Annual Report & Accounts 2022
R I G H T P L A C E
R I G H T T I M E
Nostrum is an independent mixed-
asset energy company owning
world-class gas processing facilities
and an export hub in north-west
Kazakhstan with a strong focus
on ESG performance.
Our purpose
To unlock the value of our full potential for all
our stakeholders through securing our business
by working as a well-integrated team across
all disciplines.
Our vision
To contribute materially to the total marketable
commercial gas potential and its affordability
in Kazakhstan whilst moving towards a cleaner
energy mix.
Our values
We are trustworthy and reliable, take our
corporate, social and ecological responsibilities
seriously, and are dedicated to the health, safety
and wellbeing of our employees.
For more details please visit
www.nostrumoilandgas.com
Contents
Bond restructuring
Strategic report
02 Chairman's statement
06
08 Market review
11 Mixed-asset energy strategy
14
Chief Executive Officer's
statement
Strategy
18
Stakeholder engagement
22
Business model
24
Key performance indicators
26
28
ESG overview
30 Operational review
Risk management
38
Principal risks and uncertainties
40
Viability statement
45
Financial review
47
Five-year summary
53
ESG review
54
Taskforce on Climate-related
79
Financial Disclosure (TCFD)
Corporate governance
88
Introduction to corporate
governance
Board of Directors
Senior management team
90
94
96 Governance framework
99 Audit Committee report
106
Nomination and Governance
Committee report
107 Remuneration Committee report
108 2022 annual report on
remuneration
123 Directors’ report
Financial report
128
Independent auditor’s report
135 Consolidated financial statements
161 Parent Company financial
statements
Regulatory information
175
179 Glossary
Investor information
Additional disclosures
184 Structure chart
R I G H T P L A C E
R I G H T T I M E
Nostrum is a mixed-asset energy company well positioned
to become a major third-party gas processor with state-of-the-art
gas processing facilities and export hub, cash generative
asset portfolio and mixed-asset opportunity pipeline,
and strong focus on ESG performance, now governed by
a new highly experienced Board of Directors.
GRI 2-1
2022 overview
Financial
Revenue
US$m
199.7
2021: 195.3
Non-financial
Production
boepd
43.1
2021: 43.8
Employees
Opex+G&A costs 1
US$m
EBITDA
US$m
115.7
2021: 112.5
Cash at year end
US$m
233.6
2021: 165.2
LTIR
incidents per million
man-hours
Total greenhouse gas
emissions ktCO2e
13,200
2021: 17,032
566
2021: 559
0
2021: 0.81
170
2021: 187
1. Opex excluding DD&A and inventory adjustment. G&A costs excluding DD&A. See page 53 for details.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 01
Strategic report
Chairman’s statement
A new chapter…
We will convert our competitive advantage
into value with near term catalysts, whilst
nursing our balance sheet in that process.”
On behalf of the Board, and for my first time as its Chair,
I am pleased to present the Nostrum’s 2022 Annual Results
and Report.
Let me start by recognising that we have ground to make
up after the Company’s disappointing performance prior
to our restructuring process that began in 2020. However,
we have a new team, a new balance sheet in place and a new,
advantaged strategy.
02 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
2022 Results
Undoubtedly, 2022 has been a volatile
year due to a challenging macroeconomic
backdrop fuelled by a combination of
global post-pandemic demand recovery
together with supply uncertainty, rising
global inflation and the Russia-Ukraine
conflict which disrupted the energy supply.
Despite being in the process of completing
the debt restructuring, under Arfan’s
capable leadership Nostrum has navigated
emerging challenges in the global
economy throughout the year remarkably
well. In 2022, activities aiming to preserve
and increase the Company’s liquidity
remained a primary focus. Over US$68m in
positive cash flow was generated resulting
in a US$233.6m balance in unrestricted
cash at the end of 2022. A high
hydrocarbon price backdrop across all our
products has been important as well as cost
optimisation, which created operating
leverage allowing the Company to benefit
from the upward price swing. This served
the Company well in offsetting the natural
production decline exhibited by our mature
Chinarevskoye field. We have also
successfully taken action to comply with
the extensive and rapidly evolving global
sanctions legislation.
We are structurally
addressing our cost
base and building
a cost-conscious
culture to support
our growth
ambitions, improve
our balance sheet,
offset inflationary
pressures, and
thereafter gear our
business to deliver
operating leverage
consistently
Cash at year end
Through our continuous efforts
to further optimise production
along with rigorous cost controls
whilst safeguarding sales
netbacks and favourable oil
prices, we were able to increase
our cash reserves in 2022
by US$68.3m.
Lower debt service burden
Following restructuring,
Nostrum’s annual coupon
payments are reduced from
US$86m to circa US$16m
which will help optimise
liquidity and allow us to
focus on future growth.
Cash at year-end
Coupon payments
US$233.6m
US$16m
2021: US$165.2m
2021: US$86m
Nostrum 2.0
With the debt restructuring completion
in early 2023, Nostrum has started a new
chapter of its development which we call
‘Nostrum 2.0’. Post restructuring, our
shareholder register comprises of blue-
chip institutional investors, a new, highly
experienced Board and we have a healthy
balance sheet with unrestricted cash
reserves of US$233.6 million. We have
recommenced our semi-annual cash
interest payments and US$17.5 million
has already been paid to the bondholders
earlier this year.
Right Place, Right Time
We believe we are now at the right place
and at the right time following major
changes in the Government of the Republic
of Kazakhstan last year as well as due to a
launch of its new energy transition strategy
to achieve carbon neutrality by 2060.
Kazakhstan’s 2015-2030 General
Gasification Scheme sets out the further
development of the gas transportation
system and gasification of the population.
Kazakhstan is a member of the WTO, has a
wealth of natural reserves, robust transport
and communication infrastructure and
highly skilled workforce. Kazakhstan is an
important player in the global economy
and an attractive investment destination.
Strategically, it links the fast-growing
markets of China and South-East Asia to
the Middle East and Western Europe, about
65 percent of the world’s gross domestic
product, with roads and railroads as well
as with the ports of the Caspian Sea.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 03
Strategic report Chairman’s statement
High calibre Board members to
guide the business post restructuring
Stephen Whyte
Chairman and Non-
Executive Director
Arfan Khan
Chief Executive
Officer
Fiona Paulus
Independent Non-
Executive Director
Date of appointment:
14 February 2023
Date of appointment:
26 January 2021
Date of appointment:
14 February 2023
Total industry
experience: ~35 Years
Total industry
experience: ~35 Years
Total industry
experience: ~37 Years
Technical background:
Geophysics
Technical background:
Petroleum Engineering
Technical background:
Investment Banking
Chris Cox
Independent Non-
Executive Director
Martin Gudgeon
Non-Executive Warrant
Director
Chris Hopkinson
Independent Non-
Executive Director
Date of appointment:
14 February 2023
Date of appointment:
14 February 2023
Date of appointment:
14 February 2023
Total industry
experience: ~40 Years
Total industry
experience: ~30 Years
Total industry
experience: ~35 Years
Technical background:
Petroleum Engineering
Technical background:
Corporate Finance
Technical background:
Petroleum Engineering
04 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
New Board of Directors
I am pleased that Nostrum has attracted
new, high calibre Board members to guide
the business post restructuring. I would like
to welcome the new directors who joined
the Board with me in February 2023: Chris
Cox, Chris Hopkinson, Fiona Paulus, and
Martin Gudgeon. Each of them brings
significant local and global experience
and expertise in driving business
expansion, innovation and sustainability,
which will be invaluable to Nostrum as we
implement our new mixed-asset energy
strategy.
The new Board has commenced the
year with an early engagement with
the shareholders and bondholders by
arranging bilateral meetings with our
largest shareholders and holding a
Capital Markets Day to communicate the
Company’s new strategy to the investment
community.
Mixed-Asset Energy Strategy
The new Board has set a new strategy to
capitalise on the advantaged position of
our existing infrastructure and attract third
party volumes. Nostrum is already no
longer a single asset company. We have
secured the tie-back project with Ural Oil
& Gas and we are awaiting government
approvals for our recent acquisition of our
second subsoil use licence, containing the
Stepnoy Leopard fields. It holds between
50 mmboe and 150 mmboe of recoverable
volumes with over 20% estimated to be
liquids.
We believe our under-utilised, new and
modern infrastructure can attract 4 bcma
or more third party gas and thereby
provide an accelerated processing
solution at a materially lower cost than
other infrastructure providers. We believe
this is the best opportunity available to
rapidly increase domestic supply by
nearly 20%. We can make a significant
contribution to Kazakhstan’s long-term
gasification scheme.
Mixed-Asset Energy Strategy:
a new strategy to capitalise
on the advantaged position
of our existing infrastructure
and attract third party volumes
Read more on page 11
Strong ESG performance
focus: contributing to energy
security and transition to
cleaner energy
ESG risk rating
Receiving our first rating by the ESG
rating agency marks another milestone
in the implementation of Nostrum’s
sustainability strategy.
34th
percentile in the Oil &
Gas Producers industry
In 2023, we will continue to focus on
developing our assets, cost optimisation
and work alongside all key stakeholders as
we pivot toward renewed growth presented
by our new mixed-asset energy strategy
and the value creation opportunity pipeline
it presents.
We will evaluate and continue to invest
in both upstream and midstream
opportunities where we see the right risk/
reward opportunities. This could be either
by processing third party hydrocarbons in
our world-class infrastructure and/or by
scaling up our own production.
ESG Performance
We have always acted with Sustainability
and Safety at our core, protecting and
developing our people, the environment
and our licence to operate. We have
however upped our game in our
transparency and documenting
of our ESG performance.
In 2022, Nostrum received its first ESG
risk rating, which is instrumental in making
the Group’s progress in this area visible.
The Company’s ESG risk rating places it
in the 34th percentile in the Oil and Gas
Producers’ industry as assessed by
Sustainalytics. In addition, Nostrum
received its first “B-” grade from the
CDP Water Security Questionnaire
and improved its CDP Climate Change
Questionnaire score from “C” to “B-.”
Conclusion
Looking ahead, we are committed and
confident in our ability to deliver on our
new mixed-asset energy strategy. We will
convert our competitive advantage into
value with near term catalysts, whilst
nursing our balance sheet in that process.
I would like to take this opportunity to
thank our investors, our employees and
the Government of Kazakhstan for their
ongoing commitment and support as we
strive for an exciting and busy year ahead.
Stephen Whyte
Chairman and Non-Executive Director
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 05
Strategic report Bond restructuring
Update on Bond restructuring
Over the past three years
completing the Restructuring
has been a major milestone that
has now enabled the Company
to pivot towards growth and
maximise stakeholder returns.
Background and engagement
with stakeholders
On 31 March 2020, following a collapse
in the global oil price, the Group
announced that it would seek to engage
with its bondholders regarding a possible
restructuring of the Group’s US$725 million
8.0% Senior Notes due July 2022 and/or its
US$400 million 7.0% Senior Notes due
February 2025.
In May 2020, the Group engaged Rothschild
& Cie as financial advisers and White &
Case LLP as legal advisers to assist in the
restructuring of the Notes.
Nostrum entered into a forbearance
agreement in October 2020, with an
informal ad-hoc Committee of noteholders.
Under the terms of that forbearance
agreement, certain holders agreed to
forbear from exercising of certain rights
and remedies under the indentures
governing the 2022 and 2025 notes,
including an agreement not to accelerate
the notes obligation as a result of the
missed interest payment. In May 2021
that agreement was replaced by a second
forbearance agreement, which was the
same in form and substance to the first
forbearance agreement. Several further
extensions to the Forbearance Agreement
were made during 2021.
Further key milestones in the Restructuring
process are summarised below:
Restructuring terms
Partial reinstatement
of notes
• US$250m Senior Secured Notes (SSN) – 5% cash coupon, interest
accrues from 1 January 2022
• US$300m Senior Unsecured Notes (SUN) – 1% cash coupon, 13%
payment in kind, interest accrues from
1 January 2022
• New notes mature on 30 June 2026
• If not repaid in cash at maturity, the SUNs will be repayable in
specie through the issuance of equity of the Company based on
the value of the SUNs outstanding on the issuance date as a
percentage of the fair market value of the Company (up to a
maximum of 99.99% of the Company’s fully diluted equity)
Conversion to equity • Remaining notes and accrued interest converted to equity
Corporate
Governance
Arrangements
• Existing ordinary shareholders diluted to 11.11%
• Issue of warrants to new noteholders, which may further dilute
existing ordinary shareholders to 10.00%.
• Cash sweep mechanism to debt service retention account
• Transfer to Standard Listing segment of the London Stock
Exchange
• Board to consist of 6 Directors (previously 5)
The shareholders (99.99% of voting)
voted for the implementation of the
restructuring which meant that the
restructuring continues under a UK
scheme of arrangement under Part 26
of the Companies Act 2006.
The Company issued a
notice inviting Scheme
creditors to a Scheme
meeting on 21 August
2022 to acquire such
new shares and warrants.
23 December 2021
04.02.2022
29.04.2022
20.06.2022
01.06.2022
01.08.2022
The Lockup Agreement was
signed and shareholders voted
in favour of the restructuring
resolution at a General Meeting
convened on 29 April 2022.
The summary terms agreed by
the creditors and shareholders
are summarised in the table
above.
The Company
received the
required consents
from noteholders
after a solicitation
process to approve
the amendments to
the Existing Notes
indentures.
The High Court of
Justice of England and
Wales has made an
order granting the
Company permission
to convene a meeting
for the Scheme
creditors to approve
the restructuring.
The Company received the
required consents from the
Kazakhstan Ministry of
Energy («MOE») with respect
to the issue of new shares
and warrants (in partial
repayment of the Existing
Notes) and the waiver of the
State of Kazakhstan's priority
right to acquire such new
shares and warrants.
06 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Simplified Group Structure post Bond Restructuring
(9 February 2023)
Key shareholders:
• EMOV
• Amundi
• Fidelity
• ICU Trading
Listed on LSE with
symbol: NOG
Listed on AIX with
symbol: NOG
New Warrants
New Shareholders/
Noteholders
88.89%
11.11%
Shareholders
Equity
Entitlement
Nostrum
Oil & Gas Plc
US$250m
5.00%
2026 SSNs
US$345m
1% cash;
135 PIK
2026 SUNs
Nostrum Oil & Gas
Finance B.V.
Zhaikmunai
LLP
The Scheme
Sanction Hearing
took place, whereby
the Court made an
order sanctioning
the Scheme.
The prospectus was
approved by the
FCA and published
by the Company
(the ‘Prospectus’).
Implementation of the Restructuring on the key
terms as agreed under Lockup Agreement, and
pursuant to the terms of the Scheme sanctioned
by the Court on 26 August 2022.
Delisting of
ordinary shares
from the official list
of the Kazakhstan
Stock Exchange
(KASE).
26.08.2022
31.08.2022
14.10.2022
01.2023
09.02.2023
10.02.2023
14.03.2023
The Scheme
Sanction Order
was lodged with
Companies House
and the Scheme
thereby took effect
and binds (amongst
other parties) all
Scheme Creditors
and the Company
by its terms.
The Company
received the
required licence
from the Office of
Financial Sanctions
Implementation
(OFSI).
Admission to the
London Stock
Exchange (LSE).
Admission to the
Astana International
Exchange (AIX).
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 07
Strategic report Market review
GRI 2-6
Nostrum 2.0
Nostrum has changed, Kazakhstan has changed
Since its independence in 1991, Kazakhstan
has established itself as one of the world’s
most prolific hydrocarbon centres.
Key macroeconomic and microeconomic trends
Oil prices
Throughout 2022 oil prices were highly
volatile due largely to the imposition of
tough sanctions against Russia and the
slowdown in global economic growth.
Oil prices spiked to $100/bbl in early
2022 and exceeded $130/bbl in the
middle of 2022 before falling by about
one-third from their June highs and
remaining extremely volatile, closing
around $75/ bbl at the end of 2022.
Conflicting supply and demand factors
have increased uncertainty in oil price
forecasts. Fears of a recession have
intensified in both the US and Europe,
which could hurt oil demand. The actions
of the world’s central banks, which have
repeatedly hiked interest rates to fight
surging inflation, along with an economic
slowdown in China, have also influenced
the prospects of falling demand for the
commodity. OPEC+ countries
unanimously agreed in 2022 to relax
production output cuts introduced in
2020, but later revised the ceiling of oil
production due to the slowdown in the
global economy.
What it means for us
The rise in world oil prices has offset
production decline and resulted in
higher cash flow for the Company. The
completion of the debt restructuring
will further stabilise the Group, as will our
continued focus on reducing our cost
base to ensure we can maintain
adequate liquidity whilst we pursue
the opportunities to fill the spare
capacity in our gas processing facilities.
At the end of 2022 we had cash reserves
in excess of US$233.6m (31 December
2021: US$165.2m) excluding US$22.8m
placed into a secured cash account under
the terms of the Forbearance Agreement
with the informal ad-hoc noteholder
group and US$8.2 m of liquidation fund
deposits, which are kept as required by
the subsoil use rights for abandonment
and site restoration liabilities.
Kazakhstan's economy
The ongoing Russia-Ukraine conflict slowed
post-COVID recovery for Kazakhstan's
economy in 2022 but the economy
benefitted from high prices for key export
commodities. The GDP rate slowed to
3.3%. Inflation soared reaching an all-time
high exceeding 20% YoY, mainly driven by
external factors, domestic demand, and
supply-chain disruptions that pushed up
manufacturing costs. The Kazakhstan
Tenge (KZT) depreciated by 7% in 2022
ending the year at 462.65 KZT per US$.
Competitive environment
Kazakhstan and Azerbaijan are the two
main oil-producing countries in the
Caspian region whilst Turkmenistan and
Uzbekistan are the predominant gas
producers. Russia plays an important role
in the region by providing a
transportation corridor between the
Caspian Sea and the Black Sea, although
this part of Russia is not a substantial
source of crude oil.
The oil & gas market in Kazakhstan
Energy transition plan of RoK
The foundation of Kazakhstan’s oil & gas industry consists of
In 2022 Kazakhstan presented the Strategy (plans) to achieve
three supergiant fields, Tengiz, Karachaganak and Kashagan,
carbon neutrality until 2060, which is being developed by
situated in the north-west of the country. Together, these fields
Kazakhstan and that will become a guideline for energy transition.
hold the majority of the country’s reserves and production
Kazakhstan's energy sector has the following focus areas:
and have allowed Kazakhstan to attract more foreign direct
improving cleaner energy mix and strengthening energy security.
investment than any other country in the Former Soviet Union
(FSU) over the past three decades, including Russia.
As the world’s largest landlocked country, Kazakhstan depends
on an extended network of pipelines and railways to deliver its
products to export markets. Pipeline exports are primarily
delivered via Russia (Atyrau-Samara and the Caspian Pipeline
Consortium pipelines); via Azerbaijan and Turkey (the Baku-
Tbilisi-Ceyhan pipeline); and one via China (Atasu-Alashankou).
Rail exports utilise Kazakhstan’s extensive rail network, reaching
markets throughout the FSU and beyond (please refer to
page 10 where we discuss the impact of Russian sanctions
resulting from the Russia-Ukraine conflict on our business).
Expansion projects at the Tengiz and Karachaganak fields,
which have been producing for over two decades, are currently
being developed to increase liquid recovery rates as the fields
mature.
Government’s comprehensive energy development plans:
• 2015-2030 General Gasification Scheme in place that sets out
the further development of the gas transportation system and
gasification of the population.
• Increase the gas resources base through geological exploration
and new production projects.
• Increase the volume for domestic gas consumption from over
19bn cubic meters in 2022 to 30bn cubic meters by 2029.
• Establish a new gas pricing model.
• Increase the reliability of the gas infrastructure.
What it means for us
Cost pressures on our supply chain
and staff compensation will impact our
profitability. As a Company we will continue
to be pragmatic in our negotiations with
employees and suppliers with respect to
wage and general cost inflation, to ensure
we maintain our margins.
What it means for us
Vast distances between Central Asian
markets, long-established trading
relationships and in-place infrastructure
promote co-dependency between FSU
exporters. Kazakhstan naturally benefits
from its geo-strategic position between
Russia and China. Nostrum is situated at
the heart of the export corridor that exists
between Russia and multiple markets to
the west of the Caspian.
What it means for us
What it means for us
Nostrum’s assets are located in the Pre-Caspian Basin close to
Our vision and Strategy are aligned with Kazakhstan's plans to
the Russian border and in close proximity to some of the most
strengthen its cleaner-energy mix:
significant hydrocarbon resources in the FSU. This advantageous
position means that the Company has access to multiple export
• Our vision
markets for its products, as well as labour and specialist
equipment providers. In addition, Nostrum has a substantial
amount of spare processing capacity in a region where there
is a significant amount of stranded gas with a growing need
for gas processing.
• Contribute materially to the total commercial gas potential
in Kazakhstan whilst strengthening cleaner energy mix
• Regional independent midstream gas operator
• Major supplier of commercial processed gas in Western
Kazakhstan for domestic and export markets
• Preferred partner of choice for handling and processing
3rd party gas in Western Kazakhstan.
• Our Strategy
• Consolidate owned and potential 3rd party sources of
upstream gas fields with midstream solutions
• Compete for project execution and operatorship by
demonstrating excellence in project delivery and operations
• Leverage own and external capital to optimise the commercial
opportunities
expand the market.
• Collaborate with stakeholders and potential partners to
08 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Since its independence in 1991, Kazakhstan
has established itself as one of the world’s
most prolific hydrocarbon centres.
Key macroeconomic and microeconomic trends
Oil prices
Kazakhstan's economy
Competitive environment
Throughout 2022 oil prices were highly
The ongoing Russia-Ukraine conflict slowed
Kazakhstan and Azerbaijan are the two
volatile due largely to the imposition of
post-COVID recovery for Kazakhstan's
main oil-producing countries in the
tough sanctions against Russia and the
economy in 2022 but the economy
Caspian region whilst Turkmenistan and
slowdown in global economic growth.
benefitted from high prices for key export
Uzbekistan are the predominant gas
Oil prices spiked to $100/bbl in early
commodities. The GDP rate slowed to
producers. Russia plays an important role
2022 and exceeded $130/bbl in the
3.3%. Inflation soared reaching an all-time
in the region by providing a
middle of 2022 before falling by about
high exceeding 20% YoY, mainly driven by
transportation corridor between the
one-third from their June highs and
external factors, domestic demand, and
Caspian Sea and the Black Sea, although
remaining extremely volatile, closing
supply-chain disruptions that pushed up
this part of Russia is not a substantial
around $75/ bbl at the end of 2022.
manufacturing costs. The Kazakhstan
source of crude oil.
Conflicting supply and demand factors
Tenge (KZT) depreciated by 7% in 2022
have increased uncertainty in oil price
ending the year at 462.65 KZT per US$.
forecasts. Fears of a recession have
intensified in both the US and Europe,
which could hurt oil demand. The actions
of the world’s central banks, which have
repeatedly hiked interest rates to fight
surging inflation, along with an economic
slowdown in China, have also influenced
the prospects of falling demand for the
commodity. OPEC+ countries
unanimously agreed in 2022 to relax
production output cuts introduced in
2020, but later revised the ceiling of oil
production due to the slowdown in the
global economy.
adequate liquidity whilst we pursue
the opportunities to fill the spare
capacity in our gas processing facilities.
At the end of 2022 we had cash reserves
in excess of US$233.6m (31 December
2021: US$165.2m) excluding US$22.8m
placed into a secured cash account under
the terms of the Forbearance Agreement
with the informal ad-hoc noteholder
group and US$8.2 m of liquidation fund
deposits, which are kept as required by
the subsoil use rights for abandonment
and site restoration liabilities.
What it means for us
What it means for us
What it means for us
The rise in world oil prices has offset
Cost pressures on our supply chain
Vast distances between Central Asian
production decline and resulted in
and staff compensation will impact our
markets, long-established trading
higher cash flow for the Company. The
profitability. As a Company we will continue
relationships and in-place infrastructure
completion of the debt restructuring
to be pragmatic in our negotiations with
promote co-dependency between FSU
will further stabilise the Group, as will our
employees and suppliers with respect to
exporters. Kazakhstan naturally benefits
continued focus on reducing our cost
wage and general cost inflation, to ensure
from its geo-strategic position between
base to ensure we can maintain
we maintain our margins.
Russia and China. Nostrum is situated at
the heart of the export corridor that exists
between Russia and multiple markets to
the west of the Caspian.
The oil & gas market in Kazakhstan
The foundation of Kazakhstan’s oil & gas industry consists of
three supergiant fields, Tengiz, Karachaganak and Kashagan,
situated in the north-west of the country. Together, these fields
hold the majority of the country’s reserves and production
and have allowed Kazakhstan to attract more foreign direct
investment than any other country in the Former Soviet Union
(FSU) over the past three decades, including Russia.
As the world’s largest landlocked country, Kazakhstan depends
on an extended network of pipelines and railways to deliver its
products to export markets. Pipeline exports are primarily
delivered via Russia (Atyrau-Samara and the Caspian Pipeline
Consortium pipelines); via Azerbaijan and Turkey (the Baku-
Tbilisi-Ceyhan pipeline); and one via China (Atasu-Alashankou).
Rail exports utilise Kazakhstan’s extensive rail network, reaching
markets throughout the FSU and beyond (please refer to
page 10 where we discuss the impact of Russian sanctions
resulting from the Russia-Ukraine conflict on our business).
Expansion projects at the Tengiz and Karachaganak fields,
which have been producing for over two decades, are currently
being developed to increase liquid recovery rates as the fields
mature.
What it means for us
Nostrum’s assets are located in the Pre-Caspian Basin close to
the Russian border and in close proximity to some of the most
significant hydrocarbon resources in the FSU. This advantageous
position means that the Company has access to multiple export
markets for its products, as well as labour and specialist
equipment providers. In addition, Nostrum has a substantial
amount of spare processing capacity in a region where there
is a significant amount of stranded gas with a growing need
for gas processing.
Energy transition plan of RoK
In 2022 Kazakhstan presented the Strategy (plans) to achieve
carbon neutrality until 2060, which is being developed by
Kazakhstan and that will become a guideline for energy transition.
Kazakhstan's energy sector has the following focus areas:
improving cleaner energy mix and strengthening energy security.
Government’s comprehensive energy development plans:
• 2015-2030 General Gasification Scheme in place that sets out
the further development of the gas transportation system and
gasification of the population.
• Increase the gas resources base through geological exploration
and new production projects.
• Increase the volume for domestic gas consumption from over
19bn cubic meters in 2022 to 30bn cubic meters by 2029.
• Establish a new gas pricing model.
• Increase the reliability of the gas infrastructure.
What it means for us
Our vision and Strategy are aligned with Kazakhstan's plans to
strengthen its cleaner-energy mix:
• Our vision
• Contribute materially to the total commercial gas potential
in Kazakhstan whilst strengthening cleaner energy mix
• Regional independent midstream gas operator
• Major supplier of commercial processed gas in Western
Kazakhstan for domestic and export markets
• Preferred partner of choice for handling and processing
3rd party gas in Western Kazakhstan.
• Our Strategy
• Consolidate owned and potential 3rd party sources of
upstream gas fields with midstream solutions
• Compete for project execution and operatorship by
demonstrating excellence in project delivery and operations
• Leverage own and external capital to optimise the commercial
opportunities
• Collaborate with stakeholders and potential partners to
expand the market.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 09
KAZAKHSTANCHINARUSSIAStrategic report Market review
Nostrum 2.0 continued
Company contracts with a limited number
of Russian service companies.
Impact of the consequences following Russia-Ukraine conflict
The Russia-Ukraine conflict which
emerged in the beginning of 2022
has led to widespread sanctions being
imposed on various Russian institutions
and individuals. Bodies and nations
imposing sanctions today include
the US, UK and EU and these sanctions
have been sequentially expanding.
During 2022 the price of Urals traded with
a higher discount relative to Brent due to
sanctions, which affected the Company's
export prices for oil and condensate.
During the spring and summer of 2022, the
discount reached $40 per barrel and then
declined to $18-20 per barrel as compared
to $3 per barrel average in 2021.
Given the geographical position of the
Group’s operations, it is very close to
the evolving situation in Ukraine. Whilst
Kazakhstan is not directly involved in the
ongoing conflict, nor have any Western
sanctions been levelled at it, the country
is connected to Russia through
infrastructure, banking, and other
business links. Furthermore, the
CRUDE OIL PRICE HISTORY
150
100
50
In addition to the widening of Urals
discount used in calculation of export
prices on oil and condensate, certain
operational matters have been impacted
by sanctions, such as the work underway on
GTU3 and the extension of the Company’s
gas lift facilities.
45
30
15
Nostrum has considered and analysed
alternative export routes where export
prices are not linked to Urals quotation
for oil and gas condensate supplies
and has made all necessary efforts to
address the widening Urals spread.
Nostrum is committed to complying
with UK, EU and US sanctions relating
to the Russia-Ukraine conflict. The
Company has obtained advice from
external legal counsel on the
requirements for sanctions compliance,
maintains and regularly updates lists of
sanctioned persons and entities as these
are supplemented or modified by the
relevant authorities to prevent Group
companies transacting with such
persons and entities, has terminated
previous commercial relationships that
might be impacted by relevant
sanctions, makes enquiries with
commercial counterparties to mitigate
risk of sanctions violations, analyses
sanctions restrictions on the sale, export
or shipment of products and consults
with legal counsel when appropriate on
questions that may arise in connection
with the foregoing matters.
0
0
01/22 02/22 03/22 04/22 05/22 06/22 07/22 08/22 09/22 10/22 11/22 12/22
Brent (DTD)
Urals (R'dam)
Spread
10 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Mixed-asset energy strategy
Mixed-asset energy strategy
We will evaluate and
continue to invest in both
upstream and midstream
opportunities where we
see the right risk/reward
opportunities. This could
be either by processing third
party hydrocarbons in our
world-class infrastructure
and/or by scaling up our
own production.
Potential acquisition
of a new asset
In March 2023, Nostrum agreed to acquire
80% of Positive Invest LLP, which holds the
subsoil use right to the contract No. 25 for
estimation, development and production
of hydrocarbons for the area "Kamenskoe"
and the development area "Kamensko-
Teplovsko-Tokarevskoe" (the "Stepnoy
Leopard Fields") in the West Kazakhstan
region of the RoK dated 3 March 1995, for
US$20m. Management estimates that the
Stepnoy Leopard Fields hold between
50 mmboe and 150 mmboe of recoverable
volumes which are considered contingent
resources, with over 20% estimated to be
liquids. There are eight fields within the
licences with over 100 wells drilled in the
Soviet era, the majority of which have
confirmed hydrocarbons to be present. The
resources are considered by management
to be contingent due to the appraisal and
development risks, noting the fields have
not previously been developed in part
due to the lack of related infrastructure.
If the proposed acquisition completes,
Nostrum plans to implement an appraisal
programme in 2023, with the intention of
preparing a technical expert's report which
could allow re-classification of certain of
the hydrocarbon resources into reserves.
Additional third-party volumes
The core strategy for Nostrum to
create value for its stakeholders is to
commercialise the investment made
in its infrastructure, the focus being on
filling the spare capacity with third-party
hydrocarbons. The first step towards
achieving this was made in 2018, when
Nostrum entered into binding agreements
to process third-party hydrocarbons
starting in 2023 to be delivered by Ural
O&G from the Rozhkovskoye field, which
is situated less than 20km from the
Chinarevskoye field. Ural O&G will fund
the connection of existing wells at the
Rozhkovskoye field to Nostrum’s licence
area after which Nostrum will process all
of the hydrocarbons coming into the field.
Since Ural O&G feedstock is expected to
be delivered at the end of October 2023,
Nostrum started with construction of tie-in
pipeline to Ural O&G facilities and spent
US$1.0m in 2022 out of a total planned
spend of US$5m. Completion of this
tie-in is planned for Q3 2023.
In July 2021, Zhaikmunai and Ural O&G
agreed to extend the deadline under
the agreements for Ural O&G’s first
delivery of gas and liquid gas-condensate
hydrocarbons to Zhaikmunai by
approximately six months, from 9 April
2023 to 31 October 2023. The extension
was requested by Ural O&G as a result of
circumstances relating to the COVID-19
pandemic.
Ural O&G is a company owned by
KazMunaiGas (KMG) (50%), Sinopec
(27.5%) and MOL Group (MOL) (22.5%).
Nostrum is also focused on entering into
additional agreements which can fill all
the remaining capacity at its GTF. Nostrum
is working with counterparties to secure
long-term streams of raw gas from which
it can generate significant revenues.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 11
Strategic report Mixed-asset energy strategy
Integrated gas
opportunity
Nostrum is now at the
right place and at the
right time to participate in
Kazakhstan's transition to
a cleaner energy strategy
and to strengthen its
energy security.
Mixed asset energy framework
Upstream
Nostrum operated and
potential third-party sources
of upstream gas fields
Major opportunities in the region to
secure long-term supply of raw gas.
Nostrum asset
1
2
Chinarevskoye
field
Producing field:
1P reserves of 20mmboe
2P reserves of 28mmboe
Stepnoy
Leopard field
80% owned field subject to
appraisal: 50-150mmboe
contingent resources over 20%
liquids
Third party asset
3
Rozhkovskoye
field
Gas tie-back project in progress:
Phase I – EPCI stage
Phase II – potential subject to
appraisal/feasibility assessment
4
Karachaganak
field and other
3rd Parties
Possible midstream tie-back
opportunities
Area
shown
RU SS IA
K A ZAK HSTAN
Strategically located
world-class gas
processing facilities
and export hub
c.98%
of Kazakhstan's natural
gas reserves are located
in Western Kazakhstan
12 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
2
Stepnoy
Leopard
fields
RAIL LOADING
TERMINAL
AND CRUDE/
CONDENSATE
STORAGE
CONDENSATE
EXPORTS VIA RAIL
NOSTRUM OIL
PIPELINE
Rostoshinskoye
Uralsk
OIL EXPORTS
PIPELINE
Atyrau-Samara
NOSTRUM
PROCESSING FACILITY
Chinarevskoye
field
Rozhkovskoye
field
– Sinopec
– MOL Group
– KazMunaiGas
NOSTRUM
GAS EXPORT
PIPELINE
K A Z A K H S T AN
GAS EXPORT PIPELINE
Orenburg-Novopskov
Karachaganak
– Shell
– Eni
– Lukoil
– Chevron
– KazMunaiGas
LPG EXP ORTS V IA RA IL
Aksai
Mixed asset energy framework
Midstream
Well-positioned to become a
major third-party gas processor
with an export hub
Domestic and
Export Gas Supply
Kazakhstan’s focus on
energy transition strategy
State-of-the-art 4.2bcm infrastructure hub, 85%
of which is not utilised by our own production.
Strategic location, attractive access to multiple
transportation routes.
Increase domestic
gas consumption from
over 19 bcm in 2022
to 30 bcm by 2029.
19bcm
30bcm
2022
2029
Gas treatment facilities (GTF)
Oil treatment facility (OTF)
GTU 1&2 – 1.7bcm
400kt
GTU 3 – 2.5bcm
Increase the share of
gas used for electricity
generation from 20%
to 25% by 2030.
25%
Strategy to achieve carbon
neutrality by 2060.1
Power
generation
plant
Storage
facilities
Rail loading
terminal
Gas and
liquids
pipelines
1 On 2nd February 2023, the President of RoK approved the Strategy
on Achieving Carbon Neutrality by 2060. Source: The World Bank
Stepnoy
Leopard
fields
NOSTRUM OIL
PIPELINE
Rostoshinskoye
RAIL LOADING
TERMINAL
AND CRUDE/
CONDENSATE
STORAGE
CONDENSATE
EXPORTS VIA RAIL
Uralsk
OIL EXPORTS
PIPELINE
Atyrau-Samara
1
Chinarevskoye
field
3
Rozhkovskoye
field
– Sinopec
– MOL Group
– KazMunaiGas
NOSTRUM
PROCESSING FACILITY
NOSTRUM
GAS EXPORT
PIPELINE
K A Z A K H S T AN
GAS EXPORT PIPELINE
Orenburg-Novopskov
4
Karachaganak
– Shell
– Eni
– Lukoil
– Chevron
– KazMunaiGas
LPG EXPORTS VIA R AIL
Aksai
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 13
Strategic report Chief Executive Officer’s statement
GRI 2-22
Nostrum 2.0 –
A mixed-asset energy company
Nostrum’s under-utilised 4.2 bcma state-of-the-art gas processing
infrastructure is well-positioned to provide an immediate solution
for third party raw gas, at an affordable cost, and as such it represents
one of the best opportunities to rapidly increase the commercial gas
supply by nearly 20%."
As an energy company, we are at the
crossroads of change at the Company level
and the environment in which we operate,
especially Kazakhstan. There have been
several changes in Kazakhstan with the
establishment of a new administration that
is actively re-shaping the priorities in the
energy sector with greater emphasises on
energy security and transition.
The Government of Kazakhstan is
developing a comprehensive gasification
scheme to meet rapidly rising demand for
commercial gas and its corresponding
share in the structure of fuel and energy
balance of the country. The majority of the
gas produced in Kazakhstan is currently
re-injected to enhance liquids recovery,
with only a little over a third available for
commercial purposes. Nostrum’s under-
utilised 4.2 bcma state-of-the-art gas
processing infrastructure is well-positioned
to provide an immediate solution for third
party raw gas, at an affordable cost, and
as such it represents one of the best
opportunities to rapidly increase the
commercial gas supply by nearly 20%.
Nostrum has already succeeded in its
transformation from a single-asset
(Chinarevskoye Field) to a mixed-asset
company by adding another upstream
field (Stepnoy Leopard), sanctioning
the upcoming startup of the midstream
tie-back project by Ural Oil & Gas
(Rozhkovskoye Field), and completing
an internal feasibility assessment of a
possible midstream project from the
Karachaganak Field.
Having completed the Restructuring in
early 2023 with a healthy balance sheet,
cash reserves and a new, high-calibre
Board, Nostrum has entered a new stage
of its development that we call ‘Nostrum 2.0’.
14 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
New Board of Directors
The Company is very fortunate to have
attracted such high calibre new Board
members. Nostrum is assured of a bright
future with Steve Whyte as Chair. Steve has
extensive experience with supermajors and
independent companies in the sector and
has also served as a Board observer
appointed by Nostrum’s bondholders for
the past two years. The other new directors
are Fiona Paulus, a seasoned investment
banker, Martin Gudgeon who has deep
experience in financial restructuring and
the bond markets, and both Chris Cox and
Chris Hopkinson who have served in key
leadership roles running E&P companies
as petroleum engineers.
Our upstream operations
Chinarevskoye Field
The annual average production in 2022
was 13,200 boepd. As expected, our
production has continued to decline from
the maturing primary reservoirs, with the
decline averaging 23% annually over the
past three years. Nostrum stopped drilling
in 2019 after the significant subsurface
failures. Further, the primary producing
reservoirs also experienced premature
water breakthrough, rapidly rising water cut
and pressure depletion. The majority of the
producing wells require gas lift to sustain
production and to reduce abandonment
pressures at highest possible water cut.
Even some of the gas wells are now being
placed on gas lift to help remediate
waterlogging at bottomhole. To keep up
with the rapidly rising demand for gas lift,
our compressors have been operating near
their design limits with combined capacity
of 500 thousand m3/day. Early in 2022 we
funded the addition of further compression
to raise the capacity to 900 thousand m3/
day for circa US$8 million, to help
safeguard the production against
equipment failures and to keep wells from
going offline. The delivery of the new
compressor experienced significant delays
due to the Russian sanctions, and this has
created significant challenges for the
production technologists in the judicious
allocation of gas lift to optimise production.
After a nearly 9-month delay, we expect the
new compressor to startup in Q3 2023.
Lastly, our capital workover program that
targets behind-pipe proved-undeveloped
reserves has also been largely exhausted.
The focus of the well intervention
campaigns in the field has shifted to well
surveillance and maintenance, including
corrosion and well integrity management.
We keep on standby both a workover rig
and a coil tubing unit to mitigate delays in
reacting to well failures.
Located about 100 km west of our
world-class full-process infrastructure,
the Stepnoy Leopard field is potentially
an attractive Nostrum-operated upstream
tie-back project that could deliver material
reserves addition to the Group’s rapidly
depleting resource base at Chinarevskoye.
Monetising midstream
infrastructure
With our 4.2 bcma world-class gas
processing infrastructure and direct
transport links to the markets, we are well
positioned to leverage these advantages
with midstream tie-back projects from the
nearby upstream fields that are operated
by others.
Rozhkovskoye Field
(operated by Ural O&G)
In 2022, we sanctioned this midstream
project at circa US$5million that connects
our process facilities at the southern
manifold to the tie-back infrastructure
that is under construction by Ural Oil & Gas.
First gas from the Rozhkovskoye Field is
expected in Q4 2023 with 5 wells producing,
ramping up to potentially 0.2 to 0.5 bcma
of production. Nostrum will process the gas
under a processing agreement that covers
gas, LPG, and condensate. This inaugural
midstream project demonstrates the
efficacy of our mixed-asset strategy.
Karachaganak Field (operated by KPO)
Full utilisation of our 4.2 bcma gas process
facilities will require additional third party
raw gas sources beyond what is currently
available from the Chinarevskoye, Stepnoy
Leopard, and Rozhkovskoye fields. We have
been conducting internal technical and
economic evaluation of potential tie-back
concepts from the Karachaganak field that
currently produces over 18 bcma, with half
of such gas re-injected for liquids recovery
(gas re-cycling) and half exported to the
Orenburg Plant in Russia. The total gas
production from the field is expected to
increase significantly over the coming years
owing to the drying of the reservoir.
Slowing the production decline with
best-in-class WRM while maintaining cost
discipline remains a constant focus of our
team. We succeeded in holding our costs
flat or slightly lower and delivered
exceptional opex and G&A performance
against mounting geopolitical pressures on
supply-chain and inflation. Operations also
delivered production system availability of
better than 98% with under 5% production
deferment. Our exports were executed
without interruption despite the Russia-
Ukraine conflict and delivered circa 4.6
mmboe in sales volumes. To protect and
improve our netbacks, we re-negotiated
the gas sales price and completed new
offtake agreements for crude and
condensate.
In 2022, we also initiated subsurface studies
to update the geologic and reservoir
models with the additional information
gained since 2019 and completed
re-processing of the 3D seismic. This work
will also be used to determine low-risk
reservoir infill targets that will enable the
Company to resume limited-scale drilling
operations later in 2023, targeting the 1P
and 2P reserves of 20.2 and 28.3 mmboe,
respectively, as of 31 December 2022. The
Group’s PDP reserves are determined at 19
mmboe at end 2022.
Stepnoy Leopard Field
In March 2023, we agreed to acquire 80%
of Positive Invest LLP for US$20 million. We
estimate that the Stepnoy Leopard fields
hold between 50 mmboe and 150 mmboe
of recoverable volumes which presently are
classified as contingent resources. Upon
completion of the proposed acquisition we
plan to implement an appraisal programme
in 2023, with the intention of preparing a
Competent Person’s Report (CPR). This
would allow re-classification of certain
of the contingent resources to proven
reserves and help determine the
commercially viable development schemes.
A broad range of development concepts
have been defined that include a smaller-
scale Early Production System (EPS) for
fastest production startup to Full-Field
Development (FFD) requiring installation
of the tie-back infrastructure.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 15
Strategic report Chief Executive Officer’s statement
Our gas process infrastructure with
significant available ullage, located only
about 100 km north of the Karachaganak
field, represents a compelling value
proposition to both the Republic of
Kazakhstan and KPO, especially as an
alternative to increasing supplies to or
from Russia. Further, with both rapidly
rising demand for commercial gas and
field-gas production, our existing gas
process infrastructure offers the fastest
possible startup solution at the lowest
possible cost. We have conducted internal
detail engineering and concept trade-
off studies to define the optimal solution
for bringing the raw gas supplies from
the Karachaganak field to our facilities
at Chinarevskoye and delivering the fully
processed dry gas into the Intergas Central
Asia (ICA) line, operated by QazaqGas, to
which we are already connected via a 17-km
24” gas pipeline.
Restructuring
Over the past three years the Company
went through an onerous process of
restructuring its US$725 million 8.0%
Senior Notes due July 2022 and US$400
million 7.0% Senior Notes due February
2025. This included the exchange of a
portion of the legacy notes for new notes
comprising US$250 million Senior Secured
Notes and US$300 million Senior Unsecured
Notes, and the conversion of the remainder
of the notes into shares, as well as the issue
of new warrants and implementation of
new corporate governance requirements
as described in more detail on pages
88-127. Implementation of the restructuring
has helped the Company to improve its
balance sheet and reduce the cash debt
servicing requirement from US$86 million
to around US$17 million annually, which has
enabled us to improve liquidity and focus
on future growth.
Hence, completion of the Restructuring was
an important milestone for our Group, and
we could not have reached this momentous
occasion without the tremendous hard
work and dedication of our people and
advisors, with patience and support from
our investors. This enabled the Company
to move expeditiously to unlock the full
potential and value of its existing world-
class gas processing infrastructure, acting
in the best interest of our investors and
other stakeholders, whilst strengthening
the energy security of the region.
Our financials
The financial performance of the Group
during the year was quite stable and
positive due to an increase in commodity
pricing. This was achieved notwithstanding
the natural decline in production, alongside
inflationary and other macroeconomic
challenges.
Despite the downward trend in production,
Brent referenced prices remained relatively
favourable in 2022, averaging at around
$100/bbl, which helped the Group to
generate revenues of US$199.7 million
while our EBITDA amounted to US$115.7
million with an increase of 2.8% compared
to last year. In addition, our continued
cost-conscious approach to operations
helped maintain a healthy 57.9% EBITDA
margin for 2022.
The Brent – Urals differential, which
affected our crude oil and condensate
sales, impacted our revenues in 2022.
Even though it has been up from around
US$3/bbl at the beginning of the period
to around US$35/bbl towards the end
of 2022, we continued optimising the
netbacks for crude oil and condensate.
We analysed alternative export routes
with export prices unrelated to the Urals
quotation for oil and gas condensate
supplies and have made all necessary
efforts to address the widening Urals
spread.
In 2022, the Company successfully
generated US$68.3 million in positive
cash flow, resulting in total cash balances
of US$233.6 million as of 31 December
2022, excluding US$22.8 million held in
an escrow account. The strong cash flow
performance combined with a successful
restructuring of existing debt put the
Company in a strong position to be able
to invest into economically favourable
strategic projects.
HSE
The safety of every person working
for Nostrum has always been at the top
of our priorities. 2022 marks the fourth
consecutive year with zero fatalities
among employees and contractors
during operations. Nostrum is also
proud to report zero lost time injuries
and zero injuries on the road.
In 2022, we recorded a 36% decline in
the TRIR safety performance indicator
as compared to 2021. These positive
developments are attributable to
Nostrum’s continuous efforts in
implementing its safety improvement
plan, active leadership interventions and
encouraging a good reporting culture.
The reporting year recorded our best
HSE performance to date since 2019.
HSE remains a big part of the Company’s
agenda and we will continue to facilitate
change by continuous adoption of best
practices and strategies to strive for
above-peer safety performance.
In addition to these achievements, since
the beginning of the COVID-19 pandemic
Nostrum has been adopting new protective
procedures by adding risk management
practices, protocols and other measures
to avoid business disruptions. These have
allowed us to ensure and continue safe
production operations while minimising
risks.
16 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Our ESG Roadmap
We take our ESG commitments very
seriously. We are one of the largest
employers in the West Kazakhstan region
with over 500 Kazakh nationals
representing over 92% of our workforce.
Nostrum is very active in the community
where we operate by developing its human
capital: anti-bribery and corruption and
diversity & inclusion training, stellar records
of industrial safety and security, full
compliance with applicable environmental,
emissions and permitting regulations
permitting and with internal targets. In
2022 we formed a separate internal task
force which is focused on these matters and
on improving our performance in energy &
water efficiency, HSE, human capital, and
governance matters.
The year 2022 brought many important
milestones in improving ESG, including our
ESG task force. The task force has been
working closely with Sustainalytics, an
internationally recognised rating agency,
which performed a full ESG review of the
Company. As a result, we received our first
ESG Risk Rating of 40.5. A lot of effort has
been made to improve our performance
during 2022 and while our current ESG
rating means we still fall slightly within
the “Severe Risk” range we are within 0.5
points from the “High Risk” category. This
performance is encouraging and consistent
with that of most of our peers in the energy
sector.
In 2022, our greenhouse gas (“GHG”)
emissions were reduced from 187 thousand
tons to 170 thousand tons emissions in CO2
equivalent in a year, which is considerably
ahead of Kazakhstan’s National GHG Plan.
The Company continues to report on
TCFD and has for the first time disclosed
one category of Scope 3 emissions in 2023.
Nostrum always strives to be a responsible
operator committed to minimising the
Company’s impact on its surrounding
environment.
Zhaikmunai LLP, Nostrum’s wholly-owned
subsidiary, put the cherry on top of the
accomplishments mentioned above by
winning the Paryz 2022 Award for
“Contribution to the Environment.” We
appreciate this national recognition of our
efforts in mitigating the environmental
impact of the company’s activities and
listing us among socially responsible
businesses in Kazakhstan.
As a gas-focused company, we can play an
important role in the transition to cleaner
energy. Our ESG roadmap is intricately
linked with our integrated gas strategy:
• Significant opportunity to improve the
cleaner energy-mix with investments in
energy efficient infrastructure – tie-back
example (electrification), H2S, CO2
reinjection
• Human Capital
• Governance
We will endeavour to achieve best-in-class
status with regard to ESG and be part of the
solution for Kazakhstan’s strategy to
transition to cleaner energy and achieve
carbon neutrality by 2060.
Conclusion
In 2023, we will press ahead with further
improving our ESG performance and
strengthening our culture of continuous
operational improvement. I strongly believe
in our long-term success given the
commitment of our employees, who
represent the forefront of the industry.
The emerging global challenges have
significantly raised uncertainty in the future
business climate. Yet we are confident that
our agility and flexibility in decision-
making, redesigning our supply chains,
as well as our commitment to responsible
business practices will help us meet the
challenges and maximise shareholder
value without compromising safety, from
an optimised cost and resource base.
The completion of the restructuring
this year unlocked Nostrum’s potential to
deliver maximised shareholder value, while
prioritising occupational safety, from an
optimised cost and resource base. The
bold steps we have taken in 2022 and
earlier are only the beginning of our way of
ensuring solid foundations for a rewarding
and profitable future. I am certain that our
strong commitments to the said goals will
demonstrate a palpable difference over
the course of 2023.
No man is an island. These
accomplishments would have been
impossible without our dedicated team.
I’m grateful and proud that Nostrum is run
by a committed and talented pool of
professionals that create a substantial
opportunity for growth and a promising
future. Our relentless focus on our strategic
priorities will continue to create incremental
value for shareholders.
I would like to take this opportunity to
thank all our stakeholders and the host
governments for your trust and support
during 2022. We are looking forward to
continuing our established relationships
and to growing these further in 2023. I
believe that the road ahead is an exciting
and rewarding one.
Arfan Khan
Chief Executive Officer
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 17
Strategic report Strategy
Launching
our strategy
Upstream
We remain confident in our long-term
growth strategy, while broadening
our opportunities with investments
in future growth best-in-class facilities
and continuous improvement of our
portfolio in the industry
Potential acquisition
of new asset – Stepnoy
Leopard fields
In March 2023 Nostrum
agreed to acquire 80% of
Positive Invest LLP, which
holds the subsoil use right to
the Stepnoy Leopard Fields
in the West Kazakhstan
region for US$20m.
Management estimates its
recoverable volumes
between 50 mmboe and 150
mmboe which are considered
to be contingent resources.
Acquisition price
US$20m
Contingent resources
50-150
mmboe
18 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Midstream
Well-positioned
to become a
major third-party
gas processor
Ural O&G Capex
US$5m
Total processing capacity
4.2
bcm
Expected delivery
to process Ural O&G’s
hydrocarbons in
4Q 2023
Construction of the tie-in
pipeline is in progress with
a total expected capex of
around US$5m, of which
US$1m was spent in 2022.
The first delivery of third-party
hydrocarbons for processing
is expected in 4Q 2023.
Potential tie-back concept
from the Karachaganak
field
Our gas process infrastructure
with significant available ullage,
located only about 100 km
north, offers a compelling
value proposition to both
RoK and KPO, especially as
an alternative to increasing
supplies to or from Russia.
We have been conducting
internal technical and economic
evaluation of potential tie-back
concepts from the
Karachaganak field.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 19
Strategic report Strategy
Strategy for the future
Following the completion
of the Restructuring the
Company will focus on
unlocking the full potential
and value of its existing
world-class gas processing
infrastructure.
Our purpose
To unlock the value of our full potential
for all our stakeholders through
securing our business by working
as a well-integrated team across
all disciplines.
Our vision
To contribute materially to the total
marketable commercial gas potential
and its affordability in Kazakhstan
whilst strengthening a cleaner
energy mix.
Our values
We are trustworthy and reliable, take
our corporate, social and ecological
responsibilities seriously, and are
dedicated to the health, safety and
wellbeing of our employees.
Strategic pillars
2023 priorities
KPIs
Risks
Forecasts, objectives and
prospects for 2023-2024
SETTING THE FOUNDATION
FOR FUTURE GROWTH
• Strengthening of corporate
governance with new,
highly experienced Board
• Completion of major bond
restructuring unlocks new
opportunities to chart the next
chapter of our growth
• Strong ESG performance focus:
contributing to energy security
and transition to cleaner energy
• Advance ongoing discussions
with third parties interested in
supplying raw gas to take
advantage of the Group’s
gas processing capacity.
• Complete EPCI scope for
the UOG midstream tie-back.
• Appraise additional upstream
assets to strengthen Group's
hydrocarbon resource base.
• Ensure the safety of
employees, contractors
and the environment.
• Continue adherence
to “Golden Rules”.
• Further improve ESG Risk
rating (Sustainalytics scoring).
• Operational readiness to receive
• UOG project execution delays due
• Safe startup of UOG midstream
raw-gas supplies from UOG.
to weather and installation of fiscal
project.
• Conclude commercial processing
metering.
• Execute binding commercial
contracts.
• Total recordable injury frequency.
• Lost time injury frequency.
• Road traffic incidents.
• Greenhouse gas emissions.
• Focus on improvements across
ESG and ultimate upgrade in
rating.
• For overall ESG "Severe" risk rating
to reach higher score level.
• Ongoing negotiations with various
contracts to fill the Group’s spare gas
counterparties are complex and
processing capacity with third-party
commercially sensitive, and there
volumes.
can be no certainty that agreement
will be reached.
• Legal framework for environmental
protection and operational safety
still being developed in Kazakhstan.
• Improve contractor safety
management.
• Achieve objectives set in the HSE
plan (HSE Leadership, Incident
management, Personal Safety,
safety/Asset integrity).
• Impact of equipment failure.
Contractor management, Process
MANAGING OUR LIQUIDITY
• Continue to challenge costs
• Control Opex and G&A.
• Sustained higher prices can lead
• Manage "operational" liquidity and
whilst pivoting towards
growth and transitioning into
a multi-asset energy
company.
• Evaluate all sales routes for
sustainability and profitability.
• Balance sales mix and maximise
netbacks.
to cost inflation in Kazakhstan.
cash reserves to ensure continuity of
operations whilst unlocking the
future growth opportunities.
• Further spend on CHN reservoir
development will likely be needed
to satisfy regulatory and licence-to-
operate requirements.
• We are structurally addressing
our cost base and building a
cost-conscious culture to support
our growth ambitions, improve
our balance sheet, offset
inflationary pressures, and
thereafter gear our business
to deliver operating leverage
consistently
• Cash flow growth through
disciplined capital and cost
management
LAUNCHING OUR STRATEGY
• Utilise workover rig and
• We remain confident in our
long-term growth strategy, while
broadening our opportunities
with investments in future growth
best-in-class facilities and
continuous improvement of
our portfolio in the industry
• We have developed multiple
strategies to commercialise the
spare capacity in our world-class
gas processing facilities
• Well-positioned to become a
major third-party gas processor
rigless activities as well as
other technologies to slow
existing production decline.
• Complete subsurface studies
to allow resumption of
low-risk drilling campaign.
• Complete field development
feasibility studies of newly
acquired upstream assets.
• Maximise uptime of existing wells
• At low production levels,
• Reduce decline rates in existing
and production facilities.
unexpected sub-surface events
producing wells.
• Deliver gas lift expansion project.
• Commission GTU3.
• Resumption of limited-scale infill
drilling at CHN.
• Completion of acquisition of
new fields.
could severely impact the Group’s
operating cash flow.
• Identify technologies to increase well
productivity and reduce sub-surface
• Significant subsurface uncertainties
risk for drilling programmes at
and risks could negatively impact
drilling and appraisal campaigns.
Chinarevskoye.
• Addition of proven reserves from
new upstream fields.
20 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Strategic pillars
2023 priorities
KPIs
Risks
• Operational readiness to receive
raw-gas supplies from UOG.
• Conclude commercial processing
contracts.
• Total recordable injury frequency.
• Lost time injury frequency.
• Road traffic incidents.
• Greenhouse gas emissions.
• Focus on improvements across
ESG and ultimate upgrade in
rating.
• For overall ESG "Severe" risk rating
to reach higher score level.
• UOG project execution delays due
to weather and installation of fiscal
metering.
• Ongoing negotiations with various
counterparties are complex and
commercially sensitive, and there
can be no certainty that agreement
will be reached.
• Legal framework for environmental
protection and operational safety
still being developed in Kazakhstan.
• Impact of equipment failure.
Forecasts, objectives and
prospects for 2023-2024
• Safe startup of UOG midstream
project.
• Execute binding commercial
contracts to fill the Group’s spare gas
processing capacity with third-party
volumes.
• Improve contractor safety
management.
• Achieve objectives set in the HSE
plan (HSE Leadership, Incident
management, Personal Safety,
Contractor management, Process
safety/Asset integrity).
• Control Opex and G&A.
• Balance sales mix and maximise
netbacks.
• Sustained higher prices can lead
to cost inflation in Kazakhstan.
• Further spend on CHN reservoir
development will likely be needed
to satisfy regulatory and licence-to-
operate requirements.
• Manage "operational" liquidity and
cash reserves to ensure continuity of
operations whilst unlocking the
future growth opportunities.
LAUNCHING OUR STRATEGY
• Utilise workover rig and
• Maximise uptime of existing wells
• At low production levels,
• Reduce decline rates in existing
and production facilities.
• Deliver gas lift expansion project.
• Commission GTU3.
• Resumption of limited-scale infill
drilling at CHN.
• Completion of acquisition of
new fields.
unexpected sub-surface events
could severely impact the Group’s
operating cash flow.
• Significant subsurface uncertainties
and risks could negatively impact
drilling and appraisal campaigns.
producing wells.
• Identify technologies to increase well
productivity and reduce sub-surface
risk for drilling programmes at
Chinarevskoye.
• Addition of proven reserves from
new upstream fields.
SETTING THE FOUNDATION
FOR FUTURE GROWTH
• Strengthening of corporate
governance with new,
highly experienced Board
• Completion of major bond
restructuring unlocks new
opportunities to chart the next
chapter of our growth
• Strong ESG performance focus:
contributing to energy security
and transition to cleaner energy
MANAGING OUR LIQUIDITY
• We are structurally addressing
our cost base and building a
cost-conscious culture to support
our growth ambitions, improve
our balance sheet, offset
inflationary pressures, and
thereafter gear our business
to deliver operating leverage
consistently
• Cash flow growth through
disciplined capital and cost
management
• We remain confident in our
long-term growth strategy, while
broadening our opportunities
with investments in future growth
best-in-class facilities and
continuous improvement of
our portfolio in the industry
• We have developed multiple
strategies to commercialise the
spare capacity in our world-class
gas processing facilities
• Well-positioned to become a
major third-party gas processor
• Advance ongoing discussions
with third parties interested in
supplying raw gas to take
advantage of the Group’s
gas processing capacity.
• Complete EPCI scope for
the UOG midstream tie-back.
• Appraise additional upstream
assets to strengthen Group's
hydrocarbon resource base.
• Ensure the safety of
employees, contractors
and the environment.
• Continue adherence
to “Golden Rules”.
• Further improve ESG Risk
rating (Sustainalytics scoring).
• Continue to challenge costs
whilst pivoting towards
growth and transitioning into
a multi-asset energy
company.
• Evaluate all sales routes for
sustainability and profitability.
rigless activities as well as
other technologies to slow
existing production decline.
• Complete subsurface studies
to allow resumption of
low-risk drilling campaign.
• Complete field development
feasibility studies of newly
acquired upstream assets.
See KPIs section on page 26–27
See Risk Management section on pages 38–39
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 21
Strategic report Stakeholder engagement
GRI 2-29
Understanding our stakeholders
Key stakeholders
Why we engage
How we engage
Regular engagement
ensures we operate in a
balanced and responsible
way, both in the short and
longer term. We engage
by sharing information
about our activities and
discussing with
stakeholders their
interests and concerns.
Understanding our
stakeholders and their
views is integral to the
successful delivery of our
corporate objectives.
GRI 203-2
Section 172(1)
statement
The Directors are fully aware of their
responsibilities to promote the success
of the Company in accordance with
section 172 of the Companies Act
and to have regard for the interests of
the Company’s employees and other
stakeholders, including the impact of the
Company’s activities on the community
and the environment, when making
decisions at Board level. The Directors,
acting in good faith, consider what is
most likely to promote the success of the
Company for the benefit of its members
as a whole.
Read more about our governance
on pages 88–127.
Read more about delivering our
responsible business practices
on pages 54–87.
e
c
r
o
f
k
r
o
W
s
r
o
t
s
e
v
n
I
s
e
i
t
i
n
u
m
m
o
c
l
a
c
o
L
d
n
a
s
r
e
i
l
p
p
u
S
s
r
o
t
c
a
r
t
n
o
c
d
n
a
s
t
n
e
m
n
r
e
v
o
G
s
r
o
t
a
u
g
e
r
l
22 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
The Group had a workforce
of 566 full-time employees at
31 December 2022, the majority
based in Kazakhstan and of whom
92% were Kazakhstan nationals.
Investors and bondholders have
provided some of the financing
required for the construction of
the Group’s infrastructure.
Nostrum co-exists with diverse
communities in Kazakhstan, and
we try to strengthen community
engagement and promote
long-term development in the
areas immediately surrounding
our operations.
We are committed to building
sustainable relationships with
our suppliers, contractors
and customers.
Governments and regulators set
the framework within which we
operate and changes to policies,
regulations, legislation and
personnel can have major
impacts on the Group’s business.
• The physical and mental wellbeing
• Increased interactions between management and the workforce including cooperation meetings and
of our employees is essential to
the continued safe operation of
our Group.
town hall events.
1 January 2022.
• Annual wage indexation to help alleviate effects of inflation including indexation with effect from
• Shareholders and bondholders have
• In February 2023 Nostrum completed the implementation of the restructuring after obtaining all required
seen their investment in Nostrum
reduce in recent years as a result
of the disappointing results from
successive drilling programmes.
Engagement with our stakeholders,
including minority shareholders, is
crucial for their understanding of
Nostrum’s plans to monetise its
infrastructure.
• In addition, further financing will
be required if Nostrum is to be
successful in those plans.
licenses and approvals. As a result, US$1.125bn of existing notes have been replaced with US250m Senior
Secured and US$300m Senior Unsecured notes due in 2026. The remaining portion of existing notes were
converted into the Company’s equity and the existing ordinary shareholders were diluted to 11.11%, subject
to further dilution if the warrants held by existing noteholders are exercised.
• Regular update and disclosure around results including conference calls and press releases as and when required.
• Financial reports and extensive other shareholder information, including Russian translations of all press releases,
• Our Annual General Meeting provides an opportunity for all shareholders, including minority shareholders,
• In March 2023, Nostrum’s Board and senior management team held a Capital Markets Day in London to update
investors and shareholders on the strategy and the Company’s performance following the completion of the
are available on our website.
to ask questions of the Board.
restructuring.
• To successfully co-exist with the
Throughout 2022, the Company actively interacted with the local community. During 2022, sponsorship
communities within which Nostrum
and charitable assistance was provided to various public associations and local communities.
operates, we need to understand
what is important to them and how
we are able to contribute.
The Company’s support in 2022 is evidenced by the following:
• Partial financing of the repair of secondary schools in settlements near the infrastructure of Zhaikmunai.
• Purchase of school supplies for children from low-income families through the nationwide charity event
• Financing of socially significant events on the territories of the Company’s activities.
• Organizing a New Year’s dinner for 25 high-school students from the village of Yanvarcevo including the
"Road to School".
provision of transportation.
• Sponsoring the participation of talented children in Republican sports competitions.
• Financial support to the specialized children's preschool institutions for procurement of healthcare facilities
and equipment and children in need of medical treatment.
• Allocation of funds to support consumers through the reduction of hydrocarbon gas retail prices.
• Providing support on an as-needed basis to the region we operate in, such as lending necessary equipment
in emergency situations in rural districts on occasions of extreme snow or infrastructure accidents and also
providing transportation to residents to medical institutions or to enable them to vote in elections.
• Our suppliers must meet high safety,
• Where commercially attractive, contracts were extended ensuring continuation of relationships and building
legal and ethical standards.
further on raising HSE and operating standards.
• We recognise our role as a leading
• In some cases, contract scopes were split to maintain relationships with the service providers, in particular
contributor to the local and national
in relation to new construction projects.
economy, therefore we continue to
engage local suppliers to meet our
operating needs.
• A number of the Board’s decisions
• Formal and informal discussions are held on a regular basis with local and national government, regulatory
require careful consideration of
governmental and/or regulatory
and tax officials and ministers across a variety of levels within Nostrum. In this way we can be aware of and
responsive to proposed changes in legislation or the interpretation of existing laws and regulations.
issues.
• We pay substantial amounts of
taxes and social contributions.
• With the completion of restructuring in early 2023, the Company is now well-positioned to move expeditiously
to unlock the full potential and value of its existing world-class gas processing infrastructure, acting in the best
interest of our investors and other stakeholders, whilst strengthening the energy security of the region.
Regular engagement
ensures we operate in a
balanced and responsible
way, both in the short and
longer term. We engage
by sharing information
about our activities and
discussing with
stakeholders their
interests and concerns.
Understanding our
stakeholders and their
views is integral to the
successful delivery of our
corporate objectives.
Section 172(1)
GRI 203-2
statement
The Directors are fully aware of their
responsibilities to promote the success
of the Company in accordance with
section 172 of the Companies Act
and to have regard for the interests of
the Company’s employees and other
stakeholders, including the impact of the
Company’s activities on the community
and the environment, when making
decisions at Board level. The Directors,
acting in good faith, consider what is
most likely to promote the success of the
Company for the benefit of its members
as a whole.
Read more about our governance
on pages 88–127.
Read more about delivering our
responsible business practices
on pages 54–87.
e
c
r
o
f
k
r
o
W
s
r
o
t
s
e
v
n
I
s
e
i
t
i
n
u
m
m
o
c
l
a
c
o
L
d
n
a
s
r
e
i
l
p
p
u
S
s
r
o
t
c
a
r
t
n
o
c
d
n
a
s
t
n
e
m
n
r
e
v
o
G
s
r
o
t
a
l
u
g
e
r
The Group had a workforce
of 566 full-time employees at
31 December 2022, the majority
based in Kazakhstan and of whom
92% were Kazakhstan nationals.
Investors and bondholders have
provided some of the financing
required for the construction of
the Group’s infrastructure.
Nostrum co-exists with diverse
communities in Kazakhstan, and
we try to strengthen community
engagement and promote
long-term development in the
areas immediately surrounding
our operations.
We are committed to building
sustainable relationships with
our suppliers, contractors
and customers.
Governments and regulators set
the framework within which we
operate and changes to policies,
regulations, legislation and
personnel can have major
impacts on the Group’s business.
Key stakeholders
Why we engage
How we engage
• The physical and mental wellbeing
of our employees is essential to
the continued safe operation of
our Group.
• Increased interactions between management and the workforce including cooperation meetings and
town hall events.
• Annual wage indexation to help alleviate effects of inflation including indexation with effect from
1 January 2022.
• Shareholders and bondholders have
seen their investment in Nostrum
reduce in recent years as a result
of the disappointing results from
successive drilling programmes.
Engagement with our stakeholders,
including minority shareholders, is
crucial for their understanding of
Nostrum’s plans to monetise its
infrastructure.
• In addition, further financing will
be required if Nostrum is to be
successful in those plans.
• To successfully co-exist with the
communities within which Nostrum
operates, we need to understand
what is important to them and how
we are able to contribute.
• In February 2023 Nostrum completed the implementation of the restructuring after obtaining all required
licenses and approvals. As a result, US$1.125bn of existing notes have been replaced with US250m Senior
Secured and US$300m Senior Unsecured notes due in 2026. The remaining portion of existing notes were
converted into the Company’s equity and the existing ordinary shareholders were diluted to 11.11%, subject
to further dilution if the warrants held by existing noteholders are exercised.
• Regular update and disclosure around results including conference calls and press releases as and when required.
• Financial reports and extensive other shareholder information, including Russian translations of all press releases,
are available on our website.
• Our Annual General Meeting provides an opportunity for all shareholders, including minority shareholders,
to ask questions of the Board.
• In March 2023, Nostrum’s Board and senior management team held a Capital Markets Day in London to update
investors and shareholders on the strategy and the Company’s performance following the completion of the
restructuring.
Throughout 2022, the Company actively interacted with the local community. During 2022, sponsorship
and charitable assistance was provided to various public associations and local communities.
The Company’s support in 2022 is evidenced by the following:
• Partial financing of the repair of secondary schools in settlements near the infrastructure of Zhaikmunai.
• Purchase of school supplies for children from low-income families through the nationwide charity event
"Road to School".
• Financing of socially significant events on the territories of the Company’s activities.
• Organizing a New Year’s dinner for 25 high-school students from the village of Yanvarcevo including the
provision of transportation.
• Sponsoring the participation of talented children in Republican sports competitions.
• Financial support to the specialized children's preschool institutions for procurement of healthcare facilities
and equipment and children in need of medical treatment.
• Allocation of funds to support consumers through the reduction of hydrocarbon gas retail prices.
• Providing support on an as-needed basis to the region we operate in, such as lending necessary equipment
in emergency situations in rural districts on occasions of extreme snow or infrastructure accidents and also
providing transportation to residents to medical institutions or to enable them to vote in elections.
• Our suppliers must meet high safety,
• Where commercially attractive, contracts were extended ensuring continuation of relationships and building
legal and ethical standards.
further on raising HSE and operating standards.
• We recognise our role as a leading
• In some cases, contract scopes were split to maintain relationships with the service providers, in particular
contributor to the local and national
economy, therefore we continue to
engage local suppliers to meet our
operating needs.
in relation to new construction projects.
• A number of the Board’s decisions
require careful consideration of
governmental and/or regulatory
issues.
• We pay substantial amounts of
taxes and social contributions.
• Formal and informal discussions are held on a regular basis with local and national government, regulatory
and tax officials and ministers across a variety of levels within Nostrum. In this way we can be aware of and
responsive to proposed changes in legislation or the interpretation of existing laws and regulations.
• With the completion of restructuring in early 2023, the Company is now well-positioned to move expeditiously
to unlock the full potential and value of its existing world-class gas processing infrastructure, acting in the best
interest of our investors and other stakeholders, whilst strengthening the energy security of the region.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 23
Strategic report
Business model
GRI 2-6
Our value proposition
Key strengths
What we do
Value we create
We seek to develop
energy resources in
north-western Kazakhstan
through monetising the
spare capacity of our gas
treatment facility to deliver
value to our stakeholders.
Our purpose
To unlock the value of our full
potential for all our stakeholders
through securing our business by
working as a well-integrated team
across all disciplines.
Our vision
To contribute materially to the total
marketable commercial gas potential
and its affordability in Kazakhstan
whilst strengthening a cleaner
energy mix.
Our values
We are trustworthy and reliable, take
our corporate, social and ecological
responsibilities seriously, and are
dedicated to the health, safety and
wellbeing of our employees.
Right place, right time
Well located to develop regional resources. Multiple
transportation routes to market and full control of liquid
transportation logistics.
Nostrum’s existing 4.2 bcma dry gas processing infrastructure
is a gamechanger to participate in Kazakhstan's transition to a
cleaner energy strategy and to strengthen its energy security.
A mixed-asset energy company
Own and potential third-party sources of upstream gas fields
with midstream solutions
Low operating costs
Operations streamlined in 2022 and costs reduced.
High-quality local input
A significant number of our contractors and suppliers are
local Kazakhstan entities, meaning that we support the local
economy. This also means that we are well positioned to
maintain operations if access to Kazakhstan is restricted.
Experienced Board of Directors and
Senior Management Team
Nostrum’s BoD and Senior Management Team is seasoned,
close-knit and well-integrated across critical disciplines, with
proven skills in project execution and production operations.
Responsible operations
Safety is a personal and shared responsibility. Everybody
working at or visiting our facilities has a right to return home
safely and to perform their duties under safe working
conditions.
24 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Kazakhstan's Energy Sector
Nostrum is a major supplier of commercial processed
gas in Western Kazakhstan for domestic and export
markets. Aiming to be the preferred partner of choice
for handling and processing third-party gas in Western
We are one of the leading employers in north-western
Kazakhstan, and we hold a valuable key to unlocking
future development of otherwise stranded natural
Kazakhstan.
Workforce
resources.
Investors
In February 2023, Nostrum completed the
implementation of the restructuring after obtaining all
required licenses and approvals. As a result,
US$1.125bn of existing notes have been replaced with
US250m Senior Secured and US$300m Senior
Unsecured notes due in 2026. The remaining portion of
existing notes were converted into the Company’s
equity and the existing ordinary shareholders were
diluted to 11.11%, subject to further dilution if the
warrants held by existing noteholders are exercised.
Local communities
We are a proud community partner and strive to foster
a culture of openness and engagement, offering social
and financial support to promote the wellbeing
of local residents.
Suppliers, contractors
and customers
Deliver on our production and project plans. Constant
communication with our key customers and suppliers.
Governments and regulators
We paid US$31.9m of tax in 2022 to governments.
Our gas process infrastructure with significant available
ullage, located only about 100 km north, offers a
compelling value proposition to both RoK and KPO,
especially as an alternative to increasing supplies to or
from Russia.
Please see our website for more information
at www.nostrumoilandgas.com
We seek to develop
energy resources in
north-western Kazakhstan
through monetising the
spare capacity of our gas
treatment facility to deliver
value to our stakeholders.
Our purpose
To unlock the value of our full
potential for all our stakeholders
through securing our business by
working as a well-integrated team
across all disciplines.
Our vision
To contribute materially to the total
marketable commercial gas potential
and its affordability in Kazakhstan
whilst strengthening a cleaner
energy mix.
Our values
We are trustworthy and reliable, take
our corporate, social and ecological
responsibilities seriously, and are
dedicated to the health, safety and
wellbeing of our employees.
Key strengths
What we do
Value we create
Gas
Oil
Third-party
hydrocarbons
Gas condensate wells
Crude oil wells
Power
generation
Gas treatment
facilities (GTF)
Associated
gas
Oil treatment
facility (OTF)
Liquefied
petroleum
gas (LPG)
Dry gas Stabilised
condensate
Crude oil
Final
destination
Final
destination
Kazakhstan's Energy Sector
Nostrum is a major supplier of commercial processed
gas in Western Kazakhstan for domestic and export
markets. Aiming to be the preferred partner of choice
for handling and processing third-party gas in Western
Kazakhstan.
Workforce
We are one of the leading employers in north-western
Kazakhstan, and we hold a valuable key to unlocking
future development of otherwise stranded natural
resources.
Investors
In February 2023, Nostrum completed the
implementation of the restructuring after obtaining all
required licenses and approvals. As a result,
US$1.125bn of existing notes have been replaced with
US250m Senior Secured and US$300m Senior
Unsecured notes due in 2026. The remaining portion of
existing notes were converted into the Company’s
equity and the existing ordinary shareholders were
diluted to 11.11%, subject to further dilution if the
warrants held by existing noteholders are exercised.
Local communities
We are a proud community partner and strive to foster
a culture of openness and engagement, offering social
and financial support to promote the wellbeing
of local residents.
Suppliers, contractors
and customers
Deliver on our production and project plans. Constant
communication with our key customers and suppliers.
Governments and regulators
We paid US$31.9m of tax in 2022 to governments.
Our gas process infrastructure with significant available
ullage, located only about 100 km north, offers a
compelling value proposition to both RoK and KPO,
especially as an alternative to increasing supplies to or
from Russia.
Please see our website for more information
at www.nostrumoilandgas.com
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 25
Strategic report
Key performance indicators
Tight financial discipline and
responsible, safe operations
Financial KPIs
Whilst Nostrum has successfully
built infrastructure and
produced over 100 mmboe
from the Chinarevskoye field,
it has incurred substantial debt
and faces declining production
from its producing field. In 2023
the Group has restructured its
debt and reinforced its tight
financial discipline to maintain
liquidity and safeguard our
core business.
CASH AT THE YEAR END
OPERATING COSTS
US$233.6m
US$/boe6.47
233.6
165.2
2022
2021
2020
2019
2018
78.6
93.9
121.8
2022
2021
2020
2019
2018
6.47
5.13
3.91
3.98
4.37
G&A COSTS
SELLING AND TRANSPORTATION COSTS
US$/boe2.47
US$/boe4.36
2022
2021
2020
2019
2018
2.47
2022
4.36
1.92
1.72
1.86
1.78
2021
2020
2019
2018
3.84
3.57
4.25
4.64
26 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Non-financial KPIs
Performing responsibly and
safely is integral to our strategy
and to the sustainability of our
business. We believe that long-
term value comes from seeing
success as a part of a bigger
picture, encompassing people
and the environment. We have
set ourselves specific non-
financial KPIs to track our
progress, as we believe this to
be the best way to monitor our
achievements in relation to
environmental, social and
governance matters. In 2022,
Nostrum ESG KPIs were:
• Reduce GHG emissions
with 5% of 2021 actual
CO2 equivalent level.
• HSE KPIs:
•
Improvement of Refinitiv
ESG assessment score to
55/100 by December 31,
2022. Sliding scale.
• Achievement of the
approved 2022 HSE Plan
(provided that there have
been no fatalities).
SALES VOLUMES
HAZARD OBSERVATION CARDS
12,524boepd
2022
12,524
15,330
21,514
26,671
2021
2020
2019
2018
29,516
2018
01
1,746 units
2022
2021
2020
2019
665
216
1,746
1,278
ROAD TRAFFIC INCIDENT FREQUENCY
LOST TIME INJURY FREQUENCY
Zero incidents2
Zero incidents3
2022
0.00
2022
0.00
1.46
2021
2020
2019
2018
0.72
0.72
0.80
2021
2020
2019
2018
0.81
0.84
1.39
1.05
TOTAL GREENHOUSE GAS EMISSIONS
TOTAL RECORDABLE INCIDENT RATE
170ktCO2e
1.56 incidents3
2022
2021
2020
2019
2018
170
187
188
223
255
2022
2021
2020
2019
2018
1.56
2.42
1.39
3.80
2.96
1. Hazard Observation Card initiative introduced in 2019.
2. Per million km driven.
3. Per million hours.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 27
Strategic report ESG overview
GRI 3-1
Ensuring that sustainability
is embedded in all we do
Working responsibly means
taking care of people, the
environment and assets.
We continuously review
our approach to ESG by
engaging with and taking
into account views of our
host governments and
communities, shareholders,
bondholders and our
employees.
We strive to emphasise the cultivation
of a robust and safe workplace for our
employees while operating in a sustainable
and ethical manner for the benefit of the
community, our stakeholders, and the
environment.
Our approach
Environmental, Social and Governance
(ESG) considerations are integrated into
the policies and principles that govern our
business and reflect our commitment to
sustainable growth. To maintain focus on
this important area, we have made ESG one
of the key foundations of our business since
it plays a vital role in our success. As an
independent oil and gas company, we
are increasingly cognisant of stakeholder
interest in the ethos and sustainability for
our business, and we strive for continuous
improvements in all aspects of ESG
performance.
At Nostrum, we are committed:
• to have a positive environmental impact
by doing our part to minimise the
threat that climate change poses
and recognising the importance
of reducing emissions;
• to make ourselves socially responsible
by promoting diversity and equality that
generate value for all stakeholders,
providing a good place to work that
delivers a stimulating experience for
our employees, as well as ample
opportunity to contribute to our
communities and culture.
• to thorough and responsible
governance of our corporate practices
by incorporating our ESG practices into
our business goals on the corporate
and individual level and ensuring
Board oversight of our ESG strategy.
These areas reflect how we are working
as a team to deliver solutions to global
challenges and create lasting value for
our customers, communities, employees,
stakeholders and businesses.
This approach and some of the results are
described below and in the remainder of
this report.
We see our responsibility to participate in
sustainable development not only as a duty
to society but as an opportunity to do well
by doing good. By embracing sustainable
development, we aim to deliver value to our
employees, customers, suppliers, partners,
shareholders and to society as a whole.
The ESG roadmap sets out clear targets
to achieve our sustainable development
ambitions. The roadmap uses metrics to
track our progress toward achieving
our goals.
2022 highlights
Fatalities
Zero
Road traffic
accidents
Zero
Lost time
incidents
Zero
Reduction in
GHG emissions
10%
Employees
566
Our reporting framework
Current ESG rating
Climate
Change
B-
Water
Security
B-
40.5
28 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Material ESG issues GRI 3-2
OCCUPATIONAL
HEALTH AND SAFETY
EMISSIONS
AND WASTES
BRIBERY AND
CORRUPTION
CARBON – PRODUCTS
AND SERVICES
COMMUNITY
RELATIONS
CARBON OWN
OPERATIONS
t
c
a
p
m
i
y
t
i
l
i
i
b
a
n
a
t
s
u
S
HUMAN CAPITAL
LAND USE AND
BIODIVERSITY
RESOURCE USE
CORPORATE
GOVERNANCE
BUSINESS ETHICS
Business impact
Contribution to ESG
Risk Rating
15% and more
5-10%
Less than 5%
Environmental
• Climate change
Social
• Process safety
• GHG and other air emissions
• Road safety
Governance
• Corporate governance
• Governance framework
• Climate disclosures
• Decommissioning
• Hazard Observation Cards
• Independence
• Vessel and Flowline inspection
• Conflict of interest
• Appointment and tenure
• Bribery, corruption and
Whistleblowing
• Anti-facilitation of tax evasion
• Risk management
• Audit & Financial Reporting
We describe Nostrum’s overall
governance framework on pages
88–127. It provides information
on the roles of the Board, its
committees, and the Executive
Committee.
Risk management on pages 38–39
• Waste, water and soil management
programme
• Land Use and Biodiversity
• Energy and resource efficiency
policy and methane emissions
management policy
• Renewable energy use
See pages 70–87, including TCFD
report on pages 79–87
• Emergency response, Civil Protection
Planning and Prevention
• Emergency response and accidents
preparatory activities
• Oil spill prevention
• Alert system for employees and
communities
• Civil defence and emergency prevention
measures
• Strength through diversity
• Employee relations and social guarantees
• Education and training
• Workforce representation
• Human Rights Policy
• Labour practices
• Philanthropy
• Civil duty: Payment to governments
• Economic responsibility: Spend with
local suppliers
• Environmentally friendly: Liquidation
fund contribution
See pages 57–68
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 29
Strategic report
Operational review
GRI 2-6
2022 developments
Production in 2022 was
13,200 boepd, which
represents a 22% decline
compared to 2021, and
consistent with expectations.
As in 2021, no drilling took place in 2022
as Nostrum continued focussing on
managing financial liquidity by lowering
overall costs by concentrating on
production maintenance, workovers
and rigless activities.
Our products
Crude oil
• Density – 0.834g/cm3
• API – 38.2 degrees
• Average sulphur – 0.55%
The rig workover campaign in 2022
consisted of nine interventions on a range
of horizons for oil and gas-condensate
wells. Rigless recompletions, additional
perforations and acid stimulations were
also carried out on a number of oil,
gas-condensate and water-injection wells.
Nostrum provisionally plans to resume
drilling during late 2023 whilst continuing
with workover and well intervention
programmes, utilising one workover
rig and associated equipment.
Supplementary Agreement 19 to the PSA
was registered in January 2023 approving a
2022 Work Programme which assumed no
drilling in 2022. Furthermore, during 2022
an Analysis of the Field Development Plan
(AFDP) for the period of 2023-2024
(including drilling of two wells in 2023)
was developed by Zhaikmunai with a RoK
licensed institute, and reviewed by the RoK
Authorities in November 2022. The AFDP
was approved and will become the basis
for Supplementary Agreement 20, which
is aimed to be registered in 2023.
Stabilised condensate
• Density – 0.755g/cm3
• API – 55.9 degrees
• Average sulphur – <0.06%
• PSA requires at least 15% to be sold domestically with
• 100% exported
remaining 85% exported
• Destinations include the Russian port of
• In 2022, 24.3% was sold domestically and the remaining
Kaliningrad and the Dutch port of Rotterdam
volumes exported in accordance with the PSA, which is in
line with the past few years and expectations (i.e. up to 25%
of crude oil could be supplied to the domestic market)
• Brent and Urals based pricing for pipeline exports
• Brent, Urals and Nafta product-based pricing, negotiated
• Domestic sales at over 60% discount
• Prices negotiated directly with the purchaser
directly with the purchaser
• During 2022, all exported crude oil volumes were sold
• Sent through our own 120 km pipeline from the field site to
through the KazTransOil (KTO) pipeline
our own rail loading terminal in Uralsk
• Crude exports are delivered to the KTO pipeline through
an extension to our own 120 km pipeline from the field site.
From here the crude is delivered via trunk pipelines.
• From here it is loaded onto railcars and sent abroad
CRUDE AND STABILISED CONDENSATE PRODUCTION (BOEPD) AND PRODUCT SPLIT (%)
2022
2021
2020
2019
2018
5,696
6,877
8,476
9,798
43%
40%
38%
34%
11,490
37%
30 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
y
t
i
l
a
u
Q
l
s
e
a
S
g
n
i
c
i
r
P
n
o
i
t
a
t
r
o
p
s
n
a
r
T
As noted in the Reserves section,
extraction of 2P volumes will require
further interventions (side-tracks, new
drilling and workovers) up to 2026.
More workover activities are planned in
the period from 2023 – 2024 with drilling
operations expected to be started again
in Chinarevskoye from H2 2023. However,
execution of the programme to recover
the 2P reserves is dependent on Nostrum
successfully identifying low risk drilling
targets, and to this end seismic and
geological work is ongoing. There is no
guarantee that Nostrum will be able to
achieve such de-risking, which could
have a material impact on Nostrum’s
ability to develop the remaining Proven
and Probable Reserves at Chinarevskoye.
With the main shutdown completed in
2021, no major shutdowns were required
in 2022. The RoK requirement for vessel
inspection was changed in 2022, allowing
external inspections of vessels and
pipelines without the need for shutdown
but the frequency of such inspections
was increased to be performed annually.
Effectively, this means higher costs but the
ability to produce more without the need
for associated shutdowns.
As advance preparation for processing
of future third party feedstock which
is expected to have a higher H2S
concentration, in 2022 Nostrum initiated
modification of the sulphur recovery unit
to enable its future operation both in direct
oxidation process mode (as operated
currently for low H2S content in acid gas)
and in Claus process mode (for higher
H2S content in acid gas). Completion of
these modifications is planned in 2023.
No significant material losses were
attributable to weather and/or electricity
supply issues during 2022. As of
31 December 2022, the Company had 44
production (28 oil and 16 gas condensate)
wells in operation in the Chinarevskoye field.
LPG
Dry gas
• Field-grade quality
• No olefins and low sulphur content
• 100% exported
• 100% sold to NC QazaqGaz
• Destinations include the Russian Black Sea ports, Ukraine
and Poland
• International Mediterranean LPG price Sonatrach for Black
• Price formula agreed until the end of 2024
Sea deliveries
• Argus quotations for specified destinations (Ukraine,
Tajikistan, Belorussia and Poland)
• Loaded onto LPG trucks at the field site and trucked to the
third-party rail loading terminal located in Zhelaevo
• From here, the LPG is loaded onto railcars and sold to third
• Sent through our own 17km pipeline from the field site to
the connection point with the Intergas Central Asia gas
pipeline
parties
• Sold at the connection point
LPG PRODUCTION (BOEPD) AND PRODUCT SPLIT (%)
DRY GAS PRODUCTION (BOEPD) AND PRODUCT SPLIT (%)
2022
2021
2020
2019
2018
1,650
2,065
13%
2022
5,854
2,795
12%
2021
13%
2020
8,090
11,065
3,569
13%
2019
3,865
12%
2018
44%
48%
50%
51%
15,173
15,900
51%
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 31
y
t
i
l
a
u
Q
l
s
e
a
S
g
n
i
c
i
r
P
n
o
i
t
a
t
r
o
p
s
n
a
r
T
Strategic report Operational review
Reserves
The Chinarevskoye field (Chinarevskoye) is
the only field owned by the Group. Its
governing PSA is dated 1997 and the
licence is valid until the end of 2031. Initial
hydrocarbon discoveries at Chinarevskoye
were made during the Soviet era. There
have been 103 wells and side-tracks drilled
under the PSA between 2004 and 2021.
The licence is 100% owned by Zhaikmunai,
the Group’s Kazakhstan operating
company.
Chinarevskoye is a multi-layer structure with
17 reservoirs and 53 compartments spread
over three areas. Commercial hydrocarbons
have been found in the Lower Permian,
Bashkirian, Bobrikovski, Tournaisian,
Frasnian, Mullinski, Ardatovski, and
Biyski-Afoninski reservoirs.
Group management provided an estimate
of the Chinarevskoye Proven, Probable and
Possible reserves as of 31 December 2022,
which was audited by the independent
petroleum engineering and consulting firm
Ryder Scott (RS) and under the guidelines
set forth in the 2018 Petroleum Resources
Management System (SPE-PRMS). The audit
covered volumes of reserves, production
and discounted future net income
estimated by management.
Production and future net income were
derived from a drilling and well intervention
programme to extract the estimated
Proven, Probable and Possible reserves at
a long-term Brent benchmark average oil
price of US$80 for 2023, US$77 for 2024
and US$75 from 2025 onwards. However,
execution of the programme to recover the
2P reserves is dependent on Nostrum
successfully identifying low risk drilling
targets, and to this end seismic and
geological work is ongoing, there is no
guarantee that the Group will be able to
achieve this, which could have a material
impact on the Group’s ability to develop
the remaining Proven and Probable
Reserves at Chinarevskoye.
Total 2P (Proven plus Probable) reserves are
28.3 mmboe as of 31 December 2022, this
represents a reserves replacement ratio of
78% after adjusting for reservoir production
of 4.9 mmboe in 2022. The net reduction in
reserves in the year is due to poorer-than-
expected production from the Biyski-
Afoninski North-East reservoir gas reserves
but being partially offset by better
production associated from other
producing horizons and the 2022 workover
and rigless intervention campaign. The
Proven and Probable reserves volume
requires 17 CAPEX interventions of which
five are rigless, with an additional twelve
OPEX well interventions for production
maintenance (2021: 34.0 mmboe requiring
17 CAPEX interventions).
Management’s estimates of reserves of
31st December 2022 and a comparison
with the reserves of 31st December 2021
are summarised in Table 1.
Table 1 – Nostrum Reserves, mmboe
Total PDP
Total PUD/PDNP
Total 1P
Total Probable
Total 2P
Possible
Total 3P
Note: Barrel of oil equivalent (boe) totals are management estimates using a conversion factor of 5.327 mcf/boe.
2022
19.0
1.2
20.2
8.1
28.3
8.5
36.8
2021
24.8
1.4
26.2
8.1
34.3
9.7
44.0
Change
-5.8
-0.2
-6.0
0
-6.0
-1.2
-7.2
32 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
The Total 1P (Proven) reserves for
Chinarevskoye at December 31st 2022 was
20.2 mmboe or 6.0 mmboe down year-on-
year due to 2022 production and poorer
than expected performance in the
Biyski-Afoninski North-East gas condensate
reservoir which was partially offset by a
positive revision in other reservoirs due to
well performance and successful workovers
and rigless interventions. 1P reserves
volumes are comprised of 19.0 mmboe for
Proven, Developed Producing (PDP) from
44 current wells and 1.2 mmboe for the
Proven, Undeveloped (PUD) category
which assumes the deepening of 1 well, the
sidetracking of another and one workover.
The current Probable Undeveloped case
drilling assumes 7 interventions including
two workover recompletions, side-tracking
of four existing wells, and one new vertical
well in the Bashkirian reservoir. The
Company has suspended all drilling on the
field since 2020 and has since executed a
targeted well workover and rigless well
intervention programme to offset some of
the field production decline.
In 2023, Nostrum plans to continue this
workover and well intervention programme
by targeting a limited number of reserves
development wells along with production
maintenance, and re-commence the
drilling programme later in the year. This
programme, together with the 44 existing
producers, cover the estimated 2P reserves
as at 31 December 2022. It should also be
noted that there has been some decrease
in volumes in undeveloped reservoirs
associated with delays in the re-start of
the drilling campaign.
Possible reserves of 8.5 mmboe as at
31 December 2022 (2021: 9.7 mmboe) are
attributed to lower declines than the Proven
and Probable cases in existing producers
and 11 well interventions, the difference
to the previous year, in addition to the
production, reflects the 2022 workover
results i.e., one well upgraded to PDP
and one removed (failure in Ch-218).
Table 2 shows the breakdown of each
reserves category by products.
Table 2 – Nostrum Reserves, by product and by reserves category
Fluid
Oil/condensate
Plant products (LPG)
Gas (after shrink)
Gas (after shrink)
Total
Unit
barrels
barrels
mmcf
boe
boe
Proven
Producing
(PDP)
8,348,769
2,167,716
45,107
Proven
Non-Producing &
Undeveloped
(PDNP & PUD)
Total Proven
(1P)
Probable
(P2)
Total Proven
plus Probable
(2P)
Possible
(P3)
Total Proven,
Probable and
Possible (3P)
904,886
9,253,655
3,945,225
13,198,880
4,434,743
17,633,623
87,635
2,255,351
791,036
3,046,387
818,083
3,864,470
1,225
46,332
18,132
64,464
17,106
81,570
8,449,096
249,275
8,698,371
3,404,084
12,102,455
3,211,380
15,313,835
18,965,581
1,241,796 20,207,377
8,140,345 28,347,722
8,464,216 36,811,928
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 33
Strategic report Operational review
Reserves continued
Reserves by reservoir
The breakdown by reservoir is given in Table 3. A summary and comparison of the workover and drilling programme by reservoir is given
in Table 4.
Table 3 1 – Comparison of reserves by reservoir 2022 versus 2021
Reservoir
Biyski/Afoninski NE
Tournaisian NE
Frasnian N
Ardatovski NE
Filippovski
Tournaisian South
Mullinski NE
Bashkirian NE & W
Tournaisian West
Mullinski South
Bobrikovski South
Ardatovski S
Mullinski North
Total
31 December 2022
31 December 2021
Change
Proven,
mmboe
Probable,
mmboe
Possible,
mmboe
3P,
mmboe
Proven,
mmboe
Probable,
mmboe
Possible,
mmboe
3P,
mmboe
Proven,
mmboe
Probable,
mmboe
Possible,
mmboe
3P,
mmboe
7.9
7.3
0.6
2.0
0.2
0.3
0.6
0.6
0.3
0.0
0.1
0.2
0.0
20.2
2.0
2.5
1.0
1.8
0.2
0.1
0.0
0.2
0.1
0.0
0.1
0.0
0.0
8.1
1.8
1.4
2.6
0.1
0.8
0.7
0.4
0.1
0.1
0.4
0.0
0.0
0.0
11.7
11.2
4.2
4.0
1.2
1.1
1.0
0.9
0.5
0.4
0.3
0.2
0.0
11.5
8.9
0.4
2.5
0.3
0.7
0.7
0.5
0.3
0.0
0.1
0.3
0.0
8.5
36.8
26.2
1.9
3.1
0.4
1.8
0.2
0.3
0.1
0.3
0.0
0.0
0.0
0.0
0.0
8.1
1.1
1.6
2.8
0.3
0.9
0.9
1.1
0.1
0.2
0.7
0.0
0.0
0.0
9.7
14.5
13.6
3.5
4.6
1.4
1.8
1.8
0.9
0.5
0.7
0.1
0.4
0.0
44.0
-3.6
-1.6
0.2
-0.5
-0.1
-0.4
-0.1
0.1
0.0
0.0
0.0
-0.1
0.0
-6.0
0.1
-0.6
0.6
0.0
0.0
-0.2
-0.1
-0.1
0.1
0.0
0.1
0.0
0.0
0.0
0.7
-0.2
-0.2
-0.2
-0.1
-0.2
-0.7
0.0
-0.1
-0.3
0.0
0.0
0.0
-1.2
-2.8
-2.4
0.7
-0.6
-0.2
-0.7
-0.8
0.0
0.0
-0.3
0.2
-0.2
0.0
-7.2
1. Some differences due to rounding.
Biyski-Afoninski North-East
2P reserves are estimated at 9.9 mmboe,
down by 3.5 mmboe compared to
2021-year end (13.4 mmboe) which includes
2.3 mmboe of production in 2022 and a 1.2
mmboe negative revision due to observed
gas performance in 2022.
Gas lift was introduced into 2 more wells in
2022 to maintain production with
increasing water-gas ratio and a further 5
wells are planned in 2023-2024,
predominantly through low cost rigless
interventions and using the planned
expanded Gas lift system due for
commissioning later in 2023.
Probable and Possible Developed volumes
are attributed to existing producing wells,
with lower declines interpreted
respectively. No new drilling is planned in
this reservoir. The 2019 Schlumberger study
concluded that the potential of further infill
drilling is limited, which corresponds with
management’s opinion.
Tournaisian North-East,
West and South
The Tournaisian North-East has a total 2P of
9.8 mmboe at 2022-year end, representing
a 2.2 mmboe decline year-on year,
including 1.5 mmboe production and a
0.7 mmboe negative revision to reflect
recent well performance.
Proven Undeveloped volumes are
associated with one deepening and one
sidetrack well in 2023-2024 whilst Probable
Undeveloped Reserves are associated with
one sidetrack producer, one waterflood
sidetrack and two workover recompletions
for the extension of the water-flood all in
the period of 2023-2025. The Possible
Undeveloped workover in well Ch-218 was
a failure and removed from the reserves.
Production maintenance workovers are
planned in the reservoir in the years up to
and including 2027.
There was a small positive revision in the
Tournaisian West 2P to 0.4 mmboe from 0.3
mmboe year-on-year despite 0.05 mmboe
production, this was due to the successful
workover of the Possible Undeveloped well
Ch-204, converting to PDP.
In the Tournaisian South, there are limited
PDP volumes associated with the three
remaining producers and Possible reserves
associated with one new well currently
planned for 2026.
Ardatovski North-East and South
Proven Producing volumes are associated
with three current producers. One Probable
Undeveloped side-track well is planned for
the Ardatovski North-East reservoir in 2025.
No further reserves development is
planned for the Ardatovski South reservoir,
beyond the current producer.
34 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Frasnian North
2P reserves are estimated at 1.64 mmboe at
year end 2022, an increase of 0.88 mmboe
compared to 2021-year end (0.74 mmboe)
despite 0.21 mmboe of production in 2022;
this reflects the better than expected well
performance of the existing producer
Ch-40_1 and Probable Undeveloped
reserves being attributed to well Ch-
41_1_1, expected to be online in 2024,
based on the well performance and review
of the seismic and geological data.
The development plan still foresees three
additional Possible Undeveloped side-
tracks planned for 2024-2025.
Mullinski North-East,
North and South
Proven Developed Producing reserves
remain for three wells, two in the North-
East and one in the North respectively.
Proven Undeveloped volumes are
attributed to one new well in the North-East
block and planned for drilling in 2024.
Two Possible Undeveloped category well
locations have been identified in the
North-East block and are side-tracks of
existing wells, while one new Possible well
is planned for drilling in the Mullinski South.
All three wells are planned for 2024-2026.
Bashkirian North-East & West
PDP reserves remain for two wells
produced via Electric Submersible Pumps
(ESPs). One Probable Undeveloped new
vertical well is proposed in the Bashkirian
North-East from 2025.
Filippovski
Five low-cost workover recompletions
(one Probable and four Possible) have
been identified for the Filippovski reservoir.
These are planned, subject to further
technical and economic evaluation, to be
carried out in 2024, i.e., a delay of about
1 year compared to the previous report.
Bobrikovski South
PUD volumes are assigned to well
Ch-31 after a successful 2022 workover
recompletion when Gas lift was installed
(previously PUD).
Table 4 Summary of the 31 December 2022 well programme supporting the reserves estimates compared
to the previous year (excluding rigless interventions)
Reservoir
Biyski/Afoninski NE
Tournaisian NE – oil
Tournaisian NE – WI
Tournaisian South
Tournaisian West
Mullinski South
Mullinski North
Mullinski NE
Bashkirian NE & W
Ardatovski NE
Ardatovski S
Frasnian N
Filippovski
Bobrikovski South
Appraisal
Total
31 December 2022
31 December 2021
Proven
wells
Probable
wells
Possible
wells
Total
Proven
wells
Probable
wells
Possible
wells
Appraisal
Total
1
2
−
−
−
−
−
1
−
−
−
−
−
−
−
4
−
1
3
−
−
−
−
−
1
1
−
1
1
−
−
8
1
3
3
1
−
1
−
3
1
1
−
4
5
−
−
−
−
1
−
1
−
2
−
−
−
3
4
−
−
11
23
1
2
−
−
−
−
−
1
−
−
−
−
−
1
−
5
−
1
3
−
−
−
−
−
1
1
−
−
1
−
−
7
−
1
−
1
1
1
−
2
−
−
−
3
4
−
−
13
−
−
−
−
−
−
−
−
−
−
−
−
−
−
5
5
1
4
3
1
1
1
−
3
1
1
−
3
5
1
5
30
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 35
Strategic report Operational review
Infrastructure GRI 2-6
Demonstrating the value of
our infrastructure
Over the last 17 years, we have built a
world-class infrastructure processing hub
that is currently underutilised but that can
support the production and sale of billions
of cubic meters of gas in north-western
Kazakhstan for years to come.
Oil Treatment Facility
The oil treatment facility (OTF) has a
maximum throughput capacity of 400,000
tonnes per annum. The OTF associated
infrastructure includes a gas-lift facility that
was commissioned in 2015 and a liquid
hydrocarbons pumping station transferring
crude oil and stabilised condensate via the
liquids pipeline to the rail loading terminal.
In 2022, 1.179 mmboe of oil and 0.937
mmboe of condensate was transferred
through the pipeline. Up to 640,000 cubic
meters of recycled lift-gas per day was
compressed and made available to
enhance oil production, with modifications
to the existing system whilst the gas lift
expansion was being realised.
Raw Gas Treatment Facility
The gas treatment facility (GTF) is designed
to treat raw gas from gas condensate
reservoirs (and the associated gas coming
from the OTF) into condensate, LPG and
dry gas with a by-product of granulated
sulphur. The gas treatment facility includes
three gas treatment units (GTU1,2 & 3)
which have the capacity to treat 4.2 billion
cubic metres of raw gas per annum.
Following repair of the turboexpander
module completed at the end of 2021,
in 2022 Nostrum started activities on
turboexpander re-installation and
modification of GTU-3 facility with a
target to enable its operation with a lower
turndown feedstock volume and explore
possibility to utilise additional LPG yield
generated by turboexpander operation.
The completion of these activities is
planned in Q3 2023.
Gas lift system
A gas lift system has been installed to
enhance well production; its current
installed capacity is 23,000 standard
cubic metres per hour with a plan to further
increase to 38,000 standard cubic metres
per hour in Q2 2023 as future demand is
expected to increase as the Chinarevskoye
field matures.
Low-pressure system
A low-pressure system has been installed
to facilitate the reduction of the GTF inlet
pressure from 42 to 10 bar, so as to prolong
the run-life of wells, primarily gas-
condensate. Installed capacity of gas
compression is 48,000 standard cubic
metres per hour in total with 19 wells
flowing through the low-pressure system
as of the end of 2022.
36 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Power generation plant
The gas-fired power generation plant
is linked to the GTF and has an output
capacity of 26 megawatts electrical
power. The generation capacity of the
plant is sufficient to meet the existing
and maximum need in the future if the
plant is run at its maximum capacity.
Backup generation capacity of up to
15 megawatts is available at the
processing facilities.
Storage facilities
Nostrum has over 35,000 cubic metres
of storage capacity for liquids at its field
site and rail loading terminal.
Gas pipeline
Nostrum has its own 17 km dry gas pipeline
which is linked to the Orenburg-Novopskov
gas pipeline. The pipeline has sufficient
capacity to export the entire GTF maximum
production capacity dry gas volumes.
Liquids pipeline
Nostrum has its own 120 km liquids pipeline
that runs from the field to the Company’s
rail loading terminal near Uralsk. The
pipeline has a maximum annual throughput
capacity of over three million tonnes.
Rail Loading Terminal
Nostrum has its own automated rail loading
terminal at Beles, located near the city of
Uralsk, that receives all produced crude
oil and condensate and has a capacity of
approximately four million tonnes of liquid
hydrocarbons per annum.
KTO pipeline connection
Nostrum has constructed a secondary
crude oil pipeline to enable export sales
from its rail loading terminal via the
Atyrau-Samara export pipeline operated
by KazTransOil (KTO). The connection
to the KTO pipeline has enhanced the
Company’s ability to maximise crude oil
netbacks through the commodity cycle.
Oil
Gas
Crude oil wells
Oil treatment
facility (OTF)
400kt
Oil
Stabilised condensate
Dry gas
LPG
Gas treatment
facilities (GTF)
GTU 1&2
1.7bcm
H2S 2,500ppm
LPG 65%
GTU 3
2.5bcm
H2S 450ppm
LPG 95%
Gas condensate wells
Third-party
hydrocarbons
Storage
5km3
Storage
25km3
Storage
10km3
3km3/d
Water injection
560km3/d
48m3/h
Gas lift
Low-pressure system
41MHw
Power generation
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 37
Strategic report Risk management
Risk management
The Group has a system of internal controls consisting of
its governance framework, segregation of authorities and
duties, various policies and procedures, training and internal
communications as well as monitoring by senior management
and the Board of the planning and decision- making processes.
The risk management system is embedded in these components
of the system of internal controls in order to identify, manage and
report on the relevant risks that may impact achievement of the
Group’s strategic objectives,and ensure compliance with
applicable regulatory requirements.
Based on risk registers, related analysis and
discussions, senior management and the
Board periodically review previously
identified significant risks, update their
likelihood of occurrence and potential
impact, and identify potential new
significant risks emerging as a result of the
changing environment. These significant
risks are discussed in more detail below in
the Principal Risks and Uncertainties
section.
In 2022, the processes related to risk
management and internal control systems
were consistent with the UK Corporate
Governance Code and FRC Guidance on
Risk Management, Internal Control and
Related Financial and Business Reporting
issued in September 2014.
Following the end of 2022, the Board
continues to monitor closely internal
control over financial reporting and the
related party identification and disclosure
processes.
Risk management framework
The Board, supported by the Audit
Committee and senior management, has
ultimate responsibility for risk management
and internal control, including
responsibility for the determination of the
nature and extent of the principal risks it is
willing to take to achieve its strategic
objectives, and for ensuring that an
appropriate risk-awareness culture has
been embedded throughout the Group.
Operational day-to-day risks are inherent in
the various business functions and
processes of the Group. These are
categorised as business function risks and
are identified and managed by the relevant
staff and managers in the course of their
activities to ensure safety, compliance, and
efficiency. The members of the Senior
Management Team have overall
responsibility for managing such business
function risks aggregated at the level of
their functional responsibility, but can
delegate such responsibilities to their direct
reports. At the highest level the identified
risks are aggregated and categorised into
the following categories of principal risks
and uncertainties: strategic, operational,
financial, compliance and other, which are
respectively managed and monitored at
Board level.
Environmental, social and
governance (ESG) matters
ESG matters form an integral part of the
areas covered by the Group’s systems of
risk management and internal controls,
and the Board recognises their significance
and importance. Identified ESG risks
and related responses can be seen
within Operational, Climate Change
and Other risks in the “Principal risks and
uncertainties” disclosure on pages 40–44.
The Board receives appropriate information
for managing such risks. Management is
responsible for ensuring that systems of
risk management and internal control are
in place to effectively manage and monitor
energy risks and other ESG matters. More
detailed disclosure on the established
policies and procedures in these areas
can be found on pages 54–87.
Changes from prior-year risk
assessment
In 2022, the principal risks and uncertainties
managed and monitored by the Board and
senior management included most of the
risks for 2021 and for which the related risk
assessments did not change significantly.
38 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Risk management framework
Strategic goals/KPIs
Reports
Risk universe
Roles and responsibilities (The Three Lines of Defence)
Principal risks
and uncertainties
Board (supported by Audit Committee)
Risks
Senior management team
1st line of defence
2nd line of defence
3rd line of defence
Business function
risks
Heads of
business
sub-functions
Risk management
Compliance, QHSE,
Security, Controlling
Internal audit,
process audits
and investigations
Risk management process
1. Risk identification
2. Risk assessment
3. Risk response (tolerate, treat, transfer, terminate)
4. Resourcing controls
5. Reaction planning
6.
Reporting
and monitoring
7.
Reviewing risk
management
framework
The Board oversees the design and
implementation of systems of risk
management and internal control
and manages and reports on
principal risks.
The Senior Management Team
supports the Board in its oversight
and monitoring role and perform
management and reporting on the
level of Director’s risks.
Heads of business functions, being the
1st line of defence, own and manage
operational risks related to their
respective area of activity.
2nd line of defence has a general
oversight function to ensure that the
risk management practices followed
are effective.
Internal audit, acting as the 3rd line
of defence, provides independent
assurance over the effectiveness of
the systems of risk management
and internal control.
During 2022, the Group did not have a dedicated internal audit function, as was the case for the past few years where the Group has relied
on third party audits and ad-hoc audits/process reviews performed by employees and overseen by management with results reported
into the relevant Board committee. To mitigate this exposure, the Group has identified and strengthened internal processes providing
assurance to management, the Audit Committee and the Board about the effectiveness of systems of internal control and risk
management, such as contracts Board meetings, monthly reports to the Board on operations, liquidity and legal issues and assurance
provided by QHSE and security personnel. The Group planned to hire a dedicated Head of Internal audit in 2022 and had approved
budget for such hire, however due to delay in the restructuring process this has been postponed until 2023.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 39
Strategic report Risk management
Principal risks and uncertainties GRI 205-1
Risk management
Nostrum’s Senior Management Team is pro-actively engaged with key stakeholders
among state authorities to address and resolve any potential issues at early stages.
In addition, the Group endeavours to identify legislative changes at early stages
before their introduction and to the extent possible participate in the relevant
working groups engaged in development of such changes.
To mitigate geopolitical, regional and customer risks, the Group continues
to strengthen customer relationships through establishing long-term off-take
agreements whilst also looking at possibilities to geographically diversify
its customer portfolio.
The Group is currently analysing the impact of sanctions imposed on Russia on
its transportation of crude oil, condensate and LPG via rail or pipeline, and also
assessing alternative routes and destinations as a potential mitigating action,
if needed.
Due to the US, UK and EU sanctions, the senior management and the Board have
also decided that it would be in the best interest of the Group to terminate its
relationships with the Sberbank subsidiary in Kazakhstan. In addition, the Group
is also evaluating and implementing control processes and procedures around
compliance with the sanctions imposed on Russia and Belarus as well as institutions
and individuals specifically identified in those sanctions. These include evaluation
of counterparties and their banks, contract procedures, and liaising with external
legal advisers.
Such actions also include collating and regularly updating lists of all persons/
entities sanctioned in order to ensure Nostrum does not enter into transactions
with any of the persons/entities on these lists.
The Group quarterly revisits the product price assumptions used in its short-term,
medium-term and long-term financial models, and performs stress testing of
such forecasts to fluctuations in product prices and these are monitored by
senior management and the Board.
In early 2020, given the uncertainties caused by a low oil price environment,
the Group took prudent, mitigating actions to protect liquidity. These included
cancelling uncommitted capital expenditures and identifying reductions in
operating costs, general and administrative, and selling and transportation
costs that could be implemented without having a negative impact on production
or operations in the going concern period.
The Group continued these optimisation initiatives throughout 2022 and as a
result is now able to withstand a period of prolonged low oil prices. Also, senior
management constantly monitors the Group’s exposure to foreign currency
exchange rate changes and makes plans for necessary measures.
In previous years, the Group has entered into hedging instruments to mitigate
the volatility of commodity prices. The last such instrument expired in 2018.
In 2022 the Group has produced a draft hedging policy and updated its
relationships with multiple financial institutions which would allow for hedges
to be placed. In light of the favourable commodity pricing environment,
backwardation of the forward oil price curve, cash resources available to
meet its operational and capital requirements for the next fiscal year and other
factors the Board has not taken the decision to enter into any hedges in 2022.
Description of risk
Strategic risks
Geopolitical factors
The Group’s operations are exposed to risks associated with the
political and business environment in Kazakhstan, being the Group’s
sole country of commercial operations, as well as its neighbouring
countries.
In January 2022, following a rise in fuel prices, certain mass
demonstrations and gatherings occurred in various cities across
Kazakhstan. Such political and civil unrest and the occurrence of any
such factors could result in new regulatory requirements that can be
onerous and expensive, and other related changes that could have
a material and adverse effect on the Group’s business, results of
operations, financial condition and prospects.
On the one hand, Nostrum has historically benefited from its
geo-strategic position in the heart of an export corridor between
Russia and markets to the west of the Caspian, but on the other hand,
the Group has been respectively exposed to the risks associated with
the economic and political situation in Russia, being reliant on its
transport routes and ports. Severe sanctions and trade restrictions
imposed by, among others, the US, UK and EU on Russia in March
2022 as a response to Russia’s actions in Ukraine, have increased the
economic and political uncertainty and may have a material adverse
impact on the Group’s business, results of operations, financial
condition and prospects.
Product price volatilities
The Group’s operations and financial performance are exposed
to changes in the market prices for its products driven by external
business and political factors, which are outside the Group’s control.
Oil and gas prices are subject to volatility due to a variety of factors
beyond the Group’s control. Factors affecting crude oil prices include
supply and demand fundamentals, economic outlooks, production
quotas set by OPEC and political events. In recent years, as a result
of factors including weaker outlook for global demand growth
combined with excess supply, oil and gas prices worldwide have
been subject to significant volatility and there can be no assurance
that the recent recovery in oil prices or the recent high gas prices
relative to historical averages will continue for extended periods
of time.
Since the selling price of dry gas is directly dependent on the price
of crude oil price and the price of oil is volatile, the Company could
also face volatility in the price of dry gas, which was over 43% in 2022.
Also, the Group could be compelled by governmental authorities,
purportedly acting based on RoK legislation, to sell its oil,
condensate, LPG and gas domestically at prices determined
by the RoK Government, which could be significantly lower
than prices which the Group could otherwise achieve.
Lower oil and gas prices may reduce the economic viability of
the Group’s operations and proposed operations and materially
adversely affect its business, results of operations, financial condition
and prospects. In particular, the Group’s ability to produce
economically from the Chinarevskoye Field or any prospective
fields will be determined, in large part, by the difference between
the revenue received for its products and the operating costs,
taxation costs, royalties and costs incurred in transporting and
selling those products.
The Group’s strategy and business model are not directly influenced
by any significant risk resulting from Brexit.
40 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Description of risk
Risk management
From the end of 2019, the Board came to the conclusion that diversification of its
sources of feedstock to the processing facilities would provide the Group with an
opportunity to gain from expanding the use of available capacities, technological
resources and human capital, and ultimately benefit from its underutilised
infrastructure.
The Group signed agreements with Ural O&G in 2018 for the purchase of gas and
processing of condensate from the Rozhkovskoye field for a period of four years
with first deliveries planned for Q4 2023.
The Group decided to prepare fully the GTU/3 plant for receiving future gas and
a special project team was assigned. Completion of this scope, including upgrade
of the Sulphur Recovery Unit allowing treatment of different concentrations of H2S,
will be ready before first hydrocarbons of UOG will enter the Chinarevkoye
facilities.
The Group continues to actively engage in discussions with other third parties
interested in supplying raw gas to completely fill its spare processing capacity.
In March 2023, Nostrum agreed to acquire 80% of Positive Invest LLP, which
holds the subsoil use right to the "Stepnoy Leopard Fields" in the West Kazakhstan
region for US$20 million. Management estimates that the Stepnoy Leopard Fields
hold between 50 mmboe and 150 mmboe of recoverable volumes which are
considered contingent resources, with over 20% estimated to be liquids. If the
proposed acquisition completes, Nostrum plans to implement an appraisal
programme in 2023, with the intention of preparing a technical expert's report
which could allow re-classification of certain of the hydrocarbon resources
into reserves.
Also, the Group has a number of additional area-wide opportunities under review
that may serve to strengthen the Group’s upstream and midstream portfolio in the
coming years.
The Group has a department of geologists and reservoir engineers who perform
periodic assessments of its oil and gas reserves in accordance with international
standards on reserve estimations and prepare production forecasting using
advanced exploration risk and resource assessment systems. The results of the
assessments are audited by the Group’s independent reserves consultant,
Ryder Scott.
For well workover activities, the Group engages skilled personnel and leading
service suppliers, as well as employing internationally accredited operations
and cost monitoring systems, based on which management oversees the work
progress. The Group continued its well workover and intervention programme in
2022 to minimise the production decline and this will be continued in 2023 as the
field gets older and equipment requiring more regular maintenance. In addition,
a start was made with the gas lift expansion project, requiring an additional
compressor to increase lift gas availability for both oil and gas condensate wells.
Due to geopolitical reasons, some delays in manufacturing and logistics will
result that the scope will be completed in the second quarter of 2023.
Maintenance of wells and surface facilities is scheduled in advance, in accordance
with technical requirements, and all necessary preparations are performed in
a timely manner ensuring a high quality of work. In addition, the Group has
emergency response and disaster recovery plans in place and periodically
conducts necessary training and testing procedures.
Filling the spare gas processing capacity
The activities in the Chinarevskoye oil and gas condensate field are
currently the Group’s sole source of revenue. The field is a mature
declining asset with a proved and probable reserves base at a level
that will produce volumes of hydrocarbons including raw gas
sufficient to utilise the less than 15 percent of capacity available
at the Group’s gas treatment facilities, which have a combined
4.2 billion cubic meters capacity per annum.
The Company is therefore reliant on acquiring and developing
nearby assets with significant resource potential and/or processing
third party gas through its processing facilities to continue to produce
free cash flows and build sufficient cash reserves to repay future
indebtedness. The ability to negotiate and secure these strategic
acquisitions is highly uncertain and the ability to fund the development
of such projects, the costs of which may be substantial and require
external funding, may not materialise.
Oil and gas exploration and production activities are capital intensive
and subject to financing limitations and inherent uncertainty in their
outcome. Further, significant expenditure is required to establish
the extent of oil and gas reserves through seismic re-processing
and mapping, other surveys as well as drilling. Therefore, there can
be no certainty that further commercial quantities of oil and gas will
be discovered at Chinarevskoye or acquired by the Group to enable
it to utilise the spare capacity in its treatment facilities.
Operational risks
Oil and gas reserves and production
Estimating the value and quantity of economically recoverable oil and
natural gas reserves and resources, and consequently the rates of
production, necessarily depend upon a number of variables and
assumptions, such as ultimate reserves recovery, interpretation of
geological and geophysical data, marketability of oil and gas, future
product prices, operating costs, development and production costs
and workover and remedial costs, all of which may vary from actual
results, which would affect the Group’s financial performance and
achievement of strategic objectives. The reclassifications of
significant amounts of reserves from 2P to contingent resources
in 2020-2021 were the result of crystallising of such risks.
Even if the Group is able to discover or acquire commercial quantities
of oil and gas in the future, there can be no assurance that these will
be commercially developed. Appraisal and development activities
involving the drilling of wells across a field may be unpredictable and
may not result in the outcome planned, targeted or predicted, as only
by extensive testing can the properties of an entire field be more fully
understood.
Completion of the Group’s development plans does not ensure
a profit on the investment or recovery of drilling, completion and
operating costs, as various field operating conditions may adversely
affect production from successful wells including delays in obtaining
governmental approvals, shut ins of connected wells, other unusual
or unexpected geological, oceanographic and mechanical
conditions.
Finally, given that the Chinarevskoye reservoir is a mature and
declining asset, the Group has been actively performing well
workover and interventions to reduce the rate of decline of the
reservoirs. Such activities, as well as construction, operation
and maintenance of surface facilities, are subject to various risks,
including the availability of adequate services, technologies and
expertise, which may adversely affect the fulfilment of the Group’s
strategic objectives.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 41
Strategic report Risk management
Principal risks and uncertainties continued
Description of risk
Cybersecurity risks
Nostrum may be vulnerable to the unauthorised or inappropriate
access to data, or the unlawful use, disclosure, disruption, deletion,
corruption, modification, inspection, recording, or devaluation of
information. Such cybersecurity failures may significantly adversely
affect the Group’s operations and financial results through
disruptions, shutdowns and delays in production and other activities.
Risk management
The Group uses a number of dashboards such as MS Secure and MS Compliance,
which monitor security and compliance, and also help to identify areas where
security might be enhanced. At the start of employment each new employee is
briefed on the Group’s Information Security Policy and signs a confidentiality
agreement. All mailboxes and data are placed on Microsoft servers with
appropriate levels of protection. Passwords have complexity requirement and
double authorisation has been introduced for most users. All data traffic, servers
and computers are subject to scanning and protection by anti-virus software.
Physical access to data storages is restricted to authorised personnel.
Environmental, Social and Governance risks
Risks of incidents, including risk of explosion
The Group’s operations are subject to hazards and risks common
in its industry, including encountering unusual or unexpected rock
formations or geological pressures, fires, explosions or power
shortages, equipment failures or accidents, premature declines
in reservoirs, blowouts, uncontrollable flows of oil, gas or well fluids,
or water cut levels, pollution and other environmental risks.
The Group’s QHSE policies are periodically revised to ensure compliance with
changes and new requirements in this area. Periodic training on the requirements
of policies and regulations is held for employees. Nostrum’s operations are based
on the five QHSE pillars: HSE leadership; rigorous incident investigation; process
safety-critical elements identified and maintained; contractor HSE management;
and environment and climate change.
Failure to prevent or adequately mitigate these hazards can
have a broad range of results, including, but not limited to, injury
of employees or local residents, a partial or total shutdown of
operations, significant damage to equipment, suspension or
withdrawal of licences and relevant sanctions. Any of the above
could materially and adversely affect the Group’s business, results
of operations, financial condition and prospects.
It should also be noted that the legal framework for operational safety
is not yet fully developed in Kazakhstan and given the changing
nature of environmental regulations, there is a risk that the Group
will not be in full compliance with all such regulations at all times.
Governance risks
By virtue of being a dual-listed entity, Nostrum must adhere to both
UK and Republic of Kazakhstan corporate governance and reporting
requirements. Governance risk factors are usually related to board
composition and structure, executive remuneration, internal controls
and risk management framework, corporate policies and procedures,
risks of corruption and bribery, and others.
Lack of adequate controls and policies, or a failure of those to operate
effectively, could lead to loss of company resources, non-compliance
with regulations, and respective significant fines, penalties, as well as
reputational damage.
Monthly QHSE reports are issued to communicate HSE performance.
Management KPIs include lost time injury frequency, road traffic injury frequency,
total recordable injury frequency and numbers of Hazard Observation Cards
submitted as well as managing reduction of GHG emissions from our operations
Through the system of Hazard Observation Cards, employees and contractors
report any unsafe conditions observed in the workplace, which helps to ensure
their awareness of safe working conditions at all times. All incidents are
investigated, their causes identified and corrective action plans developed.
There is a classification of equipment as critical or non-critical. Safety critical elements
are devices, equipment or systems that are required to ensure process conditions
are maintained within safe operating limits, or the purpose of which is to prevent
malfunctioning. For example, devices are installed at well-sites to automatically
close the wells in the case of shutdown, preventing blowdown by flaring.
Contractor HSE performance is managed by identifying and mitigating risks,
setting HSE performance criteria, monitoring, auditing and reporting HSE
performance, and subsequently using this information for continuous
development and feedback into the process of contractor selection.
As described on pages 96–98, the Group has established a robust governance
framework which covers all aspects of the Group’s activities through respective
Board committees and functional teams under senior management. Although the
composition of the Board and its committees was not ideal during the reporting
period due to the transition period, compensating controls and procedures were
put in place such as additional scrutiny over the Board decisions and more
frequent Board meetings.
The corporate governance framework is supported by an extensive range of
policies and procedures covering division of responsibilities, bribery, corruption and
whistle-blowing, anti-facilitation of tax evasion, as described on page 98 and various
other policies and practices related to social and environmental matters described
across other section of the report. Such policies and procedures are designed and
implemented to ensure that all required compliance obligations are met.
42 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Description of risk
Environmental risks
The Group’s operations are subject to environmental risks inherent
in oil and gas exploration and production industries. Examples of
environmental risks include risks stemming from more intense extreme
weather events, rising energy intensity in the oil and gas industry, the
changing regulatory landscape, the risk of fugitive emissions and
climate change policies driving down demand.
Compliance with environmental regulations may make it necessary
for the Group, at substantial cost, to undertake measures in connection
with the storage, handling, transportation, treatment or disposal of
hazardous materials and waste and the remediation of contamination.
In addition, the legal framework for environmental protection and
operational safety is not yet fully developed in Kazakhstan. Stricter
environmental requirements may be adopted in the near future, and
the environmental authorities may move towards a stricter interpretation
of existing legislation. The costs associated with compliance with
such regulations could have a material adverse effect on the Group’s
business, results of operations, financial condition and prospects.
Climate change risks
Climate change
Continued attention to climate change issues by governments,
investors and customers and relevant developments in laws and
regulations, investor and customer preferences may have significant
adverse impact on the Group’s business.
New requirements, laws, policies and regulations may result in
substantial additional expenditures on capital construction,
compliance, operations and maintenance. The level of expenditure
required to comply with these laws and regulations is uncertain.
In addition, any perceived weakness in environment related policies,
procedures and efforts, sub-optimal assessment by an ESG rating
agency and comparison to peers, might adversely impact the Group’s
access to capital markets, reduce ability to raise additional financing,
increase financing costs and have a negative impact on the Group’s
business plans and financial performance.
Compliance risks
Subsoil use agreements
As the Group performs exploration, development and production
activities in accordance with related licences for the oil and gas fields,
there are related risks that the Group might not be able to obtain
extensions or agree amendments to the field development plan,
when necessary, risks of non-compliance with the licence
requirements owing to ambiguities, risks of alteration of the licence
terms by the authorities and others. These risks may result in the
Group’s inability to fulfil scheduled activities; fines, penalties,
suspension or termination of licences by authorities; and, respectively,
significant and adverse impact on the Group’s business, financial
performance and prospects.
Compliance with laws and regulations
The Group carries out its activities in a number of jurisdictions and,
therefore, must comply with a range of laws and regulations, which
exposes the Group to the respective risks of non-compliance. In
addition, the Group must comply with the Listing Rules, the Disclosure
Guidance and Transparency Rules, FRC guidance and requirements,
as well as requirements in connection with its restructured debt, in
light of its publicly traded shares and notes. Hence, there are
non-compliance risks, including reputational, litigation and
government sanction risks, to which the Group is exposed.
The impact of these risks may vary in magnitude and include regulatory
actions, fines and penalties by authorities, diversion of management
time, and may have an overall adverse effect on the Group’s
performance and activities towards achieving its strategic objectives.
Risk management
The Group actively plans and manages projects designed to mitigate certain
environment-related risks. Limiting GHG emissions is a management KPI.
The Group’s operations continuously put effort and commitment into improving
energy efficiency, reducing flaring, venting and leaks, and monitoring and
effectively managing emissions and waste. Also, the Group has recently started
recycling utilised water at the campsite.
The Senior Management Team actively evaluates opportunities to further adapt
and implement cost-effective mitigation measures.
The ESG Committee currently has responsibility for ESG related matters.
During 2022, the Company issued on its website the “Methane Statement”
and developed an “Energy Efficiency report” with short, medium and long
term ESG targets.
The Group is actively planning and managing projects designed to mitigate
certain climate change related risks. For instance:
• To decrease its exposure to rising fuel prices, drilling rigs have been retooled
to derive more power from electricity rather than diesel;
• In operations there is a permanent effort and commitment to improve energy
efficiency and to reduce flaring, venting and leaks; and
• At campsite most of the water the Group utilises now is recycled.
Climate change is on the Board’s agenda. The Senior Management Team actively
evaluates opportunities to further adapt and implement cost- effective mitigation
measures.
The Group has procedures and processes in place for the timely application for
extension of licence periods or for amendments to the field development plan,
when it is considered appropriate however, uncertainty remains in relation to
timing and results of decisions of authorities. The Group maintains an open
dialogue with RoK governmental authorities regarding its subsoil use agreement.
In the event of non-compliance with a provision of the agreement, the Group
endeavours to have such terms modified and pays any penalties and fines that
may apply.
For the purpose of effective corporate governance and compliance with
laws, regulations and rules, the Group has adopted a number of policies and
procedures, as mentioned above. The Group also performs periodic updates
based on the changes in regulatory requirements and carries out related
communications and training for employees.
Necessary communication lines are established with authorities to ensure timely
and adequate inbound and outbound flow of information. Management and the
Board monitor significant matters related to legal and compliance matters in order
to act promptly in response to any actions. In addition, management maintains an
open dialogue with its sponsors in relation to any matter related to non-
compliance with Listing Rules and other regulatory requirements.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 43
Strategic report Risk management
Principal risks and uncertainties continued
Description of risk
Financial risks
Liquidity risks
Forecasting to maintain an adequate liquidity position is subject to the
risk that inaccurate information or assumptions are used for forecasts,
and to risks of counterparty delay or a counterparty’s failure to meet
their contractual obligations owing to severe market conditions.
Moreover, the Group’s current and planned expenditures are subject
to unexpected problems, costs and delays, and the economic results
and actual costs may differ significantly from the Group’s current
estimates. Prices for the materials and services the Group depends
on to conduct and expand its business may increase to levels that
no longer enable the Group to operate profitably.
All the above factors in combination with a significant negative
movement in world energy prices could result in the Group’s liquidity
position becoming more strained than the severe but plausible
downside scenario in the Going Concern assessment.
Refinancing risks
In February 2023, the Group completed the implementation of
the restructuring after obtaining all required licenses and approvals.
As a result, the Group debt principal outstanding was reduced from
US$1.125bn to US$550mn maturing in June 2026. The remaining
portion of existing notes converted into the Company’s equity and
the existing ordinary shareholders were diluted to 11.11%, subject
to further dilution if the warrants held by existing noteholders
are exercised.
Tax risks and uncertainties
The uncertainty of application, including retroactive application,
of tax laws and the evolution of tax laws in Kazakhstan create risks
related to additional tax liabilities from assessments and risks related
to the recoverability of tax assets.
Kazakhstan’s tax legislation and regulations are subject to ongoing
changes and varying interpretations. Instances of inconsistent
opinions between local, regional, and national tax authorities are
not unusual. The current regime of penalties and interest related
to reported and discovered violations of Kazakhstan’s tax laws are
severe and where the tax authorities disagree with the positions taken
by the Group the financial outcomes could be material. Fiscal periods
remain open to review by tax authorities for five calendar years
preceding the year of review. Under certain circumstances reviews
may cover longer periods.
Tax risks and uncertainties may adversely affect the Group’s
profitability, liquidity and planned growth.
Other risks
Other significant risks, including emerging risks
Other risks are those that are not specifically identified within any
of the principal risks and uncertainties but may be related to several
such areas or be organisation wide. These include risks related to:
• Fraudulent activities;
• The Group’s supply chains;
• Accounting and reporting management systems; or
• The availability of human resources.
They may also significantly impact the Group’s financial performance,
reputation and achievement of its strategic objectives.
Risk management
Management and the Board constantly monitor the Group’s actual and forecast
liquidity position to ensure that sufficient funds are available to meet any
commitments as they arise.
In addition, management and the Board assess key financial ratios, sensitivity tests
of its liquidity position for changes in crude oil price, production volumes and
timing of completion of various ongoing projects, to understand the resilience
of the business and to be prepared for taking necessary remedies.
Further efforts are made on cost optimisation to reduce capital expenditures,
operating costs and general and administration costs.
The Board notes that uncertainty remains related to the Group’s ability to repay/
meet its liabilities, including the repayment of its Notes due in 2026 and the risk
that the Group may require refinancing in 2026.
Relevant considerations were made as part of the viability assessment as described
on pages 45-46.
The Group has policies and procedures related to various tax assessments
and positions, as well as other control activities to ensure the timely assessment
and filing of tax returns, payment of tax obligations and recovery of tax assets.
The Group regularly challenges, either with the RoK tax authorities or through
the RoK courts, tax assessments that it believes are inapplicable to it, pursuant
to the terms of either its subsoil use agreements or applicable law.
The Group has an Anti-Bribery and Corruption Policy, and provisions relating to the
same are included in the Group’s Code of Conduct. Related training and updates
are periodically provided for employees in relation to their obligations in this area.
The Group has a wide range of internal controls over its supply chains and
accounting and reporting processes, including policies, procedures, segregation
of duties for authorisation of matters, periodic training for employees and so on.
The Contracts Board was established to meet weekly to review and approve the
placement of all contracts or expenditures with a potential value in excess of
$10,000.
Senior management and the Board stay alert to emerging challenges related
to various management systems and related governance matters and, when
necessary, initiate change initiatives to ensure enhancement and integration
of certain management systems.
The risks listed above do not comprise all those associated with the Group’s business and are not set out in any order of priority.
Additional risks and uncertainties not presently known to management, or currently deemed to be less material, may also have an adverse
effect on the Group’s business. The risks listed above are continuously monitored by the management team and assessed when making
business decisions.
44 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Viability statement
Viability statement
In accordance with provision 31 of the
UK Corporate Governance Code 2018,
the Directors have assessed the future
medium-term viability of the Group over a
period longer than 12 months (see Note 1
for entities that are included in the Group).
The Group’s viability assessment is built
through integration of the principal risks
and uncertainties (described on pages
40–44) into a financial model, based on
the elements of corporate planning and
modelling process, which includes:
• Medium-term development planning
based on three-to-four-year financial
projections, using Management’s internal
estimate of forecast production from the
Chinarevskoye field, as well as potential
hydrocarbons expected to be received
for processing from Ural O&G. No other
third-party volumes or strategic initiative
projects have been included in the
viability assessment as there is currently
no certainty that they will arrive within
the assessment period; and
• Annual budgeting and forecasting
process incorporating preparation of
an annual budget for the following year,
which is reviewed and approved by the
Board, and followed up with quarterly
forecasts, which are monitored by
senior management and the Board.
Viability time horizon
Considering the uncertainties inherent
to the Group’s operations as well as the
medium-term development planning
mentioned above, the Board concluded
that a viability assessment over a three-year
period to 30 June 2026 provides a robust
and realistic evaluation of the Group’s
future performance. With this approach
the Board continues to believe that the
assessment:
• improves the optimal balance between
a reasonable degree of confidence and
an appropriate longer-term outlook;
• is aligned with medium-term
development planning mentioned above;
• Inclusion of throughput volumes with
reference to the signed agreement
with Ural Oil & Gas LLP based on
management’s internal view, and no
additional utilisation of the spare capacity
of Gas Treatment Facilities despite being
a key strategic focus of management for
the medium-term horizon; and
• Product price assumptions based on
a Brent oil price of $75/bbl throughout
the assessment horizon. This is within
the range of average broker consensus
forecasts as at 31 December 2022.
For the purpose of sensitivity testing,
several principal risks and uncertainties
were selected (from those described on
pages 40–44), which were deemed to have
the highest potential financial impact on
the Group’s future performance, taking
into account prior period assessments.
The effect of those principal risks and
uncertainties or their combination on the
base-case scenario were analysed within
the following scenarios:
• is consistent with other current and/or
recent communications (e.g. production
forecasts etc.); and
• is appropriate for the current stage of
development of the Group and gives
an opportunity to reasonably assess
sensitivity of the Group’s performance
to principal risks during the period where
the Group looks to work on implementing
its major strategic objectives (described
on pages 18–20).
Viability assessment
For the purpose of our viability assessment
a three-year financial model was used as a
base-case scenario reflecting the following:
• Completion of the restructuring of the
Existing Notes in February 2023 as
described on pages 6–7;
• Production forecasts reflecting
management’s internal view of
Chinarevskoye production under a
no further field activity scenario. This
production forecast is more conservative
than that used in the impairment testing
process (proved and probable reserves
base used) as the viability assessment
basis is more akin to the proven
developed producing reserves base as
outlined in the Ryder Scott reserves audit
as of 31 December 2022;
Principal risk and
uncertainty
Strategic risks
Description
Viability assessment
Deterioration in the business
and market environment and
geopolitical risks
10% reduction in oil, LPG and gas
prices over the period of assessment
Operational risks
Production issues from the
field and/or transportation
issues along the sales routes
10% reduction in forecast production
and sales volumes over the period of
assessment
Liquidity risks
Cost pressures in the
ordinary course of business
supply chain and with Group
personnel
10% increase in capital expenditures
and operating cost over the period
of assessment
Compliance risks Unexpected and
unbudgeted fines and
penalties for various
non-compliance issues
$5 million per annum Work
Programme non-fulfilment fines and
$10 million per annum legal claim
over the period of assessment
The Directors considered severe but plausible scenarios where a combination of two or
three of the risks noted above occurred together.
The scenarios took into account the availability and likely effectiveness of any mitigating
actions that might be required if the Group was exposed in the medium term to
downwards volatility and that are in place or could be implemented to avoid or reduce the
impact or occurrence of the underlying risks which would realistically be available to the
Group in such circumstances. In considering the likely effectiveness of such actions, the
conclusions of the Board’s regular monitoring and review of risk and internal control
systems were taken into account.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 45
Strategic report Viability statement conclusion
Considering the above, the following
conclusions can be drawn from the
viability assessment:
• the Group’s viability conclusion is not
exposed to plausible downside risks
arising in isolation relating to the
Group’s strategy, operations, liquidity
or compliance;
• the Group’s viability conclusion is not
exposed in the event that a combination
of any three of the four considered
plausible downside scenarios arise;
• It is not plausible that all four risks would
arise together, since, in the event of the
strategic, operational and compliance
risks manifesting, the Group would take
mitigating actions to reduce costs and
manage liquidity and so the likelihood
of an increase in costs occurring
concurrently with the other three
scenarios is considered remote; and
• Absent support from any of the strategic
initiatives described on pages 20–21, the
Group may need to partially refinance the
SSNs, and either repay the SUNs through
issuance of equity or extend their
maturity through refinancing or
restructuring.
Based on these assessments and other
matters considered by the Board, the
Directors confirm that they have a
reasonable expectation that the Group
will continue in operation and meet its
restructured liabilities as they fall due
through the three-year viability assessment
period ending 30 June 2026, subject to
possible necessity for partial refinancing
or restructuring of its debt.
Viability statement
Viability statement continued
Other viability assessment
considerations
The Directors have also considered any
additional risks to liquidity posed by the
ongoing Russia-Ukraine conflict:
Russia-Ukraine conflict: please refer to the
“Market Review” section on page 10 for
details of the Russia-Ukraine conflict and
related sanctions, and the relevance to
the Group’s operations. Given the
geographical position of the Group’s
operations, it is very close to the evolving
situation in Ukraine. In its going concern
and viability assessment, the Group
sensitised its base case by adjusting for
zero oil and condensate sales through
Russian infrastructure; noting that even
with zero sales for these products, there
is forecast to be sufficient cash reserves at
the end of the viability assessment period.
There is currently no material impact on
the Group’s future viability at the time of
publication of this report as a result of
the ongoing Russia-Ukraine conflict and
resultant Russian sanctions. The Directors
have concluded that even under this severe
scenario modelled, the Group would have
sufficient liquidity over the viability
assessment period.
Taskforce on Climate-related
Financial Disclosure
As per the requirements of the Taskforce
on Climate-related Financial Disclosure
(“TCFD”), the Directors are required to
describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2°C
or lower scenario (TCFD Strategy (c)). The
Directors performed this resilience analysis
in the viability assessment. The Directors
chose the Sustainable Development
Scenarios (“SDS”) referenced in the World
Energy Outlook 2021 as the preferred
climate-related scenario. The specific
policy measures required to limit global
temperature rises to 1.65ºC by 2050
are listed on pages 84–85.
The following sensitivities were applied
to the base case to quantify the policy
measures per SDS: reduction in
hydrocarbon demand by 10% to account
for change in consumer demand, 10%
product price reduction as fossil fuel
demand falls, US$2mln sulphur and other
pollution compliance breaches per annum,
5% higher operating costs for CO2 taxation,
5% higher capital expenditures for facility
upgrade works, upgrading the Group’s LPG
truck fleet and research and development
into emissions reducing technology, 5%
higher general & administrative costs to
improve energy performance standards
and 5% lower crude and condensate sales
as ship chartering becomes increasingly
difficult. Please refer to page 84–85 for
further details of the SDS policy measures
and the Group’s application to the
base case.
The Group maintains sufficient cash
reserves at the end of the viability period
when sensitising the base case for the
above climate-related assumptions.
Following the assessment, the Directors
confirm the future strategy and future
viability remain resilient against the
chosen climate-related scenario.
Longer term viability
The Directors also considered the viability
of the business beyond the medium term.
The new instated Notes following the
conclusion of the restructuring mature
in June 2026 and, under the base case
scenario in the current viability assessment
model, the Directors have a reasonable
expectation that the Group will be able to
build up sufficient cash for repayment of
majority portion of the SSNs ($250 million)
in 2026 and refinance the remaining
portion of the SSNs.
Under no reasonable scenario do the
Directors believe the SUNs (accruing
13.00% payment in kind interest until
maturity) will be repaid in cash at maturity,
and therefore reasonably expects this to
either be repaid in specie through the
issuance of new shares (further diluting
the existing ordinary shareholders at
the time) or have its maturity extended
through another refinancing or
restructuring exercise.
The implementation of the major strategic
initiatives described on pages 18–20 will
inevitably support future long-term viability
of the Group, and the Directors note that
this may reduce the possible requirement
for refinancing of a smaller portion of the
SSN at maturity in 2026 under the base
case scenario, as noted above.
46 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Financial review
Financial review
Results of operations for the years ended 31 December 2022 and 2021
The table below sets forth the line items of the Group’s consolidated statement of comprehensive income for the years ended
31 December 2022 and 2021 in US Dollars and as a percentage of revenue.
In thousands of US Dollars
Revenue
Cost of sales
Gross profit
General and administrative expenses
Selling and transportation expenses
Taxes other than income tax
Finance costs
Employee share options – fair value adjustment
Reversal of impairment on property, plant and equipment
Foreign exchange gain / (loss), net
Interest income
Other income
Other expenses
Loss before income tax
Income tax expense
Loss for the year
Currency translation difference
Total comprehensive loss for the year
For the year ended 31 December
2022 % of revenue
2021 % of revenue
199,717
100.0%
195,285
100.0%
(84,053)
115,664
(12,076)
(19,950)
(19,830)
(123,138)
38
–
254
272
6,806
(29,821)
(81,781)
(34,664)
(116,445)
(490)
(116,935)
42.1%
57.9%
6.0%
10.0%
9.9%
61.7%
0.0%
0.0%
0.1%
0.1%
3.4%
14.9%
40.9%
17.4%
58.3%
0.2%
58.6%
(87,849)
107,436
(12,124)
(23,066)
(17,083)
(116,696)
247
74,186
(285)
319
5,886
(13,218)
5,602
(31,720)
(26,118)
(203)
(26,321)
45.0%
55.0%
6.2%
11.8%
8.7%
59.8%
0.1%
38.0%
0.1%
0.2%
3.0%
6.8%
2.9%
16.2%
13.4%
0.1%
13.5%
General note
For the year ended 31 December 2022 (the “reporting period”) the total comprehensive loss amounted to US$ 116.9 million an increase
in loss by US$ 90.6 million from US$ 26.3 million in 2021. The lower comprehensive loss in 2021 as compared to 2022 was mainly driven
by the reversal of the impairment in 2021 in the amount of US$74.2, which was offset by income tax expense in the current period.
In addition, the Group had an increase in other expenses by US$ 16.6 million from US$ 13.2 million in 2021 to US$ 29.8 million in 2022,
mainly caused by the increase in other taxes and penalties, which was partially offset by the increase in revenues primarily resulting
from higher hydrocarbon prices, as well as lower operating costs and selling and transportation expenses have also contributed to
the decrease in loss during the reporting period as compared to 2021. These are explained in more detail below.
As noted elsewhere in the Annual Report, on 8 February 2023, the Group finalised restructuring the Group’s outstanding Notes with
the terms of a proposed restructuring agreed by the parties. For more details on the key terms of restructuring please refer to pages 6–7.
Revenue
The Group’s revenue increased by 2.3% to US$199.7 million for the reporting period (2021: US$195.3 million). This is mainly explained
by the higher product prices which was offset by lower sales volumes derived from a decrease in production during 2022 as shown in the
table below. The average Urals crude oil price increased by 16.1% from US$69.1 /bbl during 2021 to US$ 80.2 /bbl during the reporting
period.
The pricing for all the Group’s crude oil, condensate and LPG is, directly or indirectly, related to the price of Urals crude oil.
Revenues from sales to the Group’s largest three customers amounted to US$151.3 million, US$15.7 million and US$6.8 million
(2021: US$143.1 million, US$18.2 million and US$8.7 million).
The Group’s revenue breakdown by products for the reporting period and 2022 is presented below:
In thousands of US Dollars
Revenue from oil and gas condensate sales
Revenue from gas and LPG sales
Revenue from sulphur sales
Total revenue
Average Urals crude oil price (US$/bbl)
2022
2021
Variance
Variance, %
158,107
150,290
41,578
44,978
7,817
(3,400)
5.2%
(7.6%)
32
17
15
100.0%
199,717
195,285
80.2
69.1
4,432
11.1
2.3%
16.1%
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 47
Strategic report Financial review
Financial review continued
The following table shows the Group’s revenue breakdown by export/domestic sales for the reporting period and 2022:
In thousands of US Dollar
Revenue from export sales
Revenue from domestic sales
Total revenue
2022
2021
Variance
Variance, %
177,173
169,825
22,544
25,460
199,717
195,285
7,348
(2,916)
4,432
4.3%
(11.5%)
2.3%
The Group’s sales volumes by products and production volumes for the reporting period and 2022 is presented below:
In boe
Oil and gas condensate sales volumes
Gas and LPG sales volumes
Total sales volumes
Production volumes
Cost of sales
In thousands of US Dollars
Depreciation, depletion and amortisation
Payroll and related taxes
Repair, maintenance and other services
Materials and supplies
Transportation services
Well repair and maintenance costs
Environmental levies
Change in stock
Other
Total
2022
2021
Variance
Variance, %
2,252,853
2,378,019
(125,167)
2,318,291
3,217,443
(899,152)
4,571,144
5,595,462
(1,024,319)
4,818,015
6,216,764
(1,398,749)
(5.3%)
(27.9%)
(18.3%)
(22.5%)
2022
51,682
14,179
6,662
4,333
2,285
3,122
79
1,191
520
2021
Variance
Variance, %
55,569
14,603
6,610
4,561
2,559
2,726
201
403
617
(3,887)
(424)
52
(228)
(274)
396
(122)
788
(97)
(7.0%)
(2.9%)
0.8%
(5.0%)
(10.7%)
14.5%
(60.7%)
195.5%
(15.7%)
(4.3%)
84,053
87,849
(3,796)
Cost of sales decreased by 4.3% to US$ 84.1 million for the reporting period (2021: US$87.8 million). On a barrel of oil equivalent (boe)
basis, cost of sales increased by US$ 2.7 from US$ 15.7 in 2021 to US$18.4 for the reporting period and cost of sales excluding
depreciation increased by US$1.3 to US$ 7.1 in the reporting period (2021: US$ 5.8).
The main components of the decrease in cost of sales are:
Depreciation, depletion and amortisation decreased by 7.0% to US$51.7 million for the reporting period (2021: US$55.6 million).
Depreciation is calculated applying the units of production method. The decrease in depreciation in 2022 in comparison with the prior
period is a consequence of the decrease in the production partially offset with the increase in the ratio of the production volumes to the
proven developed reserves, which increases the charge per barrel of oil produced.
Payroll and related taxes decreased by 2.9% from US$14.6 million in 2021 to US$14.2 million for 2022, resulting from changes in foreign
exchange rates, which were partially offset by annual salary indexation.
Transportation services decreased by 10.7% to US$2.3 million for the reporting period (2021: US$2.6 million), which is caused by the
decrease in the production and the relative cost optimisation.
The above-mentioned decrease in costs was partially offset by increase in the following components of cost of sales:
Repair, maintenance and other services increased by 0.8% from US$6.6 million to US$6.7 million for the reporting period. These
expenses include costs of repairs and maintenance services on the facilities, specifically the gas treatment facility, as well as related spare
parts and other materials. These costs fluctuate depending on the timing of the periodic scheduled maintenance works.
Well repair and maintenance costs increased by 12.6% to US$3.1 million for the reporting period (2021: US$2.7 million), due to the fact
that, in 2022, the Group continued to implement the program of major well repairs and geological and technical measures carried out
without drilling, in accordance with the strategy of well management and field development.
Change in stock for the year mainly represents the movement in oil and condensate inventories. The positive adjustment of US$0.8
million in 2022 is a result of a build-up of condensate and crude oil inventories as at 31 December 2021 which were then sold early in 2022.
The charge of US$0.4 million in 2021 is the result of sale of oil and condensate volumes which were built-up as at 31 December 2020 and
sold during 2021.
48 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
General and administrative expenses
In thousands of US Dollars
Payroll and related taxes
Professional services
Insurance fees
Business travel
Short-term leases
Communication
Depreciation and amortisation
Materials and supplies
Bank charges
Other
Total
Selling and transportation expenses
In thousands of US Dollars
Transportation costs
Loading and storage costs
Marketing services
Depreciation of right-of-use assets
Payroll and related taxes
Other
Total
2022
6,634
3,556
577
282
172
180
153
182
47
293
2022
8,473
8,094
–
–
1,375
2,008
2021
Variance
Variance, %
6,123
4,113
601
204
290
182
170
144
71
226
511
(557)
(24)
78
(118)
(2)
(17)
38
(24)
67
(48)
8.3%
(13.5%)
(4.0%)
38.2%
(40.7%)
(1.1%)
(10.0%)
26.4%
(33.8%)
29.6%
(0.4%)
12,076
12,124
2021
Variance
Variance, %
9,545
6,869
2,167
1,556
1,520
1,409
(1,072)
1,225
(2,167)
(1,556)
(145)
599
(11.2%)
17.8%
(100.0%)
(100.0%)
(9.5%)
42.5%
(13.5%)
19,950
23,066
(3,116)
General and administrative expenses remained unchanged at the same level of US$ 12.1 million for the reporting period (2021: US$12.1
million). This was driven by the increase in payroll and related taxes by 8.3% from US$6.1 million to US$6.6 million which was offset by the
decrease in professional services by US$0.6 million or 13.5%. This reflected further cost optimisation programme.
Selling and transportation expenses decreased by 13.5% to US$ 20.0 million for the reporting period (2021: US$23.1 million), primarily
due to a decrease in the volumes sold and marketing services fees. In 2021, a part of the loading and storage expenses related to the
leased railway tank cars was capitalised as lease liabilities and respective right-of-use assets, and therefore reflected through depreciation
and unwinding of interest. In 2022, due to changes in the terms of lease agreements they did not meet the requirements for recognition
under lease accounting in accordance with IFRS16 Leases, and therefore the related costs were directly expensed as loading and storage
costs in the income statement.
Taxes other than income tax
In thousands of US Dollars
Export customs duty
Royalties
Government profit share
Other taxes
Total
2022
10,014
8,116
1,692
8
2021
Variance
Variance, %
7,655
7,786
1,628
14
2,359
330
64
(6)
30.8%
4.2%
3.9%
(42.9%)
16.1%
19,830
17,083
2,747
Royalties, which are calculated based on production volumes and market prices for the different products, increase by 4.2% to US$ 8.1
million for the reporting period (2021: US$7.8 million), which corresponds to the increase in hydrocarbon revenues partially offset with
decrease in production volumes.
Export customs duty on crude oil increased by US$2.4million or 3.9% to US$ 1.7 million for the reporting period (2021: US$7.7 million),
mainly owing to the corresponding higher export custom duties rates caused by higher hydrocarbon prices.
Impairment charge
In 2021, as a result of the higher hydrocarbon prices being reflected in the impairment model the Group reversed the impairment on the
property, plant and equipment in the amount of US$74.2 million.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 49
Strategic report Financial review
Financial review continued
Finance costs
In thousands of US Dollars
Interest expense on borrowings
Other finance costs
Unwinding of discount on amounts due to Government of Kazakhstan
Unwinding of discount on lease liability
Unwinding of discount on abandonment and site restoration provision
Total
2022
2021
Variance
Variance, %
105,411
103,115
16,986
12,386
470
−
271
762
157
276
2,296
4,600
(292)
(157)
(5)
123,138
116,696
6,442
2.2%
37.1%
(38.3%)
(100.0%)
(1.8%)
5.5%
Finance costs increased by US$6.4 million to US$123.1 million for the reporting period (2021: US$116.7 million) mainly due to higher
interest expense on borrowings of US$105.4 million (2021: US$103.1 million) and higher other finance costs of US$17.0 million
(2021: US$12.4 million). Increase in interest expense on borrowings is due to the additional interest cost in the amount, which was
calculated on the accrued unpaid interest on Notes as per the terms of the Notes. Other finance costs primarily represent advisor fees
(2021: bondholder consent fees of US$2.9 million and advisor fees of U S$9.3 million) incurred by the Group in relation to the forbearance
agreements, lock-up agreement, and discussions with its bondholders regarding the restructuring of the Group’s outstanding bonds.
For more details on the restructuring and related information see Note 1 to the consolidated financial statements.
Other
Other expenses increased to US$29.8 million for the reporting period (2021: US$13.2 million). The increase is mainly attributable to the
additional taxes and penalties in 2022 accrued as result of the tax inspections and reassessments in relation to prior periods considering
new information, which was not available at the time of preparation of respective financial information, and relevant interpretations by the
management.
Income tax
Income tax expense amounted to US$34.7 million for the reporting period, a difference of US$3.0 million as compared to income tax
expense of US$31.7 million in 2021. Such a significant amount of income tax benefit in 2022 includes an additional accrual of income tax
expense of US$12.5 million caused by the previous years tax inspection and reassessments. In addition, the increase in income tax
expense is also attributable to the decrease in the tax base of the property, plant and equipment relatively to IFRS base caused by Tenge
devaluation against US Dollar, resulting to additional deferred tax liabilities and corresponding income tax charge.
The income tax expense in 2021 was mainly caused by the impairment reversal of US$74.2 recognised as of 31 December 2021 and
corresponding recognition of deferred tax liabilities. An impairment reversal was booked in 2021 and the increase in the difference
between the IFRS base and the tax base of the property, plant and equipment resulted in additional deferred tax liabilities and
corresponding income tax charge.
Liquidity and capital resources
During the period under review, Nostrum’s principal source of funds was cash from operations. Following the negotiations to restructure
the Notes, during 2021 and 2022, the focus turned to preservation of cash by optimising the spend on capital expenditures and working
capital requirements.
Cash Flows
The following table sets forth the Group’s consolidated cash flow statement data for 2022 and the prior year:
In thousands of US Dollars
Cash and cash equivalents at the beginning of the year
Net cash flows from operating activities
Net cash used in investing activities
Net cash used in financing activities
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
2022
2021
165,246
102,204
(15,781)
(17,481)
(604)
78,583
117,415
(19,778)
(10,862)
(112)
233,584
165,246
50 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Net cash flows from operating activities
Net cash flow from operating activities was US$102.2 million for the reporting period (2021: US$117.4 million) and was primarily
attributable to:
• loss before income tax for the reporting period of US$82 million (2021: income US$5.6 million), adjusted by a non-cash charge
for depreciation, depletion and amortisation of US$51.8 million (2021: US$57.3 million), finance costs of US$123.1 million (2021:
US$116.7 million) and impairment reversal in 2021: impairment charge of US$74.2 million.
• US$15.5 million decrease in working capital (2021: US$7.0 million) is mainly attributable to the increase in other accruals and taxes
payable by US$28.9 million as part of the current liabilities (2021: decrease US$ 0.1 million) and decrease in prepayments and other
current assets of US$5.0 million (2021: US$0.7 million), decrease in inventories of US$1.5 million (2021: US$2.5 million), partially offset
by the decrease in trade payables of US$1.1 million (2021: US$1.7 million).
• income tax paid of US$6.3 million (2021: US$2.7 million).
Net cash used in investing activities
Net cash used in investing activities for the reporting period was US$15.8 million (2021: US$19.8 million) due primarily to payment of
expenditures related to well workover & intervention programme of US$5.0 million for the reporting period (2021: US$3.6 million), gas lift
infrastructure development of US$5.0 million (2021: US$2.8 million), the modification GTU 1-2-3 of US$4.0 million (2021: US$0.4 million).
In 2022 transfer to the restricted cash of US$0.6 million as required by the subsoil use rights for abandonment and site restoration
liabilities of the Group. In 2021 transfer to the restricted cash of US$9.8 million included the cash transfers under the forbearance
agreements as well.
Net cash used in financing activities
Net cash used in financing activities during the reporting period made up US$17.5 million (2021: US$10.9 million) and was mainly
represented by the payment of fees related to forbearance agreement and restructuring negotiations of US$17.5 million (2021: US$9.1
million).
In 2021, the lease payments of US$1.7 were made in the relation to the leased railway tanks recognised as right-of-use assets with the
relative recognition of lease liability. In 2022, due to changes in the terms of lease agreements they did not meet the requirements for
recognition under lease accounting in accordance with IFRS16 Leases, and therefore the related payments are recognised within cash
flows from operating activities.
Commitments
Liquidity risk is the risk that the Group will encounter difficulty raising funds to meet commitments associated with its financial liabilities.
Liquidity requirements are monitored on a regular basis and management seeks to ensure that sufficient funds are available to meet any
commitments as they arise. The table below summarises the maturity profile of the Group’s financial liabilities as at 31 December 2022
based on contractual undiscounted payments:
In thousands of US Dollars
Borrowings
Trade payables
Other current liabilities
Due to Government of Kazakhstan
–
258
On demand
Less than 3
months
3-12 months
1-5 years
More than 5
years
1,400,197
43,000
43,000
9,525
10,824
–
–
404
–
773
–
–
–
3,350
Total
1,486,197
9,929
10,824
8,505
–
–
–
4,124
4,124
1,420,546
43,258
44,177
3,350
1,515,455
With the completion of Restructuring in February 2023 (see pages 6 - 7), the maturity profile of the Group's borrowings will change with
principle amount of the new SSNs and SUNs falling under 1-5 years category, with reflection of related future coupon payments in the
relevant categories.
Capital commitments
During the reporting period, Nostrum’s cash used in capital expenditures for purchase of property, plant and equipment (excluding VAT)
was approximately US$8.0 million (2021: US$8.6 million). This mainly reflects costs associated with well workover/intervention program
and other field infrastructure development projects (2020: well workover/intervention program and other field infrastructure
development projects).
Gas Treatment Facility
Following the successful completion of the first phase of the gas treatment facility, consisting of two units, the Group achieved full
commissioning of a third unit during 2019. This unit is in hot stand-by mode and a discrete maintenance scope for 2023 was approved to
improve further recovery efficiency of products from the raw gas stream.
Dividend policy
The Group currently pays no dividend and has not done so since 2015, as the Board determined it was not in the Company’s best interests
to do so. This will be reviewed annually by the Board.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 51
Strategic report Financial review
Financial review continued
Going concern
The Group monitors on an ongoing basis its liquidity position, near-term forecasts, and key financial ratios to ensure that sufficient funds
are available to meet its commitments as they arise and liabilities as they fall due. The Group reforecasts its rolling 24-month cashflows on
a quarterly basis and stress tests its future liquidity position for changes in product prices, production volumes, costs and other significant
events. Whilst looking for new opportunities to fill the spare capacity of the Group’s infrastructure, the Directors are also focused on a
range of actions aimed at improving the liquidity outlook in the near-term. These include the ongoing efforts on further cost optimisation
to reduce capital expenditures, operating costs and general and administration cost.
The Directors’ going concern assessment is supported by future cash flow forecasts for the going concern period to 30 June 2024. The
Group had unrestricted cash balances of over US$191 million as at 31 March 2023 and over $14 million in escrow account. The base case
going concern assessment reflects production forecasts consistent with the Board approved plans and published guidance and assumes
a Brent oil price of $75/bbl. Also, the forecast financing cashflows take into account completion of restructuring in February 2023 as
described on pages 6 – 7. Under the base case going concern assessment to the period to 30 June 2024, the Group is forecast to have
total cash reserves of over U$$180 million. The base case scenario has also been tested for sensitivity against the key assumptions
including 10% reduction in product prices, 10% reduction in forecast production and sales volumes, 10% increase in capital expenditures
and operating cost over the period of assessment and unexpected fines and penalties for various non-compliance issues, consistent with
the sensitivities applied for viability assessment as described on pages 45 – 46. Considering such sensitivity analysis conclusion was made
that the Group is not exposed to downside volatility of these key assumptions individually or in aggregate.
After careful consideration, the Directors have a reasonable expectation that the Group and Company have sufficient resources to
continue in operation for the going concern period to 30 June 2024. For these reasons, in accordance with provision 30 of the UK
Corporate Governance Code 2018, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing the
financial statements. Accordingly, the consolidated financial statements do not include any adjustments to the carrying amount or
classification of assets and liabilities that would result if the Group were unable to continue as a going concern.
Notwithstanding that the going concern period has been defined as the period to 30 June 2024, the Directors have considered events
and conditions beyond the period of assessment which may cast doubt on the Group’s ability to continue as a going concern. The
Directors draw attention to the Viability Statement on pages 45 – 46 which highlights a possible necessity in the future for partial
refinancing or restructuring of the Group’s debt.
Alternative performance measures
In the discussion of the Group’s reported operating results, alternative performance measures (APMs) are presented to provide readers
with additional financial information that is regularly reviewed by management to assess the financial performance or financial health of
the Group or is useful to investors and stakeholders to assess the Group’s performance and position. However, this additional information
presented is not uniformly defined by all companies including those in the Group’s industry. Accordingly, it may not be comparable with
similarly titled measures and disclosures by other companies. Certain information presented is derived from amounts calculated in
accordance with IFRS but is not itself an expressly permitted IFRS measure. Such measures should not be viewed in isolation or as an
alternative to the equivalent IFRS measure.
EBITDA
EBITDA is defined as the results of operating activities before depreciation and amortisation, share-based compensation, fair value gains
and losses on derivative instruments, foreign exchange losses, finance costs, finance income, non-core income or expenses and taxes,
and includes any cash proceeds received or paid out from hedging activity. This metric is relevant as it allows management to assess the
operating performance of the Group in absence of exceptional and non-cash items.
Operating costs
Operating costs are the cost of sales less depreciation and change in stock. This metric is relevant as it allows management to see the cost
base of the Company on a cash basis.
52 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Five-year summary
In millions of US$ (unless mentioned otherwise)
2022
2021
2020
2019
2018
EBITDA reconciliation
Loss /(profit) before income tax
Add back
Finance costs
Impairment change
Employee share options-fair value adjustment
Foreign exchange loss/ (gain), net
Loss on derivative financial instrument
Interest income
Other expenses
Other income
Depreciation, depletion and amortisation
Purchase of derivative financial instruments
EBITDA
Operating costs reconciliation
Cost of sales
Less:
Depreciation, depletion and amortisation
Change in stock
Operating costs
G&A reconciliation
(81.8)
5.6
(401.8)
(1,343.1)
(92.2)
123.1
–
–
(0.3)
–
(0.3)
29.8
(6.8)
51.8
–
116.7
(74.2)
(0.2)
0.3
–
(0.3)
13.2
(5.9)
57.3
–
115.7
112.5
102.1
286.6
43.0
1,354.7
(0.5)
1.8
–
(0.3)
7.6
(4.8)
89.8
–
80.5
0.6
(0.4)
–
(0.1)
12.5
(7.2)
143.3
(3.7)
199.6
49.4
150.0
(1.3)
1.0
12.4
(0.5)
8.5
(4.4)
117.1
(8.6)
231.3
84.1
87.8
125.4
172.0
165.1
(51.7)
(1.2)
31.2
(55.6)
(0.4)
31.8
(86.3)
(136.8)
(115.2)
(7.3)
31.8
6.2
41.4
(0.1)
49.8
General and administrative expenses
12.1
12.1
14.7
21.4
22.2
Adjusted for:
Depreciation and amortisation
G&A
Net debt reconciliation
Long-term borrowings
(0.2)
11.9
(0.2)
11.9
(0.6)
14.1
(2.0)
19.4
(1.9)
20.3
–
–
–
1,100.5
1,094.0
Current portion of long-term borrowings
1,396.5
1,289.6
1,186.3
35.6
35.6
Less:
Cash and cash equivalents
Net debt
Net cash flows from operating activities
Net cash used in investing activities
Net cash (used in)/ from financing activities
EBITDA margin4
Share price at end of period (US$)
Shares outstanding (`000s)
Options outstanding (`000s)
1. Depreciation as it applies to operating assets only.
233.6
165.2
78.6
93.9
121.8
1,162.9
1,124.4
1,107.7
1,042.2
1,007.8
102.2
(15.8)
(17.5)
57.9%
0.03
117.4
(19.8)
(10.9)
57.6%
0.07
82.7
(40.1)
(58.4)
45.7%
0.10
196.8
(121.0)
(103.7)
61.9%
0.22
214.0
(172.0)
(47.0)
59.3%
1.03
188,183
188,183
188,183
188,183
188,183
3,432
3,432
3,432
3,432
3,432
2. Purchase of derivative financial instruments represents the cash paid under the hedging contract which in accordance with IAS7 Statement of Cash Flows is included
within operating cash flows. While this item is not required to be presented in the Consolidated Income Statement, we have included this in our definition of EBIT
and EBITDA in order to better align these non-GAAP measures with our operating cash flows.
3. Due to materiality the change in stock was introduced in the opex reconciliation from 2019, and comparatives have been adjusted accordingly for
consistency purposes.
4. EBIDTA margin is calculated as EBITDA divided by total revenue.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 53
Strategic report ESG review
Our ESG strategy and targets
Pivoting towards cleaner energy and positive impact on society
Our Commitments
Environmental
Play our role in the
transition to cleaner
energy and minimise
the environmental
impact of our operations
Social
Create a safe, diverse
and inclusive working
environment and promote
local economic growth
and social development
Governance
Have a robust corporate
governance, strict
compliance and an
ethical business culture
Alignment with the UN SDGs
Our medium-term
goals and targets
• Maintain strong Health, Safety,
Environmental and Security
leadership
• Invest in best-in-class emission
reduction technologies
What we did in 2022
What we plan to do in 2023
• Reduction of CO2 emissions by 5% as of year result
• Reduction of GHG emissions by 5% as of year result
• In 2022 we achieved our target with actual GHG
emissions in CO2 equivalent of 169,630 tonnes as
compared to 187,479 in 2021
• Due to clarification of technical requirements for
installation and taking into consideration delay of
equipment related to world supply chain disruptions
installation and commissioning is planned for Q3 2023
• NOG obtained “B-” score for the climate change module
and “B-” for water security module as well
• Invest in workforce skills to
support the Energy transition
• Continue to provide funding
and support to local
communities
• TRIR was 1.56 in 2022 (compared to a TRIR of 2.42 in
• TRIR – less than 1.9
2021). All of Nostrum’s total recordable injuries occurred
• LTIR – less than 0.85
• RTI – less than 0.75
• LTIR for 2022 was 0, compared to an LTIR of 0.81 for 2021
in Kazakhstan
• RTI rate was 0
• In total 1,746 Hazard Observation Cards were issued,
of which 877 by Nostrum staff and its contractors and
869 of them by key contractors. 63% of NOG staff
were engaged in 2022
• Golden rules compliance were reviewed in
October 2022
• HSE performance meetings were held with existing
contractors and HSE Management system audits were
conducted for a new contractor Ansar-S group as well
as the Management system audits of two potential LPG
transportation service providers
• Completed in Q2 as part of shutdown and finalised in Q3
after all vessels not requiring shutdown were inspected
• Female representation is 22% at Group level. We also
reduced the pay discrepancies between male and
female employees
director appointed by the warrant trustee
• Approved new political involvement policy
• Updated the following Group policies:
• Equality and diversity policy
• Whistleblowing policy
• Anti-corruption and bribery policy
• Code of conduct
• Align Senior Management
Team incentivisation with
ESG targets
• Strengthen ESG and climate
reporting
• In 2022 we received our first ESG Risk Rating of 40.5.
• Improve the ESG Risk rating (Sustainalytics scoring). For overall ESG
While our current ESG rating means we still fall slightly
"Severe" risk rating our midterm plan is to reach higher score level,
within the “Severe Risk” range we are within 0.5 points
improve the management of our material ESG issues, and to move
from the “High Risk” category
• Following restructuring, the Board now consists of
6 members (2022: 5 members), including 3 independent
non-executive directors and 1 non-executive warrant
a Company)
from the severe risk rating category to the "Low" one (the lower the
score, the lower likely impact of ESG issues on the economic value of
54 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Our Commitments
Environmental
Play our role in the
transition to cleaner
energy and minimise
the environmental
impact of our operations
Social
Create a safe, diverse
and inclusive working
environment and promote
local economic growth
and social development
Our medium-term
goals and targets
• Maintain strong Health, Safety,
Environmental and Security
leadership
• Invest in best-in-class emission
reduction technologies
• Invest in workforce skills to
support the Energy transition
• Continue to provide funding
and support to local
communities
Governance
Have a robust corporate
governance, strict
compliance and an
ethical business culture
• Align Senior Management
Team incentivisation with
ESG targets
• Strengthen ESG and climate
reporting
Pivoting towards cleaner energy and positive impact on society
Alignment with the UN SDGs
What we did in 2022
What we plan to do in 2023
• In 2022 we achieved our target with actual GHG
emissions in CO2 equivalent of 169,630 tonnes as
compared to 187,479 in 2021
• Due to clarification of technical requirements for
installation and taking into consideration delay of
equipment related to world supply chain disruptions
installation and commissioning is planned for Q3 2023
• NOG obtained “B-” score for the climate change module
and “B-” for water security module as well
• Reduction of CO2 emissions by 5% as of year result
• Reduction of GHG emissions by 5% as of year result
• TRIR was 1.56 in 2022 (compared to a TRIR of 2.42 in
• TRIR – less than 1.9
2021). All of Nostrum’s total recordable injuries occurred
in Kazakhstan
• LTIR for 2022 was 0, compared to an LTIR of 0.81 for 2021
• LTIR – less than 0.85
• RTI – less than 0.75
• RTI rate was 0
• In total 1,746 Hazard Observation Cards were issued,
of which 877 by Nostrum staff and its contractors and
869 of them by key contractors. 63% of NOG staff
were engaged in 2022
• Golden rules compliance were reviewed in
October 2022
• HSE performance meetings were held with existing
contractors and HSE Management system audits were
conducted for a new contractor Ansar-S group as well
as the Management system audits of two potential LPG
transportation service providers
• Completed in Q2 as part of shutdown and finalised in Q3
after all vessels not requiring shutdown were inspected
• Female representation is 22% at Group level. We also
reduced the pay discrepancies between male and
female employees
• In 2022 we received our first ESG Risk Rating of 40.5.
While our current ESG rating means we still fall slightly
within the “Severe Risk” range we are within 0.5 points
from the “High Risk” category
• Following restructuring, the Board now consists of
6 members (2022: 5 members), including 3 independent
non-executive directors and 1 non-executive warrant
director appointed by the warrant trustee
• Approved new political involvement policy
• Updated the following Group policies:
• Equality and diversity policy
• Whistleblowing policy
• Anti-corruption and bribery policy
• Code of conduct
• Improve the ESG Risk rating (Sustainalytics scoring). For overall ESG
"Severe" risk rating our midterm plan is to reach higher score level,
improve the management of our material ESG issues, and to move
from the severe risk rating category to the "Low" one (the lower the
score, the lower likely impact of ESG issues on the economic value of
a Company)
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 55
Strategic report ESG review
ESG ranking GRI 3-1
In 2022, our ESG Task Force was created.
Its priority objective for 2022 was for the
Company to be rated in the top 50% of its
peers by a globally recognised
sustainability rating agency. Sustainalytics,1
a Morningstar company, is a leading
independent ESG research, ratings and
data firm that supports investors around
the world with the development and
implementation of responsible investment
strategies. Sustainalytics works with
hundreds of the world’s leading asset
managers and pension funds who
incorporate ESG and corporate governance
information and assessments into their
investment processes. The firm also works
with hundreds of companies and their
financial intermediaries to help them
consider sustainability in policies, practices
and capital projects.
Sustainalytics’ ESG Risk Ratings measure
a company’s exposure to industry specific
material ESG risks and how well a company
is managing those risks. This multi-
dimensional way of measuring ESG risk
combines the concepts of management
and exposure to arrive at an assessment
of ESG risk, i.e., a total unmanaged ESG
risk score or the ESG Risk Rating, that
is comparable across all industries.
Sustainalytics’ ESG Risk Ratings provide a
quantitative measure of unmanaged ESG
risk and distinguish between the following
levels of risk: negligible, low and medium.
In February 2023, Nostrum received an
ESG Risk Rating of 40.5 and was assessed
by Sustainalytics to be at Severe risk of
experiencing material financial impacts
from ESG factors. The 40.5 rating
corresponds to the residual risk following
management actions on a rating scale from
1-100 (1 is best, 100 is worst).
The following eleven material topics that
reflect the Company's most important
social and environmental impacts were
reviewed:
We view our management of sustainability
as core to our efforts to generate social
value including:
• putting the health and safety of our
1. Carbon – Own Operations
people first,
2. Emissions, Effluents and Waste
• being environmentally responsible,
3. Carbon – Products and Services
• respecting human rights, and;
4. Corporate Governance
5. Community Relations
6. Human Capital
7. Occupational Health and Safety
8. Bribery and Corruption
9. Land Use and Biodiversity
10. Resource Use
11. Business Ethics
Our highest ESG risk exposure is from
carbon and water intensity. The company's
exposure to issues is high and moderately
above its peers.
Our production process may have adverse
impacts, and our aim is to avoid them.
We seek to minimise and mitigate these
impacts where we can and look for ways
to contribute to the long-term health
of society and the natural environment. To
improve in this area, we have implemented
several initiatives to reduce carbon
emissions and stationary combustion.
These include the installation of fuel gas
flowmeters to quantify CO2 emissions
and vapor recovery systems that inhibit
hydrocarbon evaporation during storage
and transfer. The company's management
of the issue is average. Nostrum recognises
the transition risks and opportunities
associated with climate change, and its
board-level Strategy committee will
regularly assess and manage climate-
related matters to ensure compliance with
environmental regulations. Until the end
of 2022 the Health, Safety, Environment
and Communities Committee provided a
deep-dive in HSEC areas (including climate
change), and after the restructuring has
been completed in 2023 the newly formed
Senior Management level HSE and ESG
committees chaired by CEO now have
responsibility for HSE and ESG related
matters including execution of HSE and
ESG-related targets and projects.
• supporting the communities where we
operate.
The ESG Risk Rating recognises particularly
strong management of the following
material ESG issues: Community Relations,
Corporate Governance, Resource Use,
Bribery and Corruption, Occupational
Health and Safety, Human Capital,
Business Ethics.
We are committed to high standards of
health and safety and we strive every day to
maintain a positive safety culture across our
business. The Company was able to meet
performance targets in Health and Safety
during 2022, with no employee and
contractor fatalities. We will continue to
establish objectives and targets which will
drive ongoing performance improvements
in this area.
The Company works hand in hand with
contractors to ensure compliance with
regulations governing safe working.
We share our safety procedures with
contractors and when necessary, we work
with them to raise their standards to meet
our requirements. Nostrum’s contractor
safety management programme includes
best practice elements such as safety
training and a pre-qualification process
which comprises a requirement to legally
commit to the Company’s Health, Safety
and Environment Schedule as an integral
part of the business contract.
The Company is noted for showing
particular strength in its Board structure,
its ownership structure/shareholder rights,
its audit and financial performance systems
and its stakeholder governance. The
Company's exposure to Community
Relations issues is medium and moderately
above its peers, but the Company's
management of the issue is above average.
Human Rights Policy got a maximum
possible score, and Community
Involvement Programmes and Community
Development Programmes are rated above
average. More information on Governance
is described on pages 88–127.
1 Copyright ©2022 Sustainalytics. All rights reserved. This section contains information developed by
Sustainalytics (www.sustainalytics.com). Such information and data are proprietary of Sustainalytics and/or
its third party suppliers (Third Party Data) and are provided for informational purposes only. They do not
constitute an endorsement of any product or project, nor an investment advice and are not warranted to
be complete, timely, accurate or suitable for a particular purpose. Their use is subject to conditions available
at www.sustainalytics.com/legal-disclaimers.
56 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Health and safety
We have established four pillars in our
approach: HSE leadership; rigorous
incident investigation; process safety/asset
integrity and contractor HSE management.
In addition to the pillars, we have
implemented “Golden Rules”, provide
extensive training on safety practices
and apply a comprehensive Governance
framework (please see TCFD Governance
recommendations on pages 80–81).
GRI 403-2,
403-9
Incidence rates
and investigation
Nostrum saw a significant improvement in
its lost time incidents (LTIs) and road traffic
incidents (RTIs) in 2022 by recording
zero incidents for both Nostrum’s and
contractors’ operations. Total recordable
incidents rate in 2022 was 1.56 incidents
per million man-hours, representing a 36%
decline against 2021.
For the fourth consecutive year the Group
and its contractors had zero fatalities across
its operations.
Nostrum notes that its activities are
potentially hazardous. The Group’s
management, employees and contractors
are trained to understand that no accidents
are inevitable as we strive to inculcate an
environment in which safety consciousness
and mitigating actions are such that zero
incidents are possible and achievable.
For all incidents, we follow our incident
investigation procedure based on the
“five whys” and “why tree” methodology
to determine the root causes, and apply
SMART principles to mitigate future risks.
Contractors
We require our contractors and suppliers
to work to the same high standards as our
employees, therefore effective contractor
selection, communication and training in
our safety culture and practices as well as
strong monitoring are essential to maintain
the high level of safety embraced
by Nostrum.
Manhours worked in 2022
Nostrum employees:
1,012,351
Contractors: 1,551,461
Percentage of
total
39.5%
60.5%
In 2022, we continued with our contractor
HSE management implementation and
performed seven external contractor
HSE management audits and two internal
management system audits to test
compliance with our HSE management
system.
Review audits and bi-annual HSE
performance meetings with our key
contractors were also conducted in 2022.
Nostrum seeks to promote safe behaviour
among its contractors and has established
a wide range of methods to ensure that
operations at facilities are carried out in full
compliance with local legislation as well as
Nostrum rules and regulations. In addition
to the measures already discussed,
Nostrum continues to use the hazard
observation cards initiative introduced in
2019 (described more fully on page 59).
The safety of our employees and
contractors is a core value for
Nostrum. We are committed to
the highest international health
and safety standards and we
strive to maintain a positive
safety culture across our
business on a daily basis.
We implement robust training
and emergency preparedness
planning across the workforce.
Safety Culture
Having the right culture is key to good
safety performance and the Group
promotes a safety culture among its
employees and contractors. We reinforce
good practice through our Group-led a
safety culture programme. The continuous
improvement of the safety culture involves
all personnel of Nostrum and contractors
at all levels to improve safety performance
including risk identification and awareness.
TOTAL RECORDABLE INCIDENTS RATE
TOTAL RECORDABLE INCIDENTS RATE
incidents per million man-hours
LOST TIME INCIDENTS RATE
LOST TIME INJURY INCIDENTS (LTIS)
incidents per million man-hours
incidents per million man-hours
ROAD TRAFFIC INCIDENTS RATE
ROAD TRAFFIC INCIDENTS RATE
incidents per million km driven
incidents per million km driven
2022
2021
2020
2019
2018
1.56
2.0
24%
2022
0
1.0
24%
2022
0
0.8
2.42
3.0
2021
0.81
3.80
3.5
2020
0.84
2.96
3.0
2019
1.39
1.39
3.0
2018
1.05
1.3
1.5
2.0
2.0
0.8
1.46
1.2
2021
2020
2019
2018
0.72
0.72
0.8
1.5
1.5
TRIR
Target TRIR
LTIR
Target LTIR
RTI
Target RTI
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 57
Strategic report
ESG review
Health and safety continued
This process is more fully described below:
Pre-Award
Stage 1 – Vendor Qualification
To be a qualified bidder, vendors must
meet our qualification standards, which
include five fundamental HSE criteria. This
process is meant to help us select those
vendors that both adhere to and support
our basic HSE culture.
Stage 2 – Scope of Work preparation
by contract holders
Our procurement group has developed a
standard checklist which is used by contract
holders in compiling specifications for
scope of work/services. This checklist
includes HSE issues identified by contract
holders as mandatory and which must be
complied with by the selected contractor.
The depth of these questions depends
on the complexity and risk profile of
the services to be provided with more
comprehensive questioning of potential
contractors that would be engaged in
safety critical operations or where the HSE
risk is considered high. HSE risk ratings
(ranging from high to low) are assigned to
all services to be tendered. The contracts
and procurement department ensures all
these requirements are properly addressed
in the Invitation to Tender (ITT) Package.
Stage 3 – Tender
Our standard ITT Package includes:
• Tender Evaluation Questionnaire, with
appropriate HSE related questions
depending on the HSE risk rating.
• Standard Model Contract with HSE
Schedule. Tenderers must confirm in
writing their acceptance of the terms
of this Schedule when submitting their
Tender Proposal, otherwise they are
automatically disqualified.
Stage 4 – Contract execution
The selected contractor signs the contract
which incorporates a HSE Schedule as an
integral part.
Our annual contractor HSE forum
dedicated to Golden Rules compliance
took place in October 2022. General
directors and HSE Representatives from
main contractors attended the forum to
share their HSE performance results with
the Company’s management.
In order to effectively manage the “Golden
Rules”, Nostrum applies rigorous
consequence management which means
that we take a risk-based approach to guide
people and leaders through the processes
required when they witness or have
reported to them inappropriate behaviour
in the workplace. For serious violations
of safety rules, staff and contractors risk
immediate dismissal. For that purpose,
consequence management is split into
two categories. The more serious category
which results in immediate dismissal is
applied in case of alcohol/drug abuse. Less
severe cases, such as safety belt violation,
result initially in a warning followed by
dismissal if a repeat violation is observed.
Golden Rules
1. Seatbelts must always be worn by the
driver and all passengers
2. Do not exceed the speed limit and
reduce speed for impaired road
conditions
3. Do not use phones or operate devices
while operating a motor vehicle
4. Alcohol and drugs of any kind
(excluding approved medicines)
are forbidden
5. Where required, work with a valid
permit
6. Obtain authorisation before entering
a confined space
7. Confirm that hazardous energy sources
have been isolated, enclosed and
tagged
8. Obtain authorisation before overriding
or disabling safety controls
9. Never walk under a suspended load
10. Protect yourself against a fall when
working at heights
In our operations there are several stages
to ensure contractor compliance with HSE
spanning from pre-contract award to
contract close-out with significant roles
for the contract owner, contract holder,
contracts and procurement and HSE staff.
Post-Award
Stage 5 – Contract Performance
The contract holder, with support of HSE
representatives, is responsible for the
management of HSE performance of the
Contractor.
All new contractors start their engagement
with Nostrum with kick-off meetings
organised by the contract supervisor and
supported by HSE representatives, at which
Nostrum’s expectations are explained in
detail. Further topics of discussions are
clear identification of KPIs related to HSE,
introduction of HSE responsible staff from
both sides, and induction into the
Company’s procedures and regulations.
Road Safety
As we have noted above, in 2022 Nostrum
saw a significant improvement in RTI,
resulting in absence of incidents as a result
of the following activities carried out over
the years:
• Planned /unplanned inspections of the
technical conditions of the vehicles at
Nostrum facilities by our employees
and Contractor representatives.
• Road safety inductions, training and
safety stand-downs are being held on
a permanent basis with Contractor
personnel.
• Ad-hoc inspections on road safety
compliance (speeding, safety belt use,
etc.) are held regularly.
• Nostrum issued Road safety procedure,
Journey management plan and
procedure for organising and carrying
out transportation of oversized cargo in
order to ensure road safety compliance
to Company rules.
• The Routes for the transportation of
oversized cargo are coordinated
(accompanied if necessary) to ensure
road safety along the route of movement
of oversized cargo on the territory of
Nostrum facilities.
• The passage of a medical pre-trip
inspection by drivers of the company and
contractors is systematically controlled.
• Checks are being made of the safe
condition for traffic of the carriageways
of public roads, bridges, railway crossings
and road structures on the territory of the
facilities and along the route to Nostrum
production facilities and back.
58 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
GRI 403-2
Hazard Observation
Cards
As part of promoting a safety culture
among our employees and contractors,
Nostrum continues to implement a hazard
observation card process. This initiative was
launched in 2019, when all employees and
contractors were encouraged to report
any unsafe conditions observed in the
workplace. This helps to ensure that our
employees and contractors are always
mindful of safe working conditions and
continuously help to improve the safety
of our operations.
We set ourselves a KPI for 2022 to issue at
least 1,000 Hazard Observation Cards. Of
this amount at least 500 should have been
issued by more than 60% of Nostrum
employees and at least 500 cards by the
four largest Nostrum contractors based on
contract value. In 2022, Nostrum and our
contractors’ personnel issued 1,746 hazard
observation cards, representing eight times
growth as compared to 2019 amount when
the initiative was started. In 2023 Nostrum
is planning a new step in building an HSE
culture by implementing an Intervention
culture across Nostrum and Contractor
personnel.
HAZARD OBSERVATION CARDS
IN 2019 – 2022
HAZARD OBSERVATION CARDS
2022
2021
2020
2019
50%
68%
216
50%
1,746
32%
1,278
665
Nostrum
Contractors
In-house HSE training GRI 403-5
and examination process
Since 2020, Nostrum has conducted
in-house HSE training and examination
designed to improve the HSE
competencies of both Nostrum and
contract personnel performing safety-
critical activities. To facilitate this, Nostrum
acquired an industrial safety accreditation
which allows the Group to conduct
in-house HSE training and examination in
areas such as industrial and labour safety.
Group employees are continuously trained
in labour safety, industrial safety and H2S
rules. During 2022, 715 employees took
advanced HSE training.
IN-HOUSE HSE TRAINING
IN-HOUSE HSE TRAINING
2022
254
238 223
715
2021
2020
329
263 224
816
311
318
344
973
H2S rules
Industrial safety rules
Labour safety rules
GRI 403-5
HSE communication
and awareness
In 2022, HSE Workshops were carried
out for field personnel to promote
awareness on the following topics:
• Workplace Hazard Observation
• Confined Space
• PTW
• Work at Height
• Road Safety
• Golden Rules
• Contractor HSE Performance
Additional 2022 initiatives include:
• A pop-up window appeared on the
screens when logging in every day
with a safety reminder from the
QHSE department.
• HSE Posters printed and displayed in
prominent locations.
• Monthly QHSE Reports are issued to
communicate HSE performance.
GRI 403-3,
403-7
Process safety
In 2022, there were no Tier
1 or Tier 2 process safety
events registered at Nostrum’s production
facilities. As defined by the American
Petroleum Institute, a Tier 1 and Tier 2
safety incident is an unplanned or
uncontrolled release of any materials,
including non-toxic and non-flammable
materials, from a process that results in one
or more of the following consequences:
• An employee, contractor or
subcontractor incurs days away from
work, injury and/or fatality.
• A hospital admission and/or fatality of
a third party.
• An officially declared community
evacuation or community shelter
put in place, including precautionary
community evacuation or community
shelter in place.
• Fire or explosion damage of at least
US$100,000.
The selection of appropriate maintenance
strategies and the classification of
equipment as safety critical or non- critical,
is based on the impact that such equipment
failure has on safety. Nostrum employs a
specific safety critical equipment
maintenance program whereby resources
are allocated in order of priority with critical
systems taking precedence.
Vessel and Flowline inspection
programme
All vessels and main flow lines were
inspected according to international and
RoK standards at the frequencies described
(2, 5 or 10 years). No defects were identified
during the internal and external inspections.
From 2023 onwards, all vessels and flow
lines will require yearly inspection but this
can be done externally without necessary
shutdowns as was the case for internal
inspections. The inspection will be
focussed on wall thickness and, as such,
provides the same information as before.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 59
Strategic report According to this plan, to prevent oil
spills in 2022, three drills were held at
the Terminal and oil pipeline with the
participation of contractor Ansar-S-Group
LLP including deployment of equipment for
collecting spilled oil, both from the ground
and on the water surface. The workforce of
Fire brigade of the Ansar-S-group LLP (at
the terminal) trained using their practical
knowledge in operating oil collection
equipment for further disposal. Drills are
conducted every quarter, the results are
summarised and best response options are
developed.
In addition, an annual preparation of
hazardous sections of pipelines for
autumn-winter season and spring floods
is made, especially in areas located in a
possible flooding area. Monitoring of their
condition is organised by contractors –
Nysan Korgau and Ansar-S Group.
The OSRP gives substantiation of a possible
emergency level, analyses scenarios of their
occurrence and development, and also
makes a forecast of possible consequences
for production facilities associated with
accidental oil spills.
Introduction of emergency response plans
and OSRP for Nostrum’s production and
engineering personnel is documented in
the briefing log at the workplace against
signature. The facility supervisor and an
engineering manager define responsibility
for the due and correct preparation of
ERPs. In addition to OSRP, compliance
with safety requirements is controlled
on a regular basis. If non-compliance is
identified, corrective and preventive action
plans are developed and implemented.
ESG review
Health and safety continued
During training drills at the facilities, the
composition of the emergency operations
center (EOS) was determined to organise
and coordinate possible emergency
prevention and responses to accidents,
as well as to ensure fire safety. During
quarterly drills held at the facilities – EOS,
the whole range of issues related to
accidents and emergency prevention and
elimination procedures was considered.
Overall control of all emergency drills was
overseen by the Field Director, who is also
responsible for the implementation of
industrial and fire safety measures.
We believe that these actions help maintain
the proper level of skills and competencies
among employees and executives and
ensure compliance with legal requirements
and corporate standards.
GRI 2-25,
206-4
Oil spill prevention
The Group strives to have
zero operational spills.
Nostrum continues to undertake initiatives
to prevent and reduce spills that include
drills and training teams, timely
maintenance, repair and replacement
of equipment, monitoring of problem
areas, etc.
Oil Spill Response Plan
We continue to enhance our spill response
capabilities and, during 2022, we revised,
designed and implemented the Oil Spill
Response Plan (“OSRP”) within the
Company’s production facilities.
This plan sets our response strategies and
techniques, available equipment, and
trained personnel and contracts and
includes the following measures:
• signal receiving action plan for a facility;
• notification procedure for Company's
subsidiaries, state bodies and local
authorities;
• responsibility allocation for rescue units
organisation and management, and;
• measures to be taken to ensure people’s
safety and other actions.
Emergency response, GRI 2-25
Civil Protection Planning
and Prevention
In 2022, no industrial accidents or oil spills
were recorded at Nostrum’s operations.
The Company has established and
successfully exercises an emergency
response system and undertakes measures
to prevent oil and oil product spills.
Emergency response and
accidents preparatory activities
The Company has emergency response
plans to enhance our ability to respond
rapidly to unforeseen events to maintain
business continuity and minimise negative
impact on people, the environment, our
physical assets and our reputation.
These plans are communicated to the
workforce and response personnel receives
training to ensure they are competent to
carry out their emergency roles. We
continue to ensure asset integrity and
control operations to effectively manage
all significant risks during all stages of the
operations.
Specifically, in 2022 Nostrum revised and
agreed with emergency services all
Emergency Response Plans (hereinafter –
ERP) for hazardous production facilities.
Under these plans, emergency training
of personnel has been conducted on a
quarterly basis in order to prevent
accidents and emergencies as well as to
train personnel in emergency response in
case of their occurrence according to ERP
emergency scenarios at all hazardous
production facilities. In 2022, we
maintained emergency response training
and exercises involving credible emergency
ERP scenarios at all hazardous production
facilities.
Hazardous production facilities at
Nostrum include:
• Oil Terminal and Transfer Point in Beles
• CF-Rostoshi Oil Trunk Pipeline
• CF-ICA Gas Trunk Pipeline (GTP
Orenburg-Novopskov)
• OTU and gaslift system
• CGTU-1,2 and LPG -1,2
• Well Operations and gathering system
• GTU-26
• MTS and RPMS
• Waste disposal area
• GTU-3 and LPG-3
60 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Contained and non-contained oil spills
In 2022 there were no oil spills. A table below shows data for 2019-2022:
Contained oil
spills
Non-contained
oil spills
Volume of the
oil spills in
cubic meters Note
Period
2019
2020
2021
2022
Total
0
1
0
0
1
1
0
0
0
1
Boosting readiness of emergency
rescue teams
To respond to emergencies, Nostrum
established emergency rescue teams
(hereinafter – the ERT), whereby 120
employees on a voluntary basis (60 people
in each shift), are engaged to ensure the
safety of the production facilities. In 2022,
regular drills with ERT staff were conducted
as per Site Specific Emergency response
plans.
To maintain and conduct emergency
rescue operations, the Company has
long-term contracts with professional ERT
– Ak-Beren LLP (gas rescue service) and
Ansar-S-Group LLP (firefighters-rescuers).
Ak-Beren, a professional blowout
elimination service, is responsible for
accident prevention at oil and gas
wells, which is fully compliant with the
requirements for oil, petroleum product,
and other hydrocarbon spill response.
Materials and equipment available to
the emergency response and rescue
teams are certified and compliant with all
requirements. In 2022, this service included
preventive works to train its gas rescuers
and voluntary teams of Nostrum.
A high degree of readiness for the ERT is
supported by regular drills and training,
as well as theoretical knowledge. Drills
and training are held on a quarterly basis.
Special attention during the ongoing
emergency drills was given to those
facilities where gas and oil contain
hydrogen sulfide. The drills in 2022 were
conducted according to updated and
approved ERPs. Commanders of voluntary
rescue and fire teams were additionally
trained under the training program for unit
commanders to maintain levels of skills and
competence, particularly in relation to
safety-critical roles.
0.045
In February 2019, there was a minor fuel spill to the ground when on LPG truck
tipped over. The leak amounted to 45 litres of diesel on the ground.
0.05
There was an oil spill inside the pump station of the Terminal without any leak
to the open ground surface.
0.095
The non-government fire service of
Ansar-S-Group LLP, which had a service
agreement with Nostrum in 2022, was also
involved several times in emergency
response in Baiterek during the elimination
of the consequences of spring floods and
summer steppe fires at the request of local
executive bodies. Thus, Nostrum provides
assistance to the administration and
residents of Baiterek on an ongoing basis.
Organisation of communication
with contractors on emergency
response and prevention of
possible emergencies
A significant part of preventive and
emergency organisation is performed by
contractors for Nostrum. In order to ensure
a high level of preparedness for emergency
response, all drills and trainings were made
with the participation of the following
organisations:
• Ansar-S-Group LLP – fire prevention.
• Ak-Beren LLP – blowout prevention, gas
and hydrogen sulfide hazards.
• Nysan-Korgau – the organisation of
access control and protection of an
accident zone from unauthorised
persons.
HSE personnel assigned to each hazardous
facility perform permanent control over
work plans implementation by contractors
as well as requirements of industrial safety
standards. To achieve this, the Company
uses checklists containing the entire range
of issues under consideration – starting
from document maintenance to work
quality and safety. The HSE Department
organises regular control field inspections
at production facilities.
The control teams include representatives
responsible for occupational health, safety
and emergency response.
• The most pressing issues are discussed
with all contractors and facilities. Joint
work on quality improvement of safety
methods is organised on a permanent
basis.
• Representatives of contracting
organisations participating in all
emergency drills regularly held by
Nostrum, have an opportunity to master
up-to-date methods of emergency
rescue operations and develop common
rules for solving emerging problems
taking into account available information
on best practices in the oil and
gas industry.
Alert system for employees and
communities located near the
Chinarevskoye Field
The Company is constantly improving
internal procedures aimed at alerting and
preventing emergency response cases,
thus in 2022 the Company created and
maintained alert systems at Nostrum
production facilities. The duty dispatch
service promptly transmits information
about the occurrence of accidents and
emergencies to EOS-1 and EOS-2 to notify
the management of the Company and
government agencies.
In the event of emergency, at the first level
of emergency response, regular employees
and contractor personnel located at
Nostrum production facilities, as well as
emergency response teams involved in
the accident response are notified. High
priority rescue and evacuation activities
are performed to protect them. Territorial
executive authorities (akimats) are notified
of an accident in accordance with the
notification scheme in case of a threat
of the spread of adverse factors.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 61
Strategic report ESG review
Health and safety continued
Our response to COVID-19
In 2022, we continued to safeguard our
employees and contractors and take
necessary safety measures to monitor
COVID-19 infection. Regular quartz
treatments with UV lamps were conducted
in the main office in Uralsk and the field
offices. Many employees worked remotely
during 2022. In May 2022, the RoK lifted all
quarantine restrictions and the number of
COVID cases declined by 52% in 2022 as
compared to 2021.
Civil defence and emergency
prevention measures
In 2022, in line with RoK legislative
requirements, Civil Defence Plan annexes
were revised. Training in civil defence for
personnel training was organised at the
Company’s offices. A special tactical
exercise was conducted with the office staff
on emergency evacuation from the
building in case of fire and the provision of
medical assistance. In 2022, in accordance
with the order of the West Kazakhstan
Emergency Situations Department, 160 civil
gas masks GP-7 with “Breeze” filter boxes
were purchased for all office staff.
In 2022, the West Kazakhstan Emergency
Situations Department held inspections of
the Chinarevskoye field and the office on
fire safety, civil defence and emergency
situations and no violations were found.
During the field inspection on fire safety,
26 violations were identified, all of which
have since been addressed.
In the event of major accidents, operational
teams of the second level are organised at
the Company’s office in Uralsk. If necessary,
the evacuation of personnel and
communities is organised.
Firefighting activities arrangement
The Company systematically arranges
operational control over compliance with
industrial safety requirements, internal
audits of the management system,
conducts analyses of and processes
the results of incidents and inspections,
develops and monitors the implementation
of corrective and preventive actions.
All Nostrum facilities at Chinarevskoye Field
and Terminal are fire and explosion
hazardous. Therefore, fire safety rules were
developed for all facilities and controls over
compliance with the rules are in place.
These activities include:
• obligatory preventive inductions, fire
safety training, control by line supervisors
and responsible persons over the
performance of work,
• inspection of Ansar-S-group by an
authorised body and fire inspectors,
• project expertise as to compliance
with fire safety requirements during the
reconstruction and technical upgrade
of production facilities,
• timely maintenance and function control
of systems and fire protection means of
facilities (by contractor – Batys Energon
LLP), and;
• continuous control of serviceability of
fire- and explosion-hazardous process
equipment and compliance with process
flow charts.
62 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Our people GRI 2-7
Fostering diversity and
inclusion is a top challenge and
opportunity the world is facing
in these times. Businesses play
a significant role by focusing on
good principles and acting as
positive role models. Improving
inclusion and diversity within
our Group is not only the correct
thing to do, we believe that it
enhances the qualities that make
companies better and stronger
as there are synergies created.
Overall, it is about acknowledging,
respecting, and appreciating our
differences. Not only by simple tolerance,
but by understanding of each individual
and by the exploration of what makes us
different. Inclusive societies give a sense
of meaningful belonging. It makes people
feel supported and valued, and that is
essential for the success of the company
organisation. To that end, Nostrum is
proud to provide a home to a diverse
and inclusive workforce.
Our people really are the most important
element of our success. Engaging in people
with different assessments and perceptions
leads to better decision-making, more
innovation, and a deeper commitment in
the workplace. It is for these reasons that we
pay particular attention to the continuous
improvement of diversity and inclusion in
our Company.
NUMBER OF EMPLOYEES
NUMBER OF EMPLOYEES
AS AT 31 DECEMBER
as at 31 December
2022
2021
2020
2019
2018
566
559
564
668
820
GRI 401-3,
405-1
Strength through
diversity
At the end of 2022 Nostrum employed 566
employees, of whom 78% were male and
22% female (2021: 77% male and 23%
female employees). The Company aims to
establish KPIs for HR on improving diversity
at all levels. In terms of diversity statistics,
we would like to stand out by improving
female representation at all levels. Nostrum
has for several years adopted a corporate
Equality and Diversity Policy to further
support these ambitions. At the end of
2022, 21% (2021: 23%) of Group employees
based in Kazakhstan were female. In the UK,
50% of employees were female (2021: 25%).
BREAKDOWN OF EMPLOYEES AND
GENDER DIVERSITY
TOP MANAGEMENT BY GENDER
as at 31 December
2022
2021
2020
2019
2018
78% 22%
566
77%
23%
559
77%
23%
564
75%
25%
668
76%
24% 820
Male
Female
We take pride in our commitment to
fostering a diverse and inclusive workplace
that values and respects the contributions
of all employees, regardless of their
background or identity.
The Board recognises the importance
of continued improvement in this area
and is committed to giving due regard
to the benefits of diversity in our future
appointments, including ensuring Kazakh
nationals are properly represented at senior
levels of the Company. Currently, 32% of
employees at department head level are
female (2021: 26%). As at 2022 year-end
our Senior Management Team includes
20% of females (2021: 22%). In 2023, one
female joined the Senior Management
Team, resulting in 27% of females in the
SMT. We are targeting to further increase
female representation at the senior
management and at the department head
level. We encourage female job promotions
in case of equal competences and
capacities. More rapid progress is
hampered by the lack of qualified female
candidates willing to work in the field,
where most of our jobs are situated and on
a rotational shift basis. And whilst we are
encouraged by our diversity at Board level,
we do recognise that diversity remains an
ongoing issue in the oil and gas industry,
particularly with regard to gender diversity.
Our Human Resources department is
working towards a policy of promotion from
within and building a pipeline of diverse
employees at all levels of the business.
In this regard, in 2022, 7.27% of Group
recruitment was female (2021: 12.9%).
In 2022, two employees took parental
leave and four employees returned from
parental leave, all female.
The Company also pays particular attention
to diversity in terms of nationalities.
Although there have been changes in
the team, we have been able to maintain
diversity by having six different nationalities
within our team. The Senior Management
Team includes five Kazakh nationals out of
the ten members. There were no recorded
discrimination incidents raised by any of the
Group’s employees in 2022.
We recognise that diversity and inclusion
are not just buzzwords, but critical
elements of our business strategy. We
understand that a diverse and inclusive
workforce leads to better decision-making,
increased innovation, and ultimately, better
business results. We are committed to
creating an environment where all
employees can thrive and reach their
full potential.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 63
Strategic report
ESG review
Our people continued
GENDER DIVERSITY, 31 DECEMBER 2022,
%
Male
5
Board1
Female
1
17%
(2021: 20%)
1. Board of Directors’ gender diversity represented
as of 14 February 2023.
Males
Males
8
17
Male
419
SMT
Females
2
20%
(2021: 22%)
Department heads
Females
8
32%
(2021: 26%)
Employees
Female
112
21%
(2021: 23%)
GRI 405-1
Diversity Action plan
Over the past year, we have made
significant progress in advancing diversity
and inclusion (D&I) throughout our
organisation. We have implemented
various initiatives aimed at promoting
diversity, such as inclusive hiring practices,
encourage the employees to be inclusive
and embrace diversity in the workplace,
placing informational materials in the
workplace and distributing monthly
newsletters to employees with
questionnaires and results to increase
awareness and sensitivity to diversity
considerations and to promote interaction
on various D&I topics. We’ve distributed a
video on the importance of the D&I and the
specific journey that the Company is taking
in this regard. Our Senior Management
Team had a first tailor-made workshop by
IOM (MATCH project) on Diversity and
Inclusion – Intercultural competence to
learn how to create an inclusive workplace
and how to make equality, diversity and
Inclusion the responsibility of all leaders
& managers of our Company. Finally,
a guideline to advice and help our
employees to create or sustain a
pleasant, friendly and full of respect
work environment has been distributed.
As a result of our efforts, we have seen
a notable increase in the interest over
diversity aspects in our workforce, with
more employees answering our surveys
and addressing questions to the HR
department.
In addition to our internal initiatives, we
have also made an effort to engage with
the broader community on social media by
promoting diversity and inclusion. We
believe that these communications help us
to create a more inclusive environment, not
just within our organisation, but also within
the broader community.
Moving forward, we remain committed to
further advancing diversity and inclusion
in our organisation. We have set ambitious
targets for the following year, including
increasing the representation of women in
leadership positions, identifying an internal
pool of female talent. This has already
started with our succession planning
identification programme, determine
mentoring and coaching for female
employees with potential for career
development, expanding diversity and
inclusion training programs, and
strengthening our interactions with
employees to raise awareness and
willingness of more proactive role in
integrating D&I as the company foundation.
The Company also places particular
emphasis on D&I by working on the
strategy that the management will adopt,
making equity, diversity and inclusion the
responsibility of all leaders and managers
and committing our Senior Management
Team to zero tolerance of harassment
and bullying.
With respect to anti-discrimination
measures, the Nostrum Code of Conduct
protects all employees and contractors
against illegal discrimination on the basis of
race, religion, national origin, age, gender,
disability, sexual orientation or political
opinion.
64 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
BREAKDOWN OF EMPLOYEES
AND TOP MANAGEMENT BY AGE,
31 DECEMBER 2022 (%)
25
18%
6%
6%
38%
20
15
10
5
0
<30
665
216
32%
2018
30–39
2019
40–49
2020
2021
60+
Общее количество
регистрируемых травм
50–59
Случаи травматизма с потерей
Employee relations and social
трудоспособности
guarantees
Nostrum prides itself on being an integral
community partner and is one of the largest
employers in western Kazakhstan, with 98%
of Group employees hired locally and 92%
of all employees being RoK nationals. At
31 December 2022, Nostrum had a total of
566 staff from 12 countries, broken down
by gender as follows (data by age group
was not recorded):
• Uralsk: 439 males, 117 females.
• Astana: 1 female.
• London: 1 male, 1 female.
• Brussels: 2 males, 2 females.
• Amsterdam: 1 male.
• Almaty: 1 male, 1 female.
We offer all staff members competitive
benefits and remuneration packages in
compliance with all regulatory, guidelines
and requirements, which (to the extent
applicable) are also applied to those hired
as temporary or part-time employees.
Effective 1 January 2022, locally engaged
employees had their salary in tenge
increased by 8.4% in accordance with the
Company's annual wage indexation policy.
In an effort to promote gender equality, we
continued to monitor gender pay
discrepancies. In 2022, we conducted our
own gender pay discrepancy review with a
grouping of employees based on their job
function, seniority, location and other
factors. Based on this analysis, the following
observations were drawn:
raining was undertaken by operational and
head office teams, department heads,
specialist engineers and other technicians
at different levels across the organisation.
HSE training (including fire safety) is carried
out at least annually in accordance with our
operating practices and as required by
the PSA.
GRI 404-1
Hiring and
staff turnover
As part of the Company’s costs
optimisation plan, in 2022, 48 employees
(of which 38 males and 10 females) were
released or agreed to voluntarily resign,
and their positions were not filled
(2021: 36 employees). This was the main
cause of staff turnover. The number and
percentage of new employees hired in
2022 was 55 or 10% (of which 4 were
females and 51 were males).
GRI 2-26,
2-29
Workforce
representation
In 2018, the Company put collective
agreements in place to provide for
workforce representation. Sir Christopher
Codrington was designated to serve as
the Board’s liaison for engagement with
the workforce. No meetings between
Sir Christopher and the workforce took
place in 2022, although a mechanism
for feedback from the workforce was
maintained. In 2023, Chris Hopkinson was
appointed as the Company's non-executive
director designated with the task of
obtaining the views of the Company's
workforce and feeding these into the
Board's decision-making processes.
The Board of Directors strives to adopt
best practices in corporate governance,
including engagement with the Group’s
workforce. In particular, the Board wishes
to understand the views of the Group’s
workforce and to take such views into
consideration in Board discussions and
decision-making. Communication between
the workforce and the Board is often
referred to as the “employee voice”, and it
is hoped that a wide selection of views from
the workforce can be gathered through a
range of formal and informal channels.
Such channels are intended to help the
workforce share ideas and concerns with
senior management and the Board. This
communication provides useful feedback
about business practices from those
delivering them and can help empower
colleagues. The Board encourages
individuals to raise any concerns they may
have. Doing so acts as an early warning
system for actual or potential problems and
helps to manage risk. The Board actively
listens to workforce concerns and
subsequently provides feedback on how
the matter raised has been considered,
including any action taken. The Board
emphasised that the workforce should
feel safe to raise concerns.
Nostrum Code of Conduct
Nostrum is committed to maintaining
a Group-wide culture that recognises
international standards of human rights.
1. Roles with higher pay are male-
dominated (C-suite)
2. We have seen that the gender pay gap
has narrowed in 2022 as compared to
2021, the average employee salary in
Kazakhstan was 3.3% higher for males
(2021: 7% higher for males) and the
median employee salary in Kazakhstan
was 1.4% higher for females (2021: 3%
higher for males). At certain levels
female pay exceeds their male
counterparts (Office), while in the
others the remuneration is higher
for male than female (Field).
Despite short-term fluctuations, we will
continue focusing on fair and balanced
recruitment and promotion processes and
regular assessment of skills, alongside
increasing representation of women at
senior levels and in other parts of our
businesses where women are under-
represented and to close the gender pay
discrepancy over the long term. The Board
will continue to monitor any gender pay
discrepancy by defining targets and
activities to address any inequalities
discovered.
Succession Planning Policy
The company has implemented Succession
Planning Policy that aims to identify future
staffing needs and employees with the
skills and potential to be developed for
carrying out future management roles.
GRI 404-2
Education
and training
We believe investing in our people is key
to economic self-empowerment in the
communities in which we operate. Under
the terms of the PSA, we are required to
accrue 1% of our annual Chinarevskoye
field development costs to be spent on
education and training.
In 2022, 507 employees benefited from
education and training programmes (2021:
446 employees). Our total Group training
costs in 2022 were US$0.4 million (2021:
US$0.5 million) and the total number of
training days in 2022 was 6,961 days (2021:
5,026 days). The reduced training in 2022
relative to 2021 was due to a reduced
training budget in line with the PSA.
In 2022, Nostrum supported numerous
educational programs, including MBA in
Global Banking & Finance, Oil Field
Management Fundamentals course, IPMA
certification, Oil and gas processing and
metering, new technologies for hydrogen
sulfide utilisation, Certified LOLER course.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 65
Strategic report
ESG review
Our people continued
The Human Rights Policy is in addition to
the Nostrum Code of Conduct (Code),
which defines the principles that guide
business conduct and provides a non-
exhaustive outline of what Nostrum
considers permissible conduct by its
employees. These principles include
provisions relating to human rights and
diversity in the workplace, insider dealing
and insider information.
A copy of the Code is available on the
Group’s website in both Russian and
English and can be downloaded from our
website: www.nostrumoilandgas.com.
Modern Slavery Act Statement
There are no divisions of the Group (or its
vendors) believed to have significant risk
of child/forced labour/hazardous work
performance by young employees.
Under the Group’s standard supply
contracts, the Group is entitled to require
suppliers to demonstrate compliance
with the Code and to hold its suppliers
responsible for compliance by their
supply chain with equivalent terms.
A copy of our Modern Slavery and
Transparency Statement is available on our
website: www.nostrumoilandgas.com.
GRI 2-26
Whistleblowing
Policy
We have a Whistleblowing Policy which
takes into account the Whistleblowing
Arrangements Code of Practice issued by
the British Standards Institute and Public
Concern at Work, and which applies to
all individuals working for the Group at
all levels and grades.
The Whistleblowing Policy sets out details
of two compliance liaison officers who
speak a variety of languages for the
purposes of reporting any concerns. The
Whistleblowing Policy is also mentioned
in the Code, and a person who reports
any matter in good faith will be protected
against any sanctions. More information
on this matter is provided on page 98.
A copy of the Whistleblowing Policy is
available in both Russian and English and
on the Company’s website. At the time of
writing, we have received no reports under
our Whistleblowing Policy of forced/
involuntary labour or human trafficking in
relation to our business or supply chains.
For further details, please see our website:
www.nostrumoilandgas.com.
GRI 2-23
Human Rights Policy
Throughout 2022, the Company had a
Human Rights Policy which reflects the
desire to comply with industry best practice
and the HR department has raised its
awareness on the numerous benefits and
interests that our Human Rights Policy
provide to our organisation.
First and foremost, a Human Rights
Policy demonstrates our commitment to
upholding fundamental principles of
human dignity, respect, and equality. By
establishing a framework that promotes fair
treatment of employees, stakeholders, and
communities, we can enhance our position
as a responsible and ethical business that
contributes positively to the social and
economic development of the regions
where we operate.
In addition to these ethical considerations,
there are practical benefits. By promoting
diversity, inclusion, and non-discrimination,
we can attract and retain a more diverse
and talented workforce. Furthermore, a
Human Rights Policy can help to mitigate
legal, financial, and reputational risks
associated with human rights violations.
Moreover, a Human Rights Policy can
also enhance our relationships with key
stakeholders, including customers,
investors, regulators, and civil society
organisations. By engaging in transparent
and constructive dialogue about human
rights issues, we can build trust, and
credibility.
In 2023, we are committed to developing
and implementing a more comprehensive
Human Rights Policy that reflects our
values, priorities, and obligations under
international human rights standards. We
recognise that this is a challenging but
essential task, and we are committed to
working closely with our employees,
stakeholders, and partners to achieve our
vision of a more just and equitable world.
66 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Social responsibility
Over
US$2.5bn
investments in the country
over 25 years
Over
US$1.1bn
taxes paid since inception
Nostrum seeks to maximise the
value we bring to societies by
investing in efforts to support
economic and community
development. Nostrum is a
proud community partner
and strives to foster a culture of
the highest social responsibility
promoting environmental
cleanliness, high ethical
standards, philanthropy and
economic civic responsibility.
We are pleased that we were
able to contribute towards
these objectives to promote the
well-being of local residents and
the communities we operate in.
25 years of operations GRI 203-2,
413-1
in Kazakhstan
In 2022 we celebrated our 25th year of
operations in Kazakhstan. Zhaikmunai
is one of the leading employers in north-
western Kazakhstan, 92% of all employees
are Kazakhstan's nationals. Throughout
the years of its operations, the company
actively interacted with the local
community, providing sponsorship and
charitable assistance to various public
associations and local communities.
In 2022, the company supplied 24.3%
of crude oil production to the domestic
market and 100% of its produced dry
gas to NC QazaqGaz.
Zhaikmunai has paid over US$1.1bn of taxes
since inception to the local and federal
government authorities of the Republic of
Kazakhstan. Over 25 years, Zhaikmunai has
invested more than US$2.5bn in the country,
and its infrastructure is unique to the region
providing significant opportunities.
GRI 413-1
Philanthropy:
2022 key initiatives
We recognise that we must manage and
mitigate any potential risks and impacts
associated with our activities to support
the communities that may be affected by
our operations.
Our charity programs focus on improving
the social climate and quality of life of the
population, our employees, and their
family members.
Throughout 2022, the Company continued
to pay close attention to projects aimed
at supporting the culture, sports, and
educational programs and actively
interacting with the local community.
In 2022, the Company’s external social
support expenses amounted to
US$0.9 million and included the following:
Contribution to regional development
• allocated funds for the social
development of the region;
• allocated funds to support consumers
through the reduction of hydrocarbon
gas retail prices;
• provided support on an as-needed basis,
such as lending necessary equipment in
emergency situations in rural districts on
occasions of extreme snow or
infrastructure accidents;
• provided transportation to residents to
visit medical institutions and to vote in
public elections.
Supporting schools
• partially financed the repair of secondary
schools in settlements near the
infrastructure of Zhaikmunai;
• purchased school supplies for children
from low-income families through the
nationwide charity event "Road to School".
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 67
Strategic report
ESG review
Social responsibility continued
Supporting culture
• financed socially significant events on
the territories of the Company's activities;
• organised New Year’s dinner for 25
high-school students from the village of
Yanvarcevo including the provision of
transportation.
Promotion of sports
• our special emphasis is placed on
the development of children’s sports,
Nostrum sponsoring the participation
of talented children in Republican sports
competitions. In 2022, our regional
athletes recorded impressive victories
and took first and third place in various
categories in the Shotokan Karate-do
World Junior Championships.
Supporting healthcare
• financial support to children in need
of medical treatment;
• financial support to the specialised
children's preschool institutions for
procurement of healthcare facilities
and equipment.
GRI 207-4
Civil duty: Payment
to governments
Nostrum is committed to transparency
in its business activities and payments to
governments. We have a formal public
relations and government relations
procedure that regulates our relationships
with the local community and with
government, and details how and why we
engage with various stakeholder groups.
The Company realises the importance of
social partnership between business and
society for the sustainable development
of the regions of its operation and makes
a contribution to ensuring favourable
conditions and quality of life in the areas
of its core business.
In 2022, a total of US$31.87 million (in 2021:
US$12.65) was paid to governments by
Nostrum and its subsidiaries. We will report
on 2023 payments to governments in the
first half of 2024. For more details, please
see the Governance page of our website.
Nostrum takes this civic responsibility
seriously with the knowledge that paying
the right amount of taxes is directly linked to
local economic development and the ability
of local government to support its residents.
GRI 204-1
Economic
responsibility:
Spend with local suppliers
We are committed to partnering with local
companies and in 2022 we spent 54.25 %
(in 2021, 64%) of our supplier budget with
RoK national suppliers. The decrease
is caused by higher restructuring fees
paid to external foreign consultants.
Environmentally friendly:
Liquidation fund contribution
Under the terms of the Chinarevskoye PSA,
Nostrum is obliged to accumulate a cash
reserve liquidation fund which by the end
of the PSA should total US$12.0 million
earmarked for the elimination of
environmental consequences of our
operating activities. At the end of 2022,
US$8.2 million had been accumulated
(2021: US$7.8 million).
High ethical standards: Anti-
Corruption and Bribery Policy
For more information on the Group’s
Anti-Corruption and Bribery Policy,
please see page 98.
68 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Non-financial and Sustainability information statement
This section of the strategic report constitutes the Company’s Non-financial and Sustainability Information Statement, produced to
comply with sections 414CA and 414CB of the Companies Act. The information is incorporated by cross reference.
Reporting requirements
Policies and standards which govern our approach
Information necessary to understand our business and
its impact, policy due diligence and outcomes
Environmental matters
Annual environmental objectives
Environment, pages 70–78
Liquidation fund contribution in accordance with
the PSA
Communities and social review, pages 67–68
Employees
Group Code of Conduct and Human Rights
Our people, pages 63–66
Whistleblowing policy
Health and Safety policy
Health and safety, pages 57–62
Total Recordable Injury Frequency, page 57
Respect for human rights
Modern Slavery Statement
Our people, pages 63–66
Equality and Diversity Policy
Social matters
Sponsorship of community events
Communities and social review, pages 67–68
Anti-corruption and anti-bribery
Anti-corruption and bribery policy
Communities and social review, pages 67–68
Anti-facilitation of tax evasion policy
Our Governance Framework, pages 96–98
Payments to governments
Description of principal risks
Principal risks and uncertainties, pages 40–44
Description of the business model Business model, pages 24–25
Non-financial key performance
indicators
Key performance indicators, pages 26–27
Our strategic priorities, pages 18–20
TCFD index table
Our expanded TCFD disclosures can be found on the following pages:
TCFD Recommendation
TCFD Recommended Disclosure
Where reported
Governance
Disclose the
organisation’s governance
around climate related
risks and opportunities.
Strategy
Disclose the actual and
potential impacts of
climate-related risks and
opportunities on the
organisation’s business,
strategy, and financial
planning where such
information is material.
Risk management
Disclose how the
organisation identifies,
assesses, and manages
climate-related risks.
Metrics and targets
Disclose the metrics and
targets used to assess and
manage relevant climate-
related risks and
opportunities where such
information is material.
a) Describe the board’s oversight of climate-related risks and
• Page 80
opportunities.
b) Describe management’s role in assessing and managing
• Page 81
climate-related risks and opportunities.
a) Describe the climate-related risks and opportunities the
• Pages 82–83
organisation has identified over the short, medium, and long term.
b) Describe the impact of climate-related risks and opportunities on
• Pages 83–84
the organisation’s business, strategy, and financial planning.
c) Describe the resilience of the organisation’s strategy, taking into
• Pages 84–85
consideration different climate-related scenarios, including a 2°C
or lower scenario.
a) Describe the organisation’s processes for identifying and assessing
• Page 86
climate-related risks.
b) Describe the organisation’s processes for managing climate-
• Page 86
related risks.
c) Describe how processes for identifying, assessing, and managing
climate-related risks are integrated into the organisation’s overall
risk management.
a) Disclose the metrics used by the organisation to assess climate-
related risks and opportunities in line with risk management
process.
• Page 86
• Page 87
b) Disclose Scope 1, Scope 2 and if appropriate, Scope 3 GHG
• Page 87
emissions, and the related risks.
c) Describe the targets used by the organisation to manage climate-
related risks and opportunities and performance against targets.
• Page 87
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 69
Strategic report ESG review
Environment
Climate change
Nostrum is aware of the nature and scale
of the impact of its activities and correlates
them with the importance of efficient use
of natural resources, as well as preserving
a favourable environment and reducing
climate risks.
The nature of our business as a producer
contributes to GHG emissions and we
recognise that we must work to responsibly
minimise impact on the climate. Reducing
emissions is a corporate goal of top
importance.
Nostrum recognises that hydrocarbon
exploration and production is a major
contributor to GHG emissions and,
consequently, we have a responsibility to
work to address climate change. One of our
key corporate social responsibility goals in
2022 was to minimise the impact of our
operations on climate change. This remains
a key goal for Nostrum.
Most of our emissions are generated as a
result of the combustion of fuel gas within
gas turbine units, boilers, process heaters
and compressors. There are additional
emissions resulting from flaring which
happens when there is absolutely no other
alternative. Our levels of emissions are
decreasing year-on-year and can be viewed
in the chart below.
Current and future technological
investment is necessary for Nostrum to
continue to detect, monitor and prevent
GHG emissions. The Company has the
following technology in place to proactively
monitor, limit and reduce its GHG
emissions:
• 397 methane detectors to monitor
equipment maintenance and pressure
valve replacement exercises;
• Mobile methane detectors in gas
flowlines;
• Use of cross exchangers in all Gas
Treatment Units to pre-heat cold streams
entering a heated process system by use
of heat from hot streams exiting the
system and requiring cooling;
• Waste heat recovery system at CGTU-3
– exhaust gases from the compressor
units are used for heating the buildings
and preheating the utility fluids in the
plant, resulting in reduced fuel gas
consumption;
• Vapour Recovery Systems (VRS) installed
in oil and condensate tanks to inhibit
hydrocarbon evaporation during storage
and transfer;
• Hydrocarbon Recovery System (HCRS)
installed in LPG loading terminal to
prevent hydrocarbon ‘bleeding’ into the
atmosphere;
• 26 MW power station generates
electricity for use in the field and
therefore limits the use of diesel-powered
heaters, and;
• Well stock has local skids that will
automatically shut-in the well bore to
prevent full blowdown of the surface
lines and resultant GHG emitting.
Nostrum structures its activities to ensure
compliance with the emissions limits that
are established in the Environmental
Emissions Permit issued by Kazakhstan and
apply internal stretch targets that are much
more stringent than those approved by the
authorities.
When applying for an Environmental
Emissions Permit, draft norms of maximum
permissible emissions are calculated and
take into consideration the last 2-3 years of
historical data.
The Board is responsible for ensuring that
Nostrum complies fully with Listing Rule
14.3.27R and Listing Rule 9.8.6R(8) in this
annual report. In addition, the Board is also
responsible for the governance, strategies,
risk assessment, management systems and
KPIs that have been established for climate
change and GHG emissions.
Nostrum recognises its impact
on the environment and is
committed to a transition that
results in a cleaner energy mix.
We are focused on being a
responsible operator whose
activities are structured and
conducted in a manner that
minimises any adverse impacts
on the environments in which
we work. We abide by RoK
regulatory requirements which
are modelled on international
environmental protection
standards and are actively
working on emissions and waste
reduction initiatives. There
were no fines or other
sanctions against the Group
as regards non-compliance
with environmental
requirements in 2022.
70 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
GHG EMISSIONS FOR
GHG EMISSIONS FOR
SCOPE 1 & SCOPE 2 (TCO2E)
SCOPE 1 & SCOPE 2 (tCO2e)
2022
2021
2020
2019
2018
169,630
187,479
187,667
223,305
254,715
AIR EMISSIONS ACTUAL/PERMITTED (TONNES)
2022
2021
2020
4,186
6,426
4,305
6,609
4,234
7,928
Petroleum hydrocarbons
(C2-C19)
Carbon monoxide (CO)
Methane (CH4)
Nitrogen oxides (NOx)
Sulphur dioxide (SO2)
Dust, suspended solids,
particulate matter (PM)
Volatile organic
compounds (VOCs)
Metals and inorganic
compounds (Metals)
Permitted
Acids and other organic
chemicals (Organics)
Hydrogen sulphide (H2S)
GRI 305-1,
305-2
GHG emissions
reporting approach
Nostrum seeks to minimise all GHG
emissions and continues to invest in new
technologies to improve GHG emissions
performance. Nostrum strictly adheres to
both UK and Kazakhstan regulatory
requirements with regard to GHG
emissions and has been monitoring and
reporting GHG emissions since 2011.
As part of the new RoK regulations on
production and emission reporting, in the
first half of 2022, Nostrum has started
expansion on its “Automated Reporting
System” ("ARS”) by including approximately
700 “tags” in the process calculations,
allowing real time readout of data directly
related to process related GHG emissions.
In 2022, the first two of three phases of the
ARS were successfully implemented. The
third phase is ongoing and predicts the
build up and running of full scale live
Chinarevskoye field production accounting.
GHG module, encompassing monitoring,
reporting, verification and mitigation, as
well as non-GHG Air Emissions as an
integral part of ESG business process are
also covered. Modules calibration is
expected in Q3 2023. These actions will
ensure full compliance and aid the
reporting needs when third party gas will
be introduced. In this respect, a start was
made to modify the Sulphur Recovery Unit,
minimising non-hydrocarbon emissions
once the concentration of tail gas will
increase due to third party gas intake.
The objective is to improve surveillance,
increase transparency, develop a data-
driven culture that provides employees with
the ability to identify and act on insights,
targeting maximum energy efficiency with
a minimum carbon footprint through
proper monitoring, process digitalisation,
further process optimisation.
As a dual-listed entity, Nostrum adheres
to both UK and Kazakhstan reporting
requirements. The Company’s GHG
reporting period is aligned with the period
in respect of which the Directors’ Report is
prepared.
According to the new 2022-2025
Kazakhstan National GHG allocation Plan,
209,803 tonnes of CO2e were allocated to
Nostrum. Our actual CO2 emissions in 2022
were 165,995 tonnes and our actual GHG
emissions in CO2 equivalent were 169,630
tonnes, which include three other gas types
as provided in Table 4 on page 76.
More detailed information on GHG
emissions in 2022 are presented on
pages 74–77.
GRI 405-1
Future GHG
reduction initiatives
Nostrum is committed to minimising flaring
activity and flares only in accordance with
the terms of Kazakhstan Ministry of Energy
gas flaring permits. Timely maintenance
work conducted at our gas treatment
facilities has been shown to reduce the risks
of emergency or technical flaring, and the
implementation of a gas utilisation
programme has led to a decrease in gas
flaring. A small decrease in gas flaring in
2022 relative to 2021 was due to the smaller
scope of planned maintenance in 2022
relative to 2021.
In recent years, the Company has
implemented a number of projects which
have had a continuous GHG reduction
effect, such as:
• Well automation flaring prevention on
three wells during processing – 1,983.61
tCO2 e /year;
• Electric driven LPS compressor instead
of fuel gas driven – 1,697.76 tCO2 e/year;
• Waste Heat Recovery project at GTU-3
with an annual GHG reduction of 2,072
tonnes of CO2 e;
• Flaring reduction to the minimum
due to proper production optimisation
management, real time production
monitoring and by shutting down the
wells during any intervention with annual
GHG reduction 4,000+ tonnes of CO2e.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 71
Strategic report
ESG review
Environment continued
GAS UTILISATION AND FLARING
(MCM)
150
100
50
0
130.5
81.3
77.6
74.0
63.9
21.2
17.7
11.7
15.3
6.5
2018
2019
2020
2021
2022
Gas Flaring
Gas Utilisation
Linear (Gas Utilisation)
Climate disclosures
In 2022, for the fourth consecutive year,
we participated in the CDP (formerly
Carbon Disclosure Project), which is a
key medium for companies to disclose
their environmental impact and risk
management, as well as continue to
focus on greenhouse gas (GHG)
emission reduction strategies.
Our Climate Change response was
independently assessed, and in December
2022 Nostrum received an improved “B-”
score for the first time since participation
in this project. The Water management
section was also assessed at “B-“. As a
result, we met our KPI target for 2022
to get a better score and to move to the
Management Band (“B/B-“ score) from
the previous Awareness Band (“C/C-“ score)
on Climate change module. This score
evidences that the policies and procedures
we have developed over recent years are
positioning the Company to deal with the
issue of climate change now and into the
future. In addition, Nostrum with a “B-“ score
is better positioned than its peers in the oil
and gas industry with an average “C“ score.
The Company is also appraising and
investing in the following technologies to
assist in the proper identification,
accounting, and mitigation/reduction of
GHG emissions:
• Fuel gas flowmeters to allow proper
quantification and allocation of CO2
emissions;
• Full asset digitalisation – Integrated
production accounting and GHG
emission quantification tools that give a
holistic view of the entire hydrocarbon
value chain as well as forecasting
capabilities;
• Several projects that aim reduction
of the fuel gas consumption are being
evaluated targeting substantial reduction
of GHG Emissions and None GHG Air
Emissions: Construction of new fuel gas
line for Gas turbine TG-101, Installation
of a Waste Heat Recovery Boiler for amine
regeneration heat and technology line
requirements.
The technology for GHG detection and
quantification is constantly evolving,
however, the Company continues to
explore key technologies that will assist
with the objective of GHG emissions
reduction.
In order to further reduce GHG emissions,
the transportation of personnel working at
production facilities is made via buses
rather than the use of personal vehicles.
Nostrum is also considering various
additional GHG reduction initiatives
for 2023 and future years.
72 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Decommissioning
As per subsoil use legislation all production
facilities of the subsoil user and land must
be brought to a state that ensures safety
life, public health and environmental
protection. In addition to this, the
consequences activities of subsoil users
must be liquidated in the manner
prescribed by the legislation of the
Republic of Kazakhstan.
Subsoil use objects are liquidated in
accordance with the Liquidation Project,
developed by a design organisation that
has the appropriate license for
performance of works and provision of
services in the field of environmental
protection. All decommissioning measures
are specified in a Liquidation Project
developed by NIPI Neftegas.
“ As a mission-based non-profit that
runs the global environmental
disclosure system, CDP greatly values
the support of Nostrum. Urgent
system-wide action remains critical to
ensuring that we can limit global
warming to 1.5°C, avoid the worst
effects of climate change and
safeguard our planet’s natural
resources. Disclosure is the first key
step in addressing current and future
environmental risks. Nostrum has
demonstrated its commitment to
transparency around its
environmental impacts and strategies
for action by disclosing its
environmental data through CDP in
2022. Disclosure not only provides the
foundation for environmental action,
but brings tangible business benefits
for shareholders, customers and
employees alike.”
Dexter Galvin, CDP Global Director,
Corporations & Supply Chains, 2022
Waste, water and soil
management
The impact of Nostrum’s operational
activities on the environment is monitored
through detailed waste, water and soil
management systems. The Group
undertakes air, soil and sub-surface water
testing to ensure sanitary and
epidemiological compliance with Kazakh
legislation.
Nostrum monitors its regulatory obligations
on an ongoing basis and has systems in
place to track and report against these
requirements and commitments by
performing regular environmental
monitoring of waste, water and soil
at the Chinarevskoye field.
GRI 303-1,
303-2,
303-3
Water management
As part of our
environmental
responsibilities, we are
aware of the criticality of water resources
in water scarce regions where we operate
and recognise that availability of fresh water
is valuable. Therefore, it is a priority for us
to efficiently manage water consumption
and we endeavour to implement the most
efficient water management methods in
order to handle fresh water in a rational
and sustainable way.
We seek to fully understand and minimise
our operational water footprint and
manage our activities in a way that
protects our shared water resources.
We are committed to ensuring good
water management is in place at all
of our assets and undertake detailed
assessments, target setting, monitoring
and implementation of corrective actions.
Waste management
Waste management includes the daily control of sites for temporary storage of production
and consumption waste, accounting, transportation and transfer to a
third-party contractor.
GRI 306-1, 306-3
All generated waste is transferred under a contract to the following third-party
specialised organisations:
• West Dala LLP
• Help Ecoil LLP
• TuranPromResurs LLP
• Trans-Ecology IE
In 2022, the volume of waste generated at the Company’s facilities totalled 2,865 tonnes,
consisting of 40 different types of industrial (used filters, cartridges, medical wastes,
batteries, etc.) and domestic waste (plastic bottles, used paper), 86% of which was
transferred for processing by the abovementioned contracted companies.
Drilling waste was processed in the Field by Help Ecoil. Soil and water survey results
demonstrated compliance with all applicable environmental legislation.
Year
Waste generated, tonnes
Transferred for processing, tonnes
Transferred for processing, %
2019
21,855
15,059
68.90%
2020
2,151
1,496
2021
2,876
2,699
2022
2,865
2,462
69.50%
93.80%
85.93%
Nostrum’s water injection requirements are
up to 1,200 m3 per day (average injection
approximately 900 m3 per day), of which
500-650 m3 per day are injected from
formation water production. The deficit is
compensated through production from
water wells. None of these water wells
competes with fresh water supply to nearby
communities. Five out of seven injectors are
currently in operation with one disposal
well used as a backup. The current system
has sufficient capacity and flexibility to
handle forecasted water injection volumes.
The Company has initiated a series of
measures to improve formation water
treatment and injection processes. These
measures include focusing its resources on
process improvement in the treatment of
water used in upstream operations which
will lead to combating corrosion, reducing
oil contamination, reducing growth of
sulfate, reducing bacteria and the
formation of inorganic scale. A full
review was initiated in 2021 on process
effectiveness and chemical efficiencies and
mitigating actions taken. The deliverable
of this review is to ensure compliance with
Kazakhstan’s environmental regulations
and has the additional benefit of reducing
water treatment costs.
WATER WITHDRAWALS – VOLUMES
(%) BY SOURCE
0.03%
0.01%
665
216
99.96%
Recycled processed water
Dedicated ground water wells
Rainwater harvesting streams
Water Treatment & Injection System
Upgrade Phase I project is in the final stage.
Achieved some improvement by modifying
injection points of applied chemicals and
adding a second water storage tank (less
suspended solids in water). Field trials by
different vendors are ongoing. In case no
substantial improvement can be granted
by chemicals dosing than the possible
solution and associated costs (as well as
approximate improvement of the problem)
will be searched in Phase II of the project
which will potentially include modification/
adjustment of existing vessels/Introduction
of new vessels/Re-allocation of different
water streams or a mixed solution of these
options with different chemicals application.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 73
Strategic report
ESG review
Environment continued
FORMATION WATER PRODUCTION AND AVERAGE DAILY WATER PROFILE
(MCM)
1,600
1,200
800
400
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
AvgWatProd m3/d
AvgWatInj m3/d
Wastewater discharges GRI 303-4
Reasonable and careful conservation of the ecosystem with clean water, access to water resources is one of the main factors of sustainable
development. The Company's main approach to solving the problem of rational water use is to use water recycling and reuse systems,
increasing the degree of wastewater treatment and reducing water abstraction from natural sources.
To prevent the negative impact of wastewater on the environment, we process wastewater using special artificial reservoirs such as
evaporation ponds, filtration fields and a landfill for formation water and industrial wastewater.
We have the following artificial ponds:
• Evaporation ponds GTP-1,2,3 “conditionally clean” storm wastewater;
• Polygon for formation water and industrial wastewater disposal;
• Filtration fields, domestic wastewater after treatment at the liquid mud plant.
Disposal of Domestic and Sanitary Wastewater in 2020-2022
Disposal indices
Permitted
Actual
Permitted
Actual
Permitted
Disposed Sanitary Wastewater, m3
Discharges to ponds evaporators, m3 GTU-1,2,3
Drilling wastewater and associated water, m3
85,775
84,810
45,900
25,090
21,398
1,740
85,775
84,810
45,900
26,188
22,338
4,573
85,775
84,810
35,000
Actual
26,191
44,748
2,757
2020
2021
2022
For more detailed information, please visit our website at www.nostrumoilandgas.com.
Energy and resource efficiency policy and methane emissions management policy
During 2022, the Company issued on its website the “Methane Statement” and developed an “Energy Efficiency report” with short,
medium and long term ESG targets. Nostrum continues to review and expand on metrics for reporting environmental, social, and
governance (ESG) performance. A set of short/long-term actions with accounted metrics and interim targets has been established
in 2022 addressing all areas and entities of energy efficiency improvement.
Based on 2022 approved project list
Projected % reduction of GHG emissions comparing to 2022 baseline*
Projected % reduction of non-GHG emissions comparing to 2022 baseline*
Projected % reduction of waste comparing to 2022 baseline*
Projected % reduction of water use comparing to 2022 baseline*
* Targets are for current CHN operating module only. New strategic projects will have its own targets
2023
5%
5%
8%
5%
2024
8%
8%
12%
10%
2025
10%
10%
15%
10%
74 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Renewable energy use GRI 302-1
In 2022, in accordance with the Rules of Determination of Rate for Support of Renewable Energy Resources (RES), Nostrum purchased
1,580 thousand kWh of electricity from environmentally safe RES for own needs, representing 1.7% of Nostrum’s total electricity
consumption. The RES are provided by “Settlement and Financial Center to Support Renewable Energy Sources” LLP.
Table 1: Volume and % of renewable energy use
Year
2018
2019
2020
2021
2022
Total energy
use, kWh
Renewable
energy use,
kWh
% of
renewable
energy use
155,938,801
536,242
110,007,715
2,122,070
97,611,929
2,064,228
93,236,708
2,156,969
92,702,024
1,580,212
0.34%
1.93%
2.11%
2.31%
1.70%
In 2023, we will continue to take action for developing renewable energy sources of energy saving and energy efficiency.
GHG emission results GRI 305-1, 305-2
Kazakhstan signed the Paris Agreement on August 2, 2016 and ratified it on November 4 of the same year. All Parties to the Paris
Agreement have their own commitments to reduce greenhouse gas emissions. Kazakhstan has set itself an ambitious unconditional
goal – by 2030 to reduce greenhouse gas emissions by 15% from the 1990 level.
Starting from 2021, quotas are based entirely on the application of the benchmarking method. Greenhouse gas emission quotas in the
National GHG allocation plan for 2021 were calculated by multiplying the benchmarks by the average value of production for 2017-2019.
In the National GHG allocation plan for 2022-2025 quotas to companies were also calculated entirely by applying the benchmarking
method. Carbon credits in the National GHG allocation for 2022-2025 were calculated by multiplying the benchmarks by the average
value of production for 2017-2019. considering commitments to reduce greenhouse gas emissions.
The following GHG quotas have been set for Nostrum in a National GHG allocation plan for 2022-2025.
2022
2023
2024
2025
209 803
206 650
203 562
200 495
Direct GHG emissions (Scope 1) sources are flares, heaters, incinerators, boilers, gas turbine plants, electric power stations and
compressors.
Total direct GHG emissions (Scope 1) subdivided by gas types and by sources are summarised below in Tables 1 and 2. No further
ecological data is available for publication. Consequently, additional disclosures in relation to materials used, products and services,
waste management, water consumption, energy consumption and energy efficiency, emergency and intermittent pollution episodes,
wastewater discharges, atmospheric emissions of greenhouse gases and other pollutants, environmental protection and biodiversity are
not possible.
The Company carried out inaugural works on preparing an analysis and calculations for Scope 3 GHG emissions for one category
(category 5 – Waste Generated in Operations) for 2022 (352 tons of CO2 for one category in 2022). This is the Company's first step in
disclosing Scope 3 emissions. Detailed results of Scope 3 calculations on Wastes generated in Operations will be covered in CDP
submission for 2022.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 75
Strategic report ESG review
Environment continued
Table 2: Scope 1 GHG emissions subdivided by gas type (tCO2e)
Carbon dioxide
Methane
Nitrous oxide
Hydrofluorocarbons
Total
2016
2017
2018
2019
2020
2021
2022
195,453
242,276
244,379
213,520
180,527
180,922
165,995
10,817
1,046
345
10,723
1,305
28
8,436
1,304
37
8,429
1,034
24
6,133
917
28
5,614
903
28
3,600
7
24
207,350
254,332
254,156
223,008
187,598
187,467
169,625
A breakdown of GHG emissions by gas type is shown in Table 1. The GHG emissions predominantly consisted of carbon dioxide and
methane. Scope 1 emissions are generated directly by equipment owned and operated by the Group. The equipment includes boilers,
heaters, diesel stations, gas turbine units and compressors. Scope 1 emissions also include flaring and hydrofluorocarbons emitted by
refrigeration units and climate control systems, such as air conditioners.
Table 3: Scope 1 GHG emissions subdivided by source types (tCO2e)
2016
2017
2018
2019
2020
2021
2022
Stationary combustion
195,576
243,001
245,362
214,536
181,403
181,765
166,284
Mobile combustion
Fugitive sources
Total
758
435
11,016
10,896
105
8,536
89
8,359
66
6,130
86
5,616
112
3,229
207,350
254,332
254,003
223,008
187,599
187,467
169,625
Stationary combustion sources formed the majority of emitted GHGs.
Indirect GHG emissions (Scope 2)
Nostrum does not use purchased steam, heating or cooling. Electrical power is the only purchased power related to indirect GHG
emissions and it is supplied to Nostrum facilities via the Zelenovskaya distribution network (ZapKazREK JSC), through its subsidiary Batys
Energoresursy LLC. The regional emission factor (0.27086 tCO2/MWh) was calculated using Methodological Guidelines for the
Calculation of GHG Emissions from Electrical Power Stations and Boiler Houses (Astana, 2010) and the regional net thermal efficiency of
Urals Natural Gas Fired Power Plants (73.3%).
Total direct and indirect GHG emissions (Scope 1 and Scope 2) and total GHG emissions are summarised in Table 3.
Table 4: Scope 1, Scope 2 and total GHG emissions (tCO2e)
Direct energy (Scope 1)
Indirect energy (Scope 2)
Total
2016
2017
2018
2019
2020
2021
2022
207,350
254,332
254,156
223,008
187,599
187,467
169,625
2,263
640
559
297
68
12
5
209,613
254,972
254,715
223,305
187,667
187,479
169,630
76 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Emissions intensity ratio GRI 305-4
Tonnes of CO2 per tonne of output is a recommended intensity ratio for the oil and gas sector, as per Appendix F of the UK Government’s
Defra Environmental Reporting Guidelines (2013). Taking into account the variety of products of Nostrum – crude oil, stabilised condensate,
LPG and dry gas – the chosen intensity ratio is expressed in metric tonnes of CO2e (mtCO2e) per tonne of oil equivalent (mmboe).
Table 4 shows intensity ratios for total (Scope 1 and Scope 2) emissions in the period 2016-2022.
Table 5: Emissions intensity ratios for total GHG emissions
2016
2017
2018
2019
2020
2021
2022
Production, tonnes of oil equivalent
(toe)
tCO2/toe
Production, mmboe
tCO2/mmboe
2,156,171
2,088,917
1,878,026
1,520,928
1,186,383
907,648
703,430
0.097
14.8
0.122
14.3
0.136
12.9
0.1
10.0
0.2
8.1
0.2
6.2
0.2
4.8
14,193
17,820
19,801
21,434
23,094.8
30,157
35,207
Table 6: Global GHG emissions and energy use data
Gross emissions of air pollutants into atmosphere
2019
0.0037
2020
0.0035
2021
0.0048
2022
0.0060
Current reporting year 2023
Comparison reporting year 2022
Emissions from activities which
the Company owns or controls,
including combustion of fuel &
operation of facilities (Scope 1)
tCO2e
Emissions from purchase of
electricity, heat, steam and
cooling purchased for own use
(Scope 2, location-based) tCO2e
UK and
offshore 1
No data
collection
No data
collection
Total gross Scope 1 + Scope 2
emissions tCO2e
No data
collection
Energy consumption used to
calculate Scope 1 emissions: kWh
No data
collection
Energy consumption used to
calculate Scope 2 emissions: kWh
No data
collection
Total energy consumption used
to calculate Scope 1 and Scope 2
emissions: kWh
No data
collection
Intensity ratio: tCO2e
(gross Scope 1 + 2)/ mmboe
Methodology
No data
collection
No data
collection
Principal measures taken for the
purpose of increasing the
Company’s energy efficiency.
None
Global (excluding
UK and offshore)
UK and
offshore 1
169,625.0 No data
collection
Global (excluding
UK and offshore)
187,467.0
4.9 No data
collection
169,629.9 No data
collection
12.2
187.479.3
No data collection No data
No data collection
collection
No data collection No data
No data collection
collection
377 037 468.4 No data
377 064 532.4
collection
35,207.0 No data
30,157.0
collection
No data
collection
Kazakhstan methodical
guidelines. KwH calculated
based on 1.36E+15 J own
generated energy plus
purchased electricity.
None None
Kazakhstan methodical guidelines. KwH
calculated based on 1.36E+15 J own generated
energy plus purchased electricity.
Nostrum replaced oil heaters with heaters
powered by gas; installed devices at well-sites
to automatically close the wells in the case of
shutdown, preventing blowdown by flaring;
and installed measuring devices in flowlines
and other devices allowing for future
optimisation. Following an energy efficiency
audit, Nostrum replaced 115 fluorescent lamps
with LED lamps.
1. In Belgium, the Netherlands and the UK, the Group rents serviced office space but the owner does not collect the data required to be reported.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 77
Strategic report ESG review
Environment continued
In-process control of labour
conditions at production facilities
Air measurement at work space,
measurement of lighting, microclimate,
noise, vibration, electromagnetic field and
power station were made to identify
discrepancies at the workplace.
All necessary measurements and
investigations at Zhaikmunai LLP facilities
are carried out by specialized contractor
companies that work on a contract basis
and have all permits (accreditation
certificate) to perform the above-
mentioned works. The results of in-process
control are reported to relevant regulatory
authorities. Industrial environmental control
report is uploaded to electronic
environmental portal.
In May 2022, Sanitary and Epidemiological
Control Department of Baiterek Region
conducted an inspection of catering unit at
Oil Terminal. This inspection identified no
violations.
No sanitary and epidemiological control
inspections were made at the remaining
Zhaikmunai LLP facilities in 2022 due to the
fact that no violations were identified
during inspection in 2021.
Environmental Performance –
2022 Paryz award
In 2022 Zhaikmunai participated in the
republican competition on social
responsibility of business "Paryz-2022". This
competition has been held on the initiative
of the first President of the country since
2008.
In accordance with the Rules, the awarding
of the titles of laureates of the competition
is carried out in the following nominations:
• Best Socially Responsible Enterprise
• The best enterprise in the field of labour
protection
• Best Collective Agreement
• For contribution to the environment
In November 2022 the Company received
«Paryz» awards including Diploma signed
by Mr. President Tokayev on a country level
and Diploma from Akim of the West
Kazakhstan on a regional level «For
Contribution to the Environment» as we
have significantly distinguished ourselves in
the implementation of environmental
programs aimed at improving the state of
the environment category.
In-process control, monitoring and
health protection
The Company’s main priority is the
compliance with all RoK legal requirements
in the field of environment protection,
labour conditions at production facilities
and health protection. In this regard,
Zhaikmunai exercises in-process control in
various fields.
Industrial environmental
monitoring (IEM) and control
IEM has been performed under the
Industrial Environmental Monitoring
Program developed based on
requirements of RoK Environmental Code
and other environmental regulatory &
procedural documents and instructions.
The program provides for environmental
emissions monitoring and environmental
medium impact monitoring of Zhaikmunai
operations.
Ambient air sampling Industrial
emissions measurements
Ambient air quality study was made in
Beles, Sulukol, Chinarevo villages at
Chinarevskoye Field sanitary protection
zone (hereinafter “CF”), Camp-3, transfer
point at Terminal and sanitary protection
zone of Oil Loading Terminal.
Water samples were taken from
Yembulatovka River, evaporation ponds at
GTU-1/2 and GTU-3 and from sewage
treatment plant of Camp-3. Soil samples
were taken once a year at sanitary
protection zone: CF, Oil Terminal, transfer
point, Camp-3.
In-process control in canteens
In-process control in Zhaikmunai canteens
is performed on a quarterly basis. Samples
of cooked dishes, salads, wash-offs and
water were taken for bacteriological and
chemical analysis. Measurements of
lighting, microclimate, noise and ventilation
system operation measurements were
made at working places. Remedial actions
were undertaken to address non-
compliance, and exactly – lighting
equipment replaced, air conditioners
repaired, bactericidal lamp replaced in the
water treatment system.
78 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Taskforce on Climate-related Financial Disclosure (TCFD)
GRI 2-14, 201-2
Taskforce on Climate-related
Financial Disclosure (TCFD)
TCFD Statement
We are working towards making our
climate-related financial disclosures fully
compliant with the TCFD Recommendations
and Recommended Disclosures and hence
compliant with FCA Listing Rule 9.8.6R (8).
We have made below disclosures against
each TCFD Recommendation and
Recommended Disclosure – noting where
the Company is in full or partial compliance
or where further work is planned to be
undertaken to report in the 2023 Annual
Report & Accounts.
When making assessments and preparing
disclosures we have considered whether
particular issues and related information
may influence the economic decisions of
the stakeholders. Such approach is in line
with guidance and recommendations
provided by TCFD in relation to materiality
of information. Furthermore, the process
of assessment of risks and their potential
financial impact involved use of
judgements and estimates, which we
believe are consistent with the TCFD
Recommendations and Recommended
Disclosures.
We are fully committed
to following TCFD’s
recommendations and
will continue our journey
of continuous improvement
of disclosures and reporting
on how climate-related risks
can impact Nostrum’s
operations and how our
strategies and mitigating
plans evolve to ensure we
maintain a sustainable
business in line with the
stakeholders’ expectations.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 79
Strategic report Taskforce on Climate-related Financial Disclosure (TCFD)
Governance
TCFD recommendation: Disclose the organization’s governance around climate related
risks and opportunities.
Read more about our governance on pages 88-127.
a) Describe the board’s oversight of climate-related risks and opportunities.
The table below sets out some examples from where the Board and its committees considered climate-related issues in 2022 and 2023
to date:
Forum
How climate-related matters have been considered
The Board
The Board and its associated committees, including the Strategy, Audit and Nomination and Governance Committees,
(and Health, Safety, Environment and Communities Committee in 2022) where appropriate, have oversight of climate-
related matters, which include climate risks and opportunities. Material issues and principal risks, including climate
change indicators, are reviewed by the Board and committees.
Monitoring and performing management
The Board recognises that there may be potential financial implications in the future from changes in legislation
and regulations intended to address climate change risk. In relation to these matters the Board also:
• Reviews material issues and principal risks, including climate change indicators;
• Sets general policy related to climate risks and opportunities, identifies where further actions are required and
delegates authorities accordingly. This includes progress on emissions reduction, general environmental
performance, developments in climate-related regulation and cost impacts;
• Approves material issues and principal risks, including climate change indicators and progress against those
KPIs monitored.
Risk Management
ESG matters form an integral part of the areas covered by the Group’s systems of risk management and internal controls,
and the Board recognises their significance and importance. Identified ESG risks and related responses can be seen
within Operational, Climate Change and Other risks in the “Principal risks and uncertainties” disclosure on pages 40–44.
The Board receives appropriate information for managing such risks. Management is responsible for ensuring that
systems of risk management and internal control are in place to effectively manage and monitor climate-related risks
and other ESG matters.
Capital or operating expenditure
Significant capex or operating expenditures are also considered from the perspective of their climate-related impact.
Following areas of the Audit Committee responsibilities are relevant for the climate-related matters:
• Oversight of management’s process for identifying ESG risks and internal controls processes to ensure the accuracy
and completeness of ESG information;
• Monitoring of the performance against agreed and defined KPIs in respect of the Group’s ESG financial reporting
disclosures and seeking independent assurance on behalf of the Board, where appropriate;
• Review of the Company’s disclosures in the annual report in relation to the TCFD Disclosures and climate-related
emerging risks.
Audit
Committee
Read more
on pages
99–105
Strategy
Committee
Emerging risks are identified, assessed and monitored at the HSE and ESG Committees led by CEO, and further
escalated by CEO to the Strategy Committee of the Board, where necessary. Annual KPIs relating to climate change
and emissions targets are approved by the Board and progress against those KPIs monitored.
The newly established Strategy Committee is responsible for advising the Board on short-term, medium-term and
long-term strategic decisions of the Company, including:
• Assessing the corporate and strategic performance of the Company and its subsidiaries, and forming a wide view
on the adequacy of progress made in achieving strategic objectives and outcomes, and of the systems to measure,
monitor and deliver on them.
• Supporting the Board and Senior Management in formulating the overall strategy for the Company, with particular
emphasis on horizon scanning, priorities, activities and outcomes.
• Considering reports on overall performance in respect of the achievement of the objectives and outcomes contained
within the Corporate Strategy.
• Engaging in discussions with the Board on the development, content and review of strategic plans stemming from
the Corporate Strategy.
• Reviewing determined KPIs to assess performance with respect to the Group’s strategy;
• Reviewing and approving the Business Plan and Budget for the Company and its subsidiaries for each financial year
and recommending for approval by the full Board.
80 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Climate Change Organisational Structure
Board of Directors of
Nostrum Oil & Gas
Strategy
Committee
Remuneration
Committee
Audit
Committee
Nomination &
Governance
Committee
ESG Committee
Health, Safety,
Environment Committee
Chief Executive
Officer
Senior
Management
Functional
leaders & staff
b) Describe management’s role in
assessing and managing climate-
related risks and opportunities.
Until the end of 2022, the Health, Safety,
Environment and Communities Committee
provided a deep-dive in HSEC areas
(including climate change) to the Board.
Since the restructuring completed in 2023,
the newly formed HSE and ESG committees
on the level of Senior Management have
responsibility for ESG related matters
including climate-change related issues
and execution of ESG-related targets and
projects. Both committees are sponsored
and chaired by the Chief Executive Officer,
with meetings held prior to each Board
meeting. Members of the Board have
standing invitations to attend the HSE and
ESG Committee meetings.
The Chief Executive Officer reports at
Board meetings on HSE and ESG matters
including performance against climate-
change related KPIs. The Chief Operating
Officer is responsible for day-to-day
operations, including the identification
and evaluation of climate-related risks and
opportunities. The Group Head of QHSE is
responsible for the day-to-day
management of HSE matters including
climate-change related risks. Both the Chief
Operating Officer and Group Head of QHSE
report directly to the Chief Executive Officer.
The Chief Executive Officer, Chief
Operating Officer and Group Head of
QHSE together with appropriate
operational staff meet at least eight times a
year at HSE Committee meetings. The HSE
Committee monitors all HSE matters
including those relating to climate-change,
monitoring and reducing emissions,
progress against KPIs, water and waste
management, compliance with RoK
statutory emissions, the climate-related
impact of any significant capex or operating
expenditure and identifying and agreeing
on a course of action on climate-related
initiatives, including energy reduction/
transition, emission management and
prevention of unnecessary flaring. The HSE
Committee also assesses preparedness
and ensures focus in respect of statutory
reporting requirements such as TCFD and
changing legislative environments and
investor requirements in the UK,
Kazakhstan and internationally. Climate-
related matters discussed at the HSE
Committee drive climate related KPIs
proposed by management to the Board.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 81
Strategic report Taskforce on Climate-related Financial Disclosure (TCFD)
Strategy
TCFD recommendation:
Disclose the actual and
potential impacts of
climate-related risks and
opportunities on the
organisation’s businesses,
strategy, and financial
planning where such
information is material.
Read more about our strategy
on pages 18–20.
a) Describe the climate-related
risks and opportunities the
organisation has identified over
the short, medium, and long term.
The following table outlines the climate-
related risks (transition and physical) and
opportunities identified as relevant to
Nostrum. The impact of these risks and
opportunities in the short, medium, and
long term horizons is indicated in the table.
Short
term
Medium
term
Long
term
Transition Risks
Policy
and Legal
• Regulatory and statutory reporting obligations
by the Republic of Kazakhstan leading to higher
compliance costs.
• Global and regional litigation relating to climate
change that lead to present or future financial
obligations for the Group. These include, but
not limited to, imposition of carbon taxation,
fines for flaring or more punitive mineral
extraction State taxation.
• Policy changes that potentially lead to early
asset retirement, such as emissions targets
which put pressure on E&Ps to cease operations.
Further changes include carbon pricing which
may make operations commercially unviable
and fast-track the retirement of our assets.
Technology • New capital investments that reduce emissions
may lead to reallocation of internal funds for
investment purposes. Capital may be dedicated
to non-value accretive ventures and there may
be ongoing costs associated to adopting the
technology.
Market
• Changing global demand for products may
result in lower demand for Nostrum’s product
base and decrease in revenues.
• Hydrocarbon market prices across all Nostrum’s
products (Brent crude oil, stabilised condensate,
LPG, dry gas).
• Increased cost of raw materials due to climate-
related supply disruptions.
Reputation • Increased stakeholder concerns may result in
key stakeholders becoming disengaged with
the investment story.
• Changing perception of climate change may
limit Nostrum’s access to capital markets for
future growth opportunities.
Physical Risks
Acute
• Severe weather events such as floods from local
rivers that lead to disruption in our field
production and sales to final off-taker customers.
Chronic
• Severe weather events such as increased snow
and rain can lead to disruption in our field
production and sales to final off-taker customers.
Opportunities
Resource
efficiency
• Reduced water usage and consumption can
lead to reduced operating costs.
• Making head office and field buildings energy
efficient will lead to lower costs, higher fixed
asset valuations and increased employee
satisfaction.
Key
Risk/opportunity present but has
a potentially minor financial impact
Risk/opportunity is present and has
a potentially medium financial impact
Risk/opportunity persists and has potentially
material financial impact
Energy
source
• Continued use of own gas for electricity needs
means no exposure to power price increases in
the region.
• Investment in new technologies to become
energy efficient may result in lower GHG
emissions.
82 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
For the purpose of TCFD reporting the
Board and Senior Management Team
define time horizons as the following:
Short term: four-year period to the end
of 2026 as defined by a business plan
covering the period of the debt
post-restructuring. The Company has a
detailed financial plan which is actively
managed and adapted according to
changes in external circumstances. The
International Energy Agency’s
Sustainable Development Scenario
forecasts fossil fuels to remain in the
energy mix for a reasonable period; and
as such we deem the climate-related
risks to be present in the short-term but
not as prevalent as they would be in the
medium and long term.
Medium term: 10-year period to the end
of 2032. This covers the full term of the
PSA and is defined by annual cash flow
and valuation models for the
Chinarevskoye field and the signed Ural
O&G processing agreement. Projections
over the medium term will adjust
according to the longer-term
Sustainable Development Scenarios.
Climate-related risks are factored into
investment decisions on the
Chinarevskoye field. Economics
assessments are performed on various
hydrocarbon price and off-take demand
scenarios and, where investment hurdles
are not met, the Board will not
incorporate those field investment
proposals into the Group’s strategy.
Long term: period covering beyond
2031. This is defined by opportunities
identified in line with the Group’s
strategic initiatives. We believe that the
biggest climate-related risks will impact
our strategy in the long term. To execute
our strategic initiatives, we may require
access to financial and capital markets.
As the shift towards a cleaner global
economy accelerates, we may find
finance providers want to reduce their
exposure to the oil and gas sector and
our ability to borrow to fund large-scale
investment programmes may be limited.
Other risks include the ability to access
the insurance markets for standard oil
and gas insurance which might leave the
Company exposed to extreme negative
events.
Policy and legal risks which Nostrum is
facing, similar to other players in the oil &
gas industry, through increased statutory
regulation, through carbon taxes or
punitive flaring fines or outright bans in
various jurisdictions. These pressures may
lead to increased financial costs for the
business through future taxes, penalties
and fines. We believe this risk is relatively
small in the short-term but grows over time
as the global movement towards net zero
strengthens.
Technological risks are highlighted as a risk
that will impact the Company in the
medium and long-term. We believe as
global and jurisdictional legislation evolves,
we may need to allocate capital into
emissions reduction investments such as
carbon capture and storage. The financial
impact on the Company can result from
pressure to invest capital into non-value
accretive projects (i.e. projects that do not
provide direct revenue) and therefore
impacting the medium-long term value of
the Company. In the short-term, we do not
face pressures to invest in such
technologies.
Market risks exist through reduction in
fossil fuel demand and, hence, a reduction
in our revenues, although we view this risk
to be more prevalent in the medium and
long term. In the short-term, the Company
has long-standing offtake relationships
which guarantees short-term demand for
products. However, we note in the longer
term our customers may transition away
from fossil fuels and, hence, the financial
impact on the Company will be through
reduced revenues.
Reputational risks include facing
increasing pressure from our shareholders
and noteholders to transition towards
cleaner hydrocarbons and energy sources,
but also increasing difficulty in accessing
financing for various projects. We believe
this risk is less of a concern in the short-term
since the Company has longstanding
relations with its key shareholders (and
noteholders through the restructuring) and
has no concern over pressures to adopt
stricter measures, nor has access to the
capital markets been restricted. We do
however feel this becomes a bigger risk in
the medium and long term.
Physical risks we face today include severe
snow conditions that make operating the
field difficult and can lead to disruptions to
production. As climate change continues
on the path it is today, we believe these
severe weather events will occur more
regularly and during unexpected periods
of time and may further impact the
business operationally and financially.
Today, we operate successfully in the
middle of winter where temperatures on
the ground can drop to -300 C. If
temperatures were to drop lower due to
climate change, this could impact
operations negatively. Further, flood events
with overflowing riverbanks can severely
impact our ability to transport LPG to the
market and hence reduce our revenues.
Opportunities exist through the use of our
own gas for electricity needs. We do this
today and will continue to do this in the
medium and longer-term to be as
resourceful as possible. Financially, this saves
us money by not purchasing electricity from
the grid. Making our offices energy efficient
is an opportunity that has been identified for
the medium-to-long term.
b) Describe the impact of climate-
related risks and opportunities on
the organization’s businesses,
strategy, and financial planning.
We acknowledge that the transition to a
lower carbon economy presents both risks
and opportunities for Nostrum. As
described above, the impact on our
short-term strategy and financial planning
remains minimal, but we have in place the
necessary flexibility to adapt as and when
we see the risks evolve. In respect of
medium term and long-term financial
planning, we are cognizant of the climate-
related risks and our ability to execute
various projects. Hurdle rates have
increased on various investment proposals
with carbon intensity, stressed hydrocarbon
price scenarios and energy demand
scenarios factored into decision papers.
With respect to physical risks, we have
factored this into our strategic planning
through extended and more frequent
maintenance periods. This reflects a period
of downtime during which operations and
revenues cease.
We deem all transition risks (policy and
legal, market, technological and reputation)
to be material for the business in our
strategic and financial planning. The
transition risks, as outlined in (a) above,
impact (i) reduced demand and lower
pricing for our final products – resulting in
lower future revenues, (ii) higher supply and
material costs in our supply chain as
suppliers shift away from servicing the oil
and gas industry leaving a small number of
viable options, (iii) high investment spend
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 83
Strategic report Taskforce on Climate-related Financial Disclosure (TCFD)
Strategy continued
relating to climate risk mitigation activities
through increased spend on climate-
related research and development and
operationally through increased downtime
due to extreme weather events.
All transition risks are provided equal
weighting in our future business, strategy
and financial planning. For physical risks,
while important from a governance
perspective, we apply a slightly lower
weighting in our planning. Whilst present,
we deem the financial and operational
impact to be lower as we currently operate
successfully in extreme weather today
and believe we will do so going forwards.
We take a conservative approach in our
forward planning and therefore do not
factor in opportunities that may arise in
the short, medium or long-term through
climate change.
As described in the Governance section,
we have a robust climate-change
governance matrix in place to consider
these risks widely. We have now devoted
more resources into this governance matrix
(including reporting) and these features in
our future strategic and financial planning.
The matrix looks at the strength of the risks
and opportunities identified in a) above
across the short, medium and long-term
and assesses which of those risks has a
direct financial impact.
In our CDP Climate Change submission for
2022, we estimated the financial impact of
several of the transition and physical risks
outlined above. Our ambition is to upgrade
the climate disclosure area and CDP rating
for our Climate Change response and
Water. Based on the results of the
disclosure of data on the use and
conservation of water resources the CDP
climate rating has been improved to "B-"
in 2022 from "C" in 2021, which is in line
with the global industry indicator.
c) Describe the resilience of the
organization’s strategy, taking
into consideration different
climate-related scenarios,
including a 2°C or lower scenario.
We adopted the Sustainable Development
Scenarios (SDS) referenced in the World
Energy Outlook 2021. The SDS represents
a gateway to the outcomes targeted by the
Paris Agreement and is based on a surge
in clean energy policies, investment in
clean technologies and assumes all net
zero pledges are achieved in full (advanced
economies by 2050, China by 2060 and all
other countries by 2070). Under SDS, global
temperatures rise to 1.65°C with 50%
probability and a rise of 1.5°C reached
by 2100.
We refer to the Viability Statement sections
where we consider the resilience of our
strategy in the short term pursuant to the
SDS. Following outlines our key SDS policy
assumptions and the specific policy
measure assumptions that will impact
the business:
Sustainable Development Assumptions
Specific measure impacting Nostrum’s strategy
Application of measure to Nostrum Viability
assessment
Cross-cutting policies
• Staggered introduction of CO2 prices
• Flat reduction in hydrocarbon demand
• Maximum sulphur content of oil and gas
by 10% in the next three years.
products capped
• Policies promoting production and use of
alternative fuels and technologies
(including CCUS)
• Compliance cost increase of $2 million
per annum to account for breaches in
sulphur requirement (estimate).
Power sector policies
• Efficiency and emissions standards that
• 5% higher operating expenses and 5%
prevents the refurbishment of old
higher capital expenses assumed for
inefficient fossil fuel plants
• Stringent pollution emissions limits
upgrade works and ongoing
maintenance to make Nostrum’s
facilities efficient.
• $2 million per annum compliance cost
for pollution limit breaches.
Buildings sector policies
• Phase out least efficient appliances
• 5% higher general & administrative costs
for efficiency appliances in the head and
regional offices as well as energy
performance standard impositions.
Transport sector policies
• On road vehicle stock emissions intensity
• 5% reduction in sales volumes as:
by 2030
• Mandatory energy performance
standards for appliances
• Net zero requirements for all new
buildings by 2030
• Energy efficiency and CO2 emissions
reduction measures in buildings
limits
• Emission limit restrictions on light and
heavy-duty vehicles
• GHG emissions reduction strategy for
international shipping
• LPG sales are delayed due to renting /
purchasing emission compliant
vehicles for transportation.
• Crude and condensate volumes as
shipping offtakers for those products
face difficulty in chartering ships
whilst meeting international
emissions quotas.
Industry sector policies
• Policies to support CCUS
• Mandatory energy management systems
or energy audits
• 5% higher capital expenditures as the
Company begins research and
development into emissions-reducing
technology.
84 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Sustainable Development Assumptions
Specific measure impacting Nostrum’s strategy
Application of measure to Nostrum Viability
assessment
Cross-cutting policies
Power sector policies
Buildings sector policies
Transport sector policies
• Staggered introduction of CO2 prices
• Flat reduction in hydrocarbon demand
• Maximum sulphur content of oil and gas
by 10% in the next three years.
products capped
• Policies promoting production and use of
alternative fuels and technologies
(including CCUS)
• Compliance cost increase of $2 million
per annum to account for breaches in
sulphur requirement (estimate).
• Efficiency and emissions standards that
prevents the refurbishment of old
inefficient fossil fuel plants
• Stringent pollution emissions limits
• 5% higher operating expenses and 5%
higher capital expenses assumed for
upgrade works and ongoing
maintenance to make Nostrum’s
facilities efficient.
• $2 million per annum compliance cost
for pollution limit breaches.
• Phase out least efficient appliances
by 2030
• Mandatory energy performance
standards for appliances
• Net zero requirements for all new
buildings by 2030
• Energy efficiency and CO2 emissions
reduction measures in buildings
• 5% higher general & administrative costs
for efficiency appliances in the head and
regional offices as well as energy
performance standard impositions.
• On road vehicle stock emissions intensity
• 5% reduction in sales volumes as:
limits
• Emission limit restrictions on light and
heavy-duty vehicles
• GHG emissions reduction strategy for
international shipping
• LPG sales are delayed due to renting /
purchasing emission compliant
vehicles for transportation.
• Crude and condensate volumes as
shipping offtakers for those products
face difficulty in chartering ships
whilst meeting international
emissions quotas.
The Group’s application of the SDS policy
measure assumptions (shown in the third
column) is a high-level conservative
estimate. In the absence of detailed analysis,
we chose extreme scenarios to test our
short-term strategy against the SDS
scenario. We intend to perform a further
assessment of these specific policy
measures and the likely quantitative impact
to our strategy across all time horizons in
2023. Our assessment will involve working
out our strategy and operational activities
around this climate change scenario, setting
targets and communicating those in next
year’s TCFD reporting.
Stressing our short-term financial projections
for these high-level conservative policy
measure assumptions demonstrates that
the Company’s strategy in the short-term
is resilient taking into account a 1.65°C
climate-related scenario. Furthermore,
it is our view that the Company has a solid
financial base and sufficient flexibility
in its business plan to be able to adjust
adequately to extreme climate-related
impacts. Please refer to the Viability
section on pages 45–46 for further
details of the assessment.
Our strategy is validated annually by the
Board of Directors to ensure it remains
relevant and resilient. Please refer to the
Governance process for further details.
The strategy will be adjusted if there are
significant changes in the wider global
environment. In this context, the Company
notes new strategy as a mixed-assets
energy company which encompasses
strategic initiative of becoming a mid-
stream operator by processing stranded
raw gas streams in the region.
Industry sector policies
• Policies to support CCUS
• Mandatory energy management systems
or energy audits
• 5% higher capital expenditures as the
Company begins research and
development into emissions-reducing
technology.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 85
Strategic report Taskforce on Climate-related Financial Disclosure (TCFD)
Risk Management
TCFD recommendation:
Disclose how the
organisation identifies,
assesses, and manages
climate-related risks.
a) Describe the organisation’s
processes for identifying and
assessing climate-related risks;
b) Describe the organisation’s
processes for managing climate-
related risks;
c) Describe how processes
for identifying, assessing,
and managing climate-related
risks are integrated into the
organisation’s overall risk
management.
Read more about our risk management
on pages 38–39.
Nostrum has a robust governance structure
through which climate-related risks are
identified and managed. Specifically,
the ESG and HSE Committees are the
conduit through which climate-related risk
management is enacted. The ESG and HSE
Committees operate under the principle of
5 pillars:
i. HSE leadership;
ii. rigorous incident investigation;
iii. process safety and asset integrity;
iv. contractor HSE management; and
v. environment and climate change
including a commitment to reduce
GHG emissions.
The fifth pillar is an integral part of our
climate-related risk identification,
assessment, and management process.
Both classifications of climate-related risks
(transition risks and physical risks) are
considered as part of the process.
The ESG and HSE Committees oversee the
design and implementation of systems of
climate-related risk management and
internal controls and manages and reports
on risks. The Group Head of QHSE
supports the Chief Executive Officer in
its oversight and monitoring role and
performs management and reporting
on the risks.
The QHSE department is responsible for
identifying climate-related risks which
include potential effects on operations at
asset level, performance and Group level
and developments at regional level from
transition to lower carbon economy or
extreme weather events.
The processes described above are
embedded into our overall Group Risk
Management framework and form an
integral part of Nostrum’s risk management
and internal controls system. We include
“climate change risks” as a principal risk and
uncertainty on our Company risk register
(see page 43) thus allowing the ESG and
HSE Committees to manage any identified
risks. This risk covers both physical and
transitional climate-related risks and is
reviewed annually by the Nostrum Board
of Directors.
86 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Metrics and Targets
TCFD recommendation:
Disclose the metrics and
targets used to assess
and manage relevant
climate-related risks and
opportunities where such
information is material.
a) Disclose the metrics used by
the organisation to assess climate-
related risks and opportunities in
line with its strategy and risk
management process.
Nostrum uses several metrics across the
transition and physical risks spectrum to
assess climate-related risks. For climate
change our key risk metric is focusing on
carbon emissions, air quality and flaring
frequency. All of these are measured,
managed and reported to the Board with
a specific KPI around reduction in GHG
(see (c) below). Beyond KPIs we have
identified certain activities and projects to
help reduce emissions that have included
but are not limited to reducing vehicles at
head office and encouraging the sharing of
vehicles, eliminating taking private vehicles
to the field by making buses mandatory,
promoting work from home and electricity
replacing diesel for heaters, boilers and
other devices.
Management of climate change-related
risks and opportunities is incorporated into
the overall remuneration of the senior
management. Please refer to the
Remuneration Committee Report for
details on climate change KPIs.
Moving forwards, the Company intends to
include carbon pricing into its economic
evaluation of future investment
opportunities both within Chinarevskoye
and outside. Following a benchmarking
analysis of our peers, majors in the sector
and research on regional plans for carbon
pricing, we will incorporate an appropriate
carbon price (cost to the business) in our
investment decisions – implicitly increasing
the hurdle rate for project approvals.
b) Disclose Scope 1, Scope 2,
and, if appropriate, Scope 3
greenhouse gas (GHG) emissions,
and the related risks.
In the Environment (GHG Emissions Results)
section of this report, we disclose our
Scope 1 and Scope 2 GHG emissions.
Scope 1 and Scope 2 GHG emissions have
been reported on an annual basis in our
Annual Report and Company website. The
level of reporting has expanded in line with
our commitment to being transparent to
our stakeholders.
Furthermore, GHG emissions reporting is a
State legislative requirement as required by
the Republic of Kazakhstan (the country is
in alignment with the GHG Protocol).
We recognise that the majority of emissions
from oil and gas products come from their
end use, which is why, for the first time this
year, we carried out the works on preparing
an analysis and calculations for Scope 3
GHG emissions for one category (category
5 – Waste Generated in Operations) in
2022. The amount of Scope 3 emissions for
one category (category 5 – Waste
Generated in Operations) totalled 352 tons
of CO2 in 2022. This is the Company's first
step in disclosing Scope 3 emissions.
Detailed results of Scope 3 calculations on
Wastes generated in Operations will be
covered in CDP submission for 2023.
In 2022 the Company reported its
emissions in the amount of 169,625 tCO2e
for Scope 1 and 5 tCO2e for Scope 2. For
more information, please see pages 74–77
in the Strategic Report.
With focus on reduction of emissions, it is
our plan to continue to work with our
contractors to identify energy efficient
opportunities in their supply chain and
assist them to implement sustainable
initiatives. Internal focus is also placed on
reducing emissions from business and
commuting travel.
c) Describe the targets used
by the organisation to manage
climate-related risks and
opportunities and performance
against targets.
Nostrum is making efforts to not exceed
the quota for greenhouse gas emissions set
by Kazakhstan and sets this target as a KPI
in the annual HSE plan in order to reduce
the actual value of greenhouse gas
emissions by 5% compared to the previous
year. While our approved quota of GHG
emissions for 2022 was 209,803 tonnes of
CO2, Nostrum set a goal of 5% year-on-year
reduction of actual CO2 in 2022. This target
was met. The actual GHG emissions
amounted to 169,630 tonnes GHG
emissions in CO2 equivalent or 10% lower in
2022 compared to 2021. For more
information, please see pages 74-77.
Furthermore, Nostrum continues to provide
transparent disclosure and obtained its first
ESG rating in 2022. In 2023 Nostrum plans
to strengthen its ESG strategy around gas
and cleaner energy mix to further improve
the rating.
We accept that the Group is on a journey
towards net zero and will report through
interim targets in forthcoming years.
We intend to be part of the solution for
Kazakhstan’s strategy to transition to
cleaner energy and achieve carbon
neutrality by 2060.
This strategic report is approved by the
Board.
Arfan Khan
Chief Executive Officer
30 May 2023
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 87
Strategic report
Introduction to corporate governance
Introduction to corporate governance
Section 1: Board leadership
and company purpose
A successful company is led by an effective
and entrepreneurial Board, whose role is to
promote the long-term sustainable success
of the company, generating value for
shareholders and contributing to wider
society. See pages 90–92.
The Board establishes the company’s
purpose, values and strategy, and satisfies
itself that these and its culture are aligned.
All directors must act with integrity, lead by
example and promote the desired culture.
See pages 63–66.
The Board ensures that the necessary
resources are in place for the company to
meet its objectives and measures
performance against them. The Board also
establishes a framework of prudent and
effective controls, which enable risk to be
assessed and managed. See pages 38–39.
In order for the company to meet its
responsibilities to shareholders and
stakeholders, the Board ensures effective
engagement with, and encourages
participation from, these parties.
See pages 22–23 and 93.
The Board ensures that workforce policies
and practices are consistent with the
company’s values and support its long-term
sustainable success. The workforce is able
to raise any matters of concern with the
Board. See pages 63–66.
Section 2: Division of
responsibilities
The chair leads the Board and is responsible
for its overall effectiveness in directing the
company. The chair demonstrates objective
judgement and promotes a culture of
openness and debate. In addition, the
chair facilitates constructive Board relations
and the effective contribution of all non-
executive directors, and ensures that
directors receive accurate, timely and
clear information. See pages 96–98.
The Board includes an appropriate
combination of executive and non-
executive (and, in particular, independent
non-executive) directors, such that no one
individual or small group of individuals
dominates the Board’s decision-making.
There is a clear division of responsibilities
between the leadership of the Board and
the executive leadership of the company’s
business. See pages 96–98.
Non-executive directors should have
sufficient time to meet their Board
responsibilities. They provide constructive
challenge, strategic guidance, offer
specialist advice and hold management
to account. See page 96–98.
The Board, supported by the company
secretary, ensures that the company
has the policies, processes, information,
time and resources it needs in order
to function effectively and efficiently.
See pages 96–98.
Section 3: Composition,
succession and evaluation
Appointments to the Board are subject
to a formal, rigorous and transparent
procedure, and an effective succession
plan should be maintained for Board and
senior management. Both appointments
and succession plans should be based on
merit and objective criteria and, within this
context, should promote diversity of
gender, social and ethnic backgrounds,
cognitive and personal strengths. See
pages 97–98.
The Board and its committees have a
combination of skills, experience and
knowledge. Consideration should be
given to the length of service of the Board
as a whole and membership regularly
refreshed. See page 98 and committee
reports.
Annual evaluation of the Board should
consider its composition, diversity and
how effectively members work together
to achieve objectives. Individual evaluation
should demonstrate whether each director
continues to contribute effectively. See
page 93.
Compliance with the Code
The UK Corporate Governance Code issued by the Financial Reporting Council in July 2018 (the “Code”) sets out the governance
principles and provisions that applied to the Company until 31 May 2022, when the Company's listing category was transferred
from "Premium Listing (commercial company)" to "Standard Listing (shares)". A copy of the Code is available from the Financial
Reporting Council’s website at www.frc.org.uk. The aim of the corporate governance report is to demonstrate how the principles
of the Code have been considered and applied by the Company. The UK Financial Reporting Council promotes high-quality
corporate governance and reporting through the Code with which all companies with a premium listing on the London Stock
Exchange are required to either comply in full, or explain why, and to what extent, they do not comply. The Company intends to
continue to comply with the Code or explain any non-compliance as it would if it were still premium listed. This statement should
be read in conjunction with the Corporate Governance section of this report as a whole. The headings on this page and the
following page correspond to the headings in the Code.
88 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Section 4: Audit, risk and
internal control
The Board should establish formal and
transparent policies and procedures
to ensure the independence and
effectiveness of internal and external
audit functions and satisfy itself on
the integrity of financial and narrative
statements. See pages 99–105.
The Board presents a fair, balanced
and understandable assessment of
the company’s position and prospects.
See page 127.
The Board establishes procedures to
manage risk, oversee the internal control
framework, and determine the nature and
extent of the principal risks the company
is willing to take in order to achieve its
long-term objectives. See pages 38–39.
Section 5: Remuneration
Remuneration policies and practices are
designed to support strategy and promote
long-term sustainable success. Executive
remuneration is aligned to company
purpose and values, and clearly linked to
the successful delivery of the company’s
long-term strategy. See pages 107–122.
A formal and transparent procedure
for developing policy on executive
remuneration and determining director
and senior management remuneration
should be established. No director is
involved in deciding their own remuneration
outcome. See pages 107–122.
Directors exercise independent
judgement and discretion when authorising
remuneration outcomes, taking account of
company and individual performance, and
wider circumstances. See pages 107–122.
Statement of compliance
Nostrum fully complied throughout 2022
with the provisions of the 2018 version of
the UK Corporate Governance Code
except in the following respects:
Provision 21
Due to the restructuring, no formal
evaluation of the Board or any of its
committees took place in 2022.
Provision 36
The Company’s LTIP has a total holding and
vesting period of no more than three years
and therefore does not comply with the
requirements of Code Provision 36, which
requires share awards to be released for
sale on a phased basis and be subject to
a total vesting and holding period of five
years or more. As explained in the press
release released by the Company on
28 August 2019, a copy of which has also
been published on the Public Register
maintained by the Investment Association,
the Board and the Remuneration
Committee believe that the current
provisions of the LTIP relating to the
performance period and vesting period are
appropriate and aligned with the interests
of shareholders, so that modifying such
provisions of the LTIP at this time would not
be the right course of action. The full text of
the announcement is available to read on
the Company’s website.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 89
Corporate governance Board of Directors
Board of Directors GRI 2-9
NS
N
A
R
A
RN
Stephen Whyte
Chairman and Non-Executive Director
Chris Cox
Independent Non-Executive Director
Fiona Paulus
Independent Non-Executive Director
Date of appointment: 14 February 2023
Date of appointment: 14 February 2023
Date of appointment: 14 February 2023
Other current appointments:
• Independent Non-Executive Director
Other current appointments:
• Director and the interim CEO of
at Beacon Energy
Capricorn Energy PLC
Skills and experience:
• 35 years of total industry experience at
Skills and experience:
• 40 years of experience in the global oil
Shell, BG and Galp.
and gas upstream sector.
• Seasoned FTSE and AIM Chairman and
Non-Executive Director in the global
energy sector with direct experience in
Kazakhstan.
• Chairman at Genel Energy (2017-2019).
• Chairman at Sound Energy.
• Non-Executive Director at Echo Energy.
• Non-Executive Director at JSC National
Company KazMunaiGas.
• Having held various senior roles with
BG Group, Amerada Hess, and Chevron
throughout his career, Chris served most
recently as CEO of Spirit Energy and
Managing Director of Centrica Plc.
• Advisory experience includes serving as
Non-Executive Chairman of Kellas
Midstream from 2015 to 2020
Other current appointments:
• Senior Adviser in the Metals & Mining
business at Gleacher Shacklock LLP
• Non-Executive Director at Interpipe
Group and JSW Steel Limited
Skills and experience:
• 37 years of investment banking
experience.
• She has held senior roles at leading
international investment banks.
These include Head of International
Investment Banking at CIBC, EMEA Head
of Private Equity & Infrastructure Funds at
Royal Bank of Scotland, Global Head of
Energy and Resources at ABN AMRO
Bank, and various senior roles at Societe
Generale, JPMorgan & Citigroup in the
UK, Europe, Australia, and Latin America.
Board committees
A Audit Committee
N Nomination and Governance Committee
S Strategy Committee
R Remuneration Committee
Chairman/Chairwoman
90 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
R
A
N
N R
S
Chris Hopkinson
Independent Non-Executive Director
Martin Gudgeon
Non-Executive Warrant Director
Arfan Khan
Chief Executive Officer
Date of appointment: 14 February 2023
Date of appointment: 14 February 2023
Date of appointment: 26 January 2021
Other current appointments:
• Non-executive Chairman of Enwell
Other current appointments:
• Partner and Chairman of the EMEA & Asia
Energy
• interim Executive Chairman of IGas Energy
• founder of Astra Resources Management
and Antelopus Energy
Skills and experience:
• 35 years of experience in the global oil
Restructuring and Special Situations
Group (“RSSG”) at PJT Partners
• Member of the firm’s RSSG Operating
Committee
Other current appointments: None
Skills and experience:
• 35 years of total industry experience.
• From January 2020 until joining the
Company, President of Stratum Energy
Group (Romania).
Skills and experience:
• 35 years of industry experience.
• From April 2014 to December 2019, COO
of Amni International Petroleum (Nigeria).
and gas and energy sectors.
• Senior Managing Director at Blackstone
• From April 2012 to
for eight years.
• Chief Executive and Head of
Restructuring at Close Brothers
Corporate Finance.
• Non-Executive Director at Genel Energy.
• Technical and management roles
with Yukos and Lukoil Overseas.
• Chief Executive Officer of Imperial Energy
Group.
• Vice-President Western Siberia for
TNK-BP.
• Senior Vice-President North Africa for BG
Group.
• Chief Executive Officer of International
Petroleum Limited.
• Chief Operating Officer for JSC National
Company KazMunaiGas.
March 2014, Petroleum Engineering
Director at Maersk Oil (Angola).
• From August 2002 to March 2012, Chief
Production Engineer
at Shell (Nigeria & Kazakhstan).
• Pre-2002: 12 years with ExxonMobil
Gulf-of-Mexico Reservoir Development
(US).
• Member of the Society
of Petroleum Engineers.
• Holds a Bachelor of Science degree from
Texas A&M University and an MBA from
Tulane University.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 91
Corporate governance Former members of the Board of Directors
Former members of the Board of Directors
Atul Gupta
Executive Chairman
Term of service: from 19 May
2014 to 14 February 2023
Skills and experience:
• Chief Executive Officer
(2006-2008) and
Chief Operating Officer
(1999-2006) of Burren Energy.
• 40 years’ broad experience
in international upstream
oil and gas businesses:
Charterhouse Petroleum,
Petrofina, Monument and
Burren Energy.
N
RA
A
H N R
AARH
NN
Sir Christopher Codrington, Bt.
Independent Non-Executive
Director
Martin Cocker
Independent Non-Executive
Director
Kaat Van Hecke
Independent Non-Executive
Director
Term of service: from 19 May
2014 to 14 February 2023
Other current appointments:
None
Skills and experience:
• More than 30 years’ executive
board and senior management
experience in the oil and gas
sector, and the hospitality
and other industries.
• Spent eight years living in
Houston, Texas, developing
prospects in various oil and
gas fields for COG, Inc., Texas
General Resources, Inc.,
TexBrit Corporation, Inc. and
Whitehall Energy Limited.
Term of service: from
16 November 2017
to 14 February 2023
Term of service: from
31 December 2016
to 14 February 2023
Skills and experience:
• Chartered accountant with
over 30 years’ business
experience.
• Held several line
management, project leader,
CEO-and CFO-level positions
and has also
been independent Non-
Executive Director
and Chairman of the Audit
Committee at Etalon Group
PLC, Headhunter Group PLC
and TCS Group Holdings PLC.
• Previously held senior
positions with Deloitte &
Touche, KPMG, Ernst & Young
and Amerada Hess.
Skills and experience:
• 2013-2016 served as
Managing Director
and Senior Vice President
of the Austrian Upstream
business at Österreichische
Mineralölverwaltung (OMV).
• 2010-2013 served as E&P
Group Head of Business
Support at OMV.
• 2002-2010 held various
positions with Shell in Russia,
Nigeria and The Netherlands.
• 1995-2001 held various
positions with ExxonMobil
in Belgium and The
Netherlands.
Board committees
A Audit Committee
N Nomination and Governance Committee
S Strategy Committee
R Remuneration Committee
Chairman/Chairwoman
92 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Board activities and achievements during 2022
During the financial year, the Board held 11 meetings. The Board and Committee agendas were shaped to ensure that discussion was
focused on the Group’s key strategies and monitoring activities, as well as reviews of significant issues arising during the year. The Group’s
ongoing financial and strategic performance is reviewed at every meeting, and the Chief Executive Officer and the Chief Financial Officer
comment on production, share price performance, the market and shareholder feedback.
The table below gives the highlights of how the Board and its committees spent their time during the 2022 financial year but should not
be regarded as an exhaustive list. More information regarding the Group’s strategic objectives and focus during 2022 can be found in the
Strategic Report on pages 1–87 and the more detailed activities of each Board committee are located in their relevant report.
Strategy and
business focus
• Worked towards the completion of the restructuring of the Group’s bonds.
• Discussions around the strategic options available to the Group to monetise the infrastructure through processing
third-party volumes and acquisition of nearby, stranded assets such as Stepnoy Leopard.
• Approved a targeted well workover and intervention programme.
Risk
• Review of all interim financial results announcements and the 2021 Annual Report and Accounts.
• Consideration of the Group’s going concern assessment, viability statement and risk appetite for the coming year.
• Reviewed the Group’s liquidity forecast at each board meeting.
Governance
• Received reports from Board committees.
• Consideration of the UK Corporate Governance Code and other regulatory requirements for the Annual Report.
• Review of the Notice of AGM and matters proposed for shareholder approval.
• Reviewed and approved new and updated Group policies.
People
and culture
• Monitored the preventative measures being taken to protect employees and contractors from COVID-19.
• Engaged with Sustainalytics in order to improve the Company’s ESG ratings.
Board evaluation
Much of the Board’s effort and attention in 2022 has been focused on stabilising the financial position of the Group and looking to secure
its future, whilst at the same time ensuring that our employees and contractors remained safe. Given the financial position of the Group,
the decision was taken not to recruit new members to the Board until such time that the restructuring was substantially complete.
No formal Board evaluation took place in 2022 (the last Board evaluation took place in 2021).
Director induction and training
Each individual joining the Board receives a full, formal induction package with materials on the Group’s business and operational,
financial and legal matters. They also meet with members of the Board in order to obtain a good understanding of the challenges and
opportunities faced by the Group. The Directors are given the opportunity to discuss their training and professional development needs
at every Board meeting and on an ad-hoc basis as required, and to make recommendations to the Chairman regarding topics on which
they would like to receive training. In addition to training organised by the Company, the Directors regularly attend training events
organised by third parties and the Company actively encourages Directors to attend such events.
Attendance at meetings of the Board and its Committees in 2022
The following table illustrates the attendance of Directors at Board and committee meetings (as relevant) throughout the year.
EXECUTIVE DIRECTORS
Atul Gupta 1
Arfan Khan
NON-EXECUTIVE DIRECTORS
Kaat Van Hecke 2
Martin Cocker3
Sir Christopher Codrington Bt. 4
Board
Audit Committee
A
11
11
11
11
11
B
11
11
11
11
11
A
−
−
10
10
10
B
−
−
10
10
10
Remuneration
Committee
Nomination and
Governance
Committee
Health, Safety,
Environment and
Communities
Committee
A
−
−
3
3
3
B
−
−
3
3
3
A
−
−
6
6
6
B
−
−
6
6
6
A
−
6
6
6
−
B
−
5
6
6
−
A = Total number of meetings the Director was eligible to attend.
B = Total number of meetings the Director did attend.
1. Mr Gupta was the Executive Chairman of the Board of Directors until 14 February 2023.
2. Ms Van Hecke was Chairwoman of the Health, Safety, Environment and Communities Committee and Chairwoman of the Remuneration Committee until
14 February 2023.
3. Mr Cocker was the Chairman of the Audit Committee from 13 July 2022 until 14 February 2023.
4. Sir Christopher Codrington Bt. was the Chairman of the Audit Committee until 13 July 2022 and the Chairman of the Nomination and Governance Committee until
14 February 2023.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 93
Corporate governance Senior management team
Senior management team
Arfan Khan
Chief Executive Officer
Ulugbek Makhmadiyarov
Head of Finance
Robert Tinkhof
Chief Operating Officer
(See biography of Arfan
Khan on page 91).
Thomas Hartnett
Chief Legal Officer &
Company Secretary and
Acting Head of Human
Resources
Abi Zivs
Director of Marketing
Skills and experience:
Skills and experience:
Skills and experience:
Skills and experience:
• Leading the finance
• Appointed as Chief
• Appointed as General
• Appointed as Head of
Marketing on 4 February
2022.
• 2017-2022 held position
of LPG and sulphur sales
manager with Zhaikmunai
LLP.
• More than 28 years’
experience in shipping
and selling hydrocarbons
in Latvia, Kazakhstan and
Turkey
• Graduate of Latvian State
University, Faculty of
Physics and Mathematics
Operating Officer of the
Group on 12 February
2019.
• 35 years of experience in
the oil and gas industry,
mainly Royal Dutch Shell
with assignments in the
Netherlands, UK, Syria,
Iran, Egypt, Dubai, Iraq
and Russia.
• Before taking the position
as Chief Operating
Officer, held several
senior management
positions since 2000 as
General Manager Wells in
Shell and Managing
Director at the Scientific
Research Institute of KMG
for Production and
Technology in
Kazakhstan.
function since 1 October
2022.
• Chartered accountant
with over 17 years of
experience in business
and professional services.
• Held various roles within
Nostrum Finance team
from 2014, including
leading accounting &
reporting, internal audit
and risk management.
Prior to joining Nostrum
developed his career at
Ernst & Young in
Uzbekistan and Kazakhstan,
managing audits of large
international companies
including listed entities.
• Holds Master’s and
Bachelor’s Degrees from
the University of World
Economy and Diplomacy
• Fellow member of ACCA
(since 2014) and Certified
Internal Auditor (since 2015)
Askhat Seitkazin
Deputy General Director
of Zhaikmunai LLP
Skills and experience:
• Appointed as Deputy
General Director of
Zhaikmunai LLP in
March 2022.
• 2013-2015 held position
of PR manager at
Zhaikmunai LLP.
• 2015-2022 Head of PR
department Zhaikmunai LLP.
• Graduate of the Institute of
International
Law&Economics (Moscow)
with a specialisation in
Financial and Enterprise
Management
Counsel of the Nostrum
Group on 5 September
2008, as Company
Secretary of Nostrum Oil
& Gas PLC on 3 October
2013 and as Acting Head
of Human Resources on
13 January 2020.
• More than 30 years of
post-qualification
experience, including 16
years with the law firm
White & Case LLP, where
he was a Partner and
specialised in cross-
border corporate and
M&A transactions based
in the firm’s New York,
Istanbul, London, Brussels
and Bangkok offices.
• Served as Senior
Corporate Counsel in the
EMEA headquarters of
Intercontinental Hotels
Group from 1996-1998.
• Holds a Bachelor of Arts
degree in Comparative
and Developmental
Politics from the
University of Pennsylvania
and a Juris Doctor degree
from New York University
School of Law.
• Member of the New York
Bar and the Association of
International Energy
Negotiators.
94 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Zhomart Darkeyev
General Director of
Zhaikmunai LLP
Gulnara Shadeyeva
Head of HR in the RoK
Daulet Tulegenov
Group Head of QHSE
Melody Pinet
Head of HR outside
the RoK
Natalya Dibe
Head of ESG
Skills and experience:
Skills and experience:
Skills and experience:
Skills and experience:
Skills and experience:
• Appointed as General
Director of Zhaikmunai
LLP on 14 November
2016.
• At Zhaikmunai LLP, Mr
Darkeyev has also held
the positions of
Administrative Director,
Assistant General
Director, Chief
Administrative Manager,
Engineer Manager and
Deputy General Manager.
• Before Zhaikmunai LLP,
Mr Darkeyev worked for
Derkl Oil & Gas drilling as
assistant driller and for
Kazakhgas State Holding
Company as a leading
reservoir engineer.
• Graduate of Furmanov
Secondary School with
further education
completed at the
Ivano-Frankivsk Institute
of Oil & Gas with a
specialisation in drilling
of oil and gas wells.
• Appointed as Head of HR
• Appointed as Group
of Zhaikmunai LLP in
October 2013.
head of QHSE in October
2018.
• Appointed as Nostrum’s
Head of HR outside the
RoK in May 2018.
• 22 years of experience in
the oil and gas industry in
several senior positions in
Human Resources in
KIOS, Baker Hughes
Services Inc., AMEC,
Exterran, Bolashak-
Atyrau.
• Holds Bachelor’s degrees
in Automatics
Engineering from the
Gubkin Russian State
University of Oil & Gas
(Moscow), in Accounting
from the West Kazakhstan
State University and
Master’s degrees in
Human Resources
Management from the
RANEPA (Moscow) and in
International Human
Resource Management
from Kingston University
in the UK.
• 2017-2018 HSE
• 2016-2018 HR Manager at
Bee Engineering in
Belgium.
• 2015-2016 HR consultant
at Tempo-Team’ Randstad
company in Belgium.
• 2013-2014 Fieldworker at
Terres Rouges in Senegal.
• Holds two Bachelor’s
degrees from the
Université catholique de
Louvain (one in Political
Science and Government
and one in Psychology).
• Holds Master’s degree
from the Université
catholique de Louvain
in International relations
and the management
of diplomatic conflicts.
Transformation team
leader at KazMunaiGas
JSC.
• 2010-2016 HSE manager
at Lukoil.
• 2009-2010 Senior HSE
expert at KazMunaiTeniz
JSC.
• 2006-2009 Senior HSE
specialist at LUKOIL.
• 2003-2006 Safety
specialist at
Tengizchevroil.
• Over 19 years’ experience
in E&P oil and gas assets
(onshore and offshore).
• Took part in major
international projects
at Chevron, Shell, Lukoil,
Tengizchevroil and CNPC
companies in Kazakhstan.
• Graduate of the Tyumen
State Oil & Gas University,
Russian Federation.
Former members:
Shane Drader
Chief Financial Officer from 30 August 2021
to 30 September 2022
Arkadi Epifanov
Chief Commercial Officer from 13 January 2017
to 3 February 2022
Skills and experience:
Skills and experience:
• Appointed as Chief Financial Officer of the Group
effective 30 August 2021.
• Appointed as Chief Commercial Officer on 13 January 2017.
• 2009-2017 held position as marketing consultant for
• Chartered accountant with over 25 years of experience in
Zhaikmunai LLP.
• Appointed as Head of
Budgeting and Control
of Zhaikmunai LLP in
January 2020.
• In 2014-2020 held
position of financier in
budgetary control with
Zhaikmunai LLP.
• More than 18 years of
post-qualification
experience, including
9 years with one of the
largest banks in
CIS – Kazkom (currently
Halyk) primarily in control
and compliance.
• Holds a Bachelor’s
degree in Accounting
and Audit, and in Oriental
Studies from the Eurasian
Academy, Master of
Business Administration
degree from the Russian
Presidential Academy.
Executive Master in Public
Management degree
from the Russian
Presidential Academy
is in progress.
• Certified in Project
Management (IPMA), and
in ESG from University of
Pennsylvania and London
Reporting Academy.
• Participant and
semifinalist of the
management competition
Leaders of Russia in
international track in
2020 and 2021.
business and professional services.
• Most recently served as Managing Director, Head of IPO
Office at JSC NC "KazMunayGas". Mr Drader was also a
member of the management board at KazMunaiGas
Exploration and Production JSC where he also had the
roles of Managing Director, Financial Controller and
Acting Chief Financial Officer.
• Holds a Bachelor of Commerce degree from the
University of Calgary.
• Member in good standing with the Chartered
Professional Accountants of Alberta, Canada.
• Over 20 years’ experience in senior management and
directorial positions in Nafta, Transoil, Lukoil, Litasco
and Baltic Oil Terminal.
• Has worked in the oil sector across diverse regions
including Finland, Belgium, Romania, Russia, Switzerland,
The Netherlands and the UK.
• Holds qualifications in Economics from
Leipziger University.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 95
Corporate governance
Governance framework
GRI 2-9
Our governance framework
as at 24 February 2023
The Board
The Board is chaired by Stephen Whyte as from 14 February 2023. The Board is collectively responsible to stakeholders for the long-term
success of the Group. This is achieved by reviewing trading performance, budgets and funding, setting and monitoring the Group’s strategic
objectives, reviewing acquisition opportunities and engaging with stakeholders. The Board is supported by a number of committees whose
terms of reference (TORs) are available on our website.
Chairman
Responsible for leadership
of the Board and for ensuring
its effectiveness in all aspects
of its role.
Chief Executive Officer
Responsible for the successful
planning and execution of the
objectives and strategies agreed
by the Board.
Independent
Non-Executive Directors 1
Responsible for bringing an external
perspective, sound judgement and
objectivity to the Board’s decision-
making. Scrutinise management
performance and constructively
challenge strategy.
Non-Executive Warrant Director
Responsible for giving or
withholding approval to certain
matters set out in the warrant
instrument.
Audit Committee
Responsible for oversight
of the Group’s financial
reporting processes.
Scrutinises the work of the
external auditor and
regularly reviews the risk
management framework
and the work of internal
audit.
Nomination and
Governance Committee
Reviews the structure,
size and composition
of the Board and its
committees and makes
recommendations to the
Board accordingly, and
leads the process for new
Board appointments.
Remuneration Committee
Reviews and recommends
to the Board the executive
Remuneration Policy
and determines the
remuneration packages
of the Directors.
Strategy Committee2,3
Assists the Board to
fulfil its responsibilities
in relation to strategy.
Company Secretary
Responsible for advising the
Board, through the Chairman,
on all governance matters
and for ensuring that Board
procedures are complied
with and there is a good flow
of information between the
Board and its committees.
The appointment of the
Company Secretary is a
matter reserved to the
Board as a whole.
Chairwoman:
Fiona Paulus
See page 99 for
Committee Report.
Chairman:
Chris Cox
See page 106 for
Committee Report.
Chairman:
Chris Hopkinson
See page 107 for
Committee Report.
Chairman:
Stephen Whyte
Company Secretary:
Thomas Hartnett
Senior Management Team
The Senior management team supports the Chief Executive Officer in making important decisions regarding the overall management of the Group
in respect of all Group matters that are not reserved for the Board and in ensuring that operational activities and performance are aligned with the
overarching strategy of the Group. Each member of the team reports directly to the Chief Executive Officer, who then directly reports to the Board.
The functional responsibilities of the senior management team members in their respective areas include but are not limited to implementing Chief
Executive Officer and Board decisions, allocating resources, managing risk, maximising efficiencies, guiding and developing employees, reviewing
performance and supporting cross-functional integration.
Finance
Responsible for supporting the Group and the Board in matters relating
to: (i) corporate finance (ii) investor relations (iii) economic analysis (iv)
public relations (v) external communications (vi) accounting and reporting
(vii) tax (viii) budgeting and control (ix) insurance (x) treasury and cash
management (xi) liaison with internal audit (xii) risk management (xiii) ICT
(xiv) company administration (accounting and tax matters) and (xv) capital
markets analysis.
Operations
Responsible for supporting the Group and the Board in matters relating
to: (i) production engineering and reservoir management (ii) drilling and
workover management production (iii) production (iv) engineering and
construction field operations (v) relations with governmental authorities
(vi) procurement (vii) security and (viii) administration.
Head: Ulugbek Makhmadiyarov
Head: Robert Tinkhof
Legal
Responsible for supporting the
Group and the Board in matters
relating to: (i) all legal matters
(ii) compliance (iii) corporate
governance (iv) company
administration (legal and
governance matters).
Sales and marketing
Responsible for supporting the
Group and the Board in matters
relating to: (i) sales of oil and gas
products (ii) marketing and
(iii) logistics and transportation.
QHSE
Responsible for supporting the
Group and the Board in matters
relating to: (i) product quality
(ii) personnel and community
health and safety and
(iii) environmental protection.
Human resources
Responsible for supporting the
Group and the Board in matters
relating to: (i) personnel and
workforce matters generally
(ii) training and (iii) remuneration.
Head: Thomas Hartnett
Head: Abi Zivs
Head: Daulet Tulegenov
Acting Head: Thomas Hartnett
1. Since 24 February 2023, no Director has been appointed as Senior Independent Director.
2. The Strategy Committee was formally created on 24 February 2023.
3. The Health, Safety, Environment and Communities Committee was at the Board level in 2022. In early 2023, new Senior Management level HSE and ESG committees
were formed. Both committees are chaired by the Chief Executive Officer.
96 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
GRI 2-23
Board policies
and governance
arrangements
Nostrum recognises the important role
that good corporate governance plays
in the success of the Company. As a result,
the Board promotes high standards of
corporate governance as a key component
of its activities. Clearly defined roles
and responsibilities, non-executive
independence, boardroom and workplace
diversity, an open and transparent culture
and the work of our committees in
implementing the Company’s values
and policies throughout the Group
are all vital ingredients to get this right
for our stakeholders.
In order to ensure that it is involved in
making important decisions for the
Group and to ensure a clear division of
responsibilities between the Board and
executive management, the Board has
identified certain “reserved matters” that
are subject to its approval. Other matters,
responsibilities and authorities have been
delegated to its committees and the senior
management team, as set out in the
governance framework on pages 96–98.
The schedule of matters reserved for
the Board is reviewed annually and is
available on our website.
Division of responsibilities
On 27 November 2018, the Board resolved
to expand the role of the Company’s
Chairman, Atul Gupta, to give him certain
executive responsibilities, in particular in
relation to business development,
strategic initiatives and investor relations.
Notwithstanding this, in accordance with
the Code, and with the exception of the
period from 30 September 2020 to
25 January 2021, the roles of Chairman
and Chief Executive remained separate,
with each having distinct and clearly
defined responsibilities, as summarised
in the Board structure diagram. Mr Gupta’s
role as Executive Chairman was to guide,
advise, counsel and assist the Chief
Executive Officer in overseeing the
Company’s implementation of its strategy.
The Chief Executive remained responsible
for line management of his direct reports
and implementation of the Company’s
strategy.
The Company’s Chairman as from
14 February 2023, Stephen Whyte, is
a non-executive director who also chairs
the Company’s Strategy Committee.
The Chief Executive Officer is also a
member of the Strategy Committee and
his strategic capabilities are strengthened
by the Senior management team.
Independence
Robust oversight is crucial for strong
corporate governance and the Board is
committed to securing this through an
appropriate balance of independent
Non-Executive Directors.
At the date of this Annual Report, the Board
considers all of its Non-Executive Directors
other than the Chairman and Martin
Gudgeon to be independent within the
meaning of this term as defined in the
Code.
Equality and diversity GRI 405-1
The Board has due regard for
the importance of, and benefits from,
diversity in its membership, including
gender diversity, and strives to maintain
an appropriate balance on the Board.
The Board is composed of individuals
with diverse sectoral experience, ages,
geographic and ethnic origin, and gender.
As at 14 February 2023 the Company has
17% female representation on its Board.
The Nomination and Governance
Committee remains satisfied that the Board
has the right mix of skills and experience to
operate effectively. However, the skills and
experience mix will be revisited following
the successful restructuring of the Existing
Notes. The Nomination and Governance
Committee remains committed to
monitoring diversity closely as part of
future succession planning.
On 7 December 2017, the Board approved
its Equality and Diversity Policy, to which the
Company continued to adhere throughout
2022. Clarificatory amendments were made
to the Company’s Equality and Diversity
Policy on 14 September 2022.
In accordance with the policy, the Group
is committed to eliminating discrimination
and encouraging equality and diversity
in all of our business activities, including
the provision of employment. The policy
applies to all who work for the Group,
including Directors, together with the
managerial, supervisory and administrative
bodies of all entities within the Group.
The policy also applies equally to the
treatment of our supply chain, applicants
and visitors by our staff and the treatment
of our staff by these third parties. The
objective of the policy is to promote
equality of opportunity and to ensure that
no individual suffers unlawful
discrimination, directly or indirectly, on the
grounds of race, colour, ethnicity, religion,
sex, gender identity or expression, gender
reassignment, national origin, age, marital
status, disability or sexual orientation.
The Group aims to ensure the objective
of the policy is met by:
• Ensuring all recruitment advertising and
publicity aims to encourage applications
from any individual who has appropriate
qualifications and/or experience;
• Not offering discriminatory conditions
of employment;
• Ensuring all promotions are made strictly
on the basis of the ability to do the job
and no such decision is made on a
discriminatory basis;
• Considering requests for part-time work
or job-sharing opportunities wherever
appropriate and practicable, and aiming
to ensure that part-time employees
receive fair treatment;
• Ensuring that the demands of religion
(e.g. prayer time and religious holidays),
culture (e.g. traditional dress) and special
dietary needs are accommodated where
possible; and
• Taking reasonable steps to assist
employees with domestic responsibilities
(e.g. young children and dependent
elderly relatives).
During 2022, special attention and
significant efforts were focused on
the promotion of equality and diversity
throughout our organisation. We are only
at the beginning of a long-term project
for our company, but take-off was achieved
in 2022 and efforts to raise awareness
of the richness of our differences will only
increase in the coming years. The following
are the steps that have been taken in 2022
to implement this policy:
• Communicating the important concepts
of diversity and inclusion through the
provision of informative material in the
workplace as well as a point of reference
for any questions related to this subject.
• Distribution of monthly newsletters to
all company employees with a reference
person for any desired interaction on
the topics developed in the newsletters.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 97
Corporate governance
Governance framework
Our governance framework continued
Steps were taken in relation to training on
anti-corruption policies in 2022.
The Company has also adopted a
Whistleblowing Policy that takes account
of the Whistleblowing Arrangements
Code of Practice issued by the British
Standards Institute and Public Concern
at Work. Further information can be found
on page 66.
One whistleblowing activity was reported
in 2022 and was resolved to the satisfaction
of the Audit Committee.
Clarificatory changes were made to the
Code of Conduct on 31 March 2022, to the
Whistleblowing Policy on 13 July 2022
and to the Anti- Corruption and Bribery
Policy on 20 October 2022.
A new Political Involvement Policy was
adopted on 20 October 2022.
Anti-facilitation of tax evasion
Further to the new rules under the Criminal
Finances Act 2017 (CFA) in the UK, in 2018
the Board approved a new Anti-Facilitation
of Tax Evasion Policy applicable to the
Group and its associated persons. In
connection with the preparation of this
policy, the Company commissioned an
independent bespoke risk assessment and
incorporated findings from the assessment
into the policy.
Training on the anti-facilitation of tax
evasion policy was undertaken in 2022.
• The topics that have been addressed
• We also commit with the broader
this year to understand the vocabulary
and concepts specific to diversity and
inclusion are:
• An introduction and explanation of the
project and the values of the company.
• Explanation about the concepts of
Diversity and Inclusion
• Distinction of the concepts of Equity
and equality
• Presentation of bias and stereotypes
concepts
• Identification of discrimination
and prejudice
• Implications of disabilities at work
• Consequences of sexism at work
• Apprehension of the concepts of
culture, cultural differences, Lewis's
model, corporate culture
• Explanation of the concepts of
intercultural communication,
cultural competence,
communicative competence
• Analysis of the concept of
microaggression
• Distribution of quick tests on the subjects
covered in the newsletters as well as the
sharing of the results anonymously to
improve understanding and be able to
clarify any misunderstanding if necessary.
• Also distribution of questionnaires with
open questions to give everyone the
opportunity to express themselves,
to share an experience anonymously,
to suggest ways of improving the work
environment and to increase awareness
and sensitivity to the considerations of
diversity and promote interaction
on various D&I topics.
• We engaged employees in the
production of a video which was then
distributed to all on the importance of
D&I and the specific journey the company
is taking in this regard.
• Our Senior Management Team had a
first tailor-made workshop on Diversity
and Inclusion – Intercultural competence
to learn how to create an inclusive
workplace and how to make equity,
diversity and Inclusion the responsibility
of all leaders & managers of our
company.
• Guidelines were distributed to advise
and help employees to create and sustain
a pleasant, friendly and full of respectful
work environment.
community on social media by fostering
diversity and inclusion. We trust that
these communications help to create a
more inclusive environment.
Conflicts of interest
GRI 2-15
A Director has a duty to avoid a situation
in which they have, or may have, a direct
or indirect interest that conflicts or may
conflict with the interests of the Company.
Formal procedures are in place to ensure
that the Board’s powers of authorisation
of conflicts or potential conflicts of interest
of Directors are operated effectively.
The Board is satisfied that during 2022
these procedures were enforced and
adhered to appropriately.
Appointment and tenure
All Executive Directors have service
agreements with the Company. All
Non-Executive Directors have letters of
appointment with the Company. For all
Executive Directors engaged through
service agreements, there is no term limit
on their services, as the Company proposes
all Executive Directors for annual re-
election at each subsequent Annual
General Meeting of the Company.
Each Non-Executive Director appointment
is for an initial term of three years, subject
to being re-elected at each subsequent
Annual General Meeting.
GRI 2-23,
205-1,
205-3
Bribery, corruption
and whistleblowing
Bribery and corruption are
significant risks in the oil
and gas industry and, as such,
the Company operates a Group-wide
Anti- Corruption and Bribery Policy,
which applies to all Group employees and
contractor staff. The policy requires: annual
bribery and corruption risk assessments;
risk-based due diligence on all parties
with whom the Company does business;
appropriate anti-bribery and corruption
clauses in contracts; and the training of
personnel in anti-bribery and corruption
measures. In addition, the Company’s
Code of Conduct requires that employees
or others working on behalf of the
Company do not engage in bribery or
corruption in any form. Corruption-related
risks are evaluated on a Group-wide basis
(not in respect of divisions). No confirmed
corruption cases were identified in 2022.
98 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Audit Committee report
Audit Committee report
Role and responsibilities of the Audit Committee
The key areas of responsibility of the Committee during 2022 were as follows:
• Review the Group’s audited annual report and interim unaudited consolidated financial
statements;
• Review the formal announcement of the financial results, investor presentations and any other
related announcements;
• Review the effectiveness of any investigations or internal audits performed;
• Monitor compliance with applicable regulatory and legal requirements and the Group’s Code
of Conduct;
• Monitor and review the effectiveness of the Group’s internal audit function;
• Maintain the relationship with the Company’s external auditor and oversee its appointment,
remuneration and terms of engagement whilst continually assessing its independence and
objectivity; and
• Review audit findings and assess the standard and effectiveness of the external audit.
The key areas of responsibility of the Committee with effect from 26 April 2023 are unchanged
from those applying in 2022.
More detail on these and other key areas of responsibility can be found in the Committee’s
terms of reference, which are available on the Group’s website at www.nog.co.uk.
Membership as at 31 December 2022
Sir Christopher
Codrington, Bt.
Member from 19 May 2014 to 14 February 2023; Chairman from 8 May 2017 to
3 June 2019 and from 1 April 2020 to 13 July 2022.
Martin Cocker Member from 16 November 2017 to 14 February 2023.
Chairman from 4 June 2019 to 1 April 2020 and from 13 July 2022
to 14 February 2023.
Kaat Van
Hecke
Member from 8 May 2017 to 27 January 2020 and then from 8 October 2020
to 14 February 2023.
All members of the Audit Committee during 2022 were considered to be independent
Non-Executive Directors.
Membership as at 24 February 2023
Fiona Paulus
Committee Chairwoman from 24 February 2023; Member from 24 February
2023
Chris Cox
Member from 24 February 2023
Chris
Hopkinson
Member from 24 February 2023
All members of the Audit Committee from 24 February 2023 are considered to be independent
Non-Executive Directors.
The qualifications presented in the biographies of the members of the Committee on pages
90–92, and their respective contributions to the activities of the Committee, demonstrate that
the Committee has the necessary levels of competence in oil & gas upstream and downstream
operations and in accounting and auditing, as well as recent and relevant financial experience.
Meetings in 2022
The Committee meets normally a few days
in advance of each board meeting. The
Group’s senior financial officer, the Chief
Legal Officer and the Company Secretary
are invited to all meetings with the external
auditor being invited when appropriate.
The Committee held ten formal meetings
during 2022 and the attendance of each
Committee member at meetings of the
Committee is shown on page 93.
The principal agenda items at the formal
meetings were as follows:
Meetings
in 2022
February
March
April
Early May
Late May
July
August
September
October
November
Agenda item
Cost pressures. Significant area
of judgement in the 2021
financials. Annual report
preparation. Auditor selection.
Confirmation of date of AGM.
Audit status. Significant
accounts judgements. Audit
process and key dates. Auditor
selection.
Approval of 2021 accounts and
reports. Related party
transactions.
Approval of 2021 accounts and
reports.
Preparation for upcoming
Board meeting.
Investor Relations. ESG rating.
H1 financial statements
Renew of H1 Financial
Statements. Risk management.
Audit tender.
Risk management. Auditor
selection.
Risk management. Timing of
Q3 Financial Statements.
Auditor selection.
Q3 Financial Statements. Risk
management. Auditor
selection.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 99
Corporate governance In respect of these matters, the Committee
has placed increased focus on any
non-standard items within the cashflow
statement, particularly those items
associated with the forbearance
agreements, and the costs associated with
the restructuring exercise that has been
ongoing throughout 2022.
• Clear accounting policies and disclosures
surrounding financial instruments,
particularly disclosures of expected credit
loss provisions and liquidity risk
disclosures, around financing
arrangements and covenants. The
Committee notes that in this regard the
Group has very few financial instruments
other than the loan notes, and in this
regard, the Committee believes that
there is extensive and clear disclosure.
• Clear disclosure concerning income
taxes. In particular, care should be taken
in disclosing the evidence supporting the
recognition of any deferred tax assets,
including significant accounting
judgements and sources of estimation
uncertainty. In addition, the CRR note that
tax-related disclosures should be
consistent throughout the annual report
and accounts, with material reconciling
items in the effective tax rate
reconciliation adequately explained.
• Continued focus on the requirement to
comply-or-explain to the Listing Rules
based on the recommendations of the
Taskforce for Climate-related Financial
Disclosures.
The Committee also paid attention to:
• The Viability and Going Concern
statements, with particular focus on
ensuring that the specific material
uncertainties around the continued
viability of the Group were clearly and
fully explained and the key assumptions
upon which the board concluded that the
Group was a going concern were
identified.
• Clear description of the Company’s
policies, any due diligence processes
implemented in pursuance of those
policies and their outcomes in respect of
environmental, social, anti-corruption and
anti-bribery matters, employees and
respect for human rights are all either
covered by this statement or covered in
other parts of the strategic report.
• Ensuring there was a clear distinction
between critical judgements and
estimates used in preparing the accounts
and that appropriate disclosures were
made to provide an understanding of
their sensitivity to changing assumptions;
and
• Reviewing the definitions, explanations,
reconciliations, prominence and
consistency of alternative performance
measurements such as EBITDA, for their
compliance with ESMA’s Guidelines;
Self-assessment
No formal review of the Committee’s
performance and effectiveness was made
in 2022.
Audit Committee report
Key Matters for 2022 Annual
report and Accounts highlighted
by the Financial Reporting Council
(FRC)
In October 2022, the Corporate Reporting
Review (‘CRR’) team of the FRC highlighted
a number of key matters for the 2022
financial reporting season. The main
points are:
• We are living in a period of heightened
uncertainty: rising inflation, prolonged
conflict in the Ukraine as a result of
Russian invasion, sanctions applied on
Russian infrastructure, state and other
businesses, banks and individuals
following the start of the Russia-Ukraine
conflict, slowing economic growth, an
energy crisis, increasing interest rates,
stresses in supply chains, disruptions in
transactions with certain customers and
suppliers as a result of sanctions, labour
shortages, and changes in consumer
behaviour are just some of the challenges
businesses are currently facing. In such
times, some areas of financial reporting
may pose particular challenges, for
example, disclosures of judgements and
estimation uncertainty, measurement of
the impairment of assets, going concern
and viability assessments, and
measurement of provisions. Therefore,
companies need to assess and clearly
articulate the impact of these risks on
their strategy, business model, viability
and going concern assessments,
ensuring consistency across the annual
report and accounts.
• The correct classification of items within
the cash flow statements, especially:
• Reported cash flows are consistent with
amounts reported elsewhere in the
annual report and accounts;
• Non-cash items are excluded from the
statement and adjustments for material
non-cash transactions are disclosed;
• The classification of cash flows, cash
and cash equivalents comply with
relevant definitions and criteria in the
standard;
• Cash flows are not inappropriately
netted; and
• The parent company cash flow
statement (where provided) complies
with the requirements of the standard.
100 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
• Assessing whether the Annual Report,
taken as a whole, is fair, balanced and
understandable, and provides the
information necessary for the
shareholders to assess the Group’s
performance, business model and
strategy; and
• Discussing any significant matters with
management and the external auditor
and providing feedback to management
on ways to improve the effectiveness and
clarity of the Group’s corporate reporting.
The Committee reviewed this Annual
Report with the same emphasis as noted
above together with the specific areas
noted by the FRC and outlined earlier in
this report.
Significant judgements, estimates and
assumptions
Significant judgements, estimates and
assumptions applied by management when
preparing the financial statements are
closely related to the principal risks and
uncertainties faced by the Group, which are
subject to constant monitoring by the
Board and the Committee.
The main judgement facing the Company
and Group during 2022 was its continued
viability as a going concern.
Throughout 2022, the Group was in
discussion, through its advisers, with the
AHG concerning the restructuring of the
Existing Notes, and with various authorities
concerning the issuance of the licences
required to complete the restructuring
because a small proportion of existing
bondholders are sanctioned entities. The
Committee remained confident that the
few matters that were causing delay were
very likely to be resolved successfully.
The restructuring was completed on
9 February 2023.
Therefore, during 2022, the Committee
continued to challenge management’s
assessment that the Company and Group
remain a going concern. In forming its
conclusions, the Committee has taken note
of the following:
• The Group has taken, and continues to
take, prudent mitigating actions which
can be executed in the necessary
timeframe and which will protect liquidity.
Our cash flow in 2022 continued to be
positive. The Group continues to
challenge expenditures to identify
reductions in operating costs and general
and administration costs which can be
implemented without having an impact
on forecast production in the going
concern period of assessment;
• Oil prices have generally been buoyant
in 2022 despite heavy discounts for Urals
crude. In 2022, we also spent significant
time renegotiating our gas price to a
more beneficial level;
• Counsel provided by the Company’s
legal and financial advisers on the
likelihood that the Existing Notes
will be successfully restructured;
• Management’s analysis of the Group’s
cash flows for the next 12 months.
• The base-case scenario of the going
concern model used conservative price
assumptions for crude oil, LPG, dry gas
and stabilised condensate; and
• Management’s monitoring on an
ongoing basis of its liquidity position,
key financial ratios, sensitivity tests of its
liquidity position for changes in crude oil
price, production volumes and timing of
completion of various ongoing projects.
After careful consideration, the Committee
is satisfied that the Group has sufficient
resources to continue in operation for the
going concern period to 30 June 2024,
being a period of not less than 12 months
from the date of this report. For these
reasons, the Committee agrees with
management that the going concern
basis in preparing the financial
statements is appropriate.
Activities during the year
In accordance with its responsibilities
outlined above, the Committee’s activities
fall into the following four main areas, each
of which is explained in more detail in the
following sections 1 to 4:
1. Financial reporting
2. Risk management and internal controls
3. Compliance with laws and regulations
4. External audit
1. Financial reporting
The key areas of the Committee’s activities
related to financial reporting can be
summarised as follows:
• Review of and discussions on the
quarterly unaudited and annual audited
financial statements and
recommendation to the Board for
approval;
• Review of and discussions on the matters
of liquidity and going concern analysis, as
well as impairment considerations;
• Review of periodic press releases and
results presentations prior to their
publication;
• Review of annual budgets and periodic
forecasts;
• Review of monthly management updates
covering key issues, including financial
and operational performance and the
status of key initiatives; and
• Discussion of various ad-hoc matters
related to financial accounting and
reporting.
The review by the Committee of the
quarterly results and half-yearly financial
statements was done with an emphasis on
ensuring the following:
• Critical judgements and estimates
applied by management (described in
more detail below) were appropriate and
complete disclosure had been made;
• The accounting policies adopted were
consistent with those used in prior
periods and remained appropriate;
• Full disclosures were made for
compliance with financial reporting
standards and relevant corporate
governance requirements, in particular
those relating to the ongoing discussions
with an informal ad hoc group of
noteholders (the “Ad Hoc Group”
or “AHG”);
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 101
Corporate governance Audit Committee report
The other significant judgements, estimates and assumptions applied by management when preparing the financial statements, and the
Committee’s responses, are noted in the following table:
Significant judgements
Geopolitical Factors
The Group’s operations are exposed to risks
associated with the political and business
environment in Kazakhstan, being the Group’s
sole country of commercial operations, as well
as its neighbouring countries.
In January 2022, following a rise in fuel prices,
certain mass demonstrations and gatherings
occurred in various cities across Kazakhstan.
Such political and civil unrest and the occurrence
of any such factors could result in new regulatory
requirements that can be onerous and expensive,
and other related changes that could have a
material and adverse effect on the Group’s
business, results of operations, financial
condition and prospects.
Nostrum has historically benefited from its
geo-strategic position in the heart of an export
corridor between Russia and markets to the west
of the Caspian, but on the other hand, the Group
has been respectively exposed to the risks
associated with the economic and political
situation in Russia, being reliant on its transport
routes and ports. Severe sanctions and trade
restrictions imposed by, among others, the US,
UK and EU on Russia at various stages during
as a response to Russia’s continuing actions in
Ukraine, have increased the economic and
political uncertainty and may have a material
adverse impact on the Group’s business, results
of operations, financial condition and prospects.
Committee actions
The Committee constantly monitored, through
regular interaction with management, the impact
of sanctions on the operations of the Group.
In particular, the Committee has monitored the
actions being taken by management to mitigate
the reduction in income caused by the significant
discount being applied to Urals blend crude
versus the Brent marker price, including
identifying alternative export routes.
NON-CURRENT ASSETS’ CARRYING VALUES
For impairment analysis, management used
judgement and determined a single cash-
generating unit (CGU) within the Group’s
non-current assets, which includes all assets
related to Chinarevskoye, and exploration fields
and gas treatment facilities.
Committee actions
The Committee concurred with management’s
position in determining a single CGU for the
majority of the Group’s non-current assets.
Significant estimates
Significant assumptions
Impact on financial
statement accounts
Estimations of the future
prices for oil, oil products and
dry gas as well as continued
production from the
Chinarevskoye field impact
the calculation of future cash
flows. In turn, these impact the
assessment of the continued
viability of the Company and
Group as well as the level
of impairment provision
to be made.
Assumptions used in estimating
recoverable amounts included
future commodity prices,
oil and gas reserves, future
production profiles, operating
expenses and capital
expenditure estimates, fiscal
regimes, and discount rates.
Changes in the significant
estimates and key assumptions
may affect the ability of the
Group to continue as a going
concern, or the level of
impairment required against
the CGU.
As part of the regular Board
meetings, the Committee
reviewed the monthly liquidity
position prepared by
management and agreed the
estimations of product prices,
costs and production profiles
were appropriate.
As part of the regular Board
meetings, members of the
Committee considered and
challenged the assumption that
sanctions were not affecting
marketing of our product or
operations.
The Committee considered
the impact of sanctions on
the financial statements at the
same time as it scrutinised the
application of the going concern
basis for the preparation of the
quarterly, half -yearly and annual
financial statements.
Estimations of the recoverable
amount of the CGU were
prepared by management
based on the discounted cash
flow model using significant
assumptions as well as
considering the value of
the enterprise.
Assumptions used in estimating
recoverable amounts included
future commodity prices,
oil and gas reserves, future
production profiles, operating
expenses and capital
expenditure estimates, fiscal
regimes, and discount rates.
Changes in the key assumptions
and market valuations may
significantly affect the estimation
of the recoverable amount
of non-current assets, and
consequently may result in
impairment of non-current
assets in the future periods.
Enterprise valuation considered
the market value of the Group’s
bonds and the Company’s
shares together with the
restructuring proposals
under discussion.
The Committee reviewed
the detailed reports on
impairment testing prepared
by management. The
Committee agreed with
management’s approach
in using a combination of a
discounted cash flow model
and enterprise value to
determine the range of
the impairment required.
Areas of focus were the
assumed product prices,
discount rates, production
profiles and associated sales
volumes, and forecast capital
and operating expenditures,
particularly in light of continued
depressed product prices and
related volatility risk.
The Committee also gave
special consideration to the
sensitivity analysis in relation
to the assumptions used.
The Committee also scrutinised
the disclosure of the impairment
charge in the accounts and this
report.
102 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Significant judgements
OIL AND GAS RESERVES
Management applied significant judgement
when selecting the volume of future production
used in the unit-of-production method of
depletion of assets based on the oil and gas
reserves.
Committee actions
The Committee concurred with the continued
application of the unit-of-production method of
assets depletion, as this method reflects the
expected pattern of consumption of future
economic benefits by the Group.
TAXATION
The uncertainties associated with Kazakhstan’s
tax system means that the ultimate amount of
taxes, penalties and interest, if any, is subject to
significant judgement.
Significant estimates
Significant assumptions
Impact on financial
statement accounts
Management uses internal
estimates to perform an annual
assessment of the oil and gas
reserves. The reserves
estimates are made in
accordance with the
methodology of the Society of
Petroleum Engineers (SPE) and
were audited by Ryder Scott.
While making such estimates,
management uses various
assumptions related to future
commodity prices, capital and
operating expenditures
necessary for the development
of a field, geological and
technical assumptions, future
production volumes, drilling
programme, etc.
Changes in the key assumptions
may significantly affect the
estimation of oil and gas
reserves, and consequently
result in substantial changes in
depletion expense and carrying
value of working oil and gas
properties in future periods.
The Committee gained
comfort on the outcomes of
the oil and gas reserves’
estimations based on its review
of the key assumptions
together with the confirmation
by Ryder Scott following their
audit of the reserves.
Considering the most recent
available information, the
Committee reviewed various
key assumptions used by
management in estimating the
oil and gas reserves and was
satisfied with the
reasonableness of such
assumptions.
The estimated reserves are a
central element in the calculation
of depreciation, depletion and
impairment.
Assumptions used in
estimating the amount of
taxation that is payable are
based on professional advice
and consideration of the
nature of current discussions
with the tax authority.
Because of the uncertainties
associated with Kazakhstan’s tax
systems, the ultimate amount of
taxes, penalties and interest, if
any, may be in excess of the
amount expensed to date and
accrued at 31 December 2021.
The Group is subject to routine
tax audits and also a process
whereby tax computations are
discussed and agreed with the
tax authorities. Whilst the
ultimate outcome of such tax
audits and discussions cannot
be determined with certainty,
management estimates the
level of liabilities required for
taxes for which it is considered
probably will be payable.
Committee actions
The Committee discussed with management any
uncertainties surrounding the Group’s tax
position.
The Committee reviews the
detail of any significant matter
under discussion with the tax
authorities and considers the
likelihood of taxes being
payable.
Areas of focus were the nature
of current discussions with the
tax authorities, the outcomes
of previous similar discussions
and the views of taxation
specialists.
The Committee also gave
special consideration to the
disclosure of any significant
uncertainty in the estimation
of the tax due.
Committee reviewed the
findings of a third party tax
review conducted by a
member of the Big 4
conducted in 2021 for
consistency with
Management’s views on
potential tax exposures and
provisioning positions.
Other significant judgements and estimates
The decommissioning of oil and gas assets
at the end of their economic lives, the
provisioning for contingent and other
liabilities, current and deferred income tax,
and fair value of financial instruments are all
areas that require management to use
judgement and estimates. The Committee
examined each of these issues and sought
clarifications, as and when necessary,
including discussions with the Company’s
auditor.
Significant matters communicated by the
external auditor
In addition to the significant judgements,
estimates and assumptions identified
above, the external auditor also highlighted
revenue risk, where there is always an
assumed risk of fraud through management
override of controls. The Committee
believes that the Group’s policies and
internal controls sufficiently minimise the
risks related to management’s ability to
manipulate accounting records or to
misappropriate assets.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 103
Corporate governance Audit Committee report
2. Risk management and internal controls
The Committee continuously monitored the Group’s risk management systems, further
information on which can be found in the Risk Management section on pages 38–39.
In accordance with requirements of the 2018 Code relating to the viability statement, the
Committee reviewed the impact and sensitivity analysis of such risks on the Group’s
long-term viability. The principal areas of risk management assessed by the Committee are
described in the table below.
Key areas of the Committee’s focus in relation to principal risks
Geopolitical
Risk
Liquidity and
financial
reporting
Oil and gas
production
rates
Health, safety
and
environment
Cyber security
Financial
reporting
The Committee considered the impact of worldwide sanctions on the
operations the Group and evaluated management’s responses to
those impacts. Such responses included collating and regularly
updating lists of all persons/entities sanctioned in order to ensure
Nostrum does not enter into transactions with any of the persons/
entities on these lists. As a result, some business relationships were
terminated, for example the Group’s relationships with the Sberbank
subsidiary in Kazakhstan.
Throughout the year, and as explained in more detail elsewhere in this
report, the Committee has been focused on reviews of the ongoing
viability of the Group and the application of the going concern
principle to the financial statements.
Oil and gas production volumes, being one of the strategic indicators
of the Group’s performance, are subject to risks and uncertainties of a
geological and technological nature. The Committee members have
been constantly monitoring forecast production rates against actual
rates. Any material variances were discussed, and explanations sought
during Committee meetings, Board meetings or dedicated
presentations given by management.
As part of the monthly management reports, the Committee reviewed
the Group’s activities to ensure an appropriate level of protection for
health, safety and the environment. This area will be within the scope
of responsibilities of the Health, Safety, Environment and Communities
Committee of the Board.
The Committee continued to review the Company's and Group’s
exposure to a cyber-attack and discussed with management with
management the effectiveness of proposed actions to address such
exposures.
The Committee seeks to ensure the accurate maintenance of
accounting records and related transactions. Considering the volatility
of oil prices and the uncertainty over the Group’s continued viability as
a going concern, the Committee focused on the review of going
concern, the viability statement and impairment.
Internal control system
The Group’s internal control system is
aimed at mitigating risks and improving
efficiency. These include:
• Segregation of authorities and duties at
various levels;
• Policies and procedures covering
Directors’ remuneration, compliance,
accounting and reporting and health,
safety and environment as described in
the relevant sections of the Annual
Report;
• Training and internal communications;
and
• Continuous monitoring by senior
management and the Board of short-
term, medium-term and long-term
planning and decision-making processes.
In the Committee’s view, the Group
maintained robust and defensible systems
of risk management and internal
control, and the Committee made
recommendations to senior management
on further improvements as and
when considered necessary.
Details of the procedures related to
compliance control are set out below
(including compliance liaison equivalent to
a hotline). No instructions for any conflict of
interest settlement or compliance control
forms were in use in 2022. No sanctions or
disciplinary actions were applied in respect
of internal control in 2022.
Internal audit
The primary role of the internal audit
function is to assist the Board and senior
management to protect the assets,
reputation and sustainability of the
organisation. This is achieved through:
• Building strong and effective risk
awareness within the Group;
• Continuously improving risk
management and control processes so
that they operate effectively and
efficiently, and reflect leading practice;
and
• Sharing best practice regarding risk
management and assurance across the
Group.
The Group does not at this time have a
dedicated internal audit function. Instead,
the Group outsources this work to
specialists in relevant areas or engages
internal resources on a case-by-case basis.
For example, an internal review was
conducted by the CLO on related party
transactions issues in April 2022 and
relevant report presented to the Audit
Committee.
To mitigate the exposure caused, the
Group continued to operate the Contracts
Board comprising the Chief Executive
Officer, the Chief Financial Officer and the
Chief Operating Officer. The Contracts
Board meets weekly and its purpose is to
review and approve all expenditure
commitments in excess of $10,000.
Also, in the Committee’s view, the Group
has sufficient internal processes providing
assurance to the management, Audit
Committee and the Board about the
effectiveness of systems of internal control
and risk management: for instance monthly
reports to the Board on operations,
liquidity and legal issues and assurance
provided by Quality, Health, Safety and the
Environment (“QHSE”) and security
personnel.
3. Compliance with laws and
regulations
The Chief Legal Officer and Company
Secretary attends the Committee’s
meetings, which allows the Committee to
raise any concerns related to legal,
compliance or whistleblowing matters and
the status of any ongoing litigation.
UK Corporate Governance Code
The Committee was in compliance with the
Code throughout 2022.
104 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Whistleblowing arrangements
Nostrum has a Group Whistleblowing
Policy and, to ensure that all Group
employees have access to someone who
can provide them with support and
guidance, the Group has two compliance
liaison officers: one English, Kazakh and
Russian-speaking officer based in Uralsk
and another Dutch- and English-speaking
officer based in Brussels. The Audit
Committee maintained close contact with
the compliance liaison officers. One
whistleblowing activity was reported in
2022 and was satisfactorily resolved.
4. External audit
Appointment of external auditor
Since 2007, Ernst & Young LLP (Kazakhstan)
was the auditor of the predecessor Group
of companies and was first appointed as
auditor of the Group on 19 May 2014.
A tender for the external audit
arrangements was conducted in 2015, as a
result of which it was concluded that it
would be in the best interests of the
stakeholders to continue engaging Ernst &
Young LLP (UK) as the Group’s external
auditor.
Following a recommendation to that effect
from the Board, the shareholders approved
the reappointment of Ernst & Young LLP
(UK) at the Annual General Meeting held on
9 June 2020. Mr William Binns succeeded
Mr Richard Addison as lead audit
engagement partner in 2019.
In 2022, the Group reappraised its audit
requirements and decided to retender the
audit. The process was started in June 2022
and a robust process was concluded at the
end of September 2022 when another audit
firm was selected and Ernst & Young LLP
resigned as auditor of the Company.
On 25 October 2022, the potential
incoming auditor notified the Company
that it no longer intended to register
for FRC supervision, and, as a result, no
longer wished to be appointed as auditor.
On 6 March 2023, the Company announced
that it had appointed MHA as auditors to
the Group and Ernst & Young Kazakhstan
as auditors of Zhaikmunai LLP.
Compliance with other legal requirements
There were no material fines or other
sanctions against the Group in 2022. There
was no antitrust litigation against the Group
in 2022. There were no actual or potential
related party transactions in 2022.
Product liability
There were no cases relating to product
liability in 2022.
Non-audit services
The main principle of the Group’s policy on
the provision of non-audit services by the
external auditor is that non-audit services
may only be provided by the external
auditor where the external auditor
maintains the necessary degree of
independence and objectivity, and that
standard supplier selection procedures are
carried out.
Committee pre-approval is required before
the external auditor is engaged to provide
any permitted non-audit services (as
defined in the policy) in addition to any
other approvals required by the Board and
management pursuant to powers
delegated by the Board or Nostrum’s
internal approvals policies.
The Committee monitors the external
auditor to ensure that it does not provide
non-audit services that are prohibited by
the FRC and limits such services to due
diligence services and other assurance
services. The revised policy is available
on the Group’s website at www.nog.co.uk
and will be reviewed and amended as
and when required.
Audit fees for 2022 totalled US$1,199,840
(2021: US$1,248,000).
A detailed breakdown of audit and
non-audit fees for 2022 can be found in
Note 28 to the consolidated financial
statements of the Group on page 157.
By operating in accordance with the above
policy and other practices established
within the Group, the Committee was
satisfied that adequate safeguards were
in place to ensure the objectivity and
independence of the external auditor.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 105
Corporate governance Only members of the Committee have the
right to attend Committee meetings.
However, other individuals may be invited
to attend all or part of any meeting, as and
when appropriate.
Diversity
More information on the Group’s actions
and policies in relation to diversity and
inclusion can be found on pages 63–66.
Appointments, succession
planning and evaluation
Given the ongoing restructuring and
expected changes in the composition of
the Board upon completion thereof there
were no appointments at Board level in
2022. Succession planning was discussed
several times, as set out in the principal
agenda items referred to below. No formal
Board evaluation took place in 2022. No
external search consultancies were used.
The gender balance of senior management
and their direct reports is set out on
pages 63–64.
All Directors will stand for re-election at the
2023 Annual General Meeting with the full
support of the Board.
Nomination and Governance Committee report
GRI 2-10
Nomination and Governance
Committee report
Key responsibilities of the Nomination and Governance Committee
The key responsibilities of the Committee in 2022 were to:
• Lead the process for Board appointments and make recommendations to the Board
regarding candidates for appointment or reappointment as Directors;
• Monitor and make recommendations to the Board on Board governance and corporate
governance issues, to enable the Board to operate effectively and efficiently;
• Regularly review the structure, size and composition (including skills, knowledge and
experience) of the Board;
• Ensure that an annual review of the effectiveness of the Board, and each committee of the
Board, and the contribution of each director is conducted every year, with an independent
external review at least every three years;
• Keep under review the leadership needs of the Company, both executive and non-executive,
with a view to ensuring the continued ability of the Company to compete effectively in the
marketplace; and
• Review annually the time required from Non-Executive Directors.
• Review and approve changes to the Board’s governance guidelines, monitor the compliance
with such guidelines and with applicable legal, regulatory and listing requirements and
recommend to the Board such changes or additional action as it deems necessary;
• Require Directors to obtain approval from the Board before undertaking additional external
appointments.
The key areas of responsibility of the Committee with effect from 26 April 2023 are unchanged
from those applying in 2022.
More details on key responsibilities can be found in the Committee’s terms of reference, which
are available on the Group’s website at www.nog.co.uk.
Membership as at 31 December 2022
Chairman
Sir Christopher
Codrington, Bt.
Kaat Van Hecke
Martin Cocker
Membership as at 24 February 2023
Chris Cox
Committee Chair from 24 February 2023,
Member from 24 February 2023
Martin Gudgeon
Member from 24 February 2023
Chris Hopkinson
Member from 24 February 2023
Fiona Paulus
Member from 24 February 2023
Stephen Whyte
Member from 24 February 2023
The Chairman does not have any other significant commitments to report.
Committee meetings
The Nomination and Governance Committee met formally six times during 2022. The
attendance of each Committee member at Committee meetings held during 2022 is
shown on page 93. As a separate agenda item, the Committee reports to the Board at
each Board meeting on any activities of the Committee since the last Board meeting.
The principal agenda items at the formal meetings were as follows:
Meeting
March
May
Early July
Mid July
August
October
Agenda item
Sanctions compliance. Notice of AGM. Code of conduct. Changes to SMT. Employee
liaison.
Possibility of an additional appointment to the Board. Procurement blacklist.
Replacement of Sir Christopher as chairman of Audit Committee by Mr Cocker.
Succession issues. Amendments to policies. Procurement blacklist. D&O insurance.
Succession issues.
Succession issues.
ESG rating.
106 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Remuneration Committee report
Annual statement
from the Chairman GRI 2-19
Our strategic targets all remain
commercially sensitive and, therefore,
have not been disclosed.
Mr Khan is the only person who served as
an Executive Director during 2022 who has
been assessed for a bonus against
achievement of these KPIs. The assessment
was prepared by the Remuneration
Committee as a recommendation to the
Board, and was considered and agreed by
the Board (other than Mr Khan himself) on
26 April 2023. It was determined that 77.5%
of the 2022 KPIs had been achieved over
the year 2022 (USD 435,774).
Production and cost KPIs were partially
satisfied (22% out of a possible 40%), the
strategic KPIs had been almost entirely met
(45.5% out of a possible 50%) and HSE KPIs
were fully met (10% out of a possible 10%).
Accordingly, the Committee recommended
and the Board approved a bonus of 77.5%
of base compensation for the Chief
Executive Officer for 2022.
In addition, the Chief Executive Officer
was paid a bonus in 2023 equal to of 50%
of his base compensation (USD 281,145)
to which Mr Khan was contractually entitled
in connection with the completion of the
Company’s restructuring in February 2023.
The 2023 key performance indicators for
the CEO and senior managers were initially
proposed by the CEO and then developed
in consultation with the Remuneration
Committee and were agreed by the Board
(other than Mr Khan himself) on 26 April
2023. Such KPIs are set out on page 115.
Senior management, including the Chief
Executive Officer and (when appointed) the
chief financial officer, are assessed for
bonuses based on these KPIs. Certain KPIs
relating to strategic objectives have been
carried forward from 2022 but are still
considered to be commercially sensitive
and so have not been disclosed. It is our
intention to publish these, together with the
bonus outcome, as required in the first
Directors’ Remuneration Report following
their achievement.
The Committee also exercised its discretion
in deciding not to make any awards under
the LTIP in 2022 to any LTIP participants.
As regarding the Group’s personnel as a
whole, the collective agreement with
employees of the Company’s subsidiary
Zhaikmunai LLP working in the RoK
provides for annual indexation of salaries.
Effective 1 April 2022 an increase of 8.4%
was granted to employees who are paid in
Kazakh Tenge to cover the increase in the
cost of living there during 2021.
Both Executive Directors (Mr Gupta and
Mr Khan) received salary increases in 2022
due only to exchange rate, details of
which are set out in the single total
remuneration table.
Fees payable to the independent non-
executive Directors in 2022 remained at the
level of $120,000 per annum, introduced
from the date of entry by the Company
into the Forbearance Agreement on
23 October 2020.
UK Corporate Governance Code
The Company complied with the provisions
of the Code relating to remuneration
throughout 2022. Further information on
compliance with the Code can be found
on pages 88–89.
The Committee has addressed the factors
in Provision 40 of the Code as to clarity,
simplicity, risk and predictability by refining
the CEO’s KPIs applying in 2023 relative to
those which applied in 2022 to (a) reduce
ambiguity; (b) increase the level of
granularity; and (c) agree them with
relevant stakeholders (such as the
bondholders) in good time.
Compliance statement
This report has been prepared in
accordance with the UK’s regulations on
remuneration reporting. The Companies
Act 2006 requires the Company’s auditor to
report to shareholders on certain parts of
the Directors’ Remuneration Report and to
state whether, in the auditor’s opinion,
those parts of the report have been
properly prepared in accordance with the
above regulations. This Annual Statement
and the Policy Report are not subject to
audit. The sections of the Directors’
Remuneration Report that are subject to
audit are indicated accordingly.
On behalf of the Committee, I would like
to thank shareholders for their continuing
support.
Chris Hopkinson
Chairman, Remuneration Committee
Independent Non-Executive Director
30 May 2023
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 107
Dear shareholder,
I am pleased to introduce the Directors’
Remuneration Report, which has been
approved by both the Remuneration
Committee and the Board for the year
ended 31 December 2022.
Remuneration Policy
The aim of our Remuneration Policy,
amongst other things, is to align the
remuneration of executives and senior
management with the interests of the
Company’s shareholders and to ensure that
rewards are justified by performance.
As noted elsewhere in this Annual Report,
in accordance with the Companies Act
2006 a resolution to approve the
Remuneration Policy was submitted to
shareholders for a binding vote at the 2022
Annual General Meeting and was approved
by 99.77% of votes cast.
Remuneration for 2022
The 2022 Directors’ Remuneration Report
will also be subject to an advisory vote at
our 2023 Annual General Meeting.
Further details of Executive Director
performance against the 2022 KPIs can be
found on pages 108–115. In setting these
targets, the Committee focused on areas
critical for the Company, which were:
• Minimising annual decline of average
sales volumes;
• Reducing operational and G&A cash
costs;
• Pursuing strategic objectives to monetise
the spare capacity within our world-class
processing facilities;
• Ensuring all of our operations are carried
out as safely as possible; and
• Actively managing our greenhouse gas
emissions.
Corporate governance 2022 annual report on remuneration
2022 annual report
on remuneration GRI 2-19, 2-20
Remuneration Committee
The remuneration of the Chairman, the
Chief Executive, the Chief Financial Officer,
the Company Secretary and all other senior
members of executive management is
determined by the Committee under
delegated powers from the Board and in
accordance with the Committee’s terms of
reference. The Chairman and the executive
members of the Board determine the
remuneration of all Non-Executive
Directors, including members of the
Committees.
In accordance with the terms of reference,
members of the Committee shall be
appointed by the Board on the
recommendation of the Nomination and
Governance Committee in consultation
with the Chair of the Committee. The
Committee shall comprise at least three
members, the majority of whom shall be
independent Non-Executive Directors and
one of whom shall be the Warrant Director.
During 2022, the Committee was
comprised solely of independent Non-
Executive Directors.
The primary responsibilities of the
Committee are set out in its terms of
reference which are reviewed and updated
annually, and which are available to
download from the Company’s website.
Alternatively, copies can be obtained on
request from the Company Secretary.
When making recommendations to the
Board regarding Executive Directors’
remuneration the Committee is able to
consider corporate performance on
environmental, social and governance
issues and ensures that any incentive
structures do not raise any environmental,
social or governance risks by inadvertently
motivating irresponsible behaviour.
The Committee held three meetings
in 2022 and the attendance of each
committee member at such meetings
is shown on page 93.
The principal agenda items at the formal
meetings were as follows:
Meeting
Agenda item
March
2022
October
2022
November
2022
• Assessment of performance
against 2021 KPIs.
• Severance for CFO.
• Deferral of decisions regarding
2023 KPIs.
No other Directors participated in meetings
of the Committee during 2022.
During the year, the Committee received
advice internally from Arfan Khan, Shane
Drader (until 30 September 2022) and
Thomas Hartnett (Company Secretary).
Mr Gupta and Mr Khan were consulted on
the remuneration of the other Executive
Directors and senior members of executive
management and on matters relating to the
performance of the Company. The
Company Secretary was consulted on
regulatory requirements.
None of the Executive Directors nor the
Company Secretary participated in
decisions on his own remuneration.
Members of the Group’s human resources
team may attend relevant portions of
Committee meetings to ensure appropriate
input on matters related to the
remuneration of senior members of the
executive management team below Board
level.
Key responsibilities of the
Remuneration Committee
In summary, the Committee’s key
responsibilities include ensuring that:
• Remuneration policy and practices of
the Company are designed to support
strategy and promote long-term
sustainable success, reward fairly and
responsibly, with a clear link to
corporate and individual performance,
having regard to statutory and
regulatory requirements; and
• Executive remuneration is aligned to
company purpose and values and linked
to delivery of the Company’s long-term
strategy
Membership
The members of the Committee during
2022 were:
Name
Membership
start date
Membership
end date
Sir Christopher
Codrington, Bt.
19 May
2014
Kaat Van Hecke
(Chairwoman
from 8 October
2020)
31
December
2016
8 October
2020
14 February
2023
27 January
2020
14 February
2023
Martin Cocker
27 January
2020
8 October
2020
30 August
2021
14 February
2023
The members of the Committee with
effect from 24 February 2023 are:
Name
Chris
Hopkinson
(Chairman)
Fiona Paulus
Chris Cox
Martin
Gudgeon
Membership
start date
Membership
end date
24 February
2023
24 February
2023
24 February
2023
24 February
2023
Their biographies are given on pages
90–92. The Company Secretary acts
as secretary to the Committee.
108 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Voting on remuneration matters
The resolutions put to shareholders at the 2022 Annual General Meeting relating to Directors’ remuneration were a resolution to approve
the Directors’ annual report on remuneration which, in accordance with the Companies Act 2006, was subject to an advisory vote and a
resolution to approve a new remuneration policy which, in accordance with the Companies Act 2006, was submitted to shareholders for a
binding vote. The votes received are set out in the table below.
Resolution
Approval of the Directors’ annual report on remuneration
Approval of new remuneration policy
Votes FOR % of votes cast
AGAINST % of votes cast
78,627,576
78,627,576
99.77%
99.77%
179,134
179,134
0.23%
0.23%
Votes
Votes
WITHHELD
0
0
At the 2023 Annual General Meeting, the Directors’ remuneration report will be put to shareholders for approval by way of an advisory
vote. In accordance with the Companies Act 2006, a resolution to approve changes to the Remuneration Policy will be submitted to
shareholders for a binding vote at the 2023 Annual General Meeting.
Single total figure of remuneration
The table below shows the single total figure of remuneration for the year ended 31 December 2022 for each Director that served at any
time during the year. The information contained in the table is as prescribed by the Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013 and contains a single total figure of remuneration for each Director.
Directors are remunerated in either GBP, US$ or KZT. All figures in relation to Director remuneration are reported in USD throughout this
report. Those figures which were reported in the annual report for 2021 in EUR have been translated to USD for the purposes of this
report at a foreign currency exchange rate of 1.188.
Director 1,2 Amounts in USD
Period
Salary and
fees
Taxable
benefit
Annual
bonus 3
Option
Plan
LTIP 4
Pension 5
Total
(audited)
Total fixed
remuneration
Total variable
remuneration
Atul Gupta
(Executive Chairman)
Arfan Khan
(Chief Executive Officer)
2022
2021
2022
2021
518,575
512,203
3,888
4,209
−
−
683,814
13,763
716,919
649,772
45,816 175,000
Martin Cocker
(Non-Executive Director) 2022
(Non-Executive Director) 2021
(Chief Financial Officer)6 2021
Sir Christopher
Codrington, Bt.7
(Non-Executive Director) 2022
2021
Kaat Van Hecke
(Non-Executive Director) 2022
2021
120,000
40,000
446,338
120,000
120,000
120,000
120,000
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
522,463
522,463
3,827 520,239
520,239
−
−
39,154 1,453,649
736,731
716,919
40,208
910,796
735,796
175,000
− 120,000
120,000
−
40,000
40,000
− 446,338
446,338
− 120,000
− 120,000
− 120,000
− 120,000
−
−
−
−
−
−
−
−
−
−
−
1. Mr Cocker (from March 2020 to August 2021 when he was in role as Chief Financial Officer) and Mr Gupta (from November 2018 when he was appointed as Executive
Chairman) received their remuneration under Group executive service contracts. Prior to November 2018, Mr Gupta was not an Executive Director. For clarity, this
table presents their total remuneration from the Group whether received under a contract for services as a Director or a Group executive services contract.
2. Mr Gupta was remunerated in US$, Mr Cocker was remunerated in GBP, Mr Khan was remunerated in GBP and KZT and Ms van Hecke was remunerated in EUR and
KZT. For the purposes of this table, the following exchange rates have been used:
2022: GBP: EUR 1.178; EUR: US$ 1.061; EUR: KZT 485.28
2021: GBP: EUR 1.159; EUR: US$ 1.188; EUR: KZT 505
3. Mr Khan received a bonus for his contribution to the operating, commercial, strategic and environmental objectives of the Group in 2021 and 2022. None of the
bonus awarded to Mr Khan was in relation to the appreciation or depreciation of the Company’s share price. No other Executive Directors received bonuses in
respect of 2020, 2021 or 2022.
4. Awards made under the LTIP in 2017 have vested but no awards have been exercised by the Executive Directors in respect of such awards. No awards made under
the LTIP in 2018 are capable of vesting as the performance conditions were not met in 2018. No awards were made under the LTIP in 2020, 2021 or 2022.
5. The Company did not operate a pension scheme for Executive Directors in 2021 or 2022 but may make a pension contribution or a payment in lieu of pension
contributions to Executive Directors under their employment contracts as executives of the Group as opposed to under their service agreements as Directors of
the Company. The total amount paid to Executive Directors in 2022 in lieu of pension contributions was 39,154 USD (2021: USD 44,035). Executive Directors are
not entitled to any additional benefit if they retire early.
6. Mr Cocker was paid as Chief Financial Officer for the period 31 March 2020 to 29 August 2021. Mr Cocker resigned as Chief Financial Officer on 30 August 2021
and was redesignated as an independent Non-Executive Director on 30 August 2021. From 1 September 2021, Mr Cocker was paid fees of $120,000 per annum.
No additional amounts were payable for being Chair of any of the Board’s committees.
7. From 22 October 2020, Sir Christopher Codrington and Kaat van Hecke were paid fees of $120,000 per annum. No additional amounts were payable for being Chair
of any of the Board’s committees nor the Senior Independent Non-Executive Director.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 109
Corporate governance 2022 annual report on remuneration
Notes on the single total figure of remuneration table
Base salaries
Executive Directors’ salaries were considered by the Committee at the time of appointment to post in 2020 and 2021.
When reviewing salaries, the Committee considered the provisions of the Remuneration Policy and the situation of the Company.
Annual bonus
In 2022, Mr Khan was the only Executive Director eligible for a bonus.
In accordance with the Remuneration Policy approved in 2022, the maximum annual bonus opportunity for Mr Khan in respect of 2022
was 240% of base compensation.
All bonuses are discretionary and can be reduced from the maximum annual bonus opportunity level for reasons such as poor
performance by the employee or due to disappointing financial performance of the Group as a whole.
The key performance indicators for annual cash bonuses for the Chief Executive Officer were as follows:
2022 bonus performance measures
Production and Costs
Achieve annual No-Further-Activity PDP volume available for sales from 12 100 boepd (0%) to 12 700 boepd (100 %). Sliding
scale.
Deliver 6 well WOWI campaign within USD 5.8 mln budget and with an annual cumulative production volume in 2022 ranging
from 192 kboe (0%) to 396 kboe (100%). Sliding scale.
Reduce Opex and G&A from USD 45.5 mln (0%) to USD 41.76 mln (100%). Accruals basis. Sliding scale
Deliver gaslift expansion project by Oct 2022, within USD 8 mln budget and run compressor stable (one month uninterrupted).
If project delivery is one week faster and in budget (100%); if on target and in budget (75%) ; if 2 months delay and
above budget (0%).
Strategic Objectives
A commercially sensitive strategic target, therefore not disclosed1.
A commercially sensitive strategic target, therefore not disclosed1.
Improvement of Refinitiv ESG assessment score to 55/100 by December 31, 2022. Sliding scale.
HSE
Achievement of the approved 2022 HSE Plan (provided that there have been no fatalities).
KPIs:
• Reduce GHG emissions with 5% of 2021 actual CO2 equivalent level
• Safety KPIs: LTI < 1.0 ; RTI < 0.8 ; TRIF < 2.0 ; Number of HSE stop cards > 1000 ; >60% participation of ZKM employees in HSE
stop cards
Weight
40%
15%
10%
10%
5%
50%
40%
5%
5%
10%
10%
100%
These bonus performance measures apply to the Chief Executive Officer only. No other director is eligible for any bonus payment relating
to 2022 performance based on these performance measures.
The Committee considered the performance of the Chief Executive Officer in the period 1 January to 31 December 2022.
Production and cost KPIs were partially satisfied (22% out of a possible 40%), the strategic KPIs had been almost entirely met (45.5% out of
a possible 50%) and HSE KPIs were fully met (10% out of a possible 10%). Accordingly, the Committee recommended and the Board
approved a bonus of 77.5% of base compensation for the Chief Executive Officer for 2022 (USD 435,774).
In addition, the Chief Executive Officer was paid a bonus in 2023 equal to 50% of his base compensation to which Mr Khan was
contractually entitled in connection with the completion of the Company’s restructuring in February 2023 (USD 281,145).
The Company does not provide for any clawback or withholding provisions regarding annual bonuses, as annual bonuses are awarded on
a lump sum basis based on past performance and payable in the following year, and so the rationale behind a clawback or withholding
mechanism is less relevant. This also applies to LTIP awards for which performance conditions have been satisfied. Except as stated in
relation to the Phantom Share Option Scheme and the LTIP, there are no deferral periods, vesting periods or holding periods. There are
no performance targets or measures relating to more than one financial year.
1 In certain cases information on performance measures or targets has been omitted because it is commercially sensitive and disclosure of such information may
not be in the Company’s interest. Such information may be reported in the subsequent annual report if the performance measure or target has been met and
the Company considers that disclosure of such information at such time would not be contrary to the Company’s interest.
110 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Long-term incentive awards
In 2017, the Company implemented its new
performance-based long-term incentive
plan (LTIP) and granted additional awards
on 28 November 2018.
The LTIP awards granted are based on
performance over one calendar year, which
is followed by an additional two-year
holding period such that no awards may
vest before the third anniversary of the date
of grant.
The Committee decided not to make any
awards in 2022, and so there is no
information to be provided in relation to
performance conditions for the reporting
year.
Pension entitlements
The Company did not operate a pension
scheme for Executive Directors in 2022
but may make a contribution to a private
pension fund or a payment in lieu of
pension contributions to Executive
Directors, under their employment
contracts as executives of the Group as
opposed to under their service agreements
as Directors of the Company.
Payments to past Directors
No payments were made to past directors
of the Company during the year ended
31 December 2022.
Payments for loss of office
No payments were made to Directors in
2022 for loss of office.
Non-executive Director fees
No changes were made to Non-Executive
Director fees in 2022, which were kept at
$10,000 per month.
Directors’ shareholdings
The beneficial interests of the Directors
in the share capital of the Company as
at 31 December 2022 were as follows:
Director
Atul Gupta
Arfan Khan
Total
(audited)
178,357
−
Sir Christopher Codrington, Bt.
3,312
Kaat Van Hecke
Martin Cocker
−
−
The Company has not been notified of
any change in Directors’ shareholdings
since 31 December 2022. Mr Gupta,
Sir Christopher Codrington, Bt., Kaat Van
Hecke and Martin Cocker resigned on
14 February 2023.
The beneficial interests of the Directors
in the share capital of the Company as
at 14 February 2023 were as follows:
Director
Chris Cox
Chris Hopkinson
Martin Gudgeon
Arfan Khan
Fiona Paulus
Stephen Whyte
Total
(audited)
−
−
−
−
−
−
Please refer to the text in the Remuneration
Policy table on page 118 in relation to
shareholding guidelines applicable to
Directors.
No shares have been granted to Directors
so there was no requirement on any
Director to hold them in accordance with
the guidelines. With the exception of Mr
Gupta, none of the Executive Directors
held shares in 2022 as encouraged by the
guidelines.
Phantom share option plan
The Company operates one non-
performance-related phantom share option
plan (the Plan). The Executive Directors
eligible to participate in the Plan were
Kai-Uwe Kessel and Tom Richardson. Each
held options over Ordinary Shares of the
Company, generally vesting over a five-year
period, exercisable at either US$4.00 or
US$10.00 per Ordinary Share and expiring
10 years from the date of grant, pursuant
to the Plan.
Mr Kessel left the Company by mutual
consent on 16 December 2019 and, in
accordance with the terms of the Plan,
all outstanding options lapsed as at the
same date.
Mr Richardson resigned as Chief Financial
Officer and as a Director of the Company
on 31 March 2020 and, in accordance with
the terms of the Plan, all outstanding
options lapsed on 30 March 2021.
No awards were made under the Plan in
2022 (2021: nil). It is intended that following
the restructuring, a new long-term incentive
plan will be introduced which will replace
the Plan going forward. Therefore, it is not
currently envisaged to make any further
awards under the Plan.
The Plan rules do not contain any malus or
clawback mechanisms. However, should
further awards be considered under the
Plan, then management will require any
recommendations by the Company to the
option trustee of an option award to be
made subject to an express right for the
Company to suspend further vesting and
to claw back unvested options previously
awarded where there have been
exceptional circumstances of misstatement
or misconduct, misbehaviour, significant
risk failures or material downturns in the
Group’s financial performance prior to
vesting.
Long-term incentive plan
On 24 August 2017, the Board approved
the making of certain initial grants under
the Company’s new long-term incentive
plan (LTIP). Awards under the LTIP were
made in 2017 and 2018 but no further
awards were made in 2019, 2020, 2021
or 2022
.
In accordance with the LTIP rules, all
outstanding options that had been issued
to two Executive Directors, Mr Kessel and
Mr Richardson, who left the Company on
16 December 2019 and 31 March 2020,
respectively, lapsed as of 16 December
2019 and 30 March 2021, respectively.
All Non-Executive Directors who had been
granted awards under the LTIP (including
the Chairman) have formally renounced
such awards and the Company has
amended the terms of its LTIP to make
Non-Executive Directors ineligible to
participate in the LTIP.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 111
Corporate governance 2022 annual report on remuneration
Remuneration statistics and comparisons
The following performance graph shows the growth in value of a notional £100 invested in the Company since the premium listing of the
Company compared with the growth in the FTSE 350 Oil & Gas Index over the same period. The Committee selected the FTSE 350 Oil &
Gas Index as the most appropriate comparator as it feels that it is a broad-based index which includes many of the Company’s
competitors.
TOTAL SHARE RETURN
120
100
80
60
40
20
0
4
1
n
u
J
4
1
p
e
S
4
1
c
e
D
5
1
r
a
M
5
1
n
u
J
5
1
p
e
S
5
1
c
e
D
6
1
r
a
M
6
1
n
u
J
6
1
p
e
S
6
1
c
e
D
7
1
r
a
M
7
1
n
u
J
7
1
p
e
S
7
1
c
e
D
8
1
r
a
M
8
1
n
u
J
8
1
p
e
S
8
1
c
e
D
9
1
r
a
M
9
1
n
u
J
9
1
p
e
S
9
1
c
e
D
0
2
r
a
M
0
2
n
u
J
0
2
p
e
S
0
2
c
e
D
1
2
r
a
M
1
2
n
u
J
1
2
p
e
S
1
2
c
e
D
2
2
r
a
M
2
2
n
u
J
2
2
p
e
S
2
2
c
e
D
Nostrum O&G (dividends received)
Nostrum O&G (dividends re-invested)
FTSE 350 Oil & Gas
History of Chief Executive Officer remuneration
The total remuneration figures compared with a respective maximum opportunity for the Chief Executive Officer during each of the last
five financial years are shown in the table below. Kai-Uwe Kessel was in the position for the period 1 January 2015 to 16 December 2019,
Kaat Van Hecke was the Chief Executive Officer from 16 December 2019 to 31 August 2020 and Atul Gupta from 1 September to
25 January 2021.
The total Chief Executive Officer remuneration figure for 2020 therefore includes all amounts paid to Kaat van Hecke for the period
1 January 2020 to 31 August 2020 and Atul Gupta for the period 1 September 2020 to 31 December 2020 for Chief Executive Officer
services provided to the Group. Mr Gupta remained as Executive Chairman throughout the period 1 September 2020 to 25 January 2021.
Therefore, the amount attributed to his role as Chief Executive Officer is the incremental value in his remuneration only, which was the
pension contribution.
Please refer to the single total figure of remuneration table on page 109 for more information.
Year
2012
2013
2014
2015
2016
2017
2018
20193
20204
20215
2022
Total CEO
remuneration
(USD)
Annual bonus
as % of
maximum
opportunity
1,047,791
100.00%
1,222,420
100.00%
2,726,9301
100.00%
1,078,059
80.00%2
1,013,718
1,004,305
732,271
1,577,014
1,284,577
948,525
1,453,649
75.00%
31.25%
0.00%
0.00%
60.33%
12.61%
53.13%
1. Total CEO remuneration for 2014 includes remuneration from the exercise of share options.
2. These figures include a bonus amount of EUR 236,262 paid in 2015 in respect of 2014 performance. No bonuses were paid for 2015 performance.
3. The amounts published in 2021 in respect of payments to Ms Van Hecke in 2019 have been corrected to include the amount of EUR 32,006 paid to her spouse in 2019.
4. The amounts published in 2021 in respect of payments to Ms Van Hecke in 2020 have been corrected to include amount of EUR 423,031 paid to her spouse in 2020.
5. Ms Van Hecke was Chief Executive Officer from 16 December 2019 to 31 August 2020. Mr Gupta discharged the role of Chief Executive Officer from 1 September 2020
to 25 January 2021 but received no increment in salary, benefits or annual bonus as a result of assuming this role as well as that of Executive Chairman. Therefore, the
figures for the remuneration of the Chief Executive Officer in 2019, 2020 and 2021 reflect only the amounts paid to Ms Van Hecke (and her spouse) and Mr Khan.
112 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Annual percentage change in Director and average employee remuneration
The table below shows the percentage changes in the salary, benefits and annual bonus of the Directors compared to the percentage
increases of the workforce as a whole for each financial year beginning on or after 10 June 2019.
Executive Directors (USD)
Executive Chairman
Salaries
Taxable benefits
Annual bonus
Chief Executive Officer1
Salaries
Taxable benefits
Annual bonus
Chief Financial Officer2,3
Salaries
Taxable benefits
Annual bonus
Non-Executive Directors (USD)
Sir Christopher Codrington Bt
Salaries
Taxable benefits
Annual bonus
Kaat Van Hecke
Salaries
Taxable benefits
Annual bonus
Mark Martin
Salaries
Taxable benefits
Annual bonus
Martin Cocker
Salaries
Taxable benefits
Annual bonus
Michael Calvey
Salaries
Taxable benefits
Annual bonus
Simon Byrne
Salaries
Taxable benefits
Annual bonus
Employees of the Group on an FTE basis
Salaries
Taxable benefits
Annual bonus
2022
USD
2022 to 2021
% change
2021
USD
2021 to 2020
% change
2020
USD
518,575
3,888
−
683,814
13,763
716,919
−
−
−
120,000
−
−
120,000
−
−
−
−
−
1.2%
(7.6%)
−
512,203
(0.1%)
512,776
4,209
705.6%
−
−
522
−
0.1%
683,330
(37.9%)
1,100,965
(70.2%)
309.7%
46,124
175,000
255.2%
50.3%
12,985
116,405
−
−
−
−
−
−
−
−
−
−
−
−
446,338
-
−
(47.6%)
(100%)
−
851,099
3,530
−
120,000
27.5%
94,098
−
−
−
−
−
−
120,000
300.4%
29,968
−
−
−
−
−
−
−
−
−
(100%)
51,023
−
−
−
−
120,000
200%
40,000
45.5%
27,500
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
(0.5%)
1.5%
9.4%
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
(100%)
25,000
−
−
−
−
(100%)
25,000
−
−
(8.0%)
(5.3%)
6.6%
−
−
−
−
−
1. Ms Van Hecke was Chief Executive Officer from 16 December 2019 to 31 August 2020. Mr Gupta discharged the role of Chief Executive Officer from 1 September
2020 to 25 January 2021 but received no increment in salary, benefits or annual bonus as a result of assuming this role as well as that of Executive Chairman.
Therefore, the figures for the remuneration of the Chief Executive Officer in 2019, 2020 and 2021 reflect only the amounts paid to Ms Van Hecke (and her spouse) and
Mr Khan.
2. The CFO was not a Director in 2022.
3. The amounts published in 2021 in respect of payments to Mr Richardson in 2020 have been corrected to include amounts paid to his spouse in 2020. The amounts
for 2021 only include Chief Financial Officer’s compensation up until 30 August 2021, at which time the position was removed as an Executive Director.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 113
Corporate governance 2022 annual report on remuneration
Relative importance of spend on pay
The table below shows the Group’s actual spend on pay (for all employees) relative to dividends.
Key expenditure areas In thousands of US$
Remuneration paid to all employees 4
Dividends to shareholders (total)
Dividends
Share buy-back
2022
22,412
2021
% change
22,056
1.6%
0
0
0
0
0
0
0%
0%
0%
4. Total remuneration reflects overall payroll and related taxes. Refer to the consolidated financial statements for further information.
For further information on dividends and expenditure on remuneration for all employees, please see the notes to the consolidated
financial statements.
Service contracts
Details of the Executive Directors’ service agreements’ and the Non-Executive Directors’ letters of appointment can be found in
the Company’s Remuneration Policy on pages 116–122 of this Annual Report. All Directors are subject to annual reappointment
and accordingly all executive and Non-Executive Directors will stand for election or re-election (as appropriate) at the Annual
General Meeting.
Statement of 2022 Remuneration Policy implementation
The Company’s Remuneration Policy was put to a shareholder vote at the 2022 Annual General Meeting and was approved by 99.77% of
votes cast.
In accordance with the Companies Act 2006, a resolution to approve changes to the Remuneration Policy will be submitted to
shareholders for a binding vote at the 2023 Annual General Meeting.
Salaries and bonuses of the Executive Directors are reviewed and determined annually to ensure they remain appropriate. The Company’s
bonus year runs from 1 January to 31 December each year, with bonus amounts being determined between December and March and
becoming payable between April and August of each year.
Remuneration in respect of 2022 will be consistent with the current policy described on pages 116–122 of the Company’s 2021 annual
report.
Remuneration in respect of 2023 will be consistent with the new policy described on pages 116–122 if that new policy is approved by
shareholders at the 2023 Annual General Meeting.
Salaries and service fees
The Group appointed a new Chief Executive Officer on 26 January 2021. As part of that process, the level of remuneration to be paid was
agreed by the Committee and approved by the Board.
114 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Annual bonus
In accordance with the remuneration policy approved at the 2022 AGM, the maximum Executive Director annual bonus opportunity in
respect of 2022 was up to 40% of base compensation, subject to a maximum opportunity for the Company’s Chief Executive Officer,
Arfan Khan, of an annual bonus of up to 240% of base compensation.
Annual performance will be assessed against a performance scorecard of which a portion is based on operational and financial measures,
a portion on strategic objectives and a portion on HSE, social and governance objectives.
The Committee has compiled a list of suitable key performance indicators against which the performance of the Executive Directors will
be measured at the end of 2023 to determine the annual bonus amounts payable to Executive Directors in 2024. Details of any non-
commercially sensitive KPIs are set out below. 2023 performance will be measured against these key performance indicators and the
Committee will consider such performance together with the Company’s financial position, in deciding whether and at what level to
award.
2023 bonus performance measures
NFA Operations and Costs
Achieve annual No-Further-Activity PDP volume available for sales from 7,793 boepd (0%) closer to P90 to 8,782 boepd (100 %) in
the P50-10 range. Sliding scale.
New Gas-Lift Compressor: Safe startup without any major HSE incident (LTI & HiPo free). Fully operational: 100% by August-1 to
0% by September-1. Sliding scale.
GTU3 Commissioning & Startup: Safe startup without and major HSE incident (LTI & HiPO free)
UOG Tie-Back Startup of Nostrum's Scope (excludes UOG's scope): Safe startup without any major HSE incident (LTI & HiPO
free)
NFA Cost Focus (Opex + G&A): 0% if any increases, 30% if flat, and 100% if lower by 1 $mln. Sliding Scale (excludes indexation)
Strategic Objectives
A commercially sensitive strategic target, therefore not disclosed1.
A commercially sensitive strategic target, therefore not disclosed1.
A commercially sensitive strategic target, therefore not disclosed1.
HSE
Achievement of the approved 2023 HSE Plan (provided that there have been no fatalities).
KPIs:
– Reduce GHG emissions with 5% of 2022 actual CO2 equivalent level
– Safety KPIs: LTI < 0.85 ; RTI < 0.75 ; TRIF < 1.9 ; Number of HSE stop cards > 1000 ; >60% participation of ZKM employees in
HSE stop cards
Weight
40%
15%
5%
10%
5%
5%
50%
30%
10%
10%
10%
10%
100%
If the future remuneration policy on pages
116–122 of this report is approved at the
2023 AGM, the percentage result (from the
above table out of 100%) will be applied to
100% of the Chief Executive Officer’s base
compensation and may also be applied to a
percentage up to the Chief Financial
Officer’s maximum opportunity of 100% (if
he is appointed as a Director). Currently, no
other director is eligible for any bonus
payment relating to 2023 performance
based on these performance measures.
The CEO’s maximum possible total bonus
opportunity for 2023 is 240% of base
compensation and his bonus opportunity
based on the performance measures in the
table above is 100% of base compensation.
If appointed to the Board, the CFO’s
maximum possible total bonus opportunity
for 2023 will be 100% of base
compensation.
Phantom share option plan
The Committee does not envisage the
award of any additional phantom share
options to Executive Directors in 2023.
Non-Executive Directors
Non-Executive Director fees were reviewed
following the restructuring and were
amended as follows:
Long-term incentive plan
The Committee does not envisage any
awards under the Company’s existing
long-term incentive plan in 2023. Therefore,
no performance conditions have been set
for 2023.
Director
Fee
Chris Cox
Chris
Hopkinson
100K USD per annum, plus
10K USD per annum for
chairmanship of Nomination
and Governance Committee
100K USD per annum, plus
10K USD per annum for
chairmanship of
Remuneration Committee
Martin
Gudgeon
100K USD per annum
Fiona Paulus 100K USD per annum, plus
Stephen
Whyte
10K USD per annum for
chairmanship of Audit
Committee
230K GBP per annum, plus
10K USD per annum for
chairmanship of Strategy
Committee
1 In certain cases information on performance measures or targets has been omitted because it is commercially sensitive and disclosure of such information may
not be in the Company’s interest. Such information may be reported in the subsequent annual report if the performance measure or target has been met and
the Company considers that disclosure of such information at such time would not be contrary to the Company’s interest.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 115
Corporate governance
2022 annual report on remuneration
Future Remuneration Policy
This part of the Directors’ remuneration
report sets out the Remuneration Policy for
the Company and has been prepared in
accordance with the Companies Act 2006,
the Large and Medium-sized Companies
and Groups (Accounts and Reports)
(Amendment) Regulations 2013, the UK
Corporate Governance Code and the
Listing Rules of the UK Listing Authority.
The Company’s current remuneration
policy was approved by shareholders at the
Company’s 2022 AGM. We will be asking
our shareholders to approve a new policy at
our 2023 AGM. The proposed new policy in
full is as detailed below. The only changes
to the existing policy are to envisage the
payment to the Company’s Chief Financial
Officer (if a Director), of an annual bonus of
up to a maximum of 100% of base
compensation.
No further disclosures will be made as
regards the decision-making process for its
determination, review and implementation
and measures to avoid or manage conflicts
of interest and, where applicable, the role
of the remuneration committee or other
committees concerned.
Policy coverage
This Policy applies to all payments to
Directors of the Company from the date of
the Company’s 2023 AGM and until the
approval of a revised Remuneration Policy.
Policy objectives
This policy is designed to:
• Provide that the Company may not make
any LTIP awards to its Non-Executive
Directors or Chairman;
• Provide a structure and level of pay that
attracts and retains high-calibre directors
capable of delivering the Company’s
strategic objectives;
• Provide clear and transparent
performance incentives in a manner that
is consistent with best practice and
aligned with the interests of the
Company’s shareholders;
• Align the remuneration of executives with
the interests of the Company’s
shareholders, and ensure that rewards
are justified by performance;
• Ensure that the pay of the Executive
Directors takes into account: (i) pay and
conditions throughout the Company; and
(ii) corporate governance best practice,
including health and safety, environmental,
social and governance risks;
• Allow for future bonuses to be paid in
whole or part in deferred shares; and
• Allow for pension contributions to
Executive Directors for their services
under service contracts up to a 10%
maximum opportunity, or higher if
required by applicable law.
Peer group
For the purposes of benchmarking
appropriate compensation, the Committee
currently regards the following companies
as the most relevant peer group for
Nostrum:
• FTSE 350 companies of a similar size to
Nostrum;
• Oil and gas E&P companies globally
which compete for scarce skills within the
industry; and
• Companies operating predominantly in
the FSU which compete for expatriate
and local staff.
Risk management
The Committee will review incentive
arrangements regularly to ensure that they
comply with the Group’s risk management
systems, and that controls are operating
effectively. The Committee also ensures
that inappropriate operational or financial
risk-taking is neither encouraged nor
rewarded through the Company’s
remuneration policies. Instead, a sensible
balance will be struck between fixed and
variable pay, short- and long-term
incentives and cash and equity.
The Committee has access to the Audit
Committee and senior executive
management as and when required to
discuss any matters of risk assessment.
Nostrum operates in an industry that is
inherently subject to operational risks.
Particular emphasis is therefore placed on
ensuring that health and safety best
practice is reinforced by this Policy. The
Committee consults regularly to ensure
that this is the case.
Ongoing review of Policy
The Committee will periodically review
whether this Policy is operating
appropriately. Any actions arising from this
review will be assigned to an appropriate
person with a deadline to report back to
the Committee. The level and structure of
the compensation system will also be
reviewed annually by the Committee.
116 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Remuneration Policy table
The table on the following pages sets out the key components of the reward package for Executive Directors
Executive Directors’ Remuneration Policy table
Maximum opportunity
Operation
Performance criteria
Element of pay
BASE PAY
Purpose and link
to strategy
To provide
market-
competitive base
salaries.
BENEFITS
To reflect market
practice and
provided in line
with peer
companies.
There is no prescribed
maximum annual
increase. The
Committee takes into
account remuneration
levels at peer group
companies together
with the performance
of the Company and
each individual’s
personal contribution.
The aggregate value of
such benefits should
not constitute a
significant proportion
of any employee’s
compensation.
ANNUAL BONUS
Executive
Directors may
be eligible for
an annual bonus
in cash and/or
deferred shares
for good
performance
(as determined
at the Board’s
discretion).
Maximum opportunity
of 240% of base
compensation for the
Chief Executive Officer,
Arfan Khan.
Maximum opportunity
of 100% of base
compensation for
the Company’s Chief
Financial Officer (if a
Director). In all other
cases, maximum
opportunity of 40%
of base salary.
Base salary is reviewed annually and fixed for 12 months.
None
Benefits include:
• Medical insurance;
• Life insurance;
• Permanent health insurance (long-term disability or
income protection insurance); and
• A Company car may be provided for the Chief
Executive Officer.
• The Company may make payments to Directors in lieu
of benefits and may also make separate benefit
arrangements for Executive Directors in connection
with their service as Executives of Group.
The annual bonus is generally determined by reference to
performance in the prior calendar year.
Annual bonuses are generally paid sometime between
April and August of each year.
Malus and clawback provisions apply to the award of
annual bonuses such that Executive Directors may be
liable to repay some or all of their annual bonus if there is
a material misstatement of results, or error in calculation
of any KPI, or serious misconduct. The discovery period is
one year commencing on the date on which the bonus is
determined.
None
Key performance indicators
against which the
performance of the Executive
Directors will be measured in
the following year are
determined at the end of each
year and all non-commercially-
sensitive key performance
indicators are disclosed in the
Directors’ Remuneration
Report. Any commercially
sensitive performance
measures will be disclosed
retrospectively following
completion of the relevant
financial year.
Performance against key
performance indicators for the
previous year is also disclosed
in the Directors’ Remuneration
Report to show how the Board
has determined Executive
Director performance against
the relevant key performance
indicators for that year, and
consequently the levels of
annual bonus payable to the
Executive Directors.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 117
Corporate governance 2022 annual report on remuneration
Element of pay
NOSTRUM OIL &
GAS PLC 2017
LONG-TERM
INCENTIVE PLAN
(LTIP)
PHANTOM
SHARE OPTION
PLAN (THE PLAN)
Purpose and link
to strategy
To incentivise
Executive
Directors and
employees over a
longer
timeframe, and
to increase their
interest in the
Company’s
long-term
business goals
and performance
through share
ownership.
To help retain
executives and
other key
employees, and
align their
interests with
shareholders
through building
a shareholding in
the Company.
The Board places
great importance
on minimising
dilution of
existing
shareholders’
equity. Share
awards will
therefore only be
made to senior
management
who are able to
make a material
contribution to
shareholder
value that
substantially
exceeds the
value of any share
awards made.
The Plan has
effectively been
replaced by the
LTIP and no
awards were
made under the
Plan in 2019,
2020, 2021 and
2022.
Maximum opportunity
Operation
200% of base salary in
any financial year.
Awards of nominal-cost options are made at the sole
discretion of the Committee.
It was anticipated that awards would be granted annually
in the period 2017 to 2019 subject to annual performance
conditions. Generally, awards have a one-year
performance period attached to them and will not vest for
an additional two years following the date on which the
Committee determines whether or not a performance
condition has been wholly or partly satisfied, such that no
award may vest before the third anniversary of the date of
grant.
The Committee has the discretion to decide, on or before
the grant of an award, that a participant shall be entitled
to receive dividend equivalents arising over the period
between the grant date and the vesting date, with such
amounts being payable in cash or shares in respect of
shares which vest.
Malus and clawback provisions apply to the LTIP such that
participants are liable to repay/forfeit some or all of their
shares if there is a material misstatement of results, or
error in calculation, or if there is serious misconduct. The
discovery period is three years commencing on the date
on which the award vests, which can be extended by the
Committee for an additional two years if an event occurs
which the Committee determines could result in the
operation of recovery or withholding provisions.
Performance criteria
Performance measures are
generally measured over one
year though the Committee
has the discretion to apply a
longer performance period to
awards.
The Committee has the
discretion to set any
performance condition
attaching to awards granted
under the LTIP.
Vesting of awards would
ordinarily be based:
• In part on average accrued
sales volumes measured
in barrels of oil equivalent
per day; and
• In part on reserves
measurement on the basis
of 2P barrels of oil per share.
Share awards will only
be made on the basis of
achieving concrete
long-term objectives
defined in advance by
the Committee. Share
awards will vest over
several years.
In accordance with the
Plan rules, the total
number of shares that
may be granted
pursuant to the Plan is
five million.
Intertrust Employee Benefit Trustee Limited administers
the Plan and is responsible for granting rights under the
Plan.
None
Each right entitles holders to receive, on exercise, a cash
amount equal to the excess of the market value on the
exercise date of the Ordinary Shares of the Company to
which it relates over a base value set at the date of grant.
All Executive Directors of the Company are eligible to
participate in the Plan at the discretion of the Board.
Awards vest on the basis described in the notes on the
following page.
Long-term objectives are to be reviewed at every
Committee meeting to ensure that they are appropriate,
relevant and rigorous.
Intertrust Employee Benefit Trustee Limited administers
the Plan and is responsible for granting rights under the
Plan.
Each right entitles holders to receive, on exercise, a cash
amount equal to the excess of the market value on the
exercise date of the Ordinary Shares of the Company to
which it relates over a base value set at the date of grant.
All Executive Directors of the Company are eligible to
participate in the Plan at the discretion of the Board.
Awards vest on the basis described in the notes on the
following page.
Long-term objectives are to be reviewed at every
Committee meeting to ensure that they are appropriate,
relevant and rigorous.
Share awards made in future may be reduced at any time
prior to vesting, at the discretion of the Committee,
following events such as (but not restricted to) a material
misstatement of results, failure of risk management,
breach of health and safety regulations or serious
reputational damage to the Company.
PENSIONS
SHAREHOLDING
GUIDELINE
To remain
competitive in
the marketplace
and provide
income in
retirement.
Aligns interests
of executive
directors with
those of
shareholders.
10% or, if higher, any
minimum pension
contribution which may
be required under
applicable law.
Executive Directors are
encouraged to
maintain a holding in
the Company to align
their interests with
shareholders.
There are ordinarily no pension contributions or
provisions for Directors, although there may be pension
arrangements made for Executive Directors in connection
with their service as executives of Group companies.
None
If the Company grants shares to Directors outside the LTIP
by way of bonus or otherwise, they will be required to
hold 50% of such shares for a three-year period.
None
The Committee monitors the holdings of all Directors.
118 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Non-Executive Directors’ Remuneration Policy table
FEES FOR
NON-EXECUTIVE
DIRECTORS AND
CHAIRMAN
Attract and retain
high-performing
individuals.
No prescribed
maximum annual
increase in fees.
Any fee increases are usually considered at the end
of each year and the Board and, where applicable,
the Committee considers pay data at comparable
companies of a similar scale.
None
Phantom share option plan
The Company operates the Plan in
accordance with the Plan rules, the Listing
Rules, the Disclosure and Transparency
rules and other applicable rules. In order to
retain talent, options are generally granted
in tranches exercisable at the following
times:
• As to 20% of the Ordinary Shares in
respect of which an option is granted,
from the first anniversary of the date of
grant;
• As to a further 20% of the Ordinary
Shares in respect of which an option is
granted, from the second anniversary
of the date of grant;
• As to a further 20% of the Ordinary
Shares in respect of which an option is
granted, from the third anniversary of the
date of grant;
• As to a further 20% of the Ordinary
Shares in respect of which an option is
granted, from the fourth anniversary of
the date of grant; and
• As to the remaining 20% of the Ordinary
Shares in respect of which an option is
granted, from the fifth anniversary of the
date of grant.
The Board retains discretion over a number
of areas relating to the operation and
administration of the Plan, which include,
but are not limited to: (i) who participates;
(ii) the timing of the grant of an award; and
(iii) the size of the award.
Dividend waiver
The trustee has agreed to waive any
dividends on shares held under the
Plan and the LTIP.
Treatment of existing
arrangements
For the avoidance of doubt, authority is
given to the Company to honour any
commitments entered into with current or
former Directors notwithstanding the
approval of the Policy. This will last until the
existing incentives vest (or lapse) or the
benefits of any contractual arrangements
no longer apply.
The chairs of the Committees receive additional fees.
No eligibility for participation in bonuses but limited
benefits may be delivered (e.g. provision of iPad and
travel-related expenses). Non-Executive Directors and
the Chairman are not eligible to participate in the LTIP.
Remuneration scenarios for Executive Directors
The bar charts below provide estimates of the potential remuneration of the executive
directors for 2023. Three scenarios are presented for each executive director which are
based on the following assumptions:
The “minimum” columns are intended to show the fixed level of remuneration to which
executive directors are entitled in 2023 irrespective of performance levels, namely base
salary, benefits using the details set out in the single-figure table provided on page 109
(which includes any payments made in lieu of benefits made under the executive directors
employment contracts for their roles as executives of the Group and not under their
service contracts as executive directors) and any payments made in lieu of the provision of
a pension scheme (which are paid under the executive directors employment contracts for
their roles as executives of the Group and not under their service contracts as executive
directors). No bonus payments are assumed for minimum performance.
The “on target” scenario seeks to illustrate the remuneration the executive directors would
receive if performance was in line with expectation.
The “maximum” columns illustrate total remuneration levels in circumstances where the
variable elements pay out in full, namely an annual bonus payment of 240% for Arfan Khan,
the Company’s Chief Executive Officer.
As stated above, no Executive Director participated in the LTIP or the Phantom Share
Option Scheme in 2022 and the Board will not award any shares under the Phantom Share
Option Scheme in 2023. The Committee does not envisage any awards under the
Company’s existing long-term incentive plan in 2023. Therefore, no performance
conditions have been set for 2023.
ATUL GUPTA – EXECUTIVE CHAIRMAN (AMOUNTS IN USD THOUSAND)
Minimum
100%
522
On target
100%
522
Maximum
100%
522
Fixed salary
Bonus
ARFAN KHAN – CHIEF EXECUTIVE OFFICER (AMOUNTS IN USD THOUSAND)
Minimum
On target
Maximum
100%
737
57%
35%
43%
1,299
65%
2,086
Fixed salary
Bonus
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 119
Corporate governance 2022 annual report on remuneration
Recruitment
The Committee expects any new Executive
Directors to be engaged on terms that are
consistent with this Policy, but the
Committee acknowledges that it cannot
always predict the circumstances under
which any new Executive Director may be
recruited and so, accordingly, in each case,
the Committee will consider:
• The objective of attracting, motivating
and retaining the highest calibre
directors in a manner that is consistent
with best practice and aligned with the
interests of the Company’s shareholders;
• Salary, benefits, annual bonus and
long-term incentives will be determined
within the framework of the
Remuneration Policy table on pages
117–119;
• Where an individual would be forfeiting
valuable remuneration in order to join the
Company, the need to retain flexibility
should be considered in order for the
Committee to be able to set base salaries
at a level necessary to facilitate the hiring
of the highest calibre candidates,
including awards or payments to
compensate for remuneration
arrangements forfeited on leaving a
previous employer. The Committee
would require reasonable evidence of the
nature and value of any forfeited
compensation and would, to the extent
practicable, ensure any compensation
awarded was no more valuable than the
forfeited award;
• Judgement will be exercised to
determine the appropriate measure of
compensation for any forfeited award by
taking account of relevant factors such as
the value of any lost award, performance
conditions and the time over which they
would have vested or been paid;
• Where an existing employee of the
Company is promoted to the Board, the
Company will honour any commitment
to remuneration made in respect of a
prior role, including any outstanding
awards of options under the Plan;
• The need, in order to recruit the best
candidates, for the Company to offer
sign-on remuneration, the necessity and
level of which will depend on
circumstances; and
• Where an individual is relocating in order
to take up a role, the Company may
provide certain one-off benefits
including, but not limited to, reasonable
relocation expenses, accommodation,
housing allowance and assistance with
visa applications.
In making any decisions on remuneration
for new joiners (including NEDs), the
Committee will endeavour to balance the
expectations of shareholders with current
market and corporate governance best
practice and the requirements of any new
joiner, and would strive to pay no more than
is necessary to attract the right talent to
the role.
Service agreements
As at 31 December, summary details of
each Director’s service agreement were
as follows:
Director’s service
agreement date
Dated 28
November 2018
As most
recently
amended
(USD)
450,000
26 January 2021
562,289
Atul
Gupta
Arfan
Khan
1. Mr Gupta resigned on 14 February 2023. His
remuneration was denominated in US$. The
remuneration of Mr Khan is denominated in GBP.
2022: GBP/USD: 1,238
2. Annual salary and fees represents the total
salary and fees (excluding benefits/pension,
and discretionary remuneration) from the Group
for both the Director’s executive and director
service roles.
The appointment of each of the Executive
Directors continues until the Company’s
Annual General Meeting and their ongoing
appointment is subject to being re-elected
as a director at each subsequent Annual
General Meeting. Each Executive Director
may be required to resign at any time in
accordance with the Company’s Articles or
for any regulatory reason such as the
revocation of any approvals required from
the Financial Conduct Authority (FCA). The
Company may lawfully terminate the
Executive Directors’ employment in the
following ways:
• At any time upon 12 months’ written
notice (Mr Gupta) or, 6 months’ written
notice (Mr Khan); and
• Without notice in circumstances where
the Company is entitled to terminate for
cause.
The lawful termination mechanisms
described above are without prejudice to
the employer’s ability in appropriate
circumstances to terminate in breach of the
notice period referred to above, and
thereby to be liable for damages to the
Executive Director.
The Executive Directors are not permitted
to take up any office or employment with,
or have any direct or indirect interest in, any
firm or company which is in direct or
indirect competition with the Company
or any other member of the Group, or any
company in which any member of the
Group has an interest, without the consent
of the Board.
In addition, the Chief Executive Officer
is subject to non-solicitation covenants in
relation to Group companies for 12 months
from the date of termination of his service
contract.
Copies of the Executive Directors’ service
agreements and the Non-Executive
Directors’ letters of appointment are
available for inspection at the Company’s
registered office during normal business
hours and at the Annual General Meeting.
120 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Payments for departing Executive Directors
Provision
Policy
Notice period and
compensation for
loss of office in
service contracts
Treatment of annual
bonus on termination
Treatment of
unvested share
option awards under
the Plan
Treatment of
unvested awards
under the LTIP
12 months’ notice from the Company to Mr Gupta or, 6 months’ notice from the Company to Mr Khan.
Base salary is paid in line with the notice period. Notice period payments will either be made as normal (if the
Executive Director continues to work during the notice period or is on gardening leave) or they will be made as
monthly payments in lieu of notice (subject to mitigation if alternative employment is found).
No entitlement.
An Executive Director’s awards will generally lapse to the extent they have not vested on the date of voluntary
cessation of employment and any portion that remains outstanding but unexercised after 12 months following
such cessation will lapse. Mr Gupta and Mr Khan did not participate in the Plan in 2022.
For a Director considered to be a “good leaver” before the original vesting date (including leaving the Company on
retirement, redundancy, ill health, as a result of death in service or in other circumstances determined by the
Committee), outstanding awards will be pro-rated for time and vest subject to performance on the original vesting
date. For a director who is considered a “good leaver” after the original vesting date, any awards will remain
exercisable for a period of 12 months commencing on the date of cessation. For a Director whose employment is
terminated for any other reason, the award will lapse in full. Mr Gupta and Mr Khan did not participate in the LTIP
in 2022.
In particular circumstances, an arrangement may be agreed to facilitate the exit of a particular individual. Any such arrangement would
be made bearing in mind the desire to minimise costs for the Group and only in circumstances where it is considered in the best interests
of shareholders.
Change of control
In accordance with the LTIP rules and the terms of the awards granted in 2017 and 2018 under the LTIP, if there is a sale of all or
substantially all of the Company or the Company’s business in circumstances where such sale has been approved by a majority of
shareholders and is at a price of $10 per share or more, then all awards granted will vest in full regardless of the achievement or otherwise
of applicable performance conditions on the date of such event if they have not already vested, and all awards will remain exercisable for
one month from such date. To the extent that any option is not exercised in such period, it shall lapse at the end of that period.
Non-Executive Directors
The Chairman and Executive Directors set the remuneration package for Non-Executive Directors in line with the Non-Executive
Directors’ Remuneration Policy table and subject to the Company’s Articles of Association (the Articles).
Non-Executive Director appointment letters
The following table provides details of Non-Executive Director appointment letters as at 31 December 2022:
Name
Position
Date of letter
of appointment
Expiry of then
current term
Notice period
Sir Christopher
Codrington, Bt.
Independent Non-Executive Director
19 May 2020
19 May 2023
1 month
Kaat Van Hecke
Independent Non-Executive Director
2 September 2020
2 September 2023
1 month
Martin Cocker
Independent Non-Executive Director
30 August 2021
30 August 2024
1 month
Each appointment was for an initial term of three years, subject to being re-elected at each Annual General Meeting, save that a
Non-Executive Director or the Company might terminate the appointment at any time upon one month’s written notice, or that a
Non-Executive Director might be required to resign at any time in accordance with the Articles of the Company, the UK Corporate
Governance Code or for any regulatory reason such as the revocation of approvals required from the FCA.
Each of the Non-Executive Directors was entitled to an annual fee paid quarterly and to reimbursement of reasonable expenses.
There was no entitlement for Non-Executive Directors to participate in the Plan or the LTIP.
The Non-Executive Directors were not permitted to take up any office or employment with, or have any direct or indirect interest in,
any firm or company that was in direct or indirect competition with the Company without the consent of the Board.
Upon termination of the appointment and where such termination is for any reason other than due to the Non-Executive Director’s gross
misconduct, material breach of the terms of the appointment, act of fraud or dishonesty or wilful neglect of the Non-Executive Director’s
duties, the Non- Executive Director was entitled to be paid a pro-rated amount of their fees in respect of the period between the
beginning of the quarter in which termination took place and the termination date.
Otherwise, none of the Non-Executive Directors were entitled to any damages for loss of office and no fee were payable in respect
of any unexpired portion of the term of the appointment.
Sir Christopher Codrington, Bt., Kaat Van Hecke and Martin Cocker resigned on 14 February 2023.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 121
Corporate governance 2022 annual report on remuneration
The following table provides details of Non-Executive Director appointment letters as at 14 February 2023:
Name
Chris Cox
Position
Date of letter of
appointment
Expiry of
current term
Independent Non-Executive Director
14 February 2023
14 February 2026
Chris Hopkinson
Independent Non-Executive Director
14 February 2023
14 February 2026
Martin Gudgeon
Non-Executive Director
14 February 2023
14 February 2026
Fiona Paulus
Independent Non-Executive Director
14 February 2023
14 February 2026
Stephen Whyte
Chairman
14 February 2023
14 February 2026
Notice period
3 months
3 months
3 months
3 months
9 months
Each appointment is for an initial term of three years, subject to being re-elected at each Annual General Meeting, save that a Non-
Executive Director or the Company may terminate the appointment at any time upon one month’s written notice, or that a Non-Executive
Director may be required to resign at any time in accordance with the Articles of the Company, the UK Corporate Governance Code or for
any regulatory reason such as the revocation of approvals required from the FCA.
Each of the Non-Executive Directors is entitled to an annual fee paid in twelve equal instalments and to reimbursement of reasonable
expenses. There is no entitlement for Non-Executive Directors to participate in the Plan or the LTIP.
The Non-Executive Directors are not permitted to take up any office or employment with, or have any direct or indirect interest in, any firm
or company that was in direct or indirect competition with the Company without the consent of the Board.
Upon termination of the appointment and where such termination is for any reason other than due to the Non-Executive Director’s gross
misconduct, material breach of the terms of the appointment, act of fraud or dishonesty or wilful neglect of the Non-Executive Director’s
duties, the Non- Executive Director is entitled to be paid a pro-rated amount of their fees in respect of the period between the beginning
of the quarter in which termination took place and the termination date.
Otherwise, none of the Non-Executive Directors is entitled to any damages for loss of office and no fee is payable in respect of any
unexpired portion of the term of the appointment.
The Company intends to comply with Provision 18 of the UK Corporate Governance Code and accordingly all Directors will stand for
re-election by shareholders at future Annual General Meetings until the Board determines otherwise.
Statement of consideration of employment conditions elsewhere in the Company
We have not consulted with employees on the executive Remuneration Policy. However, when determining the Policy for Executive
Directors we have been mindful of the pay and employment conditions of employees across the Group as a whole.
Statement of consideration of shareholder views
Senior executive management of the Company regularly meet with shareholders and solicit their views on the Company’s policies
in relation to Director and Executive remuneration, and take such views into account when formulating remuneration policies and
remuneration levels in specific cases.
Approval of the Directors’ remuneration report
The Directors’ remuneration report was approved by the Board on 30 May 2023.
On behalf of the Board
Arfan Khan
Chief Executive Officer
30 May 2023
122 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Directors’ report
Directors’ report
The Directors submit their report and the
consolidated audited financial statements
of the Group and the audited parent
financial statements of the Company for the
year ended 31 December 2022.
This report has been prepared in
accordance with the Large and Medium-
sized Companies and Groups (Accounts
and Reports) Regulations 2008.
The following are incorporated by
reference and shall be deemed to form part
of this Directors’ Report:
• The Strategic Report on pages 1–87;
• The Board and Governance report
(which includes the Board, the Corporate
Governance Report and the Directors’
Remuneration Report) on pages 88–122;
and
• The energy and global greenhouse gas
emissions disclosure on pages 74–77.
In addition, the following information is also
incorporated into this Directors’ Report by
reference:
Subject matter
Likely future developments
within the Group
Related party transactions
Going concern statement
Financial position and
performance of the Group
Greenhouse gas emissions
Directors’ share interests
Corporate governance
statement
Diversity
Page
45-46
105
52
47–53
74–77
111
88–89
63–66
Directors
Full biographical details of all Directors
(Atul Gupta, Sir Christopher Codrington, Bt,
Martin Cocker, Kaat Van Hecke, Arfan Khan)
of the Company who held office at some
point during the year ended 31 December
2022 and the Board Committees of which
they were members are set out on pages
90–92 of this Annual Report.
Full biographical details of all current
Directors of the Company and the Board
Committees of which they are members
are set out on pages 90–92 of this
Annual Report.
Dividends
No dividends were paid during the year
ended 31 December 2022.
No dividend is proposed to be paid in 2023
in respect of the year ended 31 December
2022.
Auditor
In accordance with section 418(2) of the
Companies Act 2006, each Director in
office at the date of this Directors’ Report
confirms that (a) so far as the Director is
aware, there is no relevant audit information
of which the Company’s auditor is unaware
and (b) the Director has taken all the steps
that he/she ought to have taken as a
Director to make him/herself aware of any
relevant audit information and to establish
that the Company’s auditor is aware of that
information.
On 30 September 2022, and following a
competitive tender, Ernst & Young LLP
resigned as auditor of the Company. On 25
October 2022, the potential incoming
auditor notified the Company that it no
longer intended to register for FRC
supervision, and, as a result, no longer
wished to be appointed as auditor.
On 6 March 2023, the Company announced
that it had appointed MHA as auditors to
the Group and Ernst & Young Kazakhstan
as auditors of Zhaikmunai LLP.
This appointment will be put to
shareholders for approval at the 2023 AGM.
Directors’ liabilities and
indemnities
The Company maintains liability insurance
for its Directors. All Directors are also in
receipt of an indemnity from the Company
under the Company’s Articles of
Association (the Articles) in respect of
(a) liability incurred by any Director due
to negligence, default, breach of duty
or breach of trust in relation to the affairs
of the Company, or any subsidiary
undertaking or (b) any liability incurred
by any Director in connection with the
activities of the Company, or any subsidiary
undertaking, in its capacity as a trustee of
an occupational pension scheme; in both
instances to the extent permitted under
the Companies Act 2006. Copies of the
Company’s Articles are available on the
Company’s website or at the Company’s
registered office during normal business
hours and will be available for inspection
at the Annual General Meeting.
In May 2015, the Board approved a policy
for the indemnification of Directors, officers
and other designated beneficiaries and the
entry by the Company into an
accompanying deed of indemnity.
The policy clarifies that the Company will
seek to provide the maximum
indemnification and protection to Group
Directors and officers permissible under
applicable law, except in cases of fraud or
wilful default, including but not limited to:
i) providing compensation for losses
suffered in the course of acting as a
Director or officer in the interests of
the Group,
ii) providing Directors and officers with
quality external legal representation
and external professional advisers,
iii) assisting Directors or officers with
repatriation following a third-party
claim,
iv) continuing to make payment of a
v)
Director’s or officer’s remuneration and
benefits while such Director or officer
is under suspension, investigation or
detention by order of a third party,
taking reasonable steps to place any
such Director or officer in a similar
position working in another location or
elsewhere in the Group which would
allow his/her employment to continue
and to compensate for any adverse
financial consequences they incur as
a result of their loss of office, or (vi)
maintaining customary Directors’ and
officers’ liability insurance policies.
The deed of indemnity is intended to cover
any insufficiency in the protection granted
to Directors and officers under the Articles
which could expose such persons to
substantial liability to third parties,
including governmental authorities, in
particular in jurisdictions where significant
uncertainty exists in relation to the
interpretation and application of the law.
The deed of indemnity allows Directors,
officers and other designated beneficiaries
to enforce the protection provided for
under the Articles without any further
action by the Company being required.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 123
Corporate governance The Company did not acquire any of its
own shares during 2022 either itself or
through a person acting in his own name
but on the Company’s behalf.
None of the circumstances referred to in
paragraphs 8 and 9 of Schedule 7 of the
Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations
2008 applies.
Paragraph 10 Schedule 7 of the
Large and Medium-sized
Companies and Groups (Accounts
and Reports) Regulations 2008
The Company’s policy is to:
• Give full and fair consideration to
applications for employment made by
disabled persons.
• Continue the employment of, and
arrange training for, employees who have
become disabled when they were
employed by the Company.
• Eliminate bias in relation to the training,
career development and promotion of
disabled persons employed by the
Company.
Paragraph 11 and 11A Schedule 7
of the Large and Medium-sized
Companies and Groups (Accounts
and Reports) Regulations 2008
Action taken to introduce, maintain or
develop arrangements aimed at the
following is described on page 65:
• Providing employees with information on
matters of concern to them as employees.
• Consulting employees or their
representatives on a regular basis so that
the employees’ views can be taken into
account in making decisions which are
likely to affect their interests.
• Encouraging employee involvement in
the Company’s performance by an
employees’ share scheme or other
means.
• Achieving common employee awareness
of the financial and economic factors
affecting the Company’s performance.
Directors’ report
Political donations
The Group made no political donations
during the year 2022.
Contributions to non-UK political
parties
No contributions to non-UK political parties
were made during the year 2022.
Research and development
The Group is not involved in any activities
in the field of research and development.
Branches
The Company is registered in England and
Wales and during 2018 moved its place of
effective management and tax residence
from the Netherlands to the United
Kingdom. As the Group is a global
business, our interests and activities are
held or operated through subsidiaries
and branches and subject to the laws and
regulations of many different jurisdictions.
Share capital
As of 31 December 2022, the Company’s
issued share capital was £1,881,829.58
divided into 188,182,958 Ordinary Shares
each having a nominal value of £0.01, all of
which were in free circulation. All of the
Company’s issued Ordinary Shares were
fully paid up and rank equally in all
respects. The rights attached to them, in
addition to those conferred on their holders
by law, were set out in the Articles.
As at 9 February 2023, following the
restructuring, the Company’s issued share
capital was £16,938,159.646 divided into
169,381,561 Ordinary Shares each having a
nominal value of £0.01 and 15,244,344,036
deferred shares each having a nominal
value of £0.001 (the “Deferred Shares”). All
of the Company’s issued Ordinary Shares
were fully paid up and rank equally in all
respects and the Deferred Shares have no
voting rights in the capital of the Company.
The Company intends to cancel the
Deferred Shares in due course. The rights
attached to the Ordinary Shares and
Deferred Shares, in addition to those
conferred on their holders by law, are set
out in the Articles. The existing ordinary
shareholders were diluted to 11.1% subject
to further dilution to 10% if the warrants
held by noteholders are exercised.
Intertrust Employee Benefit Trustee Limited
(the Trust) holds shares in the Company in
trust for the purposes of the Company’s
phantom share option plan, and the rights
attaching to these shares are exercised by
independent trustees. As at 31 December
2022, the Trust held 2,948,879 Ordinary
Shares in the Company. As at 9 February
2023, following the restructuring, the Trust
held 294,887 Ordinary Shares in the
Company.
Share rights
Without prejudice to any rights attached to
any existing shares, the Company may issue
shares with rights or restrictions as
determined by either the shareholders by
ordinary resolution or, subject to and in
default of such determination, the Board.
Voting rights
There are no restrictions on voting rights of
shares in the Articles and at a general
meeting every shareholder present in
person or by proxy has one vote for every
share held by him or her. No shareholder
shall be entitled to vote either personally or
by proxy or to exercise any other right in
relation to general meetings if any sum due
from him or her to the Company in respect
of that share remains unpaid.
Transfer of shares and warrants
The Articles provide that transfers of
certificated shares must be effected in
writing duly signed by or on behalf of the
transferor and, except in the case of fully
paid shares, by or on behalf of the
transferee. The transferor shall remain the
holder of the shares concerned until the
name of the transferee is entered on the
Register of Members in respect of those
shares. Transfers of uncertificated shares
may be effected by means of the relevant
electronic system unless the Uncertificated
Securities Regulations 2001 provide
otherwise.
The Directors may refuse to register a
transfer of shares in favour of more than
four persons jointly.
The warrants issued on 9 February 2023 are
not transferable. There are no other
agreements between holders of securities
that are known to the Company and may
restrict transfer of securities or voting
rights.
Directors, Articles and purchase
of shares
The Articles were adopted on 29 April 2022
and may only be amended by special
resolution at a general meeting of the
shareholders (and where required, with the
consent of the Warrant Trustee).
The Directors’ powers are conferred on
them by UK legislation and by the Articles.
In accordance with the Articles, the Board
has the power at any time to elect any
person to be a Director. Any person so
appointed by the Directors will retire at the
next Annual General Meeting in
accordance with the Articles; retiring
Directors may be eligible for annual
re-election.
124 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Paragraph 11B and 11C Schedule 7
A summary of the following is described on pages 22-23.
• How Directors have had regard to the need to foster the Company’s business relationships with suppliers, customers and others.
• The effect of that regard on the principal decisions taken by the Company during the financial year.
Shareholders holding 3% or more of the Company’s issued share capital
As of 31 December 2022, the following significant shareholdings of voting rights in the share capital of the Company had been disclosed
to the Company under Disclosure Guidance and Transparency Rule (DTR) 5 or otherwise.
Name
ICU Holdings Limited
Tengri Partners (Kazakhstan) LLP
Dehus Dolmen Nominees Limited*
FRASELI Investments S.à r.l.
Trafigura Ventures V B.V.
FPP Asset Management
Number of
Ordinary
Shares
% of issued
Ordinary
Shares
Nature of
Holding
44,837,071
38,273,216
30,588,054
16,111,100
8,152,557
6,359,517
23.83
20.34
16.25
8.56
4.33
3.38
Direct
Direct
Direct
Direct
Direct
Direct
1. Dehus Dolmen Nominees Limited holds on trust for entities with which Baring Vostok Investments PCC Limited (which holds 3,119,990 shares being 1.66%) is affiliated.
Details of all information provided to the Company pursuant to Financial Conduct Authority’s (FCA) DTRs is publicly available to view via
the regulatory information service on the Company’s website.
Since 31 December 2022, disclosures have been made to the Company under DTRs or otherwise such that as at 26 May 2023, the
following significant shareholdings of voting rights in the share capital of the Company had been disclosed to the Company under
Disclosure Guidance and Transparency Rule (DTR) 5 or otherwise.
Name
ICU Holdings Limited
EMOV Caspian Holdings Limited
Amundi (UK) Limited and Amundi Asset Management
Number of
Ordinary
Shares
% of issued
Ordinary
Shares
32 345 657
31 975 192
16 489 360
19.1%
18.88
9.74
Nature of
Holding
Indirect
Direct
Direct
Financial risk management
The Company’s financial risk management objectives and policies, including its use of financial instruments, can be found in Note 30
page 158 to the financial statements.
Change of control
The following are significant agreements the Company has entered into which would be affected on a change of control of the Company
following a takeover:
• In the event of a takeover of the Company, all options under the Company’s phantom share option plan shall be deemed to have vested
and the Board shall direct Intertrust Employee Benefit Trustee Limited to allow each option-holder to exercise his or her options at any
time from the date of the change of control up to the 10th anniversary of the date of grant (the Period). Any options that have not been
exercised will lapse at the end of the Period; and
• In the event of a takeover of the Company, all options under the Company’s employee long-term incentive plan shall be deemed to have
vested and the Board shall direct Intertrust Employee Benefit Trustee Limited to allow each option-holder to exercise his or her options
during the one-month period following the change of control event. Any options that have not been exercised will lapse at the end of
this period.
As at 31 December 2022, the 2012 Bonds, 2014 Bonds, 2017 Bonds and 2018 Bonds contained change of control provisions. If a change of
control occurs, the Company was required to offer to repurchase the 2012 Bonds, 2014 Bonds, 2017 Bonds and 2018 Bonds at 101% of
their principal amount, plus accrued and unpaid interest to the date of the purchase.
As at 9 February 2023, the 2012 Bonds, 2014 Bonds, SUNs and SSNs contained change of control provisions. If a change of control occurs,
the Company was required to offer to repurchase the 2012 Bonds, 2014 Bonds, SSNs and SUNs at 101% of their principal amount, plus
accrued and unpaid interest to the date of the purchase.
There are no agreements between the Company and its Directors or employees providing for compensation for loss of office or
employment or otherwise that occurs specifically because of a takeover.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 125
Corporate governance Directors’ report
Corporate governance statement
Pursuant to Disclosure Guidance and Transparency Rule 7, certain parts of the Corporate Governance statement are required to be
outlined in the Directors’ Report. This information is laid out in the corporate governance section of this Annual Report. Information
regarding the main features of the Company’s internal control and risk management arrangements in relation to the financial reporting
process can be found in the Strategic Report and the report of the Audit Committee.
Requirements of the Listing Rules
The following table provides references to where the information required by Listing Rule 9.8.4R is disclosed.
Information required
Capitalised interest
Publication of unaudited financial information
Details of any long-term incentive schemes
established to specifically recruit or retain a
director
Waiver of emoluments by a director
Allotment of equity securities for cash
Participation in a placing of equity securities
Contracts of significance
Contracts for the provisions of services by a
controlling shareholder
Dividend waiver
Agreements with controlling shareholder
Sub-section of Listing Rule 9.8.4R
Reference
(1)
(2)
(4)
(5) (6)
(7) (8)
(9)
(10)
(11)
(12) (13)
(14)
Please refer to Notes 4 and 5 to the financial
statements, pages 144–151
Not applicable
Not applicable
No such waivers
No such share allotments
Not applicable
No such contracts
Not applicable
Page 119
Not applicable as the Company does not have
a “controlling shareholder” within the definition
under Listing Rule 6.1.2A R
Important events since the end of the financial year
Major events after 31 December 2022 are disclosed in Note 31 to the consolidated audited financial statements.
This report was approved by the Board on 30 May 2023.
On behalf of the Board
Arfan Khan
Chief Executive Officer
30 May 2023
Nostrum Oil & Gas PLC, registered number 8717287
126 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Responsibility statement
The Directors are responsible for preparing
the Annual Report and the financial
statements in accordance with applicable
law and regulations.
The Directors are required by the
Companies Act 2006 to prepare accounts
for each financial year and, with regard to
Group accounts, in accordance with UK
Adopted International Accounting
Standards. The Directors have prepared
individual accounts in accordance with UK
Adopted International Accounting
Standards. The accounts are required by
law and IFRS to present fairly the financial
position of the Company and the Group
and the performance for that period. The
Directors must not approve such accounts
unless they are satisfied that they give a
true and fair view of the state of affairs of
the Company and the consolidated Group.
In preparing these financial statements,
the Directors are required to:
• Select suitable accounting policies in
accordance with IAS 8 Accounting
Policies, Changes and Accounting
Estimates and Errors and then apply
them consistently;
• Make judgements and accounting
estimates that are reasonable and
prudent;
• Present information, including accounting
policies, in a manner that provides
relevant, reliable, comparable and
understandable information;
• State that the Group and the Company
have complied with the UK adopted
International Accounting Standards,
subject to any material departures
disclosed and explained in the
financial statements;
• Provide additional disclosures when
• The Company and Group financial
compliance with specific requirements of
IFRS is insufficient to enable users to
understand the impact of particular
transactions, other events and conditions
on the Group’s and Company’s financial
position and performance; and
• Prepare the Group’s and Company’s
financial statements on a going concern
basis, unless it is inappropriate to do so.
Having taken all the matters considered by
the Board and brought to the attention of
the Board during the year into account,
and having reviewed the Annual Report
(including the Strategic Report), the
Directors consider the Annual Report
and Accounts, taken as a whole, to be fair,
balanced and understandable, providing
the information necessary for shareholders
to assess the Company’s position and
performance, business model and strategy.
The Directors have responsibility for:
• Ensuring that the Company and the
Group keep accounting records which
disclose with reasonable accuracy the
financial position of the Company and the
Group and which enable them to ensure
that the accounts comply with the
Companies Act 2006;
• Taking such steps as are reasonably open
to them to safeguard the assets of the
Group and to prevent and detect fraud
and other irregularities; and
statements, which have been prepared
in accordance with the UK adopted
International Accounting Standards,
give a true and fair view of the assets,
liabilities, financial position and profit
or loss of the Company and the
undertakings included in the
consolidation taken as a whole;
• The Strategic Report contained in the
Annual Report includes a fair review of
the development and performance of
the business and the position of the
Company and the undertakings included
in the consolidation taken as a whole,
together with a description of the
principal risks and uncertainties that they
face; and
• The Annual Report and financial
statements, taken as a whole, are fair,
balanced and understandable and
provide the information necessary for
shareholders to assess the Company’s
position and performance, business
model and strategy.
By order of the Board
Arfan Khan
Chief Executive Officer
• The maintenance and integrity of the
30 May 2023
corporate and financial information on
the Company’s website.
• Each of the Directors whose names and
functions are listed on pages 90–91
confirms, that to the best of their
knowledge:
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 127
Corporate governance Independent auditors report
Independent auditor’s report to the
members of Nostrum Oil & Gas plc
For the purpose of this report, the terms
“we” and “our” denote MHA in relation to
UK legal, professional and regulatory
responsibilities and reporting obligations
to the members of Nostrum Oil and Gas
plc. For the purposes of the table on pages
129 – 130 that sets out the key audit matters
and how our audit addressed the key audit
matters, the terms “we” and “our” refer to
MHA. The Group financial statements, as
defined below, consolidate the accounts of
Nostrum Oil & Gas plc and its subsidiaries
(the “Group”). The “Parent Company” is
defined as Nostrum Oil & Gas plc. The
relevant legislation governing the Company
is the United Kingdom Companies Act
2006 (“Companies Act 2006”).
Opinion
We have audited the financial statements
of Nostrum Oil & Gas plc for the year ended
31 December 2022, which comprise:
• the consolidated statement of financial
position;
• the consolidated statement of
comprehensive income;
• the consolidated statement of cash flows;
• the consolidated statement of changes
in equity;
• the notes 1 to 31 to the consolidated
financial statements, including significant
accounting policies;
• the parent company statement of
financial position;
• the parent company statement of cash
flows;
• the parent company statement of
changes in equity; and
• the notes 1 to 16 to the parent company
financial statements, including significant
accounting policies
The financial reporting framework that has
been applied in the preparation of the
financial statements is applicable law and
International Financial Reporting Standards
as adopted by the United Kingdom (‘UK
adopted IFRS’) and as issued.
Group. We evaluated the sufficiency of
the sensitivities performed;
• Challenging the reasonableness of key
factors and assumptions adopted in the
assessment of going concern and the
cash flow model, including considering
whether management had exercised
any bias in selecting their assumptions;
• Assessing the appropriateness of the
method used to calculate the cash flow
forecast. We tested the methodology
and calculations;
• Checking the consistency of the factors
and assumptions adopted in the going
concern assessment with other areas of
our audit, including the oil and gas asset
impairment test and reserves audit;
• Considering whether management’s
disclosures in the Annual Report and
financial statements were appropriate;
• Reviewed the documentation of the post
year end restructuring deal and its effect
on the cash flows;
• Viability assessments at Group and Parent
Company levels, including consideration
of business plans.
Based on the work we have performed,
we have not identified any material
uncertainties relating to events or
conditions that, individually or collectively,
may cast significant doubt on the Group’s
ability to continue as a going concern for
a period of at least twelve months from
when the financial statements are
authorised for issue.
In relation to the Group’s reporting on
how it has applied the UK Corporate
Governance Code, we have nothing
material to add or draw attention to in
relation to the Directors’ statement in the
company’s financial statements about
whether the Directors considered it
appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities
of the Directors with respect to going
concern are described in the relevant
sections of this report.
In our opinion:
• the financial statements give a true and
fair view of the state of the Group’s and
the Parent Company’s affairs as at 31
December 2022 and of the Group’s loss
for the year then ended;
• the Group and Parent Company financial
statements have been properly prepared
in accordance with UK adopted IFRS; and
• the Group and Parent Company financial
statements have been prepared in
accordance with the requirements of the
Companies Act 2006.
Our opinion is consistent with our reporting
to the Audit Committee.
Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards
are further described in the Auditor’s
Responsibilities for the Audit of the
Financial Statements section of our report.
We are independent of the Group and
Parent 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
applied to listed public interest entities, and
we have fulfilled our ethical responsibilities
in accordance with those 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
In auditing the financial statements, we
have concluded that the Directors’ use of
the going concern basis of accounting in
the preparation of the financial statements
is appropriate.
Our evaluation of the Directors’ assessment
of the Group and Parent Company’s ability
to continue to adopt the going concern
basis of accounting included:
• Determining if the Directors’ process was
sufficiently rigorous to make the going
concern assessment;
• Obtaining the Directors’ going concern
assessment, including the cash flow
forecast for the going concern period to
30 June 2024. The Directors have
modelled a number of adverse scenarios
in order to incorporate unexpected
changes to the forecast liquidity of the
128 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Overview of our audit approach
Scope
Our audit was scoped by obtaining an understanding of the Group, its environment, including the Group’s system
of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed
the risk of management override of internal controls, including assessing whether there was evidence of bias by the
Directors that may have represented a risk of material misstatement.
We, and our component auditors acting on specific group instructions, undertook full scope audits on the complete
financial information of 3 components of the Group; Zhaikmunai LLP, Nostrum Oil & Gas plc and Nostrum Services N.V.,
and specified audit procedures on particular aspects and balances on all other components of the Group.
First-year
audit
transition
We developed a detailed audit transition plan, designed to deliver an effective transition from the Group’s
predecessor auditor, Ernst and Young LLP (“EY”). Our audit planning and transition commenced in March 2023,
following our appointment.
Our transition activities included (but were not limited to) meeting relevant staff from EY, reviewing the Audit Committee
meeting minutes and reviewing EY’s 2021 audit working papers.
Our transition focused on obtaining an understanding of the Group’s system of internal control, evaluating the Group’s
accounting policies and areas of accounting judgement, and meeting with management and the component auditors.
Materiality
Group
Parent
2022
2021
US$2.3m
US$2.1m
2% of adjusted EBITDA (2021: 2% of adjusted EBITDA)
US$8.9m
US$7.9m
1% of the Parent Company’s Equity (component materiality
for group purposes set at US$0.3m)
Key audit matters
Recurring • Estimation of oil and gas reserves and its impact on impairment testing, depreciation, depletion and amortisation (DD&A)
and the decommissioning provision;
• Impairment of oil & gas development and production fixed assets;
Key Audit Matters
Key Audit Matters are those matters that, in our professional judgement, were of most significance in our 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) that we
identified. These matters included those matters 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 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.
Key observations
No material
issues have been
identified from
the audit
procedures
performed.
Estimation of oil and gas reserves and its impact on impairment testing, depreciation,
depletion and amortisation (DD&A) and the decommissioning provision
Key audit matter description
How the scope of our audit responded to the key audit matter
Oil and gas reserves are a material factor in
computing depreciation, depletion and
amortisation (the “DD&A”).
Significant judgement and estimations are
made by the management, which are potentially
susceptible to management bias, and hence
causing an impact on the financial statements
due to the technical uncertainty in assessing
reserves quantities.
There is also a risk that management may
influence the significant judgements and
estimates in respect of commercial assumptions
in order to portray favourable reserves disclosure
to the market.
In addressing this risk, audit procedures were performed by the component team
in Kazakhstan and the Group engagement team. This included:
• Carried out walkthrough procedures and understood the Group’s internal
process and key controls associated with oil and gas reserves estimation;
• Assessed the competence of internal management’s specialists, to satisfy
ourselves that they are appropriately qualified to carry out the volumes estimation;
• Met with management’s external specialist during the planning and execution
of the audit and assessed their competence and objectivity by enquiry of their
qualifications, practical experience and independence;
• Checked the completeness and accuracy of the data transferred to the external
specialist for audit;
• Reviewed the oil and gas reserves audit report prepared by management’s
external specialist and directly inquired the specialist to understand the
conclusion of their audit and verify that management’s estimates were within
their audit tolerance;
• Corroborated management’s commercial assumptions by checking that they
lie within an acceptable range compared to publicly available benchmarks
where available;
• Compared management’s internal assumptions to the latest plans and budgets
for consistency and challenged management’s capabilities to execute on such
plans by comparison to prior performance;
• Validated that the updated reserves estimates were appropriately included in
the Group’s consideration of oil and gas asset impairment testing, in accounting
for DD&A and the determination of decommissioning dates;
• Reviewed the accuracy of the reserves and resource estimates disclosure in the
Annual Report;
• Obtained management’s decommissioning provision assessment;
• Critically assessed key inputs and challenged management’s assumptions and
judgements to test for reasonableness and indictors of bias; and
• Recalculated the provision for restoration.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 129
Financial report Independent auditors report
Impairment of oil & gas development and production fixed assets
Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
There is a risk in management’s judgement made
on the impairment or impairment reversal of oil
and gas assets since the recoverable amount of
the oil and gas assets is sensitive to the changes in
key inputs and assumptions, which may include
the estimation of future prices of oil, natural gas
and related products, the discount rate applied to
future cash flow forecasts and the assumptions
relevant to production volumes.
There is also a risk that management may influence
the significant judgements and estimates in
respect of its key assumptions in order to
understate the impairment charge to achieve a
targeted result.
No material issues
have been identified
from the audit
procedures
performed.
In addressing this risk, audit procedures were performed by the component
team in Kazakhstan and the Group engagement team. This included:
• Obtained and evaluated management’s assessment of indicators of
impairment or impairment reversal;
• Walked through the controls designed by the Group relating to the
assessment of the recoverable amount of oil & gas assets for impairment;
• Assessed whether the value in use (VIU) or the fair value less costs of
disposal (FVLCD) represents the higher recoverable amount;
• Verified the integrity of supporting discounted cash flow models with the
assistance of experts;
• Evaluated the oil & gas prices and discount rate assumptions by comparing
forecast price assumptions to the latest market evidence available,
including forward curves, brokers’ estimates and other long-term price
forecasts; and benchmarked the discount rate to the risks faced by the
Group;
• Considered the existence of any contradictory evidence to challenge the
recoverable amount determined on the basis of the discounted cash flow
model, including the Group’s enterprise value;
• Assessed the appropriateness of the oil and gas reserves and resources
estimates, and evaluated the risking factors applied in estimating the value
associated with the contingent resources;
• Challenged the valuation methodology for estimating the recoverable
amount; specifically the value attributed to the contingent resources and
the opportunity for utilising the spare GTU processing capacity, including
the related judgements around risking;
• Tested forecast cash flows by comparing the assumptions used within the
impairment models to the approved budgets, business plans and other
evidence of future intentions;
• Assessed the historical accuracy of management’s budgets and forecasts
by comparing them to actual performance;
• Performed sensitivity analysis in order to assess the potential impact of a
range of reasonably possible outcomes. These sensitivities include
adjustments to the discount rate, oil & gas prices, and working capital.
Our application of materiality
Our definition of materiality considers the value of error or omission on the financial statements that, individually or in aggregate, would
change or influence the economic decision of a reasonably knowledgeable user of those financial statements. Misstatements below these
levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Materiality is used in planning the
scope of our work, executing that work and evaluating the results.
130 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Overview of the scope of the Group and Parent Company audits
Our assessment of audit risk, evaluation of materiality and our determination of performance materiality sets our audit scope for each
company within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. This assessment
takes into account the size, risk profile, organisation / distribution and effectiveness of group-wide controls, changes in the business
environment and other factors such as recent internal audit results when assessing the level of work to be performed at each component.
In assessing the risk of material misstatement to the consolidated financial statements, and to ensure we had adequate quantitative and
qualitative coverage of significant accounts in the consolidated financial statements, of the 10 components of the Group, we identified 3
components in Kazakhstan, UK and Belgium which represent the principal business units within the Group.
Full scope audits – Of the 10 components selected, full scope audits of the complete financial information of 3 components; Zhaikmunai
LLP Chinarevkoye field, Nostrum Oil & Gas plc and Nostrum Services N.V. were undertaken, these entities were selected based upon their
size or risk characteristics.
Specified procedures – Specified procedures were undertaken on the remaining 7 components; Nostrum Associated Investments LLP,
Nostrum Services Central Asia LLP, Nostrum Oil & Gas UK Ltd, Nostrum Oil & Gas Holdings Ltd, Nostrum Oil & Gas BV, Nostrum Oil & Gas
Coöperatief UA, Nostrum Oil & Gas Finance B.V.
Overall Materiality
US$2,300,000 (2021: US$2,100,000)
US$8,900,000 (2021: US$7,900,000)
Group
Parent Company
Basis of determining overall materiality
We determined on the basis 2% of adjusted
EBITDA (2021: 2% of adjusted EBITDA).
We determined materiality based on 1% (2021: 1%)
of the Company’s equity.
Component materiality for group purposes was set
at US$310,000.
Adjusted EBITDA was deemed to be the
appropriate benchmark for the calculation of
materiality as this is a KPI for the Group in the
assessment of the performance of management,
and market and analyst commentary also uses
EBITDA to comment on the performance of the
Group. The calculation of Adjusted EBITDA is as
included in the Annual Report on page 53.
In our opinion this is therefore the benchmark
with which the users of the financial statements
are principally concerned .
We have considered the primary users of the
financial statements to be shareholders, loan note
holders, management, and banks.
This was deemed to be the most appropriate
metric for materiality as this is primarily what the
users of the financial statements are concerned
with as the negative equity is a result of the financial
guarantee. This is adjusted on consolidation and
therefore is only relevant for the parent company
statement of financial position only.
Performance materiality
US$1,380,000 (2021: US$1,100,000)
US$5,340,000 (2021: US$3,950,000)
Basis of determining overall performance
materiality
We set performance materiality based on 60%
(2021: 50%) of overall materiality.
We set performance materiality based on 60%
(2021: 50%) of overall materiality.
Performance materiality is the application of
materiality at the individual account or balance
level, set at an amount to reduce, to an
appropriately low level, the probability that the
aggregate of uncorrected and undetected
misstatements exceeds materiality for the
financial statements as a whole.
Performance materiality is the application of
materiality at the individual account or balance
level, set at an amount to reduce, to an
appropriately low level, the probability that the
aggregate of uncorrected and undetected
misstatements exceeds materiality for the financial
statements as a whole.
The determination of performance materiality
reflects our assessment of the risk of undetected
errors existing, the nature of the systems and
controls and the level of misstatements arising in
previous audits.
The determination of performance materiality
reflects our assessment of the risk of undetected
errors existing, the nature of the systems and
controls and the level of misstatements arising
in previous audits.
We agreed to report any corrected or uncorrected adjustments exceeding US$115,000 (2021:
US$106,000) to the Audit Committee as well as differences below this threshold that in our view
warranted reporting on qualitative grounds.
Error reporting threshold
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 131
Financial report Independent auditors report
The coverage achieved by our audit procedures was:
Name
Full scope audit
Specified and analytical
procedures
Total
Number of
components
Revenue
Total assets
Loss
before tax
3
7
10
100%
64%
66%
–
100%
36%
100%
34%
100%
The group audit team led and directed the
audit work performed by the component
auditors in Kazakhstan and Belgium
through a combination of group planning
meetings and calls, provision of group
instructions (including detailed
supplemental procedures), review and
challenge of related component interoffice
reporting and of findings from their
working papers and interaction on audit
and accounting matters which arose, this
included assessing the appropriateness of
conclusions and consistency between
reported findings and work performed.
The control environment
We evaluated the design and
implementation of those internal controls of
the Group, which are relevant to our audit,
such as those relating to the financial
reporting cycle.
Component IT audit specialists were
engaged to get an understanding of the
general IT environment and general IT
controls for business critical applications
principally based in Kazakhstan.
Climate-related risks
In planning our audit and gaining an
understanding of the Group, we
considered the potential impact of
climate-related risks on the business and its
financial statements. We obtained
management’s climate-related risk
assessment, along with relevant
documentation and reports relating to
management’s assessment and held
discussions with management to
understand its process for identifying and
assessing the related risks.
We engaged internal specialists to assess
and challenge, amongst other factors, the
related risks and benchmarks identified by
management, the nature of the Group’s
business activities, its processes and the
geographic distribution of its activities.
We critically reviewed management’s
assessment and challenged the
assumptions and disclosures underlying its
assessment. We made enquiries to
understand the extent of the potential
impact of climate change risks on the
Group’s financial statements. This has
included a review of the Group’s climate
change strategy, critical accounting
estimates and judgements, and the effect
on the MHA audit approach. We also
considered the ongoing viability of the
business in respect both to direct climate
risks and changes in legislation as nations
grapple with their commitments to reduce
emissions.
Reporting on other information
The other information comprises the
information included in the annual report
other than the financial statements and our
auditor’s report thereon. The Directors are
responsible for the other information
contained within the annual report. Our
opinion on the financial statements does
not cover the other information and, except
to the extent otherwise explicitly stated in
our report, we do not express any form of
assurance conclusion thereon. 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 course of
the audit, or otherwise appears to be
materially misstated. If we identify such
material inconsistencies or apparent
material misstatements, we are required to
determine whether this gives rise to a
material misstatement in the financial
statements themselves. 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 in this regard.
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 the Directors’ Report for the
financial year for which the financial
statements are prepared is consistent
with the financial statements; and
• the Strategic Report and the Directors’
Report have been prepared in
accordance with applicable legal
requirements.
In the light of the knowledge and
understanding of the Company and its
environment obtained in the course of the
audit, we have not identified material
misstatements in the strategic report or the
directors’ report.
Corporate governance statement
We have reviewed the Directors’ statement
in relation to going concern, viability and
that part of the Corporate Governance
Statement relating to the entity’s
compliance with the provisions of the UK
Corporate Governance Code specified for
our review by the listing rules.
Based on the work undertaken as part of
our audit, we have concluded that each of
the following elements of the Corporate
Governance Statement is materially
consistent with the financial statements and
our knowledge obtained during the audit:
• Directors' statement with regards the
appropriateness of adopting the going
concern basis of accounting and any
material uncertainties identified set out
on page 101 ;
• Directors’ explanation as to its
assessment of the Group’s prospects,
the period this assessment covers and
why the period is appropriate set out on
page 101;
• Director’s statement on whether it has a
reasonable expectation that the Group
will be able to continue in operation and
meets its liabilities set out on page 101;
• Directors' statement on fair, balanced
and understandable set out on page 101;
• Board’s confirmation that it has carried
out a robust assessment of the emerging
and principal risks set out on page 101;
• Section of the annual report that
describes the review of effectiveness of
risk management and internal control
systems set out on page 101; and
• Section describing the work of the Audit
Committee set out on pages 101 .
132 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Matters on which we are required
to report by exception
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
• adequate accounting records have not
been kept by the parent company, or
returns adequate for our audit have not
been received by branches not visited by
us; or
• the parent company financial statements
are not in agreement with the accounting
records and returns; or
• certain disclosures of directors’
remuneration specified by law are not
made; or
• the part of the directors’ remuneration
report to be audited is not in agreement
with the accounting records and returns; or
• we have not received all the information
and explanations we require for our audit;
or
• a Corporate Governance Statement has
not been prepared by the Parent
Company.
We have nothing to report in respect of
these matters.
Responsibilities of the Directors
As explained more fully in the Directors’
responsibilities statement, the Directors are
responsible for the preparation of the
financial statements and for being satisfied
that they give a true and fair view, and for
such internal control as the Directors
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 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 to cease operations, or have no
realistic alternative but to do so.
Auditor 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 auditor’s
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 aggregate, they could reasonably be
expected to influence the economic
decisions of users taken on the basis of
these financial statements.
A further description of our responsibilities
for the financial statements is located on
the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities . This description
forms part of our auditor’s report.
Extent to which the audit was
considered capable of detecting
irregularities, including fraud
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.
These audit procedures were designed to
provide reasonable assurance that the
financial statements were free from fraud or
error. The risk of not detecting a material
misstatement due to fraud is higher than
the risk of not detecting one resulting from
error and detecting irregularities that result
from fraud is inherently more difficult than
detecting those that result from error, as
fraud may involve collusion, deliberate
concealment, forgery or intentional
misrepresentations. Also, the further
removed non-compliance with laws and
regulations is from events and transactions
reflected in the financial statements, the
less likely we would become aware of it.
Identifying and assessing
potential risks arising from
irregularities, including fraud
The extent of the procedures undertaken to
identify and assess the risks of material
misstatement in respect of irregularities,
including fraud, included the following:
• We considered the nature of the industry
and sector, the control environment,
business performance including
remuneration policies. From our sector
experience and through discussion with
Directors, we obtained an understanding
of the legal and regulatory frameworks
applicable to the Group focusing on laws
and regulations that could reasonably be
expected to have a material impact on
the financial statements.
• We considered the result of our enquiries
of management about their own
identification and assessment of the risk
and irregularities;
• We considered any matters identified on
review of the Group’s documentation of
their policies and procedures relating to;
• identifying, evaluating and complying
with the laws and regulations, including
sanctions and counters sanction and
whether they were aware of any
instances of non-compliance;
• detecting and responding to the risks
of fraud and whether they had any
knowledge of actual or suspected
fraud; and
• the internal controls established to
mitigate risks related to fraud or
non-compliance with laws and
regulations.
• We assessed the susceptibility of the
financial statements to material
misstatement, including how fraud might
occur by evaluating management’s
incentives and opportunities for
manipulation of the financial statements.
This included utilising the spectrum of
inherent risk and an evaluation of the risk
of management override of controls. We
determined that the principal risks were
management bias in accounting
estimates, particularly in determining
impairment of oil and gas reserves, and
the impairment of oil and gas assets. The
group engagement team shared this risk
assessment with the Component
Auditors of Significant Subsidiaries so
that they could include appropriate audit
procedures in response to such risks in
their work.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 133
Financial report Independent auditors report
Audit response to risks identified
As a result of the above, we identified the
estimation of the oil & gas reserves,
impairment of the oil & gas development
and production fixed assets as key audit
matters. The key audit matters section of
our report explains these in more detail and
the specific procedures we performed in
response.
In addition to the above, audit procedures
performed by the engagement team in
connection with the risks identified
included:
• reviewing financial statement
disclosures and testing to supporting
documentation to assess compliance
with applicable laws and regulations
expected to have a direct impact on the
financial statements;
• testing journal entries, including those
processed late for financial statements
preparation, those posted by
infrequent or unexpected users, those
posted to unusual account
combinations;
• evaluating the business rationale of
significant transactions outside the
normal course of business, and
reviewing accounting estimates for
bias;
• enquiry of management and legal
advisers around actual and potential
litigation and claims;
• challenging the assumptions and
judgements made by management in
its significant accounting estimates;
and
• obtaining confirmations from third
parties to confirm existence of a sample
of transactions and balances.
• The component auditors visited the
operations in Kazakhstan observing
operations and carrying out a physical
verification of the inventory.
• the Group operate in a highly regulated
industry. As such, the Senior Statutory
Auditor considered the experience and
expertise of the engagement team to
ensure that the team had the appropriate
competence and capabilities; and
• we communicated relevant laws and
regulations, including potential sanctions
imposed following the Russian invasion of
Ukraine which might affect the group,
and all potential fraud risks to all
engagement team members, including
experts, and the component auditors and
remained alert to any indications of fraud
or non-compliance with laws and
regulations throughout the audit.
We communicated relevant laws and
regulations and potential fraud risks to all
engagement team members, including
experts, and the component auditors and
remained alert to any indications of fraud or
non-compliance with laws and regulations
throughout the audit.
Other requirements
We were appointed by the Audit
Committee on 6 March 2023, this being the
first year of engagement.
We did not provide any non-audit services
which are prohibited by the FRC’s Ethical
Standard to the Group or the Parent
Company, and we remain independent of
the Group and the Parent Company in
conducting our audit.
Use of our report
This report is made solely to the Parent
Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has
been undertaken so that we might state to
the Parent Company’s members those
matters we are required to state to them in
an auditor’s report and for no other
purpose. To the fullest extent permitted by
law, we do not accept or assume
responsibility to anyone other than the
Parent Company and the Parent Company’s
members as a body, for our audit work, for
this report, or for the opinions we have
formed.
As required by the Financial Conduct
Authority (FCA) Disclosure Guidance and
Transparency Rule (DTR) 4.1.14R, these
financial statements form part of the
European Single Electronic Format (ESEF)
prepared Annual Financial Report filed on
the National Storage Mechanism of the UK
FCA in accordance with the ESEF
Regulatory Technical Standard (‘ESEF RTS’).
This auditor’s report provides no assurance
over whether the annual financial report has
been prepared using the single electronic
format specified in the ESEF RTS.
Rakesh Shaunak FCA
(Senior Statutory Auditor)
For and on behalf of MHA, Statutory Auditor
London, United Kingdom
1 June 2023
MHA is the trading name of MacIntyre
Hudson LLP, a limited liability partnership
in England and Wales (registered number
OC312313)
134 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Consolidated financial statements
Contents
Inventories
136 Consolidated statement of financial position
137 Consolidated statement of comprehensive income
138 Consolidated statement of cash flows
139 Consolidated statement of changes in equity
140 Notes to the consolidated financial statements
140 1 General
142 2 Basis of preparation and consolidation
142 3 Changes in accounting policies and disclosures
144 4 Summary of significant accounting policies
151 5 Property, plant and equipment
152 6 Advances for non-current assets
152 7
152 8 Prepayments and other current assets
152 9 Trade receivables
152 10 Cash and cash equivalents
152 11 Share capital and reserves
153 12 Earnings per share
153 13 Notes payable and accumulated interest
154 14 Abandonment and site restoration provision
154 15 Due to Government of Kazakhstan
154 16 Trade payables
154 17 Other current liabilities
155 18 Revenue
155 19 Cost of sales
155 20 General and administrative expenses
155 21 Selling and transportation expenses
155 22 Taxes other than income tax
155 23 Finance costs
156 24 Employees’ remuneration
156 25 Other income and other expenses
157 26 Income tax
157 27 Related party transactions
157 28 Audit and non-audit fees
158 29 Contingent liabilities and commitments
158 30 Financial risk management objectives and policies
160 31 Events after the reporting Consent
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 135
Financial report Consolidated financial statements
For the year ended 31 December 2022
Consolidated financial statements
Consolidated statement of financial position
Consolidated statement of financial position
In thousands of US Dollars
Assets
Non-current assets
Property, plant and equipment
Advances for non-current assets
Restricted cash
Current assets
Inventories
Prepayments and other current assets
Income tax prepayment
Trade receivables
Cash and cash equivalents
TOTAL ASSETS
Equity and liabilities
Share capital and reserves
Share capital
Treasury capital
Retained deficit and reserves
Non-current liabilities
Abandonment and site restoration provision
Due to Government of Kazakhstan
Deferred tax liability
Current liabilities
Notes payable and accumulated interest
Trade payables
Advances received
Current portion of due to Government of Kazakhstan
Other current liabilities
TOTAL EQUITY AND LIABILITIES
Notes
31 December
2022
31 December
2021
5
6
10
7
8
9
10
11
14
15
28
13
16
17
276,023
2,114
31,022
309,159
30,196
4,688
95
12,395
233,584
280,958
590,117
320,125
1,418
30,438
351,981
31,387
9,735
300
6,659
165,246
213,327
565,308
3,203
(1,660)
(941,769)
(940,226)
3,203
(1,660)
(824,796)
(823,253)
20,073
4,002
49,899
73,974
29,008
4,563
34,072
67,643
1,396,517
9,929
52
1,031
48,840
1,456,369
590,117
1,289,603
8,399
9
1,031
21,876
1,320,918
565,308
The consolidated financial statements of Nostrum Oil & Gas PLC, registered number 8717287, were authorised for issue by the Board of Directors on 30 May 2023.
Signed on behalf of the Board:
Arfan Khan
Chief Executive Officer
30 May 2023
The accounting policies and explanatory notes on pages 7 through 27 are an integral part of these consolidated financial statements
The accounting policies and explanatory notes on pages 140 through 160 are an integral part of these consolidated financial statements
3
Nostrum Oil & Gas PLC
136 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Consolidated statement of financial position
Consolidated statement of comprehensive income
Consolidated statement of comprehensive income
Consolidated financial statements
For the year ended 31 December 2022
Notes
31 December
31 December
2022
2021
5
6
10
7
8
9
10
11
14
15
28
13
16
17
276,023
2,114
31,022
309,159
30,196
4,688
95
12,395
233,584
280,958
590,117
320,125
1,418
30,438
351,981
31,387
9,735
300
6,659
165,246
213,327
565,308
3,203
(1,660)
(941,769)
(940,226)
3,203
(1,660)
(824,796)
(823,253)
20,073
4,002
49,899
73,974
9,929
52
1,031
48,840
29,008
4,563
34,072
67,643
8,399
9
1,031
21,876
1,396,517
1,289,603
1,456,369
590,117
1,320,918
565,308
In thousands of US Dollars
Revenue
Revenue from export sales
Revenue from domestic sales
Cost of sales
Gross profit
General and administrative expenses
Selling and transportation expenses
Taxes other than income tax
Finance costs
Employee share options reversals
Reversal of impairment on property, plant and equipment
Foreign exchange gain / (loss), net
Interest income
Other income
Other expenses
Loss before income tax
Current income tax expense
Deferred income tax expense
Income tax expense
Loss for the year
Other comprehensive income that could be reclassified to the income statement in
subsequent periods
Currency translation difference
Other comprehensive loss
Total comprehensive loss for the year
For the year ended 31 December
Notes
2022
2021
18
19
20
21
22
23
4
25
25
26
177,173
22,544
199,717
(84,053)
115,664
(12,076)
(19,950)
(19,830)
(123,138)
38
–
254
272
6,806
(29,821)
(81,781)
(18,837)
(15,827)
(34,664)
169,825
25,460
195,285
(87,849)
107,436
(12,124)
(23,066)
(17,083)
(116,696)
247
74,186
(285)
319
5,886
(13,218)
5,602
(1,441)
(30,279)
(31,720)
(116,445)
(26,118)
(490)
(490)
(203)
(203)
(116,935)
(26,321)
Loss for the year attributable to the shareholders (in thousands of US dollars)
Weighted average number of shares1
Basic and diluted earnings per share (in US dollars)
(116,445)
(26,118)
169,086,713
169,086,713
12
(0.69)
(0.15)
1 The number of shares has been adjusted as required under IAS 33.64 for the effect of the sub-division and consolidation of the ordinary share capital occurred after close of business on 9 February 2023 (Note 31).
The consolidated financial statements of Nostrum Oil & Gas PLC, registered number 8717287, were authorised for issue by the Board of Directors on 30 May 2023.
All items in the above statement are derived from continuing operations.
Consolidated financial statements
For the year ended 31 December 2022
In thousands of US Dollars
Assets
Non-current assets
Property, plant and equipment
Advances for non-current assets
Restricted cash
Current assets
Inventories
Prepayments and other current assets
Income tax prepayment
Trade receivables
Cash and cash equivalents
TOTAL ASSETS
Equity and liabilities
Share capital and reserves
Share capital
Treasury capital
Retained deficit and reserves
Non-current liabilities
Abandonment and site restoration provision
Due to Government of Kazakhstan
Deferred tax liability
Notes payable and accumulated interest
Current liabilities
Trade payables
Advances received
Current portion of due to Government of Kazakhstan
Other current liabilities
TOTAL EQUITY AND LIABILITIES
Signed on behalf of the Board:
Arfan Khan
Chief Executive Officer
30 May 2023
The accounting policies and explanatory notes on pages 7 through 27 are an integral part of these consolidated financial statements
The accounting policies and explanatory notes on pages 7 through 27 are an integral part of these consolidated financial statements
The accounting policies and explanatory notes on pages 140 through 160 are an integral part of these consolidated financial statements
3
Nostrum Oil & Gas PLC
Nostrum Oil & Gas PLC
4
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 137
Financial report
Consolidated financial statements
For the year ended 31 December 2022
Consolidated financial statements
Consolidated statement of cash flows
Consolidated statement of cash flows
In thousands of US Dollars
Cash flow from operating activities:
Loss before income tax
Adjustments for:
Depreciation, depletion and amortisation
Impairment reversal
Finance costs
Employee share options reversals
Interest income
Foreign exchange loss on investing and financing activities
Gain on disposal of exploration and evaluation assets
Write-off and impairment of new development costs
Operating profit before working capital changes
Changes in working capital:
Change in inventories
Change in trade receivables
Change in prepayments and other current assets
Change in trade payables
Change in advances received
Change in due to Government of Kazakhstan
Change in other current liabilities
Cash generated from operations
Income tax paid
Net cash flows from operating activities
Cash flow from investing activities:
Interest received
Purchase of property, plant and equipment
Exploration and evaluation works
Advances for non-current assets
Transfer to restricted cash
Net cash used in investing activities
Cash flow from financing activities:
Other finance costs
Payment of principal portion of lease liabilities
Finance charges on lease liabilities
Net cash used in financing activities
For the year ended 31 December
Notes
2022
2021
(81,781)
5,602
19,20,21
4
23
6
51,835
–
123,138
(38)
(272)
115
–
–
92,997
1,458
(5,736)
5,047
1,094
43
(1,031)
14,578
108,450
(6,246)
102,204
272
(14,770)
–
(696)
(587)
(15,781)
(17,481)
–
–
(17,481)
57,295
(74,186)
116,696
(247)
(319)
(94)
(749)
9,056
113,054
2,451
6,881
741
(1,686)
(177)
(1,031)
(147)
120,086
(2,671)
117,415
319
(8,611)
(226)
(1,440)
(9,820)
(19,778)
(9,130)
(1,575)
(157)
(10,862)
Effects of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
(604)
(112)
68,338
86,663
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
10
10
165,246
233,584
78,583
165,246
“Other finance costs” represent advisor fees of US$17,481 thousand (2021: US$ 4,331 thousand) paid by the Group in relation to the forbearance agreements, lock-
up agreements and ongoing process of restructuring of the Group’s outstanding bonds. In 2021 these included also bondholder consent fees in the amount of
US$1,117 thousand. For more details see Note 1.
The accounting policies and explanatory notes on pages 140 through 160 are an integral part of these consolidated financial statements
The accounting policies and explanatory notes on pages 7 through 27 are an integral part of these consolidated financial statements
5
Nostrum Oil & Gas PLC
138 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Consolidated financial statements
For year ended 31 December 2022
Consolidated statement of changes in equity
Consolidated statement of changes in equity
In thousands of US Dollars
As at 1 January 2021
Loss for the year
Other comprehensive loss
Total comprehensive loss for the year
Notes
Share
capital
3,203
–
–
–
Treasury
capital
(1,660)
–
–
–
Other
reserves
262,835
–
(203)
(203)
Retained
deficit
(1,061,063)
(26,118)
–
(26,118)
Total
(796,685)
(26,118)
(203)
(26,321)
Share based payments under LTIP*
–
–
(247)
–
(247)
As at 31 December 2021
3,203
(1,660)
262,385
(1,087,181)
(823,253)
Loss for the year
Other comprehensive income
Total comprehensive loss for the year
Share based payments under LTIP*
As at 31 December 2022
* Long-Term Incentive Plan (“LTIP”)
–
–
–
–
–
–
–
(490)
(490)
(116,445)
–
(116,445)
(116,445)
(490)
(116,935)
–
3,203
–
(1,660)
(38)
261,857
–
(1,203,626)
(38)
(940,226)
Consolidated financial statements
For the year ended 31 December 2022
Consolidated statement of cash flows
In thousands of US Dollars
Cash flow from operating activities:
Loss before income tax
Adjustments for:
Depreciation, depletion and amortisation
Impairment reversal
Finance costs
Employee share options reversals
Interest income
Foreign exchange loss on investing and financing activities
Gain on disposal of exploration and evaluation assets
Write-off and impairment of new development costs
Operating profit before working capital changes
Changes in working capital:
Change in inventories
Change in trade receivables
Change in prepayments and other current assets
Change in trade payables
Change in advances received
Change in due to Government of Kazakhstan
Change in other current liabilities
Cash generated from operations
Income tax paid
Net cash flows from operating activities
Cash flow from investing activities:
Interest received
Purchase of property, plant and equipment
Exploration and evaluation works
Advances for non-current assets
Transfer to restricted cash
Net cash used in investing activities
Cash flow from financing activities:
Other finance costs
Payment of principal portion of lease liabilities
Finance charges on lease liabilities
Net cash used in financing activities
Effects of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
For the year ended 31 December
Notes
2022
2021
(81,781)
5,602
19,20,21
4
23
6
92,997
113,054
51,835
–
123,138
(38)
(272)
115
–
–
1,458
(5,736)
5,047
1,094
43
(1,031)
14,578
108,450
(6,246)
102,204
272
(14,770)
–
(696)
(587)
57,295
(74,186)
116,696
(247)
(319)
(94)
(749)
9,056
2,451
6,881
741
(1,686)
(177)
(1,031)
(147)
120,086
(2,671)
117,415
319
(8,611)
(226)
(1,440)
(9,820)
(15,781)
(19,778)
(17,481)
–
–
(17,481)
(9,130)
(1,575)
(157)
(10,862)
(604)
(112)
68,338
86,663
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
10
10
165,246
233,584
78,583
165,246
“Other finance costs” represent advisor fees of US$17,481 thousand (2021: US$ 4,331 thousand) paid by the Group in relation to the forbearance agreements, lock-
up agreements and ongoing process of restructuring of the Group’s outstanding bonds. In 2021 these included also bondholder consent fees in the amount of
US$1,117 thousand. For more details see Note 1.
The accounting policies and explanatory notes on pages 7 through 27 are an integral part of these consolidated financial statements
5
Nostrum Oil & Gas PLC
The accounting policies and explanatory notes on pages 140 through 160 are an integral part of these consolidated financial statements
The accounting policies and explanatory notes on pages 7 through 27 are an integral part of these consolidated financial statements
Nostrum Oil & Gas PLC
6
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 139
Financial report
Consolidated financial statements
Consolidated financial statements
For the year ended 31 December 2022
Notes to the consolidated financial statements
Notes to the consolidated financial statements
1. General
OOvveerrvviieeww
Nostrum Oil & Gas PLC (“the Company” or
“the Parent”) is a public limited company
incorporated on 3 October 2013 under the
Companies Act 2006 and registered in England and
Wales with registered number 8717287. The
registered address of Nostrum Oil & Gas PLC is:
20 Eastbourne Terrace, London, W2 6LG, UK.
These consolidated financial statements include
the financial position and the results of the
operations of Nostrum Oil & Gas PLC and its
following wholly owned subsidiaries:
SSuubbssooiill uussee rriigghhttss tteerrmmss
Zhaikmunai LLP carries out its activities in
accordance with the Contract for Additional
Exploration, Production and Production-Sharing of
Crude Hydrocarbons in the Chinarevskoye oil and
gas condensate field (the “Contract”) dated
31 October 1997 between the State Committee of
Investments of the Republic of Kazakhstan and
Zhaikmunai LLP in accordance with the license MG
No. 253D for the exploration and production of
hydrocarbons in Chinarevskoye oil and gas
condensate field.
Form of
capital
Participat
ory
interests
Owner-
ship, %
100
The term of the Chinarevskoye subsoil use rights
included a 5-year exploration period followed by a
25-year production period with the Contract being
valid until the end of 2031.
Members'
interests
100
Ordinary
shares
100
Ordinary
shares
100
RRooyyaallttyy ppaayymmeennttss
Zhaikmunai LLP is required to make monthly
royalty payments throughout the entire
production period, at the rates specified in the
Contract.
Royalty rates depend on hydrocarbons recovery
levels and the phase of production and can vary
from 3% to 7% of produced crude oil and from 4%
to 9% of produced natural gas. Royalty is
accounted on a gross basis.
100
GGoovveerrnnmmeenntt ““pprrooffiitt sshhaarree””
Company
Nostrum
Associated
Investments
LLP
Nostrum Oil
& Gas
Coöperatief
U.A.
Nostrum Oil
& Gas B.V.
Nostrum Oil
& Gas
Finance B.V.
Nostrum Oil
& Gas UK
Ltd.
Nostrum Oil
& Gas
Holding Ltd
Nostrum
Services
Central Asia
LLP
Nostrum
Services N.V.
Zhaikmunai
LLP
Registered office
43B Karev street,
090000 Uralsk,
Republic of
Kazakhstan
Bloemendaalseweg
139, 2061 CH
Bloemendaal,
The Netherlands
Bloemendaalseweg
139, 2061 CH
Bloemendaal,
The Netherlands
Bloemendaalseweg
139, 2061 CH
Bloemendaal,
The Netherlands
20 Eastbourne
Terrace, London,
W2 6LA,
United Kingdom
20 Eastbourne
Terrace, London,
W2 6LG, UK
Aksai 3a, 75/38,
050031 Almaty,
Republic of
Kazakhstan
Chaussee de Wavre
20, 1360 Perwez,
Belgium
43/1 Karev street,
090000 Uralsk,
Republic of
Kazakhstan
Ordinary
shares
Ordinary
shares
Participat
ory
interests
Ordinary
shares
Participat
ory
interests
100
100
100
100
Nostrum Oil & Gas PLC and its wholly owned
subsidiaries are hereinafter referred to as
“the Group”. The Group’s operations comprise of a
single operating segment including all Group’s
assets related to its Chinarevskoye field, as well as
surface facilities, and are primarily conducted
through its oil and gas producing entity
Zhaikmunai LLP located in Kazakhstan.
On 30 April 2021, the Group disposed of its entire
holding in the equity of Nostrum E&P Services LLP.
As at 31 December 2022 the Group employed 566
employees (31 December 2021: 559).
Zhaikmunai LLP makes payments to the
Government of its “profit share” as determined in
the Contract. The “profit share” depends on
hydrocarbon production levels and varies from
10% to 40% of production after deducting royalties
and reimbursable expenditures. Reimbursable
expenditures include operating expenses, costs of
additional exploration and development costs.
Government “profit share” is expensed as incurred
and paid in cash. Government profit share is
accounted on a gross basis.
GGrroouupp ddeebbtt rreessttrruuccttuurriinngg
On 31 March 2020, the Group announced that it
would seek to engage with its bondholders
regarding a possible restructuring of the Group’s
US$725 million 8.0% Senior Notes due July 2022
(“2022 Notes”) and its US$400 million 7.0% Senior
Notes due February 2025 (“2025 Notes”)
(together, the “Existing Notes”).
In May 2020, the Group engaged Rothschild & Co
(“Rothschild”) as financial advisers and White &
Case LLP (“White & Case”) as legal advisers to
assist in the restructuring of the Existing Notes.
Since then, the Company has been in restructuring
discussions with an informal ad hoc group of
noteholders (the “Ad Hoc Group” or “AHG”), who
are advised by PJT Partners (financial) and Akin
Gump LLP (legal). The Company has also been in
discussions with its largest shareholder ICU
Holdings Limited (“ICU”), also a holder of the
Existing Notes, and their legal advisors Dechert LLP
from 2021.
7
Nostrum Oil & Gas PLC
140 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Forbearance Agreements
The Group has not made coupon payments due
under the Existing Notes since July 2020, which
was an event of default under the terms of the
indentures governing 2022 Notes and 2025 Notes.
However, the Company continued active
discussions with the financial and legal advisers to
the AHG and signed the First Forbearance
Agreement (“First FBA”) with the AHG on
23 October 2020 and a new Forbearance
Agreement (“Second FBA”) on 19 May 2021
(together the “FBAs”). The First FBA and the
Second FBA were on substantially the same terms
and prohibited the AHG from exercising certain
rights and remedies under the Existing Note
indentures. The FBAs were intended to provide the
Group with a short-term solution to its liquidity
issues and a platform to engage in discussions with
the noteholders in relation to a potential
restructuring.
As part of the signing of the FBAs, the Company
agreed to pay consent fees to existing noteholders
as well as agreeing to deposit a portion of the
missed initial coupon payments into a Restricted
Account. A total of US$6,701,973 has been paid in
consent fees during the signing and various
extensions of the FBAs, of which US$1,116,990
was paid in 2021. A total of US$22,658,980 has
been deposited into the Restricted Account under
the terms of the FBAs (including US$9,758.980
transferred in 2021), with Nostrum having access
to the funds under certain circumstances, such as
liquidity falling below an agreed threshold).
Lock-up Agreements
On 23 December 2021, the Group entered into a
lock-up agreement (the “First LUA”) and agreed
terms of a restructuring with noteholders. Holders
of 77.73% of the total aggregate principal amount
of the Notes signed or acceded to the First LUA
including a majority of holders of aggregate
principal amount of both Senior Notes and an
affiliate of ICU in its capacity as a shareholder and
holder of the Notes. A fee of 50 bps (the "Lock-up
Fee") was payable to each Participating
Noteholder who was originally party to the First
LUA or acceded to the First LUA within 22 days of
its execution (i.e. by 14 January 2022).
The First LUA expired on 17 August 2022, on which
day the Company entered into the Second Lock-Up
Agreement with the AHG and ICU (the “Second
LUA”). The parties to the Second LUA gave similar
undertakings to those given in the First LUA, and
terms of the Restructuring remained the same. No
consent or “early bird” fee was payable in relation
to the Second LUA.
Upon signing of the First LUA and the Second LUA
(together the “LUAs”), the Second FBA was
extended in parallel. The terms and conditions
continued to remain in effect during the
restructuring until the successful closing of the
restructuring.
Notes to the consolidated financial statements (continued)
Consolidated financial statements
For year ended 31 December 2022
On 14 October 2022, a prospectus was approved
by the FCA and published by the Company (the
‘Prospectus’). The Prospectus relates to the
proposed admission of up to 1,505,633,046 new
ordinary shares to the standard listing segment of
the Official List of the FCA and to trading on the
main market for listed securities of London Stock
Exchange plc.
In January 2023, the Group received the licence
from Office of Financial Sanctions Implementation
(the UK) approving the Scheme and the issue of
the Prospectus, and confirmations that such
licences are not required from the Ministry of
Finance (the Netherlands) and Policy & Resources
Committee (the UK, States of Guernsey).
On 9 February the Group notified that the
Restructuring was implemented pursuant to the
terms of the Scheme sanctioned by the Court on
26 August 2022. The terms of the Restructuring
included the sub-division and consolidation of the
ordinary share capital of the Company following
the issue of the New Shares on 9 February 2023.
This sub-division and share consolidation occurred
after close of business on 9 February 2023 and
resulted in the number of Ordinary Shares on issue
being reduced from approximately 1,693.8 million
Ordinary Shares (following the issue of the New
Shares yesterday) to approximately 169.4 million
Ordinary Shares on the basis of a 10:1
consolidation of ordinary shares. Accordingly, on
10 February 2023, 150,563,304 new Ordinary
Shares have been admitted to the standard listing
segment of the Official List of the Financial Conduct
Authority and to trading on the London Stock
Exchange under the ticker symbol "NOG.L". The
Company's ordinary shares (including the New
Shares) were also admitted to listing and trading
on the Astana International Exchange (AIX) on 13
February 2023. The New Warrants will not be
admitted to listing and trading on the AIX. The New
Notes and the New Warrants were also admitted
to listing and trading on The International Stock
Exchange (TISE) with effect from 9 February 2023.
No securities will be listed on the Euronext Dublin.
Terms of the Restructuring
Key implementation milestones completed
The below outlines the key terms of the
restructuring as agreed between the Group,
acceded noteholders and ICU in the LUAs and also
voted in favour of by Nostrum shareholders:
• Partial reinstatement of debt in the form of
US$250 million Senior Secured Notes (SSNs)
maturing on 30 June 2026 and bearing interest
at a rate of 5.00% per year payable in cash. The
SSNs are not convertible;
• Partial reinstatement of debt in the form of
US$300 million Senior Unsecured Notes (SUNs)
maturing on 30 June 2026 and bearing interest
at a rate of 1.00% per year payable in cash and
13.00% per year payable in kind. If not repaid in
cash at maturity, the SUNs are repayable in
specie through the issuance of equity in the
Company based on the value of the SUNs
outstanding on the issuance date as a
percentage of the fair market value of the
Company (up to a maximum of 99.99% of the
Company’s fully diluted equity);
• Conversion of the remainder of the Existing
Notes and accrued interest into equity by way
of a UK scheme of arrangement:
• Existing noteholders will own 88.89% of the
expanded ordinary share capital of the
Company on closing of the restructuring.
Existing noteholders will also own warrants
(to be held by trustee) allowing them to
subscribe for an additional 1.11% of the
ordinary share capital of the Company upon
exercise – increasing noteholder ownership
of the Company to 90.00%;
• The existing ordinary shareholders will hold
11.11% upon closing of the restructuring.
The existing ordinary shareholders will be
diluted to 10.00% if the warrants held by
existing noteholders are exercised;
• New corporate governance arrangements in
respect of the Group and certain arrangements
regarding future utilization of the Group's
cashflows. This includes a cash sweep
mechanism requiring that cash above
US$30 million is swept into a debt service
retention account (to fund the next two cash
interest payments due) and a restricted cash
account which the Company can access with
approval of the majority of Independent Non-
Executive Directors of the Company; and
• Transfer the Company's listing to the Standard
Listing segment of the London Stock Exchange.
Following execution of the Lock-up Agreement, the
Company commenced implementation of the
Restructuring.
On 4 February 2022, the Company received the
required consents from noteholders after a
solicitation process to approve the amendments to
the Existing Notes indentures. The approved
amendments (i) changed the governing law and
jurisdiction of both Existing Notes indentures from
the State of New York to the laws of England and
Wales; (ii) made Nostrum Oil & Gas plc a co-issuer
of the Existing Notes and (iii) other smaller
amendments to facilitate the implementation of
the restructuring. Holders of 87.081% in aggregate
principal amount of the 2022 Notes and Holders of
91.222% in aggregate principal amount of the 2025
Notes provided consents. No consent solicitation
payments were made to vote in favour.
On 29 April 2022, 99.99% of voting shareholders
voted for the implementation of the restructuring
which meant that the restructuring continues
under a UK scheme of arrangement under Part 26
of the Companies Act 2006. Further, 99.89% of
voting shareholders voted in favour of the RPT
Resolution, allowing a related party to receive the
issuance of new securities under the scheme.
On 20 June 2022, the High Court of Justice of
England and Wales has made an order granting the
Company permission to convene a meeting for the
Scheme creditors to approve the Restructuring.
On 1 July 2022, the Company received the
required consents from the Kazakhstan Ministry of
Energy («MOE») with respect to (i) the issue of
new shares and warrants (in partial repayment of
the Existing Notes) and (ii) the waiver of the State
of Kazakhstan's priority right to acquire such new
shares and warrants.
On 1 August 2022, after receiving a key regulatory
authorisation from the US Office of Foreign Assets
Control, the Company issued a notice inviting
Scheme creditors to a Scheme meeting on
21 August 2022. At the Scheme meeting with
participation and voting (by proxy) of 148 Scheme
Creditors, the Scheme proposed by the Company
in connection with the Restructuring was approved
by the requisite majority of Scheme Creditors
(being a majority in number, representing at least
75 percent in value of the Scheme Creditors
present and voting).
On 26 August 2022, the Scheme Sanction Hearing
took place, whereby the Court made an order
sanctioning the Scheme, following which on
31 August 2022 the Scheme Sanction Order was
lodged with Companies House and the Scheme
thereby took effect and binds (amongst other
parties) all Scheme Creditors and the Company by
its terms.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 141
8
Nostrum Oil & Gas PLC
Financial report
Consolidated financial statements
Consolidated financial statements
For the year ended 31 December 2022
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements (continued)
2. Basis of preparation and consolidation
BBaassiiss ooff pprreeppaarraattiioonn
BBaassiiss ooff ccoonnssoolliiddaattiioonn
These consolidated financial statements for
the year ended 31 December 2022 have been
prepared in accordance with the UK adopted
International Accounting Standards. The
consolidated financial statements have been
prepared based on a historical cost basis (Note
4). The consolidated financial statements are
presented in US dollars and all values are
rounded to the nearest thousand, except
when otherwise indicated. The preparation of
consolidated financial statements in
conformity with IFRS requires the use of
certain critical accounting estimates. It also
requires from management to exercise its
judgment in the process of applying the
Group's accounting policies. The areas
involving a higher degree of judgment or
complexity, or areas where assumptions and
estimates are significant to the consolidated
financial statements are disclosed in Note 4.
The Group recognises that there may be
potential financial implications in the future
from changes in legislation and regulation
implemented to address climate change risk.
Over time these changes may have an impact
across a number of areas of accounting
including asset impairment, increased costs,
provisions, onerous contracts and contingent
liabilities. However, as at the reporting sheet
date, the Group believes there is no material
impact on the balance sheet carrying values of
assets or liabilities. This is not considered a
significant estimate.
The consolidated financial statements
comprise the financial statements of the
Parent and its subsidiaries as at 31 December
2022. Control is achieved when the Group is
exposed, or has rights, to variable returns
from its involvement with the investee and
has the ability to affect those returns through
its power over the investee. Specifically, the
Group controls an investee if, and only if, the
Group has:
• power over the investee (i.e., existing rights
that give it the current ability to direct the
relevant activities of the investee);
• exposure, or rights, to variable returns from
its involvement with the investee;
• the ability to use its power over the
investee to affect its returns.
Generally, there is a presumption that a
majority of voting rights results in control. To
support this presumption and when the
Group has less than a majority of the voting or
similar rights of an investee, the Group
considers all relevant facts and circumstances
in assessing whether it has power over an
investee, including:
• the contractual arrangement with the
other vote holders of the investee;
• rights arising from other contractual
arrangements;
• the Group’s voting rights and potential
voting rights.
The Group re-assesses whether or not it
controls an investee if facts and circumstances
indicate that there are changes to one or
more of the three elements of control.
Consolidation of a subsidiary begins when the
Group obtains control over the subsidiary and
ceases when the Group loses control of the
subsidiary. Assets, liabilities, income and
expenses of a subsidiary acquired or disposed
of during the year are included in the
consolidated financial statements from the
date the Group gains control until the date the
Group ceases to control the subsidiary.
GGooiinngg ccoonncceerrnn
These consolidated financial statements have
been prepared on a going concern basis. For
more information on the going concern
assessment of the Group please see page 52
of the Annual Report.
The directors are satisfied that the Group has
sufficient resources to continue in operation
for the foreseeable future, a period of not less
than 12 months from the date of this report.
Accordingly, they continue to adopt the going
concern basis in preparing the consolidated
financial statements.
SSuubbssiiddiiaarriieess
Nostrum Oil & Gas UK Ltd. registered and
incorporated in the United Kingdom under
Companies Number 08071559 is exempt from
the requirements of the UK Companies Act
2006 relating to the audit of the individual
accounts by virtue of the section 479A of the
Act.
3. Changes in accounting policies and disclosures
NNeeww ssttaannddaarrddss,, iinntteerrpprreettaattiioonnss aanndd
aammeennddmmeennttss aaddoopptteedd bbyy tthhee GGrroouupp
The accounting policies adopted in the preparation
of the financial statements are consistent with
those followed in the preparation of the Group’s
annual financial statements for the year ended 31
December 2022, except for the adoption of new
standards effective as of 1 January 2022. The
Group has not early adopted any standard,
interpretation or amendment that has been issued
but is not yet effective.
Several amendments apply for the first time in
2022, but do not have an impact on the
consolidated financial statements of the Group.
Onerous Contracts – Costs of Fulfilling a Contract
– Amendments to IAS 37
An onerous contract is a contract under which the
unavoidable costs (i.e., the costs that the Group
cannot avoid because it has the contract) of
meeting the obligations under the contract exceed
the economic benefits expected to be received
under it.
The amendments specify that when assessing
whether a contract is onerous or loss-making, an
entity needs to include costs that relate directly to
a contract to provide goods or services include
both incremental costs (e.g., the costs of direct
labour and materials) and an allocation of costs
directly related to contract activities (e.g.,
depreciation of equipment used to fulfil the
contract as well as costs of contract management
and supervision). General and administrative costs
do not relate directly to a contract and are
excluded unless they are explicitly chargeable to
the counterparty under the contract.
The Group applies these amendments to contracts
for which it has not yet fulfilled all its obligations at
1 January 2022. These amendments had no impact
on the consolidated financial statements of the
Group.
Reference to the Conceptual Framework –
Amendments to IFRS 3
The amendments replace a reference to a previous
version of the IASB’s Conceptual Framework with a
reference to the current version issued in March
2018 without significantly changing its
requirements.
The amendments add an exception to the
recognition principle of IFRS 3 Business
Combinations to avoid the issue of potential ‘day 2’
gains or losses arising for liabilities and contingent
liabilities that would be within the scope of IAS 37
Provisions, Contingent Liabilities and Contingent
Assets or IFRIC 21 Levies, if incurred separately.
The exception requires entities to apply the criteria
in IAS 37 or IFRIC 21, respectively, instead of the
Conceptual Framework, to determine whether a
present obligation exists at the acquisition date.
The amendments also add a new paragraph to
IFRS 3 to clarify that contingent assets do not
qualify for recognition at the acquisition date.
9
142 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Nostrum Oil & Gas PLC
Notes to the consolidated financial statements (continued)
Consolidated financial statements
For the year ended 31 December 2022
These amendments had no impact on the
consolidated financial statements of the Group as
there were no contingent assets, liabilities and
contingent liabilities within the scope of these
amendments arisen during the period.
Property, Plant and Equipment: Proceeds before
Intended Use – Amendments to IAS 16
The amendment prohibits entities from deducting
from the cost of an item of property, plant and
equipment, any proceeds of the sale of items
produced while bringing that asset to the location
and condition necessary for it to be capable of
operating in the manner intended by
management. Instead, an entity recognises the
proceeds from selling such items, and the costs of
producing those items, in profit or loss.
These amendments had no impact on the
consolidated financial statements of the Group as
there were no sales of such items produced by
property, plant and equipment made available for
use on or after the beginning of the earliest period
presented.
IFRS 9 Financial Instruments – Fees in the ’10 per
cent’ test for derecognition of financial liabilities
The amendment clarifies the fees that an entity
includes when assessing whether the terms of a
new or modified financial liability are substantially
different from the terms of the original financial
liability. These fees include only those paid or
received between the borrower and the lender,
including fees paid or received by either the
borrower or lender on the other’s behalf. There is
no similar amendment proposed for IAS 39
Financial Instruments: Recognition and
Measurement.
These amendments had no impact on the
consolidated financial statements of the Group as
there were no modifications of the Group’s
financial instruments during the period.
Standards issued but not yet effective
The new and amended standards and
interpretations that are issued, but not yet
effective, up to the date of issuance of the
Group’s consolidated financial statements are
disclosed below. The Group intends to adopt
these new and amended standards and
interpretations, if applicable, when they
become effective.
IAS 8.30 IAS 8.31(d) IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance
Contracts (IFRS 17), a comprehensive new
accounting standard for insurance contracts
covering recognition and measurement,
presentation and disclosure. Once effective, IFRS
17 will replace IFRS 4 Insurance Contracts (IFRS 4)
that was issued in 2005. IFRS 17 applies to all types
of insurance contracts (i.e., life, non-life, direct
insurance and re-insurance), regardless of the type
of entities that issue them, as well as to certain
guarantees and financial instruments with
discretionary participation features. A few scope
exceptions will apply. The overall objective of IFRS
17 is to provide an accounting model for insurance
contracts that is more useful and consistent for
insurers. In contrast to the requirements in IFRS 4,
which are largely based on grandfathering previous
local accounting policies, IFRS 17 provides a
comprehensive model for insurance contracts,
covering all relevant accounting aspects. The core
of IFRS 17 is the general model, supplemented by:
• A specific adaptation for contracts with direct
participation features (the variable fee approach)
• A simplified approach (the premium allocation
approach) mainly for short-duration contracts
IFRS 17 is effective for reporting periods beginning
on or after 1 January 2023, with comparative
figures required. Early application is permitted,
provided the entity also applies IFRS 9 and IFRS 15
on or before the date it first applies IFRS 17. This
standard is not applicable to the Group.
Amendments to IAS 1: Classification of Liabilities
as Current or Non-current
In January 2020, the IASB issued amendments to
paragraphs 69 to 76 of IAS 1 to specify the
requirements for classifying liabilities as current or
non-current. The amendments clarify:
• What is meant by a right to defer settlement
• That a right to defer must exist at the end of the
reporting period
• That classification is unaffected by the likelihood
that an entity will exercise its deferral right
• That only if an embedded derivative in a
convertible liability is itself an equity instrument
would the terms of a liability not impact its
classification
The amendments are effective for annual
reporting periods beginning on or after 1 January
2024 and must be applied retrospectively. The
Group is currently assessing the impact the
amendments will have on current practice.
Definition of Accounting Estimates - Amendments
to IAS 8
In February 2021, the IASB issued amendments to
IAS 8, in which it introduces a definition of
‘accounting estimates’. The amendments clarify
the distinction between changes in accounting
estimates and changes in accounting policies and
the correction of errors. Also, they clarify how
entities use measurement techniques and inputs
to develop accounting estimates.
The amendments are effective for annual
reporting periods beginning on or after 1 January
2023 and apply to changes in accounting policies
and changes in accounting estimates that occur on
or after the start of that period. Earlier application
is permitted as long as this fact is disclosed.
The amendments are not expected to have a
material impact on the Group’s consolidated
financial statements.
Disclosure of Accounting Policies - Amendments
to IAS 1 and IFRS Practice Statement 2
In February 2021, the IASB issued amendments to
IAS 1 and IFRS Practice Statement 2 Making
Materiality Judgements, in which it provides
guidance and examples to help entities apply
materiality judgements to accounting policy
disclosures. The amendments aim to help entities
provide accounting policy disclosures that are
more useful by replacing the requirement for
entities to disclose their ‘significant’ accounting
policies with a requirement to disclose their
‘material’ accounting policies and adding guidance
on how entities apply the concept of materiality in
making decisions about accounting policy
disclosures.
The amendments to IAS 1 are applicable for annual
periods beginning on or after 1 January 2023 with
earlier application permitted. Since the
amendments to the Practice Statement 2 provide
non-mandatory guidance on the application of the
definition of material to accounting policy
information, an effective date for these
amendments is not necessary.
The Group is currently revisiting their accounting
policy information disclosures to ensure
consistency with the amended requirements.
Deferred Tax related to Assets and Liabilities
arising from a Single Transaction - Amendments
to IAS 12
In May 2021, the Board issued amendments to IAS
12, which narrow the scope of the initial
recognition exception under IAS 12, so that it no
longer applies to transactions that give rise to
equal taxable and deductible temporary
differences.
The amendments should be applied to
transactions that occur on or after the beginning of
the earliest comparative period presented. In
addition, at the beginning of the earliest
comparative period presented, a deferred tax
asset (provided that sufficient taxable profit is
available) and a deferred tax liability should also be
recognised for all deductible and taxable
temporary differences associated with leases and
decommissioning obligations.
The amendments to IAS 1 are applicable for annual
periods beginning on or after 1 January 2023 with
earlier application permitted. The Group is
currently assessing the impact of the amendments.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 143
10
Nostrum Oil & Gas PLC
Financial report
Consolidated financial statements
Consolidated financial statements
For the year ended 31 December 2022
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements (continued)
4. Summary of significant accounting policies
PPrrooppeerrttyy,, ppllaanntt aanndd eeqquuiippmmeenntt
Oil and gas properties
Expenditure on the construction, installation or
completion of infrastructure facilities such as
treatment facilities, pipelines and the drilling of
development wells, is capitalised within property,
plant and equipment as oil and gas properties. The
initial cost of an asset comprises of its purchase
price or construction cost, any costs directly
attributable to bringing the asset into operation
and the initial estimate of decommissioning
obligations, if any.
The purchase price or construction cost is the
aggregate amount paid and the fair value of any
other consideration given to acquire the asset.
When a development project moves into the
production stage, the capitalisation of certain
construction/development costs ceases, and costs
are either regarded as part of the cost of inventory
or expensed, except for costs which qualify for
capitalisation relating to oil and gas property asset
additions, improvements or new developments.
All capitalised costs of oil and gas properties are
depleted using the unit-of-production method
based on estimated proved developed reserves of
the field, except the Group depreciates its oil
pipeline and oil loading terminal on a straight-line
basis over the life of the relevant subsoil use rights.
In the case of assets that have a useful life shorter
than the lifetime of the field the straight-line
method is applied.
Other properties
All other property, plant and equipment are stated
at historical cost less accumulated depreciation
and impairment. Historical cost includes
expenditures that are directly attributable to the
acquisition of the items. Subsequent costs are
included in the asset's carrying amount or
recognised as a separate asset, as appropriate,
only when it is probable that future economic
benefits associated with the item will flow to the
Group and the cost of the item can be measured
reliably. All other repairs and maintenance are
charged to the profit or loss during the year in
which they are incurred.
Depreciation is calculated on a straight-line basis
over the estimated useful lives of the assets as
follows:
Buildings and constructions
Vehicles
Machinery and equipment
Other
Years
7-15
8
3-13
3-10
Land is a non-depreciable asset and therefore is
not subject to depreciation. It is the company’s
policy to maintain the original cost of land on the
balance sheet. However, the land’s value may be
reviewed periodically to determine if there is any
impairment in value.
For more detailed information in relation to
property plant and equipment, please refer to
Note 5.
Significant accounting judgment: oil and gas
reserves
Oil and gas reserves are a material factor in the
Group’s computation of depreciation, depletion
and amortisation (the “DD&A”). Management
used significant accounting judgement in selecting
proved developed hydrocarbon reserves for
calculating the unit-of-production depletion rate,
as it reflects the expected pattern of consumption
of future economic benefits by the Group.
Significant estimates and assumptions: oil and gas
reserves
The Group uses internal estimates to assess the oil
and gas reserves of its fields. The reserves
estimates are made in accordance with the
methodology of the Society of Petroleum
Engineers (the “SPE”) and are confirmed or
audited by independent reserve engineers. All
reserve estimates involve some degree of
uncertainty, which depends mainly on the amount
of reliable geological and engineering data
available at the time of the estimate and the
interpretation of this data, as well as long-term
hydrocarbon pricing, which may affect
classification of reserves.
The relative degree of uncertainty can be
conveyed by placing reserves into one of two
principal classifications, either proved or unproved.
Proved reserves are more certain to be recovered
than unproved reserves and may be further sub
classified as developed and undeveloped to
denote progressively increasing uncertainty in their
recoverability.
Reserves estimates are reviewed and revised
annually. Revisions occur due to the evaluation or
re-evaluation of already available geological,
reservoir or production data; availability of new
data; or changes to underlying price assumptions.
Reserve estimates may also be revised due to
improved recovery projects, changes in production
capacity or changes in development strategy.
Management’s estimates of the Chinarevskoye 2P
(Proved plus Probable) volume as at 31 December
2022 was 28.3 mmboe requiring 17 capital
interventions (2021: 34.3 mmboe requiring 12
interventions). The reduction was primarily due to
2022 production of 4.9 mmboe and downwards
revision in the Biyski NE gas due to 2022
performance which was partially offset by the
smaller positive revisions in oil/condensate.
Downward revision of the proved developed
reserves estimates by 5% would lead to additional
DD&A expense of $582 thousand in 2022.
Estimates of economically recoverable oil and gas
reserves and related future net cash flows also
impact the impairment assessment of the Group
(see Impairment related significant judgements,
estimates and assumptions for further details).
Details on carrying values of oil and gas properties
and related depreciation, depletion and
amortization are shown in Note 4.
In addition, provisions for decommissioning may
require revision — where changes to reserves
estimates affect expectations about when such
activities will occur and the associated cost of
these activities (see Decommissioning related
significant judgements, estimates and assumptions
for further details).
144 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
11 Nostrum Oil & Gas PLC
Notes to the consolidated financial statements (continued)
Consolidated financial statements
For the year ended 31 December 2022
IImmppaaiirrmmeenntt ooff pprrooppeerrttyy,, ppllaanntt aanndd eeqquuiippmmeenntt,, eexxpplloorraattiioonn aanndd eevvaalluuaattiioonn aasssseettss
The Group assesses assets or groups of assets,
called cash-generating units (CGUs), for
impairment whenever events or changes in
circumstances indicate that the carrying amount of
an asset or CGU may not be recoverable; for
example, changes in the Group’s business plans,
significant decreases in the market commodity
prices, low plant utilisation, evidence of physical
damage or, for oil and gas assets, significant
downward revisions of estimated reserves or
increases in estimated future development
expenditure or decommissioning costs. If any such
indication of impairment exists, the Group makes
an estimate of the asset’s recoverable amount.
Individual assets are grouped into a CGU for
impairment assessment purposes at the lowest
level at which there are identifiable cash flows that
are largely independent of the cash flows of other
groups of assets. A CGU’s recoverable amount is
the higher of its fair value less costs of disposal and
its value in use. Where the carrying amount of a
CGU exceeds its recoverable amount, the CGU is
considered impaired, and an impairment loss is
recognised for the excess of carrying amount over
recoverable amount.
The business cash flow internal model, which is
approved on an annual basis by senior
management, is the primary source of information
for the determination of the recoverable amount.
It contains forecasts for oil and gas production,
sales volumes for various types of products,
revenues, costs and capital expenditure. As an
initial step in the preparation of this model, various
assumptions are set by senior management. These
assumptions take account of commodity prices,
global supply-demand equilibrium for oil and
natural gas, other macroeconomic factors and
historical trends and variability. In assessing the
recoverable amount, the estimated future cash
flows are adjusted for the risks specific to the asset
group and are discounted to their present value
using a discount rate.
Significant accounting judgment: identification of cash-generating unit
• Post-tax discount rate of 11.6%, estimated to be equivalent to pre-tax
Judgement is required to identify cash-generating units for the purpose of
testing the assets for impairment. Management has determined a single cash-
generating unit within the Group’s non-current assets consisting of all Group’s
assets related to its Chinarevskoye field and facilities. This is mainly based on
the fact that hydrocarbons extracted from the Chinarevskoye field are
processed and passed through a combination of various facilities.
Significant estimates and assumptions: impairment of property, plant and
equipment, exploration and evaluation assets
Determination as to whether, and by how much, the CGU is impaired involves
management’s best estimates on highly uncertain matters such as future
commodity prices, operating expenses and capital expenditures estimates,
discount rate, fiscal regimes, proved and probable reserves, contingent
resources and respective future production profiles.
Based on the management assessment the recoverable amount was
determined by the fair value less costs of disposal (FVLCD) of the CGU, which
was higher than its value-in-use. FVLCD was based on the discounted cash flow
model as no recent third-party transactions existed on which a reliable market-
based fair value could be established.
The discounted cash flow model takes into consideration cash flows, which are
expected to arise until 2032, i.e. during the licence term of the Chinarevskoye
field, and is considered a level 3 valuation under the fair value hierarchy. The
period exceeding five years is believed to be appropriate based on the proved
and probable reserves audited by independent engineers. The model also takes
into account risked-value cash flows from contingent resources on the basis a
market participant would place value on these resources.
The key assumptions used in the Group’s discounted cash flow model reflecting
past experience and taking into account external factors are subject to periodic
review. These assumptions are:
• Oil prices (in real terms): US$75/bbl for 2023, US$73/bbl for 2024 and
US$65/bbl throughout 2025-2032 (2021: US$72.3/bbl for 2022, US$67.6/bbl
for 2023, US$67.3/bbl for 2024, US$67.2/bbl for 2025, and US$65/bbl
throughout 2026-2032);
• Proved and probable hydrocarbon reserves confirmed by independent
reserve engineers;
• Contingent resources as confirmed by independent reserve engineers split
into risk categories for valuation purposes;
• Production profiles based on Group’s internal estimates confirmed by
independent reserve engineers;
• All cash flows are projected on the basis of stable prices, i.e. inflation/growth
rates are ignored;
• Cost profiles for the development of the fields and subsequent operating
costs consistent with reserves estimates and production profiles; and
• Gas treatment unit (GTU) spare capacity utilization – risk-weighted option
value from processing under the contract with Ural Oil & Gas LLP;
discount rate of 16.5% (2021: 8.5% and 12.5%, respectively).
The impairment testing carried out by the Group as of 31 December 2022 has
resulted in the recoverable amount approximating the carrying amount of the
Group’s property, plant and equipment as of 31 December 2022. Hence no
impairment charge or reversal was recognised.
The impairment testing carried out by the Group as of 31 December 2021 has
resulted in the recoverable amount exceeding the carrying amount of the
Group’s property, plant and equipment as of 31 December 2021. This has
primarily resulted from the upward revision of the product price assumptions,
as described above. Hence, the Group recognised a reversal of the previously
recognised impairment in the amount of US$74,186 thousand in 2021.
The impairment reversal as at 31 December 2021 and charge as at
31 December 2021 has been allocated as follows:
In thousands of US Dollars
31 December
2021
Working oil and gas assets
Construction in progress
Other property, plant and equipment
Total impairment reversal / (charge)
63,118
9,420
1,648
74,186
As at 31 December 2022 the recoverable amount of property, plant and
equipment was approximate to its carrying value (31 December 2021:
US$320,125 thousand).
More detailed information on carrying values of oil and gas properties and
related depreciation, depletion, amortisation and impairment are shown in
Note 4.
The following table summarizes sensitivity of the recoverable amount and
respective potential impairment charges that would result from changes in the
key assumptions:
Key assumption
Oil price decrease by
Reserves downgrade by
Post-tax discount rate increase by
Operating costs increase by
Change
$10/bbl
10.0%
4.0%
10.0%
39,037
50,418
41,926
21,280
Sensitivity (US$)
On the other hand, certain positive development like successful mitigation of
reservoir risks in the future and respective changes in the drilling plans and
results, with the relevant increase in 2P reserves, or increase in utilisation of the
Group’s processing facilities, could have the effect of reversing the impairment.
Any reversal would be limited so that the carrying amount of the CGU does not
exceed the lower of its recoverable amount, or the carrying amount that would
have been determined, net of depreciation, had no impairment charge been
recognised for the CGU in prior years.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 145
12
Nostrum Oil & Gas PLC
Financial report
Consolidated financial statements
Consolidated financial statements
For the year ended 31 December 2022
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements (continued)
Leases
The Group applies a single recognition and
measurement approach for all leases, except for
short-term leases and leases of low-value assets.
The Group recognises lease liabilities to make lease
payments and right-of-use assets representing the
right to use the underlying assets.
Right-of-use assets
The Group recognises right-of-use assets at the
commencement date of the lease (i.e., the date the
underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated
depreciation and impairment losses, and adjusted
for any remeasurement of lease liabilities. The cost
of right-of-use assets includes the amount of lease
liabilities recognised, initial direct costs incurred,
and lease payments made at or before the
commencement date less any lease incentives
received. Unless the Group is reasonably certain to
obtain ownership of the leased asset at the end of
the lease term, the recognised right-of-use assets
are depreciated on a straight-line basis over the
shorter of its estimated useful life and the lease
term. Right-of-use assets are subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group
recognises lease liabilities measured at the present
value of lease payments to be made over the lease
term. The lease payments include fixed payments
(including in substance fixed payments) less any
lease incentives receivable, variable lease payments
that depend on an index or a rate, and amounts
BBuussiinneessss ccoommbbiinnaattiioonnss aanndd ggooooddwwiillll
expected to be paid under residual value
guarantees. The lease payments also include the
exercise price of a purchase option reasonably
certain to be exercised by the Group and payments
of penalties for terminating a lease, if the lease term
reflects the Group exercising the option to
terminate.
Variable lease payments that do not depend on an
index or a rate are recognised as expense in the
period on which the event or condition that triggers
the payment occurs.
In calculating the present value of lease payments,
the Group uses the incremental borrowing rate at
the lease commencement date if the interest rate
implicit in the lease is not readily determinable.
After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of
interest and reduced for the lease payments made.
In addition, the carrying amount of lease liabilities is
remeasured if there is a modification, a change in
the lease term, a change in the in-substance fixed
lease payments or a change in the assessment to
purchase the underlying asset.
Separation of lease and non-lease
components
When contracts for a lease (such as like lease of
drilling rigs and rail-tank cars) include various
additional services like personnel cost,
maintenance, drilling related activities, and other
items, the Group splits such non-lease components
and recognises them separately. Where the
additional services are not separately priced, the
consideration paid is allocated based on the relative
stand-alone prices of the lease and non-lease
components.
Distinguishing fixed and variable lease
payment elements
Certain lease contracts include fixed rates for when
the asset is in operation, and various alternative
rates (like “cold-stack rates” for leases of drilling
rigs) for periods where the asset is engaged in
specified activities or idle, but still under contract. In
general, variability in lease payments under these
contracts has its basis in different use and activity
levels, and the variable elements have been
determined to relate to non-lease components only.
Consequently, the lease components of these
contractual payments are considered fixed for the
purposes of IFRS 16.
Short-term leases and leases of low-value
assets
The Group applies the short-term lease recognition
exemption to its short-term leases of machinery and
equipment (i.e., those leases that have a lease term
of 12 months or less from the commencement date
and do not contain a purchase option). It also
applies the lease of low-value assets recognition
exemption to leases of office equipment that are
considered of low value (i.e., below US$ 5,000).
Lease payments on short-term leases and leases of
low-value assets are recognised as expense on a
straight-line basis over the lease term.
Business combinations are accounted for using the
acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration
transferred, measured at acquisition date fair value
and the amount of any non-controlling interest
(“NCI”) in the acquiree. For each business
combination, the Group elects whether to measure
NCI in the acquiree at fair value or at the
proportionate share of the acquiree’s identifiable
net assets. Acquisition related costs are expensed as
incurred and included in administrative expenses.
When the Group acquires a business, it assesses the
assets and liabilities assumed for appropriate
classification and designation in accordance with the
contractual terms, economic circumstances and
pertinent conditions as at the acquisition date. This
includes the separation of embedded derivatives in
host contracts by the acquiree. Those acquired
petroleum reserves and resources that can be
reliably measured are recognised separately in the
assessment of fair values on acquisition. Other
potential reserves, resources and rights, for which
fair values cannot be reliably measured, are not
recognised separately, but instead are included in
goodwill.
Goodwill is initially measured at cost, being the
excess of the aggregate of the consideration
transferred and the amount recognised for NCI over
the fair value of the identifiable net assets acquired
and liabilities assumed. If the fair value of the
identifiable net assets acquired is in excess of the
aggregate consideration transferred (bargain
purchase), before recognising a gain, the Group
reassesses whether it has correctly identified all of
the assets acquired and all of the liabilities assumed
and reviews the procedures used to measure the
amounts to be recognised at the acquisition date. If
the reassessment still results in an excess of the fair
value of net assets acquired over the aggregate
consideration transferred, then the gain is
recognised in the statement of profit or loss and
other comprehensive income.
After initial recognition, goodwill is measured at cost
less any accumulated impairment losses. For the
purpose of impairment testing, goodwill acquired in
a business combination is, from the acquisition date,
allocated to each of the Group’s CGUs that are
expected to benefit from the combination,
irrespective of whether other assets or liabilities of
the acquiree are assigned to those units.
Where goodwill forms part of a Cash Generating
Unit (“CGU”) and part of the operation in that unit is
disposed of, the goodwill associated with the
disposed operation is included in the carrying
amount of the operation when determining the gain
or loss on disposal. Goodwill disposed of in these
circumstances is measured based on the relative
values of the disposed operation and the portion of
the CGU retained.
146 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
13 Nostrum Oil & Gas PLC
Notes to the consolidated financial statements (continued)
Consolidated financial statements
For the year ended 31 December 2022
returns with respect to situations in which
applicable tax regulations are subject to
interpretation and establishes provisions where
appropriate.
Deferred income tax
the deferred taxes relate to the same taxable entity
and the same taxation authority.
For more detailed information in current and
deferred income tax disclosure as at 31 December
2022 and 2021, please see Note 26.
TTaaxxaattiioonn
Uncertainties exist with respect to the
interpretation of complex tax regulations, changes
in tax laws, and the amount and timing of future
taxable income. Given the wide range of
international business relationships and the long-
term nature and complexity of existing contractual
agreements, differences arising between the actual
results and the assumptions made, or future
changes to such assumptions, could necessitate
future adjustments to tax bases of income and
expense already recorded. The Group establishes
provisions, based on reasonable estimates, for
possible consequences of audits by the tax
authorities of the respective counties in which it
operates. The amount of such provisions is based on
various factors, such as experience of previous tax
audits and differing interpretations of tax
regulations by the Group and the responsible tax
authority. Such differences in interpretation may
arise for a wide variety of issues depending on the
conditions prevailing in the respective domicile of
the Group companies.
Current income tax
Current income tax assets and liabilities are
measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax
rates and tax laws used to compute the amount are
those that are enacted or substantively enacted at
the reporting date in the countries where the Group
operates and generates taxable income. The tax
rates and tax laws used to compute the amount are
those that apply to the relevant taxable income.
Current income tax relating to items recognised
directly in equity is recognised in equity and not in
the statement of profit or loss. Management
periodically evaluates positions taken in the tax
FFoorreeiiggnn ccuurrrreennccyy ttrraannssllaattiioonn
Deferred tax assets and liabilities are calculated in
respect of temporary differences using the liability
method. Deferred income taxes are provided for all
temporary differences arising between the tax
bases of assets and liabilities and their carrying
values for financial reporting purposes, except
where the deferred income tax arises from the
initial recognition of goodwill or of an asset or
liability in a transaction that is not a business
combination and, at the time of the transaction,
affects neither the accounting profit nor taxable
profit or loss.
A deferred tax asset is recorded only to the extent
that it is probable that taxable profit will be
available against which the deductible temporary
differences can be utilised. Deferred tax assets and
liabilities are measured at tax rates that are
expected to apply to the period when the asset is
realised or the liability is settled, based on tax rates
that have been enacted or substantively enacted at
the reporting date.
Deferred income tax is provided on temporary
differences arising on investments in subsidiaries,
except where the timing of the reversal of the
temporary difference can be controlled and it is
probable that the temporary difference will not
reverse in the foreseeable future.
Deferred tax assets and deferred tax liabilities are
offset if a legally enforceable right exists to set off
current tax assets against current tax liabilities and
The functional currency is the currency of the
primary economic environment in which an entity
operates and is normally the currency in which the
entity primarily generates and expends cash.
Transactions in foreign currencies are initially
recorded by the Group’s subsidiaries at their
respective functional currency spot rates at the date
the transaction first qualifies for recognition.
The functional currency of the Company is the
United States dollar (the “US dollar” or “US$”). The
functional currencies of the Group’s subsidiaries are
as follows:
Monetary assets and liabilities denominated in
foreign currencies are translated at the functional
currency spot rates of exchange at the reporting
date. All differences are taken to the profit or loss.
Functional
currency
Company
Nostrum Associated Investments LLP Tenge
Nostrum Oil & Gas Coöperatief U.A.
Nostrum Oil & Gas BV
Nostrum Oil & Gas Finance BV
Nostrum Oil & Gas Holding Ltd
Nostrum Oil & Gas UK Ltd.
Nostrum Services Central Asia LLP
Nostrum Services N.V.
Zhaikmunai LLP
US dollar
US dollar
US dollar
US dollar
British Pound
Tenge
Euro
US dollar
Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated
using the exchange rates as at the dates of the initial
transactions. Non-monetary items measured at fair
value in a foreign currency are translated using the
exchange rates at the date when the fair value is
determined.
Significant accounting judgment: taxation
Kazakhstan’s tax legislation and regulations are
subject to ongoing changes and varying
interpretations. Instances of inconsistent opinions
between local, regional and national tax authorities
are not unusual. Because of the uncertainties
associated with Kazakhstan’s tax system, the
ultimate amount of taxes, penalties and interest, if
any, may be in excess of the amount expensed to
date and accrued at 31 December 2022.
The Group is subject to routine tax audits and also a
process whereby tax computations are discussed
and agreed with the tax authorities. Whilst the
ultimate outcome of such tax audits and discussions
cannot be determined with certainty, management
estimates the level of provisions required for taxes
for which it is considered probable will be payable,
based on professional advice and consideration of
the nature of current discussions with the tax
authority.
As at 31 December 2022 management believes that
its interpretation of the relevant legislation is
appropriate and that it is probable that the Group’s
tax position will be sustained. To the extent that
actual outcomes differ from management’s
estimates, income tax charges or credits, and
changes in current and deferred tax assets or
liabilities, may arise in future periods. For more
information, see Note 26.
In the consolidated financial statements, the assets
and liabilities of non-US dollar functional currency
subsidiaries are translated into US dollars at the spot
exchange rate on the balance sheet date. The
results and cash flows of non-US dollar functional
currency subsidiaries are translated into US dollars
using average rates of exchange, and resulting
exchange differences are accumulated foreign
currency translation reserve within equity, and are
reclassified to the profit or loss on the disposal of
the subsidiary. In the consolidated financial
statements, exchange adjustments arising when the
opening net assets and the profits for the year
retained by non-US dollar functional currency
subsidiaries are translated into US dollars are
reported in the other comprehensive income.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 147
14
Nostrum Oil & Gas PLC
Financial report
Consolidated financial statements
Consolidated financial statements
For the year ended 31 December 2022
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements (continued)
BBoorrrroowwiinngg ccoossttss
AAddvvaanncceess ffoorr nnoonn--ccuurrrreenntt aasssseettss
The Group capitalises borrowing costs on qualifying
assets. Assets qualifying for borrowing costs
capitalisation include all assets under construction
that are not being depreciated, depleted, or
amortised, provided that work is in progress at that
time. Qualifying assets mostly include wells and
other operations field infrastructure under
construction. Capitalised borrowing costs are
calculated by applying the capitalisation rate to the
expenditures on qualifying assets. The capitalisation
rate is the weighted average of the borrowing costs
applicable to the Group’s borrowings that are
outstanding during the period. All other borrowing
costs are recognised in the profit or loss in the
period in which they are incurred.
For more detailed information in relation to
capitalisation of borrowing costs, please refer to
Note 4.
Advances paid for capital investments/acquisition of
non-current assets are qualified as advances for
non-current assets regardless of the period of
supplies of relevant assets or the supply of work or
services to close advances. Advances paid for the
purchase of non-current assets are recognised by
the Group as non-current assets and are not
discounted.
For more detailed information in relation to
advances for non-current assets, please refer to
Note 6.
IInnvveennttoorriieess
Inventories are stated at the lower of cost or net
realisable value (“NRV”). Cost of oil, gas condensate
and liquefied petroleum gas (“LPG”) is determined
on the weighted-average method based on the
production cost including the relevant expenses on
depreciation, depletion and impairment and
overhead costs based on production volume. Net
realisable value is the estimated selling price in the
ordinary course of business, less selling expenses.
For more information in relation to the breakdown
of inventories as at 31 December 2022 and 2021,
please see Note 7.
OOtthheerr ccuurrrreenntt lliiaabbiilliittiieess
The Group makes accruals for liabilities related to
the underperformance and/or adjustments of work
programs under subsoil use agreements (SUA) on a
regular basis. When evaluating the adequacy of an
accrual, management bases its estimates on the
latest work program included in the SUA, and
relevant signed supplements and potential future
changes in payment terms (including the currency in
which these liabilities are to be settled).
Future changes in the work programs may require
adjustments to the accrual recorded in the
consolidated financial statements.
PPrroovviissiioonnss aanndd ccoonnttiinnggeenncciieess
Provisions are recognised when the Group has a
present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of
resources embodying economic benefits will be
required to settle the obligation and a reliable
estimate of the amount of the obligation can be
made. Provisions are reviewed by the Group at each
reporting date and adjusted to reflect the current
best estimate. If it is no longer probable that an
outflow of resources embodying economic benefits
will be required to settle the obligation, the
provision is reversed.
The Group classifies as contingent liabilities those
possible obligations that arise from past events and
whose existence will be confirmed only by the
occurrence or non-occurrence of one or more
uncertain future events not wholly within the
control of the enterprise and the present obligations
that arise from past events but are not recognised
because it is not probable that an outflow of
resources embodying economic benefits will be
required to settle the obligation or the amount of
the obligation cannot be measured with sufficient
reliability.
The Group does not recognise contingent liabilities
but discloses contingent liabilities in Note 29, unless
the possibility of an outflow of resources embodying
economic benefits is remote.
Significant accounting judgment: provisions and
contingencies
Provisions and liabilities are recognized in the period
when it becomes probable that there will be a
future outflow of funds resulting from past
operations or events and the amount of cash
outflow can be reliably estimated. The timing of
recognition and quantification of the liability require
the application of judgment to existing facts and
circumstances, which can be subject to change. The
carrying amounts of provisions and liabilities are
reviewed regularly and adjusted to take account of
changing facts and circumstances.
Significant management judgment is required to
evaluate any claims and actions to determine
whether a provision relating to a specific litigation
should be recognized or revised, or a contingent
liability is required to be disclosed, since the
outcome of litigation is difficult to predict.
For more detail on provisions and contingencies,
please refer to Note 29.
DDeeccoommmmiissssiioonniinngg
Provision for decommissioning is recognised in full,
when the Group has an obligation to dismantle and
remove a facility or an item of plant and to restore
the site on which it is located, and when a
reasonable estimate of that provision can be made.
The Group estimates future dismantlement and site
restoration costs for oil and gas properties with
reference to the estimates provided from either
internal or external engineers after taking into
consideration the anticipated method of
dismantlement and the extent of site restoration
required in accordance with current legislation and
industry practice. The amount of the provision is the
present value of the estimated expenditures
expected to be required to settle the obligation at
current year prices discounted at pre-tax rate that
reflects current market assessment of the time
value of money and the risks specific to liability.
The unwinding of the discount related to the
obligation is recorded in finance costs. A
corresponding amount equivalent to the provision is
also recognised as part of the cost of the related oil
and gas properties. This asset is subsequently
depreciated as part of the capital costs of the oil and
gas properties on a unit-of-production basis.
The Group reviews site restoration provisions at
each financial reporting date and adjusts them to
reflect current best estimates in accordance with
IFRIC 1 Changes in Existing Decommissioning,
Restoration and Similar Liabilities.
Changes in the measurement of an existing
decommissioning liability that result from changes
in the estimated timing or amount of the outflow of
resources embodying economic benefits required to
settle the obligation, or changes to the discount
rate:
• are added to, or deducted from, the cost of the
related asset in the current period. If deducted
from the cost of the asset the amount deducted
shall not exceed its carrying amount. If a
decrease in the provision exceeds the carrying
amount of the asset, the excess is recognised
immediately in the profit or loss; and
• if the adjustment results in an addition to the
cost of an asset, the Group considers whether
this is an indication that the new carrying amount
of the asset may not be fully recoverable. If it is
such an indication, the Group tests the asset for
impairment by estimating its recoverable
amount, and accounts for any impairment loss in
accordance with IAS 36.
Movements in the abandonment and site
restoration provision are disclosed in Note 14.
148 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
15 Nostrum Oil & Gas PLC
Consolidated financial statements
For the year ended 31 December 2022
Notes to the consolidated financial statements (continued)
expected end of the subsoil use rights. Therefore,
most decommissioning events are many years in the
future and the precise date of wells abandonment
and site restoration may change with the relative
impact on the cash outflows.
Moreover, actual decommissioning costs can differ
from estimates because of constantly changing
decommissioning technologies as well as changes in
environmental laws and regulations and public
expectations.
Significant estimates and assumptions: provisions
and contingencies
The Group holds provision for the future
decommissioning of oil and gas properties and site
restoration. The estimation of the future
dismantlement and site restoration costs involves
use of significant estimates and assumptions by
management, specifically for determining the timing
of the future cash outflows and discount rate.
Management of the Group believes that the long-
term US Treasury real yield curve rates adjusted for
country risk premium of Kazakhstan provides the
best estimates of applicable real discount rate.
Management made its estimates based on the
assumption that cash flow will take place at the
Any changes in the expected future costs are
reflected in both the provision and the asset.
FFiinnaanncciiaall aasssseettss
Initial recognition and measurement
Subsequent measurement
Financial assets are classified, at initial recognition,
as subsequently measured at amortised cost and
fair value through profit or loss. The Group
determines the classification of its financial assets at
initial recognition.
The classification of financial assets at initial
recognition depends on the financial asset’s
contractual cash flow characteristics and the
Group’s business model for managing them. With
the exception of trade receivables that do not
contain a significant financing component or for
which the Group has applied the practical
expedient, the Group initially measures a financial
asset at its fair value plus, in the case of a financial
asset not at fair value through profit or loss,
transaction costs. Trade receivables that do not
contain a significant financing component or for
which the Group has applied the practical expedient
are measured at the transaction price determined
under IFRS 15.
In order for a financial asset to be classified and
measured at amortised cost or fair value through
OCI, it needs to give rise to cash flows that are
‘solely payments of principal and interest (SPPI)’ on
the principal amount outstanding. This assessment
is referred to as the SPPI test and is performed at an
instrument level.
The Group’s business model for managing financial
assets refers to how it manages its financial assets in
order to generate cash flows. The business model
determines whether cash flows will result from
collecting contractual cash flows, selling the financial
assets, or both.
Purchases or sales of financial assets that require
delivery of assets within a time frame established by
regulation or convention in the market place
(regular way trades) are recognised on the trade
date, i.e., the date that the Group commits to
purchase or sell the asset.
For purposes of subsequent measurement, financial
assets are classified in four categories:
• Financial assets at amortised cost (debt
instruments);
• Financial assets at fair value through OCI with
recycling of cumulative gains and losses (debt
instruments);
• Financial assets designated at fair value through
OCI with no recycling of cumulative gains and
losses upon derecognition;
• Financial assets at fair value through profit or
loss.
Financial assets at amortised cost (debt
instruments)
This category is the most relevant to the Group. The
Group measures financial assets at amortised cost if
both of the following conditions are met:
• The financial asset is held within a business
model with the objective to hold financial assets
in order to collect contractual cash flows, and
• The contractual terms of the financial asset give
rise on specified dates to cash flows that are
solely payments of principal and interest on the
principal amount outstanding.
Financial assets at amortised cost are subsequently
measured using the effective interest (EIR) method
and are subject to impairment. Gains and losses are
recognised in profit or loss when the asset is
derecognised, modified or impaired.
The Group’s financial assets at amortised cost
include cash, long-term and short-term deposits,
trade and other receivables.
Derecognition
A financial asset (or, where applicable, a part of a
financial asset or part of a group of similar financial
assets) is primarily derecognised (i.e., removed from
the Group’s consolidated statement of financial
position) when:
• The rights to receive cash flows from the asset
have expired; or
• The Group has transferred its rights to receive
cash flows from the asset or has assumed an
obligation to pay the received cash flows in full
without material delay to a third party under a
‘pass-through’ arrangement; and either (a) the
Group has transferred substantially all the risks
and rewards of the asset, or (b) the Group has
As a result, there could be significant adjustments to
the provisions established which would affect future
financial results. For more details on abandonment
and site restoration provision please refer to
Note 14.
neither transferred nor retained substantially all
the risks and rewards of the asset, but has
transferred control of the asset.
When the Group has transferred its rights to receive
cash flows from an asset or has entered into a pass-
through arrangement, it evaluates if, and to what
extent, it has retained the risks and rewards of
ownership. When it has neither transferred nor
retained substantially all of the risks and rewards of
the asset, nor transferred control of the asset, the
Group continues to recognise the transferred asset
to the extent of its continuing involvement. In that
case, the Group also recognises an associated
liability. The transferred asset and the associated
liability are measured on a basis that reflects the
rights and obligations that the Group has retained.
Impairment of financial assets
The Group recognises an allowance for expected
credit losses (ECLs) for all debt instruments not held
at fair value through profit or loss. ECLs are based on
the difference between the contractual cash flows
due in accordance with the contract and all the cash
flows that the Group expects to receive, discounted
at an approximation of the original effective interest
rate. The expected cash flows will include cash flows
from the sale of collateral held or other credit
enhancements that are integral to the contractual
terms.
ECLs are recognised in two stages. For credit
exposures for which there has not been a significant
increase in credit risk since initial recognition, ECLs
are provided for credit losses that result from
default events that are possible within the next 12-
months (a 12-month ECL). For those credit
exposures for which there has been a significant
increase in credit risk since initial recognition, a loss
allowance is required for credit losses expected over
the remaining life of the exposure, irrespective of
the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Group
applies a simplified approach in calculating ECLs.
Therefore, the Group does not track changes in
credit risk, but instead recognises a loss allowance
based on lifetime ECLs at each reporting date.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 149
16
Nostrum Oil & Gas PLC
Financial report
Consolidated financial statements
Consolidated financial statements
For the year ended 31 December 2022
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements (continued)
FFiinnaanncciiaall lliiaabbiilliittiieess
Initial recognition, measurement and
derecognition
Financial liabilities are classified, at initial
recognition, as financial liabilities at fair value
through profit or loss, long-term borrowings,
payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair
value and, in the case of long-term borrowings and
payables, net of directly attributable transaction
costs.
The Group’s financial liabilities include trade and
other payables, long-term borrowings, and
derivative financial instruments.
Subsequent measurement
For purposes of subsequent measurement, financial
liabilities are classified in two categories:
• Financial liabilities at fair value through profit or
loss
• Financial liabilities at amortised cost (loans and
borrowings)
Financial liabilities at fair value through profit or
loss
Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and
financial liabilities designated upon initial
recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if
they are incurred for the purpose of repurchasing in
the near term. This category also includes derivative
CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss
Cash and cash equivalents in the statement of
financial position comprise cash at banks and at
hand and short-term deposits with an original
maturity of three months or less at inception.
Restricted cash and cash equivalent balances are
those which meet the definition of cash and cash
equivalents but are not available for use by the
Group and therefore is not considered highly liquid
– for example, cash set aside to cover
decommissioning obligations or as required by the
forbearance agreement.
For the purpose of the consolidated statement of
cash flows, cash and cash equivalents consist of
cash and cash equivalents, as defined above, net of
outstanding bank overdrafts.
For more detailed information in relation to cash
and cash equivalents as at 31 December 2022 and
2021, please see Note 10.
RReevveennuuee rreeccooggnniittiioonn
The Group sells crude oil, gas condensate and LPG
under agreements priced by reference to Platt’s
and/or Argus’ index quotations and adjusted for
freight, insurance and quality differentials where
financial instruments entered into by the Group that
are not designated as hedging instruments in hedge
relationships as defined by IFRS 9. Separated
embedded derivatives are also classified as held for
trading unless they are designated as effective
hedging instruments.
Gains or losses on liabilities held for trading are
recognised in the statement of profit or loss.
Financial liabilities designated upon initial
recognition at fair value through profit or loss are
designated at the initial date of recognition, and
only if the criteria in IFRS 9 are satisfied. The Group
has not designated any financial liability as at fair
value through profit or loss.
Financial liabilities at amortised cost (loans and
borrowings)
This is the category most relevant to the Group.
After initial recognition, interest-bearing borrowings
are subsequently measured at amortised cost using
the EIR method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised as
well as through the EIR amortisation process.
Amortised cost is calculated by taking into account
any discount or premium on acquisition and fees or
costs that are an integral part of the EIR. The EIR
amortisation is included as finance costs in the
statement of profit or loss.
This category generally applies to interest-bearing
borrowings. For more information, refer to Note 13.
applicable. The Group sells gas under agreements
at fixed prices.
Revenue from contracts with customers is
recognised when control of the goods is
transferred to the customer. For sales of crude oil,
gas condensate and LPG, this generally occurs
when the product is physically transferred into a
vessel, pipe, railcar, trucks or other delivery
mechanism; for sales of gas, it is when the product
is physically transferred into a pipe. The Group’s
LPG are sales are mostly on advance payment
basis, while payment terms for gas, oil and
condensate are normally 15-45 days after delivery.
The Group has generally concluded that it is the
principal in its revenue arrangements, because it
typically controls the goods before transferring
them to the customer.
TTrreeaassuurryy sshhaarreess
Own equity instruments that are reacquired
(treasury shares) are recognised at cost and
deducted from equity. No gain or loss is recognised
in profit or loss on the purchase, sale, issue or
cancellation of the Group’s own equity
instruments. Any difference between the carrying
amount and the consideration, if reissued, is
recognised in the share premium. Voting rights
related to treasury shares are nullified for the
150 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
17 Nostrum Oil & Gas PLC
Derecognition
A financial liability is derecognised when the
obligation under the liability is discharged or
cancelled or expires. When an existing financial
liability is replaced by another from the same lender
on substantially different terms, or the terms of an
existing liability are substantially modified, such an
exchange or modification is treated as the
derecognition of the original liability and the
recognition of a new liability. The difference in the
respective carrying amounts is recognised in the
statement of profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and
the net amount reported in the statement of
financial position if, and only if, there is a currently
enforceable legal right to offset the recognised
amounts and there is an intention to settle on a net
basis, or to realise the assets and settle the liabilities
simultaneously.
Derivative financial instruments and hedging
The Group from time to time uses hedging contracts
for oil export sales to cover part of its risks
associated with oil price fluctuations. Such
derivative financial instruments are initially
recognised at fair value on the date on which a
derivative contract is entered into and are
subsequently remeasured at fair value.
Derivatives are carried as assets when the fair value
is positive and as liabilities when the fair value is
negative.
Group and no distributions are accepted in relation
to them. Share options exercised during the
reporting period can be satisfied with treasury
shares.
SShhaarree--bbaasseedd ppaayymmeennttss
The cost of equity-settled transactions is measured
at fair value at the grant date. This fair value is
expensed over the period until vesting with the
recognition of a corresponding equity element,
which is not remeasured subsequently until the
settlement date.
Estimating fair value for share-based payment
transactions requires determination of the most
appropriate valuation model, which is dependent
on the terms and conditions of the grant. This
estimate also requires determination of the most
appropriate inputs to the valuation model
including the expected life of the share option,
volatility and distribution yield and making
assumptions about them.
Notes to the consolidated financial statements (continued)
Consolidated financial statements
For the year ended 31 December 2022
5. Property, plant and equipment
As at 31 December 2022 and 31 December 2021 property, plant and
equipment comprised the following:
In thousands of US Dollars
Oil and gas properties
Other property, plant and equipment
31 December
2022
31 December
2021
268,990
7,033
276,023
313,009
7,116
320,125
OOiill aanndd ggaass pprrooppeerrttiieess
The category “Oil and gas properties” represents mainly wells, oil and gas
treatment facilities, oil transportation and other related assets. The movement
of oil and gas properties for the years ended 31 December 2022 and 2021 was
as follows:
In thousands of US Dollars
Balance at 1 January 2021, net*
Additions
Transfers
Disposals
Disposals depreciation
Depreciation and depletion
charge
Accumulated impairment
transfers
Impairment charge
Balance at 31 December 2021,
net*
Additions
Transfers
Disposals
Disposals depreciation
Depreciation and depletion
charge
Impairment transfer
Balance at 31 December 2022,
net*
As at 31 December 2020
Cost
Accumulated depreciation**
Balance*
As at 31 December 2021
Cost
Working
assets
259,974
992
7,664
(556)
526
(55,453)
Constructio
n in
progress
31,415
7,840
(6,882)
(5,049)
–
–
Total
291,389
8,832
782
(5,605)
526
(55,453)
(4,221)
4,221
–
63,118
9,420
72,538
272,044
40,965
313,009
8
16,544
28,217
(9,220)
16
(51,213)
(28,515)
(742)
–
–
16,552
(298)
(9,962)
16
(51,213)
(24,308)
25,194
886
215,544
53,446
268,990
2,943,678
116,823
3,060,501
(2,683,704)
(85,408)
(2,769,112)
259,974
31,415
291,389
2,951,778
112,732
3,064,510
Accumulated depreciation
(2,679,734)
(71,767)
(2,751,501)
Balance
272,044
40,965
313,009
As at 31 December 2022
Cost
Accumulated depreciation**
Balance*
2,970,783
100,019
3,070,802
(2,755,239)
(46,573)
(2,801,812)
215,544
53,446
268,990
* Balances, net of accumulated depreciation, depletion and impairment
** Accumulated depreciation, depletion and impairment
The category “Construction in progress” is represented by employee
remuneration, materials and fuel used, rig costs, payments made to
contractors, and asset retirement obligation fees directly associated with
development of wells until the drilling of the well is complete and results have
been evaluated.
The depletion rate for oil and gas working assets was 21.73% and 24.71% in
2022 and 2021, respectively. The Group engaged independent petroleum
engineers to perform a reserves audit as at 31 December 2022. Depletion has
been calculated using the unit of production method based on these reserves
estimates.
The change in the discount rate used to determine the abandonment and site
restoration provision (Note 14) in the year ended 31 December 2022 resulted
in the decrease of the oil and gas properties by US$ 9,206 thousand
(31 December 2021: an increase of US$112 thousand).
The Group incurred borrowing costs including amortisation of arrangement
fees. Capitalisation rate and capitalised borrowing costs were as follows as at
31 December 2022 and 31 December 2021:
In thousands of US Dollars
Borrowing costs including amortisation of
arrangement fee
Capitalisation rate
Capitalised borrowing costs
31 December
2022
31 December
2021
106,915
103,334
8.44%
1,504
8.44%
219
Other property, plant and equipment
Machi-
nery &
equip-
ment
Buildings
Vehicles
Others
Total
1,057
1,888
40
3,386
6,371
–
21
–
297
(10)
(211)
8
(66)
1,648
2,658
–
265
(25)
26
(257)
(738)
166
(49)
–
2,091
313
436
(188)
188
(129)
(105)
1,929
2,606
–
–
–
–
(3)
–
37
–
–
(86)
85
(3)
–
33
457
(1,100)
(495)
208
(126)
–
2,330
773
(403)
(152)
132
(233)
18
2,465
457
(782)
(716)
382
(244)
1,648
7,116
1,086
298
(451)
431
(622)
(825)
7,033
49,247
21,670
1,591
18,930
91,438
(48,190)
19,782)
(15,544)
(85,067)
1,057
1,888
(1,551)
40
3,386
6,371
49,258
21,756
1,591
17,792
90,397
(46,763)
(19,611)
(15,363)
(83,281)
2,495
2,145
(1,544)
47
2,429
7,116
49,498
22,317
1,505
18,010
91,330
(47,569)
(19,711)
(15,545)
(84,297)
1,929
2,606
(1,472)
33
2,465
7,033
In thousands of US
Dollars
Balance at 1 January
2021
Additions
Transfers
Disposals
Disposals depreciation
Depreciation
Impairment reversal
Balance at 31
December 2021
Additions
Transfers
Disposals
Disposals depreciation
Depreciation
Impairment transfer
Balance at 31
December 2022
As at 31 December
2020
Cost
Accumulated
depreciation**
Balance*
As at 31 December
2021
Cost
Accumulated
depreciation**
Balance*
As at 31 December
2022
Cost
Accumulated
depreciation**
Balance*
* Balances, net of accumulated depreciation, amortisation and impairment
** Accumulated depreciation, amortisation and impairment
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 151
18
Nostrum Oil & Gas PLC
Financial report
Consolidated financial statements
Consolidated financial statements
For the year ended 31 December 2022
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements (continued)
6. Advances for non-current assets
10. Cash and cash equivalents
As at 31 December 2022 and 31 December 2021 advances for non-current
assets comprised the following:
As at 31 December 2022 and 31 December 2021 cash and cash equivalents
comprised the following:
In thousands of US Dollars
Current accounts in US Dollars
Current accounts in Tenge
Current accounts in Euro
Current accounts in other currencies
Petty cash
31 December
2022
31 December
2021
217,026
13,827
1,824
901
6
233,584
157,981
5,736
1,020
500
9
165,246
In addition to the cash and cash equivalents in the table above, as at
31 December 2022 the Group had restricted cash accounts as a liquidation
fund deposit of US$8,220 thousand with Halyk bank (31 December 2021:
US$47 thousand with Sberbank in Kazakhstan and US$7,719 thousand with
Halyk bank), which are kept as required by the subsoil use rights for
abandonment and site restoration liabilities of the Group.
The Group transferred funds to a secured cash account opened for the benefit
of the holders of the Group’s Notes under the terms of the FBAs (Note 1). As at
31 December 2022 the balance of the secured cash account was US$22,802
thousand (31 December 2021: US$22,672 thousand). The Company has the
ability to make certain withdrawals from the account if its liquidity falls below
an agreed level.
11. Share capital and reserves
As at 31 December 2022 the ownership interests in the Parent consists of
188,182,958 issued and fully paid ordinary shares, which are listed on the
London Stock Exchange. The ordinary shares have a nominal value of GBP 0.01.
There were no movements in the number of shares during the year ended 31
December 2022 and year ended 31 December 2021 and comprised of the
following:
In circulation
Treasury capital
Number of shares
185,234,079
2,948,879
188,182,958
Treasury shares were issued to support the Group’s obligations to employees
under the Employee Share Option Plan (“ESOP”) and the Long-Term Incentive
Plan (“LTIP”) and are held by Intertrust Employee Benefit Trustee Limited as
trustee for the Nostrum Oil & Gas Benefit Trust. In the case of the ESOP, upon
request from employees to exercise options, the trustee would sell shares on
the market and settle respective obligations under the ESOP. In the case of
share-settled LTIP awards, the trustee would transfer shares to the relevant
LTIP award holder (although no LTIP awards are currently exercisable). The
Nostrum Oil & Gas Benefit Trust constitutes a special purpose entity under IFRS
and therefore, the shares held in the trust are recorded as treasury capital of
the Company.
In thousands of US Dollars
Advances for construction materials
Advances for construction services
Advances for other non-current assets
31 December
2022
1,090
582
442
2,114
31 December
2021
1,059
359
–
1,418
7. Inventories
As at 31 December 2022 and 31 December 2021 inventories comprised the
following:
In thousands of US Dollars
Spare parts and other inventories
Gas condensate
Crude oil
LPG
Dry gas
Sulphur
31 December
2022
31 December
2021
26,720
1,905
1,182
335
46
8
30,196
26,720
4,265
306
57
32
7
31,387
As at 31 December 2022 and 31 December 2021 inventories are carried at
cost.
8. Prepayments and other current assets
As at 31 December 2022 and 31 December 2021 prepayments and other
current assets comprised the following:
In thousands of US Dollars
Advances paid
Other taxes receivable
VAT receivable
Other
31 December
2022
31 December
2021
2,959
761
744
224
4,688
2,370
1,668
4,882
815
9,735
Advances paid consist primarily of prepayments made to service providers. As
at 31 December 2022 the impaired VAT receivable amounted to US$5,596
thousand and the impaired advances paid amounted to US$169 thousand (31
December 2021: impaired advances paid: US$41 thousand).
There were no other movements in the provision for impairment of advances
paid during the year ended 31 December 2022 and the year ended
31 December 2021.
9. Trade receivables
As at 31 December 2022 and 31 December 2021 trade receivables were not
interest-bearing and were mainly denominated in US dollars and Tenge. Their
average collection period is not more than 45 days.
As at 31 December 2022 and 31 December 2021 there were past due but not
impaired trade receivables. Based on the assessments made, the Group
concluded that no provision for expected credit losses should be recognized as
at 31 December 2022 and 31 December 2021.
152 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
19 Nostrum Oil & Gas PLC
Notes to the consolidated financial statements (continued)
Consolidated financial statements
For the year ended 31 December 2022
The movements in the Group’s other reserves is presented as follows:
In thousands of US Dollars
As at 1 January 2021
Currency translation difference
Share based payments under
LTIP
As at 31 December 2021
Currency translation difference
Share based payments under
LTIP
As at 31 December 2022
Group
reorgani-
sation
reserve
255,459
–
–
255,459
–
–
Foreign
currency
translatio
n reserves
Share-
option
reserves
Total
3,305
(203)
–
3,102
(490)
–
4,071
262,835
–
(247)
(203)
(247)
3,824
262,385
–
(38)
(490)
(38)
255,459
2,612
3,786
261,857
Group reorganisation reserve in the amount of US$255,459 thousand
represents the difference between the partnership capital, treasury capital and
additional paid-in capital of Nostrum Oil & Gas LP and the share capital of
Nostrum Oil & Gas PLC, that arose during the reorganisation of the Group in
2014. Share-option reserves include amounts related to sale of treasury shares
under ESOP as well as share-based payments under LTIP.
DDiissttrriibbuuttiioonnss
There were no distributions made during the year ended 31 December 2022
and year ended 31 December 2021.
KKaazzaakkhhssttaann ssttoocckk eexxcchhaannggee ddiisscclloossuurree rreeqquuiirreemmeenntt
18 April 2014) a requirement for disclosure of “the book value per share” (total
assets less intangible assets, total liabilities and preferred stock divided by the
number of outstanding shares as at the reporting date). As at 31 December
2022 the book value per share amounted to US$4.76 negative (31 December
2021: US$4.44 negative).
12. Earnings per share
As at 31 December 2022 the ownership interests in the Parent consists of
188,182,958 issued and fully paid ordinary shares, which are listed on the
London Stock Exchange. The ordinary shares have a nominal value of GB£0.01.
For the purpose of calculations of earnings per share the number of shares has
been adjusted as required under IAS 33.64 for the effect of the sub-division
and consolidation of the ordinary share capital occurred after close of business
on 9 February 2023 (Note 31).
Loss for the period attributable to the
shareholders (in thousands of US dollars)
Weighted average number of shares
Basic and diluted earnings per share (in US
dollars)
For the year ended 31
December
2022
(116,445)
2021
(26,118)
169,086,713
(0.69)
169,086,713
(0.15)
13. Notes payable and accumulated interest
Notes payable and accumulated interest are comprised of the following as at
31 December 2022 and 31 December 2021:
31 December
2022
31 December
2021
22002222 NNootteess
On 25 July 2017, a newly incorporated entity, Nostrum Oil & Gas Finance B.V.
(the "2022 Issuer") issued US$725,000 thousand notes with maturity on 25 July
2022. The 2022 Notes bear interest at a rate of 8.00% per year, payable on
25 January and 25 July of each year.
The 2022 Notes are jointly and severally guaranteed (the "2022 Guarantees")
on a senior basis by Nostrum Oil & Gas PLC, Nostrum Oil & Gas Coöperatief
U.A., Zhaikmunai LLP and Nostrum Oil & Gas B.V. (the "2022 Guarantors"). The
2022 Notes are the 2022 Issuer's and the 2022 Guarantors’ senior obligations
and rank equally with all of the 2022 Issuer's and the 2022 Guarantors’ other
senior indebtedness.
The issue of the 2022 Notes was used primarily to fund the refinancing of part
of the Group’s Notes issued in 2012 and 2014.
22002255 NNootteess
On 16 February 2018, Nostrum Oil & Gas Finance B.V. (the "2025 Issuer")
issued US$400,000 thousand notes with maturity on 16 February 2025. The
2025 Notes bear interest at a rate of 7.00% per year, payable on 16 August and
16 February of each year.
The 2025 Notes are jointly and severally guaranteed (the "2025 Guarantees")
on a senior basis by Nostrum Oil & Gas PLC, Nostrum Oil & Gas Coöperatief
U.A., Zhaikmunai LLP and Nostrum Oil & Gas B.V. (the "2025 Guarantors"). The
2025 Notes are the 2025 Issuer's and the 2025 Guarantors’ senior obligations
and rank equally with all of the 2025 Issuer's and the 2025 Guarantors’ other
senior indebtedness.
The issue of the 2025 Notes was used primarily to fund the refinancing of the
remaining Group’s Notes issued in 2012 and 2014.
RReeccllaassssiiffiiccaattiioonn ttoo ccuurrrreenntt lliiaabbiilliittiieess
The Group has not made coupon payments due under the Existing Notes since
July 2020, which was an event of default under the terms of the indentures
governing 2022 Notes and 2025 Notes. Considering these facts and
circumstances, starting from Q3 2020 the Group reclassified the carrying
amounts of the 2022 Notes and 2025 Notes into current liabilities and since
then has been presenting them as the current portion of long-term borrowings
in the statement of financial position.
The Company continued active discussions with the financial and legal advisers
to the AHG and signed the FBAs, which prohibited the AHG from exercising
certain rights and remedies under the Existing Note indentures. In December
2021 the Group entered into the First LUA and agreed terms of a restructuring
with noteholders. More detailed information related to the restructuring
scheme is disclosed in the Note 1.
CCoovveennaannttss ccoonnttaaiinneedd iinn tthhee 22002222 NNootteess aanndd 22002255 NNootteess
The 2022 and the 2025 Notes contain consistent covenants that, among other
things, restrict, subject to certain exceptions and qualifications, the ability of
the 2022 Issuer, the 2025 Issuer, the 2022 Guarantors, the 2025 Guarantors
and certain other members of the Group to:
• incur or guarantee additional indebtedness and issue certain preferred
stock;
• create or incur certain liens;
• make certain payments, including dividends or other distributions;
• prepay or redeem subordinated debt or equity;
• make certain investments;
• create encumbrances or restrictions on the payment of dividends or other
distributions, loans or advances to and on the transfer of assets to the
Parent or any of its restricted subsidiaries;
In thousands of US Dollars
Notes issued in 2017 and maturing in
2022
Notes issued in 2018 and maturing in
2025
Accrued interest
Less amounts due within 12 months
725,000
720,655
• sell, lease or transfer certain assets including shares of restricted
396,320
395,022
275,197
1,396,517
(1,396,517)
–
173,926
1,289,603
(1,289,603)
–
subsidiaries;
• engage in certain transactions with affiliates;
• enter into unrelated businesses; and
• consolidate or merge with other entities.
In addition, the indentures impose certain requirements as to future subsidiary
guarantors, and certain customary information covenants and events of
default.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 153
20
Nostrum Oil & Gas PLC
Financial report
Consolidated financial statements
Consolidated financial statements
For the year ended 31 December 2022
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements (continued)
CChhaannggeess iinn lliiaabbiilliittiieess aarriissiinngg ffrroomm ffiinnaanncciinngg aaccttiivviittiieess
In thousands of US Dollars
2022
Notes payable and accumulated interest
2021
Notes payable and accumulated interest
Long-term lease liabilities
Current portion of lease liability
1 January
Cash
outflows
Borrowing costs
including
amortisation of
arrangement fees
Finance
charges
under
leases
Modification
and
termination
of leases
Reclassificati
on from non-
current to
current
31 December
1,289,603
–
106,914
–
–
–
1,396,517
1,186,269
35
2,790
–
–
(1,732)
103,334
–
–
–
–
157
–
–
(1,250)
–
(35)
35
1,289,603
–
–
14. Abandonment and site restoration provision
The summary of changes in abandonment and site restoration provision during
years ended 31 December 2022 and 2021 is as follows:
The summary of the changes in the amounts due to Government of
Kazakhstan during the years ended 31 December 2022 and 31 December 2021
is as follows:
2022
2021
In thousands of US Dollars
2022
2021
In thousands of US Dollars
Provision as at 1 January
Unwinding of discount
Additional provision
Provision disposed
Change in estimates
Provision as at 31 December
29,008
271
–
–
(9,206)
20,073
28,936
276
85
(401)
112
29,008
Management made its estimate based on the assumption that cash flow will
take place at the expected end of the subsoil use rights in 2032. There are
uncertainties in estimation of future costs as Kazakh laws and regulations
concerning site restoration evolve.
The real discount rate used to determine the abandonment and site
restoration provision at 31 December 2022 was 4.87% (31 December 2021:
0.92%).
The change in the discount rate during the year ended 31 December 2022
resulted in the decrease of the abandonment and site restoration provision by
US$9.206 thousand (31 December 2021: US$112 thousand).
15. Due to Government of Kazakhstan
The amount due to Government of the Republic of Kazakhstan has been
recorded to reflect the present value of a liability in relation to the
expenditures made by the Government in the time period prior to signing the
Contract that were related to exploration of the Contract territory and the
construction of surface facilities in fields discovered therein and that are
reimbursable by the Group to the Government during the production period.
The total amount of liability due to Government as stipulated by the Contract is
US$ 25,000 thousand.
Repayment of this liability commenced in 2008 with the first payment of
US$1,030 thousand in March 2008 and with further payments by equal
quarterly instalments of US$258 thousand until 26 May 2031. The liability was
discounted at 13%.
154 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
21 Nostrum Oil & Gas PLC
Balance as at 1 January
Unwinding of discount
Paid during the year
Balanсe as at 31 December
Less: current portion
Non-current portion
16. Trade payables
5,594
470
(1,031)
5,033
(1,031)
4,002
5,863
762
(1,031)
5,594
(1,031)
4,563
Trade payables comprise the following as at 31 December 2022 and
31 December 2021:
In thousands of US Dollars
Tenge denominated trade payables
US Dollar denominated trade payables
Euro denominated trade payables
Russian Rouble denominated trade
payables
Trade payables denominated in other
currencies
31 December
2022
31 December
2021
6,942
1,543
1,160
141
5,433
1,397
464
122
143
983
9,929
8,399
17. Other current liabilities
Other current liabilities comprise the following as at 31 December 2022 and 31
December 2021:
In thousands of US Dollars
Other accruals
Taxes payable, including corporate
income tax
Training obligations accrual
Due to employees
Other current liabilities
31 December
2022
23,481
15,437
31 December
2021
3,318
6,709
6,441
2,724
757
48,840
8,684
2,479
686
21,876
Notes to the consolidated financial statements (continued)
Consolidated financial statements
For the year ended 31 December 2022
18. Revenue
21. Selling and transportation expenses
In thousands of US Dollars
Revenue from oil and gas condensate
sales
Revenue from gas and LPG sales
Revenue from sulphur sales
For the year ended 31 December
2022
2021
158,107
150,290
41,578
32
199,717
44,978
17
195,285
The pricing for all of the Group’s crude oil, condensate and LPG is, directly or
indirectly, related to the price of Brent crude oil. The average Brent crude oil
price the year ended 31 December 2022 was US$99.0/bbl (year ended 31
December 2021: US$71.0/bbl).
In thousands of US Dollars
Transportation costs
Loading and storage costs
Marketing services
Depreciation of right-of-use assets
Payroll and related taxes
Other
For the year ended 31 December
2022
2021
8,473
8,094
–
–
1,375
2,008
19,950
9,545
6,869
2,167
1,556
1,520
1,409
23,066
The operations of the Group are located in only one geographic location,
Kazakhstan.
22. Taxes other than income tax
During the year ended 31 December 2022 the revenue from sales to three
major customers amounted to US$151,302 thousand, US$15,707 thousand
and US$6,805 thousand respectively (year ended 31 December 2021:
US$143,054 thousand, US$18,207 thousand and US$8,704 thousand
respectively). The Group’s exports were mainly represented by deliveries to
the Baltic ports of Russia.
19. Cost of sales
In thousands of US Dollars
2022
2021
For the year ended 31 December
Export customs duty
Royalties
Government profit share
Other taxes
10,014
8,116
1,692
8
19,830
7,655
7,786
1,628
14
17,083
In thousands of US Dollars
Depreciation, depletion and
amortisation
Payroll and related taxes
Repair, maintenance and other services
Materials and supplies
Well repair and maintenance costs
Transportation services
Change in stock
Environmental levies
Other
For the year ended 31 December
2022
2021
51,682
14,179
6,662
4,333
3,122
2,285
1,191
79
520
84,053
55,569
14,603
6,610
4,561
2,726
2,559
403
201
617
87,849
20. General and administrative expenses
In thousands of US Dollars
Payroll and related taxes
Professional services
Insurance fees
Business travel
Materials and supplies
Communication
Short-term leases
Depreciation and amortisation
Bank charges
Other
For the year ended 31 December
2022
2021
6,634
3,556
577
282
182
180
172
153
47
293
12,076
6,123
4,113
601
204
144
182
290
170
71
226
12,124
Export customs duty is comprised of customs duties for export of crude oil and
customs fees for services such as processing of declarations and temporary
warehousing.
23. Finance costs
In thousands of US Dollars
2022
2021
For the year ended 31 December
Interest expense on borrowings
Other finance costs
Unwinding of discount on amounts
due to Government of Kazakhstan
Unwinding of discount on lease
liability
Unwinding of discount on
abandonment and site restoration
provision
105,411
16,986
470
–
271
103,115
12,386
762
157
276
123,138
116,696
Other finance costs mainly represent advisor fees in the amount of US$16,875
thousand (year ended 31 December 2021: US$2,941 thousands of bondholder
consent fees and US$5,875 thousand advisor fees) incurred by the Group in
relation to the FBAs, Lock-up Agreement and process of restructuring of the
Group’s outstanding bonds. For more details on the restructuring see Note 1.
Until the Existing Notes are successfully restructured, the Group will continue
to accrue interest on the Existing Notes.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 155
22
Nostrum Oil & Gas PLC
Financial report
Consolidated financial statements
Consolidated financial statements
For the year ended 31 December 2022
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements (continued)
Employees (including senior executives and executive directors) of members of
the Group may receive an award, which is a "nominal cost option" over a
specified number of ordinary shares in the capital of the Company. The option
has an exercise price of 1p per share (but the Company has the discretion to
waive this prior to exercise). In addition, under the Rules of the LTIP the
Company has discretion to settle awards other than by transfer of shares such
as by way of cash settlement. Generally, the awards are classified as equity-
settled transactions. The share options are treated as equity-settled since there
are no legal limitations expected on issue of shares for these upon vesting, the
Group has a choice of settlement and the intention is to settle them in equity.
However, in certain jurisdictions due to regulatory requirements the Company
may not be able to settle the awards other than by transfer of cash, in which
case the awards are classified as cash-settled transactions, and accounted for
similar to SARs.
25. Other income and other expenses
For the year ended 31 December 2022 and 2021 other income comprise the
following:
For the year ended 31 December
In thousands of US Dollars
2022
2021
Reversals of training accruals
Reversals of other accruals
Currency conversion
Catering and accommodation
Compensation for damages
Disposal of exploration assets
Insurance compensation
Other
2,214
3,561
360
212
–
–
–
459
6,806
1,490
1,244
78
–
1,549
749
162
614
5,886
For the year ended 31 December 2022 and 2021 other expenses comprise the
following:
In thousands of US Dollars
Other taxes and penalties
Sponsorship
Currency conversion
Training accruals
Social program
Write-off of new development costs
Other
For the year ended 31 December
2022
2021
27,149
903
581
428
311
–
449
29,821
2,613
26
135
505
312
9,055
572
13,218
Other taxes and penalties mainly include additional taxes and penalties
assessed in relation to prior periods considering new information, which was
not available at the time of preparation of respective financial information, and
relevant interpretations by the management.
24. Employees’ remuneration
The average monthly number of employees (including Executive Directors)
employed was as follows:
In thousands of US Dollars
Management and administrative
Technical and operational
Their aggregate remuneration comprised:
In thousands of US Dollars
Wages and salaries
Social security costs
Share-based payments
For the year ended 31 December
2022
2021
137
417
554
136
405
541
For the year ended 31 December
2022
2021
19,057
3,393
(38)
22,412
18,740
3,563
(247)
22,056
The amount ultimately remaining in the income statement was US$22,150
thousand (2021: US$21,199 thousand).
KKeeyy mmaannaaggeemmeenntt ppeerrssoonnnneell rreemmuunneerraattiioonn
In thousands of US Dollars
Short-term employee benefits
Share-based payments
DDiirreeccttoorrss’’ rreemmuunneerraattiioonn
In thousands of US Dollars
Short-term employee benefits
Share-based payments
For the year ended 31 December
2022
2021
4,033
–
4,033
4,042
–
4,042
For the year ended 31 December
2022
2021
1,960
–
1,960
1,877
–
1,877
As at 31 December 2022 the amount payable to key management personnel
was US$611 thousand (31 December 2021: US$307 thousand).
EEmmppllooyyeeee sshhaarree ooppttiioonn ppllaann ((EESSOOPP))
The Group’s Phantom Option Plan was adopted by the board of directors of
the Company on 20 June 2014 to allow for the continuation of the option plan
previously maintained by Nostrum Oil & Gas LP. The rights and obligations in
relation to this option plan were transferred to Nostrum Oil & Gas PLC from
Nostrum Oil & Gas LP following the reorganisation.
Employees (including senior executives and executive directors) of members of
the Group received remuneration in the form of equity-based payment
transactions, whereby employees render services as consideration for share
appreciation rights, which can only be settled in cash (“cash-settled
transactions”).
22001177 LLoonngg--tteerrmm iinncceennttiivvee ppllaann
In 2017 the Group started operating a Long-term incentive plan (“the LTIP”),
that was approved by the shareholders of the Company on 26 June 2017 and
adopted by the board of directors of the Company on 24 August 2017. The LTIP
is a discretionary benefit offered by the Company for the benefit of selected
employees. Its main purpose is to increase the interest of the employees in the
Company's long-term business goals and performance through share
ownership. The LTIP is an incentive for the employees' future performance and
commitment to the goals of the Company. The remuneration committee of
the board of the Company has the right to decide, in its sole discretion,
whether or not further awards will be granted in the future and to which
employees those awards will be granted.
156 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
23 Nostrum Oil & Gas PLC
Consolidated financial statements
For the year ended 31 December 2022
Notes to the consolidated financial statements (continued)
For the year ended 31 December
2022
2021
Deferred tax liability is calculated by applying the Kazakhstani statutory tax rate
applicable to the Chinarevskoye subsoil use rights to the temporary differences
between the tax amounts and the amounts reported in the consolidated
financial statements and are comprised of the following:
15,827
560
5,777
12,500
34,664
30,279
58
751
632
In thousands of US Dollars
Deferred tax asset
Accounts payable and provisions
Deferred tax liability
31,720
Property, plant and equipment
Inventories
Long-term borrowings
Net deferred tax liability
31 December
2022
31 December
2021
2,877
4,189
(49,763)
(3,131)
118
(49,899)
(33,630)
(3,183)
(1,448)
(34,072)
26. Income tax
In thousands of US Dollars
Deferred income tax expense
Withholding tax
Corporate income tax expense
Adjustment in respect of the current
income tax for the prior periods
The Group’s profits are assessed for income taxes mainly in the Republic of
Kazakhstan. A reconciliation between tax expense and the product of
accounting profit multiplied by the Kazakhstani tax rate applicable to the
Chinarevskoye subsoil use rights is as follows:
In thousands of US Dollars
Loss before income tax
Tax rate applicable to the subsoil use rights
Expected tax provision
Non-deductible interest expense on
borrowings and other financial expenses
Non-deductible taxes and penalties
Effect of exchange rate on the tax base
Adjustments in respect of current income
tax of previous years
Effect of loss / (income) taxed at different
rate¹
Recognition of previously unrecognised
deferred tax
Net foreign exchange gain
Reversal of training provisions
Non-deductible loss on disposal of PPE
Non-deductible marketing expenses
Non-deductible unwinding of discount
Other non-deductible expenses
For the year ended 31 December
2022
2021
(81,781)
30%
(24,534)
32,488
7,842
4,581
12,500
–
–
(76)
(536)
–
–
222
2,177
5,602
30%
1,681
24,782
784
2,630
632
1,529
(1,312)
95
(296)
(225)
651
311
458
Income tax expense
34,664
31,720
1 Jurisdictions which contribute significantly to this item are Republic of Kazakhstan with an applicable
statutory tax rate of 20% (for activities not related to the Contract), and the Netherlands with an applicable
statutory tax rate of 25%.
Certain revisions to previous period tax assessments were made considering
new information, which was not available at the time of preparation of
respective financial information, and relevant interpretations by the
management. During 2022 the tax authorities in Kazakhstan carried out a
comprehensive tax audit of Zhaikmunai LLP for the financial years 2016-2021,
as a result of which additional corporate income tax in a principal amount
equivalent to US$12,500 thousand has been assessed for the periods covered.
In management’s view, as at 31 December 2022 there were no other
significant uncertain tax positions requiring disclosure in accordance with IFRIC
23 – Uncertainty over Income Tax Treatments.
The Group’s effective tax rate for the year ended 31 December 2022 is
negative 42.4% (2021: 566.2%). The Group’s effective tax rate, excluding effect
of movements in exchange rates and non-deductible interest expense on
borrowings, for the year ended 31 December 2021 is 2.9% (2021: 76.9%).
As at 31 December 2022 the Group has tax losses of US$122,111 thousand
(2021: US$113,371 thousand) that are available to offset against future taxable
profits in the companies in which the losses arose within 9 years after
generation and will expire in the period 2023-2029. On 21 May 2021, a Royal
Decree was issued in the Netherlands, which dictates that the tax losses can
now be carried forward indefinitely from 1 January 2022, subject to annual
limit on carry back loss utilization. Deferred tax assets have not been
recognised in respect of these losses as they may not be used to offset taxable
profits elsewhere in the Group.
The movements in the deferred tax liability were as follows:
In thousands of US Dollars
Balance as at 1 January
Current period charge to statement of
comprehensive income
2022
2021
34,072
15,827
3,793
30,279
Balance as at 31 December
49,899
34,072
27. Related party transactions
For the purpose of these consolidated financial statements transactions with
related parties mainly comprise transactions between subsidiaries of the
Company and the key management.
Remuneration (represented by short-term employee benefits) of key
management personnel amounted to US$2,665 thousand for the year ended
31 December 2022 (year ended 31 December 2021: US$2,875 thousand).
28. Audit and non-audit fees
During the years ended 31 December 2022 and 2021 audit and non-audit fees
comprise the following:
In thousands of US Dollars
Audit services:
Ernst & Young
MHA & Baker Tilly International
Total audit services
Services relating to corporate finance
transactions:
Ernst & Young
Total non-audit services
For the year ended 31 December
2022
2021
561
627
1,188
1,009
–
1,009
161
161
239
239
1,349
1,248
The audit fees for the year ended 31 December 2022 in the table above include
the audit fees of US$10 thousand in relation to the Parent (2021: US$10
thousand).
The audit fees for the year ended 31 December 2022 include fees related to
the audit of the 2021 financial statements in the amount of US$300 thousand,
which mostly represent audit overruns in the amount of US$ 186 thousand and
the fees for the forensic scope of US$ 108 thousand (2021: US$92 thousand
related to audit of 2020 financial statements).
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 157
24
Nostrum Oil & Gas PLC
Financial report
Consolidated financial statements
Consolidated financial statements
For the year ended 31 December 2022
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements (continued)
29. Contingent liabilities and commitments
TTaaxxaattiioonn
Kazakhstan’s tax legislation and regulations are subject to ongoing changes and
varying interpretations. Instances of inconsistent opinions between local,
regional and national tax authorities are not unusual. The current regime of
penalties and interest related to reported and discovered violations of
Kazakhstan’s tax laws are severe and where the tax authorities disagree with
the positions taken by the Group the financial outcomes could be material.
Administrative fines are generally 80% of the taxes additionally assessed and
interest penalty is assessed at the refinancing rate established by the National
Bank of Kazakhstan multiplied by 1.25. As a result, penalties and interest can
amount to multiples of any assessed taxes. Fiscal periods remain open to
review by tax authorities for five calendar years preceding the year of review.
Under certain circumstances reviews may cover longer periods. Because of the
uncertainties associated with Kazakhstan’s tax system, the ultimate amount of
taxes, penalties and interest, if any, may be in excess of the amount expensed
to date and accrued at 31 December 2022. As at 31 December 2022
management believes that its interpretation of the relevant legislation is
appropriate and that it is probable that the Group’s tax position will be
sustained.
AAbbaannddoonnmmeenntt aanndd ssiittee rreessttoorraattiioonn ((ddeeccoommmmiissssiioonniinngg))
As Kazakh laws and regulations concerning site restoration and clean-up
evolve, the Group may incur future costs, the amount of which is currently
indeterminable. Such costs, when known, will be provided for as new
information, legislation and estimates evolve.
EEnnvviirroonnmmeennttaall oobblliiggaattiioonnss
The Group may also be subject to loss contingencies relating to regional
environmental claims that may arise from the past operations of the related
fields in which it operates. Kazakhstan’s environmental legislation and
regulations are subject to ongoing changes and varying interpretations. As
Kazakh laws and regulations evolve concerning environmental assessments
and site restoration, the Group may incur future costs, the amount of which is
currently indeterminable due to such factors as the ultimate determination of
responsible parties associated with these costs and the Government’s
assessment of respective parties’ ability to pay for the costs related to
environmental reclamation.
However, depending on any unfavourable court decisions with respect to any
claims or penalties assessed by the Kazakh regulatory agencies, it is possible
that the Group’s future results of operations or cash flow could be materially
affected in a particular period.
CCaappiittaall ccoommmmiittmmeennttss
As at 31 December 2022, the Group had contractual capital commitments in
the amount of US$ 2,845 thousand (31 December 2021: US$10,029 thousand),
mainly in respect to the Group’s oil field development activities.
SSoocciiaall aanndd eedduuccaattiioonn ccoommmmiittmmeennttss
As required by the Contract (after its amendment on 2 September 2019), the
Group is obliged to:
• spend US$ 300 thousand per annum to finance social infrastructure;
• make an accrual of one percent per annum of the actual investments for the
Chinarevskoye field for the purposes of educating Kazakh citizens.
DDoommeessttiicc ooiill ssaalleess
In accordance with Supplement # 7 to the Contract, Zhaikmunai LLP is required
to deliver at least 15% of produced oil to the domestic market on a monthly
basis for which prices are materially lower than export prices.
IImmppaacctt ooff ssaannccttiioonnss oonn RRuussssiiaa
The recent Russia-Ukraine conflict has led to widespread sanctions being
imposed on various Russian institutions and individuals. Bodies and nations
158 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
25 Nostrum Oil & Gas PLC
imposing sanctions today include the US, UK and EU and these sanctions have
been sequentially expanding. Given the geographical position of the Group’s
main operating company, it is very close to the evolving situation in Ukraine.
Whilst Kazakhstan is not directly involved in the ongoing conflict, nor have any
Western sanctions impacted upon on it, the country is connected to Russia
through infrastructure, banking, and other business links. The Group contracts
with a limited number of Russian service companies. For example, during 2022
the price of Urals traded with a higher discount relative to Brent due to
sanctions. During the spring and summer of 2022, the discount reached $40
per barrel and then declined to $18-20 per barrel as compared to $3 per barrel
average in 2021. In addition, certain operational matters have been impacted
by sanctions, such as the work underway on GTU3 and the extension of the
Company’s gas lift facilities. Nostrum has considered and analysed alternative
export routes where export prices are not linked to Urals quotation for oil and
gas condensate supplies and is making all necessary efforts to address the
widening Urals spread.
30. Financial risk management objectives and policies
The Group’s principal financial liabilities comprise borrowings, payables to the
Government of Kazakhstan, trade payables and other current liabilities. The
main purpose of these financial liabilities is to finance the Group’s operations.
The Group's financial assets consist of trade and other receivables and cash
and cash equivalents that derive directly from its operations.
The Group is exposed to commodity price risk, foreign currency risk, liquidity
risk and credit risk. The Group’s senior management oversees the
management of these risks. The Group’s senior management ensures that the
Group’s financial risk activities are governed by appropriate policies and
procedures and that financial risks are identified, measured and managed in
accordance with the Group’s policies and risk objectives. The Board of
Directors reviews and agrees policies for managing each of these risks, which
are summarised below.
CClliimmaattee cchhaannggee
Management has considered how the Group’s identified climate risks and
climate related goals (as discussed in Climate Change and GHG Emissions in the
Group’s 2022 Annual Report) may impact the estimation of the recoverable
value of cash-generating unit tested for impairment. The anticipated extent
and nature of the future impact of climate on the Group’s operations and
future investment depends on the development of new technologies and
production processes employed and the level of emissions, energy efficiency
and use of renewable energy. The sensitivity of the Group’s impairment
assessment to these factors is also impacted by the extent that estimated
recoverable value exceeds the carrying value of an individual cash-generating
unit – where this is lower there is an increased risk of a future impact. The
Group is in the process of identifying a range of actions and initiatives to
progress towards the Group’s goals, including reduction of greenhouse gas
emissions, wastewater discharges and increase of waste utilisation. In certain
cases, the costs of such actions have been quantified and are included in the
Group’s forecasts which are used to estimate recoverable value for the Group’s
cash-generating unit. Other actions and initiatives continue to be explored by
the Group but are not sufficiently certain to be reflected in the Group’s
forecasts of estimated recoverable value.
CCoommmmooddiittyy pprriiccee rriisskk
The Group is exposed to the effect of fluctuations in price of crude oil, which is
quoted in US dollar on the international markets. The Group prepares annual
budgets and periodic forecasts including sensitivity analyses in respect of
various levels of crude oil prices in the future.
IInntteerreesstt rraattee rriisskk
The Group is not exposed to interest rate risk in 2022 and 2021 as the Group
had no financial instruments with floating rates as at years ended 31 December
2022 and 2021.
Notes to the consolidated financial statements (continued)
Consolidated financial statements
For the year ended 31 December 2022
FFoorreeiiggnn ccuurrrreennccyy rriisskk
As a significant portion of the Group’s operation is Tenge denominated, the
Group’s statement of financial position can be affected by movements in the
US dollar / Tenge exchange rates. The Group mitigates the effect of its
structural currency exposure by borrowing in US dollars and denominating
sales in US dollars.
The following table demonstrates the sensitivity to a reasonably possible
change in the US dollar exchange rate, with all other variables held constant. A
devaluation of Tenge against US dollar by 21% would lead to decrease in the
net Tenge liability position by US$8,355 thousand as of 31 December 2022 and
respective reduction of the loss before income tax for the year ended
31 December 2022. The impact on equity is the same as the impact on profit
before tax.
2022
2021
Change in Tenge to US
dollar exchange rate
Effect on profit before tax (In
thousands of US Dollars)
21%
(21%)
13%
(10%)
5,455
(8,355)
1,085
(1,048)
The Group’s foreign currency denominated monetary assets and liabilities
were as follows:
The table below summarizes the maturity profile of the Group's financial
liabilities at 31 December 2022 and 31 December 2021 based on contractual
undiscounted payments:
In thousands of US
Dollars
On
demand
Less
than 3
months
3-12
months
1-5
years
More
than
5 years
Total
As at 31 December
2022
Borrowings
Trade payables
Other current
liabilities
Due to Government
of Kazakhstan
As at 31 December
2021
Borrowings
Trade payables
Other current
liabilities
Due to Government
of Kazakhstan
1,400,197
43,000
43,000
9,525
10,824
–
–
404
–
–
–
–
–
–
–
1,486,197
9,929
10,824
–
258
773
4,124
3,350
8,505
1,420,546
43,258
44,177
4,124
3,350
1,515,455
1,298,926
43,000
43,000
7,853
14,636
–
–
546
–
–
–
–
–
–
–
1,384,926
8,399
14,636
–
258
773
4,124
4,381
9,536
1,321,415
43,258
44,319
4,124
4,381
1,417,497
Russian
Roubles
Euro
Other
Total
CCrreeddiitt rriisskk
In thousands of US Dollars
Tenge
As at 31 December 2022
Cash and cash equivalents
13,827
Trade receivables
Trade payables
1,997
–
–
1,824
907
16,558
–
–
1,997
(6,942)
(141)
(1,160)
(143)
(8,386)
Other current liabilities
(40,312)
–
(1,476)
(63)
(41,851)
(31,430)
(141)
(812)
701
(31,682)
As at 31 December 2021
Cash and cash equivalents
Trade receivables
Trade payables
5,745
1,531
–
–
(5,433)
(122)
Other current liabilities
(11,273)
–
1,020
–
(464)
(299)
500
–
(983)
(105)
7,265
1,531
(7,002)
(11,677)
(9,430)
(122)
257
(588)
(9,883)
LLiiqquuiiddiittyy rriisskk
Liquidity risk is the risk that the Group will encounter difficulty in raising funds
to meet commitments associated with its financial liabilities. The Group
monitors its risk to a shortage of funds using a liquidity planning tool. The tool
allows selecting severe stress test scenarios. To ensure an adequate level of
liquidity a minimum cash balance has been defined as a cushion of liquid
assets. The Group’s objective is to maintain a balance between continuity of
funding and flexibility through the use of notes, export financing and leases.
The Group’s total outstanding debt consists of two notes: US$725 million
issued in 2017 and maturing in 2022 and US$400 million issued in 2018 and
maturing in 2025. Based on the successful restructuring of the Notes, the
Directors confirm that they have a reasonable expectation that the Group will
continue in operation and meet its restructured liabilities as they fall due
through the three-year viability assessment period ending 31 December 2025.
For more information on analysis of the Group’s ability to meet its liabilities on
repayment of the Notes please see “Viability statement” section on the Annual
report on pages 45-46.
Credit risk is the risk that a counterparty will not meet its obligations under a
financial instrument or customer contract, leading to a financial loss. The
Group is exposed to credit risk from its operating activities (primarily trade
receivables) and from its financing activities, including deposits with banks and
financial institutions and foreign exchange transactions.
The Group places its cash and deposits primarily with Citibank, N.A., and Halyk
bank JSC with most recent credit ratings from Moody's rating agency of Aa3
(Stable), and Baa2 (Stable), respectively.
The Group sells its products and makes advance payments only to recognised,
creditworthy third parties. In addition, receivable balances are monitored on
an ongoing basis with the result that the Group’s exposure to bad debts and
recoverability of prepayments made is not significant and thus risk of credit
default is low. Also, the Group’s policy is to mitigate the payment risk on its off-
takers by requiring all purchases to be prepaid or secured by a letter of credit
from an international bank.
The Group considers a financial asset in default when contractual payments
are 90 days past due, however certain exceptions can be made depending on
the particular circumstances and discussions with the counterparty. Also, in
certain cases, the Group may also consider a financial asset to be in default
when internal or external information indicates that the Group is unlikely to
receive the outstanding contractual amounts in full before taking into account
any credit enhancements held by the Group. A financial asset is written off
when there is no reasonable expectation of recovering the contractual cash
flows.
An impairment analysis is performed at each reporting date on an individual
basis for major clients. The maximum exposure to credit risk at the reporting
date is the carrying value of each class of financial assets. The Group does not
hold collateral as security. The Group evaluates the concentration of risk with
respect to trade receivables as low, as its customers are located in several
jurisdictions and industries and operate in largely independent markets.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 159
26
Nostrum Oil & Gas PLC
Financial report
Consolidated financial statements
Consolidated financial statements
For the year ended 31 December 2022
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements (continued)
FFaaiirr vvaalluueess ooff ffiinnaanncciiaall iinnssttrruummeennttss
Management assessed that the fair value of cash and cash equivalents, trade
receivables, trade payables and other current liabilities approximate their
carrying amounts at 31 December 2022 and 31 December 2021.
Set out below, is a comparison by class of the carrying amounts and fair value
of the Group’s financial instruments, other than those with carrying amounts
reasonably approximating their fair values:
In thousands of US
Dollars
Interest bearing
borrowings
Carrying amount
Fair value
31 December
2022
31 December
2021
31 December
2022
31 December
2021
1,396,517
1,289,603
272,500
303,375
Total
1,396,517
1,289,603
272,500
303,375
The fair value of the financial assets and liabilities represents the amount at
which the instruments could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. Fair value of the
quoted notes is based on price quotations at the reporting date and
respectively categorised as Level 1 within the fair value hierarchy.
During the year ended 31 December 2022 and year ended 31 December 2021
there were no transfers between the levels of fair value hierarchy of the
Group’s financial instruments.
CCaappiittaall mmaannaaggeemmeenntt
For the purpose of the Group’s capital management, capital includes issued
capital, additional paid-in capital and all other equity reserves attributable to
the equity holders of the parent. The primary objective of the Group’s capital
management is to maximise the shareholder value.
Since the engagement with the AHG in discussions on potential restructuring of
the Notes and signing of the FBAs in 2020 (see Note 1), the Group’s focus was
on maintaining short-term liquidity and preserving cash. Successful cost
optimisation programme, favourable hydrocarbon pricing and forbearance of
making interest payments during 2020 and 2021 enabled the Group to grow its
unrestricted cash balances to the level of US$234,251 thousand as at
31 December 2022. After successful implementation of the restructuring, the
Group intends to revise and evolve its capital management policy in line with
new requirements and shareholder expectations.
31. Events after the reporting period
CCoommpplleettiioonn ooff tthhee RReessttrruuccttuurriinngg
On 9 February 2023 the Group notified that the Restructuring was
implemented pursuant to the terms of the Scheme sanctioned by the Court on
26 August 2022.
The terms of the Restructuring included the sub-division and consolidation of
the ordinary share capital of the Company following the issue of the new
shares on 9 February 2023. This sub-division and share consolidation occurred
after close of business on 9 February 2023 and resulted in the number of
Ordinary Shares on issue being reduced from approximately 1,693.8 million
Ordinary Shares (following the issue of the new shares ) to approximately
169.4 million Ordinary Shares on the basis of a 10:1 consolidation of ordinary
shares. Accordingly, on 10 February 2023, 150,563,304 new Ordinary Shares
have been admitted to the standard listing segment of the Official List of the
Financial Conduct Authority and to trading on the London Stock Exchange
under the ticker symbol "NOG.L". The Company's ordinary shares (including
the New Shares) were also admitted to listing and trading on the Astana
International Exchange (AIX) on 13 February 2023. The new warrants were not
admitted to listing and trading on the AIX. The New Notes and the New
Warrants were also admitted to listing and trading on The International Stock
Exchange (TISE) with effect from 9 February 2023. No new securities were
listed on the Euronext Dublin.
As a result of implementation of the restructuring a portion of the Group's
Notes were exchanged for US$250 million of SSNs and US$345 million of SUNs,
while remainder of the Existing Notes together with accrued but unpaid
interest were converted into fully paid ordinary shares (the "New Shares"),
resulting in the Noteholders holding 88.89% of the Enlarged Share Capital of
the Company. In addition, the New Warrants were issued to be held by the
Warrant Trustee on behalf of the holders of the SUNs from time to time,
exercisable in full by a majority of such holders upon the occurrence of certain
events to increase their holding of the Company's Enlarged Share Capital to
90.00%, and certain new governance and cashflow arrangements, as described
in more detail in the Annual Report and other publications of the Company.
Pursuant to the terms of the Restructuring the interest accrued on the SSNs
and the SUNs from 1 January 2022. Accordingly, cash interest accrued to 9
February 2023 in the amount of US$17.5 million was paid to the Noteholders
upon the issuance of the SSNs and the SUNs. The next semi-annual cash
interest payment is scheduled for 30 June 2023. Also, as part of the
Restructuring completion the amounts held in escrow account as required
under FBA, were released and at the same time amounts required for next two
cash coupon payments were transferred to Debt Service Retention Account
(DSRA).
AAccqquuiissiittiioonn ooff SStteeppnnooyy LLeeooppaarrdd FFiieellddss
On 10 March 2023, the Company announced that it is has agreed, subject to
certain conditions, to acquire 80% of Positive Invest LLC ("Positive Invest"),
which holds the subsoil use right to the contract No. 25 for estimation,
development and production of hydrocarbons for the area "Kamenskoe" and
the development area "Kamensko-Teplovsko-Tokarevskoe" (the "Stepnoy
Leopard Fields") in the West Kazakhstan region of the Republic of Kazakhstan
dated 3 March 1995 for US$20 million (less a modest amount of debt owed to
Nostrum Oil & Gas Coöperatief U.A).
The Proposed Acquisition will enable Nostrum to tie-in further resources in the
region that can be processed at the Company's gas treatment facilities. An
affiliate of the Company shall be appointed as the operator of the Positive
Invest Contract.
End of Document
27 Nostrum Oil & Gas PLC
160 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Parent company financial statements
Contents
Investments in subsidiaries
162 Parent company statement of financial position
163 Parent company statement of cash flows
164 Parent company statement of changes in equity
165 Notes to the parent company financial statements
165 1 General
166 2 Basis of preparation
166 3 Changes in accounting policies and disclosures
168 4 Summary of significant accounting policies
170 5
170 6 Receivables from related parties
170 7 Cash and Cash Equivalents
170 8 Shareholders’ equity
171 9 Financial guarantees
171 10 Payables to related parties
171 11 Auditors’ remuneration
172 12 Employee’s remuneration
172 13 Long-term incentive plan
173 14 Related party transactions
173 15 Financial risk management objectives and policies
174 16 Events after the reporting period
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 161
Financial report Parent company financial statements
Parent company statement of financial position
Parent company statement of financial position
In thousands of US Dollars
Assets
Non-current assets
Property, plant and equipment
Current assets
Prepayments and other current assets
Receivables from related parties
Cash and cash equivalents
TOTAL ASSETS
Equity and liabilities
Share capital and reserves
Share capital
Retained deficit and reserves
Current liabilities
Current portion of financial guarantees
Payables to related parties
Trade payables
Income tax payable
Other current liabilities
TOTAL EQUITY AND LIABILITIES
Parent company financial statements
Notes
31 December
2022
31 December
2021
6
7
8
9
10
3
3
167
955
901
2,023
2,026
2
2
489
1,000
549
2,038
2,040
3,203
(903,094)
(899,891)
3,203
(812,101)
(808,898)
900,684
323
847
–
63
901,917
2,026
809,812
476
480
61
109
810,938
2,040
As permitted by section 408(3) of the Companies Act 2006, the profit and loss account of the Company is not presented in the Company’s financial statements.
The Company reported a loss of US$90,955 thousand for the financial year ended 31 December 2022, which includes current income tax benefit of
US$27 thousand (2021: profit US$22,342 thousand including current income tax expense of US$64 thousand). During the reporting periods there were no
transactions impacting the statement of other comprehensive income.
The financial statements of Nostrum Oil & Gas PLC, registered number 8717287, were approved by the Board of Directors. The financial statements were
authorised for issue on 30 May 2023.
Signed on behalf of the Board:
Arfan Khan
Chief Executive Officer
30 May 2023
The accounting policies and explanatory notes on pages 168 through 177 are an integral part of these financial statements
The accounting policies and explanatory notes on pages 165 through 174 are an integral part of these consolidated financial statements
Nostrum Oil & Gas PLC Annual Report & Accounts 2022
165
162 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Parent company financial statements
Parent company statement of cash flows
Parent company statement of cash flows
In thousands of US Dollars
Cash flow from operating activities:
Loss before income tax
Adjustments for:
Depreciation
Employee share option plan fair value adjustment
Financial guarantee loss
Impairment reversal
Operating profit before working capital changes
Changes in working capital:
Change in other current assets
Change in receivables from related parties
Change in trade payables
Change in payables to related parties
Change in other current liabilities
Cash generated from operations
Income tax paid
Net cash flows from operating activities
Cash flow from investing activities:
Purchase of property, plant and equipment
Net cash used in investing activities
Effects of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
For the year ended 31 December
Notes
2022
2021
(90,982)
22,406
9
7
7
3
(38)
90,872
–
(145)
322
45
367
(153)
(45)
391
(34)
357
(4)
(4)
–
353
549
901
19
(14)
(21,957)
(232)
222
(202)
109
36
(92)
(1)
72
(138)
(66)
(1)
(1)
1
(66)
615
549
As at 31 December 2021 the Company recognised bad debt allowance in the amount of US$93 thousand against the loan receivable from Nostrum employee
benefit trust and a similar but opposite amount against its loan payable to its subsidiary Nostrum Oil & Gas Coöperatief U.A. (Notes 6 and 10). These transactions
had impact on “change in receivables from related parties” and “change in payables to related parties” above.
The accounting policies and explanatory notes on pages 168 through 177 are an integral part of these financial statements
The accounting policies and explanatory notes on pages 165 through 174 are an integral part of these consolidated financial statements
166 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 163
Financial report
Parent company financial statements
Parent company financial statements
Parent company statement of changes in equity
Parent company statement of changes in equity
In thousands of US Dollars
As at 1 January 2021
Profit for the year
Total comprehensive income for the year
Share based payments under LTIP
As at 31 December 2021
Loss for the year
Total comprehensive loss for the year
Share based payments under LTIP
As at 31 December 2022
Notes
13
13
Share
capital
3,203
–
–
–
3,203
–
–
–
3,203
Other
reserves
Retained
deficit
Total
849
(835,048)
(830,996)
–
–
22,342
22,342
22,342
22,342
(244)
605
–
(812,706)
(244)
(808,898)
–
–
(90,955)
(90,955)
(90,955)
(90,955)
(38)
567
–
(903,661)
(38)
(899,891)
The accounting policies and explanatory notes on pages 168 through 177 are an integral part of these financial statements
The accounting policies and explanatory notes on pages 165 through 174 are an integral part of these consolidated financial statements
Nostrum Oil & Gas PLC Annual Report & Accounts 2022
167
164 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Parent company statement of changes in equity
In thousands of US Dollars
As at 1 January 2021
Profit for the year
Total comprehensive income for the year
Share based payments under LTIP
As at 31 December 2021
Loss for the year
Total comprehensive loss for the year
Share based payments under LTIP
As at 31 December 2022
Notes
Share
capital
3,203
Other
reserves
Retained
deficit
Total
849
(835,048)
(830,996)
3,203
–
–
–
–
–
–
3,203
–
–
(244)
605
–
–
(38)
567
22,342
22,342
22,342
22,342
–
(244)
(812,706)
(808,898)
(90,955)
(90,955)
(90,955)
(90,955)
–
(38)
(903,661)
(899,891)
13
13
Parent company financial statements
Parent company financial statements
Notes to the parent company financial statements
Notes to the parent company financial statements
1. General
OOvveerrvviieeww
Nostrum Oil & Gas PLC (“the Company”) is a public
limited company incorporated on 3 October 2013
under the Companies Act 2006 and registered in
England and Wales with registered number
8717287. The registered address of Nostrum Oil &
Gas PLC is: 20 Eastbourne Terrace, London
W2 6LA, United Kingdom.
The subsidiary undertakings of the Company as at
31 December 2022 and the percentage holding of
their capital are set out below:
Company
Registered office
Form of
capital
Owner-
ship, %
Direct subsidiary undertakings:
Nostrum Oil &
Gas
Coöperatief
U.A.
Nostrum Oil &
Gas B.V.
Bloemendaalseweg
139, 2061 CH
Bloemendaal, The
Netherlands
Bloemendaalseweg
139, 2061 CH
Bloemendaal, The
Netherlands
20 Eastbourne
Terrace, London,
W2 6LG, UK
Nostrum Oil &
Gas Holding
Ltd
Indirect subsidiary undertakings:
43B Karev street,
Nostrum
090000 Uralsk,
Associated
Republic of
Investments
Kazakhstan
LLP
Bloemendaalseweg
Nostrum Oil &
139, 2061 CH
Gas Finance
Bloemendaal, The
B.V.
Netherlands
Nostrum Oil &
Gas UK Ltd.
20 Eastbourne
Terrace, London W2
6LA, United
Kingdom
Members'
interests
100
Ordinary
shares
100
Ordinary
shares
100
100
Participa-
tory
interests
Ordinary
shares
100
Ordinary
shares
100
Nostrum
Services
Central Asia
LLP
Aksai 3a, 75/38,
050031 Almaty,
Republic of
Kazakhstan
Participa-
tory
interests
Nostrum
Services N.V.
Chaussee de Wavre
20, 1360 Perwez,
Belgium
Ordinary
shares
Zhaikmunai
LLP
43/1 Karev street,
090000 Uralsk,
Republic of
Kazakhstan
Participa-
tory
interests
100
100
100
The entire holding in the equity of Nostrum E&P
Services LLP of the subsidiary was disposed on
30 April 2021.
The Company and its wholly-owned subsidiaries
are hereinafter referred to as “the Group”.
The accounting policies and explanatory notes on pages 168 through 177 are an integral part of these financial statements
Nostrum Oil & Gas PLC Annual Report & Accounts 2022
167
Forbearance and Lock-up agreements
Forbearance Agreements
The Group has not made coupon payments due
under the Existing Notes since July 2020, which
was an event of default under the terms of the
indentures governing 2022 Notes and 2025 Notes.
However, the Group continued active discussions
with the financial and legal advisers to the AHG
and signed the First Forbearance Agreement (“First
FBA”) with the AHG on 23 October 2020 and a new
Forbearance Agreement (“Second FBA”) on
19 May 2021 (together the “FBAs”). The First FBA
and the Second FBA were on substantially the
same terms and prohibited the AHG from
exercising certain rights and remedies under the
Existing Note indentures. The FBAs were intended
to provide the Group with a short-term solution to
its liquidity issues and a platform to engage in
discussions with the noteholders in relation to a
potential restructuring.
As part of the signing of the FBAs, the Group
agreed to pay consent fees to existing noteholders
as well as agreeing to deposit a portion of the
missed initial coupon payments into a Restricted
Account. A total of US$6,701,973 has been paid in
consent fees during the signing and various
extensions of the FBAs, of which US$1,116,990
was paid in 2021. A total of US$22,658,980 has
been deposited into the Restricted Account under
the terms of the FBAs (including US$9,758.980
transferred in 2021), with Nostrum having access
to the funds under certain circumstances, such as
liquidity falling below an agreed threshold).
Lock-up Agreements
On 23 December 2021, the Group entered into a
lock-up agreement (the “First LUA”) and agreed
terms of a restructuring with noteholders. Holders
of 77.73% of the total aggregate principal amount
of the Notes signed or acceded to the First LUA
including a majority of holders of aggregate
principal amount of both Senior Notes and an
affiliate of ICU in its capacity as a shareholder and
holder of the Notes. A fee of 50 bps (the "Lock-up
Fee") was payable to each Participating
Noteholder who was originally party to the First
LUA or acceded to the First LUA within 22 days of
its execution (i.e. by 14 January 2022).
The First LUA expired on 17 August 2022, on which
day the Group entered into the Second Lock-Up
Agreement with the AHG and ICU (the “Second
LUA”). The parties to the Second LUA gave similar
undertakings to those given in the First LUA, and
terms of the Restructuring remained the same. No
consent or “early bird” fee was payable in relation
to the Second LUA.
Upon signing of the First LUA and the Second LUA
(together the “LUAs”), the Second FBA was
extended in parallel. The terms and conditions
continued to remain in effect during the
restructuring until the successful closing of the
restructuring.
Terms of the Restructuring
The below outlines the key terms of the
restructuring as agreed between the Group,
acceded noteholders and ICU in the LUAs and also
voted in favour of by Nostrum shareholders:
• Partial reinstatement of debt in the form of
US$250 million Senior Secured Notes (SSNs)
maturing on 30 June 2026 and bearing interest
at a rate of 5.00% per year payable in cash. The
SSNs are not convertible;
• Partial reinstatement of debt in the form of
US$300 million Senior Unsecured Notes (SUNs)
maturing on 30 June 2026 and bearing interest
at a rate of 1.00% per year payable in cash and
13.00% per year payable in kind. If not repaid in
cash at maturity, the SUNs are repayable in
specie through the issuance of equity in the
Group based on the value of the SUNs
outstanding on the issuance date as a
percentage of the fair market value of the
Group (up to a maximum of 99.99% of the
Group’s fully diluted equity);
• Conversion of the remainder of the Existing
Notes and accrued interest into equity by way
of a UK scheme of arrangement:
• Existing noteholders will own 88.89% of the
expanded ordinary share capital of the
Group on closing of the restructuring.
Existing noteholders will also own warrants
(to be held by trustee) allowing them to
subscribe for an additional 1.11% of the
ordinary share capital of the Group upon
exercise – increasing noteholder ownership
of the Group to 90.00%;
• The existing ordinary shareholders will hold
11.11% upon closing of the restructuring.
The existing ordinary shareholders will be
diluted to 10.00% if the warrants held by
existing noteholders are exercised;
• New corporate governance arrangements in
respect of the Group and certain arrangements
regarding future utilization of the Group's
cashflows. This includes a cash sweep
mechanism requiring that cash above
US$30 million is swept into a debt service
retention account (to fund the next two cash
interest payments due) and a restricted cash
account which the Group can access with
approval of the majority of Independent Non-
Executive Directors of the Group; and
• Transfer the Company's listing to the Standard
Listing segment of the London Stock Exchange.
Key implementation milestones completed
Following execution of the Lock-up Agreement, the
Group commenced implementation of the
Restructuring.
On 4 February 2022, the Group received the
required consents from noteholders after a
solicitation process to approve the amendments to
the Existing Notes indentures. The approved
amendments (i) changed the governing law and
168 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 165
Financial report
Parent company financial statements
Notes to the parent company financial statements continued
Notes to the parent company financial statements (continued)
Parent company financial statements
jurisdiction of both Existing Notes indentures from
the State of New York to the laws of England and
Wales; (ii) made Nostrum Oil & Gas plc a co-issuer
of the Existing Notes and (iii) other smaller
amendments to facilitate the implementation of
the restructuring. Holders of 87.081% in aggregate
principal amount of the 2022 Notes and Holders of
91.222% in aggregate principal amount of the 2025
Notes provided consents. No consent solicitation
payments were made to vote in favour.
Control, the Company issued a notice inviting
Scheme creditors to a Scheme meeting on
21 August 2022. At the Scheme meeting with
participation and voting (by proxy) of 148 Scheme
Creditors, the Scheme proposed by the Company
in connection with the Restructuring was approved
by the requisite majority of Scheme Creditors
(being a majority in number, representing at least
75 percent in value of the Scheme Creditors
present and voting).
On 29 April 2022, 99.99% of voting shareholders
voted for the implementation of the restructuring
which meant that the restructuring continues
under a UK scheme of arrangement under Part 26
of the Companies Act 2006. Further, 99.89% of
voting shareholders voted in favour of the RPT
Resolution, allowing a related party to receive the
issuance of new securities under the scheme.
On 26 August 2022, the Scheme Sanction Hearing
took place, whereby the Court made an order
sanctioning the Scheme, following which on
31 August 2022 the Scheme Sanction Order was
lodged with Companies House and the Scheme
thereby took effect and binds (amongst other
parties) all Scheme Creditors and the Company by
its terms.
On 20 June 2022, the High Court of Justice of
England and Wales has made an order granting the
Group permission to convene a meeting for the
Scheme creditors to approve the Restructuring.
On 1 July 2022, the Group received the required
consents from the Kazakhstan Ministry of Energy
(«MOE») with respect to (i) the issue of new shares
and warrants (in partial repayment of the Existing
Notes) and (ii) the waiver of the State of
Kazakhstan's priority right to acquire such new
shares and warrants.
On 1 August 2022, after receiving a key regulatory
authorisation from the US Office of Foreign Assets
2. Basis of preparation
BBaassiiss ooff pprreeppaarraattiioonn
The Company financial statements for the year
ended 31 December 2022 have been prepared on
a going concern basis and in accordance with UK
Adopted International Accounting Standards.
The Company financial statements have been
prepared based on a historical cost basis. The
Company financial statements are presented in
US dollars and all values are rounded to the
nearest thousands, except when otherwise
indicated.
The Company recognises that there may be
potential financial implications in the future from
changes in legislation and regulation implemented
to address climate change risk. Over time these
changes may have an impact across a number of
areas of accounting including asset impairment,
increased costs, provisions, onerous contracts and
contingent liabilities. However, as at the reporting
sheet date, the Company believes there is no
On 14 October 2022, a prospectus was approved
by the FCA and published by the Company (the
‘Prospectus’). The Prospectus relates to the
proposed admission of up to 1,505,633,046 new
ordinary shares to the standard listing segment of
the Official List of the FCA and to trading on the
main market for listed securities of London Stock
Exchange plc.
In January 2023, the Group received the licence
from Office of Financial Sanctions Implementation
(the UK) approving the Scheme and the issue of
the Prospectus, and confirmations that such
licences are not required from the Ministry of
material impact on the balance sheet carrying
values of assets or liabilities. This is not considered
a significant estimate.
GGooiinngg ccoonncceerrnn
These financial statements have been prepared on
a going concern basis. The Company is dependent
on liquidity generated by its subsidiaries to
continue in operation and its ability to meet its
liabilities as they become due for the foreseeable
future, a period of not less than 12 months from
the date of these financial statements.
Respectively, the Group level going concern
matters and analysis are considered directly
relevant for the Company (please refer to page 52
of the Annual Report for more details). The
directors are satisfied that the Group will have
sufficient resources to continue in operation for
the foreseeable future, a period of not less than 12
months from the date of these financial
statements. In addition, the Group has controls in
3. Changes in accounting policies and disclosures
NNeeww ssttaannddaarrddss,, iinntteerrpprreettaattiioonnss aanndd
aammeennddmmeennttss aaddoopptteedd bbyy tthhee CCoommppaannyy
The Company applied for the first-time certain
standards and amendments, which are effective
for annual periods beginning on or after 1 January
2022. The Company has not early adopted any
other standard, interpretation or amendment that
has been issued but is not yet effective.
Onerous Contracts – Costs of Fulfilling a Contract
– Amendments to IAS 37
An onerous contract is a contract under which the
unavoidable costs (i.e., the costs that the Group
cannot avoid because it has the contract) of
meeting the obligations under the contract exceed
the economic benefits expected to be received
under it.
Finance (the Netherlands) and Policy & Resources
Committee (the UK, States of Guernsey).
On 9 February the Group notified that the
Restructuring was implemented pursuant to the
terms of the Scheme sanctioned by the Court on
26 August 2022. The terms of the Restructuring
included the sub-division and consolidation of the
ordinary share capital of the Company following
the issue of the New Shares on 9 February 2023.
This sub-division and share consolidation occurred
after close of business on 9 February 2023 and
resulted in the number of Ordinary Shares on issue
being reduced from approximately 1,693.8 million
Ordinary Shares (following the issue of the New
Shares yesterday) to approximately 169.4 million
Ordinary Shares on the basis of a 10:1
consolidation of ordinary shares. Accordingly, on
10 February 2023, 150,563,304 new Ordinary
Shares have been admitted to the standard listing
segment of the Official List of the Financial Conduct
Authority and to trading on the London Stock
Exchange under the ticker symbol "NOG.L". The
Company's ordinary shares (including the New
Shares) were also admitted to listing and trading
on the Astana International Exchange (AIX) on 13
February 2023. The New Warrants will not be
admitted to listing and trading on the AIX. The
SSNs and SUNs (together referred to as the “New
Notes”) and the New Warrants were also admitted
to listing and trading on The International Stock
Exchange (TISE) with effect from 9 February 2023.
No securities will be listed on the Irish Stock
Exchange plc.
place over allocation of resources among parent
and subsidiaries.
It was also noted that the Company was in a net
liability position as at 31 December 2022, due
primarily to recognition of the Financial Guarantee
as explained in the Note 9. However, as a result of
the completion of Restructuring in February 2023
the amount of Financial guarantee has
substantially decreased in line with the Group’s
borrowings (Note 16), thus significantly improving
the financial position of the Company.
Taking into account abovementioned, the directors
are satisfied that the Company will have sufficient
resources to continue in operation for the
foreseeable future, a period of not less than 12
months from the date of these financial
statements. Accordingly, they continue to adopt
the going concern basis in preparing the financial
statements.
The amendments specify that when assessing
whether a contract is onerous or loss-making, an
entity needs to include costs that relate directly to
a contract to provide goods or services include
both incremental costs (e.g., the costs of direct
labour and materials) and an allocation of costs
directly related to contract activities (e.g.,
depreciation of equipment used to fulfil the
contract as well as costs of contract management
and supervision). General and administrative costs
166 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Nostrum Oil & Gas PLC Annual Report & Accounts 2022
169
Parent company financial statements
Notes to the parent company financial statements (continued)
do not relate directly to a contract and are
excluded unless they are explicitly chargeable to
the counterparty under the contract.
The Company applies these amendments to
contracts for which it has not yet fulfilled all its
obligations at 1 January 2022. These amendments
had no impact on the financial statements of the
Company.
Reference to the Conceptual Framework –
Amendments to IFRS 3
The amendments replace a reference to a previous
version of the IASB’s Conceptual Framework with a
reference to the current version issued in March
2018 without significantly changing its
requirements.
The amendments add an exception to the
recognition principle of IFRS 3 Business
Combinations to avoid the issue of potential ‘day 2’
gains or losses arising for liabilities and contingent
liabilities that would be within the scope of IAS 37
Provisions, Contingent Liabilities and Contingent
Assets or IFRIC 21 Levies, if incurred separately.
The exception requires entities to apply the criteria
in IAS 37 or IFRIC 21, respectively, instead of the
Conceptual Framework, to determine whether a
present obligation exists at the acquisition date.
The amendments also add a new paragraph to
IFRS 3 to clarify that contingent assets do not
qualify for recognition at the acquisition date.
These amendments had no impact on the financial
statements of the Company as there were no
contingent assets, liabilities and contingent
liabilities within the scope of these amendments
arisen during the period.
Property, Plant and Equipment: Proceeds before
Intended Use – Amendments to IAS 16
The amendment prohibits entities from deducting
from the cost of an item of property, plant and
equipment, any proceeds of the sale of items
produced while bringing that asset to the location
and condition necessary for it to be capable of
operating in the manner intended by
management. Instead, an entity recognises the
proceeds from selling such items, and the costs of
producing those items, in profit or loss.
These amendments had no impact on the financial
statements of the Company as there were no sales
of such items produced by property, plant and
equipment made available for use on or after the
beginning of the earliest period presented.
IFRS 9 Financial Instruments – Fees in the ’10 per
cent’ test for derecognition of financial liabilities
The amendment clarifies the fees that an entity
includes when assessing whether the terms of a
new or modified financial liability are substantially
different from the terms of the original financial
liability. These fees include only those paid or
received between the borrower and the lender,
including fees paid or received by either the
borrower or lender on the other’s behalf. There is
no similar amendment proposed for IAS 39
Financial Instruments: Recognition and
Measurement.
These amendments had no impact on the financial
statements of the Company as there were no
modifications of the Company’s financial
instruments during the period.
SSttaannddaarrddss iissssuueedd bbuutt nnoott yyeett eeffffeeccttiivvee
IAS 8.30 IAS 8.31(d) IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance
Contracts (IFRS 17), a comprehensive new
accounting standard for insurance contracts
covering recognition and measurement,
presentation and disclosure. Once effective, IFRS
17 will replace IFRS 4 Insurance Contracts (IFRS 4)
that was issued in 2005. IFRS 17 applies to all types
of insurance contracts (i.e., life, non-life, direct
insurance and re-insurance), regardless of the type
of entities that issue them, as well as to certain
guarantees and financial instruments with
discretionary participation features. A few scope
exceptions will apply. The overall objective of IFRS
17 is to provide an accounting model for insurance
contracts that is more useful and consistent for
insurers. In contrast to the requirements in IFRS 4,
which are largely based on grandfathering previous
local accounting policies, IFRS 17 provides a
comprehensive model for insurance contracts,
covering all relevant accounting aspects. The core
of IFRS 17 is the general model, supplemented by:
• A specific adaptation for contracts with direct
participation features (the variable fee
approach)
• A simplified approach (the premium allocation
approach) mainly for short-duration contracts
IFRS 17 is effective for reporting periods beginning
on or after 1 January 2023, with comparative
figures required. Early application is permitted,
provided the entity also applies IFRS 9 and IFRS 15
on or before the date it first applies IFRS 17. This
standard is not applicable to the Company.
Amendments to IAS 1: Classification of Liabilities
as Current or Non-current
In January 2020, the IASB issued amendments to
paragraphs 69 to 76 of IAS 1 to specify the
requirements for classifying liabilities as current or
non-current. The amendments clarify:
• What is meant by a right to defer settlement
• That a right to defer must exist at the end of the
reporting period
• That classification is unaffected by the likelihood
that an entity will exercise its deferral right
• That only if an embedded derivative in a
convertible liability is itself an equity instrument
would the terms of a liability not impact its
classification
The amendments are effective for annual
reporting periods beginning on or after 1 January
2024 and must be applied retrospectively. The
Company is currently assessing the impact the
amendments will have on current practice.
Definition of Accounting Estimates - Amendments
to IAS 8
In February 2021, the IASB issued amendments to
IAS 8, in which it introduces a definition of
‘accounting estimates’. The amendments clarify
the distinction between changes in accounting
estimates and changes in accounting policies and
the correction of errors. Also, they clarify how
entities use measurement techniques and inputs
to develop accounting estimates.
The amendments are effective for annual
reporting periods beginning on or after 1 January
2023 and apply to changes in accounting policies
and changes in accounting estimates that occur on
or after the start of that period. Earlier application
is permitted as long as this fact is disclosed.
The amendments are not expected to have a
material impact on the Company’s financial
statements.
Disclosure of Accounting Policies - Amendments
to IAS 1 and IFRS Practice Statement 2
In February 2021, the IASB issued amendments to
IAS 1 and IFRS Practice Statement 2 Making
Materiality Judgements, in which it provides
guidance and examples to help entities apply
materiality judgements to accounting policy
disclosures. The amendments aim to help entities
provide accounting policy disclosures that are
more useful by replacing the requirement for
entities to disclose their ‘significant’ accounting
policies with a requirement to disclose their
‘material’ accounting policies and adding guidance
on how entities apply the concept of materiality in
making decisions about accounting policy
disclosures.
The amendments to IAS 1 are applicable for annual
periods beginning on or after 1 January 2023 with
earlier application permitted. Since the
amendments to the Practice Statement 2 provide
non-mandatory guidance on the application of the
definition of material to accounting policy
information, an effective date for these
amendments is not necessary.
The Company is currently revisiting their
accounting policy information disclosures to
ensure consistency with the amended
requirements.
Deferred Tax related to Assets and Liabilities
arising from a Single Transaction - Amendments
to IAS 12
In May 2021, the Board issued amendments to IAS
12, which narrow the scope of the initial
recognition exception under IAS 12, so that it no
longer applies to transactions that give rise to
equal taxable and deductible temporary
differences.
The amendments should be applied to
transactions that occur on or after the beginning of
the earliest comparative period presented. In
addition, at the beginning of the earliest
comparative period presented, a deferred tax
asset (provided that sufficient taxable profit is
available) and a deferred tax liability should also be
recognised for all deductible and taxable
temporary differences associated with leases and
decommissioning obligations.
The amendments are effective for annual
reporting periods beginning on or after 1 January
2023. The Company is currently assessing the
impact of the amendments.
170 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 167
Financial report
Parent company financial statements
Notes to the parent company financial statements continued
Notes to the parent company financial statements (continued)
Parent company financial statements
4. Summary of significant accounting policies
FFoorreeiiggnn ccuurrrreennccyy ttrraannssllaattiioonn
The functional currency is the currency of the
primary economic environment in which an entity
operates and is normally the currency in which the
entity primarily generates and expends cash.
Transactions in foreign currencies are initially
recorded at their respective functional currency
spot rates at the date the transaction first qualifies
for recognition.
The functional currency of the Company is the
United States dollar (the “US dollar” or “US$”).
IInnvveessttmmeennttss
Investments in subsidiaries are recorded at cost.
Subsequently, the Company determines whether it
is necessary to recognise an impairment loss on its
investment in a subsidiary. At each reporting date,
the Company determines whether there is objective
evidence that the investment in the subsidiary is
impaired. If there is such evidence, the Company
calculates the amount of impairment as the
difference between the recoverable amount of the
subsidiary and its carrying value, and then
recognises the impairment loss in the statement of
profit or loss.
FFiinnaanncciiaall aasssseettss
Initial recognition and measurement
Financial assets are classified, at initial recognition,
as subsequently measured at amortised cost, fair
value through other comprehensive income (OCI),
and fair value through profit or loss. The Company
determines the classification of its financial assets at
initial recognition.
The classification of financial assets at initial
recognition depends on the financial asset’s
contractual cash flow characteristics and the
Company’s business model for managing them.
With the exception of trade receivables that do not
contain a significant financing component or for
which the Company has applied the practical
expedient, the Company initially measures a
financial asset at its fair value plus, in the case of a
financial asset not at fair value through profit or loss,
transaction costs.
In order for a financial asset to be classified and
measured at amortised cost or fair value through
OCI, it needs to give rise to cash flows that are
‘solely payments of principal and interest (SPPI)’ on
the principal amount outstanding. This assessment
is referred to as the SPPI test and is performed at an
instrument level.
The Company’s business model for managing
financial assets refers to how it manages its financial
assets in order to generate cash flows. The business
model determines whether cash flows will result
from collecting contractual cash flows, selling the
financial assets, or both.
Purchases or sales of financial assets that require
delivery of assets within a time frame established by
Monetary assets and liabilities denominated in
foreign currencies are translated at the functional
currency spot rates of exchange at the reporting
date. All differences are taken to the profit or loss.
Significant estimates and assumptions: impairment
of investments in subsidiaries
Determination as to whether, and by how much,
the investment in a subsidiary is impaired involves
management’s best estimates on highly uncertain
matters such as future revenues of the subsidiary,
operating expenses, discount rate, as well as fiscal
regimes.
As at 31 December 2019, the Company had
recorded impairment for the full amount of the
investments in Nostrum Oil & Gas Coöperatief U.A.
and Nostrum Oil & Gas B.V. in the amount of
US$116,437 thousand and US$222 thousand,
respectively. Such impairment has been recognised
in view of the decrease in the net assets of these
subsidiaries, and the reduction of the 2P reserves
expected to be recovered from the main operating
regulation or convention in the market place
(regular way trades) are recognised on the trade
date, i.e., the date that the Company commits to
purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial
assets are classified in four categories:
• Financial assets at amortised cost (debt
instruments);
• Financial assets at fair value through OCI with
recycling of cumulative gains and losses (debt
instruments);
• Financial assets designated at fair value through
OCI with no recycling of cumulative gains and
losses upon derecognition (equity instruments);
• Financial assets at fair value through profit or loss
Financial assets at amortised cost (debt
instruments)
This category is the most relevant to the Company.
The Company measures financial assets at
amortised cost if both of the following conditions
are met:
• The financial asset is held within a business
model with the objective to hold financial assets
in order to collect contractual cash flows, and
• The contractual terms of the financial asset give
rise on specified dates to cash flows that are
solely payments of principal and interest on the
principal amount outstanding.
Financial assets at amortised cost are subsequently
measured using the effective interest (EIR) method
and are subject to impairment. Gains and losses are
Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated
using the exchange rates as at the dates of the initial
transactions. Non-monetary items measured at fair
value in a foreign currency are translated using the
exchange rates at the date when the fair value is
determined.
subsidiary of the Company over the period of 2020-
2032, with the relevant decrease in the expected
future net cash proceeds of Nostrum Oil & Gas
Coöperatief U.A.
A reversal of impairment in the amount of US$38
thousand (Note 5) was recognised as at
31 December 2022 (31 December 2021: US$232
thousand) corresponding to the decrease in the
amount of investment in Nostrum Oil & Gas
Coöperatief U.A. resulting from the adjustment
under the Long-term Incentive Plan 2017.
As at 31 December 2022, impairment for the full
amount of investments in Nostrum Oil & Gas
Coöperatief U.A. and Nostrum Oil & Gas B.V.
remained appropriate taking into account no
significant changes in the assessments of
recoverability of these investments.
recognised in profit or loss when the asset is
derecognised, modified or impaired.
The Company’s financial assets at amortised cost
include cash and receivables from related parties.
Derecognition
A financial asset (or, where applicable, a part of a
financial asset or part of a group of similar financial
assets) is primarily derecognised (i.e., removed from
the Company’s statement of financial position)
when:
• The rights to receive cash flows from the asset
have expired; or
• The Company has transferred its rights to receive
cash flows from the asset or has assumed an
obligation to pay the received cash flows in full
without material delay to a third party under a
‘pass-through’ arrangement; and either (a) the
Company has transferred substantially all the
risks and rewards of the asset, or (b) the
Company has neither transferred nor retained
substantially all the risks and rewards of the
asset, but has transferred control of the asset.
When the Company has transferred its rights to
receive cash flows from an asset or has entered into
a pass-through arrangement, it evaluates if, and to
what extent, it has retained the risks and rewards of
ownership. When it has neither transferred nor
retained substantially all of the risks and rewards of
the asset, nor transferred control of the asset, the
Company continues to recognise the transferred
asset to the extent of its continuing involvement. In
that case, the Company also recognises an
associated liability. The transferred asset and the
associated liability are measured on a basis that
168 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Nostrum Oil & Gas PLC Annual Report & Accounts 2022
171
Parent company financial statements
Notes to the parent company financial statements (continued)
reflects the rights and obligations that the Company
has retained.
Impairment of financial assets
The Company recognises an allowance for expected
credit losses (ECLs) for all debt instruments not held
at fair value through profit or loss. ECLs are based on
the difference between the contractual cash flows
due in accordance with the contract and all the cash
flows that the Company expects to receive,
discounted at an approximation of the original
effective interest rate. The expected cash flows will
FFiinnaanncciiaall lliiaabbiilliittiieess
include cash flows from the sale of collateral held or
other credit enhancements that are integral to the
contractual terms.
allowance is required for credit losses expected over
the remaining life of the exposure, irrespective of
the timing of the default (a lifetime ECL).
ECLs are recognised in two stages. For credit
exposures for which there has not been a significant
increase in credit risk since initial recognition, ECLs
are provided for credit losses that result from
default events that are possible within the next 12-
months (a 12-month ECL). For those credit
exposures for which there has been a significant
increase in credit risk since initial recognition, a loss
For trade receivables and contract assets, the
Company applies a simplified approach in
calculating ECLs. Therefore, the Company does not
track changes in credit risk, but instead recognises a
loss allowance based on lifetime ECLs at each
reporting date.
Initial recognition, measurement and
derecognition
• Financial liabilities at amortised cost (loans and
borrowings)
Financial liabilities are classified, at initial
recognition, as financial liabilities at fair value
through profit or loss, long-term borrowings,
payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair
value and, in the case of long-term borrowings and
payables, net of directly attributable transaction
costs.
The Company’s financial liabilities include trade
payables, payables related parties and financial
guarantee liabilities.
Subsequent measurement
For purposes of subsequent measurement, financial
liabilities are classified in two categories:
• Financial liabilities at fair value through profit or
loss
FFiinnaanncciiaall gguuaarraanntteeeess
Financial liabilities at fair value through profit or
loss
Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and
financial liabilities designated upon initial
recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if
they are incurred for the purpose of repurchasing in
the near term. This category also includes derivative
financial instruments entered into by the Company
that are not designated as hedging instruments in
hedge relationships as defined by IFRS 9. Separated
embedded derivatives are also classified as held for
trading unless they are designated as effective
hedging instruments.
Gains or losses on liabilities held for trading are
recognised in the statement of profit or loss.
Financial guarantee is initially recognised in the
financial statements at fair value at the time the
guarantee is issued. The Company estimates the fair
value of the financial guarantee contract as the
difference between the net present value of the
contractual cashflows required under a debt
instrument, and the net present value of the net
contractual cashflows that would have been
required without the guarantee. The present value
is calculated using a risk-free interest rate.
Subsequent to initial recognition, the Company’s
liability under each guarantee is measured at the
higher of the amount initially recognised less
cumulative amortisation recognised in profit and
loss, and the amount of expected credit losses (ECL).
Financial guarantee ECL reflect the cash shortfalls
adjusted by the risks that are specific to the
cashflows. If the ECL exceeds the initially recognised
guarantee amount less cumulative amortisation the
difference is taken to profit and loss.
SShhaarree--bbaasseedd ppaayymmeennttss
The cost of cash-settled equity-based employee
compensation is measured initially at fair value at
the grant date. This fair value is expensed over the
period until vesting with the recognition of a
corresponding liability. The liability is remeasured at
each reporting date up to and including the
settlement date with changes in fair value
recognised in the statement of comprehensive
income.
The cost of equity-settled transactions is measured
at fair value at the grant date. This fair value is
expensed over the period until vesting with the
recognition of a corresponding equity element,
which is not remeasured subsequently until the
settlement date.
Estimating fair value for share-based payment
transactions requires determination of the most
appropriate valuation model, which is dependent
Financial liabilities designated upon initial
recognition at fair value through profit or loss are
designated at the initial date of recognition, and
only if the criteria in IFRS 9 are satisfied. The
Company has not designated any financial liability as
at fair value through profit or loss.
Derecognition
A financial liability is derecognised when the
obligation under the liability is discharged or
cancelled or expires. When an existing financial
liability is replaced by another from the same lender
on substantially different terms, or the terms of an
existing liability are substantially modified, such an
exchange or modification is treated as the
derecognition of the original liability and the
recognition of a new liability. The difference in the
respective carrying amounts is recognised in the
statement of profit or loss.
A financial guarantee liability is derecognised when
the liability underlying the guarantee is discharged
or cancelled or expires, or if the guarantee is
withdrawn or cancelled. The carrying amount of the
financial guarantee is taken to the statement of
profit or loss.
on the terms and conditions of the grant. This
estimate also requires determination of the most
appropriate inputs to the valuation model including
the expected life of the share option, volatility and
distribution yield and making assumptions about
them. The assumptions and models used for
estimating fair value for share-based payment
transactions are disclosed in Note 13.
172 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 169
Financial report
Parent company financial statements
Notes to the parent company financial statements continued
Notes to the parent company financial statements (continued)
Parent company financial statements
Parent company financial statements
Notes to the parent company financial statements (continued)
5. Investments in subsidiaries
8. Shareholders’ equity
9. Financial guarantees
As at 31 December 2022 the ownership interests in Nostrum Oil & Gas PLC
consists of 188,182,958 issued and fully paid ordinary shares, which are listed on
the London Stock Exchange. The ordinary shares have a nominal value of GB£
0.01. There were no movements in the number of shares during the years ended
31 December 2022 and 2021and comprised of the following:
In circulation
Treasury capital
Number of shares
185,234,079
2,948,879
188,182,958
Treasury shares were issued to support the Group’s obligations to employees
under the Employee Share Option Plan (“ESOP”) and the Long-Term Incentive
Plan (“LTIP”) and are held by Intertrust Employee Benefit Trustee Limited as
trustee for the Nostrum Oil & Gas Benefit Trust. In the case of the ESOP, upon
request from employees to exercise options, the trustee would sell shares on the
market and settle respective obligations under the ESOP. In the case of share-
settled LTIP awards, the trustee would transfer shares to the relevant LTIP award
holder (although no LTIP awards are currently exercisable). The Nostrum Oil & Gas
Benefit Trust constitutes a special purpose entity under IFRS and therefore, the
shares held in the trust are recorded as treasury capital of the Company.
Group reorganisation reserve in the amount of US$255,459 thousand represents
the difference between the partnership capital, treasury capital and additional
paid-in capital of Nostrum Oil & Gas LP and the share capital of Nostrum Oil & Gas
PLC, that arose during the reorganisation of the Group in 2014. Share-option
reserves include amounts related to sale of treasury shares under ESOP as well as
share-based payments under LTIP.
Nostrum Oil & Gas PLC became the new holding company for the business of
Nostrum Oil & Gas LP based on the resolution passed by its limited partners on 17
June 2014 followed by the Company reorganisation referred to in that resolution.
SShhaarree ccaappiittaall ooff NNoossttrruumm OOiill && GGaass PPLLCC
As at 31 December 2022 the ownership interests in the Company consist of
ordinary shares, which are listed on the London Stock Exchange, these shares
have been issued and fully paid. As at 1 January 2014 the Company had subscriber
shares and redeemable preference shares, all of which were cancelled on 7
August 2014.
The subscriber and redeemable preference shares had a nominal value of GBP 1
and the ordinary shares have a nominal value of GBP 0.01.
As at 31 December 2022 and 31 December 2021 Investments of the Company
comprised the following:
In thousands of US Dollars
Nostrum Oil & Gas Coöperatief U.A.
Nostrum Oil & Gas BV
Impairment of investments
31 December
2022
116,398,903
222,271
(116,621,174)
–
31 December
2021
116,669,665
222,271
(116,891,936)
–
The investments in Nostrum & Gas Cooperatief U.A. include the guarantees initial
cost in the amount of US$9,881 thousand as described in the Note 9 (2021:
US$9,881 thousand) as well as US$518 thousand capitalized costs under the
“Long-term Incentive Plan 2017” (2021: US$556 thousand).
As a result of the impairment testing performed at 31 December 2019 the
Company recognised an impairment charge of US$117,361 thousand for the full
amount of its investments in subsidiaries. For more details, please refer to
Note 4. As at 31 December 2022 and 2021 the Company has partially reversed
previously recognised impairment of investments in subsidiaries in the amount of
US$38 thousand and US$232 thousand, relatively, corresponding to the
adjustment under the “Long-term Incentive Plan 2017”.
6. Receivables from related parties
Receivables from related parties are comprised of the following as at
31 December 2022 and 31 December 2021:
In thousands of US Dollars
Receivables from Nostrum Oil & Gas
Benefit Trust
Receivables from Nostrum Oil & Gas
Coöperatief U.A.
Less: bad debt allowance
31 December
2022
31 December
2021
23,812
23,812
836
729
24,648
(23,693)
955
24,541
(23,541)
1,000
Receivables from the Nostrum Oil & Gas Benefit Trust (“the Trust”) represent the
loan provided to support the Company’s obligations to employees under the
Employee Share Option Plan (“ESOP”) and the Long-Term Incentive Plan 2017
(“LTIP”) (Note 13). The loan is interest free and unsecured. The loan is repayable
in the case of an advance used to acquire securities to satisfy the exercise of
options granted pursuant to the rules of ESOP, and unless otherwise agreed in
writing between the parties, the earlier of 1) ten years from the Date of Grant, or
2) 30 days after the exercise date, and in all other cases any other date agreed in
writing between the parties.
Considering the fact that the loan is repayable to the extent of the assets of the
Trust, which are reflected in treasury shares held by the Trust, the Company has
recognised a bad debt allowance as at 31 December 2021 in the amount of
US$23,541 thousand, representing the difference between the book value of the
loan and the recoverable value of the treasury shares as of 31 December 2021.
7. Cash and Cash Equivalents
As at 31 December 2022 and 31 December 2021 cash and cash equivalents
comprised the following:
In thousands of US Dollars
Current accounts in Pounds Sterling
Current accounts in US Dollars
31 December
2021
901
–
901
31 December
2021
319
230
549
170 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Nostrum Oil & Gas PLC Annual Report & Accounts 2022
173
174 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
respect of such payment. As mentioned above, the Company engaged with its
bondholders regarding a possible restructuring of the Group’s Notes and entered
into Forbearance Agreement. More detailed information related to forbearance
agreement and discussions with bondholders is disclosed in the Note 1.
Considering these facts and circumstances, from 2020 the Company has
reclassified the balance of the financial guarantees into current liabilities and
presented them as the current portion of financial guarantees.
10. Payables to related parties
Payables to related parties are comprised of the following as at 31 December
In thousands of US Dollars
Payables to Nostrum Oil & Gas Coöperatief U.A.
Interest payable Nostrum Oil & Gas Finance B.V.
31 December
31 December
2021
119
204
323
2021
272
204
476
As at 31 December 2022 amounts payable to Nostrum Oil & Gas Coöperatief U.A.
represent the arrangements in respect of the Nostrum employee benefit trust.
For more details, please refer to Note 6. Based on the service agreement, the
amounts payable to Nostrum Oil & Gas Coöperatief U.A. in respect to the
employee benefit trust, are only repayable to the extent of amounts received (or
recovered) from the Trust. Considering the fact that the loan is repayable to the
extent of the assets of the Trust, which are reflected in treasury shares held by the
Trust, the Company has remeasured and reduced the loan payable as at 31
December 2022 by US$152,709 (2021: US$92,613), representing the difference
between the book value of the loan and the recoverable value of the treasury
shares as of 31 December 2022.
As at 31 December 2022 and 2021 amounts payable to Nostrum Oil & Gas
Finance B.V. represent interest accrued in the amount US$204 thousand on the
loan from Nostrum Oil & Gas Finance B.V. The loan on which the above interest
amounts were calculated was settled against the receivables due from Nostrum
Oil & Gas Coöperatief U.A. in the amount of $3,000 thousand in 2019.
11. Auditors’ remuneration
For the year ended 31 December 2022 the fees for the audit of the Company
amount to US$10 thousand (2021: US$10 thousand).
The Company acts as a guarantor under the Group’s US$725 million 8.0% Senior
2022 and 31 December 2021:
Financial guarantees are comprised of the following as at 31 December 2022 and
31 December 2021:
In thousands of US Dollars
Financial guarantee as at 1 January
Charge for expected credit losses
2022
2021
809,812
831,767
90,872
(21,955)
Financial guarantee as at 31 December
900,684
809,812
Notes due July 2022 and/or its US$400 million 7.0% Senior Notes due February
2025 (the ‘Notes’). Since the guarantees are issued in favour of the Company’s
indirect subsidiaries, related costs at initial recognition are capitalized into the
investments in subsidiaries (Note 5).
In 2022 and 2021, the Company performed an assessment of the value of the
guarantees issued under the 2022 and 2025 Notes, taking into account the
Group’s financial position as at 31 December in both years and the fact that the
Company is the parent entity in the Group and so would ultimately assume the
guarantee obligations of its subsidiaries in the event of their inability to meet such
obligations. As a result, the Company has recognised the guarantee liabilities for
the total amount of US$ 886,513 thousand as at 31 December 2022 (2021:
US$809,812 thousand), representing the amount of expected credit losses as of
the reporting date. Further details on the Notes are provided below.
During 2020 the Company engaged with its bondholders regarding a possible
restructuring of the Group’s Notes. On 23 October 2020 the Company announced
that, together with certain of its subsidiaries (the “Note Parties”), it had entered
into a forbearance agreement with members of the AHG. On 23 December 2021,
the Company announced the execution of a lock-up agreement. Under the terms
of the Lock-up Agreement, the Group, ICU and the AHG have agreed to
implement a transaction which restructures the Notes. More detailed information
related to forbearance agreement and discussions with bondholders is disclosed
in the Note 1.
22002222 NNootteess
indebtedness.
22002255 NNootteess
On 25 July 2017, a newly incorporated entity, Nostrum Oil & Gas Finance B.V. (the
“2022 Issuer”) issued US$ 725,000 thousand notes (the “2022 Notes”). The 2022
Notes bear interest at a rate of 8.00% per year, payable on 25 January and 25 July
of each year, maturing in 2022.
The 2022 Notes are jointly and severally guaranteed (the “2022 Guarantees”) on a
senior basis by Nostrum Oil & Gas PLC, Nostrum Oil & Gas Coöperatief U.A.,
Zhaikmunai LLP and Nostrum Oil & Gas B.V. (the “2022 Guarantors”). The 2022
Notes are the 2022 Issuer’s and the 2022 Guarantors’ senior obligations and rank
equally with all of the 2022 Issuer’s and the 2022 Guarantors’ other senior
On 16 February 2018, Nostrum Oil & Gas Finance B.V. (the “2025 Issuer”) issued
US$ 400,000 thousand notes (the “2025 Notes”). The 2025 Notes bear interest at
a rate of 7.00% per year, payable on 16 February and 16 August of each year,
maturing in 2025.
The 2025 Notes are jointly and severally guaranteed (the “2025 Guarantees”) on a
senior basis by Nostrum Oil & Gas PLC, Nostrum Oil & Gas Coöperatief U.A.,
Zhaikmunai LLP and Nostrum Oil & Gas B.V. (the “2025 Guarantors”). The 2025
Notes are the 2025 Issuer’s and the 2025 Guarantors’ senior obligations and rank
equally with all of the 2025 Issuer’s and the 2025 Guarantors’ other senior
indebtedness.
RReeccllaassssiiffiiccaattiioonn ttoo ccuurrrreenntt lliiaabbiilliittiieess
On 26 August 2020 the Company announced that an event of default has
occurred under the terms of the indenture governing 2022 Notes resulting from
the Issuer's non-payment of interest due and payable on 25 July 2020 to the
holders of the 2022 Notes and the expiration of the 30-day grace period which
commenced on the same date. Following this, the Issuer also did not pay interest
on 2025 Notes when due and upon the expiration of the 30-day grace period in
Parent company financial statements
Notes to the parent company financial statements (continued)
9. Financial guarantees
Financial guarantees are comprised of the following as at 31 December 2022 and
31 December 2021:
In thousands of US Dollars
Financial guarantee as at 1 January
Charge for expected credit losses
Financial guarantee as at 31 December
2022
809,812
90,872
900,684
2021
831,767
(21,955)
809,812
The Company acts as a guarantor under the Group’s US$725 million 8.0% Senior
Notes due July 2022 and/or its US$400 million 7.0% Senior Notes due February
2025 (the ‘Notes’). Since the guarantees are issued in favour of the Company’s
indirect subsidiaries, related costs at initial recognition are capitalized into the
investments in subsidiaries (Note 5).
In 2022 and 2021, the Company performed an assessment of the value of the
guarantees issued under the 2022 and 2025 Notes, taking into account the
Group’s financial position as at 31 December in both years and the fact that the
Company is the parent entity in the Group and so would ultimately assume the
guarantee obligations of its subsidiaries in the event of their inability to meet such
obligations. As a result, the Company has recognised the guarantee liabilities for
the total amount of US$ 886,513 thousand as at 31 December 2022 (2021:
US$809,812 thousand), representing the amount of expected credit losses as of
the reporting date. Further details on the Notes are provided below.
During 2020 the Company engaged with its bondholders regarding a possible
restructuring of the Group’s Notes. On 23 October 2020 the Company announced
that, together with certain of its subsidiaries (the “Note Parties”), it had entered
into a forbearance agreement with members of the AHG. On 23 December 2021,
the Company announced the execution of a lock-up agreement. Under the terms
of the Lock-up Agreement, the Group, ICU and the AHG have agreed to
implement a transaction which restructures the Notes. More detailed information
related to forbearance agreement and discussions with bondholders is disclosed
in the Note 1.
22002222 NNootteess
On 25 July 2017, a newly incorporated entity, Nostrum Oil & Gas Finance B.V. (the
“2022 Issuer”) issued US$ 725,000 thousand notes (the “2022 Notes”). The 2022
Notes bear interest at a rate of 8.00% per year, payable on 25 January and 25 July
of each year, maturing in 2022.
The 2022 Notes are jointly and severally guaranteed (the “2022 Guarantees”) on a
senior basis by Nostrum Oil & Gas PLC, Nostrum Oil & Gas Coöperatief U.A.,
Zhaikmunai LLP and Nostrum Oil & Gas B.V. (the “2022 Guarantors”). The 2022
Notes are the 2022 Issuer’s and the 2022 Guarantors’ senior obligations and rank
equally with all of the 2022 Issuer’s and the 2022 Guarantors’ other senior
indebtedness.
22002255 NNootteess
On 16 February 2018, Nostrum Oil & Gas Finance B.V. (the “2025 Issuer”) issued
US$ 400,000 thousand notes (the “2025 Notes”). The 2025 Notes bear interest at
a rate of 7.00% per year, payable on 16 February and 16 August of each year,
maturing in 2025.
The 2025 Notes are jointly and severally guaranteed (the “2025 Guarantees”) on a
senior basis by Nostrum Oil & Gas PLC, Nostrum Oil & Gas Coöperatief U.A.,
Zhaikmunai LLP and Nostrum Oil & Gas B.V. (the “2025 Guarantors”). The 2025
Notes are the 2025 Issuer’s and the 2025 Guarantors’ senior obligations and rank
equally with all of the 2025 Issuer’s and the 2025 Guarantors’ other senior
indebtedness.
RReeccllaassssiiffiiccaattiioonn ttoo ccuurrrreenntt lliiaabbiilliittiieess
On 26 August 2020 the Company announced that an event of default has
occurred under the terms of the indenture governing 2022 Notes resulting from
the Issuer's non-payment of interest due and payable on 25 July 2020 to the
holders of the 2022 Notes and the expiration of the 30-day grace period which
commenced on the same date. Following this, the Issuer also did not pay interest
on 2025 Notes when due and upon the expiration of the 30-day grace period in
174 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
respect of such payment. As mentioned above, the Company engaged with its
bondholders regarding a possible restructuring of the Group’s Notes and entered
into Forbearance Agreement. More detailed information related to forbearance
agreement and discussions with bondholders is disclosed in the Note 1.
Considering these facts and circumstances, from 2020 the Company has
reclassified the balance of the financial guarantees into current liabilities and
presented them as the current portion of financial guarantees.
10. Payables to related parties
Payables to related parties are comprised of the following as at 31 December
2022 and 31 December 2021:
In thousands of US Dollars
Payables to Nostrum Oil & Gas Coöperatief U.A.
Interest payable Nostrum Oil & Gas Finance B.V.
31 December
2021
119
204
323
31 December
2021
272
204
476
As at 31 December 2022 amounts payable to Nostrum Oil & Gas Coöperatief U.A.
represent the arrangements in respect of the Nostrum employee benefit trust.
For more details, please refer to Note 6. Based on the service agreement, the
amounts payable to Nostrum Oil & Gas Coöperatief U.A. in respect to the
employee benefit trust, are only repayable to the extent of amounts received (or
recovered) from the Trust. Considering the fact that the loan is repayable to the
extent of the assets of the Trust, which are reflected in treasury shares held by the
Trust, the Company has remeasured and reduced the loan payable as at 31
December 2022 by US$152,709 (2021: US$92,613), representing the difference
between the book value of the loan and the recoverable value of the treasury
shares as of 31 December 2022.
As at 31 December 2022 and 2021 amounts payable to Nostrum Oil & Gas
Finance B.V. represent interest accrued in the amount US$204 thousand on the
loan from Nostrum Oil & Gas Finance B.V. The loan on which the above interest
amounts were calculated was settled against the receivables due from Nostrum
Oil & Gas Coöperatief U.A. in the amount of $3,000 thousand in 2019.
11. Auditors’ remuneration
For the year ended 31 December 2022 the fees for the audit of the Company
amount to US$10 thousand (2021: US$10 thousand).
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 171
Financial report
Parent company financial statements
Notes to the parent company financial statements continued
Notes to the parent company financial statements (continued)
Parent company financial statements
12. Employee’s remuneration
The average monthly number of employees employed was as follows:
For the year ended 31 December
This fair value is expensed over the period until vesting with the recognition of a
corresponding liability. The liability is remeasured at each reporting date up to
and including the settlement date with changes in fair value recognised in the
statement of comprehensive income.
In thousands of US Dollars
Executive Directors
Administrative personnel
2022
1
3
4
2021
1
4
5
The cost of equity-settled transactions is measured at fair value at the grant date
using a trinomial lattice valuation model. This fair value is expensed over the
period until vesting with the recognition of a corresponding equity element of
“shares to be issued under LTIP”, which is not remeasured subsequently until the
settlement date.
Their aggregate remuneration comprised:
In thousands of US Dollars
Wages and salaries
Social security costs
Other benefits
For the year ended 31 December
2022
691
125
19
835
2021
960
148
40
1,148
The directors of the Company are also directors of the Group. The aggregate
amount of remuneration paid to or receivable by executive directors in respect of
qualifying services for the financial year ended 31 December 2022 was US$1,960
thousand (2021: US$ US$1,877 thousand) and also includes remuneration paid by
other companies of the Group. In addition, US$359 thousand (2021: US$280
thousand) was paid by the Company to the non-executive directors. The directors
do not believe that it is practicable to apportion these amounts between their
services as directors of the Company and their services as directors of the Group.
For the year ended 31 December 2022 the Company employed an average of
2 non-executive directors (2021: 2 non-executive directors).
Full details of individual directors’ remuneration are given in the directors’
remuneration report on pages 108-122 of the annual report.
13. Long-term incentive plan
22001177 LLoonngg--tteerrmm iinncceennttiivvee ppllaann
In 2017 the Company started operating a Long-term incentive plan (“the LTIP”),
that was approved by the shareholders of the Company on 26 June 2017 and
adopted by the board of directors of the Company on 24 August 2017. The LTIP is
a discretionary benefit offered by the Company for the benefit of selected
employees. Its main purpose is to increase the interest of the employees in the
Company's long-term business goals and performance through share ownership.
The LTIP is an incentive for the employees' future performance and commitment
to the goals of the Company. The remuneration committee of the board of the
Company has the right to decide, in its sole discretion, whether or not further
awards will be granted in the future and to which employees those awards will be
granted.
Employees (including senior executives and executive directors) of members of
the Group or their associates may receive an award, which is a "nominal cost
option" over a specified number of ordinary shares in the capital of the Company.
The option has an exercise price of 1p per share (but the Company has the
discretion to waive this prior to exercise). In addition, under the Rules of the LTIP
the Company has discretion to settle awards other than by transfer of shares such
as by way of cash settlement. Generally, the awards are classified as equity-
settled transactions. The share options are treated as equity-settled since there
are no legal limitations expected on issue of shares for these upon vesting, the
Company has a choice of settlement and the intention is to settle them in equity.
However, in certain jurisdictions due to regulatory requirements the Company
may not be able to settle the awards other than by transfer of cash, in which case
the awards are classified as cash-settled transactions, and accounted for similar to
SARs.
The award ordinarily vests and becomes exercisable as from later of the third
anniversary of grant or two years after the date on which the Company
determines whether the performance condition has been satisfied, subject to
employee’s continued service and to the extent to which the performance
condition is satisfied, until the end of the contractual life. The contractual life of
the share options is ten years.
The cost of cash-settled equity-based employee compensation is measured
initially at fair value at the grant date using a trinomial lattice valuation model.
172 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
The following table summarizes the movement in the number of outstanding
share options capable of vesting during the years ended 31 December 2022 and
31 December 2021:
As at 31 December 2020
Share options forfeited
As at 31 December 2021
Share options forfeited
As at 31 December 2022
Equity-settled
awards
218,893
(62,854)
156,039
(8,696)
147,343
Cash-settled
awards
26,619
(26,619)
–
–
–
TOTAL awards
245,512
(89,473)
156,039
(8,696)
147,343
In 2017 the Company granted 1,208,843 share options, of which 344,631 share
options remained outstanding as at 31 December 2022 (2021: 542,243 share
options). The weighted average remaining contractual life of share options
outstanding as at 31 December 2022 was 5 years (2021: 6 years). On 23 March
2018 the remuneration committee of the board of the Company determined the
level of performance conditions that were met for the performance conditions set
upon issue of the share options granted in 2017. After adjusting for the non-
achievement of performance conditions, 147,343 share options are capable of
vesting as of 31 December 2022 (2021: 156,039 share options) and all of these
share options were vested, in accordance with the management’s best estimate,
and exercisable as of 31 December 2022.
On 28 November 2018 the Company granted a further 1,163,040 share options,
however due to the performance conditions not being met none of these share
options are capable of vesting.
There were no cash-settled share-options at the years ended 31 December 2022
and 2021. Based on the estimations of the carrying value of the liability, during
the year ended 31 December 2021 the Company recognised a gain of US$3
thousand from employee share options fair value adjustment. No adjustments
were recognised during the year ended 31 December 2022.
The fair value of the equity-settled share options at the valuation dates of
28 November 2018 and 23 March 2018 amounted to US$1.25 and US$2.76 per
share option, respectively. Based on these estimations, during the year ended 31
December 2021 the Company recognised income from reversal of employee
share option expense in the amount of US$11 thousand and a reduction in the
investments in subsidiaries in the amounts of US$244 thousand. No adjustments
were recognised during the year ended 31 December 2022.
The Hull-White trinomial lattice valuation model was used to value the share
options. The following table lists the inputs to the model used for valuation of the
share options at the grant date:
Price at the reporting date (US$)
Distribution yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life (years)
Option turnover (%)
Price trigger
10 October 2017
1.25
0%
43.4%
1.38%
10
10%
2.0
11 December 2017
2.76
0%
40.4%
1.45%
10
10%
2.0
The expected life of the options is based on historical data and is not necessarily
indicative of exercise patterns that may occur. The expected volatility reflects the
assumption that the historical volatility is indicative of future trends, which may
also not necessarily be the actual outcome. Option turnover rate represents the
rate of employees expected to leave the Company during the vesting period,
which is based on historical data and may not necessarily be the actual outcome.
The model considers that when share price reaches the level of exercise price
multiplied by the price trigger the employees are expected to exercise their
options.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022
175
Notes to the parent company financial statements (continued)
Notes to the parent company financial statements (continued)
Parent company financial statements
Parent company financial statements
12. Employee’s remuneration
This fair value is expensed over the period until vesting with the recognition of a
corresponding liability. The liability is remeasured at each reporting date up to
and including the settlement date with changes in fair value recognised in the
The average monthly number of employees employed was as follows:
For the year ended 31 December
statement of comprehensive income.
2022
2021
The cost of equity-settled transactions is measured at fair value at the grant date
1
3
4
1
4
5
using a trinomial lattice valuation model. This fair value is expensed over the
period until vesting with the recognition of a corresponding equity element of
“shares to be issued under LTIP”, which is not remeasured subsequently until the
Their aggregate remuneration comprised:
For the year ended 31 December
The following table summarizes the movement in the number of outstanding
share options capable of vesting during the years ended 31 December 2022 and
2022
691
125
19
835
2021
960
148
40
1,148
settlement date.
31 December 2021:
As at 31 December 2020
Share options forfeited
As at 31 December 2021
Share options forfeited
Equity-settled
Cash-settled
awards
218,893
(62,854)
156,039
(8,696)
147,343
awards
TOTAL awards
26,619
(26,619)
–
–
–
245,512
(89,473)
156,039
(8,696)
147,343
In thousands of US Dollars
Executive Directors
Administrative personnel
In thousands of US Dollars
Wages and salaries
Social security costs
Other benefits
The directors of the Company are also directors of the Group. The aggregate
amount of remuneration paid to or receivable by executive directors in respect of
As at 31 December 2022
qualifying services for the financial year ended 31 December 2022 was US$1,960
thousand (2021: US$ US$1,877 thousand) and also includes remuneration paid by
other companies of the Group. In addition, US$359 thousand (2021: US$280
thousand) was paid by the Company to the non-executive directors. The directors
do not believe that it is practicable to apportion these amounts between their
services as directors of the Company and their services as directors of the Group.
For the year ended 31 December 2022 the Company employed an average of
2 non-executive directors (2021: 2 non-executive directors).
Full details of individual directors’ remuneration are given in the directors’
remuneration report on pages 108-122 of the annual report.
13. Long-term incentive plan
22001177 LLoonngg--tteerrmm iinncceennttiivvee ppllaann
In 2017 the Company started operating a Long-term incentive plan (“the LTIP”),
that was approved by the shareholders of the Company on 26 June 2017 and
adopted by the board of directors of the Company on 24 August 2017. The LTIP is
a discretionary benefit offered by the Company for the benefit of selected
employees. Its main purpose is to increase the interest of the employees in the
Company's long-term business goals and performance through share ownership.
The LTIP is an incentive for the employees' future performance and commitment
to the goals of the Company. The remuneration committee of the board of the
Company has the right to decide, in its sole discretion, whether or not further
awards will be granted in the future and to which employees those awards will be
granted.
Employees (including senior executives and executive directors) of members of
the Group or their associates may receive an award, which is a "nominal cost
option" over a specified number of ordinary shares in the capital of the Company.
The option has an exercise price of 1p per share (but the Company has the
discretion to waive this prior to exercise). In addition, under the Rules of the LTIP
the Company has discretion to settle awards other than by transfer of shares such
as by way of cash settlement. Generally, the awards are classified as equity-
settled transactions. The share options are treated as equity-settled since there
are no legal limitations expected on issue of shares for these upon vesting, the
Company has a choice of settlement and the intention is to settle them in equity.
However, in certain jurisdictions due to regulatory requirements the Company
may not be able to settle the awards other than by transfer of cash, in which case
the awards are classified as cash-settled transactions, and accounted for similar to
SARs.
The award ordinarily vests and becomes exercisable as from later of the third
anniversary of grant or two years after the date on which the Company
determines whether the performance condition has been satisfied, subject to
employee’s continued service and to the extent to which the performance
condition is satisfied, until the end of the contractual life. The contractual life of
the share options is ten years.
In 2017 the Company granted 1,208,843 share options, of which 344,631 share
options remained outstanding as at 31 December 2022 (2021: 542,243 share
options). The weighted average remaining contractual life of share options
outstanding as at 31 December 2022 was 5 years (2021: 6 years). On 23 March
2018 the remuneration committee of the board of the Company determined the
level of performance conditions that were met for the performance conditions set
upon issue of the share options granted in 2017. After adjusting for the non-
achievement of performance conditions, 147,343 share options are capable of
vesting as of 31 December 2022 (2021: 156,039 share options) and all of these
share options were vested, in accordance with the management’s best estimate,
and exercisable as of 31 December 2022.
On 28 November 2018 the Company granted a further 1,163,040 share options,
however due to the performance conditions not being met none of these share
options are capable of vesting.
There were no cash-settled share-options at the years ended 31 December 2022
and 2021. Based on the estimations of the carrying value of the liability, during
the year ended 31 December 2021 the Company recognised a gain of US$3
thousand from employee share options fair value adjustment. No adjustments
were recognised during the year ended 31 December 2022.
The fair value of the equity-settled share options at the valuation dates of
28 November 2018 and 23 March 2018 amounted to US$1.25 and US$2.76 per
share option, respectively. Based on these estimations, during the year ended 31
December 2021 the Company recognised income from reversal of employee
share option expense in the amount of US$11 thousand and a reduction in the
investments in subsidiaries in the amounts of US$244 thousand. No adjustments
were recognised during the year ended 31 December 2022.
The Hull-White trinomial lattice valuation model was used to value the share
options. The following table lists the inputs to the model used for valuation of the
share options at the grant date:
10 October 2017
11 December 2017
Price at the reporting date (US$)
Distribution yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life (years)
Option turnover (%)
Price trigger
1.25
0%
43.4%
1.38%
10
10%
2.0
2.76
0%
40.4%
1.45%
10
10%
2.0
The expected life of the options is based on historical data and is not necessarily
indicative of exercise patterns that may occur. The expected volatility reflects the
assumption that the historical volatility is indicative of future trends, which may
also not necessarily be the actual outcome. Option turnover rate represents the
rate of employees expected to leave the Company during the vesting period,
which is based on historical data and may not necessarily be the actual outcome.
The model considers that when share price reaches the level of exercise price
multiplied by the price trigger the employees are expected to exercise their
The cost of cash-settled equity-based employee compensation is measured
initially at fair value at the grant date using a trinomial lattice valuation model.
options.
14. Related party transactions
Related parties of the Company include its direct and indirect subsidiaries, key
management personnel and other entities that are under the control or
significant influence of the key management personnel.
Accounts receivable from related parties represented by Company’s subsidiaries
as at 31 December 2022 and 31 December 2021 consisted of the following:
In thousands of US Dollars
Receivables from Nostrum Oil & Gas Benefit
Trust
Receivables from Nostrum Oil & Gas
Coöperatief U.A.
Less: bad debt allowance
31 December
2022
31 December
2021
23,812
23,812
836
729
24,648
(23,693)
955
24,541
(23,541)
1,000
Accounts payable to related parties represented by Company’s subsidiaries as at
31 December 2022 and 31 December 2021 consisted of the following:
In thousands of US Dollars
Payables to Nostrum Oil & Gas Coöperatief U.A.
Interest payable Nostrum Oil & Gas Finance B.V.
31 December
2022
119
204
323
31 December
2021
272
204
476
Financial guarantees are comprised of the following as at 31 December 2022 and
31 December 2021:
In thousands of US Dollars
Financial guarantee as at 1 January
Charge for expected credit losses
Financial guarantee as at 31 December
2022
809,812
90,872
900,684
2021
831,767
(21,955)
809,812
During the years ended 31 December 2022 and 2021 the Company had the
following transactions with related parties represented by Company’s
subsidiaries:
individual cash-generating unit – where this is lower there is an increased risk of a
future impact. The Group is in the process of identifying a range of actions and
initiatives to progress towards the Group’s goals, including reduction of
greenhouse gas emissions, wastewater discharges and increase of waste
utilisation. In certain cases, the costs of such actions have been quantified and are
included in the Group’s forecasts which are used to estimate recoverable value
for the Group’s cash-generating unit. Other actions and initiatives continue to be
explored by the Group but are not sufficiently certain to be reflected in the
Group’s forecasts of estimated recoverable value.
FFoorreeiiggnn ccuurrrreennccyy rriisskk
Most of the Company’s operation is denominated in USD, therefore the
Company’s statement of financial position is not significantly affected by exchange
rate movements.
IInntteerreesstt rraattee rriisskk
The Company is not exposed to interest rate risk in 2022 and 2021 as the
Company had no financial instruments with floating rates as at years ended
31 December 2022 and 2021.
LLiiqquuiiddiittyy rriisskk
Liquidity risk is the risk that the Company will encounter difficulty in raising funds
to meet commitments associated with its financial liabilities. The Company is part
of the Group’s monitoring process of its risk to a shortage of funds using a liquidity
planning tool. The tool allows selecting severe stress test scenarios. To ensure an
adequate level of liquidity a minimum cash balance has been defined as a cushion
of liquid assets. The Group’s objective is to maintain a balance between continuity
of funding and flexibility through the use of notes, export financing and leases,
and adequately allocating funding among various entities in the Group.
The Group’s total outstanding debt consists of two notes: US$725 million issued in
2017 and maturing in 2022 and US$400 million issued in 2018 and maturing in
2025. Based on the successfully restructuring of the Notes, the Directors confirm
that they have a reasonable expectation that the Company and the Group will
continue in operation and meet its restructured liabilities as they fall due through
the three-year viability assessment period ending 30 June 2026, subject to
successful partial refinancing of its debt if such becomes required before maturity
of the notes. For more information on analysis of the Group’s ability to meet its
liabilities on repayment of the Notes please see “Viability statement” section on
the Annual report on pages 45-46.
For the year ended 31 December
CCrreeddiitt rriisskk
In thousands of US Dollars
Income from provision of services
Nostrum Oil & Gas Coöperatief U.A.
2022
2021
5,516
5,831
Loss / (gain) from financial guarantee
Nostrum Oil & Gas Finance B.V. (Note 9)
78,340
(21,955)
15. Financial risk management objectives and policies
The Company’s financial assets consist of receivables from shareholders and cash
and cash equivalents. The Company’s financial liabilities consist of payables to
related parties, trade and other payables and accrued liabilities.
The main risks arising from the Company’s financial instruments are foreign
exchange risk and credit risk. The Company’s management reviews and agrees
policies for managing each of these risks, which are summarized below.
CClliimmaattee cchhaannggee
Management has considered how the Company’s identified climate risks and
climate related goals (as discussed in Climate Change and GHG Emissions in the
Group’s 2022 Annual Report) may impact the estimation of the recoverable value
of cash-generating unit tested for impairment and therefore of the finance
guarantee provision. The anticipated extent and nature of the future impact of
climate on the Group’s operations and future investment depends on the
development of new technologies and production processes employed and the
level of emissions, energy efficiency and use of renewable energy. The sensitivity
of the Group’s impairment assessment to these factors is also impacted by the
extent that estimated recoverable value exceeds the carrying value of an
Financial instruments, which potentially subject the Company to credit risk,
consist primarily of receivables and cash in banks. The maximum exposure to
credit risk is represented by the carrying amount of each financial asset. The
Company considers that its maximum exposure is reflected by the amount of
receivables from shareholders and cash and cash equivalents.
The Company places its US Dollar, British Pound and Euro denominated cash with
Citibank which has a credit rating of Aa3 (stable) from Moody’s rating agency at
31 December 2022.
Receivables are amounts receivable from Group companies, thus risk of credit
default is low, except for the loan receivable from the Trust for which loss
allowance has been recognised.
FFaaiirr vvaalluueess ooff ffiinnaanncciiaall iinnssttrruummeennttss
The fair value of the financial assets represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale.
The management assessed that its assets and liabilities approximate their carrying
amounts largely due to their nature or the short-term maturities of these
instruments.
CCaappiittaall mmaannaaggeemmeenntt
For the purpose of the Company’s capital management, capital includes issued
capital and all other equity reserves attributable to the equity holders of the
Company. The primary objective of the Company’s capital management is to
maximise the shareholder value.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 173
Nostrum Oil & Gas PLC Annual Report & Accounts 2022
175
176 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Financial report
Parent company financial statements
Notes to the parent company financial statements continued
Notes to the parent company financial statements (continued)
Parent company financial statements
16. Events after the reporting period
CCoommpplleettiioonn ooff tthhee RReessttrruuccttuurriinngg
On 9 February 2023 the Group notified that the Restructuring was implemented
pursuant to the terms of the Scheme sanctioned by the Court on 26 August 2022.
The terms of the Restructuring included the sub-division and consolidation of the
ordinary share capital of the Company following the issue of the new shares on
9 February 2023. This sub-division and share consolidation occurred after close of
business on 9 February 2023 and resulted in the number of Ordinary Shares on
issue being reduced from approximately 1,693.8 million Ordinary Shares
(following the issue of the new shares ) to approximately 169.4 million Ordinary
Shares on the basis of a 10:1 consolidation of ordinary shares. Accordingly, on
10 February 2023, 150,563,304 new Ordinary Shares have been admitted to the
standard listing segment of the Official List of the Financial Conduct Authority and
to trading on the London Stock Exchange under the ticker symbol "NOG.L". The
Company's ordinary shares (including the New Shares) were also admitted to
listing and trading on the Astana International Exchange (AIX) on 13 February
2023. The new warrants were not admitted to listing and trading on the AIX. The
New Notes and the New Warrants were also admitted to listing and trading on
The International Stock Exchange (TISE) with effect from 9 February 2023. No new
securities were listed on the Euronext Dublin.
As a result of implementation of the restructuring a portion of the Group's Notes
were exchanged for US$250 million of SSNs and US$345 million of SUNs, while
remainder of the Existing Notes together with accrued but unpaid interest were
converted into fully paid ordinary shares (the "New Shares"), resulting in the
Noteholders holding 88.89% of the Enlarged Share Capital of the Company. In
addition, the New Warrants were issued to be held by the Warrant Trustee on
behalf of the holders of the SUNs from time to time, exercisable in full by a
majority of such holders upon the occurrence of certain events to increase their
holding of the Company's Enlarged Share Capital to 90.00%, and certain new
governance and cashflow arrangements, as described in more detail in the Annual
Report and other publications of the Company.
Pursuant to the terms of the Restructuring the interest accrued on the SSNs and
the SUNs from 1 January 2022. Accordingly, cash interest accrued to 9 February
2023 in the amount of US$17.5 million was paid to the Noteholders upon the
issuance of the SSNs and the SUNs. The next semi-annual cash interest payment is
scheduled for 30 June 2023.
Following completion of the Restructuring, the Company’s Financial guarantee
decreased in line with a reduction in the Group’s borrowings.
AAccqquuiissiittiioonn ooff SStteeppnnooyy LLeeooppaarrdd FFiieellddss
On 10 March 2023, the Company announced that it is has agreed, subject to
certain conditions, to acquire 80% of Positive Invest LLC ("Positive Invest"), which
holds the subsoil use right to the contract No. 25 for estimation, development and
production of hydrocarbons for the area "Kamenskoe" and the development area
"Kamensko-Teplovsko-Tokarevskoe" (the "Stepnoy Leopard Fields") in the West
Kazakhstan region of the Republic of Kazakhstan dated 3 March 1995 for US$20
million (less a modest amount of debt owed to Nostrum Oil & Gas Coöperatief
U.A).
The Proposed Acquisition will enable Nostrum to tie-in further resources in the
region that can be processed at the Company's gas treatment facilities. An affiliate
of the Company shall be appointed as the operator of the Positive Invest Contract.
End of Document
174 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Nostrum Oil & Gas PLC Annual Report & Accounts 2022
177
Notes to the parent company financial statements (continued)
Parent company financial statements
16. Events after the reporting period
CCoommpplleettiioonn ooff tthhee RReessttrruuccttuurriinngg
On 9 February 2023 the Group notified that the Restructuring was implemented
pursuant to the terms of the Scheme sanctioned by the Court on 26 August 2022.
The terms of the Restructuring included the sub-division and consolidation of the
ordinary share capital of the Company following the issue of the new shares on
9 February 2023. This sub-division and share consolidation occurred after close of
business on 9 February 2023 and resulted in the number of Ordinary Shares on
issue being reduced from approximately 1,693.8 million Ordinary Shares
(following the issue of the new shares ) to approximately 169.4 million Ordinary
Shares on the basis of a 10:1 consolidation of ordinary shares. Accordingly, on
10 February 2023, 150,563,304 new Ordinary Shares have been admitted to the
standard listing segment of the Official List of the Financial Conduct Authority and
to trading on the London Stock Exchange under the ticker symbol "NOG.L". The
Company's ordinary shares (including the New Shares) were also admitted to
listing and trading on the Astana International Exchange (AIX) on 13 February
2023. The new warrants were not admitted to listing and trading on the AIX. The
New Notes and the New Warrants were also admitted to listing and trading on
The International Stock Exchange (TISE) with effect from 9 February 2023. No new
securities were listed on the Euronext Dublin.
As a result of implementation of the restructuring a portion of the Group's Notes
were exchanged for US$250 million of SSNs and US$345 million of SUNs, while
remainder of the Existing Notes together with accrued but unpaid interest were
converted into fully paid ordinary shares (the "New Shares"), resulting in the
Noteholders holding 88.89% of the Enlarged Share Capital of the Company. In
addition, the New Warrants were issued to be held by the Warrant Trustee on
behalf of the holders of the SUNs from time to time, exercisable in full by a
majority of such holders upon the occurrence of certain events to increase their
holding of the Company's Enlarged Share Capital to 90.00%, and certain new
governance and cashflow arrangements, as described in more detail in the Annual
Report and other publications of the Company.
Pursuant to the terms of the Restructuring the interest accrued on the SSNs and
the SUNs from 1 January 2022. Accordingly, cash interest accrued to 9 February
2023 in the amount of US$17.5 million was paid to the Noteholders upon the
issuance of the SSNs and the SUNs. The next semi-annual cash interest payment is
scheduled for 30 June 2023.
Following completion of the Restructuring, the Company’s Financial guarantee
decreased in line with a reduction in the Group’s borrowings.
AAccqquuiissiittiioonn ooff SStteeppnnooyy LLeeooppaarrdd FFiieellddss
On 10 March 2023, the Company announced that it is has agreed, subject to
certain conditions, to acquire 80% of Positive Invest LLC ("Positive Invest"), which
holds the subsoil use right to the contract No. 25 for estimation, development and
production of hydrocarbons for the area "Kamenskoe" and the development area
"Kamensko-Teplovsko-Tokarevskoe" (the "Stepnoy Leopard Fields") in the West
Kazakhstan region of the Republic of Kazakhstan dated 3 March 1995 for US$20
million (less a modest amount of debt owed to Nostrum Oil & Gas Coöperatief
U.A).
The Proposed Acquisition will enable Nostrum to tie-in further resources in the
region that can be processed at the Company's gas treatment facilities. An affiliate
of the Company shall be appointed as the operator of the Positive Invest Contract.
End of Document
Investor information
Contact information
Investor contacts
Investor Relations
ir@nog.co.uk
Tel: +44 20 3740 7430
Registered office
Nostrum Oil & Gas PLC
20 Eastbourne Terrace
London W2 6LG
United Kingdom
Tel: +44 20 3740 7430
Registered number: 8717287
Place of registration: England and Wales
VAT GB302 9250 35
Zhaikmunai LLP registered office
Zhaikmunai LLP
43/1 Alexander Karev Street
Uralsk, 090000
Republic of Kazakhstan
Tel: +7 7112 933900
Fax: +7 7112 933901
Auditor
MHA LLP
2 London Wall Place
Barbican, London
EC2Y 5AU
United Kingdom
Registrar
Link Group
10th Floor, Central Square,
29 Wellington Street
Leeds LS1 4DL
United Kingdom
Tel: +44 371 664 0391
Nostrum Associated
Investments LLP
Activity: Dormant
Registered office and
principal place of business:
43B Karev Street
090000 Uralsk
Republic of Kazakhstan
General Director:
Malika Saudasheva
Nostrum Oil & Gas UK Limited
Activity: Dormant
Registered office and
principal place of business:
20 Eastbourne Terrace
London W2 6LG
United Kingdom
Directors:
Martin Cocker
Thomas Hartnett
Nostrum Services Central Asia LLP
Activity: Dormant
Registered office and
principal place of business:
Building 75/38
Microrayon Aksay 3a
050031 Almaty
Republic of Kazakhstan
General Director:
Kalamkas Shakenova
Nostrum Oil & Gas Holding
Limited
Activity: Holding company
Registered office and principal place of
business:
20 Eastbourne Terrace
London W2 6LG
United Kingdom
Directors:
Ulugbek Makhmadiyarov
Thomas Hartnett
Nostrum Oil & Gas BV
Activity: Holding Company
Registered office and
principal place of business:
Bloemendaalseweg 139
Hofstede Sparrenheuvel
2061 CH
Bloemendaal
The Netherlands
Directors:
Thomas Hartnett
Ulugbek Makhmadiyarov
Nostrum Oil & Gas Coöperatief UA
Activity: Holding Company
Registered office and
principal place of business:
Bloemendaalseweg 139
Hofstede Sparrenheuvel
2061 CH
Bloemendaal
The Netherlands
Directors:
Ulugbek Makhmadiyarov
Thomas Hartnett
Nostrum Oil & Gas Finance BV
Activity: Finance Company
Registered office and
principal place of business:
Bloemendaalseweg 139
Hofstede Sparrenheuvel
2061 CH
Bloemendaal
The Netherlands
Directors:
Ulugbek Makhmadiyarov
Thomas Hartnett
Nostrum Services NV
Activity: Holding Company
Registered office and
principal place of business:
Chaussée de Wavre 20
1360 Perwez
Belgium
Directors:
Thomas Hartnett BVBA
Ulugbek Makhmadiyarov
Nostrum Oil & Gas PLC Annual Report & Accounts 2022
177
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 175
Regulatory information
Investor information
Website and electronic communications details
Nostrum’s website provides information on the activities of the Company, both regulatory and other, as well as the opportunity to sign up
to our mailing list to ensure stakeholders are kept up to date with the most recent information. Please see www.nog.co.uk for more
information.
In addition, to reduce our impact on the environment, we encourage all shareholders to opt for electronic shareholder communications,
including annual reports and notices of meetings.
Share price information
Exchange
Ticker
Reuters code
ISIN code
Capitalisation-weighted index of FTSE 350 E&P.
Earnings per share (as at 31 December 2022): US$(0.14)/share
Book value per share (as at 31 December 2022): US$(4.44) negative per share
Financial calendar 2023
Q1 2023 Operational update
Q1 2023 Financial results
H1 2023 Operational update
H1 2023
Financial results
Q3 2023 Operational update
Q3 2023 Financial results
Share price performance
Equity financing
Equity raising
IPO
Timing
March 2008
Secondary equity issue
September 2009
Amount
US$100m
US$300m
NOSTRUM OIL & GAS PLC
London Stock Exchange
NOG.LN
NOGN.L
GB00BQVVS097
28 April 2023
31 May 2023
28 July 2023
22 August 2023
27 October 2023
21 November 2023
Lead manager
ING Bank NB
ING Bank NV
Mirabaud Securities
Renaissance Securities
1.00
0.75
0.50
0.25
0
2
2
n
a
J
2
2
b
e
F
2
2
r
a
M
2
2
r
p
A
2
2
y
a
M
2
2
n
u
J
2
2
l
u
J
2
2
g
u
A
2
2
p
e
S
2
2
t
c
O
2
2
v
o
N
2
2
c
e
D
Price (GBP)
176 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Debt financing
Current outstanding bond issues for Nostrum Oil & Gas PLC are detailed in the following table:
Settlement
Maturity
Currency
Amount (m)
Coupon
Jul 2017
Jul 2022
US$
725
8.000%
Listing
Dublin
Feb 2018
Feb 2025
US$
400
7.000%
Dublin
CUSIP
ISIN
RegS
Rule 144A
N64884AB0
66978CAB8
USN64884AB02
US66978CAB81
Common Code
16453439
164534073
CUSIP
ISIN
N64884AD6
66978CAC6
USN64884AD67
US66978CAC64
Common Code
176959886
176959878
For a summary of certain covenants relating to the 2017 and 2018 Notes, please see the consolidated financial statements.
Outstanding bond issues as at 9 February 2023 for Nostrum Oil & Gas PLC are detailed in the following table:
Title
SSN
Settlement Maturity
Currency Amount (m) Coupon
Feb 2023 Jun 2026 US$
250
5.000%
PIK
–
Listing
TISE
RegS
Rule 144A
CUSIP
N64884AF1
66978CAF9
ISIN
USN64884AF16
US66978CAF95
SUN
Feb 2023 Jun 2026 US$
300
1.000%
13.000% TISE
CUSIP
N64884AE4
66978CAD4
ISIN
USN64884AE41
US66978CAD48
Internally held bond financing of the Nostrum Group
Bond issues wholly owned by Nostrum Oil & Gas Finance BV are provided in the following table:
Settlement
Maturity
Currency
Amount (m)
Coupon
Listing
Feb 2014
Jan 2033
US$
400
9.5%
Dublin/
Almaty
CUSIP
ISIN
RegS
Rule 144A
N64884AA2
66978CAA0
USN64884AA29
US66978CAA09
Nov 2012
Jun 2033
US$
560
9.5%
Common Code
103302323
103302307
Dublin/
Almaty
CUSIP
ISIN
N97716AA7
98953VAA0
USN97716AA72
US98953VAA08
Common Code
085313177
085259776
Credit ratings
Nostrum Oil & Gas PLC is currently being rated by two credit rating agencies: Standard and Poor’s and Moody’s Investor Services:
Agency
Standard and Poor’s
Moody’s
Rating
Outlook
SD
Ca
NM
Negative
Zhaikmunai LLP is a wholly-owned indirect subsidiary of Nostrum and its equity is not listed, while Nostrum’s equity is listed on the standard
segment of the London Stock Exchange.
The Group’s investor relations programme aims to develop open and transparent communication between the Group (including
Zhaikmunai LLP) and its shareholders, providing information about the financial and operational performance of the Company. The
Investor Relations department of the Group seeks to ensure all questions received from any of the Group’s stakeholders are dealt with in a
timely manner based on the underlying principle that the Group is approachable and responsive to any potential queries.
1. Yield to worst was not calculated following the default in payment of interest.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 177
Regulatory information Investor information
NOSTRUM FINANCE BV 8.0% 25-JUL-2022
50
40
30
20
10
0
2
2
0
2
/
2
0
/
8
2
2
2
0
2
/
3
0
/
1
3
2
2
0
2
/
4
0
/
0
3
2
2
0
2
/
5
0
/
1
3
2
2
0
2
/
6
0
/
0
3
2
2
0
2
/
7
0
/
1
3
2
2
0
2
/
8
0
/
1
3
2
2
0
2
/
9
0
/
0
3
2
2
0
2
/
0
1
/
1
3
2
2
0
2
/
1
1
/
0
3
2
2
0
2
/
2
1
/
0
3
1
2
0
2
/
2
1
/
1
3
2
2
0
2
/
1
0
/
1
3
Price
NOSTRUM FINANCE BV 8.0% 25-JUL-2022
50
40
30
20
10
0
2
2
0
2
/
1
0
/
0
1
2
2
0
2
/
2
0
/
0
1
Price
2
2
0
2
/
3
0
/
0
1
2
2
0
2
/
4
0
/
0
1
2
2
0
2
/
5
0
/
0
1
2
2
0
2
/
6
0
/
0
1
2
2
0
2
/
7
0
/
0
1
2
2
0
2
/
8
0
/
0
1
2
2
0
2
/
9
0
/
0
1
2
2
0
2
/
0
1
/
0
1
2
2
0
2
/
1
1
/
0
1
2
2
0
2
/
2
1
/
0
1
178 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Glossary
Glossary
2010 Notes
2012 Notes
2014 Notes
2017 Notes
2018 Notes
A
API
API gravity
appraisal well
associated gas
B
barrel/bbl
basin
bcm
Boe
Boepd
Bopd
C
C1
C2
C3
C4
C5
C6
C7
CAC
Cash
Casing
10.500% notes issued in 2010.
7.125% notes issued in 2012.
6.375% notes issued in 2014.
8.000% notes issued in 2017.
7.000% notes issued in 2018.
American Petroleum Institute.
The industry standard method of expressing specific density of crude oil or other liquid hydrocarbons
as recommended by the American Petroleum Institute. Higher API gravities mean lower specific
gravity and lighter oils. When the API gravity is greater than 10, the product is lighter and floats on
water; when it is less than 10, it is heavier than water and sinks. Generally speaking, oil with an API
gravity between 40 and 45 commands the highest prices.
A well or wells drilled to follow up a discovery and evaluate its commercial potential.
Gas which occurs in crude oil reservoirs in a gaseous state.
The standard unit of volume: 1 barrel = 159 litres or 42 US gallons.
A large area holding a thick accumulation of sedimentary rock.
Billion cubic metres.
Barrels of (crude) oil equivalent, i.e. the factor used by Nostrum to convert volumes of different
hydrocarbon production to barrels of oil equivalent.
Barrels of (crude) oil equivalent per day.
Barrels of crude oil per day.
Methane.
Ethane.
Propane.
Butane.
Pentane.
Hexane.
Heptane.
A pipeline with two branches originating in Turkmenistan and meeting in Kazakhstan before crossing
into Russia and connecting to the Russian pipeline system, with an annual throughput capacity of
60.2 billion cubic metres.
Cash and cash equivalents, including current and non-current investments.
Relatively thin-walled, large diameter steel rods that are screwed together to form a casing string,
which is run into a core hole or well and cemented in place.
Caspian region
Parts of countries adjacent to the Caspian Sea.
CDP
CDP is an organisation based in the United Kingdom which supports companies in disclosing their
environmental impact (formerly known as the Carbon Disclosure Project).
Chinarevskoye field
The Chinarevskoye oil and gas condensate field.
CO2
commissioning
Competent Authority
condensate
contingent resources
cost oil
Carbon dioxide.
Process to assure a facility or plant, such as Nostrum’s GTU 3, is tested to verify it functions according
to technical objectives and specifications before use.
The State’s central executive agency, designated by the Government to act on behalf of the State to
exercise rights relating to the execution and performance of subsoil use contracts, except for contracts
for exploration and production of commonly occurring minerals. This is the Ministry of Energy of the
Republic of Kazakhstan (“MOE”) with respect to the oil and gas industry.
Hydrocarbons which are gaseous in a reservoir, but which condense to form a liquid as they rise to the
surface where the pressure is much less.
Deposits that are estimated, on a given date, to be potentially recoverable from known accumulations
but that are not currently considered commercially recoverable.
Cost oil denotes an amount of crude oil produced in respect of which the market value is equal to
Nostrum’s monthly expenses that may be deducted pursuant to the PSA (q.v.) (including all operating
costs, exploration costs and development costs up to an annual maximum of 90% of the annual gross
realised value of hydrocarbon production).
crude oil
A mixture of liquid hydrocarbons of different molecular weights.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 179
Regulatory information Glossary
D
development
downstream
Development Plans
Directors or Board
dry gas
E
E&P
EBITDA
During development, engineering teams design the most efficient development options to build wells
and associated infrastructure to produce hydrocarbons from a gas field within a proven productive
reservoir (as defined by exploration and appraisal activities). The three phases of development are
exploration and appraisal, development and production.
Downstream refers to all petroleum operations occurring after delivery of crude oil or gas to a refinery
or fractionation plant.
The development plans approved by the SCFD in March 2009.
The Directors of the Company.
Dry gas is natural gas (methane and ethane) with no significant content of heavier hydrocarbons. It is
gaseous at both sub-surface and surface conditions.
Exploration and production.
Profit before tax + non-recurring expenses + finance costs + foreign exchange loss /(gain) + employee
share option adjustments + depreciation – interest income + other expenses / (income).
Environmental Code
The Kazakhstan Environment Code (No. 212, dated 9 January 2007, as amended).
Exploration Permit
exploration phase
The geological allotment (Annex to the Licence) issued by the Competent Authority to Zhaikmunai
LLP.
The phase of operations which covers the search for oil or gas by carrying out detailed geological and
geophysical surveys, followed up where appropriate by exploratory drilling.
exploration well
Well drilled purely for exploratory (information-gathering) purposes in a particular area.
F
farm-in
farm-out
FCA
FCA Uralsk
field
FOB
FSU
G
G&A
gas
Transfer of a percentage of an oil or gas permit held by the farmor in return for (partial or complete)
delivery of the work programme by the farmee(s). Note that this work would normally have had to have
been delivered and paid for by the farmor.
A contractual agreement with the holder of an oil and gas permit to assign all (or a percentage of) that
interest to another party in exchange for delivering the work programme required by the permit, or
fulfilling other contractually specified conditions.
Financial Conduct Authority of the United Kingdom.
Sales made under free carrier terms according to which Nostrum delivers to the terminal in Uralsk and
transportation risk and risk of loss are transferred to the buyer after delivery to the carrier.
An area consisting of a single reservoir or multiple reservoirs all grouped in or related to the same
individual geological structure feature and/or stratigraphic condition.
Sales made under “free on board” terms.
Former Soviet Union.
General and administrative expenses.
Petroleum that consists principally of light hydrocarbons. It can be divided into lean gas, primarily
methane, but often containing some ethane and smaller quantities of heavier hydrocarbons (also
called sales gas), and wet gas, primarily ethane, propane and butane, as well as smaller amounts of
heavier hydrocarbons; partially liquid under atmospheric pressure.
gas condensate
The mixture of liquid hydrocarbons that results from condensation of petroleum hydrocarbons
existing initially in a gaseous phase in an underground reservoir.
Gas Treatment Facility (GTF)
Facility for the treatment of associated gas and gas condensate resulting in different products
(stabilised condensate, LPG and dry gas) for commercial sales.
GTU 1 means the first unit of Nostrum’s Gas Treatment Facility.
GTU 2 means the second unit of Nostrum’s Gas Treatment Facility.
GTU 3 means the third unit of Nostrum’s Gas Treatment Facility.
GDRs
The global depository receipts of Nostrum Oil & Gas LP.
greenhouse gas
A gas that contributes to the greenhouse effect by absorbing infrared radiation, e.g. carbon dioxide.
Group
H
HSE
hydrocarbons
Nostrum Oil & Gas PLC and, as the context requires, its direct and indirect consolidated subsidiaries.
Health, safety and environment.
Compounds formed from the elements hydrogen (H) and carbon (C), which may be in solid, liquid or
gaseous form.
hydrocarbon reserves
Hydrocarbon reserves that have been proved, and are referred to as 3P, 2P and 1P depending on the
likelihood of commercial production from a given field.
180 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
I
IAS
IFRS
INED
J
joint venture
International Accounting Standards.
International Financial Reporting Standards.
Independent Non-Executive Director.
A joint venture is a set of trading entities who have agreed to act in concert to share the cost and
rewards of exploring for and producing oil or gas from a permit.
joule
Unit of energy used for measuring gas volumes.
megajoules = 106
gigajoules = 109
terrajoules = 1012
petajoules = 1015
Kazakhstan Stock Exchange.
The Republic of Kazakhstan.
State-owned oil and gas company of Kazakhstan.
Onshore oil and gas exploration production subsidiary of KazMunaiGas.
A tie-in to the KTO pipeline enables crude oil export sales via the Atyrau-Samara international export
pipeline.
Licence series MG No. 253-D (Oil) issued to Zhaikmunai LLP by the Government on 26 May 1997,
including amendments.
The Kazakhstan Law “On Licensing” (No. 214, dated 11 January 2007, as amended, which came into
effect on 9 August 2007).
A sales product in liquid form produced as a result of further processing by the onshore plant; for
example, condensate and LPG.
Liquefied natural gas. Comprises mainly methane.
K
KASE
Kazakhstan
KazMunaiGas
KazMunaiGas Exploration
Production (“KMG EP”)
KazTransOil (KTO) pipeline
L
Licence
Licensing Law
liquids
LNG
Listing Rules
The listing rules made by the Financial Services Authority (FSA) under section 73A of the FSMA.
LSE
LPG
LTIP
M
m
m3
m3/d
Man–hour
Mboe
London Stock Exchange.
Liquefied petroleum gas, the name given to the mix of propane and butane in its liquid state.
Long-term incentive plan.
Metre(s).
Cubic metres.
Cubic metres per day.
An hour regarded in terms of the amount of work that can be done by one person within this period.
Thousands of barrels of oil equivalent.
Mechanical completion
Final construction or installation phase, after which a facility can undergo commissioning activities.
Mmbbls
Mmboe
N
NBK
NED
Nostrum
Nostrum Oil & Gas PLC
O
OPEC
operator
Millions of barrels of oil.
Millions of barrels of oil equivalent.
National Bank of Kazakhstan.
Non-Executive Director.
Nostrum Oil & Gas PLC, the listed company of the Group.
Registered Office:
9th Floor
20 Eastbourne Terrace
London
W2 6LG
United Kingdom
The Organisation of the Petroleum Exporting Countries.
The individual or company responsible for conducting oil and gas exploration, development and
production activities on an oil and gas lease or concession on its own behalf and/or if applicable,
for other working interest owners, generally pursuant to the terms of a joint operating agreement
or comparable agreement.
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 181
Regulatory information Glossary
P
Partnership
PCR testing
petroleum
Possible Reserves (3P)
Probable Reserves (2P)
processing
Production Permit
production well
Profit oil
Prospective resources
Proven Reserves (1P)
PRMS
Production Sharing
Agreement (PSA)
PSA Law
Q
QHSE
R
recovery
Reservoir
RoK
Royalty
Ryder Scott
Nostrum Oil & Gas LP, which was the holding company of the Group before the reorganisation.
Polymerase chain reaction testing, a test for COVID-19.
Hydrocarbons, whether solid, liquid or gaseous. The proportion of different compounds in a petroleum
find varies from discovery to discovery. If a reservoir primarily contains light hydrocarbons, it is
described as a gas field. If heavier hydrocarbons predominate, it is called an oil field. An oil field may
feature free gas above the oil and contain a quantity of light hydrocarbons, also called associated gas.
Possible Reserves are those reserves that, to a low degree of certainty (10% confidence), are
recoverable. There is relatively high risk associated with these reserves. Proven, Probable and Possible
Reserves are referred to as 3P.
Probable Reserves are those reserves that analysis of geological and engineering data suggests are
more likely than not to be recoverable. There is at least a 50% probability that reserves recovered will
exceed Probable Reserves. Proven plus Probable Reserves are referred to as 2P.
Processing of saleable product from hydrocarbons sourced from oil wells and gas wells.
The mining allotment (Annex to the Licence), issued by the Competent Authority to Zhaikmunai LLP.
A well that has been drilled for producing oil or gas, or one that is capable of production once the
producing structure and characteristics are determined.
Profit oil is the difference between cost oil and the total amount of crude oil produced each month,
which is shared between the State and Zhaikmunai LLP.
Quantities of petroleum which are estimated, on a given date, to be potentially recoverable from
undiscovered accumulations.
Proven or Proved Reserves (1P) are those reserves that, to a high degree of certainty (90% confidence),
are recoverable. There is relatively little risk associated with these reserves. Proven Developed
Reserves are reserves that can be recovered from existing wells with existing infrastructure and
operating methods. Proven Undeveloped Reserves require development.
2007 Petroleum Resources Management System, which is a set of definitions and guidelines designed
to provide a common reference for the international petroleum industry, sponsored by the Society for
Petroleum Engineers, the American Association of Petroleum Geologists, the World Petroleum
Council and the Society for Petroleum Evaluation Engineers.
The contract for additional exploration, production and production sharing of crude oil hydrocarbons
in the Chinarevskoye oil and gas condensate field in the West-Kazakhstan oblast No. 81, dated
October 31 1997, as amended, between Zhaikmunai LLP and the Competent Authority (currently
MOE), representing the State.
Kazakhstan Law No. 68-III “On Production Sharing Agreements for Constructing Offshore Petroleum
Operations”, dated 8 July 2005.
Quality, Health, Safety and the Environment.
The second stage of hydrocarbon production during which an external fluid such as water or gas is
injected into the reservoir to maintain reservoir pressure and displace hydrocarbons towards the
wellbore.
A porous and permeable underground formation containing a natural accumulation of producible oil
and/or gas that is confined by impermeable rock or water barriers, and is individual and separate from
other reservoirs.
Republic of Kazakhstan.
An interest in an oil and gas property entitling the owner to a share of oil or gas production free of
costs of production.
Independent petroleum consultants Ryder Scott Company LP, headquartered at 621 Seventeenth
Street, Suite 1550, Denver, Colorado, 80293, USA.
182 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
S
sales gas
seismic
shut in
Natural gas that has been processed by gas plant facilities and meets the required specifications
under gas sales agreements.
The use of shock waves generated by controlled explosions of dynamite or other means to ascertain
the nature and contours of underground geological structures.
Cease production from a well.
side-track well
A well or borehole that runs partly to one side of the original line of drilling.
social infrastructure
Assets that accommodate social services, e.g. hospitals, schools, community housing etc.
spud
stakeholder
State
State share
Suspended well
T
TCFD
TISE
The commencement of drilling operations.
A person or entity who may affect, be affected by or perceive themselves to be affected by an entity’s
decisions or activities.
Republic of Kazakhstan.
The share of hydrocarbon production due (in cash or kind) to the Republic of Kazakhstan under the
PSA (q.v.).
A suspended well is not currently used for assessment or production and has been shut in. It will either
be returned to assessment or production, or will be plugged and abandoned.
Task Force on Climate-related Financial Disclosures.
The International Stock Exchange
tenge or KZT
The lawful currency of the Republic of Kazakhstan.
tonne
trillion
U
UNGG
Metric tonne.
10 to the power of 12.
Refers to the Uralsk Oil and Gas Explorations Expedition. The Government of the Kazakh Soviet
Socialist Republic decided in March 1960 to create a consortium “Uralskneftegazrazvedka” for
conducting oil and gas exploration in the Uralsk region. In the 1960s, the consortium was involved in
more than 59 exploration projects. In 1970, the consortium was renamed “Uralsk Enlarged Oil-Gas
Exploration Expedition”.
UK Corporate Governance Code Set of principles of good corporate governance for listed companies promulgated by the UK Financial
Ural O&G
W
well
wellhead
work programme
workover
Reporting Council.
Ural Oil&Gas LLP
A hole drilled to test an unknown reservoir or to produce from a known reservoir.
The wellhead includes the forged or cast steel fitting on top of a well (welded or bolted to the top of
the surface casing), as well as casingheads, tubingheads, Christmas tree, stuffing box and pressure
gauges.
A schedule of works agreed between parties (permit holders, farmees and government) contracted to
be delivered in a defined timeframe.
Routine maintenance or remedial operations on a producing well in order to maintain, restore or
increase production.
WUP or Water Use Permit
The permit granted by the relevant government authority with respect to water use pursuant to the
Water Code.
Z
Zhaikmunai LLP
Principal operating entity of the Group
Corporate office:
43/1 Karev str.
Uralsk, 090000
Republic of Kazakhstan
Nostrum Oil & Gas PLC Annual Report & Accounts 2022 183
Regulatory information Structure chart
Nostrum Group structure chart
as at 31 December 2022
100%
Nostrum Oil & Gas PLC
Incorporated and principal
place of business in the UK
100%
Nostrum Oil & Gas Holding Limited
Incorporated and principal
place of business in the UK
>99.9%
Nostrum Oil & Gas BV
Incorporated and principal place
of business in the Netherlands
Nostrum Oil & Gas Coöperatief UA
Incorporated and principal place of
business in the Netherlands
<0.1%
100%
Nostrum Oil & Gas
Finance B.V.
Incorporated and
principal place of
business in the
Netherlands
100%
(save for one share
held by Nostrum
Oil & Gas BV)
100%
100%
100%
Nostrum Services
N.V.
Incorporated and
principal place of
business in Belgium
Zhaikmunai LLP
Incorporated and
principal place of
business in Kazakhstan
Nostrum Associated
Investments LLP
Incorporated and
principal place of
business in Kazakhstan
Nostrum Services
Central Asia LLP
Incorporated and
principal place of
business in Kazakhstan
100%
Nostrum Oil & Gas UK Limited
Incorporated and principal place of
business in the UK
Apart from the external debt held by Nostrum Oil & Gas Finance B.V, the contribution and results of Nostrum Oil & Gas PLC and all of its subsidiaries (other than
Zhaikmunai LLP) to the KPIs and results of the Group were insignificant. Except as stated above, there are no minority shareholdings.
184 Nostrum Oil & Gas PLC Annual Report & Accounts 2022
Designed and produced by
www.creative.instinctif.com
This Report has been printed in the UK. Our printers are a
Carbon/Neutral® printing company. They are FSC®-certified
and ISO 14001-accredited and Forest Stewardship Council®
(FSC®) chain of custody-certified. All inks used are vegetable-
based. This paper is recyclable and acid-free. The report’s
cover is coated using a biodegradable laminate.