Annual Report
and Accounts
2020
Pharos Energy is an independent oil and gas exploration and production
company with a focus on sustainable growth and returns to stakeholders.
Pharos is listed on the London Stock Exchange, we have production, development
and exploration interests in Egypt, Israel and Vietnam.
www.pharos.energy
STRATEGIC REPORT
FINANCIAL STATEMENTS
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Balance Sheets
Statements of Changes in Equity
Cash Flow Statements
Notes to the Consolidated Financial
Statements
ADDITIONAL INFORMATION
Non-IFRS Measures
Five Year Summary
Reserves Statistics
Report on Payments to Governments
Transparency Disclosure 2020
Glossary of Terms
Company Information
110
119
119
120
121
122
123
145
147
148
149
150
151
153
Company overview
Where we operate
Diversity and inclusion
Capital discipline
Growth opportunities
Sustainability
Chair’s welcome
Market overview
CEO’s statement
Core strategic objectives
Business model
Key metrics
Operations review
s.172(1)
Financial review
Risk management
Risks
Corporate Responsibility
GOVERNANCE REPORT
Chair’s Introduction
to Governance
Board of Directors
Corporate Governance Report
Environmental, Social & Governance
(‘ESG’) Committee Report
Nominations Committee Report
Audit and Risk Committee Report
Directors’ Remuneration Report
Directors’ Report
02
03
04
05
06
08
09
12
14
16
18
20
24
33
35
40
43
50
65
69
71
76
79
82
87
105
ED STORY
PRESIDENT AND CEO
Our distinctive portfolio in the energy regions of Asia and MENA,
together with a robust and disciplined capital allocation framework,
supports our strategy of delivering long-term, sustainable growth.
We have a range of opportunities in the portfolio to position us for
a positive future. Our purpose is to continue to provide energy for
communities around the world and fuel their lives and businesses.
Diversity and Inclusion
Capital discipline
Portfolio of low-cost growth opportunities
Sustainability
PAGE 04
PAGE 05
PAGE 06
PAGE 08
1
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report COMPANY OVERVIEW
PHAROS AT
A GLANCE
2020 KEY FIGURES
1997
Founding year
71
Employees
14
Blocks & Licences
20,537
Acreage Km2
3
Countries
12
Oil & Gas fields
2020 GROUP HIGHLIGHTS
$11.60
Cash operating costs * ($/boe)
$24.6m
Cash & cash equivalents ($m)
$142.0m
Revenue ($m)
0p
Return to shareholders
(Pence per ordinary shares)
($215.8m)
Net loss
11,373
Average net production (boepd)
* Read More
Non-IFRS measures on page 145
2
Pharos Energy Annual Report and Accounts 2020 WHERE WE OPERATE
RESPONSIBLE,
DISCIPLINED, FOCUSED
We have production,
development and
exploration assets
in Egypt, Israel
and Vietnam.
Read More
Operations review on page 24
+ISRAEL
EGYPT+
+VIETNAM
EGYPT (D,P,E)
ISRAEL (E)
VIETNAM (D,P,E)
We have high quality oil production
operations, development and exploration
assets in Egypt. Production is from 10
oil fields in the El Fayum Concession
located in the Western Desert south
west of Cairo and close to local energy
infrastructure. Pharos is also an operator
with a 100% working interest in the North
Beni Suef (NBS) Concession, which
is located immediately south of the El
Fayum Concession.
Pharos has a 33.33% interest in eight
offshore licences over two contiguous
zones (Zone A & C), each contain four
licences (eight in total). Our acreage in
Israel offers a low-cost option for potential
material gas and neighbours several giant
gas fields.
We have valuable and long-established
producing fields in Vietnam. Production
is from two fields (TGT & CNV) and there
is further potential for growth from two
exploration blocks (Blocks 125 & 126).
5,270bopd
2020 Average production
33.33%
Working interest
6,103boepd
2020 Average production (net)
D: Development P: Production E: Exploration
3
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report INVESTMENT CASE – DIVERSITY AND INCLUSION
COMMITMENT TO
DIVERSITY AND INCLUSION
Led by the Pharos Guiding Principles of ‘Openness and Integrity’
and ‘Empowerment and Capability’, we have demonstrated our
commitment to maintaining and building a culture of diversity and
inclusion in meaningful ways.
We believe in a workforce with a diversity
of experience, nationalities, cultural
backgrounds and gender, to support our
business strategy of long-term sustainable
growth. It is crucial to the success of
our business that we retain and develop
the diversity of our workforce and have
diversity and inclusion at the heart of our
recruitment, development and promotion
processes.
In 2020, three out of four Group Heads of
Function posts in the London office were
managed by women and we are proud
that women accounted for 58% of the
team.
As part of this global approach, we
ensured that leadership training during
the year was made available to a fair
representation of our global employees
in terms of race, gender and ethnicity.
We launched our Group wide Employee
Engagement Survey the outcomes
of which will allow us to improve our
understanding of cultural differences
and employee experience. Our Code
of Business Conduct and Ethics and
Policies and our Guiding Principles
commit us to providing a workplace free
of discrimination where all employees can
fulfil their potential based on merit and
ability. They also commit us to providing a
fully inclusive workplace, while providing
the right development opportunities to
ensure existing staff have rewarding
careers.
Regional knowledge and
experience
We apply our expertise locally with
operational teams in each region, working
closely with joint operating companies.
We encourage dialogue and co-operation
between the different business assets
to ensure new ideas and solutions are
always being considered.
Further Board refreshment
In 2020, further changes were made to
the Board to increase independence and
bring deeper experience to the Group.
Two new Non-Executive Directors joined
the Board in 2020 with a wealth of
experience and expertise, further adding
to the Board’s strength and depth.
The Company is committed to good
governance and will continue to review the
balance and effectiveness of the Board
commensurate with our size and needs.
Read More
Corporate Governance Report page 71
Corporate Responsibility Report page 50
4
Pharos Energy Annual Report and Accounts 2020 INVESTMENT CASE – CAPITAL DISCIPLINE
ROBUST CAPITAL
DISCIPLINE REMAINS
CORE TO PHAROS
Read More
Financial review page 35
As a business, our ability to deliver value is key to our investment case. Capital discipline and financial stability have always been key to
the Company and continue to underpin the business. We take great care with our investors’ money and use our expertise:
• To assess and develop high grade growth opportunities
• To focus on our cost base wherever we are
• To provide cash returns to shareholders
• To allocate capital to those assets which offer a combination of cash flow and growth
2020 saw an unprecedented drop in the oil price. The Company responded quickly and decisively by applying a “survive to thrive”
strategy, the purpose of which was to defer all discretionary expenditure and reduce all G&A costs across the Group to preserve
balance sheet strength. In addition, the difficult decision was taken that no dividend would be paid in 2020. A commitment to cash
returns to shareholders remains a core element of our overall allocation framework. This has set the foundation for a return to the
combination of annual dividends and capital growth. A small equity placing was completed in January 2021 to support a waterflood
programme in Egypt; and a farm out of part of our interest in Egypt is well underway. With these measures, we believe that we are well
placed to exploit the range of organic opportunities in our portfolio.
1. Responsible management
2. Flexibility in allocation
• Cost and balance sheet actively managed through the
• Low level of commitments
economic downturn
• Positive operational cash flow
• Active hedging programme
• Gearing remains low (net debt to EDITDAX 0.48)
Our history of shareholder returns
On 12 May, the Board announced that no dividend would be
paid in 2020, given the continued uncertainty in the macro
environment driven by the outbreak of COVID-19 and the
pressure on oil price against this backdrop.
The Board will continue to use the well-documented capital
allocation criteria to assess where and how to apportion any free
cash flow generated. The key goals are to preserve balance
sheet strength, to invest in growth opportunities in excess
of the cost of capital and to generate sustainable returns to
shareholders, as we have done since 2006.
• RBL facility in place
Capital allocation framework
• Focus on shareholder returns over the long term
• High-grade investment opportunities using a number of metrics
• Focus on near-term cash flow positive development
opportunities
3. Returns to shareholder
•
Integral part of approach to cost control
• Growth opportunities in all areas of the portfolio
• All opportunities screened for cash generation
Our cash position
$m
120
$56.4m
$41.3m
2006
Purchase of own shares
2011
Purchase of own shares
2012
Purchase of own shares
2013
Cash returns
2014
Cash returns
2015
Dividend
2016
Dividend
2017
Dividend
2018
Dividend
2019
Dividend
2020
Dividend
$13.6m
$6.8m
$32.9m
$213.3m
$119.2m
$51.1m
$17.5m
$21.0m
$23.3m
$27.4m
$0
100
80
60
40
20
0
$58.5m
$47.4m
$1.6m
$24.6m
Cash Balance at
31 December 2019
Investing Activities
- Capital Expenditure
Other cash
outflows
Operating CF
Financing activities
- RBL repayment
& interest
Cash Balance at
31 December 2020
5
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report
INVESTMENT CASE – PORTFOLIO OF LOW-COST GROWTH OPPORTUNITIES
PORTFOLIO OF LOW-COST
GROWTH OPPORTUNITIES
E&P company focused on Asia and MENA region
EGYPT
Egypt is a dynamic and growing economy, providing a stable business environment. The El Fayum Concession is located in the Western
Desert, about 80km south west of Cairo and close to local energy infrastructure. It is operated by Petrosilah, a 50/50 joint venture (JV)
between Pharos and the Egyptian General Petroleum Corporation (EGPC). The North Beni Suef (NBS) Concession is located immediately
south of the El Fayum Concession and has low-cost oil exploration potential as well as possible extensions into the block of producing
properties within separate Development Leases held by a third party JV. We have expert operational teams in Egypt.
Operational Hiatus
• Under the survive to thrive strategy,
Growth opportunities
• Commencement of the Phase 1B of
EI Fayum in numbers
the waterflood programme in the field in
the El Fayum Concession in Q1 2021,
following the successful equity placing
in January 2021
• Formal farm-out process ongoing
to seek investment partner for the
Company’s assets in Egypt to make the
investment needed to accelerate the
first phase of the full-scale development
drilling programme at El Fayum and
increase production. The farm-out is
expected to complete in H2 2021
designed to conserve the company’s
balance sheet during the oil price
and COVID-19 related downturn, all
drilling operations in the field were
stopped and rigs released from
contract. This operational hiatus meant
that production peaked in April and
wells declined by primary depletion
throughout the rest of 2020.
• The company has been engaging
with EGPC and has benefited from
improved commercial terms with
EGPC regarding the Western Desert
discount and negotiated a reduction
on the El Fayum discount. In addition,
negotiations have progressed
with EGPC concerning potential
improvements in the Concession
Agreement terms in order to support a
return to operational investment.
PORTFOLIO MANAGEMENT
Over the past few years, we have created
multiple growth opportunities in our
diverse and complementary portfolio
in Asia and MENA. Our current growth
opportunities include fully funded near-
term development drilling programme
in Vietnam and significant sub-surface
work to develop the resource base and
energise the drive mechanism through a
waterflood programme in Egypt.
We have used this hiatus in the drilling
activity to carry out extensive technical
work which has both deepened our
understanding of the sub surface and
led to improved development planning
approaches. To support the funding of
these multiple investment opportunities
in Egypt, we believe now is the right time
to bring in an industry partner and the
Company has initiated a farm-out process
that is expected to lead to a formal farm-
out agreement in H2 2021.
100%
Oil
100%
Working interest
40.8
MMBBL of 2P reserves
5,270
BOPD 2020 production
10
Oil fields at the
El Fayum concession
6,880km2
Acreage
(El Fayum and
North Beni Suef)
6
Pharos Energy Annual Report and Accounts 2020 VIETNAM
Our 20-year history with Vietnam has been a success story both for the company and
the country. Over $1 billion was invested by the JOC in the exploration, appraisal and
development of the oil and gas projects located offshore Vietnam, making Pharos one
of the largest British investors in the country. Pharos’s current producing interests, the
Te Giac Trang and Ca Ngu Vang fields in the Cuu Long basin off the southern coast,
together, are amongst Vietnam’s largest oil producers. We have further potential for
growth from two additional deep-water exploration blocks (Blocks 125 & 126) in the Phu
Khanh basin off the eastern coast. We continue to have an excellent safety record in
Vietnam, and are careful to maintain this.
Growth opportunities
• Commencement of well-drilling
programme in Q3 2021 in TGT Field
• Preparation for 3D seismic survey
planned over certain high graded leads
in the northern part of Block 125 in the
undrilled Phu Khanh Basin offshore
Vietnam.
Vietnam - Asia’s top performing
economy amid the COVID-19
pandemic
• Two significant discoveries:
- Ca Ngu Vang (CNV) Field
- Discovered in 2002
- First production in 2008
- Te Giac Trang (TGT) Field
- Discovered in 2005
- First production in 2011
• Highly experienced team in Vietnam
• Majority of oil is sold domestically to a
local refinery at a premium to Brent
• Current exploration activities in Blocks
125 & 126 in the Phu Khanh Basin
$1billion
Over $1 billion invested
in Vietnam by the JOC
over 20 years
6,103boepd
Average net production
in 2020 from the TGT
and CNV fields
17.9
MMBOE of 2P reserves
12.2
MMBOE of 2C reserves
24
Years active in Vietnam
since 1997
ISRAEL
Option on East Mediterranean gas play
Pharos has a 33.33% interest in eight offshore licences over two contiguous zones (Zone
A & C), neighbouring several giant gas fields. During 2020, as part of the minimum work
commitment, a contract for seismic processing was awarded and seismic processing is
ongoing. The project aims to improve the imaging of existing seismic in order to identify
and mature any prospectivity. This asset offers low-cost option for potential material gas
and provides geographical as well as hydrocarbon diversification.
8
Licences
7
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report INVESTMENT CASE – SUSTAINABILITY
SUSTAINABILITY AT THE
HEART OF OUR BUSINESS
Responsibility framework
Our goal is to have a responsible and positive presence in the regions in which we operate, resulting in value for host countries,
local communities, employees, contractors and shareholders. Pharos continually monitors and reviews its approach to
sustainability by engaging with and taking into account views of these stakeholders.
Environment
GHG emissions reduction initiatives
through the launch of Project GOO
(Greening Our Operations); a focus group
to identify key sources of GHG emissions
and methods which could be changed
to reduce our GHG emissions. One of
the ideas was to expand the utilisation
of associated-gas powered electricity
generators at El Fayum, something that
had started in 2019. Both these initiatives
have been interrupted by the impact of
the pandemic and we will look to resume
them at the appropriate time.
Society
$500,000 combined total training levies in
Vietnam and Egypt for industry capacity
building in 2020
$245,191 in community and charitable
investments supporting 9 social projects
in Vietnam through the HLHVJOC
Charitable Donation Programme and 3
social projects in Egypt through Petrosilah
in 2020
Business
~74% TGT/ CNV Oil and 100% El
Fayum Oil sold and used domestically,
contributing to host country development
goals and access to energy
Ethics
100% of staff received anti-bribery and
corruption training by 02 February 2021
$150.9m taxes and royalties to host
governments in 2020, which includes
$113.7m host governments share of
production entitlements
People
Zero Lost Time Injury Frequency Rate
(number of lost time injuries per million
man-hours) since incorporation in Vietnam
for the past five years
One fatality in Egypt. Remedial actions
taken to strengthen controls within
subcontractors to minimise risk of any
future recurrence
3/4 of UK Head of Department positions
are managed by women
SOCIETY CASE STUDY
Engaging with
host communities
Vietnam
Supported Ha Noi Private
School for the Hearing Impaired
for the project aimed at
“Improving Integration Ability
for Underprivileged Disabled
Students”. The school is currently
offering education to 100 students
with autism and hearing-
impairment.
Supported the water well-
drilling programme in Hung Binh
commune and Nguyen Trai’s
secondary school in DakR’lap
district, Dak Nong province to
serve clean sources of water to
locals.
Egypt
Donated medical equipment such
as face masks, gloves, protection
suits to the Nabawi General
Hospital in Fayum which operates
as an isolation hospital during the
COVID-19 pandemic.
Disinfected all public/ service
buildings and homes of the
villages adjacent to the Company’s
sites with disinfectants.
8
Pharos Energy Annual Report and Accounts 2020 CHAIR’S WELCOME
CHAIR’S
WELCOME
and enhance cash flow generation. The
business in Egypt is now well placed to
secure the right industry partner to fund
the investment programme and develop
the fields and discussions are ongoing.
The reduction of the longer-term
commodity prices impacted on the
Group’s exploration and producing assets
with a non-cash after tax impairment
charge against our Vietnam and Egyptian
assets of $198.1m which, together with
reduced revenues due to the oil price fall,
were the key drivers for our overall loss for
the year of $215.8m.
Cost reductions and Dividend
There has been a strong focus on cutting
cash costs across the Group and a
reduction in 2020 forecast expenditure
of approx. 23% has been achieved. All
Directors took a voluntary reduction in
salary and fees of 25% from 1 May 2020
and then the three Executive Directors
went further and agreed an additional
10% reduction which began on 1 August
2020, giving a total reduction of 35%.
These reductions continued until 31
March 2021. The Board also agreed that
no bonuses will be paid in 2020. The
Executive Directors have volunteered a
50% reduction in salary from 1 April 2021.
As announced in May 2020, the Board
believed it was appropriate to suspend
dividend payments during 2020, given
the continued uncertainty in the macro
environment. The decision to re-instate
the dividend will be kept under review and
the Board will continue to use its well-
documented capital allocation criteria to
assess where and how to spend any free
cash flow generated.
You may have noticed that the look of our
Annual Report this year is also different.
In 2020, we have re-examined the way
that we work, what we produce, and
how we produce it. We are committed
to producing relevant, meaningful, and
transparent information for all of our
stakeholders, and to complying with our
reporting obligations. Pharos recognises
the balance between what should be
accessible on the website and what
should also be available in hard-copy
reports. We are aware that our Annual
Report and Accounts are most often
accessed through our corporate website,
and therefore, to reduce paper usage
and further reduce G&A costs across
the Group, the Board has approved a
simpler look for the Annual Report &
Accounts 2020. We believe the new style
of presentation of the report is entirely in
keeping with the present business climate.
Farm-out of Egyptian assets and
successful equity raise
There are multiple investment
opportunities in Egypt, and now is the
right time to bring in an industry partner to
support the funding required to develop
and explore El Fayum and North Beni
Suef, both of which have transformative
potential. The Company launched a
formal farm-out process in the latter part
of 2020 and the results are expected to
be announced in Q2 2021. A successful
farm-out will de-risk our current 100%
participating interest holding, reduce our
capital exposure and accelerate the first
phase of the full-scale development drilling
programme at El Fayum, targeting material
increases in production.
In January 2021, the Company
announced the successful completion
of an oversubscribed equity Placing,
Subscription and Retail Offering in January
2021 which raised gross proceeds of
approximately $11.7m. The proceeds
are being used to fund Phase 1B of the
waterflood programme in Egypt, which is
now underway as we progress our farm
out process.
We were delighted to have such strong
support in this equity raising from the
market, underpinned by our existing
shareholders, management team and
board.
Health & Safety and wellbeing of
staff and host communities
The health, safety and welfare of our staff,
suppliers and host communities across
our business remains the highest priority
on the Board agenda, especially at during
this global pandemic. Pharos managed its
operations carefully in light of COVID-19
and the Group adhered to the requisite
procedures and restrictions, in line with
the government directives in Egypt,
Vietnam and the UK. At our onshore
operations in Egypt, field staff continue to
engage with the community adjacent to
9
JOHN MARTIN
Non-Executive Chair
A year of unprecedented change
The global COVID-19 pandemic, US
presidential elections and the completion
of the UK’s formal separation from the
European Union are some of the events
that impacted the global economy and
made 2020 a year of unprecedented
change, but there is hope for the future.
The global roll-out of a number of vaccines
supports the view that we might be
nearing the beginning of the end of the
severe lockdowns which have impacted
economic activity across the globe.
Actions taken in the year
During 2020, the COVID-19 pandemic
resulted in a sustained period of reduced
economic activity affecting energy
demand, which was reflected in severe
downward pressure on the oil price. In
addition, geopolitics in 2020 put further
downward pressure on the industry
resulting in a significant oil price drop.
The Company responded quickly and
decisively to defer all discretionary
expenditure and reduce G&A costs across
the Group to preserve balance sheet
strength.
Pharos was agile in reacting to the
rapidly changing oil price environment
and took advantage of the flexibility that
our onshore Egyptian operations offered
by deferring drilling activity in Egypt. Our
business in Vietnam is well positioned
with its low breakeven price. In Egypt,
the Company benefited from improved
commercial terms with EGPC on the
discounts and handling fees in 2020 and
has now received provisional approval to
amend the fiscal terms on its El Fayum
Concession which, once approved by
the Egyptian government, will accelerate
cost recovery, reduce breakeven prices,
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report CHAIR’S WELCOME - continued
the El Fayum Concession and have carried
out disinfection of community areas such
as schools, post offices, ambulance units
and police stations.
We are pleased to report that our Joint
Operations in Vietnam continue to an
exceptional record of safety, reporting
zero LTIs since operational inception,
representing nine production years on TGT
and 12 production years on CNV. In Egypt,
we are sad to report the loss of one of our
sub-contractor assistant crane operators
in Q4 2020, following an accident during
a rig move operation where the crane ran
off the road. Following the accident there
was immediate reinforcement of safe
working practices with all sub-contractors,
such as safe driving and manoeuvring
practices, increased supervision of rig
moves, and awareness of potentially
unsafe road conditions. The safety of our
workforce remains our number one priority
and Pharos has reinforced the use of
stop cards and safety training across all
operations.
The ‘S’ in ESG encompasses not only
social projects that we invest in but
extended during 2020 to focus on our
employees, contractors, suppliers, and
wider stakeholder groups during global
lockdowns. The CEO’s statement details
of the social projects the Joint Operating
Companies (JOCs) invested in and I would
like to address how Pharos has worked
and engaged with our employees.
Remote working for head office
staff
The Board has been focused on the
welfare of staff who have been working
remotely throughout the pandemic and
the Company has actively engaged
and consulted with staff on new remote
working practices. Office staff in
Vietnam and Egypt have been following
governmental guidelines, which has meant
a combination of working remotely and/
or in the office with negligible disruption to
the business. The London head office staff
have been working remotely since March
2020 and this is likely to continue for the
foreseeable future. Given this new pattern
of working, the London head office was
closed.
Workforce engagement in a remote
working environment
The Board remains passionate about
workforce engagement and fostering a
genuine dialogue between the Company
and staff. As such, I will continue in my
role as the designated Non-Executive
Director for workforce engagement. This
year I spoke to staff in Egypt, Vietnam
and London via video conference,
giving them a platform where they could
share their feedback and views about
the Company. Following feedback from
the previous year’s session, one of the
significant changes made was the hiring
of a dedicated Head of HR. Monthly
10
Pharos Energy Annual Report and Accounts 2020
focus groups held with staff to hear
their views on any issues arising from
new working environments have been
especially important. A Group wide
Employee Engagement Survey, the first in
the Company’s history, was also launched
in 2020, with a 92% response rate, the
outcomes of which will allow us to improve
our understanding of cultural differences
and employee experience.
Culture and our Guiding Principles
One of Pharos’ Guiding Principles is
Openness and Integrity, and we know
the value of open and transparent
communication and listening. Monthly
focus groups have been critical in
developing and adapting ways of
communicating across the Group and
increasing the frequency of business
updates and engagement with staff. Less
formal virtual gatherings have also been
organised to offer some of the interaction
that naturally gets lost when people are
not physically in the same office.
Diversity and Inclusion
We have a workforce with a diversity
of experience, nationalities, cultural
backgrounds, and gender, which supports
our business strategy of long-term
sustainable growth. It is crucial to the
success of our business that we retain
and develop the diversity of our workforce
and have diversity and inclusion at the
heart of our recruitment, development and
promotion processes. We are very proud
of the number of women we have in the
London office, which in 2020 accounted
for some 58% of the team and three
out of four Group Heads of Function
posts were managed by women. Our
Code of Business Conduct and Ethics
and Policies and our Guiding Principles
commit us to providing a workplace free
of discrimination where all employees can
fulfil their potential based on merit and
ability. They also commit us to providing a
fully inclusive workplace, while providing
the right development opportunities to
ensure existing staff have rewarding
careers.
Training and development
Providing training and development
opportunities to ensure existing staff
have rewarding careers has continued at
Pharos. We maintained a training budget
to support the ongoing development of
all our staff, providing them with external
training and ‘lunch and learn’ sessions run
by the staff.
Pharos remains committed to creating
value for host countries and local
communities as well as for staff. In
Vietnam, commitment to local sourcing,
employment, training, and industry
capacity building has continued with a
training levy of $300,000 per year in a
ring-fenced fund to support developing
future Vietnamese expertise in the industry.
In Egypt, under the El Fayum and North
Beni Suef Concession Agreements, the
Company contributes a total of $200,000
per year split equally between the two
Concessions to support training and
development within the industry.
Environmental, Social and
Governance (ESG) committee
Last year, the Board established an ESG
Committee, with delegated authority to
oversee and direct work towards our goal
of establishing and maintaining the highest
operating standards across ESG matters.
The ESG committee has dialogue with
employees and external advisors. In 2020,
the ESG working group, which sits within
the ESG Committee and includes Pharos’
Country Managers, Head of Operations,
Head of Investor Relations and Risk
Manager, met quarterly to discuss various
social projects and material ways to
reduce greenhouse gas (“GHG”) emissions
in our operations.
Reduction in GHG emissions across our
business is important to Pharos and we
recognise that our assets are operated
by JOCs over which we have influence
but not control. At the beginning of 2020,
the Group launched an internal initiative
with senior management and asset
managers called Project GOO (Greening
Our Operations) focusing on identifying
key sources of GHG emissions and
processes and methods which could be
changed to reduce GHG emissions. In
2019 in Egypt, the JOC initiated Phase
one utilisation of associated gas-powered
electricity generators, which reduced
flared gas at one site by 30% in 2019.
The implementation of a second phase
of this project, which was anticipated to
further reduce GHG emissions, has been
paused. Both these initiatives have been
interrupted by the impact of the pandemic
and we will look to resume them at the
appropriate time.
Climate Change
We recognise and actively consider the
impact of climate change and energy
transition as immediate challenges facing
Pharos. In our view, oil and gas will
continue to be an important component of
the global energy mix for many decades
to come, although there is a risk that there
could be less demand for oil and gas. This
could lead to downward pressure and
volatility in the oil price.
According to a recent World Bank report,
the Vietnamese economy is one of the
few in the world likely to avoid a recession
following the COVID-19 pandemic, giving
confidence that demand for energy there
will be maintained. Pharos will continue
to develop its oil and gas resources
responsibly to aid global economic
development and deliver value for all our
stakeholders. We believe that countries
such as Egypt and Vietnam can continue
to have economic and social benefits
from the responsible development of their
natural resources and we are committed
to doing this in a sustainable way. We
will also continue to support our host
governments as they seek to use oil
revenues to promote sustainable and
inclusive economic development, and we
will support the actions that they take to
manage climate change.
In December 2020, we published our
Climate Change Policy addressing our
principal climate change risks through
the development and implementation of
an appropriate mitigation response that
recognises energy transition away from
fossil fuels towards renewable sources of
energy, whilst supporting the long-term
resilience of the Company’s strategy
and business operations. This response
includes integrating climate change
considerations into key business decisions
in the short-term, particularly in relation
to new business opportunities and using
our relationships and influence as a JV
partner and our role in the JOCs to identify
key performance indicators (“KPIs”)
to help measure, monitor and, where
possible, reduce the energy consumption
and greenhouse gas intensity of our
operations, ensuring our business strategy
responds to evolving climate-related risks.
Our Climate Change Policy is available
on our corporate website https://www.
pharos.energy/responsibility/policy-
statements/. Over the past four years, we
have also participated in the CDP (Climate
Disclosure Project) Climate Change
Questionnaire and have maintained our
score (C) and amongst all UK listed oil and
gas companies that participated in the
CDP we ranked fourth.
We recognise the requirements for
increased transparency concerning the
impact on the environment from our
business decisions and we continue to
provide full disclosure of our emissions,
discharges and water usage. We are
always looking at actions that will minimise
our impacts on the environment. From
a financial perspective, we support
the requirements of the Task Force on
Climate-related Financial Disclosures
(“TCFD”) and are looking to bring
our disclosures in line with these
recommendations. The Project consists
of two phases. Phase 1, which is now
complete, consisted of a thorough peer
benchmarking, internal document review
and gap analysis which culminated in
the development and approval by the
Board of Pharos’ Climate Change Policy
in December 2020. Phase 2 will aim to
assess the Company’s climate impact,
define its 2020 baseline and develop a set
of KPIs to better manage and monitor its
GHG emissions. These efforts have been
interrupted by the impact of the pandemic
and we will look to resume them at the
appropriate time.
Board changes
Amid unprecedented turmoil and a rapidly
changing ‘new normal’, good corporate
governance has become even more
important. During 2020, as part of our
planned Board refreshment, I was pleased
to welcome Lisa Mitchell and Geoffrey
Green to the Board. Lisa is an experienced
CFO with over 25 years’ international
experience across the oil and gas, mining,
and pharmaceutical industries and she
has served as Chair of the Audit and
Risk Committee and as a member of
the Nominations Committee and ESG
committee from 1 April 2020. Geoffrey
has many years of legal and commercial
experience in advising major UK listed
companies on corporate and governance
issues, mergers and acquisitions and
corporate finance. Geoffrey was appointed
as the Chair of the Remuneration
Committee and as a member of the Audit
and Risk Committee and ESG Committee,
with effect from 20 May 2020. Geoffrey’s
wealth of legal experience and corporate
governance expertise along with Lisa’s
strategic, financial, taxation and treasury
expertise have already proven to be
invaluable to the Board, adding to its
strength and diversity. In addition, Ettore
Contini (Non-Executive Director) stepped
down from the Board following the AGM
in May 2020, after eighteen years of
service. I would like to thank Ettore for
his service and support to the Company
over the years, and we wish him all the
very best for the future. In March 2021, we
announced the appointment of Sue Rivett
to the Board as Chief Financial Officer
(“CFO”) effective 1 July 2021. Jann Brown,
who is currently Managing Director (“MD”)
and CFO, will remain as MD, focused on
delivering the next phase of the Group’s
strategic plan.
Brexit
The Board had previously considered the
uncertainties which exist around Brexit
when it was first announced and has
continued to conclude that the potential
impact on Pharos is likely to be low, since
our principal operations are conducted
in territories outside the EU, our cash
flows are linked to the US Dollar, and we
do not rely on large numbers of EU staff
members being able to work in the UK.
Outlook
Our current focus is to allocate capital
to the near-term development drilling in
Vietnam and Egypt, both of which have
potential to generate free cash flow. In
Vietnam, the development is self-funding
and in Egypt funds for the development
were raised from the equity placing with
further funds expected to come through
securing a farm-in partner.
Our principal strategy is the delivery
of sustainable long-term returns to
shareholders through a combination of
regular cash returns and growth in our
asset base. 2020 was a difficult year as
the drop in oil price not only significantly
reduced our operating cash flows but also
led to a reduction in the oil price used
by our lending banks, which increased
the scheduled mid-year repayment to
an amount significantly in excess of
our previous forecasts. We have done
what was required, including deferring
discretionary capex, reducing our cost
base and agreeing improved terms with
host governments. We also took the
decision to suspend the dividend which
would have been paid in 2020. We are
not complacent about the situation, but
we are confident that we can continue
to deliver value to our shareholders
and a commitment to cash returns to
shareholders remains a core element of
or overall allocation framework. The re-
instatement of the dividend will be kept
under regular review by the Board.
One of the most difficult decisions has
been to announce a staff redundancy
programme in the UK and this will be
completed during 2021. In addition, the
executive team has offered to take a 50%
reduction in salary effective 1 April 2021
bringing our overall cost base into line with
the current scale of the business.
In Egypt, we have started Phase 1B of the
waterflood programme following the equity
placing and are working steadily towards
securing a new farm-in partner to make
the investment needed to accelerate the
first phase of the full-scale development
drilling programme at El Fayum and
increase production to take advantage
of the excellent growth potential in the El
Fayum concession.
In Vietnam, infill production drilling on the
TGT field to enhance production levels will
begin in Q3 2021. On Blocks 125 & 126,
numerous prospects and leads have been
identified using the acquired 2D seismic,
gravity and magnetic data and preparation
work is ongoing for a 3D seismic survey
over certain high graded leads on the
northern part of Block 125.
Sustainability informs our actions and
decisions. Our aim is to add value in
everything we do through responsible,
efficient, and safe energy production.
I would also like to thank all of our
employees and contractors for their
continued hard work and commitment.
This has been an extraordinarily
challenging year for most of our
employees and everyone has risen to the
challenges, compounded by what have
been at times highly unusual working
situations as a result of the pandemic.
JOHN MARTIN
Non-Executive Chair
11
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report MARKET OVERVIEW
MARKET
OVERVIEW
2020 was a year dominated by the COVID-19 pandemic and the
significant and far-reaching effects it has had, and continues to have,
around the world. The escalating pandemic, coupled with Saudi
Arabia and Russia’s reticence to restrict oil supplies, meant that Brent
crude reached a low of $19/bbl in April before recovering through the
remainder of the year to average $42/bbl for the period.
Economics and political
Back in January 2020 when COVID-19
was a primarily regional virus in China,
few predicted that it would be the cause
of an unprecedented and extremely
challenging period for people, businesses,
and economies. The crisis went on to
cause the deepest peace time recession
with extreme market volatility. The Dow
Jones Industrial Average plunged 37%
during the height of the pandemic in
March, before staging a stunning recovery
with a rebound of 62% in November to
reach a record high as a result of stimulus
packages and hope of the impact of
vaccines.
Around the globe, economies saw
business closures, job losses and rising
government debt and while most made
a start at resuming more normal life as
restrictions were eased, many economies
were once again affected with further
waves of the virus and the associated
restrictions returning towards the end
of the year. Nevertheless, the end of the
pandemic is potentially in sight for most
as multiple vaccinations which have
been proved to be effective will be rolled
out throughout the year. This prospect,
alongside continued technological
innovation and a recovery in global
economic growth, should provide a
positive landscape for investors in 2021
and beyond.
12
Oil price
As a result of the drastic drop in oil
consumption, Brent prices fell to a
monthly average of $19/bbl in April (WTI
even went below zero for a short while),
the lowest monthly average price in real
terms since February 1999. Restrictions
started to be relaxed in the third quarter
of 2020 which lead to an increase in
oil demand. With production having
contracted during the first half of the
year, the increased demand caused
global inventories to fall. These factors,
and expectations of a future economic
recovery, contributed to Brent prices
rising to a monthly average of $50/bbl
in December 2020. Brent prices in early
January 2021 reached their highest
levels in 10 months after Saudi Arabia
announced a one-month unilateral cut to
its crude oil production for February that is
in addition to its OPEC+ commitments.
Pharos responded quickly to the
turbulence seen in the global economy,
and the associated impact on the oil price.
In Vietnam, Pharos’ low-cost production
continued to command a significant
premium to Brent and the business
remained profitable at low oil prices, while
the largely discretionary nature of planned
investments in Egypt gave the Company
considerable operational flexibility. Pharos
management took decisive action to cut
discretionary expenditure as appropriate
to preserve balance sheet strength.
Pharos has adopted strategic principles
and put policies and procedures in place
aimed at protecting its business, and
“future-proofing” it against the potential
impact of short-term volatility in prices.
These included a significant hedging
position which protected it from much
of the volatility seen in the first half of the
year.
Pharos’ strategy to mitigate this principal
risk of commodity price instability is
set out on page 45 in our discussion
on principal risks. Pharos regularly
evaluates whether the benefit of
hedging its oil production is in the best
interest of shareholders by considering
the balance between protecting the
Group in low oil price scenarios, set
against the opportunity cost of being
unhedged. In addition, Pharos continues
to manage its overall portfolio to target
a low break-even oil price, regardless
of actual oil prices. Our strong ethos
of capital discipline ensures that cost
efficiencies are maintained, even in higher
oil price environments. Pharos ensures
all operational decisions – including new
country entry, production optimisation and
acquisitions – are reviewed through the
lens of full-cycle project economics in a
range of oil price scenarios.
Most commentators see the outlook for
oil prices is constructive and following the
drastic impact of the COVID-19 pandemic
on the global economy and world oil
demand, OPEC and the Non-OPEC
partner countries acted swiftly to adjust
oil production to avoid a severe oil market
imbalance. The OPEC and Non-OPEC
Ministerial Meeting on 3 December 2020
reconfirmed the existing commitment to
gradually return 2 mb/d of production,
with the pace being determined according
to market conditions. With continued
cooperation between OPEC and non-
OPEC countries, the outlook for 2021
is positive as supply remains tempered
Pharos Energy Annual Report and Accounts 2020 and the outcome for demand looks to be
steadily increasing with the rapid rollout of
global vaccination programmes.
For more information on the impact of
climate change on the long-term oil prices
and demand, please see pages 48 to 49
of the Viability Statement.
E&P Merger & Acquisition activities
As with many aspects of the industry, the
COVID-19 pandemic drastically disrupted
the E&P M&A market with the value of
deals falling by 49% from US$124bn in
2019 to US$64bn in 2020. The largest
deal of the year was Chevron’s all-share
purchase of Noble at an enterprise value
of US$13bn. Other notable transaction
included the merger of Chrysaor and
Premier Oil in the UK, which is expected
to result in a combined entity valued at
US$4.5bn.
BRENT CRUDE 2011-2020 ($BBL)
2020
2018
2016
2014
2012
Climate change regulation
Climate change regulation and wider ESG
concerns continued to be at the forefront
of thinking for the wider global economy
in 2020. Instead of ESG and climate
concerns fading during the COVID-19
pandemic, as many assumed they would,
ESG and climate change awareness has
increased. There has been a particular
focus on the “S”, as shareholders urged
company bosses to focus on employees,
suppliers, and wider stakeholder groups
during global lockdowns, even if this
meant cutting or suspending dividend
payments. While the global slowdown in
travel and general energy consumption
was seen through lowered emissions and
pollution, the focus on climate debate
was unwavering with election of Joe
Biden in the US seen as being a catalyst
for increased efforts to tackle climate
change from one of the world’s leading
economies.
43
45
55
54
64
72
0
20
40
60
80
Source: Bloomberg, Code: CO1 Commodity
GLOBAL CRUDE OIL CONSUMPTION 2011-2021E
Pharos has continued to review emissions
with the objective of reducing them
wherever possible. We seek to be
transparent in our emissions performance
reporting and in 2020 we continued
to report our emissions and disclose
them in accordance with UK industry
requirements and standards. Pharos
participated in the CDP Climate Change
Questionnaire and we set an objective
to continue to work to improve GHG
emissions management by identifying
realistic initiatives for emissions reduction.
Work to ensure we are prepared to report
in line with the TCFD recommendations
progressed well in 2020 with Phase 1
completed and the adoption of our new
Climate Change policy. Phase 2 of this
work was impacted by the pandemic
and we look to resume at the appropriate
time.
99
100
109
112
111
120
102.2
d
p
b
m
m
104
102
100
98
96
94
92
90
88
2011A
2013A
2015A
2017A
2019E
2021P
Source: U.S. Energy Information Administration
GLOBAL E&P M&A, 2011-2020
160.0
150.6
143.5
2020E
124.2
120.0
111.6
D
S
U
s
n
o
i
l
l
i
80.0
87.4
78.3
58.1
96.0
86.7
63.7
B
40.0
0
2011
Source: IHS Herold
2012
2013
2014
2015
2016
2017
2018
2019
2020
13
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report
CHIEF EXECUTIVE OFFICER’S STATEMENT
CHIEF EXECUTIVE
OFFICER’S STATEMENT
The health, safety and wellbeing of
our employees, contractors and other
stakeholders is always a priority at
Pharos and in line with the government
directives in Egypt, Vietnam and the UK,
measures were put in place to minimise
the risk of any COVID-19 outbreak
occurring. The JOCs in both Egypt and
Vietnam implemented stringent offshore
and onshore procedures such that
mitigation measures were in place to
ensure the impact of any outbreak could
be quickly contained, and operations
would be maintained. Our office staff in
Egypt, Vietnam and UK also followed
governmental guidelines. Our UK head
office staff began remote working in
advance of the Government directive
to do so and have continued to work
remotely throughout with negligible
disruption to the business.
Operating a sustainable business remains
key to Pharos. During 2020, our focus
was on being agile to the changing global
pandemic environment and its impact on
the oil and gas industry. Our relentless
focus on capital discipline and looking
for opportunities to reduce costs across
the organisation resulted in us being able
to defer discretionary capex, negotiate
improved commercial terms in Egypt, and
reduce costs across the organisation.
Our focus on cost saving has not finished
and we recently announced that all three
executive directors have volunteered
to take a reduction in pay of 50%. In
addition, and with regret, we have decided
to downsize our staff numbers in the UK
and this programme of redundancies will
be completed in 2021.
Cash balances as at 31 December 2020
were $24.6m (2019: $58.5m), which
includes $57.2m drawn from the RBL,
giving a net debt figure of $32.6m (2019:
$41.5m). Revenues for January-December
2020 were$118.3m (2019: $189.9m) plus
$23.7m gain (2019: $0.2m loss) from
hedging. The hedging positions in place at
balance sheet date and additional hedging
taken out since then continue to provide
solid protection with approximately 42% of
the Group’s forecast production from April
to December 2021 hedged at an average
price of $50.6 /bbl.
The strength of our business lies in our
low-cost commitments and operational
flexibility, particularly in Egypt where
we were able to defer the discretionary
drilling programme to preserve capital.
In the meantime, we worked with EGPC
to negotiate better commercial terms
resulting in an improvement in the break-
even price per barrel; reductions in the
Western desert discount reduced in
stages, from a high of $2.90/bbl in April
to $0.60/bbl by October. In addition, we
agreed reductions with EGPC on both
the price discount applied specifically to
the El Fayum crude ($1/bbl reduction)
and on the crude handling fees paid at
the refinery ($0.80/bbl reduction). Both
of these reductions were in place for an
initial period of six months from August
2020 to January 2021 while the Company
continued its joint review with EGPC
on the specification of the crude oil, on
which the discount and fees are applied.
Additional negotiations with EGPC on
changes to the Concession Agreement
have now concluded successfully and,
once these have been approved by the
Egyptian Government, will significantly
improve our breakeven price in Egypt.
Group working interest 2020 production
was 11,373 boepd net, in line with
production guidance. Egypt production
for 2020 was 5,270 bopd. Operations
focussed on maintenance interventions
and water flood intervention. We
conducted a waterflood evaluation for the
phased implementation of a secondary
recovery programme, updated the
sub-surface static model and created
field dynamic models to optimise the
location of future oil producer and water
injector wells, ready for when the drilling
programme resumes. Our ongoing
technical work on the asset resulted in an
upgrade of 53% in proven and probable
(2P) reserves in the El Fayum concession
as concluded by a third-party reserves
auditing company McDaniel & Associates.
We also started the formal process of
looking for a new industry partner in
Egypt to make the investment needed to
accelerate production growth with a view
to doubling Egypt gross production to
~12,000 bopd through implementation
of multi-rig drill programme. This farm-
out process is progressing well, and we
expect the result to be announced in
ED STORY
President and Chief Executive Officer
14
Pharos Energy Annual Report and Accounts 2020 Q2 2021 with completion in H2 2021.
In January 2021, Pharos announced
the successful completion of an equity
Placing. The funds raised have allowed
us to restart our investment in the water
flood programme in the El Fayum oil fields
in Egypt.
Vietnam is a self-funding asset; the
produced crude commands a premium
to Brent and the producing properties
are cash flow generative even at low
oil prices. Vietnam 2020 production
was 6,103 boepd net. The Vietnam
producing fields, TGT and CNV, have
been part of Pharos’s portfolio for
almost two decades. This year one
well on the TGT Field in Block 16-1,
TGT-15X, spudded in early 2020 and is
modestly producing from deeper tighter
reservoirs. Operations on TGT focussed
on proactively managing the existing
reservoirs and optimising production
from the existing wells. The upgrade
work to the Gas Turbine compressors
for the Leased FPSO was completed
in April 2020 ahead of schedule and
under budget. In September 2020, the
JOC received approval from the Prime
Minister of Vietnam for the TGT Full Field
Development Plan (FFDP). The FFDP
includes drilling six new producer wells.
The JOC has approved the drilling of four
development wells in the 2021 budget
cycle to start drilling in Q3 2021. The
remaining two wells shall be proposed in
the next budget cycle for drilling in 2022.
We were also delighted with the two-year
extensions to both the TGT and CNV field
licences that were formally granted by the
Ministry of Industry and Trade in Vietnam.
The TGT licence now runs to 7 December
2026 and the CNV licence now runs to
15 December 2027 and a further licence
extension for both TGT and CNV will be
pursued in due course in accordance
with the licence terms. On Blocks 125 &
126 numerous prospect and leads have
been identified using the acquired 2D
seismic, gravity and magnetic data and
preparation work is ongoing for a 3D
seismic survey) over certain high-graded
leads on Block 125.
Social investment with host
communities
Our goal is to have a responsible and
positive presence in the regions in which
we operate.
In Egypt, Petrosilah has been engaging
with the local communities during the
pandemic to offer support. Field staff
continue dialogue and social engagement
with the villages adjacent to the El Fayum
fields and assisted with COVID-19
measures. In April 2020, Petrosilah
provided disinfection and sterilisation
services for all public and service buildings
such as schools, post offices, ambulance
units and police stations, along with
homes of the villages adjacent to the
company’s sites. Medical equipment such
as 100 sets of face masks, face shields
and protection suits were donated and
delivered to the Nabawi General Hospital
in Fayum, a Ministry of Health hospital
which operates as an isolation hospital
during the pandemic.
The JOCs have invested over $1 billion
into its oil and gas projects located
offshore southern Vietnam, making
Pharos one of the largest UK investors in
the country. Pharos’ current producing
interests in the TGT and CNV fields
together place Pharos amongst Vietnam’s
largest oil producers. In 2020 Pharos’
joint operations continued to achieve an
outstanding record of safety and have
contributed to national economic growth
through, employment, training, and
industry upskilling.
I am also pleased to say our social
investment in Vietnam through the
HLHVJOC Charitable Donation
programme continued. During 2020, a
total of nine projects in Vietnam were
approved. These donations have been
used to assist the overall development
of underprivileged rural areas in Vietnam,
and were specifically designated for
healthcare, education, environmental
development, and the assistance of flood
victims in the Central Highlands region.
For example, this year, donations were
made to Tran Hung Dao Commune’s
Medical Clinic in Ly Nhan district, Ha Nam
province to buy medical equipment such
as endoscope and ultrasound machines.
The programme continued its annual
support to the Ha Noi Private School
for the Hearing Impaired for the project
aimed at improving integration ability for
underprivileged disabled students. The
school is currently offering education to
100 students with autism and hearing-
impairment. Additionally, the programme
provided financial support to Tho Hai
Commune’s People Committee, Thanh
Hoa province to renovate buildings built
before the year 2000, with 10 classrooms
that had serious degradation, and for the
construction of new secondary school
classrooms. Further information about our
community projects can be found in our
Corporate Responsibility Report on
page 50.
Our people
It is now over a year into the progression
of the global pandemic, and the lives
of individuals across the globe have
changed in unprecedented ways.
Lockdowns across the world meant that
our colleagues had to adapt their working
environment to working from home in a
matter of days. I wish to add my own
thanks to staff for all of the commitment
and energy that has seen us through what
has been a hugely difficult year.
Outlook
We are focusing on near term value-
adding activities in Vietnam and Egypt,
both of which have potential to generate
free cash flow, and on the longer-term
prospects in Israel. Key events for 2021
will include:
In Vietnam
• The commencement of sequential infill
drilling of four development wells in Q3
2021 in TGT Field
• Preparing for the 3D seismic survey in
certain high graded leads in Block 125,
following the identification of numerous
prospect and leads using the acquired
2D seismic, gravity and magnetic data
In Egypt
• Phase 1B of the Waterflood
programme in Q1 2021, following the
successful equity placing in January
2021
• The ongoing formal farm-out process
for the Company’s assets in Egypt,
result expected to be announced Q2
2021 with completion in H2 2021
• Continued interpretation of the large
pre-existing 3D seismic survey on the
North Beni Suef Concession
ED STORY
President and Chief Executive Officer
15
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report CORE STRATEGIC OBJECTIVES
NAVIGATING THROUGH
CHALLENGING TIMES
1. Responsible &
Flexible stewards
of capital
A culture of prudent financial
management, capital allocation
and capital return.
We exhibit capital discipline through a
focus on cost management and control.
Capital allocation decisions are taken
to make investments where they will
provide risk-adjusted full-cycle returns.
It is this approach that has allowed us
to return significant amounts of capital
to shareholders. We have looked to add
another strand to the story – capital
growth – to underpin the sustainability of
dividends over the longer term.
Activities in 2020
• Disciplined capital investment and
allocation. Flexibility on capital
allocation due to low commitments
development through drilling with
facilities already in place
• Responsible and decisive actions to
preserve balance sheet strength. Agility
in deferring discretionary expenditure,
reviewing and reducing all G&A costs
across the Group
• Revenue stability through active
hedging programme – approximately
71% of production hedged in 2020,
providing continuity to underpin capital
programmes and preserve upside
exposure
• Modest gearing
Priorities in 2021
• Continue to actively manage our cost
base capital allocation and investments
• Maintain financial strength through
bringing in an industry partner to
support the next stage of development
in Egypt
• The hedging positions in place at
balance sheet date and additional
hedging taken out since then continue
to provide solid protection with
approximately 42% of the Group’s
forecast production from April until
December 2021, hedged at an average
price of $50.6 /bbl.
• Focus on opportunities already in the
portfolio
Risks
• Commodity price risk; Further lock-
down dampening oil demand
•
Insufficient funds to finance growth
plans and maintain dividends
Mitigation
• Oil price hedging
• Close monitoring of business activities,
financial position, cash flows
• Control over procurement costs/
effective management of supply chains
• Capital discipline with focus on
controlling and managing costs
• Stress test scenarios and sensitivities
to ensure a level of robustness to
downside price scenarios
• Discretionary spend actively managed
and deferred where possible
2. Focus on
stakeholders
Dialogue with shareholders, local
communities, host governments,
employees, contractors, and
others in the supply chain.
We continue to consult and engage,
through formal and informal processes, in
an open dialogue with our stakeholders.
These conversations consider matters that
are important both to our stakeholders,
and to the successful delivery of our
corporate objectives.
Activities in 2020
• Further Board refreshment and
increased independence
• Active engagement by the Chair with
UK, Egypt and Vietnam employees
• The launch of a staff survey, the first
ever in the Company’s history, with a
92% response rate.
• Open and active dialogue with
shareholders throughout the year
• Engagement across our supply chain
to identify and address red-flag areas
of concern
• Continued social engagement with
local communities in Egypt during the
pandemic to offer support through
providing disinfection and sanitisation
services for community areas and
donation of medical equipment such as
face masks, gloves, bodysuits
• Transparent disclosure of ESG-related
metrics. Continued oversight of ESG
Action Plan and approval of the Climate
Change policy by the ESG Committee
and ESG Working Group
16
Pharos Energy Annual Report and Accounts 2020 Priorities in 2021
• Commencement of waterflood
programme in the field in the El Fayum
Concession in Q1 2021, following the
successful equity placing in January
2021
• Continued formal farm-out process
for the Company’s assets in Egypt,
expected completion in H2 2021
• Commencement of well-drilling
programme approved in the Full Field
Development Plan (FFDP) in TGT Field
• Preparation for 3D seismic survey
planned over certain high graded leads
in Block 125
• Continued evaluation work to
reprocess all of the existing 3D seismic
vintages previously acquired across
the eight licences in Israel by various
contractors,
in order to provide a uniform data set
• Continued interpretation of the large
pre-existing 3D seismic survey on the
North Beni Suef Concession
Risks
•
Insufficient funds to meet commitments
• Commodity price volatility, volatility in
production levels – sub-optimal well
performance
• Partners’ alignment
Mitigation
• Regular review of funding options
• Stress testing forecasts
• Down side protection through hedging
• Proactive dialogue with banks
• Focus on best prospects
• Active participation in dialogue with
JOCs
Priorities in 2021
• Continued implementation of Task
Force on Climate-related Financial
Disclosures (TCFD) recommendations
• Continue workforce and stakeholder
engagement, building on work done in
2020
• Regular staff training and development
• Build on and improve new ways of
remote working and communication
to make the business base fit for the
workforce going forward
Risks
• HSES reputational and operational risk
• Climate change –speed of the energy
transition and physical risks from
extreme weather events
• Human resource risk
• Political and regional risks
• Business conduct and bribery
• Partner alignment risk
Mitigation
• Promote a positive health and safety
culture
• Emergency preparedness
• Embed climate change scenarios
and evaluate “strategic fit” of climate
change decisions on key business
operations where we have control
• Comply with all legislative/regulatory
frameworks and focus on a goal based
approach to improve safety
• Adhering to our Code of Business
Ethics
• Annual training and compliance
certifications by all associated persons/
whistleblowing facility in place
• Active participation in JOC
management
• Engage directly with the relevant
authorities on a regular basis
3. Enhanced
growth potential
Creating and building low-cost
growth opportunities in our
portfolio.
Building and enhancing growth
opportunities in our current portfolio.
Actively managing our portfolio through
investments and divestments. Focusing
on near-term development opportunities
to create value for stakeholders whilst
maintaining high operational and safety
standards using local staff and suppliers.
Activities in 2020
Egypt
• Benefited from improved commercial
terms with EGPC regarding the
Western Desert discount. Negotiated
a six-month reduction on the El Fayum
discount and fees
• Progressed negotiations with EGPC
concerning potential improvements in
the Concession Agreement terms
• Reprocessed the 3D seismic data
across El Fayum, for better subsurface
definition
• Conducted a waterflood evaluation
for the phase implementation of a
secondary recovery programme
• Updated the sub-surface static model
and created field dynamic models to
optimise the location of future wells
•
Identified a number of low-risk
prospects as well as potential
producing field extensions from
third-party Development Leases
into the North Beni Suef Exploration
Concession
Vietnam
• Completed upgrade work on the Gas
Turbine compressors for the Leased
FPSO in TGT Field in April 2020 ahead
of schedule and under budget
• Acquired approval from the Prime
Minister of Vietnam for the TGT Full
Field Development Plan (FFDP)
• Granted two-year extensions to both
the TGT and CNV field licences from
the Ministry of Industry and Trade in
Vietnam
17
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report BUSINESS MODEL
OUR BUSINESS MODEL
IS TO BUILD FOR THE
FUTURE
VALUE INPUTS
Our people
• Extensive industry experience
• Technical expertise
• Commercial acumen
• Relationship-driven
Our assets
• Mix of complementary assets
• Mature, short payback in Vietnam
• Development drilling in Vietnam
• Low-cost onshore drilling in Egypt
• Longer term gas potential in Israel
Our capital
• Low operating cost
• Low breakevens in Vietnam
• Financial prudence
• Modest gearing
• Strict capital allocation process
18
Assess
Invest
Develop
& produce
Pharos Energy Annual Report and Accounts 2020 We are building a business focused on generating sustainable returns.
We look to grow Pharos through the responsible management of our
current portfolio and careful selection of new opportunities, particularly
those with near-term low-cost development and, where appropriate,
exploration assets with transformative potential within Asia and MENA.
We assess opportunities which offer a superior risk-
weighted return. Our experienced management team
identify established high margin, low-risk producing
assets enabling geographical asset diversification and
an increase in exploration acreage growth leading to
value growth.
VALUE OUTPUTS
Growth
opportunities
• Development of existing discovered resources
• New prospects and leads in Egypt, Vietnam and Israel
• Conventional and unconventional + exploration
potential
Our investment programme will continue to be
allocated over our asset base in a disciplined manner
to deliver sustainable returns for our stakeholders. We
maintain a culture of prudent financial management,
capital allocation, and capital returns.
Stakeholders
• Net Asset Value (NAV) growth and share price
• Return to shareholders
• Local capability
•
In-country economic contribution and social investment
• Employment and training
Develop
& produce
Our production increases through the development
of existing discovered resources. Maximising margins
through optimising production and low operating costs.
Responsible operations, operating safely at all times.
Growth production
metrics
• Responsible and safe operations
• Low cost per barrel
• Development of discovered Egyptian resources
• Continued development of Vietnam assets
19
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report KEY METRICS
REPORTING ON OUR
PERFORMANCE
> * Read more
Non-IFRS measures on page 145
Financial measures
LOW CASH OPERATING COST
$/BOE *
11.60
2020
2019
2018
11.60
10.45
13.63
Description
Low operating expenditure helps deliver high margin production revenues. The cost of producing a single barrel of oil is influenced by industry
costs, inflation, fixed costs and production levels.
Objective
To be profitable at lower oil prices.
Performance
Pharos achieved an operating cost of $11.60/boe in 2020, an increase over 2019, largely due to fixed costs such as the FPSO and other
facilities being spread over few produced barrels.
Outlook
We continue to target improvements in 2021 and beyond though managing costs and increasing production.
Links to strategy
• Deliver value through growth
Links to Remuneration Report (See page 87)
Associated risks
• Partner alignment risk
• Political and regional risk
CAPITAL EXPENDITURE
CASH $M (includes abandonment funding)
41.3
2020
2019
2018
41.3
63.4
22.4
Description
Investment in the asset base required to maintain and grow the business and directed to the assets in Egypt and Vietnam.
Objective
Allocate capital to achieve returns in excess of cost of capital.
Performance
The 2020 cash capital expenditure was lower than 2019 due to the reduced drilling programme following the macroeconomic circumstances.
Outlook
Pre farm-out, the cash capex is forecast as $31.7m
Links to strategy
• Deliver value through growth
• Investment growth
Associated risks
• Commodity price risk
• Partner alignment risk
20
Pharos Energy Annual Report and Accounts 2020 The financial and non-financial metrics facilitate better management
of long-term performance and enable us to deliver on our sustainable
responsible business plans. They are kept under periodic review and
regularly tested for relevance against our strategies and policies.
CASH AND CASH EQUIVALENTS
$M
24.6
24.6
58.5
2020
2019
2018
240.1
Description
Pharos has a history of stable finances and a strong balance sheet due to the prudent management of producing assets
Objective
The key goals are to maintain financial strength through preserving the balance sheet, to invest in growth opportunities in excess of the cost
of capital and to generate sustainable returns to shareholders
Performance
Pharos has a cash balance of $24.6m.
Outlook
Capital discipline and financial stability have always been key to the Company and continue to underpin the business.
Links to strategy
• Deliver value through growth
• Return to shareholders
Associated risks
• Commodity price risk
• Financial discipline and governance risk
RETURNS TO SHAREHOLDERS
PENCE PER ORDINARY SHARES
0
2020
0
2019
2018
Description
Commitment to cash returns to shareholders remains a core element of our overall allocation framework
Objective
Sustainable cash returns to shareholders.
5.5
5.25
Performance
On 12 May 2020, it was with regret that the Board announced that no dividend would be paid in 2020, given the continued uncertainty in the
macro environment driven by the outbreak of COVID-19 and the pressure on oil price against this backdrop.
Outlook
An annual dividend is a key aspect of the Company’s capital discipline and investment thesis and the Board will keep this under review.
Links to strategy
• Deliver value through growth
• Return to shareholders
Associated risks
• Commodity price risk
• Climate change risk
• Sub-optimal capital allocation risks
21
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report KEY METRICS - continued
Operational measures
LOST TIME INJURY FREQUENCY (“LTIF”)
PER MILLION MAN-HOURS WORKED
0.34
2020
2019
2018
0
0
0.34
Description
Safety of our workforce remains our number one priority. The Group is committed to operating safely and responsibly at all times. Having a
positive impact on the wellbeing of our employees, our contractors and the local communities in which we operate is a priority.
Objective
Pharos’ key safety target is zero LTIF.
Performance
Our Joint Operations in Vietnam continue to achieve an exceptional record of safety, reporting zero LTIs since operational inception. In Egypt,
we are sad to report the loss of one of our assistant crane operators in Q4 2020, following an accident during a rig move operation where
the crane ran off the road into a ditch. Following the accident, there was immediate reinforcement of safe driving and manoeuvring practices,
increased supervision of rig moves,and increased awareness of potentially unsafe road conditions. The safety of our workforce remains our
number one priority and Pharos has reinforced the use of stop cards and safety training across all operations.
Outlook
Continue to work with the Joint Operating Companies to maintain high safety standards and training with the aim of driving continuous
improvement year-on-year.
Links to strategy
• Focus on stakeholders
Links to Remuneration Report (See page 87)
Associated risks
• HSES and social risk
• Partner alignment risk
GROUP NET PRODUCTION
BOEPD
11,373
2020
2019
2018
11,373
12,136
7,274
Description
Production revenues generate cash flows which are re-invested in the portfolio of assets, new business opportunities, and in returns to
shareholders.
Objective
Optimise production from Pharos asset base.
Performance
Vietnam production 6,103 boepd net. Egypt production 5,270 bopd.
Outlook
2021 guidance in Vietnam is 5,200-6,200 boepd, in Egypt is 4,000-4,400 bopd.
Guidance for Egypt is given before the allocation of any investment from a farm-in partner.
Links to strategy
• Deliver value through growth
Links to Remuneration Report (See page 87)
Associated risks
• Reserve risk
• Sub-optimal capital allocation risks
• Commodity price risk
22
Pharos Energy Annual Report and Accounts 2020 SOCIAL AND ECONOMIC INVESTMENT
$
745,191
2020
2019
2018
745,191
545,379
509,408
Description
In Vietnam, a training levy of $150,000 for each joint operating company goes into a fund which is ring-fenced to support the development
of future talent in the industry. A further $236,754 was invested in community and charitable investments through the HLHVJOC Charitable
Donation Programme. In Egypt, under the El Fayum and North Beni Suef Concession Agreements, the Company contributes a total of
$200,000 per year split equally between the two Concessions to support training and development within the industry. Additionally, a further
$8,437 was invested in three community projects in Egypt by Petrosilah.
Objective
Continue to support local capability building and social investments in Vietnam and Egypt.
Performance
In 2020, the HLHVJOC Charitable Donation Programme invested in nine community and charitable partnerships and investment projects in
Vietnam. These donations have been used to assist the overall development of poor rural areas in Vietnam. In Egypt, Petrosilah has been
engaging with the local communities during the pandemic. Field staff continue dialogue and social engagement with the villages adjacent to
the El Fayum and have carried out disinfection and sanitisation services for community areas such as schools, post offices, ambulance units
and police stations, along with homes of the villages adjacent to the El Fayum fields.
Outlook
Build on previous work, and continuously assess and review where the most valuable contribution to long-term social projects, both at the
local level and more widely, can be made.
Links to strategy
• Deliver value through growth
• Return to shareholders
Associated risks
• Commodity price risk
• Financial discipline and governance risk
• Business conduct and bribery
EMPLOYEES UNDERTAKEN ANTI-BRIBERY
AND CORRUPTION TRAINING %
100
2020
2019
2018
100
100
100
Description
Our Anti-Bribery and Corruption (“ABC”) programme is designed to prevent corruption and ensure systems are in place to detect, remediate
and learn from any potential violations. All personnel are required to complete annual ABC training.
Objective
All personnel to complete the annual ABC programme including training, testing and self-declaration statement.
Performance
100% of personnel completed the ABC training.
Outlook
Maintain 100% completion rate for the ABC training. Comply with new legislations and industry best practices and ensure the training
programmes are up-to-date.
Links to strategy
• Deliver value through growth
• Investment growth
Associated risks
• Partner alignment risk
• Business conduct and bribery
23
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report OPERATIONS REVIEW
EGYPT
Pharos has two concessions in Egypt
- El Fayum and North Beni Suef.
5,270boepd
2020 Egypt production
In Egypt, Pharos holds a 100% working interest in the El Fayum Concession in
the Western Desert, c.80km south west of Cairo and in proximity to local energy
infrastructure. It is operated by Petrosilah, a Joint Operating Company jointly controlled by
Pharos and Egyptian General Petroleum Corporation (EGPC). The concession has 10 oil
fields, the largest three of which form the Greater Silah Area.
The El Fayum Concession has 1,564km2 of exploration acreage, of which c.70% is
covered by existing 3D seismic, with multiple identified exploration prospects and leads
set in proven petroleum systems, as well as a large under explored area in the northern
portion of the Concession and deep untested pre-Kharita potential in the south.
10
Oil fields
El Fayum Concession
ISRAEL
CAIRO
North Beni Suef Concession
EGYPT
El Fayum (D&P)
1
North Beni Suef (E)
2
The El Fayum Concession is located in the low-cost and highly
prolific Western Desert, about 80km south west of Cairo and
close to local energy infrastructure.
The North Beni Suef (NBS)Concession is located south of the El
Fayum Concession. Pharos entered into the NBS Concession
Agreement on 24 December 2019.
+ See page 25
+ See page 26
24
Pharos Energy Annual Report and Accounts 2020 1 El Fayum
Located in the Western Desert of Egypt
Full Field Development Plan
provides detailed runway to
growth
• Longer-term strategy
• Flexible and scalable drilling program
maximises field economic returns
• Expand water floods across the fields
• Add new reserves and open new
production hubs
• Focus on field economics/ high-return
investment
Egypt development and operations
El Fayum
Prior to the COVID-19 pandemic and the
oil price shock, three drilling rigs and three
workover rigs were operating through Q1
2020. Seven wells (five producers and
two injectors) were drilled, through to April
2020.
Due to the uncertain macro-economic
environment resulting from the global
impact of COVID-19 and the oil
price shock, the discretionary drilling
programme in Egypt was scaled back
to preserve capital with termination
notices issued on five of the six rigs
retaining just one workover rig, on a call
out contract, for ongoing maintenance.
Production operations in the field since,
have been centred on well maintenance
interventions, pilot water flood tests in
the Silah Field and evaluation of a phased
water-flood programme. During the hiatus
in drilling operations, Pharos has:
• Benefited from improved commercial
terms with EGPC regarding the
Western Desert discount and
negotiated a reduction on the El
Fayum discount. The Western Desert
discount reduced in stages, from a
high of $2.90/bbl in April to $0.60/
bbl by October. In addition, we have
agreed reductions with EGPC, effective
1 August 2020, on both the price
discount applied specifically to the El
Fayum crude ($1/bbl reduction) and
on the crude handling fees paid at the
refinery ($0.80/bbl reduction). Both of
these reductions are in place for an
initial period of six months while the
Company continues its joint review with
EGPC on the specification of the crude
oil, on which the discount and fees are
applied
• Received provisional approval from
EGPC to an amendment of the fiscal
terms of its El Fayum Concession
Egypt production
Production for 2020 from the El Fayum
Concession averaged 5,270 bopd. This
is in line with the Egypt 2020 production
guidance given on 12 May 2020 of 5,000-
6,000 bopd.
Production guidance for 2021 is 4,000-
4,400 bopd before any investment from a
farm-in partner.
100%
Working interest; operated
by Petrosilah JOC
40.8
MMBBL of 2P reserves
19.0
MMBBl of 2C resources
CAIRO
Area E
EGYPT
El Fayum Concession
• Updated the sub-surface static model
and created field dynamic models to
optimise the location of future wells,
both oil producers and water injectors,
as the development programme is
implemented
• Optimised the field development plan,
with ERCE our external consultants,
to create a 57 well Investment Case
designed to take the Recovery Factor
from 8% on primary depletion alone
to ~18% with secondary recovery.
A further 40 well development
programme would increase the
Recovery Factor to ~30% which is
more in line with analogous fields in
Egypt
• Reprocessed the 3D seismic data
across El Fayum, for improved
subsurface definition
• Conducted a full waterflood evaluation
study for the phased implementation of
a secondary recovery programme
2021 work programme
Following the successful equity
placing in January 2021, the Phase
1B of the waterflood programme, has
commenced. It is designed to increase
reservoir pressure support and increase
production. The waterflood programme is
progressing across four main areas:
• Surface facilities injection capability
upgrade and optimisation:
Procurement process of long-lead
items (LLIs)
• Existing well conversions from
producers to injectors: workover rig
in-place
• Complete outstanding new wells as
injectors: engagement with service
companies to optimise the completion
programmes is ongoing
• Recompletion of existing wells to
add new zones under waterflood to
production: recompletion targets have
been identified
The subsurface static and dynamic
models continue to be updated to allow
further understanding and optimisation
of waterflood patterns and well spacing
which will in turn improve sweep efficiency
and increase well deliverability.
25
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report OPERATIONS REVIEW - continued
El Fayum exploration
Exploration drilling activity, apart from
the Batran well, is currently on hold while
the Company focuses on development,
production, and cash flow. The Batran
exploration well in the NE Tersa
Development Lease is a commitment well
that is planned to be drilled around May
2021.
2 North Beni Suef
Located south of the El Fayum
Concession
Existing data base
5,060km2
Acreage
1,788km2
3D Seismic
8
Wells
ISRAEL
Option on East
Mediterranean gas play
8 licences
Two contiguous zones, A & C, each
containing four licences (eight in total).
The work programme commitment for
3.5 years is to reprocess all of the existing
3D seismic vintages previously acquired
across the eight licences by various
contractors, in order to provide a uniform
data set.
Zone A & Zone C (E)
During 2020, as part of the minimum
work commitment, a contract for seismic
processing was awarded and seismic
processing is ongoing. The project
aims to improve the imaging of existing
seismic in order to identify and mature
any prospectivity. This asset offers low-
cost option for potential material gas
and provides geographical as well as
hydrocarbon diversification.
26
Egypt outlook
• 2021 production guidance is 4,000-
4,400 bopd, before the allocation of
any investments from a farm-in partner
is considered
• Phase 1B Waterflood programme in the
El Fayum Concession has commenced
• Ongoing formal farm-out process for
the Company’s assets in Egypt, result
expected to be announced Q2 2021
with completion in H2 2021
• Continued interpretation of the large
pre-existing 3D seismic survey on the
North Beni Suef Concession
CAIRO
EGYPT
North Beni Suef block
Egypt – North Beni Suef
During 2020, work focused on technical and investigative work on wells previously drilled
on the concession. Interpretation of the large pre-existing 3D seismic survey on the NBS
concession continues and a number of low-risk prospects and potential producing field
extensions from third party Development Leases to the NBS Exploration Concession have
been identified.
39
40
Zone A
45
46
47
48
Zone C
52
53
WEST
BANK
T EL AVIV
GAZA
ISRAEL
EGYPT
8
Licences
33.33%
Working interest
Pharos Energy Annual Report and Accounts 2020 VIETNAM
We have established and valuable assets in Vietnam. Production is
from two fields (TGT & CNV) and further potential for growth from two
additional exploration blocks (Blocks 125 & 126).
Vietnam production
Production in 2020 from the TGT and
CNV fields net to the Group’s working
interest averaged 6,103 boepd. This is in
line with the 2020 production guidance of
5,500 to 6,500 boepd.
TGT 2020 production averaged 15,296
boepd gross and 4,547 boepd net to
Pharos (2019: 17,847 boepd gross and
5,382 boepd net to Pharos). CNV 2020
production averaged 6,223 boepd gross
and 1,556 boepd net to Pharos (2019:
6,793 boepd gross and 1,699 boepd net
to Pharos).
The Group’s Vietnam production guidance
for 2021 of 5,200 – 6,200 boepd.
24
Years active in
Vietnam since 1997
$1 billion
Over $1 billion invested
by the joc in oil and gas projects
located offshore Vietnam, making
pharos one of the largest british
investors in the country
Blocks 16-1 and 9-2, which contain
the TGT and CNV fields respectively,
are located in shallow water in the
hydrocarbon-rich Cuu Long Basin, near
the Bach Ho Field, the largest field in the
region with production already in excess
of one billion barrels of oil equivalent. The
Blocks are operated through non-profit
joint operating companies in which each
partner holds an interest equivalent to
its share in the respective Petroleum
Contract. The Group holds a 30.5%
working interest in Block 16-1 which
contains 97% of the Te Giac Trang (TGT)
field and is operated by the Hoang
Long Joint Operating Company. Pharos’
unitised interest in the TGT field is 29.7%.
Pharos also has a 25% working interest
in the Ca Ngu Vang (CVN) field located
in Block 9-2, which is operated by the
Hoan Vu Joint Operating Company. Its
partners in both blocks are PetroVietnam
Exploration and Production, a subsidiary
of the national oil company of Vietnam
and PTTEP, the national oil company of
Thailand.
Production by field
TGT production
Oil
Gas1
CNV production
Oil
Gas1
Total production
Oil
Gas1
Figures in boepd.
1) Assumes oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent.
FY 2020
FY 2019
4,547
4,185
362
1,556
988
568
6,103
5,173
930
5,382
5,034
348
1,699
1,106
593
7,081
6,140
941
27
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report OPERATIONS REVIEW - continued
VIETNAM - CONTINUED
A valued asset with future growth opportunities.
Supportive relationships developed at the highest levels of government.
Block 9-2 CNV Field (D&P)
The CNV Field is located in Block 9-2, offshore Vietnam, in the shallow water Cuu Long
Basin. In contrast to the geology of TGT, the CNV Field reservoir is fractured granitic
Basement.
+ See page 28
QUY NHON
CAMBODIA
HO CHI MINH CITY
NHA TRANG
VIETNAM
Block 125
Block 126
Block 16-1 TGT Field
Block 9-2 CNV Field
Block 16-1 TGT Field
(D&P)
The TGT Field is located in Block 16-1,
offshore Vietnam in the shallow water
Cuu Long Basin multi-stacked sandstone
reservoirs.
+ See page 29
Blocks 125 & 126 (E)
Blocks 125 & 126 are located in moderate
to deep waters in the Phu Khanh Basin,
north east of the Cuu Long Basin.
+ See page 30
Block 9-2 CNV Field
The CNV Field is located in Block 9-2, offshore Vietnam, in the shallow water Cuu Long Basin.
CNV 2020 production averaged 6,223
boepd gross and 1,556 boepd net to
Pharos (2019: 6,793 boepd gross and
1,699 boepd net to Pharos).
The CNV Field is located in the western
part of Block 9-2, offshore southern
Vietnam and is operated by HVJOC.
The CNV Field reservoir is fractured
granitic basement, which produces a
volatile oil with a high gas to oil ratio.
Exploitation is dependent on the fracture
interconnectivity to deplete the reservoir
efficiently. Accordingly, traditional reservoir
properties and Stock Tank Oil Initially
In Place (STOIIP) calculations are not
straightforward, but managed properly the
fractured basement reservoir declines at a
much slower rate than is commonly seen
in clastic reservoirs.
Hydrocarbons produced from CNV are
transported via subsea pipeline to the
Bach Ho Central Processing Platform
(BHCPP), where wet gas is separated
from oil and transported via pipeline to an
onshore gas facility for further distribution.
The crude oil is stored on a floating,
storage and offloading FPSO vessel prior
to sale, and realises a significant premium
to Brent.
HO CHI MINH CITY
VIETNAM
2020 activity on CNV
As planned, no drilling activities took place
on CNV for 2020. Operations on CNV
focused on routine well maintenance.
Block 9-2 CNV Field
25%
1,556
Working interest;
operated by HVJOC
boepd net
28
2020 Production averaged 6,223 boepd
gross and 1,556 boepd net to pharos
Pharos Energy Annual Report and Accounts 2020 Block 16-1 TGT Field
Located in Block 16-1, offshore Vietnam, in the shallow water Cuu Long Basin.
TGT 2020 production averaged 15,296
boepd gross and 4,547 boepd net to
Pharos (2019: 17,847 boepd gross and
5,382 boepd net to Pharos).
The TGT field is located in the north
eastern part of Block 16-1, offshore
southern Vietnam and is operated by
HLJOC. The Block 16-1 petroleum
contract was signed in December 1999,
with the first commercial discovery made
in 2005. TGT is a simple structure, with
a complex series of stacked producing
intervals, extending over 16km and
with hydrocarbons located in at least
five major fault blocks. The producing
reservoirs comprise a complex series
of over 80 clastic reservoir intervals of
Miocene and Oligocene age. Each interval
requires individual reservoir management
to optimise field recovery. The TGT field
continues to be a rewarding investment
for Pharos Energy, with its attractive
fiscal terms, low operating costs and
an oil quality which realises a significant
premium to Brent.
The first well head platform, H1-WHP,
came on stream in August 2011, followed
by the H4-WHP in July 2012 and the
H5-WHP in August 2015. Crude oil from
TGT is transported via subsea pipeline to
the FPSO, where it is processed, stored
and exported by tankers to regional oil
refineries. Gas produced from the field is
exported by pipeline to the nearby Bach
Ho facilities for processing and onward
transportation to shore by pipeline to
supply the Vietnamese domestic market.
2020 activity on TGT
Production wells
The last well from the 2019 drilling
campaign, TGT-15X, spudded on 28
February 2020 and is producing from
both the upper and deep sections.
The well was drilled within budget. No
further drilling activity occurred during
2020. Operations on TGT focussed
on proactively managing the existing
reservoirs and optimising production from
the existing wells, principally through well
interventions and gas lift optimisation.
TGT Compressors and FPSO Tie-In
Agreement (TIA)
The upgrade work to the Gas Turbine
compressors for the Leased FPSO
was completed in April 2020 ahead of
schedule and under budget. This allowed
the gas injection pressure to be raised
in the well intervention operations for
optimised gas lift and new perforations.
HO CHI MINH CITY
VIETNAM
The third-party Tie In Agreement (“TIA”)
between the HLJOC and the current
counterparty, Thang Long Joint Operating
Company (TLJOC) terminated in 2018.
The cost sharing elements have been
finalised, but negotiations continue
regarding TLJOC’S rights of access to the
HLJOC’s production facilities and FPSO.
TGT Full Field Development Plan
As announced in September 2020
the Joint Operating Company (JOC),
received approval from the Prime
Minister of Vietnam for the TGT Full
Field Development Plan (FFDP), the last
stage in the approval process. The FFDP
includes drilling six new producer wells.
This sequential infill-drilling programme is
targeted to increase gross production at
TGT from the present ~15,000 boepd to
around 20,000 boepd in 2022.
Vietnam License Extension
As previously announced, two-year
extensions to both the TGT and CNV field
licences were formally granted by the
Ministry of Industry and Trade in Vietnam.
The TGT licence now runs to 7 December
2026 and the CNV licence now runs to
15 December 2027. A further licence
extension for both TGT and CNV will be
pursued in due course in accordance with
the licence terms.
2021 work programme
Following the approval for the TGT FFDP,
the JOC has approved the drilling of four
development wells in the 2021 budget
cycle and ordering of long-lead items has
begun to enable the commencement of
drilling in Q3 2021, a quarter earlier than
previously announced. The remaining two
wells shall be proposed in the next budget
cycle for drilling in 2022.
Block 16-1 TGT Field
30.5%
Working interest;
operated by HLJOC
4,547
boepd
net
2020 Production averaged
15,296 boepd gross and
4,547 boepd net to pharos
29
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report OPERATIONS REVIEW - continued
VIETNAM - CONTINUED
Blocks 125 & 126
Located in moderate to deep waters in the Phu Khanh Basin, north east of the Cuu Long Basin.
70%
Operated working interest
CAMBODIA
HO CHI MINH CITY
NHA TRANG
VIETNAM
Block 125
Block 126
Exploration Blocks 125 & 126 are in
moderate to deep waters in the under-
explored Phu Khanh Basin.
The Phu Khanh is similar in geological
style to all the productive Tertiary basins
across South East Asia and a small oil
discovery in the shallow inboard part of the
basin confirms that it contains an active
petroleum system.
The acquisition of 7,107 km of 2D
seismic, gravity and magnetic data was
completed on 31 May 2019 on time and
within budget. Initial interpretation of the
seismic confirms multiple structural and
stratigraphic plays across the basin.
Preparation work on 3D seismic survey
over certain high graded leads in the
northern part of Block 125 is ongoing.
Vietnam outlook
• 2021 production guidance 5,200 –
6,200 boepd net
• Proactively manage the existing
producing reservoirs
• Commencement of in-fill drilling
programme of four wells in the FFDP in
Q3 2021
Group reserves and contingent
resources
The Group Reserves Statistics table
on page 31 summarises our reserves
and contingent resources based on the
company’s unitised working interest in
each field. Gross reserves and contingent
resources have been independently
audited by RISC Advisory Pty Ltd (RISC)
for Vietnam and McDaniel & Associates
Consultants Ltd. (McDaniel) for Egypt.
(SEE FIG 1)
Egypt reserves and contingent
resources
On El Fayum, better than expected field
performance, improved understanding
of the subsurface, demonstration of the
successful impact on production of the
pilot water flood projects in the Silah Field
and the adoption of an optimised field
development plan (57 well Investment
Case) have resulted in an upward revision
of the 2P reserves. El Fayum contingent
resources have been revised downwards
as some volumes have been re-
categorised from 2C to 2P. (SEE FIG 3)
Vietnam reserves and contingent
resources
In accordance with the requirements of
its Reserve Base Lending Facility, the
company commissioned RISC to provide
an independent audit of gross (100% field)
reserves and contingent resources for
TGT and CNV as of 31 December 2020.
(SEE FIG 2)
On TGT, 2P reserves and 2C contingent
resources were revised slightly
downwards due to lower-than-expected
performance of a recent infill well, a small
reduction to the unitised field net working
interest and delayed drilling as a result of
the global pandemic.
On CNV, the 2P reserves and 2C
contingent resources were revised
downwards as one of the wells drilled
in late 2018 has been cleaning-up at a
slower rate than previously anticipated.
Additionally, the COVID-19 pandemic
resulted in delayed well interventions and
facilities work required to arrest the field’s
natural decline. This work is now planned
to be completed in the first half of 2021.
30
Pharos Energy Annual Report and Accounts 2020 FIG 1. GROUP RESERVES AND CONTINGENT RESOURCES
Net Working Interest, MMBOE
TGT
CNV
Vietnam3
Egypt4
Group
Oil & Gas 2P Commercial Reserves 1,2
As of 1 January, 2020
Production
Revision
2P Commercial Reserves as of 31 December 2020
Oil & Gas 2C Commercial Reserves 1,2
As of 1 January, 2020
Revision
2C Contingent Resources as of 31 December 2020
Total Group 2P Reserves & 2C Contingent Resources 3,4
as of 31 December 2020
15.4
(1.7)
(0.7)
13.0
8.5
(0.2)
8.3
21.3
6.0
(0.6)
(0.5)
4.9
4.6
(0.7)
3.9
8.8
21.4
(2.3)
(1.2)
17.9
13.1
(0.9)
12.2
30.1
28.5
(1.9)
14.2
40.8
23.5
(4.5)
19.0
59.8
49.9
(4.2)
13.0
58.7
36.6
(5.4)
31.2
89.9
1. Reserves and contingent resources are categorised in line with 2018 SPE standards.
2. Assumes an oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent.
3. Reserves and Contingent Resources have been independently audited by RISC
4. Reserves and Contingent Resources have been independently audited by McDaniel.
TGT
15.4
(1.7)
(0.7)
13.0
8.5
(0.2)
8.3
21.3
FIG 2. VIETNAM RESERVES STATISTICS
Net Working Interest, MMBOE
Oil & Gas 2P Commercial Reserves 1,2
As of 1 January, 2020
Production
Revision
2P Commercial Reserves as of 31 December 2020
Oil & Gas 2C Commercial Reserves 1,2
As of 1 January, 2020
Revision
2C Contingent Resources as of 31 December 2020
Total Vietnam 2P Reserves & 2C Contingent Resources 3
as of 31 December 2020
1. Reserves and contingent resources are categorised in line with 2018 SPE standards.
2. Assumes an oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent.
3. Reserves and contingent resources have been independently audited by RISC.
FIG 3. EGYPT RESERVES STATISTICS
Net Working Interest, MMBOE
Oil 2P Commercial Reserves 1
As of 1 January, 2020
Production
Revision
2P Commercial Reserves as of 31 December 2020
Oil 2C Commercial Reserves 1
As of 1 January, 2020
Revision
2C Contingent Resources as of 31 December 2020
Total Egypt 2P Reserves & 2C Contingent Resources2 as of 31 December 2020
1. Reserves and contingent resources are categorised in line with 2018 SPE standards.
2. Reserves and Contingent Resources have been independently audited by McDaniel.
CNV
Total Vietnam
6.0
(0.6)
(0.5)
4.9
4.6
(0.7)
3.9
8.8
21.4
(2.3)
(1.2)
17.9
13.1
(0.9)
12.2
30.1
Egypt
28.5
(1.9)
14.2
40.8
23.5
(4.5)
19.0
59.8
31
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report OPERATIONS REVIEW - continued
FIG 4. GROUP’S WORKING INTEREST RESERVES AND RESOURCES
TABLE A: EL FAYUM FIELD AT 31 DECEMBER 2020 (MMBOE)
Reserves1
Oil
Contingent Resources
Oil
Sum of Reserves and Contingent Resources1,2
Total
Total
1P
18.5
1C
9.4
1P & 1C
27.927.9
1. Reserves and Contingent Resources have been audited independently by McDaniel.
2. The summation of Reserves and Contingent Resources has been prepared by the Company.
TABLE B: TGT FIELD AT 31 DECEMBER 2020 (MMBOE)
Reserves3
Oil
Gas1
Total
Contingent Resources3
Oil
Gas1
Total
1P
9.7
0.8
10.5
1C
4.9
0.1
5.0
2P
40.8
2C
19.0
2P & 2C
59.859.8
2P
11.8
1.2
13.0
2C
7.9
0.4
8.3
3P
54.7
3C
39.0
3P & 3C
93.793.7
3P
14.8
1.7
16.5
3C
10.9
0.8
11.8
Sum of Reserves and Contingent Resources2
1P & 1C
2P & 2C
3P & 3C
Oil
Gas1
Total
14.6
0.9
15.6
1. Assumes oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent.
2. The summation of Reserves and Contingent Resources has been prepared by the Company.
3. Reserves and Contingent Resources have been audited independently by RISC.
TABLE C: CNV FIELD AT 31 DECEMBER 2020 (MMBOE)
Reserves3
Oil
Gas1
Total
Contingent Resources3
Oil
Gas1
Total
1P
2.6
1.4
4.0
1C
1.7
0.9
2.6
19.7
1.6
21.3
2P
3.2
1.7
4.9
2C
2.6
1.4
3.9
25.7
2.5
28.3
3P
3.7
2.0
5.7
3C
3.4
1.8
5.2
Sum of Reserves and Contingent Resources2
1P & 1C
2P & 2C
3P & 3C
Oil
Gas1
Total
4.3
2.3
6.6
5.7
3.1
8.8
7.2
3.8
11.0
1. Assumes oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent.
2. The summation of Reserves and Contingent Resources has been prepared by the Company.
3. Reserves and Contingent Resources have been audited independently by RISC.
32
Pharos Energy Annual Report and Accounts 2020 S.172(1) COMPANIES
ACT 2006
The duty under s.172(1) of the Companies Act 2006 is applied
in addition to the other duties of a Director. Each Director must
discharge these duties in accordance with the duty of care, skill and
diligence both objectively and to a subjective standard.
In accordance with section 172(1) of the
Companies Act 2006, the Directors of
the Company have a statutory duty to
promote the success of the Company.
The Board at Pharos, as individuals and
together, consider that they have acted
in a way that would most likely promote
the success of the Company, and deliver
the goals and objectives for the benefit of
its members as a whole in relation to all
stakeholders who may be affected by or
engaging with the Company’s activities.
Board meetings and discussions
The Board has always taken into account
its s.172 obligations during the year in
line with current reporting requirements.
Their key decisions have been specifically
confirmed at each Board meeting to
take into account these matters. This
has been supplemented by the roles of
the individual directors giving due regard
and consideration of each element of the
s.172 requirements including:
a) The likely consequences of any
decisions in the long-term;
b) The interests of the employees;
c) The requirements to foster business
relationships with suppliers, customers,
and others;
d) The impact on the community and
environment of the Company’s
operations;
e) The desirability of the Company
maintaining a reputation for high
standards of business conduct; and
f) The need to act fairly as between
members of the company.
Illustration of how s.172 factors have
been applied by the Board can be found
throughout the strategic report.
a) The likely consequences of any
decisions in the long-term
During its meetings and discussions, the
Board considers decisions with keen
regard to consequences in the long
term for the business, for example, the
decision to defer all discretionary spend
in Egypt in order to preserve the group’s
balance sheet and position it for the
longer term. Board papers are drafted to
promote discussion and provide options
for the Board to hold an informed and
balanced debate.
For more information on how the Board
consider decisions with regards to the
long-term consequences for the business,
see page 40 of the Risk Management
report for all principal risk.
b) The interests of the employees
The interests of the Company’s
employees is a key element of the
statutory duty under s. 172(1). As we
have demonstrated, our Chair, as NED
responsible for employee engagement
meets with the workforce to ensure open
lines of communication and dialogue. The
Company has managed its operations
carefully in light of COVID-19, and the
Group is adhering to the procedures
and restrictions put in place by its host
countries to protect the health and safety
of its employees. All Cairo and London
office staff have been working from
home since March 2020 in line with UK
governmental guidelines with negligible
disruption to the business. In Cairo, office
staff work in the office on a rotation basis.
In Vietnam, office staff have returned to
office following government guidelines
and easing of lockdown restrictions.
For more information on the Board’s
engagement with employees, see page
57 of our Corporate Responsibility report,
page 10 of our Chair’s Welcome, and
page 71 of our Corporate Governance
Report.
c) The requirements to foster
business relationships with
suppliers, customers, and others
The Company’s business relationships
with suppliers, customers and
others are subject to regular review
and consideration through vendor
due diligence and active contracts
management. Vendor due diligence is
actively undertaken before a service
provider of any size is engaged.
Significant contracts, concessions and
commitments are considered by the
executive and the Board, supported
by Board papers outlining impact and
consequences of potential decisions.
Our relationships with our joint venture
partners are key in developing these
strong foundations and will support our
business in the future.
The Board regularly monitors the
Company’s business activities, financial
position, cash flows and liquidity through
detailed forecasts. Scenarios and
sensitivities are regularly presented to the
Board, including changes in commodity
prices and in production levels from
the existing assets, plus other factors
which could affect the Group’s future
performance and position.
For more information on how the
Company foster relationships with
suppliers and business partners, see
page 53 of our Corporate Responsibility
report. For more information on Board
oversight on business activities and
financial position, see page 40 of the Risk
Management report.
d) The impact on the community and
environment of the Company’s
operations
The organisation has provided robust
evidence of its commitment to ESG in
the sector through its ESG Committee
and ESG Working Group. Verisk
Maplecroft has been engaged to provide
33
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report OPERATIONS REVIEW - continued
advisory support with our climate change
disclosure, and our ambition to align this
approach with the recommendations
of the Task Force on Climate-related
Financial Disclosures (TCFD). Furthermore,
in December 2020, the ESG Committee
approved a Climate Change Policy for the
Company.
For more information on the Board’s
commitment to ESG and considerations
on the community and the environment,
see pages 76 to 78 for the ESG
Committee report and pages 50 to 64 for
the Corporate Responsibility report.
e) The desirability of the Company
maintaining a reputation for high
standards of business conduct
Our Anti-Bribery and Corruption (‘ABC’)
Policy and Code of Business Conduct and
Ethics Code have been followed rigorously
in 2020, ensuring that our engagements
with government officials in all countries
are recorded and monitored internally.
This demonstrates that our Company
understands its Code of Business
Conduct and Ethics and places it at the
forefront of our engagement with public
officials. Our Whistleblowing Policy and
Procedure ensures that employees are
protected from possible reprisals when
raising concerns in good faith. In addition
to internal reporting channels, we have a
confidential ethics hotline supported by
EthicsPoint with numbers displayed in
local offices available 24 hours a day all
year round.
The Board has an obligation and duty to
ensure that we exercise our intention to
behave responsibly. The management
team is obliged to execute the business
responsibly and to the highest standards.
We communicate regularly with the
Executive Directors and maintain open
communication with the management
team to ensure the two-way information
flow is clear and open. Each Board
member brings individual judgement and
considerable experience to decision-
making and carefully assesses the
course of action which is most likely to
promote the success of the Company.
In 2020 the Company undertook a rapid
and responsible response to COVID-19
and the oil price fall, thereby protecting
people, cutting costs and deferring capex.
Production operations have continued
in both Vietnam and Egypt in light of
COVID-19, with strict health and safety
measures in place.
For more information on the Company’s
commitment to maintaining high
standards of business conduct, see pages
51 to 57 of the Corporate Responsibility
report and pages 9 to 10 of the Chair’s
Welcome.
34
f) The need to act fairly as between
• Verisk Maplecroft engaged to provide
members of the company.
ESG advisory support
• Climate Change Policy introduced and
available on our website https://www.
pharos.energy/responsibility/policy-
statements/
• Peel Hunt engaged as Joint Broker to
assist with market communications
• Rigorous assessment of all suppliers/
potential suppliers/ partners and
offtakers
• Frequent meetings between Executive
Directors and in-country regulators and
partners, reported to the Board
• Responsibility for workforce
engagement embraced by John Martin
as Chair of the ESG Committee
Focus on stakeholder engagement,
including:
• A section of the agenda for each
regularly scheduled meeting of the
Board being dedicated to investor and
stakeholder considerations.
• Reports from brokers and financial
PR on feedback from investors and
research analysts.
• UK-based independent NED
nominated as the Director to represent
the employee voice at Board level,
conducted annual meetings with
UK, Egypt and Vietnam staff without
Executive colleagues present
• Monthly focus groups held with staff to
hear their views on any issues arising
• Group wide Employee Engagement
Survey, the first in the company’s
history was launched in 2020, to
allow the Board to improve on their
understanding of cultural differences
and employee experience
• Feedback from employee engagements
are reported back to the Board in a
quarterly Human Resources (HR) report
from the Head of HR
• Confidential ethics hotline supported by
EthicsPoint with numbers displayed in
local offices available 24 hours a day all
year round
• Open and active dialogue with
its institutional, private and retail
shareholders throughout the year via
website, Twitter and LinkedIn, email
communications and roadshows
• Engagement with the local community
to offer support during the pandemic,
such as provided disinfection services
for all public and service buildings in
Egypt
We believe in a workforce with a diversity
of experience, nationalities, cultural
backgrounds and gender, to support our
business strategy of long-term sustainable
growth. It is crucial to the success of
our business that we retain and develop
the diversity of our workforce and have
diversity and inclusion at the heart of our
recruitment, development and promotion
processes. As part of this global
approach, we ensured that leadership
training during the year was made
available to a fair representation of our
global employees in terms of race, gender
and ethnicity. We launched our Group
wide Employee Engagement Survey
the outcomes of which will allow us to
improve our understanding of cultural
differences and employee experience.
Our Code of Business Conduct and Ethics
and Policies and our Guiding Principles
commit us to providing a workplace free
of discrimination where all employees can
fulfil their potential based on merit and
ability. They also commit us to providing a
fully inclusive workplace, while providing
the right development opportunities to
ensure existing staff have rewarding
careers.
For more information on our commitment
to act fairly as between members of the
company, see page 4 of the Investment
Case and pages 56 to 57 of the Corporate
Responsibility report.
The Company is committed to good
governance and will continue to review the
balance and effectiveness of the Board
with a view to maintaining the right skills,
experience and diversity to align with the
Group’s strategic goals.
We will act and make decisions
responsibly in the interests of the
Company, our shareholders and
stakeholders, delivering our plan and
working closely to consider the best
opportunities for the Company. Detailed
Board and Committee papers are carefully
prepared and analysed to ensure all
scenarios and options are fully considered
in a timely and consistent fashion in
meetings.
In accordance with s. 172(1), we have
also continued to consult with, and take
account of, the views of our investors,
employees, partners, governments,
suppliers and other stakeholders
throughout the year.
These initiatives have included:
• Robust process to refresh Board
members, using independent search
consultants Korn Ferry
• Rapid and responsible response to
COVID-19 and oil price fall - protecting
people, cutting costs and deferring
capex
Pharos Energy Annual Report and Accounts 2020 FINANCIAL REVIEW
FINANCIAL REVIEW
(2019: $4/bbl), a 35% reduction year on
year. Production also declined from 7,081
boepd to 6,103 boepd.
The revenue for Egypt of $30.6m (2019:
$34.4m) also reduced largely as a result of
the lower average realised crude oil price,
down 38% to $37.08/bbl (2019: $59.33/
bbl), offset by an additional 3 months
production and a slight increase in average
production levels, from 5,055 boepd to
5,270 boepd. There are two discounts
applied to the El Fayum crude production
– a general Western Desert Discount and
one related specifically to El Fayum. Both
are set by EGPC, the in country regulator
and combined reduced from $5/bbl at the
start of the year to $4/bbl .
The Western Desert discount reduced in
stages, from a high of $2.90/bbl in April
to $0.60/bbl by October. In addition, we
agreed with EGPC, that the price discount
applied specifically to the El Fayum crude
would reduce by $1/bbl for a period of
six months from 1 August 2020, and we
are in discussions with EGPC to have that
extended.
Operating costs
Group cash operating costs were $48.3m
(2019: $41.5m). Vietnam decreased
by 4% from $27.6m to $26.5m mainly
as a result of ongoing cost reduction
programmes. The cash operating costs
of the Egyptian assets increased from
$13.9m to $21.8m mainly due to an
additional 3 months reported in 202 0
and an increased number of workovers on
existing wells to sustain current production
levels. The Group operating cost per barrel
was $11.60/boe (2019: $10.45/boe), an
increase of 11%. In Vietnam, the per barrel
cost was $11.86/boe (2019: $10.69/boe),
an increase of 11% due to fixed costs
such as the FPSO and other facilities
being spread over fewer produced barrels.
In Egypt the operating cost per barrel
was $11.30/boe (2019: $10.01/boe), an
increase of 13% as a result of increased
workovers on existing wells to sustain the
current production levels.
DD&A
Group DD&A associated with producing
assets decreased to $63.3m (2019:
$74.4m) due to the lower depreciating
cost base following the oil price related
impairments taken on both Vietnam
and Egyptian assets at June 2020, plus
the lower production. DD&A per bbl is
currently $21.40/boe for Vietnam (2019:
$23.29/boe) and $8.04/boe in Egypt
(2019: $10.25/boe).
Administrative Expenses
Administrative expenses for the year
totalled $14.7m (2019: $23.1m). After
adjusting for the non-cash items under
IFRS 2 Share Based Payment of $2.8m
(2019: $3.7m) and IFRS 16 Leases of
$0.7m (2019: $0.6m), the administrative
expense is $11.2m (2019: $18.8m),
which included $1.3m (2019: $1.8m) on
new venture third party costs, reflecting
continued effort on portfolio rationalisation
and capturing new business particularly in
the earlier part of the year.
Operating Profit
Operating profit from continuing
operations for the year was $3.5m (2019:
$38.0m) excluding the impairment charge
of $234.8m (2019: $0m), reflecting the low
commodity price environment throughout
the year.
Other/exceptional Expenses
Other/exceptional expenses for the year
totalled $5.8m (2019: $16.7m), $4.9m
relates to a royalty arrangement in Egypt
put in place prior to our acquisition of El
Fayum, where the likelihood of payments
was previously considered remote but
now is accepted as probable. The royalty
over production post acquisition has been
charged to operating cost. The lease on
the London office was transferred resulting
in a charge of $1.0m. The overall expense
was offset by a $0.1m tax refund relating
to prior year redundancies.
Finance Costs
Finance costs decreased to $4.2m (2019:
$11.5m) following accelerated repayments
of principal resulting in lower RBL interest
of $4.5m (2019: $7.0m). This included
a one-off gain relating to amortisation
of the capitalised borrowing cost of
$1.5m (2019: $2.7m charge), following
a change in estimated future cash flows
after the June and December 2020
redeterminations and the accelerated
repayment of principal.
35
JANN BROWN
Managing Director and
Chief Financial Officer
Finance strategy
Our finance strategy continues to underpin
the Group’s business model and goes
hand in hand with our commitment to
building shareholder value through capital
growth and sustainable dividends.
The finance strategy is founded on three
core areas – capital discipline, capital
allocation and capital return.
In this current period of turmoil, with oil
prices at a multi-year low, these three
core areas come into sharp focus and are
guiding the business firstly, to preserve
capital and balance sheet strength at this
time, then moving on to access the capital
needed to invest to deliver near term
returns.
We have created a range of opportunities
in the portfolio, some of which are self-
funding and others need that additional
capital to accelerate access to their
inherent value. Throughout 2020 and
beyond we have taken steps not only to
preserve our balance sheet strength but
introduce much needed capital.
Operating performance
Revenues
Group revenues for the year totalled to
$118.3m plus $23.7m from hedging gain,
representing a 38% decrease over the
prior year (2019: $189.9m less hedging
loss of $0.2m).
The revenue for Vietnam of $87.7m
(2019: $155.5m) reduced year on year.
The average realised crude oil price was
$44.70/bbl (2019: $68.48/bbl), and the
premium to Brent was just over $3/bbl
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report FINANCIAL REVIEW - continued
CASH OPERATING COST PER BARREL*
Cost of sales
Less
Depreciation, depletion and amortisation
Production based taxes
Inventories
Other cost of sales
Cash operating costs
Production (BOEPD)
Cash operating cost per BOE ($)
DD&A PER BARREL*
Depreciation, depletion and amortisation
Production (BOEPD)
DD&A per BOE ($)
2020 $m
2019** $m
123.8
128.6
(63.3)
(7.0)
(2.3)
(2.9)
48.3
11,373
11.60
(74.4)
(12.3)
3.5
(3.9)
41.5
12,136
10.45
2020 $m
2019** $m
(63.3)
11,373
15.21
(74.4)
12,136
18.74
CASH OPERATING COST PER BARREL BY SEGMENT
Cost of sales
Less
Depreciation, depletion and amortisation
Production based taxes
Inventories
Other cost of sales
Cash operating costs
Production (BOEPD)
Cash operating cost per BOE ($)
DD&A PER BARREL BY SEGMENT
Depreciation, depletion and amortisation
Production (BOEPD)
DD&A per BOE ($)
Vietnam $m
Egypt $m
Total $m
84.7
39.1
123.8
(47.8)
(6.5)
(2.3)
(1.6)
26.5
6,103
11.86
(15.5)
(0.5)
-
(1.3)
21.8
5,270
11.30
(63.3)
(7.0)
(2.3)
(2.9)
48.3
11,373
11.60
Vietnam $m
Egypt $m
Total $m
(47.8)
6,103
21.40
(15.5)
5,270
8.04
(63.3)
11,373
15.21
MOVEMENTS IN THE PROPERTY, PLANT AND EQUIPMENT
As at 1 Jan
Egypt assets acquired
Capital spend
Revision in decommissioning assets
Disposal of other assets
Derecognition of right-of-use asset
DD&A – Oil and gas properties
DD&A – Other assets
Impairment – PP&E
As at 31 Dec
Property, Plant and Equipment
Right-to-use-Asset (IFRS 16 Impact)
As at 31 Dec
2020 $m
676.9
–
33.5
6.6
(0.5)
(5.7)
(63.3)
(1.2)
(210.5)
435.8
435.7
0.1
435.8
2019 $m
507.2
184.7
53.3
7.2
–
–
(74.4)
(1.1)
–
676.9
669.6
7.3
676.9
* Cash operating cost per barrel and DD&A per barrel are alternative performance measures. See page 145
** Egypt from the date of acquisition
36
Taxation
The net tax credit of $25.6m (2019:
$38.2m charge) relates to a reversal of
deferred tax on impairment of $36.7m
offset by a current tax charge of $26.7m
and deferred tax credit of $15.6m on
operations totalling to $11.1m both in
Vietnam.
The Group’s effective tax rate
approximates to the statutory tax rate in
Vietnam of 50%, after adjusting for non-
deductible expenditure and tax losses not
recognised.
The Egypt concessions are subject to
corporate income tax at the standard
rate of 40.55%, however responsibility
for payment of corporate income taxes
falls upon EGPC on behalf of Pharos El
Fayum (PEF). The Group records a tax
charge, with a corresponding increase in
revenue, for the tax paid by EGPC on its
behalf. Due to accumulated tax-deductible
balances, there is no tax due on PEF this
period.
Work on simplifying the group structure
continues but progress has been slower
than anticipated due to the restrictions of
the pandemic.
Loss post tax
The post tax loss for the year from
continuing operations and prior to
the impairment charge of $234.8m,
impairment tax credit of $36.7m and
exceptional costs of $5.8m was $11.7m
(2019: loss $9.8m, prior to exceptional
items). The overall loss for the year was
$215.8m (2019: $24.5m).
Cash flow
Net cash flow from continuing operations
amounted to $56.4m (2019: $72.3m), a
decrease of 22% compared to the drop
in revenue of 38%. Careful cost control
and liquidity management both served
to protect cash flows despite the drop in
revenues.
Net operating cash flow for the year
(before working capital movements) was
$70.8m (2019: $117.2m).
Capital expenditure on continuing
operations for the year was $41.3m
(2019: $63.4m). All discretionary capex
was deferred following the oil price crash
to preserve balance sheet strength and
liquidity.
Pharos Energy Annual Report and Accounts 2020
Net cash outflows from financing activities
of $48.5m (2019: $36.2m) included
repayment of the RBL totalling to $42.8m
(2019: $0) plus $4.6m interest payments
(2019: $7.7m). The significant decrease in
the oil price in H1 2020 led to a reduction
in the borrowing base and principal
repayments during the year totalling
$42.8m, well in excess of the $26.4m
repayments forecast in line with the oil
price deck used at 31 December 2019
and classified as current liabilities at that
balance sheet date.
No final dividend was paid for the year
(2019: $27.4m).
Tax strategy and total tax
contribution
Tax is managed proactively and
responsibly with the goal of ensuring that
the Group is compliant in all countries in
which it holds interests. Any tax planning
undertaken is commercially driven and
within the spirit as well as the letter of the
law.
This approach forms an integral part of
Pharos’ sustainable business model.
The Group’s Code of Business Conduct
& Ethics seeks to build open, cooperative
and constructive relationships with tax
authorities and governmental bodies in
all territories in which it operates. The
Group supports greater transparency
in tax reporting to build and maintain
stakeholder trust. We have a number of
overseas subsidiaries which were set up
some time ago and the Group is now
proactively planning to bring these into the
UK tax net to ensure greater transparency
and comparability. No additional taxes
are expected to be due as a result of this
exercise.
During 2020, the total payments to
governments for the Group amounted
to $150.9m (2019: $232.7m), of which
$104.9m or 70% (2019: $165.5m or 71%)
was related to the Vietnam producing
licence areas, of which $72.5m (2019:
$113.5m) was for indirect taxes based on
production entitlement. Egypt was paid a
total of $42.2m (2019: $63.1m) of which
$41.3m (2019: $46.4m) relates to indirect
taxes based on production entitlement.
The breakdown of other contributions,
including payroll taxes and other taxes is
contained within the additional information
on page 149.
Balance sheet
Intangible assets decreased during
the period to $1.5m (2019: $20.4m)
due mainly to impairments taken on
exploration assets due to a lack of clarity
on timing of further investment. Additions
for the year related to Blocks 125 & 126
in Vietnam $2.0m (2019:$10.1m), Egypt
$1.1m (2019: $4.2m) of which $0.3m
(2019:$2.4m) relates to North Beni Suef
and $1.2m (2019: $0.3m) for the Israeli
bid round licence fee. At June 2020 and
December 2020 an impairment indicator
of IFRS 6 was triggered following the
Group’s decision to defer all non-essential
investment at this point. No significant
work programme for its explorations areas
in Vietnam and Egypt is either budgeted
or planned in the near future. Exploration
costs including costs associated with
Blocks 125 & 126 in Vietnam of $17.9m
and costs associated with Egyptian
projects of $5.3m were written off in the
income statement in accordance with the
Group’s accounting policy on oil and gas
exploration and evaluation expenditure.
An additional $1.1m of tax receivables
in relation to Blocks 125 & 126 was also
written off as it was dependent on the
related E&E being developed.
The movements in the Property, Plant and
Equipment asset class are shown above.
Impairment
As a result of changes in reserves profiles
and reduction in the oil price from 2025
from $72/bbl to $62/bbl, we have tested
each of our oil and gas producing
properties for impairment. The results of
these impairment tests are summarised
below.
For CNV, a pre-tax impairment charge of
$23.3m has been reflected in the income
statement with an associated deferred
tax credit of $8.7m. As at 31 December
2020, the carrying amount of the CNV
oil and gas producing property, after
additions ($1.9m), DD&A ($11.5m) and
the impairment charge, is $91.2m.
For TGT, a pre-tax impairment charge of
$81.8m has been reflected in the income
statement with an associated deferred
tax credit of $28.0m. As at 31 December
2020, the carrying amount of the TGT
oil and gas producing property, after
additions ($14.8m), DD&A ($36.3m) and
the impairment charge, is $239.3m.
For Egypt, an impairment charge (pre
and post-tax) in the amount of $105.4m
has been reflected in the income
statement. As at 31 December 2020,
the carrying amount of the Egypt oil and
gas producing property, after additions
($22.7m), DD&A ($15.2m) and after the
impairment charge, is $104.1m.
The total non-cash, post tax impairment
charge amounts to $173.8m and the
balance sheet carrying values of the oil
and gas producing properties stands
at $434.6m. Further details of these
impairment charges, including key
assumptions in relation to oil price,
discount rate and 2P reserves in Vietnam
are provided in Note 10 of the financial
statements.
Right of use asset
On 4 December 2020 Pharos signed the
transfer of the London office lease to a
third party. Accordingly we derecognised
the right of use asset of $5.7m and the
associated lease liability of $6.0m. The
assets held for office furniture and fixture
and fittings were also fully depreciated,
with a resulting charge of $0.4m. Pharos
also paid a premium to the new tenant of
$0.9m as an incentive for them to take on
the lease. The overall income statement
charge of $1.0m has been recorded
within Other/exceptional expense. An
additional $1.2m has been transferred to
an escrow account held by a third party
(recorded within prepayments) and will be
paid to the new tenant (and expensed to
the income statement) over the next 21
months on the condition the new tenant
pays the rent to the landlord.
Balance sheet continued
Cash is set aside into abandonment
funds for both TGT and CNV. These
abandonment funds are operated by
PetroVietnam and, as the Group retains
the legal rights to the funds pending
commencement of abandonment
operations, they are treated as other non-
current assets in our financial statements.
Oil inventory was $5.6m at 31 December
2020 (2019: $8.2m), of which $5.4m
related to Vietnam and $0.2m to Egypt.
Trade and other receivables decreased to
$22.9m (2019: $41.2m) of which $11.2m
(2019: $19.3m) relates to Vietnam and
$10.0m (2019: $21.3m) to Egypt, mainly
due to lower oil price and timing of crude
oil cargos.
Cash and cash equivalents at the end of
the year were $24.6m (2019: $58.5m)
mainly due to lower revenue and
repayment of $42.8m of the RBL.
Trade and other payables are almost
flat at $35.6m (2019: $35.5m), of which
$23.3m (2019: $18.8m) relates to the
Egypt payables, $1.7m (2019: $8.3m)
Vietnam payables and $6.8m (2019:
$3.0m) net hedging liability. Tax payable
decreased to $6.7m (2019: $8.8m)
following lower revenue.
37
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report FINANCIAL REVIEW - continued
Borrowings decreased to $53.7m (2019:
$98.1m) mainly due to a repayment of
$42.8m (2019: $0), which was significantly
higher than previously forecast due to the
lower oil price deck used by the lending
banks to calculate the Borrowing Base
Amount. Net debt was therefore $32.6m
(2019: ($41.5m).
Long-term provisions comprise the
Group’s decommissioning obligations and
the royalty over the El Fayum asset. In
Vietnam the decommissioning provision
increased from $60.5m at 2019 year-end
to $68.0m at 2020 mainly due to new
provisions and changes in estimates
of $6.7m primarily due to reduction in
discount rate from 1.9% to 0.9% as a
result of falls in prevailing risk-free market
rates and the unwinding of the discount
of $0.8m. The amounts set aside into
the abandonment funds total $45.9m
(2019: $43.6m). No decommissioning
obligation exists in Egypt under the terms
of the Concession Agreement. The
royalty provision relates to a historical
arrangement granting a 3% royalty on
Pharos’s share of profit oil and excess
cost recovery from El Fayum in Egypt. At
both the date of acquisition of the Egypt
assets (April 2019) and 31 December
2019 the risk of a material outflow in
relation to this arrangement was, based
on legal advice, considered remote and
therefore no provision was recorded. As a
result of additional legal advice obtained
during 2020, it is now considered
probable that amounts are due under this
arrangement and accordingly a provision
of $5.4m has been recognised, which is
anticipated to be settled in 1 to 3 years.
Of this amount, $4.9m relates to the
period up to the acquisition date and has
been recorded within Other/exceptional
expense, with the balance arising since
acquisition recorded within cost of sales.
Own shares
The Pharos EBT holds ordinary shares
of the Company for the purposes of
satisfying long-term incentive awards
for senior management. At the end of
2020, the trust held 2,181,655 (2019:
2,897,094), representing 0.54% (2019:
0.71%) of the issued share capital.
In addition, as at 31 December 2020,
the Company held 9,122,268 (2019:
9,122,268) treasury shares, representing
2.24% (2019: 2.24%) of the issued share
capital.
38
Going concern
Pharos regularly monitors its business
activities, financial position, cash flows
and liquidity through detailed forecasts.
Scenarios and sensitivities are also
regularly presented to the Board, including
changes in commodity prices and in
production levels from the existing assets,
plus other factors which could affect the
Group’s future performance and position.
A base case forecast has been
considered which uses an oil price
of $54.8/bbl in 2021 and $57/bbl in
2022.The key assumptions and related
sensitivities include a “Reasonable Worst
Case” (RWC) sensitivity, where the Board
has considered the risk of an oil price
crash broadly similar to 2020 as a result
of the global outbreak of the COVID-19
virus. This assumes the Brent oil price
drops to $35/bbl in March 2021 rising
by $5/bbl every two months until in line
with the base case price, concurrent
with reductions in Vietnam and Egypt
production compared to our base case of
5%. Both the base case and RWC take
into consideration the hedging that has
already been put in place for 2021 which
covers 42% of the Group’s forecast Q2
2021 to Q4 2021 entitlement volumes
securing a minimum price for this hedged
volume of $50.6 per barrel. Under
the RWC scenario, we have identified
appropriate mitigating actions, including
the deferral of additional uncommitted
capital expenditure for 2 TGT wells, which
would be available and enable us to
maintain sufficient financial headroom for
the following 12 months.
We have also developed a reverse stress
test sensitivity, which shows the extent to
which oil prices would need to fall before
our financial headroom is breached,
keeping all other variables unchanged.
There is a process underway to farm
out our assets in Egypt, with a view to
providing fresh capital to invest, with the
consideration structured to minimise our
own outlays over the peak investment
period. Although the process is
progressing well, for the purposes of the
going concern assessment it has not been
assumed that it concludes successfully.
Our business in Vietnam remains robust
with a breakeven price of less than $26/
bbl. We have limited capital expenditure
outside of the 4 TGT wells in Vietnam over
the rest of the business with most falling
outside 2021. All of our debt is secured
against the Vietnam assets. Finally, our
business in Egypt provides a high degree
of flexibility through the use of short-term
drilling contracts, which can be terminated
with 60 days notice.
The forecasts outlined above show that
the Group will have sufficient financial
headroom for the 12 months from the
date of approval of the 2020 Accounts.
Based on this analysis, the Directors have
a reasonable expectation that the Group
has adequate resources to continue in
operational existence for the foreseeable
future. Therefore, they continue to use
the going concern basis of accounting in
preparing the annual Financial Statements.
Annual dividend and Company
distributable reserves
As announced in May, the Board decided
to withdraw dividend payments during
2020 (2019: $27.4m), given the continued
uncertainty in the macro environment.
The decision to re-instate the dividend
will be kept under review and the Board
will continue to use the well documented
capital allocation criteria to assess where
and how to spend any free cash flow
generated. The key goals are to balance
the preservation of balance sheet strength
with investing in growth opportunities
where returns exceed the risked cost of
capital, in order to generate sustainable
returns for shareholders.
Financial outlook
Pharos’ financial strength is founded on
our long-term approach to managing
capital to provide risk adjusted full
cycle returns, which has allowed us to
return significant amounts of capital to
shareholders.
Over the past few years we have focused
on extending the range of growth
opportunities in the portfolio and the
oil price downturn occurred at a point
where we were poised to invest and
start to monetise these. The updated
Full Field Development Plan for TGT in
Vietnam, described in more detail in the
Operational Review, is fully funded from
the operating cash flows in country and is
expected to reach post capex free cash
flow point in H1 2022. The increase in
this high value, low breakeven production
will provide a strong foundation for the
business. In Egypt, the updated reserves
and development drilling plan have been
supported in the short term by the equity
placing, completed in January, and we
are well advanced in a process, led by
Jefferies Investment Bank, to select the
right farm-out partner to support the long
term capital investment programme there.
The agreement of enhanced Concession
terms, set to be ratified by Parliament later
this year, provide an additional impetus to
make these investments quickly.
Pharos Energy Annual Report and Accounts 2020 We continue to have the support of our
core RBL banks and hope to expand our
facility with them this year. In addition,
we have recently signed a working capital
facility with National Bank of Egypt, which
will deliver a modest amount of additional
liquidity.
Finally, on top of the cost reduction
measures secured in 2020, we have
recently announced both a pay cut for
executives and a redundancy round which
will reduce the headcount and the cost
base of the UK business. It is sad to be
losing colleagues who have worked so
tirelessly and with such commitment to
support all of the measures set out in this
Annual Report and we wish them all well
in the future.
These measures have set us up to
weather the current storm and to preserve
our capital. We remain protected for
further downside by our oil price hedges
in H1 2021 and we will continue to focus
on preserving financial flexibility while the
global situation remains uncertain.
Placing
In January 2021 the company raised
$10.9m (net of fees and expenses) in an
equity placing to support the ongoing
reservoir pressure and production levels in
the El Fayum field(s) through a small scale
waterflood programme. The issuance was
oversubscribed with strong support from
the board and from existing shareholders,
both institutional and individuals, and from
new institutional investors. Work on the
waterflood programme is underway and
additional information on the waterflood
programme on can be found in the
Operations Review on page 25.
Egypt El Fayum farm-out
In Q4, 2020, the Company appointed
Jefferies Investment Bank to run a farm
out process for the El Fayum asset, to
de risk the current 100% holding and
introduce support for the investment
required to develop the fields. The
company has been encouraged by the
level of interest and is currently reviewing
a number of bids.
Concession agreement
amendment
In March 2021, the Company has
received provisional approval for an
amendment of the fiscal terms from EGPC
on the El Fayum Concession. Under the
terms, the cost recovery percentage will
be increased from 30% to 40% allowing
Pharos a significantly faster recovery of all
its past and future investments. In return,
Pharos has agreed to (i) waive its rights to
recover a portion of the past costs pool
($115 million) and (ii) reduce its share of
Excess Cost Recovery Petroleum from
15% to 7.5%. This amendment is now
subject to the approval of the Egyptian
Government.
JANN BROWN
Managing Director and
Chief Financial Officer
39
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report RISK MANAGEMENT
RISK MANAGEMENT
REPORT
Risk Management Framework
at Pharos
Pharos carried out regular and robust
risk assessments to identify and manage
its Principal and Emerging risks during
2020 and continues to monitor closely
the evolving risk landscape during the
COVID-19 pandemic and the global
macroeconomic environment. Our
management undertook a number of
deep-dive exercises as the pandemic
unfolded to gauge its risk appetite and
recalibrate its risk tolerance to ensure
the appropriate mitigating actions were
implemented. The Board has closely
considered the potential impact and
probability of these risks and related
events on its corporate strategy,
objectives and stakeholders’ perspectives
of the Group.
Control environment
Pharos’ control environment is based
primarily on its Code of Conduct and
Business Ethics, which carries a number
of fundamental values, including openness
and integrity, safety and care for the
environment and respect for human rights.
The control environment is also supported
by a series of corporate policies, which
form part of the Group’s Business
Management System. These documents
are distributed to all employees, followed
RISK MANAGEMENT FRAMEWORK
up with training as required and are
available on the Intranet. As part of the
compliance programme, all employees
have to do an anti-bribery and corruption
training and assessment at least once a
year.
MANAGING OUR RISKS
Principal risks in 2020
• Lack of growth due to insufficient
funds to meet work programmes
• Volatility in Production levels
• HSE & Social
• Climate Change
• Commodity Price volatility
• Financial Discipline & Governance
• Partners’ alignment
• Reserves downgrades
• Cyber security
• Human Resources
• Sub-optimal capital allocation
• Political and Regional
• Business Conduct and Bribery
Governance, authorities
and accountability
The Board of Directors, supported
by its various Committees, ensures
that the internal control functions are
operating properly. The Audit and Risk
Committee oversees that Pharos’ Senior
Management Team implements internal
control and risk management procedures
based on the risks identified to support
the Group’s objectives.
Principal and Emerging risks in 2021
• Further lockdowns dampening oil
•
demand
Insufficient funds to meet
commitments
• Commodity Price volatility
• Volatility in Production levels
• Climate Change and speed of energy
transition
• HSE & Social
• Unsuccessful Farm-out of Egypt
assets
• Partners’ alignment
• Reserves downgrades
• Cyber security
• Human Resources
• Sub-optimal capital allocation
• Political and Regional
• Business Conduct and Bribery
TOP DOWN
Oversight
Accountability
Monitoring
Deep-dive
40
Pharos Risk Management framework
Set
strategic
objectives
Define
risk
appetite
Identify
Principal
risks
Apply risk
assessment
process
Deliver
strategic
objectives
Risk Management Framework
The Board
Audit & Risk
Committee
ESG
Committee
Senior Management Team
Asset/Project Function
Review & Escalation
Risk identification
and mitigations
Maintain Risk registers
Risk Owners
BOTTOM UP
Pharos Energy Annual Report and Accounts 2020 Pharos’ Risk Management process
requires that all business units within
the Group conduct on-going risk
management and reporting to the Audit
and Risk Committee and the Board. The
Risk Policy defines the specifics of the
Risk Management process, describes
the risk tools (i.e. Risk Matrix and Risk
register) and outlines the reporting
process and responsibilities in order
to meet the Group’s risk governance
framework.
Risk management and reporting is a
necessary and important activity at
Pharos. It is an internal control process
implemented by the Board, management
and all other personnel; applied
throughout the organisation and all
functions, designed to identify potential
events which may affect the business,
and manage risks to be controlled
within its risk appetite. In addition, Risk
Management is a process that provides
reasonable assurance regarding the
achievement of the Group’s objectives.
A comprehensive Risk Management
approach allows Pharos to:
• Assist the Group in achieving its
corporate objectives
• Better manage the business by
anticipating potential risks and devise
preventive / mitigating measures or
develop alternate strategies
• Meet regulatory requirements
The Business Management System (BMS)
evolves continually at Pharos but at its
core comprises a set of Policies and
Standards, including the Risk Management
Policy which is based on ISO 31000 Risk
Management Principles and Guidelines.
The BMS is supported by procedures and
processes for each function and business
unit to control day-to-day business
activities. This Internal Control Framework
and Risk Management process ensure
that risk identification, assessment and
mitigation are all properly embedded
throughout the organisation. Whilst the
Risk Management approach is designed
to provide a reasonable assurance that
material financial irregularities and control
weaknesses can be detected, the process
does not totally eliminate that a risk could
have a material adverse effect on our
operations, earnings, liquidity and financial
outlook.
Risk is often described as an event,
change of circumstances or a
consequence. Pharos’ risk reporting will
focus on identifying risk as a “potential
event”. Each event will be assessed
on its potential impact to people, the
environment, the respective asset /
financial impact on operations, and the
Group’s reputation in terms of severity and
likelihood.
An unsettled world
The risk landscape has worsened across
most industries since the World Health
Organization declared the outbreak of
COVID-19 a pandemic on the 11 March
2020. The energy sector, particularly the
oil and gas industry, has been affected
by the drop in the oil price and the future
outlook for Brent price remains uncertain
well into 2021 due to a number of factors:
• OPEC + world geopolitics
• Overcapacity at refineries
• Potential for renewed lockdowns
further reducing demand for oil
• Oil futures trading and speculations
stress-testing of the company’s cash
flows has become a daily exercise.
Pharos maintained close discussions with
its RBL lenders and continued to comply
with the RBL covenants.
The Group also brought in additional
capital through an equity placing in
January 2021 and is now focused on
bringing in an industry partner to support
the investment needed in our Egyptian
interests.
How is Pharos tackling this crisis?
During these difficult times, Pharos’
management remained focused on:
• Managing the business, to survive and
• Large investors and banks avoiding
thrive later
fossil fuel investments
•
IEA’s sustainable outlook where fossil
fuels’ share may reduce in the overall
energy mix
• New legislation piling more costs for
heavy CO2 polluters
Impact of COVID-19
According to World Health Organisation
(COVID-19 Tracking Project at January
2021) the human cost of COVID-19 has
continued to mount with nearly 97m
infections confirmed globally and more
than 2m people known to have died from
it - the virus has spread to more than 200
countries, with severe public health and
economic consequences. The pandemic
has disrupted factories, supply chains
and demand for goods and services.
This has affected industrial production
and consumer patterns of consumption,
leading to reduced demand for oil and
gas products. The rollouts of a number
of effective vaccines from late 2020
has provided some hope for a return to
normality.
How has Pharos responded?
Throughout the COVID-19 crisis, Pharos
continued to focus on two challenges:
• enabling its workforce to work
safely either remotely or on sites
(both onshore and offshore) to keep
operations running, and
• ensuring the Group has the financial
resilience to survive
The appropriate precautionary measures,
including social distancing continue to
be implemented at all locations. This
strategy has been successful so far, with
no major disruption through ill-health of
the workforce.
Pharos embarked on a cash-conservation
project given the uncertainty around
the recovery of Brent crude oil price, by
deferring its discretionary capital spending
and cutting operational and corporate
costs for the rest of 2020/21. The regular
• Managing the remote teams
• Leading through the crisis
• “Don’t Hide Bad News” in times of
crisis
The Group reviewed closely its key
supply chains and identified the critical
goods and services it requires to keep
operations running. All legal obligations
and key contracts have been re-visited to
identify possible risks of defaults. All staff
in Head Office accepted a salary cut for a
9-month period which meant no layoffs.
As with all other organisations, there has
been an increased reliance on technology
via virtual meetings. Communication
through the COVID-19 crisis and during
lockdown has been maintained among all
teams and countries and the supporting
actions and messages were tailored
appropriately to ensure the right balance
on precautionary measures and staff
well-being were being disseminated.
External communications have also been
a key focus, with transparency about
both challenges and opportunities at the
forefront of our objectives.
Commodity price uncertainty
persists and is factored into all
stages of our planning processes
Climate change risk remains present
across all industries with fund managers,
banks and governments targeting heavy
polluting industries in particular.
As depicted in our Risk Governance
Framework above, Pharos has initiated
a number of measures to tackle climate
change risks:
•
formed an ESG Committee reporting
directly to the Board
• continues to participate in the CDP
process
• started implementation of the TCFD
recommendations and published its first
Climate Change Policy (available on our
website at https://www.pharos.energy/
responsibility/policy-statements/)
41
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report The Board has carried out a review
of the uncertainties surrounding the
Group’s principal and emerging risks and
recognised that a potential adverse event
on Pharos Energy can have a material
impact on the Group’s future earnings and
cash flows. The fluctuating prices of crude
oil and gas remain a significant variable
to monitor closely for the Group. Flash
events are happening more frequently
from international trade tensions,
geopolitical tensions, sudden outbreak
of diseases, speed of climate change
transition and physical risks which may
require changes to our corporate price
assumptions and productions outlook
which in turn may trigger impairment of
assets. Pharos has reduced our long
term oil price assumptions from $72 to
$62 and that this has been a key factor
in the impairment charges that have been
recorded this year.
The COVID-19 pandemic has been a
catalyst for many changes and other areas
of emerging risks will be around digital
transformation, remote working, the role
of the board in crisis.
Similar to principal risks, emerging risks
are identified via our bottom up approach
with our regular risk assessments with risk
owners and reporting to and discussing
the emerging trends at the quarterly
management risk meetings and the Audit
and Risk Committee meetings. Pharos is
also actively engaged with the industry
via organisations such as Brindex and
receiving news alerts from subscriptions
such as Oil & Gas UK, Refinitiv (FT, Eikon
and Worldcheckone) and Bloomberg
Green.
Board Responsibility
The Board fulfils its role in risk oversight
by developing policies and procedures
around risk that are consistent with the
organisation’s strategy and risk appetite,
taking steps to foster risk awareness
and encouraging a company culture of
risk adjusting awareness throughout the
Group. The Audit and Risk Committee
reports back to the Board regarding the
adequacy of Risk Management measures
so that the Board has confidence that
management can support them. The
Board periodically reviews the principal
and emerging risks facing the business,
including an annual review of the
effectiveness of the Risk Management
process in identifying, assessing and
mitigating any significant risks which may
affect the Group’s business objectives.
Risk Management and the principal
financial risks and uncertainties facing
the Group are discussed in Note 3 to the
Financial Statements. The Group’s Risk
Management policies and procedures
are further discussed in the Corporate
Governance Report on pages 73 to
74 and in the Audit & Risk Committee
Report on pages 83 to 86, where the
significant issues related to the 2020
Financial Statements are also reported.
Pharos Energy’s Business Management
System, which includes Health, Safety,
Environmental and Social Responsibility
(‘HSES’) Management System (‘MS’),
which comprises the Company’s internal
controls mechanisms of policies,
procedures and guidelines through which
the Group assesses, manages and
mitigates its HSES risks and impacts,
is described more fully in the Corporate
Responsibility (‘CR’) Report on pages 50
to 64.
RISK MANAGEMENT - continued
Opportunities
The distressed oil and gas market sector,
lack of liquidity and increased scrutiny
from investors on fossil fuel producers
to decarbonise may create investment
opportunities for oil and gas independents
like Pharos which have a lower cost
base than the oil majors. In the short
term, capital allocation and discipline
will be rigorously maintained while at the
same time exploring opportunities to
reduce our carbon footprint by adopting
different methods / processes to power
our operations, including the possibilities
of solar power, and carbon capture
technologies in the longer term. Our asset
base is operated by separate independent
Joint Operating Companies, leaving our
role in both Egypt and Vietnam one of
joint, rather than unilateral, control.
Risk and insurance management
policy
Pharos’ risk and insurance management
policy is to work closely with our JV
partners, our operations teams, country
managers and insurance brokers to
ensure the Group assets and activities
are adequately covered having assessed
and evaluated the respective country
and situational needs, the insurance
market availability and costs of insurance
cover. Scenarios of major disaster risks
(estimated maximum loss) and the
potential financial impact on the Group
has been assessed should a catastrophic
or prolonged business interruption event
occur. Pharos has purchased some LOPI
cover (Loss of Production Income) on
some of its producing assets to ensure
its breakeven costs and RBL covenants
will be met in the event of a major field
disruption.
Emerging Risks
The speed of energy transition away
from fossil fuels are watched closely by
oil and gas independents. Environmental
concerns, changes in public perceptions,
investors’ attitudes, energy and
climate policy, carbon pricing and the
development of new technologies to
reduce CO2 emissions are all combining
to change the landscape for all oil and
gas companies and this emerging risk is a
subset of Climate change:
The IEA World Energy Outlook Special
Report “Sustainable Recovery” - July
2020 highlights amongst other things
these challenges:
• Fossil fuels will play a diminished role in
the energy mix
• Acceleration of investment in green
projects, supplanting oil and gas in the
energy mix over time
• Government legislation - leading to
potential cost increases
42
Pharos Energy Annual Report and Accounts 2020 RISKS
PRINCIPAL RISKS
AND MITIGATIONS
A summary of the key risks affecting Pharos and how these are
mitigated to enable the Company to achieve its strategic objectives
is as follows:
Key to change in likelihood
Increase
No Change
Decrease
New Risk
STRATEGIC
Principal risks
1. Further
lockdowns
dampening oil
demand
• Sub-optimal pricing
on commodity sales
• Reduced revenue to
finance operations
2. Insufficient
funds to meet
commitments
• Inability to invest
in line with growth
strategy
Change in
likelihood
Causes
Risk Mitigation
• Global vaccine rollouts less effective than
• Continue to maintain and promote
expected and new variants spread
• COVID-19 infections continue to go up
• The virus maintains its pandemic status
throughout 2021
• Emergence of other infectious diseases
precautionary measures to minimise
disruption to business
• Procure long lead items as early as
possible from reliable suppliers /
contractors
• Tight cash management and forecasting
• Hold back on discretionary spend
• Oil price hedging
• The bulk of our output sold on the local
markets where demand remains strong
• Closely follow and comply with all
respective legislations on preventing the
spread
• Reallocation of capital away from Oil and
• Regular review of funding options
Gas
• Fluctuating oil prices
• Proactive dialogue with banks and
other providers of capital
• Depressed economic conditions
• Opportunity Screening
• Global debt crises emerging
• Inadequate cost control
• Effective project management and
resourcing
• Poor technical data to support allocations
• Farm-out options
• Resourcing limitations
• Thorough capital allocation process
43
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report Change in
likelihood
Causes
• Inadequate waterflood responses
• Incorrect well placements
• Development wells uncommercial
• Poor reservoir models
Risk Mitigation
• Develop a clear Wells Strategy, focusing
on performance improvement, regulatory
compliance and increased activity
• Increase drilling activity / plan-drill additional
injection wells / frac injection zone
• Lack of financing for drilling programme
• Reduce cost of well construction
• Increase surveillance and intervention rates
• Perform Target workovers on Producer /
injection wells
• De-risk best prospects / drill best prospects
• Improve Reservoir models
• Explore farm-out opportunities
• Business disruption due to workforce
affected by COVID-19
• Health and safety and environmental risks
• Implement precautionary measures based on
WHO guidance, restrict business travel and
facilitate working from home
of major explosions, leaks or spills
• Better understanding of our risks,
• Face O&G high risk operating conditions
and HSES risks
• Climate change impacts on the sector
- Production faces increasing risks from
the impacts of climate change from
extreme weather, sea level rise and water
availability
• Security of workforce supply and
human rights violations of workers and
communities - child labour, terrorism and
sabotage, social conflict and unrest
• Coastal and marine ecology - impact
on corals and marine biodiversity from
offshore and coastal operations and
tankers (spills)
• Gas venting and flaring
• Natural hazards and risks - well blow outs,
localised land subsidence, land/water
contamination
• Non-alignment of new acquisitions HSES
practices with Pharos Corporate standards
• Increased disparities and societal risks
in health, technology or workforce
opportunities
implementing a bottom-up approach at
managing risk registers and proactive
mitigation plan
• Improve structural and Asset Integrity
through strong operational and maintenance
processes which are critical to preserving a
safer environment
• Comply with all legislative / regulatory
frameworks and transitioning to a goal based
approach focused on improving safety
• Promote a positive health and safety culture
where workers are given proper training
and incentives to work “safe” with a zero
tolerance for non-compliance
• Environmental and Social Impact Assessment
forward looking assessment of
- climate impacts and need to adapt to
changing climate conditions over the life of
the asset
-
regulatory developments
• Enhance emergency preparedness and spill
prevention plan
- Controlled venting
- Control and management of pressurised oil
and gas from boreholes
- Use of low impact extraction chemicals
where alternatives exist
- Water management - securing of a
sustainable water supply, recycling and reuse
wastewater
- Marine management plan - especially for
offshore drilling
- Carry out scenario exercises to improve
preparedness
• Put in place an adequate Energy insurance
programme for the Group
RISKS - continued
Principal risks
3. Volatility in
Production
levels
• Sub-Optimal well
performance
4. Health, Safety,
Environmental
& Social Risk
• Reputational
• Operational outages
leading to lower
production
44
Pharos Energy Annual Report and Accounts 2020 Principal risks
5. Climate
Change
Concerns
• Lack of Capital
• Reputational
• Increased operating
costs
• Physical Damage to
Assets
• Potential pressure on
commodity prices
• Risk of additional
impairment of assets
FINANCIAL*
Principal risks
6. Commodity
Price Risk
• Uncertainty on
planning
• Inability to fund work
programme / dividend
Change in
likelihood
Causes
Risk Mitigation
• Pressure on investors to divest / avoid
• Transparent reporting and participation in
fossil fuel companies / projects
Carbon Disclosure Project (CDP)
• Inability to find economically viable CO2
reduction solutions
• Potential additional compliance obligations
• Global transition to a lower carbon
intensity economy
• Increased climate regulation and
disclosure
• Increase in carbon taxes / decarbonisation
charges
• Eco-consumers are on the march,
potentially causing radical /
transformational shifts in consumption of
fossil fuels
• Climate activists pressing prominent
institutions and investors to abandon fossil
investments - “greening” the financial
system
• Increased frequency of extreme weather
occurrences
• Embrace the TCFD recommendations,
prepare and align Pharos’ growth strategy
to tackle climate concerns
• Embed Climate change scenarios and
Evaluate “strategic fit” of climate change
decisions on key business operations /
directions
• Continuous improvement of GHG
emissions management and persuade
JOCs to accept CO2 emissions reduction
initiatives
• “Making Climate Change risk visible” -
factoring in climate hazards when investing
in exploration / development projects so
that corporate models embed resilience
into projects
• Embrace the Group’s Climate Change
Policy and keep it up-to-date and in line
with evolving developments in carbon
footprint reduction
• Comprehensive insurance cover for
Physical Damage
• Close monitoring of extreme weather
developments so that evacuation or shut-
down are activated on time
Change in
likelihood
Causes
Risk Mitigation
• On-going oil market volatility
• Oil commodity Hedging
• Geo-political factors, including pressure
on investors to divest / avoid fossil fuel
companies / projects
• Lower long-term prices tighten the margin
of error for investments
• Forecasting volatility swings are more
complex as it is challenging to gauge
what that means for the industry, affected
communities and end users but is
necessary for the future understanding of oil
market dynamics
• Negative cash flows & earnings degradation
• Market speculation and trading in oil futures
- Comply with RBL requirements
- Maintain robust processes around
treasury, governance, forecasting, credit
and risk
• Close monitoring of business activities,
financial position cash flows
• Control over procurement costs / effective
management of supply chains derived
from third parties - suppliers, joint venture
partners, investors, and contractors
• Stress test scenarios and sensitivities
via Principal compound risks analysis to
ensure a level of robustness to downside
price scenarios
• Slower than expected economic and social
recovery from the COVID-19 pandemic
• Capital discipline with focus on controlling
and managing costs
• Discretionary spend actively managed
* Note: Financial discipline and Governance was reported as a principal risk of last year but for 2021, this risk has been removed as it
is adequately captured in two of the other principal risks in this section: no.2 - Insufficient funds to meet commitments and risk no.11 -
sub-optimal capital allocation.
45
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report
RISKS - continued
Principal risks
7. Egypt Farm-
out
• Insufficient funds to
finance operations
• Unable to grow the
assets
Change in
likelihood
Causes
Risk Mitigation
• Prolonged uncertainty in oil price
• Robust investment case for future
• Long process with a number of execution
prospects
challenges
• Extensive network of interested parties
• Shareholder and EGPC approval required
• Egypt currently attractive destination for oil
and gas investment
OPERATIONAL
Principal risks
Change in
likelihood
Causes
8. Reserves Risk
• Inaccurate reserves estimates
• Pharos Energy bears the responsibility of
developing these reserve estimates, but
subcontracts some of this work out to
independent reserve engineers
• Earlier impairment triggers due to
low commodity price and / or capital
constraints jeopardise planned
exploration / development initiatives
• Inherent uncertainties in the evaluation
techniques to estimate the 2P reserves
• Increased DD&A costs
• Lower than expected well performances
and drilling results
Risk Mitigation
• Improve Reserves Reporting by adhering
to three key considerations: consistency,
transparency and utility
- Disclose movements in reserves on a
country-by-country basis
- Subjective judgments are moderated
- Material projects disclosed
• On-going evaluation of projects in existing and
potential new areas of interest and pursue
development opportunities
• Regular reviews of Reserves estimates by
independent consultants (Lloyds Registered)
• Ensure continuing adherence to industry best
practice regarding technical estimates and
judgements
• Ensuring peer and independent verification of
future production profiles and reserve recovery
• RBL compliance - Vietnam Reserves are
audited independently by reserves consultants
approved by lenders
Vietnam
Vietnam
• Co-venturers divergent views on Drilling
• Active Participation in JOC management
and Upgrade programme 2021/22
• FPSO Tie-in Agreement from other
Operator
• Delay in the Field Development Plans
• Direct secondment
• Build Senior Management level relationship
with local Partners
• Continue good relationship with other Foreign
Partner
• 2021 TGT Work Programme agreed in
principle and preliminary preparation of bid
packages
Egypt
Egypt
• Technical disagreement caused by
quality of JV staff, work ethic, low
productivity, competency issues
• Geological Modeling differences resulting
in sub-optimal well locations
• Divergent views on waterflooding, and
difference in value-drivers.
• Support JV training initiatives.
• Engage with new JV Exploration Manager.
Achieve technical buy-in to ERCE model
• Waterflood analogue success education
• Future cash flows
and value depend
on producing our
reserves
9. Partner
Alignment Risk
Vietnam
• Misalignment at JV/
JOC level can delay
investment
• Adverse impact on
Production and Cash
flow
Egypt
• Technical
Misalignment of JV
Company
• Adverse impact on
Production and Cash
flow
46
Pharos Energy Annual Report and Accounts 2020 Principal risks
10. Cyber Risk
• Major cyber security
breach may result
in loss of key
confidential data
• Unavailability of key
systems
11. Human
Resource Risk
• Good skilled people
are essential to
ensure success
Change in
likelihood
Causes
Risk Mitigation
• Sophistication and frequency of cyber
• Offsite Installation of back-up system and
attacks increasing
Business Recovery Plan in place
• Heavy reliance on and disruption to critical
• Enhance our Cloud back-up data and
business systems
solutions
• Infiltration of spam emails corrupting our
systems
• Critical reliance on remote working
• Prevention & detection of cyber threats
via a programme of effective continuous
monitoring
• Plan for staged integration (new
acquisition) and upgrade of IT systems
• Failure to recruit and retain high calibre
personnel to deliver on and implement
growth strategy
• Challenges in the Recruitment & integration
of additional technical expertise for the new
acquisition
• High costs for recruiting experienced
workforce
• Remuneration Committee retains
independent advisors to test the
competitiveness of compensation
packages for key employees
• On-going succession planning
• Maintain a competitive remuneration mix
re bonus, long-term incentive and share
option plans
• Weakened Corporate culture due to remote
• Build and use people networks in each
working
country and advertise vacancies in these
networks
• Maintain a programme for staff wellbeing
• Facilitate and encourage workforce
communication
REPUTATION
Principal risks
12. Sub-optimal
capital
allocation
• Adverse reaction
from current / future
stakeholders
• Investment decisions
based on realistic /
achievable economic
assumptions
Change in
likelihood
Causes
• Scarcity of capital for investment projects
• Investment decisions are guided
by economic analyses based on
key assumptions which may differ
significantly in a volatile macroeconomic
environment
• Pressure to invest and produce growth
and returns in the short term to maintain
dividend payments
• Relentless focus on better returns
• Inability to “switch-off” drilling /
investment commitments if economic
assumptions change rapidly
Risk Mitigation
• Carry out robust economic analyses based
on opportunities high-grading to support
capital allocation
• Key KPIs such as NPV, IRR and payback
used to compare across many project
scenarios
• Rig count investment scenarios are stress-
tested against a range of Brent oil price
• Non-operated ventures - Pharos Energy
always seeks to maximize its influence to
promote best practice
• Garners the views of its stakeholders through
direct and indirect engagement
• Maintain a balanced investment portfolio
which allows a degree of resilience
in adjusting short-term investment
commitments
47
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report RISKS - continued
Principal risks
13. Political and
Regional risk
• Energy sector
exposed to a wide
range of political
developments which
may impact adversely
on operating costs,
compliance and
taxation
Change in
likelihood
Causes
• Operations in challenging regulatory and
political environments
• Fiscal regimes can be subject to sudden
change
• Approval processes can be protracted
causing delays
• Government reform, political instability, civil
unrest
Risk Mitigation
• Canvass support in risk management by
using both international and in-country
professional advisors
• Engage directly with the relevant
authorities on a regular basis
• Assess country risk profiles, trend
analyses and on-the-ground reports by
journalists / academics
• Thoroughly evaluate the risks of operating
in specific areas and assess commercial
acceptability
• Buy Political risk insurance
• All operations are located outside of the
EU and USD is the main currency of our
business
14. Business
Conduct and
Bribery
• Reputational damage
and exposure to
criminal charges
• Present in countries with below average
score on the Transparency International
Corruption Index
• Ensure adequate due diligence prior to
on-boarding with a risk based approach,
including independent “Red flags” checks
• Lack of transparent procurement and
• Annual training and compliance
investment policies
certifications by all associated persons
• Compliance with Criminal Crime Offences
(CCO) and UK Bribery Act
• Corruption, Human rights issues
• Increase awareness of Pharos Energy’s
ABC policies for all employees and
associated persons
• Gifts and Hospitality declaration
• Whistleblowing facility in place
• CCO risk assessment and on-going
implementation of adequate procedures to
prevent facilitation of tax evasion across all
operations
• Comply with to the principles of the
Extractive Industries Transparency Initiative
Viability statement
In accordance with the UK Corporate
Governance code, the Board has
assessed the prospects of the company
over a period longer than the twelve
months required to support the Going
Concern Statement on page 38 of the
Financial Statements. The Audit & Risk
Committee reapproved in December 2020
that the appropriate length which the
viability statement (“VS”) should cover is
3 years. A significant factor in the Group’s
forward cash position is the oil price
assumption, and as most of the source
data relates to a 3 year period this is
considered the appropriate lookout period
for the VS.
In undertaking this assessment, the
Board has carried out a robust review of
the principal and emerging risks facing
the Group, including those that would
threaten its business model, future
performance, solvency or liquidity, giving
particular attention to the principal and
emerging risks.
48
Our strategy and associated principal and
emerging risks underpin both the Group’s
three year base forecast and scenario
testing, plus our longer term prospects
and position.
Our longer term prospects and
position
Group’s current position
Strategy & business model
• Long-term strategy focusing on access
to capital including asset farm down
in Egypt, refinancing of the RBL and
equity raise
• Business model drawing on
geoscience, engineering, financial and
commercial talent
• Responsible and Flexible stewards of
• Production assets in Vietnam and Egypt
capital
with low operating cost base
• Focus on stakeholders
• Flexibility in the capital expenditure
programme
• Operating cash flows in line with oil
prices and supported by hedging
programme
• Focus on capital discipline
• Excellent HSES standards
• Repayment of current RBL loan in the 3
year period of the VS
The principal and emerging risks, which
are relevant to the assessment of the
Group’s prospects, are the same as those
used to stress test our viability over the
three-year period.
Pharos Energy Annual Report and Accounts 2020 How we assess our viability
Our forecast is built on an asset by asset
basis using a bottom up model and is
stress tested by compounding downward
scenarios.
The three year period selected for testing
covers the Group’s medium term capital
plans and projections, in particular oil
price projections, a fundamental driver of
the groups operating cash flows, where
market consensus data becomes less
reliable for periods further ahead than
three years.
Although individual assets are often
modelled for periods longer than three
years, to reflect the return on investments
being considered over the life of field,
the three year period has been selected
by the Board as most appropriate
for the group as a whole. It provides
management and the Board with sufficient
and realistic visibility of the future industry
environment whilst capturing the Group’s
future expenditure commitments on its
licences, its near term drilling programmes
and Full Field Development Plans (FFDPs).
In assessing the Group’s viability over
the next three years, it is recognised that
all future assessments are subject to a
level of uncertainty which increases with
time and that future outcomes cannot be
guaranteed.
Key Assumptions
During the three year period the working
assumption is that Group will be
dependent on its two cash generating
assets in Vietnam and the El Fayum
concession in Egypt. There is a process
underway to farm out the assets in Egypt,
with a view to providing fresh capital to
invest, with the consideration structured
to minimise our own outlays over the peak
investment period. Although the process
is progressing well it is not appropriate
at this stage to assume that it concludes
successfully.
The underlying oil and gas reserves in
both Vietnam and Egypt have been
certified by Reserves Auditors, RISC (for
Vietnam) and McDaniel (for Egypt). In
our model, we have used management’s
best estimate of future commodity
prices, resulting in a base oil price prior
to scenario testing of $54.8/bbl in 2021,
$57/bbl in 2022 and $59/bbl in 2023.
The base model also includes the Group’s
latest life of field production models and
expenditure forecasts.
The company has a Reserves Based
Lending (RBL) facility of $125 million over
its Vietnam producing assets taken out in
September 2018. The current borrowing
levels and the repayment schedules in the
model is based on the RBL’s economic
and technical assumption as of the
December 2020 redetermination. In the
current VS period, the entire RBL loan is
forecast to be repaid.
Stress testing linked to Principal
Risks
As well as the base model, the Group also
considers other scenarios and has stress
tested the forecast for a combination of
a number of severe but plausible events
(linked to the majority of the Group’s
principal risks) that could impact its ability
to fund planned activities and/or comply
with the covenants and undertakings
within its reserves based lending (RBL)
facility agreement. These events include:
• A material reduction in the oil price
putting pressure on the Group’s capital
available for investment
• A material reduction in production
• An unfavourable event resulting in lost
production and oil price shock
The oil price sensitivity reflects a level
of price reductions broadly similar to
2020 as a result of the global outbreak
of the COVID-19 virus, to reflect the risk
of a further oil price crash due to the
pandemic during the 3 year VS period.
Base Forecast flexed for
combinations of the
following scenarios
Link to Principal Risks
and Uncertainties
Level of
Severity Tested
Conclusion
Sustained and sharp
drop in oil price
1, 5, 6
Reduction in production
2,3,4,7,8,9,12,13
Sharp drop in the oil price, down
to $35/bbl rising $5/bbl every
2 months till in line with base price
Company remains viable with
mitigating actions
5% drop in production over the
period of testing
Company remains viable with
mitigating actions
Unfavourable event leading to lost
production and price shock
1,2,3,4, 5, 6,7, 8,9,12,13 Combination of tests above
Company remains viable with
mitigating actions
Climate Change
We have also taken into consideration the
risk that climate change pressures could
reduce oil prices during the 3 year VS
window. In doing so, we have considered
the average of a number of third party
forecasts described as being consistent
with achieving the 2015 COP 21 Paris
agreement goal to limit temperature
rises to well below 2 degrees Celsius.
The nominal Brent prices used in this
scenario were as follows; 2021: $49/bbl,
2022:$54/bbl, 2023:$56/bbl, Although
marginally lower than our base case oil
price assumptions, we have concluded
that the stress testing outlined above
adequately takes into consideration the
risk of downside adjustments to our
revenue base over the 3 year VS period
due to climate change pressures.
It should be noted that as the existing
RBL facility is within the 3-year viability
statement window, we currently have
some protection from the risk that Climate
Change concerns begin to restrict the
availability of capital.
In all combinations tested, the Group had
access to mitigating actions, including
hedging, deferring non-committed
capital expenditure beyond the 3-year
window of the VS and agreeing with
host governments to defer exploration
commitments.
Directors have reviewed the realistic
mitigating actions that could be taken
to reduce the impact of the underlying
risk. The forecast cash flows are regularly
monitored and reviewed to provide
early warnings of any issues and to give
sufficient time to take any necessary
mitigating actions.
The potential impact of each of the other
principal risks on the viability of the group
during the assessment period has also
been considered. Such risks include the
inability to attract and retain appropriately
skilled people, Cyber risk and Business
Conduct and Bribery risk. The Board has
considered the risk mitigation strategy
for each of these risks and believes that
the mitigation strategies are sufficient to
reduce the impact of each risk to make it
unlikely to jeopardise the Group’s viability
during the three-year period.
Based on all of these assessments,
including the availability of actions
which could be taken in the event of
plausible negative scenarios occurring,
the Directors confirm that they have a
reasonable expectation that the Group will
continue to operate and meet its liabilities
as they fall due for the three year period
to 31 December 2023.
49
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report CORPORATE RESPONSIBILITY
RESPONSIBILITY
FRAMEWORK
Business
100%
Working interest
c.74%
TGT/CNV Oil
Oil sold and used domestically, contributing to host country
development goals and access to energy
Ethics
$150.9m
100%
Taxes and royalties to host
governments, includes $113.7m
host governments share of
production entitlements
Percentage of staff
receiving anti-bribery and
corruption training by 02
February 2021
People
1
Fatality for both employees and
contractors in Egypt. Remedial
actions taken to strengthen
controls within subcontractors
to minimise risk of any future
recurrence
0
Fatality for both employees
and contractors in Vietnam
Environment
254
4
Tonnes CO2e per 1,000 tonnes
of hydrocarbon produced
Oil/chemical spills (quantities
greater than 100 litres)
Society
$500,000
Combined total training levies
in Vietnam and Egypt for
investment in industry
capacity building
$ 245,191
Community and charitable
investments supporting 9
partnerships and projects in
Vietnam through the HLHVJOC
Charitable Donation Programme
and 3 community projects in
Egypt through Petrosilah
DR MIKE WATTS
Managing Director
50
Pharos Energy Annual Report and Accounts 2020 Our aim is to add value in
everything we do through
responsible, efficient and safe
energy production.
We take our role in society very
seriously. We are committed to open,
transparent communication, and taking
a rigorous, conscientious approach to
the environment, our role in society, our
business practices and ethics, and how
we relate to people.
That includes all our stakeholders: the
people who work with us directly and
indirectly, those who live where we
operate, and the host governments and
authorities that regulate our activities.
Corporate Responsibility (“CR”)
governance & management
A long-term goal of the Group is to be a
positive presence in regions in which it
operates by providing responsible and
sustainable development. The objective
of sustainability will apply equally to the
Company’s traditional reputation for
financial discipline and return of value
to shareholders as it will to the Group’s
objective of striving towards the goal
of establishing and maintaining the
highest operating standards across
Environmental, Social and Governance
(“ESG”) matters. To reflect Pharos’
ongoing commitment to operating a
sustainable business, the Board has
an ESG Committee and the group has
an ESG working group, which meets
once a quarter, made of representatives
from head offices Egypt and Vietnam,
to discuss, implement and share ideas
on ESG matters. In 2020, the group
also released it Climate Change Policy,
available on its corporate website.
Structure of CR/ HSES
Management System
1. Code of Business Ethics
2. Key CR policies
Human Rights Policy
Health, Safety and Environment Policy
Security Policy
Social Responsibility Policy
Biodiversity and Conservation Policy
Code of Business Conduct
and Ethics Code
Tax Strategy Statement
Prevention of Modern Slavery
and Human Trafficking Policy
Climate Change Policy
3. Standards, procedures and
guidance support the policies
See https://www.pharos.energy/
responsibility/policy-statements/ for the
full text of the current versions of each
of these CR policies.
STAKEHOLDER GROUPS AND CR TOPICS
Stakeholder group
Local communities
How we engage with them and
understand any concerns
Key areas of concern for
stakeholder groups
Environmental and social impact assessments and
grievance mechanisms at project level
Community investment
Effluents and waste management
National and host
governments
Regular dialogue
Biodiversity
Transparency
Payments to governments
Local capability building
Environmental management
Health and safety
Employees and
contractors
Promote adherence to WHO COVID-19 guidelines
and respective governments’ guidelines
Regular dialogue and grievance mechanisms
Employee Survey – the first launched in 2020
Keep workforce safe during
COVID-19 pandemic
Local capacity building
Contractor management
Employee Focus Groups
Shareholders
Regular dialogue
Climate risk/energy transition
HSES Health and Safety
Management System
Preventing corruption
International community
Responding to inquiries and media scanning
Climate risk/energy transition
GHG emissions
Preventing corruption
Human rights
51
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report Our approach on environmental and
social reporting in 2020 has taken into
account the Voluntary Sustainability
Reporting guidance (4th edition, published
March 2020)” issued by IPIECA, the
global not-for-profit oil and gas industry
association for environmental and social
issues, in partnership with the American
Petroleum Institute and the International
Association of Oil and Gas Producers. In
2021 we are reviewing best practice to
further guide our reporting. We report on
jointly operated companies in Egypt and
Vietnam.
DR MIKE WATTS
Managing Director
CORPORATE RESPONSIBILITY - continued
The Terms of Reference of the ESG
Committee was constituted by resolution
of the Board of Directors of the Company
on 10 September 2019 to:
• Assist the Board in defining the Pharos
Group’s strategy relating to ESG
matters;
• Review the policies, programmes,
practices and initiatives of the Pharos
Group relating to ESG matters ensuring
they remain effective and up to date;
• Provide oversight of the Pharos Group’s
management of ESG matters and
compliance with legal and regulatory
requirements, including applicable rules
and principles of corporate governance,
and applicable industry standards;
• Report on these matters to the
Board and, where appropriate, make
recommendations to the Board; and
• Report as required to shareholders of
the Company on the activities and remit
of the Committee.
The Board is also fully committed to
effective compliance with the 2018 UK
Corporate Governance Code, applicable
to the current financial year of the
Company ending 31 December 2020
The Board’s objective is to be recognised
for meticulous governance, with a
considerate and pragmatic approach to
its business.
In terms of corporate responsibility and
community engagement, the Board is
committed to treating all stakeholders in
every area of operations with honesty,
fairness, openness, engagement and
respect, and to conducting all business
ethically and safely. The Group will only
work with parties that share these values.
Our Code of Business Conduct and Ethics
(“our Code”) sets out our expectations
for how we do business, clarifying our
commitments to ethical, social and
environmental performance. Our CR
policies support our Code.
Our Corporate Standards, Procedures
and Guidelines support the policies.
Project specific Operational Plans,
Programmes and Procedures provide the
specifics of how things are done within
each project.
The Pharos Health, Safety, Environmental
and Social Responsibility Management
System (“HSES MS”) describes the
Group’s internal processes to manage
risks and is consistent with the
requirements of internationally recognised
standards (ISO 14001, ISO 45001) and
aligned with the World Bank’s International
Finance Corporation (“IFC”) Environmental
and Social Performance Standards.
52
The Chief Executive Officer is accountable
to the Board for implementation of CR
policies and Health, Safety, Environmental
and Social (“HSES”) performance. The
Board and the Audit and Risk Committee
oversee the adequacy and effectiveness
of our policies, standards and
management system for HSES. The ESG
Committee has responsibility, inter alia,
for defining the Group’s strategy related
to ESG matters, reviewing the Group’s
ESG policies, programmes and initiatives
and, more generally, has oversight of the
Group’s management of ESG matters.
CR objectives are defined annually
and reviewed quarterly in relation to:
our business; our ethics; our people;
environment and society.
Stakeholder engagement
In determining our CR strategy, we
consider issues that are important to
the successful delivery of our corporate
objectives and the matters that are
important to our stakeholders. Our
Communication and Stakeholder
Guidance sets out the controls and
arrangements for effective, timely and
transparent processes. We receive
feedback from stakeholders through a
range of formal and informal processes.
This takes place at a project and at a
corporate level.
ESG materiality screening
As part of Pharos commitment to
continual improvement, regular reviews
of material ESG factors relevant to the oil
and gas sector were carried out during
2020 and will be on-going in 2021. The
purpose of these regular reviews is to
recalibrate our existing position and
ensure that any new and material issues
of importance to the energy sector are
captured.
This year, and to provide a basis for
strategy formulation, Pharos reviewed
international guidance and non-
financial standards published by the
Global Reporting Initiative (GRI), the
UN Sustainable Development Goals
(SDGs), frameworks issued by IPIECA,
the IFC’s Performance Standards and
the Sustainability Accounting Standards
Board (SASB), the Financial Reporting
Council (FRC) Climate Thematic review.
The Pharos Board will further reinforce
the integration of climate considerations
into its governance frameworks by
implementing the principles stated in our
Climate Change Policy.
The results of the work will be discussed
internally and used to form opinion,
recognise best practice and provide clear
direction on our ESG strategy in 2021.
Pharos Energy Annual Report and Accounts 2020 BUSINESS
Our objective is to provide responsible and sustainable
development throughout our operations.
Climate risk and global energy
transition
Climate change is considered a principal
risk to Pharos and its business over
the medium and long term, and this
is discussed in more detail in the Risk
Management Report on pages 40 to 49.
Global energy transition is a factor that
impacts many of the Group’s principal
risks including those associated with
commodity price, access to capital,
reserves, operations, political, stakeholder
and reputational risks. We recognise
that a global transition to a lower carbon
intensity economy in response to climate
change could result in reduced demand,
lower oil prices and increased operating
cost, capital cost, regulation and taxation.
Our overall risk management integrates
climate change and carbon related risks.
Established management processes
include any physical risks associated with
climate change.
Pharos is cognisant of the potential
diminished role of fossil fuels in the
global energy mix as depicted in the IEA
Sustainable Recovery Plan. However,
at the same time, we also recognise
that energy demand for oil and gas will
continue to be an important component
of the global energy mix for many
decades to come.
According to a recent World Bank report,
the Vietnamese economy is one of the
few in the world likely to avoid a recession
VIETNAM INTERESTS AND OPERATIONS
following the COVID-19 pandemic, giving
confidence that demand for energy there
will be maintained. Pharos will continue
to develop its oil and gas resources
responsibly to aid global economic
development and deliver value for all our
stakeholders. We believe that, countries
such as Egypt and Vietnam can continue
to have economic and social benefits
from the responsible development of their
natural resources and we are committed
to doing this in a sustainable way. We
will also continue to support our host
governments as they seek to use oil
revenues to promote sustainable and
inclusive economic development, and we
will support the actions that they take to
manage climate change
We report transparently and have
participated in the CDP (formerly Climate
Disclosure Project) Climate Change
Questionnaire over the past four years. In
2020, we maintained our score (C) since
2019. Our greenhouse gas emissions
(“GHG”) are reported in the Environment
section on pages 58 to 60 and page 64.
Pharos is committed to implementing the
TCFD’s recommendations and a working
group consisting of personnel from
Head Office and the respective business
units is now set up to achieve this with
the support of an outside consultant.
The Project is on-going and consists
of two phases. Phase 1, which is now
completed, consisted of a thorough
peer benchmarking, internal document
review and gap analysis and culminated
in the development and approval by the
Board of Pharos Climate Change Policy
in December 2020. Phase 2 will aim to
assess the company climate impact,
define its 2020 baseline and develop a set
of KPIs to better manage and monitor its
GHG emissions. Phase 2 was interrupted
by the impact of the pandemic and we will
too look resume at the appropriate time.
Business partners and influence
Relationships with business partners,
host governments and local communities
where we operate are critical for our
business. Our Code sets out our
commitment to doing business honestly
and ethically and to complying with all
applicable laws and regulations. It sets
out our expectations to take steps to only
do business with others who share our
values.
Our ability to influence our business
partners depends on our degree of
ownership and operatorship. Where we
are the designated operator, we fully
apply the Pharos HSES MS. Where we
are a joint operating partner, we seek
to influence and ensure alignment with
our systems. Where we have a minority
interest, we seek to make our views heard
and ensure that minimum standards are
met in accordance with our commitment
to the IFC Performance Standards.
Degree of
influence
High
Blocks
Country
Pharos
ownership
Pharos
role
2020
field activity
Blocks 125 &
126
Vietnam
70%
Operator
Offshore seismic survey
Moderate
Block 16-1
Vietnam
30.5% *
Moderate
Block 9-2
Vietnam
25%
Joint operating partner
(in Hoang Long Joint
Operating Company)
Production of oil and gas
Well interventions and gas
lift optimisation
Restaging of FPSO Gas
Turbine compressors
Joint operating partner (in
Hoan Vu Joint Operating
Company)
Production of oil and gas
Routine well maintenance
Target HSES
outcome
Full application
of the HSES MS
Influence to bring
alignment to the
Pharos HSES MS
* Pharos has a 30.5% working interest in Block 16-1 which contains 97% of the Te Giac Trang (TGT) field and is operated by the Hoang Long Joint Operating Company.
Pharos’ unitised interest in the TGT field is 29.7%
53
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report
CORPORATE RESPONSIBILITY - continued
EGYPT INTERESTS AND OPERATIONS
Degree of
influence
Moderate
Blocks
Country
Pharos
ownership
Pharos
role
2020
field activity
Target HSES
outcome
El Fayum
Concession
Egypt
42.6%
Joint operating partner
(in Petrosilah)
Production of oil and gas
Influence to bring
alignment to the Pharos
HSES MS
Moderate
North Beni Suef
Concession
Egypt
100%
Joint operating partner
(in Petrosilah)
Technical and
investigative work on
wells previously drilled
Influence to bring
alignment to the Pharos
HSES MS
ISRAEL INTERESTS
Degree of
influence
Low
Blocks
Country
Pharos
Ownership
Pharos
role
2020
field activity
Target HSES
outcome
Licences
39,40,47,48
(Zone A) and
45,46,52,53
(Zone C)
Israel
33.33%
Non-operator
No field activity
Ensure minimum
standards during
ownership
Contractor management
Contractors are used throughout all aspects of our business. Our
Contractor Management Procedure sets out requirements through
all stages from selection through to management and service
delivery.
In HSES critical activities, bridging documents are put in place to
ensure Pharos and contractor alignment with our requirements.
Hours worked in Vietnam
and Egypt assets
Company staff: 755,687
Contractors: 2,213,964
Percentage
of total
25%
75%
HSES Management System
We undertake a range of activities to continuously improve our
HSES MS to ensure that the Company’s policy commitments are
applied. We may work in countries that have different standards
and we review any potential gaps to ensure adherence to our
policies in dialogue with our business partners. Routine monitoring
is undertaken to assess and improve performance and periodic
audits are conducted.
In 2020, a total of 277 HSES training sessions took place across
Vietnam and Egypt throughout the year and 107 emergency
response drills also took place across the Group.
During 2020, Petrosilah passed the annual surveillance Audit of
ISO 14001-2015 for Environmental Management system.
KEY PERFORMANCE INDICATORS
KPI
HSES regulatory
non-compliances
Target
2020
2019
2018
Zero
0
01
0
1. Although three regulatory non-compliances were reported in our Egyptian
assets in 2019, these occurred in January, prior to the completion of our
acquisition.
Overall objective
To provide responsible and sustainable development
2020 Objectives
2020 Outcomes
2021 Objectives
Each asset to develop their own HSES training
programme.
Regular HSES training sessions
organised throughout the year.
Each asset to further enhance their own HSES
training programme.
Confirm that recommendations from gap analysis
of Merlon HSES MS against Pharos HSES MS
requirements have been closed.
90 per percent closed
Complete gap analysis during 2021.
Confirm that recommendations from gap analysis of
Joint Operated Company (JOC) Management system in
Vietnam against PHAROS Corporate HSES MS
On-going
Complete Corporate HSES audit programme according
to the 2020 Audit plan.
On-going
54
Implement recommendations from gap analysis
of Joint Operated Company (JOC) Management
system in Vietnam against Pharos HSES MS
requirements.
Further enhance in-country respective
Emergency Response Teams interface with Head
Office Crisis Management Response Team.
Pharos Energy Annual Report and Accounts 2020
ETHICS
Our objective is to conduct our business in an
honest and ethical manner.
Preventing corruption
Pharos currently operates in Vietnam,
which is allocated a low score on
Transparency International’s most recently
published Corruption Perception Index
(“CPI”), and is ranked number 104 out
of 180 countries in the 2020 CPI. Egypt
is ranked at 117 on the same CPI. Israel
is ranked at 35 on the CPI, indicating a
lower risk of corruption.. We recognise
that, with both areas of operation having
a reputation for a lack of transparency
and relatively high risk of corruption, it is
vital that the Group’s policies, procedures
and working practices are fit for purpose.
Pharos maintains internal control systems
to guide and ensure that our ethical
business standards for relationships with
others are achieved. The Audit and Risk
Committee and the Board have carried
out a review of the effectiveness the
Group’s risk management and internal
control systems, see the Audit and
Risk report pages 82 to 86. Bribery is
prohibited throughout the organisation,
both by our employees and by those
performing work on our behalf. The Code
of Business Conduct and Ethics supports
all businesses that are conducted in
an honest and ethical manner across
the organisation. Our Anti-Bribery
and Corruption (“ABC”) programme
is designed to prevent corruption and
ensure systems are in place to detect,
remediate and learn from any potential
violations. This includes due diligence
on new vendors, annual training for
all personnel, requisite compliance
declarations from all associated persons,
Gifts and Hospitality declaration and
comprehensive ‘whistleblowing’
arrangements.
Our Whistleblowing Policy and Procedure
ensures that employees are protected
from possible reprisals when raising
concerns in good faith. In addition to
internal reporting channels, we have a
confidential ethics hotline supported by
EthicsPoint with numbers displayed in
local offices available 24 hours a day all
year round. Zero calls were made to the
Expolink hotline in 2020.
100%
Employees and relevant
contractors have undertaken anti-
bribery and corruption training by
02 February 2021
Payments to host governments
Wealth generated by natural resources
plays an important part in the growth
and development of countries in which
we operate. Revenues to governments
become payable by the Group due
to oil production entitlements, taxes,
royalties, licence fees and infrastructure
improvements.
During 2020, the total payments to
governments for the Group amounted
to $150.9m (2019: $232.7m), of which
$104.9m or 70% (2019: $165.5m or 71%)
was related to the Vietnam producing
licence areas, of which $72.5m (2019:
$113.5m) was for indirect taxes based on
production entitlement. Egypt was paid a
total of $42.2m (2019: $63.1m) of which
$41.3m (2019: $46.4m) relates to indirect
taxes based on production entitlement.
The breakdown of other contributions,
including payroll taxes and other taxes
is contained within the additional
information on page 149. Our Code
prohibits contributions to political parties,
candidates or other political organisations.
Overall objective
To conduct our business in an honest and ethical manner
2020 Objectives
2020 Outcomes
2021 Objectives
All personnel to complete the annual ABC
programme including training, testing and
self-declaration statement.
Completed.
Continue to review ABC programme
and update as required.
The ABC programme has been updated.
All personnel to complete the annual ABC
programme including training, testing and
self-declaration statement
Continue to review ABC programme and
update as required
Implement Modern Slavery Prevention
programme.
The annual statement on Modern Slavery has
been published on the Pharos website.
Update and republish the Modern Slavery
annual statement.
55
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report CORPORATE RESPONSIBILITY - continued
PEOPLE
Our objective is to ensure the health, safety, security and welfare of
our employees and those with whom we work and to ensure that we
have a workforce that is performing at its best.
Our Health, Safety and Environment
Policy and Code of Business
Conduct and Ethics commit us to
protecting the health and safety
of our workforce, to providing a
workplace free of discrimination
where diversity is valued and to
ensure that we consult and engage
with our employees.
We value the contribution made by all
employees and strive to ensure that
we have training and development
opportunities for everyone.
One of the key issues in 2020 was
keeping our workforce safe during the
global pandemic.
On-going monitoring and
precautionary / preventive
measures under COVID-19
As soon as COVID-19 was declared a
pandemic, Pharos took all the necessary
measures to ensure the safety of
our workforce without stopping our
operations.
The Group monitored closely the
COVID-19 situation via the WHO website,
Public Health England advices, travel
alerts from foreign travel advice and
media outlets on what other companies
SAFETY RECORD
are implementing to mitigate its risks of
spread. The group has put in place the
following:
• A working group - discuss and issue
guidance on new measures as the
situation evolves;
• Maintain regular communication with
in-country managers and their HSES
teams;
• Working from home options given;
• Regular updates to staff on hygiene
measures and action in case of
symptoms; and
• Travel guidance / restriction if
appropriate
• Adhere to all in-country governmental
guidelines on COVID-19 prevention.
Occupational health and safety
Safety is the highest priority in our
business and we are committed to
operating safely and responsibly at
all times and to providing a safe and
healthy working environment for staff and
contractors. Following from our Health,
Safety and Environment Policy and
Code of Business Conduct and Ethics,
our HSES MS provides the framework
for our approach and is implemented
at each stage of a project supported by
Occupational Health and Safety Guidance
and Standard Operating Procedures.
While Pharos had no field activity in
2019 in which we were the operator,
we continued to work with our partners
in Vietnam where the Hoang Long and
Hoan Vu Joint Operating Companies
(“HLHVJOC”) continued to maintain a
high level of safety. We have worked to
build and contribute to improvements
in the safety culture in Vietnam and we
are proud of that record of achievement.
HSES training, drills, workshops and
inspections are conducted on an annual
basis to ensure that the zero target is
maintained.
We are able to share our practices and
lessons learned with others in the industry
and are contributing to further capacity
building.
In Egypt, we are sad to report the loss
of one of our assistant crane operators
in Q4 2020, following an accident
during a rig move operation where
the crane ran off the road into a ditch.
Following the accident, there was
immediate reinforcement of safe driving
and manoeuvring practices, increased
supervision of rig moves,and increased
awareness of potentially unsafe road
conditions.
Safety of our workforce remains our
number one priority and Pharos has
reinforced the use of stop cards and
safety training across all operations.
KPI
Target rates
Pharos
IOGP4
Pharos
IOGP
Pharos
IOGP*
Fatal Accident Frequency Rate 1
Lost Time Injury (“LTI”) Frequency Rate 2
Total Recordable Injury Rate3
Million-man hours worked
Zero
Zero
<0.42
34
0.34
0.34
2.97
0.82
0.24
0.92
0
0
0.42
2.35
0
0
0.42
1.29
1.01
0.26
0.99
2020
2019
2018
1 Fatal accident frequency rate : Number of fatal accidents per hundred million man-hours for both employees and contractors
2 Lost time injury frequency rate : Number of lost time injuries per million man-hours for both employees and contractors
3 Total Recordable Injury rate ; Number of recordable injuries per million man-hours for both employees and contractors
4 International Association of Oil and Gas Producers (“IOGP”) - Statistics not yet available for 2020.
56
Pharos Energy Annual Report and Accounts 2020
Major accident prevention
Pharos has emergency response plans
in place for all projects and assets.
The plans are communicated to the
workforce and response personnel receive
training to ensure they are competent
to carry out their emergency roles. This
is supplemented by periodic refresher
training. Drills and training exercises
are carried out. On CNV, we had 50
Emergency Response Drills and 38 HSES
training sessions and on TGT we had
55 Emergency Response Drills and 185
HSES training sessions. We ensure asset
integrity and control operations in order
to effectively manage all significant risks
during all stages of the operations.
During 2020, there were no Process
Safety Events classified Tier 1 or Tier
2 to be reported. All incidents were
investigated and lessons learned as
appropriate and actions to prevent
recurrence were implemented.
Safety indicators (for both Pharos
employees and contractors)
Indicator
2020
Lost Time Injury frequency rate (“LTI”)
0.34
Fatal Accidents
Medical Treatment Cases
First Aid Cases
Number of Motor Vehicle Crashes
Roll-over
HSES Near Miss
HSES Inspections
HSES Audits
HSES Toolbox Talks
HSES Meetings
Safety indicators
Indicator
Emergency Response Drills
Process Safety Events (Tier 1 or Tier 2)
Other minor events
1
0
2
3
3
37
765
1,019
7,752
1,354
2020
107
0
47
Diversity and Inclusion
Our Code and Policies and our Guiding
Principles commit us to providing a
workplace free of discrimination where all
employees can fulfil their potential based
on merit and ability. They also commit us
to providing a fully inclusive workplace,
while providing the right development
opportunities to ensure existing staff have
rewarding careers.
As part of this global approach we
ensured that leadership training was
made up of a fair representation of our
global employees in terms of race, gender
and ethnicity.
Local capability building
We are committed to providing meaningful
opportunities for technical cooperation,
training and capacity building in host
countries.
In Egypt, we have maintained a gender
neutral recruitment process and, wherever
possible, are ensuring that we first look
to fill any vacancy internally with a local
Egyptian candidate, thus ensuring career
progression and succession planning
are established for local staff. We recruit
directly from the local universities and
surrounding villages. In Egypt, as part of
the Concession Agreements of El Fayum
and North Beni Suef, the Company
commits to a total of $200,000 split
equally between the two Concessions for
training and development of employees.
Work has continued on establishing a
KPI based staff performance appraisal
scheme.
In Vietnam, as part of the HLHVJOC, we
contribute to local capability building.
Out of 114 people, only 3 are expatriate
staff members. In addition, every position
that is held by an expatriate staff has a
Vietnamese staff member as a deputy
or as the manager. A training levy of
$150,000 for each JOC goes into a
fund which is ringfenced to support the
development of future talent in Vietnam
in the industry. HLHVJOC also invests in
staff development and training.
Overall objective
To ensure the health, safety, security and
welfare of our employees and those with
whom we work; to sustain and grow a
global cultural of diversity and inclusion
such that diversity is at the core of
who we are and where inclusion drives
innovation and solutions.
2020 Objectives
Employee Engagement Survey
2020 Outcomes
Our corporate head office in London has
26 staff and we are very proud of the
number of women we have in the London
office, which is 58% and three out of four
Group Heads of Function posts are filled
by women.
In 2020 we had a team of over 42
employees based in Egypt and a team
of three employees in Vietnam. Our size
of direct employees facilitates daily direct
interaction and multidisciplinary dialogue
amongst personnel and Executive
Directors.
We launched our Group wide Employee
Engagement Survey the outcomes
of which will allow us to improve our
understanding of cultural differences and
employee experience.
We demonstrated our ability to work
flexibly and supportively throughout
the COVID-19 lockdowns, with 92%
of employees reporting, in the recent
Employee Engagement Survey, that
they felt supported by the Company and
that they appreciated their Manager’s
focus on the health and well-being of our
employees.
Average corporate employees
Male
Female
Non-Executive Directors
2020
2019
2018
2017
3
2
4
1
5 0
5 0
Executive Directors
2020
2019
2018
2017
2
2
2
2
1
1
1
1
Senior Management
2020
1
2019
2018
2017
2
2
2
2
1
4
4
Completed at end of December 2020 and
initial review of results is extremely positive
with staff report they are aligned with the
Pharos Guiding Principles.
Other employees
2020
2019
2018
2017
9
13
7
6
11
10
5
8
2021 Objectives
Build an action plan based on the areas
that employees identified as requiring
improvement.
Further enhance understanding of different
cultures and sharing of ideas through
training sessions and focus groups made
up of cross country groups
57
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report
CORPORATE RESPONSIBILITY - continued
ENVIRONMENT
We recognise the potential impacts of our business on the environment. Our
Health, Safety and Environment Policy sets out our commitment to conduct
all business activities in a responsible manner. In setting our CR priorities, our
objective is to protect the environment and conserve biodiversity.
Greenhouse gas emissions (“GHG”)
GHGs associated with energy use and
with flaring are a key area of potential
impact.
In 2020, we continued to monitor
our emissions and disclose them in
accordance with industry requirements
and standards, participated in the Carbon
Disclosure Project (“CDP”), with further
work to be done on implementing the
TCFD recommendations in 2021.
GHG reported
Pharos reports carbon dioxide (CO2),
methane (CH4), and nitrous oxide (N2O)
combined into carbon dioxide equivalent
(CO2e) based on the gases’ 100-year
Global Warming Potential (GWP). These
three gases are produced through
combustion, although N2O quantities
produced via combustion is relatively
small.
The other greenhouse gases, HFCs, PFCs
and SF6, are not closely associated with
the petroleum industry. Their respective
emitting activities are not core parts of
Pharos operations. The total emission of
these gases is therefore expected to be
small and has not been calculated.
Emissions scope
Reported Scope 1 direct emissions
comprise direct GHG emissions resulting
from equipment or other sources owned
(partly or wholly) and/or operated by
the Company (for example, gas flaring
operations and fuel gas/diesel use to
generate power or for vehicle use).
Reported Scope 2 indirect emissions
comprise those arising from purchased
energy already transformed into electricity,
heat or steam generation. For Pharos
activities, Scope 2 emissions comprise
electricity supplied by the national grid
in the UK, in our Egypt office and in Ho
Chi Minh City (Vietnam). No Scope 3
emissions (indirect emissions created in
the value chain) are reported.
58
Reporting boundary
Pharos has elected to report its emissions
of GHGs from Egypt and Vietnam
operations, as well as its London office on
the basis of equity share.
Under equity share, Pharos reports a
pro-rata share of the emissions from
partnerships over which it has operational
control (i.e., Vietnam Blocks 125 &126)
and a pro-rata share of the emissions
from partnerships it does not control (i.e.,
Vietnam Blocks 9-2 and 16-1 and Egypt)
according to its ownership interest.
Methodology
Pharos applies the expectations set by
the ISO 14064-1 standards in terms of
Relevance, Completeness, Consistency,
Transparency and Accuracy which are
endorsed by IPIECA, the Greenhouse
Gas Protocol Initiative and Part 7 of The
Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013.
Emission factors for GHG calculations
were taken from UK Government GHG
Conversion Factors for Company
Reporting (BEIS, 2020) and EEMS, 2008,
Atmospheric Emissions Calculations;
for the calculation of associated gas
consumed as fuel and flared in Vietnam,
the emission factors were calculated
based on the carbon content of gas
analysed of a blend of TGT and Hai Su
Trang Den (HSTD) export gas for the TGT
field, and of the CNV Field by the Vietnam
Petroleum Institute in 2020, and for the
calculation of gas consumed and flared
in Egypt, the emissions factors were
calculated based on the carbon content
of gas analysed at the North Silah Deep,
North East Tersa, South Silah and Silah
Base Separators (EPRI Central Analytical
Labs, 2018).
In 2020 we have again used the
normalised figure to be tonnes of GHG
per 1,000 tonnes of oil produced by
equity share to align with the International
Association of Oil and Gas Producers
(“IOGP”) benchmarks.
Key sources of our emissions are from
flaring and use of associated gas as
fuel to generate power on our offshore
production sites in Vietnam and likewise
for our onshore production in Egypt. In
2020, gas fuel and gas flaring in TGT
remain the largest single contributor to
Pharos total emissions.
The total CO2e emissions for 2020
is 359,288 tonnes of CO2 equivalent
(114,776 tonnes of CO2 equivalent
based on equity share). A decrease of 18
percent compared to 2019 (19 percent
based on equity share). This is explained
in particular by the fact that no drilling
activities took place between May and
December. However, the restaging of the
FPSO Gas Turbine compressor in Vietnam
completed in April 2020 also contributed
to a decrease in overall emissions.
Activity data pertaining to GHG emissions
by the HLHVJOC and Egypt is reported
to Pharos. Telos NRG assisted with data
collation and GHG emissions calculations.
Verification was undertaken by RPS
Planning and Environment.
Approaches to reducing emissions
The restaging of two gas compressors on
the TGT FPSO was completed in 1H 2020
and this has contributed to better gas
flaring management.
The Company is looking at ways it
can reduce GHG emissions across its
operations
Pharos launched Project GOO (Greening
Our Operations) in Q1 2020 which the
objective of focusing on the key sources
of GHG emissions and working closely
with the in-country Operations and HSES
teams to identify processes and methods
which can be changed, or using cleaner
fuels such as electricity or solar to reduce
our GHG emissions. The project has been
interrupted by the impact of the pandemic
and we will look to resume them at the
appropriate time.
Pharos Energy Annual Report and Accounts 2020 Annual Environmental Measurements - in
accordance with the requirements of the
Egyptian Environmental Law 4 for year
1994, the Company carried out annual
environmental measurements, and all
environmental measurements resulted in
less than the threshold limit in the law.
Environmental permit non-compliances
- the company achieved zero Legal
Environmental Violation during 2020
and did not obtain any violations from
Environment Authority in Egypt in 2020.
The Company obtained 12 Environmental
Approvals from Ministry of Environment
during 2020.
GHG emissions and activity data
The Group’s energy use from grid
electricity was 309,942 kWh in 2020;
24,559 KWhs for London and 285,383
KWh for oversea.
In 2020, 40 tonnes of gas were flared for
every 1,000 tonnes of total hydrocarbon
production on a gross basis (not equity
share adjusted). This is a slight increase
from 39 tonnes in 2019.
Effluents and waste
During 2020, Pharos maintained its record of no spills into the environment in Vietnam. In Egypt, there were four environmental
spills as follows:
Date
Location
Description
Quantity (bbls)
Jan 2020
Egypt - N. Silah-3x
Over flow crude oil storage tank - clean up completed
Jun 2020
Egypt - 115km from EF
on the regional road
Jun 2020
Egypt - Aboud-1x
Crude oil shipping truck overturned and fire on regional road - no injury.
Crude oil spill from the oil truck in Aboud-1x while shipping process - clean up
completed
Sep 2020
Egypt - Silah 1x Station
High salinity water drained on the ground.
A full cleaning up of the contaminated soil and disposal by Petrotrade company.
7
408
320
15
Water is extracted along with hydrocarbon
reservoir fluids as part of normal
production operations. In 2020 we
generated 5.6 million cubic metres of
produced water. In Vietnam, the produced
water is cleaned by separating the
hydrocarbon phase before discharging to
the sea in line with national standards.
In Egypt, our produced water is now all
disposed of in disposal wells. During
2019, many open drain pits were cleaned
and backfilled, resulting in the disposal
of a significant volume of hydrocarbon
contaminated soil. In 2020, no further
open drain pits required cleaning and the
open drain system has been replaced with
a closed drain system (collecting the drain
water in steel tanks instead of open water
pits). This explains the significant decrease
in solid hazardous waste compared to
2029 is the result of putting the produced
water in dedicated disposal wells. The
company has three Produced Water Treat
Facilities, PWTF, two of them are in-service
at SILAH GS & N. Silah Deep GS and the
third is yet to be used at N. ETersa-1. The
produced water is being collected in both
PWTF (SILAH & NSD) and then disposed
into A/R “E” formation in (+/- 3,500 bbl
water disposed into SILAH-15 & +/-5,000
bbl water disposed into NSD-1-1) disposal
wells respectively and stopped sending
any amount of water for water treatment to
contractor factory. Disposal of waste water
in water disposal well instead of sending
to contractor is environmentally better
and saving cost and safer due to avoiding
waste water trucking.
In Vietnam, waste is generated from both
our production operations as well as
from our offshore drilling activities. Drilling
waste includes cuttings, used oil and other
materials. We work to recycle as much
non-hazardous waste as possible. We
have a third-party contract for the disposal
of hazardous waste, with a reporting
system into the specific Vietnamese
authorities for checking, audit, and
approval.
In Egypt, waste generated is segregated
into hazardous and non-hazardous
waste and disposed of in a licensed
facility. Freshwater is used to support
our operations. In 2020 this amounted
to 102,820 cubic metres. Our use of
freshwater has been halved compared
to 2019, due to the fact that all drilling
activities were deferred from March 2020,
as the business responded to the low oil
price and impact of COVID-19. We only
had one work-over rig in service, whilst we
had three in 2019.
Tonnes (t) of CO2e equivalent for 2020 Operations
CO2e (t) per 1000 tonnes of oil
produced by equity share3
Based on equity
share1,2
Per field
Per
country
Reported
operations
Office
Operational
phase
Administration (office – electricity usage)
No activity
CO2e (t)
Overall1
6
–
Office
Administration support for exploration
331
El Fayum Concession
Production
Field development
Office
Administration (electricity usage)
Blocks 125 & 126
Seismic exploration
Block 9-2 – Ca Ngu Vang
(CNV) field
Block 16-1 – Te Giac Trang
(TGT) field
Production
Field development
Production
Field development
6
–
141
28,127
1,675
1
0
66,025
3,931
1
0
21,368
5,342
0
0
257,148
76,373
10,478
3,112
359,288
114,776
–
–
–
–
–
–
241
241
–
70
318
–
254
–
258
–
Country
UK
Israel
Egypt
Vietnam Cuu Long
Basin (offshore)
Total
1 Figures include rounding to the nearest whole number.
2 Under equity share, Pharos reports a share of the emissions from the partnerships pro-rata its ownership interest.
3 Normalised emission is calculated, per field, and at country level, based on equity share, and gross/net boepd produced in 2019 in the CNV and TGT fields as well as in
El Fayum Concession.
59
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report CORPORATE RESPONSIBILITY - continued
Biodiversity
Our Biodiversity and Conservation Policy
commits us to meet the objectives of the
Convention on Biological Diversity (1992).
We identify whether a project is located
in modified, natural or critical habitats,
or a legally protected or internationally
recognised area; and whether the
project may potentially impact on, or be
dependent on, ecosystems services over
which Pharos has direct management
control or significant influence. In Egypt,
the El Fayum Concession borders the
multiple-use management area and the
natural protectorate area of Lake Qarun
which includes important bird areas. It is
adjacent to the Wadi El Rayan protected
area which includes the Wadi Al-Hitan
World Heritage Site. In Vietnam, Blocks
125 & 126 are approximately 50km
offshore to the Nha Trang Bay Protected
Area and the Thuy Trieu Marine Protected
Area. As per our policy, Pharos does not
operate in any UNESCO designated World
Heritage Site and ensures that activities
in buffer zones around these sites do
not jeopardise the Outstanding Universal
Value of these sites. Comprehensive
Environmental and Social Impact
Assessments (“ESIAs”) are undertaken for
any new project prior to any operational
activities using international standards and
in consultation with local stakeholders. We
are committed to developing site-specific
biodiversity action plans (“BAPs”) in the
event that operational sites are within
sensitive areas, incorporating country-
specific strategies and action plans and
working in association with external
advisers to ensure that best practice
conservation priorities are achieved.
Non-Financial KPIs (HSES)
Spills to the environment*
*Number of spills reported.
KPI
Solid non-hazardous waste produced (tonnes)
Percentage of non-hazardous waste reused or recycled
Solid hazardous waste (tonnes)
Percentage of hazardous waste reused or recycled
Overall objective
To protect the environment and conserve biodiversity
Target
2020
2019
2018
0
4
2
0
Target
2020
2019
2018
Set per project
Set per project
Set per project
Set per project
94
25
41
4
104
15
3,112
<1
102
20
96
10
2020 Objectives
2020 Outcomes
2021 Objectives
Carry out EIA in line with Pharos internal standards as well as
country operations requirements prior to any activity
Completed
Commission all necessary EIAs before start of
activities or projects
Review of the Merlon EIA against Pharos standards ahead of
field activities.
WIP - 80% completed
Complete gap analysis and fully implement
Pharos standards
ESOS Compliance assessment
n/a*
–
Implementation of the New Entry Procedure when a new
project arises, including an assessment of risk of impact on the
environment.
On-going
Implementation of the new country entry procedure
prior to any acquisition.
Solving of TGT compressor issues to reduce GHG emissions
to base levels or under
Completed
Flaring in Vietnam is better managed with re-staged
compressors
Start implementation of TCFD recommendations
Phase 1 completed
Climate Change
Policy in place
Look to resume at the appropriate time
Continue Phase 2 TCFD implementation
Project GOO - Greening our Operations
* London HO was empty since Mach 2020 as the HO workforce is working from home under the COVID-19 pandemic.
60
Pharos Energy Annual Report and Accounts 2020
SOCIETY
Our Social Responsibility and Human Rights Policies set our
requirements for social responsibility, community engagement and
human rights.
Human rights
The Human Rights policy commits Pharos
to conducting its business in accordance
with the fundamental principles of
human rights set out in the Universal
Declaration of Human Rights and reflects
the terms of both the OECD Guidelines
for Multinational Enterprises and the
United Nations Guiding Principles on
Business and Human Rights. Together
with our Security Policy, it sets out our
commitments to align with the Voluntary
Principles on Security and Human Rights.
We respect indigenous rights and cultures
of the communities where we operate.
Our human rights due diligence includes
processes to address, monitor and
communicate actual or potential impacts.
For Egypt, all our corporate policies
including the Policy on Human Rights
have been translated into Arabic for
dissemination locally.
In accordance with the UK Modern
Slavery Act, Pharos reports annually on
the steps it has taken to mitigate the
risk of modern slavery occurring in any
part of its business. Pharos’ Statement
on Modern Slavery is available on the
Company’s website at https://www.
pharos.energy/modern-slavery-act/.
In early 2020, as previously reported,
Pharos, through the Ministry of Foreign
Affairs of Vietnam, contributed towards
the repatriation cost of the Vietnamese
victims involved in a tragic event that
occurred in Essex, UK.
Pharos New Entry Procedure
The process of identifying and addressing
environmental, biodiversity, social
and human rights (Environmental and
Social Governance – ESG) issues and
corporate business risks is an integral
part of Pharos’s approach to new
entry. It consists of three key stages:
preliminary assessment (risk screening
and issues identification), due diligence
and deal closure. It is a means by which
Pharos demonstrates its commitment to
environmental and social performance
to internal and external stakeholders as
well as reducing exposure to financial,
legal, operational and reputation risk.
It is designed to enable the business
to prevent harm, make better financial
and operational decisions and to
meet commitments vis-à-vis Pharos’s
stakeholders
Community and social investment
Pharos remains committed to creating
value for host countries and local
communities as well as for staff and
shareholders. We understand that our
success is reliant upon building strong
relationships and being welcomed
as a responsible partner in our host
communities. We invest in social projects
for the long-term benefit.
In Vietnam, in 2020, we continue to
invest in the local community through
the HLHVJOC Charitable Donation
Programme. In addition to the training
levy of $300,000 per year in a ring-
fenced fund to support developing future
Vietnamese expertise in the industry,
a further $236,754 was invested in 9
community and social projects. These
donations have been used to assist the
overall development of underprivileged
rural areas in Vietnam, and were
specifically designated for healthcare,
education, environmental development
and the assistance of flood victims in the
Central Highlands region. For example,
this year, donations were made to Tran
Hung Dao Commune’s Medical Clinic
in Ly Nhan district, Ha Nam province
to buy medical equipment such as
endoscope and ultrasound machines.
The programme continued its annual
support to the Ha Noi Private School
for the Hearing Impaired for the project
aimed at improving integration ability for
underprivileged disabled students. The
school is currently offering education to
100 students with autism and hearing-
impairment. Additionally, the programme
provided financial support to Tho Hai
Commune’s People Committee, Thanh
Hoa province to renovate buildings built
before the year 2000, with 10 classrooms
that had serious degradation, and for the
construction of new secondary school
classrooms.
In Egypt, under the El Fayum and North
Beni Suef Concession Agreements,
the Company contributes a total of
$200,000 per year split equally between
the two Concessions to support training
and development within the industry.
Additionally, social investment has
involved supporting the local community
in COVID-19 measures. In April 2020,
Petrosilah provided disinfection and
sanitisation services for all public and
service buildings such as schools, post
offices, ambulance units and police
stations, along with homes of the villages
adjacent to the company’s sites. Medical
equipment such as 100 sets of face
masks, face shields and protection
suits were donated and delivered to the
Nabawi General Hospital in Fayum, a
Ministry of Health hospital which operates
as an isolation hospital during the
pandemic.
Local capacity
We support local capacity building during
the exploration or development phases of
a project to ensure a positive imprint and
legacy. All our licence agreements include
a high degree of local content, which
commits us to hire locally where possible
and provide training to develop new
skills. Our policy commits us to provide
meaningful opportunities for technical co-
operation, training and capacity building
within any host country in which we
operate.
61
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report $236,754
Total invested in community and
charitable investments in Vietnam
through the HLHVJOC Charitable
Donation Programme
$8,437
Total invested in three community
projects in Egypt by Petrosilah
CORPORATE RESPONSIBILITY - continued
Community projects in Vietnam 2020 via the HLHVJOC Donation
Programme
While the yearly contributions from HLHVJOC Foreign Partners for community and social
projects are always $200,000, historically, HLHVJOC charitable donations are always
in excess of this. The additional contributions in 2020 were raised by staff through
fundraising event and from various donations by expat members, anytime during the
year when there are unforeseen typhoons or national disasters that cause widespread
devastation, such as flooding and landslides destroying infrastructure, houses, livestock,
and crops. Additionally, staff’s donations are matched by HLHVJOC and then added to
the total budget.
We look to replicate this in the future with our social programmes in Egypt.
Education
• Continued annual support to Ha Noi Private School for the Hearing Impaired for the
project aimed at “Improving Integration Ability for Underprivileged Disabled Students”
• Financial support to Tho Hai Commune’s People Committee to renovate 4 buildings
built before the year 2000, with 10 classrooms that had serious degradation, and for
the construction of new secondary school classrooms in Tho Xuan district, Thanh Hoa
province
• Financial support of school supplies for students in Quang Tri province
Rural livelihoods & Infrastructure
• Donation to support 100 low-income families in Nhan Dao commune, Ly Nham district,
Ha Nam province in 2020 Lunar New Year
• Financial support for flood victims in the Central Highlands region of Vietnam
• Matching donations to the JOC staff’s charity contributions for underprivileged children
in Bu Dang District, Binh Phuoc province
• Financial support for the drilling well systems serving clean water in Hung Binh
commune and Nguyen Trai’s secondary school in DakR’lap district, DakNong province.
Healthcare
• Financial support to Tran Hung Dao Commune’s People Committee to buy medical
equipment for Tran Hung Dao Commune’s Medical Clinic, Ly Nhan District, Ha Nam
Province
Other charitable projects
• Financial support to buy furniture for the Culture House of Ha Son Binh Commune, Ha
Tinh Province
Community projects in Egypt in 2020 via Petrosilah
Healthcare
• Disinfection of all public and service buildings (schools, mosques, post offices,
radiology centers, ambulance units, fire extinguishers, police stations) and homes of the
villages adjacent to the company’s sites with disinfectants and chlorine. Distribution of
face masks to people in the local villages
• Donation and delivery of medical equipment such as 100 sets of face masks and 100
protection suits to the Nabawi General Hospital in Fayoum, which is one of the Ministry
of Health hospitals that operates as an isolation hospital during the pandemic
Infrastructure
• Provided assistance to neighbouring local units, such as supplying them with concrete
pipes and equipment to repair some main roads
62
Pharos Energy Annual Report and Accounts 2020 CASE STUDY - VIETNAM
Financial support for Tho Hai commune’s People Committee, Thanh
Hoa Province
In 2020, through the HLHVJOC Donation Programme, Pharos has donated
$100,000 to Tho Hai Commune’s People Committee to renovate 4 buildings built
before the year 2000, with 10 classrooms that had serious degradation, and for
the construction of new secondary school classrooms in Tho Xuan district, Thanh
Hoa province.
9
Social projects supported in
Vietnam through the HLHVJOC
Donation Programme
CASE STUDY - EGYPT
Medical support for Nabawi General Hospital - Fayum
In June 2020, PetroSilah, our JV partner in Egypt, inquired, donated and delivered
medical equipment such as 100 sets of face masks and 100 protection suits to
the Nabawi General Hospital in Fayoum, which is one of the Ministry of Health
hospitals that operates as an isolation hospital during the pandemic. This is in
addition to field staff’s continued dialogue, assistance and social engagement with
the villages adjacent to the El Fayum fields in COVID-19 measures. In April 2020,
Petrosilah provided disinfection and sanitisation services for all public and service
buildings such as schools, post offices, ambulance units and police stations,
along with homes of the villages adjacent to the company’s sites.
3
Community projects supported
in Egypt through Petrosilah
Overall objective
To consult with and contribute into our host communities
2020 Objectives
2020 Outcomes
2021 Objectives
Each asset to develop their own HSES training programme
Completed and
on-going
Each asset to develop their own HSES training
programme
Carry out human rights due diligence exercise for countries
where we have a continued presence and country manager
to implement recommendations
On -going
Carry out human rights due diligence exercise for
countries where we have a continued presence and
country manager to implement recommendations
Honour social obligations under production sharing
agreements.
Set up education initiatives across Egypt, Vietnam and
London
On target
Honour social obligations under production sharing
agreements.
Review and implement recommendation from human rights
due diligence report for Israel
On target
Review and implement recommendation from human
rights due diligence report for Israel
Update and streamline new country entry procedure.
On-going
Ongoing review.
63
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report CORPORATE RESPONSIBILITY - continued
CORPORATE RESPONSIBILITY
NON-FINANCIAL INDICATORS
Hours worked (million)
Lost Time Injury Frequency Rate (number of lost time injuries per million man-hours)
Fatal Accident Frequency Rate (number of fatal accidents per hundred million man-hours)
Fatal Accidents
Total Recordable Injury Rate (number of recordable injuries per million hours worked)
Total GHG emissions (tCO2e) by equity
Scope 1 total GHG emissions (tCO2e) by equity
Scope 2 total GHG emissions (tCO2e) by equity
Scope 3 total GHG emissions (tCO2e) by equity
Normalised emissions by production (tonnes of CO2e per 1,000 tonnes of oil produced
by equity share)
Total hydrocarbons flared (Tonnes of hydrocarbons flared for every 1,000 tonnes
of production on a gross basis)
Energy use (grid electricity kWh)
Non-hazardous waste (tonnes)
Hazardous waste (tonnes)
Percentage non-hazardous waste recycled
Percentage hazardous waste recycled
Spills to the environment (>100 litres)
Oil in produced water content (Vietnam Blocks 16-1/9-2)
Freshwater use (cubic metres)
HSES regulatory non-compliance
Community investment spend ($)
2020
2.97
0.34
34
1
0.34
114,7761
114,7091
671
2541
331
309,942
94
41
25
4
4
29
2019
2.35
0
0
0
0.42
141,2341
141,1601
751
Not measured
2018
1.29
0
0
0
0.42
105,643
105,612
32
2741
See Note 1
361
See Note 1
335,873
103.53
3,112.382
15.05
0.12
2
28
100,638
102.08
95.89
19.52
9.97
0
31
102,820
202,453
23,209
0
03
0
245,191
245,379
209,408
Note 1: Pharos assets in 2019 were different to its assets in 2018. On that basis, trends between 2018 and 2019 are not meaningful. Pharos equity in
Vietnam TGT field changed from 30.04 % in 2019 to 29.7 % in 2020. Therefore, numbers in 2019 and 2020 have been adjusted to reflect the correct
equity share of 29.7%. The equity variation is not significant compared to Pharos total emissions, and therefore data of 2019 and 2020 provide a
meaningful comparison.
Note 2: During 2019, many open drain pits were cleaned and backfilled, resulting in the disposal of a significant volume of hydrocarbon contaminated soil.
Note 3: Although three regulatory non-compliances were reported in our Egyptian assets in 2019, these occurred in January, prior to the completion of
our acquisition.
Approval of the Strategic Report
This report was approved by the Board of Directors on 6 April 2021 and is signed on its behalf by
JANN BROWN
Managing Director and Chief Financial Office
64
Pharos Energy Annual Report and Accounts 2020 CHAIR’S INTRODUCTION TO GOVERNANCE
RESILIENCE IS KEY TO
SUCCESS FOR PHAROS
JOHN MARTIN
Chair
Dear shareholders
2020 was a challenging year for Pharos,
yet through both the resilience and
adaptability of the Board, the executive
team, and the global workforce. Pharos is
continuing to survive the global COVID-19
pandemic and oil price crash and is well
placed to thrive once the market recovers.
The Board has placed strong emphasis
on protecting people and conserving cash
through implementing enhanced health
and safety and cost-cutting measures
across the Group. Pharos continues to
manage its operations carefully in light
of COVID-19 and the Group is adhering
to the procedures and restrictions put in
place by its host countries.
Throughout the year, the Board has
devoted considerable time to supporting
and challenging the executive team
in assessing cost saving and growth
opportunities, portfolio management and
capital allocation. The Board received
regular detailed updates from the
Executive team and other key members of
staff and time was allocated to strategic,
operational, ESG and corporate matters.
In pursuit of the best interests of
shareholders, the Non-Executive
Directors (“NEDs”) brought constructive
suggestions and offered direction and
support in our challenge of the Executive’s
proposals and direction. Key areas of
focus for the NED’s discussions in 2020
were oversight of the response to the oil
price downturn, succession planning,
effective implementation of Group
strategy, review and challenge of portfolio
management and funding options and
oversight of operational, financial and
exploration project performance and KPIs.
Safety has remained a top priority for the
Group. There was regrettably one fatality
in Egypt this year, and the incident was
addressed and remedial actions taken
to help avoid future recurrences. We
are pleased that in Vietnam Pharos has
achieved yet another year with no LTIs,
and we intend to maintain that position
by staying current with international
performance standards.
The new ESG Committee has already
achieved a significant impact. Work to
ensure that we are prepared to report
in line with the TCFD recommendations
progressed well in 2020. Phase 1 of this
work resulted in the adoption of our first
Climate Change Policy. Phase 2 of this
work was interrupted by the Pandemic
and we look to resume this work at the
appropriate time.
During the COVID-19 pandemic we have
continued to offer support to the local
communities s in which we operate. In
Egypt, Petrosilah has been engaging
with the local communities during the
pandemic to offer support. In April 2020,
Petrosilah provided disinfection services
for all public and service buildings such
as schools, post offices, ambulance
units and police stations, along with
homes of the community adjacent to the
company’s sites. Medical equipment such
as 100 sets of face masks, face shields
and protection suits were donated and
delivered to the Nabawi General Hospital
in Fayum, a Ministry of Health hospital
which operates as an isolation hospital
during the pandemic.
During 2020 the Nominations Committee
(see report page 79) focused on finalising
new NED appointments, confirming the
retirement of Ettore Contini, succession
planning for key roles at Executive and
Senior Management level, a review of
annual Board evaluation, and annual
Director reappointments. The Board’s
refreshments this year ensure full
compliance with the 2018 Corporate
Governance Code. I am also delighted
that we have managed to replace our
CFO with an internal candidate and Sue
Rivett will step up to take on this role from
1 July 2021. It is doubly gratifying that we
can replace one female CFO with another.
The Remuneration Committee agreed that
no bonuses would be paid in 2020. Upon
my appointment on 13 March 2020, as
incoming Chair, I volunteered to reduce
the Chair fee by 25%. Subsequently
and in addition, myself as Chair and the
Independent Non-Executive Directors
voluntarily agreed a further 25% reduction
in their 2020 fees. The Executive Directors
voluntarily agreed a reduction in base
salary of 25% for 2020 effective 1 May
2020 and then went further and took an
additional 10% reduction, giving a total
reduction of 35% from 1 August 2020.
The Executive Directors then offered to
65
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report CHAIR’S INTRODUCTION TO GOVERNANCE
increase that to a 50% reduction from
1 April 2021. All UK employees and
country managers agreed to a 10% salary
reduction from May 2020 to July 2020,
and subsequently agreed to a 20% salary
reduction since August 2020.
Peel Hunt LLP was engaged as a Joint
Broker to the Company and opportunities
for growth in Asia and the MENA region
continued to be monitored particularly in
the earlier parts of the year. In the present
economic downturn, the Company’s
priority has been and will continue to be to
protect its balance sheet through careful
and considered reductions in its cost base
across the organisation and in delaying
discretionary investment expenditure.
All exploration has been deferred and
any investigative M&A activity, which
requires significant upfront due diligence
or preparatory costs to participate in
auction processes, has been curtailed.
Our producing assets remain significantly
geared to a recovery in the oil price
and, with modest leverage and limited
committed expenditure, the company
is well positioned to return to investing
for growth in the wide range of organic
opportunities which have been created
across the portfolio and, at the right time,
to return to pursuing value accretive M&A.
I wish to thank Ettore Contini for his
remarkable eighteen years’ service to the
Company as a Non-Executive Director,
having stepped down in May 2020. I also
wish to thank Rui de Sousa for his long
service as Chair to the Company. We
wish Ettore and Rui all the very best for
the future.
I am delighted to welcome Geoffrey Green
and Lisa Mitchell as Independent Non-
Executive Directors. Geoffrey has brought
a wealth of experience and expertise
that will help the Company deliver on our
principal strategy of sustainable long-term
growth, and Lisa’s strategic, financial,
taxation and treasury expertise has
already proved to be an invaluable and
important asset to the Board, adding to
its strength and depth as we continue to
grow the business.
Finally, I have been honoured to serve
as Chair for most of 2020, having
already served as an Independent Non-
Executive Director. I see great potential
in the Company and have already seen
significant changes and progress during
my tenure. I look forward to continuing to
work with Ed and the Board as we work
to focus on delivering the full potential of
the Company’s opportunities and a return
to growth built on all of the work that
has been done to refresh the Company’s
portfolio, its governance and its Board.
In particular, a priority for 2021 will be to
bring in a suitable partner to support the
next stage of our development in Egypt,
following which we intend to focus on the
existing assets in our portfolio. Throughout
2021 we also intend to continue to
carefully manage the cost base and
capital structure to balance the need for
efficiency in the short term with the need
for investment in the long term. I am
excited about the prospects for Pharos
and look forward to the year ahead.
JOHN MARTIN
Chair
Board Members
John Martin*
Rob Gray*
Marianne Daryabegui*
Non-Executive Chair and Chair of
Nominations Committee from 13 March
2020. ESG Committee Chair. Audit and
Risk Committee member until 13 March
2020. Remuneration Committee member
until 25 August 2020.
Deputy Chair, Non-Executive Director and
Senior Independent Director, Audit and
Risk Committee member, Remuneration
Committee member, Nominations
Committee member and ESG Committee
member
Ed Story
Geoffrey Green*
President and Chief Executive Officer,
Nominations Committee member and
ESG Committee member
Jann Brown
Managing Director and Chief Financial
Officer, ESG Committee member
Dr Mike Watts
Managing Director, ESG Committee
member (from 25 August 2020)
From 20 May 2020 Independent
Non-Executive Director, Nominations
Committee member, Audit and Risk
Committee member, ESG member and
Remuneration Committee member.
From 25 August 2020 Remuneration
Committee Chair.
Lisa Mitchell *
From 1 April 2020 Non-Executive Director,
Chair of Audit and Risk Committee,
member of Nominations Committee,
member of ESG Committee
Non-Executive Director, Audit and Risk
Committee member, Remuneration
Committee member, Nominations
Committee member. From 25 August
2020 ESG Committee member
Ettore Contini *
(retired 20 May 2020) Non-Executive
Director
Rui de Sousa
(retired 13 March 2020) Non-Executive
Chair and Nominations Committee
member
* Independent Non-Executive Directors.
66
Pharos Energy Annual Report and Accounts 2020
Diversity of skills, backgrounds and experience
The Board places importance on the diversity of approach, experience, knowledge, skills, and professional, educational and cultural
backgrounds. This diversity has brought an international and global outlook which has been particularly beneficial to the Board’s
discussions about the strategic positioning of its current and new business ventures.
As at 6 April 2021, the Group had a Board of eight Directors.
Meeting attendance
During each Director’s respective term of office during 2020
Audit
and Risk
Committee
meeting
Remuneration
Committee
meeting
Nominations
Committee
meeting
Environmental, Social
and Governance
Committee meeting
Annual
General
Meeting
Board
meeting (additional)
++++++++++++
++++++++++++
++++++++++++
++++++++++++
+++++++++++-
+++*
++**
+##
####
####
##
++++
+++
+++
++++++++----***
++++
#
+#
##
#
#
++
+
#
++
#
++
++
##
##
++
+
+
++
+
++++
++++
++++
#+++
++++
+++
+++
#+++
#
Board
meeting
(scheduled
quarterly)
++++
++++
++++
++++
++++
++++
++++
++++
+
+
Director
John Martin
Ed Story
Jann Brown
Dr Mike Watts
Rob Gray
Geoffrey Green
Lisa Mitchell
Marianne Daryabegui
Rui de Sousa
(retired 13 March 2020)
Ettore Contini
(retired 23 May 2019)
+ Attended as member
# Attended as invitee
- Not attended
In addition to the four scheduled quarterly
meetings, the Board met in 2020 on an
additional twelve occasions all of which
were by video conference in line with
UK Government COVID-19 guidelines.
The Board also regularly held additional
update calls throughout the year to
closely monitor progress. If any Director
was unable to attend, full comments on
papers were received from that Director in
advance of the meeting.
As announced on 17 April 2020, as
a result of the requirements of the
UK Government with regard to social
distancing, and in order to protect the
health and safety of our shareholders and
employees, the Board decided that the
AGM this year would be convened with
only one Director and another Pharos
designated shareholder representative to
be in attendance at the venue for quorum
purposes to conduct the business of the
meeting. In line with the UK Government
Stay at Home Measures, shareholders
were not permitted to attend the
Company’s AGM in person.
Notes:
* Geoffrey Green was appointed to the
Board on 20 May 2020 but was invited to
attend two Board meetings prior to this
date.
** Lisa Mitchell was appointed to the
Board on 1 April 2020 but was invited to
attend one Board meeting prior to this
date.
*** Marianne Daryabegui recused herself
from attending four Board meetings as
a result of a personal conflict of interest.
She recused herself from discussions
on the evaluation of an opportunity
for Pharos to purchase, as part of a
consortium, certain onshore assets in
Egypt from Royal Dutch Shell plc, on
account of the fact that she is employed
by a financial institution that was being
considered as a provider of finance for
that purchase. On 21 April 2020 Pharos
announced that the Company had
withdrawn from the consortium that was
evaluating the opportunity.
67
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report CHAIR’S INTRODUCTION TO GOVERNANCE - continued
Management
Board of Directors
Management Committees
Executive leadership team
Further support the Board and comprise the
following key committees:
• Disclosure
• Treasury
• Bid Defence
Responsible for day-to-day management of our
business and operations and for monitoring detailed
performance of all aspects of our business.
Principal Committees of the Board
Audit and Risk Committee
Remuneration Committee
Nominations Committee
Environmental, Social and
Governance Committee
L Mitchell (Chair)
G Green (Chair)
J Martin (Chair)
J Martin (Chair)
R Gray
M Daryabegui
Geoffrey Green
M Daryabegui
R Gray
E Story
R Gray
M Daryabegui
L Mitchell
R Gray
E Story
M Watts
J Brown
M Daryabegui
L Mitchell
G Green
Responsible for the
integrity of the Financial
Statements and narrative
reporting, including annual
and half year reports.
Responsible for the
design, development and
implementation of the
Company’s remuneration
policy.
Responsible for ensuring
the leadership needs
of the Company are
sufficiently appropriate to
ensure continued ability to
compete effectively in the
marketplace.
Responsible for defining
the Group’s strategy
related to ESG matters,
review of the Group’s ESG
policies, programmes
and initiatives and, more
generally, oversight of the
Group’s management of
ESG matters.
68
Pharos Energy Annual Report and Accounts 2020 BOARD OF DIRECTORS
EXPERIENCED LEADERS
GUIDING OUR FUTURE
3
6
1
4
7
2
5
8
69
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report BOARD OF DIRECTORS - continued
1: John Martin
Non-Executive Chair
Appointed: October 2019
4: Dr Mike Watts
Managing Director
Appointed: November 2017
7: Lisa Mitchell
Non-Executive Director
Appointed: April 2020
Lisa is currently the Chief Financial Officer of
San Leon Energy plc. Lisa is an experienced
CFO with over 25 years’ international
experience, across the oil and gas, mining
and the pharmaceutical industries. She was
most recently CFO and Executive Director
of Lekoil Limited the African focused oil and
gas exploration and production company
with interests in Nigeria. Previously, Lisa was
CFO and Executive Director at Ophir Energy
plc, formerly a FTSE 250 company where she
was responsible for contributing to the overall
business strategy of Ophir; leading the finance
function including all financial, taxation,
treasury and funding requirements and
investor relations. Lisa’s previous roles include
CSL Limited, and Mobil Oil Australia. Lisa
is a Fellow Certified Practicing Accountant
(CPA Australia) and holds a Bachelor of
Economics (major in Accounting) from La
Trobe University, Melbourne and a Graduate
Diploma in Applied Corporate Governance
from the Governance Institute of Australia.
8: Geoffrey Green
Non-Executive Director
Appointed: May 2020
Geoffrey currently serves on the Board of
Vedanta Resources Limited where he is
also Chair of the Remuneration Committee.
Geoffrey has many years of legal and
commercial experience in advising major
UK listed companies on corporate and
governance issues, mergers and acquisitions
and corporate finance. Geoffrey retired as
a partner of Ashurst LLP in 2013, a leading
international law firm, after 30 years as a
partner and 10 years of service as the senior
partner and chair of its management board.
He served as head of Ashurst’s Asia practice
from 2009 to 2013, based in Hong Kong,
and was responsible for leading the firm’s
strategy and business development for the
region. Until 31 December 2020 Geoffrey
was also the Non-Executive chair of the
Financial Reporting Review Panel, one of
the main subsidiary bodies of the Financial
Reporting Council. He has a degree in law
from Cambridge University and qualified as a
solicitor at Ashurst LLP.
John has more than 30 years’ experience
in international banking in the oil and
gas industry and was a Senior Managing
Director in the Oil and Gas team at Standard
Chartered Bank. Prior to joining Standard
Chartered in 2007, John worked for ABN
Amro for 26 years, specialising in the energy
sector. John has served as the Senior Vice
President of the World Petroleum Council,
and as an Independent Non-Executive
Director of Rockhopper Exploration plc. He
was previously Chairman of Falkland Oil and
Gas Limited, an Independent Non-Executive
Director on the board of Bowleven plc and
an Independent Non-Executive Director and
Chair of the Audit Committee of Total E&P UK
Limited.
2: Ed Story
President and
Chief Executive Officer
Appointed: April 1997
Ed was a founding Director of the Group.
Under his leadership, the Group acquired its
principal assets in Vietnam and progressed
the assets from initial exploration through to
being one of the largest producing fields in
Vietnam.
Ed has over 50 years’ experience in the oil
and gas industry, beginning with various roles
at Exxon Corporation, including seven years
resident in the Far East. He was formerly the
Vice President and CFO of The Superior Oil
Company, a co-founder and Vice Chairman
of Conquest Exploration Company and a
co-founder and President of Snyder Oil
Corporation’s international subsidiary, which
merged its Australian-controlled entity,
Command Petroleum, into Cairn Energy. Ed
was a Non-Executive Director of Cairn Energy
plc until 2008 and Cairn India Limited until
2017. Ed is currently a Non-Executive Director
of Vedanta Resources plc and a founder and
member of the Cleveland Clinic International
Leadership Board.
3: Jann Brown
Managing Director and
Chief Financial Officer
Appointed: November 2017
Jann qualified as a Chartered Accountant in
1990 and as a Chartered Tax Adviser in 1991.
Jann currently serves as an Independent
Non-Executive Director and Chair of the Audit
Committee of Troy Income and Growth Trust
plc and of Scottish Ballet. Jann previously
served as an Independent Non-Executive
Director and Chair of the Audit Committee of
John Wood Group P.L.C. and was formerly
the Managing Director, Chief Financial Officer
and executive Director of Cairn Energy plc.
Jann is a past President of the Institute of
Chartered Accountants of Scotland.
70
Mike served as co-head of the Company’s
Business Development group between
February 2017 and November 2017, and as
an Independent Non-Executive Director of
the Board between August 2009 and January
2017. He was formerly the Deputy Chief
Executive of Cairn Energy plc and the Chief
Executive Officer and Managing Director of
the Amsterdam listed Holland Sea Search
Holding NV. Mike joined Royal Dutch Shell in
1980 and has nearly 40 years of oil industry
experience. He has been associated with over
50 oil and gas discoveries. Mike was also the
architect of the South Asia strategy at Holland
Sea Search and Cairn, which led to the
creation of a >200,000 boepd business. Mike
has held senior technical and management
roles with Premier Oil, Burmah and Shell.
5: Rob Gray
Deputy Chair, Non-Executive Director
and Senior Independent Director
Appointed: December 2013
Rob has been an adviser to the natural
resources sector for more than 30 years. Rob
qualified as a solicitor in 1981 at Allen & Overy
and then went on to help establish James
Capel & Co. Petroleum Services, a successful
advisory and Mergers & Acquisitions
practice. Rob’s experience includes 13 years
at Deutsche Bank where he was latterly a
Senior Advisor having been Chairman of UK
Investment Banking for five years and formerly
Global Head of Natural Resources. Rob
was previously a Director and Head of the
Natural Resource Group at Robert Fleming
& Co. Ltd. for four years, a group which he
established. Between 2000 and 2010, Rob
was an Advisory Board Member for Heerema
Marine Contractors. Rob was a co-founder of
RegEnersys, a natural resources investment
entity and is currently the principal of
ReVysion LLP. In 2018 Rob was appointed an
adviser to the T2 Energy Transition Fund of
Tikehau Capital.
6: Marianne Daryabegui
Non-Executive Director
Appointed: March 2019
Marianne is currently a Managing Director
at Natixis, and was previously the Head
of Natural Resources at BNP Paribas in
Paris, France. She has extensive experience
in oil and gas corporate transactions
and capital markets and has advised oil
majors, independent E&Ps and national oil
companies. Prior to leading the Oil and Gas
Corporate Finance Team in 2006, Marianne
worked for eight years in BNP Paribas’ Energy
Commodities Export Project Department
where she headed the Commodity Structure
Finance team for the Middle East and Africa.
Before joining the banking sector Marianne
spent eight years at TOTAL. Marianne has
a Master’s degree in Finance and Capital
Markets from Sciences Po University, Paris
and a Masters in Tax and Corporate Law.
Pharos Energy Annual Report and Accounts 2020 CORPORATE GOVERNANCE REPORT
CORPORATE
GOVERNANCE REPORT
2018 UK Corporate Governance
Code (the ‘2018 Code’)
Statement of compliance with
the 2018 Code
The Company was in compliance with the
Provisions of the 2018 Code throughout
the year. Provision 19 of the 2018 Code
states that the usual nine year tenure
limit as the Chair may be extended for a
limited time in order to facilitate effective
succession planning and the development
of a diverse Board. This transition period
was utilised in relation to the previous
Chair. A new independent Chair was
appointed in March 2020 in compliance
with provision 19 of the 2018 Code after
a robust process led by Korn Ferry as
search consultants to identify a successor
to Rui de Sousa, who had previously
indicated his intention to retire and
culminated in the appointment of John
Martin. Rob Gray, the Deputy Chairman
and senior Independent Director recused
himself from consideration as Chair and
led the process with Korn Ferry. The
search for a new Chair of the Audit and
Risk Committee to replace John was
also led by Korn Ferry, culminating in the
appointment of Lisa Mitchell as Chair of
the Audit and Risk Committee.
The section below demonstrates our
application of the Principles of the 2018
UK Corporate Governance Code.
Board Leadership and
Company Purpose
Purpose and Culture
It has been important to the Board
to preserve and enhance a corporate
culture of honesty, fairness, transparency,
engagement and respect. The Board
schedule format has been adjusted to
give space for increased engagement
amongst the NEDs, including the Senior
Independent Director and the Chair,
without the presence of the Executives,
and to provide further opportunity to
raise and discuss concerns. Our purpose
is to continue to provide energy for
communities around the world and fuel
their lives and businesses.
Stakeholder engagement
• Shareholder engagement
• Colleague engagement
In December 2020, John Martin,
being the UK-based independent
NED nominated as the Director to
represent the employee voice at
Board level, conducted the annual
meeting with UK, Egypt and Vietnam
staff without Executive colleagues
or Human Resources representative
present. This engagement has proved
an effective communication route for
the employees and demonstrates the
values of openness and integrity to
which we are committed. Staff based
outside head office are provided with
a forum to communicate directly with
the appointed Director representative
via video conference, giving them
a platform where they could share
their feedback and views about the
company. Following feedback from
the previous year’s session, one of
the significant changes made was
the hiring of a dedicated Head of HR.
No remuneration matters/ feedback
was raised by staff to the Director.
In the next engagement, the Board
hopes to improve on this by raising
awareness of remuneration as a topic
of discussion to prompt and encourage
two-way dialogue with staff. Monthly
focus groups held with staff to hear
their views on any issues arising from
new working environments have been
especially important. A Group wide
Employee Engagement Survey, the first
in the company’s history was launched
in 2020, with a 92% response rate, the
outcomes of which will allow the Board
to improve on their understanding
of cultural differences and employee
experience. The feedback from all
of these engagements are reported
back to the Board in a quarterly
Human Resources (HR) report from
the Head of HR. Additionally, there
has been other forms of engagement
including extending participation in the
Company’s share schemes, lunch and
learn sessions with management and
other feedback channels, including
through the Group’s whistleblowing
policy and access to a dedicated and
anonymous hotline.
The Board as a whole has responsibility
for ensuring that a satisfactory dialogue
with shareholders takes place. The
Executives are responsible for ensuring
that effective communication is
maintained with key stakeholders and
partners, including an appropriate level
of contact with major shareholders
and ensuring that their views are
communicated to the Board. The
Managing Director and Chief Financial
Officer has management responsibility
for investor relations.
To maintain a clear understanding of
the views of shareholders, all Directors
receive a quarterly investor relations
report which includes market updates,
brokerage and communications
reports, share register and share
performance analysis and comments
and notes from research analysts and
proxy agencies.
Pharos had an open and active
dialogue with its institutional, private
and retail shareholders throughout
the year. The Company uses its online
presence to post and disseminate
key information promptly to a wide
audience. The Company’s website is
regularly used by shareholders and
stakeholders for email communication
with management. The official Twitter
and LinkedIn accounts of Pharos
continue to be used actively. The
Company uses a PR agency to provide
assistance in the dissemination of
information to shareholders and the
general public and also to solicit active
feedback as to the effectiveness of
such efforts. In 2020, the Board and
Head of Investor Relations had met
and engaged with 70 institutions.
The NEDs are each responsible for
taking sufficient steps to understand
shareholder views, including any issues
or concerns. This includes being
available to Pharos’ major institutional
shareholders and responding to
requests for additional communication
with the Chair, Senior Independent
Director or other NED. The delegated
role of the Senior Independent Director
includes being available to shareholders
if they have concerns which cannot be
fully or appropriately addressed by the
Chair or the Executives.
71
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report CORPORATE GOVERNANCE REPORT - continued
Additionally, both before and after the
formal proceedings of each AGM, all
Directors and senior management,
including the Chairs of the Audit and
Risk, Remuneration and Nominations
Committees, make themselves
available to meet and chat with
shareholders, answer shareholder
questions and respond to any specific
queries.
• Local communities, governments
and employees
Our goal is to have a responsible and
positive presence in the regions in
which we operate, resulting in value
for host countries, local communities,
employees, contractors and
shareholders. In Vietnam, commitment
to local sourcing, employment,
training and industry capacity building
has continued with a training levy of
$300,000 per year in a ring-fenced
fund to support developing future
Vietnamese expertise in the industry. In
Egypt, under the El Fayum and North
Beni Suef Concession Agreements,
the Company contributes a total
of $200,000 per year split equally
between the two Concessions to
support training and development
within the industry.
In Egypt, Petrosilah has been engaging
with the local communities during
the pandemic to offer support. Field
staff continue dialogue and social
engagement with the villages adjacent
to the El Fayum fields and assisted
with COVID-19 measures. In April
2020, Petrosilah provided disinfection
and sanitisation services for all public
and service buildings such as schools,
post offices, ambulance units and
police stations, along with homes of
the villages adjacent to the company’s
sites. Medical equipment such as
100 sets of face masks, face shields
and protection suits were donated
and delivered to the Nabawi General
Hospital in Fayum, a Ministry of Health
hospital which operates as an isolation
hospital during the pandemic.
• Conflicts of interests & Ethics hotline
Our Whistleblowing Policy and
Procedure ensures that employees
are protected from possible reprisals
when raising concerns in good faith. In
addition to internal reporting channels,
we have a confidential ethics hotline
supported by EthicsPoint with numbers
displayed in local offices available 24
hours a day all year round. Zero calls
were made to the Expolink hotline in
2020.
72
Division of Roles & Responsibilities
Responsibilities of the Board
The statutory duty of the Directors is to
act in what they consider to be in the
best interests of the Company and, as
a unitary Board, they are responsible for
the long-term success of the Company.
The Board determines and develops the
strategy for the business and provides
it with the necessary entrepreneurial
leadership. It ensures the Company is
adequately resourced to meet its strategic
objectives and can meet its obligations
to its stakeholders. The Board sets the
values, standards and controls necessary
for risk to be effectively assessed and
managed. Some of its responsibilities
have been delegated to the Audit and
Risk, Remuneration and Nominations
Committees.
The roles of the Chair and Chief
Executive Officer are separated and their
responsibilities are clearly established,
set out in writing and agreed by the
Board. Both are collectively responsible
for the leadership of the Company. The
Chair chairs the Board meetings, leads
the NEDs in the constructive challenge
of the Executives’ strategy and is
accountable for the Board’s effectiveness.
This includes encouraging an open and
frank Boardroom culture, setting the
Board’s agenda, facilitating the NEDs’
contribution and ensuring sufficient time
and information to promote effective and
challenging discussions. The Chair has
been in his current role since March 2020.
The CEO is responsible for the everyday
management of the Company. He leads
the Executives and management team
in the implementation of the Board’s
strategy and management’s performance
in running the business.
The NEDs have a supervisory role that
contributes to the development of
the strategy through supportive and
challenging inquiry. They scrutinise the
Executives’ performance in meeting their
agreed goals and objectives, and play a
key role in their appointment or removal.
The Company Secretary is appointed
by the Board. He facilitates the
communications and processes of the
Board, the induction programme for new
Directors and provides advice through the
Chair as may be required in the ongoing
discharge of the Directors’ duties. This
includes ensuring that the Company
provides the necessary resources for
access to independent advice and
any individual professional training and
development needs agreed with each
Director.
The Board operates within a framework
that distinguishes the types of decisions
to be taken by the Board, including
determination of strategy, setting the
principal operating policies and standards
of conduct, approval of overall financial
budgets and financing agreements,
approval for establishing key corporate
relationships and approval of any actions
or matters requiring the approval of
shareholders.
Board composition
During the year, the Board comprised
eight Directors including the Chair, made
up of three Executives and five NEDs. For
the first Board meeting of the year, ten
Directors were in attendance, ahead of the
subsequent retirement of Rui de Sousa
on 13 March 2020 and the retirement of
Ettore Contini on 20 May 2020.
John Martin took over as non-executive
Chair of the Board with effect from 13
March 2020. He also became Chair of
the Nominations Committee and stepped
down from the Audit and Risk Committee
on 13 March 2020. John Martin stepped
down from the Remuneration Committee
on 25 August 2020.
Geoffrey Green was appointed as an
Independent Non-Executive Director
with effect from the conclusion of the
2020 AGM on 20 May 2020. Geoffrey
was also appointed as a member of the
Nominations, Audit and Risk, ESG and
Remuneration Committees on 20 May
2020. On 25 August 2020, Geoffrey
became Remuneration Committee Chair.
Lisa Mitchell was appointed as an
Independent NED with effect from1 April
2020. Lisa serves as Chair of the Audit
and risk Committee, a member of the
Nominations Committee and a member of
the ESG Committee.
Tony Hunter was Company Secretary
throughout the year and his appointment
was approved by the Board as a whole.
Responsibilities & Composition of the
Committees
There are four principal committees of the
Board:
• The Audit and Risk Committee –
responsible for the integrity of the
Financial Statements and narrative
reporting, including annual and half year
reports
• The Remuneration Committee
– responsible for the design,
development and implementation of the
Company’s remuneration policy
• The Nominations Committee –
responsible for ensuring the leadership
needs of the Company are sufficiently
appropriate to ensure continued
ability to compete effectively in the
marketplace
• The Environmental, Social and
Governance (ESG) Committee -
responsible for defining the Group’s
strategy related to ESG matters.
Pharos Energy Annual Report and Accounts 2020 Each principal Board committee has a
formal Terms of Reference (“TOR”), which
sets out the Committee’s delegated role
and authority and is approved by the
Board. The TOR as well as the Committee
members are available on the Company’s
website at https://www.pharos.energy/
about-us/governance/committees/.
Time commitment
The Board has four scheduled meetings
a year although additional meetings are
scheduled as required. In 2020 there was
one additional meeting. The Board also
met via videoconference on eleven other
occasions and in addition had regular
update calls during the course of the year
to closely monitor progress.
Only Committee members are entitled
to attend their respective meetings.
Other Directors were invited to attend,
as determined appropriate or beneficial,
and committee chairs provide an update
at the full Board meeting. There was full
attendance of committee members at
the Audit and Risk, Remuneration and
Nominations and ESG Committees in
2020.
Composition, succession and
evaluation
Board composition and succession
The Nominations Committee ensures the
leadership needs of the Company are met
and maintained appropriately to allow it
to compete effectively in the marketplace.
Board appointments are made through
a formal process led by the Nominations
Committee. In relation to the recruitment
and appointment of Non-Executive
Directors, the Committee recognises the
emphasis placed by the 2018 Code on
the engagement of an external search
consultancy or the open advertising of
vacancies.
The Directors’ roles are established in
writing and approved by the Board.
Biographical details are provided on page
70.
Diversity and Inclusion
We believe in a workforce with a diversity
of experience, nationalities, cultural
backgrounds and gender, to support our
business strategy of long-term sustainable
growth.
As part of this global approach, we
ensured that leadership training during
the year was made available to a fair
representation of our global employees
in terms of race, gender and ethnicity.
We launched our Group wide Employee
Engagement Survey the outcomes
of which will allow us to improve our
understanding of cultural differences
and employee experience. Our Code
of Business Conduct and Ethics and
Policies and our Guiding Principles
commit us to providing a workplace free
of discrimination where all employees can
fulfil their potential based on merit and
ability. They also commit us to providing a
fully inclusive workplace, while providing
the right development opportunities to
ensure existing staff have rewarding
careers.
For more information on the gender
balance of our corporate employees and
senior management, please see page 57
of the Corporate Responsibility report.
Annual re-election of Directors
All Directors annually retire and seek
re-election by shareholders at the
Company’s AGM. The Nominations
Committee makes its recommendation
to the Board on each re-election
resolution. Pending the Chair confirming
his satisfaction that each Director
continues to perform effectively and
with the appropriate commitment to the
role, the full Board then determines its
own recommendation to shareholders in
relation to those resolutions.
The Committee formed its
recommendations regarding re-election
following assessments of Board balance,
composition and independence.
Board effectiveness and evaluation
The Nominations Committee assesses
the Board’s balance of skills, experience,
independence, diversity, tenure and
knowledge of the Company and
the industry on an annual basis.
The assessment in 2020 included
consideration of the Company’s
leadership needs within the context
of growth, portfolio diversification and
long-term strategy. The discussions
determined that the current balance
remains appropriate and sufficient to
effectively promote the long-term success
of the Company and would be further
enhanced through the process already
underway to increase the number of
Independent NEDs.
Remuneration
Remuneration principles
The Remuneration Committee is
responsible for the design, development
and implementation of the Company’s
Remuneration Policy.
In determining the remuneration packages
awarded to management, the Board
and the Remuneration Committee have
continued to aim at providing incentive
schemes that reflect the characteristics of
attractive rewards, fairness and restraint.
Appropriate advice on best practice is
taken from an independent advisor.
Remuneration Policy
Our overarching aim is to operate a
Remuneration Policy which rewards senior
management at an appropriate level for
delivering against the Company’s annual
and longer-term strategic objectives.
The policy is intended to create strong
alignment between Executive Directors
and shareholders.
In line with the requirements of applicable
law, requiring us to review our Directors’
remuneration policy every 3 years, the
policy was reviewed and proposed at
the 2020 AGM and will next be put to
shareholders for approval at the 2023
AGM. Few changes were proposed
to the policy, principally relating to
developments in best practice guidelines
including the introduction of post-
cessation shareholder guidelines. The
new policy was approved by 92.6% of our
shareholders.
Pension and benefits
All eligible employees have the same
access to the same pension contribution
rate (15% of salary) and access to a
similar level of benefits.
Directors’ shareholdings and share
interests
The Board has a policy requiring
Executive Directors to build a minimum
shareholding of 200% of their annual
salary. Additionally, LTIP awards require
a two-year holding period following
vesting. This is intended to emphasise a
commitment to the alignment of Executive
Directors with shareholders and a focus
on long term stewardship.
Audit, Risk and Internal Control
Significant reporting and accounting
matters
During the first half of 2020, the Group’s
accounting policies, in accordance
with best practice, were reviewed by
management and the Audit and Risk
Committee to ensure that they remained
appropriate for the Group’s activities.
Following this review, the Group’s
accounting policies were judged to
be fully up-to-date and no significant
changes were recommended to the
Board by the Committee.
Fair, balanced and understandable
The Audit and Risk Committee advised
the Board whether the annual report
and accounts taken as a whole are fair,
balanced and understandable and provide
the range of information necessary for
shareholders to assess the Group’s
performance, business model and
strategy. The Directors have confirmed
73
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report CORPORATE GOVERNANCE REPORT - continued
this in their Responsibility Statement set
out on page 108 of the Directors’ Report.
Viability statement and going concern
In accordance with the UK Corporate
Governance code, the Board has
assessed the prospects of the company
over a period longer than the twelve
months required to support the Going
Concern Statement on page 38 of the
Financial Statements. The Audit & Risk
Committee reapproved in December
2020 that the appropriate length which
the Viability Statement should cover is 3
years. A significant factor in the Group’s
forward cash position is the oil price
assumption, and as most of the source
data relates to a 3 year period this is
considered the appropriate lookout period
for the Viability Statement.
In undertaking this assessment, the
Board has carried out a robust review of
the principal and emerging risks facing
the Group, including those that would
threaten its business model, future
performance, solvency or liquidity, giving
particular attention to the principal and
emerging risks.
Management completed their Going
Concern assessment which was
challenged and reviewed by the Audit
and Risk Committee and by Deloitte. The
assessment included a “Base Case” for
the Group, including cash flow estimates
for both Egypt and Vietnam, as well as
a “Reasonable Worst Case” scenario,
giving particular regard to the impact of
COVID-19 on the business.
Risk management and internal controls
The Group’s internal control framework
and risk management processes are
designed to ensure that risk identification,
assessment and mitigation is properly
embedded throughout the organisation.
The risk management approach is
designed to provide the Committee and
the Board with reasonable assurance
that financial irregularities and control
weaknesses will be identified to mitigate
risks that could potentially have a
material adverse impact on the Group’s
operations, earnings, liquidity and financial
prospects.
The Board is primarily responsible for
the effectiveness of the Group’s internal
control systems which are monitored and
improved on an ongoing basis. The Audit
and Risk Committee has been delegated
the responsibility to monitor and assess
the effectiveness of the control systems
operated by management. The external
auditor, Deloitte, also provides feedback
and recommendations on controls
which are brought to the attention of the
Committee.
74
Internal controls and risk management
issues are discussed in detail and
reviewed for effectiveness at each
Committee meeting, with a report being
provided to the Board for approval.
Internal audit
In previous years, based on the size and
scale of the Group’s activities, an Internal
Audit function could not be justified.
However, following the acquisition of the
Egyptian asset and the Group’s stated
growth strategy in 2020, the Committee
recommended and the Board approved
the appointment of KPMG to carry out
various internal audits. The Committee
discussed with KPMG and subsequently
approved that following the curtailment
of its growth plans in 2020 caused by
COVID-19 that the detailed audit plan for
2020 should be rescheduled for 2021.
This audit plan will be complementary but
separate to the audit work undertaken by
the Group’s external auditor, Deloitte.
In 2020, internal assurance has been
handled by the Group management. The
lack of an Internal Audit function in 2020
had no impact on the work of the external
auditors.
External auditor
The Audit and Risk Committee assess
the performance of the auditors based
on their experience, the quality of their
written and oral communication and
input from management, prior to the
recommendations of the re-appointment
of auditors at the AGM.
Deloitte was appointed as external
auditors in 2002 and no tender has
been conducted since that date. In
accordance with the Code’s guidance
concerning external audit tendering and
rotation, a competitive tender process
is required at least once every 10 years
typically. However, taking into account
the transitional provisions of Statutory
Auditors and Third Country Auditors
Regulation 2016 the Group will conduct
a competitive tender process no later
than for the 2024 year-end audit. The
Committee will continue to consider
the appropriate time frame in which to
conduct such a tender process, in light
of the regulatory requirements as well as
auditor performance, audit quality, and
independence. David Paterson acts as the
external audit partner.
The Risk Policy defines the specifics of
the Risk Management process, describes
the risk tools (i.e. Risk Matrix and Risk
register) and outlines the reporting
process and responsibilities in order
to meet the Group’s risk governance
framework.
BOARD LEADERSHIP AND
COMPANY PURPOSE
Purpose and Culture
Page(s)
01, 04, 10
Colleague engagement
10, 16, 33, 57
Shareholder engagement
16, 34, 52, 71
Local communities,
government and employees
Conflicts of interests
& Ethics hotline
10, 61, 78
34, 55, 81
DIVISION OF ROLES & RESPONSIBILITIES
Responsibilities of the Board
33, 34, 42
Board composition
70
Responsibilities & Composition
of the Committees
68, 76, 79,
82, 87
Time commitment
67
COMPOSITION, SUCCESSION AND
EVALUATION
Board composition and
succession
70, 79, 80, 81
Diversity and Inclusion
4, 10, 34, 57
Annual re-election of Directors
Board effectiveness and
evaluation
REMUNERATION
Remuneration principles
Remuneration policy
80
79, 80
87, 88
90-94
Pension & Benefits
90, 94, 95, 102
Directors’ shareholdings
and share interests
99, 107
AUDIT, RISK AND INTERNAL CONTROL
Significant reporting and
accounting matters
Fair, balanced and
understandable
Viability statement and
going concern
Risk management and
internal controls
Internal audit
External auditor
83
83
38, 48, 49, 83
83-85
85
85, 86
40
Principal and emerging risks
Principal and emerging risks
On page 40, we set out our assessment
of the principal risks facing the business.
Pharos’ Risk Management process
requires that all business units within
the Group conduct on-going risk
management and reporting to the Audit
and Risk Committee and the Board.
Pharos Energy Annual Report and Accounts 2020 CHANGES DURING THE YEAR 2020
ACCOUNTABILITY STATEMENT PAGE REFERENCES
Accountability
statements
Business model and
Strategic objectives
8
3
5
Report
Page(s)
Strategic Report
16 to 19
Directors’ responsibility
statement
Directors’ Report
108
Rob Gray
John Martin
Geoffrey Green
Lisa Mitchell
Auditor’s statement
Going concern
statement
Marianne Daryabegui
Lisa Mitchell (1 April 2020)
Geoffrey Green (20 May 2020)
Rui de Sousa (13 March 2020)
Ettore Contini (20 May 2020)
Independent
Auditor’s Report
Financial Review
Directors’ Report
Viability statement
Risk Management
Report
Critical judgements and
accounting estimates
Note 4 to the
Financial Statements
4
110 to 118
38
108
48, 49
126
Lisa Mitchell (Chair) (1 April 2020)
John Martin (13 March 2020)
Risk Management and
Internal Control
Risk Management
Report
40 to 48
The Board
Members
Execs
NEDs
Independent NEDs
Appointed
Retired
Audit and Risk Committee
Members
Appointed
Retired
Remuneration Committee
Members
Appointed
Retired
Nominations Committee
Members
Appointed
3
Geoffrey Green (25 August 2020)
John Martin (25 August 2020)
5
John Martin (Chair) 13 March 2020)
Lisa Mitchell (1 April 2020)
Geoffrey Green (20 May 2020)
Environmental, Social and Governance Committee
Members
Appointed
8
John Martin (Chair)
Lisa Mitchell (1 April 2020)
Geoffrey Green (20 May 2020)
Mike Watts (25 August 2020)
Marianne Daryabegui (25 August 2020)
Corporate
Governance Report
Audit and Risk
Committee Report
Audit and Risk
Committee
Corporate
Governance Report
Audit and Risk
Committee Report
Nominations
Committee
Corporate
Governance Report
Nominations
Committee Report
74
83, 84
73, 74
82 to 86
72, 73
79 to 81
75
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT
ENVIRONMENTAL, SOCIAL
AND GOVERNANCE (‘ESG’)
COMMITTEE REPORT
DEAR SHAREHOLDERS,
Membership and responsibilities
During most of 2020, the Environmental,
Social and Governance (‘ESG’)
Committee was comprised of myself as
Chair, Rob Gray, Ed Story, Jann Brown,
Mike Watts, Marianne Daryabegui, Lisa
Mitchell and Geoffrey Green who replaced
Ettore Contini from 20 May 2020. Rob,
Marianne, Lisa, are Geoffrey are all
Independent Non-Executive Directors
each having recent and relevant financial
and legal experience in the energy sector.
As Chair of the Committee, I convene
meetings on a regular basis and report to
the Board throughout the year.
The ESG Committee has a formal
document outlining its responsibilities,
which is reviewed and updated as
appropriate by the Board on an annual
basis.
The ESG Committee Terms of Reference
are available on our website, https://www.
pharos.energy/about-us/governance/
committees/.
Key responsibilities
The Committee is constituted by the
Board to:
• Assist the Board in defining the Pharos
Group’s strategy relating to ESG
matters;
ESG Committee meetings in 2020
The Committee met four times during
2020. These meetings were regularly
scheduled Committee meetings held in
March, August, October and December.
The Committee examines and discusses
at each meeting:
• Detailed review of inventory of current
Environmental, Social and Governance
(ESG) projects and proposed
investment projects in Egypt, Vietnam,
and the UK
• Detailed review of HSES policies and
procedures, climate change reporting,
annual Corporate Responsibility (“CR”)
Report, Annual Health, Safety, and
Environmental and Social (“HSES”) Plan
• Review of the development of ESG
KPIs including climate change and
health and safety metrics.
In addition to members of the Committee,
additional non-committee members, such
as Group Head of Investor Relations and
Risk Manager were invited to attend all of
the Committee meetings. An internal ESG
working group meeting was held every
quarter. There was noted to be buy-in on
ESG matters across the Group.
During 2020, the following additional
areas were discussed at meetings of the
Committee:
March
• Review the policies, programmes,
Review and discussion on:
practices and initiatives of the Pharos
Group relating to ESG matters ensuring
they remain effective and up to date;
• Oversee the Pharos Group’s
management of ESG matters and
compliance with legal and regulatory
requirements, including applicable rules
and principles of corporate governance,
and applicable industry standards;
• Report on these matters to the
Board and, where appropriate, make
recommendations to the Board; and
• Report as required to shareholders of
the Company on the activities and remit
of the Committee.
• Group’s COVID-19 precautions, safety
measures and business interruption
insurance across the assets
• Group’s HSES matters, noting
improvements being targeted in
Vietnam and Egypt
• Approval for engagement with a third
party to begin work to align Pharos with
recommendations by the TCFD
•
Inventory of the Group’s current ESG
projects and discussion on proposed
social investment projects, specifically
targeting education investment
in Vietnam and the UK, with final
proposals for investments in Egypt
ongoing
• Committee’s Terms of Reference
• Corporate KPIs for the Committee to
be considered and reported in future
meetings
JOHN MARTIN
ESG Committee Chair
MEETING ATTENDANCE
Committee member
John Martin (Chair)*
Rob Gray (Deputy Chair) *
Ed Story (President & CEO)
Jann Brown
(Managing Director & CFO)
Mike Watts (Managing
Director)4
Marianne Daryabegui *4
Lisa Mitchell *1
Geoffrey Green *2
Rui de Sousa *3
+ Attended.
* Independent NED.
2020
attendance
++++
++++
++++
++++
++++
++++
+++
+++
+
1 Appointed as a Director 01 April 2020.
2 Appointed as a Director 20 May 2020.
3 Retired as a Director 13 March 2020.
4 Mike Watts and Marianne Daryabegui became
members of the ESG Committee on
25 August 2020.
76
Pharos Energy Annual Report and Accounts 2020 August
Review and discussion on:
• Group’s HSES performance, including
progress to reduce GHG emissions
to date and plans to identify further
reduction going forward
• Progress of TCFD work
• Review and submission of Pharos’s
CDP Climate Change Questionnaire
October
Review and discussion on:
• Climate Change policy statement as
part of the TCFD reporting framework,
including ownership, tone, ambition,
review, oversight, industry best
practices
• Group’s HSES matters, including
the Group’s first fatality in Egypt and
actions taken to prevent a recurrence
and ongoing work to reduce flaring to
mitigate climate change impact
• Update on COVID-19 precautionary
measures in place at each site
December
Review and discussion on:
• Approval of the Climate Change policy
• Group’s HSES matters, including
continued COVID-19 precautionary
measures across the business and
increased actions to prevent oil spills
with local management
• Update on social projects ongoing in
Vietnam and Egypt
• Committee’s Annual Performance
Evaluation, including performance
evaluation of the Committee Chair,
John Martin.
During the year the Committee
focused on the following matters:
The Committee and its Working Group
focused on its stakeholders’ health and
safety during the COVID-19 pandemic;
the development of an ESG Action
Plans for Egypt, Vietnam and the UK;
the internal gathering and discussion
of relevant information to comply with
the requirements of the Task Force on
Climate-related Financial Disclosures
(TCFD); the oversight and approval of
the Group’s annual CDP Climate Change
Questionnaire; the development and
approval of the Group’s Climate Change
policy; and a review and updated audit
of the Group’s fully disclosed GHG
emissions and discharges.
Impact of COVID-19
In Q1 2020, Pharos managed its
operations carefully in light of COVID-19
and the Group immediately deployed the
precautionary measures recommended
by the WHO and adhered to the safety
procedures and restrictions, in line with
the government directives in Egypt,
Vietnam and the UK.
The Group’s production operations in
Egypt and Vietnam were not disrupted
by COVID-19 and, measures are in place
to minimise the risk of any outbreak
occurring both in the field in for office
staff. In Vietnam, in addition to following
government guidelines, the HLHVJOC
has implemented a policy of testing all
staff for COVID-19 before transfer to
offshore operations. In the event that a
case of COVID-19 is identified offshore,
personnel evacuation plans and other
mitigation measures are in place to ensure
that the impact of any outbreak is quickly
contained and operations are maintained.
In Egypt, at the El Fayum base camp,
Petrosilah has implemented robust
health and safety and social distancing
measures to mitigate the risk of any cases
of COVID- 19 arising. Field staff continue
dialogue and social engagement with the
villages adjacent to the El Fayum fields
through the continued disinfection and
sanitisation of community areas.
The Committee and Company were fully
engaged and in consultation with staff
on remote working practices. Office
staff in Vietnam and Egypt have been
following governmental guidelines,
which has meant a combination of
working remotely and/or in the office
with negligible disruption to the business.
The London head office staff have been
working remotely since March and after
consultation with and feedback from
employees will continue to work remotely
for the foreseeable future.
Health & Safety
We are pleased to report that our Joint
Operations in Vietnam continue to an
exceptional record of safety, reporting
zero LTIs since operational inception,
representing nine production years on
TGT and 12 production years on CNV.
In Egypt, we are sad to report the loss
of one of our sub-contractor assistant
crane operators in Q4 2020, following
an accident during a rig move operation
where the crane ran off the road into a
ditch. Following the accident, there was
immediate reinforcement of safe working
practices with all sub-contractors,
such as safe driving and manoeuvring
practices, increased supervision of rig
moves, and awareness of potentially
unsafe road conditions. Safety of our
workforce remains our number one
priority and Pharos has reinforced the use
of stop cards and safety training across all
operations.
Environmental
In 2020, the ESG activities focused on
various social projects through our Joint
Operating Companies and material
ways to reduce greenhouse gas (GHG)
emissions in our operations. We recognise
the need to reduce any impact of our
operations on the environment and are
continually assessing initiatives to reduce
GHG in our operations. Further details
of these initiatives can be found in the
Corporate Responsibility Report on pages
50 to 64. In Vietnam, we work closely
with our state-owned partners and the
Government to mitigate the impacts of
our joint operations on climate change.
The Committee also considered the
risks associated to climate change and
recognise that it is a principal risks facing
the business. Further details can be found
in the Risk Management Report on pages
40 to 49. We will continue to support our
host governments as they seek to use
oil revenues to promote sustainable and
inclusive economic development, and we
will align with the actions that they take to
manage climate change. The Committee
oversaw and approved the full disclosure
of the Group’s emissions, discharges and
water usage. In August, the Committee
discussed and approved the submission
of the Group’s CDP (formerly Climate
Disclosure Project) Climate Change
Questionnaire. The Group has maintained
its score of C since 2019.
Climate change and TCFD
Pharos fully supports the
recommendations of the Task Force on
Climate-Related Financial Disclosures
(TCFD). A working group consisting of
personnel from Head Office and the
respective business units was set up to
start work on aligning Pharos with TCFD’s
recommendations, with the support of
an external consultant. The Project is on-
going and consists of two phases. Phase
1, which is now completed, consisted of
a thorough peer benchmarking, internal
document review and gap analysis and
culminated in the development and
approval by the Board of Pharos Climate
Change Policy in December 2020.
Phase 2 of the work is interrupted by the
pandemic and we look to resume this
work at the appropriate time.
Pharos manages climate change
risks through the development and
implementation of an appropriate
mitigation response that recognises the
need to adopt new processes, whilst
supporting the long-term resilience of
the company’s strategy and business
operations. This response includes
integrating climate change considerations
into key business decisions in the
short-term, particularly in relation to
new business opportunities and using
our relationships and influence as a JV
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Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT - continued
stations, along with homes of the
community adjacent to the company’s
sites. Medical equipment such as 100
sets of face masks, face shields and
protection suits were donated and
delivered to the Nabawi General Hospital
in Fayum, a Ministry of Health hospital
which operates as an isolation hospital
during the pandemic. Further information
about our community projects can be
found in our Corporate Responsibility
Report on pages 61 to 63.
Pharos embraces the UN Sustainable
Development Goals and directly
contributes to improving a number of
these goals where it has a presence
such as good health and well-being of
its workforce, gender equality, creating
decent work and economic growth by
selling the bulk of its hydrocarbon for local
consumption.
Terms of Reference
In March, the Committee reviewed its ESG
Committee Terms of Reference to reflect
the addition of new Committee members,
Lisa Mitchell and Geoffrey Green, who
joined the Board in April and May 2020.
Focus for 2021
• Continue to work with , and use our
influence with JOC’s for continued
improvements and trainings with
respect to GHG’s emissions reductions,
initiative’s to reduced emissions and
spillages
• Maintain current work programme
through the JOC’s social project
investment and review outcomes of
local indicative’s that benefit local
communities and host countries
• Following completion of phase one of
TCFD, review proposal and timing for
implementation of phase two at the
appropriate time
• Continue engagement and dialogue
with the ESG working group as it
progresses during 2021
JOHN MARTIN
ESG Committee Chair
partner and our role in the Joint Operating
Companies to identify key performance
indicators (KPIs) to help measure, monitor
and reduce the energy consumption
and greenhouse gas intensity of our
operations, ensuring our business strategy
responds to evolving climate-related risks.
The Climate Change Policy is available on
the Group’s corporate website at https://
www.pharos.energy/responsibility/policy-
statements/.
Social
In Vietnam, the ESG Committee and
its Working Group continued the
Group’s commitment to local sourcing,
employment, training and industry
capacity building through a training levy of
$300,000 per year in a ring-fenced fund
to support developing future Vietnamese
expertise in the industry. Discussion on
social plans also focused on long-term
social projects, specifically through
the HLHVJOC Charitable Donation
Programme. During 2020, a total of 9
projects in Vietnam were approved. These
donations have been used to assist the
overall development of underprivileged
rural areas in Vietnam, and were
specifically designated for healthcare,
education, environmental development
and the assistance of flood victims in the
Central Highlands region. For example,
this year, donations were made to Tran
Hung Dao Commune’s Medical Clinic in
Ly Nhan district, Ha Nam province to buy
medical equipment such as endoscope
and ultrasound machines. The programme
continued its annual support to the Ha Noi
Private School for the Hearing Impaired for
the project aimed at improving integration
ability for underprivileged disabled
students. The school is currently offering
education to 100 students with autism
and hearing-impairment. Additionally, the
programme provided financial support to
Tho Hai Commune’s People Committee,
Thanh Hoa province to renovate buildings
built before the year 2000, with 10
classrooms that had serious degradation,
and for the construction of new secondary
school classrooms.
In Egypt, under the El Fayum and North
Beni Suef Concession Agreements,
the Company contributes a total of
$200,000 per year split equally between
the two Concessions to support training
and development within the industry.
Furthermore, Petrosilah has been
engaging with the local communities
during the pandemic to offer support.
Field staff continue dialogue and social
engagement with the villages adjacent
to the El Fayum fields and assisted with
COVID-19 measures. In April 2020,
Petrosilah provided disinfection and
sanitisation services for all public and
service buildings such as schools, post
offices, ambulance units and police
78
Pharos Energy Annual Report and Accounts 2020 NOMINATIONS COMMITTEE REPORT
NOMINATIONS
COMMITTEE REPORT
The Committee has continued to ensure that
Board independence was evident during 2020
and will continue into 2021 taking into account
the Board composition requirements of the
2018 UK Corporate Governance Code.
JOHN MARTIN
Nominations Committee Chair
Membership
During the year, the Committee comprised Rui de Sousa as Chair followed, on
his retirement, by John Martin as Chair, the Chief Executive Officer and the three
Independent Non-Executive Directors (‘NEDs’), Rob Gray, Marianne Daryabegui and,
following her appointment as a Director on 1 April 2020, Lisa Mitchell
MEETING ATTENDANCE
Rui de Sousa retired on 13 March 2020 and was replaced by John Martin.
2020
attendance
The qualifications of each of the Chair and members are set out on page 70.
Committee member
John Martin * (Chair)
Ed Story (President and CEO)
Rob Gray * (Deputy Chair and
Senior Independent Director)
Marianne Daryabegui*
Lisa Mitchell *
(appointed 1 April 2020)
Rui de Sousa
(retired 13 March 2020)
+ Attended.
++
++
++
++
+
+
* Independent NED.
Jann Brown, Mike Watts and Geoffrey Green
attended as non-committee members
Role of the Committee
• Ensuring the composition of the
Company’s leadership remains effective
and competitive
• Leading the process for Board and
committee appointments and making
recommendations to the Board
• Annually reviewing the Board balance,
structure, composition, diversity and
succession planning
• Establishing an ongoing process for
evaluating the Board’s performance
and effectiveness.
Meetings
The Committee conducted its duties through two meetings held during 2020. The
Chair additionally led discussions before the full Board on certain matters within the
Committee’s Terms of Reference. During the year the following areas were discussed at
the Committee meetings:
Meeting
Matter
Q1
Q2
Q3
Q4
No meeting but finalisation of the appointment of Geoffrey Green as a
new NED and confirmation of the retirement of Ettore Contini from the
Board
Review and approval of Nominations Committee report for inclusion in
the 2019 Annual Report and Accounts
Update on search for Chair of ARC process and recommendation to the
Board appointment of Lisa Mitchell as new ARC Chair
Annual Director reappointment
Annual review of conflicts of interest register
No meeting
Annual review of Board balance, structure, independence and
composition
Succession planning for key roles at Executive and Senior Management
level
As at 31 December 2020, the Board comprised three Executives and five NEDs,
including the Chair. All of those NEDs were considered independent for the purposes
of the 2018 UK Corporate Governance Code (‘2018 Code’). Geoffrey Green assumed
the role of Chair of the Remuneration Committee and Lisa Mitchell assumed the role
of Chair of the Audit and Risk Committee. On becoming Chair of the Board, John
Martin resigned from the Audit and Risk Committee and subsequently also from the
Remuneration Committee. John Martin remains Chair of the ESG Committee, and has
assumed the role of Chair of the Nominations Committee replacing Rui de Sousa in that
role, who also retired from the Board on 13 March 2020.
79
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report
NOMINATIONS COMMITTEE REPORT - continued
Board refreshment and succession
planning
Board refreshment and succession
planning continue as ongoing
processes. In 2020 the priority was to
maintain the independent component of
the Board and to fully comply with the
2018 Code.
The Committee engaged the search
consultancy firm Korn Ferry, which has
no other connections with the Company
or its Directors to conduct a formal
process, as a result of which it identified
Geoffrey Green and Lisa Mitchell as
suitable candidates for Independent
NEDs. Geoffrey was appointed to the
Board with effect from 20 May 2020
and Lisa was appointed with effect from
1 April 2020. Both Lisa and Geoffrey
have extensive experience.
In March 2021 we announced the
appointment of Sue Rivett to the Board
as Chief Financial Officer (“CFO”)
effective 1 July 2021. Jann Brown, who
is currently Managing Director (“MD”)
and CFO, will remain as MD, focused on
delivering the next phase of the Group’s
strategic plan.
Appointments process
During 2020, the Committee assessed
the suitability of Marianne Daryabegui for
reappointment as an Independent NED,
taking into account her previous service
on the Board, and concluded that her
expertise and track record in oil and gas
and corporate finance, with particular
experience in the Group’s new region
of focus in the MENA region, would
complement and enhance the skills and
experience of the current Board.
Independence
All NEDs are independent in full
compliance with the provisions of the
2018 Code.
Board balance
The Committee assesses the
Board’s balance of skills, experience,
independence, diversity, tenure and
knowledge of the Company and
the industry on an annual basis.
The assessment in 2020 included
consideration of the Company’s
leadership needs within the context
of growth, portfolio diversification and
long-term strategy. The discussions
determined that the current balance
remains appropriate and sufficient
to effectively promote the long-term
success of the Company and would be
further enhanced through the process
already underway to increase the
number of Independent NEDs.
80
The Board’s current balance and
composition are shown on pages 68
and 70.
Following the evaluation process, a
number of areas were identified for
ongoing focus in 2021 including:
Diversity
Pharos’ approach to diversity and
inclusiveness is embedded within the
Group’s Human Rights Policy available
on the Company’s website at https://
www.pharos.energy/responsibility/
policy-statements/. A key aim of the
Policy is a workplace that is inclusive
and free from discrimination.
In applying the Human Rights Policy
to Board composition, the Committee
pursues diversity of approach,
experience, knowledge, skills, and
professional, educational and cultural
backgrounds. The international and
global perspective achieved has
enhanced the Board’s discussions
on business development, M&A and
operational and financial integration.
In its annual review of diversity, the
Committee noted diversity of gender,
age, demographics, skills, professional
backgrounds, experience and education
amongst the Board and senior
management.
Board evaluation
In 2020, the Board carried out its annual
evaluation of its own performance and
effectiveness and that of its principal
Committees and individual Directors.
The Committee led the process and
shared the results with the full Board.
The Committee was assisted in this
process by the Company Secretary.
Annual Board evaluations had been
conducted externally until 2017 when
Tony Hunter, who had previously led the
external process on behalf of Nautilus
Management Limited, was appointed as
Company Secretary.
As in 2019, the more recent evaluation
was conducted through confidential
questionnaires that solicited an
evaluation of the Board’s performance in
regards to the following:
• Strategy and risk, including how
the Board has handled risk and
opportunities
• Corporate Responsibility
• Succession planning
• The performance of the Chair, Deputy
Chair and Independent NEDs
• Board effectiveness and operation
• The operation of the principal Board
committees
• Board training and development needs
• Time commitment
• Review of risks in M&A activity to be
assessed
• Operational updates to the Board are
important and encourage commitment
to the business
• The importance of maintaining an
atmosphere of open challenge and
informal discussion between meetings
The results were discussed by the
Committee, led by the Committee
Chair, and shared with the whole Board.
The results of the Chair’s performance
review were discussed with the other
NEDs, led by the Deputy Chair and
Senior Independent Director, and
communicated to the Chair.
Re-election
All Directors annually retire and seek
re-election by shareholders at the
Company’s AGM. The Committee
makes its recommendation to the
Board on each re-election resolution.
Pending the Chair confirming his
satisfaction that each Director continues
to perform effectively and with the
appropriate commitment to the role,
the full Board then determines its own
recommendation to shareholders in
relation to those resolutions.
The full Board retired and offered itself
for re-election by shareholders at the
Company’s AGM in May 2020, with the
exception of Ettore Contini who stepped
down from the Board with effect from
close of that meeting. All Directors
were duly re-elected at the 2020 AGM,
each receiving more than 92% of the
proxy votes submitted in advance of the
meeting.
All Directors will retire and will offer
themselves for re-election at the 2021
AGM.
The Committee is satisfied that each
individual Director’s performance
continues to be effective and
demonstrates commitment to the role
and, accordingly, has recommended
to the Board that each such Director
remains in office subject to re-election
by shareholders at the AGM.
The Committee formed its
recommendations regarding re-
election following assessments of
Board balance, composition and
independence.
Pharos Energy Annual Report and Accounts 2020 to giving authorisation for any specific
conflict or potential conflict to exist.
The Board assesses its conflict
authorisations on an ongoing basis
throughout the year and additionally
performs a scheduled review in
December.
JOHN MARTIN
Nominations Committee Chair
Workforce engagement
In December 2020, John Martin met
with head office staff in an informal
dedicated video conferencing session
at which staff members were able
to discuss matters of interest. This
engagement has proved an effective
communication route for the employees
and demonstrates the values of
openness and integrity to which we are
committed.
Board development, information
and support
Throughout 2020, all Directors received
ongoing access to resources for the
update of their skills and knowledge;
both on an individual and a full Board
basis. Comments are solicited in the
annual Board evaluation and discussed
with the Chair.
Conflicts of interest
The Board has the power, subject to
certain conditions, to authorise, where
appropriate, a situation where a Director
has, or can have, a direct or indirect
interest that conflicts, or possibly may
conflict, with the Company’s interests.
Such authority is in accordance with
section 175 of the Companies Act
2006 and the Company’s Articles of
Association. Procedures are in place
for ensuring that the Board’s powers to
authorise conflicts are used effectively
and appropriately. Directors are required
to notify the Company of any conflicts
of interest or potential conflicts of
interest that may arise, before they
arise, either in relation to the Director
concerned or their connected persons.
The decision to authorise each situation
is considered separately on its particular
facts.
Only Directors who have no interest
in the matter are able to take the
relevant decision to authorise a conflict
and must act in a way they consider,
in good faith, will be most likely to
promote the Company’s success. The
Directors will impose such limits or
conditions as they deem appropriate
when giving authorisation or when
an actual conflict arises. These
may include provisions relating to
confidential information, attendance
at Board meetings and availability
of Board papers, along with other
measures as determined appropriate.
Each Director has notified the Board of
either the potential for or the absence
of conflicts. The Board assesses every
notification of a conflict on its own
merits, including the implementation of
appropriate limits and conditions, prior
81
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report AUDIT AND RISK COMMITTEE REPORT
AUDIT AND RISK
COMMITTEE REPORT
DEAR SHAREHOLDERS,
Membership and responsibilities
During most of 2020, the Audit and Risk
Committee was comprised of myself as
Chair, Rob Gray, Marianne Daryabegui
and Geoffrey Green. Marianne, Rob,
Geoffrey and I are all Independent Non-
Executive Directors each having recent
and relevant financial experience in the
energy sector. I took over the Chair of
the Audit and Risk Committee from John
Martin the Chairman of the Board in April
2020.
As Chair of the Committee, I convene
meetings on a regular basis and report to
the Board throughout the year.
The Audit and Risk Committee has
a formal document outlining its
responsibilities, which is reviewed and
updated as appropriate by the Board on
an annual basis.
The Audit and Risk Committee Terms of
Reference are available on our website,
https://www.pharos.energy/about-us/
governance/committees/.
Key responsibilities
• Reviewing key financial, operational
and corporate responsibility risk
management processes with strong
focus on Environmental, Social and
Governance (“ESG”) issues
• Reviewing and testing the integrity of
the Group’s financial statements to
ensure full compliance with international
financial reporting standards and
requirements
• Overseeing the planning and
execution of the ongoing external audit
programme including a detailed review
of audit quality and results
• Reviewing the effectiveness of internal
control processes and systems,
including IT control platforms
Audit and Risk Committee
meetings in 2020
The Committee met four times during
2020. These meetings were regularly
scheduled Committee meetings held in
March, May, August and December. The
Committee examines and discusses at
each meeting:
• Detailed review of internal controls and
implementation of upgrades
• Review of risk register and risk
management reports
In addition to members of the Committee,
all members of the Board, the finance
management team, operational
management and the Group’s external
auditors, Deloitte, attended each of the
Audit and Risk Committee meetings.
During 2020, the following additional
areas were discussed at meetings of the
Committee:
March
• Update to the Modern Slavery
Statement
• Finance update including the Internal
Controls Report, Reserves Update,
Impairment Analysis, IFRS 3 “Business
Combination” for the Egypt acquisition,
Treasury review and review of Climate
Change
• Review and approval of 2019 financial
statements, including reviews
that they were fair, balanced and
understandable, reviews of Going
Concern and Viability Statements
• Review of 2019 external audit status,
including analyses of findings of the
external audit and key judgemental
areas
• Review and update of the Audit and
Risk Committee governance matters,
with attention to internal controls
processes and systems, and a detailed
review of Risk management issues and
mitigation
LISA MITCHELL
Audit and Risk Committee Chair
MEETING ATTENDANCE
Committee member
Lisa Mitchell *1
John Martin*
Rob Gray*
Marianne Daryabegui*
Geoffrey Green *2
+ Attended.
* Independent NED.
2020
attendance
+++
+
++++
++++
+++
1 Appointed as a Director and Chair of the Audit
and Risk Committee on 1 April 2020.
2 Appointed as a Director 20 May 2020.
Ed Story, Jann Brown, Mike Watts, John Martin and
Rui de Sousa also attended most of the meetings
as non-committee members/ guests
82
Pharos Energy Annual Report and Accounts 2020 May
• Review and update of Internal Controls
Report including Financial review and
status update on Treasury activities,
• A deeper dive review on the progress
of savings and curtailment of capital
expenditure programmes caused by
the impact of COVID-19
• Review of HSES performance
• Review and assessment of Risks and
mitigations, particularly around the
impact of COVID-19 on the business
• Review and update on IT systems,
disaster recovery and security
August
• Review and update and various
approvals including: Impairment of
producing assets – CNV, TGT and
El Fayum Concession, Exploration
and Evaluation paper, and review of
Insurance renewals
• Review and Approval of 2020 Interim
Accounts, including presentation by
external auditor, Deloitte, and Audit and
Risk Committee comments
• Review and approval of the Going
Concern Paper, including stress
testing and mitigations, an update
on financing, covenant compliance
monitoring and commodity hedging
December
• Review and update on Internal Controls
and Risk Report including: Finance
review and Treasury update
• Annual Review and Approval of Terms
of Reference of the Audit and Risk
Committee
• Review of 2020 year-end planning
• Review and discussion of Significant
Risks particularly around the impact of
COVID-19 and Climate Change and
their impact on Going Concern and
Impairment of assets
• Review and discussion on Section 172
and impact of exit from the European
Union
• Review of external audit scope, review
of audit quality and 2020 audit plan
• Review of recent developments in
relation to FRC requirements, proposed
developments in relation to external
auditors’ responsibilities, and other
related regulatory and compliance
matters
Financial reporting and significant
accounting issues
During the first half of 2020, the Group’s
accounting policies, in accordance
with best practice, were reviewed by
management and the Committee to
ensure that they remained appropriate
for the Group’s activities. Following this
review, the Group’s accounting policies
were judged to be fully up-to-date and no
significant changes were recommended
to the Board by the Committee.
Significant issues related to the
2020 Financial Statements
The Committee met twice in March to
go through the significant issues that
should be taken into consideration in
relation to the Financial Statements for
the year ended 31 December 2020,
being key issues which may be subject to
heightened risk of material mis-statement.
These key issues are set out below.
Fair, balanced and understandable
The Committee advised the Board
whether the annual report and accounts
taken as a whole are fair, balanced and
understandable and provide the range of
information necessary for shareholders
to assess the Group’s performance,
business model and strategy. The
Directors have confirmed this in their
Responsibility Statement set out on page
108 of the Annual Report of Directors.
Going Concern
Management completed their Going
Concern assessment which was
challenged and reviewed by the
Committee. The assessment included
a “Base Case” for the Group, including
cash flow estimates for both Egypt
and Vietnam, as well as a “Reasonable
Worst Case” scenario, giving particular
regard to the impact of COVID-19 on
the business. A further assessment was
also undertaken to show the potential
impact of a farm down of the Egyptian
concessions.
Under these scenarios, management
has assessed, on a conservative basis,
the risks around commodity pricing,
operational risk and political and
regional risks, particularly in Egypt. The
assessments also took into account
the impact of potential discretionary
reductions in capital expenditures, as well
as the hedging of production volumes
to mitigate against commodity price
fluctuations.
Based on this detailed analysis,
management has concluded that the
Group will continue as a Going Concern
for 12 months from the date of signing of
the 2020 financial statements.
Following its review of management’s
Committee paper and in-depth walk
through of assumptions, the Committee
are satisfied that it is appropriate to
prepare financial statements on a Going
Concern basis.
Oil and gas reserves
The Group’s estimates of oil and gas
reserves have a crucial impact on the
Financial Statements, especially in relation
to DD&A and impairment of PP&E assets.
Oil and gas reserves, as discussed in the
Risk Management Report on pages 40 to
49 are calculated using best practice and
industry evaluation techniques which have
uncertainties in their application.
The Committee reviewed, in conjunction
with management and Deloitte, the results
of independent third party assessments
conducted by ERCE during 2020 for
Vietnam assets TGT and CNV, and
subsequently audited by the Group’s
reserves auditor, RISC Advisory Pty Ltd
(“RISC”) which are described in the review
of operations on pages 31 and 32.
In addition, the Committee reviewed,
in conjunction with management and
Deloitte, the reserves assessment
conducted by McDaniel for the El Fayum
Concession in Egypt.
The various reserves estimates have
been scrutinised by management,
taking into account the status of each
field’s development, to be satisfied that
reserves estimates are appropriate, that
DD&A calculations are correct and that
rigorous impairment testing has been
carried out. Management also reviewed
its estimates of future costs (including
decommissioning costs) associated with
producing reserves. Reserve estimates
are inherently uncertain, and are revised
over the producing lives of oil and gas
fields as new reserves estimates become
available and economic conditions evolve.
Internal controls and risk
management systems
The Group’s internal control framework
and risk management processes are
designed to ensure that risk identification,
assessment and mitigation is properly
embedded throughout the organisation.
The risk management approach is
designed to provide the Committee and
the Board with reasonable assurance
that financial irregularities and control
weaknesses will be identified to mitigate
risks that could potentially have a
material adverse impact on the Group’s
operations, earnings, liquidity and financial
prospects.
During 2020, the Group continued to
carry out comprehensive reviews of the
overall effectiveness of its internal controls
framework and continued to work on
improvements.
83
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report AUDIT AND RISK COMMITTEE REPORT - continued
The Board is primarily responsible for
the effectiveness of the Group’s internal
control systems which are monitored
and improved on an ongoing basis.
The Committee has been delegated
the responsibility to monitor and assess
the effectiveness of the control systems
operated by management. The external
auditor, Deloitte, also provides feedback
and recommendations on controls
which are brought to the attention of the
Committee.
Internal controls and risk management
issues are discussed in detail and reviewed
for effectiveness at each Committee
meeting, with a report being provided to
the Board for approval.
Reserve Based Lending Facility
(RBL)
During 2018, the Group entered into a 5
year RBL facility for $125m based on the
Vietnam assets, of which $53.7m was
drawn at December 2020.
Under the RBL facility agreement, the
Group is required to be compliant with
certain debt covenants for each half year
ending 30 June and 31 December, as set
out on page 145.
The Committee has reviewed
management’s assessments of debt
covenant calculations and is satisfied that
the Group is fully compliant.
Commodity hedging – treasury
management
During the year, the Group actively
managed its exposure to commodity
price risk by entering into an ongoing
programme of hedging. The objectives
of the hedging programme have been
to protect the Group’s budgetary base
case to any downward commodity price
movements and to provide certainty for
cash flows, ensure compliance with the
terms of the RBL Facility Agreement, and
to help mitigate the redetermination risk
implicit with any RBL.
KEY JUDGEMENTS AND ESTIMATES IN FINANCIAL REPORTING
Key judgements and estimates in
financial reporting
Audit and Risk
Committee review
Reviewed the Group’s oil price assumptions
A Treasury Committee, comprising the
Chief Financial Officer as Chair and senior
members of the Group’s finance team
and myself as a guest member, convene
on a regular basis to review the Group’s
strategy and the open hedge positions to
ensure that these are still fit for purpose
in light of current market conditions. Over
the course of 2020, the hedged positions
helped to protect the cash inflows bringing
in $23.7m which would have been lost
because of the impact of COVID-19 on
the commodity prices.
In 2021, the Group seeks to extend this
coverage further to protect budgetary
cash flow and ensure compliance with
and help mitigate redetermination risk on
the RBL.
Outcomes
The Group’s short and long-term price
assumptions were reduced inline with the
impact of COVID-19 and climate change
Asset carrying values and
impairment testing – including
judgements on future oil pricing,
discount rates, production profiles,
reserves and cost estimates
Significant risks that could potentially
impact on financial statements –
including DD&A estimates, override
management controls
Oil reserves accounting – including
management’s assumptions for
future oil prices which have a
direct impact on the estimate of
the recoverability of asset values
reported in the Financial Statements
Upstream impairment charges were reviewed twice
during the year
Impairment of assets
Reviewed DD&A estimates, based on reserves reports,
units of production and future development costs
Reviewed override of management controls
Management’s assessments of DD&A
judged to be reasonable based on prudent
assumptions
Under ISA 240 management override of
controls is presumed significant risk. No
breaches were found.
Reviewed the Group’s guidelines and policy for
compliance with oil reserves disclosure regulations;
including governance and control
Reviewed exploration charges
Impairment of assets
Reviewed at each Committee meeting an update on
the status of all updated estimates
Updated third party estimates and
independent audit completed, with results
disclosed in financial statements for year end
2020
Exploration and evaluation assets
and impairment review
The Committee reviewed the Group’s
intangible exploration and evaluation
assets individually in Egypt, Israel and
Vietnam for any indications of impairment,
including the various indicators specified
in paragraphs 18 to 20 as set out in IFRS
6 – “Exploration for and Evaluation of
Mineral Resources”.
At both the half year and year end 2020,
the Committee considered whether
various indicators of impairment existed,
and also whether there were issues arising
from the results of impairment reviews by
management. Such reviews are carried
out in relation to both exploration and
evaluation assets, with the role of the
Committee being focused on challenging
management’s underlying assumptions
and estimates and to judge whether
they are realistic and justified. Following
the impairment testing, the Committee
recommended to the Board that following
the impact of COVID-19 there was no
significant planned expenditure in either
Egypt or Vietnam and that the assets
should be impaired. The minor planned
programme of work in Israel continues
and no impairment has been triggered.
84
Pharos Energy Annual Report and Accounts 2020 Producing assets, property, plant
and equipment (“PP&E”) and
impairment review
The Committee reviewed individually the
Group’s oil and gas producing assets
classified as PP&E on the balance sheet
for impairment with reference to IAS 36
– “Impairment of Assets”. During 2020,
the Group’s PP&E oil and gas assets
comprised its two Vietnam producing
licences, TGT and CNV, as well as its El
Fayum Concession in Egypt. These are
described in the operations review on
pages 24 to 30.
This review focused on an updated
assessment of the recoverable amount
of each asset compared to their carrying
value in the accounts. If the recoverable
amount dropped below the carrying
value, there would have been an
impairment charge to reduce the carrying
value. The Committee considered the
various assumptions underpinning the
assessment of the recoverable amount,
including underlying reserves, commodity
prices, production rates and discount
rates. Based on the Group’s approved
economic assumptions, the Committee
recommended to the Board that
impairments were made on all 3 fields.
On our CNV field in Vietnam, a pre-tax
impairment charge of $23.3m has been
reflected in the Income Statement with an
associated deferred tax credit of $8.7m.
As at 31 December 2020, the carrying
amount of the CNV oil and gas producing
property is $91.2m.
On our TGT field in Vietnam, a pre-tax
impairment charge of $81.8m has been
reflected in the Income Statement with an
associated deferred tax credit of $28.0m.
As at 31 December 2020, the carrying
amount of the TGT oil and gas producing
property is $239.3m.
For our El Fayum concession in Egypt,
an impairment charge of $105.4m, no
tax applicable, is reflected in the Income
Statement. As at 31 December 2020,
the carrying amount of the El Fayum
oil producing property is $104.1m, this
FV is based on NPV14, which reflects
considerations for the allocation of capital
and costs to sell.
Internal controls focus for 2021
In previous years, based on the size and
scale of the Group’s activities, an Internal
Audit function could not be justified.
However, following the acquisition of the
Egyptian asset and the Group’s stated
growth strategy in 2020, the Committee
recommended and the Board approved
the appointment of KPMG to carry out
various internal audits. The Committee
discussed with KPMG and subsequently
approved that following the curtailment
of its growth plans in 2020 caused by
COVID-19 that the detailed audit plan for
2020 should be rescheduled for 2021.
This audit plan will be complementary but
separate to the audit work undertaken by
the Group’s external auditor, Deloitte.
In 2020, internal assurance has been
handled by the Group management. The
lack of an Internal Audit function in 2020
had no impact on the work of the external
auditors.
The Treasury Committee will continue
to meet regularly to review the RBL
covenants compliance and to review the
Group’s liquidity, hedging requirements
and investment strategy.
The Committee reviewed and approved
the related compliance statements set
out in the Risk Management Report.
The Committee has also reviewed and
approved the statements regarding
compliance with the 2018 UK Corporate
Governance Code (the “Code”), in the
Corporate Governance Report on pages
71 to 74. The Committee reviewed
and discussed with management and
the external auditor the Company’s
relevant financial information prior to
recommendation for Board approval.
This included the Financial Statements
and other material information presented
in the annual and half year reports. The
Committee considered the significant
financial reporting issues, accounting
policies and judgements impacting the
Financial Statements, and the clarity of
disclosures. The Committee conducted
a review of its Terms of Reference for
best practice, which were approved by
the Board in early 2020. These will be
reviewed again during 2021.
The Audit and Risk Committee and
the Board have carried out a review
of the effectiveness of the Group’s
risk management and internal control
systems.
Overall, the control environment was
considered to be operating effectively.
We recognise the oil and gas industry
faces many challenges ahead, including
the technical, financial, environmental
and political challenges of accessing an
increasingly scarce resource base and at
the same time coping with the opposing
dual challenges of production growth
but managing transition to a low carbon
future. The pressure to move to a low
carbon future have been brought to the
forefront during the pandemic.
Our Strategic Framework takes into
consideration the range of potential
risks and the nature of their impact on
the business. The strategic ambitions of
the Group, achieving our financial and
ESG objectives, maintaining operational
effectiveness, ensuring our reputation to
markets, partners, and stakeholders are
all assessed in the context of our appetite
for risk.
The Board is responsible for maintaining
a sound system of internal controls to
safeguard shareholders’ investment and
the assets of the Company. There is an
effective internal control function within
the Company which gives reasonable
assurance against any material
misstatement or loss. The Board and
management will continue to review the
effectiveness and the adequacy of the
Company’s internal control systems and
update such as may be necessary.
Risk assessment
The Committee carried out a detailed
risk assessment in which it reviewed
existing risks and identified new risks
as appropriate. The likelihood and
significance of each risk was evaluated
along with proposed mitigating factors
and was reported to the Board. All
new risks or changes to existing risks
were monitored throughout the year
and discussed at each Committee
meeting. The Committee maintains a
comprehensive bribery risk assessment
and mitigation procedure to ensure that
the Group has procedures in place to
eliminate bribery, and that all employees,
agents, contractors, and other associated
persons are made fully aware of the
Group’s robust policies and procedures
on a regular basis.
External auditor
Deloitte was appointed as external
auditors in 2002 and no tender has
been conducted since that date. In
accordance with the Code’s guidance
concerning external audit tendering and
rotation, a competitive tender process
is required at least once every 10 years
typically. However, taking into account
the transitional provisions of Statutory
Auditors and Third Country Auditors
Regulation 2016 the Group will conduct
a competitive tender process no later
than for the 2024 year-end audit. The
Committee will continue to consider
the appropriate time frame in which to
conduct such a tender process, in light
of the regulatory requirements as well as
auditor performance, audit quality, and
independence.
The ARC assess the performance
of the auditors based on their
experience, the quality of their written
and oral communication and input
from management, prior to the
recommendations of the re-appointment
of auditors at the AGM. The committee
also assesses the independence of the
external auditor once a year and the lead
partner is required to be rotated every five
years. David Paterson acts as the external
85
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report AUDIT AND RISK COMMITTEE REPORT - continued
The Committee reviews its non-audit
services policy on an annual basis and
current policy requires all non-audit
services to be pre-approved by the
Committee. It is noted that the Group’s
policy sets out the permitted services and
those that are prohibited.
Review of the effectiveness of the
Audit and Risk Committee
During the year, the Committee has
undergone a comprehensive review of its
effectiveness and results were reported
to the Board. The Committee was
considered by the Board to be operating
effectively and in compliance with the
2018 UK Corporate Governance Code
and associated guidance.
LISA MITCHELL
Audit and Risk Committee Chair
audit partner. David is due to stand down
following the audit of the 2020 financial
accounts and will be replaced by Anthony
Matthews as external audit partner. Other
senior audit staff are also rotated every
five to seven years.
External auditor – non-audit
services
The external auditor is appointed primarily
to carry out the statutory audit and their
continued independence and objectivity
is crucial. In view of their knowledge of
the business, there may be occasions
when the external auditor is best placed
to undertake other services on behalf of
the Group. The Committee has a policy
which sets out those non-audit services
which the external auditor may provide
and those which are prohibited. Within
that policy, any non-audit service must be
approved by the Committee.
Before approving a non-audit service,
consideration is given to whether the
nature of the service, materiality of
the fees, or the level of reliance to
be placed on it by the Group would
create, or appear to create, a threat to
independence. If it is determined that such
a threat might arise, approval will not be
granted unless the Committee is satisfied
that appropriate safeguards are applied to
ensure independence and that objectivity
is not impaired. The auditor is prohibited
from providing any services which might
result in certain circumstances that have
been deemed to present such a threat,
including auditing their own work, taking
management decisions for the Group or
creating either a mutuality or conflict of
interest. The Company has taken steps
to develop resources and relationships in
order to establish availability of alternate
advisers for financial and other matters.
External audit fees
Total audit and non-audit fees in 2020
were $0.4m and $0.1m respectively.
The Committee approved all non-audit
services provided by the external auditor
in 2020.The principal non-audit fees
during 2020 were $0.1m for the interim
review.
86
Pharos Energy Annual Report and Accounts 2020 DIRECTORS’ REMUNERATION REPORT
DIRECTORS’
REMUNERATION REPORT
DEAR SHAREHOLDERS,
I am writing to you for the first
time in my capacity as Chair of the
Remuneration Committee. As I progress
in this role I look forward to working with
shareholders, but unfortunately due the
current COVID-19 restrictions this will
have to be conducted remotely for the
time being.
On behalf of the Board, we are pleased
to present the Directors’ Remuneration
Report for the financial year ended 31
December 2020. This report has been
prepared in accordance with section 421
of the Companies Act 2006 and Schedule
8 of the Large and Medium-sized
Companies and Groups (Accounts and
Reports) Regulations 2008 (as amended).
GEOFFREY GREEN
Remuneration Committee Chair
TABLE A: REMUNERATION COMMITTEE
MEETING ATTENDANCE DURING 2020
2020
attendance
Before I go into the detail of the Directors’
Remuneration I want to highlight the three
most important aspects of this for 2020;
Committee member
Rob Gray*
John Martin*
Marianne Daryabegui*
Geoffrey Green *1
+ Attended.
* Independent NED.
1 Appointed as Director and member of
Remuneration Committee on 20 May 2020
Ed Story, Rui De Sousa, Jann Brown, Mike Watts,
John Martin and Lisa Mitchell attended as non-
committee members
Role of the Committee
The Remuneration Committee is
responsible for setting the remuneration
of the Chair and the Executives, and is
responsible for appointing any consultants
it may engage in carrying out its duty.
++
+
++
+
1. Reduction in Salary – All Directors
took a voluntary reduction in salary of
25% from 1 May 2020 and then the
three Executive Directors went further
and took an additional 10% reduction,
giving a total reduction of 35%, from
1st August 2020. These reductions
have remained in place until Q2 2021
following which a 50% reduction in
Executive Director salaries will come
into effect.
2. Annual Bonus - The Executive
Directors have not taken any bonus
payment for 2020.
3. LTIP – The Executive Directors
volunteered to reduce their LTIP award
granted in 2020 to approximately 50%
of their salary compared to 200% of
salary granted in previous years.
The Directors’ Remuneration
Policy review
In line with the requirements of applicable
law, requiring us to review our Directors’
remuneration policy every 3 years, the
policy was reviewed and proposed at the
2020 AGM. Few changes were proposed
to the policy, principally relating to
developments in best practice guidelines,
including the introduction of post-
cessation shareholder guidelines. I was
pleased that the new policy was approved
by 92.6% of our shareholders.
However, the second resolution on the
2019 remuneration report to shareholders,
while clearly passed, secured a lower
level of support at 79.2%. From
discussions with our shareholders and
their representatives, we understand
that this was in response to our decision
to equalise the salaries of the three
Executive Directors. This equalisation
was carried out as a result of the CEO
voluntarily reducing his salary to finance
increases to the other two directors and
was therefore essentially implemented at
zero cost to the Company. Nonetheless,
some shareholders were opposed to
this equalisation on the basis that it may
limit the Company’s ability to reduce
long-term costs as and when succession
occurs. It should be noted that this was
undertaken pre-COVID-19 and that all
three executives are currently waiving
their salaries by 35% in response, so all
salaries are currently below the pre-
adjusted levels.
How performance was reflected in
the pay of our Executive Directors
As reported throughout the Strategic
Report, the performance of the Company
in 2020 has been hugely impacted by
the COVID-19 virus and the subsequent
dramatic drop in oil prices in the first
few months of 2020. The Committee is
extremely proud of how all employees
have adapted to the new ways of
working and have continued to work
collaboratively with each other. Through
the strong management of the Company
by Executives and Senior Managers we
have not had to furlough any staff, nor
have we borrowed any Government
money and, in order to protect staff we
made the decision to leave London prior
to the Government announcement of
the lockdown in March. In December
we completed negotiations to assign
the leases for the London Office; the
assignment included a payment equal to
2 years rent. Ultimately this will result in a
reduction in costs of more than £700,000
per annum.
In April 2020 it was recognised that
further measures were required and all
Directors made the decision to take a
25% cut in salary, effective from May
2020. As the crisis continued through the
year the Executive Directors took a further
87
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report DIRECTORS’ REMUNERATION REPORT - continued
An additional resolution is being proposed
at the AGM to renew the LTIP for a further
10 years as it has now reached the end of
its 10 year life. No material changes are
proposed to the rules and the renewal is
consistent with the policy approved last
year except that, consistent with other
companies of this size, the rules include
a 10% in 10 year dilution limit only. The
Committee will actively manage dilution
across our share plans.
Conclusion
Given the COVID-19 pandemic the
financial year has proved extremely
difficult, not just for Pharos but for many
other companies and I would like to
recognise the hard work and commitment
of all our employees. The Remuneration
Committee feels that the remuneration
outcomes for 2020 are a fair reflection of
the context in which decisions had to be
made.
We look forward to receiving your support
at the upcoming AGM and to working
with you face to face when circumstances
allow.
Finally, this is my first report as the Chair
of the Committee after I took over its
chairmanship from Rob Gray. I want to
thank him on your behalf for his hard work
in leading this Committee.
GEOFFREY GREEN
Remuneration Committee Chair
10% cut in August 2020. To summarise,
the Executive Directors have therefore
taken a 35% cut in salary continuing until
at least Q2 2021.
The challenging market conditions were
also reflected in the KPI assessment
and pay out-turn for 2020; while
management delivered on a number of
the KPIs including integration of Egyptian
operations and meeting of various output
targets which resulted in a formulaic
bonus outturn of 61% of max, the
Committee and Executives felt that the
overall performance and the experience
of stakeholders did not warrant such a
bonus and therefore no bonuses were
paid for 2020.
In previous years the LTIP grant level for
Executives had been 200% of salary, but
this was reduced to approximately 50% of
salary for 2020, to reflect the downturn in
the share price.
The 2018 LTIP which was due to vest in
January/February 2021 will lapse through
a failure to meet the required relative TSR
performance conditions.
Outlook for 2021
The reduction in salaries detailed above
has remained in place for at least the
first quarter of 2021 and the Executive
Directors have offered to reduce their
salaries by 50% with effect from 1 April
2021, helping to bring the Company’s
cost base into line with the current
scale of the business. The Committee
welcomes this positive commitment.
The main elements of the 2021 bonus
plan will be unchanged as regards
structure, measures for performance
(safety and environment, operational,
financial, governance) and deferral
requirements. The Committee intends
to develop and update certain specific
objective criteria during the course of the
year, given the changing structure of the
business.
The LTIP grant level for 2020 was
reduced substantially and the Committee
will take this and all other relevant
circumstances into account in considering
the appropriate grant level for 2021.
Performance metrics will continue to be
based on relative TSR performance which
is considered to be the most meaningful
metric for the Company at this stage of
maturity. The use of other performance
measures, such as ROCE, will be kept
under review for future awards but is not
considered appropriate at the current
time.
88
Pharos Energy Annual Report and Accounts 2020 POLICY REPORT
(UNAUDITED)
This Remuneration Policy became
effective from the date of the 2020 AGM.
The Policy is intended to apply for a
period of three years from that date.
However, the Committee monitors the
Remuneration Policy on a continuing
basis including consideration of evolving
market practice and relevant guidance;
shareholder views and results of previous
voting; policies applied to the wider
employee base; and with due regard to
the current economic climate. Should the
Committee resolve that the Remuneration
Policy should be revised, such revisions
will be subject to a binding shareholder
vote.
The overarching aim is to operate a
Remuneration Policy which rewards
senior Executives at an appropriate level
for delivering against the Company’s
annual and longer-term strategic
objectives. The Policy is intended
to create strong alignment between
Executive Directors and shareholders
through a heavy focus on the use of
equity. The Committee is comfortable that
the structure and operation of the Policy
does not create any environmental, social
and corporate governance matters and is
managed within an acceptable risk profile.
The decision-making process
When reviewing the Policy, the Committee
involved the use of our external advisers
to provide data and opinion on market
practice and developments in corporate
governance. The Committee also called
upon the Executive Directors to provide
business strategy and wider employee
context. However, the Committee made
its decisions based on the outcomes of its
own deliberations and taking into account
feedback provided from shareholders and
proxy agencies who were consulted at an
early stage.
When considering the development of the
new Policy, the Committee was mindful
of how it would address the six factors
set out in the UK Corporate Governance
Code and which are explained in more
detail below:
Clarity
• The Policy has a clear objective: to
enable the Company to recruit, retain
and motivate high calibre individuals
to deliver long-term sustainable
performance which benefits all
stakeholders
• The Policy itself is in line with standard
UK market practice, and is an update
of the previous Policy, so should be
well understood by shareholders and
participants
• The Policy is fully embedded into the
business, so it is well understood by
participants and is managed efficiently
from an administrative perspective
• The terms of the Policy are clearly
described in this Report, including
full disclosure on limits, measures
and discretions. There should be no
ambiguity on how it is intended to be
operated
• Full retrospective disclosure of the
relevant performance assessments and
outcomes is provided for shareholders
to consider
• Full prospective disclosure is provided
in relation to LTIP awards, including the
award levels, performance measures
and targets
Simplicity
• The Policy includes a standard annual
bonus plan and a single LTIP so the
incentive arrangements are considered
easy to communicate
• Payments are made either in cash
or via Company shares. No artificial
or complex structures are used to
facilitate the operation of the incentive
plans
• The rationale for each element of the
Policy is clearly explained in the Policy
table and links to the overall Company
strategy
Risk
• Relevant individual and plan limits
prevent excessive outcomes under the
annual bonus or LTIP
• Regular interaction with the Audit and
Risk Committee ensures relevant risk
implications are understood when
setting or assessing performance
targets
• Periodic risk reviews to ensure the
Policy remains within an acceptable
risk profile and that the performance
measures used do not incentivise or
reward for inappropriate behaviour
• Any unintended consequences of
a particular performance metric
are considered when assessing its
appropriateness
• Comprehensive clawback and malus
provisions are in place across all
incentive plans and the Committee’s
ability to use its discretion to override
formulaic outcomes is considered
an important control to prevent
inappropriate reward outcomes
• Flight risk and succession issues are
considered as part of the wider remit
of the Remuneration Committee and
the Nominations Committee, and are
considered on at least an annual basis,
generally as part of the annual pay
review
Predictability
• The possible reward outcomes are
quantified and reviewed at the outset
of the performance period. The
illustrations provided in the Policy
section of the DRR clearly show the
potential scenarios of performance
and the resulting pay outcomes which
could be expected
• Relevant individual and plan limits
prevent excessive outcomes
• Regular monitoring of performance
by the Committee ensures that there
are “no surprises” at the end of period
assessment
Proportionality
•
Incentives only pay-out if strong
performance has been delivered by the
Executive Directors
• The performance measures used have
a direct link to the KPIs of the business
and there is a clear separation between
those used in the annual bonus and
LTIP
• Appropriate underpins can be (and
have been) used to ensure that any
pay-outs are affordable based on
financial performance
• The Committee has the discretion to
override formulaic outcomes if they are
deemed inappropriate in light of the
wider performance of the Company
and considering the experience of
stakeholders
Alignment to culture
•
Incentive structures incentivise and
reward for strong performance
• They do not reward poor performance
• The Policy seeks to retain Executives
to deliver long-term, sustainable
performance which benefits all
stakeholders
• The relevant discretions in the
Policy are intended to ensure that
performance is assessed on a “like for
like basis” and that participants are
rewarded for “doing the right thing” for
the Company, not for themselves
89
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report DIRECTORS’ REMUNERATION REPORT - continued
POLICY TABLE FOR EXECUTIVE DIRECTORS
FIXED PAY
Base salary
Core element of remuneration set at a sufficient level to attract and retain people of the necessary calibre to shape and execute the
Company’s strategy.
Operation
Maximum
Performance criteria
• Contractual fixed cash amount paid monthly
• Any salary adjustments will normally be in line with those of
• N/A
the wider workforce
• The Committee retains discretion to award higher
increases in certain circumstances such as increased
scope and responsibility of the role, or in the case of
new Executive Directors who are positioned on a lower
salary initially, as they gain experience over time. In these
circumstances a base salary increase will not exceed the
CEO’s previous salary of $924,000
• Particular care is given in fixing the appropriate salary
level considering that incentive pay is generally set at a
fraction or multiple of base salary
• The Committee takes into account a number of factors
when setting salaries, including (but not limited to):
• Size and scope of individual’s responsibilities
• Skills and experience of the individual
• Performance of the Company and the individual
• Appropriate market data.
• Pay and conditions elsewhere in Pharos
• Base salaries are normally reviewed annually
• Results of benchmarking exercises are monitored for
indications of potential unwarranted upward ratcheting
BENEFITS
Purpose and link to strategy
To provide Executive Directors with market competitive benefits consistent with the role.
Operation
Maximum
• Executive Directors receive benefits which may include
(but are not limited to) medical care and insurance,
permanent health insurance, life assurance cover,
critical illness cover, travel benefits, expatriate benefits,
car benefits and relocation expenses
• Reasonable business related expenses will be
reimbursed (including any tax payable thereon)
• Benefits are positioned at an appropriate market level for
the nature and location of the role. Whilst the actual value
of benefits may vary from year to year based on third party
costs, it is intended that the maximum annual value will
not exceed $250,000 or £200,000, per Directors’ base
currency
• In addition to the above cap, the Company may contribute
to relocation expenses up to 100% of salary
Performance criteria
• N/A
PENSION
Purpose and link to strategy
To provide retirement benefits consistent with the role
Operation
Maximum
Performance criteria
• Pension benefits are delivered through contributions to
Pharos’ money purchase plan up to relevant plan limits
and/or a cash supplement
• 15% of base salary per annum
• N/A
90
Pharos Energy Annual Report and Accounts 2020
VARIABLE PAY
Annual bonus
Purpose and link to strategy
Incentivises and rewards for the delivery of the strategic plan on an annual basis.
Operation
Maximum
Performance criteria
• Payments are based on performance in the
relevant financial year.
• At the beginning of the year, the Committee sets
objectives which it considers are critical to the
delivery of the business strategy.
• Performance against these key strategic objectives
is assessed by the Committee at the end of the
year.
• The Committee retains the discretion to amend the
bonus payout (negatively or positively) to ensure it
reflects the performance of either the individual or
the Company.
• One-third of any bonus payout is subject to deferral
into Pharos shares under the Deferred Share
Bonus Plan.
LTIP
Purpose and link to strategy
• 150% of base salary per annum,
including cash and deferred
components at the discretion of the
Committee.
• The annual bonus is based on individual and corporate
performance during the year.
• Corporate goals are set annually and may include
monitored measures for particular projects; portfolio
objectives; corporate strategic goals; safety, social and
environmental measures; financial measures; and other
measures as may be deemed appropriate and relevant
to the period for delivery of the business strategy.
• If the Committee determines that a minimum level of
performance has not been achieved, no bonus will be
payable. Thereafter the bonus will begin paying out, up
to the maximum of 150% of salary.
• The Committee determines the appropriate weighting of
the metrics each year.
Incentivises and rewards for the Company’s strategic plan of building shareholder value
Operation
Maximum
Performance criteria
• Typically a conditional award of shares or a
nil price option is made annually, normally in
December, in the course of the annual review
cycle
• Vesting of the awards is dependent on the
achievement of performance targets, which are
typically measured over a three-year performance
period
• Awards (post of tax) will also be subject to a
two-year post-vesting holding period during
which they cannot be sold (except in exceptional
circumstances and with the Committee’s prior
approval)
• Usually 200% of base salary per
annum
• In circumstances which the
Committee determines to be
exceptional, annual awards of up
to 400% of base salary per annum
may be made
• Awards vest based on performance against financial,
operational and/or share price measures, as set by
the Committee, which are aligned with the long-term
strategic objectives of Pharos
• No less than 50% of the award will be based on share
price measures. The remainder will be based on
financial, operational measures
• For ‘threshold’ levels of performance, 25% of the
award vests. 100% of the award will vest for maximum
performance. Pro-rating applies between these points
and between ranking positions
• The Committee may reduce LTIP vesting outcomes
(including to zero), based on the result of testing the
performance condition, if it considers the potential
outcome to be inconsistent with the performance
of the Company, business or individual during the
performance period. Any use of such discretion would
be detailed in the Annual Report on Remuneration
SHAREHOLDING GUIDELINES
Purpose and link to strategy
Further increases alignment between Executive Directors and shareholders.
Operation
Maximum
Performance criteria
• The Board has a policy of requiring Executive Directors to build a minimum shareholding in
Pharos shares equivalent to 200% of salary
• A post cessation shareholding guideline will operate from the approval of this Policy. Executive
Directors will be expected to retain the lower of actual shares held and shares equal to
200% of salary for one year post-cessation and 100% of salary for up to two years post-
cessation (unless the Committee exceptionally determines that it is appropriate to release this
requirement). Pharos shares which vest from future deferred bonus and LTIP awards will be
retained until a sufficient holding has been built up
• N/A
• N/A
91
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report
DIRECTORS’ REMUNERATION REPORT - continued
appropriate, be the subject of consultation
with the Company’s major shareholders.
Policy table for Non-Executive
Directors
Takeover or other equivalent
corporate event
On a takeover or other equivalent
corporate event, outstanding deferred
bonus awards will vest in full as soon
as practicable after the date of the
event, unless the Committee determines
otherwise. For outstanding LTIP and
share option awards, on a takeover
or other equivalent corporate event,
generally the performance period will
end on the date of the event. The
Committee will determine the extent to
which performance conditions have been
achieved at this point, taking into account
relevant factors as appropriate. Unless the
Committee determines otherwise, awards
will generally vest on a time pro-rata
basis taking into account the shortened
performance period. Alternatively,
outstanding LTIP and share option awards
may be subject to rollover, with the
agreement of the acquiring company.
Minor changes
The Committee may make minor
amendments to the Policy set out in this
report (for regulatory, exchange control,
tax or administrative purposes or to take
account of a change in legislation) without
obtaining shareholder approval for the
amendment.
Performance measures and target
setting
The Policy table for Executive Directors
above describes the policy for setting
performance measures used for the
annual bonus and LTIP, which are
intended to ensure that executives are
appropriately focused on the successful
delivery of the strategic plan over both
the short and medium term. When
setting the relevant performance targets,
the Committee will take into account a
number of internal and external reference
points that are linked to Pharos’ strategic
priorities, as well as the economic
environment.
Illustration of Policy
The charts showing the illustration of
Policy were presented in last year’s
Directors’ Remuneration Report which can
be accessed via our corporate website
at https://www.pharos.energy/media/
g05lf5vo/pharos-energy-2019-ara.pdf.
Component
Pharos’ approach
Chairman
fees
Non-
Executive
Director
Other
• Comprises an all-
inclusive fee for Board
and Committee positions
• Determined by
the Remuneration
Committee and approved
by the Board
• Comprises a basic fee
in respect of their Board
duties
• Further fees may be paid
in respect of additional
Board or Committee
roles
• Recommended by
the Chair and Chief
Executive Officer and
approved by the Board
•
In the event of a
temporary but material
increase in the time
commitment required,
fees may be increased
on a pro-rata basis to
reflect the additional
workload
• Reasonable business
related expenses will be
reimbursed (including any
tax payable thereon)
No Director plays a role in determining
their own remuneration. The Committee
consults with the CEO in determining the
Chairman’s fee. Fees for all Non-Executive
Directors reflect the time commitment
and responsibilities of the role, and are
set at a level sufficient to attract and
retain individuals with the required skills,
experience and knowledge to allow the
Board to carry out its duties. The fees
set out above are the sole element of
Non-Executive Director remuneration.
They are not eligible for participation in the
Company’s incentive or pension plans.
The fees have been set within the
aggregate limits set out in the Company’s
Articles of Association (currently
£800,000) and approved by shareholders.
NOTES TO THE
POLICY TABLE
Discretion
The Committee reserves the right to
make any remuneration payments and
payments for loss of office (including
exercising any discretions available to it in
connection with such payments) that are
not in line with the Policy set out above
where the terms of the payment were
agreed:
• Before the Policy came into effect; or
• At a time when the relevant individual
was not an Executive Director of the
Company and, in the opinion of the
Committee, the payment was not
in consideration for the individual
becoming an Executive Director of the
Company
For these purposes, (i) ‘payments’
includes the Committee satisfying awards
of variable remuneration and (ii) an award
over shares is “agreed” at the time the
award is granted.
The Committee will operate the annual
bonus, LTIP and share option plan in
accordance with the relevant plan rules.
In line with best practice the Committee
retains discretion on the operation and
administration of these plans, including as
follows:
• Dividend equivalents may be paid on
awards up to the point of vesting
• Awards will be subject to recovery and
withholding provisions and therefore
may be reduced at the discretion of
the Committee for instances of serious
misconduct, an error in calculation,
a misstatement of the Company’s
financial results or for serious
reputational damage to the Company
(as determined by the Committee).
Provisions will apply for a period of
three years from date of payment/
vesting
• The Committee may settle an award in
cash
•
•
In the event of a variation of share
capital or any other exceptional event
which, in the reasonable opinion of the
Committee, requires an adjustment, the
Committee may adjust the number of
shares or the exercise price
If an event occurs which results in the
performance conditions for outstanding
incentive plans being no longer
appropriate, then the Committee may
adjust the measures and/or targets,
with the caveat that they will, in the
opinion of the Committee, be no less
challenging to achieve
Any use of the above discretions would,
where relevant,be explained in the Annual
Report on Remuneration and may, as
92
Pharos Energy Annual Report and Accounts 2020
Buy-outs
To facilitate recruitment, the Committee
may make compensatory payments
and/or awards for any remuneration
arrangements subject to forfeit on leaving
a previous employer. Such payments
or awards could include cash as well
as performance and non-performance
related share awards, and would be in
such form as the Committee considers
appropriate taking into account all relevant
factors such as the form, expected
value, timing, impact of any performance
conditions and the anticipated vesting
of the forfeited remuneration. There is
not a specified limit on the value of such
awards, but the estimated value awarded
would be equivalent to the value forfeited.
Recruitment of Non-Executive
Directors
On the appointment of a new Chair or
Non-Executive Director, remuneration
arrangements will be consistent with the
Policy set out in this report.
Principles
On the appointment of a new Executive
Director, we seek to apply the following
principles when determining the
remuneration arrangements:
• The package should be competitive to
facilitate the recruitment of individuals
of the calibre needed to shape and
execute Pharos’ strategy and build
shareholder value
• The Committee reserves the right not
to apply the caps contained within
the Policy table for fixed pay, either on
joining or for any subsequent review
within the Policy period, although,
in practice, the Committee does not
envisage exceeding these caps
• The Committee will consider all
relevant factors as appropriate. This
may include, but is not limited to, the
calibre and experience of the individual,
market practice and the current
Remuneration Policy. The Committee
will be mindful that any arrangements
must be structured in the interests of
Pharos’ shareholders without paying
more than is necessary
• Typically, a new appointment will
have (or be transitioned onto) the
same framework that applies to other
Executive Directors as set out in the
Policy table above. Salaries would
reflect the skills and experience of the
individual, and may be set at a level to
allow future salary progression to reflect
development and performance in the
role
• An Executive Director may initially be
hired on a contract requiring up to 24
months’ notice which then reduces
pro-rata over the course of the first
year of the contract, to requiring not
more than 12 months’ notice
•
It would be expected that the structure
and quantum of the variable pay
elements would reflect those set out in
the Policy table for Executive Directors
• Depending on the timing of
appointment it may be necessary to
set different performance measures
and targets to those used for existing
Executive Directors, although this
would only be expected to operate for
the remainder of the first financial year
of appointment
In the remuneration report following
appointment, the Committee will explain
the rationale for any such relevant
arrangements.
The Committee retains discretion to
make appropriate remuneration decisions
outside the standard policy to meet the
individual circumstances of recruitment
when:
• An interim appointment is made to fill
an Executive Director role on a short-
term basis
• Exceptional circumstances require that
the Chair or a Non-Executive Director
takes on an executive function on a
short-term basis
Policy on payment for loss of office
Where an Executive Director leaves employment, the Committee’s approach to determining any payment for loss of office will normally
be based on the following principles:
• The Committee’s objective is to find an outcome which is in the best interests of both Pharos and its shareholders while taking into
account the specific circumstances of cessation of employment
• The Committee must satisfy any contractual obligations agreed with the Executive Director. This is dependent on the contractual
obligations (i) not being in contradiction with the Policy set out in this report, or (ii) if so, not having been entered into on a date later
than 27 June 2012, in accordance with the relevant legislation
• The Committee may seek to compromise any claims made against the Company in relation to a termination and reserves the right to
pay reasonable legal fees and/or for outplacement services if considered necessary
• The Committee may make an annual bonus payment for the year of cessation depending on the reason for leaving. Typically, the
Committee will take into consideration the period served during the year and the individual’s performance up to cessation. Any such
payment is at the discretion of the Committee
The treatment of outstanding share awards will be governed by the relevant plan rules as set out in the table shown below
Plan
Automatic good leaver
Treatment for good leaver
Treatment for all other reasons
Deferred bonus
• Death
• Ill-health, injury or disability
• Redundancy
• Retirement with agreement of
the employer
• Any other reason as
determined at the discretion of
the Committee
• Awards will usually vest on the
normal vesting date
• The Committee retains the
discretion to accelerate vesting
so that awards vest as soon as
practicable following cessation
• Awards will normally lapse
in full (unless otherwise
determined by the
Committee)
93
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report DIRECTORS’ REMUNERATION REPORT - continued
Plan
Automatic good leaver
Treatment for good leaver
Treatment for all other reasons
LTIP and share
option plan
• Death
• Ill-health, injury or disability
• Redundancy
• Retirement with agreement of
the employer
• Any other reason as
determined at the discretion of
the Committee
• For grants under the share
option plan, vested options
will remain exercisable for six
months
• All other awards will
normally lapse in full (unless
otherwise determined by the
Committee)
• The Committee will determine the
proportion of the award that will
vest, normally taking into account
the achievement of the relevant
performance conditions at the vesting
date and the time elapsed between
the date of grant and cessation of
employment
• The vesting date for such award will
normally be the original vesting date,
although the Committee has the
flexibility to determine that awards can
vest upon cessation of employment
• Where options are granted, vesting
options will be exercisable within a
period of six months, or 12 months in
the event of death, commencing on
the date on which such options vest
(being either the date of cessation or
the original vesting date as determined
by the Committee as per above)
• The Committee has the discretion
to vary the period in which vested
options are exercisable
Service contracts
Executive Directors’ contracts are for an
indefinite period and are terminable by
either party on giving one year’s notice,
which may be satisfied with a payment
in lieu of notice. The contracts do not
contain specific termination provisions.
The Committee has a duty to prevent
the requirement to make payments that
are not strictly merited, and endorses
the principle of mitigation of damages on
early termination of a service contract.
Any payment on early termination will be
assessed on the basis of the particular
circumstances, but in any event will not be
in respect of any period beyond the notice
period specified by the contract.
The Non-Executive Directors’
appointments are terminable at the will of
the parties but are envisaged to establish
an initial term of three years after which
they will be reviewed annually.
The Executive Directors’ service contracts
and the Non-Executive Directors’ letters
of appointment are available at the
Company’s registered office.
94
do not receive awards under the share
option plan. Individuals with the greatest
ability to directly influence Pharos’ Group-
wide results may also receive additional
discretionary awards under the share
option plan or the LTIP.
The Committee does not formally consult
with employees when formulating the
Remuneration Policy for Executive
Directors, but during the course of the
year, Non-Executive Directors have
attended various workforce engagement
sessions where, amongst other issues,
executive pay has been discussed.
Consideration of shareholder views
The Committee takes an active interest
in shareholder views and these help
shape the structure of the Directors’
remuneration arrangements at Pharos.
In advance of any significant changes in
the Policy or its operation, the Committee
will liaise with major shareholders (and
relevant proxy agencies) to seek out
their views. Any feedback is shared
with the Committee and will form part
of the consideration when finalising our
approach.
The Committee also monitors published
shareholder guidelines and will incorporate
further requirements and best practice
features as appropriate.
Consideration of pay and
employment conditions elsewhere
in Pharos and differences in
Remuneration Policy for Executive
Directors compared with other
employees
The Committee monitors the
remuneration of senior management and
makes recommendations as deemed
appropriate. Pay and employment
conditions elsewhere in the Company
are taken into account to ensure the
relationship between the pay of the
Executive Directors and its employees
is consistent throughout the Company.
Similar benchmarking techniques are
applied to non-Board employees using
relevant market data and the Committee
monitors staff remuneration packages
during the review of Executive Directors’
remuneration packages.
All eligible employees have the same
access to the same pension contribution
rate (15% of salary) and access to a
similar level of benefits.
As for our Executive Directors, it is
intended that a meaningful amount
of employee pay is weighted towards
variable remuneration. All employees
participate in the annual bonus plan, with
the emphasis between corporate and
individual goals dependent on the role
and its level of direct influence on Pharos’
Group-wide results. All employees have
an opportunity to share in the success of
the Company through participation in the
share option plan which, for this purpose,
is operated similarly to an all employee
share scheme. The Executive Directors
Pharos Energy Annual Report and Accounts 2020 Annual Report on Remuneration
(Audited section)
Single total figure of remuneration
The table below sets out the total remuneration in respect of qualifying services for both Executive and Non-Executive Directors for the
financial year 2020. It also provides comparative figures for 2019:
2020
Executive 3
E Story
J Brown2
M Watts2
Non-Executives
R de Sousa*
E Contini*
R Gray
J Martin
M Daryabegui
L Mitchell*
G Green*
Total
Fees/salary
$000’s
Benefits1
$000’s
Bonus
$000’s
LTIP
$000’s
Pension
$000’s
Total
$000’s
Total Fixed
Remuneration
$000’s
Total Variable
Remuneration
$000’s
556
544
544
59
29
145
161
64
64
46
188
48
54
1
-
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
83
82
82
–
–
–
–
–
–
–
827
674
680
60
29
146
161
64
64
46
639
626
626
59
29
145
161
64
64
46
188
48
54
1
1
–
–
–
–
2,212
292
–
–
247
2,751
2459
292
The benefits receivable by Executive Directors include private medical insurance, permanent health insurance, life assurance cover, critical illness
cover, travel and car benefits. E Story also receives expatriate benefits including tax protection or equalisation for any travel to the UK . The
benefits column for Non-Executive Directors includes taxable travel and accommodation expenses to attend Board functions in the year, and the
tax payable thereon, in accordance with HMRC guidance.
1. The near-term average exchange rate at the end of the performance period of 1.28 has been used to convert share price from GB pounds to US dollars.
2. Executive Directors’ fees and the salaries of Jann Brown and Dr Mike Watts are set in GB pounds and are reported in US dollars at the annual average
exchange rate.
3. Executive Directors agreed to a reduction of 25% of their salary from 1 May 2020 and a further 10% from 1 August 2020. Non-Executive Directors
agreed to a 25% reduction of their fee from 1 May 2020. The figures above reflect the reductions in salary and fees
* Fees paid to the Executive and Non-Executive Directors are in proportion with their dates of service.
2019
Executive
E Story
J Brown2
M Watts2
Non-Executives
R de Sousa
E Contini
R Gray
A Monteiro*
J Martin
M Daryabegui*
Total
Fees/salary
$000’s
Benefits1
$000’s
Bonus
$000’s
LTIP
$000’s
Pension
$000’s
Total
$000’s
Total Fixed
Remuneration
$000’s
Total Variable
Remuneration
$000’s
924
561
561
250
75
150
37
100
59
182
46
51
14
–
2
3
–
–
693
428
428
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
139
84
84
1,938
1,119
1,124
–
–
–
–
–
–
264
75
152
40
100
59
1,063
645
645
250
75
150
37
100
59
875
474
479
14
–
2
3
–
–
2,717
298
1,549
–
307
4,871
3,024
1,847
The benefits receivable by Executive Directors include private medical insurance, permanent health insurance, life assurance cover, critical illness
cover, travel and expatriate benefits including tax protection or equalisation and car benefits. The benefits column for Non-Executive Directors
has been updated to include taxable travel and accommodation expenses to attend Board functions in the year, and the tax payable thereon, in
accordance with changes in HMRC guidance.
* Fees paid to the Executive and Non-Executive Directors are in proportion with their dates of service.
The aggregate emoluments of all Directors during the year was $2.8m.
95
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report DIRECTORS’ REMUNERATION REPORT - continued
NOTES TO THE SINGLE FIGURE TABLE
Annual bonus
Setting measures
The Company seeks to set challenging, yet achievable, performance measures designed to link pay to performance against its core
strategic objectives.
The performance measures were chosen to ensure that Executive Directors are focused on the near-term objectives that build the long-
term delivery of value to shareholders, which results in a combination of measures being used covering strategic, operational, financial,
business development and CR goals. While we monitor Pharos’s performance with a broader mix of financial and non-financial KPIs,
the measures impacting the annual bonus emphasise those deemed most relevant to management performance and take into account
the annual budget and the prevailing economic environment. The performance measures and targets for 2020 were set prior to the full
impact of the coronavirus being evident. No subsequent adjustments have been made to the targets.
2020 Annual bonus measures and out-turns
Metric
SAFETY AND ENVIRONMENT
Zero LTIs
Link to strategy
• Safety of our people
• Sound oil field practices
Target
• Zero LTIs
Bonus awarded
5%
0%
Outcome
• Not Achieved
Weight
15%
6%
Performance
Performance
• On 13 October 2020, the workover rig
contractor to Petrosilah announced
the loss of life of the assistant crane
operator during a rig move operation,
as a result of the crane running off-road
into a ditch
• This fatality will be reported in the Q4/
year-end HSES report
TRIR Target of 0.8
3%
Link to strategy
• Safety of our people
• Sound oil field practices
Target
• 0.8
Performance
• 0.34 TRIR recorded to date
Outcome
• Achieved
Zero environmental spills
3%
3%
0%
Link to strategy
Target
Performance
Outcome
• Sound oil field practices
• Zero environmental
• 4 environmental spills recorded in
• Not Achieved
• Management of our carbon
footprint wherever we work
spills
Egypt – 3 oil spills and 1 environmental
violation regarding discharge of high
salinity water on the ground
Carbon footprint improvements
3%
Link to strategy
Target
Performance
• Management of our carbon
footprint wherever we work
• Establish a baseline
of group GHG
emissions
• 2020 was the first full year of measuring
emissions following Merlon acquisition
in 2019
2%
Outcome
• Achieved
• Climate change policy prepared and up
for Board approval at December meeting
• Achieved in part
• Crisis Management Plan Training to take
place in Q4 2020 and Q1 2021
• Achieved in part
• Initiate the work
towards compliance
with the G20
Financial Stability
Board’s Task Force
on Climate related
Financial Disclosures
(TCFD)
• Crisis response
readiness
maintained
96
Pharos Energy Annual Report and Accounts 2020 Metric
OPERATIONAL/PORTFOLIO
MANAGEMENT
Production
Weight
40%
20%
Performance
Bonus awarded
20%
10%
Link to strategy
Target
Performance
Outcome
• Vietnam production turnout was 6,103
• Achieved for Vietnam
boepd
• Egypt production at the end of the
financial year was 5,270 boepd.
• Achieved for Egypt
• Replace produced reserves
and add to reserve base
• Fund exploration activity at a
rate of up to 30% of annual
capex
• Vietnam production
volumes 5,500 –
6,500 boepd *
• Egypt production
volumes 5,000 –
6,000 boepd *
* In light of the global
macroeconomic
circumstances in 2020,
Egypt production guidance
issued on 8 January 2020
for the full year 2020 (Egypt:
6,500 to 7,500 bopd) was
updated to 5,000 – 6,000
bopd on 12 May 2020, to
take account of the capex
deferral programme.
The production guidance
for Vietnam remains
unchanged for the 2020
full year (5,500 to 6,500
boepd net)
Egypt
10%
10%
Link to strategy
Target
Performance
• Prudent Management in a low
• Engagement
• 6 months terms eased and dialog
Outcome
• Achieved
ongoing
• Pharos got a 6 month extension period
• Achieved
approved for the Batran well.
• Following the oil price crash and to
preserve balance sheet and liquidity
drilling was stopped
• Achieved
oil price environment
with Regulator/
Government to
investigate and
secure improved
contractual terms
and reduction in oil
price discount
• Engage with
Regulator/
Government bodies
to secure deferral
of all commitment
work as long as
possible
• Ensure cancellation
of all discretionary
work until further
notice
Farm Out
10%
0%
Link to strategy
Target
Performance
Outcome
• Fund exploration activity
• Farm out at least
one exploration
asset
• Ongoing and carried over to 2021
• Not achieved
FINANCIAL
30%
Opex per bbl for each producing asset
10%
25%
5%
Link to strategy
Target
Performance
Outcome
• Control expenditure
• Vietnam cash opex
• Vietnam cash opex bbl $11.9
• Achieved for Vietnam
bbl <$14
• Egypt cash opex
bbl <$10
• Egypt cash opex bbl $11.3
• Not achieved for Egypt
97
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report Performance
Bonus awarded
DIRECTORS’ REMUNERATION REPORT - continued
Metric
Overall reduction in cost base
Weight
10%
Link to strategy
Target
Performance
• Control expenditure
• Maintain strong balance sheet
• Overall reduction in
cost base of at least
10%
• Full year figure c.23% including both
deferral and absolute deductions
Outcome
• Achieved
Net debt
10%
Link to strategy
Target
Performance
• Access affordable sources of
• Net debt/EDITDAX
• Net debt/EDITDAX of 0.48
Outcome
• Achieved
funding
of <2
• Return to shareholders
• All Bank Covenants
met
• Funding plan in
place for all activities
covered by cash/
available debt plus
headroom of $10m
• All bank covenants have been met
• Achieved
• Low oil price environment necessitated
change in drilling programme to ensure
suitable headroom of $10m
• Achieved
10%
10%
Metric
Weight
Performance
Bonus awarded
GOVERNANCE/LICENCE TO OPERATE
15%
11%
Code of Ethics
4%
Link to strategy
Target
Performance
Outcome
• Way of working that is strong
on governance and personal
codes of conduct
• Code of ethics
approved and
implemented
• Code implemented across the group.
• Achieved
Talent Management
4%
4%
2%
Link to strategy
Target
Performance
Outcome
• Develop talent throughout our
business
• Talent Management
in place to address
all skills gaps
• Skills gap analysis on-going and will be
• Achieved in part
carried forward to 2021
Social Investment
4%
2%
Link to strategy
Target
Performance
Outcome
• Strong governance and
• Social investment
• Continued support to HLHVJOC
• Achieved in part
personal codes of conduct
plan approved and
implemented
Charitable Donation Programme in
Vietnam
• Petrosilah donated face masks, face
shields and protection suits to the El
Fayum General Hospital in Egypt
• All other discretionary programmes
in both countries was stalled due to
budget constraints
Procurement
3%
3%
Link to strategy
Target
Performance
• Strong governance and
• Procurement
personal codes of conduct
policies approved
and implemented in
all locations
• Group comprehensive on-boarding
process in place which has been
cascaded to all business units
Outcome
• Achieved
OVERALL
Total assessment
100%
Discretionary adjustment
Final outturn
61%
(61%)
Nil
As noted in the Chair’s statement, notwithstanding that the Executive Directors delivered a number of the KPIs in challenging circumstances, the Committee felt that
the overall performance and the experience of stakeholders in 2020 did not warrant a bonus. Therefore, discretion was used to reduce the bonus to zero.
98
Pharos Energy Annual Report and Accounts 2020 LTIP vesting in respect of January/ February 2018 awards
The LTIP awards granted in January/ February 2018, which would have vested in January/ February 2021, did not achieve the threshold
level of vesting and therefore lapsed. The table below sets out an overview of Pharos’s relative TSR performance during that period.
Vesting schedule
Actual vesting
25% vesting
100% vesting
0%
Performance against comparator group
Median (50th percentile)
Upper 16th
Greater than 50th percentile
In all material respects, the same performance targets apply to all subsequent awards, albeit that for awards granted from 2020
onwards the maximum vesting is met for a ranking of upper quartile or higher.
LTIP award grants
The LTIP awards are usually made in March, however, in 2020 they were not granted until May, following the Executive Directors
volunteering to reduce their LTIP award to approximately 50% of their salary due to the low share price, compared to the 200% of salary
in previous years. It is anticipated that future grants, including the grant to be made in 2021, will be made following the announcement
of the annual results in March. These will be made on a similar basis to prior years, with awards to Executive Directors over shares
worth two times salary and subject to the same TSR measure (subject to confirmation of the precise list of comparators immediately
prior to grant).
Directors’ interests as at 31 December 2020
The Board has a policy requiring Executive Directors to build a minimum shareholding of 200% of their annual salary. Additionally, LTIP
awards require a two–year holding period following vesting. This is intended to emphasise a commitment to the alignment of Executive
Directors with shareholders and a focus on long term stewardship.
The table below sets out the Directors’ interests as at 31 December 2020 and any subsequent changes to their beneficially owned
shares are shown as at the date of this report:
Shareholding requirement
(% of salary)
Achieved
(Yes/No)
Beneficially
owned shares as
at 31 December
2020
Beneficially
owned shares
as at the date
of this report
Awards subjectto
performance
conditions as at 31
December 20201,2
Awards
vested as at
31 December
2020
Awards subject to
service conditions
as at 31 December
20201
-
-
-
701,763
438,171
438,171
Executive
E Story
J Brown 7
M Watts7
Non-Executive
J Martin
M Daryabegui
R Gray
G Green6
L Mitchell5
200%
200%
200%
–
–
–
–
–
Yes
No
No
–
–
–
–
–
14,320,1883
16,087,4073
573,236
708,157
–
–
–
–
–
716,612
851,533
130,000
36,757
–
–
–
3,765,173
2,968,652
2,968,652
130,000
36,757
–
95,000
51,9584
1. Figures include accrued dividend equivalents.
2. LTIP awards potentially vesting in March 2021 in respect of awards made in 2018 lapsed and are excluded from the above table.
3. Of these shares,1,675,000 Shares are held through The Story Family Trust, a closely associated person to Ed Story.
4. These shares are held by Alexander Barblett (husband of Lisa Mitchell), and a closely associated person to Lisa Mitchell.
5. Appointed to the Board on 1 April 2020.
6. 6Appointed to the Board on 20 May 2020
7. At the date of this report, J Brown and M Watts are yet to reach the 200% shareholding requirement.
While the Executive Directors, as potential beneficiaries, are technically deemed to have an interest in all ordinary shares held by the
SOCO EBT, the table above only includes those ordinary shares held by the EBT which are potentially transferable to the Directors
pursuant to Options granted to them under the Company’s incentive schemes. Details of the EBT and its holdings are set out in Note 28
to the Financial Statements.
There have been no changes to the Directors’ interests subsequent to 31 December 2020 other than as set out above and as
described in the notes to the table above.
99
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report
DIRECTORS’ REMUNERATION REPORT - continued
SHARE AWARDS OUTSTANDING AT 31 DECEMBER 2020
Type of
award 7
As at
1 Jan 2020
Granted/
awarded 1
Adjusted 2
Lapsed
Released
As at
31 Dec 2020
Date
potentially
vested 3,4,5
Expiry date
E Story6
J Brown6
M Watts6
LTIP
LTIP
LTIP
LTIP
DSBP
DSBP
DSBP
LTIP
LTIP
LTIP
LTIP
DSBP
DSBP
DSBP
LTIP
LTIP
LTIP
LTIP
DSBP
DSBP
DSBP
1,132,535
1,564,899
2,214,318
–
–
–
–
1,550,855
245,681
383,792
–
–
–
317,971
1,420,326
1,078,649
1,417,797
–
–
–
–
1,550,855
152,760
235,469
–
–
–
202,702
1,420,326
1,078,649
1,417,797
–
–
–
–
1,550,855
152,760
235,469
–
–
–
202,702
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,132,535
–
–
–
–
–
–
1,420,326
–
–
–
–
–
1,420,326
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,564,899
23.03.21
2,214,318
31.03.22
1,550,855
12.05.23
245,681
–
26.04.20
383,792
03.01.21
317,971
09.01.22
–
–
-
–
–
–
–
–
–
06.02.27
1,078,649
23.03.21
23.03.28
1,417,797
31.03.22
31.03.29
1,550,855
12.05.23
12.05.30
152,760
–
26.04.20
26.04.28
–
–
–
–
–
235,469
03.01.21
03.01.29
202,702
09.01.22 09.01.22
–
–
06.02.27
1,078,649
23.03.21 23.03.28
1,417,797
31.03.22
31.03.29
1,550,855
12.05.23
12.05.30
152,760
–
26.04.20 26.04.28
–
–
235,469
03.01.21 03.01.29
09.01.22 09.01.22
1. The face value of awards granted to E Story, J Brown and M Watts in the year was c.50% of salary.
2. Outstanding awards under the Company’s share schemes were adjusted for dividend equivalents in accordance with plan rules (see Note 30 to the Financial
Statements).
3. LTIP awards vest subject to Pharos’s relative TSR performance against a group of comparator companies and subject to a further holding requirement. DSBP
awards vest subject to continued service over a two-year vesting period.
4. LTIP awards with a potential vest date in January 2021 did not achieve the performance threshold and lapsed.
5. In accordance with market regulation, DSBP awards vested on 21 March 2021, subsequent to the date of this report.
6. Awards to E Story were structured as conditional awards. Awards to M Watts and J Brown were structured as nil cost options.
7. LTIP awards vest at 25% when the threshold is met.
Payments for loss of office and payments to former Directors
There have been no payments for loss of office during the year nor any payments to former Directors.
100
Pharos Energy Annual Report and Accounts 2020 UNAUDITED SECTION
Historical TSR performance
and CEO outcomes
TSR performance
The chart below illustrates Pharos’ ten-
year TSR performance against the FTSE
All Share Oil & Gas Index, being a broad
market index which is sector specific. In
addition we have shown a comparison
against the current TSR comparator
group used for the LTIP award. Note
that this does not represent either the
comparator group or time period against
which performance is assessed under
the LTIP which was assessed in relation
to the performance period ending in
January/February 2021.
TOTAL SHAREHOLDER RETURN (TSR)
160
140
120
100
80
60
40
20
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
CEO outcomes
The table below shows the total remuneration paid to the CEO over the same ten-year period. In addition, the annual bonus and LTIP
awards vesting are set out in respect of each year as a percentage of the maximum:
CEO single figure of remuneration ($000s) 1
1,466
2,362
2,992
3,154
3,659
2,875
2,018
2,122
2,262
1,938
Annual bonus payout (% of maximum)
25% 100% 100% 100%
80%
LTIP vesting (% of maximum)
34%
53%
71%
66% 100%
75%
96%
35%
46%
65% 105%
0%
0%
50%
0%
827
0%
0%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
1. The current year annual average exchange rate has been applied to covert GB pounds to US dollars for all periods to ensure consistency between periods.
Percentage change in remuneration of the Directors
The table below illustrates the percentage change in salary, benefits and annual bonus for each Director and all other employees.
% change in salary
(2020/2019)
% change in benefits
(2020/2019) 1
% change in annual bonus
(2020/2019) 2
E Story
M Watts
J Brown
E Contini
J Martin
M Daryabegui
R de Sousa
R Gray
L Mitchell
G Green
All other employees
-39.9%
-5.9%
-5.9%
-62.6%
38.9%
5.2%
-79.5%
-16.7%
100.0%
100.0%
-4.4%
4.4%
4.5%
3.3%
0.00%
0.00%
–0.00%
-95.0%
-31.1%
0.00%
0.00%
10.0%
-100.0%
-100.0%
-100.0%
–
–
–
–
–
-
-
-100.0%
1. The increase in benefits for CEO is due to an increase in the UK Tax protection or equalisation payments
2. Bonuses are normally awarded in respect of the calendar year. However, no bonuses have been awarded in relation to 2020
3. The figures detailed above reflect the temporary salary reductions that have been taken by both the Directors and all other staff. All Directors took a 25% reduction,
effective from 1st May 2020 and the Executives took a further 10%, effective from 1st August 2020, giving 35% in total. All other staff took a reduction of 10%,
effective from 1st May and a further 10%, effective from 1st August, giving a total of 20%.
4. J Martin was appointed as Chair in March 2020 on a lesser remuneration of £150,000 per annum.
101
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report DIRECTORS’ REMUNERATION REPORT - continued
Chief Executive Officer’s pay ratio
The Company currently has 26 UK employees and therefore has no statutory requirement to publish a CEO pay ratio. However, a ratio
has been prepared and shared internally with the Committee for informative purposes. This figure will not be published externally as
there are concerns that, with a small sample such as this, the employees could be identifiable. The Committee will continue to review the
appropriateness of publishing pay ratios in the future.
Relative importance of spend on pay
The chart below illustrates the year on year change in total remuneration as per Note 11 to the Financial Statements compared to the
change in shareholder returns, which would include capital returns, dividends and share buybacks.
10.8
17.6
2020
2019
27.4
External appointments
With prior approval of the Board, Executive Directors are allowed to accept Non-Executive appointments on other boards and to retain
the associated directors’ fees. Under this Policy:
• Ed Story serves on the board of Vedanta Resources PLC, for which he retained associated fees for 2020 in the amount of $79,995
(2019: $79,363); and
• Jann Brown serves on the board of Troy Income and Growth Trust for which she retained associated fees for 2020 in the amount of
£28,297 (2019: £77,863, includes pro-rated amount for Wood plc board till September 2019).
IMPLEMENTATION FOR 2021
Base salary
Executive Directors’ salaries have not been increased for 2021.
E Story
J Brown
M Watts
2021 Base salary 000s
2020 Base salary 000s*
Increase from 2020 %
$702
£535
£535
$702
£535
£535
–%
–%
–%
* The figures given above do not include the 35% temporary reduction in salary that the Executive Directors volunteered to take in 2020 and which will
continue to apply to Q2 2021 at least. 25% reduction was effective from 1st May 2020 and a further 10% was effective from 1st August 2020
The above figures are before the impact of any waivers. As statements in the chairman’s report on page 87, the executives are currently
waiving 35% of these amounts and which will become a 50% waiver following Q2.
Benefits
For 2021, benefits available to Executive Directors will be consistent with those set out in the Directors’ Remuneration Policy approved at
the 2020 AGM and as summarised further below.
The above figures are before the impact of any waivers. As statements in the chairman’s report on page 87, the executives are currently
waiving 35% of these amounts and which will become a 50% waiver following Q2.
Pension
For 2021, a pension benefit at 15% of salary will be provided to each Executive Director through contributions to Pharos’ money
purchase plan up to plan limits or a cash supplement. Our Pension Policy for Executive Directors is already consistent with that for all
employees (as a percentage of salary).
102
Pharos Energy Annual Report and Accounts 2020
Annual bonus
It is intended that annual bonus awards will be considered for Executive Directors in December 2021. The maximum total bonus
opportunity for an Executive Director in each year is 150% of salary, including cash and deferred components in accordance with the
approved Policy. The table below sets out the weighted performance measures which will be applied in determining annual bonus
awards for 2021, and identifies the link from each of these measures to our core strategy of:
2021 KPIs
Metric
Weight
Performance criteria which will be considered
Safety & environment
15%
Strategic objectives; to preserve the safety of all
our people, staff and contractors and preserve the
environment through sound oil field practices and
management of our own carbon footprint wherever we
work.
Operational/ portfolio management
40%
Strategic objectives: to replace produced reserves and
add to the reserve base in a way which value and/or
cashflow accretive.
Financial
30%
Strategic objectives: to control expenditure and access
affordable sources of funding in order to maintain a
strong balance sheet with sufficient liquid resource to
fund planned activities.
Governance/ licence to operate
15%
Strategic objectives: to instil a way of working that is
strong on governance and personal codes of conduct;
to develop talent throughout our business to support
overall performance and succession planning.
• Zero LTIs
• TRIR target – 0.8
• Zero environment spills
• Carbon footprint improvements
• Crisis response readiness maintained
• Production volumes for all producing assets
• Complete farm down of Egypt
• Complete farm down of 125 & 126 Vietnam
• Opex per bbl for each producing asset
• Maintain cost base reductions achieved in 2020
• Net debt to EBITDAX
• All bank covenants met
• Funding plan in place to cover all activities post farm out of Egypt
• Complete skills gap analysis to map and deliver forward strategy
• Social investment plan approved and implemented
• Complete independent review of key policy compliance across the Group
Details of how the Committee assessed performance against these weighted measures will be set out in next year’s report. The
Committee retains discretion over the amount of bonus paid out to ensure that appropriate consideration is given to the relative
importance of the achievements in the year and the actual contribution of these towards furthering the Group’s strategy, as well as the
prevailing economic environment.
LTIP
A resolution will be proposed at the AGM to renew the LTIP, as it has now reached the end of its 10 year life. We are looking to develop
one share incentive scheme for the entire organisation rather than the previous arrangement whereby we had different schemes for
different levels. We would do this by adapting the current LTIP scheme rather than developing something completely new. The LTIP
grant level for 2020 was reduced substantially and the Committee will take this and all other relevant circumstances into account in
considering the appropriate grant level for 2021.
By having one scheme for everyone we will ensure that the scheme is significantly easier to manage and the allocation levels easier to
monitor.
The proposed scheme will build in the flexibility to work for all staff; to ensure that the stringent performance conditions and grant levels
expected by the market for the executive directors can be maintained, but allow for alternative targets and significantly lower grant
levels for staff.
There is one other difference being brought in with the new scheme. All schemes must set out the dilution limits they will adhere to,
the most common being 10% over 10 years. Our existing LTIP also includes an inner limit of 5% over 10 years and the intention is to
dispense with this to allow for the wider use as set out above.
Shareholder dilution
Pharos monitors the number of shares issued under employee share plans and their impact on dilution limits. These will not exceed the
limits set by The Investment Association Principles of Remuneration currently in force, in respect of all share plans (10% in any rolling
ten-year period).
Malus and clawback provisions
All variable pay arrangements for Executive Directors are subject to provisions which enable the Committee to reduce vesting, or
recover value delivered if certain circumstances occur. These circumstances include serious misconduct, an error in calculation,
misstatement of the Company’s financial results, fraud, insolvency of the Company or serious reputational damage to the Company.
In each case the occurrence of those circumstances and the effect on variable pay arrangements will be determined by the Committee.
103
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report
DIRECTORS’ REMUNERATION REPORT - continued
Non-Executive Director remuneration
Non-Executive Director fees, which have been set within the aggregate limits set out in the Company’s articles of association and
approved by shareholders, are set out in the table below:
Chair of the Company*
Deputy Chair & Senior Independent Director*
Non-Executive Director
Additional fee: Chair of Audit and Risk Committee
Additional fee: Chair of Remuneration Committee
Additional fee: Workforce Engagement Nominated Director
Fee from 1 January 2021
Fee from 1 January 2020
£150,000
£120,000
£60,000
£15,000
£15,000
£5,000
£200,000**
£120,000
£60,000
£15,000
£15,000
£5,000
* Includes fees for any Committee role
(** Reduced from £200,000 to £150,000 in March 2020 on the appointment of John Martin)
The Chair fees were reviewed and approved by the Remuneration Committee. The Non-Executive Director fees were reviewed and
approved by the Board, excluding the Non-Executive Directors.
For 2021, benefits available to Non-Executive Directors will be consistent with those set out in the Policy approved at the 2020 AGM.
Non-Executive Directors are not eligible for participation in the Company’s incentive or pension schemes.
Service Contract (reference Table A: Directors Contract on page 106
Consideration by Committee of matters relating to Executive Directors’ remuneration
The Directors who were members of the Remuneration Committee when matters relating to Directors’ remuneration for the year were
being considered were Rob Gray, John Martin (until August 25 2020), Marianne Daryabegui and Geoffrey Green (from 25 August 2020).
The Committee received assistance from Ed Story (President and CEO) and Jann Brown (Managing Director and CFO) subsequently,
except when matters relating to their own remuneration were being discussed. The Committee additionally received assistance from
other Non-Executives Directors when required.
The Committee has appointed FIT Remuneration Consultants LLP (“FIT”) as its remuneration advisers, and fees of £25,880 were paid in
2020 for their advisory services. FIT is a member of the Remuneration Consultants Group and complies with their professional code of
conduct. FIT do not provide any other services to the Group which, along with FIT’s credentials and proven performance, contributes to
the Committee’s view that the advice received has been appropriate, objective and independent.
The Committee reviews all aspects of remuneration on an annual basis and with respect to individual and corporate performance during
the year. The review is aided by comparison to published data on executive pay in the sector and in similar sized companies. More
detailed benchmarking may be conducted, such as upon an indication of a change in market ranges, with results being monitored for
indications of potential unwarranted upward ratcheting. The Committee receives regular updates on evolving regulatory and market
practice including market trends, key developments, and a broad range of published principles and guidelines. The Committee takes into
account pay conditions elsewhere in the Company, and considered matters related to Group remuneration.
Shareholder voting
The binding resolution on the Directors’ Remuneration Policy and the advisory resolution on the annual report on Directors’ remuneration
proposed and passed at last year’s AGM received the following votes from shareholders:
Votes in favour
Votes against
Total votes
Votes withheld
Remuneration Policy (2020 AGM)
Remuneration report (2020 AGM)
Votes
186,249,683
48,882,501
235,132,184
3,773
%
79.21%
20.79%
Votes
217,778,159
17,354,025
100.00%
235,132,184
–
3,773
%
92.62%
7.38%
100.00%
–
This report was approved by the Board of Directors and signed on its behalf by:
GEOFFREY GREEN
Remuneration Committee Chair
06 April 2021
104
Pharos Energy Annual Report and Accounts 2020
DIRECTORS’ REPORT
DIRECTORS’
REPORT
Annual Report of the Directors
The Directors present their annual report, along with the audited Financial Statements of the Group for the year ended 31 December
2020.
The following sections of this report are incorporated herein by reference and form part of this Directors’ report.
Strategic report
Board of Directors
Corporate Governance report
Environmental, Social and Governance (ESG) Committee report
pages 01-64
pages 69-70
pages 71-74
pages 76-78
pages 79-81
pages 82-86
pages 87-104
pages 110-144
pages 145-155
Nominations Committee report
Audit and Risk Committee report
Directors’ Remuneration report
Financial Statements
Additional Information
Developments following the 2020
reporting period
An indication of the likely future
developments in the business of the
Group is included in the Strategic Report
on pages 01 to 64.
In January 2021, the Company
successfully completed an equity Placing,
Subscription and Retail Offering which
raised gross proceeds of approximately
$11.7m. Proceeds are being used to fund
Phase 1B of the waterflood programme in
Egypt, which is now underway.
In March 2021, the Company has
received provisional approval for an
amendment of the fiscal terms from EGPC
on the El Fayum Concession. Under the
terms, the cost recovery percentage will
be increased from 30% to 40% allowing
Pharos a significantly faster recovery of all
its past and future investments.
In Q4, 2020, the Company appointed
Jefferies Investment Bank to run a farm
out process for the El Fayum asset, to
de risk the current 100% holding and
introduce support for the investment
required to develop the fields. The
company has been encouraged by the
level of interest and is currently reviewing
a number of bids.
In March 2021, the Company announced
the appointment of Sue Rivett to the
Board as Chief Financial Officer (“CFO”)
effective 1 July 2021. Jann Brown, who
is currently Managing Director (“MD”)
and CFO, will remain as MD, focused on
delivering the next phase of the Group’s
strategic plan.
Results and dividends
The audited Financial Statements for the
year ended 31 December 2020 are set
out on pages 110 to 144. The Company
announced in January of this year its
intention to withdraw dividend payments
during 2021, given the continued
uncertainty in the macro environment.
The Company also announced that it will
continue to use the well documented
capital allocation criteria to assess where
and how to spend any free cash flow
generated. The key goals are to preserve
balance sheet strength, to invest in
growth opportunities in excess of the cost
of capital and to generate sustainable
returns to shareholders.
Directors
The business of the Company is managed
by the Directors who may exercise all
powers of the Company subject to the
articles of association of the Company
(“Articles”) and applicable law. The
Directors who held office during the year,
and the dates of their current service
contracts or letters of appointment,
which are available for inspection,
are listed in Table A of this report. All
Directors held office throughout the year
except as noted in the table. The NEDs’
appointments are terminable at the will of
the parties. Executive Directors’ contracts
are terminable by either party on giving
one year’s notice.
In accordance with the provisions of
the UK Corporate Governance Code,
all Directors will retire at the 2021 AGM
and, being eligible, offer themselves for
reappointment. Rui de Sousa stepped
down from the Board on 13 March 2020
and John Martin took on the role of
Chair going forward. Ettore Contini did
not offer himself for reappointment and
retired from the Board on 20 May 2020.
Lisa Mitchell was appointed as an NED
effective from 1 April 2020 and Geoffrey
Green was appointed as an NED effective
from 20 May 2020. Relevant details of the
Directors, which include their Committee
memberships, are set out in the section
headed ‘Board of Directors’ on pages 69
to 70.
Pharos provides liability insurance for its
Directors and Officers. The annual cost of
the cover is not material to the Group. The
Articles allow it to provide an indemnity
for the benefit of its Directors, which is
a qualifying indemnity provision for the
purpose of section 233 of the Companies
Act 2006 (“2006 Act”). The Company has
made such provisions for the benefit of its
Directors in relation to certain losses and
liabilities that they may incur in the course
of acting as Directors of the Company, its
subsidiaries or associates, which remain
in force at the date of this report.
No member of the Board had a material
interest in any contract of significance
with the Company or any of its
subsidiaries at any time during the year,
except for their interests in shares and
in share awards and under their service
agreements and letters of appointment
disclosed in the Directors’ Remuneration
report commencing on page 87.
105
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report DIRECTORS’ REPORT - continued
Table A: Directors holding office during 2020
Director
John Martin Chair*
Edward Story President and Chief Executive Officer
Jann Brown
Managing Director and Chief Financial Officer
Mike Watts
Managing Director
Rob Gray* Deputy Chair and Senior Independent Director
Rui de Sousa
Ettore Contini
Marianne Daryabegui *
Geoffrey Green*
Lisa Mitchell*
Date of contract
7 June 2019
14 May 1997
6 December 2017
6 December 2017
7 June 2019
6 December 2017
9 December 2013
12 July 1999
11 December 2001
15 March 2019
20 May 2020
1 April 2020
* Denotes those determined by the Board to be Independent Non-Executive Directors as described in the Corporate Governance report on pages 71 to 74.
Contributions
The Group’s policies prohibit political
donations. In early 2020, Pharos,
through the Ministry of Foreign Affairs of
Vietnam, contributed $0.1m towards the
repatriation cost of the Vietnamese victims
involved in a tragic event that occurred in
Essex, UK.
AGM
An explanation of the resolutions to be
proposed at the 2021 AGM, and the
recommendation of Directors in relation
to these, is included in the circular to
shareholders which is available on the
Company’s website (www.pharos.energy).
Resolutions regarding the authority to
issue shares are commented upon in this
report under share capital.
A separate communication will be
sent to shareholders and published on
the Company’s website regarding the
Company’s AGM.
Share capital
Details of changes to share capital in
the period are set out in Note 27 to the
Financial Statements. The Company
currently has one class of shares in issue,
ordinary shares of £0.05 each, all of which
are fully paid. Each ordinary share in issue
carries equal rights including one vote
per share on a poll at general meetings
of the Company, subject to the terms
of the Articles and law. Shares held in
treasury carry no such rights for so long
as they are held in treasury. Votes may
be exercised by shareholders attending
or otherwise duly represented at general
meetings. Deadlines for the exercise
of voting rights by proxy on a poll at a
general meeting are detailed in the notice
of meeting and proxy cards issued in
connection with the relevant meeting.
Voting rights relating to the ordinary shares
held by the Pharos EBT are not exercised.
The Articles may only be amended by a
resolution of the shareholders.
106
No shareholder, unless the Board decides
otherwise, is entitled to attend or to vote
either personally or by proxy at a general
meeting or to exercise any other right
conferred by being a shareholder if he
or she or any person with an interest in
ordinary shares has been sent a notice
under section 793 of the 2006 Act (which
confers upon public companies the power
to require information with respect to
interests in their voting shares) and he
or she or any interested person failed to
supply the Company with the information
requested within 14 days after delivery of
that notice.
The Board may also decide that no
dividend is payable in respect of those
default shares and that no transfer of
any default shares shall be registered.
These restrictions end seven days after
receipt by the Company of a notice of
an approved transfer of the shares or all
the information required by the relevant
section 793 notice, whichever is earlier.
The Directors may refuse to register
any transfer of any share which is not a
fully-paid share, although such discretion
may not be exercised in a way which the
Financial Conduct Authority regards as
preventing dealings in shares of that class
from taking place on an open or proper
basis. The Directors may likewise refuse
any transfer of a share in favour of more
than four persons jointly.
The Company is not aware of any other
restrictions on the transfer of ordinary
shares in the Company other than certain
restrictions that may from time to time
be imposed by laws and regulations
(for example, insider trading laws); and
pursuant to the Listing Rules whereby
certain employees of the Company require
approval of the Company to deal in the
Company’s shares.
The Company is not aware of any
agreements between shareholders that
may result in restrictions on the transfer
of securities or voting rights. Resolutions
will be proposed at the 2021 AGM, as
is customary, to authorise the Directors
to exercise all powers to allot shares
and approve a limited disapplication of
pre-emption rights. This authority will be
sought in line with institutional shareholder
guidance, and in particular with the Pre-
Emption Group’s Statement of Principles
published on 12 March 2015 (the “Pre-
Emption Principles”), the authority sought
for disapplication of pre-emption rights
will be 10% on the basis that 5% of this is
only intended to be used in accordance
with the Pre-Emption Principles. Further
information regarding these resolutions,
which are based on template resolutions
published by the Pre-Emption Group in
May 2016, is set out in the circular to
shareholders. A resolution will also be
proposed at the 2021 AGM, as is also
customary, to renew the Directors’ existing
authority to make market purchases of the
Company’s Ordinary Share capital, and
to limit such authority to purchases of up
to approximately 10% of the Company’s
issued Ordinary Share capital. Shares
purchased under this authority may either
be cancelled or held as treasury shares.
Auditor
A resolution to reappoint Deloitte LLP as
the Company’s auditor will be proposed
by the Directors at the 2021 AGM.
Deloitte also provide non-audit services
to the Group, and details of the non-
audit services provided in the year to 31
December 2020 are set out in Note 10
to the Financial Statements. All non-
audit services are approved by the Audit
and Risk Committee. The Directors are
currently satisfied, and will continue to
ensure, that this range of services is
delivered in compliance with the relevant
ethical guidance of the accountancy
profession and does not impair the
judgement or independence of the auditor.
Further details of the Group policy on
non-audit services are set out in the Audit
Pharos Energy Annual Report and Accounts 2020 and Risk Committee Report on pages 82
to 86.
The Directors at the date of approval of
this report confirm that, so far as they
are each aware, there is no relevant
audit information, being information
needed by the auditor in connection with
preparing its report, of which the auditor
are unaware. Each Director has taken all
steps that they ought to have taken as
a Director, having made such enquiries
of fellow Directors and the auditor and
taken such other steps as are required
under their duties as a Director, to make
themselves aware of any relevant audit
information and to establish that the
auditor is aware of that information.
This confirmation is given and should
be interpreted in accordance with the
provisions of section 418 of the 2006 Act.
Greenhouse gas emissions
reporting
Reporting on emission sources, as
required under the Companies Act
2006 (Strategic and Directors’ Reports)
Regulations 2013, is included in the
Corporate Responsibility report on pages
50 to 64.
Tax governance
The Company is committed to high
standards of tax governance and
strives to meet its tax obligations. Tax
contributions benefit the communities
in which we operate by providing a
framework within which the Company can
grow. Pharos’ Tax Strategy Statement,
which the Board has approved, defines
the key tax objectives of the Group and
is available on the Company’s website
(www.pharos.energy).
Risk management
The Directors carried out a robust review
of the principal and emerging risks
facing the Group that could threaten
the Company’s business model, future
performance, solvency and liquidity. The
Risk Management report on pages 40 to
49 details how we manage and mitigate
these risks.
Substantial shareholdings
As at 31 December 2020, the Company
had been notified, in accordance
with Chapter 5 of the Disclosure and
Transparency Rules, of the voting rights
as a shareholder of the Company shown
in Table B of this report.
Table B: Substantial shareholdings in the Company
No of Ordinary
Shares held as at
31 December 2020
% of voting rights
as at 31 December
20201
No of Ordinary
Shares held as at 6
April 2021
% of voting rights
as at 6 April 20212
Ettore Contini3
Blue Albacore Business Ltd
Globe Deals Ltd
Aberforth Partners LLP
Chemsa Ltd
Yorktown Energy Partners VII, LP
Lombard Odier Asset Management
(Europe) Limited
Ed Story4
29,000,000
27,615,840
27,444,382
-
24,336,925
22,982,393
20,838,707
14,320,188
7.30
6.95
6.90
-
6.12
5.78
5.24
3.60
32,613,577
31,617,359
27,444,382
25,883,843
24,336,925
22,982,393
22,006,010
16,087,407
7.37
7.15
6.21
5.85
5.50
5.20
4.98
3.64
Nature of holding
Direct and indirect
Direct
Direct
Direct
Direct
Direct
Direct
Direct and indirect
1) As at 31 December 2020, the total voting rights attached to the share capital in issue comprising 397,515,684 Ordinary shares each of £0.05 nominal value, being
406,637,952 Ordinary shares in issue less 9,122,268 Ordinary shares currently held in treasury.
2) As at 6 April 2021, the total voting rights attached to the share capital in issue comprising 442,177,174 Ordinary shares each of £0.05 nominal value, being
451,299,442 Ordinary shares in issue less 9,122,268 Ordinary shares currently held in treasury.
3) The Company has been notified that, of these shares 28,780,000 shares are held through Liquid Business Ltd, a closely associated person to Ettore Contini.
4) Of these shares,1,675,000 Shares are held through The Story Family Trust, a closely associated person to Ed Story, and the balance are held by Mr Story personally.
During the period between 31 December 2020 and 6 April 2021, the Company did not receive any notifications under chapter 5 of the Disclosure
and Transparency Rules other than as shown in the table above. For further information on Directors’ interests, please see page 99.
Requirements of the UK Listing Rules
Table C of this report provides references to where the information required by Listing Rule 9.8.4R is disclosed within this Annual Report:
Table C: Listing Rules requirements
Listing Rule requirement
Details of any long term incentive schemes as required by Listing Rule 9.4.3 R.
Details of any arrangements under which a director of the company has waived or agreed to waive any emoluments from the
company or any subsidiary undertaking. Where a director has agreed to waive future emoluments, details of such waiver together
with those relating to emoluments which were waived during the period under review.
Details required in the case of any allotment for cash of equity securities made during the period under review otherwise than
to the holders of the company’s equity shares in proportion to their holdings of such equity shares and which has not been
specifically authorised by the company’s shareholders.
Details of any contract of significance subsisting during the period under review: (a) to which the listed company, or one of its
subsidiary undertakings, is a party and in which a director of the listed company is or was materially interested; and (b) between
the listed company, or one of its subsidiary undertakings, and a controlling shareholder.
Details of any arrangement under which a shareholder has waived or agreed to waive any dividends, where a shareholder has
agreed to waive future dividends, details of such waiver together with those relating to dividends which are payable during the
period under review.
Directors’
Remuneration Report
pages 87 to 104
No such waivers
No such share
allotments
Note 35 page 143
Note 29 page 139
107
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report Directors’ responsibilities for the
financial statements
The Directors are responsible for
preparing the Annual Report and the
Financial Statements in accordance with
international accounting standards in
conformity with the requirements of the
Companies Act 2006 and International
Financial Reporting Standards adopted
pursuant to Regulation (EC) No
1606/2002 as it applies in the European
Union. The financial statements have
also been prepared in accordance
with International Financial Reporting
Standards as issued by the IASB. The
Directors are required to prepare Financial
Statements for each financial year that
give a true and fair view of the financial
position of the Company and of the Group
and the financial performance and cash
flows of the Group for that period. In
preparing those accounts the Directors
are required to select suitable accounting
policies and then apply them consistently;
present information and accounting
policies in a manner that provides relevant,
reliable and comparable information; and
state that the Company and the Group
have complied with applicable accounting
standards, subject to any material
departures disclosed and explained in the
accounts.
The Directors are responsible for keeping
proper accounting records which disclose
with reasonable accuracy at any time the
financial position of the Company and the
Group and enable them to ensure that the
accounts comply with relevant legislation.
They are also responsible for safeguarding
the assets of the Company and the Group
and hence for taking reasonable steps for
the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on
the Company’s website. Information
published on the internet is accessible
in many countries with different legal
requirements. Legislation in the United
Kingdom governing the preparation and
dissemination of Financial Statements may
differ from legislation in other jurisdictions.
Directors’ responsibility statement
The Directors confirm that, to the best of
each person’s knowledge:
a) the Financial Statements set out on
pages 110 to 144, which have been
prepared in accordance with international
accounting standards in conformity with
the requirements of the Companies
Act 2006 and International Financial
Reporting Standards adopted pursuant
to Regulation (EC) No 1606/2002 as it
applies in the European Union and in
accordance with International Financial
Reporting Standards as issued by the
IASB, give a true and fair view of the
assets, liabilities, financial position and
loss of the Company and the Group taken
as a whole;
b) this Directors’ Report along with the
Strategic Report, including each of the
management reports forming part of
these reports, includes a fair review of
the development and performance of the
business and the position of the Company
and the Group taken as a whole, together
with a description of the principal risks
and uncertainties that they face and how
these are being managed and mitigated
as set out in the Risk Management Report
on pages 40 to 49; and
c) the annual report and the Financial
Statements, taken as a whole, are fair,
balanced and understandable and
provide the information necessary for
the shareholders to assess the Group’s
position, performance, business model
and strategy.
Approved by the Board and signed on its
behalf.
JANN BROWN
Managing Director and
Chief Financial Officer
6 April 2021
DIRECTORS’ REPORT - continued
Whistleblowing procedure
The Board has reviewed, and is satisfied
with, the Company’s procedures for
“whistleblowing”, enabling employees
to raise issues in confidence concerning
improprieties which would be addressed
with appropriate follow-up action. The
Group has in place an Ethics Hotline using
an independent confidential telephone
service available to staff to report a
suspected breach of the Group’s Code of
Business Conduct and Ethics.
Business Relationships
In order to foster relationships with
suppliers and customers, Pharos ensures
a robust engagement process before
contracts are awarded. Every vendor is
required to complete due diligence so that
the Company may ensure all corporate
and banking details are recorded and
checked before invoices are issued; this
allows for prompt and accurate payment.
Where possible, payment terms are 30
days from date of receipt of a validly
submitted invoice. A comprehensive
contracts register is maintained to ensure
that post award contract management
is addressed to consider delivery of
appropriate notices of renewal of
termination.
We strive to work constructively with
all our suppliers, customers and other
business partners to build and maintain
productive relationships. In 2020, as a
result of the COVID-19 pandemic, the
Company conducted a thorough review
and consultation process of all contracts
with such suppliers, customers and
other business partners to reduce cost
wherever possible.
Going concern
It should be recognised that any
consideration of the foreseeable future
involves making a judgement, at a
particular point in time, about future
events which are inherently uncertain.
Nevertheless, at the time of preparation
of these accounts and after making
enquiries, the Directors have a reasonable
expectation that the Group has adequate
resources to continue operating for the
foreseeable future. For this reason, and
taking into consideration the additional
factors in the Strategic Report on pages 1
to 64 including the Going Concern section
of the Financial Review on page 38, they
continue to adopt the going concern basis
in preparing the accounts.
108 Pharos Energy Annual Report and Accounts 2020
FINANCIAL
STATEMENTS
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Balance Sheets
Statements of Changes in Equity
Cash Flow Statements
Notes to the Consolidated Financial Statements
110
119
119
120
121
122
123
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Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC
Report on the audit of the financial statements
1. Opinion
In our opinion:
• the financial statements of Pharos Energy plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of
the state of the group’s and of the parent company’s affairs as at 31 December 2020 and of the group’s loss for the year then
ended;
• the group financial statements have been properly prepared in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006, International Financial Reporting Standards (IFRSs) as adopted by the
European Union and IFRSs as issued by the International Accounting Standards Board (IASB);
• the parent company financial statements have been properly prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company balance sheets;
• the consolidated and parent company statements of changes in equity;
• the consolidated and parent company cash flow statements; and
• the related notes 1 to 36.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law,
international accounting standards in conformity with the requirements of the Companies Act 2006 and IFRSs as adopted by the
European Union and as issued by the IASB. The financial reporting framework that has been applied in the preparation of the parent
company financial statements is applicable law and international accounting standards in conformity with the requirements of the
Companies Act 2006.
2. 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 the parent company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-
audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
110
Pharos Energy Annual Report and Accounts 2020 3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
•
Impairment of producing oil & gas assets; and
• Going concern basis of accounting.
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
Scoping
The materiality that we used for the group financial statements was $3 million which was determined
on the basis of 1% of Net assets and 4.4% of earnings before interest, tax, depreciation, depletion
and amortisation, impairment of PP&E and intangibles, exploration expenditure and other
exceptional expenses (EBITDAX). Management’s calculation of EBITDAX is provided on page 146 to
the financial statements.
We focused primarily on the group’s key business units, being Vietnam and Egypt, as well as the
parent company which is based in London. These locations were all subject to full scope audit and
account for 98% of the group’s total assets, 83% of the group’s revenue and 100% of the group’s
loss before tax from loss making entities. Specified audit procedures were then performed on the
remaining 2% of the group’s total assets, 17% of the group’s revenue and 100% of the group’s profit
before tax from profit making entities.
Significant changes in
our approach
The fair value acquisition accounting for Merlon was not included as a key audit matter in the current
year, as the acquisition occurred in 2019 and therefore the risk is no longer applicable in 2020.
We have changed the materiality benchmark from Net assets in 2019 to Net assets and EBITDAX in
2020. See section 6.1 below for details.
No other changes were noted to the key audit matters or our overall audit approach as compared to
the prior year.
4. 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’s and parent company’s ability to continue to adopt the going concern basis of
accounting is discussed in section 5.2.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the group’s and parent company’s ability to continue as a going concern for a period of at
least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the group 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 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.
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Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements INDEPENDENT AUDITOR’S REPORT
5. 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 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.
5.1.
Impairment of producing oil & gas assets
The value of property, plant and equipment relating to the group’s producing oil and gas assets as at 31
December 2020 was $434.6 million (2019: $668.2 million). This is considered as a key audit matter due
to the significant judgements and estimates involved in assessing whether any impairment has arisen at
year-end, and in quantifying any such impairments. In addition, we considered that there was a risk of
impairment due to the potential impact of climate change on long term oil prices. Given the importance
of producing assets to the group and the judgemental nature of the inputs used in determining the
recoverable amounts, we also considered there to be a potential for fraud in this area. We have
assessed an increased risk in 2020 as compared to 2019 as a result of significant oil price volatility.
Management reviewed its two producing assets in Vietnam, being Te Giac Trang (‘TGT’) and Ca Ngu
Vang (‘CNV’), and its one producing asset in Egypt, being El Fayum, for indicators of impairment. As
a result of the significant falls in the oil price which occurred in 2020 and ongoing oil price volatility,
Management revised their oil price assumption downwards during 2020 compared to the prior year
assumptions, as set out in Note 16 on page 133. Given the significance of the revision, together with
changes to estimates of oil & gas reserves, Management concluded that there was an indicator of
impairment for all three of those fields. Management have estimated the recoverable amount of each
field, being its fair value less costs to sell, and compared this to its balance sheet carrying amount.
Management recorded pre-tax impairment charges of $23.3 million on CNV, $81.8 million on TGT and
$105.4 million on El Fayum. No impairment charges were recorded in 2019.
Management’s fair value estimates were based on key assumptions which included:
• oil price forecasts, being $54/bbl in 2021, $57/bbl in 2022, $59/bbl in 2023, $61/bbl in 2024 plus
inflation of 2% thereafter;
• reserves estimates and production profiles;
• post-tax nominal discount rates of 11% for TGT and CNV, and 14% for El Fayum, being 1% and 2%
higher respectively than the previous year; and
• operating and capital expenditure.
In relation to reserves estimates, Management have engaged third party reservoir engineering experts
to provide an independent report on the group’s reserves estimates using standard industry reserve
estimation methods and definitions for each of the CNV, TGT and El Fayum fields. Management have
explained the scope of work of the third party experts and their findings in the operations review, as well
as highlighting oil and gas reserves as a key source of estimation uncertainty in note 4 to the financial
statements.
As referenced in note 4 of the financial statements, the impairment of producing oil & gas assets is
considered by management as a key source of estimation uncertainty.
Further details of the key assumptions used by management in their impairment evaluation are provided
in note 16 of the financial statements and in the Report of the Audit & Risk Committee on pages 82
to 86. The disclosures in note 16 include the sensitivity of the impairment charges to changes in key
assumptions, including the impact of adopting oil prices consistent with the average of a number of
third party forecasts described as being compliant with achieving the Paris agreement goal to limit
temperature rises to well below 2°C (“Paris 2°C Goal”).
Key audit matter
description
112
Pharos Energy Annual Report and Accounts 2020 How the scope of our
audit responded to the
key audit matter
For the TGT, CNV and El Fayum impairment assessments, we obtained an understanding of
management’s key internal controls over the estimation of oil and gas prices, discount rates and reserve
estimates, as well as the overall process by which management has derived its estimates of fair value
less cost to sell. In addition, we conducted the following substantive procedures:
Oil and gas prices:
• We independently developed a reasonable range of forecasts based on external data obtained,
against which we compared management’s oil and gas price assumptions in order to challenge
whether they are reasonable.
•
•
In developing this range, we obtained a variety of reputable and reliable third party forecasts, peer
information and other relevant market data.
In challenging management’s price assumptions, we considered the extent to which they reflect the
impact of lower oil and gas demand due to climate change, the energy transition and COVID-19. This
included consideration of third party forecasts stated as being consistent with achieving the Paris 2°C
Goal.
Discount rates:
• We involved our internal valuation specialists to independently develop a reasonable range of discount
rates for TGT, CNV and El-Fayum and compared those to the rates used by management.
Reserves estimates:
• We understood the process used by management to derive their reserves estimates and associated
production profiles and how they provide information to, and interact with, the third party experts.
• We reviewed the third party experts’ reports on Pharos’ reserves estimates as summarised in the
operations review and evaluated whether these estimates were used consistently throughout the
accounting calculations reflected in the financial statements.
• We communicated directly with the third party reserves experts to discuss and assess their scope of
work, and evaluate their competence, capabilities and objectivity.
• We compared the production forecasts used in the impairment tests with management’s approved
reserves and resources estimates.
Other procedures:
• We assessed management’s other assumptions by reference to third party information, our
knowledge of the group and industry and also budgeted and forecast performance.
• We assessed that Pharos’ impairment methodology was acceptable under IFRS and tested the
integrity and mechanical accuracy of the impairment models.
• We assessed whether management’s presentation and disclosures relating to impairment and
associated estimation uncertainty were adequate.
Key observations
We are satisfied that the impairment charges recorded by management are appropriate. We are also
satisfied that appropriate disclosures relating to Management’s impairment assessment and sensitivities
have been provided in Note 16.
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5.2. Going concern basis of accounting
Key audit matter
description
As a result of the significant fall in the oil price which occurred in 2020 and ongoing oil price volatility,
we consider the appropriateness of the going concern basis of accounting and the appropriateness of
Management’s disclosure in this area to be a key audit matter.
Management have prepared a base case cash flow forecast for a period of at least 12 months from the
date of approval of the financial statements and also considered a number of downside scenarios.
The key assumptions used by management in their base case include:
• oil price forecasts, being $54.8/bbl in 2021 and $57/bbl in 2022;
• production and expenditure forecasts for TGT and CNV consistent with management’s latest life of
field production models; and
• production and expenditure forecasts for El Fayum based on an assumption of no further drilling, in
contrast to the full field development plan (FFDP) case used for the (fair value based) impairment test,
as the proposed farm-out process to provide funding for the FFDP has not yet completed.
Management’s downside scenarios include individual sensitivities relating to oil price and production.
They have also considered an aggregated downside scenario, with key assumptions including:
• oil price forecast of $35/bbl in March 2021, increasing by $5/bbl every 2 months until the oil price
forecast is back in line with the base case by October 2021; and
• 5% reduction in production for its Vietnam and Egypt producing assets.
The aggregated downside scenario also includes a number of mitigating actions, of which the most
significant is the deferral of uncommitted capital expenditure at TGT.
Management’s base case forecasts that the group will remain cash positive and in compliance with
the financial covenants in its reserve based lending (RBL) facility for at least 12 months from the date
of approval of the financial statements. In the downside scenario, the group is forecast to remain cash
positive but there is a risk that liquidity falls below a minimum threshold specified under the terms of the
RBL facility. However, management have identified additional mitigations, including the impact of recently
agreed improvements in the fiscal terms of the concession agreement in Egypt and further expenditure
reductions, which result in them forecasting to remain in compliance with the RBL liquidity threshold
for the 12 month period. A reverse stress test has also been performed to show the extent to which oil
prices would need to fall before the group breached its RBL liquidity covenant. Based on the analysis
outlined above, management have concluded that the going concern basis of accounting is appropriate.
Further details of the key assumptions used by management are provided in the going concern section
of note 4(a) to the financial statements and page 38 in the Financial Review section of the Annual Report.
How the scope of our
audit responded to the
key audit matter
We obtained an understanding of management’s key internal controls over the going concern basis of
accounting process. In addition, we conducted the following substantive procedures:
• assessed that the forecasts incorporated in the base case model are consistent with the budget
approved by the Board;
• compared the key assumptions in the base case forecast to those used in the impairment models for
oil & gas producing assets and understood the basis for any differences;
• assessed the historical accuracy of budgets prepared by Management;
• compared the oil prices in the aggregated downside scenario with both the spot oil price and publically
available forward curves as of the date of approval of the financial statements;
• assessed and recalculated the impact of the aggregated downside scenario on the financial covenants
included in the RBL during the going concern period;
• assessed the ability of management to execute the mitigating actions in its aggregated downside
scenario, including the extent to which the adjustments made to capital expenditure are uncommitted
as of the date of this report;
• assessed the results of the oil price reverse stress test, by comparing to currently prevailing prices;
• tested the going concern model for mechanical accuracy; and
• assessed whether the disclosures relating to going concern are appropriate.
Key observations
Based on the cash flow forecasts prepared by Management, we are satisfied that it is appropriate to
adopt the going concern basis of accounting in preparing the financial statements.
114
Pharos Energy Annual Report and Accounts 2020 6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions
of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent company financial statements
Materiality
$3 million (2019: $7 million)
$2.7 million (2019: $6.3 million)
Basis for
determining
materiality
Rationale for
the benchmark
applied
1% of net assets and 4.4% of EBITDAX
(2019: 1.4% of net assets)
0.8% of net assets (2019: 1.1% of net assets)
Consistent with prior year, as the primary nature
of this holding company is to hold investments in
subsidiaries, we have concluded that net assets
represents the most appropriate benchmark.
In the prior year, materiality was based on net
assets. This metric is still considered relevant as
it is reflective of the long term value of the group
through its portfolio of producing and exploration
assets. However, in the current year we concluded
that consideration should also be given to an income
statement metric, as the majority of the group’s oil
& gas assets are now at the producing stage and
the group has had its first full year of operations in
Egypt. As the group has been loss making in the
year, the most relevant income statement metric was
considered to be EBITDAX, noting that this is also
an input to one of the covenants under the group’s
reserve based lending (RBL) facility.
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
Performance
materiality
Basis and
rationale for
determining
performance
materiality
Group financial statements
Parent company financial statements
70% (2019: 70%) of group materiality
70% (2019: 70%) of parent company materiality
In determining the performance materiality, we considered the following factors:
a) the controls environment within which the group operates, including that related to IT, is not considered to
be complex;
b) the responsibility for all key accounting judgements and critical sources of estimation uncertainty is
centralised and conducted in the head office in London;
c) the limited number of changes to the business during the year;
d) the limited turnover of management and key accounting personnnel in 2020; and
e) the history of a low number of corrected and uncorrected misstatements identified in previous periods.
6.3. Error reporting threshold
We agreed with the Audit & Risk Committee that we would report to the Committee all audit differences in excess of $0.15 million (2019:
$0.35 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to
the Audit & Risk Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
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7. An overview of the scope of our audit
Identification and scoping of components
7.1.
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls, and
assessing the risks of material misstatement at the group level. Based on that assessment, we scoped in the group’s key business
units, Vietnam and Egypt, which are accounted for partly in the local country of operation and partly in London, together with the parent
company which is also accounted for in London. The Vietnamese component, the Egyptian component and the parent company, which
are all subject to full scope audits, accounted for 98% (2019: 98%) of the group’s total assets, 83% (2019: 100%) of the group’s revenue
and 100% (2019: 82%) of the group’s loss before tax from loss making entities. Specified audit procedures were then performed on the
remaining 2% (2019: 2%) of the group’s total assets, 17% (2019: 0%) of the group’s revenue and 100% (2019: 100%) of the group’s
profit before tax from profit making entities. The Vietnamese component materiality was $1.575 million (2019: $5.6 million) and the
Egyptian component materiality was $1.155 million (2019: $4.2 million). We also audited the consolidation of the group’s business units.
In both the current and the prior year, all of the key audit matters that had the greatest effect on our audit strategy, as described above,
were audited directly by the group audit team in London.
At the group level, we also tested the consolidation process, impairment of producing oil & gas assets, going concern, accounting for
leases, borrowings and intercompany. We also carried out analytical procedures to support our conclusion that there were no significant
risks of material misstatement of the aggregated financial information of the remaining components not subject to audit or audit of
specified account balances.
7.2. Working with other auditors
The group audit team assesses each year how best to be appropriately involved in the audit work undertaken in Vietnam and Egypt.
In the current year, as a result of travel restrictions due to the Covid-19 pandemic, this was achieved by regular interaction and review
through correspondence, telephone and other electronic media as well as performing a remote review of the underlying work of the
component auditors in selected key areas by a senior member of the audit team.
In addition to our direct interactions, we sent detailed instructions to our component audit teams, and reviewed their audit working
papers.
8. 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.
9. Responsibilities of 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 and the parent company’s ability to continue
as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless
the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do
so.
10. Auditor’s 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 the 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 audit of 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.
11. 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. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
116
Pharos Energy Annual Report and Accounts 2020 11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the group’s remuneration
policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• the group’s own assessment of the risks that irregularities may occur either as a result of fraud or error;
• results of our enquiries of management and the audit and risk committee about their own identification and assessment of the risks of
irregularities;
• any matters we identified having obtained and reviewed the group’s documentation of their policies and procedures relating to:
- identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
- detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
- the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
• the matters discussed among the audit engagement team including significant component audit teams and relevant internal
specialists, including tax and valuations specialists, regarding how and where fraud might occur in the financial statements and any
potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in management’s assessment of the impairment of producing oil & gas assets. In common with
all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that the group operates in, focusing on provisions of those
laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The
key laws and regulations we considered in this context included the UK Companies Act, the Listing Rules and tax legislation in the UK,
Vietnam and Egypt.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the group’s ability to operate or to avoid a material penalty. These included the group’s
operating licences and environmental regulations in both Egypt and Vietnam, the El Fayum concession agreement in Egypt and the TGT
and CNV production sharing contracts in Vietnam.
11.2. Audit response to risks identified
As a result of performing the above, we identified impairment of producing oil & gas assets as a key audit matter related to the potential
risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific procedures
we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the audit and risk committee and in-house and external legal counsel concerning actual and potential
litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement
due to fraud;
• reading minutes of meetings of those charged with governance and making enquiries regarding any relevant legal correspondence;
and
•
in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members, including
internal specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws
and regulations throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
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 group and the parent company and their environment obtained in the course
of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
117
Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements
INDEPENDENT AUDITOR’S REPORT
13. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the group’s compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 38;
• the 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 pages 48, 49;
• the directors’ statement on fair, balanced and understandable set out on page 83;
• the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 40;
• the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out
on page 85; and
• the section describing the work of the audit & risk committee set out on pages 82 to 86.
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received
from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the audit & risk committee, we were appointed by the directors on 1 August 2002 to audit the financial
statements for the year ending 31 December 2002 and subsequent financial periods. The period of total uninterrupted engagement
including previous renewals and reappointments of the firm is 19 years, covering the years ending 31 December 2002 to 31 December
2020.
15.2. Consistency of the audit report with the additional report to the audit & risk committee
Our audit opinion is consistent with the additional report to the audit & risk committee we are required to provide in accordance with
ISAs (UK).
16. Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have
formed.
DAVID PATERSON ACA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
6 April 2021
118
Pharos Energy Annual Report and Accounts 2020
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Income Statement for the year to 31 December 2020
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Impairment charge – Intangibles
Impairment charge – PP&E
Operating (loss)/profit
Other/exceptional expense
Investment revenue
Finance costs
(Loss)/Profit before tax
Tax
Loss for the year from continuing operations
Discontinued operations
(Loss)/profit pre and post-tax for the year from discontinued operations
Loss for the year
Loss per share from continuing operations (cents)
Basic
Diluted
Loss per share from continuing and discontinued operations (cents)
Basic
Diluted
Notes
2020
$ million
2019
$ million
5, 6
7
6, 15
6, 16
8
5
9
6
6, 12
6
30
14
142.0
(123.8)
18.2
(14.7)
(24.3)
(210.5)
(231.3)
(5.8)
0.1
(4.2)
(241.2)
25.6
(215.6)
189.7
(128.6)
61.1
(23.1)
–
–
38.0
(16.7)
1.9
(11.5)
11.7
(38.2)
(26.5)
(0.2)
2.0
(215.8)
(24.5)
(54.6)
(54.6)
(54.6)
(54.6)
(7.0)
(7.0)
(6.5)
(6.5)
Consolidated Statement of Comprehensive Income for the
year to 31 December 2020
Loss for the year
Items that may be subsequently reclassified to profit or loss:
Fair value gain/(loss) arising on hedging instruments during the year
Less: Cumulative (gain)/loss arising on hedging Instruments reclassified to profit or loss
Total comprehensive loss for the year
Notes
30
25
25
2020
$ million
(215.8)
20.0
(23.7)
(219.5)
2019
$ million
(24.5)
(2.8)
0.2
(27.1)
The above consolidated income statement and consolidated statement of comprehensive income should be read in conjunction with the
accompanying notes.
119
Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements
CONSOLIDATED FINANCIAL STATEMENTS - continued
Balance Sheets as at 31 December 2020
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Investments
Loan to subsidiaries
Other assets
Current assets
Inventories
Trade and other receivables
Tax receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Tax payable
Net current assets (liabilities)
Non-current liabilities
Deferred tax liabilities
Borrowings
Lease liabilities
Long term provisions
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained (deficit)/earnings
Total equity
Notes
15
16
16, 33
17
18
19
20
21
22
24
33
23
24
33
26
27
28
30
2020
$ million
Group
2019
$ million
2020
$ million
Company
2019
$ million
1.5
435.7
0.1
–
–
45.9
483.2
17.7
22.9
0.6
24.6
65.8
549.0
(35.6)
(12.7)
(0.4)
(6.7)
(55.4)
10.4
(85.5)
(41.0)
–
(73.4)
(199.9)
(255.3)
293.7
31.9
55.4
243.0
(36.6)
293.7
20.4
669.6
7.3
–
–
43.6
740.9
16.2
41.2
1.2
58.5
117.1
858.0
(35.5)
(26.4)
(0.8)
(8.8)
(71.5)
45.6
(137.8)
(71.7)
(6.4)
(60.5)
(276.4)
(347.9)
510.1
31.9
55.4
246.6
176.2
510.1
–
–
–
268.1
21.1
–
289.2
–
1.6
0.6
3.5
5.7
0.3
0.6
6.3
539.2
16.8
–
563.2
–
0.5
0.3
4.5
5.3
294.9
568.5
(2.7)
–
–
(0.4)
(3.1)
2.6
–
–
–
–
–
(3.1)
291.8
31.9
55.4
197.6
6.9
291.8
(5.5)
–
(0.3)
(1.7)
(7.5)
(2.2)
–
–
(6.0)
–
(6.0)
(13.5)
555.0
31.9
55.4
199.3
268.4
555.0
The above consolidated balance sheets should be read in conjunction with the accompanying notes.
The loss for the financial year in the accounts of the Company (Co number 3300821) was $264.5m inclusive of dividends from subsidiary
undertakings (2019: $24.4m profit). As provided by section 408 of the Companies Act 2006, no income statement or statement of
comprehensive income is presented in respect of the Company.
The financial statements were approved by the Board of Directors on 6 April 2021 and signed on its behalf by:
JOHN MARTIN
Chairman
JANN BROWN
Director
120
Pharos Energy Annual Report and Accounts 2020
Statements of Changes in Equity for the year to 31 December 2020
As at 31 December 2020
31.9
55.4
As at 1 January 2019
Loss for the year
Other comprehensive loss
Currency exchange translation differences
Shares issued
Distributions
Share-based payments
Transfer relating to share-based payments
As at 1 January 2020
Loss for the year
Other comprehensive loss
Currency exchange translation differences
Share-based payments
Notes
30
28
28
29, 30
28
28, 30
30
28
28
28
Transfer relating to share-based payments
28, 30
As at 1 January 2019
Profit for the year
Currency exchange translation differences
Shares issued
Distributions
Share-based payments
Transfer relating to share-based payments
As at 1 January 2020
Loss for the year
Currency exchange translation differences
Share-based payments
Notes
13, 30
28
29, 30
28
28, 30
13, 30
28
28
Transfer relating to share-based payments
28, 30
Called up
share capital
(see Note 27)
$ million
Share
premium
$ million
Other reserves
(see Note 28)
$ million
Retained
earnings
(see Note 30)
$ million
27.6
–
–
–
–
–
–
–
4.3
55.4
–
–
–
–
–
–
31.9
55.4
–
–
–
–
–
–
–
–
–
–
27.6
–
–
4.3
–
–
–
–
–
–
55.4
–
–
–
31.9
55.4
–
–
–
–
–
–
–
–
246.6
–
(2.6)
0.4
–
–
3.7
(1.5)
246.6
–
(3.7)
0.8
2.3
(3.0)
243.0
226.6
(24.5)
–
–
–
–
1.5
176.2
(215.8)
–
–
–
3.0
(36.6)
196.7
–
0.4
–
–
3.7
(1.5)
199.3
–
0.8
2.3
(4.8)
197.6
269.9
24.4
–
–
(27.4)
–
1.5
268.4
(264.5)
–
–
3.0
6.9
Called up
share capital
(see Note 27)
$ million
Share
premium
$ million
Other reserves
(see Note 28)
$ million
Retained
earnings
(see Note 30)
$ million
As at 31 December 2020
31.9
55.4
The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.
(27.4)
(27.4)
Group
Total
$ million
500.8
(24.5)
(2.6)
0.4
59.7
3.7
–
510.1
(215.8)
(3.7)
0.8
2.3
–
293.7
Company
Total
$ million
494.2
24.4
0.4
59.7
(27.4)
3.7
–
555.0
(264.5)
0.8
2.3
(1.8)
291.8
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Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements
CONSOLIDATED FINANCIAL STATEMENTS - continued
Cash Flow Statements for the year to 31 December 2020
2020
$ million
Group
2019
$ million
Company
2020
$ million
2019
$ million
56.4
72.3
(16.9)
(21.1)
Notes
32
Net cash from (used in) operating activities
Investing activities
Purchase of intangible assets
Purchase of property, plant and equipment
Payment for acquisition of subsidiary, net of cash acquired
Payment to abandonment fund
18
Other investment in subsidiary undertakings
Dividends received from subsidiary undertakings
Net cash (used in) from continuing investing activities
Net cash used in discontinued investing activities
Net cash (used in) from investing activities
Financing activities
Repayment of borrowings
Interest paid on borrowings
Lease payments
Share-based payments
Dividends paid to company shareholders
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
24
24
33
29
21
(3.5)
(35.5)
–
(2.3)
–
–
(9.9)
(50.2)
(153.1)
(3.3)
–
–
(41.3)
(216.5)
–
(0.7)
(41.3)
(217.2)
(42.8)
(4.6)
(1.1)
–
–
(48.5)
(33.4)
58.5
(0.5)
24.6
–
(7.7)
(1.2)
0.1
(27.4)
(36.2)
(181.1)
240.1
(0.5)
58.5
–
–
–
–
(5.4)
21.8
16.4
–
16.4
–
–
(0.5)
–
–
(0.5)
(1.0)
4.5
–
3.5
(0.3)
(0.6)
(155.5)
–
16.8
87.5
(52.1)
–
(52.1)
–
–
(0.9)
0.1
(27.4)
(28.2)
(101.4)
105.9
–
4.5
The above consolidated cash flow statements should be read in conjunction with the accompanying notes.
122
Pharos Energy Annual Report and Accounts 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. General information
Pharos Energy plc is a company limited
by shares and incorporated in England
and Wales under the Companies Act.
The address of the registered office
is given on the inside back cover. The
nature of the Group’s operations and its
principal activities are set out in Note 6,
in the Operations Review and Financial
Review on pages 24 to 32 and 35 to 39,
respectively. Pharos Energy plc is the
ultimate parent company of the Group
and except where otherwise indicated the
following accounting policies apply to both
the Group and the Company.
2. Significant accounting
policies
a) Basis of preparation
The financial statements have been
prepared in accordance with international
accounting standards in conformity with
the requirements of the Companies
Act 2006 and International Financial
Reporting Standards adopted pursuant
to Regulation (EC) No 1606/2002 as
it applies in the European Union. The
financial statements have also been
prepared in accordance with International
Financial Reporting Standards as issued
by the IASB.
The Financial Statements have also been
prepared on a going concern basis of
accounting for the reasons set out in the
Annual Report of the Directors on page
108 and in the Financial Review on
page 38.
The Financial Statements have been
prepared under the historical cost basis,
except for the valuation of hydrocarbon
inventories and the revaluation of certain
financial instruments. The Financial
Statements are presented in US dollars as
it is the functional currency of each of the
Company’s subsidiary undertakings and is
generally accepted practice in the oil and
gas sector.
The principal accounting policies adopted
are set out below.
b) New and amended standards
adopted by the Group
A number of new or amended standards
became applicable for the current
reporting period. The group did not have
to change its accounting policies or make
retrospective adjustments as a result of
adopting these standards.
•
IAS 1 Presentation of Financial
Statements and IAS 8 Accounting
Policies, Changes in Accounting
Estimates and Errors (Amendment
– Disclosure Initiative - Definition of
Material)
•
IFRS 3 Business Combinations
(Amendment – Definition of Business)
• Conceptual Framework for Financial
Reporting (Revised)
•
IBOR Reform and its Effects on
Financial Reporting – Phase 1
c) New standards and interpretations
not yet adopted
Certain new accounting standards and
interpretations have been published that
are not mandatory for 31 December
2020 reporting periods and have not
been early adopted by the Group. These
standards are not expected to have
a material impact on the Group in the
current or future reporting periods nor on
foreseeable future transactions.
d) Basis of consolidation
The Group Financial Statements
consolidate the accounts of Pharos
Energy plc and entities controlled by the
Company (its subsidiary undertakings)
drawn up to the balance sheet date.
Control is achieved where the investor 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. The
results of subsidiaries acquired or sold are
consolidated for the periods from or to the
date on which control passed.
e) Business combinations
Acquisitions of businesses are accounted
for using the acquisition method. The
consideration transferred in a business
combination is measured at fair value,
which is calculated as the sum of the
acquisition-date fair values of assets
transferred by the Group, liabilities
incurred by the Group to the former
owners of the acquiree and the equity
interests issued by the Group in exchange
for control of the acquiree. Acquisition-
related costs are recognised in profit or
loss as incurred. Assets acquired and
liabilities assumed are recorded at their
acquisition date fair values.
Goodwill is measured as the excess of the
sum of the consideration transferred, the
amount of any non-controlling interests
in the acquiree, and the fair value of
the acquirer’s previously held equity
interest in the acquiree (if any) over the
net of the acquisition-date amounts of
the identifiable assets acquired and the
liabilities assumed. If, after reassessment,
the net of the acquisition-date amounts
of the identifiable assets acquired and
liabilities assumed exceeds the sum
of the consideration transferred, the
amount of any non-controlling interests
in the acquiree and the fair value of the
acquirer’s previously held interest in the
acquiree (if any), the excess is recognised
immediately in profit or loss as a bargain
purchase gain.
Investments
f)
Non-current investments in subsidiaries
of the Company are shown at cost
less provision for impairment. Liquid
investments comprise short-term liquid
investments of between three to six
months maturity.
Interests in joint arrangements
g)
A joint arrangement is an arrangement
where two or more parties have joint
control. Joint control is the contractually
agreed sharing of control of an
arrangement, which exists only when
decisions about the relevant activities
require the unanimous consent of
the parties sharing control. Joint
arrangements where the Group has
the rights to assets and obligations for
liabilities of the arrangement are classified
as joint operations and are accounted
for by recognising the Group’s share of
assets, liabilities, income and expenses.
Joint arrangements where the Group
has the rights to the net assets of the
arrangement are classified as joint
ventures and are accounted for using the
equity method of accounting.
h) Revenue
Revenue represents the fair value of
the Group’s share of oil and gas sold
during the year on a liftings basis and is
recognised when the Group satisfies a
performance obligation by transferring
oil and gas to a customer. In accordance
with the Group’s sales agreements for oil
and gas, the title to oil and gas typically
transfers to a customer at the same
time as the customer takes physical
possession of the oil or gas. Typically,
at this point in time, the performance
obligations of the Group are fully satisfied.
Investment revenue is accrued on a
time basis, by reference to the principal
outstanding and at the effective interest
rate applicable.
i) Other/exceptional items
Other/exceptional items represents
income and expenses that arise from
events or transactions that are clearly
distinct from the ordinary activities of the
Group and, therefore, are not expected to
recur frequently or regularly. Refer to Note
8 for further details.
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Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
j)
Intangible and tangible non-
current assets
Oil and gas exploration, evaluation and
development expenditure
The Group adopts the successful efforts
method of accounting for exploration
and evaluation costs. Pre-licence costs
are expensed in the period in which
they are incurred. All licence acquisition,
exploration and evaluation costs and
direct administration costs are initially
capitalised as intangible non-current
assets in cost centres by well (most
typically), field or exploration area,
as appropriate. Interest payable is
capitalised insofar as it relates to specific
development activities.
These costs are then written off as
exploration costs in the income statement
unless commercial reserves have been
established or the determination process
has not been completed and there are no
indicators of impairment.
All field development costs are capitalised
as property, plant and equipment.
Property, plant and equipment related
to production activities is amortised in
accordance with the Group’s depreciation,
depletion and amortisation accounting
policy.
Depreciation, depletion and
amortisation
Depletion is provided on oil and gas
assets in production using the unit of
production method, based on proven and
probable reserves, applied to the sum of
the total capitalised exploration, evaluation
and development costs, together with
estimated future development costs
at current prices. Oil and gas assets
which have a similar economic life are
aggregated for depreciation purposes.
Impairment of value
Where there has been a change in
economic conditions or in the expected
use of a tangible non-current asset
that indicates a possible impairment
of an asset, management tests the
recoverability of the net book value of the
asset by comparison with the estimated
discounted future net cash flows based
on management’s expectations of future
oil prices and future costs. Any identified
impairment is charged to the income
statement in the period in which it is
identified.
Intangible non-current assets are
considered for impairment at least
annually by reference to the indicators
specified in paragraphs 18 to 20 of IFRS
6. The impairment indicators in IFRS 6 for
each exploration asset are:
• The period for which the entity has the
right to explore in the specific area has
expired during the period or will expire
124
in the near future, and is not expected
to be renewed;
• Substantive expenditure on further
exploration for and evaluation of mineral
resources in the specific area is neither
budgeted nor planned;
• Exploration for and evaluation of
mineral resources in the specific
area have not led to the discovery
of commercially viable quantities of
mineral resources and the entity has
decided to discontinue such activities in
the specific area; and
• Sufficient data exist to indicate
that, although a development in the
specific area is likely to proceed, the
carrying amount of the exploration
and evaluation asset is unlikely to
be recovered in full from successful
development or by sale.
Other tangible non-current assets
Other tangible non-current assets are
stated at historical cost less accumulated
depreciation. Depreciation is provided on
a straight-line basis at rates calculated
to write off the cost of those assets, less
residual value, over their expected useful
lives of three to seven years.
Decommissioning
The decommissioning provision is
calculated as the net present value of the
Group’s share of the expenditure which is
expected to be incurred at the end of the
producing life of each field in the removal
and decommissioning of the production,
storage and transportation facilities
currently in place. The cost of recognising
the decommissioning provision is
included as part of the cost of the relevant
property, plant and equipment and is thus
charged to the income statement on a
unit of production basis in accordance
with the Group’s policy for depletion
and depreciation of tangible non-current
assets. Period charges for changes in the
net present value of the decommissioning
provision arising from discounting are
included in finance costs.
k) Changes in estimates
The effects of changes in estimates on
the unit of production calculations are
accounted for prospectively, from the
date of adoption of the revised estimates,
over the estimated remaining proven and
probable reserves.
Inventories
l)
Inventories, except for inventories of
hydrocarbons, are valued at the lower of
cost and net realisable value.
Physical inventories of hydrocarbons
are valued at net realisable value in line
with well established industry practice.
Underlifts and overlifts are valued at
market value and are included in accrued
income and prepayments, and accruals
and deferred income, respectively.
Changes in hydrocarbon inventories,
underlifts and overlifts are adjusted
through cost of sales.
m) Leases
On inception of a contract, the Group
assesses whether the contract is, or
contains, a lease. The contract is, or
contains, a lease if it conveys the right
to control the use of an identified asset
for a period of time in exchange for
consideration. To determine whether
the contract conveys the right to control
the use of an identified asset, the Group
assesses whether the contract involves
the use of an identified asset, the Group
has the right to obtain substantially all of
the economic benefits from the use of the
asset throughout the period of use, and
the Group has the right to direct the use
of the asset.
For short-term leases (lease term less
than 12 months) and leases for which the
underlying asset is of low value assets,
the Group has opted to recognise a lease
expense on a straight-line basis.
Right-of-use assets are measured at the
amount of the corresponding lease liability
on the date of initial adoption (adjusted for
any prepaid or accrued lease expenses).
Lease liabilities are measured at the
present value of the remaining lease
payments, discounted using the interest
rate implicit in the lease (if available), or
the incremental borrowing rate at start of
the lease.
n) Share-based payments
Equity-settled awards under share-based
incentive plans are measured at fair value
at the date of grant and expensed on a
straight-line basis over the performance
period along with a corresponding
increase in equity. Fair value is measured
using an option pricing model taking
into consideration management’s best
estimate of the expected life of the option
and the estimated number of shares that
will eventually vest.
For cash-settled share-based payments, a
liability is recognised measured initially at
fair value. At each balance sheet date until
the liability is settled, and at the date of
settlement, the fair value of the liability is
measured, with any changes in fair value
recognised in profit or loss for the year.
Pharos Energy Annual Report and Accounts 2020 o) Taxation
The tax expense represents the sum of
the tax currently payable and deferred tax.
The tax currently payable is based on
taxable profit for the year. The Group’s
liability for current tax is calculated using
tax rates that have been enacted or
substantively enacted by the balance
sheet date.
Deferred tax is the tax expected to be
payable or recoverable on differences
between the carrying amounts of assets
and liabilities in the financial statements
and the corresponding tax bases, and is
accounted for using the balance sheet
liability method. Deferred tax liabilities
are generally recognised for all taxable
temporary differences and deferred tax
assets are recognised to the extent
that it is probable that sufficient taxable
profits will be available to recover the
asset. Deferred tax is not recognised
where an asset or liability is acquired in
a transaction which is not a business
combination for an amount which differs
from its tax value.
Deferred tax liabilities are recognised
for taxable temporary differences
arising on investments in subsidiaries
and associates, and interests in joint
ventures, except where the Group is able
to control the reversal of the temporary
difference and it is probable that the
temporary difference will not reverse in the
foreseeable future.
Deferred tax is calculated at the tax
rates that are expected to be applied in
the period when the liability is settled or
the asset is realised based on tax rates
that have been enacted or substantively
enacted by the balance sheet date.
Deferred tax is charged or credited in the
income statement, except when it relates
to items charged or credited directly to
equity, in which case the deferred tax is
also dealt with in equity.
p) Financial instruments
Financial assets and financial liabilities are
recognised on the Group’s balance sheet
when the Group becomes a party to the
contractual provisions of the instrument.
There are no material financial assets
and liabilities for which differences
between carrying amounts and fair
values are required to be disclosed. The
classification of financial instruments as
required by IFRS 7 is disclosed in Notes
20, 21, 22, 24 and 33.
Financial asset at fair value through
profit or loss
Where a financial instrument is classified
as a financial asset at fair value through
profit or loss it is initially recognised at
fair value. At each balance sheet date
the fair value is reviewed and any gain or
loss arising is recognised in the income
statement. Changes in the net present
value of the financial asset arising from
discounting are included in other income
and expense. As at 31 December 2020
and 2019 no financial assets were
classified at fair value through profit or
loss.
Trade receivables
Trade receivables are recognised initially
at fair value and subsequently measured
at amortised cost, less loss allowance,
when required.
Trade payables
Trade payables are generally stated at
amortised cost using the effective interest
rate.
Derivative and hedging instruments
Derivatives are initially recognised at
fair value on the date that a derivative
contract is entered into, and they are
subsequently remeasured to their fair
value at the end of each reporting period.
The accounting for subsequent changes
in fair value depends on whether the
derivative is designated as a hedging
instrument and, if so, the nature of the
item being hedged.
At inception of the hedge relationship,
the Group documents the economic
relationship between hedging instruments
and hedged items, including whether
changes in the cash flows of the hedging
instruments are expected to offset
changes in the cash flows of hedged
items. The Group documents its risk
management objective and strategy for
undertaking its hedge transactions.
Pharos entered into different commodity
(swap) hedges to protect the Brent
component of forecast oil sales and
to ensure future compliance with its
obligations under the RBL. Pharos has
designated the swaps as cash flow
hedges. For cash flow hedges, the
portion of the gains and losses on the
hedging instrument that is determined
to be an effective hedge is taken to
other comprehensive income and the
ineffective portion is recognised in the
income statement. The gains and losses
taken to other comprehensive income are
subsequently transferred to the income
statement during the period in which the
hedged transaction affects the income
statement.
Borrowings
Interest-bearing bank loans are recorded
at the proceeds received, net of direct
issue costs. Finance charges, including
any direct issue costs, are accounted
for on an accrual basis in the income
statement using the effective interest
method and are added to the carrying
amount of the instrument to the extent
that they are not settled in the year in
which they arise.
Equity instruments
Equity instruments issued by the
Company are recorded at the proceeds
received, net of direct issue costs. Equity
instruments repurchased are deducted
from equity at cost.
q) Provisions
A contingent liability is disclosed unless
the possibility of an outflow of resources
embodying economic benefits is remote
or the amount of the liability cannot be
measured with sufficient reliability.
Contingent liabilities may develop in a
way not initially expected. Therefore, they
are assessed continually to determine
whether an outflow of resources
embodying economic benefits has
become probable. If it becomes probable
that an outflow of future economic
benefits will be required for an item
previously dealt with as a contingent
liability, a provision is recognised in the
financial statements of the period in which
the change in probability occurs.
Provisions are recognised when the
Group has a present obligation (legal or
constructive) as a result of a past event, it
is probable that the Group will be required
to settle that obligation and a reliable
estimate can be made of the amount of
the obligation.
The amount recognised as a provision
is the best estimate of the consideration
required to settle the present obligation at
the reporting date, taking into account the
risks and uncertainties surrounding the
obligation. Where a provision is measured
using the cash flows estimated to settle
the present obligation, its carrying amount
is the present value of those cash flows
(when the effect of the time value of
money is material).
When some or all of the economic
benefits required to settle a provision
are expected to be recovered from a
third party, a receivable is recognised
as an asset if it is virtually certain that
reimbursement will be received and
the amount of the receivable can be
measured reliably.
125
Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
r) Foreign currencies
The individual financial statements of each
Group company are stated in the currency
of the primary economic environment
in which it operates (its functional
currency). Transactions in currencies
other than the entity’s functional currency
(foreign currency) are recorded at the
rate of exchange at the date of the
transaction. Monetary assets and liabilities
denominated in foreign currencies at the
balance sheet date are recorded at the
rates of exchange prevailing at that date,
or if appropriate, at the forward contract
rate. Any resulting gains and losses are
included in net profit or loss for the period.
For the purpose of presenting
consolidated financial statements
the results of entities denominated in
currencies other than US dollars are
translated at the daily rate of exchange
and their balance sheets at the rates
ruling at the balance sheet date. Any
resulting gains or losses are taken to other
comprehensive income.
s) Pension costs
The contributions payable in the year
in respect of pension costs for defined
contribution schemes and other post-
retirement benefits are charged to the
income statement. Differences between
contributions payable in the year and
contributions actually paid are shown
either as accruals or prepayments in the
balance sheet.
3. Financial risk management
The Board reviews and agrees policies for
managing financial risks that may affect
the Group. In certain cases the Board
delegates responsibility for such reviews
and policy setting to the Audit and Risk
Committee. The principal financial risks
affecting the Group are discussed in the
Risk Management Report on pages 40
to 49.
126
4. Critical judgements and
accounting estimates
a) Critical judgements in applying
the Group’s accounting policies
In the process of applying the Group’s
accounting policies described in Note
2, management has made judgements
that may have a significant effect on
the amounts recognised in the financial
statements. These are discussed below:
Oil and gas assets
Note 2(j) describes the judgements
necessary to implement the Group’s
policy with respect to the carrying value
of intangible exploration and evaluation
assets.
Management considers these assets
for impairment at least annually with
reference to indicators in IFRS 6. Note 15
discloses the carrying value of intangible
exploration and evaluation assets along
with details of impairment charges that
arose during the year. Further, Note 2(j)
describes the Group’s policy regarding
reclassification of intangible assets to
tangible assets. Management considers
the appropriateness of asset classification
at least annually.
Going concern
The Financial Statements have been
prepared on the going concern basis of
accounting. A number of judgements
were taken in concluding that this basis
of preparation was appropriate and that
there were no material uncertainties in
this regard. These included applying
appropriate estimates of future production
and oil price together with ensuring that
the forecasts included all expenditure
that was either committed or expected
to be incurred in relation to estimated
production volumes. Consideration
was also given to the potential ongoing
impact of the COVID-19 pandemic.
During 2020, the pandemic did not
cause any interruptions to the group’s
producing assets in Vietnam and Egypt
and accordingly the primary impact to
the group’s cash generating ability due
to the pandemic in the next 12 months
is considered to be the risk of further oil
price reductions due to global supply
and demand dislocations. This risk has
been taken into consideration through
downside oil price sensitivities, including
the application of a reverse stress test.
Further details in this area are provided
in the Annual Report of the Directors on
page 108 and in the Financial Review on
page 38.
b) Key sources of estimation
uncertainty
The key assumptions concerning
the future, and other key sources of
estimation uncertainty at the balance
sheet date, other than those mentioned
above, that may have a significant risk
of causing a material adjustment to the
carrying amounts of assets and liabilities
within the next financial year are discussed
below:
Oil and gas reserves and DD&A
Note 2(j) sets out the Group’s accounting
policy on DD&A. Proven and probable
reserves are estimated using standard
recognised evaluation techniques and
are disclosed on page 148. The estimate
is reviewed at least twice a year and is
audited by third party reservoir engineers
at year end. Future development costs
are estimated taking into account the level
of development required to produce the
reserves by reference to operators, where
applicable, and internal engineers. As
discussed in the Operations Review on
page 30, the Vietnam fields, TGT and CNV
proved and probable reserves estimates
have been revised based on ongoing work
of ERCE and audited by our Reserves
Auditors, RISC Advisory Pty Ltd. Egypt
proved and probable reserves estimates
have been revised based on ongoing
work of ERCE and audited by McDaniels.
Reserves estimates are inherently
uncertain, especially in the early stages of
a field’s life, and are routinely revised over
the producing lives of oil and gas fields
as new information becomes available
and as economic conditions evolve. Such
revisions may impact the Group’s future
financial position and results, in particular,
in relation to DD&A and impairment
testing of oil and gas property, plant and
equipment.
Impairment of producing oil and gas
assets
If impairment indicators are identified in
relation to a producing oil and gas field,
management is required to compare
the net carrying value of the assets
and liabilities which represent the field
cash generating unit (CGU) with the
estimated recoverable amount of the
field. Management generally determines
the recoverable amount of the field by
estimating its fair value less costs of
disposal, using a discounted cash flow
method. Calculating the net present value
of the discounted cash flows involves key
assumptions which include commodity
prices, 2P reserves estimates and
discount rates. Other assumptions include
production profiles, future operating and
capital expenditures. Further information
relating to the specific assumptions and
uncertainties relevant to impairment tests
performed in the year are discussed in
Note 16.
Pharos Energy Annual Report and Accounts 2020 Climate change and the energy transition
Climate change and the transition to a low carbon economy were considered in preparing the consolidated financial statements. In
particular, the energy transition is likely to impact future oil and gas prices which in turn may affect the recoverable amount of the
group’s property, plant and equipment (PP&E). Management’s best estimate of future oil prices was revised down significantly in
2020, in part due to expectations of the impact of the energy transition. In developing these price assumptions, consideration was
given to a range of third party forecasts, including a number that were described as being consistent with achieving the 2015 COP 21
Paris agreement goal to limit temperature rises to well below 2 degrees Celsius (the “Paris compliant scenarios”). Management’s best
estimate of oil prices, although higher, was within $5/bbl of the average of the Paris compliant scenarios. Further details of the key
assumptions in this area have been provided in Note 16, including sensitivity analysis outlining the impact on the impairment charges
of using the average of the Paris compliant scenarios. In addition to impairment, climate change pressures could curtail the expected
useful lives of the group’s oil and gas PP&E, thereby accelerating depreciation charges. However, the group’s producing fields are likely
to be fully depreciated within 15 years, during which timeframe it is expected that global demand for oil will remain robust. Accordingly,
the impact of climate change on expected useful lives is not considered to be a significant judgement or estimate.
In addition to PP&E, climate change could: (1) adversely impact the future development or viability of exploration and evaluation (E&E)
prospects. However, materially all of the group’s E&E assets were impaired during the year, for the reasons described in Note 15, and
therefore the impact of climate change in this area is not considered to be a significant judgement or estimate; (2) bring forward the date
of decommissioning of the group’s producing oil and gas assets in Vietnam, thereby increasing the net present value of the associated
provision. However, decommissioning is currently forecast to occur within the next 10-11 years and, due to the relatively short
timeframe, it is not considered that any reasonably possible acceleration in the timing of decommissioning will have a material impact on
the provision, assuming the underlying cost estimates remain unchanged.
5. Total revenue
An analysis of the Group’s revenue is as follows:
Oil and gas sales (see Note 6)
Realised gains/(losses) on commodity hedges (see Note 6 and Note 25)
Investment revenue
2020
$ million
2019
$ million
118.3
23.7
0.1
142.1
189.9
(0.2)
1.9
191.6
6. Segment information
The Group has one principal business activity being oil and gas exploration and production. The Group’s continuing operations are
located in South East Asia and Egypt (the Group’s operating segments). Africa has been classified as a discontinued operation for all
years shown, as the Group disposed of all of its interests in that geographical area in previous years. There are no inter-segment sales.
South East Asia and Egypt form the basis on which the Group reports its segment information.
SE Asia
$ million
Egypt
$ million
Africa2
$ million
Unallocated
$ million
2020
Group
$ million
Oil and gas sales (see Note 5)
Realised gain on commodity hedges
(see Note 5 and Note 25)
Total revenue
Depreciation, depletion and amortisation - Oil and gas
(see Note 7 and Note 16)
Depreciation, depletion and amortisation - Other
(see Note 16)
Impairment charge – Intangibles (see Note 15)³
Impairment charge – PP&E (see Note 16)
(Loss)/profit before tax from continuing operations1
Loss (post-tax) from discontinued operations
Tax charge on operations (see Note 12)
Tax credit on impairment (see Note 12)
87.7
–
87.7
(47.8)
–
(19.0)
(105.1)
(121.8)
–
(11.1)
36.7
30.6
–
30.6
(15.5)
(0.5)
(5.3)
(105.4)
(124.6)
–
–
–
–
–
–
–
–
–
–
–
(0.2)
–
–
–
118.3
23.7
23.7
–
(0.7)
–
–
5.2
–
–
–
23.7
142.0
(63.3)
(1.2)
(24.3)
(210.5)
(241.2)
(0.2)
(11.1)
36.7
127
Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
SE Asia
$ million
Egypt
$ million
Africa2
$ million
Unallocated
$ million
Oil and gas sales (see Note 5)
Realised loss on commodity hedges (see Note 5 and Note 25)
Total revenue
Depreciation, depletion and amortisation - Oil and gas (see Note
7 and Note 16)
Depreciation, depletion and amortisation - Other (see Note 16)
Profit (loss) before tax from continuing operations1
Profit (post-tax) from discontinued operations
Tax charge (see Note 12)
155.5
–
155.5
(60.3)
–
55.2
–
(38.2)
34.4
–
34.4
(14.1)
(0.2)
(10.1)
–
–
–
–
–
–
–
–
2.0
–
–
(0.2)
(0.2)
–
(0.9)
(33.4)
–
–
2019
Group
$ million
189.9
(0.2)
189.7
(74.4)
(1.1)
11.7
2.0
(38.2)
1) Unallocated amounts included in profit/(loss) before tax comprise corporate costs not attributable to an operating segment, investment revenue, other
gains and losses and finance costs.
2) As of December 2018, Africa operations had been disposed.
3) Includes $1.1m write off of Block 125&126 tax receivable (other receivable - current) which was dependent on the E&E being developed.
The accounting policies of the reportable segments are the same as the Group’s accounting policies as described in Note 2.
Included in revenues arising from South East Asia and Egypt are revenues of $61.3m and $30.6m which arose from the Group’s two
largest customers, who contributed more than 10% to the Group’s oil and gas revenue (2019: $150.7m and $34.4m in South East Asia
from the Group’s two largest customers).
Geographical information
The Group’s oil and gas revenue and non-current assets (excluding other receivables) by geographical location are separately detailed
below where they exceed 10% of total revenue or non-current assets, respectively:
Revenue
All of the Group’s oil and gas revenue is derived from foreign countries. The Group’s oil and gas revenue by geographical location is
determined by reference to the final destination of oil or gas sold.
2020
$ million
64.4
30.6
9.4
9.2
4.7
118.3
2019
$ million
153.9
34.4
–
–
1.6
189.9
2020
$ million
2019
$ million
330.5
105.3
1.5
–
482.7
207.4
–
7.2
437.3
697.3
Vietnam
Egypt
China
Malaysia
Other
Non-current assets
Vietnam
Egypt
Israel
United Kingdom
Excludes other assets.
128
Pharos Energy Annual Report and Accounts 2020
7. Cost of sales
Depreciation, depletion and amortisation
Production based taxes
Production operating costs
Inventories
8. Other/exceptional expense
Egypt acquisition cost - assignment fee
Egypt acquisition cost – royalty (see Note 26)
Redundancy (gain)/loss
Premium – lease transfer (see Note 33)
2020
$ million
2019
$ million
63.3
7.0
51.2
2.3
74.4
12.3
45.4
(3.5)
123.8
128.6
2020
$ million
2019
$ million
–
4.9
(0.1)
1.0
5.8
13.6
–
3.1
–
16.7
In 2019, an assignment fee of $13.6m, payable to EGPC in relation to the acquisition of Merlon Petroleum El Fayum Company in Egypt,
was settled through a non-cash offset against receivables due from EGPC.
9. Finance costs
Unwinding of discount on provisions (see Note 26)
Interest expense payable and similar fees (see Note 24)
Interest on lease liabilities (see Note 33)
Amortisation of capitalised borrowing costs (see Note 24)
Net foreign exchange losses/(gains)
2020
$ million
2019
$ million
0.8
4.5
0.3
(1.5)
0.1
4.2
1.6
7.0
0.3
2.7
(0.1)
11.5
In 2020 $0.8m relates to the unwinding of discount on the provisions for decommissioning (2019: $1.6m). The provisions are based on the net
present value of the Group’s share of the expenditure which may be incurred at the end of the producing life of TGT and CNV (currently estimated
to be 10-11 years) in the removal and decommissioning of the facilities currently in place (see Note 26).
Following the June and December 2020 redeterminations and the accelerated repayment of principal in relation to the group’s reserve
based lending facility, there was a change in estimated future cash flows, as a result a one off gain of $1.5m has been recognised in
profit or loss.
129
Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
10. Auditor’s remuneration
The analysis of the auditor’s remuneration is as follows:
Fees payable to the Company’s auditor and their associates for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and their associates for other services to the Group:
Audit of the Company’s subsidiaries
Total audit fees
Audit related assurance services – half year review
Other assurance services
Total non-audit fees
2020
$000s
317
2019
$000s
254
107
424
129
16
145
79
333
88
19
107
The non-audit fees during 2020 and 2019 included the half year review and other assurance services associated primarily with agreed
upon procedures relating to the Vietnam region. All non-audit fees were fully approved by the Audit and Risk Committee, having
concluded such services were compatible with auditor independence and were consistent with relevant ethical guidance in place.
Details of the Company’s policy on the use of auditors for non-audit services are set out in the Audit and Risk Committee Report
on pages 82 to 86.
Fees payable to Deloitte LLP for non-audit services to the Company are not required to be disclosed separately because the
consolidated financial statements disclose such fees on a consolidated basis.
11. Staff costs
The average monthly number of employees of the Group including Executive Directors was 71 (2019: 49), of which 66 (2019: 43)
were administrative personnel and 5 (2019: 6) were operations personnel. Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Share-based payment expense (see Note 31)
Other pension costs under money purchase schemes
Other benefits
2020
$ million
6.9
0.6
2.2
0.8
0.3
Group
2019
$ million
10.6
1.1
4.0
1.4
0.5
10.8
17.6
In accordance with the Group’s accounting policy $1.3m (2019: $1.6m) of the Group’s staff costs above have been capitalised, of which
$0.9m (2019: $1.2m) relates to our Vietnam assets and $0.4m (2019: $0.4m) relates to our Egypt assets.
In 2020, the total staff costs were $10.8m (2019: $17.6m). Excluding the impact of IFRS 2 share-based payment expense, the
underlying costs have decreased to $8.6m (2019: $13.6m).
The staff costs of $10.8m (2019: $17.6m) include the costs of head office and Pharos’ subsidiary employees. The 2019 comparatives
have been restated to exclude the staff costs of the Egyptian joint operating company of $4.5m as these are not borne by the Group.
This disclosure correction has no impact on the Group’s results for 2019.
130
Pharos Energy Annual Report and Accounts 2020
12. Tax
Current tax charge
Deferred tax credit on operations (see Note 23)
Deferred tax credit on impairment (see Note 16 and 23)
Total tax (credit) / charge
2020
$ million
2019
$ million
26.7
(15.6)
(36.7)
(25.6)
42.2
(4.0)
–
38.2
The Group’s corporation tax is calculated at 50% (2019: 50%) of the estimated assessable profit for the year in Vietnam. In Egypt, under
the terms of the concession any local taxes arising are settled by EGPC. During 2020 and 2019 both current and deferred taxation have
arisen in overseas jurisdictions only.
The charge for the year can be reconciled to the profit / (loss) per the income statement as follows:
(Loss) / Profit before tax (including discontinued operations)
(Loss) / Profit before tax at 50% (2019: 50%)
Effects of:
Non-deductible expenses
Tax losses not recognised
Non-deductible exploration costs written off
Adjustments to tax charge in respect of previous periods
Tax (credit) / charge for the year
2020
$ million
2019
$ million
(241.4)
13.7
(120.7)
6.8
24.8
57.7
9.5
3.1
14.0
17.4
–
–
(25.6)
38.2
The prevailing tax rate in Vietnam, where the Group produces oil and gas, is 50%. The tax charge in future periods may also be affected
by the factors in the reconciliation above.
The effect of non-deductible exploration costs written off of $9.5m relates to the impairment of exploration assets in Vietnam.
Non-deductible expenses, primarily relate to Vietnam DD&A charges for costs previously capitalised, which are non-deductible for
Vietnamese tax purposes of $6.1m (2019: $8.9m) and Vietnam net impairment of $15.9m (2019: Nil). A further $2.0m (2019: $5.1m)
relates to non-deductible corporate costs including share scheme incentives.
The Egypt concessions are subject to corporate income tax at the standard rate of 40.55%, however responsibility for payment of
corporate income taxes falls upon EGPC on behalf of our local subsidiary Pharos El Fayum (PEF). The Group records a tax charge,
with a corresponding increase in revenues, for the tax paid by EGPC on its behalf. However, this is only valid if PEF is in a profit making
position and no such tax has been recorded this year.
The effect from tax losses not recognised relates to costs, primarily of the Company, deductible for tax in the UK but not expected to be
utilised in the foreseeable future. It also includes losses arising in Egypt for which no future benefit can be obtained under the terms of
the concession agreement.
13. (Loss) / profit attributable to Pharos Energy Plc
The loss for the financial year in the accounts of the Company was $264.5m inclusive of dividends from subsidiary undertakings (2019:
profit of $24.4m). As provided by section 408 of the Companies Act 2006, no income statement or statement of comprehensive income
is presented in respect of the Company.
131
Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
Loss from continuing and discontinued operations for the purposes of basic loss per share
Effect of dilutive potential ordinary shares – Cash settled share awards and options
Loss from continuing and discontinued operations for the purposes of diluted loss per share
Loss from continuing operations for the purposes of basic loss per share
Effect of dilutive potential ordinary shares – Cash settled share awards and options
Loss from continuing operations for the purposes of diluted loss profit per share
Weighted average number of ordinary shares
Effect of dilutive potential ordinary shares – Share awards and options
Weighted average number of ordinary shares for the purpose of diluted loss per share
2020
$ million
(215.8)
–
(215.8)
2020
$ million
(215.6)
–
(215.6)
Group
2019
$ million
(24.5)
–
(24.5)
Group
2019
$ million
(26.5)
–
(26.5)
Number of shares (million)
2020
395.1
–
395.1
2019
378.1
–
378.1
In accordance with IAS 33 “Earnings per Share”, the effects of 1.3m (2019: 1.7m) antidilutive potential shares have not been included
when calculating dilutive earnings per share for the year ended 31 December 2020 or 2019, as the Group was loss making.
15. Intangible assets
Exploration and evaluation expenditure
As at 1 January
Additions
Impairment – Intangibles¹
Transfer to subsidiary
As at 31 December
2020
$ million
Group
2019
$ million
2020
$ million
Company
2019
$ million
20.4
4.3
(23.2)
–
1.5
5.8
14.6
–
–
20.4
0.3
–
–
(0.3)
–
–
0.3
–
–
0.3
1) Excludes $1.1m write off of Block 125&126 tax receivable (other receivable - current) which was dependent on the E&E being developed.
Intangible assets at 2020 year-end comprise the Group’s exploration and evaluation projects which are pending determination. Included
in the additions is Blocks 125 & 126 in Vietnam $2.0m (2019: $10.1m), Egypt $1.1m (2019: $4.2m) of which $0.3m (2019: $2.4m)
relates to North Beni Suef and $1.2m (2019: $0.3m) for Israel. At June 2020 and December 2020 an impairment indicator of IFRS 6
was triggered following the Group’s decision to defer all non-essential investment in Vietnam and Egypt at this point. No substantive
expenditure for its exploration areas in Vietnam and Egypt is either budgeted or planned in the near future. Exploration costs including
costs associated with Blocks 125 & 126 in Vietnam of $17.9m and costs associated with Egypt projects in the amount of $5.3m
were written off in the income statement in accordance with the Group’s accounting policy on oil and gas exploration and evaluation
expenditure.
During 2020, $1.2m was spent in Israel on geoscience and geophysical studies (2019: $0.3m were held in the Company). We continue
to hold $2.7m (2019: $2.7m) cash in relation to bank guarantees for the Israeli offshore exploration licenses.
132
Pharos Energy Annual Report and Accounts 2020 16. Property, plant and equipment and right of use assets
Group
Company
Oil and gas
properties
$ million
Other
$ million
Total
$ million
Other
$ million
Cost
As at 1 January 2019
Egypt assets acquired
Additions
Revision in decommissioning asset
As at 1 January 2020
Additions
Revision in decommissioning asset
Disposal of other assets
De-recognition of right-of-use asset (see Note 33)
As at 31 December 2020
Depreciation
As at 1 January 2019
Charge for the year
As at 1 January 2020
Charge for the year
Impairment charge
Disposal of other assets
De-recognition of right-of-use asset (see Note 33)
As at 31 December 2020
Carrying amount
As at 31 December 2020
As at 31 December 2019
Property, plant and equipment
Right of use assets (see Note 33)
As at 31 December 2020
Property, plant and equipment
Right of use assets (see Note 33)
As at 31 December 2019
932.6
183.8
45.6
7.2
1,169.2
32.8
6.6
–
–
1,208.6
425.7
74.4
500.1
63.3
210.5
–
–
773.9
434.7
669.1
434.6
0.1
434.7
668.2
0.9
669.1
2.1
0.9
7.7
–
10.7
0.7
–
(2.5)
(7.0)
1.9
1.8
1.1
2.9
1.2
–
(2.0)
(1.3)
0.8
1.1
7.8
1.1
–
1.1
1.4
6.4
7.8
934.7
184.7
53.3
7.2
1,179.9
33.5
6.6
(2.5)
(7.0)
1,210.5
427.5
75.5
503.0
64.5
210.5
(2.0)
(1.3)
774.7
435.8
676.9
435.7
0.1
435.8
669.6
7.3
676.9
2.0
–
7.5
–
9.5
–
–
(2.5)
(7.0)
–
1.7
0.9
2.6
0.7
–
(2.0)
(1.3)
–
–
6.9
–
–
–
0.6
6.3
6.9
As a result of the oil price volatility and movements in 2P reserves, we have tested each of our oil and gas producing properties for
impairment. The results of these impairment tests are summarised below. For each producing property, the recoverable amount has
been determined using the fair value less costs of disposal method which constitutes a level 3 valuation within the fair value hierarchy.
The recoverable amount is supported by the fair value derived from a discounted cash flow valuation of the 2P production profile.
Vietnam
The key assumptions to which the fair value measurement is most sensitive are oil price, discount rate and 2P reserves (2019: oil price,
discount rate and capital spend). As at 31 December 2020, the fair value of the assets was estimated based on a post-tax nominal
discount rate of 11% (2019: 10%) and a nominal Brent oil price of $54.0/bbl in 2021, $57.0/bbl in 2022, $59.0/bbl in 2023, $61.0/bbl in
2024 plus inflation of 2.0% thereafter (2019: Brent oil price of $65.0/bbl in 2020, plus inflation of 2.0% thereafter).
Impairments have arisen on both TGT and CNV as a result of the above impairment tests.
For CNV, a pre-tax impairment charge of $23.3m has been reflected in the income statement with an associated deferred tax credit
of $8.7m. As at 31 December 2020, the carrying amount of the CNV oil and gas producing property, after additions ($1.9m), DD&A
($11.5m) and the impairment charge, is $91.2m.
For TGT, a pre-tax impairment charge of $81.8m has been reflected in the income statement with an associated deferred tax credit
of $28.0m. As at 31 December 2020, the carrying amount of the TGT oil and gas producing property, after additions ($14.8m), DD&A
($36.3m) and the impairment charge, is $239.3m.
133
Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
Testing of sensitivity cases indicated that a $5/bbl reduction in long-term oil price used when determining the fair value less costs of
disposal method would result in additional post-tax impairments of $30.3m on TGT and a $5.7m on CNV. A 1% increase in discount
rate would result in additional post-tax impairments of $4.9m on TGT and $1.7m on CNV. We have also run sensitivities utilising the
average of a number of third party forecasts described as being consistent with achieving the 2015 COP 21 Paris agreement goal to
limit temperature rises to well below 2 degrees Celsius (the “Paris oil price scenario”). The nominal Brent prices used in this scenario
were as follows; 2021: $49/bbl, 2022:$54/bbl, 2023:$56/bbl, 2024:$57/bbl, 2025:$58/bbl, 2026: $61/bbl, 2027:$64/bbl, 2028:$65/
bbl, 2029:$66/bbl. Using these prices and an 11% discount rate would result in additional post-tax impairments of $17.8m on TGT and
$3.0m on CNV.
The impairment tests for TGT and CNV assume that production ceases in 2029 and 2030 respectively.
Egypt
The key assumptions to which the fair value measurement is most sensitive are oil price, discount rate, capital spend and 2P reserves.
As at 31 December 2020, the fair value of the assets are estimated based on a post-tax nominal discount rate of 14% (2019: 12%) and
a nominal Brent oil price of $54.0/bbl in 2021, $57.0/bbl in 2022, $59.0/bbl in 2023, $61.0/bbl in 2024 plus inflation of 2.0% thereafter
(2019: Brent oil price of $65.0/bbl in 2020, plus inflation of 2.0% thereafter).
An impairment charge (pre and post-tax) of $105.4m arose on El Fayum as a result of the above impairment test. As at 31 December
2020, the carrying amount of the Egypt oil and gas producing property, after additions ($22.7m), DD&A ($15.2m) and the impairment
charge, is $104.1m.
Testing of sensitivity cases indicated that a $5/bbl reduction in long term oil price used would result in an additional impairment of
$52.3m. A 1% increase in discount rate would result in an additional impairment charge of $12.7m. We have also run a sensitivity using a
14% discount rate and the Paris oil price scenario which would result in an additional impairment of $30.2m.
It is not considered possible to provide meaningful sensitivities in relation to 2P reserves for any of the group’s oil and gas producing
properties, as the impact of any changes in 2P reserves on recoverable amount would depend on a variety of factors, including the
timing of changes in production profile and the consequential effect on the expenditure required to both develop and extract the reserves.
Other fixed assets comprise office fixtures and fittings and computer equipment.
17. Fixed asset investments and joint arrangements
Group Investments
The Company and the Group had investments in the following subsidiary undertakings as at 31 December 2020.
Country
of incorporation
Country
of operation Principal activity
Percentage
holding
Footnotes
Registered
address
OPECO Vietnam Limited
Cook Islands
Vietnam
SOCO Vietnam Ltd
Cayman Islands Vietnam
Oil and gas development and
production
Oil and gas development and
production
Pharos Exploration Limited
Pharos Finance (Jersey) Limited
Pharos SEA Limited
Jersey
Jersey
Jersey
–
–
–
Investment holding
Group financing
Investment holding
SOCO Exploration (Vietnam) Limited
Cayman Islands Vietnam
Oil and gas exploration
OPECO, Inc
USA
–
Investment holding
Pharos El Fayum
Cayman Islands Egypt
SOCO Management Services, Inc.
USA
Pharos Energy Israel Limited
Pharos Oil and Gas Limited
Pharos Energy NBS Limited
UK
UK
UK
USA
Israel
–
–
Oil and gas development and
production
Management services
Extraction of crude petroleum
Extraction of crude petroleum
Extraction of crude petroleum
100
100
100
100
100
100
100
100
100
100
100
100
2,5
2,4
1
1
1
2,6
2,5
1
2
1
1,3
1,3
e
d
a
a
a
d
c
d
c
b
b
b
Footnotes:
Group investments
1) Investments held directly by Pharos Energy
Plc.
2) Investments held indirectly by Pharos Energy
Plc.
3) Dormant
4) Joint operations
5) SOCO Vietnam Ltd holds a 28.5% working
interest in Block 16-1, TGT Field. The Field
operational base is development/production
and is operated by Hoang Long Joint
Operating Company which is registered in
Vietnam. SOCO Vietnam Ltd holds a 25%
working interest in Block 9-2, CNV Field.
The Field operational base is development/
production and is operated by Hoan Vu Joint
Operating Company which is registered in
Vietnam.
6) OPECO Vietnam Limited holds a 2%
working interest in Block 16-1, TGT Field.
The Field operational base is development/
production and is operated by Hoang
Long Joint Operating Company which is
registered in Vietnam.
7) SOCO Exploration (Vietnam) Limited holds
a 70% working interest in Blocks 125 & 126
and is the Operator. The operating office is
registered in Vietnam. The main activity is
exploration.
Registered addresses
a) 47 Esplanade, St Helier, Jersey, JE1 0BD,
Channel Islands
b) Eastcastle House, 27/28 Eastcastle Street,
London W1W 8DH, United Kingdom
c) Corporation Trust Center, 1209 Orange Street,
Wilmington, DE 19801, USA
d) (Grand Pavilion, 802 West Bay Road, PO
Box 1968, Grand Cayman, Cayman Islands,
KY1-1104
e) c/o Portcullis (Cook Islands) Ltd ,T&F
Chambers, Main Road, Rarotonga, Cook
Islands
134
Pharos Energy Annual Report and Accounts 2020 Divestments:
The following subsidiary undertaking was dissolved during the year:
SOCO DRC Limited
The Company’s investments in subsidiary undertakings include contributions to the Pharos Employee Benefit Trust (see Note 28)
and are otherwise held in the form of share capital.
In 2020 the decrease in investment value of $271.1m was due mainly to an impairment to investments in subsidiaries of $270.7m.
18. Other non-current assets
Other non-current assets comprise the Group’s share of contributions made into two abandonment security funds which were
established to ensure that sufficient funds exist to meet future abandonment obligations on TGT and CNV fields. The funds are operated
by PetroVietnam and the JOC partners retain the legal rights to the funds pending commencement of abandonment operations.
The Group doesn’t expect to receive cash or another financial asset from PetroVietnam. During 2020, the Group has contributed $2.3m
(2019: $3.3m). As at 31 December 2020 the Group’s total contribution to the funds was $45.9m (2019: $43.6m)
19. Inventories
Crude oil and condensate
Warehouse stocks and materials
2020
$ million
5.6
12.1
17.7
Group
2019
$ million
8.2
8.0
16.2
Company
2020
$ million
2019
$ million
–
–
–
–
–
–
Crude oil and condensate are valued at net realisable value in line with well established industry practice with changes in hydrocarbon
inventories adjusted through cost of sales (see Note 7). The warehouse stock and materials inventory of $12.1m (2019: $8.0m) are all
related to Egypt.
20. Trade and other receivables
Amounts falling due within one year
Trade receivables
Other receivables
Prepayments and accrued income
2020
$ million
Group
2019
$ million
Company
2020
$ million
2019
$ million
14.8
1.6
6.5
22.9
31.5
0.7
9.0
41.2
–
–
1.6
1.6
–
–
0.5
0.5
There is no material difference between the carrying amount of trade and other receivables and their fair value.
Included in trade and other receivables arising from South East Asia and Egypt at 31 December 2020 are trade receivables of $5.9m
and $6.5m respectively, which arose from the Group’s two largest customers (2019: $16.2m and $14.0m from the Group’s two largest
customers in South East Asia and Egypt respectively).
In Vietnam, there are no amounts overdue or allowances for doubtful debts in respect of trade or other receivables (2019: nil). In Egypt,
the average credit period on sales is 126 days (2019: 180 days). No interest is charged on outstanding trade receivables.
Trade and other receivables are financial assets and measured at amortised cost. The Group applies the IFRS 9 simplified approach to
measuring expected credit losses (‘ECL’) which uses a lifetime expected loss allowance for all trade receivables. As mentioned above,
84% (2019: 96%) of our trade receivables are concentrated with two largest customers, one of them being a subsidiary of a government
regulated entity and the other being a major global oil & gas company. As of 31 December 2020 and 2019, we have concluded that the
ECL related to our trade receivables is immaterial.
Included in prepayments is $1.2m held by Sheppard & Wedderburn LLP on a ’quasi escrow’ basis to be released to the new London
office tenant over the next 12 months as the tenant makes payments to the landlord (see Note 33).
21. Cash and cash equivalents
As at 31 December 2020, cash and cash equivalents was $24.6m (2019: $58.5m). Of this balance, $0.1m (2019: $2.8m) were in
Money Market Funds that are valued at quoted prices of the funds in the active markets for the financial instruments. The Money Market
Funds were recorded at fair value at the year end.
The cash and cash equivalents in the Group and the Company include $2.7m (2019: $2.7m) of restricted cash, which is related to the
bank guarantees in place for the Israeli offshore exploration licences.
135
Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
22. Trade and other payables
Trade payables
Other payables
Derivative financial instruments (see Note 25)
Accruals and deferred income
2020
$ million
Group
2019
$ million
2020
$ million
Company
2019
$ million
18.4
2.2
6.8
8.2
35.6
11.9
7.5
3.0
13.1
35.5
–
1.1
–
1.6
2.7
–
2.1
–
3.4
5.5
There is no material difference between the carrying value of trade payables and their fair value. The above trade and other payables are
held at amortised cost and are not discounted as the impact would not be material.
Trade and other payables are financial liabilities and are therefore measured at amortised cost.
In Vietnam, the average credit period for settlement of trade payables is standard 30 days or later if this falls within the agreed terms. In
Egypt, the average credit period for settlement of trade payables as at 31 December 2020 is 223 days (2019: 220 days).
The Group does not utilise any supplier financing (reverse factoring) arrangements. The Group has financial risk management policies in
place to ensure that all payables are paid within the pre-agreed credit terms. Further information relating to financial risks and how the
Group mitigate these risks are discussed in the Risk Management Report on pages 40 to 49.
23. Deferred tax
The following are the major deferred tax liabilities recognised by the Group and movements thereon during the current and prior
reporting period:
As at 1 January 2019
(Credit)/charge to income (see Note 12)
As at 1 January 2020
Credit to income (see Note 12)
As at 31 December 2020
Accelerated tax
depreciation
$ million
Other temporary
differences
$ million
139.7
(5.9)
133.8
(51.2)
82.6
2.1
1.9
4.0
(1.1)
2.9
Group
$ million
141.8
(4.0)
137.8
(52.3)
85.5
The credit to income includes a deferred tax credit of $36.7m (2019: $0) that arises from the impairment of the TGT and CNV producing
assets as discussed in Note 16.
There are no unrecognised deferred taxation balances at either balance sheet date except in relation to gross losses that are not
expected to be utilised in the amount of $181.5m (2019: $173.7m). The gross losses have no expiry date.
24. Borrowings
Borrowings:
Fair value of bank loans
Less unamortised issue costs and debt arrangement fees
Carrying value of total debt
Current
Non-current
Carrying value of total debt
136
2020
$ million
Group
2019
$ million
57.2
(3.5)
53.7
12.7
41.0
53.7
100.0
(1.9)
98.1
26.4
71.7
98.1
Pharos Energy Annual Report and Accounts 2020
Movements in borrowing liabilities
Carrying value of total debt as of 1 January
Principal payments
Amortisation of capitalised borrowing costs (see Note 9)
Interest payable and similar fees (see Note 9)
Interest paid during the year
Carrying value of total debt as of 31 December
2020
$ million
2019
$ million
98.1
(42.8)
(1.5)
4.5
(4.6)
53.7
96.1
–
2.7
7.0
(7.7)
98.1
See Note 33 for movements in lease liabilities which, together with borrowings, represent the Group’s financing related liabilities.
In September 2018, the Group signed a $125m Reserve Based Lending facility (RBL) secured against the Group’s producing assets
in Vietnam. The RBL has a five-year term, bears interest at 4% plus LIBOR up to Year 2, increasing to 4.15% for Year 3 and 4.25% for
Year 4 and 5, and matures in September 2023.
The Group has started discussions with the RBL banking group to amend the USD LIBOR loan, so that the reference benchmark
interest rate will change to the Secured Overnight Financing Rate (SOFR). The Group aims to finalise this amendment in the second half
of 2021.
The maximum borrowing base available under the RBL is revised every six months via a redetermination process by the relevant banks,
based on an estimate of the value of the Group’s reserves from its producing interests in Vietnam. The significant decrease in the oil
price in H1 2020 led to a much reduced borrowing base amount in the 30 June 2020 redetermination, resulting in principal repayments
during the year totalling $42.8m, exceeding the $26.4m repayments anticipated at 31 December 2019 and classified as current
liabilities at that balance sheet date. At the redetermination, at 31 December 2020, the borrowing base was calculated as $56.3m
resulting in a principal repayment of $0.9m being made in January 2021.
The $12.7m, categorised as current, is based on the outcome of the December 2020 RBL redetermination criteria and will likely change
following the June 2021 redetermination.
The RBL is subject to a number of financial covenants, all of which have been complied with during the 2020 and 2019 reporting
periods.
25. Hedge transactions
During 2020, Pharos entered into different commodity (swap) hedges to protect the Brent component of forecast oil sales and to ensure
future compliance with its obligations under the RBL over the producing assets in Vietnam. The commodity hedges run until December
2021 and are settled monthly. The hedging positions in place at the balance sheet date cover 42% of the Group’s forecast production
until December 2021, securing an average price for this hedged volume of $44.7 per barrel (2019: cover was 57% of the Group’s
forecast H1 2020 entitlement volumes securing a minimum price for this hedged volume of $60.7 per barrel).
Pharos has designated the swaps as cash flow hedges. This means that the effective portion of unrealised gains or losses on open
positions will be reflected in other comprehensive income. Every month, the realised gain or loss will be reflected in the revenue line
of the income statement. For the year end 31 December 2020 a gain of $23.7m was realised (2019: loss of $0.2m). The outstanding
unrealised loss on open position as at 31 December 2020 amounts to $6.3m (2019: loss of $2.6m).
The carrying amount of the swaps is based on the fair value determined by a financial institution. As all material inputs are observable,
they are categorised within Level 2 in the fair value hierarchy. It is presented in “Trade and other receivables” or “Trade and other
payables” in the consolidated statement of financial position. The liability position as of December 2020 was $6.8m (2019: liability
position $3.0m).
26. Long-term provisions
Decommissioning provision
Royalty provision
2020
$ million
68.0
5.4
73.4
Group
2019
$ million
60.5
–
60.5
2020
$ million
Company
2019
$ million
–
–
–
–
–
–
137
Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
Movement in decommissioning
As at 1 January
New provisions and changes in estimates
Unwinding of discount (see Note 9)
As at 31 December
2020
$ million
60.5
6.7
0.8
68.0
Group
2019
$ million
51.7
7.2
1.6
60.5
The provision for decommissioning is based on the net present value of the Group’s share of the expenditure which may be incurred at the end
of the producing life of the TGT and CNV fields in Vietnam (currently estimated to be 10-11 years) in the removal and decommissioning of the
facilities currently in place. The provision is calculated using an inflation rate of 2.0% (2019: 2.0%) and a discount rate of 0.9% (2019: 1.9%).
The $6.7m increase in provision primarily resulted from the reduction in the discount rate in 2020 offset by the change in JOC parties’ interest
from 98.8822% to 97.2127%. No decommissioning obligations exist in Egypt under the terms of the concession agreement.
The royalty provision relates to a historical arrangement granting a 3% royalty on Pharos’s share of profit oil and excess cost recovery from
El Fayum in Egypt. At both the date of acquisition of the Egypt assets (April 2019) and 31 December 2019 the risk of a material outflow in
relation to this arrangement was, based on legal advice, considered remote and therefore no provision was recorded. As a result of additional
legal advice obtained during 2020, it is now considered probable that amounts are due under this arrangement and accordingly a provision of
$5.4m has been recognised, which is anticipated to be settled in 1 to 3 years. Of this amount, $4.9m relates to the period up to the acquisition
date and has been recorded within Other/exceptional expense, with the balance arising since acquisition recorded within cost of sales.
27. Share capital
Ordinary Shares of £0.05 each
Group and Company
2020
Shares
2019
Shares
2020
$ million
2019
$ million
Issued and fully paid
406,637,952
406,637,952
31.9
31.9
As at 31 December 2020 authorised share capital comprised 600 million (2019: 600 million) ordinary shares of £0.05 each with a total
nominal value of £30m (2019: £30m).
28. Other reserves
Capital
redemption
reserve
$ million
Merger
reserve
$ million
Own shares
$ million
Hedging
reserve
$million
Share-based
payments
$ million
As at 1 January 2019
100.3
188.7
(47.1)
Currency exchange translation differences
Other comprehensive loss
Share-based payments
Transfer relating to share-based payments
–
–
–
–
–
–
–
–
–
–
–
–
As at 1 January 2020
100.3
188.7
(47.1)
Currency exchange translation differences
Other comprehensive loss
Share-based payments
Transfer relating to share-based payments
–
–
–
–
–
–
–
–
As at 31 December 2020
100.3
188.7
–
–
–
1.8
(45.3)
–
–
(2.6)
–
–
(2.6)
–
(3.7)
–
–
(6.3)
4.7
0.4
–
3.7
(1.5)
7.3
0.8
–
2.3
(4.8)
5.6
Group
Total
$ million
246.6
0.4
(2.6)
3.7
(1.5)
246.6
0.8
(3.7)
2.3
(3.0)
243.0
138
Pharos Energy Annual Report and Accounts 2020 As at 1 January 2019
Currency exchange translation differences
Share-based payments
Transfer relating to share-based payments
Capital
redemption
reserve
$ million
100.3
–
–
–
Merger
reserve
$ million
131.8
Own shares
$ million
(40.3)
–
–
–
–
–
–
As at 1 January 2020
100.3
131.8
(40.3)
Currency exchange translation differences
Share-based payments
Transfer relating to share-based payments
–
–
–
–
–
–
–
–
–
As at 31 December 2020
100.3
131.8
(40.3)
Company
Total
$ million
196.7
0.4
3.7
(1.5)
199.3
0.8
2.3
(4.8)
197.6
Share-based
payments
$ million
4.9
0.4
3.7
(1.5)
7.5
0.8
2.3
(4.8)
5.8
The Group’s other reserves comprise reserves arising in respect of merger relief, upon the purchase of the Company’s own shares held
in treasury and held by the Trust, as well as hedging and share-based payments.
The number of treasury shares held by the Group and the number of shares held by the Trust at 31 December 2020 was 9,122,268
(2019: 9,122,268) and 2,181,655 (2019: 2,897,094) respectively. The market price of the shares at 31 December 2020 was £0.1800
(2019: £0.5320). The Trust, a discretionary trust, holds shares for the purpose of satisfying employee share schemes, details of which are
set out in Note 31 and in the Directors’ Remuneration Report on pages 87 to 104.
The trustees purchase shares in the open market which are recognised by the Company within investments and classified as other
reserves by the Group as described above. When award conditions are met, an unconditional transfer of shares is made out of the
Trust to Plan participants. The Group has an obligation to make regular contributions to the Trust to enable it to meet its financing costs.
Rights to dividends on the shares held by the Trust have been waived by the trustees.
29. Distribution to shareholders
The Company is focused on preserving balance sheet strength and has therefore decided to withdraw dividend payments during 2020,
given the continued uncertainty in the macro environment.
In May 2019, the Company paid dividends to shareholders of $27.4m or 5.50 pence per Ordinary Share. The Pharos EBT, which is
consolidated within the Group, waived its rights to receive a dividend in 2019.
30. Retained (deficit) / earnings
As at 1 January 2019
Loss for the year
Distributions (see Note 29)
Transfer relating to share-based payments
As at 1 January 2020
Loss for the year
Transfer relating to share-based payments
As at 31 December 2020
Retained
(loss)/profit
$ million
Unrealised currency
translation differences
$ million
221.5
(24.5)
(27.4)
1.5
171.1
(215.8)
3.0
(41.7)
5.1
–
–
–
5.1
–
–
5.1
Group
Total
$ million
226.6
(24.5)
(27.4)
1.5
176.2
(215.8)
3.0
(36.6)
139
Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
As at 1 January 2019
Profit for the year
Distributions (see Note 29)
Transfer relating to share-based payments
As at 1 January 2020
Loss for the year
Transfer relating to share-based payments
As at 31 December 2020
31. Incentive plans
Retained
(loss)/profit
$ million
Unrealised currency
translation differences
$ million
493.5
24.4
(27.4)
1.5
492.0
(264.5)
3.0
230.5
(223.6)
–
–
–
(223.6)
–
–
(223.6)
Company
Total
$ million
269.9
24.4
(27.4)
1.5
268.4
(264.5)
3.0
6.9
Details of the Group’s employee incentive schemes are set out below. Additional information regarding the schemes is included
in the Directors’ Remuneration Report on pages 87 to 104. The Group recognised total expenses of $2.2m (2019: $4.0m) in respect
of the schemes during the year, a proportion of which was capitalised in accordance with the Group’s accounting policies.
Long Term Incentive Plan
The Company operates a LTIP for employees of the Group. Awards vest over a period of three years, subject to criteria based on their
individual performance (2019: subject to performance criteria which have been set with reference to the Company’s TSR relative to
a range of comparator companies). Awards are normally forfeited if the employee leaves the Group before the award vests. Awards
normally expire at the end of 10 years following the date of grant, subject to the requirement to exercise certain awards prior to 15 March
of the year following vesting.
Awards would normally be part cash and part equity-settled through a transfer at nil consideration of the Company’s ordinary shares. No
awards were exercised during 2020. The Company has no legal or constructive obligation to repurchase or settle awards in cash. Details
of awards outstanding during the year are as follows:
As at 1 January
Adjustments1
Granted
Exercised
Forfeited during the year
As at 31 December
2020
No. of share
awards
2019
No. of share
awards
18,680,757
12,727,674
–
6,349,803
–
1,430,392
7,597,799
–
(7,034,553)
(3,075,108)
17,996,007
18,680,757
Exercisable as at 31 December
–
–
1) In accordance with Share Scheme rules, adjustments were made for the payment of dividends in 2019.
Awards outstanding at the end of the year have a weighted average remaining contractual life of 1.4 (2019: 1.5) years. The weighted
average market price and estimated fair value of the 2020 grants (at grant date) were £0.16 and £0.11, respectively.
The fair value of the LTIPs granted during 2020 have been estimated using a Black Scholes model, based on the market price at date
of grant and a nil exercise price. The fair value of the LTIPs granted during 2019 had been provided by FIT Remuneration Consultants,
which estimates the Company’s performance against the targets using a Monte Carlo Model. The future vesting proportion in 2020 was
68% (2019: 55%).
The main assumptions for the calculation are as follows:
Volatility
Risk free rate of interest
Correlation with comparator group
140
2020
2019
49.07% 35.00% - 35.60%
1.10%
0.92% - 0.95%
n/a
100%
Pharos Energy Annual Report and Accounts 2020
Other Share Schemes
The Company operates a discretionary share option scheme for employees of the Group. Awards vest over a three-year period, and
are normally forfeited if the employee leaves the Group before the option vests. Vested options are exercisable at a price equal to the
average quoted market price of the Company’s shares on the date of grant and are expected to be equity-settled. The Company has no
legal or constructive obligation to repurchase or settle options in cash. Unexercised options expire at the end of a 10-year period.
Other than to Directors, the Company can also grant options with a zero exercise price or with an exercise price which is set below
the market price of the Company’s shares on the date of grant. Such options, which are included in the table below, are granted
by reference to the rules of the discretionary share option scheme and are expected to be equity-settled.
The Company can additionally grant awards under the Deferred Share Bonus Plan with a zero exercise price or with an exercise
price which is set below the market price of the Company’s shares on the date of grant. Awards vest over a two-year period, and are
normally forfeited if the employee leaves the Group before the option vests. Such awards, which are also included in the table below,
are expected to be cash-settled.
2020
2019
No. of share
awards
Weighted average
exercise price
£
No. of share
awards
Weighted average
exercise price
£
As at 1 January
Adjustments1
Granted
Forfeited during the year
Expired
Exercised
As at 31 December
3,785,789
0.47
2,407,875
–
963,105
(250,386)
–
(1,322,113)
3,176,395
–
–
4.85
–
–
125,552
1,358,175
(31,567)
–
(74,246)
0.46
3,785,789
Exercisable as at 31 December
2,151,638
1.10
1,492,425
1) In accordance with Share Scheme rules, adjustments were made for the payment of dividends in 2019.
0.54
–
–
2.26
–
–
0.47
0.83
The weighted average market price at the date of exercise during 2020 was £0.17 (2019: £0.65). Awards outstanding at the end of the
year have a weighted average remaining contractual life of 7.5 (2019: 7.3) years. The weighted average market price and estimated fair
value of the discretionary share option scheme 2020 grants (at grant date) were £0.689 and £0.37, respectively. The weighted average
market price and estimated fair value of the deferred share bonus scheme 2020 grants (at grant date) was £0.995 (2019: £0.995).
The fair value of the awards granted during 2020 have been estimated using a Black Scholes model, based on the market price at date
of grant and a nil exercise price. The fair value of the awards granted during 2019 had been provided by FIT Remuneration Consultants,
which estimates the Company’s performance against the targets using a Monte Carlo Model.
The main assumptions for the calculation are as follows:
Volatility
2020
n/a
2019
35.60%
141
Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
32. Reconciliation of operating profit to operating cash flows
Operating (loss)/profit
Share-based payments
Depletion, depreciation and amortisation
Impairment Charge
Operating cash flows before movements in working capital
Increase in inventories
Decrease (Increase) in receivables
Decrease in payables
Cash generated by (used in) operations
Interest received
Bank fees paid
Other/ exceptional expense outflow
Income taxes paid
Net cash from (used in) operating activities
2020
$ million
(231.3)
2.8
64.5
234.8
70.8
(1.5)
19.6
(3.4)
85.5
0.1
–
(2.7)
(26.5)
56.4
Group
2019
$ million
38.0
3.7
75.5
–
117.2
(0.5)
(1.7)
(2.0)
113.0
2.2
–
(2.4)
(40.5)
72.3
2020
$ million
(14.3)
2.8
0.7
–
Company
2019
$ million
(21.1)
3.7
0.9
–
(10.8)
(16.5)
–
(0.1)
(3.3)
–
0.6
(3.6)
(14.2)
(19.5)
–
–
(2.7)
–
(16.9)
1.0
(0.2)
(2.4)
–
(21.1)
During the year, a total of $10.2m (2019: $27.5m) of trade receivables due from EGPC in Egypt were settled by way of non-cash offset
against trade payables.
33. Lease arrangements
For short-term leases (lease term less than 12 months) and leases for which the underlying asset is of low value, the Group has opted to
recognise a lease expense on a straight-line basis as permitted under IFRS 16.
Lease liability recognised as at 1 January 2019
New lease during 2019
Renewal of lease during 2019
Discounted using the lessee’s incremental borrowing rate at the date of initial application
Interest expense
Foreign exchange adjustments
Principal repayments
Lease liability recognised as at 31 December 2019
Of which are:
Current lease liabilities
Non-current lease liabilities
Right of use assets recognised as at 31 December 2019:
Oil & Gas properties
Other assets
142
$ million
1.8
1.4
6.9
(1.7)
0.3
(0.3)
(1.2)
7.2
0.8
6.4
0.9
6.4
Pharos Energy Annual Report and Accounts 2020 Lease liability recognised as at 1 January 2020
Derecognition of lease during 2020
Interest expense (see Note 9)
Principal repayments
Lease liability recognised as at 31 December 2020
Of which are:
Current lease liabilities
Non-current lease liabilities
Right of use assets recognised as at 1 January 2020
Depreciation
Net derecognition of lease during 2020
Impairment of right of use asset
Right of use assets recognised as at 31 December 2020
Oil & Gas properties
Other assets
$ million
7.2
(6.0)
0.3
(1.1)
0.4
0.4
–
7.3
(1.0)
(5.7)
(0.5)
0.1
–
On 4th December 2020 Pharos signed the transfer of the London office lease to a third party. Accordingly we derecognised the right of
use asset of $5.7m and the associated lease liability of $6.0m. The assets held for office furniture and fixture and fittings were also fully
depreciated, with a resulting charge of $0.4m. Pharos also paid a premium to the new tenant of $0.9m as an incentive for them to take
on the lease. The overall income statement charge of $1.0m has been recorded within Other/exceptional expense. An additional $1.2m
has been transferred to an escrow account held by a third party (recorded within prepayments) and will be paid to the new tenant (and
expensed to the income statement) over the next 21 months on the condition the new tenant pays the rent to the landlord.
34. Capital commitments
At 31 December 2020 the Group had exploration licence commitments not accrued of approximately $40.9m (2019: $40.2m).
35. Related party transactions
During the year, the Company recorded a net cost of $0.1m (2019: net cost of $0.2m) in respect of services rendered between
Group companies.
Remuneration of key management personnel
The remuneration of the Directors of the Company, who are considered to be its key management personnel, is set out below
in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration
of individual Directors is provided in the audited part of the Directors’ Remuneration Report on pages 87 to 104.
2020
$ million
2019
$ million
Short-term employee benefits
Post-employment benefits
Share-based payments
2.7
0.3
1.8
4.8
Directors’ transactions
Pursuant to a lease dated 20 April 1997, Comfort Storyville (a company wholly owned by Mr Ed Story) has leased to the Group,
office and storage space in Comfort, Texas, USA. The lease, which was negotiated on an arm’s length basis, has a fixed monthly
rent of $1,000.
4.8
0.3
2.8
7.9
143
Strategic ReportPharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
36. Subsequent events
Placing
In January 2021, the Company announced the successful completion of the Placing of 44,661,490 new Ordinary Shares, as well as the
concurrent Subscription and Retail Offer.
Through this placing, Pharos raised additional capital of $10.9m (net of direct issue costs of $0.8m - Placing Price £0.1925 converted at
the exchange rate as of 21/01/21 of 1.3628). These funds will allow us to restart our investment in the water flood programme in the El
Fayum oil fields in Egypt imminently as we progress our farm out process.
El Fayum Farm-out
In Q4, 2020, the Company appointed Jefferies Investment Bank to run a farm out process for the El Fayum asset, to de risk the current
100% holding and introduce support for the investment required to develop the fields. The company has been encouraged by the level
of interest and is currently reviewing a number of bids.
Concession Agreement Amendment El Fayum area
In March 2021, the Company has received provisional approval for an amendment of the fiscal terms from EGPC on the El Fayum
Concession. Under the terms, the cost recovery percentage will be increased from 30% to 40% allowing Pharos a significantly faster
recovery of all its past and future investments. In return, Pharos has agreed to (i) waive its rights to recover a portion of the past costs
pool ($115 million) and (ii) reduce its share of Excess Cost Recovery Petroleum from 15% to 7.5%.
This amendment is now subject to the approval of the Egyptian Government.
144
Pharos Energy Annual Report and Accounts 2020 i
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NON-IFRS MEASURES
Non-IFRS measures
The Group uses certain measures of performance that are not specifically defined under IFRS or other generally accepted accounting
principles. These non-IFRS measures include cash operating costs per barrel, DD&A per barrel, gearing and operating cash per share.
For the RBL covenant compliance, three Non-IFRS measures are included: Net debt, EBITDAX and Net debt/EBITDAX.
Cash operating costs per barrel
Cash operating costs are defined as cost of sales less DD&A, production based taxes, movement in inventories and certain other
immaterial cost of sales.
Cash operating costs for the period is then divided by barrels of oil equivalent produced. This is a useful indicator of cash operating
costs incurred to produce oil and gas from the Group’s producing assets.
Cost of sales
Less:
Depreciation, depletion and amortisation
Production based taxes
Inventories
Other cost of sales
Cash operating costs
Production (BOEPD)
Cash operating cost per BOE ($)
Cash operating cost per barrel by segment (2020)
Cost of sales
Depreciation, depletion and amortisation
Production based taxes
Inventories
Other cost of sales
Cash operating costs
Production (BOEPD)
2020
$ million
123.8
2019*
$ million
128.6
(63.3)
(7.0)
(2.3)
(2.9)
48.3
(74.4)
(12.3)
3.5
(3.9)
41.5
11,373
12,136
11.60
10.45
Vietnam
$ million
Egypt
$ million
Total
$ million
84.7
(47.8)
(6.5)
(2.3)
(1.6)
26.5
39.1
(15.5)
(0.5)
–
(1.3)
21.8
123.8
(63.3)
(7.0)
(2.3)
(2.9)
48.3
6,103
5,270
11,373
Cash operating cost per BOE ($)
11.86
11.30
11.60
* Egypt from the date of acquisition to 31 December 2019.
DD&A per barrel
DD&A per barrel is calculated as net book value of oil and gas assets in production, together with estimated future development
costs over the remaining 2P reserves. This is a useful indicator of ongoing rates of depreciation and amortisation of the Group’s
producing assets.
Depreciation, depletion and amortisation
Production (BOEPD)
DD&A per BOE ($)
* Egypt from the date of acquisition to 31 December 2019.
2020
$ million
(63.3)
11,373
15.21
2019*
$ million
(74.4)
12,136
18.74
Pharos Energy Annual Report and Accounts 2020
145
145
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report
NON-IFRS MEASURES
DD&A per barrel by segment (2020)
Depreciation, depletion and amortisation
Production (BOEPD)
DD&A per BOE ($)
Net debt
Net debt comprises interest-bearing bank loans, less cash and cash equivalents.
Cash and cash equivalents
Borrowings
Net Debt
Vietnam
$ million
Egypt
$ million
Total
$ million
(47.8)
6,103
21.40
(15.5)
5,270
8.04
(63.3)
11,373
15.21
2020
$ million
24.6
(57.2)
2019
$ million
58.5
(100.0)
(32.6)
(41.5)
EBITDAX
EBITDAX is earnings from continuing activities before interest, tax, DD&A, impairment of PP&E and intangibles, exploration other/
expenditure and exceptional items in the current year.
Operating (loss)/profit
Depreciation, depletion and amortisation
Impairment charge
EBITDAX
2020
$ million
(231.3)
64.5
234.8
68.0
Net debt/EBITDAX
Net Debt/EBITDAX ratio expresses how many years it would take to repay the debt, if net debt and EBITDAX stay constant.
Net Debt
EBITDAX
Net Debt/EBITDAX
2020
$ million
(32.6)
68.0
0.48
2019
$ million
38.0
75.5
–
113.5
2019
$ million
(41.5)
113.5
0.37
Gearing
Debt to equity ratio is calculated by dividing interest-bearing bank loans by stockholder equity. The debt to equity ratio expresses the
relationship between external equity (liabilities) and internal equity (stockholder equity).
Total Debt
Total Equity
Debt to Equity
2020
$ million
57.2
293.7
0.20
2019
$ million
100.0
510.1
0.20
Operating cash per share
Operating cash per share is calculated by dividing net cash from (used in) continuing operations by number of shares in the year.
Net cash from operating activities
Weighted number of shares in the year
Operating cash per share
146
2020
$ million
56.4
2019
$ million
72.3
397,515,684
381,170,329
0.14
0.19
Pharos Energy Annual Report and Accounts 2020 FIVE YEAR SUMMARY (UNAUDITED)
Five Year Summary (unaudited)
Consolidated income statement
Oil and gas revenues
Commodity hedge gains/(loss)
Gross profit
Operating (loss) / profit
(Loss) / profit for the year
Consolidated balance sheet
Non-current assets
Net current assets
Non-current liabilities
Net assets
Share capital
Other reserves
Retained earnings
Total equity
Consolidated cash flow statement
Net cash from operating activities
Capital expenditure
Year to
31 Dec 2020
$ million
Year to
31 Dec 2019
$ million
Year to
31 Dec 2018
$ million
(Restated)
Year to
31 Dec 2017
$ million
Year to
31 Dec 2016
$ million
118.3
23.7
18.2
(231.3)
(215.8)
189.9
175.1
156.2
154.6
(0.2)
61.1
38.0
(24.5)
–
70.5
79.9
27.7
–
41.2
22.9
(157.3)
–
34.7
23.4
(4.2)
2020
$ million
2019
$ million
2018
$ million
(Restated)
2017
$ million
2016
$ million
483.2
10.4
(199.9)
293.7
87.3
243.0
(36.6)
293.7
740.9
45.6
(276.4)
510.1
87.3
246.6
176.2
510.1
553.6
236.3
(289.1)
500.8
27.6
246.6
226.6
500.8
546.6
133.3
(185.3)
494.6
27.6
245.9
221.1
494.6
738.6
142.5
(209.9)
671.2
27.6
243.8
399.8
671.2
Year to
31 Dec 2020
$ million
Year to
31 Dec 2019
$ million
Year to
31 Dec 2018
$ million
(Restated)
Year to
31 Dec 2017
$ million
Year to
31 Dec 2016
$ million
56.4
41.3
72.3
63.4
54.2
22.4
45.0
26.2
46.0
35.8
Distributions
–
27.4
23.3
21.0
17.5
* Restated in 2017 when adopted the successful efforts method.
147
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report
RESERVES STATISTICS (UNAUDITED)
Reserves Statistics (unaudited)
Net working interest, MMBOE
Oil and Gas 2P Commercial Reserves1,2
As at 1 January 2020
Production
Revision
2P Commercial Reserves as at 31 December 2020
Oil and Gas 2C Contingent Resources1,2
As at 1 January 2020
Revision5
2C Contingent Resources as at 31 December 2020
TGT
CNV
Vietnam3
Egypt4
Group
15.4
(1.7)
(0.7)
13.0
8.5
(0.2)
8.3
6.0
(0.6)
(0.5)
4.9
4.6
(0.7)
3.9
21.4
(2.3)
(1.2)
17.9
13.1
(0.9)
12.2
28.5
(1.9)
14.2
40.8
23.5
(4.5)
19.0
49.9
(4.2)
13.0
58.7
36.6
(5.4)
31.2
Total of 2P Reserves and 2C Contingent Resources
as at 31 December 2020
21.3
8.8
30.1
59.8
89.9
1) Reserves and Contingent Resources are categorised in line with 2018 SPE/WPC/AAPG/SPEE /SWLA Petroleum Resource Management System.
2) Assumes oil equivalent conversion factor of 6,000 scf/boe.
3) Reserves and Contingent Resources have been independently audited by Risc Advisory Pty Ltd.
4) Reserves and Contingent Resources have been independently audited by McDaniels.
5) Revisions to the assets come from the approach taken by the reserves auditor.
Risks associated with reserves evaluation and estimation uncertainty are discussed in Note 4(b) to the Financial Statements.
148
Pharos Energy Annual Report and Accounts 2020 REPORT ON PAYMENTS TO GOVERNMENTS (UNAUDITED)
Report on Payments to Governments (unaudited)
Disclosure
In accordance with the Financial Conduct
Authority’s Disclosure and Transparency
Rule 4.3A in respect of payments made
by the Company to governments for
the year ended 31 December 2020
and in compliance with The Reports on
Payments to Governments Regulations
2014 (SI 2014/3209), Pharos presents
its disclosure for the year ending 31
December 2020.
Basis for preparation
Legislation
This report is prepared in accordance
with the Reports on Payments to
Governments Regulations 2014 as
enacted in the UK in December 2014 and
as amended in December 2015.
The Reports on Payments to Government
Regulations (UK Regulations) were
enacted on 1 December 2014 and
require UK companies in extractive
industries to publicly disclose payments
they have made to Governments where
they undertake extractive operations.
The aim of the regulations is to enhance
the transparency of the payments made
by companies in the extractive sector
to host governments in the form of taxes,
bonuses, royalties, fees and support
for infrastructure improvements. The
UK Regulations came into effect on 1
January 2015.
The payments disclosed for 2020 are
in line with the EU Directive and UK
Regulations and we have provided
additional voluntary disclosures on payroll
taxes, export duty, withholding tax and
other taxes.
In line with the UK Regulations, a
payment of a series of related payments
which do not exceed $112,780 (£86,000)
has not been disclosed. Where the
aggregate payments made in the period
for a project or country are less than
$112,780, payments are not disclosed for
the project or country.
All of the payments disclosed in
accordance with the EU Directive have
been made to National Governments,
either directly or through a Ministry or
Department, or to a national oil company,
who have a working interest in a
particular licence.
Payment
Licence Fees
This represents licence fees, rental fees,
entry fees and other consideration for
licences and/or concessions paid for
access to an area during the year (with
the exception of signature bonuses which
are captured within bonus payments).
Infrastructure improvement payments
This represents payments made in
respect of infrastructure improvements
for projects that are not directly related
to oil and gas activities during the year.
This can be a contractually obligated
payment in a Production Sharing Contract
or a discretionary payment for building/
improving local infrastructure such as
roads, bridges, ports, schools and
hospitals.
Payroll Taxes
This represents payroll and employer
taxes including PAYE and national
insurance paid by Pharos as a direct
employer.
Export Duty
This represents payments made to
governments during the year in relation
to the exportation of petroleum products.
Withholding Tax
This represents the amount of tax
deducted at source from third party
service providers during the year and
paid to respective governments.
Other Taxes
This represents business rates paid during
the year on non-domestic properties.
The information is reported under the
following payment types:
Production entitlements in barrels
These are the host government’s total
share of production in the reporting period
derived from projects operated by Pharos.
This includes the government’s non-cash
royalties as a sovereign entity or through
its participation as an equity or interest
holder in projects within its home country.
The figures produced are on a paid lifting
basis valued at realised sale prices.
Income Taxes
This represents cash tax calculated on the
basis of profits including income or capital
gains. Income taxes are usually reflected
in corporate income tax returns. The cash
payment of income taxes occurs in the
year in which the tax has arisen or up to
one year later. Income taxes also include
any cash tax rebates received from the
government or revenue authority during
the year. Income taxes do not include
fines and penalties. Consumption taxes
including value added taxes, personal
income taxes, sales taxes and property
taxes are excluded.
Royalties
These represent royalties during the year
to governments for the right to extract
oil or gas. The terms of these royalties
are set within the individual Production
Sharing Contracts & Agreements and
can vary from project to project within a
country. The cash payment of royalties
occurs in the year in which the tax has
arisen.
Dividends
These are dividend payments, other than
dividends paid to a government as an
ordinary shareholder of an entity, in lieu
of production entitlements or royalties.
For the year ending 31 December
2020, there were no reportable dividend
payments to governments.
Bonuses
This represents any bonus paid to
governments during the year on
achievement of commercial milestones
such as signing of a petroleum agreement
or contract, achieving commercial
discovery, or after first production.
149
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report TRANSPARENCY DISCLOSURE (UNAUDITED)
Transparency disclosure 2020 (unaudited)
Production
entitlements
Production
entitlements
Income
Taxes
Royalties
Dividends
Bonus
Payments
Licence
fees
UK Regulations
Voluntary Disclosure
Infrastructure
improvement
payments
Total EU
Transparency
Directive
Payroll
Taxes
Export
Duty
With-
holding
Tax
Other
Taxes
Total
bbls (000)
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
Transparency disclosure 2020 (unaudited)
Production
entitlements
Production
entitlements
Income
Taxes
Royalties
Dividends
Bonus
Payments
Licence
fees
UK Regulations
Voluntary Disclosure
Infrastructure
improvement
payments
Total
Payroll
Taxes
Export
Duty
With-
holding
Tax
Other
Taxes
Total
bbls (000)
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
$ 000’s
Licence/
Corporate/ Area
Vietnam*
Block 16–1
Block 9.2
1,158
52,930
20,463
5,772
595
19,523
4,195
1,061
Total Vietnam
1,753
72,453
24,658
6,833
Egypt
El Fayum
1,113
41,253
North Beni Suef
-
-
Total Egypt
1,113
41,253
United Kingdom (UK)
Corporate
Total UK
United States of America (US)
Corporate
Total US
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Pharos Total
2,866
113,706
24,658
6,833
Country/
Government
Vietnam*
Ho Chi Minh City
Tax Dept
Customs Office
PetroVietnam
E&P Corp (PVEP)
Total Vietnam
Egypt
Egyptian General
Petroleum
Corporation
(EGPC)
-
-
1,753
1,753
-
-
72,453
24,657
6,834
-
-
-
-
72,453
24,657
6,834
1,113
41,253
Tax department
-
-
Total Egypt
1,113
41,253
United Kingdom (UK)
Inland Revenue
City of
Westminster
Total UK
United States of America (US)
Internal Revenue
Service
Total US
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
78
75
153
-
-
-
-
-
-
-
153
-
-
-
-
-
-
-
-
-
-
-
79,243
24,854
104,097
41,253
-
41,253
-
-
-
-
-
-
-
659
34
693
3,340
3,340
508
508
807
-
807
-
-
-
-
-
-
-
-
-
-
187
-
187
-
-
-
-
145,350
4,541
807
187
-
-
-
-
-
-
-
-
-
-
-
807
-
807
846
34
880
3,340
3,340
508
508
5,535
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
153
153
-
-
-
-
-
-
-
-
153
-
-
-
-
-
-
-
-
-
-
-
-
-
31,491
-
72,606
104,097
41,253
-
41,253
-
-
-
-
-
-
-
-
-
-
693
693
3,340
-
3,340
508
508
-
807
-
807
-
-
-
-
-
-
-
-
-
-
-
-
-
187
187
-
-
-
-
-
145,350
4,541
807
187
-
-
-
-
-
-
-
-
-
-
-
-
-
-
807
-
807
-
880
880
3,340
-
3,340
508
508
5,535
Pharos Total
2,866
113,706
24,657
6,834
* Joint Operating Company Project’s tax payments reported on Pharos Net Working Interest Basis.
150
Pharos Energy Annual Report and Accounts 2020 D
DD&A
Depreciation, depletion and amortisation
IPIECA
The global oil and gas industry association
for environmental and social issues
GLOSSARY OF TERMS
A
ABC
Anti-Bribery and Corruption
AGM
Annual General Meeting
B
bbl
Barrel
blpd
Barrels of liquids per day
BMS
Business Management System
Bn
Billion
boe
Barrels of oil equivalent
BHCPP
Bach Ho Central Processing Platform
boepd
Barrels of oil equivalent per day
bopd
Barrels of oil per day
bwpd
Barrels of water per day
C
CASH or cash
Cash, cash equivalent and liquid
investments
CAPEX or capex
Capital expenditure
E
E&P
Exploration & Production
EBITDAX
Earnings before interest, tax, DD&A,
impairment of PP&E and intangibles,
exploration expenditure and other/
exceptional items in the current year
EBT
Employee benefit trust
E&E
Exploration and Evaluation
EGP
Egyptian Pound
EGPC
Egyptian General Petroleum Corporation
EU
European Union
F
FFDP
Full Field Development Plan
FPSO
Floating, Production, Storage and
Offloading Vessel
FY
Full year
G&A
General and administration
CDP
Formerly the Carbon Disclosure Project
GHG
Greenhouse gas
CEO
Chief Executive Officer
CFO
Chief Financial Officer
CNV
Ca Ngu Vang field located in Block 9-2
CO2e
Carbon Dioxide Equivalent
Contingent Resources
Those quantities of petroleum to be
potentially recoverable from known
accumulations by application of
development projects but which are not
currently considered to be commercially
recoverable due to one or more
contingencies
CR
Corporate Responsibility
H
HLHVJOC
Hoang Long and Hoan Vu Joint Operating
Companies
HLJOC
Hoang Long Joint Operating Company
HSES
Health, Safety, Environmental and Security
HVJOC
Hoan Vu Joint Operating Company
I
IFRS
International Financial Reporting
Standards
IMF
International Monetary Fund
IOGP
The International Association of Oil & Gas
Producers
J
JOC
Joint Operating Company
JV
Joint venture
K
k
thousands
kbopd
Thousand barrels of oil per day
Km
Kilometre
km2
Square kilometre
LTI
Lost Time Injury
LTIF
Lost Time Injury Frequency
LTIP
Long Term Incentive Plan
M
m
million
M&A
Mergers and Acquisitions
MENA
Middle East and North Africa region
Merlon
Merlon El Fayum Company subsequently
name changed to Pharos El Fayum
mmbbl
Million barrels
mmboe
Million barrels of oil equivalent
N
NPV
Net Present Value
O
OOIP
Original Oil in Place
OPECO Vietnam
OPECO Vietnam Limited
Opex
Operational expenditure
151
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report
U
UK
United Kingdom
US
United States of America
WHP
Wellhead Platform
YTD
Year-to-date
$
United States Dollar
£
UK Pound Sterling
1C
Low estimate scenario of Contingent
Resources
1H
First half
1P
Equivalent to Proved Reserves; denotes
low estimate scenario of Reserves
2C
Best estimate scenario of Contingent
Resources
2C Contingent Resources
Best estimate scenario of Contingent
Resources
2P Reserves
Equivalent to the sum of Proved plus
Probable Reserves; denotes best estimate
scenario of Reserves. Also referred to as
2P Commercial Reserves
GLOSSARY OF TERMS - continued
P
Petrosilah
An Egyptian joint stock company held
50/50 between the Pharos Group and the
Egyptian General Petroleum Corporation
PSC
Production sharing contract or production
sharing agreement
Petrovietnam
Vietnam Oil and Gas Group
PTTEP
PTT Exploration and Production Public
Company Limited
R
Reserves
Reserves are those quantities of
petroleum anticipated to be commercially
recoverable by application of development
projects to known accumulations from
a given date forward under defined
conditions. Reserves must further satisfy
four criteria: they must be discovered,
recoverable, commercial and remaining
based on the development projects
applied
RBL
Reserve Based Lending facility
RISC
RISC Advisory Pty Ltd
S
Shares
Ordinary Shares
STOIIP
Stock Tank Oil Initially In Place
T
TOR
Terms of Reference
TCFD
Task-Force for Climate-related Financial
Disclosures
TGT
Te Giac Trang field located in Block 16-1
TSR
Total shareholder return
TIA
Tie-in Agreement
152
Pharos Energy Annual Report and Accounts 2020 Financial Adviser and
Corporate Brokers:
Jefferies
100 Bishopsgate London, EC2N 4JL
United Kingdom
Peel Hunt
120 London Wall, London EC2Y 5ET
United Kingdom
Registrar:
RD:IR Limited
9 Bridewell Place, London EC4V 6AW
United Kingdom
Solicitors:
Clifford Chance LLP
10 Upper Bank Street London, E14 5JJ
United Kingdom
COMPANY INFORMATION
Registered office:
Pharos Energy
27/28 Eastcastle Street, London W1W
8DH, United Kingdom Registered in
England T +44 (0)20 7747 2000 F +44
(0)20 7747 2001 Company No. 3300821
www.pharos.energy
Company Secretary
Tony Hunter
Financial Calendar
Group results for the year to 31
December are announced in April. The
Annual General Meeting is held during
the second quarter. Interim Results to 30
June are announced in August.
Advisers Auditor:
Deloitte LLP
London, United Kingdom
Bankers:
J.P. Morgan
125 London Wall London, EC2Y 5AY
United Kingdom
HSBC UK Bank plc
60 Queen Victoria Street London EC4N
4TR United Kingdom
BNP Paribas – Singapore Branch
10 Collyer Quay #33-01 Ocean Financial
Center 049315 Singapore
153
Pharos Energy Annual Report and Accounts 2020Additional InformationGovernance ReportFinancial StatementsStrategic Report Pharos Energy (Head Office)
Eastcastle House
27/28 Eastcastle Street
London
W1W 8DH
United Kingdom
Registered in England
Company No. 3300821
T +44 (0)20 7747 2000
F +44 (0)20 7747 2001
www.pharos.energy