virtually with management in Ukraine and our component team. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 53 Based on our professional judgement, we determined materiality for the financial statements as a whole as follows (prior year numbers determined by the predecessor auditor): Financial statements - Group Overall materiality US$2,521,000 (2021: US$1,600,000). How determined it we 5% of three-year average (2021: three-year average) profit before tax adjusted for non-recurring ·items for Rationale benchmark applied Profit before tax is the primary measure used by the shareholders in assessing the performance of the is a generally accepted auditing Group and benchmark. The Group's earnings are heavily influenced by the realised selling price of gas and, despite the relatively stable level of production in the last three years, profit for the current year is showing an increasing trend. Therefore, it was considered to be appropriate to use an average of profit before tax and the three-year average profit before three-year average) was considered to be the most appropriate benchmark. (2021: tax Financial Company statements - US$1,690,000 US$1,511,000). 1% of total assets (2021: We believe that total assets is the primary measure used in the shareholders by assessing the performance of the Company, and is a generally accepted auditing benchmark. For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between US$1,008,000 and US$1,765,000. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Due to this being our first year audit, our performance materiality was 50% (2021: 75%) of overall materiality, amounting to US$1,260,000 (2021: US$1,200,000) for the Group financial statements and US$845,000 (20201 US$1,133,000) for the Company financial statements. In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount in the middle of our normal range was appropriate. We agreed with those charged with governance that we would report to them misstatements identified during our audit above US$126,000 (2021: US$80,000) for the Group audit and above $84,500 (2021: $75,550) for the Company audit, as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Other matter The financial statements of the Company for the year ended 31 December 2021 were audited by another auditor who expressed an unmodified opinion on those statements on 28 June 2022. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors' report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 54 In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic Report and Directors' Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below. Strategic Report and Directors' Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors' Report for the year ended 31 December 2022 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors' Report. Responsibilities for the financial statements and the audit Responsibilities of the Directors for the financial statements As explained more fully in the Directors' Responsibilities Statement, the Directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group's and the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. Auditors' responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the Group and industry, we identified that the principal risks of non compliance with laws and regulations related to the failure to comply with environmental regulations, health and safety regulations and the relevant tax compliance regulations in the jurisdictions in which the Group operates, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006. We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of 55 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 controls), and determined that the principal risks were related to posting inappropriate journal entries and management bias in accounting estimates. The group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work. Audit procedures performed by the group engagement team and/or component auditors included: • • • • Inquiries of management and those charged with governance, including consideration of known or suspected instances of non-compliance with laws and regulation and fraud; Understanding and evaluating controls designed to prevent and detect irregularities and fraud; Assessing significant judgements and estimates in particular those relating to the carrying value of investments in, and loans to, subsidiary undertakings, and the disclosure of these items (and as outlined further in the 'Key audit matters' section of this report). Identifying and testing journal entries, using specific risk criteria, including journals with unusual account combinations, journals posted by unexpected users, journals with no description or specific words included in the description and year end and consolidation journals. There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors' report. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: • • • • we have not obtained all the information and explanations we require for our audit; or adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or certain disclosures of Directors' remuneration specified by law are not made; or the Company financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Use of this report This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Filip Lyapov (Senior Statutory Auditor) for and on behalf of Zenith Audit Ltd Statutory Auditors 1st Floor, 18 Devonshire Row, London EC2M 4RH 20 December 2023 56 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 Consolidated Income Statement for the year ended 31 December 2022 Revenue Cost of sales Gross profit Administrative expenses Other operating (losses)/gains, (net) Operating profit Finance income Finance costs Net impairment (losses)/gains on financial assets Other losses, (net) Profit before taxation Income tax expense Profit for the year Earnings per share (cents) Basic and diluted Note 2022 $000 2021 $000 4 5 6 9 10 11 12 13 133,380 (47,457) 85,923 (6,830) (3,320) 75,773 1,126 (1,410) (444) (1,738) 73,307 (13,124) 60,183 121,353 (47,422) 73,931 (8,350) 654 66,235 1,394 (752) (177) (108) 66,592 (15,473) 51,119 15 18,8c 15.9c The Notes set out below on pages 65 to 111 are an integral part of these consolidated financial statements. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 57 Consolidated Statement of Comprehensive Income for the year ended 31 December 2022 Profit for the year Other comprehensive income/(expense): Items that may be subsequently reclassified to profit or loss: Equity – foreign currency translation Items that will not be subsequently reclassified to profit or loss: Re-measurements of post-employment benefit obligations Total other comprehensive (expense)/income 2022 $000 2021 $000 60,183 51,119 (38,094) 53 (38,041) 1,611 172 1,783 Total comprehensive income for the year 22,142 52,902 Company Statement of Comprehensive Income for the year ended 31 December 2022 (Loss)/profit for the year 14 (6,358) 16,330 Total comprehensive (loss)/income for the year (6,358) 16,330 Note 2022 $000 2021 $000 The Notes set out below on pages 65 to 111 are an integral part of these consolidated financial statements. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 58 Consolidated Balance Sheet as at 31 December 2022 Assets Non-current assets Property, plant and equipment Intangible assets Right-of-use assets Deferred tax asset Prepayments for fixed assets Current assets Inventories Trade and other receivables Cash and cash equivalents Other short-term investments Total assets Liabilities Current liabilities Trade and other payables Lease liabilities Corporation tax payable Net current assets Non-current liabilities Provision for decommissioning Lease liabilities Defined benefit liability Deferred tax liability Other non-current liabilities Total liabilities Net assets Equity Called up share capital Foreign exchange reserve Merger reserve Capital contributions reserve Retained earnings Total equity Note 16 17 18 25 20 21 22 22 23 18 24 18 25 26 27 27 27 2022 $000 74,256 8,994 364 287 5,385 89,286 3,358 60,438 88,652 - 152,448 2021 $000 87,418 12,340 1,008 361 4,933 106,060 1,862 8,126 87,780 4,762 102,530 241,734 208,590 (27,529) (229) (2,447) (30,205) (12,306) (455) (5,445) (18,206) 127,628 89,257 (6,964) (258) (323) (3,232) (93) (10,870) (5,467) (648) (427) (5,197) (128) (11,867) (41,075) (30,073) 200,659 178,517 28,115 (141,705) (3,204) 7,477 309,976 200,659 28,115 (103,611) (3,204) 7,477 249,740 178,517 The Notes set out below on pages 65 to 111 are an integral part of these consolidated financial statements. The financial statements of Enwell Energy plc, company number 04462555, on pages 65 to 111 were approved by the Board of Directors on 20 December 2023 and signed on its behalf by: Bruce Burrows Finance Director Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 59 Consolidated Statement of Changes in Equity for the year ended 31 December 2022 Called up share capital $000 28,115 - - - - - Share premium account $000 555,090 - - - - (555,090) Merger reserve $000 (3,204) - - - - - Called up share capital $000 28,115 - - - - 28,115 Share premium account $000 - - - - - - Merger reserve $000 (3,204) - - - - As at 1 January 2021 Profit for the year Other comprehensive expense - exchange differences - re-measurements of post- employment benefit obligations Total comprehensive income/(expense) Cancellation of share premium account As at 31 December 2021 As at 1 January 2022 Profit for the year Other comprehensive income - exchange differences - re-measurements of post- employment benefit obligations Total comprehensive income/(expense) As at 31 December 2022 Capital contributions reserve $000 Foreign exchange reserve* $000 Retained earnings/(Accumu lated losses) $000 7,477 - (105,222) - (356,641) 51,119 Total equity $000 125,615 51,119 1,611 172 - - - - 1,611 - - 172 1,611 51,291 52,902 - 555,090 - Capital contributions reserve $000 Foreign exchange reserve* $000 Retained earnings/(Accum ulated losses) $000 Total equity $000 7,477 - - - - (103,611) - (38,094) - (38,094) (141,705) 249,740 60,183 - 53 60,236 309,976 178,517 60,183 (38,094) 53 22,142 200,659 (3,204) 7,477 28,115 - (3,204) 7,477 (103,611) 249,740 178,517 * Predominantly as a result of exchange differences on non-monetary assets and liabilities where the subsidiaries’ functional currency is not the US Dollar. The Notes set out below on pages 65 to 111 are an integral part of these consolidated financial statements. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 60 Consolidated Cash Flow Statement for the year ended 31 December 2022 Operating activities Cash generated from operations Charitable donations Income tax paid Interest received Net cash inflow from operating activities Investing activities Purchase of oil and gas development, production and other property, plant and equipment Purchase of oil and gas exploration and evaluation assets Sale/(Purchase) of financial instruments Purchase of oil and gas development, production and other intangible assets Proceeds from return of prepayments for shares Proceeds from sale of property, plant and equipment Net cash outflow from investing activities Financing activities Payment of principal portion of lease liabilities Net cash outflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year ECL* of cash and cash equivalents Effect of foreign exchange rate changes Cash and cash equivalents at the end of the year *ECL – Expected credit losses Note 28 12 2022 $000 2021 $000 47,541 (6,534) (15,863) 1,888 27,032 77,646 (76) (8,959) 763 69,374 (19,829) (26,292) (4,092) 4,762 (1,482) - 4 (20,637) (11,387) (4,762) (539) 250 10 (42,720) (398) (398) 5,997 87,780 (14) (5,111) 88,652 (555) (555) 26,099 60,993 (6) 694 87,780 22 22 The Notes set out below on pages 65 to 111 are an integral part of these consolidated financial statements. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 61 Company Balance Sheet as at 31 December 2022 Assets Non-current assets Intangible assets Investments Loans to subsidiary undertakings Current assets Trade and other receivables Cash and cash equivalents Total assets Liabilities Non-current liabilities Other non-current liabilities Current liabilities Trade and other payables Net current assets Total liabilities Net assets Note 2022 $000 2021 $000 19 19 21 22 41 30,704 49,974 80,719 615 81,541 82,156 47 38,527 48,899 87,473 299 63,299 63,598 162,875 151,071 - - - - (19,960) (19,960) (1,798) (1,798) 62,196 61,800 (19,960) (1,798) 142,915 149,273 28,115 121,158 (6,358) - 114,800 142,915 28,115 (450,262) 16,330 555,090 121,158 149,273 Equity Called up share capital Retained earnings/(Accumulated losses) as at 1 January - - (loss)/profit for the year and total comprehensive income cancellation of share premium account Retained earnings/(Accumulated losses) as at 31 December Total equity 26 14 The Notes set out below on pages 65 to 111 are an integral part of these consolidated financial statements. The financial statements of Enwell Energy plc, company number 04462555, on pages 65 to 111 were approved by the Board of Directors on 20 December 2023 and signed on its behalf by: Bruce Burrows Finance Director Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 62 Company Statement of Changes in Equity for the year ended 31 December 2022 Called up share capital $000 Share premium account $000 Retained earnings/ (Accumulated losses) $000 Total equity $000 28,115 555,090 (450,262) 132,943 - - 16,330 16,330 - (555,090) 28,115 - 555,090 121,158 - 149,273 Called up share capital $000 28,115 - 28,115 Share premium account $000 Retained earnings/ (Accumulated losses) $000 - - - 121,158 (6,358) 114,800 Total equity $000 149,273 (6,358) 142,915 As at 1 January 2021 Profit for the year and total comprehensive income Cancellation premium account As at 31 December 2021 share of As at 1 January 2022 Profit for the year and total comprehensive income As at 31 December 2022 The Notes set out below on pages 65 to 111 are an integral part of these consolidated financial statements. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 63 Note 28 Company Cash Flow Statement for the year ended 31 December 2022 Operating activities Cash used in operations Taxation paid Interest received Net cash from/(used in) operating activities Investing activities Dividends received from Group companies Proceeds from return of prepayments for shares Purchase of subsidiaries Purchase of property, plant and equipment Repayment of principal and interest on loans to Group companies Issue of loans to Group companies Net cash from/(used in) investing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes Cash and cash equivalents at end of year 22 2022 $000 21,691 (10) 677 22,358 - - (1,211) - 1,077 (4,000) (4,134) 18,224 63,299 18 81,541 2021 $000 (2,820) (276) 1 (3,095) 10,017 250 (2,617) - 32,132 (12,000) 27,782 24,687 38,619 (7) 63,299 The Notes set out below on pages 65 to 111 are an integral part of these consolidated financial statements. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 64 Notes forming part of the financial statements 1. General Information and Operational Environment Enwell Energy plc (the “Company”) and its subsidiaries (the “Group”) is a gas, condensate and LPG production group. The Company is a public limited company quoted on the AIM Market operated by London Stock Exchange plc and incorporated in England and Wales under the Companies Act 2006. The Company’s registered office is at 16 Old Queen Street, London, SW1H 9HP, United Kingdom and its registered number is 4462555. The principal activities of the Group and the nature of the Group’s operations are set out above. As at 31 December 2022, the Company’s immediate parent company was Smart Energy (CY) Limited, which was 100% owned by Smart Holding (Cyprus) Limited, which was 100% owned by Proteas Trustees Ltd as trustee of the STEP Trust, and Proteas Trustee Services Ltd, Afroditi Loukaidou, Elena Iona and Charoula Sofokleous as trustees of the SMART Trust. Accordingly, the Company was ultimately controlled by Proteas Trustees Ltd as trustee of the STEP Trust, and Proteas Trustee Services Ltd, Afroditi Loukaidou, Elena Iona and Charoula Sofokleous as trustees of the SMART Trust. As at 31 December 2021, the Company’s immediate parent company was Smart Energy (CY) Limited, which was 100% owned by Smart Holding (Cyprus) Limited, which was 100% owned by Mr Vadym Novynskyi. The Group’s gas, condensate and LPG extraction and production facilities are located in Ukraine. Impact of the ongoing war in Ukraine On 24 February 2022, Russia commenced a military invasion of Ukraine, and since then there has been an ongoing war in Ukraine. Shortly after the invasion, the Ukrainian Government imposed martial law, and the corresponding introduction of related temporary restrictions that impact, amongst other areas, the economic environment and business operations in Ukraine. The war has caused significant economic challenges in Ukraine, which has led to a deterioration of Ukrainian State finances, volatility of financial markets, illiquidity on capital markets, higher inflation and a depreciation of the national currency against major foreign currencies. The war is continuing, causing very significant numbers of military and civilian casualties and significant dislocation of the Ukrainian population. The Russian army has occupied territories in the east and south of Ukraine, including the majority of the Kherson, Zaporizhzhia, Luhansk and Donetsk regions. Russian attacks have targeted and destroyed civilian infrastructure over wide areas of Ukraine, including hospitals and residential complexes. On 3 June 2022, the National Bank of Ukraine (“NBU”) increased the key policy interest rate to 25%, which was aimed at suspending price increases and strengthening the Ukrainian Hryvnia exchange rate. The NBU has also introduced temporary restrictions on foreign currency trades and limited the ability to perform cross-border payments for non-critical imports and repayment of debt to foreign creditors, apart from international institutions. The Ukrainian Hryvnia exchange rate with the US Dollar was effectively fixed at UAH29.25:$1.00 in February 2022 and then at UAH36.57:$1.00 in July 2022 on the foreign exchange market to ensure the stable operation of Ukraine’s financial system. As a result, commercial interbank quotes remain close to the officially imposed NBU exchange rate. Despite the uncertainty and instability in the general situation within Ukraine, the banking system remains relatively stable, with sufficient liquidity even as martial law continues, and banking services are available to both legal entities and individual bank customers. The Ukrainian Government has taken action to limit the negative effects of the war on the Ukrainian economic environment during the period of martial law and beyond, including but not limited to: • the temporary easing of the tax regime until the end of martial law, including the suspension of tax audits and the cancellation of some penalties for violating the tax law; Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 65 • • • gasoline, heavy distillates, liquefied gas, oil and petroleum are subject to VAT at a reduced rate of 7%, and the excise tax rate for the imported fuel group of products’ is set at zero; a number of measures were taken to limit prices for energy resources, including prohibiting export of gas, setting a level of electricity price on transactions a day ahead and intraday markets; and the increase in the subsoil tax rate on natural gas production during martial law, which action introduced a differentiated subsoil tax rate on the production of natural gas depending on sale prices for natural gas. Additional financial support was received from a number of international institutions, including from the IMF and European Bank for Reconstruction and Development (“EBRD”), to support the economy and the population. Such financial support is critical for Ukraine to continue to service its debts in the foreseeable future. Given the fast-moving nature of the situation in Ukraine and the unpredictability of the outcome, it is impracticable to assess the full impact of the war on the economic environment. Overall, the final resolution and the ongoing effects of the war and political and economic situation in Ukraine are difficult to predict, but they may have further severe effects on the Ukrainian economy and the Group’s business. As at 14 December 2023, the official NBU exchange rate of the Ukrainian Hryvnia against the US Dollar was UAH37.0/$1.00, compared with UAH36.57/$1.00 as at 31 December 2022. Further details of risks relating to Ukraine can be found within the Principal Risks section of the Strategic Report. 2. Accounting Policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of Preparation On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group and Company transitioned to UK-adopted International Accounting Standards on 1 January 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework. The consolidated financial statements of the Group and the financial statements of the Company have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. These consolidated financial statements have been prepared in accordance with UK-adopted International Accounting Standards under the historical cost convention, as modified by the initial recognition of financial instruments based on fair value, and by the revaluation of financial instruments categorised at fair value through profit or loss (“FVTPL”) and at fair value through other comprehensive income (“FVOCI”). The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. Apart from the accounting policy changes effective from 1 January 2022 these policies have been consistently applied to all the periods presented, unless otherwise stated. The preparation of financial statements in conformity with UK-adopted International Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 66 financial statements are disclosed in Note 3. The consolidated financial statements are presented in thousands of US Dollars. Going Concern The Group’s business activities, together with the factors likely to affect its future operations, performance and position are set out in the Chairman’s Statement, Chief Executive’s Statement and Finance Review. The financial position of the Group, its cash flows and liquidity position are set out in these consolidated financial statements. On 24 February 2022, Russia commenced a military invasion of Ukraine. This was quickly followed by the enactment of martial law by the Ukrainian President’s Decree, approved by the Parliament of Ukraine, and the corresponding introduction of related temporary restrictions that impact the economic environment and business operations in Ukraine. The production assets of the Group are located in the central and eastern part of the country (Poltava and Kharkiv regions) which are controlled by the Ukrainian Government. Following a brief period of suspension, production and field operations, as well as construction work on upgrades to the gas processing facilities, at the MEX-GOL and SV fields recommenced. As of the date of approval of these financial statements, no assets of the Group have been damaged, and the Group continues to operate its MEX-GOL and SV assets in the Poltava region, while its SC asset in the Poltava region and all production and field operations at the VAS asset located in the Kharkiv region are suspended. No military activities have occurred at the Group’s field locations. The Gas Transmission System Operator of Ukraine has maintained complete operational and technological control over the operations of the Ukrainian Gas Transmission System. However, as of the date of approval of these financial statements, the war has had, and continues to have, a material impact on the production and sales levels of the business and execution of the Group’s 2022 budget. The Group has no debt and funds its operations from its own cash resources. Cash and cash equivalents were $79.1 million as at 14 December 2023. The Directors maintain a significant level of flexibility to modify the Group’s development plans as may be required to preserve cash resources for liquidity management. Absent the potential impact of the war in Ukraine, the Directors are satisfied that the Group and the Company are a going concern and will continue their operations for the foreseeable future. In assessing the impact of the war on the ability of the Group and the Company to continue as a going concern, the Directors have analysed a number of possible scenarios of economic and military developments and the impact on the expected cash flows of the Group and Company for 2023 and 2024. This includes considering a possible (but in the view of the Directors, highly unlikely) worst case scenario in which the Group has zero production as a result of possible future military conflict dictating field operations being completely shut-in, and all other non-production related costs being maintained at current levels with no reduction or mitigating actions as would otherwise be possible. Even in this worst-case scenario, the Directors are satisfied that the Group and the Company have sufficient liquid resources to be able to meet their liabilities as they fall due and to be able to continue as a going concern for the foreseeable future. The corporate strategy for the near term is to: • • • continue production from MEX-GOL and SV licences, generating cash to cover Group costs and add to existing cash resources, whilst moderating development plans to reduce cash spend exposure whilst the war and operational/political continue; vigorously pursue legal initiatives to protect the Group’s assets, restore all licences and production, and seek compensation for losses incurred to date and as may be incurred in the future; and tightly manage costs to ensure cash resources are maintained at levels capable of sustaining the business through the uncertainty that lies ahead. In respect of the Group’s operations, staff and assets in Ukraine, the potential short and long-term impact of the future development of the war is inherently uncertain. Accordingly, this creates a material uncertainty related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going 67 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 concern because of the potential impact on its ability to continue its operations for the foreseeable future and realise its assets in the normal course of business. The financial statements do not include the adjustments that would result if the Group were unable to continue as a going concern. The Company is a UK-based investment holding company. The Company had cash and cash equivalents of $20.6 million as at 14 December 2023, all of which are held outside of Ukraine, in US Dollars, Pounds Sterling and Euros. The Directors are satisfied that the Company is a going concern and will be able to continue its operations for the foreseeable future, and there is no material uncertainty in respect of its ability to do so. New and amended standards adopted by the Group The following amended standards became effective from 1 January 2022, but did not have a material impact on the Group’s consolidated or Company’s financial statements: • • Amendments to IAS 16 Property, Plant and Equipment prohibit the deduction from the cost of an item of property, plant and equipment of any proceeds from selling items produced while bringing that asset into operation and clarify that these proceeds (and the corresponding costs of production) are recognised in profit or loss Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets clarify that the cost of fulfilling a contract comprises the costs that relate directly to the contract. These can either be incremental costs of fulfilling that contract or the allocation of other costs that relate directly to fulfilling contracts Impact of standards issued but not yet applied by the Group Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2023 or later, and which the Group has not early adopted. (a) IFRS 17 Insurance Contracts (b) Amendments to IFRS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current (c) Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies (d) Amendments to IAS 8: Definition of Accounting Estimates (e) Amendments to IAS 12: Deferred Tax related to Assets and Liabilities arising from a Single Transaction These new standards and interpretations are not expected to affect significantly the Group’s consolidated financial statements. Exchange differences on intra-group balances with foreign operation The Group has certain inter-company monetary balances of which the Company is the beneficial owner. These monetary balances are payable by a subsidiary that is a foreign operation and are eliminated on consolidation. In the consolidated financial statements, exchange differences arising on such payables because the transaction currency differs from the subsidiary’s functional currency are recognised initially in other comprehensive income if the settlement of such payables is continuously deferred and is neither planned nor likely to occur in the foreseeable future. In such cases, the respective receivables of the Company are regarded as an extension of the Company’s net investment in that foreign operation, and the cumulative amount of the abovementioned exchange differences recognised in other comprehensive income is carried forward within the foreign exchange reserve in equity and is reclassified to profit or loss only upon disposal of the foreign operation. 68 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 When the subsidiary that is a foreign operation settles its quasi-equity liability due to the Company, but the Company continues to possess the same percentage of the subsidiary, i.e. there has been no change in its proportionate ownership interest, such settlement is not regarded as a disposal or a partial disposal, and therefore cumulative exchange differences are not reclassified. The designation of inter-company monetary balances as part of the net investment in a foreign operation is re-assessed when management’s expectations and intentions on settlement change due to a change in circumstances. Where, because of a change in circumstances, a receivable balance, or part thereof, previously designated as a net investment into a foreign operation is intended to be settled, the receivable is de-designated and is no longer regarded as part of the net investment. In such cases, the exchange differences arising on the subsidiary’s payable following de-designation are recognised within finance costs / income in profit or loss, similar to foreign exchange differences arising from financing. Foreign exchange gains and losses not related to intra-group balances are recognised on a net basis as other gains or losses. Basis of Consolidation The consolidated financial statements incorporate the financial information of the Company and entities controlled by the Company (and its subsidiaries) made up to 31 December each year. Subsidiaries Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis at the non-controlling interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss. Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IFRS 9 in profit or loss. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform with the Group’s accounting policies. Segment reporting The Group’s only class of business activity is oil and gas exploration, development and production. The Group’s primary operations are located in Ukraine, with its head office in the United Kingdom. 69 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 The geographical segments are the basis on which the Group reports its segment information to management. Operating segments are reported in a manner consistent with the internal reporting provided to the Board of Directors. Commercial Reserves Proved and probable oil and gas reserves are estimated quantities of commercially producible hydrocarbons which the existing geological, geophysical and engineering data show to be recoverable in future years from known reservoirs. Proved reserves are those quantities of petroleum that, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable from known reservoirs and under defined technical and commercial conditions. Probable reserves are those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than proved reserves but more certain to be recovered than possible reserves. The proved and probable reserves conform to the definition approved by the Petroleum Resources Management System. Oil and Gas Exploration/Evaluation and Development/Production Assets The Group applies the successful efforts method of accounting for oil and gas assets, having regard to the requirements of IFRS 6 Exploration for and Evaluation of Mineral Resources. Exploration costs are incurred to discover hydrocarbon resources. Evaluation costs are incurred to assess the technical feasibility and commercial viability of the resources found. Exploration, as defined in IFRS 6 Exploration and evaluation of mineral resources, starts when the legal rights to explore have been obtained. Expenditure incurred before obtaining the legal right to explore is generally expensed; an exception to this would be separately acquired intangible assets such as payment for an option to obtain legal rights. Expenditures incurred in the exploration activities are expensed unless they meet the definition of an asset. The Group recognises an asset when it is probable that economic benefits will flow to the Group as a result of the expenditure. The economic benefits might be available through commercial exploitation of hydrocarbon reserves or sales of exploration findings or further development rights. Exploration and evaluation (“E&E”) assets are recognised as either property, plant and equipment or intangible assets, according to their nature, in single field cost centres. The capitalisation point is the earlier of: (a) (b) the point at which the fair value less costs to sell the property can be reliably determined as being higher than the total of the expenses incurred and costs already capitalised (such as licence acquisition costs); and an assessment of the property demonstrates that commercially viable reserves are present and hence there are probable future economic benefits from the continued development and production of the resource. E&E assets are reclassified from Exploration and Evaluation when evaluation procedures have been completed. E&E assets that are not commercially viable are written down. E&E assets for which commercially viable reserves have been identified are reclassified to Development and Production assets. E&E assets are tested for impairment immediately prior to reclassification out of E&E. Once an E&E asset has been reclassified from E&E, it is subject to the normal IFRS requirements. This includes impairment testing at the cash-generating unit (“CGU”) level and depreciation. Abandonment and Retirement of Individual Items of Property, Plant and Equipment Normally, no gains or losses shall be recognised if only an individual item of equipment is abandoned or retired or if only a single lease or other part of a group of proved properties constituting the amortisation base is abandoned or retired as long as the remainder of the property or group of properties constituting the amortisation base continues to produce oil or gas. Instead, the asset being abandoned or retired shall be deemed to be fully amortised, and its costs shall be charged to accumulated depreciation, depletion or amortisation. When the last well on an individual property (if that is the amortisation base) or group of 70 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 properties (if amortisation is determined on the basis of an aggregation of properties with a common geological structure) ceases to produce and the entire property or group of properties is abandoned, a gain or loss shall be recognised. Occasionally, the partial abandonment or retirement of a proved property or group of proved properties or the abandonment or retirement of wells or related equipment or facilities may result from a catastrophic event or other major abnormality. In those cases, a loss shall be recognised at the time of abandonment or retirement. Intangible Assets other than Oil and Gas Assets Intangible assets other than oil and gas assets are stated at cost less accumulated amortisation and any provision for impairment. These assets represent exploration licences. Amortisation is charged so as to write off the cost, less estimated residual value on a straight-line basis of 20-25% per annum. Depreciation, Depletion and Amortisation All expenditure carried within each field is amortised from the commencement of commercial production on a unit of production basis, which is the ratio of gas production in the period to the estimated quantities of commercial reserves at the end of the period plus the production in the period, generally on a field by field basis. In certain circumstances, fields within a single development area may be combined for depletion purposes. Costs used in the unit of production calculation comprise the net book value of capitalised costs plus the estimated future field development costs necessary to bring the reserves into production. Impairment At each balance sheet date, the Group reviews the carrying amount of oil and gas development and production assets to determine whether there is any indication that those assets have suffered an impairment loss. This includes exploration and appraisal costs capitalised which are assessed for impairment in accordance with IFRS 6. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. For oil and gas development and production assets, the recoverable amount is the greater of fair value less costs to dispose and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using an expected weighted average cost of capital. 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. Impairment losses are recognised as an expense immediately. The valuation method used for determination of fair value less cost of disposal is based on unobservable market data, which is within Level 3 of the fair value hierarchy. Should an impairment loss subsequently reverse, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but 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 as income immediately. Decommissioning Provision Where a material liability for the removal of existing production facilities and site restoration at the end of the productive life of a field exists, a provision for decommissioning is recognised. The amount recognised is the present value of estimated future expenditure determined in accordance with local conditions and requirements. The cost of the relevant property, plant and equipment is increased with an amount equivalent to the provision and depreciated on a unit of production basis. Changes in estimates are recognised prospectively, with corresponding adjustments to the provision and the associated fixed asset. The unwinding of the discount on the decommissioning provision is included within finance costs. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 71 Property, Plant and Equipment other than Oil and Gas Assets Property, plant and equipment other than oil and gas assets (included in Other fixed assets in Note 16 are stated at cost less accumulated depreciation and any provision for impairment. Depreciation is charged so as to write off the cost of assets on a straight-line basis over their useful lives as follows: Buildings and constructions Machinery and equipment Vehicles Office and other equipment Useful lives in years 10 to 20 years 2 to 5 years 5 years 4 to 12 years Spare parts and equipment purchased with the intention to be used in future capital investment projects are recognised as oil and gas development and production assets within property, plant and equipment. Right-of-use assets The Group leases various offices, equipment, wells and land. Contracts may contain both lease and non- lease components. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. Assets arising from a lease are initially measured on a present value basis. Right-of-use assets are measured at cost comprising the following: ● ● ● ● the amount of the initial measurement of lease liability, any lease payments made at or before the commencement date less any lease incentives received, any initial direct costs, and costs to restore the asset to the conditions required by lease agreements. Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying assets’ useful lives. Depreciation on the items of the right-of-use assets is calculated using the straight-line method over their estimated useful lives as follows: Land Wells Properties: Buildings and constructions Machinery and equipment Vehicles Office and other equipment Inventories Useful lives in years 40 to 50 years 10 to 20 years 10 to 20 years 2 to 5 years 5 years 4 to 12 years Inventories typically consist of materials, spare parts and hydrocarbons, and are stated at the lower of cost and net realisable value. Cost of finished goods is determined on the weighted average bases. Cost of other than finished goods inventory is determined on the first in first out basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Revenue Recognition Revenue is income arising in the course of the Group’s ordinary activities. Revenue is recognised by the amount of the transaction price. Transaction price is the amount of consideration to which the Group Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 72 expects to be entitled in exchange for transferring control over promised goods or services to a customer, excluding the amounts collected on behalf of third parties. Revenue is recognised net of indirect taxes and excise duties. Sales of gas, condensate and LPG are recognised when control of the good has transferred, being when the goods are delivered to the customer, the customer has full discretion over the goods, and there is no unfulfilled obligation that could affect the customer’s acceptance of the goods. Delivery occurs when the goods have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the goods in accordance with the contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied. A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. The Group normally uses standardised contracts for the sale of gas, condensate and LPG, which define the point of control transfer. The price and quantity of each sale transaction are indicated in the specifications to the sales contracts. The control over gas is transferred to a customer when the respective act of acceptance is signed by the parties to a contract upon delivery of gas to the point of sale specified in the contract, normally being a certain point in the Ukrainian gas transportation system. Acts of acceptance of gas are signed and the respective revenues are recognised on a monthly basis. The control over condensate and LPG is transferred to a customer when the respective waybill is signed by the parties to a contract upon shipment of goods at the point of sale specified in the contract, which is normally the Group’s production site. Foreign Currencies The Group’s consolidated financial statements and those of the Company are presented in US Dollars. The functional currency of the subsidiaries which operate in Ukraine is Ukrainian Hryvnia. The remaining entities have US Dollars as their functional currency. The functional currency of individual companies is determined by the primary economic environment in which the entity operates, normally the one in which it primarily generates and expends cash. In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (“foreign currencies”) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non- monetary items which are measured in terms of historical cost in a foreign currency are not retranslated. Gains and losses arising on retranslation are included in net profit or loss for the period, except for exchange differences arising on balances which are considered long term investments where the changes in fair value are recognised directly in other comprehensive income. On consolidation, the assets and liabilities of the Group’s subsidiaries which do not use US Dollars as their functional currency are translated into US Dollars as follows: (a) (b) assets and liabilities for each Balance Sheet presented are translated at the closing rate at the date of that Balance Sheet; income and expenses for each Income Statement are translated at average monthly exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 73 on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and (c) all resulting exchange differences are recognised in other comprehensive income. The principal rates of exchange used for translating foreign currency balances as at 31 December 2022 were $1:UAH36.57 (2021: $1: UAH27.28), $1:£0.827 (2021: $1:£ 0.741), $1:€0.934 (2021: $1:€0.883), and the average rates for the year were $1:UAH32.37 (2021: $1:UAH27.3), $1:£0.811 (2021: $1:£ 0.727), $1:€0.951 (2021: $1:€0.845) None of the Group’s operations are considered to use the currency of a hyperinflationary economy, however this is kept under review. Pensions The Group contributes to a local government pension scheme in Ukraine and defined benefit plans. The Group has no further payment obligations towards the local government pension scheme once the contributions have been paid. Defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The Group companies participate in a mandatory Ukrainian State-defined retirement benefit plan, which provides for early pension benefits for employees working in certain workplaces with hazardous and unhealthy working conditions. The Group also provides lump sum benefits upon retirement subject to certain conditions. The early pension benefit (in the form of a monthly annuity) is payable by employers only until the employee has reached the statutory retirement age. The pension scheme is based on a benefit formula which depends on each individual member’s average salary, his/her total length of past service and total length of past service at specific types of workplaces (“list II” category). The liability recognised in the Balance Sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. Since Ukraine has no deep market in such bonds, the market rates on government bonds are used. The current service cost of the defined benefit plan, recognised in the Income Statement within the Cost of Sales in employee benefit expense, except where included in the cost of an asset, reflects the increase in the defined benefit obligation resulting from employee service in the current year, benefit changes curtailments and settlements. Past-service costs are recognised immediately in the Income Statement. The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the Income Statement within the Cost of Sales. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Taxation The tax expense represents the sum of the current tax and deferred tax. Current tax, including UK corporation and overseas tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 74 Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, 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. Deferred tax is calculated at the tax rates which are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Other taxes which include recoverable value added tax, excise tax and custom duties represent the amounts receivable or payable to local tax authorities in the countries where the Group operates. Value added tax Output value added tax related to sales is payable to tax authorities on the earlier of (a) collection of receivables from customers or (b) delivery of goods or services to customers. Input VAT is generally recoverable against output VAT upon receipt of the VAT invoice. The tax authorities permit the settlement of VAT on a net basis. VAT related to sales and purchases is recognised in the consolidated statement of financial position on a gross basis for different entities of the Group and disclosed separately as an asset and a liability. Where provision has been made for expected credit losses (“ECL”) of receivables, the impairment loss is recorded for the gross amount of the debtor, including VAT. Financial Instruments Financial instruments - key measurement terms. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best evidence of fair value is the price in an active market. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Fair value of financial instruments traded in an active market is measured as the product of the quoted price for the individual asset or liability and the number of instruments held by the entity. This is the case even if a market’s normal daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the position in a single transaction might affect the quoted price. A portfolio of financial derivatives or other financial assets and liabilities that are not traded in an active market is measured at the fair value of a group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position (i.e. an asset) for a particular risk exposure or paid to transfer a net short position (i.e. a liability) for a particular risk exposure in an orderly transaction between market participants at the measurement date. This is applicable for assets carried at fair value on a recurring basis if the Group: (a) manages the group of financial assets and financial liabilities on the basis of the Group’s net exposure to a particular market risk (or risks) or to the credit risk of a particular counterparty in accordance with the Group’s documented risk management or investment strategy; (b) it provides information on that basis about the group of assets and liabilities to the Group’s key management personnel; and (c) the market risks, including duration of the Group’s exposure to a particular market risk (or risks) arising from the financial assets and financial liabilities are substantially the same. Valuation techniques such as discounted cash flow models or models based on recent arm’s length transactions or consideration of financial data of the investees are used to measure fair value of certain 75 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 financial instruments for which external market pricing information is not available. Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations not based on solely observable market data (that is, the measurement requires significant unobservable inputs). Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs. Fair value is the amount at which the financial instrument was recognised at initial recognition, while amortised cost (“AC”) is the amount at which the financial instrument was subsequently measured after the initial recognition less any principal repayments, plus accrued interest, and for financial assets less any allowance for ECL. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to the maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of the related items in the consolidated statement of financial position. The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the gross carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate. For assets that are purchased or originated credit impaired (“POCI”) at initial recognition, the effective interest rate is adjusted for credit risk, i.e. it is calculated based on the expected cash flows on initial recognition instead of contractual payments. Financial instruments – initial recognition. Financial instruments at fair value through profit or loss (“FVTPL”) are initially recorded at fair value. All other financial instruments are initially recorded at fair value adjusted for transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets. After the initial recognition, an ECL allowance is recognised for financial assets measured at AC and investments in debt instruments measured at fair value through other comprehensive income (“FVOCI”), resulting in an immediate accounting loss. All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (“regular way” purchases and sales) are recorded at trade date, which is the date on which the Group commits to deliver a financial asset. All other purchases are recognised when the entity becomes a party to the contractual provisions of the instrument. Financial assets – classification and subsequent measurement – measurement categories. The Group classifies financial assets in the following measurement categories: FVTPL, FVOCI and AC. The classification and subsequent measurement of debt financial assets depends on: (i) the Group’s business model for managing the related assets portfolio and (ii) the cash flow characteristics of the asset. The Group’s financial assets include cash and cash equivalents, trade and other receivables, loans to subsidiary undertakings, all of which are classified as AC in accordance with IFRS 9. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 76 Financial assets - classification and subsequent measurement – business model. The business model reflects how the Group manages the assets in order to generate cash flows – whether the Group’s objective is: (i) solely to collect the contractual cash flows from the assets (“hold to collect contractual cash flows”), or (ii) to collect both the contractual cash flows and the cash flows arising from the sale of assets (“hold to collect contractual cash flows and sell”) or, if neither of (i) and (ii) is applicable, the financial assets are classified as part of “other” business model and measured at FVTPL. Business model is determined for a group of assets (on a portfolio level) based on all relevant evidence about the activities that the Group undertakes to achieve the objective set out for the portfolio available at the date of the assessment. Factors considered by the Group in determining the business model include past experience on how the cash flows for the respective assets were collected. The Group’s business model for financial assets is to collect the contractual cash flows from the assets (“hold to collect contractual cash flows”). Financial assets - classification and subsequent measurement - cash flow characteristics. Where the business model is to hold assets to collect contractual cash flows or to hold contractual cash flows and sell, the Group assesses whether the cash flows represent solely payments of principal and interest (“SPPI”). Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are consistent with the SPPI feature. In making this assessment, the Group considers whether the contractual cash flows are consistent with a basic lending arrangement, i.e. interest includes only consideration for credit risk, time value of money, other basic lending risks and profit margin. Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the financial asset is classified and measured at FVTPL. The SPPI assessment is performed on initial recognition of an asset and it is not subsequently reassessed. Financial assets - reclassification. Financial instruments are reclassified only when the business model for managing the portfolio as a whole changes. The reclassification has a prospective effect and takes place from the beginning of the first reporting period that follows after the change in the business model. The Group did not change its business model during the current and comparative period and did not make any reclassifications. Financial assets impairment - credit loss allowance for ECL. The Group assesses, on a forward-looking basis, the ECL for debt instruments measured at AC and FVOCI and for the exposures arising for contractual assets. The Group measures ECL and recognises Net impairment losses on financial and contractual assets at each reporting date. The measurement of ECL reflects: (i) an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes, (ii) time value of money and (iii) all reasonable and supportable information that is available without undue cost and effort at the end of each reporting period about past events, current conditions and forecasts of future conditions. Debt instruments measured at AC and contractual assets are presented in the consolidated statement of financial position net of the allowance for ECL. For loan commitments and financial guarantees, a separate provision for ECL is recognised as a liability in the consolidated statement of financial position. The Group applies a simplified approach for impairment of cash and cash equivalents, other short-term investments and trade and other receivables, by recognising lifetime expected credit losses based on past default experience and credit profiles, adjusted as appropriate for current observable data. For other financial assets the Group applies a three stage model for impairment, based on changes in credit quality since initial recognition. A financial instrument that is not credit-impaired on initial recognition is classified in Stage 1. Financial assets in Stage 1 have their ECL measured at an amount equal to the portion of lifetime ECL that results from default events possible within the next 12 months or until contractual maturity, if shorter (“12 Months ECL”). If the Group identifies a significant increase in credit risk (“SICR”) since initial recognition, the asset is transferred to Stage 2 and its ECL is measured based on ECL on a lifetime basis, that is, up until contractual maturity but considering expected prepayments, if any (“Lifetime ECL”). If the Group determines that a financial asset is credit-impaired, the asset is transferred to Stage 3 and its ECL is measured as a Lifetime ECL. For financial assets that are purchased or originated credit-impaired (“POCI Assets”), the ECL is always measured as a Lifetime ECL. Financial assets - write-off. Financial assets are written-off, in whole or in part, when the Group has exhausted all practical recovery efforts and has concluded that there is no reasonable expectation of 77 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 recovery. The write-off represents a derecognition event. The Group may write-off financial assets that are still subject to enforcement activity when the Group seeks to recover amounts that are contractually due, however, there is no reasonable expectation of recovery. Financial assets - derecognition. The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expire or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement whilst (i) also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all the risks and rewards of ownership but not retaining control. Financial assets - modification. If the modified terms are substantially different, the rights to cash flows from the original asset expire and the Company derecognises the original financial asset and recognises a new asset at its fair value. The date of renegotiation is considered to be the date of initial recognition for subsequent impairment calculation purposes, including determining whether a SICR has occurred. Any difference between the carrying amount of the original asset derecognised and fair value of the new substantially modified asset is recognised in profit or loss, unless the substance of the difference is attributed to a capital transaction with owners. If the modified asset is not substantially different from the original asset and the modification does not result in derecognition. The Group recalculates the gross carrying amount by discounting the modified contractual cash flows by the original effective interest rate (or credit-adjusted effective interest rate for POCI financial assets), and recognises a modification gain or loss in profit or loss. Financial liabilities - measurement categories. Financial liabilities are classified as subsequently measured at AC, except for (i) financial liabilities at FVTPL: this classification is applied to derivatives, financial liabilities held for trading (e.g. short positions in securities), contingent consideration recognised by an acquirer in a business combination and other financial liabilities designated as such at initial recognition and (ii) financial guarantee contracts and loan commitments. The Group’s financial liabilities include trade and other payables, lease liabilities, all of which are classified as AC in accordance with IFRS 9. Financial liabilities - derecognition. Financial liabilities are derecognised when they are extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires). Trade Receivables Trade receivables are amounts due from customers for goods sold in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less expected credit losses. Prepayments Prepayments are carried at cost less provision for impairment. A prepayment is classified as non-current when the goods or services relating to the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as non-current upon initial recognition. Prepayments to acquire assets are transferred to the carrying amount of the asset once the Group has obtained control of the asset and it is probable that future economic benefits associated with the asset will flow to the Group. Other prepayments are written off to profit or loss when the services relating to the prepayments are received. If there is an indication that the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corresponding impairment loss is recognised in profit or loss for the year. Investments in subsidiaries Investments made by the Company in its subsidiaries are stated at cost in the Company’s financial statements and reviewed for impairment if there are indications that the carrying value may not be recoverable. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 78 Loans issued to subsidiaries Loans issued by the Company to its subsidiaries are initially recognised in the Company’s financial statements at fair value and are subsequently carried at amortised cost using the effective interest method, less credit loss allowance. Net change in credit losses and foreign exchange differences on loans issued are recognised in the Company’s statement of profit or loss in the period when incurred. Trade and Other Payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Lease liabilities Liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: ● ● ● ● fixed payments (including in-substance fixed payments), less any lease incentives receivable, variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date, the exercise price of a purchase option if the Group is reasonably certain to exercise that option, and payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option. Extension and termination options are included in a number of property and equipment leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts. Extension options (or period after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases of the Group, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. To determine the incremental borrowing rate, the Group: ● ● ● where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received, uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk, and makes adjustments specific to the lease, e.g. term, country, currency and collateral. The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset. Lease payments are allocated between principal and finance costs. The finance costs are charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Payments associated with short-term leases and all leases of low-value assets under $5,000 are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 79 Equity Instruments Ordinary shares are classified as equity. Equity instruments issued by the Company and the Group are recorded at the proceeds received, net of direct issue costs. Any excess of the fair value of consideration received over the par value of shares issued is recorded as share premium in equity. Cash and Cash Equivalents Cash and cash equivalents comprise cash on hand and deposits held at call with banks and other short- term highly liquid investments which are readily convertible to a known amount of cash with insignificant risk of change in value. Cash and cash equivalents are carried at amortised cost. Interest income that relates to cash and cash equivalents on current and deposit accounts is disclosed within operating cash flow. Other short-term investments Other short-term investments include current accounts and deposits held at banks, which do not meet the cash and cash equivalents definition. Current accounts and deposits held at banks, which do not meet the cash and cash equivalents definition are measured initially at fair value and subsequently carried at amortised cost using the effective interest method. Interest received on other short-term investments is disclosed within operating cash flow. Interest income Interest income is recognised as it accrues, taking into account the effective yield on the asset. Interest income on current bank accounts and on demand deposits or term deposits with the maturity less than three months recognised as part of cash and cash equivalents is recognised as other operating income. Interest income on term deposits other than those classified as cash and cash equivalents is recognised as finance income. 3. Significant Accounting Judgements and Estimates The Group makes estimates and judgements concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and judgements which have a risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Depreciation of Oil and Gas Development and Production Assets Development and production assets held in property, plant and equipment are depreciated on a unit of production basis at a rate calculated by reference to proved and probable reserves at the end of the period plus the production in the period, and incorporating the estimated future cost of developing and extracting those reserves. Future development costs are estimated using estimates about the number of wells required to produce those reserves, the cost of the wells, future production facilities and operating costs, together with assumptions on oil and gas realisations, and are revised annually. The reserves estimates used are determined using estimates of gas in place, recovery factors, future hydrocarbon prices and also take into consideration the Group’s latest development plan for the associated development and production asset. The latest development plan and therefore the inputs used to determine the depreciation charge for the MEX-GOL, SV and VAS fields continue until the end of the economic life of the fields, which is assessed to be 2038, 2042 and 2028 respectively, based on the assessment contained in the DeGolyer & MacNaughton reserves report for these fields. The licences for the MEX-GOL and SV fields have recently been extended until 2044. Were the estimated reserves at the beginning of the year to differ by 10% from previous assumptions, the impact on depreciation for the year ended 31 December 2022 would be to increase it by $1,394,000 or decrease it by $626,000 (2021: increase by $1,195,000 or decrease by $975,000). Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 80 Provision for Decommissioning The Group has decommissioning obligations in respect of its Ukrainian assets. The full extent to which the provision is required depends on the legal requirements at the time of decommissioning, the costs and timing of any decommissioning works and the discount rate applied to such costs. A detailed assessment of gross decommissioning cost was undertaken on a well-by-well basis using local data on day rates and equipment costs. The discount rate applied on the decommissioning cost provision as at 31 December 2022 was 4.76% (31 December 2021: 6.29%). The discount rate is calculated in real terms based on the yield to maturity of Ukrainian Government bonds denominated in the currency in which the liability is expected to be settled and with the settlement date that approximates the timing of settlement of decommissioning obligations. Increase of the discount rate applied is caused by the growth of the Ukrainian risk-free rate. The change in estimate applied to calculate the provision as at 31 December 2022 resulted from the revision of the estimated costs of decommissioning (increase of $1,477,000 in provision), an increase in the discount rate applied (increase of $1,020,000 in provision). The costs are expected to be incurred by 2038 on the MEX-GOL field, by 2042 on the SV field, and by 2028 on the VAS field, which is the end of the estimated economic life of the respective fields (Note 24). Net Carrying Amount of Inter-Company Loans Receivable and Investments by the Company into a Subsidiary The Company has certain inter-company loans receivable from a subsidiary, which are eliminated on consolidation. For the purpose of the Company’s financial statements, these receivable balances are carried at amortised cost using the effective interest method, less credit loss allowance. Measurement of lifetime expected credit losses on inter-company loans is a significant judgment that involves models and data inputs including forward-looking information, current conditions and forecasts of future conditions impacting the estimated future cash flows that are expected to be recovered, time value of money, etc. In previous years, significant impairment charges were recorded against the carrying amount of the loans issued to subsidiaries as the present value of estimated future cash flows discounted at the original effective interest rate was less than the carrying amount of the loans, and the resulting impairment losses were recognised in profit or loss in the Company’s financial statements. For the purpose of assessment of the credit loss allowance as at 31 December 2022, the Company considered all reasonable and supportable forward-looking information available as at that date without undue cost and effort, which includes a range of factors, such as estimated future net cash flows to be generated by the subsidiaries operating in Ukraine and cash flow management. All these factors have a significant impact on the amounts subject to repayment on the loans and investments. The estimated future discounted cash flows generated by the subsidiaries operating in Ukraine are considered as a primary source of repayment on the loans and investments. As at 31 December 2022, the present value of future net cash flows to be generated by the subsidiaries operating in Ukraine during 2023 – 2027, adjusted for the subsidiaries’ working capital as at 31 December 2022 and estimated amounts reserved by the Group for investment projects in the time horizon was calculated. The key assumptions used in the discounted cash flow model are: • • • • production levels for a period of five years assumed to be: at the level of 6.9 MMboe for the MEX- GOL and SV fields and zero for the period of suspension of the VAS field and SC licence area; reserves at the beginning of 2023 at the MEX-GOL and SV fields of 31.9 MMboe, at the VAS field of 1.2 MMboe and at the SC licence area of 10.8 MMboe; commodity prices – the model assumes gas prices of $464/Mm3 in 2023, $581/Mm3 in 2024, decreasing to $509/Mm3 in 2025, $450/Mm3 in 2026 and $300/Mm3 in subsequent years; discount rate applied is 11.66%, determined in real terms; Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 81 • • • • • production taxes applicable to gas production at variable rates under relevant legislation; capital expenditure allowance for maintenance and development of: MEX-GOL and SV fields at the level of $750,000 per year, VAS field at the level of $250,000 per year and SC licence area at the level of $100,000 per year; future capital expenditures for a period of five years assumed to be: for the MEX-GOL and SV fields at the level of $170,500,000, VAS field at the level of $200,000 and SC licence area at the level of $0; life of field for the purpose of the assessment of loans – cash flows were taken for a period of five years as management believes there is no reasonably available information to build reliable expectations and demonstrate the ability to settle the loans over a longer perspective; life of field for the purpose of the assessment of investments – cash flows were taken for a period of the full economic life of the respective CGUs. The resulting amount, net of the carrying value of the Company’s investments in subsidiaries and loans, was compared to the discounted cash flows and net financial assets of the subsidiaries as at 31 December 2022. As such, the Company has recorded $9,942,000 of loss, being the net change in the expected credit losses for loans issued to and investments in subsidiaries in the Company’s statement of profit or loss for the year ended 31 December 2022. As with any economic forecast, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty, and therefore the actual outcomes may be significantly different to those projected. The Company considers these forecasts to represent its best estimate of the possible outcomes. 4. Segmental Information In line with the Group’s internal reporting framework and management structure, the key strategic and operating decisions are made by the Board of Directors, who review internal monthly management reports, budget and forecast information as part of this process. Accordingly, the Board of Directors is deemed to be the Chief Operating Decision Maker within the Group. The Group’s only class of business activity is oil and gas exploration, development and production. The Group’s operations are located in Ukraine, with its head office in the United Kingdom. These geographical regions are the basis on which the Group reports its segment information. The segment results as presented represent operating profit before depreciation, amortisation and impairment of non-current assets. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 82 Revenue Gas sales Condensate sales Liquefied Petroleum Gas sales Total revenue Segment result Depreciation and amortisation of non-current assets Operating profit Ukraine 2022 $000 109,461 12,744 11,175 133,380 84,750 (7,837) United Kingdom 2022 $000 - - - - (1,140) - Total 2022 $000 109,461 12,744 11,175 133,380 83,610 (7,837) 75,773 Segment assets Capital additions* 158,982 82,752 241,734 19,807 - 19,807 *Comprises additions to property, plant and equipment (Note 16) There are no inter-segment sales within the Group and all products are sold in the geographical region in which they are produced. The Group is not significantly impacted by seasonality. Revenue is recognised at a point in time. During 2022, the Group was selling all of its gas production to its related party, LLC Smart Energy (“Smart Energy”). Smart Energy has oil and gas operations in Ukraine and is part of the PJSC Smart-Holding Group, which was ultimately controlled by Mr Vadym Novynskyi, who until 1 December 2022, through an indirect 82.65% majority shareholding, ultimately controlled the Group. This arrangement came about in 2017 as a consequence of the Ukrainian Government introducing a number of new provisions into the Ukrainian Tax Code over the previous two years, including transfer pricing regulations for companies operating in Ukraine. The introduction of the new regulations has meant that there is an increased regulatory burden on affected companies in Ukraine who must prepare and submit reporting information to the Ukrainian Tax Authorities. Due to the corporate structure of the Group, a substantial proportion of its gas production is produced by a non-Ukrainian subsidiary of the Group, which operates in Ukraine as a branch, or representative office as it Is classified in Ukraine. Under the Ukrainian tax regulations, this places additional regulatory obligations on each of the Group’s potential customers who may be less inclined to purchase the Group’s gas and/or may seek discounts on sales prices. As a result of discussions between the Company and Smart Energy, Smart Energy agreed to purchase all of the Group’s gas production and to assume responsibility for the regulatory obligations under the Ukrainian tax regulations. Furthermore, Smart Energy agreed to combine the Group’s gas production with its own gas production, and to sell such gas as combined volumes, which was intended to result in higher sales prices due to the larger sales volumes. In order to cover Smart Energy’s sales, administration and regulatory compliance costs, the Group sold its gas to Smart Energy at a discount of 2.0% to the gas sales prices achieved by Smart Energy, who sold the combined volumes in line with market prices. The terms of sale for the Group’s gas to Smart Energy were (i) for 35% of the monthly volume of gas by the 15th of the month following the month of delivery, and (ii) payment of the remaining balance by the end of that month. This arrangement was terminated subsequent to the year end. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 83 Revenue Gas sales Condensate sales Liquefied Petroleum Gas sales Total revenue Segment result Depreciation and amortisation of non-current assets Operating profit Segment assets Capital additions* *Comprises additions to property, plant and equipment (Note 16) 5. Cost of Sales Production taxes Depreciation of property, plant and equipment Rent expenses (Note 18) Staff costs (Note 8) Cost of inventories recognised as an expense Transmission tariff for Ukrainian gas system Amortisation of mineral reserves (Note 17) Other expenses Ukraine 2021 $000 95,813 19,260 6,280 121,353 United Kingdom 2021 $000 Total 2021 $000 - - - - 95,813 19,260 6,280 121,353 81,025 (2,832) 78,193 (11,958) - (11,958) 66,235 144,941 63,649 208,590 32,577 - 32,577 2022 $000 25,271 6,684 8,468 2,149 1,510 493 411 2,471 47,457 2021 $000 19,926 10,669 8,811 2,886 1,708 880 482 2,060 47,422 A transmission tariff for use of the Ukrainian gas transit system of UAH101.93/Mm3 of gas was applicable to the Group (2021: UAH101.93/Mm3). Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 84 6. Administrative Expenses Staff costs (Note 8) Consultancy fees Depreciation of other fixed assets Auditors’ remuneration Amortisation of other intangible assets Rent expenses Other expenses Auditors Remuneration PricewaterhouseCoopers LLP Audit of the Company and subsidiaries Audit of subsidiaries in Ukraine Audit related assurances services - interim review Total assurance services Tax compliance services Tax advisory services Total non-audit services Total audit and other services Zenith Audit Ltd Audit of the Company and subsidiaries Audit of subsidiaries in Ukraine Audit related assurances services - interim review Total assurance services Tax compliance services Tax advisory services Total non-audit services Total audit and other services 2022 $000 4,105 906 297 326 169 248 779 6,830 2022 $000 37 10 - 47 - 3 3 50 2022 $000 139 - - - - - - 139 2021 $000 5,019 923 572 352 235 160 1,089 8,350 2021 $000 141 124 48 313 26 13 39 352 2021 $000 - - - - - - - - Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 85 7. Remuneration of Directors Directors’ emoluments The emoluments of the individual Directors were as follows: Executive Directors: Sergii Glazunov Bruce Burrows Non-executive Directors: Chris Hopkinson Alexey Pertin Yuliia Kirianova Dmitry Sazonenko Dr Gehrig Schultz* *appointed 24 August 2022 2022 $000 1,325 2021 $000 1,115 Total Emoluments 2022 $000 Total emoluments 2021 $000 473 546 124 56 56 50 20 1,325 307 484 138 62 62 62 - 1,115 The emoluments include base salary, bonuses and fees. According to the Register of Directors’ Interests, no rights to subscribe for shares in or debentures of any Group companies were granted to any of the Directors or their immediate families during the financial year, and there were no outstanding options to Directors. 8. Staff Numbers and Costs The average monthly number of employees during the year (including Executive Directors) and the aggregate staff costs of such employees were as follows: Group Management / operational Administrative support Number of employees 2022 2021 166 81 247 171 92 263 The prior year comparative numbers of employees were amended to conform to the current year presentation. The number of employees includes full-time and part-time employees. Wages and salaries Other pension costs Social security costs 2022 $000 5,729 816 90 6,635 2021 $000 6,785 1,007 113 7,905 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 86 9. Other Operating (Losses)/Gains, (net) Interest income on cash and cash equivalents Contractor penalties applied Gain on sales of current assets Impairment of property, plant and equipment (Note 16) Other operating (loss)/income, net 10. Finance Income Financial instrument: unwinding of discount Foreign exchange gains less losses 11. Finance Costs Unwinding of discount on financial liabilities Unwinding of discount on provision for decommissioning (Note 24) Interest expense on lease liabilities 12. Other Losses, (net) Charitable donations Foreign exchange (gains)/losses Other losses/(gains), net 2022 $000 1,888 114 20 (4,257) (1,085) (3,320) 2022 $000 1,126 - 1,126 2022 $000 996 293 121 1,410 2022 $000 6,534 (4,843) 47 1,738 2021 $000 763 81 16 - (206) 654 2021 $000 - 1,394 1,394 2021 $000 333 250 169 752 2021 $000 76 53 (21) 108 Charitable donations for the year ended 31 December 2022 comprise humanitarian aid in for population and armed forces of Ukraine (2021: contributions to the development of social infrastructure of local communities). Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 87 13. Income Tax Expense a) Income tax expense and (benefit): Current tax UK - current year UK - prior year Overseas - current year Overseas - prior year Deferred tax (Note 25) UK - current year UK - prior year Overseas - current year Income tax expense 2022 $000 54 - 14,263 - 1,852 (3,021) (24) 13,124 2021 $000 165 10 13,130 - 2,367 - (199) 15,473 b) Factors affecting tax charge for the year: The tax assessed for the year is different from the corporation tax in the UK of 19.00%. The expense for the year can be reconciled to the profit as per the Income Statement as follows: Profit before taxation Tax charge at UK tax rate of 19.00% (2021: 19.00%) 2022 $000 2021 $000 73,307 13,928 66,592 12,652 Tax effects of: Lower foreign corporate tax rates in Ukraine (18.00%) (2021: 18.00%) Change in UK tax rate from 19% to 25% starting from 1 April 2023 Disallowed expenses and non-taxable income Previously unrecognised tax losses used to reduce income tax expense Adjustments in respect of prior periods Total tax expense for the year (699) - 6,708 (3,792) (3,021) 13,124 (685) 1,168 12,038 (9,875) 175 15,473 The tax effect of disallowed expenses and non-taxable income are mainly represented by foreign exchange differences of Regal Petroleum Corporation (Ukraine) Limited and the net change in credit loss allowance for loans issued to subsidiaries and shares in subsidiary undertakings. The tax effect of losses not recognised as deferred tax assets are mainly represented by accumulated losses of Regal Petroleum Corporation (Ukraine) Limited. 14. Loss/Profit for the Year The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own Income Statement in these financial statements. The Parent Company loss after tax was $6,358,000 for the year ended 31 December 2022 (2021: profit after tax $16,330,000). 15. Earnings per Share The calculation of basic earnings per ordinary share has been based on the profit for the year and 320,637,836 (2021: 320,637,836) ordinary shares, being the weighted average number of shares in issue for the year. There are no dilutive instruments. 88 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 16. Property, Plant and Equipment Oil and Gas Development and Production assets Ukraine $000 2022 Oil and Gas Exploration and Evaluation Assets $000 Group Cost At the beginning of the year Additions Change in decommissioning provision Disposals Exchange differences At the end of the year 163,170 12,872 2,596 (200) (43,183) 135,255 Accumulated depreciation and impairment At the beginning of the year Charge for year Disposals Impairment charged Exchange differences At the end of the year Net book value at the beginning of the year Net book value at the end of the year 87,070 6,906 (75) 2,361 (23,154) 73,108 76,100 62,147 MEX-GOL, SV, SC and VAS gas and condensate fields 10,110 6,549 38 (18) (3,586) 13,093 - - - 1,896 (219) 1,677 10,110 11,416 Other fixed assets $000 2,631 386 - (356) (693) 1,968 1,423 301 (57) (392) 1,275 1,208 693 Total $000 175,911 19,807 2,634 (574) (47,462) 150,316 88,493 7,207 (132) 4,257 (23,765) 76,060 87,418 74,256 Oil and Gas Development and Production assets Ukraine $000 Oil and Gas Exploration and Evaluation Assets $000 2021 Other fixed assets $000 2,217 524 - (187) 77 2,631 1,067 343 (28) 41 1,423 Total $000 140,545 32,576 (1,851) (249) 4,890 175,911 74,883 10,887 (53) 2,776 88,493 2,362 7,763 70 - (85) 10,110 - - - - - 2,362 1,150 65,662 10,110 1,208 87,418 135,966 24,289 (1,921) (62) 4,898 163,170 73,816 10,544 (25) 2,735 87,070 62,150 76,100 In accordance with the Group’s accounting policies, oil and gas development and producing assets are tested for an impairment loss at each balance sheet date. In assessing whether an impairment loss has occurred, the carrying amount of the asset is compared to its recoverable amount, which IAS 36 defines as the higher of fair value less cost to sell and value in use. Management does not believe it possible to measure fair value reliably, due to both the absence of an active market in which to sell the asset and the current political and economic climate in Ukraine. Therefore, as in previous years, management has used value in use, using a discounted cash flow (‘DCF’) model, to measure its recoverable amount. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 89 Due to the suspension of the VAS and SC licences for five years, zero production was attributed for this period in the DCF models. This resulted in the recognition of an impairment loss for the VAS assets of $4,256,000 (2012: $nil), to match the carrying value of the asset to its recoverable value, based on the revised estimate of value in use. The calculation of value in use is most sensitive to the following assumptions: • • • • • • • production levels and reserves at the beginning of 2023 at the MEX-GOL and SV fields of 31.9 MMboe, at the VAS field of 1.2 MMboe and at the SC licence area of 10.8 MMboe with zero production for the period of suspension of the VAS and SC licences; commodity prices - the model assumes gas prices of $464/Mm3 in 2023, $581/Mm3 in 2024, decreasing to $509/Mm3 in 2025, $450/Mm3 in 2026 and $300/Mm3 in subsequent years; discount rate applied is 11.66%, determined in real terms; production taxes applicable to gas production at variable rates under relevant legislation; capital expenditure allowance for maintenance and development of: MEX-GOL and SV fields at the level of $750,000 per year, VAS field at the level of $250,000 per year and SC licence area at the level of $100,000 per year; future capital expenditures for a period of five years assumed to be: for the MEX-GOL and SV fields at the level of $245,700,000, VAS field at the level of $14,800,000 and SC licence area at the level of $116,700,000; life of field for the purpose of the assessment of investments - cash flows were taken for a period of the full economic life of the respective CGUs (Note 3). Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 90 17. Intangible Assets 2022 Exploration and evaluation intangible assets $000 Mineral reserve rights $000 Exploration and evaluation intangible assets $000 2021 Other intangible assets $000 Total $000 Mineral reserve rights $000 Group Cost At the beginning of the year Additions Disposals Exchange differences At the end of the year Accumulated amortisation At the beginning of the year Charge for year Disposals Exchange differences At the end of the year Net book value at the beginning of the year Net book value at the end of the year 6,810 - - (1,730) 5,080 3,439 411 - (925) 2,925 3,371 2,155 Other intangible assets $000 752 322 (27) (187) 860 16,213 322 (27) (4,135) 12,373 434 182 (27) (135) 454 318 3,873 593 (27) (1,060) 3,379 12,340 8,651 - - (2,218) 6,433 - - - - - 8,651 6,570 - - 240 6,810 2,855 482 - 102 3,439 3,715 8,286 143 (80) 302 8,651 - - - - - 8,286 616 324 (212) 24 752 385 239 (212) 22 434 231 Total $000 15,472 467 (292) 566 16,213 3,240 721 (212) 124 3,873 12,232 6,433 406 8,994 3,371 8,651 318 12,340 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 91 Intangible assets consist mainly of the hydrocarbon production licence relating to the VAS field which is held by one of the Group's subsidiaries, LLC Prom-Enerho Produkt, and a hydrocarbon exploration licence relating to the Svystunivsko-Chervonolutskyi (“SC”) area which is held by LLC Arkona Gas-Energy. The Group amortises the hydrocarbon production licence relating to the VAS field using the straight-line method over the term of the economic life of the VAS field until 2028. The hydrocarbon exploration licence relating to the SC area is not amortised due to it being in an exploration and evaluation stage. In accordance with the Group’s accounting policies, intangible assets are tested for impairment at each balance sheet date as part of the impairment testing of the Group’s oil and gas development and production assets if impairment indicators exist. As at 31 December 2022, intangible assets were tested for an impairment loss, however no loss was recognised in the period. 18. Right-of-use Assets This note provides information for right-of-use assets and leases obligations where the Group is a lessee. Amount recognised in the balance sheet: Right-of-use assets Properties Land Wells Lease liabilities Current Non-current 2022 $000 150 170 44 364 2022 $000 229 258 487 2021 $000 627 242 139 1,008 2021 $000 455 648 1,103 After modification and due to termination of contracts disposals to the right-of-use assets during the 2022 financial year were $271,000 (2021: additions to the right-of-use assets after modification were $820,000). Amounts recognised in the statement of profit or loss: Depreciation charge Properties Land Wells Interest expense (included in finance cost) Expense relating to short-term leases (included in cost of sales and administrative expenses) Expense relating to variable lease payments not included in lease liabilities (included in cost of sales) Expense relating to lease payments for land under wells not included in lease liabilities (included in cost of sales) 2022 $000 (237) (14) (5) (256) (121) (228) 2021 $000 (311) (15) (34) (360) (169) (142) (8,430) (8,765) (38) (64) The total cash outflow for leases in 2022 was $12,464,000 (2021: $10,217,000). Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 92 19. Investments and Loans to Subsidiary Undertakings Company As at 1 January 2021 Additions including accrued interest Disposal of shares in subsidiary Accumulated impairment on disposal of shares in subsidiary Repayment of interest and loans Reversal of impairment Exchange differences As at 31 December 2021 Additions including accrued interest Repayment of interest and loans Impairment Exchange differences As at 31 December 2022 Shares in subsidiary undertakings $000 Loans to subsidiary undertakings $000 35,287 - (3,322) 3,322 - 3,240 - 38,527 3 - (7,826) - 30,704 62,828 15,447 - - (32,132) 7,672 (4,916) 48,899 6,740 (1,077) (2,116) (2,472) 49,974 Total $000 98,115 15,447 (3,322) 3,322 (32,132) 10,912 (4,916) 87,426 6,743 (1,077) (9,942) (2,472) 80,678 The Company has recorded a loss of $2,116,000, being the net change in expected credit losses for loans issued to subsidiaries in the Company’s statement of profit or loss for the year ended 31 December 2022 (Note 3). The Company also recorded a loss of $7,826,000, being the net change in credit loss allowance for shares in subsidiary undertakings. The Company’s discounted cash flow model used for the assessment of the investments recoverability, flexed for sensitivities, produced the following results: Discount rate (increase)/decrease by 1% Change in gas price increase/(decrease) by 10% (247)/220 1,664/(1,647) (641)/676 3,388/(3,411) 31 December 2022 $000 31 December 2021 $000 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 93 The table presented below discloses the changes in the gross carrying amount and credit loss allowance between the beginning and the end of the reporting period for loans to subsidiary undertakings carried at amortised cost and classified within a impairment assessment as at 31 December 2022: three-stage model for Stage 1 Stage 2 Credit loss allowance Stage 3 (lifetime ECL for credit impaired) (lifetime ECL for SICR) Gross carrying amount Stage 1 Stage 2 Total (12- months ECL) (lifetime ECL for SICR) Stage 3 (lifetime ECL for credit impaired) Total (12- months ECL) $000 $000 $000 $000 $000 $000 $000 $000 As at 1 January 2022 (637) - (16,044) (16,681) 12,276 - 53,304 65,580 Movements with impact on credit loss allowance charge for the year: Modification of loans Additions including accrued interest Payment of interest Repayment of loans Exchange difference Changes to ECL measurement model assumptions Total movements with impact on credit loss allowance charge for the year As at 31 December 2022 - - - - - (1,085) - - - - - - (876) - (876) - - 4,958 - - 120 (1,031) - - 120 (2,116) - - - - - - - - - - 876 1,782 876 6,740 (1,077) - (2,592) - (1,077) - (2,592) - (1,085) - (1,787) (2,872) 4,958 - (1,011) 3,947 (1,722) - (17,831) (19,553) 17,234 - 52,293 69,527 ECL - Expected credit losses SICR - Significant increase in credit risk Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 94 The table presented below discloses the changes in the gross carrying amount and credit loss allowance between the beginning and the end of the reporting period for loans to subsidiary undertakings carried at impairment assessment as at amortised cost and classified within a 31 December 2021: three-stage model for Stage 1 Stage 2 Stage 1 Stage 2 Credit loss allowance Stage 3 (lifetime ECL for credit impaired) (lifetime ECL for SICR) (12- months ECL) Total (12- months ECL) Gross carrying amount Stage 3 (lifetime ECL for credit impaired) (lifetime ECL for SICR) Total $000 $000 $000 $000 $000 $000 $000 $000 - - - - - - (637) As at 1 January 2021 Movements with impact on credit loss allowance charge for the year: Modification of loans Additions including accrued interest Payment of interest Repayment of loans Exchange difference Changes to ECL measurement model assumptions Total movements with impact on credit loss allowance charge for the year As at 31 December 2021 - (20,375) (20,375) - 12,276 - - - - - - (5,378) (5,378) - - - 1,400 - - 1,400 8,309 7,672 - - - - - - - 83,203 83,203 - - - - - - 5,378 3,171 (3,134) (28,998) (6,316) 5,378 15,447 (3,134) (28,998) (6,316) - - (637) - 4,331 3,694 12,276 - (29,899) (17,623) (637) - (16,044) (16,681) 12,276 - 53,304 65,580 ECL – Expected credit losses SICR – Significant increase in credit risk Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 95 Subsidiary undertakings As at 31 December 2022 and 2021, the Company’s subsidiary undertakings, all of which are included in the consolidated financial statements, were: Registered address Country of incorporation Country of operation Principal activity % of shares held 31 December 2022 31 December 2021 Regal Petroleum Corporation Limited 3rd Floor, Charter Place, 23-27 Seaton Place, St Helier, Jersey, JE4 0WH Regal Petroleum Corporation Limited (Branch Office) 162 Shevchenko Str., Yakhnyky Village, Lokhvytsya District, Poltava Region, 37212 LLC Arkona Gas-Energy LLC Regal Petroleum Corporation (Ukraine) Limited 162 Shevchenko Str., Yakhnyky Village, Lokhvytsya District, Poltava Region, 37212 162 Shevchenko Str., Yakhnyky Village, Lokhvytsya District, Poltava Region, 37212 Jersey Ukraine Oil & Natural Gas Extraction 100% 100% Ukraine Oil & Natural Gas Extraction Ukraine Ukraine Ukraine Ukraine Exploration and Evaluation for Oil and Natural Gas Holding Company 100% 100% 100% 100% LLC Prom- Enerho Produkt 3 Klemanska Str., Kiev, 02081 Ukraine Ukraine Oil & Natural Gas Extraction 100% 100% Well Investum LLC 58 Yaroslavska str., Kyiv, 04071 Ukraine Ukraine Dormant Company 100% - *Regal Group Services Limited 16 Old Queen Street, London, SW1H 9HP United Kingdom United Kingdom Service Company 100% 100% *Regal Petroleum (Jersey) Limited 3rd Floor, Charter Place, 23-27 Seaton Place, St Helier, Jersey, JE4 0WH Jersey United Kingdom Holding Company - 100% *Regal Petroleum (Jersey) Limited was dissolved on 11 November 2022, and Regal Group Services Limited was dissolved on 21 February 2023. The Parent Company, Enwell Energy plc, holds direct interests in 100% of the share capital of Regal Petroleum Corporation Limited, Regal Petroleum Corporation (Ukraine) Limited, LLC Arkona Gas-Energy and Well Investum LLC, and a 100% indirect interest in LLC Prom-Enerho Produkt through its 100% shareholding in Regal Petroleum Corporation (Ukraine) Limited, which owns all of the share capital of LLC Prom-Enerho Produkt. The Parent Company, Enwell Energy plc, held a direct interest in 100% of the share capital of Regal Group Services Limited until it was dissolved on 21 February 2023. 20. Inventories Current Materials and spare parts Finished goods Group 2022 $000 2021 $000 1,914 1,444 3,358 1,705 157 1,862 Inventories consist of materials, spare parts and finished goods. Materials and spare parts are represented by spare parts that were not assigned to any new wells, production raw materials and fuel at the storage Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 96 facility. Finished goods consist of produced gas held in underground gas storage facilities and condensate and LPG held at the processing facility prior to sale. As at 31 December 2022 allowances for impairment of materials and spare parts amounted to $705,000 (31 December 2021: $965,000). All inventories are measured at the lower of cost or net realisable value. There was no write down of inventory as at 31 December 2022 or 2021. 21. Trade and Other Receivables Trade receivables Other financial receivables Financial aids Less credit loss allowance Total financial receivables Prepayments and accrued income Other receivables Total trade and other receivables Group Company 2022 $000 46,188 284 11,316 (433) 57,355 4,509 2,574 60,438 2021 $000 5,308 200 - (140) 5,368 298 2,460 8,126 2022 $000 - 285 - - 285 249 81 615 2021 $000 - 196 - - 196 28 75 299 Due to the short-term nature of the trade and other receivables, their carrying amount is assumed to be the same as their fair value. All trade and other financial receivables, except those provided for, are considered to be of high credit quality. As at 31 December 2022, the Group’s total trade receivables, net of expected credit losses amounted to $46,033,000 and 100% were denominated in Ukrainian Hryvnia (31 December 2021: $5,169,000 and 100% were denominated in Ukrainian Hryvnia). Further description of financial receivables is disclosed in Note 29. The majority of the trade receivables were from a related party, LLC Smart Energy, that purchased all of the Group’s gas production (see Note 4). The applicable payment terms, which were revised in the period, are payment for 35% of the monthly volume of gas by the 15th of the month following the month of delivery, and payment of the remaining balance by the end of that month. This arrangement was terminated subsequent to the year end. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 97 Analysis by credit quality of financial trade and other receivables and expected credit loss allowance as at 31 December 2022 is as follows: Loss rate Gross carrying amount $000 Life- time ECL $000 Carrying amount $000 Basis 9,99% 46,003 (126) 45,877 financial position of related party 100% 9.99% 9.99% 98 87 (98) (1) - number of days the asset past due 86 historical credit losses experienced 284 (25) 259 individual default rates 11,316 (183) 11,133 57, 788 (433) 57,355 Trade receivables from related parties Trade receivables - - credit impaired Trade receivables - other Other financial receivables Financial aids Total trade and other receivables for which individual approach for ECL is used Analysis by credit quality of financial trade and other receivables and expected credit loss allowance as at 31 December 2021 is as follows: Loss rate Gross carrying amount $000 Life- time ECL $000 Carrying amount $000 Basis 5% 5,015 (7) 5,008 financial position of related party 100% 0.21% 0.48% 132 (132) 161 - 200 (1) - number of days the asset past due 161 199 historical credit losses experienced individual default rates 5,508 (140) 5,368 Trade receivables from related parties Trade receivables - - credit impaired Trade receivables - other Other financial receivables Total trade and other receivables for which individual approach for ECL is used ECL - Expected credit losses Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 98 The following table explains the changes in the credit loss allowance for trade and other receivables under the simplified ECL model between the beginning and the end of the year: Trade and other receivables Balance as at 1 January New originated or purchased Financial assets derecognised during the year Changes in estimates and assumptions Foreign exchange movements Balance as at 31 December 22. Cash and Cash Equivalents and Other short-term investments 2022 $000 140 441 (172) 61 (37) 433 2021 $000 133 24 (19) (3) 5 140 Cash and Cash Equivalents Cash at bank Demand deposits and term deposits with maturity of less than 3 months Other short-term investments Demand deposits and term deposits with maturity of more than 3 months but less than a year Group Company 2022 $000 2021 $000 2022 $000 2021 $000 33,243 55,409 88,652 75,457 12,323 87,780 26,541 55,000 81,541 63,299 - 63,299 - - 4,762 4,762 - - - - Cash at bank earns interest at fluctuating rates based on daily bank deposit rates. Demand deposits are made for varying periods depending on the immediate cash requirements of the Group and earn interest at the respective short-term deposit rates. The terms and conditions upon which the Group’s demand deposits are made allow immediate access to all cash deposits, with no significant loss of interest. Cash and Cash Equivalents Ukrainian Hryvnia US Dollars British Pounds Euros Other short-term investments Ukrainian Hryvnia Group Company 2022 $000 2021 $000 2022 $000 2021 $000 6,874 81,282 223 273 88,652 24,249 63,247 275 9 87,780 - 81,046 223 272 81,541 - 63,015 275 9 63,299 - - 4,762 4,762 - - - - Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 99 The credit quality of cash and cash equivalents balances and other short-term investments may be summarised based on Moody’s ratings as follows as at 31 December: Cash at bank and on hand 2022 $000 Demand deposits and term deposits with maturity less than 3 months 2022 $000 Demand deposits and term deposits with maturity more than 3 months 2022 Total cash and cash equivalents and other short- term investments 2022 $000 A- to A+ rated B- to B+ rated C- to C+ rated Unrated 26,537 - 3,209 3,497 33,243 55,000 - 409 - 55,409 - - - - - 81,537 - 3,618 3,497 88,652 Cash at bank and on hand 2021 $000 63,290 900 11,267 75,457 Demand deposits and term deposits with maturity less than 3 months 2021 $000 Demand deposits and term deposits with maturity more than 3 months 2021 Total cash and cash equivalents and other short- term investments 2021 $000 - 8,660 3,663 12,323 - 4,762 - 4,762 63,290 14,322 14,930 92,542 A- to A+ rated B- to B+ rated Unrated For cash and cash equivalents and other short-term investments, the Group assessed ECL based on the Moody’s rating for rated banks and based on the sovereign rating of Ukraine defined by Fitch as “RD” as at 31 December 2022 for non-rated banks. Based on this assessment, the Group concluded that the identified impairment loss was immaterial. 23. Trade and Other Payables Taxation and social security Trade payables Accruals and other payables Advances received Group 2022 $000 3,347 1,079 21,810 1,293 27,529 2021 $000 5,031 3,404 3,354 517 12,306 Company 2022 $000 51 - 19,909 - 19,960 2021 $000 41 - 1,757 - 1,798 The carrying amounts of trade and other payables are assumed to be the same as their fair values, due to their short-term nature. Financial payables are disclosed in Note 29. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 100 24. Provision for Decommissioning Group At the beginning of the year Amounts provided Unwinding of discount Change in estimate Effect of exchange difference At the end of the year 2022 $000 5,467 137 293 2,497 (1,430) 6,964 2021 $000 6,819 198 250 (2,049) 249 5,467 The provision for decommissioning is based on the net present value of the Group’s estimated liability for the removal of the Ukrainian production facilities and well site restoration at the end of production life. The non-current provision of $6,964,000 (31 December 2021: $5,467,000) represents a provision for the decommissioning of the Group’s MEX-GOL, SV, VAS and SC production and exploration facilities, including site restoration. The change in estimates applied to calculate the provision as at 31 December 2022 is explained in Note 3. The principal assumptions used are as follows: 31 December 2022 31 December 2021 Discount rate Average cost of restoration per well ($000) 4,76% 326 6.29% 348 The sensitivity of the restoration provision to changes in the principal assumptions to the provision balance and related asset is presented below: Discount rate (increase)/decrease by 1% Change in average cost of well restoration increase/ (decrease) by 10% (561)/665 451/(451) (723)/860 353/(353) 31 December 2022 $000 31 December 2021 $000 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 101 25. Deferred Tax Deferred tax (liability)/asset recognised relating to oil and gas development and production assets at the MEX-GOL- SV fields and provision for decommissioning At the beginning of the year Charged to Income Statement - UK current year Charged to Income Statement - UK prior year Effect of exchange difference At the end of the year Deferred tax asset/(liability) recognised relating to development and production assets at the VAS field and provision for decommissioning At the beginning of the year Credited to Income Statement - overseas current year Effect of exchange difference At the end of the year 2022 $000 (5,197) (1,852) 3,021 796 (3,232) 2022 $000 361 24 (98) 287 2021 $000 (2,705) (2,367) - (125) (5,197) 2021 $000 167 199 (5) 361 There was a further $77,072,000 (31 December 2021: $76,443,000) of unrecognised UK tax losses carried forward. These losses can be carried forward indefinitely, subject to certain rules regarding capital transactions and changes in the trade of the Company. No deferred tax asset in the amount of $14,643,680 has been recognised as insufficient future taxable profits are forecast against which these UK tax losses could be offset. The deferred tax asset relating to the Group’s provision for decommissioning as at 31 December 2022 of $449,000 (31 December 2021: $457,000) was recognised on the tax effect of the temporary differences of the Group’s provision for decommissioning at the MEX-GOL and SV fields, and its tax base. The deferred tax liability relating to the Group’s development and production assets at the MEX-GOL and SV fields as at 31 December 2022 of $3,681,000 (31 December 2021: $5,654,000) was recognised on the tax effect of the temporary differences between the carrying value of the Group’s development and production asset at the MEX-GOL and SV fields, and its tax base. The deferred tax liability will be settled more than twelve months after the reporting period. The deferred tax asset relating to the Group’s provision for decommissioning as at 31 December 2022 of $310,000 (31 December 2021: $315,000) was recognised on the tax effect of the temporary differences on the Group’s provision on decommissioning at the VAS field, and its tax base. The deferred tax liability relating to the Group’s development and production assets at the VAS field as at 31 December 2022 of $23,000 (31 December 2021: deferred tax asset of $46,000) was recognised on the tax effect of the temporary differences between the carrying value of the Group’s development and production asset at the VAS field, and its tax base. The deferred tax assets are expected to be recovered more than twelve months after the reporting period. Losses accumulated in a Ukrainian subsidiary service company of UAH 877,268,000 ($23,990,000) as at 31 December 2022 and UAH 835,298,000 ($30,621,000) as at 31 December 2021 mainly originated as foreign exchange differences on inter-company loans and for which no deferred tax asset was recognised as this subsidiary is not expected to have taxable profits to utilise these losses in the future. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 102 As at 31 December 2022 and 2021, the Group has not recorded a deferred tax liability in respect of taxable temporary differences associated with investments in subsidiaries as the Group is able to control the timing of the reversal of those temporary differences and does not intend to reverse them in the foreseeable future. UK Corporation tax change The current Corporation tax rate of 19% generally applies to all companies whatever their size. From 1 April 2023, this rate will cease to apply and will be replaced by variable rates ranging from 19% to 25%. A small profits rate of 19% will apply to companies whose profits are equal to or less than £50,000. The main Corporation Tax rate is increased to 25% and will apply to companies with profits in excess of £250,000. Double tax treaty On 30 October 2019, the Parliament of Ukraine voted for ratification of a Protocol changing the Double Tax Treaties between Ukraine and the United Kingdom. The Protocol and the new Treaty will enter into force upon completion of ratification formalities, and for the purposes of withholding tax, commence applying from 1 January 2020. The Group accrues and pays withholding tax on current amounts of interest at the moment when such interest accrues and is paid. 26. Called Up Share Capital Number 2022 $000 Number 2021 $000 Allotted, called up and fully paid Opening balance as at 1 January Issued during the year Closing balance as at 31 December 320,637,836 - 320,637,836 28,115 - 28,115 320,637,836 - 320,637,836 28,115 - 28,115 There are no restrictions over ordinary shares issued. The Company is a public company limited by shares. 27. Other Reserves The holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at any general meeting of shareholders. Other reserves, the movements in which are shown in the statements of changes in equity, comprise the following: Capital contributions reserve The capital contributions reserve is non-distributable and represents the value of equity invested in subsidiary entities prior to the Company listing. Merger reserve The merger reserve represents the difference between the nominal value of shares acquired by the Company and those issued to acquire subsidiary undertakings. This balance relates wholly to the acquisition of Regal Petroleum (Jersey) Limited and that company’s acquisition of Regal Petroleum Corporation Limited during 2002. Foreign exchange reserve Exchange reserve movement for the year attributable to currency fluctuations. This balance predominantly represents the result of exchange differences on non-monetary assets and liabilities where the subsidiaries’ functional currency is not the US Dollar. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 103 28. Reconciliation of Operating Profit to Operating Cash Flow Group Operating profit Depreciation and amortisation Less interest income recorded within operating profit Impairment of property, plant and equipment Fines and penalties received Gain on sales of current assets, net Net (gain)/loss on sale of non-current assets Change in working capital: Increase in provisions (Increase)/decrease in inventory (Increase)/decrease in receivables Increase/(decrease) in payables Cash generated from operations Company Operating profit Interest received Change in working capital: Movement in provisions (including impairment of subsidiary loans) Decrease/(increase) in receivables (Decrease)/increase in payables Cash used in operations 29. Financial Instruments Capital Risk Management 2022 $000 75,773 7,837 (1,888) 4,256 (114) (20) (44) - 117 (1,480) (56,849) 19,953 47,541 2022 $000 (8,112) (2,740) 9,942 (316) 22,917 21,691 2021 $000 66,235 11,958 (763) (81) (16) (16) (6) (104) (4,463) 4,902 77,646 2021 $000 11,591 (3,447) (10,912) 136 (188) (2,820) The Group defines its capital as equity. As at 31 December 2022, net assets were $200,659,000 (31 December 2021: $178,517,000). The primary source of the Group’s liquidity has been cash generated from operations. The Group’s objectives when managing capital are to safeguard the Group’s and the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets. The capital structure of the Group consists of equity attributable to the equity holders of the parent, comprising issued share capital, share premium, reserves and retained earnings. There are no capital requirements imposed on the Group. Financial Risk Management The Group’s financial instruments comprise cash and cash equivalents and various items such as debtors and creditors that arise directly from its operations. The Group has bank accounts denominated in British Pounds, US Dollars, Euros and Ukrainian Hryvnia. The Group does not have any external borrowings. The main future risks arising from the Group’s financial instruments are currently currency risk, interest rate risk, liquidity risk and credit risk. 104 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 The Group’s financial assets and financial liabilities comprise the following: Financial Assets Group Cash and cash equivalents Other short-term investments Trade and other financial receivables Company Cash and cash equivalents Loans to subsidiary undertakings Financial Liabilities Group Lease liabilities Trade and other payables Other financial liabilities Company Trade and other payables 2022 $000 88,652 - 46,039 134,691 2022 $000 81,541 49,974 131,515 2022 $000 487 1,079 20,422 21,988 2022 $000 19,923 19,923 2021 $000 87,780 4,762 5,368 97,910 2021 $000 63,299 48,899 112,198 2021 $000 1,103 3,404 2,244 6,751 2021 $000 1,767 1,767 Financial assets and financial liabilities are measured at amortised cost, which approximates their fair value as the instruments are mostly short-term. Assets and liabilities of the Group where fair value is disclosed are level 2 in the fair value hierarchy and valued using the current cost accounting technique. Financial instruments that potentially subject the Group to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable, and financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and loans to subsidiary undertakings. Currency Risk The functional currencies of the Group’s entities are US Dollars and Ukrainian Hryvnia. The following analysis of net monetary assets and liabilities shows the Group’s currency exposures. Exposures comprise the monetary assets and liabilities of the Group that are not denominated in the functional currency of the relevant entity. Currency British Pounds US Dollars Euros Net monetary assets less liabilities 105 2022 $000 223 235 273 731 2021 $000 275 234 9 518 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 The Group’s exposure to currency risk at the end of the reporting period is not significant due to immaterial balances of monetary assets and liabilities denominated in foreign currencies. The sensitivity of the exchange rate of US Dollars is presented below: 31 December 2022 $000 31 December 2021 $000 Increase/(decrease) by 10% 23/(23) 23/(23) The prior year comparative figures were amended to conform to the current year presentation. Interest Rate Risk Management The Group is not exposed to interest rate risk on financial liabilities as none of the entities in the Group have any external borrowings. The Group does not use interest rate forward contracts and interest rate swap contracts as part of its strategy. The Group is exposed to interest rate risk on financial assets as entities in the Group hold money market deposits at floating interest rates. The risk is managed by fixing interest rates for a period of time when indications exist that interest rates may move adversely. The Group’s exposure to interest rates on financial assets and financial liabilities are detailed in the liquidity risk section below. Interest Rate Sensitivity Analysis The sensitivity analysis below has been determined based on exposure to interest rates for non-derivative instruments at the balance sheet date. A 0.5% increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of a reasonably possible change in interest rates. If interest rates earned on money market deposits had been 0.5% higher / lower and all other variables were held constant, the Group’s: • • profit for the year ended 31 December 2022 would increase by $97,000 in the event of 0.5% higher interest rates and decrease by $97,000 in the event of 0.5% lower interest rates (profit for the year ended 31 December 2021 would increase by $136,000 in the event of 0.5% higher interest rates and decrease by $136,000 in the event of 0.5% lower interest rates). This is mainly attributable to the Group’s exposure to interest rates on its money market deposits; and other equity reserves would not be affected (2021: not affected) Interest payable on the Group’s liabilities would have an immaterial effect on the profit or loss for the year. Liquidity Risk The Group’s objective throughout the year has been to ensure continuity of funding. Operations have primarily been financed through revenue from Ukrainian operations. The table below shows liabilities by their remaining contractual maturity. The amounts disclosed in the maturity table are the contractual undiscounted cash flows including future interest. Such undiscounted cash flows differ from the amount included in the statement of financial position because the statement of financial position amount is based on discounted cash flows and does not include the interest that will be accrued in future periods. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 106 When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the reporting date. Foreign currency payments are translated using the spot exchange rate at the end of the reporting period. The maturity analysis of financial liabilities as at 31 December 2022 is as follows: As at 31 December 2022 Liabilities Trade and other payables Lease liabilities Other non-current liabilities Total future payments, including future principal and interest payments On demand and less than 1 month $000 From 1 to 3 months $000 From 3 to 12 months $000 From 12 months to 5 years $000 More than 5 years $000 Total $000 21,194 29 - 21,223 - 60 - 60 307 284 - - 492 106 - 21,501 367 1,232 170 276 591 598 537 23,009 The maturity analysis of financial liabilities as at 31 December 2021 is as follows: As at 31 December 2021 Liabilities Trade and other payables Lease liabilities Other non-current liabilities Total future payments, including future principal and interest payments On demand and less than 1 month $000 From 1 to 3 months From 3 to 12 months $000 $000 From 12 months to 5 years $000 More than 5 years Total $000 $000 4,030 1,618 39 - 80 - - 381 - - 661 142 - 5,648 492 1,653 256 398 4,069 1,698 381 803 748 7,699 Details of the Group’s cash management policy are explained in Note 22. Liquidity risk for the Group is further detailed under the Principal Risks section above. Credit Risk Credit risk principally arises in respect of the Group’s cash balance. For balances held outside Ukraine, where $81,537,000 of the overall cash and cash equivalents is held (31 December 2021: $63,299,000), the Group only deposits cash surpluses with major banks of high quality credit standing (Note 22). As at 31 December 2022, the remaining balance of $7,115,000 of cash and cash equivalents and other short- term investments was held in Ukraine (31 December 2021: $29,243,000). As at 31 December 2022, Standard & Poor’s affirmed Ukraine’s sovereign credit rating of ‘CCC+’, Outlook Stable. There is no international credit rating information available for the specific banks in Ukraine where the Group currently holds its cash and cash equivalents. The Group has taken steps to diversify its banking arrangements between a number of banks in Ukraine and increased the quality of cash placed with UK and European banking institutions. These measures are designed to spread the risks associated with each bank’s creditworthiness. Management considers the credit risk to be immaterial. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 107 Interest Rate Risk Profile of Financial Assets The Group had the following cash and cash equivalent and other short-term investments balances which are included in financial assets as at 31 December with an exposure to interest rate risk: Currency Euros British Pounds Ukrainian Hryvnia US Dollars Total 2022 $000 273 223 6,874 81,282 88,652 Floating rate financial assets 2022 $000 Fixed rate financial assets 2022 $000 Floating rate financial assets 2021 $000 Fixed rate financial assets 2021 $000 Total 2021 $000 273 223 - 81,282 81,778 - - 6,874 - 6,874 9 275 9 275 - 29,011 29,011 63,247 63,247 - 92,542 63,531 29,011 - - Cash deposits included in the above balances comprise term deposits with maturity less than 3 months of $55,409,000 and no term deposits with maturity more than 3 months but less than a year (2021: term deposits with maturity less than 3 months of $12,323,000 and term deposits with maturity more than 3 months but less than a year of $4,762,000). As at 31 December 2022, cash and cash equivalents of the Company of $81,046,000 were held in US Dollars at a floating rate (2021: $63,015,000). Interest Rate Risk Profile of Financial Liabilities As at 31 December 2022 and 2021, the Group had no interest bearing financial liabilities at the year end. Maturity of Financial Liabilities The maturity profile of financial liabilities, on an undiscounted basis, is as follows: Group In one year or less Company In one year or less Borrowing Facilities 2022 $000 21,988 21,988 2022 $000 19,923 19,923 2021 $000 6,148 6,148 2021 $000 1,767 1,767 As at 31 December 2022 and 2021, the Group did not have any borrowing facilities available to it. Fair Value of Financial Assets and Liabilities The fair value of all financial instruments is not materially different from the book value. 30. Contingencies and Commitments Amounts contracted in relation to the Group’s 2022 investment programme in the MEX-GOL, SV, VAS and SC fields in Ukraine, but not provided for in the financial statements at 31 December 2022, were $156,000 108 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 related to Oil and Gas Exploration and Evaluation assets and $8,607,000 related to Oil and Gas Development and Production assets (2021: $3,101,000 related to Oil and Gas Exploration and Evaluation assets and $2,674,000 related to Oil and Gas Development and Production assets). Since 2010, the Group has been in dispute with the Ukrainian tax authorities in respect of VAT receivables on imported leased equipment, with a disputed liability of up to UAH 8,487,000 ($302,000) inclusive of penalties and other associated costs. There is a level of ambiguity in the interpretation of the relevant tax legislation, and the position adopted by the Group has been challenged by the Ukrainian tax authorities, which has led to legal proceedings to resolve the issue. The Group had been successful in three court cases in respect of this dispute in courts of different levels. On 20 September 2016, a hearing was held in the Supreme Court of Ukraine of an appeal of the Ukrainian tax authorities against the decision of the Higher Administrative Court of Ukraine, in which the appeal of the Ukrainian tax authorities was upheld. As a result of this appeal decision, all decisions of the lower courts were cancelled, and the case was remitted to the first instance court for a new trial. On 1 December 2016 and 7 March 2017 respectively, the Group received positive decisions in the first and second instance courts, but no appointment of hearings has been settled yet. No liability has been recognised in these consolidated financial statements for the year ended 31 December 2022 (31 December 2021: nil), as the Group has been successful in previous court cases in respect of this dispute in courts of different levels, the date of the next legal proceedings has not been set and as management believes that adequate defences exist to the claim. In March 2019, the State Geologic and Subsoil Survey of Ukraine published an Order for suspension dated 11 March 2019 (the “VAS Order”) in respect of the VAS production licence held by LLC Prom-Enerho Produkt (“PEP”). PEP disputed the VAS Order and issued legal proceedings in the Ukrainian Courts to challenge the VAS Order, and these legal proceedings progressed through the various levels of the Ukrainian Court system, with PEP being successful at each level. The proceedings ultimately reached the Supreme Court of Ukraine, which, by a decision dated 23 February 2023 upheld PEP’s appeal and cancelled the VAS Order. The Supreme Court is the final appellate court in the legal proceedings and therefore this decision is final. In September 2021, an entity named JV Boryslav Oil Company (“Boryslav”), which is 25.0999% owned by PJSC Ukrnafta (“Ukrnafta”), issued legal proceedings, claiming that irregular procedures were followed in the grant of the SC exploration licence, against the State Geologic and Subsoil Survey of Ukraine, the State Commission of Ukraine for Mineral Resources and LLC Arkona Gas-Energy (“Arkona”), as defendants, with Ukrnafta named as a third party. In this claim, the First Instance Court in Ukraine made a ruling in January 2022 in favour of Boryslav, and on 2 November 2022, the Appellate Administrative Court also made a ruling in favour of Boryslav to uphold the decision of the First Instance Court. Arkona appealed the decision of the Appellate Administrative Court to the Supreme Court, and on 3 May 2023, the Supreme Court published its decision to allow Arkona’s appeal and overturn the ruling made by the Appellate Administrative Court. The Supreme Court represents the final appellate court in these legal proceedings, and accordingly, the decision of the Supreme Court is final. 31. Related Party Disclosures Key management personnel of the Group are considered to comprise only the Directors. Details of Directors’ remuneration are disclosed in Note 7. During the year, Group companies entered into the following transactions with related parties who are not members of the Group: Total 2022 $000 LLC Smart Energy 2022 $000 Other Total 2022 $000 2021 $000 LLC Smart Energy 2021 $000 Sale of goods/services Purchase of goods/services Amounts owed by related parties Amounts owed to related parties 113,787 1,061 56,230 20,603 113,741 571 56,227 20,576 46 490 3 27 95,342 1,099 5,008 95,340 - 5,008 912 901 109 Other 2021 $000 2 1,099 - 11 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 All related party transactions were with subsidiaries of the ultimate Parent Company, and primarily relate to the sale of gas (see Note 4 for more details), the rental of office facilities and a vehicle and the sale of equipment. The amounts outstanding were unsecured and will be settled in cash. As at the date of this report, none of the Company’s controlling parties prepares consolidated financial statements available for public use. 32. Post Balance Sheet Events The ongoing war in Ukraine means that the fiscal, economic and humanitarian situation in Ukraine is unstable and extremely challenging and the final resolution and consequences of the ongoing war are hard to predict, but they may have a further serious impact on the Ukrainian economy and business of the Group. Management continues to identify and mitigate, where possible, the impact on the Group, but the majority of these factors are beyond their control, including the duration and severity of war, as well as the further actions of various governments and diplomacy. In January 2023, the Company was notified that there had been a restructuring of the ownership of the PJSC Smart-Holding Group, a member of which held a major shareholding in the Company, and which was ultimately controlled by Mr Vadym Novynskyi (“Mr Novynskyi”). Under this restructuring, which occurred with effect from 1 December 2022, Mr Novynskyi disposed of his major indirect shareholding interest in the Company to two trusts registered in Cyprus named the SMART Trust and the STEP Trust. In early December 2022, the Ukrainian Government imposed sanctions on Mr Novynskyi. In December 2022, new legislation, Law No. 2805-IX, relating to the natural resources sector was enacted in Ukraine, which came into force on 28 March 2023. This legislation includes provisions that if the ultimate beneficial owner of a mineral or hydrocarbon licence becomes the subject of sanctions in Ukraine, then the State Geologic and Subsoil Survey of Ukraine (the “SGSS”) may suspend or revoke that licence. Following Law No. 2805-IX coming into force on 28 March 2023, the Ukrainian authorities have taken a number of regulatory actions against certain of the Group’s subsidiary companies in Ukraine. These regulatory actions included conducting a search at the Group’s Yakhnyky office, from where the MEX-GOL and SV fields are operated, and placing certain physical assets of the Ukrainian branch (representative) office of Regal Petroleum Corporation Limited (“RPC”) and LLC Arkona Gas-Energy (“Arkona”) (which respectively hold the MEX-GOL and SV fields and the SC exploration licence) under seizure, thereby restricting any actions that would change registration of the property rights relating to such assets, although the use of such assets was not restricted and therefore the Group has been able to continue to operate and produce gas and condensate from the MEX-GOL and SV fields. In addition, the regulatory actions included the freezing of gas volumes held in gas storage on behalf of RPC (to a value of $0.27 million) and LLC Prom-Enerho Produkt (“PEP”) (to a value of $0.31 million). Furthermore, the Ministry of Justice of Ukraine (the “MoJ”) made an Order cancelling the registration entry made on behalf of a subsidiary of the Company named LLC Regal Petroleum Corporation (Ukraine) Limited in the Unified State Register of Legal Entities, Individuals–entrepreneurs and Civil Institutions of Ukraine (the “State Register”) relating to the ultimate beneficial owners of such company, which were stated as the trustees of the SMART Trust and STEP Trust as previously notified to the Company, thereby restoring the previous entry in the State Register, Mr Novynskyi. Furthermore, the SGSS issued an Order to RPC requiring that additional information be provided and/or violations be eliminated in the disclosures relating to the ultimate beneficial owners of the MEX-GOL and SV licences respectively. On 2 May 2023, the MoJ made further Orders cancelling the registration entry made on behalf of three further Ukrainian subsidiaries of the Company, being PEP, Arkona and LLC Well Investum (“Well Investum”) respectively in the State Register relating to the ultimate beneficial owners of such companies, which again were stated as the trustees of the SMART Trust and STEP Trust, thereby restoring the previous entry, Mr Novynskyi. PEP holds the VAS production licence, Arkona holds the SC exploration licence and Well Investum is a dormant company. Following the issuance of the abovementioned Orders by the MoJ, Mr Novynskyi is registered in the State Register as the ultimate beneficial owner of each of PEP and Arkona, and is consequently recognised by the SGSS as the ultimate beneficial owner of each of the VAS production licence and SC exploration licence. As a result, on 4 May 2023, the SGSS issued orders suspending the VAS production licence and 110 Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 SC exploration licence for a period of 5 years effective from that date. Accordingly, the Company ceased all field and production operations on the VAS and SC licence areas. The Group is consulting with its legal advisers in order to determine appropriate actions to protect its legal rights in relation to the above regulatory actions by the Ukrainian authorities. On 15 June 2023, the Company paid an interim dividend of 15 pence per ordinary share, aggregating approximately £48.1 million in total, which was the Company’s first ever dividend payment to its shareholders. In July 2023, new legislation was introduced in Ukraine, which will come into force in September 2024, and which requires that branches (or representative offices) of foreign companies operating in Ukraine register their ultimate beneficial owners in Ukrainian Registries. Regal Petroleum Corporation Ltd ("RPC"), which holds the MEX-GOL and SV licences, operates such a branch and will therefore be required to register its ultimate beneficial owners from the implementation of this law, which raises a potential risk that such registration will not be accepted by the Ukrainian authorities, and possibly result in regulatory action against RPC and/or its licences and assets, including suspension of the MEX-GOL and SV licences. 33. Auditor’s Limitation Liability Agreement An Auditor’s Limitation of Liability Agreement has been entered into, subject to shareholders approval, for the financial period ended 31 December 2022. The principal terms and conditions are below: - The Agreement limits the amount of any liability owed to the Company by the Auditor in respect of any negligence, default, breach of duty or breach of trust, occurring in the course of the audit of the Company's financial statements for the year ended 31 December 2022, for which the Auditor may otherwise be liable to the Company. - The Agreement also stipulates the maximum aggregated amount payable in event of any of the circumstances stated above. Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 111 Corporate Information Company Secretary and Registered Office Chris Phillips 16 Old Queen Street London SW1H 9HP United Kingdom Independent Auditors Zenith Audit Ltd 1st Floor 18 Devonshire Row London EC2M 4RH United Kingdom Nominated Adviser Strand Hanson Limited 26 Mount Row London W1K 3SQ United Kingdom Broker Zeus Capital Limited 125 Old Broad Street London EC2N 1AR United Kingdom PR Advisers Citigate Dewe Rogerson 8th Floor Holborn Gate 26 Southampton Buildings London WC2A 1AN United Kingdom Solicitors Squire Patton Boggs (UK) LLP 60 London Wall London EC2M 5TQ United Kingdom Share Registry Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZY United Kingdom Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 112 Glossary AAPG Arkona bbl bbl/d Bm3 boe boepd Bscf Company D&M € Group km km2 LPG MEX-GOL m3 m³/d Mboe Mm³ MMbbl MMboe MMm3 MMscf MMscf/d Mtonnes % QCA Code QHSE SC scf SPE SPEE SV Tscf $ UAH VAS VED WPC American Association of Petroleum Geologists LLC Arkona Gas-Energy barrel barrels per day thousands of millions of cubic metres barrels of oil equivalent barrels of oil equivalent per day thousands of millions of scf Enwell Energy plc DeGolyer and MacNaughton Euro Enwell Energy plc and its subsidiaries kilometre square kilometre liquefied petroleum gas Mekhediviska-Golotvshinska cubic metres cubic metres per day thousand barrels of oil equivalent thousand cubic metres million barrels million barrels of oil equivalent million cubic metres million scf million scf per day thousand tonnes per cent. Quoted Companies Alliance Corporate Governance Code 2018 quality, health, safety and environment Svystunivsko-Chervonolutskyi standard cubic feet measured at 20 degrees Celsius and one atmosphere Society of Petroleum Engineers Society of Petroleum Evaluation Engineers Svyrydivske trillion scf United States Dollar Ukrainian Hryvnia Vasyschevskoye Vvdenska World Petroleum Council Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022 113 

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